<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 3, 1997
REGISTRATION NO. 333-28787
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 4 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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RALPHS GROCERY COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5411 95-4356030
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
SUBSIDIARY REGISTRANTS
ALPHA BETA COMPANY CALIFORNIA 95-1456805
BAY AREA WAREHOUSE STORES, INC. CALIFORNIA 93-1087199
BELL MARKETS, INC. CALIFORNIA 94-1569281
CALA CO. DELAWARE 95-4200005
CALA FOODS, INC. CALIFORNIA 94-1342664
CRAWFORD STORES, INC. CALIFORNIA 95-0657410
FALLEY'S, INC. KANSAS 48-0605992
FOOD 4 LESS OF CALIFORNIA, INC. CALIFORNIA 33-0293011
FOOD 4 LESS GM, INC. CALIFORNIA 95-4390407
FOOD 4 LESS MERCHANDISING, INC. CALIFORNIA 33-0483193
FOOD 4 LESS OF SOUTHERN CALIFORNIA, INC. DELAWARE 33-0483203
(EXACT NAME OF REGISTRANT AS (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
SPECIFIED IN ITS CHARTER) OF IDENTIFICATION
INCORPORATION OR NUMBER)
ORGANIZATION)
</TABLE>
1100 WEST ARTESIA BOULEVARD
COMPTON, CALIFORNIA 90220
(310) 884-9000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
TERRENCE J. WALLOCK
SECRETARY
RALPHS GROCERY COMPANY
1100 WEST ARTESIA BOULEVARD
COMPTON, CALIFORNIA 90220
(310) 884-9000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPY TO:
THOMAS C. SADLER, ESQ.
LATHAM & WATKINS
633 WEST FIFTH STREET, SUITE 4000
LOS ANGELES, CALIFORNIA 90071
(213) 485-1234
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
PROSPECTUS
OFFER TO EXCHANGE
11% SENIOR SUBORDINATED NOTES DUE 2005
FOR ALL OUTSTANDING 11% SENIOR SUBORDINATED NOTES DUE 2005
OF
RALPHS GROCERY COMPANY
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME
ON NOVEMBER 11, 1997 UNLESS EXTENDED.
Ralphs Grocery Company (the "Company") is hereby offering (the "Exchange
Offer"), upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange $1,000 principal amount of its 11% Senior
Subordinated Notes due 2005 (the "Exchange Notes"), which exchange has been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a registration statement of which this Prospectus is a part (the
"Registration Statement"), for each $1,000 principal amount of its outstanding
11% Senior Subordinated Notes due 2005 (the "Private Notes"), of which
$155,000,000 in aggregate principal amount was issued on March 26, 1997 and is
outstanding as of the date hereof. The form and terms of the Exchange Notes are
the same as the form and terms of the Private Notes except that (i) the exchange
will have been registered under the Securities Act, and, therefore, the Exchange
Notes will not bear legends restricting the transfer thereof and (ii) holders of
the Exchange Notes will not be entitled to certain rights of holders of the
Private Notes under the Registration Rights Agreement (as defined herein), which
rights will terminate upon the consummation of the Exchange Offer. The Exchange
Notes will evidence the same indebtedness as the Private Notes (which they
replace) and will be entitled to the benefits of an indenture dated as of March
26, 1997 governing the Private Notes and the Exchange Notes (the "Indenture").
The Private Notes and the Exchange Notes are referred to herein collectively as
the "Notes" or the "1997 11% Senior Subordinated Notes." See "The Exchange
Offer" and "Description of the Notes."
The Exchange Notes will bear interest at the same rate and on the same terms
as the Private Notes. Consequently, the Exchange Notes will bear interest at the
rate of 11% per annum and the interest thereon will be payable semi-annually on
June 15 and December 15 of each year, commencing December 15, 1997. The Exchange
Notes will bear interest from the date of the last interest payment on the
Private Notes. Holders whose Private Notes are accepted for exchange will be
deemed to have waived the right to receive any interest accrued on the Private
Notes.
The Notes will be redeemable, in whole or in part, at the option of the
Company, at any time on and after June 15, 2000 at the respective redemption
prices set forth herein, plus accrued and unpaid interest to the redemption
date. In addition, on or prior to June 15, 1998, the Company may, at its option,
use the net cash proceeds of one or more Public Equity Offerings (as defined) to
redeem up to an aggregate of 35% of the Notes originally issued at the
redemption prices set forth herein plus accrued and unpaid interest to the
redemption date. Upon a Change of Control (as defined) each holder of Notes has
the right to require the Company to repurchase such holder's Notes at a price
equal to 101% of their principal amount plus accrued and unpaid interest to the
date of repurchase. A substantial portion of the Company's other indebtedness,
including indebtedness ranking senior and pari passu in right of payment to the
Notes, contains similar provisions requiring repayment or repurchase upon a
Change of Control. There can be no assurance that in the event of a Change of
Control the Company would have sufficient funds to satisfy its obligations with
respect to such other indebtedness or to purchase all Notes tendered. Other than
certain limitations on the incurrence of additional indebtedness, the Indenture
governing the Notes does not contain provisions which would prevent the Company
from engaging in a highly leveraged transaction that did not result in a Change
of Control. See "Description of the Notes -- Change of Control." In addition,
subject to certain conditions, the Company will be obligated to make an offer to
repurchase the Notes at 100% of their principal amount, plus accrued and unpaid
interest to the date of repurchase, with the net cash proceeds of certain sales
or other dispositions of assets. The terms of the Notes are substantially
identical to those of the Company's 11% Senior Subordinated Notes due 2005 (the
"1995 11% Senior Subordinated Notes"), which were issued in a registered
offering on June 14, 1995 and of which $524 million aggregate principal amount
is outstanding.
The Notes will be senior subordinated unsecured obligations of the Company
and will be subordinated in right of payment to all Senior Indebtedness (as
defined) of the Company, including the Company's obligations under the
Refinanced Credit Facility, the 1996 10.45% Senior Notes, the 1995 10.45% Senior
Notes, the 1992 10.45% Senior Notes (each as defined) and capital lease
obligations. The Notes will rank pari passu in right of payment with other
senior subordinated indebtedness of the Company, including the Company's
obligations under the 1995 11% Senior Subordinated Notes. At July 20, 1997, the
Company had outstanding $1,473.6 million aggregate principal amount of Senior
Indebtedness (not including obligations with respect to letters of credit issued
under the Refinanced Credit Facility, of which $77.3 million were outstanding as
of July 20, 1997), $526.2 million of indebtedness ranking pari passu with the
Notes and no indebtedness ranking junior in right of payment to the Notes. The
Notes will be fully and unconditionally guaranteed (the "Guarantees") on a
senior subordinated unsecured basis by each of the Company's wholly-owned
subsidiaries (the "Subsidiary Guarantors"). See "Description of the
Notes -- Guarantees."
The Company will accept for exchange any and all validly tendered Private
Notes not withdrawn prior to 5:00 p.m., New York City time, on November 11,
1997, unless the Exchange Offer is extended by the Company in its sole
discretion (the "Expiration Date"). Tenders of Private Notes may be withdrawn at
any time prior to the Expiration Date. Private Notes may be tendered only in
integral multiples of $1,000. The Exchange Offer is subject to certain customary
conditions. See "The Exchange Offer -- Conditions."
SEE "RISK FACTORS" ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS THAT
INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE EXCHANGE NOTES SHOULD BE CONSIDERED BY POTENTIAL INVESTORS IN
THE NOTES.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is October 6, 1997
<PAGE> 3
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Private Notes may be offered for resale, resold
and otherwise transferred by a holder thereof (other than (i) a broker-dealer
who purchases such Exchange Notes directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii) a
person that is an affiliate of the Company within the meaning of Rule 405 under
the Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act; provided that the holder is acquiring
the Exchange Notes in the ordinary course of its business and is not
participating, and had no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes. Holders of Private Notes
wishing to accept the Exchange Offer must represent to the Company, as required
by the Registration Rights Agreement, that such conditions have been met. The
Company has not sought and does not intend to seek its own no-action letter in
connection with the Exchange Offer and there can be no assurance that the
Commission would make a similar determination with respect to the Exchange
Offer. The Company believes that none of the registered holders of the Private
Notes is an affiliate (as such term is defined in Rule 405 under the Securities
Act) of the Company.
Any broker-dealer that resells Exchange Notes that were received by it for
its own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act. Each broker-dealer that
receives Exchange Notes for its own account in exchange for Private Notes, where
such Private Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Notes received in exchange for Private
Notes where such Private Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company has
indicated its intention to make this Prospectus (as it may be amended or
supplemented) available to any broker-dealer for use in connection with any such
resale for a period of 90 days after the Expiration Date. See "Plan of
Distribution."
Prior to the Exchange Offer, there has been no public market for the Notes.
The Company does not intend to list the Notes on any securities exchange or to
seek approval for quotation through any automated quotation system. There can be
no assurance that an active market for the Notes will develop. To the extent
that a market for the Notes does develop, the market value of the Notes will
depend on market conditions (such as yields on alternative investments), general
economic conditions, the Company's financial condition and certain other
factors. Such conditions might cause the Notes, to the extent that they are
traded, to trade at a significant discount from face value. See "Risk
Factors -- Absence of Public Market."
The Company will not receive any proceeds from, and has agreed to bear the
expenses of, the Exchange Offer. No underwriter is being used in connection with
this Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF PRIVATE NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
The Exchange Notes will be available initially only in book-entry form. The
Company expects that the Exchange Notes issued pursuant to the Exchange Offer
will be issued in the form of one or more fully registered global notes that
will be deposited with, or on behalf of, the Depository Trust Company ("DTC" or
the "Depositary") and registered in its name or in the name of Cede & Co., as
its nominee. Beneficial interests in the global note representing the Exchange
Notes will be shown on, and transfers thereof will be effected only through,
records maintained by the Depositary and its participants. So long as DTC or its
nominee is the registered owner or holder of the Global Note, DTC or such
nominee, as the case may be, will be considered the sole owner or holder of the
Notes represented by such Global Note for all purposes under the Indenture.
Payments of the principal of, premium (if any), interest and Liquidated Damages
(if any) on, the Global Note will be made to DTC or its nominee, as the case may
be, as the registered owners thereof. None of the Company, the Trustee or any
Paying Agent will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Global Note or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interest. After the
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initial issuance of such global note, Exchange Notes in certificated form will
be issued in exchange for the global note only in accordance with the terms and
conditions set forth in the Indenture. See "Book Entry; Delivery and Form."
3
<PAGE> 5
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the Financial Statements and notes thereto, appearing elsewhere in this
Prospectus. On June 14, 1995 Food 4 Less Supermarkets, Inc. ("Food 4 Less"),
Ralphs Supermarkets, Inc. ("RSI"), and RSI's wholly-owned subsidiary, Ralphs
Grocery Company ("RGC") combined through mergers (the "Merger") in which RSI
remained as the surviving entity and changed its name to Ralphs Grocery Company.
Unless the context otherwise requires, as used in this Prospectus (i) all
references to the "Company" refer to Ralphs Grocery Company subsequent to the
Merger on June 14, 1995 and refer to Food 4 Less prior to such date, and (ii)
all references to "Ralphs" or "RSI" refer to Ralphs Supermarkets, Inc. and all
references to "RGC" refer to Ralphs Grocery Company, a wholly owned subsidiary
of RSI, in each case prior to the consummation of the Merger. As used herein,
references to "fiscal 1996" refer to the 53 week period ended February 2, 1997,
which included a 17 week fourth quarter, and references to "fiscal 1995" refer
to the 52 week period ended January 28, 1996, which included a 16 week fourth
quarter and for the period prior to the date of the Merger reflects only the
operations of Food 4 Less. All references to market share and demographic data
in this Prospectus are based on the most recent industry publications and,
unless otherwise indicated, all references to numbers of stores are as of
February 2, 1997. As used herein, "Southern California" means Los Angeles,
Orange, Ventura, San Bernardino, Riverside, San Diego, Kern and Santa Barbara
counties.
THE COMPANY
Ralphs Grocery Company (the "Company") is the largest supermarket operator
in Southern California with 342 stores and an estimated market share of 26
percent in Los Angeles and Orange Counties. The Company operates the second
largest conventional supermarket chain in Southern California under the "Ralphs"
name (263 stores) and the largest warehouse supermarket chain in the region
under the "Food 4 Less" name (79 stores). The Company also operates in Northern
California (27 stores) and the Midwest (36 stores).
In Southern California, the Company's two complementary formats allow it to
serve a broad customer base and tailor its stores to the market characteristics
of individual store locations. The Company's conventional Ralphs stores
emphasize a broad selection of merchandise, high quality fresh produce, meat and
seafood and service departments, including bakery and delicatessen departments
in most stores. The Company's conventional stores also benefit from Ralphs'
strong private label program and its strengths in merchandising, store
operations and systems. By passing on format-related efficiencies, the Food 4
Less price impact warehouse format stores offer consumers the lowest overall
prices while providing product selections comparable to conventional
supermarkets.
At the beginning of fiscal 1996, the Company streamlined its management
structure and implemented several strategic initiatives which have contributed
to improving operating trends at the Company. These initiatives have resulted in
several notable achievements during fiscal 1996, including: (i) positive
comparable store sales for three consecutive quarters, including a 3.5% increase
in Southern California comparable store sales in the fourth quarter of fiscal
1996, (ii) an improvement of the Company's EBITDA margin to 6.7% in the fourth
quarter of fiscal 1996 from 5.5% in the comparable prior-year period, (iii) the
opening of 26 new stores and the remodeling of 20 stores, (iv) the acquisition
and integration of a one million square foot, state-of-the-art distribution
center, and (v) the launching of a major new marketing program designed to
increase sales and market share under the "First in Southern California" theme.
In fiscal 1996 Ralphs reported total sales of approximately $5.5 billion,
operating income of $154.6 million, net loss of $93.8 million and EBITDA (as
defined) of $354.6 million. For the 24 week period ending July 20, 1997, the
Company had sales of approximately $2.5 billion, operating income of $92.7
million, net loss of $65.4 million and EBITDA (as defined) of $172.2 million (or
6.8 percent of sales).
The Company is controlled by The Yucaipa Companies LLC ("Yucaipa"), a
private investment group which specializes in the supermarket industry. See
"Certain Relationships and Related Transactions." The principals of Yucaipa have
significant expertise in acquiring and managing companies in the supermarket
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industry, having completed 13 transactions. Yucaipa is also affiliated with
Dominick's Finer Foods, Inc. (NYSE: DFF), a supermarket chain in the Chicago
area, and has a management agreement with Smith's Food & Drug Centers, Inc.
(NYSE: SFD), a supermarket chain in the Intermountain and Southwestern regions.
These companies, together with the Company, operate a total of 655 stores and
had aggregate combined sales of approximately $11 billion in their most recent
fiscal years.
REFINANCING OF CREDIT FACILITY AND OLD SENIOR SUBORDINATED NOTES
On April 17, 1997, the Company amended and restated (the "Refinanced Credit
Facility") its existing credit facilities (the "1995 Credit Facility"). The
Refinanced Credit Facility has lower interest rates and a longer average life
than the 1995 Credit Facility. The Refinanced Credit Facility consists of a
$325.0 million Revolving Credit Facility, a $200.0 million Term Loan A Facility
and a $350.0 million Term Loan B Facility. On April 17, 1997 immediately prior
to the effectiveness of the amendment and restatement, the outstanding term
loans under the 1995 Credit Facility were $540.4 million. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
On March 26, 1997 the Company issued $155 million aggregate principal
amount of Private Notes at a premium price of 105.5% resulting in gross proceeds
of $163.5 million (the "Private Placement"). The Private Notes were sold by the
Company to BT Securities Corporation ("BT Securities"), CIBC Wood Gundy
Securities Corp. ("CIBC Wood Gundy"), Credit Suisse First Boston ("CS First
Boston") and Donaldson, Lufkin, Jenrette Securities Corporation ("DLJ") as
Initial Purchasers in a transaction exempt from registration requirements of the
Securities Act (the "Private Placement"). The net proceeds of the Private Notes
were used to (i) redeem, on April 28, 1997, $140.2 million aggregate principal
amount of the Company's outstanding 13.75% Senior Subordinated Notes due 2005
(the "1995 13.75% Senior Subordinated Notes") at a price of 106.111%, plus
accrued interest to the date of redemption and $4.8 million aggregate principal
amount of the Company's outstanding 13.75% Senior Subordinated Notes due 2001
(the "1991 13.75% Senior Subordinated Notes," and together with the 1995 13.75%
Senior Subordinated Notes, the "13.75% Senior Subordinated Notes") at a price of
106.111%, plus accrued interest to the date of redemption and (ii) pay fees and
expenses related to the Private Placement.
RISK FACTORS
Before deciding whether to participate in the Exchange Offer, prospective
investors should review and take into account the considerations set forth under
"Risk Factors"; in particular those factors set forth under "-- Risk of High
Leverage; Ability to Service Debt"; "-- Competition", "-- Risk that Additional
Cost Savings May Not be Achieved", "-- Risk of Geographic Concentration", and
"-- Net Losses" and the information contained under "Management's Discussion and
Analysis of Results of Operations and Financial Condition." In addition the
information set forth under "Risk Factors -- Limited Liquidity of the Notes;
Absence of Public Market for the Notes," and "-- Failure to Exchange Private
Notes" should be carefully reviewed.
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THE EXCHANGE OFFER
THE EXCHANGE OFFER......The Company is hereby offering to exchange $1,000
principal amount of Exchange Notes for each $1,000
principal amount of Private Notes that are properly
tendered and accepted. The Company will issue Exchange
Notes on or promptly after the Expiration Date. As of
the date hereof, there is $155,000,000 aggregate
principal amount of Private Notes outstanding. See "The
Exchange Offer."
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that the Exchange
Notes issued pursuant to the Exchange Offer in exchange
for Private Notes may be offered for resale, resold and
otherwise transferred by a holder thereof (other than
(i) a broker-dealer who purchases such Exchange Notes
directly from the Company to resell pursuant to Rule
144A or any other available exemption under the
Securities Act or (ii) a person that is an affiliate of
the Company within the meaning of Rule 405 under the
Securities Act), without compliance with the
registration and prospectus delivery provisions of the
Securities Act; provided that the holder is acquiring
Exchange Notes in the ordinary course of its business
and is not participating, and had no arrangement or
understanding with any person to participate, in the
distribution of the Exchange Notes. Each broker-dealer
that receives Exchange Notes for its own account in
exchange for Private Notes, where such Private Notes
were acquired by such broker-dealer as a result of
market-making activities or other trading activities,
must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. See
"The Exchange Offer -- Resale of the Exchange Notes."
REGISTRATION RIGHTS
AGREEMENT.............The Private Notes were sold by the Company on March 26,
1997 to the Initial Purchasers pursuant to a Purchase
Agreement, dated March 21, 1997, between the Company,
the Subsidiary Guarantors and the Initial Purchasers
(the "Purchase Agreement"). Pursuant to the Purchase
Agreement, the Company, the Subsidiary Guarantors and
the Initial Purchasers entered into a Registration
Rights Agreement, dated as of March 26, 1997 (the
"Registration Rights Agreement"), which grants the
holders of the Private Notes certain exchange and
registration rights. The Exchange Offer is intended to
satisfy such rights, which will terminate upon the
consummation of the Exchange Offer. The holders of the
Exchange Notes will not be entitled to any exchange or
registration rights with respect to the Exchange Notes.
See "The Exchange Offer -- Termination of Certain
Rights."
EXPIRATION DATE.........The Exchange Offer will expire at 5:00 p.m., New York
City time, on November 11, 1997 unless the Exchange
Offer is extended by the Company in its sole discretion,
in which case the term "Expiration Date" shall mean the
latest date and time to which the Exchange Offer is
extended. See "The Exchange Offer -- Expiration Date;
Extensions; Amendments."
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<PAGE> 8
ACCRUED INTEREST ON THE
EXCHANGE NOTES AND THE
PRIVATE NOTES.........The Exchange Notes will bear interest from the date of
the last interest payment on the Private Notes or if no
interest has been paid, from the date of original
issuance of the Private Notes. Holders whose Private
Notes are accepted for exchange will be deemed to have
waived the right to receive any interest accrued on the
Private Notes. See "The Exchange Offer -- Interest on
the Exchange Notes."
CONDITIONS TO THE
EXCHANGE OFFER..........The Exchange Offer is subject to certain customary
conditions that may be waived by the Company. The
Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Private Notes being
tendered for exchange. See "The Exchange
Offer -- Conditions."
PROCEDURES FOR TENDERING
PRIVATE NOTES.........Each holder of Private Notes wishing to accept the
Exchange Offer must complete, sign and date the Letter
of Transmittal, or a facsimile thereof, in accordance
with the instructions contained herein and therein, and
mail or otherwise deliver such Letter of Transmittal, or
such facsimile, together with such Private Notes and any
other required documentation to United States Trust
Company of New York, as exchange agent (the "Exchange
Agent"), at the address set forth herein. By executing
the Letter of Transmittal, the holder will represent to
and agree with the Company that, among other things, (i)
the Exchange Notes to be acquired by such holder of
Private Notes in connection with the Exchange Offer are
being acquired by such holder in the ordinary course of
its business, (ii) such holder has no arrangement or
understanding with any person to participate in a
distribution of the Exchange Notes, (iii) that if such
holder is a broker-dealer registered under the Exchange
Act or is participating in the Exchange Offer for the
purposes of distributing the Exchange Notes, such holder
will comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with a secondary resale transaction of the
Exchange Notes acquired by such person and cannot rely
on the position of the staff of the Commission set forth
in no-action letters (see "The Exchange Offer -- Resale
of the Exchange Notes"), (iv) such holder understands
that a secondary resale transaction described in clause
(iii) above and any resales of Exchange Notes obtained
by such holder in exchange for Private Notes acquired by
such holder directly from the Company should be covered
by an effective registration statement containing the
selling securityholder information required by Item 507
or Item 508, as applicable, of Regulation S-K of the
Commission and (v) such holder is not an "affiliate," as
defined in Rule 405 under the Securities Act, of the
Company. If the holder is a broker-dealer that will
receive Exchange Notes for its own account in exchange
for Private Notes that were acquired as a result of
market-making activities or other trading activities,
such holder will be required to acknowledge in the
Letter of Transmittal that such holder will deliver a
prospectus in connection with any resale of such
Exchange Notes; however, by so acknowledging and by
delivering a prospectus, such holder will not be deemed
to admit that it is an "underwriter" within the meaning
of the Securities Act. See "The Exchange
Offer -- Procedures for Tendering."
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<PAGE> 9
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS.....Any beneficial owner whose Private Notes are registered
in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender such
Private Notes in the Exchange Offer should contact such
registered holder promptly and instruct such registered
holder to tender on such beneficial owner's behalf. If
such beneficial owner wishes to tender on such owner's
own behalf, such owner must, prior to completing and
executing the Letter of Transmittal and delivering such
owner's Private Notes, either make appropriate
arrangements to register ownership of the Private Notes
in such owner's name or obtain a properly completed bond
power from the registered holder. The transfer of
registered ownership may take considerable time and may
not be able to be completed prior to the Expiration
Date. See "The Exchange Offer -- Procedures for
Tendering."
GUARANTEED DELIVERY
PROCEDURES............Holders of Private Notes who wish to tender their
Private Notes and whose Private Notes are not
immediately available or who cannot deliver their
Private Notes, the Letter of Transmittal or any other
documentation required by the Letter of Transmittal to
the Exchange Agent prior to the Expiration Date must
tender their Private Notes according to the guaranteed
delivery procedures set forth under "The Exchange
Offer -- Guaranteed Delivery Procedures."
ACCEPTANCE OF THE
PRIVATE NOTES AND
DELIVERY OF THE
EXCHANGE NOTES........Subject to the satisfaction or waiver of the conditions
to the Exchange Offer, the Company will accept for
exchange any and all Private Notes that are properly
tendered in the Exchange Offer prior to the Expiration
Date. The Exchange Notes issued pursuant to the Exchange
Offer will be delivered on the earliest practicable date
following the Expiration Date. See "The Exchange
Offer -- Terms of the Exchange Offer."
WITHDRAWAL RIGHTS.......Tenders of Private Notes may be withdrawn at any time
prior to the Expiration Date. See "The Exchange
Offer -- Withdrawal of Tenders."
CERTAIN FEDERAL INCOME
TAX CONSIDERATIONS....The exchange of Private Notes for Exchange Notes will be
treated as a "non-event" for federal income tax purposes
because the Exchange Notes will not be considered to
differ materially from the Private Notes. As a result,
no material federal income tax consequences will result
to holders exchanging Private Notes for Exchange Notes.
See "Certain Federal Income Tax Considerations" for a
discussion, which, in the opinion of Latham & Watkins,
counsel to the Company, describes the material federal
income tax consequences expected to result to holders
whose Private Notes are exchanged for Exchange Notes in
the Exchange Offer.
EXCHANGE AGENT..........United States Trust Company of New York is serving as
the Exchange Agent in connection with the Exchange
Offer.
8
<PAGE> 10
THE EXCHANGE NOTES
The Exchange Offer applies to $155,000,000 aggregate principal amount of
the Private Notes. The form and terms of the Exchange Notes are the same as the
form and terms of the Private Notes except that (i) the exchange will have been
registered under the Securities Act and, therefore, the Exchange Notes will not
bear legends restricting the transfer thereof and (ii) holders of the Exchange
Notes will not be entitled to certain rights of holders of the Private Notes
under the Registration Rights Agreement, which rights will terminate upon
consummation of the Exchange Offer. The Exchange Notes will evidence the same
indebtedness as the Private Notes (which they replace) and will be issued under,
and be entitled to the benefits of, an indenture governing the Private Notes and
the Exchange Notes dated March 26, 1997 (the "Indenture") among the Company, the
Subsidiary Guarantors and United States Trust Company of New York, as Trustee
(the "Trustee"). The Exchange Notes and the Private Notes are collectively
referred to herein as the "Notes." The terms of the Private Notes and the
Exchange Notes are substantially identical to those of the Company's 11% Senior
Subordinated Notes due 2005 (the "1995 Senior Subordinated Notes"), which were
issued in a registered offering on June 14, 1995 and of which $524 million
aggregate principal amount is outstanding. For further information and for
definitions of certain capitalized terms used below, see "Description of the
Notes."
ISSUER..................Ralphs Grocery Company.
NOTES OFFERED...........$155,000,000 aggregate principal amount of 11% Senior
Subordinated Notes due 2005.
MATURITY DATE...........June 15, 2005.
INTEREST RATE...........The Exchange Notes will bear interest at the rate of 11%
per annum.
INTEREST PAYMENT
DATES...................June 15 and December 15, commencing on June 15, 1997.
OPTIONAL REDEMPTION.....The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after
June 15, 2000, at the following redemption prices if
redeemed during the twelve-month period commencing on
June 15 of the year set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
-------------------------------------------------------- ----------
<S> <C>
2000.................................................... 105.500%
2001.................................................... 103.667%
2002.................................................... 101.833%
2003 and thereafter..................................... 100.000%
</TABLE>
in each case plus accrued and unpaid interest to the
date of redemption.
In addition, on or prior to June 15, 1998, the Company
may, at its option, use the net cash proceeds from one
or more Public Equity Offerings to redeem up to an
aggregate of 35% of the principal amount of the Notes
originally issued, at a redemption price equal to
109.429% of the principal amount thereof if redeemed
during the 12 months commencing on June 15, 1996 and
107.857% of the principal amount thereof if redeemed
during the 12 months commencing on June 15, 1997, in
each case plus accrued and unpaid interest to the
redemption date.
RANKING.................The Notes will be senior subordinated unsecured
obligations of the Company and will be subordinated in
right of payment to all Senior Indebtedness (as defined)
of the Company, including the Company's obligations
under the Refinanced Credit Facility, the 1996 Senior
Notes, the 1995 Senior Notes, and the 1992 Senior Notes.
At July 20, 1997, the aggregate amount of Senior
Indebtedness of the Company was $1,473.6 million (not
including obligations with respect to letters of credit
issued under the Refinanced Credit Facility, of which
$77.3 million were outstanding as of July 20, 1997), the
aggregate
9
<PAGE> 11
amount of Guarantor Senior Indebtedness of the
Subsidiary Guarantors (excluding guarantees by
Subsidiary Guarantors of certain Senior Indebtedness of
the Company) was $10.0 million, the Company had $111.1
million available to be borrowed under the Revolving
Facility, net of outstanding standby letters of credit
of $77.3 million, and the aggregate amount of
indebtedness ranking pari passu with the Notes was
$526.2 million (not including $145.0 million of 13.75%
Senior Subordinated Notes, which were redeemed on April
28, 1997 with the proceeds of the Private Placement of
the Private Notes). At July 20, 1997, neither the
Company nor any of the Subsidiary Guarantors had any
outstanding indebtedness ranking junior in right of
payment to the Notes or the Guarantees (as defined),
respectively.
GUARANTEES..............Pursuant to the Indenture, the Notes will be fully and
unconditionally guaranteed, jointly and severally, (the
"Guarantees") on a senior subordinated unsecured basis
by each of the Company's wholly-owned subsidiaries (the
"Subsidiary Guarantors"). The Guarantees will be general
unsecured obligations of the Subsidiary Guarantors and
will be subordinated in right of payment to all existing
and future Guarantor Senior Indebtedness of the
Subsidiary Guarantors.
CHANGE OF CONTROL.......Upon a Change of Control (as defined), each holder of
the Notes has the right to require the Company to
repurchase such holder's Notes at a price equal to 101%
of the principal amount plus accrued and unpaid interest
to the date of repurchase. A substantial portion of the
Company's other indebtedness, including indebtedness
ranking senior and pari passu in right of payment to the
Notes, contains similar provisions requiring repayment
or repurchase upon a Change of Control. There can be no
assurance that in the event of a Change of Control, the
Company would have sufficient funds to satisfy its
obligations with respect to such other indebtedness or
to purchase all Notes tendered. See "Description of
Notes -- Change of Control." Other than certain
limitations on the incurrence of additional
indebtedness, the Indenture governing the Notes does not
contain provisions which would prevent the Company from
engaging in a highly leveraged transaction that did not
result in a Change of Control.
CERTAIN COVENANTS.......The Indenture contains certain covenants, including, but
not limited to, covenants with respect to the following:
(i) limitation on restricted payments; (ii) limitation
on incurrences of additional indebtedness; (iii)
limitation on liens; (iv) limitation on asset sales; (v)
limitation on dividend and other payment restrictions
affecting subsidiaries; (vi) guarantees of certain
indebtedness; (vii) limitation on transactions with
affiliates; (viii) limitation on mergers and certain
other transactions; and (ix) limitations on preferred
stock of subsidiaries.
10
<PAGE> 12
SUMMARY HISTORICAL FINANCIAL DATA OF THE COMPANY
The following table sets forth summary historical financial data of the
Company and its predecessor Food 4 Less as of and for the 52 weeks ended June
27, 1992, June 26, 1993 and June 25, 1994, the 31 weeks ended January 29, 1995,
the 52 weeks ended January 28, 1996 and the 53 weeks ended February 2, 1997
which have been derived from the financial statements of the Company and Food 4
Less audited by Arthur Andersen LLP, independent public accountants. Certain
prior period amounts in the financial data presented below have been
reclassified to conform to the fiscal 1997 presentation. The summary historical
financial data of the Company presented below as of and for the 24 weeks ended
July 14, 1996 and July 20, 1997 have been derived from unaudited financial
statements of the Company which, in the opinion of management, reflect all
material adjustments, consisting of only normal recurring adjustments, necessary
for a fair presentation of such data. The following information should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical consolidated financial statements
of the Company and related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS 31 WEEKS 52 WEEKS 53 WEEKS 24 WEEKS 24 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 27, JUNE 26, JUNE 25, JANUARY 29, JANUARY 28, FEBRUARY 2, JULY 14, JULY 20,
1992 1993 1994(A) 1995(B) 1996(C) 1997 1996 1997
-------- -------- -------- ----------- ----------- ----------- -------- --------
(IN MILLIONS, EXCEPT STORE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Sales.................. $2,913.5 $2,742.0 $2,585.2 $ 1,556.5 $ 4,335.1 $ 5,516.3 $2,474.6 $2,547.9
Gross profit(d)........ 483.8 468.9 458.9 259.7 808.0 1,136.0 490.5 524.1
Selling, general and
administrative
expenses............. 432.7 419.6 378.4 219.7 744.4 933.4 415.9 415.1
Interest expense(e).... 70.2 69.7 68.3 42.2 178.8 248.4 111.9 110.2
Net (loss)(f).......... (33.8) (27.4) (2.7) (11.5) (283.2) (93.8) (53.5) (65.4)
Ratio of earnings to
fixed charges(g)..... -- (g) -- (g) 1.0 x --(g) --(g) --(g) -- (g) -- (g)
BALANCE SHEET DATA (end
of period)(h):
Working capital surplus
(deficit)............ $ (66.3) $ (19.2) $ (54.9) $ (74.8) $ (178.5) $ (182.6) $(203.7) $(143.7)
Total assets........... 998.5 957.8 980.1 1,000.7 3,188.1 3,132.0 3,141.1 3,067.9
Total debt(i).......... 525.3 538.1 517.9 533.8 2,082.3 2,093.2 2,080.6 2,163.3
Stockholder's equity
(deficit)............ 50.8 72.9 69.0 57.8 59.1 (35.6) 5.6 (100.8)
CASH FLOW DATA:
Net cash provided
(used) by operating
activities........... $ 106.2 $ (16.5) $ 87.8 $ 17.6 $ (16.8) $ 133.7 $ 70.6 $ 4.7
Net cash used by
investing
activities........... (62.9) (37.8) (55.8) (42.6) (405.4) (111.1) (48.7) (62.9)
Net cash provided
(used) by financing
activities........... (40.2) 54.9 (24.2) 11.6 470.7 (22.9) (28.4) 49.5
OTHER DATA:
Depreciation and
amortization(j)...... $ 54.9 $ 57.6 $ 57.1 $ 36.6 $ 125.3 169.7 $ 74.9 $ 76.8
Capital expenditures... 60.3 53.5 57.5 49.0 122.4 123.6 55.8 68.2
Stores open at end of
period............... 249 248 258 267 408 405 402 405
EBITDA (as
defined)(k).......... $ 101.7 $ 103.8 $ 130.6 $ 76.9 $ 245.1 $ 354.6 $ 150.3 $ 172.2
EBITDA margin(l)....... 3.5 % 3.8 % 5.1 % 4.9% 5.7% 6.4% 6.1 % 6.8 %
</TABLE>
- ---------------
(a) Operating data for the 52 weeks ended June 25, 1994 include the results of
10 Food Barn stores, which were not material, from March 29, 1994, the date
of the Food Barn acquisition.
(b) Food 4 Less Supermarkets changed its fiscal year end from the 52 or 53-week
period which ends on the last Saturday in June to the 52 or 53-week period
which ends on the Sunday closest to January 31, resulting in a 31-week
transition period.
(c) Operating data for the 52 weeks ended January 28, 1996 reflects the
acquisition of Ralphs on June 14, 1995.
(d) Cost of sales has been principally determined using the last-in, first-out
("LIFO") method of valuing inventory. If cost of sales had been determined
using the first-in, first-out ("FIFO") method, gross profit would have been
greater by $3.6 million, $4.4 million, $0.7 million, $2.7 million, $2.2
million, $5.6 million, $2.5 million (unaudited) and $1.7 million (unaudited)
for the 52 weeks ended
11
<PAGE> 13
June 27, 1992, June 26, 1993, and June 25, 1994, the 31 weeks ended January
29, 1995, the 52 weeks ended January 28, 1996, the 53 weeks ended February
2, 1997 and the 24 weeks ended July 14, 1996 and July 20, 1997,
respectively.
(e) Interest expense includes non-cash charges related to the amortization of
deferred financing costs and self-insurance discount of $11.3 million for
the 52 weeks ended June 27, 1992, $10.8 million for the 52 weeks ended June
26, 1993, $11.3 million for the 52 weeks ended June 25, 1994, $6.9 million
for the 31 weeks ended January 29, 1995, $18.5 million for the 52 weeks
ended January 28, 1996, $21.5 million for the 53 weeks ended February 2,
1997, $9.1 million for the 24 weeks ended July 14, 1996 and $6.6 million for
the 24 weeks ended July 20, 1997.
(f) Net loss includes a pre-tax provision for self insurance, which is
classified in cost of sales, selling, general and administrative expenses
and interest expense of $51.1 million, $43.9 million, $25.7 million, $9.8
million, $32.6 million, $29.2 million, $21.2 million and $18.1 million for
the 52 weeks ended June 27, 1992, June 26, 1993, and June 25, 1994, the 31
weeks ended January 29, 1995, the 52 weeks ended January 28, 1996, the 53
weeks ended February 2, 1997, the 24 weeks ended July 14, 1996 and the 24
weeks ended July 20, 1997, respectively. Included in the 52 weeks ended June
25, 1994, the 31 weeks ended January 29, 1995 and the 52 weeks ended January
28, 1996 are reduced employer contributions of $8.1 million, $14.3 million
and $26.1 million, respectively, related to union health and welfare benefit
plans. Included in the 53 weeks ended February 2, 1997, the 24 weeks ended
July 14, 1996 and the 24 weeks ended July 20, 1997 are reduced employer
contributions of $17.8 million, $4.8 million and $6.8 million, respectively,
related to union pension and health and welfare benefit plans. The
multi-employers union health and welfare plans to which the Company
contributes are overfunded, and those employers who contributed to the plans
received a pro-rata share of the excess reserves in the plans through
reduction of current contributions.
(g) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of loss before provision for income taxes and extraordinary charges
plus fixed charges. "Fixed charges" consist of interest on all indebtedness,
amortization of deferred debt financing costs and one-third of rental
expense (the portion deemed representative of the interest factor). Earnings
were insufficient to cover fixed charges for the 52 weeks ended June 27,
1992 and June 26, 1993, the 31 weeks ended January 29, 1995, the 52 weeks
ended January 28, 1996, the 53 weeks ended February 2, 1997, the 24 weeks
ended July 14, 1996 and the 24 weeks ended July 20, 1997, by approximately
$25.6 million, $25.9 million, $11.5 million, $259.6 million, $93.8 million,
$53.5 million and $17.4 million, respectively. However, such earnings
included non-cash charges of $61.2 million for the 52 weeks ended June 27,
1992, $62.5 million for the 52 weeks ended June 26, 1993, $40.0 million for
the 31 weeks ended January 29, 1995, $202.5 million for the 52 weeks ended
January 28, 1996, $180.3 million for the 53 weeks ended February 2, 1997,
$79.9 million for the 24 weeks ended July 14, 1996 and $80.3 million for the
24 weeks ended July 20, 1997, primarily consisting of depreciation and
amortization and the write-off of property and equipment associated with
stores closed as a result of the Merger, stores closed due to
under-performance, stores closed in connection with the acquisition of the
nine stores from Smith's, and warehouses to be closed as a result of the
acquisition of the Riverside Facility. In addition, earnings for the 52
weeks ended January 28, 1996 were reduced by cash restructuring charges of
$54.1 million.
(h) Balance sheet data as of June 25, 1994 reflect the acquisition of 10 Food
Barn stores. Balance sheet data as of January 28, 1996 relate to the Company
and reflect the Merger and the financings associated therewith.
(i) Total debt includes long-term debt, current maturities of long-term debt and
capital lease obligations.
(j) For the 52 weeks ended June 27, 1992, June 26, 1993 and June 25, 1994, the
31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996, the 53
weeks ended February 2, 1997, the 24 weeks ended July 14, 1996 and the 24
weeks ended July 20, 1997, depreciation and amortization includes
amortization of goodwill of $7.8 million, $7.6 million, $7.7 million, $4.6
million, $21.8 million, $38.7 million, $16.2 million and $16.3 million,
respectively.
(k) "EBITDA (as defined)," as presented historically by the Company, represents
income before interest expense, depreciation and amortization expense, the
LIFO provision, provision for income taxes, provision for earthquake losses,
provision for restructuring, a one-time charge in the 1995 transition period
for Teamsters Union sick pay benefits, $75.0 million of one-time costs
incurred in connection with the Merger in fiscal year 1995 and $13.5 million
of one-time costs incurred in connection with the acquisition of the
Riverside Facility and nine former Smith's stores in fiscal year 1996.
EBITDA is a widely accepted financial indicator of a company's ability to
service debt. However, EBITDA should not be construed as an alternative to
operating income or to cash flows from operating activities (as determined
in accordance with generally accepted accounting principles) and should not
be construed as an indication of the Company's operating performance or as a
measure of liquidity. EBITDA as presented may not be comparable to EBITDA of
other companies that do not calculate EBITDA in the same manner as the
Company. The Company believes that its definition of EBITDA (as defined) is
the measure most useful to investors as it is consistent with the
definitions used in the Company's debt covenants. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(l) EBITDA margin represents EBITDA (as defined) as a percentage of sales. The
Company believes that EBITDA margin, which highlights changes in EBITDA
performance unrelated to fluctuations in sales, is useful to investors as an
indication of changes in operating efficiency.
12
<PAGE> 14
SUMMARY HISTORICAL FINANCIAL DATA OF RSI
The following table sets forth summary historical financial data of RSI as
of and for the 52 weeks ended January 31, 1993, January 30, 1994 and January 29,
1995, which have been derived from the financial statements of RSI and audited
by KPMG Peat Marwick LLP, independent certified public accountants. The
following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical consolidated financial statements of RSI and related notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JANUARY 31, JANUARY 30, JANUARY 29,
1993 1994 1995
----------- ----------- -----------
(DOLLARS IN MILLIONS, EXCEPT STORE
DATA)
<S> <C> <C> <C>
OPERATING DATA:
Sales........................................................... $ 2,843.8 $ 2,730.2 $ 2,724.6
Gross profit.................................................... 626.6 636.5 623.6
Selling, general and administrative expenses(a)................. 470.0 471.0 467.0
Interest expense(b)............................................. 125.6 108.8 112.7
Net earnings (loss)(c).......................................... (76.1) 138.4(i) 32.1
Ratio of earnings to fixed charges(d)........................... 1.02x 1.24x 1.24x
BALANCE SHEET DATA (end of period):
Working capital surplus (deficit)............................... $ (122.0) $ (73.0) $ (119.5)
Total assets.................................................... 1,388.5 1,483.7 1,509.9
Total debt(e)................................................... 1,029.8 998.9 1,018.5
Stockholders' equity (deficit).................................. (133.3) 5.1 27.2
CASH FLOW DATA:
Net cash provided by operating activities....................... $ 53.7 $ 104.0 $ 55.4
Net cash used in investing activities........................... (102.5) (45.5) (50.8)
Net cash provided by (used in) financing activities............. 58.2 (49.6) (24.6)
OTHER DATA:
Depreciation and amortization(f)................................ $ 76.9 $ 74.5 $ 76.0
Capital expenditures............................................ 102.7 62.2 64.0
Stores open at end of period.................................... 159 165 173
EBITDA (as defined)(g).......................................... $ 227.3 $ 230.2 $ 230.2
EBITDA margin(h)................................................ 8.0% 8.4% 8.4%
</TABLE>
- ---------------
(a) Includes provision for post retirement benefits other than pensions of $3.3
million, $3.4 million and $2.6 million for the 52 weeks ended January 31,
1993, January 30, 1994 and January 29, 1995, respectively.
(b) Interest expense includes non-cash charges related to the amortization of
deferred debt issuance costs of $5.5 million for the 52 weeks ended January
31, 1993, $6.5 million for the 52 weeks ended January 30, 1994 and $6.1
million for the 52 weeks ended January 29, 1995, respectively.
(c) Net earnings (loss) includes the extraordinary item relating to debt
refinancing, loss on disposal of assets, provisions for postretirement and
pension benefits and provision for earthquake losses. Net earnings (loss)
includes a pre-tax provision for self insurance, which is classified in cost
of sales, selling, general and administrative expenses and interest expense
of $36.9 million, $36.3 million, and $20.0 million, for the 52 weeks ended
January 31, 1993, the 52 weeks ended January 30, 1994 and the 52 weeks ended
January 29, 1995, respectively. Included in the 52 weeks ended January 30,
1994 and the 52 weeks ended January 29, 1995 are reduced employer
contributions of $11.8 million and $12.7 million, respectively, related to
union health and welfare benefit plans.
(d) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of earnings before income taxes, extraordinary item and fixed
charges before capitalized interest. "Fixed charges" consist of interest
expense (including amortization of self-insurance reserves discount),
capitalized interest, amortization of deferred debt issuance costs and
one-third of rental expense (the portion deemed representative of the
interest factor).
(e) Total debt includes long-term debt, current maturities of long-term debt,
short-term debt and capital lease obligations.
(f) For the 52 weeks ended January 31, 1993, January 30, 1994 and January 29,
1995, depreciation and amortization includes amortization of the excess of
cost over net assets acquired of $11.0 million, $11.0 million and $11.0
million, respectively.
(g) "EBITDA," as defined and presented historically by RSI, represents earnings
before interest expense, income tax expense (benefit), depreciation and
amortization expense, provision for postretirement benefits, the LIFO
charge, extraordinary item relating to debt refinancing, provision for legal
settlement, provision for restructuring, provision for earthquake losses, a
one-time charge for Teamsters Union sick pay benefits, transition expense
and gains and losses on disposal of assets. EBITDA is a widely accepted
financial indicator of a company's ability to service debt. However, EBITDA
should not be construed as an alternative to operating income or to cash
flows from operating activities (as determined in accordance with generally
accepted accounting principles) and should not be construed as an indication
of Ralphs' operating performance or as a measure of liquidity. The Company
believes that its definition of EBITDA (as defined) is the measure most
useful to investors as it is consistent with the definitions used in the
Company's debt covenants. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(h) EBITDA margin represents EBITDA (as defined) as a percentage of sales. The
Company believes that EBITDA margin, which highlights changes in EBITDA
performance unrelated to fluctuations in sales, is useful to investors as an
indication of changes in operating efficiency.
(i) Includes recognition of $109.1 million of deferred income tax benefit and
$1.1 million current income tax expense for the 52 weeks ended January 30,
1994 (see Note 11 of Notes to Consolidated Financial Statements of Ralphs
Supermarkets, Inc.).
13
<PAGE> 15
RISK FACTORS
Prospective investors should carefully consider the following factors, in
addition to the other matters described in this Prospectus, before making a
decision to participate in the Exchange Offer.
RISK OF HIGH LEVERAGE; ABILITY TO SERVICE DEBT
The Company is highly leveraged. At July 20, 1997, the Company's total
indebtedness (including current maturities) was $2,163.3 million and
Stockholder's deficit was $100.8 million, and the Company had an additional
$111.1 million available to be borrowed under the $325 million Revolving
Facility portion of the New Credit Facility (the "Revolving Facility") (net of
$77.3 million in standby letters of credit outstanding). In addition, as of
February 2, 1997, scheduled payments under operating leases of the Company and
its subsidiaries for the twelve months following such date were $145.7 million.
For the 53 weeks ended February 2, 1997, after giving pro forma effect to the
Private Placement and the application of the proceeds therefrom and the issuance
of $100 million aggregate principal amount of 10.45% Senior Notes due 2004
issued on June 6, 1996 (the "1996 Senior Notes"), the Company's earnings before
fixed charges were inadequate to cover fixed charges by $108.4 million. However,
such earnings included non-cash charges of $186.3 million primarily consisting
of depreciation and amortization. For the 24 weeks ended July 20, 1997, the
Company's earnings before fixed charges were inadequate to cover fixed charges
by $17.4 million. However, such earnings included non-cash charges of $80.3
million primarily consisting of depreciation and amortization. The Company's
parent, Food 4 Less Holdings, Inc. ("Holdings") will be required to make
semi-annual cash payments of interest on its outstanding debt issued in
connection with the Merger commencing in December 2000 in the amount of
approximately $61 million per annum. The Indenture permits the Company (in the
absence of a default or event of default thereunder) to pay cash dividends to
Holdings in an amount sufficient to allow Holdings to pay interest on such
Indebtedness when due. The Company's ability to make scheduled payments of the
principal of, or interest on, or to refinance its Indebtedness (including the
Notes) and to make scheduled payments under its operating leases depends on its
future performance, which to a certain extent is subject to economic, financial,
competitive and other factors beyond its control.
Based upon the current level of operations and anticipated future growth,
the Company believes that its cash flow from operations, together with available
borrowings under the Revolving Facility and its other sources of liquidity
(including leases), will be adequate to meet its anticipated requirements for
working capital, capital expenditures, interest payments and scheduled principal
payments over the next several years. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources." There can be no assurance, however, that the Company's business will
continue to generate cash flow at or above current levels or that future cost
savings and growth can be achieved. If the Company is unable to generate
sufficient cash flow from operations in the future to service its debt and make
necessary capital expenditures, or if its future earnings growth is insufficient
to meet all required principal payments out of internally generated funds, the
Company may be required to refinance all or a portion of its existing debt, sell
assets or obtain additional financing. There can be no assurance that any such
refinancing or asset sales would be possible or that any additional financing
could be obtained, particularly in view of the Company's high level of debt and
the fact that substantially all of its assets are pledged to secure the
borrowings under the Refinanced Credit Facility and other secured obligations.
The Company's high level of debt will have several significant effects on
its future operations, including the following: (a) the Company will have
significant cash requirements to service debt, reducing funds available for
operations and future business opportunities and increasing the Company's
vulnerability to adverse general economic and industry conditions; (b) the
Company's indebtedness under the Refinanced Credit Facility bears interest at
floating rates, therefore if interest rates rise, the Company's cost of capital
and debt service requirements will increase; (c) the financial covenants and
other restrictions contained in the Refinanced Credit Facility and other
agreements relating to the Company's indebtedness and in the Indenture will
require the Company to meet certain financial tests and will restrict its
ability to borrow additional funds, to dispose of assets or to pay cash
dividends; and (d) because of the Company's debt service requirements, funds
available for working capital, capital expenditures, acquisitions and general
corporate purposes, may be limited. The
14
<PAGE> 16
Company's leveraged position may increase its vulnerability to competitive
pressures. The Company's continued growth depends in part, on its ability to
continue its expansion and store conversion effort and, therefore, its inability
to finance capital expenditures through borrowed funds could have a material
adverse effect on the Company's future operations. Moreover, any default under
the documents governing the indebtedness of the Company could have a significant
adverse effect on the market value of the Notes.
SUBORDINATION OF THE NOTES
The payment of principal, premium, if any, and interest on, and any other
amounts owing in respect of, the Notes will be subordinated to the prior payment
in full of all existing and future Senior Indebtedness, including indebtedness
under the Refinanced Credit Facility, the 1996 Senior Notes, the 1995 Senior
Notes and the 1992 Senior Notes. Each Subsidiary Guarantor's Senior Subordinated
Note Guarantee will also be subordinated in right of payment to Senior
Indebtedness of the Subsidiary Guarantors ("Guarantor Senior Indebtedness").
Guarantor Senior Indebtedness will include all existing and future indebtedness
not expressly subordinated to other indebtedness, including indebtedness
represented by the guarantee of each Subsidiary Guarantor under the Refinanced
Credit Facility, the 1996 Senior Notes, the 1995 Senior Notes and the 1992
Senior Notes. As of July 20, 1997, the aggregate outstanding amount of Senior
Indebtedness of the Company was $1,473.6 million and the aggregate outstanding
amount of Guarantor Senior Indebtedness of the Subsidiary Guarantors (excluding
guarantees by Subsidiary Guarantors of certain Senior Indebtedness of the
Company) was $10.0 million and the Company had $111.1 million available to be
borrowed under the Revolving Facility, net of $77.3 million in outstanding
standby letters of credit issued. The Indenture limits, but does not prohibit,
the issuance by the Subsidiary Guarantors of additional indebtedness which is
Guarantor Senior Indebtedness. See "Description of the Notes -- Guarantees." In
the event of the bankruptcy, liquidation, dissolution, reorganization or other
winding up of the Company, the assets of the Company will be available to pay
obligations on the Notes only after all Senior Indebtedness has been paid in
full, and there may not be sufficient assets remaining to pay amounts due on any
or all of the Notes. In addition, under certain circumstances, the Company may
not pay principal of, premium, if any, or interest on, or any other amounts
owing in respect of, the Notes, or purchase, redeem or otherwise retire the
Notes, if a payment default or a non-payment default exists with respect to
certain Senior Indebtedness and, in the case of a non-payment default, a payment
blockage notice has been received by the Note Trustee (as defined). See
"Description of the Notes -- Subordination of the Notes."
COMPETITION
The supermarket industry is highly competitive and characterized by narrow
profit margins. The Company's competitors in each of its operating divisions
include national and regional supermarket chains, independent and specialty
grocers, drug and convenience stores, and the newer "alternative format" food
stores, including warehouse club stores, deep discount drug stores and "super
centers." Supermarket chains generally compete on the basis of location, quality
of products, service, price, product variety and store condition. The Company's
ability to compete depends in part on its ability to successfully develop new
stores in advantageous locations or to successfully convert or remodel
additional stores. No assurance can be given that sources of funds for the
opening of new stores and for remodels will be available or sufficient to
finance the Company's capital expenditure requirements. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." The Company regularly monitors
its competitors' prices and adjusts its prices and marketing strategy as
management deems appropriate in light of existing conditions. Some of the
Company's competitors have greater financial resources than the Company and
could use these resources to take steps which could adversely affect the
Company's competitive position. One of the Company's primary competitors in
Southern California was recently acquired by a major multi-regional supermarket
chain which may increase competitive pressures for the Company. Increased
competitive pressures from existing competitors and new entrants, including
price-cutting strategies, new store openings and remodels of competitors' stores
may have an adverse impact on the Company's results of operations. See
"Business -- Competition."
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RISK THAT ADDITIONAL COST SAVINGS MAY NOT BE ACHIEVED
At the time of the Merger, management of the Company estimated that
approximately $90 million of annualized net cost savings (as compared to such
costs for the pro forma combined fiscal year ended June 25, 1994) could be
achieved over a four year period as a result of integrating the operations of
Ralphs and Food 4 Less. The cost savings estimates were prepared solely by
members of the management of the Company. The estimates necessarily made
numerous assumptions as to future sales levels and other operating results, the
availability of funds for capital expenditures as well as general industry and
business conditions and other matters, many of which are beyond the control of
the Company. Several of the cost savings estimates were premised on the
assumption that certain levels of efficiency formerly maintained by either Food
4 Less or Ralphs could continue to be achieved by the combined Company for all
periods following the Merger. Other estimates were based on a management
consensus as to what levels of purchasing and similar efficiencies should be
achievable by an entity the size of the Company. Estimates of potential cost
savings are forward looking statements that are inherently uncertain. Except for
savings already realized, actual cost savings, if any, could differ materially
from those projected. All of these forward looking statements are based on
estimates and assumptions made by management of the Company, which although
believed to be reasonable, are inherently uncertain and difficult to predict;
therefore, undue reliance should not be placed upon such estimates. There can be
no assurance that the savings anticipated in these forward looking statements
will be achieved. The following important factors, among others, could cause the
Company not to achieve the cost savings contemplated herein or otherwise cause
the Company's results of operations to be adversely affected in future periods:
(i) increased competitive pressures from existing competitors and new entrants,
including price-cutting strategies, store openings and remodels; (ii) inability
to negotiate more favorable terms with suppliers;(iii) inability to achieve
future sales levels or other operating results that support the cost savings;
(iv) increases in labor costs or prolonged labor disruption; (v) inability to
control inventory levels; (vi) loss or retirement of key members of management;
and (vii) operational inefficiencies in distribution or other Company systems.
Many of such factors are beyond the control of the Company. In addition, there
can be no assurance that unforeseen costs and expenses or other factors will not
offset the estimated cost savings or other components or the Company's plan in
whole or in part. Following the Merger, the Company experienced certain
unanticipated costs and delays in the realization of certain projected cost
savings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview." There can be no assurance that new or
additional unforeseen costs or delays will not arise either in connection with
the integration or the Company's operations or the ongoing conduct of its
business.
RISK OF GEOGRAPHIC CONCENTRATION
A substantial percentage of the Company's business (representing
approximately 90% of sales) is conducted in Southern California. Southern
California began to experience a significant economic downturn in 1991. The
economy in Southern California has been affected by substantial job losses in
the defense and aerospace industries and other adverse economic trends. These
adverse regional economic conditions had resulted in declining sales levels in
recent periods. Any future economic downturn in Southern California could have a
material adverse effect on the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
CONTROL OF THE COMPANY
All of the Company's outstanding common stock is held by Holdings.
Affiliates of Yucaipa and Apollo Advisors, L.P. have beneficial ownership of
approximately 40.3% (assuming that certain warrants which are not presently
exercisable were exercised in full) and 32.6%, respectively, of the outstanding
capital stock of Holdings. Pursuant to a stockholders' agreement (the "1995
Stockholders Agreement") which was entered into by the 1995 Equity Investors (as
defined herein) and certain other stockholders and warrantholders of the
Company, Holdings and the Company have boards consisting of nine and ten
members, respectively, and (i) Yucaipa has the right to elect six directors to
the board of Holdings and seven directors to the board of the Company, (ii)
Apollo has the right to elect two directors to the board of each of Holdings and
the Company and (iii) the other 1995 Equity Investors have the right to elect
one director to the board of each of Holdings and the Company. Under the 1995
Stockholders Agreement, unless and until Holdings has effected an initial
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public offering of its equity securities meeting certain criteria, Holdings and
its subsidiaries, including the Company, may not take certain actions without
the approval of the Holdings directors which the 1995 Equity Investors are
entitled to elect, including but not limited to certain mergers, sale
transactions, transactions with affiliates, issuances of capital stock and
payments of dividends on or repurchases of capital stock. As a result of the
ownership structure of the Company and the contractual rights described above,
the voting and management control of the Company is highly concentrated.
Yucaipa, acting with the consent of the directors elected by the 1995 Equity
Investors, has the ability to direct the actions of the Company with respect to
matters such as the payment of dividends, material acquisitions and dispositions
and other extraordinary corporate transactions. Yucaipa is a party to a
consulting agreement with the Company, pursuant to which Yucaipa renders certain
management and advisory services to the Company, and receives fees for such
services. The termination of this consulting agreement, and the resulting loss
of Yucaipa's services, could have an adverse effect on the Company's operations.
Yucaipa also received certain fees in connection with the consummation of the
Merger, including an advisory fee of $21.5 million, of which $17.5 million was
paid through the issuance of New Discount Debentures by Holdings. See "Certain
Relationships and Related Transactions," "Principal Stockholders" and
"Description of Capital Stock."
FRAUDULENT CONVEYANCE RISKS
Various fraudulent conveyance laws have been enacted for the protection of
creditors and may be utilized by a court to subordinate or avoid the Notes or
any Guarantee in favor of other existing or future creditors of the Company or a
Subsidiary Guarantor.
If a court in a lawsuit on behalf of any unpaid creditor of the Company or
a representative of the Company's creditors were to find that, at the time the
Company issued the Notes, the Company (x) intended to hinder, delay or defraud
any existing or future creditor or contemplated insolvency with a design to
prefer one or more creditors to the exclusion in whole or in part of others or
(y) did not receive fair consideration or reasonably equivalent value for
issuing such Notes and the Company (i) was insolvent, (ii) was rendered
insolvent by reason of such distribution, (iii) was engaged or about to engage
in a business or transaction for which its remaining assets constituted
unreasonably small capital to carry on its business, or (iv) intended to incur,
or believed that it would incur, debts beyond its ability to pay such debts as
they matured, such court could void such Notes and void such transactions.
Alternatively, in such event, claims of the holders of such Notes could be
subordinated to claims of the other creditors of the Company.
The Company's obligations under the Notes will be guaranteed by the
Subsidiary Guarantors. To the extent that a court were to find that (x) a
Guarantee was incurred by a Subsidiary Guarantor with intent to hinder, delay or
defraud any present or future creditor or the Subsidiary Guarantor contemplated
insolvency with a design to prefer one or more creditors to the exclusion in
whole or in part of others or (y) such Subsidiary Guarantor did not receive fair
consideration or reasonably equivalent value for issuing its Guarantee and such
Subsidiary Guarantor (i) was insolvent, (ii) was rendered insolvent by reason of
the issuance of such Guarantee, (iii) was engaged or about to engage in a
business or transaction for which the remaining assets of such Subsidiary
Guarantor constituted unreasonably small capital to carry on its business, or
(iv) intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they matured, the court could void or subordinate
such Guarantee in favor of the Subsidiary Guarantor's creditors. Among other
things, a legal challenge of a Guarantee on fraudulent conveyance grounds may
focus on the benefits, if any, realized by the Subsidiary Guarantor as a result
of the issuance by the Company of the applicable Notes.
To the extent any Guarantees were avoided as a fraudulent conveyance or
held unenforceable for any other reason, holders of the Notes would cease to
have any claim in respect of such Subsidiary Guarantor and would be creditors
solely of the Company and any Subsidiary Guarantor whose Guarantee was not
avoided or held unenforceable. In such event, the claims of the holders of the
applicable Notes against the issuer of an invalid Guarantee would be subject to
the prior payment of all liabilities and preferred stock claims of such
Subsidiary Guarantor. There can be no assurance that, after providing for all
prior claims and preferred stock interests, if any, there would be sufficient
assets to satisfy the claims of the holders of the applicable Notes relating to
any voided portions of any of the Guarantees.
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In addition, if a court were to avoid the Guarantees under fraudulent
conveyance laws or other legal principles or, by the terms of such Guarantees,
the obligations thereunder were reduced as necessary to prevent such avoidance,
or the Guarantees were released, the claims of other creditors of the Subsidiary
Guarantors, including trade creditors, would to such extent have priority as to
the assets of such Subsidiary Guarantors over the claims of the holders of the
Notes. The Guarantees of the Notes by any Subsidiary Guarantor will be released
upon the sale of such Subsidiary Guarantor or upon the release by the lenders
under the Credit Facility of such Subsidiary Guarantor's Guarantee of the
Company's obligation under the Credit Facility. The Indenture limits the ability
of the Company and its subsidiaries to incur additional indebtedness and to
enter into agreements that would restrict the ability of any subsidiary to make
distributions, loans or other payments to the Company. However, these
limitations are subject to certain exceptions. See "Description of the Notes."
NET LOSSES
The Company reported net losses of $93.8 million for the 53 weeks ended
February 2, 1997 and $65.4 million for the 24 weeks ended July 20, 1997. The
Company reported net losses of $11.5 million for the 31 weeks ended January 29,
1995, $2.7 million for the 52 weeks ended June 25, 1994, $27.4 million for the
52 weeks ended June 26, 1993, and $33.8 million for the 52 weeks ended June 27,
1992. Ralphs reported net earnings of $32.1 million for the 52 weeks ended
January 29, 1995, $138.4 million for the 52 weeks ended January 30, 1994 and a
net loss of $76.1 million for the 52 weeks ended January 31, 1993. There can be
no assurance that the Company will not continue to report net losses in the
future.
LIMITED LIQUIDITY OF THE NOTES; ABSENCE OF PUBLIC MARKET FOR THE NOTES
The Private Notes have not been registered under the Securities Act and are
subject to significant restrictions on resale. The Exchange Notes have no
established trading market. The Company does not intend to list the Notes on any
national securities exchange or to seek the admission thereof to trading in the
National Association of Securities Dealers Automated Quotation System. The
Company has been advised by the Initial Purchasers that they currently intend to
make a market in the Notes. However, the Initial Purchasers are not obligated to
do so and any market making may be discontinued at any time without notice. In
addition, such market making activity will be subject to the limits imposed by
the Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and may be limited during the Exchange Offer. If a trading
market does not develop or is not maintained, holders of the Notes may
experience difficulty in reselling the Notes or may be unable to sell them at
all. If a market for the Notes develops, any such market may be discontinued at
any time. If a public trading market develops for the Notes, future trading
prices of the Notes will depend on many factors, including, among other things,
prevailing interest rates, the Company's results of operations and the market
for similar securities.
FAILURE TO EXCHANGE PRIVATE NOTES
Exchange Notes will be issued in exchange for Private Notes only after
timely receipt by the Exchange Agent of such Private Notes, a properly completed
and duly executed Letter of Transmittal and all other required documentation.
Therefore, holders of Private Notes desiring to tender such Private Notes in
exchange for Exchange Notes should allow sufficient time to ensure timely
delivery. Neither the Exchange Agent nor the Company is under any duty to give
notification of defects or irregularities with respect to tenders of Private
Notes for exchange. Private Notes that are not tendered or are tendered but not
accepted will, following consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof. In addition, any
holder of Private Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes will be required to comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Private Notes, where such
Private Notes were acquired by such broker-dealer as a result of market-making
activities or any other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. To
the extent that Private Notes are tendered and accepted in the Exchange Offer,
the trading market
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for untendered and tendered but unaccepted Private Notes could be adversely
affected due to the limited amount, or "float," of the Private Notes that are
expected to remain outstanding following the Exchange Offer. Generally, a lower
"float" of a security could result in less demand to purchase such security and
could, therefore, result in lower prices for such security. For the same reason,
to the extent that a large amount of Private Notes are not tendered or are
tendered and not accepted in the Exchange Offer, the trading market for the
Exchange Notes could be adversely affected. See "Plan of Distribution" and "The
Exchange Offer."
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Private Notes were sold by the Company on March 26, 1997 (the "Closing
Date") to the Initial Purchasers pursuant to the Purchase Agreement. The Initial
Purchaser subsequently sold the Private Notes to (i) "qualified institutional
buyers" ("QIBs"), as defined in Rule 144A under the Securities Act ("Rule
144A"), in reliance on Rule 144A. As a condition to the sale of the Private
Notes, the Company, the Subsidiary Guarantors and the Initial Purchasers entered
into the Registration Rights Agreement on March 26, 1997. Pursuant to the
Registration Rights Agreement, the Company agreed that, unless the Exchange
Offer is not permitted by applicable law or Commission policy, it would (i) file
with the Commission a Registration Statement under the Securities Act with
respect to the Exchange Notes within 75 days after the Closing Date, (ii) use
its best efforts to cause such Registration Statement to become effective under
the Securities Act within 120 days after the date on which the Registration
Statement was required to be filed and (iii) use its best efforts to consummate
the Exchange Offer prior to the 60th day following the date on which the
Registration Statement is declared effective. A copy of the Registration Rights
Agreement has been filed as an exhibit to the Registration Statement. The
Registration Statement is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement and the Purchase Agreement.
RESALE OF THE EXCHANGE NOTES
With respect to the Exchange Notes, based upon an interpretation by the
staff of the Commission set forth in certain no-action letters issued to third
parties, the Company believes that a holder (other than (i) a broker-dealer who
purchases such Exchange Notes directly from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii) any
such holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) who exchanges Private Notes for Exchange Notes in the
ordinary course of business and who is not participating, does not intend to
participate, and has no arrangement with any person to participate, in a
distribution of the Exchange Notes, will be allowed to resell Exchange Notes to
the public without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Notes a prospectus that satisfies
the requirements of Section 10 of the Securities Act. However, if any holder
acquires Exchange Notes in the Exchange Offer for the purpose of distributing or
participating in the distribution of the Exchange Notes or is a broker-dealer,
such holder cannot rely on the position of the staff of the Commission
enumerated in certain no-action letters issued to third parties and must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction, unless an exemption from registration
is otherwise available. Each broker-dealer that receives Exchange Notes for its
own account in exchange for Private Notes, where such Private Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Private Notes where such Private Notes
were acquired by such broker-dealer as a result of market-making or other
trading activities. Pursuant to the Registration Rights Agreement, the Company
and the Subsidiary Guarantors have agreed to make this Prospectus, as it may be
amended or supplemented from time to time, available to broker-dealers and other
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persons, if any, with similar prospectus delivery requirements for use in
connection with any resale for a period of 90 days after consummation of the
Exchange Offer. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Private
Notes validly tendered and not withdrawn prior to the Expiration Date. The
Company will issue $1,000 principal amount of Exchange Notes in exchange for
each $1,000 principal amount of outstanding Private Notes surrendered pursuant
to the Exchange Offer. Private Notes may be tendered only in integral multiples
of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Private Notes except that (i) the exchange will be registered under the
Securities Act and, therefore, the Exchange Notes will not bear legends
restricting the transfer thereof and (ii) holders of the Exchange Notes will not
be entitled to any of the rights of holders of Private Notes under the
Registration Rights Agreement, which rights will terminate upon the consummation
of the Exchange Offer. The Exchange Notes will evidence the same indebtedness as
the Private Notes (which they replace) and will be issued under, and be entitled
to the benefits of, the Indenture, which also authorized the issuance of the
Private Notes, such that both series of Notes will be treated as a single class
of debt securities under the Indenture.
As of the date of this Prospectus, $155,000,000 in aggregate principal
amount of the Private Notes are outstanding and registered in the name of Cede &
Co., as nominee for DTC. Only a registered holder of the Private Notes (or such
holder's legal representative or attorney-in-fact) as reflected on the records
of the Trustee under the Indenture may participate in the Exchange Offer. There
will be no fixed record date for determining registered holders of the Private
Notes entitled to participate in the Exchange Offer.
Holders of the Private Notes do not have any appraisal or dissenters'
rights under the Indenture in connection with the Exchange Offer. The Company
intends to conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the Securities
Act, the Exchange Act and the rules and regulations of the Commission
thereunder.
The Company shall be deemed to have accepted validly tendered Private Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Private Notes for the purposes of receiving the Exchange Notes from the
Company.
Holders who tender Private Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Private
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
November 11, 1997, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will (i) notify the
Exchange Agent of any extension by oral or written notice, (ii) mail to the
registered holders an announcement thereof and (iii) issue a press release or
other public announcement which shall include disclosure of the approximate
number of Private Notes deposited to date, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date. Without limiting the manner in which the Company may choose to make a
public announcement of any delay, extension, amendment or termination of the
Exchange Offer, the Company shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.
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The Company reserves the right, in its sole discretion, (i) to delay
accepting any Private Notes, (ii) to extend the Exchange Offer or (iii) if any
conditions set forth below under "-- Conditions" shall not have been satisfied,
to terminate the Exchange Offer by giving oral or written notice of such delay,
extension or termination to the Exchange Agent. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by oral or written notice thereof to the registered holders. If the Exchange
Offer is amended in a manner determined by the Company to constitute a material
change, the Company will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered holders, and
the Company will extend the Exchange Offer for a period of five to ten business
days, depending upon the significance of the amendment and the manner of
disclosure to the registered holders, if the Exchange Offer would otherwise
expire during such five to ten business day period.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate equal to 11% per annum.
Interest on the Exchange Notes will be payable semi-annually on each June 15 and
December 15, commencing June 15, 1997. Holders of Exchange Notes will receive
interest on June 15, 1997 from the date of initial issuance of the Exchange
Notes, plus an amount equal to the accrued interest on the Private Notes from
the date of the last interest payment thereon or if no interest has been paid,
from the date of original issuance of the Private Notes (March 26, 1997) to the
date of exchange thereof for Exchange Notes. Holders of Private Notes that are
accepted for exchange will be deemed to have waived the right to receive any
interest accrued on the Private Notes.
PROCEDURES FOR TENDERING
Only a registered holder of Private Notes may tender such Private Notes in
the Exchange Offer. To tender in the Exchange Offer, a holder of Private Notes
must complete, sign and date the Letter of Transmittal, or a facsimile thereof,
have the signatures thereon guaranteed if required by the Letter of Transmittal,
and mail or otherwise deliver such Letter of Transmittal or such facsimile to
the Exchange Agent at the address set forth below under "-- Exchange Agent" for
receipt prior to the Expiration Date. In addition, either (i) certificates for
such Private Notes must be received by the Exchange Agent along with the Letter
of Transmittal, (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Private Notes, if such procedure is
available, into the Exchange Agent's account at the Depositary pursuant to the
procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date or (iii) the holder must comply with
the guaranteed delivery procedures described below.
The tender by a holder that is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF PRIVATE NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR PRIVATE NOTES SHOULD BE
SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner(s) of the Private Notes whose Private Notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact the registered holder
promptly and instruct such registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Private Notes, either make appropriate
arrangements to register ownership of the Private Notes in such owner's name or
obtain a properly completed bond power from the registered holder. The transfer
of registered ownership may take considerable time.
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Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "-- Withdrawal of Tenders"), as the case may be, must be guaranteed
by an Eligible Institution (as defined below) unless the Private Notes tendered
pursuant thereto are tendered (i) by a registered holder who has not completed
the box titled "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be made by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act which is a member of one of
the recognized signature guarantee programs identified in the Letter of
Transmittal (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Private Notes listed therein, such Private Notes must
be endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Private
Notes.
If the Letter of Transmittal or any Private Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
The Exchange Agent and the Depositary have confirmed that any financial
institution that is a participant in the Depositary's system may utilize the
Depositary's Automated Tender Offer Program to tender Private Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Private Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Private
Notes not properly tendered or any Private Notes the Company's acceptance of
which would, in the opinion of counsel for the Company, be unlawful. The Company
also reserves the right to waive any defects, irregularities or conditions of
tender as to particular Private Notes. The Company's interpretation of the terms
and conditions of the Exchange Offer (including the instructions in the Letter
of Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Private Notes must be
cured within such time as the Company shall determine. Although the Company
intends to notify holders of defects or irregularities with respect to tenders
of Private Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Private Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived.
While the Company has no present plan to acquire any Private Notes that are
not tendered in the Exchange Offer or to file a registration statement to permit
resales of any Private Notes that are not tendered pursuant to the Exchange
Offer, the Company reserves the right in its sole discretion to purchase or make
offers for any Private Notes that remain outstanding subsequent to the
Expiration Date or, as set forth below under "--Conditions," to terminate the
Exchange Offer and, to the extent permitted by applicable law, purchase Private
Notes in the open market, in privately negotiated transactions or otherwise. The
terms of any such purchases or offers could differ from the terms of the
Exchange Offer.
By tendering, each holder of Private Notes will represent to the Company
that, among other things, (i) Exchange Notes to be acquired by such holder of
Private Notes in connection with the Exchange Offer are being acquired by such
holder in the ordinary course of business of such holder, (ii) such holder has
no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iii) such holder acknowledges and agrees
that any person who is a broker-dealer registered under the Exchange Act or is
participating in the Exchange Offer for the purposes of distributing the
Exchange Notes must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction of the Exchange Notes acquired by such person and cannot rely on the
position of the staff of the Commission set forth in certain no-action letters,
(iv) such holder understands that a secondary resale transaction described in
clause (iii) above and any resales of Exchange Notes obtained by
22
<PAGE> 24
such holder in exchange for Private Notes acquired by such holder directly from
the Company should be covered by an effective registration statement containing
the selling securityholder information required by Item 507 or Item 508, as
applicable, of Regulation S-K of the Commission and (v) such holder is not an
"affiliate," as defined in Rule 405 under the Securities Act, of the Company. If
the holder is a broker-dealer that will receive Exchange Notes for such holder's
own account in exchange for Private Notes that were acquired as a result of
market-making activities or other trading activities, such holder will be
required to acknowledge in the Letter of Transmittal that such holder will
deliver a prospectus in connection with any resale of such Exchange Notes;
however, by so acknowledging and by delivering a prospectus, such holder will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
RETURN OF PRIVATE NOTES
If any tendered Private Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Private Notes are withdrawn
or are submitted for a greater principal amount than the holders desire to
exchange, such unaccepted, withdrawn or non-exchanged Private Notes will be
returned without expense to the tendering holder thereof (or, in the case of
Private Notes tendered by book-entry transfer into the Exchange Agent's account
at the Depositary pursuant to the book-entry transfer procedures described
below, such Private Notes will be credited to an account maintained with the
Depositary) as promptly as practicable.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Private Notes at the Depositary for purposes of the Exchange Offer within
two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depositary's systems may make
book-entry delivery of Private Notes by causing the Depositary to transfer such
Private Notes into the Exchange Agent's account at the Depositary in accordance
with the Depositary's procedures for transfer. However, although delivery of
Private Notes may be effected through book-entry transfer at the Depositary, the
Letter of Transmittal or facsimile thereof, with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to and received by the Exchange Agent at the address set forth below under
"-- Exchange Agent" on or prior to the Expiration Date or pursuant to the
guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Private Notes and (i) whose Private Notes
are not immediately available or (ii) who cannot deliver their Private Notes,
the Letter of Transmittal or any other required documents to the Exchange Agent
prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery) setting forth the name and
address of the holder, the certificate number(s) of such Private Notes and
the principal amount of Private Notes tendered, stating that the tender is
being made thereby and guaranteeing that, within five New York Stock
Exchange trading days after the Expiration Date, the Letter of Transmittal
(or a facsimile thereof), together with the certificate(s) representing the
Private Notes in proper form for transfer or a Book-Entry Confirmation, as
the case may be, and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) Such properly executed Letter of Transmittal (or facsimile
thereof), as well as the certificate(s) representing all tendered Private
Notes in proper form for transfer and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within five New
York Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Private Notes according to the
guaranteed delivery procedures set forth above.
23
<PAGE> 25
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Private Notes may be
withdrawn at any time prior to the Expiration Date.
To withdraw a tender of Private Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Private Notes to be withdrawn (the "Depositor"), (ii) identify the Private
Notes to be withdrawn (including the certificate number or numbers and principal
amount of such Private Notes) and (iii) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal by which such
Private Notes were tendered (including any required signature guarantees). All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company in its sole discretion, whose
determination shall be final and binding on all parties. Any Private Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Private Notes so withdrawn are validly retendered. Properly withdrawn
Private Notes may be retendered by following one of the procedures described
above under "The Exchange Offer -- Procedures for Tendering" at any time prior
to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange the Exchange Notes for, any
Private Notes, and may terminate the Exchange Offer as provided herein before
the acceptance of such Private Notes, if the Exchange Offer violates applicable
law, rules or regulations or an applicable interpretation of the staff of the
Commission.
If the Company determines in its reasonable discretion that any of these
conditions are not satisfied, the Company may (i) refuse to accept any Private
Notes and return all tendered Private Notes to the tendering holders, (ii)
extend the Exchange Offer and retain all Private Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of holders to
withdraw such Private Notes (see "-- Withdrawal of Tenders") or (iii) waive such
unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Private Notes that have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders of the Private Notes, and the Company will
extend the Exchange Offer for a period of five to ten business days, depending
upon the significance of the waiver and the manner of disclosure to the
registered holders, if the Exchange Offer would otherwise expire during such
five to ten business day period.
TERMINATION OF CERTAIN RIGHTS
All rights under the Registration Rights Agreement (including registration
rights) of holders of the Private Notes eligible to participate in the Exchange
Offer will terminate upon consummation of the Exchange Offer except with respect
to the Company's continuing obligations (i) to indemnify such holders (including
any broker-dealers) and certain parties related to such holders against certain
liabilities (including liabilities under the Securities Act), (ii) to provide,
upon the request of any holder of a transfer-restricted Private Note, the
information required by Rule 144A(d)(4) under the Securities Act in order to
permit resales of such Private Notes pursuant to Rule 144A, (iii) to use its
best efforts to keep the Registration Statement effective to the extent
necessary to ensure that it is available for resales of transfer-restricted
Private Notes by broker-dealers for a period of up to 90 days from the
Expiration Date and (iv) to provide copies of the latest version of the
Prospectus to broker-dealers upon their request for a period of up to 90 days
after the Expiration Date.
SHELF REGISTRATION
In the event that applicable interpretations of the staff of the Commission
do not permit the Company and the Subsidiary Guarantors to effect the Exchange
Offer, or if for any other reason the Exchange Offer is not consummated within
240 days after the Closing Date, or, under certain circumstances, if the Initial
24
<PAGE> 26
Purchaser shall so request, each of the Company and the Subsidiary Guarantors,
jointly and severally, will at its cost, (a) as promptly as practicable, file a
shelf registration statement covering resales of the Notes (a "Shelf
Registration Statement"), (b) use its best efforts to cause such Shelf
Registration Statement to be declared effective under the Securities Act and (c)
use its best efforts to keep effective such Shelf Registration Statement until
the earlier of three years after the Closing Date and such time as all of the
applicable Notes have been sold thereunder. The Company will, in the event of
the filing of a Shelf Registration Statement, provide to each holder of the
Notes copies of the prospectus which is a part of such Shelf Registration
Statement, notify each such holder when such Shelf Registration Statement has
become effective and take certain other actions as are required to permit
unrestricted resales of the Notes (and the related guarantees). A holder that
sells its Notes pursuant to a Shelf Registration Statement generally will be
required to be named as a selling securityholder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Registration Rights Agreement which are
applicable to such a holder (including certain indemnification obligations).
LIQUIDATED DAMAGES
If the Company and the Subsidiary Guarantors fail to fulfill their
obligations under the Registration Rights Agreement, then the Company shall pay,
as liquidated damages ("Liquidated Damages"), to the holders of the Notes as
follows:
(i) if the Registration Statement or Shelf Registration Statement is
not filed within 75 days following the Closing Date, Liquidated Damages
shall accrue at a rate of .50% per annum of the principal amount of the
Notes for the first 90 days commencing on the 31st day after the Closing
Date, such Liquidated Damages rate increasing by an additional .25% per
annum of the principal amount of the Notes at the beginning of each
subsequent 90-day period;
(ii) if the Registration Statement or Shelf Registration Statement is
not declared effective within 120 days following the date on which such
registration statement is required to be filed, then, commencing on the
121st day after the date on which such registration statement is required
to be filed, Liquidated Damages shall accrue at a rate of .50% per annum of
the principal amount of the Notes for the first 90 days immediately
following the 121st day after the date on which such registration statement
is required to be filed, such Liquidated Damages rate increasing by an
additional .25% per annum of the principal amount of the Notes at the
beginning of each subsequent 90-day period or;
(iii) if (A) the Company and the Subsidiary Guarantors have not
exchanged Notes validly tendered in accordance with the terms of the
Exchange Offer on or prior to 60 days after the date on which the
Registration Statement was declared effective or (B) if applicable, the
Shelf Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time prior to the
third anniversary of the Closing Date (unless all the Notes have been sold
thereunder), then Liquidated Damages shall accrue at a rate of .50% per
annum of the principal amount of the Notes for the first 90 days commencing
on (x) the 61st day after such effective date, in the case of (A) above, or
(y) the day such Shelf Registration Statement ceases to be effective in the
case of (B) above, such Liquidated Damages rate increasing by an additional
.25% per annum of the principal amount of the Notes at the beginning of
each subsequent 90-day period;
provided, however that the Liquidated Damages rate may not exceed in the
aggregate 1.0% per annum of the principal amount of the Notes; and provided,
further, that (1) upon the filing of the Registration Statement or Shelf
Registration Statement (in the case of clause (i) above), (2) upon the
effectiveness of the Registration Statement or Shelf Registration Statement (in
the case of clause (ii) above), or (3) upon the exchange of Exchange Notes for
all Private Notes tendered (in the case of clause (iii)(A) above), or upon the
effectiveness of the Shelf Registration Statement which had ceased to remain
effective (in the case of clause (iii)(B) above), Liquidated Damages as a result
of such clause (or the relevant subclause thereof), as the case may be, shall
cease to accrue.
Any amounts of Liquidated Damages due pursuant to clauses (i), (ii) or
(iii) above will be payable in cash, on the same original interest payment dates
as the Notes. The amount of Liquidated Damages will be
25
<PAGE> 27
determined by multiplying the applicable Liquidated Damages rate by the
principal amount of the Notes multiplied by a fraction, the numerator of which
is the number of days such Liquidated Damages rate was applicable during such
period (determined on the basis of a 360-day year comprised of twelve 30-day
months), and the denominator of which is 360.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all the provisions of the Registration Rights Agreement, a copy
of which will be available upon request to the Company.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as Exchange
Agent of the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
<TABLE>
<S> <C>
By Registered or Certified Mail: In Person:
United States Trust Company of New York United States Trust Company of New York
P.O. Box 843 111 Broadway
Cooper Station New York, New York 10006
New York, New York 10276 Attention: Lower Level Corporate Trust Window
Attention: Corporate Trust Services
By Hand or Overnight Courier: By Facsimile (for Eligible Institutions
only):
United States Trust Company of New York 212-420-6152
770 Broadway, 13th Floor
New York, New York 10003 Confirm Receipt of Notice of
Attention: Corporate Trust Unit Guaranteed Delivery by Telephone:
1-800-548-6565
Confirm Receipt of Notice of
Guaranteed Delivery by Telephone:
</TABLE>
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA A
FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be less than
$500,000. Such expenses include registration fees, fees and expenses of the
Exchange Agent and the Trustee, accounting and legal fees and printing costs,
among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Private Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of the Private Notes pursuant to
the Exchange Offer, then the amount of any such transfer taxes (whether imposed
on the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
26
<PAGE> 28
CONSEQUENCE OF FAILURES TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Private
Notes are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
The Private Notes that are not exchanged for the Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such Private
Notes may be resold only (i) to a person whom the seller reasonably believes is
a QIB in a transaction meeting the requirements of Rule 144A, (ii) in a
transaction meeting the requirements of Rule 144 under the Securities Act, (iii)
outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, (iv) in accordance with
another exemption from the registration requirements of the Securities Act (and
based upon an opinion of counsel if the Company so requests), (v) to the Company
or (vi) pursuant to an effective registration statement and, in each case, in
accordance with any applicable securities laws of any state of the United States
or any other applicable jurisdiction.
ACCOUNTING TREATMENT
For accounting purposes, the Company will recognize no gain or loss as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the Exchange Notes.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive in exchange Private
Notes in like principal amount, the terms of which are identical to the Exchange
Notes. The issuance of the Exchange Notes in exchange for the surrender of
Private Notes will not result in any increase in the indebtedness of the
Company.
27
<PAGE> 29
CAPITALIZATION
The following table sets forth the actual cash, short-term and current
portion of long-term debt and capitalization of the Company as of July 20, 1997
which includes the issuance of the Notes and the application of the proceeds
therefrom on March 26, 1997. The table should be read in conjunction with the
historical consolidated financial statements of the Company and related notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
ACTUAL
AT JULY 20, 1997
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
Cash........................................................................ $ 58.8
========
Short-term and current portion of long-term debt:
Term Loans................................................................ $ 3.5
Other indebtedness........................................................ 1.2
Capital leases............................................................ 28.5
--------
Total short-term and current portion of long-term debt............ $ 33.2
========
Long-term debt:
Term Loans(a)............................................................. $ 545.6
Revolving Facility(a)(b).................................................. 136.6
1996 10.45% Senior Notes(c)............................................... 95.1
1995 10.45% Senior Notes(d)............................................... 520.3
Other senior indebtedness(e).............................................. 14.6
Capital leases............................................................ 128.2
1997 11% Senior Subordinated Notes(f)..................................... 163.5
1995 11% Senior Subordinated Notes........................................ 524.0
Other senior subordinated indebtedness.................................... 2.2
--------
Total long-term debt.............................................. $ 2,130.1
--------
Stockholder's equity (deficit):
Common stock, $.01 par value.............................................. $ --
Additional paid-in capital................................................ 466.9
Notes receivable from stockholders of parent(g)........................... (0.6)
Retained deficit.......................................................... (567.1)
--------
Total stockholder's equity (deficit)................................... (100.8)
--------
Total capitalization.............................................. $ 2,029.3
========
</TABLE>
- ---------------
(a) On April 17, 1997, the Company entered into the Refinanced Credit Facility
which consists of a $325 million Revolving Facility, a $200 million Term
Loan A Facility and a $350 million Term Loan B Facility. The Refinanced
Credit Facility has lower interest rates and a longer average life than the
1995 Credit Facility.
(b) The Revolving Facility provides for a $325 million line of credit which is
available for working capital requirements and general corporate purposes.
Up to $150 million of the Revolving Facility may be used to support letters
of credit. The letters of credit will be used to cover workers' compensation
contingencies and for other purposes permitted under the Revolving Facility.
As of July 20, 1997, letters of credit for approximately $77.3 million had
been issued under the Revolving Facility, primarily to satisfy the State of
California's requirements relating to workers' compensation self-insurance.
(c) Refers to the $100,000,000 aggregate principal amount of 10.45% Senior Notes
due 2004 issued pursuant to an indenture dated June 6, 1996 (the "1996
10.45% Senior Notes"). The 1996 10.45% Senior Notes are shown net of
unamortized discount.
(d) Refers to the $520,326,000 aggregate principal amount of 10.45% Senior Notes
due 2004 issued pursuant to an indenture dated June 1, 1995 (the "1995
10.45% Senior Notes").
(e) Includes the $175,000,000 aggregate principal amount of 10.45% Senior Notes
due 2000 issued pursuant to an indenture dated April 15, 1992 (the "1992
10.45% Senior Notes") of which $4.7 million was outstanding at July 20,
1997.
(f) Refers to the $155,000,000 aggregate principal amount of 11% Senior
Subordinated Notes due 2005 issued pursuant to an indenture dated March 26,
1997 (the "1997 11% Senior Subordinated Notes"). The 1997 11% Senior
Subordinated Notes were issued in the Private Placement at a premium of
105.5% resulting in gross proceeds of $163.5 million. Proceeds of the
Private Placement in excess of the principal amount will be amortized over
the life of the 1997 11% Senior Subordinated Notes.
(g) Represents notes receivable from shareholders of Holdings with respect to
the purchase of Holdings' common stock.
28
<PAGE> 30
SELECTED HISTORICAL FINANCIAL DATA OF THE COMPANY
The following table sets forth certain selected consolidated historical
financial data of the Company and its predecessor Food 4 Less. The operating and
balance sheet data of the Company and Food 4 Less set forth in the table below
as of and for the 52 weeks ended June 27, 1992, June 26, 1993 and June 25, 1994,
the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996 and the
53 weeks ended February 2, 1997 have been derived from the financial statements
of the Company and Food 4 Less which have been audited by Arthur Andersen LLP,
independent public accountants. Certain prior period amounts in the financial
data presented below have been reclassified to conform to the fiscal 1997
presentation. The summary historical financial data of the Company presented
below as of and for the 24 weeks ended July 14, 1996 and July 20, 1997 have been
derived from unaudited financial statements of the Company which, in the opinion
of management, reflect all material adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of such data. The
following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical consolidated financial statements of the Company and related
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS 31 WEEKS 52 WEEKS 53 WEEKS 24 WEEKS 24 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 27, JUNE 26, JUNE 25, JANUARY 29, JANUARY 28, FEBRUARY 2, JULY 14, JULY 20,
1992 1993 1994(a) 1995(b) 1996(c) 1997 1996 1997
---------- ---------- ---------- ----------- ----------- ----------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT STORE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Sales................. $2,913,493 $2,742,027 $2,585,160 $1,556,522 $4,335,109 $5,516,259 $2,474,576 $2,547,948
Cost of sales(d)...... 2,429,711 2,273,167 2,126,302 1,296,810 3,527,120 4,380,241 1,984,107 2,023,869
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit(d)....... 483,782 468,860 458,858 259,712 807,989 1,136,018 490,469 524,079
Selling, general and
administrative
expenses............ 432,695 419,576 378,376 219,696 744,449 933,414 415,912 415,066
Amortization of
goodwill............ 7,795 7,571 7,691 4,615 21,847 38,650 16,185 16,264
Loss (gain) on
disposal of
assets.............. (1,364) (2,083) 37 (455) (547) 9,317 -- --
Restructuring
charge.............. -- -- -- 5,134 (e) 123,083 (f) -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss)(d)........... 44,656 43,796 72,754 30,722 (80,843) 154,637 58,372 92,749
Interest expense(g)... 70,211 69,732 68,250 42,222 178,774 248,428 111,892 110,173
Provision for
earthquake losses... -- -- 4,504(h) -- -- -- -- --
Provision for income
taxes............... 3,441 1,427 2,700 -- 500 -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Loss before
extraordinary
charges............. (28,996) (27,363) (2,700) (11,500) (260,117) (93,791) (53,520) (17,424)
Extraordinary
charges............. 4,818(i) -- -- -- 23,128 (j) -- -- 47,983(k)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net loss(l)........... $ (33,814) $ (27,363) $ (2,700) $ (11,500) $ (283,245) $ (93,791) $ (53,520) $ (65,407)
========== ========== ========== ========== ========== ========== ========== ==========
Ratio of earnings to
fixed charges(m).... --(m) --(m) 1.0x --(m) --(m) --(m) --(m) --(m)
NON-CASH CHARGES:
Depreciation and
amortization of
property and
equipment........... $ 37,898 $ 37,426 $ 41,380 $ 25,966 $ 92,282 $ 129,008 $ 57,993 $ 59,587
Amortization of
goodwill and other
assets.............. 16,979 20,214 15,703 10,657 33,047 40,669 16,865 17,211
Amortization of
deferred financing
costs............... 6,304 4,901 5,472 3,413 8,193 10,667 5,068 3,490
BALANCE SHEET DATA (end
of period)(n):
Working capital
surplus (deficit)... $ (66,254) $ (19,222) $ (54,882) $ (74,776) $ (178,456) $ (182,641) $ (203,722) $ (143,673)
Total assets.......... 998,451 957,840 980,080 1,000,695 3,188,129 3,131,993 3,141,086 3,067,896
Total debt(o)......... 525,340 538,083 517,872 533,804 2,082,304 2,093,206 2,080,595 2,163,336
Stockholder's equity
(deficit)........... 50,771 72,863 69,021 57,803 59,119 (35,562) 5,608 (100,818)
CASH FLOW DATA:
Net cash provided
(used) by operating
activities.......... $ 106.2 $ (16.5) $ 87.8 $ 17.6 $ (16.8) $ 133.7 $ 70.6 $ 4.7
Net cash used by
investing
activities.......... (62.9) (37.8) (55.8) (42.6) (405.4) (111.1) (48.7) (62.9)
Net cash provided
(used) by financing
activities.......... (40.2) 54.9 (24.2) 11.6 470.7 (22.9) (28.4) 49.5
OTHER DATA:
Depreciation and
amortization(p)..... $ 54,877 $ 57,640 $ 57,083 $ 36,623 $ 125,329 $ 169,677 $ 74,858 $ 76,798
Capital
expenditures........ 60,263 53,467 57,741 49,023 122,355 123,622 55,840 68,203
Stores open at end of
period.............. 249 248 258 267 408 405 402 405
EBITDA (as
defined)(q)......... $ 101,723 $ 103,794 $ 130,573 $ 76,853 $ 245,146 $ 354,646 $ 150,264 $ 172,190
EBITDA margin(r)...... 3.5% 3.8% 5.1% 4.9 % 5.7 % 6.4 % 6.1% 6.8%
</TABLE>
- ---------------
(a) Operating data for the 52 weeks ended June 25, 1994 include the results of
10 Food Barn stores, which were not material, from March 29, 1994, the date
of the Food Barn acquisition.
(b) Food 4 Less Supermarkets changed its fiscal year end from the 52 or 53-week
period which ends on the last Saturday in June to the 52 or 53-week period
which ends on the Sunday closest to January 31, resulting in a 31-week
transition period.
(c) Operating data for the 52 weeks ended January 28, 1996 reflects the
acquisition of Ralphs on June 14, 1995.
29
<PAGE> 31
(d) Cost of sales has been principally determined using the last-in, first-out
("LIFO") method of valuing inventory. If cost of sales had been determined
using the first-in, first-out ("FIFO") method, gross profit and operating
income would have been greater by $3.6 million, $4.4 million, $0.7 million,
$2.7 million, $2.2 million, $5.6 million, $2.5 million (unaudited) and $1.7
million (unaudited) for the 52 weeks ended June 27, 1992, June 26, 1993, and
June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended
January 28, 1996 the 53 weeks ended February 2, 1997 and the 24 weeks ended
July 14, 1996 and July 20, 1997, respectively.
(e) The Company converted 11 of its conventional supermarkets to warehouse
stores. During the 31 weeks ended January 29, 1995, the Company recorded a
non-cash restructuring charge for the write-off of property and equipment at
the 11 stores of $5.1 million.
(f) The Company recorded a $75.2 million restructuring charge associated with
the closing of 58 stores and one warehouse facility in the 52 weeks ended
January 28, 1996. Pursuant to the settlement agreement with the State of
California, 24 Food 4 Less stores (as well as 3 Ralphs stores) were required
to be divested and an additional 34 under-performing stores were closed. The
Company also recorded a $47.9 million restructuring charge associated with
the closing of 9 stores and one warehouse facility in the 52 weeks ended
January 28, 1996, in conjunction with the agreement with Smith's to lease
the Riverside warehouse facility and 9 stores.
(g) Interest expense includes non-cash charges related to the amortization of
deferred financing costs.
(h) On January 17, 1994, Southern California was struck by a major earthquake
which resulted in the temporary closing of 31 of the Company's stores. The
closures were caused primarily by loss of electricity, water, inventory, or
damage to the affected stores. All but one of the closed stores reopened
within a week of the earthquake. The final closed store reopened on March
24, 1994. The Company is insured, subject to deductibles, against earthquake
losses (including business interruption). The pre-tax charge to earnings,
net of insurance recoveries, was approximately $4.5 million.
(i) Represents an extraordinary net charge of $4.8 million reflecting the
write-off of $6.7 million (net of related income tax benefit of $2.5
million) of deferred debt issuance costs as a result of the early redemption
of a portion of Food 4 Less' bank term loan, partially offset by a $1.9
million extraordinary gain (net of a related income tax expense of $0.7
million) on the replacement of partially depreciated assets following the
civil unrest in Los Angeles.
(j) Represents an extraordinary charge of $23.1 million relating to the
refinancing of Food 4 Less' old credit facility, 10.45% Senior Notes due
2000 (the "1992 Senior Notes"), 13.75% Senior Subordinated Notes due 2001
(the "1991 Senior Subordinated Notes") and Holdings' 15.25% Senior Discount
Notes due 2004 in connection with the Merger and the write-off of their
related debt issuance costs.
(k) Represents an extraordinary charge of $48.0 million relating to the
write-off of debt issuance costs associated with the refinancing of the 1995
Credit Facility and the write-off of debt issuance costs and premium paid
relating to the redemption of the 1991 and the 1995 13.75% Senior
Subordinated Notes.
(l) Net loss includes a pre-tax provision for self insurance, which is
classified in cost of sales, selling, general and administrative expenses,
and interest expense of $51.1 million, $43.9 million, $25.7 million, $9.8
million, $32.6 million, $29.2 million, $21.2 million and $18.1 million for
the 52 weeks ended June 27, 1992, June 26, 1993, and June 25, 1994, the 31
weeks ended January 29, 1995, the 52 weeks ended January 28, 1996, the 53
weeks ended February 2, 1997, and the 24 weeks ended July 14, 1996 and July
20, 1997, respectively. Included in the 52 weeks ended June 25, 1994, the 31
weeks ended January 29, 1995 and the 52 weeks ended January 28, 1996 are
reduced employer contributions of $8.1 million, $14.3 million and $26.1
million, respectively, related to union health and welfare benefit plans.
Included in the 53 weeks ended February 2, 1997, the 24 weeks ended July 14,
1996 and the 24 weeks ended July 20, 1997 are reduced employer contributions
of $17.8 million, $4.8 million and $6.8 million, respectively, related to
union pension and health and welfare benefit plans. The multi-employer union
health and welfare plans to which the Company contributes are overfunded,
and those employees who contributed to the plans received a pro-rata share
of the excess reserves in the plans through reduction of current
contributions.
(m) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of loss before provision for income taxes and extraordinary charges
plus fixed charges. "Fixed charges" consist of interest on all indebtedness,
amortization of deferred debt financing costs and one-third of rental
expense (the portion deemed representative of the interest factor). Earnings
were insufficient to cover fixed charges for the 52 weeks ended June 27,
1992 and June 26, 1993, the 31 weeks ended January 29, 1995, the 52 weeks
ended January 28, 1996, the 53 weeks ended February 2, 1997, the 24 weeks
ended July 14, 1996 and the 24 weeks ended July 20, 1997, by approximately
$25.6 million, $25.9 million, $11.5 million, $259.6 million, $93.8 million,
$53.5 million and $17.4 million, respectively. However, such earnings
included non-cash charges of $61.2 million for the 52 weeks ended June 27,
1992, $62.5 million for the 52 weeks ended June 26, 1993, $40.0 million for
the 31 weeks ended January 29, 1995, $202.5 million for the 52 weeks ended
January 28, 1996, $180.3 million for the 53 weeks ended February 2, 1997,
$79.9 million for the 24 weeks ended July 14, 1996, $80.3 million for the 24
weeks ended July 20, 1997, primarily consisting of depreciation and
amortization and the write-off of property and equipment associated with
stores closed as a result of the Merger, stores closed due to
under-performance, stores closed in connection with the acquisition of the
nine stores from Smith's, and warehouses to be closed as a result of the
acquisition of the Riverside Facility. In addition, earnings for the 52
weeks ended January 28, 1996 were reduced by cash restructuring charges of
$54.1 million.
(n) Balance sheet data as of June 25, 1994 relates to Food 4 Less and reflect
the acquisition of 10 Food Barn stores. Balance sheet data as of January 28,
1996 relates to the Company and reflects the Merger and the financings
associated therewith.
(o) Total debt includes long-term debt, current maturities of long-term debt and
capital lease obligations.
(p) Depreciation and amortization includes amortization of goodwill.
(q) "EBITDA (as defined)," as presented historically by the Company, represents
income before interest expense, depreciation and amortization expense, the
LIFO provision, provision for income taxes, provision for earthquake losses,
provision for restructuring, a one-time charge in the 1995 transition period
for Teamsters Union sick pay benefits, $75.0 million of one-time costs
incurred in connection with the Merger in fiscal year 1995 and $13.5 million
of one-time costs incurred in connection with the acquisition of the
Riverside Facility and nine former Smith's stores in fiscal year 1996.
EBITDA is a widely accepted financial indicator of a company's ability to
service debt. However, EBITDA should not be construed as an alternative to
operating income or to cash flows from operating activities (as determined
in accordance with generally accepted accounting principles) and should not
be construed as an indication of the Company's operating performance or as a
measure of liquidity. EBITDA as presented may not be comparable to EBITDA of
other companies that do not calculate EBITDA in the same manner as the
Company. The Company believes that its definition of EBITDA (as defined) is
the measure most useful to investors as it is consistent with the
definitions used in the Company's debt covenants. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(r) EBITDA margin represents EBITDA (as defined) as a percentage of sales. The
Company believes that EBITDA margin, which highlights changes in EBITDA
performance unrelated to fluctuations in sales, is useful to investors as an
indication of changes in operating efficiency.
30
<PAGE> 32
SELECTED HISTORICAL FINANCIAL DATA OF RSI
The following table presents selected historical financial data of RSI as
of and for the 52 weeks ended January 31, 1993, January 30, 1994 and January 29,
1995, which have been derived from the financial statements of RSI audited by
KPMG Peat Marwick LLP, independent certified public accountants. The following
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the historical
consolidated financial statements of RSI and related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JANUARY 31, JANUARY 30, JANUARY 29,
1993 1994 1995
----------- ----------- -----------
(DOLLARS IN MILLIONS, EXCEPT STORE
DATA)
<S> <C> <C> <C>
OPERATING DATA:
Sales.................................................................. $2,843.8 $2,730.2 $2,724.6
Cost of sales.......................................................... 2,217.2 2,093.7 2,101.0
-------- -------- --------
Gross profit........................................................... 626.6 636.5 623.6
Selling, general and administrative expenses(a)........................ 470.0 471.0 467.0
Amortization of excess of cost over net assets acquired................ 11.0 11.0 11.0
Provisions for restructuring(b)........................................ 7.1 2.4 --
-------- -------- --------
Operating income....................................................... 138.5 152.1 145.6
Interest expense(c).................................................. 125.6 108.8 112.7
Loss on disposal of assets and provisions for legal settlement and
earthquake losses(d)................................................ 10.1 12.9 0.8
Income tax expense (benefit)........................................... 8.3 (108.0)(e) --
Extraordinary item-debt refinancing, net of tax benefits............... (70.6) -- --
-------- -------- --------
Net earnings (loss)(f)................................................. $ (76.1) $ 138.4 $ 32.1
======== ======== ========
Ratio of earnings to fixed charges(g).................................. 1.02x 1.24x 1.24x
BALANCE SHEET DATA (end of period):
Working capital surplus (deficit)...................................... $(122.0) $ (73.0) $(119.5)
Total assets........................................................... 1,388.5 1,483.7 1,509.9
Total debt(h).......................................................... 1,029.8 998.9 1,018.5
Stockholders' equity (deficit)......................................... (133.3) 5.1 27.2
CASH FLOW DATA:
Net cash provided by operating activities.............................. $ 53.7 $ 104.0 $ 55.4
Net cash used in investing activities.................................. (102.5) (45.5) (50.8)
Net cash provided by (used in) financing activities.................... 58.2 (49.6) (24.6)
OTHER DATA:
Depreciation and amortization(i)....................................... $ 76.9 $ 74.5 $ 76.0
Capital expenditures................................................... 102.7 62.2 64.0
Stores open at end of period........................................... 159 165 173
EBITDA (as defined)(j)................................................. $ 227.3 $ 230.2 $ 230.2
EBITDA margin(k)....................................................... 8.0% 8.4% 8.4%
</TABLE>
- ---------------
(a) Includes provision for post retirement benefits other than pensions of $3.3
million, $3.4 million and $2.6 million for the 52 weeks ended January 31,
1993, January 30, 1994 and January 29, 1995, respectively.
(b) Provisions for restructuring are charges for expenses relating to closing
of Ralphs central bakery operation. The charge reflected the complete
write-down of the bakery building, machinery and equipment, leaseholds,
related inventory and supplies, and providing severance pay to terminated
employees. These charges were $7.1 million and $2.4 million for the 52
weeks ended January 31, 1993 and the 52 weeks ended January 30, 1994,
respectively.
(c) Interest expense includes non-cash charges related to the amortization of
deferred debt issuance costs of $5.5 million for the 52 weeks ended January
31, 1993, $6.5 million for the 52 weeks ended January 30, 1994 and $6.1
million for the 52 weeks ended January 29, 1995, respectively.
(d) Loss on disposal of assets was $2.6 million, $1.9 million and $0.8 million
for the 52 weeks ended January 31, 1993, January 30, 1994 and January 29,
1995, respectively. Provision for legal settlement was $7.5 million for the
52 weeks ended January 31, 1993. Provision for earthquake losses was $11.0
million for the 52 weeks ended January 30, 1994. This represents reserve
for losses, net of anticipated insurance recoveries, resulting from the
January 17, 1994 Southern California earthquake.
(e) Includes recognition of $109.1 million of deferred income tax benefit and
$1.1 million current income tax expense for Fiscal 1993 (see Note 11 of
Notes to Consolidated Financial Statements of Ralphs Supermarkets, Inc.).
(f) Net earnings (loss) includes a pre-tax provision for self insurance, which
is classified in cost of sales, selling, general and administrative
expenses and interest expense, of $36.9 million, $36.3 million, and $20.0
million, for the 52 weeks ended January 31, 1993, the 52 weeks ended
January 30, 1994 and the 52 weeks ended January 29, 1995, respectively.
Included in the 52 weeks ended
31
<PAGE> 33
January 30, 1994 and the 52 weeks ended January 29, 1995 are reduced
employer contributions of $11.8 million and $12.7 million, respectively,
related to union health and welfare benefit plans.
(g) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consist of earnings before income taxes, extraordinary items and
fixed charges before capitalized interest. "Fixed charges" consist of
interest expense (including amortization of self-insurance reserves
discount), capitalized interest, amortization of deferred debt issuance
costs and one-third of rental expense (the portion deemed representative of
the interest factor).
(h) Total debt includes long-term debt, current maturities of long-term debt,
short-term debt and capital lease obligations.
(i) For the 52 weeks ended January 31, 1993, January 30, 1994 and January 29,
1995, depreciation and amortization includes amortization of the excess of
cost over net assets acquired of $11.0 million, $11.0 million and $11.0
million, respectively.
(j) "EBITDA (as defined)" as presented historically by RSI, represents net
earnings before interest expense, income tax expense (benefit),
depreciation and amortization expense, provision for postretirement
benefits, the LIFO charge, extraordinary item relating to debt refinancing,
provision for legal settlement, provision for restructuring, provision for
earthquake losses, a one-time charge for Teamsters Union sick pay benefits,
transition expense and gains and losses on disposal of assets. EBITDA is a
widely accepted financial indicator of a company's ability to service debt.
However, EBITDA should not be construed as an alternative to operating
income or to cash flows from operating activities (as determined in
accordance with generally accepted accounting principles) and should not be
construed as an indication of Ralphs' operating performance or as a measure
of liquidity. The Company believes that its definition of EBITDA (as
defined) is the measure most useful to investors as it is consistent with
the definitions used in the Company's debt covenants. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(k) EBITDA margin represents EBITDA (as defined) as a percentage of sales. The
Company believes that EBITDA margin, which highlights changes in EBITDA
performance unrelated to fluctuations in sales, is an indication of changes
in operating efficiency.
32
<PAGE> 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
On June 14, 1995, Food 4 Less completed its acquisition of RSI and its
wholly owned subsidiary, Ralphs Grocery Company ("RGC" and together with RSI,
"Ralphs"). Concurrently with the consummation of the Merger, the Company
received a significant equity investment from its parent, Food 4 Less Holdings,
Inc. ("Holdings") and refinanced a substantial portion of the existing
indebtedness of Food 4 Less and RGC. See "Business -- The Merger and the
Financing."
Since the Merger, the Company has converted 111 former Alpha Beta, Boys and
Viva stores to the Ralphs format, converted 13 former Ralphs stores to the Food
4 Less warehouse store format, and opened 37 new stores, including nine Southern
California stores acquired from Smith's which became available when Smith's
withdrew from the California market. The Company has sold or closed 74 stores as
a result of divestitures required by the State of California and other steps
taken to improve the average size and quality of its store base. As a result of
the closure and divestiture of smaller stores and the opening of larger stores,
the average square footage per store in Southern California has increased
approximately 11.6% from 36,100 square feet at the time of the Merger to 40,300
square feet at the end of fiscal 1996.
Following the consummation of the Merger, sales in the Company's Southern
California Division fell short of anticipated levels for the second half of
fiscal 1995. This shortfall resulted primarily from achieving less benefit from
the Company's advertising program and experiencing greater competitive activity
than originally expected. In addition, the Company's operating margins were
affected by delays in the implementation of certain buying and other programs to
lower the cost of goods, excessive price markdowns in stores undergoing
conversion and a less advantageous than expected product mix in certain stores.
The realization of cost savings was also delayed in certain areas. In
particular, store operating expenses were higher than anticipated, due primarily
to lower productivity and higher labor costs than originally anticipated and
difficulties in introducing Ralphs merchandising and service standards into the
smaller conventional supermarkets formerly operated by Food 4 Less. Also, as the
Company's backstage facilities were integrated, the Company experienced higher
than expected warehouse and distribution costs resulting from, among other
things, higher than expected inventory levels, delays in the transfer of
distribution personnel from Food 4 Less to Ralphs facilities, and other
backstage operational inefficiencies.
At the beginning of fiscal 1996, the Company streamlined its management
structure and implemented several strategic initiatives designed to improve its
sales and margins. These changes have contributed to the Company's improved
results in fiscal 1996.
In the first quarter of fiscal 1996 the Company began to implement new
marketing initiatives designed to improve its sales performance. Comparable
store sales trends have been improving since that time. Comparable store sales
growth was positive in each of the last three quarters of fiscal 1996, and
reached 2.9% for the fourth quarter, which resulted in comparable store sales
growth of 1.8% for fiscal 1996. On September 11, 1996, the Company launched its
new "First in Southern California" marketing campaign. The new marketing
campaign highlights the Company's belief that more shoppers are choosing Ralphs
than any other supermarket in Southern California. The focus of the new campaign
is on lower regular retail prices while emphasizing those programs that enhance
Ralphs' offerings such as selection, quality, premier perishable departments and
customer service.
During the first quarter of fiscal 1996, the Company implemented a labor
productivity and cost reduction program. As a result, significant reductions
were made in store level and corporate headcount levels. In addition, through
the sublease of Smith's distribution center and creamery in Riverside,
California, the Company was able to consolidate its distribution operations into
three modern, efficient facilities located in Compton, Glendale and Riverside,
California. The elimination of certain smaller and less efficient facilities
allowed the Company to reduce transportation costs, management overhead and
outside storage costs and to improve its inventory management.
33
<PAGE> 35
ACCOUNTING PRESENTATION
The Company's results of operations for the 53 weeks ended February 2, 1997
reflect operations for the combined Company, while the results of operations for
the 52 weeks ended January 28, 1996 reflect 20 weeks of operations of F4L
Supermarkets prior to the Merger and 32 weeks of operations of the combined
Company. Management believes that the Company's results of operations for
periods ending after the consummation of the Merger are not directly comparable
to its results of operations for periods ending prior to such date. This lack of
comparability as a result of the Merger is attributable to several factors,
including the size of the combined Company (since the Merger approximately
doubled Food 4 Less' annual sales volume), the addition of 174 conventional
stores to the Company's overall store mix and the material changes in the
Company's capital structure.
The Merger has been accounted for as a purchase of Ralphs by Food 4 Less.
As a result, all financial statements for periods subsequent to June 14, 1995,
the date the Merger was consummated, reflect Ralphs' net assets at their
estimated fair market values as of June 14, 1995. The purchase price in excess
of the fair market value of Ralphs' net assets was recorded as goodwill and is
being amortized over a 40-year period. The Company finalized the allocation of
the Ralphs purchase price in the second quarter of fiscal 1996.
Food 4 Less changed its fiscal year end from the 52 or 53-week period which
ends on the last Saturday in June to the 52 or 53-week period which ends on the
Sunday closest to January 31, resulting in a transition period ended January 29,
1995. References to the 1995 transition period and fiscal 1995 are to the
31-week period ended January 29, 1995, and the 52-week period ending January 28,
1996, respectively. The operating results for the 1995 transition period are not
directly comparable to those of fiscal 1995, as these periods include 52 weeks
of operations.
FORWARD-LOOKING STATEMENTS
When used in this Prospectus, the words "estimate," "expect," "project" and
similar expressions are intended to identify forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and Section 27A of the Securities Act (notwithstanding the
fact that such provisions contain exclusions for forward-looking statement made
in connection with a "tender offer"). These forward-looking statements speak
only as of the date hereof. All of these forward-looking statements are based on
estimates and assumptions made by management of the Company, which although
believed to be reasonable, are inherently uncertain and difficult to predict;
therefore, undue reliance should not be placed upon such estimates. Such
statements are subject to certain risks and uncertainties, including those
discussed under "Risk Factors" above, that could cause actual results to differ
materially from those projected. These factors include, but are not limited to:
(i) the factors discussed under "Risk Factors -- Competition"; (ii) the factors
discussed under "Risk Factors -- Control of the Company"; (iii) the factors
discussed under "Risk Factors -- Risk That Additional Cost Savings May Not be
Achieved"; (iv) the factors discussed under "Risk of High Leverage -- Ability to
Service Debt"; (v) the factors discussed under "Risk Factors -- Risk of
Geographic Concentration"; as well as (vi) adverse state or federal legislation
or regulation that increases the costs of compliance, or adverse findings by a
regulator with respect to existing operations; (vii) loss of customers or sales
weakness; and (viii) adverse determinations in connection with pending or future
litigations or other material claims against the Company. Many of such factors
are beyond the control of the Company. Following the Merger, the Company has
experienced certain unanticipated costs and delays in the realization of certain
projected cost savings. There can be no assurance that new or additional
unforeseen costs or delays will arise either in connection with the integration
or the Company's operations or the ongoing conduct of its business. Accordingly,
any forward-looking statements included herein do not purport to be predictions
of future events or circumstances and may not be realized. For a discussion of
certain risks which may affect the Company, see "Risk Factors."
34
<PAGE> 36
RESULTS OF OPERATIONS
The following table sets forth the historical operating results of the
Company for the 52 weeks ended June 25, 1994, the 31 weeks ended January 29,
1995, the 52 weeks ended January 28, 1996, the 52 weeks ended January 28, 1996,
the 53 weeks ended February 2, 1997, the 24 weeks ended July 14, 1996 and the 24
weeks ended July 20, 1997:
<TABLE>
<CAPTION>
24 WEEKS
ENDED
1995 --------
FISCAL YEAR FISCAL YEAR TRANSITION FISCAL YEAR FISCAL YEAR JULY 14,
1993 1994 PERIOD 1995 1996 1996
---------------- ---------------- ---------------- ---------------- ---------------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................ $2,742.0 100.0% $2,585.2 100.0% $1,556.5 100.0% $4,335.1 100.0% $5,516.3 100.0% $2,474.6
Gross profit......... 468.9 17.1 458.9 17.8 259.7 16.7 808.0 18.6 1,136.0 20.6 490.5
Selling, general and
administrative
expenses............ 419.6 15.3 378.4 14.6 219.7 14.1 744.4 17.2 933.4 16.9 415.9
Amortization of
goodwill............ 7.6 0.3 7.7 0.3 4.6 0.3 21.8 0.5 38.7 0.7 16.2
Loss (gain) on
disposal of
assets.............. (2.1) (0.1) 0.0 0.0 (0.5) (0.0) (0.5) (0.0) 9.3 0.2 --
Restructuring
charge.............. 0.0 0.0 0.0 0.0 5.1 0.3 123.1 2.8 0.0 0.0 --
Operating income
(loss).............. 43.8 1.6 72.8 2.8 30.7 2.0 (80.8) (1.9) 154.6 2.8 58.4
Interest expense..... 69.8 2.5 68.3 2.6 42.2 2.7 178.8 4.1 248.4 4.5 111.9
Provision for
earthquake losses... 0.0 0.0 4.5 0.2 0.0 0.0 0.0 0.0 0.0 0.0 --
Provision for income
taxes............... 1.4 0.1 2.7 0.1 0.0 0.0 0.5 0.0 0.0 0.0 --
Loss before
extraordinary
charge.............. (27.4) (1.0) (2.7) (0.1) (11.5) (0.7) (260.1) (6.0) (93.8) (1.7) (53.5)
Extraordinary
charge.............. 0.0 0.0 0.0 0.0 0.0 0.0 23.1 0.5 0.0 0.0 --
Net loss............. $ (27.4) (1.0) $ (2.7) (0.1) $ (11.5) (0.7)% $ (283.2) (6.5)% $ (93.8) (1.7)% $ (53.5)
<CAPTION>
JULY 20, 1997
----------------
<S> <C<C> <C> <C>
Sales................ 100.0% $2,547.9 100.0%
Gross profit......... 19.8 524.1 20.6
Selling, general and
administrative
expenses............ 16.8 415.1 16.3
Amortization of
goodwill............ 0.7 16.3 0.6
Loss (gain) on
disposal of
assets.............. -- -- --
Restructuring
charge.............. -- -- --
Operating income
(loss).............. 2.4 92.7 3.6
Interest expense..... 4.5 110.2 4.3
Provision for
earthquake losses... -- -- --
Provision for income
taxes............... -- -- --
Loss before
extraordinary
charge.............. (2.2) (17.4) (0.7)
Extraordinary
charge.............. -- 48.0 1.9
Net loss............. (2.2)% $ (65.4) (2.6)%
</TABLE>
COMPARISON OF THE COMPANY'S RESULTS OF OPERATIONS FOR THE 24 WEEKS ENDED JULY
20, 1997 WITH THE COMPANY'S RESULTS OF OPERATIONS FOR THE 24 WEEKS ENDED JULY
14, 1996:
Sales. Sales for the 12 weeks ended July 20, 1997 increased $27.9 million
to $1,271.7 million from $1,243.8 million for the 12 weeks ended July 14, 1996
and increased $73.3 million to $2,547.9 million in the 24 weeks ended July 20,
1997 from $2,474.6 million in the 24 weeks ended July 14, 1996. The increases in
sales were primarily attributable to 2.0 percent and 3.0 percent increases in
comparable store sales for the 12 and 24 week periods ended July 20, 1997,
respectively, and the continued success of new store openings, partially offset
by store closings. Since the beginning of fiscal 1996, 28 stores have been
opened and 32 stores have been closed and a total of 55 stores have been
remodeled. The second quarter of fiscal 1997 represents the fifth consecutive
quarter that the Company has achieved positive comparable store sales. The
increases in comparable store sales reflect consumers' favorable response to the
Company's "First in Southern California" marketing program, which focuses on the
Company's lower price program in conjunction with its premier offering of
quality, selection and customer service, as well as its continuing remodeling
program.
Gross Profit. Gross profit increased as a percentage of sales from 20.3
percent in the 12 weeks ended July 14, 1996 to 20.5 percent in the 12 weeks
ended July 20, 1997 and increased as a percentage of sales from 19.8 percent in
the 24 weeks ended July 14, 1996 to 20.6 percent in the 24 weeks ended July 20,
1997. The increase in gross profit margin reflects a reduction in warehousing
and distribution costs as a result of the consolidation of the Company's
distribution operations, as well as a reduction in the cost of goods sold as the
benefits of product procurement programs instituted by the Company are realized.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") were $209.3 million and $205.3 million for the
12 weeks ended July 14, 1996 and July 20, 1997, respectively, and were $415.9
million and $415.1 million for the 24 weeks ended July 14, 1996 and July 20,
1997, respectively. SG&A decreased as a percentage of sales from 16.8 percent to
16.1 percent for the 12 weeks ended July 14, 1996 and July 20, 1997,
respectively, and decreased as a percentage of sales from 16.8 percent to 16.3
percent for the 24 weeks ended July 14, 1996 and July 20, 1997, respectively.
The reduction in SG&A
35
<PAGE> 37
as a percentage of sales reflects the continued results of tighter expense and
labor controls at the store level and continued administrative cost reductions.
Additionally, the Company participates in multi-employer health and welfare
plans for its store employees who are members of the United Food and Commercial
Workers Union ("UFCW") and recognized pension suspension credits of $4.8 million
and $6.8 million were recognized in the 24 weeks ended July 14, 1996 and the 24
weeks ended July 20, 1997, respectively.
Operating Income. Primarily as a result of the factors discussed above, the
Company's operating income increased from $34.3 million in the 12 weeks ended
July 14, 1996 to $47.7 million in the 12 weeks ended July 20, 1997 and increased
from $58.4 million in the 24 weeks ended July 14, 1996 to $92.7 million in the
24 weeks ended July 20, 1997.
Loss Before Extraordinary Charges. Primarily as a result of the factors
discussed above, the Company's loss before extraordinary charges decreased from
$21.5 million in the 12 weeks ended July 14, 1996 to $5.4 million in the 12
weeks ended July 20, 1997 and decreased from $53.5 million in the 24 weeks ended
July 14, 1996 to $17.4 million in the 24 weeks ended July 20, 1997.
Extraordinary Charges. Extraordinary charges of $48.0 million were recorded
during the 12 weeks ended April 27, 1997. These charges relate to the call
premium on the 13.75% Senior Subordinated Notes and the write-off of deferred
financing costs associated with the Old Credit Facility and the 13.75% Senior
Subordinated Notes.
COMPARISON OF THE COMPANY'S RESULTS OF OPERATIONS FOR THE 53 WEEKS ENDED
FEBRUARY 2, 1997 WITH THE COMPANY'S RESULTS OF OPERATIONS FOR THE 52 WEEKS
ENDED JANUARY 28, 1996:
Sales. Sales per week increased $20.7 million, or 24.8 percent, from $83.4
million in the 52 weeks ended January 28, 1996 to $104.1 million in the 53 weeks
ended February 2, 1997. The increase in sales was primarily attributable to the
addition of 174 conventional supermarkets acquired through the Merger, new store
openings and the improved performance of converted stores partially offset by
the closing of 74 smaller stores since the Merger. Comparable store sales trends
have been improving each quarter since the Merger, and the fourth quarter
represents the third consecutive quarter the Company has achieved positive
comparable store sales, increasing by 2.9 percent. Excluding stores being
divested or closed in connection with the Merger, comparable store sales for
fiscal 1996 increased 1.8 percent. Management believes the increase in
comparable store sales was primarily attributable to additional consumers'
favorable response to the Company's "First in Southern California" marketing
program.
Gross Profit. Gross profit increased as a percentage of sales from 18.6
percent in the 52 weeks ended January 28, 1996 to 20.6 percent in the 53 weeks
ended February 2, 1997. The increase in gross profit margin reflects a reduction
in warehousing and distribution costs as a result of the consolidation of the
Company's distribution operations, as well as a reduction in the cost of goods
sold as the benefits of inventory management programs instituted by the Company
are realized. The increase in gross profit margin was also attributable to the
addition of RGC's conventional supermarkets which diluted the effect of the
Company's warehouse stores (which have lower gross margins that the Company's
conventional supermarkets) on its overall gross margin for the period. Gross
profit in 1995 was also impacted by certain one-time costs associated with the
integration of the Company's operations. See "Operating Income (Loss)."
Selling, General and Administrative Expenses. Selling, general,
administrative and other expenses ("SG&A") were $744.4 million and $933.4
million for the 52 weeks ended January 28, 1996 and the 53 weeks ended February
2, 1997, respectively. SG&A decreased as a percentage of sales from 17.2 percent
to 16.9 percent for those periods. The reduction in SG&A as a percentage of
sales reflects the results of tighter expense and labor controls at store level
and administrative costs reductions. The decrease in SG&A as a percentage of
sales was offset by an increase in SG&A due primarily to the addition of RGC's
conventional supermarkets acquired through the Merger. The additional
conventional supermarkets diluted the effect of the Company's warehouse stores
which have lower SG&A than the Company's conventional supermarkets. The Company
participates in multi-employer health and welfare plans for its store employees
who are members of the United Food and Commercial Workers Union ("UFCW"). As
part of the renewal of the Southern California UFCW contract in October 1995,
employers contributing to UFCW health and welfare plans
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<PAGE> 38
received a pro rata share of the excess reserves in the plans through a
reduction of current employer contributions. The Company's share of the excess
reserves recognized in fiscal 1996 was $17.8 million, which partially offset the
increase in SG&A. SG&A was also impacted in fiscal 1995 and 1996 by certain
one-time costs associated with the integration of the Company's operations. See
"Operating Income (Loss)."
During fiscal 1995, the Company approved and implemented a restructuring
plan designed to restructure its operations in connection with the Merger. A
total of 58 stores were planned to be closed, 27 of which were required to be
sold pursuant to a settlement agreement with the State of California in
connection with the Merger. The remaining 31 stores were under-performing
stores. In addition, the Company closed two duplicate warehouse facilities no
longer required by the merged entity. In accordance with this plan, the Company
recorded a restructuring charge of $75.2 million, consisting of write-downs of
property and equipment, (net of estimated proceeds); provisions for lease
obligations; write-downs of other assets and miscellaneous expenses.
Approximately $28.4 million is expected to involve cash disbursements and $46.8
million is expected to involve non-cash write-downs. The Company's planned
method of disposition is to sell or sublease the disposed stores/warehouse
facilities. Stores closed as part of this restructuring plan contributed $91.7
million and $33.9 million in sales, and recognized operating losses of $0.6
million and $2.3 million, for fiscal 1995 and fiscal 1996, respectively. During
fiscal 1995, the Company incurred cash expenditures of $2.5 million and non-cash
charges of $32.2 million, related primarily to write-downs of property and
equipment and other assets and payments of lease obligations. During fiscal
1996, the Company incurred cash expenditures of $6.5 million and non-cash
expenditures of $11.6 million, consisting primarily of write-downs of property
and equipment and payments of lease obligations. At February 2, 1997,
approximately $22.4 million of the restructuring accrual remained accrued on the
Company's balance sheet, consisting primarily of provisions for lease
obligations. As of February 2, 1997, the Company has completed a majority of the
restructuring actions, although certain lease obligations will continue through
2010.
On December 29, 1995, the Company consummated an agreement with Smith's
Food and Drug Centers ("Smith's") to sublease its one million square foot
distribution center and creamery facility in Riverside, California for
approximately 23 years, with renewal options through 2043. The Company also
acquired nine of Smith's Southern California stores. As a result of this
agreement, the Company approved and implemented a restructuring plan designed to
restructure its distribution operations by closing its existing La Habra
distribution center and nine of its smaller and less efficient stores that were
located near the stores acquired from Smith's. In accordance with this plan, the
Company recorded a restructuring charge of $47.9 million, consisting of
write-downs of property and equipment and provisions for lease obligations.
Approximately $29.6 million is expected to involve cash disbursements and $18.3
million is expected to involve non-cash write-downs. The Company's planned
method of disposition is to sell or sublease the disposed stores/distribution
facility. Stores closed as part of this restructuring plan contributed $40.1
million and $23.2 million in sales, and contributed operating income of $2.0
million and $0.3 million, for fiscal 1995 and fiscal 1996, respectively. The
Company completed the closure of its La Habra distribution facility in the first
quarter of fiscal 1996. No charges were incurred against the restructuring
accrual in fiscal 1995. During fiscal 1996, the Company incurred cash
expenditures of $15.6 million and non-cash charges of $15.3 million, consisting
primarily of write-downs of property and equipment and payments of lease
obligations. At February 2, 1997, approximately $17.0 million of the
restructuring accrual remained accrued on the Company's balance sheet,
consisting primarily of provisions for lease obligations and provisions for
property and equipment. As of February 2, 1997, the Company has completed a
majority of the restructuring actions, with remaining actions expected to be
completed by the end of fiscal 1997, although certain lease obligations will
continue through 2000.
Operating Income (Loss). In addition to the factors discussed above,
operating income for fiscal year 1996 was impacted by approximately $13.5
million of costs associated with the integration of the Smith's distribution
center and the continuing integration of the stores acquired from Smith's and
approximately $8.9 million associated with closed store reserves, which was
recorded in the fourth quarter.
Interest Expense. Interest expense (including amortization of deferred
financing costs) was $178.8 million for the 52 weeks ended January 28, 1996 and
$248.4 million for the 53 weeks ended February 2, 1997. The
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<PAGE> 39
increase in interest expense was primarily due to the increased indebtedness
incurred in conjunction with the Merger. See "Liquidity and Capital Resources."
Loss Before Extraordinary Charge. Primarily as a result of the factors
discussed above, the Company's loss before extraordinary charge decreased from
$260.1 million for fiscal year 1995 to $93.8 million in fiscal year 1996.
COMPARISON OF THE COMPANY'S RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED
JANUARY 28, 1996 WITH THE COMPANY'S RESULTS OF OPERATIONS FOR THE 31 WEEKS
ENDED JANUARY 29, 1995.
Sales
Sales per week increased $33.2 million, or 66.1 percent, from $50.2 million
in the 31 weeks ended January 29, 1995 to $83.4 million in the 52 weeks ended
January 28, 1996. The increase in sales was primarily attributable to the
addition of 174 conventional supermarkets acquired through the Merger. The sales
increase was partially offset by a pro forma comparable store sales (includes
the combined sales of Food 4 Less and RGC for the period prior to the Merger)
decline of 1.9 percent for the 52 weeks ended January 28, 1996 as compared to
the 52 weeks ended January 28, 1995. Excluding stores scheduled for divestiture
or closing, pro forma comparable store sales decreased 1.2 percent. Management
believes the decline in comparable store sales was primarily attributable to
additional competitive store openings and remodels in Southern California, as
well as the Company's own new store openings and conversions.
Gross Profit
Gross profit increased as a percentage of sales from 16.7 percent in the 31
weeks ended January 29, 1995 to 18.6 percent in the 52 weeks ended January 28,
1996. The increase in gross profit margin was primarily attributable to the
addition of 174 conventional supermarkets which diluted the effect of the
Company's warehouse stores (which have lower gross margins than the Company's
conventional supermarkets) on its overall gross margin for the period. Gross
profit was also impacted by certain one-time costs associated with the
integration of the Company's operations. See "Operating Income (Loss)."
Selling, General and Administrative Expenses
SG&A expenses were $219.7 million and $744.4 million for the 31 weeks ended
January 29, 1995 and the 52 weeks ended January 28, 1996, respectively. SG&A
increased as a percentage of sales from 14.1 percent to 17.2 percent for the
same periods. The increase in SG&A as a percentage of sales was due primarily to
the addition of 174 conventional supermarkets acquired through the Merger. The
additional conventional supermarkets diluted the effect of the Company's
warehouse stores (which have lower SG&A than the Company's conventional
supermarkets) on its SG&A margin for the period. The Company participates in
multi-employer health and welfare plans for its store employees who are members
of the United Food and Commercial Workers Union ("UFCW"). As part of the renewal
of the Southern California UFCW contract in October 1993, employers contributing
to UFCW health and welfare plans received a pro rata share of the excess
reserves in the plans through a reduction of current employer contributions. The
Company's share of the excess reserves recognized in fiscal 1995 was $26.1
million, which partially offset the increase in SG&A. SG&A was also impacted by
certain one-time costs associated with the integration of the Company's
operations. See "-- Operating Income (Loss)."
Restructuring Charge
During fiscal 1995, the Company recorded a $75.2 million charge associated
with the closure of 58 stores formerly owned by Food 4 Less and one former Food
4 Less warehouse facility. Twenty-four of these stores were required to be
closed pursuant to a settlement agreement with the State of California in
connection with the Merger. Three RGC stores were also required to be sold.
Thirty-four of the closed stores were under-performing stores formerly owned by
Food 4 Less. The $75.2 million restructuring charge consisted of write-downs of
property and equipment ($52.2 million) less estimated proceeds ($16.0 million);
reserve for closed
38
<PAGE> 40
stores and warehouse facility ($16.1 million); write-off of the Alpha Beta
trademark ($8.3 million); write-off of other assets ($8.0 million); lease
termination expenses ($4.0 million); and miscellaneous expenses ($2.6 million).
During fiscal 1995, the Company utilized $34.7 million of the reserve for
restructuring costs ($50.0 million of costs partially offset by $15.3 million of
proceeds from the divestiture of stores). The charges consisted of write-downs
of property and equipment ($33.2 million); write-off of the Alpha Beta trademark
($8.3 million); and expenditures associated with the closed stores and the
warehouse facility, consisting of write-offs of other assets, lease termination
expenditures and miscellaneous expenditures ($8.5 million). Future lease
payments of approximately $19.1 million will be offset against the remaining
reserve. Management believes that the remaining reserve is adequate to complete
the planned restructuring.
On December 29, 1995, the Company entered into an agreement with Smith's to
sublease its one million square foot distribution center and creamery facility
in Riverside, California for approximately 23 years, with renewal options
through 2043, at an annual rent of approximately $8.8 million. Concurrently with
such agreement, the Company also acquired certain operating assets and inventory
at that facility for a purchase price of approximately $20.2 million. In
addition, the Company also acquired nine of Smith's Southern California stores
which became available when Smith's withdrew from the California market. As a
result of the acquisition of the Riverside distribution center and creamery, the
Company closed its La Habra distribution center in the first quarter of fiscal
1996. Also, the Company closed nine of its stores which were near the acquired
former Smith's stores. During the fourth quarter of fiscal 1995, the Company
recorded an additional $47.9 million restructuring charge to recognize the cost
of closing these facilities, consisting of write-downs of property and equipment
($16.1 million), closure costs ($2.2 million), and lease termination expenses
($29.6 million).
Operating Income (Loss)
In addition to the factors discussed above, operating income includes
charges of approximately $75 million for costs associated with the conversion of
stores and integration of the Company's operations. These costs related
primarily to (i) markdowns on clearance inventory at Food 4 Less' Alpha Beta,
Boys and Viva stores converted to the Ralphs format, (ii) an advertising
campaign announcing the Merger, and (iii) incremental labor cost associated with
the training of Company personnel following store conversions. In addition, the
Company has experienced higher than anticipated warehousing and distribution
costs since the Merger, primarily due to the delay in the planned consolidation
of the Company's distribution facilities resulting from the acquisition of the
Riverside Facility. The Company has taken steps to reduce these increased costs
in future periods.
Interest Expense
Interest expense (including amortization of deferred financing costs) was
$42.2 million for the 31 weeks ended January 29, 1995 and $178.8 million for the
52 weeks ended January 28, 1996. The increase in interest expense was primarily
due to the increased indebtedness incurred in conjunction with the Merger. See
"Liquidity and Capital Resources."
Loss Before Extraordinary Charge
Primarily as a result of the factors discussed above, the Company's loss
before extraordinary charge increased from $11.5 million for the 1995 transition
period to $260.1 million for fiscal 1995.
Extraordinary Charge
An extraordinary charge of $23.1 million was recorded during fiscal 1995
relating to retirement of indebtedness of Food 4 Less in connection with the
Merger and the write-off of the related deferred financing costs.
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<PAGE> 41
RESULTS OF OPERATIONS OF RALPHS
The following table sets forth the historical operating results of Ralphs
for the 52 weeks ended January 30, 1994 ("fiscal 1993") and January 29, 1995
("fiscal 1994"):
<TABLE>
<CAPTION>
52 WEEKS ENDED
-----------------------------------------
JANUARY 31, 1994 JANUARY 30, 1995
------------------ ------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Sales.................................................. $2,730.2 100.0% $2,724.6 100.0%
Cost of sales.......................................... 2,093.7 76.7 2,101.0 77.1
Selling, general and administrative expenses........... 471.0 17.2 467.0 17.2
Operating income(a).................................... 152.1 5.6 145.6 5.3
Net interest expense................................... 108.8 4.0 112.7 4.1
Provision for earthquake losses(b)..................... 11.0 0.4 -- --
Income tax expense (benefit)........................... (108.0) (4.0) -- --
Extraordinary item..................................... -- -- -- --
Net earnings (loss).................................... $ 138.4 5.1 $ 32.1 1.2
</TABLE>
- ---------------
(a) Operating income reflects charges of $2.4 million in fiscal 1993, for
expenses relating to closing of central bakery operation. The charge
reflected the complete write-down of the bakery building, machinery and
equipment, leaseholds, related inventory and supplies, and providing
severance pay to terminated employees.
(b) Represents reserve for losses, net of expected insurance recoveries,
resulting from the January 17, 1994 Southern California earthquake.
COMPARISON OF RALPHS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 29,
1995 WITH RALPHS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 30,
1994.
Sales
For the fifty-two weeks ended January 29, 1995, sales were $2,724.6
million, a decrease of $5.6 million or 0.2% from the fifty-two weeks ended
January 30, 1994. During fiscal 1994, Ralphs opened ten new stores (four in Los
Angeles County, three in Orange County, one in San Diego County and two in
Riverside County), closed two stores (in conjunction with new stores opening in
the same areas), and completed five store remodels. Comparable store sales
decreased 3.7%, which included an increase of 0.3% for replacement store sales,
from $2,707.9 million in fiscal 1993 to $2,606.4 million in fiscal 1994. Ralphs
sales continued to be adversely affected by the continuing softness of the
economy in Southern California, continuing competitive new store and remodeling
activity and recent pricing and promotional changes by competitors. Ralphs
continued to take steps to mitigate the impact of the weak retailing environment
in its markets, which included continuing its own new store and remodeling
program and initiating the Ralphs Savings Plan in February 1994, a new marketing
campaign specifically designed to enhance customer value.
On January 17, 1994, an earthquake in Southern California caused
considerable damage in Los Angeles and surrounding areas. Several Ralphs
supermarkets suffered earthquake damage, with 54 stores closed on the morning of
January 17th. Thirty-four stores reopened within one day and an additional 17
stores reopened within three days. Three stores in the San Fernando Valley area
of Los Angeles suffered major structural damage. All three stores have since
reopened for business, with the last reopening on April 15, 1994. Management
believes that there was some negative impact on sales resulting from the
temporary disruption of business resulting from the earthquake. Ralphs is
partially insured for earthquake losses. The pre-tax financial impact, net of
expected insurance recoveries, is expected to be approximately $11.0 million and
Ralphs reserved for this loss in fiscal 1993. The gross earthquake loss is
approximately $25.3 million and the expected insurance recovery is approximately
$14.3 million.
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<PAGE> 42
Cost of Sales
Cost of sales increased $7.3 million or 0.3% from $2,093.7 million in
fiscal 1993 to $2,101.0 million in fiscal 1994. As a percentage of sales, cost
of sales increased to 77.1% in fiscal 1994 from 76.7% in fiscal 1993. The
increase in cost of sales as a percentage of sales included a one-time charge
for Teamsters Union sick pay benefits pursuant to a new contract ratified in
August 1994 with the Teamsters. The total charge was $2.5 million, of which $2.1
million was included in cost of sales and $0.4 million in selling, general and
administrative expense. Increases in cost of sales were partially offset by
savings in warehousing and distribution costs, reductions in self-insurance
costs, pass-throughs of increased operating costs and increases in relative
margins where allowed by competitive conditions.
Warehousing and distribution cost savings were primarily attributable to
Ralphs' Glendale and Compton facilities along with the ongoing implementation of
new computer-controlled programs and labor standards that improved distribution
productivity. The Glendale facility can hold substantially more inventory and
requires fewer employees to operate than does a conventional warehouse of equal
size. This facility has reduced Ralphs' warehousing costs of non-perishable
items markedly, enabling it to take advantage of advance buying opportunities
and minimize "out-of-stocks." Ralphs engages in forward-buy purchases to take
advantage of special prices or to delay the impact of upcoming price increases
by purchasing and warehousing larger quantities of merchandise than immediately
required. The Compton facility has consolidated the operations of three existing
facilities and holds more inventory than the facilities it replaced, thereby
reducing Ralphs' warehouse distribution costs.
Over the last several years, Ralphs has been implementing modifications in
its workers compensation and general liability insurance programs. Ralphs
believes that these modifications have resulted in a significant reduction in
self-insurance costs for fiscal 1994. Based on a review of the results of these
modifications by Ralphs and its actuaries, adjustments to the accruals for
self-insurance costs were made during fiscal 1994 resulting in a reduction of
approximately $18.9 million. Of the total $18.9 million reduction in
self-insurance costs, $7.5 million is included in cost of sales and $11.4
million is included in selling, general and administrative expenses.
Selling, General and Administrative Expenses
SG&A expenses decreased $4.0 million or 0.8% from $471.0 million in fiscal
1993 to $467.0 million in fiscal 1994. As a percentage of sales, SG&A was 17.2%
in fiscal 1993 and 17.2% in fiscal 1994. The decrease in SG&A was primarily due
to a reduction in contributions to the United Food and Commercial Workers Union
("UFCW") health care benefit plans, due to an excess reserve in these plans, a
reduction in self-insurance costs, as discussed above, and the results of cost
savings programs instituted by Ralphs. Ralphs is continuing its expense
reduction program. The decrease in SG&A was partially offset by several factors
including increases in union wage rates, a one-time charge for Teamsters Union
sick pay benefits, as discussed above, transition expense relating to the Merger
($1.4 million) and increased rent expense resulting from new stores, including
fixture and equipment financing.
Ralphs participates in multi-employer pension plans and health and welfare
plans administered by various trustees for substantially all union employees.
Contributions to these plans are based upon negotiated contractual rates. In
both fiscal 1992 and fiscal 1993 the multi-employer pension plan was deemed to
be overfunded based upon the collective bargaining agreement then currently in
force. During fiscal 1993 the agreement called for pension benefits which
resulted in additional required expense. The UFCW health and welfare benefit
plans were overfunded and those employers who contributed to these plans
received a pro rata share of excess reserve in these health care benefit plans
through a reduction in current maintenance payments. Ralphs' share of the excess
reserve was approximately $24.5 million of which $11.8 million was recognized in
fiscal 1993 and the remainder, $12.7 million, was recognized in fiscal 1994.
Since employers are required to make contributions to the benefit funds at
whatever level is necessary to maintain plan benefits, there can be no assurance
that plan maintenance payments will remain at current levels.
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<PAGE> 43
Operating Income
Operating income in fiscal 1994 decreased 4.3% to $145.6 million from
$152.1 million in fiscal 1993. Operating margin, defined as operating income as
a percentage of sales, was 5.3% in fiscal 1994 compared to 5.6% in fiscal 1993.
EBITDA, defined as net earnings before interest expense, income tax expense
(benefit), depreciation and amortization expense, provision for postretirement
benefits, provision for LIFO expense, gain or loss on disposal of assets,
transition expense and a one-time charge for Teamsters Union sick pay benefits,
was 8.4% of sales or $230.2 million in fiscal 1994 and 8.4% of sales or $230.2
million in fiscal 1993.
Net Interest Expense
Net interest expense for fiscal 1994 was $112.7 million versus $108.8
million for fiscal 1993. Net interest expense increased primarily as a result of
increases in interest rates. Included as interest expense during fiscal 1994 was
$97.4 million, representing interest expense on existing debt obligations,
capitalized leases and a swap agreement. Comparable interest expense for fiscal
1993 was $92.8 million. Also included in net interest expense for fiscal 1994
was $15.3 million representing certain other charges related to amortization of
debt issuance costs, self-insurance discounts, lease valuation reserves and
other miscellaneous charges (categorized by Ralphs as non-cash interest expense)
as compared to $16.0 million for fiscal 1993. Investment income, which is
immaterial, has been offset against interest expense. The continuation of higher
interest rates subsequent to the end of fiscal 1994 has continued to increase
interest expense and adversely affect Ralphs' net income.
Net Earnings
For fiscal 1994, Ralphs reported net earnings of $32.1 million compared to
net earnings of $138.4 million for Fiscal 1993. The decrease in net earnings is
primarily the result of decreased operating income, higher interest expense due
to increased interest rates, the recognition of $109.1 million of deferred
income tax benefit in fiscal 1993 partially offset by $11.0 million recorded for
earthquake losses in Fiscal 1993.
Other
In February 1994, the Board of Directors of Ralphs authorized a dividend of
$10.0 million to be paid to RSI, and the Board of Directors of RSI authorized
distribution of this dividend to its shareholders subject to certain restrictive
covenants in the instruments governing certain of Ralphs' indebtedness that
impose limitations on the declaration or payment of dividends. Ralphs' credit
agreement, entered into in 1992 (the "1992 Credit Agreement"), was amended to
allow for the payment of the dividend to RSI for distribution to RSI's
shareholders. The fee for the amendment was approximately $500,000, which was
included in interest expense for the period. The dividend was distributed to the
shareholders of RSI in the second quarter of Fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations, amounts available under the Company's $325.0
million revolving facility ("Revolving Facility") and lease financing are the
Company's principal sources of liquidity. The Company believes that these
sources will be adequate to meet its anticipated capital expenditure, working
capital and debt service requirements for the foreseeable future.
At July 20, 1997, borrowings of $136.6 million under the Revolving Facility
and $77.3 million of standby letters of credit were outstanding. The level of
borrowings under the Company's Revolving Facility is dependent upon cash flows
from operations, the timing of disbursements, seasonal requirements and capital
expenditure activity. The Company is required to reduce loans outstanding under
the Revolving Facility to $110.0 million for a period of not less than 30
consecutive days during the twelve consecutive month-period ended on the last
day of fiscal 1997. The Company complied with this requirement in the second
quarter of fiscal 1997. At August 22, 1997, the Company had $131.5 million
available for borrowing under the Revolving Facility.
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<PAGE> 44
During the 24-week period ending July 20, 1997, cash provided by operating
activities was approximately $4.7 million compared to $70.6 million in the
24-week period ending July 14, 1996. The decline in cash from operating
activities in the current quarter is primarily due to the timing of payments of
accounts payable and accrued liabilities, prepaid expenses and accrued interest.
These reductions in cash were partially offset by an improvement in operating
income of approximately $34.4 million. The improvement in operating income can
primarily be attributed to strong comparable store sales, a reduction in
warehousing and distribution costs resulting from the consolidation of the
Company's distribution operations, and a reduction in cost of goods sold as the
benefits of product procurement programs are realized. The Company's principal
use of cash in its operating activities is inventory purchases. The Company's
high inventory turnover rate generally allows it to finance a substantial
portion of its inventory through trade payables, thereby reducing its short-term
borrowing needs.
Cash used by investing activities was $62.9 million for the 24-week period
ending July 20, 1997. Investing activities consisted primarily of capital
expenditures of $68.2 million. The capital expenditures were financed primarily
from cash provided by operating and financing activities.
The capital expenditures in the 24-week period ending July 20, 1997, as
discussed above, relate to 11 new stores (two of which had been completed at
July 20, 1997) and the remodeling of 57 stores (31 of which had been completed
at July 20, 1997). The Company currently anticipates that its aggregate capital
expenditures for fiscal 1997 will be approximately $140.0 million (net of
expected capital leases) and will include eight new stores and 58 remodels.
Consistent with past practices, the Company intends to finance these capital
expenditures primarily with cash provided by operations, borrowings under the
Revolving Facility and through leasing transactions. At August 22, 1997, the
Company had approximately $12.0 million of unused equipment leasing facilities.
No assurance can be given that sources of financing for capital expenditures
will be available or sufficient to finance its anticipated capital expenditure
requirements; however, management believes the capital expenditure program has
substantial flexibility and is subject to revision based on various factors,
including changes in business conditions and cash flow requirements. Management
believes that if the Company were to substantially reduce or postpone these
programs, there would be no substantial impact on short-term operating
profitability. However, management also believes that the construction of new
stores is an important component of its future operating strategy. Consequently,
management believes that if these programs were substantially reduced, future
operating results, and ultimately its cash flow, would be adversely affected.
The capital expenditures discussed above do not include potential
acquisitions which the Company could make to expand within its existing market
or to enter other markets. The Company has grown through acquisitions in the
past and from time to time engages in discussions with potential sellers of
individual stores, groups of stores or other retail supermarket chains.
The Company continues to monitor and evaluate the performance of individual
stores as well as operating markets in relation to its overall business
objectives. As a result of this evaluation, alternative strategies may be
considered by the Company which could result in the disposition of certain
assets.
Cash provided by financing activities was $49.5 million for the 24-week
period ending July 20, 1997, resulting primarily from refinancing activities.
Refinancing activities consisted of the issuance of the 1997 11% Senior
Subordinated Notes to refinance the Company's 13.75% Senior Subordinated Notes
and the refinancing and amendment of the previous credit facility (the "1995
Credit Facility") (discussed below). In total, financing activities consisted
primarily of proceeds of $717.8 million from the issuance of long-term debt and
net borrowings of $37.2 million under the Revolving Facility, partially offset
by principal payments of long-term debt of $687.4 million and capital lease
payments of $13.3 million.
During the first quarter of fiscal 1997, the Company issued the 1997 11%
Senior Subordinated Notes with terms substantially identical to the Company's
existing 11% Senior Subordinated Notes at a price of 105.5% of their principal
amount, resulting in gross proceeds of $163.5 million. The proceeds were used to
redeem all of the Company's $145 million principal amount of 13.75% Senior
Subordinated Notes at a price of 106.1% of their principal amount and to pay the
related accrued interest through the redemption date, which was
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<PAGE> 45
April 28, 1997. The remaining proceeds were used to pay fees and expenses
associated with the issuance of the 1997 11% Senior Subordinated Notes.
During the first quarter, the Company also amended and restated the 1995
Credit Facility to lower interest margins and allow more flexibility with
respect to application of proceeds from certain asset sales and capital
expenditures. The Refinanced Credit Facility consists of a $200.0 million Term
Loan A Facility and a $350.0 million Term Loan B Facility (together, the "Term
Loans") and a $325.0 million Revolving Credit Facility ("Revolving Facility")
under which working capital loans may be made and commercial or standby letters
of credit in the maximum of $150.0 million may be issued.
Quarterly principal installments on the Term Loans continue to 2004, with
principal amounts due as follows: $2.6 million in fiscal 1997, $3.5 million in
fiscal 1998, $25.5 million in fiscal 1999, $62.6 million in fiscal 2000, $87.5
million in fiscal 2001 and $368.3 million thereafter.
As a result of the refinancings described above, the Company recorded
extraordinary charges in the first quarter of fiscal 1997 of approximately $48.0
million, consisting of the call premium on the 13.75% Senior Subordinated Notes
and write-off of deferred financing costs associated with the 1995 Credit
Facility and the 13.75% Senior Subordinated Notes.
The Company is a wholly-owned subsidiary of Holdings. Holdings has
outstanding $131.6 million accreted value of Discount Debentures and $170.3
million principal amount of Pay-In-Kind Debentures. Holdings is a holding
company which has no assets other than the capital stock of the Company.
Holdings will be required to commence semi-annual cash payments of interest on
the Discount Debentures and the Pay-In-Kind Debentures commencing December 15,
2000 in the amount of approximately $61 million per annum. Subject to the
limitations contained in its debt instruments, the Company intends to make
dividend payments to Holdings in amounts which are sufficient to permit Holdings
to service its cash interest requirements. The Company may pay other dividends
to Holdings in connection with certain employee stock repurchases and for
routine administrative expenses.
The Company is highly leveraged. At July 20, 1997, the Company's total
long-term indebtedness (including current maturities) and stockholder's deficit
were $2.2 billion and $100.8 million, respectively. Based upon current levels of
operations and anticipated cost savings and future growth, the Company believes
that its cash flow from operations, together with available borrowings under the
Revolving Facility and its other sources of liquidity (including lease
financing), will be adequate to meet its anticipated requirements for working
capital, capital expenditures, other long-term liabilities and debt service
payments for the foreseeable future. There can be no assurance, however, that
the Company's business will continue to generate cash flow at or above current
levels or that future cost savings and growth can be achieved.
EFFECTS OF INFLATION AND COMPETITION
The Company's primary costs, inventory and labor, are affected by a number
of factors that are beyond its control, including availability and price of
merchandise, the competitive climate and general and regional economic
conditions. As is typical of the supermarket industry, the Company has generally
been able to maintain margins by adjusting its retail prices, but competitive
conditions may from time to time render it unable to do so while maintaining its
market share.
The supermarket industry is highly competitive and characterized by narrow
profit margins. The Company's competitors in each of its operating divisions
include national and regional supermarket chains, independent and specialty
grocers, drug and convenience stores, and the newer "alternative format" food
stores, including warehouse club stores, deep discount drug stores and "super
centers." Supermarket chains generally compete on the basis of location, quality
of products, service, price, product variety and store condition. The Company
regularly monitors its competitors' prices and adjusts its prices and marketing
strategy as management deems appropriate. See "Risk Factors -- Competition."
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RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings per Share," ("SFAS No. 128") was issued. SFAS No. 128 is effective for
earnings per share calculations for periods ending after December 15, 1997. The
new method of calculating earnings per share will have no effect on the
Company's historical earnings per share.
In June 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," ("SFAS No. 130") was issued. Adoption of this
statement will not have a material effect on historical results of operations.
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BUSINESS
Ralphs Grocery Company (the "Company") is the largest supermarket operator
in Southern California with 342 stores and an estimated market share of 26% in
Los Angeles and Orange Counties. The Company operates the second largest
conventional supermarket chain in Southern California under the "Ralphs" name
(263 stores) and the largest warehouse supermarket chain in the region under the
"Food 4 Less" name (79 stores). The Company also operates in Northern California
(27 stores) and the Midwest (36 stores). The Company has achieved strong
competitive positions in each of its marketing areas by successfully tailoring
its merchandising strategy to the particular needs of the individual communities
it serves. In addition, the Company is a vertically integrated supermarket
company with major manufacturing facilities, including a bakery and creamery
operations, and full-line warehouse and distribution facilities servicing its
Southern California operations.
The Company operates both conventional and warehouse format stores under
various names. The following table sets forth by retail format the number of
stores operated by each of the Company's three divisions at February 2, 1997:
<TABLE>
<CAPTION>
SOUTHERN NORTHERN
CALIFORNIA CALIFORNIA MIDWESTERN TOTAL
---------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Ralphs.............................. 263 -- -- 263
Cala................................ -- 8 -- 8
Bell................................ -- 13 -- 13
Falley's............................ -- -- 5 5
-- --
--- ---
Total Conventional............. 263 21 5 289
Food 4 Less......................... 79 -- 31 110
FoodsCo............................. -- 6 -- 6
-- --
--- ---
Total Warehouse................ 79 6 31 116
-- --
--- ---
Total Stores................... 342 27 36 405
=== == == ===
</TABLE>
In Southern California, the Company's two complementary formats allow it to
serve a broad customer base and tailor its stores to the market characteristics
of individual store locations. The Company's conventional stores emphasize a
broad selection of merchandise, high quality fresh produce, meat and seafood and
service departments, including bakery and delicatessen departments in most
stores. The Company's conventional stores also benefit from Ralphs' strong
private label program and its strengths in merchandising, store operations and
systems. By passing on format-related efficiencies, the Food 4 Less price impact
warehouse format stores offer consumers the lowest overall prices while
providing product selections comparable to conventional supermarkets.
At the beginning of fiscal 1996, the Company streamlined its management
structure and implemented several strategic initiatives which have contributed
to improving operating trends at the Company. These initiatives resulted in
several notable achievements, including: (i) positive comparable store sales for
three consecutive quarters, including a 3.5% increase in Southern California
comparable store sales in the fourth quarter of fiscal 1996, (ii) an improvement
of the Company's EBITDA margin to 6.7% in the fourth quarter of fiscal 1996 from
5.5% in the comparable prior-year period, (iii) the opening of 26 new stores and
the remodeling of 20 stores, (iv) the acquisition and integration of a new one
million square foot, state-of-the-art distribution center, and (v) the launching
of a major marketing program designed to increase sales and market share under
the "First in Southern California" theme.
In fiscal 1996 Ralphs reported total sales of approximately $5.5 billion
and EBITDA (as defined) of $354.6 million. For the 24 week period ending July
20, 1997, the Company had sales of approximately $2.5 billion and EBITDA (as
defined) of approximately $172.2 million (or 6.8 percent of sales) as compared
to sales of $2.5 billion and EBITDA (as defined) of $150.3 million (or 6.1
percent of sales) for the 24 week period of fiscal 1996. Total Company
comparable store sales increased by 3.0% for the 24 week period of 1997 and
EBITDA (as defined) increased by 14.6% over the prior year.
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The Company is controlled by The Yucaipa Companies ("Yucaipa"), a private
investment group which specializes in the supermarket industry. The principals
of Yucaipa have significant expertise in acquiring and managing companies in the
supermarket industry, having completed 13 transactions. The other supermarket
companies presently controlled or managed by Yucaipa are Dominick's Finer Foods,
Inc. (NYSE; DFF) and Smith's Food & Drug Centers, Inc. (NYSE: SFD). These
companies, together with the Company, operate a total of 655 stores and had
aggregate combined sales of approximately $11 billion in their most recent
fiscal years.
The Company actively participates in a "best practices" program with all
other Yucaipa-managed supermarket chains that is intended to reduce costs and
improve business processes. For example, the Company coordinates its purchasing
efforts with other Yucaipa-managed supermarket chains in an effort to reduce its
product costs.
SOUTHERN CALIFORNIA DIVISION
The Southern California Division operates 342 supermarkets in eight
counties under the names "Ralphs" and "Food 4 Less." The Company's Southern
California stores account for approximately 90 percent of the Company's sales.
The combination of RGC and Food 4 Less created the largest supermarket
operator in Southern California. Since the Merger, the Company has consolidated
all of its stores in the region under its two leading complementary formats. The
Company operates the second largest conventional supermarket chain in the region
under the "Ralphs" name and the largest price impact warehouse supermarket chain
under the "Food 4 Less" name. Management believes the consolidation of its
formats in Southern California has improved the Company's ability to adapt its
stores' merchandising strategy to the local markets in which they operate while
achieving cost savings and other efficiencies.
Ralphs Conventional Format. The Company operates 263 Ralphs stores in
Southern California. All of the Company's conventional stores in the region use
the "Ralphs" name and are operated under a single format. Each store is
merchandised to appeal to the local community it serves and offers competitive
pricing with emphasis on overall value. Ralphs' substantial supermarket product
selection is a significant aspect of its marketing efforts. Ralphs stocks
between 35,000 and 45,000 merchandise items in its stores, including
approximately 2,800 private label products. Ralphs stores offer name-brand
grocery products; quality and freshness in its produce, meat, seafood,
delicatessen and bakery products; and broad selection in all departments. Most
Ralphs stores offer service delicatessen departments, on-premises bakery
facilities and seafood departments. Ralphs emphasizes store ambiance and
cleanliness, fast and friendly service, the convenience of debit and credit card
payment (including many in-store branch banks) and 24-hour operations in most
stores.
Food 4 Less Warehouse Format. The Company operates 79 stores in Southern
California which target the price-conscious segment of the market in both urban
and suburban areas under the name "Food 4 Less." Food 4 Less is a
warehouse-style, price impact store which is positioned to offer the lowest
overall prices in its marketing areas by passing on to the consumer savings
achieved through labor efficiencies and lower overhead and advertising costs
associated with the warehouse format, while providing the product selection and
variety associated with a conventional format. In-store operations are designed
to allow customers to perform certain labor-intensive services usually offered
in conventional supermarkets; for example, merchandise is presented on warehouse
style racks in full cartons, reducing labor intensive unpacking, and customers
bag their own groceries. Labor costs are also reduced because the stores
generally do not have labor-intensive service departments such as delicatessens,
bakeries and fresh seafood departments, although they do offer a complete line
of fresh meat, fish, produce and baked goods.
The Food 4 Less format generally consists of large facilities constructed
with high ceilings to accommodate warehouse racking with overhead pallet
storage. Wide aisles accommodate forklifts and, compared to conventional
supermarkets, a higher percentage of total store space is devoted to retail
selling because the top of the warehouse-style grocery racks on the sales floor
are used to store inventory, which reduces the need for large backroom storage.
The Food 4 Less warehouse format supermarkets have brightly
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painted walls and inexpensive signage in lieu of more expensive graphics. In
addition, a "Wall of Values" located at the entrance of each store presents the
customer with a selection of specially priced merchandise. Management believes
that there is a significant segment of the market, encompassing a wide range of
demographic groups, which prefers to shop in a warehouse format supermarket
because of its lowest overall pricing.
MARKETING AND MERCHANDISING
As a result of the consolidation of conventional format stores in Southern
California under the "Ralphs" name, the Company eliminated most of the separate
advertising associated with Food 4 Less' prior Alpha Beta, Boys and Viva
formats. Because Ralphs' current advertising program now covers the Southern
California region, the Company will be able to expand the number of Ralphs
stores without significantly increasing advertising costs.
The Company utilizes innovative and aggressive marketing programs in an
effort to increase sales, market share and profitability. In September 1996, the
Company launched its "First in Southern California" marketing program, which
emphasizes Ralphs' lower regular retail prices in conjunction with its premier
quality, wide selection and enhanced customer service. The new marketing
campaign also highlights the Company's belief that more shoppers are choosing
Ralphs than any other supermarket in the region. The program is designed to
increase store traffic and sales by a coordinated use of media advertisement and
targeted use of price promotions and double coupon offerings. Management
believes that consumers' favorable response to the "First in Southern
California" marketing campaign has resulted in increased customer traffic at its
stores and has contributed to an increase in fiscal 1996 fourth quarter
comparable store sales in Southern California of 3.5%. The Company continues to
emphasize its successful merchandising programs and exceptional product mix,
including its home meal replacement program and strong private label program.
The Company intends to continue to expand its home meal replacement program in
its conventional supermarkets. The Company's home meal replacement program
offers a wide range of pre-packaged fresh, refrigerated and frozen food items.
Through its private label program, the Company offers a diverse array of
grocery and general merchandise items under its own brand names which include
"Ralphs," "Private Selection," "Perfect Choice," "Plain Wrap" and "Equality."
The Company has entered into several private label licensing arrangements which
allow it to utilize recognized brand names on an exclusive basis in connection
with certain goods it manufactures or purchases from others, including
"Carnation" and "Sunnyside Farms" (dairy products) and "Van de Kamps" (baked
goods). In addition, the Company has entered into an agreement to distribute
private label dry grocery and frozen products under the "Sunny Select" and
"Grocers Pride" labels. The Company's private label program provides quality
comparable to that of national brands at significantly lower prices, while the
Company's gross margins on private label products are generally higher than on
national brands. The Company believes that its private label program is one of
the most successful in the supermarket industry, and the Company intends to
continue the growth of its private label program in the future.
Ralphs stores promote sales through the use of product coupons, consisting
of manufacturers' coupons and Ralphs' own promotional coupons. Ralphs offers a
double coupon program in all stores with Ralphs matching the price reduction
offered by the manufacturer up to certain limits. Ralphs also generates store
traffic through weekly advertised specials, special sales promotions such as
discounts on recreational activities, seasonal and holiday promotions, increased
private label selection, club pack items and exclusive product offerings.
The Food 4 Less warehouse stores utilize print and radio advertising which
emphasizes Food 4 Less' low-price leadership, rather than promoting special
prices on individual items. The Food 4 Less warehouse stores also utilize weekly
advertising circulars, customized to local communities, which highlight the
merchandise offered in each store.
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WAREHOUSING AND DISTRIBUTION
In March 1996, the Company commenced operations in a state-of-the-art
distribution and creamery facility located in Riverside, California (the
"Riverside Facility") which was acquired from Smith's. The
technologically-advanced 90-acre complex has improved the quality, service and
productivity of the Company's distribution and manufacturing operations. The
Riverside Facility has more than one million square feet of warehousing and
manufacturing space consisting of a 675,000 square foot dry grocery service
center, a 270,000 square foot refrigerated and frozen food facility and a
115,000 square foot creamery facility. The Riverside Facility sublease runs for
approximately 23 years, with renewal options through 2043, and provides for
annual rent of approximately $8.8 million. The Company also acquired certain
operating assets and inventory at the Riverside Facility when it entered into
the sublease for a purchase price of approximately $20.2 million.
The acquisition of the Riverside facility in December 1995 allowed the
Company to eliminate certain of its smaller and less efficient warehouse
facilities and to consolidate its distribution operations into the modern,
efficient facilities located in Compton, Glendale and Riverside, California. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Riverside Facility also increases distribution capacity of the Company
by increasing storage capacity to 120,000 pallets and increasing the assortment
of items that are internally supported (increasing dry grocery from 10,000 to
14,000 SKUs and perishable and frozen items by 1,500 SKUs).
The Company also operates a 17 million cubic foot high-rise automated
storage and retrieval system ("ASRS") warehouse for non-perishable items, near
Glendale, California. The ASRS warehouse has a ground floor area of 170,000
square feet and capacity of approximately 50,000 pallets. Guided by computer
software, ten-story high cranes move pallets from the receiving dock to
programmed locations in the ASRS warehouse while recording the location and time
of storage. Goods are retrieved and delivered by the cranes to conveyors leading
to an adjacent "picking" warehouse where individual store orders are filled and
shipped. The Company's Glendale "picking" warehouse (together with the ASRS
warehouse, the "Glendale Facility") was damaged in the Northridge earthquake.
Its operations were transferred to the Riverside Facility while it was being
renovated. The Company completed its renovation of the Glendale "picking"
warehouse in March 1997. The Glendale Facility can hold substantially more
inventory and requires fewer employees to operate than a conventional warehouse
of equal size.
The Company's third major Southern California distribution center is its
5.4 million cubic foot facility in Compton, California designed to process and
store all perishable products (the "Compton Facility"). This facility was
constructed in 1992 and has enabled the Company to have the ability to deliver
perishable products to its stores on a daily basis, thereby improving the
freshness and quality of these products.
Combined shipments from the Company's Southern California warehouse
facilities accounted for approximately 75 percent of the Southern California
Division's total purchases during the 36 weeks ended October 6, 1996. Additional
purchases, consisting of mostly general merchandise, approximating 2 percent of
the division's total during this same period, were made through Certified
Grocers of California, Ltd. ("Certified"), a food distribution cooperative in
which the Company is a member.
The Company is party to a joint venture with a subsidiary of Certified
which operates a general merchandise warehouse in Fresno, California. Management
has been holding discussions with Certified concerning the possible termination
of the joint venture.
MANUFACTURING
The Riverside Facility's creamery is the production point for all fluid
milk products bound for sale in the Company's Food 4 Less warehouse stores.
Bottled water, fruit juice and ice for the entire Company will also be processed
and packaged at the Riverside Facility creamery. Milk bound for the Company's
Ralphs conventional stores, as well as all ice cream and ice cream products, are
processed at the Company's existing creamery at the Compton Facility in Compton,
California. The Compton Facility also processes selected
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delicatessen items, including packaged salads and cheeses, and produces cultured
products including sour cream and yogurt.
In addition to the foregoing facilities, the Company will continue to
operate a 316,000 square foot bakery in La Habra, California to manufacture a
broad line of baked goods.
STORE OPERATIONS AND RETAIL SYSTEMS
The Company has a modern store base with 60.7% of its stores having been
either opened or remodeled in the last five years. Since the Merger, the Company
closed 74 smaller, underperforming stores, opened 37 stores, and expanded or
remodeled 23 stores. During fiscal 1996, the Company opened 26 new stores and
remodeled 20 stores. These improvements to its store base have resulted in an
increase in Southern California average store size of approximately 11.6%. In
addition, as of result of Ralphs' 124-year history in Southern California, the
Company has valuable and well established store locations, many which are in
densely populated metropolitan areas.
The Southern California Division's store equipment and facilities are
generally in excellent condition. The Ralphs stores range in size from
approximately 18,900 square feet to 87,000 square feet and average approximately
37,700 square feet. The Southern California Food 4 Less stores are generally
larger and range in size from approximately 27,400 square feet to 109,300 square
feet, and average approximately 55,200 square feet. The Company believes the
Southern California Division's warehouse and distribution system and the design
of its stores permit the Company to decrease in-store stockroom space and
thereby increase available selling area.
The Southern California Division's management information systems and
optical scanning technology reduce the labor costs attributable to product
pricing and customer check-out, and provide the Company's management with
information that facilitates purchasing and receiving, inventory management,
warehouse reordering and management of accounts payable. All of the Company's
Southern California Division stores currently offer an electronic funds transfer
system which allows customers to make purchases, obtain cash or check approvals
in transactions linked to their bank accounts. In addition, the Company's stores
now offer customers the convenience of making purchases with major credit cards.
The Company's merger, expansion, remodeling and conversion efforts have
required, and will continue to require the funding of significant capital
expenditures. Remodels and new store openings, among other things, are subject
to the availability of developers' financing, agreements with developers and
landlords, local zoning regulations, construction schedules and other factors,
including costs, often beyond the Company's control. Accordingly, there can be
no assurance that the schedule will be met. Further, there is competition for
new store sites, and it is possible that this competition might adversely affect
the timing of its new store program. From time to time, the Company also closes
or sells marginal stores. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
NORTHERN CALIFORNIA AND MIDWESTERN DIVISIONS
The Northern California Division of the Company operates 21 conventional
supermarkets in the greater San Francisco Bay area under the "Cala" and "Bell"
names, and six warehouse format stores under the "FoodsCo" name. Management
believes that the Northern California Division has excellent store locations in
the city of San Francisco that would be very difficult to replicate. The
Midwestern Division of the Company operates 36 stores, of which 31, including
ten former "Food Barn" stores which the Company acquired in March 1994, are
warehouse format stores operated under the "Food 4 Less" name, and five of which
are conventional supermarkets operated under the "Falley's" name. Of these 36
stores, 32 are located in Kansas and four are located in Missouri. Management
believes the Food 4 Less warehouse format stores are the low-price leaders in
each of the markets in which they compete. The Northern California Division's
conventional store strategy is to attract customers through its convenient
locations, broad product line and emphasis on quality and service, and its
advertising and promotion strategy highlights the reduced price specials offered
in its stores. In contrast, the Company's warehouse format stores, operated
under the Food 4 Less name in the Midwestern Division and the FoodsCo name in
the Northern California Division, emphasize lowest overall
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prices rather than promoting special prices on individual items. The Northern
California Division's conventional stores range in size from approximately 8,900
square feet to 32,800 square feet, and average approximately 19,300 square feet.
The Northern California Division's warehouse stores range in size from
approximately 29,100 square feet to 59,700 square feet, and average
approximately 43,300 square feet. The Midwestern Division's warehouse format
stores range in size from approximately 8,800 square feet to 60,200 square feet
and average approximately 37,900 square feet.
The Northern California Division purchases merchandise from a number of
suppliers; however, approximately 36 percent of its purchases are made through
Certified Grocers of California, Ltd. ("Certified"), a food distribution
cooperative, pursuant to supply contracts. The Northern California Division does
not operate its own warehouse facilities, relying instead on direct delivery to
its stores by Certified and other vendors. Food 4 Less' Southern California
warehouse facilities supply a portion of the merchandise sold in the Northern
California Division stores.
The Midwestern Division's primary supplier is Associated Wholesale Grocers
("AWG"), a member-owned wholesale grocery cooperative based in Kansas City. The
Midwestern Division does not operate a central warehouse, but purchases
approximately 70 percent of the merchandise sold in its stores from AWG.
Management believes that, as AWG's largest single customer, the Midwestern
Division has significant buying power, allowing it to provide a broader product
line more economically than it could if it maintained its own full-line
warehouse. The Midwestern Division produces approximately 50 percent of all
case-ready fresh meat items sold in its stores at its central meat plant located
in Topeka, Kansas.
Since the beginning of fiscal 1991, the Northern California Division has
remodeled 13 stores, opened six new stores and, in fiscal 1995, acquired three
stores from Roger Wilco, now operated as Bell stores. The Northern California
Division Food 4 Less warehouse stores were renamed as FoodsCo warehouse stores
in fiscal 1994 following the sale by the Company of the exclusive rights to use
the "Food 4 Less" name in Northern California to Fleming Companies, Inc., which
previously held a non-exclusive license. See "Licensing Operations" for further
discussion of the amendment to the Fleming license.
HISTORY
On June 14, 1995, Holdings acquired all of the common stock of Ralphs
Supermarkets, Inc. ("RSI") in a transaction accounted for as a purchase by Food
4 Less. The consideration for the acquisition consisted of $388.1 million in
cash, $131.5 million principal amount of 13 5/8% Senior Subordinated Pay-In-Kind
Debentures due 2007 of Holdings (the "Seller Debentures") and $18.5 million
initial accreted value of 13 5/8% Senior Discount Debentures due 2005 of
Holdings (the "New Discount Debentures"). Food 4 Less, RSI and RSI's
wholly-owned subsidiary, Ralphs Grocery Company ("RGC"), combined through
mergers (the "Merger") in which RSI remained as the surviving entity and changed
its name to Ralphs Grocery Company.
Food 4 Less was organized by The Yucaipa Companies ("Yucaipa"), a private
investment group, in connection with the June 1989 acquisition of Breco Holding
Company, Inc. ("BHC"), which owned Boys, Viva, and Cala stores. Concurrently
with the acquisition of BHC (the "BHC Acquisition"), Food 4 Less, Inc. ("FFL"),
a corporation controlled by an affiliate of Yucaipa, contributed to Food 4 Less
all of the outstanding capital stock of Falley's, Inc. ("Falley's"), which owned
Food 4 Less' Midwestern stores and its Food 4 Less Southern California stores.
Food 4 Less added six stores to its Northern California Division by acquiring
Bell Markets, Inc. ("Bell") on June 30, 1989, and added seven stores to its
Southern California Division by acquiring certain operating assets of ABC Market
Corp. ("ABC") on January 15, 1990. On June 17, 1991, Food 4 Less acquired all of
the outstanding capital stock of Alpha Beta Company ("Alpha Beta"), which
operated 142 stores in seven Southern California counties (the "Alpha Beta
Acquisition"). On March 29, 1994, Food 4 Less added ten warehouse format stores
(formerly operated under the name "Food Barn") to its Midwestern Division which
it acquired from Associated Wholesale Grocers, Inc.
THE MERGER AND THE FINANCING
On June 14, 1995, Food 4 Less merged into RSI. Immediately following the
RSI Merger, Ralphs Grocery Company, which was a wholly-owned subsidiary of RSI,
merged with and into RSI pursuant to the
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RGC Merger, and RSI changed its name to Ralphs Grocery Company. The purchase
price for RSI was approximately $1.5 billion, including the assumption of debt.
The consideration paid to the stockholders of RSI consisted of $388.1 million in
cash, $131.5 million principal amount of the Seller Debentures and $18.5 million
initial accreted value of the New Discount Debentures which were issued by
Holdings.
The Merger was financed through the following principal transactions:
- Borrowings of $600 million aggregate principal amount pursuant to term
loans (the "Term Loans") under a senior bank facility (the "Credit
Facility") provided by a syndicate of banks led by Bankers Trust. The
Credit Facility also provides for a $325 million revolving credit
facility (the "Revolving Facility").
- The issuance by the Company of $350 million of 10.45% Senior Notes due
2004 (the "1995 Senior Notes") and $100 million of 11% Senior
Subordinated Notes due 2005 (the "1995 Senior Subordinated Notes").
- The issuance of preferred stock in a private placement by Holdings to a
group of investors (the "1995 Equity Investors") led by Apollo Advisors,
L.P. and Apollo Advisors II, L.P. (on behalf of one or more managed
entities) or their respective affiliates and designees ("Apollo") and
including affiliates of BT Securities Corporation ("BT Securities"), CS
First Boston Corporation ("CS First Boston") and Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") and other institutional
investors, yielding cash proceeds of $140 million pursuant to the 1995
Equity Investment. Concurrently with the 1995 Equity Investment, the 1995
Equity Investors purchased outstanding shares of Holdings capital stock
from a stockholder of Holdings for a purchase price of $57.8 million.
- The exchange by Food 4 Less of (a) $170.3 million aggregate principal
amount of the 10.45% Senior Notes due 2000 of Food 4 Less (the "1992
Senior Notes") for $170.3 million aggregate principal amount of the 1995
Senior Notes plus $5.00 in cash per $1,000 principal amount exchanged and
(b) $140.2 million aggregate principal amount of the 13.75% Senior
Subordinated Notes due 2001 of Food 4 Less (the "1991 Senior Subordinated
Notes") for $140.2 million aggregate principal amount of the 13.75%
Senior Subordinated Notes due 2005 of the Company (the "1995 13.75%
Senior Subordinated Notes") plus $20.00 in cash per $1,000 principal
amount exchanged, together with the solicitation of consents from the
holders of the 1992 Senior Notes and 1991 Senior Subordinated Notes to
certain amendments to the indentures governing such notes.
- The offers by Food 4 Less to (i) exchange up to $450 million aggregate
principal amount of the Old RGC Notes (as defined herein) for up to $450
million aggregate principal amount of the 1995 11% Senior Subordinated
Notes plus $20.00 in cash per $1,000 principal amount of Old RGC Notes
exchanged and (ii) purchase Old RGC Notes for $1,010.00 in cash per
$1,000 principal amount of Old RGC Notes accepted for purchase, together
with the solicitation of consents from holders of Old RGC Notes to
certain amendments to the indenture governing the Old RGC Notes.
- The placement by Holdings pursuant to the New Discount Debenture
Placement of $100 million initial accreted value of New Discount
Debentures to a partnership including Yucaipa, the selling stockholders
of Ralphs, an affiliate of George Soros, Apollo, and an affiliate of each
of BT Securities, CS First Boston and DLJ. The $100 million initial
accreted value of New Discount Debentures included (a) $18.5 million that
was issued to the RSI stockholders, (b) $17.5 million, $2.5 million and
$2.5 million that was issued to Yucaipa, BT Securities and Apollo,
respectively, in satisfaction of fees otherwise payable by the Company
and Holdings in connection with the Merger and the related financing and
(c) $59 million that was issued for cash to the partnership described
above. The $41 million initial accreted value of New Discount Debentures
issued to the RSI stockholders, Apollo, BT Securities and Yucaipa were
contributed to such partnership by the recipients thereof.
- The assumption by the Company, pursuant to the Merger, of approximately
$162.9 million of other indebtedness of RGC and Food 4 Less.
52
<PAGE> 54
COMPETITION
The supermarket industry is highly competitive and characterized by narrow
profit margins. The Company's competitors in each of its operating divisions
include national and regional supermarket chains, independent and specialty
grocers, drug and convenience stores, and the newer "alternative format" food
stores, including warehouse club stores, deep discount drug stores and "super
centers." Supermarket chains generally compete on the basis of location, quality
of products, service, price, product variety and store condition. The Company
regularly monitors its competitors' prices and adjusts its prices and marketing
strategy as management deems appropriate.
The Southern California Division competes with several large national and
regional chains, principally Albertsons, Hughes, Lucky, Stater Bros., and Vons,
and with smaller independent supermarkets and grocery stores as well as
warehouse clubs and other "alternative format" food stores. The Company's
primary competitor in Southern California is expected to be acquired by a major
multi-regional supermarket chain in the near future which may increase
competitive pressure for the Company. The Northern California Division competes
with large national and regional chains, principally Lucky and Safeway, and with
independent supermarket and grocery store operators and other retailers,
including "alternative format" stores. The Midwestern Division's supermarkets
compete with several national and regional supermarket chains, principally
Albertson's and Dillons, as well as independent grocery and "alternative format"
stores such as Hypermarket USA. The Company positions its warehouse format
supermarkets as the overall low-price leaders in each marketing area in which
they operate.
EMPLOYEES
The Company believes that its relationship with its employees is excellent.
At February 2, 1997, the Company had a total of 27,254 employees, as shown in
the table below.
<TABLE>
<CAPTION>
SOUTHERN NORTHERN
CALIFORNIA CALIFORNIA MIDWESTERN TOTAL
---------- ---------- ---------- ------
<S> <C> <C> <C> <C>
Administrative............................ 1,138 61 48 1,247
Warehouse, manufacturing and
transportation.......................... 3,350 -- 58 3,408
Stores.................................... 20,097 1,144 1,358 22,599
------ ----- ----- ------
Total........................... 24,585 1,205 1,464 27,254
====== ===== ===== ======
</TABLE>
Of the Company's 27,254 total employees at February 2, 1997, there were
23,419 employees covered by union contracts, principally with the United Food
and Commercial Workers Union (the "UFCW"). The table below sets forth
information regarding the Company's union contracts which cover more than 100
employees.
<TABLE>
<CAPTION>
DATE(S) OF
UNION NUMBER OF EMPLOYEES COVERED EXPIRATION
<S> <C> <C>
UFCW 14,214 Southern California October 3, 1999
Division clerks and meatcutters
Hospital and Service Employees 549 Southern California January 19, 1997(a)
Division store porters
International Brotherhood of Teamsters 2,867 Southern California September 13, 1998
Division drivers and
warehousemen
UFCW 1,054 Northern California March 7, 1998
Division clerks and meatcutters
UFCW 3,690 Southern California February 26, 2000
Division clerks and meatcutters
Bakery and Confectionery Workers 206 Southern California July 7, 2000
Division bakers
Hotel Employees and Restaurant Workers 839 Southern California Division September 11, 2000
Culinary Workers
</TABLE>
- ---------------
(a) Although negotiations for a new union contract are in progress, there can be
no assurance that a new contract will be reached on terms satisfactory to the
Company or that labor costs will not increase.
53
<PAGE> 55
LICENSING OPERATIONS
The Company owns the "Food 4 Less" trademark and service mark and licenses
the "Food 4 Less" name for use by others. In fiscal 1996, earnings from
licensing operations were approximately $244,000. An exclusive license with the
right to sublicense the "Food 4 Less" name in all areas of the United States
except Arkansas, Iowa, Illinois, Minnesota, Nebraska, North Dakota, South
Dakota, Wisconsin, the upper peninsula of Michigan, certain portions of Kansas,
Missouri, and Tennessee has been granted to Fleming Companies, Inc. ("Fleming"),
a major food wholesaler and retailer. In August of 1993, the Company amended its
licensing agreement with Fleming to give Fleming exclusive use of the Food 4
Less name in Northern California and the Company exclusive use in Southern
California (the "Amendment"). With the exception of Northern California, and
subject to the Amendment and certain proximity restrictions, the Company retains
the right to open and operate its own "Food 4 Less" warehouse supermarkets
throughout the United States. As of February 2, 1997, there were 179 Food 4 Less
warehouse supermarkets in 12 states, including the 110 stores owned or leased
and operated by the Company. Of the remaining 69 stores, Fleming operates 7
under license, 10 are operated under sublicenses from Fleming and 52 are
operated by other licensees.
PROPERTIES
At February 2, 1997 the Company operated 405 supermarkets, as set forth in
the table below:
<TABLE>
<CAPTION>
NUMBER OF
SUPERMARKETS AVERAGE
---------------- TOTAL SQUARE FEET/
DIVISION OWNED LEASED SQUARE FEET FACILITY
------------------------------------------ ----- ------ ----------- ------------
<S> <C> <C> <C> <C>
Southern California....................... 62(a) 280 14,237,000 41,600
Northern California....................... -- 27 665,000 24,600
Midwestern................................ 2(b) 34 1,299,000 36,100
</TABLE>
- ---------------
(a) Includes fifteen stores located on real property subject to ground leases.
(b) Includes one store that is partially owned and partially leased.
Most of the Southern California Division's store locations are held
pursuant to long-term leases, many of which, in the opinion of management, have
below-market rental rates or other favorable lease terms. The average remaining
term (including all renewal options) of the Company's supermarket leases is
approximately 30 years.
In addition to the supermarkets, the Company operates three main warehouse
and distribution centers in Southern California. The newly acquired 90 acre
Riverside Facility has more than one million square feet of warehousing and
manufacturing space consisting of a creamery and several warehouses for dry
grocery, dairy/deli and frozen food storage. The Riverside Facility sublease
runs for approximately 23 years, with renewal options through 2043, and provides
for annual rent of approximately $8.8 million. The Glendale Facility is a
170,000 square foot high-rise automated storage and retrieval system warehouse.
It opened in 1987, handles non-perishable items and has a capacity of
approximately 50,000 pallets. The Compton Facility, which opened in 1992, is a
5.4 million cubic foot facility designed to process and store all perishable
products.
The Company also has manufacturing operations located in Compton that
produce a variety of dairy and other products, including fluid milk, ice cream,
yogurt and bottled waters and juices, as well as packaged ice, cheese and
packaged salads. The bakery operation is located at the La Habra complex and
measures 316,000 square feet.
The Company's former central office, manufacturing and warehouse complex in
La Habra, California had been leased from American Food & Drug Company ("AFD"),
an affiliate of American Stores, for a term ending in 2001. Operations at the La
Habra facility were discontinued as part of the Company's consolidation of
warehouse and distribution facilities which began with the acquisition of the
Riverside Facility in December 1995. On October 29, 1996, the Company finalized
an agreement with AFD which resulted in the termination of the Company's leases
of the La Habra facility and its leases of two stores which had also been leased
from AFD. In addition, in order to complete the Company's settlement agreement
with the State of California
54
<PAGE> 56
entered into at the date of the Merger, the Company concurrently sold a store to
AFD. In addition, the Company entered into a new lease for the bakery facility
at the La Habra facility, which it will continue to operate, and modified the
terms of two other store leases. In fiscal 1995 the Company recorded a
restructuring charge which includes a $29.6 million provision for lease
termination expenses in connection with the closure of the La Habra and other
warehouses (as well as certain other properties). See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
LEGAL PROCEEDINGS
In December 1992, three California state antitrust class action suits were
commenced in Los Angeles Superior Court against the Company and other major
supermarket chains located in Southern California, alleging that they conspired
to refrain from competing in the retail market for fluid milk and to fix the
retail price of fluid milk above competitive prices. Specifically, class actions
were commenced by Diane Barela and Neila Ross, Ron Moliare and Paul C. Pfeifle
on December 7, December 14 and December 23, 1992, respectively. A class has been
certified consisting of all purchasers of milk in Los Angeles County from
December 7, 1988. The plaintiffs seek unspecified damages. Most defendants in
the actions, not including the Company, have reached tentative settlement
agreements, and certain of the settlements have been approved by the trial
court. The Company is continuing to actively defend itself in these class action
suits.
On September 13, 1996, a class action lawsuit titled McCampbell, et al. v.
Ralphs Grocery Company, et al. was filed in the Superior Court of the State of
California, County of San Diego, against the Company and two other grocery store
chains operating in the Southern California area. The complaint alleges, among
other things, that the Company and others conspired to fix the retail price of
eggs in Southern California. The plaintiffs claim that the defendants' actions
violate provisions of the California Cartwright Act and constitute unfair
competition. Plaintiffs seek unspecified damages they purport to have sustained
as a result of the defendants' alleged actions, which damages may be trebled
under the applicable statute, and an injunction from future actions in restraint
of trade and unfair competition. Discovery has commenced and the action has been
certified as a class. Management of the Company intends to defend this action
vigorously and the Company has filed an answer to the complaint denying the
plaintiffs' allegations and setting forth several defenses.
On December 20, 1996, a lawsuit titled Bundy, et al. v. Ralphs Grocery
Company, et al. was filed in the Los Angeles Superior Court against the Company.
The complaint was filed by eight individual plaintiffs who were terminated in
conjunction with the Company's restructuring. The plaintiffs claim that they
were wrongfully terminated for discriminatory reasons and that the Company
engaged in various fraudulent practices. The plaintiffs seek compensatory
damages in excess of $15,000,000, special and punitive damages. Management of
the Company believes that the plaintiffs' claims are without merit and intends
to defend this action vigorously.
In addition, the Company or its subsidiaries are defendants in a number of
other cases currently in litigation or are the subject of potential claims
encountered in the normal course of business which are being vigorously
defended. In the opinion of management, the resolutions of these matters will
not have a material effect on the Company's financial position or results of
operations.
The Company is subject to regulation by a variety of governmental agencies,
including, but not limited to, the California Department of Alcoholic Beverage
Control, the California Department of Agriculture, the U.S. Food and Drug
Administration, the U.S. Department of Agriculture and state and local health
departments.
ENVIRONMENTAL MATTERS
In January 1991, the California Regional Water Quality Control Board for
the Los Angeles Region (the "Regional Board") requested that Ralphs conduct a
subsurface characterization of the Glendale Facility property located near
Glendale. This request was part of an ongoing effort by the Regional Board, in
connection with the U.S. Environmental Protection Agency (the "EPA"), to
identify contributors to groundwater contamination in the San Fernando Valley.
Significant parts of the San Fernando Valley, including the area where the
Glendale Facility is located, have been designated federal Superfund sites
55
<PAGE> 57
requiring response actions under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, because of regional
groundwater contamination. On June 18, 1991, the EPA made its own request for
information concerning the Glendale Facility. Since that time, the Regional
Board has requested further investigation by Ralphs. Ralphs conducted the
requested investigations and reported the results to the Regional Board.
Approximately 25 companies have entered into a Consent Order (EPA Docket No.
94-11) with the EPA to investigate and design a remediation system for
contaminated groundwater beneath an area which includes the Glendale Facility.
The Company is not a party to the Consent Order, but is cooperating with
requests of the subject companies to allow installation of monitoring or
recovery wells on its property. On or about October 12, 1995, the EPA mailed a
Special Notice Letter to 44 parties, including the Company as owner and operator
of the Glendale Facility property, naming them as potentially responsible
parties ("PRPs"). On November 26, 1996, the EPA issued an Administrative Order
for Remedial Action (EPA Docket No. 97-06) against more than 60 respondents,
including the Company, in connection with the Superfund site. Under the order,
these PRPs are required to take certain actions, over an approximately 270-day
period, in connection with the implementation of interim remedies for the
treatment of groundwater.
Pursuant to the terms of the EPA's order, the PRPs have submitted a plan
for construction of an interim remedy to extract and remediate groundwater over
the next fourteen years. The PRPs have also submitted an offer to the EPA for
the reimbursement of a portion of the EPA's past costs. Estimates given to the
PRPs by environmental consultants and attorneys are that the total costs for the
remedy, including construction, operation and reimbursement to the government,
will most likely range between $55 million and $75 million in present value 1997
dollars.
In April 1997, an arbitration award allocation of 58.8% of such costs to
Lockheed Martin Corporation ("Lockheed") was confirmed by the Superior Court,
Los Angeles County. That judgment is now on appeal to California Court of
Appeal, seeking to reduce the Lockheed allocation. The remaining 26 current
Glendale PRPs have been engaged in Alternative Dispute Resolution ("ADR")
efforts. The Company believes that taking into account the Lockheed appeal, the
range of remediation costs and the results of the ADR allocation process, the
Company's allocable share of remedy costs, in present value 1997 dollars, will
likely fall within a range of $0.5 to $2.0 million, with the likely range from
$0.5 million to $0.8 million.
It is anticipated that the EPA will issue a further administrative order to
PRPs for the construction of the remedy some time in 1997, to be followed by
negotiation of a consent decree with the PRPs. Such a consent decree would
provide contribution protection from lawsuits by other non-signatory PRPs.
Although responsibilities for compliance under federal CERCLA law are joint and
several, the Glendale PRPs include many very substantial companies as members,
such that the Company anticipates that the results of the PRPs' ADR allocation
process will be enforceable to limit the Company's exposure.
The Company removed underground storage tanks and remediated soil
contamination at the Glendale Facility property. In some instances, the removals
and the contamination were associated with grocery business operations; in
others, they were associated with prior property users. The Company has received
correspondence from the Regional Board confirming the successful completion of
the remediation.
Apart from the Glendale Facility, the Company has had environmental
assessments performed on most of its facilities, including warehouse and
distribution facilities. The Company believes that any responsive actions
required at the examined properties as a result of such assessments will not
have a material adverse effect on its financial condition or results of
operations.
The Company is subject to a variety of environmental laws, rules,
regulations and investigative or enforcement activities, as are other companies
in the same or similar business. The Company believes it is in substantial
compliance with such laws, rules and regulations. These laws, rules, regulations
and agency activities change from time to time, and such changes may affect the
ongoing business and operations of the Company.
56
<PAGE> 58
MANAGEMENT
The following table sets forth certain information regarding the executive
officers and directors of the Company as of April 18, 1997. Directors serve
until the election and qualification of their successors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------- --- ------------------------------------------------
<S> <C> <C>
Ronald W. Burkle 44 Chairman of the Board and Director
George G. Golleher 49 Chief Executive Officer and Director
Alfred A. Marasca 55 President, Chief Operating Officer and Director
Joe S. Burkle 73 Chief Executive Officer -- Falley's and Director
Greg Mays 50 Executive Vice President -- Finance and
Administration
John T. Standley 34 Chief Financial Officer
Harley DeLano 59 President -- Cala Foods
Tony Schnug 52 Group Senior Vice President -- Support
Operations
Christopher Hall 33 Group Vice President -- Finance, Controller and
Chief Accounting Officer
Robert I. Bernstein 34 Director
Robert Beyer 36 Director
Peter Copses 38 Director
Patrick L. Graham 47 Director
Lawrence K. Kalantari 37 Director
John Kissick 55 Director
</TABLE>
Ronald W. Burkle has been Chairman of the Board since February 1997. He has
been a Director since June 1995. He was Chairman of the Board from June 1995 to
January 1996. Mr. Burkle was a Director, Chairman of the Board and Chief
Executive Officer of Food 4 Less from its inception in 1989 until the Merger.
Mr. Burkle co-founded The Yucaipa Companies, Inc. in 1986 and served as
Director, Chairman of the Board, President and Chief Executive Officer of FFL
from 1987 and of Holdings from 1992 until the Merger, respectively. Mr. Burkle
has been Chairman of the Board of Dominick's Finer Foods, Inc. since March 1995
and served as Chief Executive Officer from March 1995 until January 1996. Mr.
Burkle also served as Chairman of the Board of Smitty's Supermarkets, Inc.
("Smitty's") from June 1994 until its merger in May 1996 with Smith's Food &
Drug Centers, Inc. ("Smith's"). He has been Chief Executive Officer of Smith's
since May 1996. He has also served as a Director of Kaufman & Broad Home
Corporation, Inc. since March 1995. Mr. Burkle is the son of Joe S. Burkle.
George G. Golleher has been Chief Executive Officer since January 1996 and
a Director since June 1995. He was Vice Chairman from June 1995 to January 1996.
He was a Director of Food 4 Less from its inception in 1989 and was the
President and Chief Operating Officer of Food 4 Less from January 1990 until the
Merger. From 1986 through 1989, Mr. Golleher served as Senior Vice
President -- Finance and Administration of The Boys Markets, Inc. Mr. Golleher
has served as a Director of Dominick's Finer Foods, Inc., an affiliate of The
Yucaipa Companies, from March 1995 until October 1996.
Alfred A. Marasca has been President, Chief Operating Officer and a
Director since June 1995. He was President and Chief Operating Officer of RGC
from February 1994 until the Merger. He was President of RGC from 1993 to 1994,
Executive Vice President -- Retail from 1991 to 1993, and Executive Vice
President -- Marketing from 1985 to 1991.
Joe S. Burkle has been a Director since June 1995 and Chief Executive
Officer of Falley's, Inc. since 1987. He was a Director and Executive Vice
President of Food 4 Less from its inception in 1989 until the Merger. Mr. Burkle
began his career in the supermarket industry in 1946, and served as President
and Chief
57
<PAGE> 59
Executive Officer of Stater Bros. Markets, a Southern California supermarket
chain. Prior to 1987, Mr. Burkle was a private investor in Southern California.
Mr. Burkle is the father of Ronald W. Burkle.
Greg Mays has been Executive Vice President -- Finance & Administration
since February 1997. Mr. Mays was Executive Vice President -- Finance and
Administration and Chief Financial Officer from September 1995 to February 1997.
He was Executive Vice President -- Finance & Administration from June 1995 to
September 1995. He was Executive Vice President -- Finance & Administration and
Chief Financial Officer of Food 4 Less and of Holdings from December 1992 until
the Merger. From 1989 to 1991, Mr. Mays was Chief Financial Officer of Almac's,
Inc. and, from 1991 to December 1992, he was President and Chief Financial
Officer of Almac's. From April 1988 to June 1989, Mr. Mays was Chief Financial
Officer of Food 4 Less of Modesto, Inc. and Cala Foods, Inc.
John T. Standley has been Chief Financial Officer since February 1997. He
was Senior Vice President -- Administration at Smith's from May 1996 to February
1997. He was Chief Financial Officer, Vice President and Assistant Secretary of
Smitty's from December 1994 to May 1996. From 1991 to 1994, Mr. Standley was
Vice President of Finance for Food 4 Less Supermarkets, Inc. Prior to 1991, he
was a manager at Arthur Andersen LLP.
Harley DeLano has been President of Cala Foods, Inc. since 1990. Mr. DeLano
was General Manager of ABC from 1980 to 1990. He serves as a Director of
Certified Grocers.
Tony Schnug has been Group Senior Vice President -- Support Operations
since January 1996. He was Senior Vice President of Manufacturing and
Construction from June 1995 to January 1996. He was Senior Vice
President -- Corporate Operations of Food 4 Less from 1990 until the Merger.
Before joining Food 4 Less, he was Managing Director of SAGE, a wholly-owned
subsidiary of Ogilvy & Mather, and Vice President -- Management Information
Systems of The Vons Company.
Christopher Hall has been Group Vice President -- Finance, Controller, and
Chief Accounting Officer since February 1997. He was Group Vice
President/Controller from September 1995 to February 1997. He was Vice
President, Accounting from June 1995 to September 1995. Prior to that, he was
Controller at Food 4 Less Supermarkets from 1993 to June 1995, and joined Food 4
Less Supermarkets in 1992 as Director -- Finance. Prior to 1992, he was a member
of the audit practice at Arthur Andersen LLP.
Robert I. Bernstein has been a Director since March 1997. He has been a
general partner of The Yucaipa Companies since joining the firm in December
1995. From 1986 to 1989 and from 1993 to 1995, Mr. Bernstein was employed by
Bankers Trust. From 1989 to 1992, he was an infantry officer in the U.S. Marine
Corps.
Robert Beyer has been a Director since June 1995. He has been a Group
Managing Director of Trust Company of the West ("TCW") since 1995. Mr. Beyer was
Co-Chief Executive Officer of Crescent Capital Corporation, a registered
investment advisor, from 1991 until its acquisition by TCW in 1995. From 1986 to
1991, Mr. Beyer was a member of the investment banking department of Drexel
Burnham Lambert, Incorporated. From 1983 to 1986, Mr. Beyer was a member of the
investment banking department of Bear, Stearns & Co., Inc.
Peter Copses has been a Director since June 1995. He has been a Principal
since 1990 of Apollo Advisors, L.P. which, together with an affiliate, acts as
managing general partner of Apollo Investment Fund, L.P., AIF II, L.P. and
Apollo Investment Fund III, L.P., private securities investment funds, and of
Lion Advisors, L.P., which acts as financial advisor to and representative for
certain institutional investors with respect to securities investments. Mr.
Copses is a Director of Dominicks Finer Foods, Inc., Family Restaurants, Inc.,
Forum Group, Inc. and Zale Corporation.
Patrick L. Graham has been a Director since June 1995. He joined The
Yucaipa Companies as a general partner in January 1993. Prior to that time, he
was a Managing Director in the Corporate Finance Department of Libra
Investments, Inc. from 1992 to 1993 and Paine Webber, Inc. from 1990 to 1992.
From 1982 to 1990, he was a Managing Director of the Corporate Finance
Department of Drexel Burnham Lambert, Inc. and an Associate Director of the
Corporate Finance Department of Bear Stearns & Co., Inc. Mr. Graham served as a
58
<PAGE> 60
Director of Smitty's Supermarkets, Inc. from June 1994 until May 1996 and of
Dominick's Finer Foods, Inc. since March 1995.
Lawrence K. Kalantari has been a director since March 1997. He has been a
general partner of The Yucaipa Companies since joining the firm in December
1995. Prior to that time, he was a Managing Director for Bankers Trust during
1995. Previously he was employed by CS First Boston Corporation from July 1993
to May 1995 and PaineWebber, Inc. from March 1990 to June 1993.
John Kissick has been a Director since June 1995. He is a principal of
Apollo Advisors, L.P. which, together with an affiliate, acts as managing
general partner of Apollo Investment Fund, L.P., AIF II, L.P. and Apollo
Investment Fund III, L.P., private securities investment funds, and of Lion
Advisors, L.P., which acts as financial advisor to and representative for
certain institutional investors with respect to securities investments. From
1990 to 1991, Mr. Kissick was a consultant with Kissick & Associates, a private
investment advisory firm. He serves as Director of Continental Graphics
Holdings, Inc., Converse, Inc., The Florsheim Shoe Company, Inc. and Furniture
Brands International, Inc.
The Company does not currently pay any fees or remuneration to its
directors for service on the board or any board committee, but will reimburse
directors for their ordinary out-of-pocket expenses.
Messrs. R. Burkle, Golleher, J. Burkle, Bernstein, Beyer, Copses, Graham,
Kalantari and Kissick are directors of Holdings.
59
<PAGE> 61
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation of
the Chief Executive Officer, the four other most highly compensated executive
officers and one additional highly compensated former executive officer of the
Company (the "Named Executive Officers"), whose total salary and bonus for the
53 weeks ended February 2, 1997 exceeded $100,000 for services rendered in all
capacities to the Company and its subsidiaries for the same time period.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------------------------------------------------
TRANSITION NO. OF SHARES
PERIOD/FISCAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ENDED SALARY(7) BONUS(7) OPTIONS COMPENSATION(10)
- ------------------------------ ---------------- ---------- ---------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Byron E. Allumbaugh(1) February 2, 1997 $1,155,449 $ -- -- $ 1,500
Chairman January 28, 1996 $ 883,333 $ 547,692 820,227(9) $ 1,848
January 29, 1995(6) $ -- $ -- -- $ --
June 25, 1994 $ -- $ -- -- $ --
George G. Golleher(2) February 2, 1997 $ 770,833 $ -- 100,000(9) $ 1,500
Chief Executive Officer January 28, 1996 $ 503,205 $1,950,000(8) 200,000(9) $ 1,783
January 29, 1995(6) $ 298,100 $ 300,000 -- $ 3,329
June 25, 1994 $ 500,000 $ 500,000 -- $ 3,937
Alfred A. Marasca(3) February 2, 1997 $ 600,000 $ -- -- $ 1,500
President and January 28, 1996 $ 466,667 $ 333,846 300,000(9) $ 3,000
Chief Operating Officer January 29, 1995(6) $ -- $ -- -- $ --
June 25, 1994 $ -- $ -- -- $ --
Greg Mays(4) February 2, 1997 $ 314,583 $ -- -- $ 1,500
Executive Vice President -- January 28, 1996 $ 286,378 $ 355,000(8) 60,000 $ 1,783
Finance/Administration and January 29, 1995(6) $ 154,300 $ 85,000 -- $ 2,687
Chief Financial Officer June 25, 1994 $ 250,000 $ 150,000 -- $ --
Harley DeLano February 2, 1997 $ 215,000 48,887 30,000 $ 1,500
President, Cala Foods January 28, 1996 $ 211,218 $ 150,000 -- $ 1,783
January 29, 1995(6) $ 115,385 $ 50,000 -- $ 2,247
June 25, 1994 $ 197,404 $ 40,000 -- $ 3,329
Tony Schnug(5) February 2, 1997 $ 247,500 $ -- -- $ 1,500
Group Senior Vice January 28, 1996 $ 206,282 $ 201,000 35,000 $ 1,783
President-Support January 29, 1995 $ 210,385 $ 100,000 -- $ 2,247
Operating June 25, 1994 $ 190,000 $ 40,000 -- $ 3,145
</TABLE>
- ---------------
(1) In January 1996, Byron E. Allumbaugh became Chairman. Mr. Allumbaugh retired
as Chairman in January 1997.
(2) In January 1996, George G. Golleher became Chief Executive Officer.
(3) In June 1995, Alfred A. Marasca became President and Chief Operating
Officer.
(4) In September 1995, Greg Mays became Executive Vice President - Finance &
Administration and Chief Financial Officer.
(5) In January 1996, Tony Schnug became Group Senior Vice President-Support
Operations.
(6) Food 4 Less changed its fiscal year from the 52 or 53-week period which ends
on the last Saturday in June to the 52 to 53-week period which ends on the
Sunday closest to January 31, resulting in a 31-week transition period.
(7) Salary and bonus payments are reflected in the period they are paid.
(8) Includes payment of a special bonus upon change of control, in connection
with the Merger, for George Golleher and Greg Mays in the amount of
$1,750,000 and $150,000, respectively.
(9) All options shown were granted in connection with the Merger. Of such
options, 220,227 and 100,000 were granted to Messrs. Allumbaugh and Marasca,
respectively, in exchange for the cancellation of certain payments to such
individuals under RGC equity appreciation rights.
(10) The amounts shown in this column represent annual payments by the Company
to the Employee Profit Sharing and Retirement Program of the Company.
60
<PAGE> 62
The following table sets forth information concerning options granted in
fiscal 1996 to each of the Named Executive Officers pursuant to Holdings' 1995
Stock Option Plan. All options are exercisable for shares of Holdings' Common
Stock.
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES
INDIVIDUAL GRANTS OF STOCK PRICE
------------------------------------------------------------ APPRECIATION
NO. OF % OF TOTAL OPTIONS EXERCISE OR FOR OPTION TERM
OPTIONS GRANTED TO EMPLOYEES BASE PRICE EXPIRATION -------------------
GRANTED(1) IN FISCAL YEAR ($/SH) DATE 5% ($) 10%($)
---------- -------------------- ----------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Byron E. Allumbaugh........ -- -- -- -- -- --
George G. Golleher......... 100,000 13.7% 10.00 4/29/06 628,895 1,593,742
Alfred A. Marasca.......... -- -- -- -- -- --
Greg Mays.................. 60,000 8.2% 10.00 4/29/06 377,337 956,245
Harley DeLano.............. 30,000 4.1% 10.00 4/29/06 188,688 478,123
Tony Schnug................ 35,000 4.8% 10.00 4/29/06 220,113 557,810
</TABLE>
- ---------------
(1) Mr. Golleher's options are immediately exercisable. Options held by Messrs.
Mays, Delano and Schnug vest over a five-year period commencing June 14,
1996.
The following tables sets forth for each of the Named Executive Officers,
as to outstanding options at February 2, 1997, the number of unexercised options
and the aggregate unrealized appreciation on "in-the-money" unexercised options
held at such date. No options were exercised by any of the Named Executive
Officers during fiscal 1996.
1996 FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR END FISCAL YEAR END
NAME EXERCISABLE/UNEXERCISABLE (#) EXERCISABLE/UNEXERCISABLE ($)
- --------------------------------------------- ----------------------------- -----------------------------
<S> <C> <C>
Byron E. Allumbaugh.......................... 820,227/0 2,198,208/0
George G. Golleher........................... 300,000/0 0/0
Alfred A. Marasca............................ 300,000/0 999,000/0
Greg Mays.................................... 12,000/48,000 0/0
Harley DeLano................................ 6,000/24,000 0/0
Tony Schnug.................................. 7,000/28,000 0/0
</TABLE>
CONSULTING AND EMPLOYMENT AGREEMENTS
In connection with the consummation of the Merger, Food 4 Less' board of
directors authorized the payment of a special bonus of $1,750,000 to George
Golleher in a lump sum amount equal to the base salary due him under the
remaining term of his then existing employment agreement. As a condition of the
payment of such bonus, Mr. Golleher's existing employment agreement was
cancelled, and he entered into a new agreement which provides for an annual
salary currently equal to $1,000,000 plus a bonus equal to his salary in each
year if the Earnings Targets are reached. Mr. Golleher's new employment
agreement continues in effect certain additional rights, including the right to
be elected to the Company's board of directors and the right to require the
Company to repurchase certain of his shares of New Holdings stock upon his
death, disability or termination without cause.
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The employment agreement between the Company and Alfred Marasca provides
for a salary currently equal to $600,000 per annum and an annual bonus equal to
his salary if the Earnings Targets for the year are reached.
The employment agreement between the Company and Greg Mays provides for a
salary currently equal to $375,000 per annum and an annual bonus equal to his
salary if the Earnings Targets for the year are reached. Mr. Mays also received
a special bonus of $150,000 in fiscal 1995 upon the change of control in
connection with the Merger.
The employment agreements described above are for a term of three years and
provide generally that the Company may terminate the agreement for cause or upon
the failure of the employee to render services to the Company for a specified
period and the employee may terminate the agreement because of the employee's
disability. In addition, the employee's services may be suspended upon notice by
the Company and in such event the employee will continue to be compensated by
the Company during the remainder of the term of the agreement, subject to
certain offsets if the employee becomes engaged in another business.
The Company's consulting agreement with Mr. Joe Burkle provides for
compensation of $3,000 per week. Mr. Burkle provides the management and
consulting services of an executive vice president under the consulting
agreement. The agreement has a five-year term, which is automatically renewed on
January 1 of each year for a five-year term unless sixty days' notice is given
by either party; provided that if the Company terminates for reasons other than
for good cause, the payments due under the agreement continue for the balance of
the term.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not have a board committee performing the functions of a
compensation committee. Byron E. Allumbaugh, Chairman, and George G. Golleher,
Chief Executive Officer of the Company, together with Alfred Marasca, President,
and Greg Mays, Executive Vice President, made decisions with regard to the
Company's executive officer compensation for fiscal 1996.
RETIREMENT PLANS
Retirement Plan. The Ralphs Grocery Company Retirement Plan (the
"Retirement Plan") is a defined benefit pension plan for salaried and hourly
nonunion employees with at least one year of credited service (1,000 hours). The
Company makes annual contributions to the Retirement Plan in such amounts as are
actuarially required to fund the benefits payable to participants in accordance
with the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
Non-Qualified Retirement Plans. To allow the Company's retirement program
to provide benefits based upon a participant's total compensation and without
regard to other ERISA or tax code pension plan limitations, eligible executive
employees of the Company participate in the Ralphs Grocery Company Supplemental
Executive Retirement Plan (the "SERP") and the Ralphs Grocery Company Retirement
Supplement Plan (the "Supplement Plan"). The SERP and the Supplement Plan also
modify the benefit formula under the Retirement Plan in other respects. The
Company has purchased split dollar life insurance policies for participants
under the SERP. Under certain circumstances, the cash surrender value of certain
split dollar life insurance policies will offset the Company's obligations under
the SERP.
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<PAGE> 64
The following table sets forth the combined estimated annual benefits
payable in the form of a (single) life annuity under the Retirement Plan, the
SERP and the Supplement Plan (unreduced by the cash surrender value of any life
insurance policies) to a participant in the above plans who is retiring at a
normal retirement date on January 1, 1997 for the specified final average
salaries and years of credited service.
<TABLE>
<CAPTION>
FINAL YEARS OF CREDITED SERVICE
AVERAGE ------------------------------------------------------------
SALARY 15 20 25 30 35
- --------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 100,000 $ 19,348 $ 25,798 $ 32,347 $ 38,697 $ 45,146
200,000 41,848 55,798 69,747 83,697 97,646
300,000 90,000 120,000 150,000 180,000 180,000
400,000 120,000 160,000 200,000 240,000 240,000
600,000 180,000 240,000 300,000 360,000 360,000
800,000 240,000 320,000 400,000 480,000 480,000
1,000,000 300,000 400,000 500,000 600,000 600,000
1,040,000 and above 312,000 416,000 520,000 624,000 624,000
</TABLE>
Messrs. Allumbaugh, Golleher, Marasca, Mays, Schnug and DeLano have
completed 39, 12, 33, 9, 7 and 12 years of credited service, respectively.
Compensation covered by the Retirement Plan, the SERP and Supplement Plan
includes both salary and bonus. The calculation of retirement benefits generally
is based on average compensation for the highest three years of the ten years
preceding retirement. The benefits earned by a participant under the SERP and
Supplement Plan are reduced by any benefits which the participant has earned
under the Retirement Plan and may be offset under certain circumstances by the
cash surrender value of life insurance policies maintained by the Company
pursuant to the insurance agreements entered into by the Company and the
executive. Benefits are not subject to any deduction for social security offset.
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<PAGE> 65
PRINCIPAL STOCKHOLDERS
The following table sets forth the ownership as of April 18, 1997 of Common
Stock and Series A Preferred Stock and Series B Preferred Stock of Holdings by
each person who, to the knowledge of Holdings, owns 5 percent or more of
Holdings' outstanding voting stock, by each person who is a director or Named
Executive Officer of the Company, and by all executive officers and directors of
the Company as a group.
<TABLE>
<CAPTION>
COMMON SERIES A SERIES B
STOCK(1) PREFERRED STOCK PREFERRED STOCK
---------------- ------------------- ------------------- PERCENTAGE PERCENTAGE
NUMBER NUMBER NUMBER OF TOTAL OF ALL
OF OF OF VOTING OUTSTANDING
BENEFICIAL OWNER(2) SHARES % SHARES % SHARES % POWER(1) STOCK(1)(3)
- ------------------------------------ --------- ---- --------- ---- -------- ----- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Yucaipa and affiliates:
The Yucaipa Companies(4).......... 17,566,389 65.6% -- -- -- -- 38.5% 35.8%
Ronald W. Burkle(5)............... 1,777,390 9.5% -- -- -- -- 4.7% 4.3%
George G. Golleher(5)(6).......... 562,525 2.9% -- -- -- -- 1.5% 1.4%
10000 Santa Monica Blvd.
Los Angeles, CA 90067
---------- ---- ---------- ---- --------- ----- ---- ----
Total....................... 19,906,304 73.5% -- -- -- -- 43.3% 40.3%
Alfred A. Marasca(7)................ 300,000 1.6% -- -- -- -- 0.8% 0.7%
Greg Mays(8)........................ 68,890 0.4% -- -- -- -- 0.2% 0.2%
Harley DeLano(9).................... 30,000 0.2% -- -- -- -- 0.1% 0.1%
Tony Schnug(9)...................... 35,000 0.2% -- -- -- -- 0.1% 0.1%
Apollo Advisors, L.P.
Apollo Advisors II, L.P.(10)
2 Manhattanville Road
Purchase, NY 10577................ 1,285,165 6.8% 10,733,244 64.3% -- -- 35.6% 32.6%
BT Investment Partners, Inc.(11)
130 Liberty Street
New York, NY 10006................ 509,812 2.7% 900,000 5.4% 3,100,000 100.0% 4.1% 12.2%
Other 1995 equity investors as a
group(12)......................... 40,172 0.2% 5,000,000 30.3% -- -- 15.1% 13.8%
All directors and executive officers
as a group (15
persons)(4)(5)(6)(7)(8)(10)(13)... 20,350,194 73.9% -- -- -- -- 43.9% 40.8%
</TABLE>
- ---------------
(1) Gives effect to the assumed exercise of outstanding warrants, held by
certain institutional investors, to acquire 2,008,874 shares of Holdings
common stock.
(2) Except as otherwise indicated, each beneficial owner has the sole power to
vote, as applicable, and to dispose of all shares of Common Stock or Series
A Preferred Stock or Series B Preferred Stock owned by such beneficial
owner.
(3) Assumes the conversion of all outstanding Series A Preferred Stock and
Series B Preferred Stock into Common Stock at the conversion rate
applicable as of March 15, 1997.
(4) Represents shares owned by The Yucaipa Companies, F4L Equity Partners,
L.P., FFL Partners, Yucaipa Capital Fund and Yucaipa/F4L Partners. These
entities are affiliated partnerships which are controlled, directly or
indirectly, by Ronald W. Burkle. The foregoing entities are parties to a
stockholders agreement with other Holdings investors which gives to Yucaipa
the right to elect a majority of the directors of Holdings. Share amount
and percentages shown for Yucaipa include a five-year warrant to purchase
8,000,000 shares of Holdings Common Stock held by Yucaipa. Such warrant
will become exercisable only upon the occurrence of an initial public
offering or certain sale transactions involving Holdings. The exercise
price of the warrant is such that the warrant has no value unless and until
the value of the Company's equity securities is greater than $1.220
billion. See "Description of Capital Stock -- Yucaipa Warrant."
(5) Certain management stockholders who own in the aggregate 431,096 shares of
Common Stock have entered into a Stockholder Voting Agreement and Proxy
pursuant to which Ronald W. Burkle, George G. Golleher and Yucaipa Capital
Advisors, Inc. have sole voting control over the shares currently owned by
such management stockholders until June 14, 2005. The 431,096 shares have
been included, solely for purposes of the above table, in the share amounts
shown for Mr. Burkle but not for Mr. Golleher. Neither Messrs. Burkle and
Golleher nor Yucaipa Capital Advisors, Inc. have the power to dispose of,
or any other form of investment power with respect to such shares. Messrs.
Burkle and Golleher have sole voting and investment power with respect to
1,346,294 and 562,525 shares of Common Stock they respectively own
(including in the case of Mr. Golleher, 300,000 shares issuable upon the
exercise of options).
(6) Includes 300,000 shares issuable upon the exercise of options held by Mr.
Golleher.
(7) Represents shares issuable upon the exercise of options held by Mr.
Marasca.
(8) Includes 60,000 shares issuable upon the exercise of options held by Mr.
Mays. In addition, Mr. Mays owns 8,890 of the 431,096 shares of Common
Stock that are subject to the Stockholder Voting Agreement and Proxy
described in note (4) above.
(9) Represents shares issuable upon the exercise of options held by Messrs.
DeLano and Schnug.
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<PAGE> 66
(10) Represents shares owned by one or more entities managed by or affiliated
with Apollo Advisors, L.P. or Apollo Advisors II, L.P. (collectively,
"Apollo"), together with certain affiliates or designees of Apollo.
(11) Represents shares owned by BT Investment Partners, Inc. ("BTIP"), Bankers
Trust New York Corporation and BT Securities Corporation. Bankers Trust New
York Corporation and BT Securities Corporation are affiliated with BTIP.
BTIP expressly disclaims beneficial ownership of all shares owned by
Bankers Trust New York Corporation and BT Securities Corporation.
(12) Includes certain institutional investors, other than Apollo and BTIP, which
purchased Series A Preferred Stock of Holdings in connection with the
Merger. Pursuant to the 1995 Stockholders Agreement, certain corporate
actions by Holdings and its subsidiaries require the consent of the
directors whom the 1995 equity investors, including Apollo and BTIP, are
entitled to elect to the Holdings Board of Directors. Such investors do not
affirm the existence of a "group" within the meaning of Rule 13d-5 under
the Exchange Act, and expressly disclaim beneficial ownership of all
Holdings shares except for those shares held of record by each such
investor or its nominees.
(13) Includes 10,000 shares issuable upon the exercise of options held by
executive officers other than the named executive officers above.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is a party to a consulting agreement with Yucaipa which
provides for certain management and financial services to be performed by
Yucaipa for the benefit of the Company and its subsidiaries. The services of
Messrs. R. Burkle, Bernstein, Graham and Kalantari, acting in their capacities
as directors, and the services of other Yucaipa personnel are provided to the
Company pursuant to this agreement. See "Item 10 -- Directors and Executive
Officers of the Registrant." Messrs. R. Burkle, Bernstein, Graham and Kalantari
are partners of Yucaipa. The consulting agreement provides for an annual
management fee payable by the Company to Yucaipa in the amount of $4 million,
plus reimbursement of out-of-pocket expenses. In addition, the Company may
retain Yucaipa in an advisory capacity in connection with acquisition or sale
transactions, in which case the Company will pay Yucaipa an advisory fee, except
that the retention of Yucaipa in connection with a sale of the entire Company
would require approval by a majority of the disinterested directors. The
agreement has a five-year term, which is automatically renewed on each
anniversary of the Merger for a five-year term unless ninety days' notice is
given by either party. The agreement may be terminated at any time by the
Company, provided that Yucaipa will be entitled to full monthly payments under
the agreement for the remaining term thereof, unless the Company terminates for
cause pursuant to the terms of the agreement. Yucaipa may terminate the
agreement if the Company fails to make a payment due thereunder, or if there
occurs a change of control (as defined in the agreement) of the Company, and
upon any such termination Yucaipa will be entitled to full monthly payments for
the remaining term of the agreement. Pursuant to the agreement (and a
predecessor agreement with Food 4 Less), Yucaipa earned a total of $3.6 million
in management fees for fiscal 1995 and $4.0 million for fiscal 1996.
Pursuant to the Yucaipa consulting agreement, upon closing of the RSI
Merger, Yucaipa received an advisory fee from Ralphs in the amount of $21.5
million, which was paid in cash and New Discount Debentures, plus reimbursement
of expenses in connection with the RSI Merger and the related transactions. Upon
closing of the RSI Merger, Yucaipa paid a cash fee of approximately $3.5 million
to Soros Fund Management in consideration for advisory services which Soros Fund
Management has rendered since 1991. Additionally, upon closing of the RSI
Merger, Yucaipa received a warrant to purchase 8,000,000 shares of Holdings
common stock exercisable under certain conditions. In consideration for its
commitment to purchase preferred stock as part of the 1995 Equity Investment,
Apollo received a fee of $5 million from Holdings upon closing of the RSI
Merger, which fee was paid in cash and notes.
In connection with the execution of the definitive Agreement and Plan of
Merger ("the Merger Agreement") between Food 4 Less, Holdings, FFL and RSI,
Yucaipa entered into the Put Agreement with the majority stockholder of RSI,
pursuant to which such RSI stockholder was entitled to put up to $10 million
aggregate principal amount of 13 5/8% Senior Subordinated Pay-in-Kind Debentures
due 2007 (the "Seller Debentures"), issued as part of the consideration for the
RSI Merger, to Yucaipa on the closing date of the Merger. The Yucaipa consulting
agreement provided that the Company reimburse Yucaipa for any loss and expenses
incurred by Yucaipa upon the resale of such Seller Debentures to any
unaffiliated third party. Pursuant to such agreement, the Company reimbursed an
affiliate of Yucaipa, CLH Supermarkets Corp., the amount of $3.5 million upon
the closing of the Merger.
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<PAGE> 67
Holdings files a consolidated federal income tax return, under which the
federal income tax liability of Holdings and its subsidiaries is determined on a
consolidated basis. Holdings is a party to a federal income tax sharing
agreement with the Company and certain of its subsidiaries (the "Tax Sharing
Agreement"). The Tax Sharing Agreement provides that in any year in which the
Company is included in any consolidated tax liability of Holdings and has
taxable income, the Company will pay to Holdings the amount of the tax liability
that the Company would have had on such due date if it had been filing a
separate return. Conversely, if the Company generates losses or credits which
actually reduce the consolidated tax liability of Holdings and its other
subsidiaries, Holdings will credit to the Company the amount of such reduction
in the consolidated tax liability. These credits are passed between Holdings and
the Company in the form of cash payments. In the event any state and local
income taxes are determinable on a combined or consolidated basis, the Tax
Sharing Agreement provides for a similar allocation between Holdings and the
Company of such state and local taxes.
As part of the financing for the RSI Merger, Holdings issued $100 million
initial accreted value of 13 5/8% Senior Discount Debentures due 2005 (the "New
Discount Debentures"), which was acquired by a partnership, RGC Partners, L.P.,
a Delaware limited partnership ("RGC Partners") comprised of an affiliate of
Yucaipa (Yucaipa RGC, L.L.C.) and certain other investors. The $17.5 million
initial accreted value of New Discount Debentures contributed to RGC Partners by
Yucaipa RGC, L.L.C. consists of New Discount Debentures issued in partial
payment of the Yucaipa consulting fee due upon closing of the RSI Merger, as
described above. Holdings granted to RGC Partners certain registration rights
with respect to the New Discount Debentures, and paid substantially all expenses
of RGC Partners in connection with the resale of the New Discount Debentures,
including underwriting discounts and brokers' commissions (subject to certain
limitations).
On October 20, 1995, the holder of the New Discount Debentures sold all of
such New Discount Debentures at a price equal to 77 percent of the accreted
value thereof. The sale of the New Discount Debentures was effected by BT
Securities Corporation ("BT Securities" an affiliate of BT Investment Partners,
Inc. ("BTIP")). BT Securities received a fee in the amount of 2 percent ($2.1
million) of the aggregate accreted value of the New Discount Debentures.
Holdings reimbursed the selling holder for such fee and other expenses of the
sale as contemplated by a registration rights agreement executed concurrently
with the consummation of the Merger. BT Securities and its affiliates have
provided investment banking and other financing services to the Company from
time to time and have received customary fees in connection therewith. On June
6, 1996, the Company issued the 1996 10.45% Senior Notes to BT Securities, which
resold the notes pursuant to Rule 144A under the Securities Act. BT Securities
received a fee in the amount of $2.3 million for acting as initial purchaser in
the offering. On March 26, 1997, the Company issued the 1997 11% Senior
Subordinated Notes to BT Securities and certain other investment banks, which
resold the Notes pursuant to Rule 144A under the Securities Act. BT Securities
received a fee of $1.6 million for acting as initial purchaser in the offering.
Bankers Trust Company, an affiliate of BTIP and BT Securities has acted as Agent
under the Credit Facility and receives customary fees for such services.
A contribution of $5 million was made to RGC Partners (the partnership that
purchased and subsequently sold the New Discount Debentures), by an affiliate of
the Company. This affiliate borrowed the $5 million from the Company to fund its
contribution to the partnership. Holders of RGC equity appreciation rights
("EARs"), including Messrs. Allumbaugh, Marasca and Gray, agreed to defer the
receipt of $5 million cash otherwise payable by RGC upon settlement of the EARs
at the time of the Merger, pending repayment of the $5 million loan made by the
Company as described above. When the New Discount Debentures were resold by RGC
Partners, and the proceeds from such resale distributed to the partners, all of
the approximately $2.1 million in total proceeds received by the affiliate were
applied to repayment of the loan, and the portion of the loan not repaid was
forgiven by the Company and the EAR holders.
FFL Partners, a partnership controlled by Ronald W. Burkle, is obligated,
pursuant to an agreement with Holdings, to repurchase shares of Holding's common
stock from certain terminated participants in an employee benefit plan
maintained by one of the Company's subsidiaries. See "Note 10 of Notes to
Consolidated Financial Statements of Ralphs Grocery Company." From time to time
the Company advances funds to plan participants on behalf of FFL Partners and
records a receivable from FFL Partners for the
66
<PAGE> 68
amount advanced. At February 2, 1997 the outstanding receivable from FFL
Partners was approximately $271,000.
Management believes that the terms of the transactions described above are
or were fair to the Company and are or were on terms at least as favorable to
the Company as those which could be obtained from unaffiliated parties (assuming
that such transactions could be effected with such parties).
DESCRIPTION OF CAPITAL STOCK
Following is a description of the authorized and outstanding capital stock
of the Company and Holdings, including the terms of the 1995 Equity Investment
to which was made in Holdings in connection with the Merger.
THE COMPANY
The authorized capital stock of the Company consists of 1,600,000 shares of
Common Stock, $.01 par value per share, of which 1,513,938 shares are
outstanding. All of such outstanding shares are owned by Holdings. There is no
public trading market for the Common Stock of the Company. The indentures that
govern outstanding debt securities of the Company contain certain restrictions
on the payment of cash dividends with respect to the Company's Common Stock. In
addition, the Credit Facility also restricts such payments. Subject to the
limitations contained in the Credit Facility and such indentures, holders of
Common Stock of the Company are entitled to dividends when and as declared by
the Board of Directors from funds legally available therefor, and upon
liquidation, are entitled to share ratably in any distribution to holders of
Common Stock. All holders of Common Stock are entitled to one vote per share on
any matter coming before the stockholders for a vote.
HOLDINGS
The authorized capital stock of Holdings consists of 60,000,000 shares of
Common Stock, $.01 par value, 25,000,000 shares of Non-Voting Common Stock, $.01
par value, 25,000,000 shares of Series A Preferred Stock, $.01 par value, and
25,000,000 shares of Series B Preferred Stock, $.01 par value. Of such
authorized shares, (i) 16,976,585 shares of Common Stock, 16,683,244 shares of
Series A Preferred Stock and 3,100,000 shares of Series B Preferred Stock are
outstanding and held by approximately 100 holders of record, (ii) 2,008,874
shares of Common Stock are reserved for issuance upon the exercise of
outstanding warrants held by institutional investors, (iii) 3,000,000 shares of
Common Stock are reserved for issuance upon the exercise of employee stock
options and (iv) 421,236 shares of Common Stock are held in treasury. An
additional 8,000,000 shares of Common Stock are reserved for issuance upon the
exercise of a warrant issued to Yucaipa upon closing of the Merger. See
"-- Yucaipa Warrant" below.
There is no public trading market for the capital stock of Holdings.
Holdings does not expect in the foreseeable future to pay any dividends on its
capital stock. Holders of Common Stock of Holdings are entitled to dividends
when and as declared by the Board of Directors of Holdings from funds legally
available therefor, and upon liquidation, are entitled to share ratably in any
distribution to holders of Common Stock. All holders of Holdings Common Stock
are entitled to one vote per share on any matter coming before the stockholders
for a vote.
Upon issuance, the Series A Preferred Stock initially had an aggregate
liquidation preference of $166,832,440, or $10 per share, which accretes as
described below. The holders of the Series A Preferred Stock vote (on an
as-converted basis) together with the Common Stock as a single class on all
matters submitted for stockholder vote. Each share of Series A Preferred Stock
initially is convertible at the option of the holder thereof into a number of
shares of Holdings Common Stock equal to the liquidation preference of such
share of Series A Preferred Stock divided by $10. Upon consummation of an
initial public offering of Holdings equity securities which meets certain
criteria, the shares of Series A Preferred Stock will automatically convert into
shares of Common Stock of Holdings at the same rate as applicable to an optional
conversion.
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<PAGE> 69
Upon issuance, the Series B Preferred Stock initially had an aggregate
liquidation preference of $31,000,000, or $10 per share, which accretes as
described below. The holders of Series B Preferred Stock generally are not
entitled to vote on any matters, except as required by the Delaware General
Corporation Law. Upon the occurrence of a change of control, each share of
Series B Preferred Stock initially will be convertible at the option of the
holder thereof into a number of shares of Holdings Common Stock or Non-Voting
Common Stock equal to the liquidation preference of such share of Series B
Preferred Stock divided by $10. Upon consummation of an initial public offering
of Holdings equity securities which meets certain criteria, shares of Series B
Preferred Stock will automatically convert into shares of Non-Voting Common
Stock of Holdings at the same rate as applicable to an optional conversion.
The liquidation preference of the Series A Preferred Stock and the Series B
Preferred Stock initially accretes daily at the rate of 7% per annum, compounded
quarterly, until the later of the fifth anniversary of the date of issuance or
the date the Company first reports EBITDA (as defined) of at least $500 million
for any twelve-month period. Thereafter, the liquidation preference will remain
constant. The accretion rate of the liquidation preference will increase (a) by
2% per annum if the Company fails to report EBITDA of at least $400 million for
the four fiscal quarters ending closest to the third anniversary of the date of
issuance (or for the rolling four-quarter period ending on any of the three
subsequent quarter-ends), (b) by 2% per annum if the Company fails to report
EBITDA of at least $425 million for the four fiscal quarters ending closest to
the fourth anniversary of the date of issuance (or for the rolling four-quarter
period ending on any of the three subsequent quarter-ends) or (c) by 2% per
annum if the Company fails to report EBITDA of at least $450 million for the
four fiscal quarters ending closest to the fifth anniversary of the date of
issuance, in each case, such increase to take effect on the first day after the
last day of the fiscal quarter with respect to which such failure occurred;
provided that the accretion rate of the liquidation preference will not at any
time exceed 13% per annum. The accretion of the liquidation preference will
result in a proportional increase in the number of shares of common stock
issuable upon conversion of the Series A Preferred Stock and the Series B
Preferred Stock.
Shares of Series A Preferred Stock or Series B Preferred Stock may be
converted (subject to certain conditions) at the option of the holder into
shares of the other series. The holders of Series A Preferred Stock and Series B
Preferred Stock have no rights to any fixed dividends in respect thereof.
Subject to certain exceptions, Holdings is prohibited from declaring dividends
with respect to, or redeem, purchase or otherwise acquire, shares of its capital
stock without the consent of holders of a majority of the Series A Preferred
Stock. If dividends are declared on the Series A Preferred Stock or the Series B
Preferred Stock which are payable in voting securities of Holdings, Holdings
will make available to each holder of Series A Preferred Stock and Series B
Preferred Stock, at such holder's request, dividends consisting of non-voting
securities of Holdings which are otherwise identical to the voting securities
and which are convertible into or exchangeable for such voting securities upon a
change of control.
1995 STOCKHOLDERS AGREEMENT
Under the terms of the 1995 Stockholders Agreement (which was entered into
by Holdings, Yucaipa and its affiliates, the 1995 Equity Investors and other
stockholders), the 1995 Equity Investors holding Series A Preferred Stock are
entitled to nominate three directors to the Board of Directors of each of
Holdings and the Company (the "Series A Directors"), of which two directors are
nominees of Apollo and one director is a nominee of the other 1995 Equity
Investors holding Series A Preferred Stock. The 1995 Stockholders Agreement
gives to Yucaipa the right to nominate six directors of Holdings and seven
directors of the Company, and the boards of Holdings and the Company consist of
a total of nine and ten directors, respectively. The numbers of directors which
may be nominated by the foregoing stockholders will be reduced if such
stockholders cease to own certain specified percentages of their initial
holdings. Unless and until Holdings has effected an initial public offering of
its equity securities meeting certain criteria, Holdings and its subsidiaries
may not take certain actions without the approval of the Series A Directors,
including but not limited to certain mergers, sale transactions, transactions
with affiliates, issuances of capital stock and payments of dividends on or
repurchases of capital stock. In addition, under the 1995 Registration Rights
Agreement the 1995 Equity Investors have certain "demand" and "piggyback"
registration rights with respect
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to their Series A Preferred Stock and Series B Preferred Stock, as well as the
right under the 1995 Stockholders Agreement to participate, on a pro rata basis,
in sales by Yucaipa of the Holdings stock it holds. In certain circumstances,
Yucaipa will have the right to compel the participation of the 1995 Equity
Investors and other stockholders in sales of all the outstanding shares of
Holdings stock.
YUCAIPA WARRANT
Upon closing of the Merger, Holdings issued to Yucaipa a warrant to
purchase up to 8,000,000 shares of Holdings Common Stock. The initial exercise
price of such warrant is such that the warrant has no value unless and until the
value of the shares representing Holdings' equity on the Closing Date is greater
than $1.220 billion. Such warrant will be exercisable on a cashless basis at the
election of Yucaipa in the event Holdings completes an initial public offering
of equity securities meeting certain criteria, or in connection with certain
sale transactions involving Holdings, in either case effected on or prior to the
fifth anniversary of the Merger. The expiration date of such warrant, and the
deadline for such triggering transactions, may be extended from the fifth to the
seventh anniversary of the Merger if Holdings meets certain financial
performance goals prior to such fifth anniversary. The cashless exercise
provisions of such warrant allow the holder to exercise it without the payment
of cash consideration, provided that Holdings will withhold from the shares
otherwise issuable upon such exercise a number of shares having a fair market
value as of the exercise date equal to the exercise price.
DESCRIPTION OF THE NOTES
GENERAL
The Notes were issued under an indenture (the "Indenture"), dated March 26,
1997, by and among the Company, the Subsidiary Guarantors and United States
Trust Company of New York, as Trustee (the "Trustee").
The following summary of the material provisions of the Notes and the
Indenture does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, the Trust Indenture Act of 1939, as amended (the
"TIA"), and to all of the provisions of the Notes and the Indenture, including
the definitions of certain terms therein and those terms made a part of the
Indenture by reference to the TIA. The definitions of certain capitalized terms
used in the following summary are set forth below under "-- Certain
Definitions." Capitalized terms not defined herein shall have the meanings set
forth in the Indenture. A copy of the forms of the Indenture may be obtained
from the Company.
The Notes will be issued in fully registered form only, without coupons, in
denominations of $1,000 and integral multiples thereof. Initially, the Trustee
will act as Paying Agent and Registrar for the Notes. The Notes may be presented
for registration or transfer and exchange at the offices of their respective
Registrar, which for the Notes initially will be the Trustee's corporate trust
office. The Company may change any Paying Agent and Registrar without notice to
holders of the Notes (the "Holders"). The Company will pay principal (and
premium, if any) on the Notes at the Trustee's corporate office located in New
York, New York. At the Company's option, interest may be paid at the Trustee's
corporate trust office or by check mailed to the registered address of the
relevant Holders.
As used below in this "Description of the Notes," the "Company" means
Ralphs Grocery Company, but not any of its subsidiaries.
PRINCIPAL AND MATURITY OF AND INTEREST ON THE NOTES
The Notes are limited in aggregate principal amount to $155,000,000. The
Notes will mature on June 15, 2005. Interest on the Notes will accrue at the
rate of 11% per annum and will be payable semi-annually on each June 15 and
December 15, commencing on June 15, 1997, to the Holders of record on the
immediately preceding June 1 and December 1, provided that with respect to the
interest payment on June 15, 1997, the record date shall be the date of original
issuance. Interest on the Notes will accrue from the most recent date
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to which interest has been paid or, if no interest has been paid, from the date
of original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
OPTIONAL REDEMPTION OF THE NOTES
The Notes will be redeemable, at the option of the Company, in whole at any
time or in part from time to time, on and after June 15, 2000, at the following
redemption prices (expressed as percentages of the principal amount) if redeemed
during the twelve-month period commencing on June 15 of the year set forth
below, plus, in each case, accrued and unpaid interest to the date of
redemption:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
------------------------------------------ ----------
<S> <C>
2000...................................... 105.500%
2001...................................... 103.667%
2002...................................... 101.833%
2003 and thereafter....................... 100.000%
</TABLE>
In addition, on or prior to June 15, 1998, the Company may, at its option,
use the net cash proceeds of one or more Public Equity Offerings to redeem up to
an aggregate of 35% of the principal amount of the Notes originally issued, at a
redemption price equal to 109.429% if redeemed during the 12 months commencing
on June 15, 1996 and 107.857% of the principal amount thereof if redeemed during
the 12 months commencing on June 15, 1997, in each case plus accrued and unpaid
interest, if any, to the redemption date. In order to effect the foregoing
redemption with the proceeds of a Public Equity Offering, the Company shall send
the redemption notice not later than 60 days after the consummation of such
Public Equity Offering.
NOTICES AND SELECTION
In the event of a redemption of less than all of the Notes, Notes will be
selected for redemption by the Trustee pro rata, by lot or by any other method
that such Trustee considers fair and appropriate and, if such Notes are listed
on any securities exchange, by a method that complies with the requirements of
such exchange; provided, however, that any redemption of the Notes pursuant to
the provisions relating to a Public Equity Offering shall be made on a pro rata
basis unless such method is otherwise legally prohibited. Notice of redemption
will be mailed at least 30 days but not more than 60 days before the redemption
date to each Holder of Notes to be redeemed at such Holder's registered address.
On and after the redemption date, interest will cease to accrue on Notes or
portions thereof called for redemption (unless the Company shall default in the
payment of the redemption price or accrued interest). Notes that are redeemed by
the Company or that are purchased by the Company pursuant to a Net Proceeds
Offer as described under "-- Certain Covenants -- Limitation on Asset Sales"
below or pursuant to a Change of Control Offer as described under "-- Change of
Control" below or that are otherwise acquired by the Company will be surrendered
to the Trustee for cancellation.
SUBORDINATION OF THE NOTES
The payment of the Obligations on the Notes will be subordinated in right
of payment, as set forth in the Indenture, to the prior payment in full in cash
or Cash Equivalents of all Senior Indebtedness, whether outstanding on the Issue
Date or thereafter incurred, including, with respect to Designated Senior
Indebtedness, any interest accruing subsequent to a bankruptcy or other similar
proceeding whether or not such interest is an allowed claim enforceable against
the Company in a bankruptcy case under Title 11 of the United States Code.
Upon any distribution of assets of the Company of any kind or character,
whether in cash, property or securities upon any dissolution, winding up, total
or partial liquidation or reorganization of the Company (including, without
limitation, in bankruptcy, insolvency, or receivership proceedings or upon any
assignment for the benefit of creditors or any other marshalling of the
Company's assets and liabilities), the holders of Senior Indebtedness shall
first be entitled to receive payment in full in cash or Cash Equivalents of all
amounts payable under Senior Indebtedness (including, with respect to Designated
Senior Indebtedness, any
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interest accruing after the commencement of any such proceeding at the rate
specified in the applicable Designated Senior Indebtedness whether or not such
interest is an allowed claim enforceable against the Company in any such
proceeding) before the Holders of Notes will be entitled to receive any payment
with respect to the Notes (excluding Permitted Subordinated Reorganization
Securities), and until all Obligations with respect to Senior Indebtedness are
paid in full in cash or Cash Equivalents, any distribution to which the Holders
of Notes would be entitled (excluding Permitted Subordinated Reorganization
Securities) shall be made to the holders of Senior Indebtedness.
No direct or indirect payment (other than payments previously made pursuant
to the provisions described under "-- Defeasance of Indenture" below) by or on
behalf of the Company of Obligations on the Notes whether pursuant to the terms
of the Notes or upon acceleration or otherwise shall be made if, at the time of
such payment, there exists a default in the payment of all or any portion of
principal of, premium, if any, or interest on any Designated Senior Indebtedness
or any other Senior Indebtedness which, at the time of determination, is equal
to or greater than $50 million in aggregate principal amount ("Significant
Senior Indebtedness") (and the Note Trustee has received written notice
thereof), and such default shall not have been cured or waived by or on behalf
of the holders of such Designated Senior Indebtedness or Significant Senior
Indebtedness, as the case may be, or shall have ceased to exist, until such
default shall have been cured or waived or shall have ceased to exist or such
Designated Senior Indebtedness or Significant Senior Indebtedness, as the case
may be, shall have been discharged or paid in full in cash or Cash Equivalents,
after which the Company shall resume making any and all required payments in
respect of the Notes, including any missed payments.
In addition, during the continuance of any other event of default with
respect to any Designated Senior Indebtedness pursuant to which the maturity
thereof may be accelerated, upon the earliest to occur of (a) receipt by the
Note Trustee of written notice from the holders of a majority of the outstanding
principal amount of the Designated Senior Indebtedness or their representative,
or (b) if such event of default results from the acceleration of the Notes, the
date of such acceleration, no such payment (other than payments previously made
pursuant to the provisions described under "-- Defeasance of Indenture" below)
may be made by the Company upon or in respect of the Notes for a period
("Payment Blockage Period") commencing on the earlier of the date of receipt of
such notice or the date of such acceleration and ending 179 days thereafter
(unless (x) such Payment Blockage Period shall be terminated by written notice
to the Note Trustee from the holders of a majority of the outstanding principal
amount of such Designated Senior Indebtedness or their representative who
delivered such notice or (y) such default is cured or waived, or ceases to exist
or such Designated Senior Indebtedness is discharged or paid in full in cash or
Cash Equivalents), after which the Company shall resume making any and all
required payments in respect of the Notes, including any missed payments.
Notwithstanding anything herein to the contrary, in no event will a Payment
Blockage Period extend beyond 179 days from the date on which such Payment
Blockage Period was commenced. Not more than one Payment Blockage Period may be
commenced with respect to the Notes during any period of 365 consecutive days.
No event of default which existed or was continuing on the date of the
commencement of any Payment Blockage Period with respect to the Designated
Senior Indebtedness initiating such Payment Blockage Period shall be, or be
made, the basis for the commencement of a second Payment Blockage Period by the
holders of such Designated Senior Indebtedness or their representative whether
or not within a period of 365 consecutive days unless such event of default
shall have been cured or waived for a period of not less than 90 consecutive
days.
If the Company fails to make any payment on the Notes when due or within
any applicable grace period, whether or not on account of the payment blockage
provision referred to above, such failure would constitute an Event of Default
under the Note Indenture and would enable the Holders of Notes to accelerate the
maturity thereof. See "-- Events of Default."
By reason of such subordination, in the event of the insolvency of the
Company, Holders of the Notes, may recover less, ratably, than holders of Senior
Indebtedness.
As of July 20, 1997, the aggregate amount of Senior Indebtedness
outstanding was $1,473.6 million (not including obligations with respect to
letters of credit issued under the Revolving Facility, of which
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$77.3 million were outstanding as of July 20, 1997), the aggregate outstanding
amount of Guarantor Senior Indebtedness of the Subsidiary Guarantors (excluding
guarantees by Subsidiary Guarantors of certain Senior Indebtedness of the
Company) was $10.0 million, and the Company had $111.1 million available to be
borrowed under the Revolving Facility. At July 20, 1997, neither the Company nor
any of the Subsidiary Guarantors had any outstanding indebtedness ranking junior
in right of payment to the Notes or the Guarantees (as defined), respectively.
GUARANTEES
Each Subsidiary Guarantor will fully and unconditionally guarantee, jointly
and severally, the Company's obligations under the Notes on a senior
subordinated unsecured basis (the "Guarantees") in accordance with the
provisions of the Indenture. The Indebtedness represented by the Guarantee will
be subordinated on the same basis to Guarantor Senior Indebtedness as the Notes
are subordinated to Senior Indebtedness. See "-- Subordination of the Notes".
Upon (i) the release by the lenders under the Term Loans, related documents
and future refinancings thereof of all guarantees of a Subsidiary Guarantor and
all Liens on the property and assets of such Subsidiary Guarantor relating to
such Indebtedness, or (ii) the sale or disposition (whether by merger, stock
purchase, asset sale or otherwise) of a Subsidiary Guarantor (or substantially
all of its assets) to an entity which is not a subsidiary of the Company, which
is otherwise in compliance with the Indenture, such Subsidiary Guarantor shall
be deemed released from all its obligations under its Guarantee; provided,
however, that any such termination shall occur only to the extent that all
obligations of such Subsidiary Guarantor under all of its guarantees of, and
under all of its pledges of assets or other security interests which secure,
such Indebtedness of the Company shall also terminate upon such release, sale or
transfer.
Each Subsidiary Guarantor may consolidate with or merge into or sell its
assets to the Company or another Subsidiary Guarantor without limitation. The
Indenture will further provide that a Subsidiary Guarantor may consolidate with
or merge into or sell its assets to a corporation other than the Company or
another Subsidiary Guarantor (whether or not affiliated with the Subsidiary
Guarantor, but subject to the provisions described in the immediately preceding
paragraph), provided that (a) if the surviving corporation is not the Subsidiary
Guarantor, the surviving corporation agrees to assume such Subsidiary
Guarantor's obligations under its Guarantee, and all its obligations under the
Indenture and (b) such transaction does not (i) violate any covenants set forth
in the Indenture or (ii) result in a Default or Event of Default under the
Indenture immediately thereafter that is continuing.
The obligations of each Subsidiary Guarantor under its Guarantee are
limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of such Subsidiary Guarantor (other than
liabilities of such Subsidiary Guarantor under Indebtedness which constitutes
Subordinated Indebtedness with respect to its Guarantee) and after giving effect
to any collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Guarantee, or pursuant to its contribution obligations under the Indenture,
result in the obligations of such Subsidiary Guarantor under such Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Each Subsidiary Guarantor that makes a payment or distribution under
a Guarantee shall be entitled to a contribution from each other Subsidiary
Guarantor in a pro rata amount based on the Adjusted Net Assets of each
Subsidiary Guarantor.
Separate financial statements of the Subsidiary Guarantors are not
presented herein because, in the view of the Company's management, such
financial statements would not be material to the investment decision being made
by holders of Private Notes in connection with the Exchange Offer.
CHANGE OF CONTROL
The Indenture provides that, upon the occurrence of a Change of Control,
each Holder of Notes issued thereunder will have the right to require the
repurchase of such Holder's Notes pursuant to the offer described below (the
"Change of Control Offer"), at a purchase price equal to 101% of the principal
amount thereof plus accrued and unpaid interest to the date of repurchase.
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The Indenture provides that within 30 days following the date upon which
the Change of Control occurred, the Company must send, by first class mail, a
notice to each Holder of Notes, with a copy to the Trustee, which notice shall
govern the terms of the Change of Control Offer. The Indenture requires that
notice of an event giving rise to a Change of Control shall be given on the same
date and in the same manner to all Holders. Such notice shall state, among other
things, the purchase date, which must be no earlier than 30 days nor later than
40 days from the date such notice is mailed, other than as may be required by
law (the "Change of Control Payment Date"). Holders electing to have a Note
purchased pursuant to a Change of Control Offer will be required to surrender
the Note, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Note completed, to the Paying Agent at the address specified in
the notice prior to the close of business on the Business Day prior to the
Change of Control Payment Date. The Change of Control Offer is required to
remain open for at least 20 Business Days or such longer period as may be
required by law.
The Refinanced Credit Facility (as defined) and the indentures governing a
substantial portion of the Company's other indebtedness also contain provisions
with respect to change of control events that will require the Company to either
repay or offer to repurchase such indebtedness, as the case may be, or seek
consents to a waiver of such provisions. There can be no assurance that in the
event of a Change of Control, the Company would have sufficient funds to satisfy
its obligations with respect to such other indebtedness or to purchase all Notes
tendered. Other than the "Limitation on Incurrences of Additional Indebtedness"
described below, the Indenture does not contain provisions which would prevent
the Company from engaging in a highly leveraged transaction that did not result
in a Change of Control.
The Company must comply with Rule 14e-1 under the Exchange Act and any
other applicable provisions of the federal securities laws in connection with a
Change of Control Offer.
CERTAIN COVENANTS
Except as otherwise specified below, the Indenture contains, among other
things, the following covenants:
Limitation on Restricted Payments. The Indenture provides that the Company
shall not, and shall cause each of its Subsidiaries not to, directly or
indirectly, make any Restricted Payment if, at the time of such proposed
Restricted Payment, or after giving effect thereto, (a) a Default or an Event of
Default shall have occurred and be continuing, (b) the Company could not incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to
the covenant described under "-- Limitation on Incurrences of Additional
Indebtedness" below or (c) the aggregate amount expended for all Restricted
Payments, including such proposed Restricted Payment (the amount of any
Restricted Payment, if other than cash, to be the fair market value thereof at
the date of payment as determined in good faith by the Board of Directors of the
Company), subsequent to June 14, 1995, shall exceed the sum of (i) 50% of the
aggregate Consolidated Net Income (or if such aggregate Consolidated Net Income
is a loss, minus 100% of such loss) of the Company earned subsequent to June 14,
1995 and on or prior to the date of the proposed Restricted Payment (the
"Reference Date") plus (ii) 100% of the aggregate Net Proceeds received by the
Company from any person (other than a Subsidiary of the Company) from the
issuance and sale (including upon exchange or conversion for other securities of
the Company) subsequent to June 14, 1995 and on or prior to the Reference Date
of Qualified Capital Stock (excluding (A) Qualified Capital Stock paid as a
dividend on any Capital Stock or as interest on any Indebtedness and (B) any Net
Proceeds from issuances and sales financed directly or indirectly using funds
borrowed from the Company or any Subsidiary, until and to the extent such
borrowing is repaid), plus (iii) 100% of the aggregate net cash proceeds
received by the Company as capital contributions to the Company after June 14,
1995, plus (iv) $25 million.
The Indenture provides that if no Default or Event of Default shall have
occurred and be continuing as a consequence thereof, the provisions set forth in
the immediately preceding paragraph will not prevent (1) the payment of any
dividend within 60 days after the date of its declaration if the dividend would
have been permitted on the date of declaration, (2) the acquisition of any
shares of Capital Stock of the Company or the repurchase, redemption or other
repayment of any Subordinated Indebtedness in exchange for or solely out of the
proceeds of the substantially concurrent sale (other than to a Subsidiary) of
shares of Qualified Capital
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Stock of the Company, (3) the repurchase, redemption or other repayment of any
Subordinated Indebtedness in exchange for or solely out of the proceeds of the
substantially concurrent sale (other than to a Subsidiary) of Subordinated
Indebtedness of the Company with an Average Life equal to or greater than the
then remaining Average Life of the Subordinated Indebtedness repurchased,
redeemed or repaid and (4) Permitted Payments; provided, however, that the
declaration of each dividend paid in accordance with clause (1) above, each
acquisition, repurchase, redemption or other repayment made in accordance with,
or of the type set forth in, clause (2) above, and each payment described in
clause (iii), (iv), (vi) and (vii) of the definition of the term "Permitted
Payments" shall each be counted for purposes of computing amounts expended
pursuant to subclause (c) in the immediately preceding paragraph, and no amounts
expended pursuant to clause (3) above or pursuant to clause (i), (ii), (v), and
(viii) of the definition of the term "Permitted Payments" shall be so counted;
provided further that to the extent any payments made pursuant to clause (vi) of
the definition of the term "Permitted Payments" are deducted for purposes of
computing the Consolidated Net Income of the Company, such payments shall not be
counted for purposes of computing amounts expended as Restricted Payments
pursuant to subclause (c) in the immediately preceding paragraph.
Limitation on Incurrences of Additional Indebtedness. The Indenture
provides that the Company shall not, and shall not permit any of its
Subsidiaries, directly or indirectly, to incur, assume, guarantee, become
liable, contingently or otherwise, with respect to, or otherwise become
responsible for the payment of (collectively "incur") any Indebtedness other
than Permitted Indebtedness; provided, however, that if no Default with respect
to payment of principal of, or interest on, the Notes or Event of Default under
the Indenture shall have occurred and be continuing at the time or as a
consequence of the incurrence of any such Indebtedness, the Company may incur
Indebtedness if immediately before and immediately after giving effect to the
incurrence of such Indebtedness the Operating Coverage Ratio of the Company
would be greater than 2.0 to 1.0; provided, further, a Subsidiary may incur
Acquired Indebtedness to the extent such Indebtedness could have been incurred
by the Company pursuant to the immediately preceding proviso.
In addition, the Indenture provides that neither the Company nor any
Subsidiary Guarantor will, directly or indirectly, incur any Indebtedness
(including Acquired Indebtedness) that is subordinate in right of payment to any
Indebtedness of the Company or such Subsidiary Guarantor, as the case may be,
unless such Indebtedness is either (a) pari passu in right of payment with the
Notes or the Guarantee of such Subsidiary Guarantor, as the case may be, or (b)
subordinate in right of payment to the Notes or the Note Guarantee of such
Subsidiary Guarantor, as the case may be, in the same manner and at least to the
same extent as the Notes are subordinate to Senior Indebtedness or as such
Guarantee is subordinated to Guarantor Senior Indebtedness of such Subsidiary
Guarantor, as the case may be.
Limitation on Liens. The Indenture provides that the Company shall not and
shall not permit any Subsidiary to create, incur, assume or suffer to exist any
Liens upon any of their respective assets unless the Notes are equally and
ratably secured by the Liens covering such assets, except for (i) Liens on
assets of the Company securing Senior Indebtedness and Liens on assets of a
Subsidiary Guarantor which, at the time of incurrence, secure Guarantor Senior
Indebtedness, (ii) existing and future Liens securing Indebtedness and other
obligations of the Company and its Subsidiaries under the Credit Agreement and
related documents or any refinancing or replacement thereof in whole or in part
permitted under the Indenture, (iii) Permitted Liens, (iv) Liens securing
Acquired Indebtedness; provided that such Liens (x) are not incurred in
connection with, or in contemplation of the acquisition of the property or
assets acquired and (y) do not extend to or cover any property or assets of the
Company or any Subsidiary other than the property or assets so acquired, (v)
Liens to secure Capitalized Lease Obligations and certain other Indebtedness
that is otherwise permitted under the Indenture; provided that (A) any such Lien
is created solely for the purpose of securing such other Indebtedness
representing, or incurred to finance, refinance or refund, the cost (including
sales and excise taxes, installation and delivery charges and other direct costs
of, and other direct expenses paid or charged in connection therewith) of the
purchase (whether through stock or asset purchase, merger or otherwise) or
construction or improvement of the property subject thereto (whether real or
personal, including fixtures and other equipment), (B) the principal amount of
the Indebtedness secured by such Lien does not exceed 100% of such costs and (C)
such Lien does not extend to or cover any other property other than such item of
property and any improvements on such item; (vi) Liens existing on the Issue
Date; (vii) Liens in
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favor of the Trustee and any substantially equivalent Lien granted to any
trustee or similar institution under any indenture for Indebtedness permitted to
be incurred under the Indenture; and (viii) any replacement, extension or
renewal, in whole or in part, of any Lien described in this or the foregoing
clauses including in connection with any refinancing of the Indebtedness, in
whole or in part, secured by any such Lien; provided that to the extent any such
clause limits the amount secured or the assets subject to such Liens, no
replacement, extension or renewal shall increase the amount or the assets
subject to such Liens, except to the extent that the Liens associated with such
additional assets are otherwise permitted hereunder.
Limitation on Asset Sales. The Indenture provides that neither the Company
nor any of its Subsidiaries shall consummate an Asset Sale unless (a) the
Company or the applicable Subsidiary receives consideration at the time of such
Asset Sale at least equal to the fair market value of the assets sold and (b)
upon consummation of an Asset Sale, the Company will within 365 days of the
receipt of the proceeds therefrom, either: (i) apply or cause its Subsidiary to
apply the Net Cash Proceeds of any Asset Sale to (A) a Related Business
Investment, (B) an investment in properties and assets that replace the
properties and assets that are the subject of such Asset Sale or (C) an
investment in properties and assets that will be used in the business of the
Company and its Subsidiaries existing on the Issue Date or in businesses
reasonably related thereto; (ii) in the case of a sale of a store or stores,
deem such Net Cash Proceeds to have been applied to the extent of any capital
expenditures made to acquire or construct a replacement store in the general
vicinity of the store sold within 365 days preceding the date of the Asset Sale;
(iii) apply or cause to be applied such Net Cash Proceeds to the permanent
repayment of Pari Passu Indebtedness or Senior Indebtedness; provided, however,
that the repayment of any revolving loan (under the Credit Agreement or
otherwise) shall result in a permanent reduction in the commitment thereunder;
(iv) use such Net Cash Proceeds to secure Letter of Credit Obligations to the
extent the related letters of credit have not been drawn upon or returned
undrawn; or (v) after such time as the accumulated Net Cash Proceeds of Asset
Sales effected since June 14, 1995 equals or exceeds $20 million, apply or cause
to be applied such Net Cash Proceeds to the purchase of Notes tendered to the
Company for purchase at a price equal to 100% of the principal amount thereof
plus accrued interest thereon to the date of purchase pursuant to an offer to
purchase made by the Company as set forth below (a "Net Proceeds Offer");
provided, however, that the Company shall have the right to exclude from the
foregoing provisions Asset Sales subsequent to June 14, 1995, the proceeds of
which are derived from the sale and substantially concurrent lease-back of a
supermarket and/or related assets or equipment which are acquired or constructed
by the Company or a Subsidiary subsequent to the date that is six months prior
to the Issue Date; provided that such sale and substantially concurrent
lease-back occurs within 270 days following such acquisition or the completion
of such construction, as the case may be. Pending the utilization of any Net
Cash Proceeds in the manner (and within the time period) described above, the
Company may use any such Net Cash Proceeds to repay revolving loans (under the
Credit Agreement or otherwise) without a permanent reduction of the commitment
thereunder.
Each Net Proceeds Offer will be mailed to the record Holders of Notes as
shown on the register of Holders of such Notes not less than 325 nor more than
365 days after the relevant Asset Sale, with a copy to the Trustee, shall
specify the purchase date (which shall be no earlier than 30 days nor later than
40 days from the date such notice is mailed) and shall otherwise comply with the
procedures set forth in the Indenture. Upon receiving notice of the Net Proceeds
Offer, Holders of Notes may elect to tender their Notes in whole or in part in
integral multiples of $1,000 in exchange for cash. To the extent Holders
properly tender Notes in an amount exceeding the Net Proceeds Offer, Notes of
tendering Holders will be repurchased on a pro rata basis (based on amounts
tendered). A Net Proceeds Offer shall remain open for a period of 20 Business
Days or such longer period as may be required by law.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Indenture provides that the Company shall not, and shall not
permit any Subsidiary to, directly or indirectly, create or suffer to exist, or
allow to become effective any consensual Payment Restriction with respect to any
of its Subsidiaries, except for (a) any such restrictions contained in (i) the
Credit Agreement in effect on the Issue Date as any
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such Payment Restriction may apply to any present or future Subsidiary, (ii) the
Indenture and any agreement in effect at or entered into on the Issue Date,
(iii) Indebtedness of a person existing at the time such person becomes a
Subsidiary (provided that (x) such Indebtedness is not incurred in connection
with, or in contemplation of, such person becoming a Subsidiary, (y) such
restriction is not applicable to any person, or the properties or assets of any
person, other than the person so acquired and (z) such Indebtedness is otherwise
permitted to be incurred pursuant to the provisions of the covenant described
under "-- Limitation on Incurrences of Additional Indebtedness" above), (iv)
secured Indebtedness otherwise permitted to be incurred pursuant to the
provisions of the covenants described under "-- Limitation on Incurrences of
Additional Indebtedness" and "-- Limitation on Liens" above that limit the right
of the debtor to dispose of the assets securing such Indebtedness; (b) customary
non-assignment provisions restricting subletting or assignment of any lease or
other agreement entered into by a Subsidiary; (c) customary net worth provisions
contained in leases and other agreements entered into by a Subsidiary in the
ordinary course of business; (d) customary restrictions with respect to a
Subsidiary pursuant to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of such
Subsidiary; (e) customary provisions in joint venture agreements and other
similar agreements; (f) restrictions contained in Indebtedness incurred to
refinance, refund, extend or renew Indebtedness referred to in clause (a) above;
provided that the restrictions contained therein are not materially more
restrictive taken as a whole than those provided for in such Indebtedness being
refinanced, refunded, extended or renewed and (g) Payment Restrictions contained
in any other Indebtedness permitted to be incurred subsequent to the Issue Date
pursuant to the provisions of the covenant described under "-- Limitation on
Incurrences of Additional Indebtedness" above; provided that any such Payment
Restrictions are ordinary and customary with respect to the type of Indebtedness
being incurred (under the relevant circumstances) and, in any event, no more
restrictive than the most restrictive Payment Restrictions in effect on June 14,
1995.
Guarantees of Certain Indebtedness. The Indenture provides that the Company
shall not permit any of its Subsidiaries to (a) incur, guarantee or secure
through the granting of Liens the payment of any Indebtedness under the term
portion of the Credit Agreement or refinancings thereof or (b) pledge any
intercompany notes representing obligations of any of its Subsidiaries, to
secure the payment of any Indebtedness under the term portion of the Credit
Agreement or refinancings thereof, in each case unless such Subsidiary, the
Company and the Trustee execute and deliver a supplemental indenture evidencing
such Subsidiary's Guarantee.
Limitation on Transactions with Affiliates. The Indenture provides that
neither the Company nor any of its Subsidiaries shall (i) sell, lease, transfer
or otherwise dispose of any of its properties or assets or issue securities
(other than equity securities which do not constitute Disqualified Capital
Stock) to, (ii) purchase any property, assets or securities (other than equity
securities which do not constitute Disqualified Capital Stock) from, (iii) make
any Investment in, or (iv) enter into or suffer to exist any contract or
agreement with or for the benefit of, an Affiliate or Significant Stockholder
(or any Affiliate of such Significant Stockholder) of the Company or any
Subsidiary (an "Affiliate Transaction"), other than (x) Affiliate Transactions
permitted under the following paragraph and (y) Affiliate Transactions in the
ordinary course of business, that are fair to the Company or such Subsidiary, as
the case may be, and on terms at least as favorable as might reasonably have
been obtainable at such time from an unaffiliated party; provided that (A) with
respect to Affiliate Transactions involving aggregate payments in excess of $1
million and less than $5 million, the Company or such Subsidiary, as the case
may be, shall have delivered an Officers' Certificate to the Trustee certifying
that such Affiliate Transaction complies with clause (y) above (other than the
requirement set forth in such clause (y) that such Affiliate Transaction be in
the ordinary course of business), (B) with respect to Affiliate Transactions
involving aggregate payments in excess of $5 million and less than $15 million,
the Company or such Subsidiary, as the case may be, shall have delivered an
Officers' Certificate to the Trustee certifying that such Affiliate Transaction
complies with clause (y) above (other than the requirement set forth in such
clause (y) that such Affiliate Transaction be in the ordinary course of
business) and that such Affiliate Transaction has received the approval of a
majority of the disinterested members of the Board of Directors of the Company
or the Subsidiary, as the case may be, or, in the absence of any such approval
by the disinterested members of the Board of Directors of the Company or the
Subsidiary, as the case may be, that an Independent Financial Advisor has
reasonably and in good faith determined that the financial terms of such
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Affiliate Transaction are fair to the Company or such Subsidiary, as the case
may be, or that the terms of such Affiliate Transaction are at least as
favorable as might reasonably have been obtained at such time from an
unaffiliated party and that such Independent Financial Advisor has provided
written confirmation of such determination to the Board of Directors and (C)
with respect to Affiliate Transactions involving aggregate payments in excess of
$15 million, the Company or such Subsidiary, as the case may be, shall have
delivered to the Trustee, a written opinion from an Independent Financial
Advisor to the effect that the financial terms of such Affiliate Transaction are
fair to the Company or such Subsidiary, as the case may be, or that the terms of
such Affiliate Transaction are at least as favorable as those that might
reasonably have been obtained at the time from an unaffiliated party.
The provisions of the foregoing paragraph shall not apply to (i) any
Permitted Payment, (ii) any Restricted Payment that is made in compliance with
the provisions of the covenant described under "-- Limitation on Restricted
Payments" above, (iii) reasonable and customary fees and compensation paid to,
and indemnity provided on behalf of, officers, directors, employees or
consultants of the Company or any Subsidiary, as determined by the Board of
Directors of the Company or any Subsidiary or the senior management thereof in
good faith, (iv) transactions exclusively between or among the Company and any
of its wholly-owned Subsidiaries or exclusively between or among such
wholly-owned Subsidiaries, provided such transactions are not otherwise
prohibited by the Indenture, (v) any agreement as in effect as of June 14, 1995
or any amendment thereto or any transaction contemplated thereby (including
pursuant to any amendment thereto) so long as any such amendment is not
disadvantageous to the Holders of the Notes in any material respect, (vi) the
existence of, or the performance by the Company or any of its Subsidiaries of
its obligations under the terms of, any stockholders agreement (including any
registration rights agreement or purchase agreement related thereto) to which it
(or Holdings) is a party as of June 14, 1995 and any similar agreements which it
(or Holdings) may enter into thereafter; provided, however, that the existence
of, or the performance by the Company or any Subsidiaries of obligations under
any future amendment to, any such existing agreement or under any similar
agreement entered into after June 14, 1995 shall only be permitted by this
clause (vi) to the extent that the terms of any such amendment or new agreement
are not otherwise disadvantageous to the Holders of the Notes in any material
respect, (vii) transactions permitted by, and complying with, the provisions of
the covenant described under "-- Limitation on Mergers and Certain Other
Transactions" below and (viii) transactions with suppliers or other purchases or
sales of goods or services, in each case in the ordinary course of business
(including, without limitation, pursuant to joint venture agreements) and
otherwise in compliance with the terms of the Indenture which are fair to the
Company, in the reasonable determination of the Board of Directors of the
Company or the senior management thereof, or are on terms at least as favorable
as might reasonably have been obtained at such time from an unaffiliated party.
Limitations on Preferred Stock of Subsidiaries. The Indenture provides that
the Company will not permit any of its Subsidiaries to issue Preferred Stock
(other than to the Company or to a wholly-owned Subsidiary) or permit any person
(other than the Company or a wholly-owned Subsidiary) to own any Preferred Stock
of any Subsidiary.
Limitations on Mergers and Certain Other Transactions. The Indenture
provides that the Company, in a single transaction or through a series of
related transactions, shall not (i) consolidate with or merge with or into any
other person, or transfer (by lease, assignment, sale or otherwise) all or
substantially all of its properties and assets as an entirety or substantially
as an entirety to another person or group of affiliated persons or (ii) adopt a
Plan of Liquidation, unless, in either case, (1) either the Company shall be the
continuing person, or the person (if other than the Company) formed by such
consolidation or into which the Company is merged or to which all or
substantially all of the properties and assets of the Company as an entirety or
substantially as an entirety are transferred (or, in the case of a Plan of
Liquidation, any person to which assets are transferred) (the Company or such
other person being hereinafter referred to as the "Surviving Person") shall be a
corporation organized and validly existing under the laws of the United States,
any state thereof or the District of Columbia, and shall expressly assume, by an
indenture supplement, all the obligations of the Company under the Indenture and
the Notes; (2) immediately after and giving effect to such transaction and the
assumption contemplated by clause (1) above and the incurrence or anticipated
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incurrence of any Indebtedness to be incurred in connection therewith, (A) the
Surviving Person shall have a Consolidated Net Worth equal to or greater than
the Consolidated Net Worth of the Company immediately preceding the transaction
and (B) the Surviving Person could incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the provisions of
the covenant described under "-- Limitation on Incurrences of Additional
Indebtedness" above; (3) immediately before and immediately after and giving
effect to such transaction and the assumption of the obligations as set forth in
clause (1) above and the incurrence or anticipated incurrence of any
Indebtedness to be incurred in connection therewith, no Default or Event of
Default shall have occurred and be continuing; and (4) each Subsidiary
Guarantor, unless it is the other party to the transaction, shall have by
supplemental indenture confirmed that its Guarantee of the obligations of the
Company under the Notes shall apply, without alteration or amendment as such
Guarantee applies on the date it was granted under the Indenture to the
obligations of the Company under the Indenture and the Notes to the obligations
of the Company or such Person, as the case may be, under the Indenture and the
Notes, after the consummation of such transaction.
The Indenture provides that upon any consolidation or merger or any
transfer of all or substantially all of the assets of the Company or any
adoption of a Plan of Liquidation by the Company in accordance with the
foregoing, the surviving person formed by such consolidation or into which the
Company is merged or to which such transfer is made (or, in the case of a Plan
of Liquidation, to which assets are transferred) shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indenture with the same effect as if such surviving person had been named as
the Company therein; provided, however, that solely for purposes of computing
amounts described in subclause (c) of the first paragraph of the covenant
described under "-- Limitation on Restricted Payments" above, any such surviving
person shall only be deemed to have succeeded to and be substituted for the
Company with respect to periods subsequent to the effective time of such merger,
consolidation or transfer of assets. When a successor corporation assumes all of
the obligations of the Company under the Indenture and the Notes and agrees to
be bound thereby, the predecesor shall be released from such obligations.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise in a single transaction or series of transactions) of all or
substantially all of the properties and assets of one or more direct or indirect
Subsidiaries, the Capital Stock of which constitutes all or substantially all of
the properties and assets of the Company shall be deemed to be the transfer of
all or substantially all of the properties and assets of the Company.
EVENTS OF DEFAULT
The following events constitute "Events of Default" under the Indenture:
(i) failure to make any interest payment on the Notes when due and the
continuance of such default for a period of 30 days; (ii) failure to pay
principal of, or premium, if any, on the Notes when due, whether at maturity,
upon acceleration, redemption, required repurchase or otherwise; (iii) failure
to comply with any other agreement contained in the Notes or the Indenture, if
such failure continues unremedied for 30 days after written notice given by the
Trustee or the Holders of at least 25% in principal amount of the Notes then
outstanding (except in the case of a default with respect to the covenants
described under "-- Certain Covenants -- Limitation on Restricted Payments,"
"-- Certain Covenants -- Limitations on Asset Sales," "-- Change of Control,"
and "-- Certain Covenants -- Limitations on Mergers and Certain Other
Transactions," which shall constitute Events of Default with notice but without
passage of time); (iv) a default under any Indebtedness of the Company or its
Subsidiaries, whether such Indebtedness now exists or shall hereinafter be
created, if both (A) such default either (1) results from the failure to pay any
such Indebtedness at its stated final maturity or (2) relates to an obligation
other than the obligation to pay such Indebtedness at its stated final maturity
and results in the holder or holders of such Indebtedness causing such
Indebtedness to become due prior to its stated final maturity and (B) the
principal amount of such Indebtedness, together with the principal amount of any
other such Indebtedness in default for failure to pay principal at stated final
maturity or the maturity of which has been so accelerated, aggregate $20 million
or more at any one time outstanding; (v) any final judgment or order for payment
of money in excess of $20 million shall be entered against the Company or any
Subsidiary of the Company or any of their respective properties and shall not be
discharged for a period of 60 days after
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such judgment becomes final and nonappealable; (vi) either the Company or any
Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law:
(a) commences a voluntary case or proceeding; (b) consents to the entry of an
order for relief against it in an involuntary case or proceeding; (c) consents
to the appointment of a custodian of it or for all or substantially all of its
property; or (d) makes a general assignment for the benefit of its creditors;
(vii) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that: (a) is for relief against the Company or any Significant
Subsidiary, in an involuntary case or proceeding; (b) appoints a Custodian of
the Company or any Significant Subsidiary, or for all or any substantial part of
their respective properties; or (c) orders the liquidation of the Company or any
Significant Subsidiary, and in each case the order or decree remains unstayed
and in effect for 60 days; (viii) the lenders under the Credit Agreement shall
commence judicial proceedings to foreclose upon any material portion of the
assets of the Company and its Subsidiaries; or (ix) any of the Guarantees issued
under the Indenture shall be declared or adjudged invalid in a final judgment or
order issued by any court of governmental authority. In the event of a
declaration of acceleration because an Event of Default set forth in clause (iv)
above has occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if either (i) the holders of the
Indebtedness which is the subject of such Event of Default have waived such
failure to pay at maturity or have rescinded the acceleration in respect of such
Indebtedness within 90 days of such maturity or declaration of acceleration, as
the case may be, and no other Event of Default has occurred during such 90-day
period which has not been cured or waived, or (ii) such Indebtedness shall have
been discharged or the maturity thereof shall have been extended such that it is
not then due and payable, or the underlying default has been cured (and any
acceleration based thereon of such other Indebtedness has been rescinded),
within 90 days of such maturity or declaration of acceleration, as the case may
be.
If an Event of Default (other than an Event of Default resulting from
bankruptcy, insolvency, receivership or reorganization of the Company or a
Subsidiary Guarantor) occurs and is continuing under the Indenture, the Trustee
or the Holders of at least 25% in principal amount of the then outstanding Notes
may declare due and payable all unpaid principal and interest accrued and unpaid
on the then outstanding Notes by notice in writing to the Company, the
administrative agent under the Credit Agreement and the Trustee specifying the
respective Event of Default and that it is a "notice of acceleration" (the
"Acceleration Notice"), and the same (i) shall become immediately due and
payable or (ii) if there are any amounts outstanding under the Credit Agreement,
shall become due and payable upon the first to occur of an acceleration under
the Credit Agreement, or five business days after receipt by the Company and the
administrative agent under the Credit Agreement of such Acceleration Notice. If
an Event of Default resulting from certain events of bankruptcy, insolvency,
receivership or reorganization of the Company or a Subsidiary Guarantor that is
a Significant Subsidiary shall occur under the Indenture, all unpaid principal
of and accrued interest on all then outstanding Notes shall be immediately due
and payable without any declaration or other act on the part of the Trustee or
any of the Holders of such Notes. After a declaration of acceleration under the
Indenture, subject to certain conditions, the Holders of a majority in principal
amount of the then outstanding Notes, by notice to the Trustee, may rescind such
declaration if all existing Events of Default under the Indenture are remedied.
In certain cases the Holders of a majority in principal amount of outstanding
Notes may waive a past default under the Indenture and its consequences, except
a default in the payment of or interest on any of the Notes.
The Indenture provides that if a Default or Event of Default occurs and is
continuing thereunder and if it is known to the Trustee, the Trustee shall mail
to each Holder of Notes notice of the Default or Event of Default within 90 days
after such Default or Event of Default occurs; provided, however, that, except
in the case of a Default or Event of Default in the payment of the principal of
or interest on any Notes, including the failure to make payment on a Change of
Control Payment Date pursuant to a Change of Control Offer or payment when due
pursuant to a Net Proceeds Offer the Trustee may withhold such notice if it in
good faith determines that withholding such notice is in the interest of the
Holders.
The Indenture provides that no Holder may pursue any remedy thereunder
unless the Trustee (i) shall have failed to act for a period of 60 days after
receiving written notice of a continuing Event of Default by such Holder and a
request to act by Holders of at least 25% in principal amount of Notes and (ii)
has received
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indemnification satisfactory to it; provided, however, that such provision does
not affect the right of any Holder to sue for enforcement of any overdue payment
of Notes.
The Indenture provides that two officers of the Company are required to
certify to the Trustee within 120 days after the end of each fiscal year of the
Company whether or not they know of any Default that occurred under the
Indenture during such fiscal year and, if applicable, describe such Default and
the status thereof.
DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, elect to have the
obligations of the Company discharged with respect to the outstanding Notes.
Such Legal Defeasance means that the Company shall be deemed to have paid and
discharged the entire Indebtedness represented by the Notes except for (i) the
rights of Holders to receive payments in respect of the principal of, premium,
if any, and interest on Notes when such payments are due solely from the funds
held by the Trustee in the trust referred to below; (ii) the Company's
obligations to issue temporary Notes, register the transfer or exchange of
Notes, replace mutilated, destroyed, lost or stolen Notes and maintain an office
or agency for payments in respect of Notes and money for security payments held
in trust in respect of Notes, (iii) the rights, powers, trusts, duties and
immunities of the Trustee and the Company's obligations in connection therewith;
and (iv) the Legal Defeasance provisions of the Indenture. In addition, the
Company may, at its option and at any time elect to have the obligations of the
Company released with respect to certain covenants described above under
"-- Certain Covenants" ("Covenant Defeasance"), and thereafter any omission to
comply with such obligations shall not constitute a Default or Event of Default.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must have irrevocably deposited with the Trustee, in trust, for the
benefit of the Holders, cash in U.S. dollars, U.S. Government Obligations (as
defined in the Indenture), or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the
outstanding Notes to redemption or maturity, provided that the Trustee shall
have been irrevocably instructed to apply such money or the proceeds of such
U.S. Government Obligations to said payments with respect to the Notes on the
maturity date or such redemption date, as the case may be; (ii) in the case of
Legal Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel stating that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the Issue Date,
there has been a change in the applicable federal income tax law, in either case
to the effect that, and based thereon such opinion of counsel shall confirm
that, the Holders of Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred; (iii) in
the case of Covenant Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel stating that the Holders of Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred; (iv) no Default or Event of Default
shall have occurred and be continuing under the Indenture on the date of such
deposit or insofar as clauses (vi) and (vii) under the first paragraph under
"-- Events of Default" above are concerned, at any time in the period ending on
the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant
Defeasance shall not cause the Trustee to have a conflicting interest with
respect to the Notes; (vi) such Legal Defeasance or Covenant Defeasance shall
not result in a breach or violation of, or constitute a default under, the
Indenture or any other material agreement or instrument to which the Company or
any Subsidiary Guarantor is a party or by which it is bound (and in that
connection, the Trustee shall have received a certificate from the Agent under
the Credit Agreement to that effect with respect to such Credit Agreement if
then in effect); (vii) the Company shall have delivered to the Trustee an
opinion of counsel to the effect that after the 91st day following the deposit
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (viii) the Company shall have delivered to the Trustee an Officer's
Certificate stating that the deposit was not made by
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the Company with the intent of preferring the Holders of the Notes over other
creditors of the Company or any Subsidiary Guarantor or with the intent of
defeating, hindering, delaying or defrauding creditors of the Company, any
Subsidiary Guarantor or others; and (ix) the Company shall have delivered to the
Trustee an officers' certificate and an opinion of counsel, each stating that
all conditions precedent provided for relating to the Legal Defeasance or
Covenant Defeasance have been complied with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect as
to all outstanding Notes when either (a) all such Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes which have
been replaced or paid and Notes for whose payment money has theretofore been
deposited in trust and thereafter repaid to the Company) have been delivered to
the Trustee for cancellation; or (b)(i) all such Notes not theretofore delivered
to the Trustee for cancellation have become due and payable by reason of the
making of a notice of redemption or otherwise and the Company has irrevocably
deposited or caused to be deposited with the Trustee as trust funds in trust for
the purpose an amount of money sufficient to pay and discharge the entire
indebtedness on such Notes not theretofore delivered to the Trustee for
cancellation for principal, premium, if any, and accrued interest to the date of
maturity or redemption; (ii) no Default or Event of Default shall have occurred
and be continuing on the date of such deposit or shall occur as a result of such
deposit and such deposit will not result in a breach or violation of, or
constitute a default under, any other instrument to which the Company is a party
or by which it is bound; (iii) the Company has paid all sums payable by it under
the Indenture; and (iv) the Company has delivered irrevocable instructions to
the Trustee to apply the deposited money toward the payment of such Notes at
maturity or the redemption date, as the case may be. In addition, the Company
must deliver an Officers' Certificate and an Opinion of Counsel to the Trustee
stating that all conditions precedent to satisfaction and discharge have been
complied with.
MODIFICATION OF THE INDENTURE
The Indenture and the Notes may be amended or supplemented (and compliance
with any provision thereof may be waived) by the Company, the Subsidiary
Guarantors, the Trustee and the Holders of not less than a majority in aggregate
principal amount of Notes then outstanding, except that (i) without the consent
of each Holder affected, no such amendment, supplement or waiver may (1) change
the principal amount of Notes the Holders of which must consent to an amendment,
supplement or waiver of any provision of the Indenture, the Notes or the
Guarantees, (2) reduce the rate or extend the time for payment of interest on
any Notes, (3) reduce the principal amount of any Notes, (4) change the Maturity
Date of any Notes or alter the redemption provisions in the Indenture or the
Notes in a manner adverse to any Holder, (5) make any changes in the provisions
concerning waivers of Defaults or Events of Default by Holders or the rights of
Holders to recover the principal of, interest on or redemption payment with
respect to any Notes, or (6) make the principal of, or interest on, any Notes
payable with anything or in any manner other than as provided for in the
Indenture, the Notes and the Guarantees, (ii) without the consent of Holders of
not less than 75% in aggregate principal amount of Notes then outstanding, no
such amendment, supplement or waiver may change the Change of Control Payment
Date or the purchase price in connection with any repurchase of Notes pursuant
to the covenant described under "-- Change of Control" above in a manner adverse
to any Holder or waive a Default or Event of Default resulting from a failure to
comply with the covenant described under "-- Change of Control" above and (iii)
without the consent of Holders of not less than two thirds in aggregate
principal amount of Notes then outstanding, no such amendment, supplement or
waiver may release any Subsidiary Guarantor from any of its obligations under
its Guarantee or the Indenture other than in accordance with the terms of such
Guarantee and the Indenture.
In addition, the Indenture, the Notes and the Guarantees may be amended by
the Company, the Subsidiary Guarantors and the Trustee (a) to cure any
ambiguity, defect or inconsistency therein; provided that such amendment or
supplement does not adversely affect the rights of any Holder thereof or (b) to
make any other change that does not adversely affect the rights of any Holder
thereunder in any material respect.
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THE TRUSTEE
The Indenture provides that the Holders of a majority in principal amount
of the outstanding Notes may remove the Trustee thereunder and appoint a
successor trustee with the Company's consent, by so notifying the trustee to be
so removed and the Company. In addition, the Holders of a majority in principal
amount of the outstanding Notes have the right, subject to certain limitations,
to direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee under the Indenture or of exercising any trust or power
conferred on the Trustee.
The Indenture provides that, in case a Default or an Event of Default has
occurred and is continuing thereunder, the Trustee shall exercise such of the
rights and powers vested in it by the Indenture, and use the same degree of care
and skill in the exercise thereof, as a prudent person would exercise or use
under the circumstances in the conduct of such person's own affairs. Subject to
the latter provision, the Trustee is under no obligation to exercise any of its
rights or powers under the Indenture at the request, order or direction of any
of the Holders of the Notes, unless they shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred thereby. If the Company fails to pay such amounts of
principal of, premium, if any, or interest on, the Notes as shall have become
due and payable upon demand as specified in the Indenture, the Trustee, at the
request of the Holders of a majority in aggregate principal amount of Notes at
the time outstanding, and upon being offered such reasonable indemnity as it may
be required against the costs, expenses and liabilities incurred by it, except
as a result of its negligence or bad faith, shall institute any actions or
proceedings at law or in equity for the collection of the sums so due and
unpaid, and collect in the manner provided by law the monies adjudged or decreed
to be payable.
The Indenture contains limitations on the rights of the Trustee, should it
become a creditor of the Company, to obtain payment of claims in certain cases
or to be realized on certain property received by it in respect of any such
claims, securities or otherwise. The Trustee is permitted to engage in other
transactions; however, if the Trustee acquires any "conflicting interest," it
must eliminate such conflict or resign.
REPORTS
The Indenture provides that the Company will deliver to the Trustee
thereunder within 15 days after the filing of the same with the Commission,
copies of the quarterly and annual report and of the information, documents and
other reports, if any, which the Company is required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act. The Indenture will further
provide that, notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the Commission, to the extent permitted, and provide the Trustee
and Holders of the Notes with such annual reports and such information,
documents and other reports specified in Sections 13 and 15(d) of the Exchange
Act. The Company will also comply with the other provisions of TIA Section
314(a).
CERTAIN DEFINITIONS
"Acquired Indebtedness" means (i) with respect to any person that becomes a
Subsidiary of the Company (or is merged into the Company or any of its
Subsidiaries) after the Issue Date, Indebtedness of such person or any of its
Subsidiaries existing at the time such person becomes a Subsidiary of the
Company (or is merged into the Company or any of its Subsidiaries) and which was
not incurred in connection with, or in contemplation of, such person becoming a
Subsidiary of the Company (or being merged into the Company or any of its
Subsidiaries) and (ii) with respect to the Company or any of its Subsidiaries,
any Indebtedness assumed by the Company or any of its Subsidiaries in connection
with the acquisition of any assets from another person (other than the Company
or any of its Subsidiaries), and which was not incurred by such other person in
connection with, or in contemplation of, such acquisition.
"Adjusted Net Assets" means, with respect to the Guarantee of a Subsidiary
Guarantor at any date, the lesser of the amount by which (x) the fair value of
the property of such Subsidiary Guarantor exceeds the total amount of
liabilities, including, without limitation, contingent liabilities (after giving
effect to all other fixed and contingent liabilities incurred or assumed on such
date (other than liabilities of such Subsidiary
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Guarantor under Indebtedness which constitutes Subordinated Indebtedness with
respect to such Guarantee)), but excluding liabilities under the Guarantee of
such Subsidiary Guarantor, at such date and (y) the present fair salable value
of the assets of such Subsidiary Guarantor at such date exceeds the amount that
will be required to pay the probable liability of such Subsidiary Guarantor on
its debts (after giving effect to all other fixed and contingent liabilities
incurred or assumed on such date (other than liabilities of such Subsidiary
Guarantor under Indebtedness which constitutes Subordinated Indebtedness with
respect to such Guarantee) and after giving effect to any collection from any
Subsidiary of such Subsidiary Guarantor in respect of the obligations of such
Subsidiary under its Guarantee), excluding debt in respect of the Guarantee of
such Subsidiary Guarantor, as they become absolute and matured.
"Affiliate" means, with respect to any person, any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" when used with respect to any person means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"affiliated," "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of the Indenture, neither BT Securities Corporation nor
any of its Affiliates shall be deemed to be an Affiliate of the Company or any
of its Subsidiaries.
"Asset Sale" means, with respect to any person, any sale, transfer or other
disposition or series of sales, transfers or other dispositions (including,
without limitation, by merger or consolidation or by exchange of assets and
whether by operation of law or otherwise) made by such person or any of its
subsidiaries to any person other than such person or one of its wholly-owned
subsidiaries (or, in the case of a sale, transfer or other disposition by a
Subsidiary, to any person other than the Company or a directly or indirectly
wholly-owned Subsidiary) of any assets of such person or any of its subsidiaries
including, without limitation, assets consisting of any Capital Stock or other
securities held by such person or any of its subsidiaries, and any Capital Stock
issued by any subsidiary of such person, in each case, outside of the ordinary
course of business, excluding, however, any sale, transfer or other disposition,
or series of related sales, transfers or other dispositions (i) involving only
Excluded Assets, (ii) resulting in Net Proceeds to the Company and the
Subsidiaries of $500,000 or less, (iii) pursuant to any foreclosure of assets or
other remedy provided by applicable law to a creditor of the Company or any
Subsidiary with a Lien on such assets, which Lien is permitted under the
Indenture; provided that such foreclosure or other remedy is conducted in a
commercially reasonable manner or in accordance with any Bankruptcy Law, (iv)
involving only Cash Equivalents or inventory in the ordinary course of business
or obsolete equipment in the ordinary course of business consistent with past
practices of the Company; (v) involving only the lease or sub-lease of any real
or personal property in the ordinary course of business; or (vi) the proceeds of
such Asset Sale which are not applied as contemplated in "-- Certain
Covenants -- Limitation on Asset Sales" and which, together with all other such
Asset Sale proceeds, do not exceed $20 million.
"Average Life" means, as of any date of determination, with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products of
the number of years from the date of determination to the dates of each
successive scheduled principal payments of such debt security multiplied by the
amount of each such principal payment by (ii) the sum of all such principal
payments.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or
foreign law for the relief of debtors.
"Board of Directors" means, with respect to any person, the Board of
Directors of such person or of a subsidiary of such person or any duly
authorized committee of that Board.
"Board Resolution" means, with respect to any person, a duly adopted
resolution of the Board of Directors of such person.
"Capital Stock" means, with respect to any person, any and all shares,
interests, participation or other equivalents (however designated) of corporate
stock, including each class of common stock and preferred stock of such person.
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"Capitalized Lease Obligation" means obligations under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP, and the amount of Indebtedness represented by such obligations shall be
the capitalized amount of such obligations determined in accordance with GAAP.
"Cash Equivalents" means (i) obligations issued or unconditionally
guaranteed by the United States of America or any agency thereof, or obligations
issued by any agency or instrumentality thereof and backed by the full faith and
credit of the United States of America, (ii) commercial paper rated the highest
grade by Moody's Investors Service, Inc. and Standard & Poor's Ratings Group and
maturing not more than one year from the date of creation thereof, (iii) time
deposits with, and certificates of deposit and banker's acceptances issued by,
any bank having capital surplus and undivided profits aggregating at least $500
million and maturing not more than one year from the date of creation thereof,
(iv) repurchase agreements that are secured by a perfected security interest in
an obligation described in clause (i) and are with any bank described in clause
(iii), (v) shares of any money market mutual fund that (a) has at least 95% of
its assets invested continuously in the types of investments referred to in
clauses (i) and (ii) above, (b) has net assets of not less than $500 million,
and (c) has the highest rating obtainable from either Standard & Poor's Ratings
Group or Moody's Investors Service, Inc. and (vi) readily marketable direct
obligations issued by any state of the United States of America or any political
subdivision thereof having one of the two highest rating categories obtainable
from either Moody's Investors Service, Inc. or Standard & Poor's Ratings Group.
"Change of Control" means the acquisition after the Issue Date, in one or
more transactions, of beneficial ownership (within the meaning of Rule 13d-3
under the Exchange Act) by (i) any person or entity (other than any Permitted
Holder) or (ii) any group of persons or entities (excluding any Permitted
Holders) who constitute a group (within the meaning of Section 13(d)(3) of the
Exchange Act), in either case, of any securities of Holdings or the Company such
that, as a result of such acquisition, such person, entity or group beneficially
owns (within the meaning of Rule 13d-3 under the Exchange Act), directly or
indirectly, 40% or more of the then outstanding voting securities entitled to
vote on a regular basis for a majority of the Board of Directors of the Company
(but only to the extent that such beneficial ownership is not shared with any
Permitted Holder who has the power to direct the vote thereof); provided,
however, that no such Change of Control shall be deemed to have occurred if (A)
the Permitted Holders beneficially own, in the aggregate, at such time, a
greater percentage of such voting securities than such other person, entity or
group or (B) at the time of such acquisition, the Permitted Holders (or any of
them) possess the ability (by contract or otherwise) to elect, or cause the
election, of a majority of the members of the Company's Board of Directors.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means, with respect to any person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of, such person's common stock, whether
outstanding at the Issue Date or issued after the Issue Date, and includes,
without limitation, all series and classes of such common stock.
"Consolidated Net Income" means, with respect to any person, for any
period, the aggregate of the net income (or loss) of such person and its
subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (a) the net income of any other person in which such
person or any of its subsidiaries has an interest (which interest does not cause
the net income of such other person to be consolidated with the net income of
such person and its subsidiaries in accordance with GAAP) shall be included only
to the extent of the amount of dividends or distributions actually paid to such
person or such subsidiary by such other person in such period; (b) the net
income of any subsidiary of such person that is subject to any Payment
Restriction shall be excluded to the extent such Payment Restriction actually
prevented the payment of an amount that otherwise could have been paid to, or
received by, such person or a subsidiary of such person not subject to any
Payment Restriction; and (c)(i) the net income (or loss) of any other person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition, (ii) all gains and losses realized on any Asset Sale, (iii)
all gains realized upon or in connection with or as a consequence of the
issuance of the Capital Stock of such person or any of its subsidiaries and any
gains on pension reversions received by such person or any of its subsidiaries,
(iv) all gains and losses realized on the purchase or other acquisition by such
person or any of its subsidiaries of any securities of such person or any of
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its subsidiaries, (v) all gains and losses resulting from the cumulative effect
of any accounting change pursuant to the application of Accounting Principles
Board Opinion No. 20, as amended, (vi) all other extraordinary gains and losses,
(vii) (A) all non-cash charges, (B) up to $10 million of severance costs and (C)
any other restructuring reserves or charges (provided, however, that any cash
payments actually made with respect to the liabilities for which such
restructuring reserves or charges were created shall be deducted from
Consolidated Net Income in the period when made), in each case, incurred by the
Company or any of its Subsidiaries in connection with the Merger, including,
without limitation, the divestiture of the Excluded Assets, (viii) losses
incurred by the Company and its Subsidiaries resulting from earthquakes and (ix)
with respect to the Company, all deferred financing costs written off in
connection with the early extinguishment of any Indebtedness, shall each be
excluded; provided further that solely for the purpose of computing amounts
described in subclause (c) of the first paragraph of the covenant described
under "-- Limitation on Restricted Payments" above, "Consolidated Net Income" of
the Company for any period shall be reduced by the aggregate amount of dividends
paid by the Company or a Subsidiary to Holdings pursuant to clauses (v) and
(viii) of the definition of "Permitted Payments" during such period.
"Consolidated Net Worth" means, with respect to any person, the total
stockholders' equity (exclusive of any Disqualified Capital Stock) of such
person and its subsidiaries determined on a consolidated basis in accordance
with GAAP.
"Consulting Agreement" means that certain Consulting Agreement dated as of
June 14, 1995 and as in effect on the Issue Date, among the Company, Holdings
and The Yucaipa Companies (as such Consulting Agreement may be amended or
replaced, so long as any amounts paid under any amended or replacement agreement
do not exceed the amounts payable under such Consulting Agreement as in effect
on the Issue Date).
"Credit Agreement" means the Credit Agreement, dated as of June 14, 1995,
as amended and in effect on the Issue Date, by and among Food 4 Less, as
borrower, certain of its subsidiaries, Holdings, as guarantor, the Lenders
referred to therein and Bankers Trust Company, as administrative agent, as the
same may be amended, extended, renewed, restated, supplemented or otherwise
modified (in each case, in whole or in part, and without limitation as to
amount, terms, conditions, covenants and other provisions) from time to time,
and any agreement governing Indebtedness incurred to refund, replace or
refinance any borrowings and commitments then outstanding or permitted to be
outstanding under such Credit Agreement or any such prior agreement as the same
may be amended, extended, renewed, restated, supplemented or otherwise modified
(in each case, in whole or in part, and without limitation as to amount, terms,
conditions, covenants and other provisions). The term "Credit Agreement" shall
include all related or ancillary documents, including, without limitation, any
guarantee agreements and security documents. The Company shall promptly notify
the Trustee of any such refunding or refinancing of the Credit Agreement.
"Custodian" means any receiver, trustee, assignee, liquidator, sequestrator
or similar official under any Bankruptcy Law.
"Disqualified Capital Stock" means, with respect to any person, any Capital
Stock of such person or its subsidiaries that, by its terms, by the terms of any
agreement related thereto or by the terms of any security, into which it is
convertible, puttable or exchangeable is, or upon the happening of any event or
the passage of time would be, required to be redeemed or repurchased by such
person or its subsidiaries, including at the option of the holder thereof, in
whole or in part, or has, or upon the happening of an event or passage of time
would have, a redemption or similar payment due, on or prior to the Maturity
Date of the Notes, or any other Capital Stock of such person or its subsidiaries
designated as Disqualified Capital Stock by such person at the time of issuance;
provided, however, that if such Capital Stock is either (i) redeemable or
repurchasable solely at the option of such person or (ii) issued to employees of
the Company or its Subsidiaries or to any plan for the benefit of such
employees, such Capital Stock shall not constitute Disqualified Capital Stock
unless so designated.
"EBDIT" means, with respect to any person, for any period, the Consolidated
Net Income of such person for such period, plus, in each case to the extent
deducted in computing Consolidated Net Income of such person for such period
(without duplication)(i) provisions for income taxes or similar charges
recognized by
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such person and its consolidated subsidiaries accrued during such period, (ii)
depreciation and amortization expense of such person and its consolidated
subsidiaries accrued during such period (but only to the extent not included in
Fixed Charges), (iii) Fixed Charges of such person and its consolidated
subsidiaries for such period, (iv) LIFO charges (credits) of such person and its
consolidated subsidiaries for such period, (v) the amount of any restructuring
reserve or charge recorded during such period in accordance with GAAP, including
any such reserve or charge related to the Merger, and (vi) any other non-cash
charges reducing Consolidated Net Income for such period (excluding any such
charge which requires an accrual of or a cash reserve for cash charges for any
future period), less, without duplication, (i) non-cash items increasing
Consolidated Net Income of such person for such period (excluding any such items
which represent the reversal of any accrual of, or cash reserve for, anticipated
cash charges in any prior period) in each case determined in accordance with
GAAP and (ii) the amount of all cash payments made by such person or its
subsidiaries during such period to the extent that such cash payment has been
provided for in a restructuring reserve or charge referred to in clause (v)
above (and were not otherwise deducted in the computation of Consolidated Net
Income of such person for such period).
"Exchange Act" means the Securities Exchange Act of 1934, as amended and
the rules and regulations promulgated by the Commission thereunder.
"Excluded Assets" means assets of the Company or any Subsidiary required to
be disposed of by applicable regulatory authorities in connection with the
Merger.
"Existing Indebtedness" means the following indebtedness of the Company to
the extent outstanding on the Issue Date: (a) the 10.45% Senior Notes due 2004
issued pursuant to an indenture dated as of June 6, 1996, (b) the 10.45% Senior
Notes due 2004 issued pursuant to an indenture dated as of June 1, 1995; (c) the
10.45% Senior Notes due 2000 issued pursuant to an indenture dated as of April
15, 1992; (d) the 11% Senior Subordinated Notes due 2005 issued pursuant to an
indenture dated as of June 1, 1995; (e) the 9% Senior Subordinated Notes due
2003 issued pursuant to an indenture dated as of March 30, 1993; (f) the 10 1/4%
Senior Subordinated Notes due 2002 issued pursuant to an indenture dated as of
July 29, 1992; and (g)(1) the 13.75% Senior Subordinated Notes due 2005 issued
pursuant to an indenture dated as of June 1, 1995, and (2) the 13.75% Senior
Subordinated Notes due 2001 issued pursuant to an indenture dated as of June 15,
1991; provided that such indebtedness described under sub clauses (1) and (2) of
clause (g) hereof shall no longer constitute Existing Indebtedness from and
after April 29, 1997.
"Fixed Charges" means, with respect to any person, for any period, the
aggregate amount of (i) interest, whether expensed or capitalized, paid, accrued
or scheduled to be paid or accrued during such period (except to the extent
accrued in a prior period) in respect of all Indebtedness of such person and its
consolidated subsidiaries (including (a) original issue discount on any
Indebtedness (including (without duplication), in the case of the Company, any
original issue discount on the Notes but excluding amortization of debt issuance
costs) and (b) the interest portion of all deferred payment obligations,
calculated in accordance with the effective interest method, in each case to the
extent attributable to such period but excluding the amortization of debt
issuance costs), (ii) dividend requirements on Preferred Stock of such person
and its consolidated subsidiaries (whether in cash or otherwise (except
dividends payable in shares of Qualified Capital Stock)) declared or paid or
required to be declared or paid during such period (except to the extent accrued
in a prior period) and excluding items eliminated in consolidation and (iii)
dividends declared or paid or scheduled or required to be declared or paid to
Holdings which are permitted to be paid pursuant to clause (v) of the definition
of "Permitted Payments". For purposes of this definition, (a) interest on a
Capitalized Lease Obligation shall be deemed to accrue at an interest rate
reasonably determined by the Board of Directors of such person (as evidenced by
a Board Resolution) to be the rate of interest implicit in such Capitalized
Lease Obligation in accordance with GAAP, (b) interest on Indebtedness that is
determined on a fluctuating basis shall be deemed to have accrued at a fixed
rate per annum equal to the rate of interest of such Indebtedness in effect on
the date Fixed Charges are being calculated, (c) interest on Indebtedness that
may optionally be determined at an interest rate based upon a factor of a prime
or similar rate, a eurocurrency interbank offered rate, or other rate, shall be
deemed to have been based upon the rate actually chosen, or, if none, then based
upon such optional rate chosen as the Company may designate, and (d) Fixed
Charges shall be increased or reduced by the net cost (including amortization of
discount) or benefit associated with Interest Swap Obligations attributable to
such period. For purposes of clause (ii) above, dividend requirements shall be
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increased to an amount representing the pre-tax earnings that would be required
to cover such dividend requirements; accordingly, the increased amount shall be
equal to a fraction, the numerator of which is the amount of such dividend
requirements and the denominator of which is one (1) minus the applicable actual
combined federal, state, local and foreign income tax rate of such person and
its subsidiaries (expressed as a decimal), on a consolidated basis, for the
fiscal year immediately preceding the date of the transaction giving rise to the
need to calculate Fixed Charges.
"Food 4 Less" means Food 4 Less Supermarkets, Inc., a Delaware corporation,
and its successors, including, without limitation, the Company.
"Foreign Exchange Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect
against fluctuations in currency values.
"GAAP" means generally accepted accounting principles as in effect in the
United States of America as of June 1, 1995.
"Holdings" means Food 4 Less Holdings, Inc., a Delaware corporation, and
its successors.
"Holdings Registration Rights Agreement" means that certain Registration
Rights Agreement by and between RGC Partners, L.P., Holdings and Food 4 Less, as
such Registration Rights Agreement may be amended or replaced, so long as any
amounts paid by Holdings and the Company under any amended or replacement
agreement do not exceed the amounts payable by Holdings and the Company under
such Registration Rights Agreement as in effect on June 14, 1995.
"Indebtedness" means with respect to any person, without duplication, (i)
all liabilities, contingent or otherwise, of such person (a) for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of such
person or only to a portion thereof), (b) evidenced by bonds, notes, debentures,
drafts accepted or similar instruments or letters of credit or representing the
balance deferred and unpaid of the purchase price of any property (other than
any such balance that represents an account payable or any other monetary
obligation to a trade creditor (whether or not an Affiliate) created, incurred,
assumed or guaranteed by such person in the ordinary course of business of such
person in connection with obtaining goods, materials or services and due within
twelve months (or such longer period for payment as is customarily extended by
such trade creditor) of the incurrence thereof, which account is not overdue by
more than 90 days, according to the original terms of sale, unless such account
payable is being contested in good faith), or (c) for the payment of money
relating to a Capitalized Lease Obligation; (ii) the maximum fixed repurchase
price of all Disqualified Capital Stock of such person; (iii) reimbursement
obligations of such person with respect to letters of credit; (iv) obligations
of such person with respect to Interest Swap Obligations and Foreign Exchange
Agreements; (v) all liabilities of others of the kind described in the preceding
clause (i), (ii), (iii) or (iv) that such person has guaranteed or that is
otherwise its legal liability; and (vi) all obligations of others secured by a
Lien to which any of the properties or assets (including, without limitation,
leasehold interests and any other tangible or intangible property rights) of
such person are subject, whether or not the obligations secured thereby shall
have been assumed by such person or shall otherwise be such person's legal
liability (provided that if the obligations so secured have not been assumed by
such person or are not otherwise such person's legal liability, such obligations
shall be deemed to be in an amount equal to the fair market value of such
properties or assets, as determined in good faith by the Board of Directors of
such person, which determination shall be evidenced by a Board Resolution). For
purposes of the preceding sentence, the "maximum fixed repurchase price" of any
Disqualified Capital Stock that does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Capital Stock as if
such Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock (or any equity security for which it may be exchanged or
converted), such fair market value shall be determined in good faith by the
Board of Directors of such person, which determination shall be evidenced by a
Board Resolution. For purposes of the Indenture, Indebtedness incurred by any
person that is a general partnership (other than non-recourse Indebtedness)
shall be deemed to have been incurred by the general partners of such
partnership pro rata in accordance with their respective interests in the
liabilities of such partnership unless any such general partner shall, in the
reasonable determination of the Board of Directors of the Company, be unable to
satisfy its pro rata share of the liabilities of the
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partnership, in which case the pro rata share of any Indebtedness attributable
to such partner shall be deemed to be incurred at such time by the remaining
general partners on a pro rata basis in accordance with their interests.
"Independent Financial Advisor" means a reputable accounting, appraisal or
nationally recognized investment banking or consulting firm that is, in the
reasonable judgment of the Board of Directors of the Company, qualified to
perform the tasks for which such firm has been engaged and disinterested and
independent with respect to the Company and its Affiliates.
"Interest Swap Obligation" means any obligation of any person pursuant to
any arrangement with any other person whereby, directly or indirectly, such
person is entitled to receive from time to time periodic payments calculated by
applying either a fixed or floating rate of interest on a stated notional amount
in exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount; provided that
the term "Interest Swap Obligation" shall also include interest rate exchange,
collar, cap, swap option or similar agreements providing interest rate
protection.
"Investment" by any person in any other person means any investment by such
person in such other person, whether by share purchase, capital contribution,
loan, advance (other than reasonable loans and advances to employees for moving
and travel expenses, as salary advances or to permit the purchase of Qualified
Capital Stock of Holdings or any of its Subsidiaries and other similar customary
expenses incurred, in each case in the ordinary course of business consistent
with past practice) or similar credit extension constituting Indebtedness of
such other person, and any guarantee of Indebtedness of any other person.
"Issue Date" means the date of original issuance of the Notes under the
Indenture.
"Letter of Credit Obligations" means Indebtedness of the Company or any of
its Subsidiaries with respect to letters of credit issued pursuant to the Credit
Agreement, and for purposes of the definition of the term "Permitted
Indebtedness," the aggregate principal amount of Indebtedness outstanding at any
time with respect thereto, shall be deemed to consist of (a) the aggregate
maximum amount then available to be drawn under all such letters of credit (the
determination of such maximum amount to assume compliance with all conditions
for drawing), and (b) the aggregate amount that has then been paid by, and not
reimbursed to, the issuers under such letters of credit.
"Lien" means any mortgage, pledge, lien, encumbrance, charge or adverse
claim affecting title or resulting in an encumbrance against real or personal
property, or a security interest of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof, any option or
other agreement to sell which is intended to constitute or create a security
interest, mortgage, pledge or lien, and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction); provided that in no event shall an operating lease be
deemed to constitute a Lien under the Indenture.
"Maturity Date" means June 15, 2005.
"Merger" means (i) the merger of Food 4 Less into Ralphs Supermarkets, Inc.
(with Ralphs Supermarkets, Inc. surviving such merger) pursuant to the Merger
Agreement and (ii) immediately following the merger described in clause (i) of
this definition, the merger of Ralphs Grocery Company into Ralphs Supermarkets,
Inc. (with Ralphs Supermarkets, Inc. surviving such merger and changing its name
to "Ralphs Grocery Company" in connection with such merger).
"Merger Agreement" means the Agreement and Plan of Merger, dated September
14, 1994, by and among Holdings, Food 4 Less, Inc., Food 4 Less, RSI and the
stockholders of RSI, as such agreement was in effect on June 14, 1995.
"Net Cash Proceeds" means the Net Proceeds of any Asset Sale received in
the form of cash or Cash Equivalents.
"Net Proceeds" means (a) in the case of any Asset Sale or any issuance and
sale by any person of Qualified Capital Stock, the aggregate net proceeds
received by such person after payment of expenses, taxes,
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commissions and the like incurred in connection therewith (and, in the case of
any Asset Sale, net of the amount of cash applied to repay Indebtedness secured
by the asset involved in such Asset Sale), whether such proceeds are in cash or
in property (valued at the fair market value thereof at the time of receipt as
determined with respect to any Asset Sale resulting in Net Proceeds in excess of
$5 million in good faith by the Board of Directors of such person, which
determination shall be evidenced by a Board Resolution) and (b) in the case of
any conversion or exchange of any outstanding Indebtedness or Disqualified
Capital Stock of such person for or into shares of Qualified Capital Stock of
the Company, the sum of (i) the fair market value of the proceeds received by
the Company in connection with the issuance of such Indebtedness or Disqualified
Capital Stock on the date of such issuance and (ii) any additional amount paid
by the Holder to the Company upon such conversion or exchange.
"New Discount Debenture Indenture" means the indenture dated as of June 14,
1995 under which the 13 5/8% Senior Discount Debentures due 2005 of Holdings
were issued, as the same may be modified and amended from time to time and
refinancings thereof to the extent such refinancings are permitted under the
Indenture.
"New Discount Debentures" means the 13 5/8% Senior Discount Debentures due
2005 of Holdings issued pursuant to the New Discount Debenture Indenture, as the
same may be modified or amended from time to time and future refinancings
thereof to the extent such refinancings are permitted under the Indenture.
"Operating Coverage Ratio" means, with respect to any person, the ratio of
(1) EBDIT of such person for the period (the "Pro Forma Period") consisting of
the most recent four full fiscal quarters for which financial information in
respect thereof is available immediately prior to the date of the transaction
giving rise to the need to calculate the Operating Coverage Ratio (the
"Transaction Date") to (2) the aggregate Fixed Charges of such person for the
fiscal quarter in which the Transaction Date occurs and the three fiscal
quarters immediately subsequent to such fiscal quarter (the "Forward Period")
reasonably anticipated by the Board of Directors of such person to become due
from time to time during such period. In addition to, but without duplication
of, the foregoing, for purposes of this definition, "EBDIT" shall be calculated
after giving effect (without duplication), on a pro forma basis for the Pro
Forma Period (but no longer), to (a) any Investment, during the period
commencing on the first day of the Pro Forma Period to and including the
Transaction Date (the "Reference Period"), in any other person that, as a result
of such Investment, becomes a subsidiary of such person, (b) the acquisition,
during the Reference Period (by merger, consolidation or purchase of stock or
assets) of any business or assets, which acquisition is not prohibited by the
Indenture, and (c) any sales or other dispositions of assets (other than sales
of inventory in the ordinary course of business) occurring during the Reference
Period, in each case as if such incurrence, Investment, repayment, acquisition
or asset sale had occurred on the first day of the Reference Period. In
addition, for purposes of this definition, "Fixed Charges" shall be calculated
after giving effect (without duplication), on a pro forma basis for the Forward
Period, to any Indebtedness incurred or repaid on or after the first day of the
Forward Period and prior to the Transaction Date. If such person or any of its
subsidiaries directly or indirectly guarantees any Indebtedness of a third
person, the Operating Coverage Ratio shall give effect to the incurrence of such
Indebtedness as if such person or subsidiary had directly incurred such
guaranteed Indebtedness.
"operating lease" means any lease the obligations under which do not
constitute Capitalized Lease Obligations.
"Pari Passu Indebtedness" means, with respect to the Company or any
Subsidiary Guarantor, Indebtedness of such person which ranks pari passu in
right of payment to the Notes or the Guarantee of such Subsidiary Guarantor, as
the case may be in each case, whether or not secured by any Lien.
"Payment Restriction" means, with respect to a subsidiary of any person,
any encumbrance, restriction or limitation, whether by operation of the terms of
its charter or by reason of any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation, on the ability of (i) such subsidiary
to (a) pay dividends or make other distributions on its Capital Stock or make
payments on any obligation, liability or Indebtedness owed to such person or any
other subsidiary of such person, (b) make loans or advances to such person or
any other subsidiary of such person or (c) transfer any of its properties or
assets to such person or any other subsidiary of such person, or (ii) such
person or any other subsidiary of such person
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to receive or retain any such (a) dividends, distributions or payments, (b)
loans or advances or (c) transfer of properties or assets.
"Permitted Holder" means (i) Food 4 Less Equity Partners, L.P. and The
Yucaipa Companies, or any entity controlled thereby or any of the partners
thereof, (ii) Apollo Advisors, L.P., Lion Advisors, L.P. or any entity
controlled thereby or any of the partners thereof, (iii) an employee benefit
plan of the Company, or any of its subsidiaries or any participant therein, (iv)
a trustee or other fiduciary holding securities under an employee benefit plan
of the Company or any of its subsidiaries or (v) any Permitted Transferee of any
of the foregoing persons.
"Permitted Indebtedness" means (a) Indebtedness of the Company and its
Subsidiaries (and the Company and each Subsidiary (to the extent it is not an
obligor) may guarantee such Indebtedness) pursuant to (i) the Term Loans in an
aggregate principal amount at any time outstanding not to exceed $600 million
less the aggregate amount of all principal repayments thereunder pursuant to and
in accordance with the covenant described under "-- Certain
Covenants -- Limitation on Asset Sales" above subsequent to June 14, 1995, (ii)
the revolving credit facility under the Credit Agreement (including the Letter
of Credit Obligations) in an aggregate principal amount at any time outstanding
not to exceed $325 million, less all permanent reductions thereunder pursuant to
and in accordance with the covenant described under "-- Certain
Covenants -- Limitation on Asset Sales" above since June 14, 1995, and (iii) any
Indebtedness incurred under the Credit Agreement pursuant to and in compliance
with (A) clause (m) of this definition and (B) the covenant described above
under the caption "-- Limitation on Incurrences of Additional Indebtedness"
(other than Permitted Indebtedness that is not incurred pursuant to clause (m)
or this clause (a) of this definition); (b) Indebtedness of the Company or a
Subsidiary Guarantor owed to and held by the Company or a Subsidiary Guarantor;
(c) Indebtedness incurred by the Company or any Subsidiary in connection with
the purchase or improvement of property (real or personal) or equipment or other
capital expenditures in the ordinary course of business (including for the
purchase of assets or stock of any retail grocery store or business) or
consisting of Capitalized Lease Obligations, provided that (i) at the time of
the incurrence thereof, such Indebtedness, together with any other Indebtedness
incurred during the most recently completed four fiscal quarter period in
reliance upon this clause (c) does not exceed, in the aggregate, 3% of net sales
of the Company and its Subsidiaries during the most recently completed four
fiscal quarter period on a consolidated basis and (ii) such Indebtedness,
together with all then outstanding Indebtedness incurred in reliance upon this
clause (c) does not exceed, in the aggregate, 3% of the aggregate net sales of
the Company and its Subsidiaries during the most recently completed twelve
fiscal quarter period on a consolidated basis (calculated on a pro forma basis
if the date of incurrence is prior to the end of the twelfth fiscal quarter
following the Merger); (d) Indebtedness incurred by the Company or any
Subsidiary in connection with capital expenditures in an aggregate principal
amount not exceeding $150 million (less the aggregate principal amount of any
Indebtedness incurred by the Company or any Subsidiary on or prior to the Issue
Date in reliance on clause (d) of the definition of "Permitted Indebtedness"
under the indenture governing the 1995 Senior Subordinated Notes), provided that
such capital expenditures relate solely to the integration of the operations of
RSI, Food 4 Less and their respective subsidiaries as described in prospectus of
Food 4 Less dated May 31, 1995; (e) Indebtedness of the Company or any
Subsidiary incurred under certain Foreign Exchange Agreements and Interest Swap
Obligations entered into with respect to Indebtedness otherwise permitted to be
outstanding pursuant to the covenant described above under the caption
"-- Limitation on Incurrences of Additional Indebtedness" or this definition of
Permitted Indebtedness in a notional amount not exceeding the aggregate
principal amount of such Indebtedness; (f) guarantees incurred in the ordinary
course of business by the Company or a Subsidiary of Indebtedness of any other
person in aggregate not to exceed $25 million at any time outstanding (less the
amount of any guarantees incurred by the Company or any Subsidiary on or prior
to the Issue Date in reliance on clause (f) of the definition of "Permitted
Indebtedness" under the indenture governing the 1995 Senior Subordinated Notes
until such guarantees are no longer outstanding); (g) guarantees by the Company
or a Subsidiary Guarantor of Indebtedness incurred by a wholly-owned Subsidiary
Guarantor so long as the incurrence of such Indebtedness incurred by such
wholly-owned Subsidiary Guarantor is permitted under the terms of the Indenture;
(h) Refinancing Indebtedness; (i) Indebtedness for letters of credit relating to
workers' compensation claims and self-insurance or similar requirements in the
ordinary course of business; (j) Existing Indebtedness and other Indebtedness
outstanding
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on the Issue Date; (k) Indebtedness arising from guarantees of Indebtedness of
the Company or any Subsidiary or other agreements of the Company or a Subsidiary
providing for indemnification, adjustment of purchase price or similar
obligations, in each case, incurred or assumed in connection with the
disposition of any business, assets or Subsidiary, other than guarantees of
Indebtedness incurred by any person acquiring all or any portion of such
business, assets or Subsidiary for the purpose of financing such acquisition;
provided that the maximum aggregate liability in respect of all such
Indebtedness shall at no time exceed the gross proceeds actually received by the
Company and its Subsidiaries in connection with such disposition; (l)
obligations in respect of performance bonds and completion guarantees provided
by the Company or any Subsidiary in the ordinary course of business; and (m)
additional Indebtedness of the Company and the Subsidiary Guarantors in an
amount not to exceed $175 million at any time outstanding (less the amount of
any Indebtedness incurred by the Company or any Subsidiary Guarantor on or prior
to the Issue Date in reliance on clause (m) of the definition of "Permitted
Indebtedness" under the indenture governing the 1995 Senior Subordinated Notes
until such Indebtedness is repaid or no longer outstanding).
"Permitted Investment" by any person means (i) any Related Business
Investment, (ii) Investments in securities not constituting cash or Cash
Equivalents and received in connection with an Asset Sale made pursuant to the
provisions of the covenant described under "-- Certain Covenants -- Limitation
on Asset Sales" above or any other disposition of assets not constituting an
Asset Sale by reason of the $500,000 threshold contained in the definition
thereof, (iii) cash and Cash Equivalents, (iv) Investments existing on the Issue
Date, (v) Investments specifically permitted by and made in accordance with the
provisions of the covenant described under "-- Certain Covenants -- Limitation
on Transactions with Affiliates," (vi) Investments by Subsidiary Guarantors in
other Subsidiary Guarantors or the Company and Investments by the Company in a
Subsidiary Guarantor in the form of Indebtedness owed to the Company by such
Subsidiary Guarantor and Investments by Subsidiaries which are not Subsidiary
Guarantors in other Subsidiaries which are not Subsidiary Guarantors and (vii)
additional Investments in an aggregate amount not exceeding $15 million.
"Permitted Liens" means (i) Liens for taxes, assessments and governmental
charges or claims not yet due or which are being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted and if a
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor; (ii) statutory Liens of
landlords and carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen or other like Liens arising in the ordinary course of business,
deposits made to obtain the release of such Liens, and with respect to amounts
not yet delinquent for a period of more than 60 days or being contested in good
faith by an appropriate process of law, and for which a reserve or other
appropriate provision, if any, as shall be required by GAAP shall have been
made; (iii) Liens incurred or pledges or deposits made in the ordinary course of
business to secure obligations under workers' compensation, unemployment
insurance and other types of social security or similar legislation; (iv) Liens
incurred or deposits made to secure the performance of tenders, bids, leases,
statutory obligations, surety and appeal bonds, government contracts,
performance and return of money bonds and other obligations of a like nature
incurred in the ordinary course of business (exclusive of obligations for the
payment of borrowed money); (v) easements, rights-of-way, zoning or other
restrictions, minor defects or irregularities in title and other similar charges
or encumbrances not interfering in any material respect with the business of the
Company or any of its Subsidiaries incurred in the ordinary course of business;
(vi) Liens upon specific items of inventory or other goods and proceeds of any
person securing such person's obligations in respect of bankers' acceptances
issued or created for the account of such person to facilitate the purchase,
shipment or storage of such inventory or other goods in the ordinary course of
business; (vii) Liens securing reimbursement obligations with respect to letters
of credit which encumber documents and other property relating to such letters
of credit and the products and proceeds thereof; (viii) Liens in favor of
customs and revenue authorities arising as a matter of law to secure payment of
nondelinquent customs duties in connection with the importation of goods; (ix)
judgment and attachment Liens not giving rise to a Default or Event of Default;
(x) leases or subleases granted to others not interfering in any material
respect with the business of the Company or any Subsidiary; (xi) Liens
encumbering customary initial deposits and margin deposits, and other Liens
incurred in the ordinary course of business that are within the general
parameters customary in the industry, in each case securing Indebtedness under
Interest Swap Obligations and Foreign Exchange
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Agreements and forward contracts, option futures contracts, futures options or
similar agreements or arrangements designed to protect the Company or any
Subsidiary from fluctuations in the price of commodities; (xii) Liens
encumbering deposits made in the ordinary course of business to secure
nondelinquent obligations arising from statutory, regulatory, contractual or
warranty requirements of the Company or its Subsidiaries for which a reserve or
other appropriate provision, if any, as shall be required by GAAP shall have
been made; (xiii) Liens arising out of consignment or similar arrangements for
the sale of goods entered into by the Company or any Subsidiary in the ordinary
course of business in accordance with past practices; (xiv) any interest or
title of a lessor in the property subject to any lease, whether characterized as
capitalized or operating other than any such interest or title resulting from or
arising out of a default by the Company or any Subsidiary of its obligations
under such lease; (xv) Liens arising from filing UCC financing statements for
precautionary purposes in connection with true leases of personal property that
are otherwise permitted under the Indenture and under which the Company or any
Subsidiary is lessee; (xvi) Liens on assets of the Company securing Indebtedness
which would constitute Senior Indebtedness but for the provisions of clause (c)
in the third sentence of the definition of "Senior Indebtedness" and Liens on
assets of a Subsidiary Guarantor securing Indebtedness which would constitute
Guarantor Senior Indebtedness but for the provisions of clause (c) in the third
sentence of the definition of "Guarantor Senior Indebtedness"; and (xvii)
additional Liens securing Indebtedness in aggregate principal amount at any one
time outstanding not exceeding the sum of (i) $25 million and (ii) 10% of the
aggregate Consolidated Net Income of the Company earned subsequent to June 14,
1995 and on or prior to such time.
"Permitted Payments" means (i) any payment by the Company or any
Subsidiary, or any dividend by the Company or any Subsidiary to Holdings the
proceeds of which are utilized by Holdings to make payments, to The Yucaipa
Companies or the principals or any Affiliates thereof for consulting,
management, investment banking or similar services, or for reimbursement of
losses, costs and expenses pursuant to the Consulting Agreement, (ii) any
payment by the Company or any Subsidiary pursuant to the Second Amended and
Restated Tax Sharing Agreement, dated as of June 14, 1995, by and among the
Company, all direct and indirect subsidiaries, and Holdings as such Tax Sharing
Agreement may be amended from time to time, so long as the payment thereunder by
the Company and its Subsidiaries shall not exceed the amount of taxes the
Company would be required to pay if it were the filing person for all applicable
taxes, (iii) any payment by the Company or any Subsidiary pursuant to the
Transfer and Assumption Agreement, dated as of June 23, 1989, between Food 4
Less and Holdings, as in effect on the Issue Date, (iv) any payment by the
Company or any Subsidiary, or any dividend by the Company or any Subsidiary to
Holdings the proceeds of which are used by Holdings to make payments, (a) in
connection with repurchases of outstanding shares of the Company's or Holdings'
Common Stock following the death, disability or termination of employment of
management stockholders, and (b) of amounts required to be paid by Holdings, the
Company or any of its Subsidiaries to participants or former participants in
employee benefit plans upon termination of employment by such participants, as
provided in the documents related thereto, in an aggregate amount (for both
clauses (a) and (b)) not to exceed $10 million in any Yearly Period (provided
that any unused amounts may be carried over to any subsequent Yearly Period
subject to a maximum amount of $20 million in any Yearly Period), (v) from and
after June 15, 2000, payments of cash dividends to Holdings in an amount
sufficient to enable Holdings to make payments of interest required to be made
in respect of the Seller Debentures and the New Discount Debentures in an amount
not to exceed the amount payable thereunder in accordance with the terms thereof
in effect on June 14, 1995, (vi) dividends or other payments to Holdings
sufficient to enable Holdings to perform accounting, legal, corporate reporting
and administrative functions in the ordinary course of business or to pay
required fees and expenses in connection with the Merger and the registration
under applicable laws and regulations of its debt or equity securities, (vii)
dividends by the Company to Holdings of the Net Cash Proceeds of an Asset Sale
to the extent that (a) the Company or any of the Subsidiaries is required
pursuant to the Indenture to utilize such Net Cash Proceeds to repay the Notes
(and has complied with all such requirements), (b) such Net Cash Proceeds are
not required to be and have not been utilized to repay outstanding Indebtedness
of the Company or any of the Subsidiaries and (c) Holdings is required pursuant
to the documents governing any outstanding Indebtedness of Holdings to utilize
such Net Cash Proceeds to repay such Indebtedness (it being understood that only
the amounts not utilized as described in clauses (a) and (b) of this clause
(vii) shall be permitted to be distributed to Holdings pursuant to this clause
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(vii)) and (viii) for so long as the sole business activity of such partnership
is to acquire, hold, sell, exchange, transfer or otherwise dispose of all or any
portion of the New Discount Debentures and to manage its investment in the New
Discount Debentures, any payment by the Company or any Subsidiary, or any
dividend or loan to Holdings, the proceeds of which are utilized by Holdings to
fund ongoing costs and expenses of RGC Partners, L.P. pursuant to the
Subscription Agreement and the Holdings Registration Rights Agreement.
"Permitted Subordinated Reorganization Securities" means securities of the
Company issued in a plan of reorganization in a case under the Bankruptcy Law
relating to the Company which constitutes either (y) Capital Stock (other than
Disqualified Capital Stock with the reference to "Maturity Date" in the
definition of such term modified to relate to the final stated maturity of any
debt securities issued in such plan of reorganization to the holders of
Designated Senior Indebtedness ("Senior Reorganization Securities")) and (z)
debt securities of the Company which are (i) unsecured, (ii) have no scheduled
mandatory amortization thereon prior to the final stated maturity of the Senior
Reorganization Securities and (iii) are subordinated in right of payment to the
Senior Reorganization Securities to at least the same extent as the Securities
are subordinated to Designated Senior Indebtedness.
"Permitted Transferees" means, with respect to any person, (i) any
Affiliate of such person, (ii) the heirs, executors, administrators,
testamentary trustees, legatees or beneficiaries of any such person, (iii) a
trust, the beneficiaries of which, or a corporation or partnership, the
stockholders or general or limited partners of which, include only such person
or his or her spouse or lineal descendants, in each case to whom such person has
transferred the beneficial ownership of any securities of the Company, (iv) any
investment account whose investment managers and investment advisors consist
solely of such person and/or Permitted Transferees of such person and (v) any
investment fund or investment entity that is a subsidiary of such person or a
Permitted Transferee of such person.
"Plan of Liquidation" means, with respect to any person, a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise) (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such person otherwise than as an entirety or
substantially as an entirety and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and all
or substantially all of the remaining assets of such person to holders of
Capital Stock of such person.
"Preferred Stock" means, with respect to any person, Capital Stock of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such person, over shares
of Capital Stock of any other class of such person.
"pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms of the Indenture, a calculation in accordance with
Article 11 of Regulation S-X under the Securities Act, as interpreted by the
Company's chief financial officer or Board of Directors in consultation with its
independent certified public accountants.
"Public Equity Offering" means an underwritten public offering of Common
Stock of the Company or Holdings pursuant to a registration statement filed with
the Commission in accordance with the Securities Act which public equity
offering results in gross proceeds to the Company or Holdings, as the case may
be, of not less than $20 million; provided, however, that in the case of a
Public Equity Offering by Holdings, Holdings contributes to the capital of the
Company net cash proceeds in an amount sufficient to redeem Notes called for
redemption in accordance with the terms thereof.
"Qualified Capital Stock" means, with respect to any person, any Capital
Stock of such person that is not Disqualified Capital Stock.
"Refinancing Indebtedness" means, with respect to any person, Indebtedness
of such person issued in exchange for, or the proceeds from the issuance and
sale or disbursement of which are used to substantially concurrently repay,
redeem, refund, refinance, discharge or otherwise retire for value, in whole or
in part (collectively, "repay"), or constituting an amendment, modification or
supplement to, or a deferral or renewal
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of (collectively, an "amendment"), any Indebtedness of such person existing on
the Issue Date or Indebtedness (other than Permitted Indebtedness, except
Permitted Indebtedness incurred pursuant to clauses (c), (d), (h) and (j) of the
definition thereof) incurred in accordance with the Indenture (a) in a principal
amount (or, if such Refinancing Indebtedness provides for an amount less than
the principal amount thereof to be due and payable upon the acceleration
thereof, with an original issue price) not in excess of (without duplication)
(i) the principal amount or the original issue price, as the case may be, of the
Indebtedness so refinanced (or, if such Refinancing Indebtedness refinances
Indebtedness under a revolving credit facility or other agreement providing a
commitment for subsequent borrowings, with a maximum commitment not to exceed
the maximum commitment under such revolving credit facility or other agreement)
plus (ii) unpaid accrued interest on such Indebtedness plus (iii) premiums,
penalties, fees and expenses actually incurred by such person in connection with
the repayment or amendment thereof and (b) with respect to Refinancing
Indebtedness that repays or constitutes an amendment to Subordinated
Indebtedness, such Refinancing Indebtedness (x) shall not have any fixed
mandatory redemption or sinking fund requirement in an amount greater than or at
a time prior to the amounts and times specified in such repaid or amended
Subordinated Indebtedness, except to the extent that any such requirement
applies on a date after the Maturity Date of the Notes and (y) shall contain
subordination and default provisions no less favorable in any material respect
to Holders of the Notes than those contained in such repaid or amended
Subordinated Indebtedness.
"Related Business Investment" means (i) any Investment by a person in any
other person a majority of whose revenues are derived from the operation of one
or more retail grocery stores or supermarkets or any other line of business
engaged in by the Company or any of its Subsidiaries as of the Issue Date; (ii)
any Investment by such person in any cooperative or other supplier, including,
without limitation, any joint venture which is intended to supply any product or
service useful to the business of the Company and its Subsidiaries as it is
conducted as of the Issue Date and as such business may thereafter evolve or
change; and (iii) any capital expenditure or Investment, in each case reasonably
related to the business of the Company and its Subsidiaries as it is conducted
as of the Issue Date and as such business may thereafter evolve or change.
"Restricted Debt Prepayment" means any purchase, redemption, defeasance
(including, but not limited to, in substance or legal defeasance) or other
acquisition or retirement for value, directly or indirectly, by the Company or a
Subsidiary, prior to the scheduled maturity or prior to any scheduled repayment
of principal or sinking fund payment, as the case may be, in respect of
Subordinated Indebtedness.
"Restricted Payment" means any (i) Stock Payment, (ii) Investment (other
than a Permitted Investment) or (iii) Restricted Debt Prepayment.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Seller Debentures" means the 13 5/8% Senior Subordinated Pay-in-Kind
Debentures due 2007 of Holdings issued pursuant to the Seller Debenture
Indenture, including any additional 13 5/8% Senior Subordinated Pay-in-Kind
Debentures due 2007 issued as interest thereon, in each case, as such Seller
Debentures may be modified or amended from time to time and future refinancings
thereof to the extent such refinancings are permitted under the Indenture.
"Seller Debenture Indenture" means the indenture between Holdings and
Norwest Minnesota, N.A., as trustee, dated as of June 14, 1995 under which the
13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 of Holdings were
issued, as the same may be modified and amended from time to time and
refinancings thereof to the extent such refinancings are permitted under the
Indenture.
"Senior Indebtedness" means the principal of, premium, if any, and interest
on, and all other Obligations with respect to, any Indebtedness of the Company,
whether outstanding on the Issue Date or thereafter created, incurred or
assumed, unless, in the case of any particular Indebtedness, the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such Indebtedness shall not be senior in right of
payment to the Notes. Without limiting the generality of the foregoing, "Senior
Indebtedness" shall include (x) the principal of, premium, if any, and interest
on all obligations of every
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nature of the Company from time to time owed to the lenders under the Credit
Agreement including, without limitation, the Letter of Credit Obligations and
principal of and interest on, all fees and expenses payable under the Credit
Agreement and (y) interest accruing thereon subsequent to the occurrence of any
Event of Default specified in clause (vi) or (vii) under "-- Events of Default"
relating to the Company, whether or not the claim for such interest is allowed
under any applicable Bankruptcy Law. Notwithstanding the foregoing, "Senior
Indebtedness" shall not include (a) Indebtedness evidenced by the Notes, (b)
Indebtedness that is expressly subordinate or junior in right of payment to any
Indebtedness of the Company, (c) Indebtedness which, when incurred and without
respect to any election under Section 1111(b) of Title 11, United States Code,
is without recourse to the Company (other than Capitalized Lease Obligations),
(d) Indebtedness which is represented by Disqualified Capital Stock, (e)
obligations for goods, materials or services purchased in the ordinary course of
business or obligations consisting of trade payables, (f) Indebtedness of or
amounts owed by the Company for compensation to employees or for services
rendered to the Company, (g) any liability for federal, state, local or other
taxes owed or owing by the Company, (h) Indebtedness of the Company to a
Subsidiary of the Company, and (i) that portion of any Indebtedness which is
incurred by the Company in violation of the Indenture.
"Significant Stockholder" means, with respect to any person, any other
person who is the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of more than 10% of any class of equity securities of such person
that are entitled to vote on a regular basis for the election of directors of
such person.
"Significant Subsidiary" means each subsidiary of the Company that is
either (a) a "significant subsidiary" as defined in Rule 1-02(v) of Regulation
S-X under the Securities Act and the Exchange Act (as such regulation is in
effect on the Issue Date) or (b) material to the financial condition or results
of operations of the Company and its Subsidiaries taken as a whole.
"Stock Payment" means, with respect to any person, (a) the declaration or
payment by such person, either in cash or in property, of any dividend on
(except, in the case of the Company, dividends payable solely in Qualified
Capital Stock of the Company), or the making by such person or any of its
subsidiaries of any other distribution in respect of, such person's Qualified
Capital Stock or any warrants, rights or options to purchase or acquire shares
of any class of such Capital Stock (other than exchangeable or convertible
Indebtedness of such person), or (b) the redemption, repurchase, retirement or
other acquisition for value by such person or any of its subsidiaries, directly
or indirectly, of such person's Qualified Capital Stock (and, in the case of a
Subsidiary, Qualified Capital Stock of the Company) or any warrants, rights or
options to purchase or acquire shares of any class of such Capital Stock (other
than exchangeable or convertible Indebtedness of such person), other than, in
the case of the Company, through the issuance in exchange therefor solely of
Qualified Capital Stock of the Company; provided, however, that in the case of a
Subsidiary, the term "Stock Payment" shall not include any such payment with
respect to its Capital Stock or warrants, rights or options to purchase or
acquire shares of any class of its Capital Stock that are owned solely by the
Company or a wholly-owned Subsidiary.
"Subordinated Indebtedness" means, with respect to the Company or any
Subsidiary Guarantor, Indebtedness of such person which is subordinated in right
of payment to the Notes or the Guarantee of such Subsidiary Guarantor, as the
case may be.
"Subscription Agreement" means that certain Subscription Agreement, between
RGC Partners, L.P., Holdings, Food 4 Less and the partnership investors listed
on Exhibit A thereto, as such Subscription Agreement may be amended or replaced,
so long as any amounts paid by Holdings and the Company under any amended or
replacement agreement do not exceed the amounts payable by Holdings and the
Company under such Subscription Agreement as in effect on June 14, 1995.
"subsidiary" of any person means (i) a corporation a majority of whose
Capital Stock with voting power, under ordinary circumstances, to elect
directors is, at the date of determination, directly or indirectly, owned by
such person, by one or more subsidiaries of such person or by such person and
one or more subsidiaries of such person or (ii) a partnership in which such
person or a subsidiary of such person is, at the date of determination, a
general partner of such partnership, but only if such person or its subsidiary
is entitled to receive more than fifty percent of the assets of such partnership
upon its dissolution, or (iii) any other person
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(other than a corporation or a partnership) in which such person, a subsidiary
of such person or such person and one or more subsidiaries of such person,
directly or indirectly, at the date of determination, has (x) at least a
majority ownership interest or (y) the power to elect or direct the election of
a majority of the directors or other governing body of such person.
"Subsidiary" means any subsidiary of the Company.
"Subsidiary Guarantor" means (i) each of Alpha Beta Company, Bay Area
Warehouse Stores, Inc., Bell Markets, Inc., Cala Co., Cala Foods, Inc.,
Falley's, Inc., Food 4 Less of California, Inc., Food 4 Less Merchandising,
Inc., Food 4 Less GM, Inc., Food 4 Less of Southern California, Inc., and
Crawford Stores, Inc., (ii) each of the Company's Subsidiaries which becomes a
guarantor of the Notes in compliance with the provisions set forth under
"-- Certain Covenants -- Guarantees of Certain Indebtedness," and (iii) each of
the Company's Subsidiaries executing a supplemental indenture in which such
Subsidiary agrees to be bound by the terms of the Indenture.
"Term Loans" means the term loan facility under the Credit Agreement and
any agreement governing Indebtedness incurred to refund, replace or refinance
any borrowings outstanding under such facility or under any prior refunding,
replacement or refinancing thereof (in each case, in whole or in part, and
without limitation as to amount, terms, conditions, covenants and other
provisions).
"Yearly Period" means each fiscal year of the Company.
"The Yucaipa Companies" means The Yucaipa Companies, a California general
partnership, or any successor thereto which is an affiliate of Ronald W. Burkle
or his Permitted Transferees and which has been established for the sole purpose
of changing the form of The Yucaipa Companies from that of a partnership to that
of a limited liability company or any other form of entity which is not
materially adverse to the rights of the Holders under the Indenture.
DESCRIPTION OF THE CREDIT FACILITY
Set forth below is a summary of the material terms and conditions of the
Amended and Restated Credit Facility dated as of April 17, 1997 among the
Company, the Subsidiary Guarantors, Bankers Trust as Agent and the other lenders
party thereto (the "Refinanced Credit Facility"). This summary does not purport
to be a complete description of the Refinanced Credit Facility and is subject to
the detailed provisions of the loan agreement (the "Loan Agreement") and various
related documents entered into in connection with the Refinanced Credit
Facility. A copy of the Loan Agreement is available upon request from the
Company.
SUMMARY OF REFINANCED CREDIT FACILITY
General. The Refinanced Credit Facility was effective as of April 17, 1997
and is an amendment and restatement of the 1995 Credit Facility. The Refinanced
Credit Facility provides for (i) term loans in the aggregate amount of $550
million, currently comprised of a $200 million tranche which matures on February
15, 2003 (the "Tranche A Loan") and a $350 million tranche which matures on
February 15, 2004 (the "Tranche B Loan," and together with the Tranche A Loan,
the "Term Loans"); and (ii) the $325 million Revolving Facility (the "Revolving
Facility") under which working capital loans may be made and commercial or
standby letters of credit in the maximum aggregate amount of up to $150 million
may be issued, under which approximately $77.3 million of letters of credit were
outstanding as of July 20, 1997. As of July 20, 1997, the outstanding principal
amount of the Term Loans was $549.1 million and there was $111.1 million
outstanding under the Revolving Facility.
Proceeds of the term loans under the 1995 Credit Facility and initial
revolving loans under the 1995 Credit Facility, together with proceeds from the
other debt and equity financing transactions completed concurrently, were used
to fund the cash requirements for the acquisition of RSI, refinance existing
indebtedness of Ralphs and Food 4 Less, and pay various fees, expenses and other
costs associated with the Merger and the related financing. Upon the
effectiveness of the Refinanced Credit Facility, term loans and revolving loans
under the 1995 Credit Facility were converted into the Term Loans and revolving
loans under
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the Revolving Facility. Proceeds of loans under the Revolving Facility were also
used to pay fees, expenses and other costs associated with such refinancing. The
Revolving Facility is used to provide for the working capital requirements and
general corporate purposes of the Company and to issue commercial and standby
letters of credit to support workers' compensation contingencies and for other
corporate purposes.
Interest Rate; Fees. Borrowings under (i) the Revolving Facility and the
Tranche A Loan bear interest at a rate per annum equal to the Base Rate (as
defined in the Refinanced Credit Facility) plus a margin ranging from 0.25% to
1.25% or the Adjusted Eurodollar Rate (as defined in the Refinanced Credit
Facility) plus a margin ranging from 1.25% to 2.25%. The current margins for the
Revolving Facility and the Tranche A Loan are 0.75% for Base Rate Loans (as
defined in the Refinanced Credit Facility) and 1.75% for Eurodollar Rate Loans
(as defined in the Refinanced Credit Facility). Borrowings under the Tranche B
Loan bears interest at a rate per annum equal to the Base Rate plus a margin
ranging from 0.75% to 1.75% or the Adjusted Eurodollar Rate plus a margin
ranging from 1.75% to 2.75%. The current margins for the Tranche B Loan are
1.25% for Base Rate Loans and 2.25% for Eurodollar Rate Loans. Up to $30 million
of the Revolving Facility is available as a swingline facility and loans
outstanding under the swingline facility bear interest at a rate per annum equal
to the Base Rate plus a margin which ranges from 0.25% to 1.25% minus the
Commitment Fee Percentage (as defined in the Refinanced Credit Facility). After
the occurrence of a default under the Refinanced Credit Facility, interest will
accrue at the rate equal to the rate otherwise applicable under the Refinanced
Credit Facility plus an additional 2.00% per annum. The Company pays the issuing
bank a fee of 0.25% on each standby letter of credit and each commercial letter
of credit and pays the lenders under the Refinanced Credit Facility a fee equal
to the margin on Eurodollar Rate Loans under the Revolving Facility (the
"Eurodollar Margin") minus the Commitment Fee Percentage for standby letters of
credit and a fee equal to the Eurodollar Margin minus 1% minus the Commitment
Fee Percentage for commercial letters of credit. Each of these fees is
calculated based on the amount available to be drawn under a letter of credit.
In addition, the Company will pay a commitment fee which ranges from 0.325% to
0.500% per annum on the unused portions of the Revolving Facility and for
purposes of calculating this fee, loans under the swingline facility shall not
be deemed to be outstanding. The current commitment fee is 0.500%. The 1995
Credit Facility required the Company to enter into hedging agreements to limit
its exposure to increases in interest rates for a period of not less than two
years from the date of the closing on the 1995 Credit Facility in an aggregate
notional amount of not less than $300 million. The Refinanced Credit Facility
continues this requirement. The Refinanced Credit Facility may be prepaid in
whole or in part without premium or penalty.
Amortization; Prepayments. The Tranche A Loan will mature on February 15,
2003, and the Tranche B Loan will mature on February 15, 2004. The Refinanced
Credit Facility provides for quarterly amortizations of the Term Loans in each
year as follows: $2.625 million in fiscal 1997, $3.5 million in fiscal 1998,
$25.5 million in fiscal 1999, $62.625 million in fiscal 2000, $87.5 million in
fiscal 2001, $112.75 million in fiscal 2002, $118.25 million in fiscal 2003 and
$137.25 million in fiscal 2004. Prepayments of Term Loans would reduce these
amortizations. The Revolving Facility will mature on February 15, 2003. The
Company is required to reduce loans outstanding under the Revolving Facility to
(i) $110 million for a period of not less than 30 consecutive days during each
period of twelve consecutive months through the end of Fiscal Year 1997 (as
defined in the Refinanced Credit Facility), and (ii) $100 million ($75 million
if the Company sells Cala for $25 million or more) for a period of not less than
30 consecutive days during each period of twelve consecutive months thereafter.
The Company is required to make certain prepayments, subject to certain
exceptions, on the Refinanced Credit Facility with 75% (100% for fiscal year
1997) of Consolidated Excess Cash Flow (as defined in the Refinanced Credit
Facility) and with the proceeds from certain asset sales, issuances of debt and
equity securities and any pension plan reversion. Such prepayments will be
allocated pro rata between the Tranche A Loans and Tranche B Loans and to
scheduled amortization payments of the Tranche A Loans and Tranche B Loans pro
rata. Mandatory prepayments on the Tranche B Loans will be used to make an offer
to repay such Loans and to the extent not accepted 50% of such amount will be
applied to reduce Tranche A Loans on a pro rata basis and the remaining 50% may
be retained by the Company.
Guarantees and Collateral. Holdings and all active subsidiaries of the
Company (including the Subsidiary Guarantors) have guaranteed the Company's
obligations under the Refinanced Credit Facility. The Company's obligations and
the guarantees of its subsidiaries are secured by substantially all personal
property
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of the Company and its subsidiaries, including a pledge of the stock of all
subsidiaries of the Company. Holdings' guarantee is secured by a pledge of the
stock of the Company. The Company's obligations also are secured by first
priority liens on certain real property fee interests of the Company and its
subsidiaries and on certain unencumbered leasehold interests of the Company and
its subsidiaries.
Covenants. The obligation of the lenders under the Refinanced Credit
Facility to advance funds is subject to the satisfaction of certain conditions
customary in agreements of this type. In addition, the Company is subject to
certain customary affirmative and negative covenants contained in the Refinanced
Credit Facility, including, without limitation, covenants that restrict, subject
to specified exceptions, (i) the incurrence of additional indebtedness and other
obligations, (ii) mergers or acquisitions, (iii) asset sales, (iv) the granting
of liens, (v) prepayment or repurchase of other indebtedness, (vi) engaging in
transactions with affiliates, or (vii) cash capital expenditures. Certain of
these covenants are more restrictive than those in favor of holders of the Notes
as described herein and as set forth in the Indenture. In addition, the
Refinanced Credit Facility requires that the Company maintain certain specified
financial covenants, including a minimum fixed charge coverage, a maximum ratio
of total debt to EBITDA and a minimum net worth.
Events of Default. The Refinanced Credit Facility also provides for
customary events of default. The occurrence of any of such events of default
could result in acceleration of the Company's obligations under the Refinanced
Credit Facility and foreclosure on the collateral securing such obligations,
which could have material adverse results to holders of the Notes.
DESCRIPTION OF HOLDINGS' INDEBTEDNESS
The New Discount Debentures. $100 million initial accreted value of 13 5/8%
Senior Discount Debentures due 2005 (the "New Discount Debentures") were issued
by Holdings upon consummation of the Merger. The New Discount Debentures will
have an aggregate principal amount of $193,363,570 at maturity and will mature
on July 15, 2005. The New Discount Debentures are senior unsecured obligations
of Holdings and rank senior in right of payment to all subordinated indebtedness
of Holdings, including the Seller Debentures. Until June 15, 2000, no interest
will accrue on the New Discount Debentures, but the Accreted Value (as defined
in the indenture governing the New Discount Debentures (the "New Debenture
Indenture")) will accrete at a rate of 13 5/8% (representing the amortization of
the original issue discount) from the date of original issuance until June 15,
2000, on a semi-annual bond equivalent basis using a 360 day year comprised of
twelve 30-day months, such that the Accreted Value shall be equal to the full
principal amount of the New Discount Debentures on June 15, 2000. The initial
Accreted Value per $1,000 principal amount of New Discount Debentures was
$519.92 (representing the original purchase price). Beginning on June 15, 2000,
cash interest on the New Discount Debentures will accrue at a rate of 13 5/8%
per annum and will be payable semi-annually in arrears on each June 15 and
December 15 of each year, commencing December 15, 2000, to the holders of record
on the immediately preceding June 1 and December 1.
On or after June 15, 2000, the New Discount Debentures may be redeemed, at
the option of Holdings, in whole at any time or in part from time to time, at a
redemption price equal to the applicable percentage of the principal amount
thereof set forth below, plus accrued and unpaid interest, to the redemption
date, if redeemed during the twelve-month period commencing on June 15 in the
years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
------------------------------------- ----------------
<S> <C>
2000................................. 106.8125%
2001................................. 105.1094%
2002................................. 103.4063%
2003................................. 101.7031%
2004 and thereafter.................. 100.0000%
</TABLE>
Notwithstanding the foregoing, prior to June 15, 1998, Holdings may use the
net proceeds of a Public Equity Offering (as defined in the New Debenture
Indenture) of Holdings or the Company to redeem up to 35% of the New Discount
Debentures at a redemption price equal to 110% of the Accreted Value thereof on
the date of redemption.
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In the event of a Change of Control (as defined in the New Debenture
Indenture), each holder has the right to require the repurchase of such holder's
New Discount Debentures at a purchase price equal to 101% of the Accreted Value
thereof on the Change of Control Payment Date (as defined in the New Debenture
Indenture) (if such date is prior to June 15, 2000) or 101% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the Change of
Control Payment Date (if such date is on or after June 15, 2000).
The New Debenture Indenture contains covenants that, among other things,
limit the ability of Holdings to enter into certain mergers or consolidations or
incur certain liens or of Holdings or its subsidiaries to incur additional
indebtedness, pay dividends or make certain other Restricted Payments (as
defined in the New Debenture Indenture), or engage in certain transactions with
affiliates. Under certain circumstances, Holdings will be required to make an
offer to purchase New Discount Debentures at a price equal to 100% of the
Accreted Value thereof on the date of purchase, if such date is prior to June
15, 2000 or 100% of the principal amount thereof, plus accrued interest to the
date of purchase, if such date is on or after June 15, 2000, with the proceeds
of certain Asset Sales (as defined in the New Debenture Indenture). The New
Debenture Indenture contains certain customary events of defaults, which include
the failure to pay interest and principal, the failure to comply with certain
covenants in the New Discount Debentures or the New Debenture Indenture, a
default under certain indebtedness, the imposition of certain final judgments or
warrants of attachment and certain events occurring under bankruptcy laws.
Pursuant to the terms of a registration rights agreement entered into by
Holdings, Holdings filed a shelf registration statement with the Commission with
respect to the New Discount Debentures, and paid the expenses related thereto.
Pursuant to such registration statement, the initial holder of the New Discount
Debentures sold its entire interest in the New Discount Debentures.
The Seller Debentures. $131.5 million principal amount of 13 5/8% Senior
Subordinated Pay-In-Kind Debentures due 2007 (the "Seller Debentures") were
issued by Holdings to the stockholders of RSI upon consummation of the Merger.
The Seller Debentures were issued in an aggregate principal amount of $131.5
million and will mature on June 15, 2007. The Seller Debentures are general
unsecured obligations of Holdings and are subordinated to the prior payment when
due of all Senior Indebtedness (as defined in the indenture governing the Seller
Debentures (the "Debenture Indenture")), including the New Discount Debentures.
The Seller Debentures bear interest at a rate equal to 13 5/8% per annum,
payable semi-annually in arrears on each interest payment date. Holdings has the
option, in its sole discretion, to issue additional securities ("Secondary
Securities") in lieu of a cash payment of any or all of the interest due for the
period prior to the interest payment date five years after the date of issuance
of the Seller Debentures.
On or after June 15, 2000, the Seller Debentures may be redeemed, at the
option of Holdings, in whole at any time or in part from time to time, at a
redemption price equal to the applicable percentage of the principal amount
thereof set forth below, plus accrued and unpaid interest, if any, to the
redemption date, if redeemed during the twelve-month period commencing on June
15 in the years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
------------------------------------- ----------------
<S> <C>
2000................................. 106.8125%
2001................................. 105.1094%
2002................................. 103.4063%
2003................................. 101.7031%
2004 and thereafter.................. 100.0000%
</TABLE>
Notwithstanding the foregoing, prior to June 15, 1998, Holdings may use the
net proceeds of an Initial Public Offering (as defined in the Debenture
Indenture) of Holdings or Food 4 Less to redeem up to 35% of the Seller
Debentures at a redemption price equal to 110% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the date of redemption.
In the event of a Change of Control (as defined in the Debenture
Indenture), each holder has the right to require the repurchase of such holder's
Seller Debentures at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of purchase.
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<PAGE> 101
The Debenture Indenture contains certain covenants that, among other
things, limit the ability of Holdings to enter into certain mergers or
consolidations or incur certain liens or of Holdings or its subsidiaries to
incur additional indebtedness, pay dividends or make certain other Restricted
Payments (as defined in the Debenture Indenture), or engage in certain
transactions with affiliates. Under certain circumstances, Holdings will be
required to make an offer to purchase Seller Debentures at a price equal to 100%
of the principal amount thereof, plus accrued and unpaid interest, if any, to
the repurchase date with the proceeds of certain Asset Sales (as defined in the
Debenture Indenture). The Debenture Indenture contains certain customary events
of default, which will include the failure to pay interest and principal, the
failure to comply with certain covenants in the Seller Debentures or the
Debenture Indenture, a default under certain indebtedness, the imposition of
certain final judgments or warrants of attachment and certain events occurring
under bankruptcy laws.
Pursuant to the terms of a registration rights agreement executed
concurrently with the closing of the Merger, Holdings has filed a shelf
registration statement with the Commission with respect to the Seller
Debentures. Holdings is obligated to use its best efforts to cause such shelf
registration statement to remain effective for up to three years, and pay the
expenses related thereto. If Holdings fails to comply with its obligations to
keep such shelf registration statement effective, Holdings will be obligated to
pay certain liquidated damages.
BOOK ENTRY; DELIVERY AND FORM
The Exchange Notes (and the related guarantees) to be issued in exchange
for Private Notes as set forth herein will initially will be represented by a
single, permanent global certificate in definitive, fully registered form (the
"Global Note"). The Global Note will be deposited on the date of the closing of
the Exchange Offer with, or on behalf of, The Depository Trust Company, New
York, New York ("DTC") and registered in the name of a nominee of DTC. The
information in this section concerning DTC and its book-entry system has been
obtained from sources that the Company believes to be reliable but the Company
takes no responsibility for the accuracy thereof.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participating organizations (collectively, "Participants")
and to facilitate the clearance and settlement of securities transactions
between Participants through electronic book-entry changes in accounts of its
Participants, thereby eliminating the need for physical movement of
certificates. DTC's Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is available to other entities such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
"Indirect Participants"). Persons who are not Participants may beneficially own
securities held by or on behalf of the DTC only through the Participants or
Indirect Participants.
The Global Note. The Company expects that pursuant to procedures
established by DTC (i) upon the issuance of the Global Note, DTC or its
custodian will credit, on its internal system, the principal amount of Notes of
the individual beneficial interests represented by such Global Note to the
respective accounts of persons who have accounts with such depositary and (ii)
ownership of beneficial interests in the Global Note will be shown on, and the
transfer of such ownership will be effected only through, records maintained by
DTC or its nominee (with respect to interests of Participants) and the records
of Participants (with respect to interests of persons other than Participants).
Such accounts initially will be the same accounts as those of the exchanging
holders of Private Notes and ownership of beneficial interests in the Global
Note will be limited to Participants who have accounts with DTC ("Participants")
or persons who hold interests through Participants. Prospective holders of the
Exchange Notes are advised that the laws of some states require that certain
persons take physical delivery in physical form of securities that they own.
Consequently, the ability to transfer Notes evidenced by the Global Note will be
limited to such extent.
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So long as DTC, or its nominee, is the registered owner or holder of the
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Note for all
purposes under the Indenture. No beneficial owner of an interest in such Global
Note will be able to transfer that interest except in accordance with DTC's
procedures, in addition to those provided for under the Indenture with respect
to the Notes.
Payments of the principal of, premium (if any), interest and Liquidated
Damages (if any) on, the Global Note will be made to DTC or its nominee, as the
case may be, as the registered owner thereof. None of the Company, the Trustee
or any Paying Agent will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in the Global Note or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, interest or Liquidated Damages, if any, in respect
of the Global Note, will credit Participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the Global Note as shown on the records of DTC or its nominee. The Company
also expects that payments by Participants to owners of beneficial interests in
the Global Note held through such Participants will be governed by standing
instructions and customary practice, as is now the case with securities held for
the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such Participants.
Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same day funds. If a holder requires physical delivery of a
Certificated Security for any reason, including to sell Notes to persons in
states which require physical delivery of the Notes, or to pledge such
securities, such holder must transfer its interest in the Global Note, in
accordance with the normal procedures of DTC and with the procedures set forth
in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more Participants to whose
account the DTC interests in the Global Note are credited and only in respect of
such portion of the aggregate principal amount of Notes as to which such
Participant or Participants has or have given such direction. However, if there
is an Event of Default under the Indenture, DTC will exchange the Global Note
for Certificated Securities, which it will distribute to its Participants.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among Participants of DTC, it is under
no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or Indirect
Participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Note and a successor depositary is not
appointed by the Company within 90 days, Certificated Securities will be issued
in exchange for the Global Note.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Latham & Watkins, counsel to the Company, the following
discussion describes the material federal income tax consequences expected to
result to holders whose Private Notes are exchanged for Exchange Notes in the
Exchange Offer. Such opinion is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable Treasury regulations,
judicial authority and administrative rulings and practice. There can be no
assurance that the Internal Revenue Service (the "Service") will not take a
contrary view, and no ruling from the Service has been or will be sought with
respect to the Exchange Offer. Legislative, judicial or administrative changes
or interpretations may be forthcoming that could alter or modify the statements
and conclusions set forth herein. Any such changes or interpretations may or may
not be retroactive and could affect the tax consequences to holders. Certain
holders (including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) may be subject to special rules not
discussed below. EACH HOLDER OF PRIVATE NOTES SHOULD CONSULT ITS OWN TAX ADVISOR
AS TO THE PARTICULAR TAX CONSEQUENCES OF EXCHANGING PRIVATE NOTES FOR EXCHANGE
NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN
LAWS.
The exchange of Private Notes for Exchange Notes will be treated as a
"non-event" for federal income tax purposes because the Exchange Notes will not
be considered to differ materially in kind or extent from the Private Notes. As
a result, no material federal income tax consequences will result to holders
exchanging Private Notes for Exchange Notes.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer where such Private Notes were acquired by such
broker-dealer as a result of market making activities or other trading
activities must acknowledge that it will deliver a prospectus in connection with
any resale of such Exchange Notes. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with the resales of Exchange Notes received in exchange for Private Notes where
such Private Notes were acquired as a result of market-making activities or
other trading activities. The Company has agreed that for a period of up to 90
days after the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer that requests such document in the
Letter of Transmittal for use in connection with any such resale.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers or any other persons. Exchange Notes received by
broker-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were received
by it for its own account pursuant to the Exchange Offer and any broker or
dealer that participates in a distribution of such Exchange Notes may be deemed
to be an "underwriter" within the meaning of the Securities Act and any profit
on any such resale of Exchange Notes and any commissions or concessions received
by any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
The Company has agreed to pay all expenses incident to the Company's
performance of, or compliance with, the Registration Rights Agreement and will
indemnify the holders of Private Notes (including any broker-dealers), and
certain parties related to such holders, against certain liabilities, including
liabilities under the Securities Act.
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LEGAL MATTERS
Certain legal matters with respect to the Exchange Notes offered hereby
will be passed upon for the Company by Latham & Watkins, Los Angeles,
California.
EXPERTS
The consolidated financial statements and schedules of Ralphs Grocery
Company (formerly Food 4 Less Supermarkets, Inc.) as of February 2, 1997,
January 28, 1996 and January 29, 1995 and for the 53 week period ended February
2, 1997, the 52 week period ended January 28, 1996, the 31 week period ended
January 29, 1995 and the 52 week period ended June 25, 1994, included in this
Prospectus, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
The consolidated financial statements and schedule of Ralphs Supermarkets,
Inc. for the years ended January 29, 1995 and January 30, 1994, have been
included herein and in the Registration Statement in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act with respect to the Exchange Notes offered hereby.
As permitted by the rules and regulations of the Commission, this Prospectus
omits certain information, exhibits and undertakings contained in the
Registration Statement. For further information with respect to the Company and
the Exchange Notes offered hereby, reference is made to the Registration
Statement, including the exhibits thereto and the financial statements, notes
and schedules filed as a part thereof. The Registration Statement (and the
exhibits and schedules thereto), as well as the periodic reports and other
information filed by the Company with the Commission, may be inspected and
copied at the Public Reference Section of the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the Commission located at Room 1400, 75 Park Place, New York, New
York 10007 and Suite 1400, Northwestern Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661. Copies of such materials may be obtained from the
Public Reference Section of the Commission, Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and its public reference facilities
in New York, New York and Chicago, Illinois at the prescribed rates. The
Commission maintains a Web site at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or document filed as an exhibit to the Registration Statement, each
such statement being qualified in all respects by such reference.
The Company is subject to the periodic reporting and other information
requirements of the Exchange Act. The Company has agreed that, whether or not it
is required to do so by the rules and regulations of the Commission, for so long
as any of the Notes remain outstanding, it will furnish to the holders of the
Notes and, following consummation of the Exchange Offer and to the extent
permitted by applicable law or regulations, file with the Commission (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
were required to file such Forms, including for each a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with respect
to the annual consolidated financial statements only, a report thereon by the
Company's independent auditors and (ii) all reports that would be required to be
filed with the Commission on Form 8-K if the Company were required to file such
reports. The Commission maintains a Web site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
The principal address of the Company is 1100 West Artesia Boulevard,
Compton, California 90220 and the Company's telephone number is (310) 884-9000.
103
<PAGE> 105
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.):
Report of Independent Public Accountants (Arthur Andersen LLP)........................ F-2
Consolidated balance sheets as of January 29, 1995, January 28, 1996, February 2, 1997
and
July 20, 1997 (unaudited)........................................................... F-3
Consolidated statements of operations for the 52 weeks ended June 25, 1994, the 31
weeks ended January 29, 1995, the 52 weeks ended January 28, 1996, the 53 weeks
ended February 2, 1997, the 24 weeks ended July 14, 1996 (unaudited) and the 24
weeks ended July 20, 1997 (unaudited)............................................... F-5
Consolidated statements of cash flows for the 52 weeks ended June 25, 1994, the 31
weeks ended January 29, 1995, the 52 weeks ended January 28, 1996, the 53 weeks
ended February 2, 1997, the 24 weeks ended July 14, 1996 (unaudited) and the 24
weeks ended July 20, 1997 (unaudited)............................................... F-6
Consolidated statements of stockholder's equity (deficit) for the 52 weeks ended June
25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996,
the 53 weeks ended February 2, 1997, the 24 weeks ended July 14, 1996 (unaudited)
and the 24 weeks ended July 20, 1997 (unaudited).................................... F-7
Notes to consolidated financial statements............................................ F-8
RALPHS SUPERMARKETS, INC.:
Independent Auditors' Report (KPMG Peat Marwick LLP).................................. F-35
Consolidated statements of operations for the years ended January 30, 1994 and January
29, 1995............................................................................ F-36
Consolidated statements of cash flows for the years ended January 30, 1994 and January
29, 1995............................................................................ F-37
Consolidated statements of stockholders' equity for the years ended January 30, 1994
and January 29, 1995................................................................ F-38
Notes to consolidated financial statements............................................ F-39
</TABLE>
F-1
<PAGE> 106
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholder of Ralphs Grocery Company:
We have audited the accompanying consolidated balance sheets of Ralphs
Grocery Company (a Delaware corporation) (formerly Food 4 Less Supermarkets,
Inc. -- See Note 1 in the accompanying Notes to Consolidated Financial
Statements) and subsidiaries (the Company) as of January 29, 1995, January 28,
1996 and February 2, 1997 and the related consolidated statements of operations,
stockholder's equity (deficit) and cash flows for the 52 weeks ended June 25,
1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996
and the 53 weeks ended February 2, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ralphs
Grocery Company and subsidiaries as of January 29, 1995, January 28, 1996 and
February 2, 1997 and the results of their operations and their cash flows for
the 52 weeks ended June 25, 1994, the 31 weeks ended January 29, 1995, the 52
weeks ended January 28, 1996 and the 53 weeks ended February 2, 1997 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
March 21, 1997 (except with respect to the
matter discussed in Note 14, as to which the
date is April 17, 1997).
F-2
<PAGE> 107
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 28, FEBRUARY 2, JULY 20,
1995 1996 1997 1997
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents..................... $ 19,560 $ 67,983 $ 67,589 $ 58,777
Trade receivables, less allowances of $1,192,
$1,954, $4,057 and $3,617 at January 29,
1995, January 28, 1996, February 2, 1997
and July 20, 1997, respectively............ 23,377 60,948 46,560 40,872
Notes and other receivables................... 3,985 6,452 531 489
Inventories................................... 224,686 502,669 502,095 491,531
Patronage receivables from suppliers.......... 5,173 4,557 4,433 2,419
Prepaid expenses and other.................... 13,051 34,855 21,925 31,587
----------- ----------- ----------- -----------
Total current assets.................. 289,832 677,464 643,133 625,675
INVESTMENTS IN AND NOTES RECEIVABLE FROM
SUPPLIER COOPERATIVES:
Associated Wholesale Grocers.................. 6,718 7,288 7,020 6,797
Certified Grocers of California and Other..... 5,686 4,926 4,945 4,945
PROPERTY AND EQUIPMENT:
Land.......................................... 23,488 183,125 173,803 173,803
Buildings..................................... 24,172 196,551 188,311 192,310
Leasehold improvements........................ 110,020 251,856 226,159 236,980
Equipment and fixtures........................ 190,016 441,760 401,716 419,666
Construction in progress...................... 8,042 61,296 51,117 62,093
Leased property under capital leases.......... 82,526 189,061 200,199 209,765
Leasehold interests........................... 96,556 114,475 112,398 111,386
----------- ----------- ----------- -----------
534,820 1,438,124 1,353,703 1,406,003
Less: Accumulated depreciation and
amortization............................... 154,382 226,451 301,477 341,828
----------- ----------- ----------- -----------
Net property and equipment.................... 380,438 1,211,673 1,052,226 1,064,175
OTHER ASSETS:
Deferred financing costs, less accumulated
amortization of $20,496, $6,964, $17,615
and $7,690 at January 29, 1995, January 28,
1996, February 2, 1997 and July 20, 1997,
respectively............................... 25,469 94,100 88,889 51,247
Goodwill, less accumulated amortization of
$38,560, $60,407, $99,057 and $115,321 at
January 29, 1995, January 28, 1996,
February 2, 1997 and July 20, 1997,
respectively............................... 263,112 1,173,445 1,310,956 1,294,692
Other, net.................................... 29,440 19,233 24,824 20,365
----------- ----------- ----------- -----------
$ 1,000,695 $ 3,188,129 $ 3,131,993 $ 3,067,896
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 108
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 28, FEBRUARY 2, JULY 20,
1995 1996 1997 1997
----------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable.............................. $ 190,455 $ 354,777 $ 343,704 $ 329,735
Accrued payroll and related liabilities....... 42,007 94,011 106,764 108,185
Accrued interest.............................. 10,730 23,870 31,011 23,000
Other accrued liabilities..................... 65,279 278,904 261,582 224,995
Income taxes payable.......................... 293 596 1,956 1,937
Current portion of self-insurance
liabilities................................ 28,616 21,785 48,251 48,251
Current portion of long-term debt............. 22,263 31,735 4,465 4,767
Current portion of obligations under capital
leases..................................... 4,965 22,261 28,041 28,478
----------- ----------- ----------- -----------
Total current liabilities............. 364,608 827,939 825,774 769,348
SENIOR DEBT, net of current portion............. 320,901 1,226,302 1,263,142 1,312,118
OBLIGATIONS UNDER CAPITAL LEASES................ 40,675 130,784 126,336 128,226
SENIOR SUBORDINATED DEBT........................ 145,000 671,222 671,222 689,747
DEFERRED INCOME TAXES........................... 17,534 17,988 21,074 20,874
SELF-INSURANCE LIABILITIES...................... 44,123 127,200 91,332 89,801
LEASE VALUATION RESERVE......................... -- 25,182 62,389 58,244
OTHER NON-CURRENT LIABILITIES................... 10,051 102,393 106,286 100,356
COMMITMENTS AND CONTINGENCIES...................
STOCKHOLDER'S EQUITY (DEFICIT):
Cumulative convertible preferred stock, $.01
par value, 200,000 shares authorized and
50,000 shares issued at January 29, 1995
(aggregate liquidation value of $67.9
million at January 29, 1995) and no shares
authorized or issued at January 28, 1996,
February 2, 1997 or July 20, 1997.......... 65,136 -- -- --
Common stock, $.01 par value, 5,000,000 shares
authorized: 1,519,632 shares, 1,513,938
shares, 1,513,938 shares and 1,513,938
shares issued at January 29, 1995, January
28, 1996, February 2, 1997 and July 20,
1997, respectively......................... 15 15 15 15
Additional capital............................ 107,650 466,783 466,783 466,933
Notes receivable from stockholders of
parent..................................... (702) (602) (592) (591)
Retained deficit.............................. (112,225) (407,077) (501,768) (567,175)
----------- ----------- ----------- -----------
59,874 59,119 (35,562) (100,818)
Treasury stock: 12,345 shares, no shares, no
shares and no shares of common stock at
January 29, 1995, January 28, 1996,
February 2, 1997 or July 20, 1997,
respectively............................... (2,071) -- -- --
----------- ----------- ----------- -----------
Total stockholder's equity
(deficit)........................... 57,803 59,119 (35,562) (100,818)
----------- ----------- ----------- -----------
$ 1,000,695 $ 3,188,129 $ 3,131,993 $3,067,896
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE> 109
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
53 WEEKS
52 WEEKS 31 WEEKS 52 WEEKS ENDED 24 WEEKS 24 WEEKS
ENDED ENDED ENDED FEBRUARY ENDED ENDED
JUNE 25, JANUARY 29, JANUARY 28, 2, JULY 14, JULY 20,
1994 1995 1996 1997 1996 1997
---------- ----------- ----------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
SALES......................................... $2,585,160 $ 1,556,522 $ 4,335,109 $5,516,259 $2,474,576 $2,547,948
COST OF SALES (including purchases from
related parties of $175,929, $104,407,
$141,432, $95,341, $47,965 and $32,505 for
the 52 weeks ended June 25, 1994, the 31
weeks ended January 29, 1995, the 52 weeks
ended January 28, 1996, the 53 weeks ended
February 2, 1997, the 24 weeks ended July
14, 1996 and the 24 weeks ended July 20,
1997, respectively)......................... 2,126,302 1,296,810 3,527,120 4,380,241 1,984,107 2,023,869
---------- ----------- ----------- ---------- ---------- ----------
GROSS PROFIT.................................. 458,858 259,712 807,989 1,136,018 490,469 524,079
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.................................... 378,376 219,696 744,449 933,414 415,912 415,066
AMORTIZATION OF GOODWILL...................... 7,691 4,615 21,847 38,650 16,185 16,264
LOSS (GAIN) ON DISPOSAL OF ASSETS............. 37 (455) (547) 9,317 -- --
RESTRUCTURING CHARGE.......................... -- 5,134 123,083 -- -- --
---------- ----------- ----------- ---------- ---------- ----------
OPERATING INCOME (LOSS)....................... 72,754 30,722 (80,843) 154,637 58,372 92,749
INTEREST EXPENSE:
Interest expense, excluding amortization of
deferred financing costs.................. 62,778 38,809 170,581 237,761 106,824 106,683
Amortization of deferred financing costs.... 5,472 3,413 8,193 10,667 5,068 3,490
---------- ----------- ----------- ---------- ---------- ----------
68,250 42,222 178,774 248,428 111,892 110,173
PROVISION FOR EARTHQUAKE LOSSES............... 4,504 -- -- -- -- --
---------- ----------- ----------- ---------- ---------- ----------
LOSS BEFORE PROVISION FOR INCOME TAXES AND
EXTRAORDINARY CHARGES....................... -- (11,500) (259,617) (93,791) (53,520) (17,424)
PROVISION FOR INCOME TAXES.................... 2,700 -- 500 -- -- --
---------- ----------- ----------- ---------- ---------- ----------
LOSS BEFORE EXTRAORDINARY CHARGES............. (2,700) (11,500) (260,117) (93,791) (53,520) (17,424)
EXTRAORDINARY CHARGES......................... -- -- 23,128 -- -- 47,983
---------- ----------- ----------- ---------- ---------- ----------
NET LOSS...................................... $ (2,700) $ (11,500) $ (283,245) $ (93,791) $ (53,520) $ (65,407)
========== =========== =========== ========== ========== ==========
PREFERRED STOCK ACCRETION..................... 8,767 6,139 3,960 -- -- --
LOSS APPLICABLE TO COMMON SHARES.............. $ (11,467) $ (17,639) $ (287,205) $ (93,791) $ (53,520) $ (65,407)
========== =========== =========== ========== ========== ==========
LOSS PER COMMON SHARE:
Loss before extraordinary charges........... $ (7.63) $ (11.72) $ (174.72) $ (61.95) $ (35.35) $ (11.51)
Extraordinary charges....................... -- -- (15.30) -- -- (31.69)
---------- ----------- ----------- ---------- ---------- ----------
Net loss.................................... $ (7.63) $ (11.72) $ (190.02) $ (61.95) $ (35.35) $ (43.20)
========== =========== =========== ========== ========== ==========
Average Number of Common Shares
Outstanding............................... 1,503,828 1,504,425 1,511,453 1,513,938 1,513,938 1,513,938
========== =========== =========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 110
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
52 WEEKS 31 WEEKS 52 WEEKS 53 WEEKS 24 WEEKS 24 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 25, JANUARY 29, JANUARY 28, FEBRUARY 2, JULY 14, JULY 20,
1994 1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Cash received from customers................. $ 2,585,160 $ 1,556,522 $ 4,335,109 $ 5,516,259 $2,474,576 $2,547,948
Cash paid to suppliers and employees......... (2,441,353) (1,507,523) (4,197,875) (5,160,532) (2,298,404) (2,419,924)
Interest paid................................ (56,762) (33,553) (157,441) (230,620) (106,490) (114,694)
Income taxes refunded (paid)................. (247) 1,087 256 8,344 -- (19)
Interest received............................ 903 867 2,562 9,531 1,031 214
Other, net................................... 121 221 547 (9,317) (116) (8,861)
----------- ----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES................................... 87,822 17,621 (16,842) 133,665 70,597 4,664
CASH USED BY INVESTING ACTIVITIES:
Proceeds from sale of property and
equipment.................................. 11,953 7,199 21,373 29,503 20,537 11,685
Payment for purchase of property and
equipment.................................. (57,471) (49,023) (122,355) (123,622) (55,840) (68,203)
Payment of acquisition costs, net of cash
acquired................................... (11,050) -- (303,301) (12,705) (10,172) --
Other, net................................... 813 (797) (1,120) (4,311) (3,191) (6,421)
----------- ----------- ----------- ----------- ----------- -----------
NET CASH USED BY INVESTING ACTIVITIES......... (55,755) (42,621) (405,403) (111,135) (48,666) (62,939)
CASH PROVIDED (USED) BY FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt..... 28 -- 1,050,000 98,946 94,625 717,798
Increase (decrease) in revolving loan, net... (4,900) 27,300 100,100 (28,000) (47,700) 37,200
Payments of long-term debt................... (14,224) (13,394) (576,727) (61,589) (56,791) (687,409)
Proceeds from issuance of common stock....... -- 269 -- -- -- --
Purchase of treasury stock................... (1,192) (57) -- -- -- --
Payments of capital lease obligations........ (3,693) (2,278) (15,314) (25,935) (12,551) (13,307)
Capital contribution from parent............. -- -- 12,108 -- -- 150
Dividends.................................... -- -- (7,647) -- -- --
Deferred financing costs and other........... (179) (276) (91,852) (6,346) (5,980) (4,969)
----------- ----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES................................... (24,160) 11,564 470,668 (22,924) (28,397) 49,463
----------- ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................. 7,907 (13,436) 48,423 (394) (6,466) (8,812)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD....................................... 25,089 32,996 19,560 67,983 67,983 67,589
----------- ----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.... $ 32,996 $ 19,560 $ 67,983 $ 67,589 $ 61,517 $ 58,777
=========== =========== =========== =========== =========== ===========
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED (USED) BY OPERATING ACTIVITIES:
Net loss..................................... $ (2,700) $ (11,500) $ (283,245) $ (93,791) $ (53,520) $ (65,407)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization................ 62,555 40,036 133,522 180,344 79,926 80,288
Restructuring charge......................... -- 5,134 123,083 -- -- --
Non-cash extraordinary charges............... -- -- 23,128 -- -- 39,122
Amortization of debt discount................ -- -- -- 214 -- 214
Loss (gain) on sale of assets................ 65 (455) (547) 9,317 116 --
Change in assets and liabilities, net of
effects
from acquisition of businesses:
Accounts and notes receivable.............. (3,220) (3,398) (74) 14,999 1,410 7,744
Inventories................................ (17,125) (11,794) 762 574 36,497 10,564
Prepaid expenses and other................. (5,717) (11,239) (18,291) 2,721 8,731 (13,074)
Accounts payable and accrued liabilities... 55,301 18,715 3,327 24,243 (6,990) (53,037)
Self-insurance liabilities................. (3,790) (8,965) 737 (9,402) 4,427 (1,531)
Deferred income taxes...................... 2,506 2,794 454 3,086 -- (200)
Income taxes payable....................... (53) (1,707) 302 1,360 -- (19)
----------- ----------- ----------- ----------- ----------- -----------
Total adjustments............................ 90,522 29,121 266,403 227,456 124,117 70,071
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES................................... $ 87,822 $ 17,621 $ (16,842) $ 133,665 $ 70,597 $ 4,664
=========== =========== =========== =========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Fixed assets acquired through the issuance of
capital leases............................. $ 2,575 $ 4,304 $ 24,008 $ 28,485 $ 20,683 $ 20,527
=========== =========== =========== =========== =========== ===========
Reduction of goodwill and deferred income
taxes...................................... $ 9,896 $ -- $ -- $ -- $ -- $ --
=========== =========== =========== =========== =========== ===========
Acquisition of stores in fiscal year 1994 and
RSI
in fiscal year 1995
Fair value of assets acquired, including
goodwill................................. $ 11,241 $ -- $ 2,098,220 $ -- $ -- $ --
Net cash paid in acquisition............... (11,050) -- (303,301) $ -- $ -- $ --
Capital contribution from parent........... -- -- (262,000) $ -- $ -- $ --
----------- ----------- ----------- ----------- ----------- -----------
Liabilities assumed........................ $ 191 $ -- $ 1,532,919 $ -- $ -- $ --
=========== =========== =========== =========== =========== ===========
Accretion of preferred stock................. $ 8,767 $ 6,139 $ 3,960 $ -- $ -- $ --
=========== =========== =========== =========== =========== ===========
Retirement of Capital Leases................. $ -- $ -- $ -- $ -- $ -- $ 4,893
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 111
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK TREASURY STOCK
------------------ ------------------ -----------------
NUMBER NUMBER NUMBER
OF OF OF STOCKHOLDER'S ADDITIONAL RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT NOTES CAPITAL DEFICIT
------- -------- --------- ------ ------- ------- -------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT JUNE 26,
1993..................... 50,000 $ 50,230 1,519,632 $ 15 (13,249) $(1,199) $ (714) $107,650 $ (83,119)
Net loss................. -- -- -- -- -- -- -- -- (2,700)
Purchase of Treasury
Stock.................. -- -- -- -- (3,483) (1,270) 78 -- --
Payments of Stockholders'
Notes.................. -- -- -- -- -- -- 50 -- --
Accretion of Preferred
Stock.................. -- 8,767 -- -- -- -- -- -- (8,767)
------- -------- --------- --- ------- ------- ----- --------- ---------
BALANCES AT JUNE 25,
1994..................... 50,000 58,997 1,519,632 15 (16,732) (2,469) (586) 107,650 (94,586)
Net loss................. -- -- -- -- -- -- -- -- (11,500)
Issuance of Treasury
Stock.................. -- -- -- -- 5,504 460 (191) -- --
Purchase of Treasury
Stock.................. -- -- -- -- (1,117) (62) 5 -- --
Payments of Stockholders'
Notes.................. -- -- -- -- -- -- 70 -- --
Accretion of Preferred
Stock.................. -- 6,139 -- -- -- -- -- -- (6,139)
------- -------- --------- --- ------- ------- ----- --------- ---------
BALANCES AT JANUARY 29,
1995..................... 50,000 65,136 1,519,632 15 (12,345) (2,071) (702) 107,650 (112,225)
Net Loss................. -- -- -- -- -- -- -- -- (283,245)
Payments of Stockholders'
Notes.................. -- -- -- -- -- -- 100 -- --
Accretion of Preferred
Stock.................. -- 3,960 -- -- -- -- -- -- (3,960)
Cancellation of Preferred
Stock.................. (50,000) (69,096) -- -- -- -- -- 69,096 --
Cancellation of F4LSI
Common Stock held as
Treasury Stock......... -- -- (5,694) -- 5,694 955 -- (955) --
Cancellation of F4L
Holdings Common Stock
held as Treasury
Stock.................. -- -- -- -- 6,651 1,116 -- (1,116) --
Dividend paid to F4L
Holdings, Inc.......... -- -- -- -- -- -- -- -- (7,647)
Capital Contribution by
F4L Holdings, Inc...... -- -- -- -- -- -- -- 282,108 --
Issuance of Stock
Options................ -- -- -- -- -- -- -- 10,000 --
------- -------- --------- --- ------- ------- ----- --------- ---------
BALANCES AT JANUARY 28,
1996..................... -- -- 1,513,938 15 -- -- (602) 466,783 (407,077)
Net loss................. -- -- -- -- -- -- -- -- (93,791)
Payments of Stockholders'
Notes.................. -- -- -- -- -- -- 10 -- --
Dividend paid to F4L
Holdings, Inc. ........ -- -- -- -- -- -- -- -- (900)
------- -------- --------- --- ------- ------- ----- --------- ---------
BALANCES AT FEBRUARY 2,
1997..................... -- -- 1,513,938 15 -- -- (592) 466,783 (501,768)
======= ======== ========= === ======= ======= ===== ========= =========
Net loss (unaudited)..... -- -- -- -- -- -- -- -- (65,407)
Payments on Stockholder's
Notes.................. -- -- -- -- -- -- 1 -- --
Capital contribution by
F4L Holdings, Inc...... -- -- -- -- -- -- -- 150 --
------- -------- --------- --- ------- ------- ----- --------- ---------
BALANCES AT JULY 20, 1997
(UNAUDITED).............. -- $ -- 1,513,938 $ 15 -- $ -- $ (591) $466,933 $(567,175)
======= ======== ========= === ======= ======= ===== ========= =========
<CAPTION>
STOCK-
HOLDER'S
EQUITY
(DEFICIT)
---------
<S> <C>
BALANCES AT JUNE 26,
1993..................... $ 72,863
Net loss................. (2,700)
Purchase of Treasury
Stock.................. (1,192)
Payments of Stockholders'
Notes.................. 50
Accretion of Preferred
Stock.................. --
---------
BALANCES AT JUNE 25,
1994..................... 69,021
Net loss................. (11,500)
Issuance of Treasury
Stock.................. 269
Purchase of Treasury
Stock.................. (57)
Payments of Stockholders'
Notes.................. 70
Accretion of Preferred
Stock.................. --
---------
BALANCES AT JANUARY 29,
1995..................... 57,803
Net Loss................. (283,245)
Payments of Stockholders'
Notes.................. 100
Accretion of Preferred
Stock.................. --
Cancellation of Preferred
Stock.................. --
Cancellation of F4LSI
Common Stock held as
Treasury Stock......... --
Cancellation of F4L
Holdings Common Stock
held as Treasury
Stock.................. --
Dividend paid to F4L
Holdings, Inc.......... (7,647)
Capital Contribution by
F4L Holdings, Inc...... 282,108
Issuance of Stock
Options................ 10,000
---------
BALANCES AT JANUARY 28,
1996..................... 59,119
Net loss................. (93,791)
Payments of Stockholders'
Notes.................. 10
Dividend paid to F4L
Holdings, Inc. ........ (900)
---------
BALANCES AT FEBRUARY 2,
1997..................... (35,562)
=========
Net loss (unaudited)..... (65,407)
Payments on Stockholder's
Notes.................. 1
Capital contribution by
F4L Holdings, Inc...... 150
---------
BALANCES AT JULY 20, 1997
(UNAUDITED).............. $(100,818)
=========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE> 112
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND ACQUISITIONS
Ralphs Grocery Company (the "Company"), formerly known as Food 4 Less
Supermarkets, Inc. ("F4L Supermarkets"), a wholly-owned subsidiary of Food 4
Less Holdings, Inc. ("Holdings"), is a multiple format supermarket operator that
tailors its retail strategy to the particular needs of the individual
communities it serves. The Company operates in three geographic areas: Southern
California, Northern California and certain areas of the Midwest. The Company
has four first-tier subsidiaries: Cala Co. ("Cala"), Falley's, Inc.
("Falley's"), Food 4 Less of Southern California, Inc. ("F4L-SoCal"), formerly
known as Breco Holding Company, Inc. ("BHC") and Crawford Stores, Inc. Cala
Foods, Inc. ("Cala Foods") and Bell Markets, Inc. ("Bell") are subsidiaries of
Cala, and Alpha Beta Company ("Alpha Beta") is a subsidiary of F4L-SoCal.
Ralphs Merger
On June 14, 1995, F4L Supermarkets, Food 4 Less Holdings, Inc., a
California corporation ("Old Holdings"), and Food 4 Less, Inc. ("FFL") (which
owned a majority of the stock of Old Holdings) completed a definitive agreement
and plan of merger (the "Merger Agreement") with Ralphs Supermarkets, Inc.
("RSI") and the stockholders of RSI. Pursuant to the terms of the Merger
Agreement, as amended, F4L Supermarkets was merged with and into RSI (the "RSI
Merger"). Immediately following the RSI Merger, pre-Merger Ralphs Grocery
Company ("RGC"), which was a wholly-owned subsidiary of RSI, merged with and
into RSI (the "RGC Merger," and together with the RSI Merger, the "Merger"), and
RSI changed its name to Ralphs Grocery Company. Prior to the Merger, FFL merged
with and into Old Holdings, which was the surviving corporation (the "FFL
Merger"). Immediately following the FFL Merger, Old Holdings changed its
jurisdiction of incorporation by merging into a newly-formed, wholly-owned
subsidiary, incorporated in Delaware (the "Reincorporation Merger"). As a result
of the Merger, the FFL Merger and the Reincorporation Merger, the Company became
a wholly-owned subsidiary of Holdings.
The purchase price for the outstanding capital stock of RSI was $538.1
million; the Company paid $288.1 million in cash, Holdings paid $100.0 million
in cash, and Holdings issued $131.5 million of its Seller Debentures and $18.5
million of its Discount Debentures as consideration for the purchase. The
Company also paid fees associated with the acquisition of $47.8 million
(including a prepayment premium on outstanding mortgage debt of RGC of $19.7
million), which was offset by RGC's cash on hand at the Merger date of $32.6
million.
The merger has been accounted for in accordance with the purchase method of
accounting and, accordingly, the net assets acquired have been included in the
Company's consolidated balance sheets based upon their estimated fair values as
of the effective date. The purchase price in excess of the fair market value of
RSI's net assets was recorded as goodwill and is being amortized over a 40-year
period. The Company finalized the allocation of the RSI's purchase price in the
second quarter of fiscal 1996. The Company's consolidated statements of
operations include the revenues and expenses of RSI after the effective date of
the Merger.
The proceeds from the 1995 Credit Facility, the 1995 10.45% Senior Notes
and the 1995 11% Senior Subordinated Notes (all as defined below) provided the
sources of financing required to pay the Company's portion of the purchase price
and to repay outstanding bank debt of F4L Supermarkets and RGC of $176.5 million
and $228.9 million, respectively, and to repay existing mortgage debt of $174.0
million of RGC. In addition, the Company exchanged certain of its newly issued
senior notes and senior subordinated notes for outstanding indebtedness of RGC
and F4L Supermarkets. Proceeds from the 1995 Credit Facility also were used to
pay certain exchange and consent solicitation fees associated with the above
transactions, and to pay accrued interest on all exchanged debt securities in
the amount of $27.8 million, to pay $17.8 million to the holders of the RGC
Equity Appreciation Rights and to loan $5.0 million to an affiliate for the
benefit of such
F-8
<PAGE> 113
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
holders, to pay approximately $93.3 million of fees and expenses of the Merger
and the related financing and to pay $3.5 million to purchase shares of common
stock of Old Holdings from certain dissenting shareholders. In addition,
Holdings issued $22.5 million of its Discount Debentures in consideration for
certain Merger-related services.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. The results of operations of
pre-Merger Ralphs Grocery Company and all previous acquisitions have been
excluded from the consolidated financial statements for periods prior to their
respective acquisition dates. All intercompany transactions have been eliminated
in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Financial Statements
The consolidated balance sheet of the Company as of April 27, 1997 and the
consolidated statements of operations and cash flows for the 12 weeks ended
April 21, 1996 and April 27, 1997 are unaudited, but include all adjustments
(consisting of only normal recurring accruals) which the Company considers
necessary for a fair presentation of its consolidated financial position,
results of operations and cash flows for these periods. These interim financial
statements do not include all disclosures required by generally accepted
accounting principles, and, therefore, should be read in conjunction with the
Company's financial statements and notes thereto included herein. Results of
operations for interim periods are not necessarily indicative of the results for
a full fiscal year.
Fiscal Year
The Company operates within a conventional 52 or 53-week accounting fiscal
year. F4L Supermarkets, together with its subsidiaries, changed its fiscal
year-end from the last Saturday in June to the Sunday closest to January 31,
resulting in a 31-week transition period ended January 29, 1995. As a result of
the fiscal year-end change, the 52-week period ended June 25, 1994 is referred
to as fiscal 1994, the 31-week period ended January 29, 1995 is referred to as
the 1995 transition period, the 52-week period ended January 28, 1996 is
referred to as fiscal 1995 and the 53-week period ended February 2, 1997 is
referred to as fiscal 1996. Information presented below concerning subsequent
fiscal years starts with fiscal year 1997, which will cover the 52 weeks ended
February 1, 1998 and will proceed sequentially forward.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Inventories
Inventories, which consist of grocery products, are stated at the lower of
cost or market. Cost has been principally determined using the last-in,
first-out ("LIFO") method. If inventories had been valued using the
F-9
<PAGE> 114
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
first-in, first-out ("FIFO") method, inventories would have been higher by $16.5
million, $18.7 million, $24.3 million and $26.1 million (unaudited) at January
29, 1995, January 28, 1996, February 2, 1997 and July 20, 1997, respectively,
and gross profit and operating income would have been greater by $0.7 million,
$2.7 million, $2.2 million $5.6 million, $2.5 million (unaudited) and $1.7
million (unaudited) for fiscal year 1994, the 1995 transition period, fiscal
year 1995, fiscal year 1996, the 24 weeks ended July 14, 1996 and the 24 weeks
ended July 20, 1997, respectively.
Pre-opening Costs
Certain costs associated with opening new stores are deferred and amortized
over one year following the opening of each new store.
Closed Store Reserves
The Company provides a reserve for the net book value of its property and
equipment, net of salvage value, and the present value of the remaining lease
obligation, net of sublease income, at the time that management approves a plan
to close a store.
Investments in Supplier Cooperatives
The investment in Certified is accounted for on the cost method. There are
certain restrictions on the sale of this investment.
Property and Equipment
Property and equipment are stated at cost. Depreciation expense includes
amortization of capital lease assets. Depreciation and amortization is provided
using the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements.......................... 5-40 years
Equipment and fixtures.............................. 3-10 years
Property under capital leases and leasehold
interests......................................... 3-40 years (lease term)
</TABLE>
Deferred Financing Costs
Costs incurred in connection with the issuance of debt are amortized over
the term of the related debt using the effective interest method.
Long-Lived Assets
Goodwill, representing the excess of the purchase price over the fair value
of the net assets of businesses acquired, is amortized on a straight-line basis
over 40 years beginning at the date of acquisition.
In the first quarter of fiscal 1996, the Company adopted Statement of
Financial Accounting Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"). The
adoption of SFAS 121 had no impact on the Company's financial position or on its
results of operations.
In accordance with SFAS No. 121, long-lived assets and certain identifiable
intangibles held and used by the Company are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. For purposes of evaluating the recoverability of
goodwill
F-10
<PAGE> 115
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and other long-lived assets, the recoverability test is performed using
undiscounted net cash flows for groupings of stores consistent with the past
acquisitions that gave rise to the goodwill.
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
109 is an asset and liability approach that requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been recognized in the Company's financial statements or tax returns.
In estimating future tax consequences, SFAS 109 generally considers all expected
future events other than proposed changes in the tax law or rates.
Notes Receivable from Stockholders of Parent
Notes receivable from stockholders of parent represent loans to employees
of the Company for purchases of Holdings' common stock. The notes are due over
various periods, bear interest at the prime rate, and are secured by each
stockholder's shares of Holdings' common stock.
Self-Insurance
The Company is self-insured for its workers' compensation, general
liability and vehicle accident claims. The Company establishes reserves based on
an independent actuary's valuation of open claims reported and an estimate of
claims incurred but not yet filed.
Discounts and Promotional Allowances
Promotional allowances and vendor discounts are recorded as a reduction of
cost of sales in the accompanying consolidated statements of operations.
Allowance proceeds received in advance are deferred and recognized in the period
earned.
Provision for Earthquake Losses
On January 17, 1994, Southern California was struck by a major earthquake
which resulted in the temporary closure of 31 of the Company's stores. The
closures were caused primarily by loss of electricity, water, inventory or
structural damage. All but one of the closed stores reopened within a week of
the earthquake. The final closed store reopened on March 24, 1994. The Company
is insured against earthquake losses (including business interruption), subject
to certain deductibles. The pre-tax loss, net of insurance recoveries, was
approximately $4.5 million.
Extraordinary Items
For the 52 weeks ended January 28, 1996, the Company recorded an
extraordinary charge relating to the refinancing of F4L Supermarkets' Old Credit
Facility, 10.45% Senior Notes due 2000 (the "Old F4L Senior Notes"), 13.75%
Senior Subordinated Notes due 2001 (the "Old F4L Senior Subordinated Notes"),
the repayment of Holdings' 15.25% Senior Discount Notes due 2004 in connection
with the Merger and the write-off of their related debt issuance costs.
Loss Per Common Share
Loss per common share is computed based on the weighted average number of
shares outstanding during the applicable period. Fully diluted loss per share
has been omitted as it is anti-dilutive for all periods presented.
F-11
<PAGE> 116
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Derivative Financial Instruments
The Company utilizes an interest rate collar agreement to set interest rate
limits on its Term Loans to satisfy the interest rate protection requirements
under its Credit Facility. Favorable or unfavorable movements of interest rates
outside of the interest rate limits are recorded as adjustments to interest
expense in the period in which the unfavorable movement occurs.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense for fiscal
1996, fiscal 1995, the 31 weeks ended January 19, 1995 and fiscal 1994 was $63.5
million, $54.8 million, $17.7 million and $30.4 million, respectively.
Reclassifications
Certain prior period amounts in the consolidated financial statements have
been reclassified to conform to the fiscal year 1997 presentation.
(3) PREFERRED STOCK
On December 31, 1992, the Company issued 50,000 shares of $.01 par value
Series A cumulative convertible preferred stock (the "Preferred Stock") with a
liquidation value of $1,000 per share and 121,118 shares of its $.01 par value
common stock (the "Common Stock") to its parent company, Holdings, in exchange
for gross proceeds of $50.0 million. The Preferred Stock had a stated dividend
rate of $152.50 per share, per annum. In order to finance the purchase of the
Preferred Stock and Common Stock from the Company, Holdings issued $103.6
million aggregate principal amount of 15.25% Senior Discount Notes due 2004 (the
"Holdings Notes") and 121,118 Common Stock Purchase Warrants (the "Warrants")
for gross proceeds of $50.0 million.
In connection with the Merger, the Preferred Stock was cancelled. The
accreted amount of the Preferred Stock at the date of the Merger was contributed
to the Company's capital and is reflected in the Consolidated Statement of
Stockholder's Equity (Deficit) as a component of additional paid-in capital.
Also, at the time of the Merger, Holdings repaid its borrowings under the
Holdings Notes.
F-12
<PAGE> 117
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) SENIOR DEBT AND SENIOR SUBORDINATED DEBT
The Company's senior debt is summarized as follows (in thousands):
<TABLE>
<CAPTION>
AS OF
-------------------------------------------
JANUARY 29, JANUARY 28, FEBRUARY 2,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Term Loans.............................................. $ -- $ 590,426 $ 541,432
Old Term Loan........................................... 125,732 -- --
10.45% Senior Notes, principal due 2004 with interest
payable semi-annually in arrears...................... -- 520,326 520,326
10.45% Senior Notes, principal due 2004 with interest
payable semi-annually in arrears, net of unamortized
debt discount of $5,161 at February 2, 1997, 11.5%
yield to maturity..................................... -- -- 94,839
10.45% Senior Notes, principal due 2000 with interest
payable semi-annually in arrears...................... 175,000 4,674 4,674
Revolving Facility...................................... -- 127,400 99,400
Old Revolving Loan...................................... 27,300 -- --
10.0% secured promissory note, collateralized by the
stock of Bell, due June 1996, interest payable
quarterly............................................. 8,000 8,000 --
Other senior debt....................................... 7,132 7,211 6,936
--------- ----------- -----------
343,164 1,258,037 1,267,607
Less--current portion................................... 22,263 31,735 4,465
--------- ----------- -----------
$ 320,901 $ 1,226,302 $ 1,263,142
========= =========== ===========
</TABLE>
Senior Debt
As part of the Merger financing, the Company entered into a bank credit
agreement (the "Credit Facility") comprised of a $600.0 million term loan
facility (the "Term Loans") and a revolving credit facility of $325.0 million
(the "Revolving Facility") under which working capital loans may be made and
commercial or standby letters of credit in the maximum aggregate amount of up to
$150.0 million may be issued. The Credit Facility is collateralized by
inventory, receivables, certain fixed assets, deposit accounts, collection
proceeds and certain intangibles.
At February 2, 1997, $541.4 million was outstanding under the Term Loans,
$99.4 million was outstanding under the Revolving Facility, and $89.1 million of
standby letters of credit had been issued on behalf of the Company. A commitment
fee of one-half of one percent per annum is charged on the average daily unused
portion of the Revolving Facility; such commitment fees are due quarterly in
arrears. At February 2, 1997, the weighted average interest rate on the Term
Loans was 8.99 percent and the interest rate on the Revolving Facility was 8.68
percent.
The Company has entered into an interest rate collar agreement with the
Credit Facility Administrative Agent that effectively sets interest rate limits
on the Company's term loans. The notational principal amount at February 2, 1997
and January 28, 1996 was $325 million. The agreement, which was entered into on
October 11, 1995 and expires on October 21, 1997, limits the interest rate
fluctuation of the 3-month Adjusted Eurodollar Rate (as defined) to a range
between 4.5 percent and 8.0 percent. The agreement requires quarterly cash
settlement for interest rate fluctuations outside of the limits. The agreement
satisfies the interest rate protection requirements under the Credit Facility.
As of February 2, 1997 and January 28, 1996, the 3-month Adjusted Eurodollar
Rate was 5.56 percent and 5.50 percent, respectively. No adjustments to interest
expense were recorded during fiscal year 1996 or 1995 as a result of this
agreement.
F-13
<PAGE> 118
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In November 1996, the Company amended the Term Loans to pay down $125.0
million on one of the original tranches (Tranche A) and initiated new tranches,
Tranche E, Tranche F, and Tranche G, in the amounts of $75.0 million, $25.0
million and $25.0 million, respectively. The amortization of the new tranches
mirrors the maturity of the initial Tranche B, initial Tranche C and initial
Tranche D.
Quarterly principal installments on the Term Loans continue to December
2003, with amounts payable in each year as follows: $4.3 million in fiscal 1997,
$4.3 million in fiscal 1998, $29.0 million in fiscal 1999, $66.4 million in
fiscal 2000, $118.2 million in fiscal 2001 and $319.2 million thereafter. The
principal installments can be accelerated if the Company receives proceeds on
the sale of certain of its assets in the future. To the extent that borrowings
under the Revolving Facility are not paid earlier, they are due in December
2003. The common stock of the Company and certain of its direct and indirect
subsidiaries has been pledged as security under the Credit Facility.
The Company issued $350.0 million of 10.45% Senior Notes due 2004 (the
"1995 10.45% Senior Notes") and exchanged $170.3 million principal amount of
1995 10.45% Senior Notes for an equal amount of the 10.45% F4L Senior Notes due
2000 (the "Old F4L Senior Notes") (together with the 1995 10.45% Senior Notes,
the "Senior Notes"), leaving an outstanding balance of $4.7 million of the Old
F4L Senior Notes. The Old F4L Senior Notes are due in two equal sinking fund
payments on April 15, 1999 and 2000. The Senior Notes are senior unsecured
obligations of the Company and rank "pari passu" in right of payment with other
senior unsecured indebtedness of the Company. However, the Senior Notes are
effectively subordinated to all secured indebtedness of the Company and its
subsidiaries, including indebtedness under the Credit Facility. Interest on the
1995 10.45% Senior Notes is payable semiannually in arrears on each June 15 and
December 15. Interest on the Old F4L Senior Notes is payable semiannually in
arrears on each April 15 and October 15.
In June 1996, the Company issued $100.0 million aggregate principal amount
of 10.45% Senior Notes due 2004 (the "1996 10.45% Senior Notes"). The terms of
the 1996 10.45% Senior Notes are substantially identical to those of the
Company's 1995 10.45% Senior Notes, which were issued in a registered offering
in June 1995 and of which $520.3 million aggregate principal amount is
outstanding. The 1996 10.45% Senior Notes were issued with original issue
discount resulting in gross proceeds to the Company of $94.6 million. In July
1996, the Company initiated an offer to exchange (the "Exchange Offer") $1,000
principal amount of its 1996 10.45% Senior Notes, which exchange has been
registered under the Securities Act of 1933, as amended, for each $1,000
principal amount of its 1996 10.45% Senior Notes. The Exchange Offer was
completed in August 1996.
The $94.6 million of gross proceeds from the 1996 10.45% Senior Notes was
used to (i) repay $22.7 million of Term Loans, which was due within the
following twelve months, (ii) repay $21.7 million of additional Term Loans, pro
rata over the term thereof, (iii) repay $47.6 million in borrowings under the
Revolving Facility (without any reduction in amounts available for future
borrowing thereunder) and (iv) pay fees and expenses related to the 1996 10.45%
Senior Notes of approximately $2.6 million.
The 1995 10.45% Senior Notes and the 1996 10.45% Senior Notes (the "New
Senior Notes") may be redeemed, at the option of the Company, in whole at any
time or in part from time to time, beginning in fiscal 2000, at a redemption
price of 105.2 percent. The redemption price declines ratably to 100 percent in
fiscal 2003. In addition, on or prior to June 15, 1998, the Company may, at its
option, use the net cash proceeds of one or more public equity offerings to
redeem up to an aggregate of 35 percent of the principal amount of the New
Senior Notes originally issued, at a redemption price equal to 110.4 percent,
108.9 percent, and 107.5 percent of the principal amount thereof if redeemed
during the 12 months commencing on June 15, 1995, June 15, 1996, and June 15,
1997, respectively, in each case plus accrued and unpaid interest, if any, to
F-14
<PAGE> 119
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the redemption date. The Old F4L Senior Notes may be redeemed beginning in
fiscal year 1996 at 104.5 percent, declining ratably to 100 percent in fiscal
year 1999.
Scheduled maturities of principal of senior debt at February 2, 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------------------
<S> <C>
1997............................................. $ 4,465
1998............................................. 4,571
1999............................................. 30,571
2000............................................. 71,292
2001............................................. 118,401
Later years...................................... 1,038,307
----------
$1,267,607
==========
</TABLE>
The Company's senior subordinated debt is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
AS OF
----------------------------------------------
JANUARY 29, JANUARY 28, FEBRUARY 2,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
11.00% Senior Subordinated Notes
principal due 2005 with interest
payable semi-annually in arrears....... $ -- $524,005 $524,005
13.75% Senior Subordinated Notes
principal due 2005 with interest
payable semi-annually in arrears....... -- 140,184 140,184
13.75% Senior Subordinated Notes
principal due 2001 with interest
payable semi-annually in arrears....... 145,000 4,816 4,816
Other Senior Subordinated debt........... -- 2,217 2,217
-------- -------- --------
$145,000 $671,222 $671,222
======== ======== ========
</TABLE>
Senior Subordinated Debt
Concurrent with the Merger, the Company issued $100.0 million of 11% Senior
Subordinated Notes due 2005 (the "1995 11% Senior Subordinated Notes") and (i)
exchanged $142.2 million principal amount of the RGC 9% Senior Subordinated
Notes due 2003 (the "Old RGC 9% Notes") and $281.8 million principal amount of
the RGC 10.25% Senior Subordinated Notes due 2002 (the "Old RGC 10.25% Notes,"
and together with the Old RGC 9% Notes, the "Old RGC Notes") for an equal amount
of 1995 11% Senior Subordinated Notes, (ii) purchased $7.5 million principal
amount of Old RGC 9% Notes and $15.2 million principal amount of Old RGC 10.25%
Notes in conjunction with the offers, and (iii) subsequently purchased $0.1
million principal amount of Old RGC 9% Notes and $1.0 million principal amount
of Old RGC 10.25% Notes subject to the change of control provision, leaving an
outstanding balance of $0.1 million on the Old RGC 9% Notes and an outstanding
balance of $2.1 million on the Old RGC 10.25% Notes. The 1995 11% Senior
Subordinated Notes are senior subordinated, unsecured obligations of the Company
and are subordinated in right of payment to all senior indebtedness, including
the Company's obligations under the Credit Facility and the New Senior Notes and
the Old F4L Senior Notes. Interest on the New RGC Notes is payable semiannually
in arrears on each June 15 and December 15.
The 1995 11% Senior Subordinated Notes may be redeemed at the option of the
Company, in whole at any time or in part from time to time, beginning in fiscal
year 2000, at an initial redemption price of
F-15
<PAGE> 120
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
105.5 percent. The redemption price declines ratably to 100 percent in fiscal
year 2003. In addition, on or prior
to June 15, 1998, the Company may, at its option, use the net cash proceeds of
one or more public equity offerings to redeem up to an aggregate of 35 percent
of the principal amount of the 1995 11% Senior Subordinated Notes originally
issued, at a redemption price equal to 111.0 percent, 109.4 percent, and 107.9
percent of the principal amount thereof if redeemed during the 12 months
commencing on June 15, 1995, June 15, 1996, and June 15, 1997, respectively, in
each case plus accrued and unpaid interest, if any, to the redemption date.
The Company exchanged $140.2 million 13.75% Senior Subordinated Notes due
2005 (the "New F4L Senior Subordinated Notes") for an equal amount of F4L 13.75%
Senior Subordinated Notes due 2001 (the "Old F4L Senior Subordinated Notes," and
together with the New F4L Senior Subordinated Notes, the "13.75% Senior
Subordinated Notes") of the Company, leaving an outstanding balance of $4.8
million of the Old F4L Senior Subordinated Notes. The 13.75% Senior Subordinated
Notes are senior subordinated unsecured obligations of the Company and are
subordinated in right of payment to all senior indebtedness, including the
Company's obligations under the Credit Facility, the New Senior Notes, and the
Old F4L Senior Notes and the 1995 11% Senior Subordinated Notes. Interest on the
13.75% Senior Subordinated Notes is payable semiannually in arrears on each June
15 and December 15 commencing on December 15, 1995. The New F4L Senior
Subordinated Notes may be redeemed beginning in fiscal year 1996 at a redemption
price of 106.111 percent. The redemption price declines ratably to 100 percent
in fiscal year 2000.
Scheduled maturities of principal of senior subordinated debt at February
2, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------------------------
<S> <C>
1997.............................................. $ --
1998.............................................. --
1999.............................................. --
2000.............................................. --
2001.............................................. 4,816
Later years....................................... 666,406
--------
$671,222
========
</TABLE>
Financial Covenants
The Credit Facility, among other things, requires the Company to maintain
minimum levels of net worth (as defined), to maintain minimum levels of
earnings, to maintain a hedge agreement to provide interest rate protection, and
to comply with certain ratios related to fixed charges and indebtedness. During
fiscal 1995, certain financial covenants and other terms of the Credit Facility
were amended to, among other things, provide for the acquisition of Smith's Food
and Drug Centers, Inc. ("Smith's") Riverside distribution and creamery facility,
the acquisition of certain operating assets and inventory at that facility, the
acquisition of nine of the Smith's Southern California stores and the closure of
up to nine stores in conjunction with these acquisitions. In addition, the
Credit Facility and the indentures governing the New Senior Notes, the 1995 11%
Senior Subordinated Notes and the New F4L Senior Subordinated Notes limit, among
other things, additional borrowings, dividends on, and redemption of, capital
stock and the acquisition and the disposition of assets. At February 2, 1997,
the Company was in compliance with the financial covenants of its debt
agreements. At February 2, 1997, dividends and certain other payments are
restricted based on terms in the debt agreements.
Subsidiary Guarantors
All of the Company's wholly-owned subsidiaries have fully and
unconditionally guaranteed, on a joint and several basis, the Company's
obligations under the New Senior Notes, the 1995 11% Senior Subordinated Notes
and the 1997 11% Senior Subordinated Notes (See Note (14)), as provided in the
indentures related thereto. The separate financial statements of the subsidiary
guarantors are not presented because the Company's management believes that the
operating results and assets of the subsidiary guarantors are not material to
the consolidated operating results and assets of the Company and that,
accordingly, such financial statements are not material to investors.
F-16
<PAGE> 121
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Presented below is summarized financial information for the subsidiary
guarantors on a combined basis (in thousands):
<TABLE>
<CAPTION>
AS OF AS OF AS OF
JANUARY 28, FEBRUARY 2, JULY 20,
1996 1997 1997
----------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C>
Current assets.................... $ 54,173 $ 53,706 $ 51,661
Non-current assets................ 300,660 279,674 267,351
Current liabilities............... 54,331 47,800 46,837
Non-current liabilities........... 15,187 8,399 8,037
</TABLE>
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
52 WEEKS 52 WEEKS 26 WEEKS
ENDED ENDED ENDED
JANUARY 28, FEBRUARY 2, JULY 20,
1996 1997 1997
----------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C>
Sales............................. $ 557,316 $ 557,994 $250,343
Gross profit...................... 108,697 113,730 62,716
Net loss.......................... (10,418) (8,083) (936)
</TABLE>
(5) LEASES
The Company's operations are conducted primarily in leased properties.
Substantially all leases contain renewal options. Rental expense under operating
leases was as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE
-----------------------------------------------------
31 WEEKS 52 WEEKS 53 WEEKS
52 WEEKS ENDED ENDED ENDED
ENDED JANUARY JANUARY FEBRUARY
JUNE 25, 29, 28, 2,
1994 1995 1996 1997
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Minimum rents................... $49,788 $ 33,458 $ 97,752 $ 146,101
Rents based on sales............ 3,806 1,999 3,439 3,786
</TABLE>
Following is a summary of future minimum lease payments under operating
leases at February 2, 1997 (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------------------
<S> <C>
1997............................................. $ 145,675
1998............................................. 138,038
1999............................................. 135,227
2000............................................. 131,243
2001............................................. 118,973
Later years...................................... 1,279,824
----------
$1,948,980
==========
</TABLE>
The Company has entered into lease agreements for new supermarket sites
which were not in operation at February 2, 1997. Future minimum lease payments
under such operating leases generally begin when such facilities open and at
February 2, 1997 are: 1997 -- $3.6 million; 1998 -- $6.9 million; 1999 -- $6.9
million; 2000 -- $6.9 million; 2001 -- $6.9 million; later years -- $112.5
million.
F-17
<PAGE> 122
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Certain leases qualify as capital leases under the criteria established in
Statement of Financial Accounting Standards No. 13, "Accounting for Leases," and
are classified on the consolidated balance sheets as leased property under
capital leases. Future minimum lease payments for the property under capital
leases at February 2, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------------------------
<S> <C>
1997.............................................. $ 42,467
1998.............................................. 36,104
1999.............................................. 28,207
2000.............................................. 22,515
2001.............................................. 14,146
Later years....................................... 101,838
--------
Total minimum lease payments.................... 245,277
Less: amounts representing interest............... 90,900
--------
Present value of minimum lease payments........... 154,377
Less: current portion............................. 28,041
--------
$126,336
========
</TABLE>
Accumulated depreciation related to leased property under capital leases
was $27.6 million, $42.7 million and $62.0 million at January 29, 1995, January
28, 1996 and February 2, 1997, respectively.
(6) INVESTMENT IN ASSOCIATED WHOLESALE GROCERS
The Company's investment in Associated Wholesale Grocers ("A.W.G.")
consists of seven- and eight-year patronage certificates received in payment of
certain rebates. The instruments bear interest at 6% per annum. The Company
classifies these investments as held-to-maturity securities, which are carried
at amortized cost in accordance with SFAS No. 115.
The contractual maturities at February 2, 1997 were as follows (in
thousands):
<TABLE>
<S> <C>
Within one year..................................................... $ --
After one year through five years................................... 5,463
------
After five years through ten years.................................. 1,557
======
$7,020
======
</TABLE>
F-18
<PAGE> 123
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) INCOME TAXES
The provision (benefit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
52 WEEKS 31 WEEKS 52 WEEKS 53 WEEKS
ENDED ENDED ENDED ENDED
JUNE 25, JANUARY 29, JANUARY 28, FEBRUARY 2,
1994 1995 1996 1997
-------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Current:
Federal.................... $ 3,251 $ (2,894) $ -- $ --
State and other............ 712 100 46 --
------- ------- --------- --------
3,963 (2,794) 46 --
------- ------- --------- --------
Deferred:
Federal.................... (70) 2,794 -- --
State and other............ (1,193) -- 454 --
------- ------- --------- --------
(1,263) 2,794 454 --
------- ------- --------- --------
$ 2,700 $ -- $ 500 $
======= ======= ========= ========
</TABLE>
A reconciliation of the provision (benefit) for income taxes to amounts
computed at the federal statutory rates of 35 percent for fiscal 1994, the 1995
transition period, fiscal 1995 and fiscal year 1996 is as follows (in
thousands):
<TABLE>
<CAPTION>
52 WEEKS 31 WEEKS 52 WEEKS 53 WEEKS
ENDED ENDED ENDED ENDED
JUNE 25, JANUARY 29, JANUARY 28, FEBRUARY 2,
1994 1995 1996 1997
-------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Federal income taxes at
statutory rate on loss
before provision for income
taxes and extraordinary
charges.................... $ -- $ (4,025) $ (98,959) $ (32,827)
State and other taxes, net of
federal tax benefit........ (1) 65 (16,794) (244)
Effect of permanent
differences resulting
primarily from amortization
of goodwill................ 2,820 1,701 (1,665) 9,801
Tax credits and other........ -- -- 3,769 (4,818)
Accounting limitation
(recognition) of deferred
tax benefit................ (119) 2,259 114,149 28,088
------- ------- --------- --------
$ 2,700 $ -- $ 500 $ --
======= ======= ========= ========
</TABLE>
F-19
<PAGE> 124
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The provision (benefit) for deferred taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
31 WEEKS 52 WEEKS 53 WEEKS
52 WEEKS ENDED ENDED ENDED
ENDED JANUARY JANUARY FEBRUARY
JUNE 25, 29, 28, 2,
1994 1995 1996 1997
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Property and equipment.......................... $(1,687) $ 992 $ (461) $ 20,606
Inventory....................................... (2,415) (2,627) (8,479) 40
Capital lease obligation........................ 2,792 527 (502) (5,253)
Self-insurance reserves......................... (535) 5,523 2,104 2,276
Accrued expense................................. (2,136) (3,807) (26,304) (1,435)
Accrued payroll and related liabilities......... 1,721 (3,879) (6,206) (2,916)
Tax intangibles................................. -- -- 6,234 10,182
State taxes..................................... -- -- (20,639) (3,879)
Net operating losses............................ 5,782 (6,963) (61,219) (49,773)
Tax credits..................................... (4,477) 1,711 3,601 --
Accounting limitation (recognition) of deferred
tax benefit................................... (1,085) 10,494 114,149 28,088
Other, net...................................... 777 823 (1,824) 2,064
------- ------- -------- --------
$(1,263) $ 2,794 $ 454 $ --
======= ======= ======== ========
</TABLE>
The significant components of the Company's deferred tax assets
(liabilities) are as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY JANUARY FEBRUARY
29, 28, 2,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Deferred tax assets:
Accrued payroll and related liabilities.............. $ 6,248 $ 27,579 $ 30,495
Other accrued liabilities............................ 12,080 71,954 73,389
Obligations under capital leases..................... -- 37,584 42,837
Self-insurance liabilities........................... 25,204 49,773 47,497
Loss carryforwards................................... 27,638 154,202 203,975
Tax credit carryforwards............................. 4,157 913 913
State taxes.......................................... -- 30,210 34,090
Other................................................ 570 18,026 16,075
-------- ---------- ----------
Gross deferred tax assets......................... 75,897 390,241 449,271
Valuation allowance.................................. (41,643) (285,506) (313,594)
-------- ---------- ----------
Net deferred tax assets........................... $ 34,254 $ 104,735 $ 135,677
-------- ---------- ----------
Deferred tax liabilities:
Inventories.......................................... $(11,690) $ (9,762) $ (9,802)
Property and equipment............................... (28,527) (106,116) (129,808)
Obligations under capital leases..................... (9,261) -- --
Tax intangibles...................................... -- (6,234) (16,416)
Other................................................ (2,310) (611) (725)
-------- ---------- ----------
Gross deferred tax liability...................... (51,788) (122,723) (156,751)
-------- ---------- ----------
Net deferred tax liability........................ $(17,534) $ (17,988) $ (21,074)
======== ========== ==========
</TABLE>
F-20
<PAGE> 125
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company recorded a valuation allowance to reserve a portion of its
gross deferred tax assets at February 2, 1997 due primarily to financial and tax
losses in recent years. Under SFAS 109, this valuation allowance will be
adjusted in future periods as appropriate. However, the timing and extent of
such future adjustments to the allowance cannot be determined at this time.
At February 2, 1997, approximately $139.0 million of the valuation
allowance for deferred tax assets will reduce goodwill when the allowance is no
longer required.
At February 2, 1997, the Company has net operating loss carryforwards for
federal income tax purposes of $583.0 million, which expire from 2007 through
2012. The Company has federal Alternative Minimum Tax ("AMT") credit
carryforwards of approximately $0.9 million which are available to reduce future
regular taxes in excess of AMT. Currently, there is no expiration date for these
credits.
A portion of the loss carryforwards described above are subject to the
provisions of the Tax Reform Act of 1986, specifically Internal Revenue Code
Section 382. The law limits the use of net operating loss carryforwards when
changes of ownership of more than 50 percent occur during a three-year testing
period. Due to the Merger, the ownership of pre-Merger F4L Supermarkets and
pre-Merger RSI changed in excess of 50 percent. As a result, the Company's
utilization of approximately $78.0 million of F4L Supermarkets' and $187.0
million of RSI's federal net operating losses will be subject to an annual usage
limitation. The Company's annual limitations under Section 382 for F4L
Supermarkets' and RSI's net operating losses are approximately $15.6 million and
$15.0 million, respectively. Furthermore, all of the Company's pre-Merger RSI
net tax assets will reduce goodwill when utilized in future federal income tax
returns.
Holdings files a consolidated federal income tax return, under which the
federal income tax liability of Holdings and its subsidiaries is determined on a
consolidated basis. Holdings is a party to a federal income tax sharing
agreement with the Company and certain of its subsidiaries (the "Tax Sharing
Agreement"). The Tax Sharing Agreement provides that in any year in which the
Company is included in any consolidated tax liability of Holdings and has
taxable income, the Company will pay to Holdings the amount of the tax liability
that the Company would have had on such due date if it had been filing a
separate return. Conversely, if the Company generates losses or credits which
actually reduce the consolidated tax liability of Holdings and its other
subsidiaries, Holdings will credit to the Company the amount of such reduction
in the consolidated tax liability. These credits are passed between Holdings and
the Company in the form of cash payments. In the event any state and local
income taxes are determinable on a combined or consolidated basis, the Tax
Sharing Agreement provides for a similar allocation between Holdings and the
Company of such state and local taxes.
The Company currently has Internal Revenue Service examinations in process
covering the years 1990 through 1993. Management believes that any required
adjustment to the Company's tax liabilities will not have a material adverse
impact on its financial position or results of operations.
(8) RELATED PARTY TRANSACTIONS
The Company has a five-year consulting agreement with an affiliated company
effective June 14, 1995 for management, financing, acquisition and other
services. The agreement is automatically renewed on June 14 of each year for the
five-year term unless 90 days' notice is given by either party. The contract
provides for annual management fees equal to $4 million plus advisory fees for
certain acquisition transactions if the affiliated company is retained by the
Company.
Management services expenses were $2.3 million during fiscal year 1994,
$1.2 million during the 1995 transition period, $3.6 million during fiscal year
1995 and $4.0 million during fiscal year 1996. Advisory fees were $0.2 million
during fiscal year 1994, $21.5 million during fiscal year 1995 and $1.7 million
during fiscal
F-21
<PAGE> 126
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
year 1996. There were no such advisory fees for the 1995 transition period.
Advisory fees for financing transactions are capitalized and amortized over the
term of the related financing.
The Company is a member of a supplier cooperative with Certified Grocers,
which is used for certain purchases of inventory. Members purchase shares in the
cooperative and receive patronage dividends at the end of the year. During
fiscal 1996, fiscal 1995, the 1995 transition period and fiscal 1994, the
Company purchased $95.3 million, $141.4 million, $104.4 million and $175.9
million, respectively, in inventory from the cooperative.
On December 29, 1995, the Company consummated an agreement with Smith's
Food and Drug Centers ("Smith's") to sublease its one million square foot
distribution center and creamery facility in Riverside, California for
approximately 23 years, with renewal options through 2043. Annual rent is
approximately $8.8 million. Pursuant to the agreement, the Company also
purchased certain operating assets and inventory at the facility and nine stores
for approximately $20.2 million.
(9) COMMITMENTS AND CONTINGENCIES
The Company is contingently liable to former stockholders of certain
predecessors for any prorated gains which may be realized within ten years of
the acquisition of the respective companies resulting from the sale of certain
Certified stock. Such gains are only payable if Certified is purchased or
dissolved, or if the Company sells such Certified Stock within the period noted
above.
In connection with the bankruptcy reorganization of Federated Department
Stores, Inc. ("Federated") and its affiliates, Federated agreed to pay certain
potential tax liabilities relating to RGC as a member of the affiliated group of
companies comprising Federated and its subsidiaries. In consideration thereof,
RSI and RGC agreed to pay Federated a total of $10 million, payable $1 million
on each of February 3, 1992, 1993, 1994, 1995 and 1996 and $5 million on
February 3, 1997. In the event Federated is required to pay certain tax
liabilities, RSI and RGC agreed to reimburse Federated up to an additional $10
million, subject to certain adjustments. Pursuant to the terms of the Merger,
the $5 million payment and the potential $10 million payment will be paid in
cash.
The Company has entered into lease agreements with the developers of
several new sites in which the Company has agreed to provide construction
financing. At February 2, 1997, the Company had capitalized construction costs
of $20.3 million on total commitments of $24.0 million.
In December 1992, three California state antitrust class action suits were
commenced in Los Angeles Superior Court against the Company and other major
supermarket chains located in Southern California, alleging that they conspired
to refrain from competing in and to fix the price of fluid milk above
competitive prices. Specifically, class actions were commenced by Diane Barela
and Neila Ross, Ron Moliare and Paul C. Pfeifle on December 7, December 14 and
December 23, 1992, respectively. A class has been certified consisting of all
purchasers of milk in Los Angeles County from December 7, 1988. The plaintiffs
seek unspecified damages. Most defendants in the actions, not including the
Company, have reached tentative settlement agreements, and certain of the
settlements have been approved by the trial court. The Company is continuing to
actively defend itself in these class action suits.
On September 13, 1996 a class action lawsuit titled McCampbell, et al. v.
Ralphs Grocery Company, et al. was filed in the Superior Court of the State of
California, County of San Diego, against the Company and two other grocery store
chains operating in the Southern California area. The complaint alleges, among
other things, that the Company and others conspired to fix the retail price of
eggs in Southern California. The plaintiffs' claim that the defendants' actions
violate provisions of the California Cartwright Act and constitute unfair
competition. Plaintiffs seek unspecified damages they purport to have sustained
as a result of the
F-22
<PAGE> 127
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
defendants' alleged actions, which damages may be trebled under the applicable
statute, and an injunction from future actions in restraint of trade and unfair
competition. Discovery has commenced and the action has been certified as a
class. Management of the Company intends to defend this action vigorously and
the Company has filed an answer to the complaint denying the plaintiffs'
allegations and setting forth several defenses.
On December 20, 1996, a lawsuit titled Bundy, et al. v. Ralphs Grocery
Company, et al. was filed in the Los Angeles Superior Court against the Company.
The complaint was filed by eight individual plaintiffs who were terminated in
conjunction with the Company's restructuring. The plaintiffs claim that they
were wrongfully terminated for discriminatory reasons and that the Company
engaged in various fraudulent practices. The plaintiffs seek compensatory
damages in excess of $15 million, special and punitive damages. Management of
the Company believes that the plaintiff's claims are without merit and intends
to defend this action vigorously.
In addition, the Company or its subsidiaries are defendants in a number of
other cases currently in litigation or potential claims encountered in the
normal course of business which are being vigorously defended. In the opinion of
management, the resolutions of these matters will not have a material effect on
the Company's financial position or results of operations.
The Company self-insures its workers' compensation and general liability.
For fiscal year 1994, the 1995 transition period, fiscal year 1995 and fiscal
year 1996, the self-insurance loss provisions were $19.9 million, $6.3 million,
$32.6 million and $29.2 million, respectively. During fiscal year 1994, the
Company discounted its self-insurance liability using a 7.0 percent discount
rate. In the 1995 transition period, the Company changed the discount rate to
7.5 percent. In fiscal 1995, the Company changed the discount rate to 7.0
percent. In fiscal 1996, the Company changed the discount rate to 7.5 percent.
Management believes that this rate approximates the time value of money over the
anticipated payout period (approximately 10 years) for essentially risk-free
investments.
The Company's historical self-insurance liability at the end of the three
most recent fiscal years and the 1995 transition period is as follows (in
thousands):
<TABLE>
<CAPTION>
AS OF
------------------------------------------------------------
JUNE 25, JANUARY 29, JANUARY 28, FEBRUARY 2,
1994 1995 1996 1997
--------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Self-insurance liability...................... $ 90,898 $ 84,286 $ 161,391 $ 151,465
Less: Discount................................ (9,194) (11,547) (12,406) (11,882)
------- ------- -------- --------
Net self-insurance liability.................. $ 81,704 $ 72,739 $ 148,985 $ 139,583
======= ======= ======== ========
</TABLE>
The Company expects that cash payments for claims will aggregate
approximately $52.6 million, $37.5 million, $23.9 million, $14.5 million and
$8.7 million for the fiscal year 1997, the fiscal year 1998, the fiscal year
1999, the fiscal year 2000 and the fiscal year 2001, respectively.
Environmental Matters
In January 1991, the California Regional Water Quality Control Board for
the Los Angeles Region (the "Regional Board") requested that the Company conduct
a subsurface characterization of its Glendale Facility property located in the
Atwater District of Los Angeles, near Glendale, California. This request was
part of an ongoing effort by the Regional Board, in connection with the U.S.
Environmental Protection Agency (the "EPA"), to identify contributors to
groundwater contamination in the San Fernando Valley. Significant parts of the
San Fernando Valley, including the area where the Glendale Facility is located,
have been designated federal Superfund sites requiring response actions under
the Comprehensive Environmental Response,
F-23
<PAGE> 128
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Compensation and Liability Act of 1980, as amended, because of regional
groundwater contamination. On June 18, 1991, the EPA made its own request for
information concerning the Company's Glendale Facility. Since that time, the
Regional Board has requested further investigation by the Company. The Company
conducted the requested investigations and reported the results to the Regional
Board. Approximately 25 companies have entered into a Consent Order (EPA Docket
No. 94-11) with the EPA to investigate and design a remediation system for
contaminated groundwater beneath an area which includes the Glendale Facility.
The Company is not a party to the Consent Order, but is cooperating with
requests of the subject companies to allow installation of monitoring or
recovery wells on its property. On or about October 12, 1995, the EPA mailed a
Special Notice Letter to 44 parties, including the Company as owner and operator
of the Glendale Facility property, naming them as potentially responsible
parties ("PRPs"). On November 26, 1996, the EPA issued an Administrative Order
for Remedial Action (EPA Docket No. 97-06) against more than 60 respondents,
including the Company, in connection with the Superfund site. Under the order,
these PRP's are required to take certain actions, over an approximately 270-day
period, in connection with the implementation of interim remedies for the
treatment of groundwater.
Pursuant to the terms of the EPA's order, the PRPs have submitted a plan
for construction of an interim remedy to extract and remediate groundwater over
the next fourteen years. The PRPs have also submitted an offer to the EPA for
the reimbursement of a portion of the EPA's past costs. Estimates given to the
PRPs by environmental consultants and attorneys are that the total costs for the
remedy, including construction, operation and reimbursement to the government,
will most likely range between $55 million and $75 million in present value 1997
dollars.
In April 1997, an arbitration award allocation of 58.8% of such costs to
Lockheed Martin Corporation ("Lockheed") was confirmed by the Superior Court,
Los Angeles County. That judgment is now on appeal to California Court of
Appeal, seeking to reduce the Lockheed allocation. The remaining 26 current
Glendale PRPs have been engaged in Alternative Dispute Resolution ("ADR")
efforts. The Company believes that taking into account the Lockheed appeal, the
range of remediation costs and the results of the ADR allocation process, the
Company's allocable share of remedy costs, in present value 1997 dollars, will
likely fall within a range of $0.5 million to $2.0 million, with the likely
range from $0.5 million to $0.8 million.
It is anticipated that the EPA will issue a further administrative order to
PRPs for the construction of the remedy some time in 1997, to be followed by
negotiation of a consent decree with the PRPs. Such a consent decree would
provide contribution protection from lawsuits by other non-signatory PRPs.
Although responsibilities for compliance under federal CERCLA law are joint and
several, the Glendale PRPs include many very substantial companies as members,
such that the Company anticipates that the results of the PRPs' ADR allocation
process will be enforceable to limit the Company's exposure.
The Company removed underground storage tanks and remediated soil
contamination at the Glendale Facility property. In some instances, the removals
and the contamination were associated with grocery business operations; in
others, they were associated with prior property users. The Company has received
correspondence from the Regional Board confirming the successful completion of
the remediation.
Apart from the Glendale Facility, the Company has had environmental
assessments performed on most of its facilities, including warehouse and
distribution facilities. The Company believes that any responsive actions
required at the examined properties as a result of such assessments will not
have a material adverse effect on its financial condition or results of
operations.
At the time that Food 4 Less acquired Alpha Beta in 1991, it learned that
certain underground storage tanks located on the site of the La Habra facility
may have previously released hydrocarbons. In connection with the acquisition of
Alpha Beta, the seller (who is also the lessor of the La Habra facility) agreed
to retain responsibility, subject to certain limitations, for remediation of the
release.
F-24
<PAGE> 129
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company is subject to a variety of environmental laws, rules,
regulations and investigative or enforcement activities, as are other companies
in the same or similar business. The Company believes it is in substantial
compliance with such laws, rules and regulations. These laws, rules, regulations
and agency activities change from time to time, and such changes may affect the
ongoing business and operations of the Company.
(10) EMPLOYEE BENEFIT PLANS
As a result of the Merger, the Company adopted certain employee benefit
plans previously sponsored by RGC. These employee benefit plans include the
Ralphs Grocery Company Retirement Plan (the "Pension Plan"), the Ralphs Grocery
Company Supplemental Executive Retirement Plan (the "SERP"), and the Ralphs
Grocery Company Retirement Supplement Plan (the "Retirement Supplement Plan").
Pension Plan
The Pension Plan covers substantially all employees not already covered by
collective bargaining agreements with at least one year of service during which
1,000 hours have been worked. Employees who were employed by F4L Supermarkets
and who are otherwise eligible to participate in the Pension Plan became
eligible to participate in fiscal year 1995. The Company's policy is to fund
pension costs at or above the minimum annual requirement.
SERP
The SERP covers certain key officers of the Company. The Company has
purchased split dollar life insurance policies for certain participants under
this plan. Under certain circumstances, the cash surrender value of the split
dollar life insurance policies will offset the Company's obligations under the
SERP.
Retirement Supplement Plan
The Retirement Supplement Plan is a non-qualified retirement plan designed
to provide eligible participants with benefits based on earnings over the
indexed amount of $150,000.
The following actuarially determined components were included in the net
pension expense for the above plans for fiscal years 1996 and 1995 (dollars in
thousands):
<TABLE>
<CAPTION>
1996 1995
------- --------
<S> <C> <C>
Service cost.............................................. $ 6,187 $ 2,841
Interest cost on projected benefit obligation............. 5,293 2,543
Actual return on assets................................... (5,684) (3,223)
Net amortization and deferral............................. 1,907 1,365
------- --------
Net pension expense............................. $ 7,703 $ 3,526
======= ========
</TABLE>
Following are the assumptions used in determining the net pension expense:
<TABLE>
<S> <C> <C>
Discount rate............................................. 7.00% 7.50%
Expected long term rate of return on plan assets.......... 9.00% 9.00%
Rate of pay increase...................................... 5.00% 5.00%
</TABLE>
F-25
<PAGE> 130
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The funded status of the Pension Plan (based on December 1996 and December
1995 asset values) is as follows (dollars in thousands):
<TABLE>
<CAPTION>
AS OF AS OF
FEBRUARY 2, 1997 JANUARY 28, 1996
---------------- ----------------
<S> <C> <C>
Assets Exceed Accumulated Benefits:
Actuarial present value of benefit obligations:
Vested benefit obligation..................... $(45,965) $ 42,446
Accumulated benefit obligation................ (46,351) 43,256
Projected benefit obligation.................. (66,858) 63,913
Plan assets at fair value..................... 50,189 44,552
-------- --------
Projected benefit obligation in excess of Plan
Assets........................................ (16,669) (19,361)
Unrecognized net (gain)/loss.................... (3,376) 4,136
Unrecognized prior service cost................. 1,023 1,100
-------- --------
Accrued pension cost.......................... $(19,022) $(14,125)
======== ========
</TABLE>
The funded status of the SERP and Retirement Supplement Plan (based on
December 1996 and December 1995 asset values) is as follows (dollars in
thousands):
<TABLE>
<CAPTION>
AS OF AS OF
FEBRUARY 2, 1997 JANUARY 28, 1996
----------------- ----------------
<S> <C> <C>
Accumulated Benefits Exceed Assets:
Actuarial present value of benefit obligations:
Vested benefit obligation...................... $ (5,006) $ (4,863)
Accumulated benefit obligation................. (5,236) 4,908)
Projected benefit obligation................... (10,033) (11,778)
Plan assets at fair value...................... -- --
-------- --------
Projected benefit obligation in excess of Plan
Assets......................................... (10,033) (11,778)
Unrecognized net loss............................ 607 544
Unrecognized prior service cost.................. 1,725 1,846
Adjustment required to recognize minimum
liability...................................... (2) --
-------- --------
Accrued pension cost........................... $ (7,703) $ (9,388)
======== ========
</TABLE>
Following are the assumptions used in determining the funded status:
<TABLE>
<S> <C> <C>
Discount rate........................................... 7.50% 7.50%
Rate of pay increase.................................... 5.00% 5.00%
</TABLE>
The assets of the Pension Plan consist primarily of common stocks, bonds,
debt securities, and a money market fund. Plan benefits are based primarily on
years of service and on average compensation during the last years of
employment.
Employee Stock Ownership Plans
The Company implemented Statement of Position No. 93-6 (the "SOP"),
"Employer Accounting for Employee Stock Ownership Plans," effective June 26,
1994. The implementation of the SOP did not have a material effect on the
accompanying consolidated financial statements.
F-26
<PAGE> 131
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The full-time employees of Falley's who are not members of a collective
bargaining agreement are covered under a 401(k) plan, a portion of which is
invested in Holdings stock (the "Falley's ESOP"). As is required pursuant to IRS
and ERISA requirements, any participant who receives stock from the Falley's
ESOP has the right to put that stock to Falley's or an affiliate of Falley's.
However, as part of the original stock sale agreement among the then
stockholders of Falley's, FFL and the Falley's ESOP, which has been amended from
time to time, a partnership which owns stock of Holdings entered into an
agreement with Falley's and Holdings to assume the obligation to purchase any
Holdings shares as to which terminated plan participants exercise a put option
under the terms of Falley's ESOP. As a result, neither Falley's nor the Company
is required to make cash payments to redeem the shares. As part of that
agreement, the Company may elect, after providing a right of first refusal to
the partnership, to purchase Holdings shares put under the provisions of the
plan. However, the partnership's obligation to purchase such Holdings shares is
unconditional, and any repurchase of shares by the Company is at the Company's
sole election. During fiscal year 1996, the Company did not purchase any of the
Holdings shares. As of February 2, 1997, the fair value of the shares allocated
which are subject to repurchase obligation by the partnership referred to above
was approximately $10.9 million.
In addition, the Company also sponsors two ESOPs for employees of the
Company who are members of certain collective bargaining agreements (the "Union
ESOPs"). The Union ESOPs provide for annual contributions based on hours worked
at a rate specified by the terms of the collective bargaining agreements. The
Company contributions are made in the form of Holdings stock or cash for the
purchase of Holdings stock and are to be allocated to participants based on
hours worked. During fiscal year 1995 and the 1995 transition period, the
Company recorded a charge against operations of approximately $0.8 million and
$0.3 million, respectively, for benefits under the Union ESOPs. There were no
shares issued to the Union ESOPs or to the Company's profit sharing plan at
January 28, 1996 or February 2, 1997.
Defined Contribution Plan
The Company sponsors the Ralphs Grocery Company Savings Plan
Plus -- Primary, the Ralphs Grocery Company Savings Plan Plus -- Basic and the
Ralphs Grocery Company Savings Plan Plus -- ESOP (collectively referred to as
the "401(k) Plan") covering substantially all employees who are not covered by
collective bargaining agreements and who have at least one year of service
during which 1,000 hours has been worked. The 401(k) Plan provides for both
pre-tax and after-tax contributions by participating employees. With certain
limitations, participants may elect to contribute on a pre-tax basis to the
401(k) Plan. The Company has committed to match a minimum of 20 percent of an
employee's contribution to the 401(k) Plan that does not exceed 5 percent of the
employee's eligible compensation. Expenses under the 401(k) Plan for fiscal year
1994, 1995 and 1996 were $0.7 million, $0.7 million and $0.8 million,
respectively.
Multi-Employer Benefit Plans
The Company contributes to multi-employer benefit plans administered by
various trustees. Contributions to these plans are based upon negotiated wage
contracts. These plans may be deemed to be defined benefit plans. Information
related to accumulated plan benefits and plan net assets as they may be
allocated to the Company at January 28, 1996 is not available. The Company
contributed $57.2 million, $21.6 million, $102.1 million and $138.8 million to
these plans for fiscal year 1994, the 1995 transition period, fiscal year 1995
and fiscal year 1996, respectively. Management is not aware of any plans to
terminate such plans.
The United Food and Commercial Workers health and welfare plans were
over-funded and those employers who contributed to the plans received a pro rata
share of the excess reserves in the plans through reduction of current
contributions. The Company's share of the excess reserve was $24.2 million, of
which
F-27
<PAGE> 132
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$8.1 million, $14.3 million and $1.8 million was recognized in fiscal year 1994,
the 1995 transition period, and fiscal year 1995, respectively. Offsetting the
reduction in employer contributions was a $5.5 million union contract
ratification bonus and contractual wage increases in the 1995 transition period.
As part of the renewal of the Southern California UFCW contract in October 1995,
employers contributing to UFCW health and welfare plans received a pro rata
share of the excess reserves in the plans through a reduction of current
employer contributions. The Company's share of the excess reserves recognized in
fiscal 1996 was $17.8 million. Offsetting the reduction was a $3.5 million union
bonus in fiscal year 1996.
Postretirement Medical Benefit Plans
The Company adopted postretirement medical benefit plans ("Postretirement
Medical Plans"), previously sponsored by RGC, which cover substantially all
employees who are not members of a collective bargaining agreement and who
retire under certain age and service requirements. The Postretirement Medical
Plans are insured plans and provide outpatient, inpatient and various other
covered services. The Company's policy is to fund the Plans as insurance
premiums are incurred. For persons who are less than age 65 at retirement and
for certain executives, the calendar 1996 year deductible is $1,000 per
individual, indexed to the medical care component of the Consumer Price Index.
The net postretirement benefit cost of the Postretirement Medical Plans
include the following components for fiscal years 1996 and 1995 (dollars in
thousands):
<TABLE>
<CAPTION>
1996 1995
------ -----
<S> <C> <C>
Service cost............................................... $ 909 $ 468
Interest cost.............................................. 989 561
Return on plan assets...................................... -- --
Net amortization and deferral.............................. (281) (116)
------ ------
Net postretirement benefit cost.................. $1,617 $ 913
====== ======
</TABLE>
Following are the assumptions used in determining the net postretirement
benefit cost:
<TABLE>
<S> <C> <C>
Discount rate................................................. 7.0% 7.50%
Expected long term rate of return on plan assets.............. N/A N/A
Medical cost trend............................................ 9.0%* 10.50%
</TABLE>
- ---------------
* 1997 percentage decreases by 0.50% per year until 6.00% in 2002 and all future
years.
The funded status of the postretirement benefit plan (based on December 31,
1996 and December 31, 1995 asset values) is as follows (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................... $ (2,242) $ 2,208
Fully eligible plan participants....................... (1,777) 1,483
Other active plan participants......................... (10,126) 10,862
Plan assets at fair value.............................. -- --
-------- ---------
Accumulated postretirement obligations in excess of
plan assets ......................................... (14,145) (14,553)
Unrecognized (gain)/loss............................... (1,580) 562
Unrecognized prior service cost........................ (2,965) (3,246)
-------- ---------
Accrued post retirement benefit obligation............. $(18,690) $(17,237)
======== =========
</TABLE>
F-28
<PAGE> 133
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Following are the assumptions used in determining the funded status:
<TABLE>
<S> <C> <C>
Discount rate............................................... 7.50% 7.50%
Expected long term rate of return on plan assets............ N/A N/A
Medical cost trend.......................................... 8.50%* 10.50%
</TABLE>
- ---------------
* 1997 percentage decreases by 0.50% per year until 6.00% in 2002 and all future
years
The effect of a 1.00 percent increase in the medical cost trend would
increase the fiscal 1996 service and interest cost by $0.7 million. The
accumulated postretirement benefit obligation at February 2, 1997 would also
increase by $5.1 million.
Stock Plans
Holdings has one employee stock option plan, the Food 4 Less Holdings, Inc.
1995 Stock Option Plan (the "Plan"). The Plan provides for an aggregate of
3,000,000 shares of the Holdings' common stock to be available for grants to
officers and other key employees of Holdings or its subsidiaries. Grants may be
at the fair market value at the date of grant or at a price determined by a
committee consisting of two or more non-employee directors of Holdings (the
"Committee"). If a grantee owns 10 percent or more of the total combined voting
power of all classes of capital stock of Holdings, the option exercise price
shall be at least 110 percent of the Fair Market Value of Common Stock on the
date of grant. The Committee determines the fair market value of Holdings'
Common Stock using historical valuations, an analysis of Holdings' financial
performance and recent information concerning private purchases and sales of
Holdings' Common Stock. Options expire ten years from the date of grant and
become exercisable at the rate of 20 percent per year, or over a vesting period
determined by the Committee. To date, options issued under the Plan have been
granted exclusively to employees of the Company.
The following table summarizes stock options available for grant:
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS
ENDED ENDED
JANUARY 28, FEBRUARY 2,
1996 1997
------------ ------------
<S> <C> <C>
Beginning balance..................................... -- 715,000
Authorized............................................ 3,000,000 --
Granted............................................... (2,415,000) (727,500)
Canceled.............................................. 130,000 210,250
---------- --------
Available for future grant............................ 715,000 197,750
========== ========
</TABLE>
F-29
<PAGE> 134
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of the status of the Plan as of fiscal year 1996 and fiscal year
1995 and changes during the years ending on those dates is presented below:
<TABLE>
<CAPTION>
FISCAL YEAR 1995 FISCAL YEAR 1996
----------------------- -----------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year............... -- $ -- 2,285,000 $ 5.78
Granted........................................ 2,415,000 5.86 727,500 10.00
Exercised...................................... -- -- -- --
Canceled....................................... (130,000) 5.39 (210,250) 5.72
--------- ----- --------- -----
Outstanding at end of year..................... 2,285,000 5.89 2,802,250 6.97
========= ===== ========= =====
Exercisable at end of year..................... 2,225,000 5.78 2,254,000 6.23
========= ===== ========= =====
Weighted-average fair value of options granted
during the year.............................. $3.35 $ 3.55
===== =====
</TABLE>
The following table summarizes information about stock options outstanding
at February 2, 1997:
<TABLE>
<CAPTION>
WEIGHTED- WEIGHTED- WEIGHTED-
NUMBER AVERAGE AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 02/02/97 CONTRACTUAL LIFE PRICE AT 02/02/97 PRICE
- ---------------- ----------- ---------------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
$0.79 to $1.09 224,357 8.2years $ 0.84 224,357 $ 0.84
$1.58 to $2.31 172,083 8.2 1.82 172,083 1.82
$2.73 to $4.00 172,500 8.2 3.04 172,500 3.04
$4.29 to $6.00 120,833 8.2 4.76 120,833 4.76
$6.67 to $7.32 1,120,227 8.2 7.15 1,120,227 7.15
$10.00 992,250 8.9 10.00 444,500 10.00
--------- --- ----- --------- -----
$0.79 to $10.00 2,802,250 8.5years $ 6.97 2,254,500 $ 6.23
========= === ===== ========= =====
</TABLE>
At February 2, 1997, 3.0 million shares of Holdings' Common Stock were
reserved for issuance under Holdings' stock option plan.
The Company applies APB Opinion 25 and related Interpretations in
accounting for the Plan and, accordingly, no compensation cost has been
recognized. Pro forma information regarding net income and earnings per share is
required by Statement of Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation" ("SFAS No. 123"), and has been determined as if the
Company had accounted for employee stock options under the fair value method of
SFAS No. 123. The fair value for stock options was estimated at the date of
grant using the minimum value method with the following assumptions for fiscal
1995 and 1996, respectively: weighted average risk-free interest rates of 6.01
percent and 6.46 percent and a weighted average expected life of the options of
7.0 years and 7.0 years.
F-30
<PAGE> 135
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. At the time of
Merger, 2.3 million Stock Options were granted, 2.2 million of which became
immediately vested. As a result, the effects of applying SFAS 123 for providing
pro forma disclosures in fiscal year 1996 and 1995 are not likely to be
representative of the effects on reported net income for future years. The
Company's pro forma information follows:
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR
ENDED ENDED
JANUARY 28, FEBRUARY 2,
1996 1997
----------- -----------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
NET LOSS:
As reported:
Loss before extraordinary charge..................... $ (260,117) $ (93,791)
Extraordinary charge................................. 23,128 --
Net loss............................................. (283,245) (93,791)
Pro forma:
Loss before extraordinary charge..................... $ (264,524) $ (94,299)
Extraordinary charge................................. 23,128 --
Net loss............................................. (287,652) (94,299)
LOSS PER COMMON SHARE:
As reported:
Loss before extraordinary charge..................... $ (174.72) $ (61.95)
Extraordinary charge................................. (15.30) --
Net loss............................................. (190.02) (61.95)
Pro forma:
Loss before extraordinary charge..................... $ (177.64) $ (62.29)
Extraordinary charge................................. (15.30) --
Net loss............................................. (192.94) (62.29)
</TABLE>
At the time of the Merger, in connection with the extinguishment of a $10
million Equity Appreciation Rights ("EAR") liability, Holdings issued
approximately 2.0 million options to former RGC executives at prices ranging
from $0.79 to $7.32. The options were immediately vested. The exercise price was
determined based upon a formula that incorporated the EAR liability
extinguished, number of options issued and the estimated market price of
Holdings' stock. All other options issued in fiscal 1995 were at the estimated
market price of $10.
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and Cash Equivalents
The carrying amount approximates fair value as a result of the short
maturity of these instruments.
Short-Term Notes and Other Receivables
The carrying amount approximates fair value as a result of the short
maturity of these instruments.
F-31
<PAGE> 136
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Interest Rate Derivatives
The carrying amount of the interest rate collar agreement, which represents
favorable or unfavorable movements of interest rates outside of the interest
rate limits, approximates fair value.
Investments In and Notes Receivable From Supplier Cooperatives
The Company maintains a non-current deposit with Certified in the form of
Class B shares of Certified. Certified is not obligated in any fiscal year to
redeem more than a prescribed number of the Class B shares issued. Therefore, it
is not practicable to estimate the fair value of this investment.
The Company maintains non-current notes receivable from A.W.G. There are no
quoted market prices for this investment and a reasonable estimate could not be
made without incurring excessive costs. Additional information pertinent to the
value of this investment is provided in Note 6.
Long-Term Debt
The fair value of the New Senior Notes, the 1995 11% Senior Subordinated
Notes and the 13.75% Senior Subordinated Notes is based on quoted market prices.
The Term Loans and the Revolving Facility are estimated to be recorded at the
fair value of the debt. Market quotes for the fair value of the remainder of the
Company's debt are not available, and a reasonable estimate of the fair value
could not be made without incurring excessive costs. Additional information
pertinent to the value of the unquoted debt is provided in Note 4.
The estimated fair values of the Company's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
AS OF
FEBRUARY 2, 1997
-------------------------
CARRYING FAIR
AMOUNT VALUE
---------- ----------
<S> <C> <C>
Cash and cash equivalents........................... $ 67,589 $ 67,589
Short-term notes and other receivables.............. 531 531
Interest rate collar................................ -- --
Investments in and notes receivable from supplier
cooperatives (not practicable).................... 11,965 --
Long-term debt for which it is:
- Practicable to estimate fair values............. 1,920,186 2,000,740
- Not practicable................................. 18,643 --
</TABLE>
(12) RESTRUCTURING CHARGE
During fiscal 1995, the Company approved and implemented a restructuring
plan designed to restructure its operations in connection with the Merger. A
total of 58 stores were planned to be closed, 27 of which were required to be
sold pursuant to a settlement agreement with the State of California in
connection with the Merger. The remaining 31 stores were under-performing
stores. In addition, the Company closed two duplicate warehouse facilities no
longer required by the merged entity. In accordance with this plan, the Company
recorded a restructuring charge of $75.2 million, consisting of write-downs of
property and equipment, (net of estimated proceeds); provisions for lease
obligations; write-downs of other assets and miscellaneous expenses.
Approximately $28.4 million is expected to involve cash disbursements and $46.8
million is expected to involve non-cash write-downs. The Company's planned
method of disposition is to sell or sublease the disposed stores/warehouse
facilities. Stores closed as part of this restructuring plan
F-32
<PAGE> 137
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
contributed $91.7 million and $33.9 million in sales, and recognized operating
losses of $0.6 million and $2.3 million, for fiscal 1995 and fiscal 1996,
respectively. During fiscal 1995, the Company incurred cash expenditures of $2.5
million and non-cash charges of $32.2 million, related primarily to write-downs
of property and equipment and other assets and payments of lease obligations.
During fiscal 1996, the Company incurred cash expenditures of $6.5 million and
non-cash expenditures of $11.6 million, consisting primarily of write-downs of
property and equipment and payments of lease obligations. At February 2, 1997,
approximately $22.4 million of the restructuring accrual remained accrued on the
Company's balance sheet, consisting primarily of provisions for lease
obligations. As of February 2, 1997, the Company has completed a majority of the
restructuring actions, although certain lease obligations will continue through
2010.
On December 29, 1995, the Company consummated an agreement with Smith's
Food and Drug Centers ("Smith's") to sublease its one million square foot
distribution center and creamery facility in Riverside, California for
approximately 23 years, with renewal options through 2043. The Company also
acquired nine of Smith's Southern California stores. As a result of this
agreement, the Company approved and implemented a restructuring plan designed to
restructure its distribution operations by closing its existing La Habra
distribution center and nine of its smaller and less efficient stores that were
located near the stores acquired from Smith's. In accordance with this plan, the
Company recorded a restructuring charge of $47.9 million, consisting of
write-downs of property and equipment and provisions for lease obligations.
Approximately $29.6 million is expected to involve cash disbursements and $18.3
million is expected to involve non-cash write-downs. The Company's planned
method of disposition is to sell or sublease the disposed stores/distribution
facility. Stores closed as part of this restructuring plan contributed $40.1
million and $23.2 million in sales, and contributed operating income of $2.0
million and $0.3 million, for fiscal 1995 and fiscal 1996, respectively. The
Company completed the closure of its La Habra distribution facility in the first
quarter of fiscal 1996. No charges were incurred against the restructuring
accrual in fiscal 1995. During fiscal 1996, the Company incurred cash
expenditures of $15.6 million and non-cash charges of $15.3 million, consisting
primarily of write-downs of property and equipment and payments of lease
obligations. At February 2, 1997, approximately $17.0 million of the
restructuring accrual remained accrued on the Company's balance sheet,
consisting primarily of provisions for lease obligations and provisions for
property and equipment. As of February 2, 1997, the Company has completed a
majority of the restructuring actions, with remaining actions expected to be
completed by the end of fiscal 1997, although certain lease obligations will
continue through 2000.
(13) SELECTED QUARTERLY FINANCIAL RESULTS (UNAUDITED)
The tables below set forth the selected quarterly financial information for
fiscal year 1995 and fiscal year 1996 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
12 WEEKS 12 WEEKS 12 WEEKS 16 WEEKS
ENDED ENDED ENDED ENDED
FISCAL YEAR 1995 04/23/95 07/16/95 10/08/95 01/28/96
- -------------------------------------------------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales......................................... $623,598 $ 857,344 $1,207,093 $1,647,074
Gross Profit...................................... 106,400 157,720 222,498 321,371
Loss Before Extraordinary Items................... (2,812) (102,534) (49,750) (105,021)
Net Loss.......................................... (2,812) (125,662) (49,750) (105,021)
Loss Applicable to Common Shares.................. (5,188) (127,246) (49,750) (105,021)
Loss Per Common Share:
Loss Before Extraordinary Items................... $ (3.44) $ (68.96) $ (32.86) $ (69.37)
Loss Per Common Share............................. $ (3.44) $ (84.28) $ (32.86) $ (69.37)
</TABLE>
F-33
<PAGE> 138
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
12 WEEKS 12 WEEKS 12 WEEKS 17 WEEKS
ENDED ENDED ENDED ENDED
FISCAL YEAR 1996 04/21/96 07/14/96 10/06/96 02/02/97
- ------------------------------------------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales....................................... $1,230,808 $1,243,768 $1,221,018 $1,820,665
Gross Profit.................................... 237,925 252,544 264,033 381,516
Net Loss........................................ (31,981) (21,539) (11,865) (28,406)
Loss Per Common Share........................... $ (21.12) $ (14.23) $ (7.84) $ (18.76)
</TABLE>
(14) SUBSEQUENT EVENT
On March 26, 1997, the Company issued $155 million of 11% Senior
Subordinated Notes due 2005 (the "1997 11% Senior Subordinated Notes") and
called all of the 13.75% Senior Subordinated Notes. The terms of the 1997 11%
Senior Subordinated Notes are substantially identical to those of the Company's
11% Senior Subordinated Notes due 2005 issued in June 1995. The 1997 11% Senior
Subordinated Notes were issued at a premium price of 105.5, resulting in gross
proceeds of $163.5 million. The proceeds were used to (i) redeem an aggregate of
$145.0 million of its outstanding 13.75% Senior Subordinated Notes and (ii) pay
accrued interest, call premiums, fees and expenses related to the 1997 11%
Senior Subordinated Notes. The redemption price was 106.1 percent of the
principal amount outstanding.
On April 17, 1997, the Company amended and restated its existing credit
facilities (the "Refinanced Credit Facility") with a facility with lower
interest rates and a longer average life. The refinancing was structured as an
amendment and restatement of the existing Credit Facility and the amended
facility consists of a $325.0 million Revolving Credit Facility, a $200.0
million Term Loan A Facility and a $350.0 million Term Loan B Facility. At the
time of the amendment and restatement the outstanding principal balance of term
loans under the existing term loan facility was $540.4 million.
Borrowings under the Refinanced Credit Facility bear interest at the bank's
Base Rate (as defined) plus a margin ranging from 0.25 percent to 1.25 percent
for the Revolving Credit Facility and the Term Loan A Facility and the bank's
Base Rate (as defined) plus a margin ranging from 0.75 percent to 1.75 percent
for the Term Loan B Facility or the Eurodollar Rate (as defined) plus a margin
ranging from 1.25 percent to 2.25 percent for the Revolving Credit Facility and
the Term Loan A Facility and the Eurodollar Rate (as defined) plus a margin
ranging from 1.75 percent to 2.75 percent for the Term Loan B Facility. The
interest rate for the Revolving Credit Facility and the Term Loan A Facility
currently is the bank's Base Rate (as defined) plus a margin of 0.75 percent or
the Eurodollar Rate (as defined) plus a margin of 1.75 percent. The interest
rate for the Term Loan B Facility currently is the bank's Base Rate (as defined)
plus a margin of 1.25 percent or the Eurodollar rate (as defined) plus a margin
of 2.25 percent.
Quarterly principal installments on the Refinanced Credit Facility continue
to 2004, with amounts payable in each year as follows: $2.6 million in fiscal
1997, $3.5 million in fiscal 1998, $25.5 million in fiscal 1999, $62.6 million
in fiscal 2000, $87.5 million in fiscal 2001 and $368.3 million thereafter.
Certain other terms and provisions of the previous Credit Facility were
also changed, including, but not limited to, application of proceeds of selected
asset sales and stock offerings and permitted capital expenditures. Management
believes that this refinancing provides increased operational and financial
flexibility through lower interest costs and lower short-term loan amortization.
As a result of the refinancings described above, the Company will incur an
extraordinary loss in the first quarter of fiscal 1997 of approximately $48.9
million, consisting of the call premium on the 13.75% Senior Subordinated Notes
and write-off of deferred financing costs.
F-34
<PAGE> 139
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Ralphs Supermarkets, Inc.:
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Ralphs Supermarkets, Inc. and
subsidiaries for the years ended January 30, 1994 and January 29, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and the cash
flows of Ralphs Supermarkets, Inc. and subsidiaries for the years ended January
30, 1994 and January 29, 1995 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Los Angeles, California
March 9, 1995
F-35
<PAGE> 140
RALPHS SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JANUARY 30, 1994 JANUARY 29, 1995
------------------- -------------------
<S> <C> <C> <C> <C>
Sales............................................... $2,730,157 100.0% $2,724,604 100.0%
Cost of sales....................................... 2,093,727 76.7 2,101,033 77.1
---------- ----- ---------- -----
Gross profit...................................... 636,430 23.3 623,571 22.9
Selling, general and administrative expenses...... 471,000 17.2 467,022 17.2
Amortization of excess cost over net assets
acquired....................................... 10,996 0.4 10,996 0.4
Provision for restructuring....................... 2,374 0.1 -- --
---------- ----- ---------- -----
Operating income.................................. 152,060 5.6 145,553 5.3
Other expenses:
Interest, expense, net............................ 108,755 4.0 112,651 4.1
Loss on disposal of assets........................ 1,940 0.1 784 0.0
Provision for earthquake losses................... 11,048 0.4 -- --
---------- ----- ---------- -----
Earnings before income taxes........................ 30,317 1.1 32,118 1.2
Income tax expense (benefit)........................ (108,049) (4.0) -- --
---------- ----- ---------- -----
Net earnings........................................ $ 138,366 5.1% $ 32,118 1.2%
========== ===== ========== =====
</TABLE>
See accompanying notes to consolidated financial statements.
F-36
<PAGE> 141
RALPHS SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings......................................................... $ 138,366 $ 32,118
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization..................................... 74,452 76,043
Amortization of discounts and deferred debt issuance costs........ 9,768 9,032
LIFO charge (credit).............................................. (2,054) 2,085
Loss on sale of assets............................................ 4,314 784
Provision for post-retirement benefits............................ 3,370 2,555
Other changes in assets and liabilities:
Accounts receivable.................................................. 326 (13,177)
Inventories at replacement cost...................................... 6,724 (21,120)
Prepaid expenses and other current assets............................ (1,658) (1,682)
Other assets......................................................... 4,449 (7,287)
Interest payable..................................................... (4,822) (2,419)
Accounts payable and accrued liabilities............................. (1,622) (1,047)
Income taxes payable................................................. (1,480) (2,906)
Deferred tax asset................................................... (109,125) (3,366)
Business interruption credit......................................... (581) --
Earthquake losses.................................................... (11,048) --
Self insurance reserves.............................................. 7,031 (7,503)
Other liabilities.................................................... (12,407) (6,692)
--------- ---------
Cash provided by operating activities................................ 104,003 55,418
--------- ---------
Cash flows from investing activities:
Capital expenditures................................................. (62,181) (64,018)
Proceeds from sale of property, plant and equipment.................. 16,700 13,257
--------- ---------
Cash used in investing activities.................................... (45,481) (50,761)
--------- ---------
Cash flows from financing activities:
Net borrowings under lines of credit................................. (31,100) 51,500
Capitalized financing and acquisition costs.......................... (5,108) (2,496)
Increase (decrease) in bank overdrafts............................... 655 7,952
Proceeds from issuance of long-term debt............................. 150,000 --
Dividends paid....................................................... -- (10,000)
Principal payments on long-term debt................................. (164,081) (71,568)
--------- ---------
Cash provided by (used in) financing activities...................... (49,634) (24,612)
--------- ---------
Net increase (decrease) in cash and cash equivalents................... 8,888 (19,955)
Cash and cash equivalents at beginning of period....................... 46,192 55,080
--------- ---------
Cash and cash equivalents at end of period............................. $ 55,080 $ 35,125
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-37
<PAGE> 142
RALPHS SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
RALPHS
RALPHS GROCERY COMPANY
SUPERMARKETS, INC. ------------------------
-------------------- ADDITIONAL
OUTSTANDING COMMON PAID-IN- ACCUMULATED
SHARES STOCK CAPITAL DEFICIT TOTAL
----------- ------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 31, 1993..................... 25,587,280 256 175,292 (308,845) (133,297)
Net earnings................................... -- -- -- 138,366 138,366
---------- ---- -------- --------- ---------
BALANCES AT JANUARY 30, 1994..................... 25,587,280 256 175,292 (170,479) 5,069
Net earnings................................... -- -- -- 32,118 32,118
Dividends Paid................................. -- -- -- (10,000) (10,000)
---------- ---- -------- --------- ---------
BALANCES AT JANUARY 29, 1995..................... 25,587,280 $256 $ 175,292 $(148,361) $ 27,187
========== ==== ======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-38
<PAGE> 143
RALPHS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) THE COMPANY
Ralphs Supermarkets, Inc. operates conventional format grocery stores in
the Southern California area.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
These consolidated financial statements present the statements of
operations and cash flows of Ralphs Supermarkets, Inc. and subsidiary (Ralphs
Grocery Company) for the two years ended January 30, 1994 and January 29, 1995.
(b) Reporting Period
Ralphs' fiscal year ends on the Sunday closest to January 31. Fiscal
year-ends are as follows:
January 30, 1994 (Fiscal 1993)
January 29, 1995 (Fiscal 1994)
(c) Cash and Cash Equivalents
For purposes of the statements of cash flows, Ralphs considers all highly
liquid debt instruments with original maturities of three months or less to be
cash equivalents.
(d) Inventories
Inventories are stated at the lower cost or market. Cost is determined
primarily using the last-in, first-out (LIFO) method.
(e) Depreciation and Capitalized Interest
Depreciation of plant and equipment is calculated using the straight-line
method over the estimated useful lives of assets. Plant and equipment held under
capital leases and leasehold improvements are amortized using the straightline
method over the shorter of the lease term or the estimated useful life of the
asset. Useful lives range from 10 to 40 years for buildings and improvements and
3 to 20 years for fixtures and equipment.
Interest is capitalized in connection with the construction of major
facilities. The capitalized interest is recorded as part of the asset to which
it relates and is amortized over the asset's estimated useful life. Interest
cost capitalized during fiscal 1993 and 1994 was $.740 million and $.324
million, respectively.
(f) Deferred Debt Issuance Costs
Direct costs incurred as a result of financing transactions are capitalized
and amortized over the terms of the applicable debt agreements using the
effective interest method.
(g) Pre-opening Costs
Pre-opening costs of new stores are deferred and expensed at the time the
store opens. If a new store is ultimately not opened, the costs are expensed
directly to selling, general and administrative expense at the time it is
determined that the store will not be opened.
F-39
<PAGE> 144
RALPHS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(h) Self Insurance Reserves
Ralphs is self-insured for a portion of workers' compensation, general
liability and automobile accident claims. Ralphs establishes reserve provisions
based on an independent actuary's review of claims filed and an estimate of
claims incurred but not yet filed.
(i) Excess of Cost Over Net Assets Acquired
The excess of cost over net assets acquired, resulting from the May 3, 1988
acquisition of Ralphs is being amortized using the straight-line method over 40
years. Ralphs assesses the recoverability of this intangible asset by
determining whether the amortization of the asset balance over its remaining
life can be recovered through projected undiscounted operating income (including
interest, depreciation and all amortization expense except amortization of
excess of cost over net assets acquired) over the remaining amortization period
of the excess of cost over net assets acquired. The amount of excess of cost
over net assets acquired impairment, if any, is measured based on projected
discounted future results using a discount rate reflecting Ralphs' average cost
of funds.
(j) Acquired Leases
Beneficial lease rights and lease valuation reserves are recorded as the
net present value of the differences between contractual rents under existing
lease agreements and fair value of entering such lease agreements as of the May
3, 1988 acquisition of Ralphs. All beneficial lease rights and lease valuation
reserves arose solely as a result of the May 3, 1988 acquisition. Adjustments to
the carrying value of these assets would typically occur only through additional
business combinations or in the event of early lease termination. Beneficial
lease rights are amortized using the straight-line method over the terms of the
leases. Lease valuation reserves are amortized using the interest method over
the terms of the leases.
(k) Discounts and Promotional Allowances
Promotional allowances and vendor discounts are recorded as a reduction of
cost of sales in the accompanying statements of operations. Allowance proceeds
received in advance are deferred and recognized over the period earned.
(l) Reclassification
Certain amounts in the accompanying financial statements have been
reclassified to conform to the current year's presentation.
(m) Consolidation Policy
The consolidated financial statements include the accounts of Ralphs
Supermarkets, Inc., and its wholly owned subsidiary, Ralphs Grocery Company, and
its wholly owned subsidiary, collectively referred to as the Company. All
material intercompany balances and transactions are eliminated in consolidation.
(n) Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
(i) Cash and short-term investments: The carrying amount approximates
fair value because of the short maturity of those instruments.
F-40
<PAGE> 145
RALPHS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ii) Long-term debt: The fair value of Ralphs' long-term debt is
estimated based on the quoted market prices for the same or similar issues
or on the current rates offered to Ralphs for debt of the same remaining
maturities.
(iii) Interest Rate Swap Agreements: The fair value of interest rate
swap agreements is the estimated amount that Ralphs would receive or pay to
terminate the swap agreements at the reporting date, taking into account
current interest rates and the current credit-worthiness of the swap
counterparties.
(o) Advertising
The Company expenses the production costs of advertising the first time the
advertising takes place. Advertising expense was $16.4 million and $18.2 million
in fiscal 1993 and 1994, respectively.
(p) Transaction Costs
In connection with the proposed merger, Ralphs has capitalized in other
assets approximately $2.3 million of transaction costs, principally attorney and
accounting fees. Upon completion of the merger these amounts will be
reclassified to excess of cost of net assets acquired and amortized accordingly.
(3) LEASES
Ralphs has leases for retail store facilities, warehouses and manufacturing
plants for periods up to 30 years. Generally, the lease agreements include
renewal options for five years each. Under most leases, Ralphs is responsible
for property taxes, insurance, maintenance and expense related to the lease
property. Certain store leases require excess rentals based on a percentage of
sales at that location. Certain equipment is leased by Ralphs under agreements
ranging from 3 to 15 years. The agreements usually do not include renewal option
provisions.
Minimum rental payments due under capital leases and operating leases
subsequent to fiscal 1994 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES TOTAL
-------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
1995................................................... $ 21,640 $ 61,324 $ 82,964
1996................................................... 19,093 60,847 79,940
1997................................................... 18,288 58,182 76,470
1998................................................... 15,901 53,321 69,222
1999................................................... 11,784 52,839 64,623
2000 and thereafter.................................... 53,959 373,021 426,980
-------- -------- --------
Total minimum lease payments........................... $140,665 $ 659,534 $800,199
======== ========
Less amounts representing interest..................... (51,581)
--------
Present value of net minimum lease payments............ 89,084
Less current portion of lease obligations.............. (13,151)
--------
Long-term capital lease obligations.................... $ 75,933
========
</TABLE>
F-41
<PAGE> 146
RALPHS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Total rent expense is summarized as follows:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS
ENDED ENDED
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Capital Leases
Contingent rental............................................. $ 2,241 $ 2,256
Rentals from subleases........................................ (2,048) (1,734)
Operating Leases
Minimum rentals............................................... 54,965 55,906
Contingent rentals............................................ 3,645 3,763
Rentals from subleases........................................ (1,150) (1,791)
-------- --------
$ 57,653 $ 58,400
======== ========
</TABLE>
(4) SELF-INSURANCE
Ralphs is a qualified self-insurer in the State of California for worker's
compensation and for automobile liability. For fiscal 1993 and 1994 self
insurance loss provisions amounted to (in thousands) $30,323 and $14,003,
respectively. Ralphs discounts self-insurance liabilities using an 8% discount
rate for all years presented. Management believes that this rate approximates
the time value of money over the anticipated payout period (approximately 8
years) for essentially risk free investments.
Based on a review of modifications in its workers compensation and general
liability insurance programs, Ralphs adjusted its self-insurance costs during
Fiscal 1994, resulting in a reduction in the loss provision in Fiscal 1994 of
approximately $18.9 million.
The Company expects that cash payments for claims over the next five years
will aggregate approximately $28 million in fiscal year 1995, $19 million in
fiscal year 1996, $13 million in fiscal year 1997, $8 million in fiscal year
1998 and $7 million in fiscal year 1999.
(5) COMMITMENTS AND CONTINGENCIES
In December 1992, three California state antitrust class action suits were
commenced in Los Angeles Superior Court against Ralphs and other major
supermarket chains located in Southern California, alleging that they conspired
to refrain from competing in the retail market for fluid milk and to fix the
retail price of fluid milk above competitive prices. Specifically, class actions
were commenced by Diane Barela and Neila Ross, Ron Moliare and Paul C. Pfeifle
on December 7, December 14, and December 23, 1992, respectively. The Court has
yet to certify any of these classes. A demurrer to the complaints was denied.
Notwithstanding that it believes there is no merit to these cases, Ralphs had
reached an agreement in principle to settle them.
However, no settlement agreement has been signed. The Company does not
believe that the resolution of these cases will have a material adverse effect
on its future financial condition. Any settlement would be subject to court
approval.
On March 25, 1991, George A. Koteen Associates, Inc. ("Koteen Associates")
commenced an action in San Diego Superior Court alleging that Ralphs breached an
alleged utility rate consulting agreement. In December 1992, a jury returned a
verdict of approximately $4.9 million in favor of Koteen Associates and in March
1993, attorney's fees and certain other costs were awarded to the plaintiff.
Ralphs has appealed the judgment and fully reserved in Fiscal 1992 against an
adverse ruling by the appellate courts.
F-42
<PAGE> 147
RALPHS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In April 1994, Ralphs was served with a complaint filed by over 240 former
employees at Ralphs' bakery in the Atwater district of Los Angeles (the "Bakery
Plaintiffs"). The action was commenced in the United States District Court for
the Central District of California, and, among other claims, the Bakery
Plaintiffs alleged that Ralphs breached its collective bargaining agreement and
violated the Workers Adjustment Retraining Notification Act (the "WARN Act")
when it downsized and subsequently closed the bakery. In their complaint, the
Bakery Plaintiffs are seeking damages for lost wages and benefits as well as
punitive damages. The Bakery Plaintiffs also named Ralphs and two of its
management employees in fraud, conspiracy and emotional distress causes of
action. In addition, the Bakery Plaintiffs sued their union local for breach of
its duty of fair representation and other alleged misconduct, including fraud
and conspiracy. The defendants have answered the complaint and discovery is
ongoing. Trial is set for February, 1996, and Ralphs is vigorously defending
this suit. Management believes, based on its assessment of the facts, that the
resolution of this case will not have a material effect on the Company's
financial position or results of operations.
In addition, Ralphs is a defendant in a number of other cases currently in
litigation or potential claims encountered in the normal course of business
which are being vigorously defended. In the opinion of management, the
resolutions of these matters will not have a material effect on Ralphs'
financial position or results of operations.
Environmental Matters
In January 1991, the California Regional Water Quality Control Board for
the Los Angeles Region (the "Regional Board") requested that Ralphs conduct a
subsurface characterization of Ralphs' Atwater property. This request was part
of an ongoing effort by the Regional Board, in connection with the U.S.
Environmental Protection Agency (the "EPA"), to identify contributors to
groundwater contamination in the San Fernando Valley. Significant parts of the
San Fernando Valley, including the area where Ralphs' Atwater property is
located, have been designated federal Superfund sites requiring response actions
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, because of regional groundwater contamination. On June 18,
1991, the EPA made its own request for information concerning the Atwater
property. Since that time, the Regional Board has requested further
investigation by Ralphs. Ralphs has conducted the requested investigations and
has reported the results to the Regional Board. Approximately 25 companies have
entered into a Consent Order (EPA Docket No. 94-11) with the EPA to investigate
and design a remediation system for contaminated groundwater beneath an area
which includes the Atwater property. Ralphs is not a party to the Consent Order,
but is cooperating with requests of the subject companies to allow installation
of monitoring or recovery wells on Ralphs' property. Based upon available
information, management does not believe this matter will have a material
adverse effect on the Company's financial condition or results of operations.
Ralphs has removed underground storage tanks and remediated soil
contamination at the Atwater property. In some instances the removals and the
contamination were associated with grocery business operations, in others they
were associated with prior property users. Although the possibility of other
contamination from prior operations or adjacent properties exists at the Atwater
property, management does not believe that the costs of remediating such
contamination will be material to the Company.
Apart from the Atwater property, the Company has recently had environmental
assessments performed on a significant portion of its facilities, including
warehouse and distribution facilities. The Company believes that any responsive
actions required at the examined properties as a result of such assessments will
not have a material adverse effect on its financial condition or results of
operations.
Ralphs has incurred approximately $4.5 million in non-recurring capital
expenditures for conversion of refrigerants during 1994. Other than these
expenditures, Ralphs has not incurred material capital expenditures
F-43
<PAGE> 148
RALPHS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
for environmental controls during the previous three years, nor does management
anticipate incurring such expenditures during the current fiscal year or the
succeeding fiscal year.
Ralphs is subject to a variety of environmental laws, rules, regulations
and investigative or enforcement activities, as are other companies in the same
or similar business. The Company believes it is in substantial compliance with
such laws, rules and regulations. These laws, rules, regulations and agency
activities change from time to time, and such changes may affect the ongoing
business and operations of the Company.
(6) EQUITY APPRECIATION RIGHTS PLANS
Effective August 26, 1988, Ralphs adopted an Equity Appreciation Plan
("1988 Plan"), whereby certain officers received equity rights representing, in
aggregate, the right to receive 15% of the increase in the appraised value (as
defined in the 1988 Plan) of the Ralphs' equity over an initial value of $120.0
million. The 1988 Plan was amended in January 1992 by agreement among Ralphs and
the Equity Rights holders ("Amended Plan"). Ralphs accrued for the increase in
equity appreciation rights over the contractually defined vesting period (fully
accrued in fiscal 1991), based upon the maximum allowable contractual amount
which approximated ending appraised value.
Under the Amended Plan, all outstanding Equity Rights vested in full are no
longer subject to forfeiture by the holders, except in the event a holder's
employment is terminated for cause within the meaning of the Amended Plan. The
appraised value of Ralphs' equity is to be determined as of May 1 each year by
an investment banking company engaged for this purpose utilizing the methodology
specified in the Amended Plan (which is unchanged from that specified in the
1988 Plan); however, under the Amended Plan the appraised value of Ralphs'
equity for purposes of the plan may not be less than $400.0 million nor exceed
$517.0 million. The amount of equity rights redeemable at any given time is
defined in each holders' separate agreement. On exercise of an equity right, the
holder will be entitled to receive a pro rata percentage of any such increase in
appraised value. In addition, the Amended Plan provides for the possible
additional further payment to the holder of each exercised Equity Right of an
amount equal to the "Deferred Value" of such Equity Right as defined in the
Amended Plan. Ralphs did not incur any expense under the Equity Appreciation
Rights Plan in fiscal 1993 and fiscal 1994.
The amount of Equity Rights redeemable for each of the four years
subsequent to fiscal 1994 are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
-----------
<S> <C>
1995...................................... $ 6,669
1996...................................... 12,389
1997...................................... 3,636
1998...................................... 10,150
-------
$32,844
=======
</TABLE>
F-44
<PAGE> 149
RALPHS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS
ENDED ENDED
JANUARY JANUARY
30, 29,
1994 1995
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current:
Federal................................................... $ (2,424) $ 713
State..................................................... 3,500 2,653
--------- -------
$ 1,076 $ 3,366
--------- -------
Deferred:
Federal................................................... $ (109,125) $ (3,366)
State..................................................... $ -- $ --
--------- -------
$ (109,125) $ (3,366)
--------- -------
Total income tax expense (benefit)........................ $ (108,049) $ --
========= =======
</TABLE>
Income tax expense (benefit) has been classified in the accompanying
statements of operations as follows:
<TABLE>
<CAPTION>
1993 1994
--------- --------
<S> <C> <C>
Earnings before extraordinary items........................... $(108,049) $ --
Extraordinary item............................................ -- --
------ --------
Net tax expense (benefit)..................................... $(108,049) $ --
====== ========
</TABLE>
The differences between income tax expense and income taxes computed using
the top marginal U.S. Federal income tax rate of 35% for fiscal 1993 and fiscal
1994 applied to earnings (loss) before income taxes were as follows:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS
ENDED ENDED
JANUARY JANUARY
30, 29,
1994 1995
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Amount of expected expense (benefit) computed using the
statutory Federal rate........................................ $ 10,611 $ 11,241
Utilization of financial operating loss....................... (10,611) (11,241)
Amortization of excess cost over net assets acquired.......... -- --
State income taxes, net of Federal income tax benefit......... 3,500 2,653
Accounting limitation (recognition) of deferred tax benefit... (109,125) (3,366)
Alternative minimum tax....................................... 625 --
Other, net.................................................... (3,049) 713
--------- ------
Total income tax expense (benefit)......................... $ (108,049) $ --
========= ======
</TABLE>
In connection with a reorganization plan filed under Chapter 11, Title 11
of the United States Bankruptcy Code by Ralphs former ultimate parent,
Federated, Ralphs entered into a "Tax Indemnity Agreement" with Federated and
certain of its affiliates (the "Affiliated Group"). The agreement required that
one of the affiliated companies, Federated Department Stores, pay certain tax
liabilities, if any, related to Ralphs Grocery Company being a member of the
Affiliated Group. The Tax Indemnity Agreement provides a
F-45
<PAGE> 150
RALPHS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
formula to determine the amount of additional tax liabilities through February
3, 1992 that Ralphs Grocery Company would be obligated to pay the Affiliated
Group. However, such additional liability, if any, is limited to $10 million
subject to certain adjustments.
Under the Tax Indemnity agreement, both Ralphs Supermarkets, Inc. and
Ralphs Grocery Company have agreed to pay Federated Department Stores, Inc. $1
million annually for each of five years starting on February 3, 1992, and an
additional $5 million on February 3, 1997. These total payments of $10 million
have been recorded in the consolidated financial statements at February 2, 1992.
The five $1 million installments are to be paid by Ralphs Grocery Company and
the $5 million is the joint obligation of both Ralphs Supermarkets, Inc. and
Ralphs Grocery Company. Also, in the event Federated Department Stores, Inc. is
required to pay certain tax liabilities on behalf of Ralphs Grocery Company,
both Ralphs Supermarkets, Inc. and Ralphs Grocery Company have agreed to
reimburse Federated Department Stores, Inc. up to an additional $10 million,
subject to certain adjustments. This additional obligation is the joint and
several obligation of both Ralphs Supermarkets, Inc. and Ralphs Grocery Company.
The $5 million payment and the potential $10 million payment may be paid, at the
option of both Ralphs Supermarkets, Inc. and Ralphs Grocery Company, in cash or
newly issued Ralphs Supermarkets, Inc. Common Stock.
On October 15, 1992, Ralphs filed an election with the Internal Revenue
Service under Section 338(h)(10). Under this Section, Ralphs is required to
restate, for Federal tax purposes, its assets and liabilities to fair market
value as of February 3, 1992. The effect of this transaction is to record a new
Federal tax basis to reflect a change of control for Federal tax purposes
resulting from the Internal Reorganization. No change of control for financial
reporting purposes was affected.
In August, 1993, The Omnibus Budget Reconciliation Act of 1993 (the "Act")
was enacted. The Act increased the Federal income tax rate from 34 to 35 percent
for filers whose taxable income exceeded $10.0 million. In the current year, the
effect of the Federal income tax rate change was to increase the net deferred
tax assets. In addition, the Act also provided for the deductibility of certain
intangibles, including costs in excess gross assets acquired.
The Act has significantly impacted the aggregate deferred tax asset
position of Ralphs at January 29, 1995. Ralphs elected to retroactively apply
certain provisions of the Act related to the February 3, 1992 change of control
for Federal tax purposes. As such, approximately $610.7 million in excess of
cost over net assets acquired became fully deductible for Federal tax purposes.
This amount is deductible over 15 years. This excess in the tax basis over the
financial statement basis of excess of cost over net assets acquired aggregated
$123.0 million at January 29, 1995.
During the year ended January 30, 1994, Ralphs recorded the incremental
impact of the Act on deductible temporary differences and increased its deferred
income tax assets by a net amount of $109.1 million. The decision to reduce the
valuation allowance was based upon several factors. Specific among them, was the
Company's completion of its restructuring plan which effectively reduced
estimated interest expense by approximately $9.0 as compared to the year ended
January 31, 1993. In addition, the January 31, 1993 operating results were
negatively effected by several charges including provisions for restructuring,
legal settlements and a loss on retirement of debt all aggregating approximately
$90 million on a pre-tax basis.
Although there can be no assurance as to future taxable income, the Company
believes that, based upon the above mentioned events, as well as the Company's
expectation of future taxable income, it is more likely than not that the
recorded deferred tax asset will be realized. In order to realize the net
deferred tax asset currently recorded, Ralphs will need to generate sufficient
future taxable income, assuming current tax rates, of approximately $320.0
million.
At January 29, 1995, the Company has Federal net operating loss (NOL)
carryforwards of approximately $162.0 million and Federal and state Alternative
Minimum Tax Credit carryforwards of approximately
F-46
<PAGE> 151
RALPHS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$2.1 million which can be used to offset Federal taxable income and regular
taxes payable, respectively. The NOL carryforwards begin expiring in 2008.
During the past three fiscal years, the Company has generated Federal
taxable losses of approximately $162.0 million versus financial pre-tax earnings
of approximately $65.2 million for the same periods. These differences result
principally from excess tax versus financial amortization on certain intangible
assets (excess of cost over net assets acquired), as well as several other
originating temporary differences.
(8) EMPLOYEE BENEFIT PLANS
Ralphs has a defined benefit pension plan covering substantially all
employees not already covered by collective bargaining agreements with at least
one year of credit service (defined at 1,000 hours). Ralphs' policy is to fund
pension costs at or above the minimum annual requirement.
On February 23, 1990, the Company adopted a Supplemental Executive
Retirement Plan covering certain key officers of Ralphs. The Company has
purchased split dollar life insurance policies for participants under this plan.
Under certain circumstances, the cash surrender value of certain split dollar
life insurance policies will offset Ralphs obligations under the Supplemental
Executive Retirement Plan.
During the second quarter of 1994, the Company approved and adopted a new
non-qualified retirement plan, the Ralphs Grocery Company Retirement
Supplemental Plan ("Retirement Supplement Plan") effective January 1, 1994 and
amended the existing Supplemental Executive Retirement Plan effective April 9,
1994. These changes to the retirement plans were made pursuant to the enactment
of the 1993 Omnibus Budget Reconciliation Act.
Under the provisions of the Retirement Supplement Plan, participants are
entitled to receive benefits based on earnings over the indexed amount of
$150,000.
The following actuarially determined components were included in the net
pension expense:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS
ENDED ENDED
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Service cost................................................ $ 2,228 $ 2,901
Interest cost on projected benefit obligation............... 2,838 3,821
Actual return on assets..................................... (2,695) (1,447)
Net amortization and deferral............................... (46) (1,100)
------- -------
Net pension expense.................................... $ 2,325 $ 4,175
======= =======
</TABLE>
The accrued pension cost for accumulated benefits that exceeded assets at
January 30, 1994 was immaterial to the consolidated financial statements.
Service costs for fiscal 1993 were calculated using a discount rate of 8.5%
and a rate of increase in future compensation levels of 6%. The 1994 discount
rate and the rate of increase in future compensation levels were reduced to
7.75% and 5.0%, respectively, to reflect the decline in interest rates in 1994.
The discount rate will be increased to 8.25% in 1995 in order to reflect the
increase in the current long-term interest rate. A long-term rate of return on
assets of 9% was used for fiscal 1993 and 1994.
The pension plan assets consist primarily of common stocks, bonds, debt
securities, and a money market fund. Plan benefits are based primarily on years
of service and on average compensation during the last years of employment.
F-47
<PAGE> 152
RALPHS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Ralphs participates in multi-employer pension plans and health and welfare
plans administered by various trustees for substantially all union employees.
Contributions to these plans are based upon negotiated contractual rates. In
both Fiscal 1992 and Fiscal 1993 the multi-employer pension plan was deemed to
be overfunded based upon the collective bargaining agreement then currently in
force. During Fiscal 1993 the agreement called for pension benefits which
resulted in additional required expense. The UFCW health and welfare benefit
plans were overfunded and those employers who contributed to these plans
received a prorata share of excess reserve in these health care benefit plans
through a reduction in current maintenance payments. Ralphs' share of the excess
reserve was approximately $24.5 million of which $11.8 million was recognized in
Fiscal 1993 and the remainder, $12.7 million, was recognized in Fiscal 1994.
Since employers are required to make contributions to the benefit funds at
whatever level is necessary to maintain plan benefits, there can be no assurance
that plan maintenance payments will remain at current levels.
The expense related to these plans is summarized as follows:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS
ENDED ENDED
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Multi-employer pension plans................................ $17,687 $ 8,897
======= =======
Multi-employer health and welfare........................... $45,235 $66,351
======= =======
</TABLE>
Ralphs maintains the Ralphs Grocery Company Savings Plan Plus -- Prime and
the Ralphs Grocery Savings Plan Plus -- Basic (collectively referred to as the
"401(k) Plan") covering substantially all employees who are not covered by
collective bargaining agreements and who have at least one year of credited
service (defined at 1,000 hours). The 401(k) Plan provided for both pre-tax and
after-tax contributions by participating employees. With certain limitations,
participants may elect to contribute from 1% to 12% of their annual compensation
on a pre-tax basis to the Plan. Ralphs has committed to match a minimum of 20%
of an employee's contribution to the 401(k) Plan that do not exceed 5% of the
employee's compensation. Expenses under the 401(k) Plan for fiscal 1993 and 1994
were $431,774 and $446,826, respectively.
Ralphs has an executive incentive compensation plan which covers
approximately 39 key employees. Benefits to participants are earned based on a
percentage of base compensation upon attainment of a targeted formula of
earnings. Expense under this plan for fiscal 1993 and 1994 was $2.6 million and
$2.4 million, respectively. Ralphs has also adopted an incentive plan for
certain members of management. Benefits to participants are earned based on a
percentage of base compensation upon attainment of a targeted formula of
earnings. Expense under this plan for fiscal 1993 and 1994 was $3.0 million and
$3.1 million, respectively.
The aforementioned incentive plans may be cancelled by the Board of
Directors at any time.
Ralphs sponsors a postretirement medical benefit plan (Postretirement
Medical Plan) covering substantially all employees who are not members of a
collective bargaining agreement and who retire under certain age and service
requirements.
The Postretirement Medical Plan is a traditional type medical plan
providing outpatient, inpatient and various other covered services. Such
benefits are funded from Ralphs' general assets. The calendar year deductible is
$1,270 per individual, indexed to the Medical Consumer Price Index.
F-48
<PAGE> 153
RALPHS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The net periodic cost of the Postretirement Medical Plan includes the
following components:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS
ENDED ENDED
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Service cost................................................ $ 1,767 $ 1,396
Interest cost............................................... 1,603 1,387
Return on plan assets....................................... -- --
Net amortization and deferment.............................. -- (228)
------ -------
Net postretirement benefit cost........................... $ 3,370 $ 2,555
====== =======
</TABLE>
Service cost was calculated using a medical cost trend of 10.5% and a
decreasing medical cost trend rate of 14%-8% for 1993 and 1994 respectively. The
discount rate for 1993 was 8.5% and was reduced to 7.75% in 1994 to reflect the
decline in interest rates in 1994. In 1995, the discount rate will increase to
8.25% in order to reflect the increase in the current long-term interest rate.
The long-term rate of return of plan assets is not applicable as the plan is not
funded.
The effect of a one-percent increase in the medical cost trend would
increase the fiscal 1994 service and interest cost to 18%.
(9) QUARTERLY RESULTS (UNAUDITED)
Quarterly results for fiscal 1993 and 1994 are as follows:
<TABLE>
<CAPTION>
GROSS OPERATING INCOME NET
SALES PROFIT INCOME TAXES EARNINGS
-------- ------ --------- ------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
FY 1993 Quarters
12 weeks ended 04/25/93................. $ 632.4 $142.4 $ 31.4 $ 1.0 $ 3.9
12 weeks ended 07/18/93................. 629.0 145.2 36.8 (1.0) 12.9
12 weeks ended 10/10/93................. 612.8 141.5 31.7 -- 7.0
16 weeks ended 01/30/94................. 856.0 207.4 52.2 (108.0) 114.6
-------- ------ ------ ------- ------
Total................................ $2,730.2 $636.5 $ 152.1 $(108.0) $138.4
======== ====== ====== ======= ======
FY 1994 Quarters
12 weeks ended 04/24/94................. $ 616.0 $141.7 $ 34.1 $ -- $ 8.4
12 weeks ended 07/17/94................. 625.0 142.9 32.9 -- 7.2
12 weeks ended 10/09/94................. 615.4 138.8 30.8 -- 4.3
16 weeks ended 01/29/95................. 868.2 200.2 47.8 -- 12.2
-------- ------ ------ ------- ------
Total................................ $2,724.6 $623.6 $ 145.6 $ -- $ 32.1
======== ====== ====== ======= ======
</TABLE>
F-49
<PAGE> 154
RALPHS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(10) SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS
ENDED ENDED
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Supplemental cash flow disclosures:
Interest paid, net of amounts capitalized................. $93,738 $99,067
Income taxes paid......................................... $ 2,423 $ 6,270
Capital lease assets and obligations assumed.............. $15,395 $41,131
</TABLE>
(11) STOCK OPTION PLAN
On February 3, 1992, 3,162,235 options for Common Stock of the Company were
granted under the Ralphs Non-qualified Stock Option Plan. All options were
vested, but not exercisable, on the date of the grant. Options granted to
certain officers become exercisable at the rate of 20% on each September 30 of
calendar years 1992 through 1996. Options granted to other officers become
exercisable as to 10% of the grant on each of September 30, 1992 and 1993, 15%
on each of September 30, 1994 through September 30, 1997, and 20% on September
20, 1998.
The following table summarizes the Ralphs Non-qualified Stock Option Plan.
<TABLE>
<CAPTION>
NUMBER OF PRICE
OPTIONS RANGE
--------- ------
<S> <C> <C>
Options Outstanding at January 30, 1994:
Beginning of year............................................. 3,162,235 $20.21
Granted....................................................... -- --
Exercised..................................................... -- --
Cancelled..................................................... -- --
Expired....................................................... -- --
End of year................................................ 3,162,235 $20.21
--------- ------
Exercisable at end of year...................................... 811,760 --
--------- ------
Available for grant at end of year.............................. -- --
--------- ------
Options Outstanding at January 29, 1995:
Beginning of year............................................. 3,162,235 $20.21
Granted....................................................... -- --
Exercisable................................................... -- --
Cancelled..................................................... -- --
Expired....................................................... -- --
End of year................................................ 3,162,235 $20.21
--------- ------
Exercisable at end of year...................................... 1,330,924 --
--------- ------
Available for grant at end of year.............................. -- --
--------- ------
</TABLE>
The option price for outstanding options at January 29, 1995 assumes a
grant date fair market value of Common Stock of the Company equal to $20.21 per
share, which represents the high end of a range of estimated values of the
Common Stock of the Company on February 3, 1992, the date of the grant.
F-50
<PAGE> 155
RALPHS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) THE MERGER (UNAUDITED)
On September 14, 1994, Food 4 Less Supermarkets, Inc. ("Food 4 Less"), Food
4 Less Holdings, Inc. ("Holdings"), and the parent company of Holdings, Food 4
Less, Inc. ("FFL"), entered into a definitive Agreement and Plan of Merger (as
amended from time to time, the "Merger Agreement") with Ralphs Supermarkets,
Inc. (the "Holding Company") and its stockholders. Pursuant to the terms of the
Merger Agreement, Food 4 Less will be merged with and into Holding Company (the
"RSI Merger") and Holding Company will continue as the surviving corporation.
Food 4 Less is a multiple format supermarket operator that operates in three
geographic areas: Southern California, Northern California and certain areas of
the Midwest.
Immediately following the RSI Merger, Ralphs Grocery Company ("RGC"), which
is currently a wholly-owned subsidiary of Holding Company, will merge with and
into Holding Company (the "RGC Merger," and together with the RSI Merger, the
"Merger"), and Holding Company will change its name to Ralphs Grocery Company
(the "New Company"). Prior to the Merger, FFL will merge with and into Holdings,
which will be the surviving corporation (the "FFL Merger"). Immediately
following the FFL Merger, Holdings will change its jurisdiction of incorporation
by merging with a newly-formed, wholly-owned subsidiary ("Holdings"),
incorporated in Delaware (the "Reincorporation Merger"). As a result of the
Merger, the FFL Merger and the Reincorporation Merger, the New Company will
become a wholly-owned subsidiary of Holdings. Agreement has been reached with
each of the California Attorney General and the Federal Trade Commission for
approval of the Merger. Food 4 Less and Ralphs have agreed in a settlement
agreement with the Attorney General to divest 27 specific stores in Southern
California. Under the agreement, the Company must divest 14 stores by June 30,
1995, and the balance of 13 stores by December 31, 1995.
In order to consummate the Merger, Food 4 Less has made an Offer to
Exchange and Offer to Purchase and Solicit Consents with respect to the holders
of the 9% Senior Subordinated Notes (the "Old RGC 9% Notes") due April 1, 2003
of RGC and the 10 1/4% Senior Subordinated Notes due July 15, 2002 of RGC (the
"Old RGC 10 1/4% Notes," and together with the Old RGC 9% Notes, the "Old RGC
Notes") (i) to exchange (as so amended and restated, the "Exchange Offers") such
Old RGC Notes for New Senior Subordinated Notes due 2005 (the "Notes") plus a
cash payment of $20.00 in cash for each $1,000 principal amount of Old RGC Notes
tendered for exchange or (ii) to purchase (the "Cash Offers," and together with
the Exchange Offers, the "Offers") Old RGC Notes for $1,010 in cash per $1,000
principal amount of Old RGC Notes accepted for purchase, in each case, plus
accrued and unpaid interest to the date of exchange of purchase. The Offers are
subject to the terms and conditions set forth in an Amended and Restated
Prospectus and Solicitation Statement, filed by Food 4 Less with the Securities
and Exchange Commission and which is subject to further change (the
"Prospectus"), including: (1) satisfaction of a minimum tender amount (i.e., at
least a majority of the aggregate principal amount of the outstanding Old RGC
Notes being validly tendered for exchange for Notes and not withdrawn pursuant
to the Offers prior to the date of expiration); (2) the receipt of the requisite
consents to certain amendments to the indentures (the "Indentures") under which
the Old RGC Notes were issued (i.e., consents from holders of Old RGC Notes
representing at least a majority in aggregate principal amount of each issue of
Old RGC Notes held by persons other than Ralphs and its affiliates) on or prior
to the date of expiration; (3) the satisfaction or waiver, in Food 4 Less' sole
discretion, of all conditions precedent to the Merger; (4) the prior or
contemporaneous consummation of other exchange offers, consent solicitations and
public offerings contemplated by the Prospectus; and (5) the prior or
contemporaneous consummation of the bank financing and the equity investment
described in the Prospectus. As a result of the RSI Merger and the RGC Merger,
the Notes and any outstanding Old RGC Notes not tendered in the Offers will be
the obligations of the New Company.
Conditions to the consummation of the RSI Merger include the receipt of
necessary consents and the completion of financing of the transaction. The
purchase price for Holding Company is approximately $1.5 billion, including the
assumption or repayment of debt. The consideration payable to the stockholders
of
F-51
<PAGE> 156
RALPHS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Holding Company consists of $375 million in cash, $131.5 million principal
amount of 13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 to be
issued to the selling shareholders of Holding Company (the "Seller Debentures")
by Holdings and $18.5 million initial accreted value of 13 5/8% Senior Discount
Debentures due 2005 (the "New Discount Debentures"). Holdings will use $100
million of the cash received from a new equity investment (the "1995 Equity
Investment"), together with the Seller Debentures and the New Discount
Debentures, to acquire approximately 48% of the capital stock of Holding Company
immediately prior to consummation of the RSI Merger. Holdings will then
contribute the $250 million of purchased shares of Holding Company stock to Food
4 Less, and pursuant to the RSI Merger the remaining shares of Holding Company
stock will be acquired for $275 million in cash.
Standard & Poor's has publicly announced that, upon consummation of the
Merger, it intends to assign a new rating to the Old RGC Notes. Such new rating
assignment, if implemented, would constitute a Rating Decline pursuant to the
Indentures. The consummation of the Merger and the resulting change in
composition of the Board of Directors of RGC, together with the anticipated
Rating Decline, would constitute a Change of Control Triggering Event under the
Indentures. Although RGC does not anticipate that there will be a significant
amount of Old RGC Notes outstanding following consummation of the Exchange
Offers, upon such a Change of Control Triggering Event, the New Company would be
obligated to make the Change of Control Offer following the Merger for all
outstanding Old RGC Notes at 101% of the principal amount thereof plus accrued
and unpaid interest to the date of repurchase.
Due to the increased size, dual format strategy and integration related
costs, after giving effect to or in connection with the Merger, RGC believes
that its future operating results will not be directly comparable to the
historical operating results of RGC. Upon consummation of the Merger, the
operations and activities of RGC will be significantly impacted due to
conversions of some existing stores to Food 4 Less warehouse stores as well as
the consolidation of various operating functions and departments. This
consolidation is expected to result in a restructuring charge for the New
Company. The restructuring charge may be material in relation to the
stockholders' equity and financial position of RGC and the New Company.
Following the consummation of the Merger, the New Company will be highly
leveraged.
F-52
<PAGE> 157
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR THE
ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT RELATES, NOR DOES
IT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY EXCHANGE OF
EXCHANGE NOTES FOR PRIVATE NOTES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................... 4
Risk Factors.......................... 14
The Exchange Offer.................... 19
Use of Proceeds....................... 27
Capitalization........................ 28
Selected Historical Financial Data of
the Company......................... 29
Selected Historical Financial Data of
RSI................................. 31
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 33
Business.............................. 46
Management............................ 57
Executive Compensation................ 60
Principal Stockholders................ 64
Certain Relationships and Related
Transactions........................ 65
Description of Capital Stock.......... 67
Description of the Notes.............. 69
Description of the Credit Facility.... 96
Description of Holdings'
Indebtedness........................ 98
Book Entry; Delivery and Form......... 100
Certain Federal Income Tax
Consequences........................ 102
Plan of Distribution.................. 102
Legal Matters......................... 103
Experts............................... 103
Available Information................. 103
Index to Financial Statements......... F-1
============================================
</TABLE>
======================================================
--------------------
PROSPECTUS
--------------------
RALPHS GROCERY COMPANY
$155,000,000
11% SENIOR SUBORDINATED NOTES
DUE 2005
OCTOBER 6, 1997
======================================================
<PAGE> 158
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Ralphs Grocery Company and its subsidiaries Cala Co. and Food 4 Less of
Southern California, Inc., are Delaware corporations and their Certificates of
Incorporation and Bylaws provide for indemnification of their officers and
directors to the fullest extent permitted by law. Section 102(b)(7) of the
Delaware General Corporation Law (the "DGCL") eliminates the liability of a
corporation's directors to a corporation or its stockholders, except for
liabilities related to breach of duty of loyalty, actions not in good faith, and
certain other liabilities.
Section 145 of the DGCL provides for the indemnification by a Delaware
corporation of its directors, officers, employees and agents in connection with
actions, suits or proceedings brought against them by a third party or in the
right of the corporation, by reason of the fact that they were or are such
directors, officers, employees or agents, against liabilities and expenses
incurred in any such action, suit or proceeding.
Alpha Beta Company, Bay Area Warehouse Stores, Inc., Bell Markets, Inc.,
Cala Foods, Inc., Crawford Stores, Inc., Food 4 Less of California, Inc., Food 4
Less GM, Inc. and Food 4 Less Merchandising, Inc. are California corporations
and their Certificates of Incorporation and Bylaws provide for indemnification
of their officers and directors to the fullest extent permitted by law. Section
204(10) of the California General Corporation Law (the "CGCL") eliminates the
liability of a corporation's directors for monetary damages to the fullest
extent permissible under California law. Pursuant to Section 204(11) of the
CGCL, a California corporation may indemnify Agents (as defined in Section 317
of the CGCL), subject only to the applicable limits set forth in Section 204 of
the CGCL with respect to actions for breach of duty to the corporation and its
shareholders.
As permitted by Section 317 of the CGCL, indemnification may be provided by
a California corporation of its Agents (as defined in Section 317 of the CGCL),
to the maximum extent permitted by the CGCL, in connection with any proceeding
arising by reason of the fact that such person is or was such a director or
officer, against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in any such proceeding.
Falley's, Inc. is a Kansas corporation and its Bylaws provide for
indemnification of its officers and directors to the fullest extent permitted by
law. Section 17-6305(a) of the Kansas General Corporation Code (the "KGCC")
provides for the indemnification by a Kansas corporation of its directors,
officers, employees and agents in connection with actions, suits or proceedings
brought against them by a third party or in the right of the corporation, by
reason of the fact that they were or are such directors, officers, employees or
agents, against liabilities and expenses incurred in any such action, suit or
proceeding.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
A list of exhibits filed with this Registration Statement on Form S-4 is
set forth in the Index to Exhibits on page E-1, and is incorporated herein by
reference.
(b) Financial Statement Schedules:
(i) Ralphs Grocery Company
Schedule II -- Valuation and Qualifying Accounts
(ii) Ralphs Supermarkets, Inc.
Schedule II -- Valuation and Qualifying Accounts
SCHEDULES OMITTED
Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the information required by
such omitted schedules is set forth in the financial statements or the notes
thereto.
II-1
<PAGE> 159
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake that insofar as
indemnification for liabilities arising under the Securities Act of 1933, as
amended (the "Act"), may be permitted to directors, officers and controlling
persons of the Registrants pursuant to the foregoing provisions, or otherwise,
the Registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim of
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or the registrant in the successful defense of
any action, suit paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into this prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus and facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase of decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) of the Securities Act of
1933 if, in the aggregate, the changes in volume and price represent no
more than a 20 percent change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-2
<PAGE> 160
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 4 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on October 3rd, 1997.
RALPHS GROCERY COMPANY
By: /s/ TERRENCE J. WALLOCK
------------------------------------
Terrence J. Wallock
Secretary
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ -----------------
<C> <S> <C>
* Chief Executive Officer and October 3, 1997
- --------------------------------------------- Director (Principal
George G. Golleher Executive Officer)
* President, Chief Operating October 3, 1997
- --------------------------------------------- Officer and Director
Alfred A. Marasca
* Executive Vice President -- October 3, 1997
- --------------------------------------------- Finance/Administration
Greg Mays
* Senior Vice President and October 3, 1997
- --------------------------------------------- Chief Financial Officer
John T. Standley (Principal Financial
Officer)
* Group Vice October 3, 1997
- --------------------------------------------- President -- Finance,
Christopher Hall Controller and Chief
Accounting Officer
(Principal Accounting
Officer)
* Chairman of the Board and October 3, 1997
- --------------------------------------------- Director
Ronald W. Burkle
* Director October 3, 1997
- ---------------------------------------------
Robert I. Bernstein
* Director October 3, 1997
- ---------------------------------------------
Robert Beyer
* Director October 3, 1997
- ---------------------------------------------
Joe S. Burkle
* Director October 3, 1997
- ---------------------------------------------
Peter Copses
* Director October 3, 1997
- ---------------------------------------------
Patrick L. Graham
* Director October 3, 1997
- ---------------------------------------------
Lawrence K. Kalantari
</TABLE>
II-3
<PAGE> 161
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ -----------------
<C> <S> <C>
* Director October 3, 1997
- ---------------------------------------------
John Kissick
* /s/ TERRENCE J. WALLOCK
- ---------------------------------------------
Terrence J. Wallock
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 162
SIGNATURES
(continued)
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 4 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on October 3rd, 1997.
BAY AREA WAREHOUSE STORES, INC.
BELL MARKETS, INC.
CALA CO.
CALA FOODS, INC.
FOOD 4 LESS OF CALIFORNIA, INC.
FOOD 4 LESS GM, INC.
FOOD 4 LESS MERCHANDISING, INC.
FOOD 4 LESS OF SOUTHERN CALIFORNIA, INC.
BY: /s/ TERRENCE J. WALLOCK
-------------------------------------
Terrence J. Wallock
Secretary
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ -----------------
<C> <S> <C>
* Chief Executive Officer and October 3, 1997
- --------------------------------------------- Director (Principal
George G. Golleher Executive Officer) of each
Registrant
* Chief Financial Officer October 3, 1997
- --------------------------------------------- (Principal Financial Officer
John T. Standley of each Registrant)
* Vice President and Controller October 3, 1997
- --------------------------------------------- (Principal Accounting
Christopher Hall Officer of each Registrant)
* Director and Chairman of the October 3, 1997
- --------------------------------------------- Board of each Registrant
Ronald W. Burkle
* /s/ TERRENCE J. WALLOCK
- ---------------------------------------------
Terrence J. Wallock
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 163
SIGNATURES
(continued)
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 4 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on October 3rd, 1997.
CRAWFORD STORES, INC.
By: /s/ TERRENCE J. WALLOCK
------------------------------------
Terrence J. Wallock
Secretary
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ -----------------
<C> <S> <C>
* President, Chief Operating October 3, 1997
- --------------------------------------------- Officer and Director
Alfred A. Marasca (Principal Executive
Officer)
* Chief Financial Officer October 3, 1997
- --------------------------------------------- (Principal Financial
John T. Standley Officer)
* Vice President and Controller October 3, 1997
- --------------------------------------------- (Principal Accounting
Christopher Hall Officer)
* Director October 3, 1997
- ---------------------------------------------
Ronald W. Burkle
* Director October 3, 1997
- ---------------------------------------------
George G. Golleher
* /s/ TERRENCE J. WALLOCK
- ---------------------------------------------
Terrence J. Wallock
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 164
SIGNATURES
(continued)
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 4 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on October 3rd, 1997.
ALPHA BETA COMPANY
By: /s/ TERRENCE J. WALLOCK
------------------------------------
Terrence J. Wallock
Secretary
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ -----------------
<C> <S> <C>
* Chairman of the Board, Chief October 3, 1997
- --------------------------------------------- Executive Officer and
Ronald W. Burkle Director (Principal
Executive Officer)
* Chief Financial Officer October 3, 1997
- --------------------------------------------- (Principal Financial
John T. Standley Officer)
* Vice President and Controller October 3, 1997
- --------------------------------------------- (Principal Accounting
Christopher Hall Officer)
* Director October 3, 1997
- ---------------------------------------------
George G. Golleher
* /s/ TERRENCE J. WALLOCK
- ---------------------------------------------
Terrence J. Wallock
Attorney-in-Fact
</TABLE>
II-7
<PAGE> 165
SIGNATURES
(continued)
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 4 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on October 3rd, 1997.
FALLEY'S, INC.
By: /s/ TERRENCE J. WALLOCK
------------------------------------
Terrence J. Wallock
Secretary
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ----------------------------- ------------------
<C> <S> <C>
* Chief Executive Officer October 3, 1997
- --------------------------------------------- (Principal Executive
Joe S. Burkle Officer)
* Chief Financial Officer October 3, 1997
- --------------------------------------------- (Principal Financial
John T. Standley Officer)
* Vice President and Controller October 3, 1997
- --------------------------------------------- (Principal Accounting
Christopher Hall Officer)
* Director and Chairman of the October 3, 1997
- --------------------------------------------- Board
Ronald W. Burkle
* Director October 3, 1997
- ---------------------------------------------
George G. Golleher
* /s/ TERRENCE J. WALLOCK
- ---------------------------------------------
Terrence J. Wallock
Attorney-in-Fact
</TABLE>
II-8
<PAGE> 166
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholder of Ralphs Grocery Company:
We have audited, in accordance with generally accepted auditing standards,
the consolidated balance sheets of Ralphs Grocery Company (formerly Food 4 Less
Supermarkets, Inc. -- See Note 1 in the accompanying Notes to Consolidated
Financial Statements) and subsidiaries as of January 29, 1995, January 28, 1996,
and February 2, 1997 and the related consolidated statements of operations,
stockholder's equity (deficit) and cash flows for the 52 weeks ended June 25,
1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996
and the 53 weeks ended February 2, 1997, and have issued our report thereon
dated March 21, 1997 (except with respect to the matter discussed in Note 14, as
to which the date is April 17, 1997). Our audits were made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedule on page S-2 is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic consolidated financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic consolidated financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Los Angeles, California
March 21, 1997 (except with
respect to the matter
discussed in Note 14, as to
which the date is April 17,
1997)
S-1
<PAGE> 167
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
53 WEEKS ENDED FEBRUARY 2, 1997, 52 WEEKS ENDED JANUARY 28, 1996,
31 WEEKS ENDED JANUARY 29, 1995 AND 52 WEEKS ENDED JUNE 25, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PROVISIONS CHARGED
BALANCE AT CHARGED TO BALANCE
BEGINNING TO INTEREST OTHER AT END
OF PERIOD EXPENSE EXPENSE(a) PAYMENTS CHANGES(b) OF PERIOD
---------- ---------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Self-insurance liabilities
53 weeks ended February 2, 1997... $ 148,985 $ 29,184 $ 10,818 $49,494 -- $ 139,583
========= ======== ======== ======== ======== =========
52 weeks ended January 28, 1996... $ 72,739 $ 32,603 $ 10,287 $42,153 $ 75,509 $ 148,985
========= ======== ======== ======== ======== =========
31 weeks ended January 29, 1995... $ 81,704 $ 6,304 $ 3,453 $18,722 $ -- $ 72,739
========= ======== ======== ======== ======== =========
52 weeks ended June 25, 1994...... $ 85,494 $ 19,880 $ 5,836 $29,506 $ -- $ 81,704
========= ======== ======== ======== ======== =========
</TABLE>
- ---------------
(a) Amortization of discount on self-insurance reserves charged to interest
expense.
(b) Reflects self-insurance reserve of Ralphs Grocery Company which was acquired
on June 14, 1995.
S-2
<PAGE> 168
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Ralphs Grocery Company:
The audits referred to in our report dated March 9, 1995, included the financial
statement schedule for the two years ended January 29, 1995, included in the
registration statement. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We consent to the use of our reports included herein and to the reference to our
firm under the headings "Selected Historical Financial Data of RSI", "Summary of
Historical Financial Data of RSI" and "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Los Angeles, California
September 5, 1997
S-3
<PAGE> 169
RALPHS SUPERMARKETS, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
52 WEEKS ENDED JANUARY 29, 1995 AND 52 WEEKS ENDED JANUARY 30, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE CHARGED TO BALANCE
BEGINNING COSTS AND CHARGED TO DEDUCTIONS AT END
OF PERIOD EXPENSES OTHER ACCOUNTS(b) (PAYMENTS) OF PERIOD
--------- ---------- ----------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
JANUARY 29, 1995:
Self-Insurance Reserves(a)............. $80,010 $ 14,003 $ 5,976 $(27,483) $ 72,506
Store Closure Reserves................. $ 9,514 $ -- $ -- $ (764) $ 8,750
JANUARY 30, 1994:
Self-Insurance Reserves(a)............. $72,979 $ 30,323 $ 5,953 $(29,245) $ 80,010
Store Closure Reserves................. $10,277 $ -- $ -- $ (763) $ 9,514
</TABLE>
- ---------------
(a) Includes short-term portion.
(b) Amortization of discount on self-insurance reserves to interest expense.
S-4
<PAGE> 170
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
- ------ ------------------------------------------------------------------------ ------------
<S> <C> <C>
3.1 Restated Certificate of Incorporation, as amended, of Ralphs Grocery
Company (incorporated herein by reference to Exhibit 3.1 of Ralphs
Grocery Company's Quarterly Report on Form 10-Q for the quarter ended
July 16, 1995)..........................................................
3.2 Restated Bylaws of Ralphs Grocery Company (formerly known as Ralphs
Supermarkets, Inc.) (incorporated herein by reference to Exhibit 3.2 of
Ralphs Grocery Company's Registration Statement on Form S-4, No.
333-07005, as filed with the Securities and Exchange Commission on June
22, 1996)...............................................................
4.1 Amended and Restated Credit Agreement dated as of April 17, 1997 among
Food 4 Less Holdings, Inc., Ralphs Grocery Company, the lenders listed
therein and Bankers Trust Company, as agent+............................
4.2.1 Indenture for the 10.45% Senior Notes due 2004, dated as of June 1,
1995, by and among Food 4 Less Supermarkets, Inc., the subsidiary
guarantors identified therein and Norwest Bank Minnesota, National
Association, as trustee (incorporated herein by reference to Exhibit
4.4.1 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for
the quarter ended July 16, 1995)........................................
4.2.2 First Supplemental Indenture for the 10.45% Senior Notes due 2004, dated
as of June 14, 1995, by and among Ralphs Grocery Company (as successor
by merger to Food 4 Less Supermarkets, Inc.), the subsidiary guarantors
identified therein, Crawford Stores, Inc. and Norwest Bank Minnesota,
National Association, trustee (incorporated herein by reference to
Exhibit 4.4.2 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form
10-Q for the quarter ended July 16, 1995)...............................
4.3.1 Indenture for the 11% Senior Subordinated Notes due 2005, dated as of
June 1, 1995, by and among Food 4 Less Supermarkets, Inc., the
subsidiary guarantors identified therein and United States Trust Company
of New York, as trustee (incorporated herein by reference to Exhibit
4.6.1 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for
the quarter ended July 16, 1995)........................................
4.3.2 First Supplemental Indenture for the 11% Senior Subordinated Notes due
2005, dated as of June 14, 1995, by and among Ralphs Grocery Company (as
successor by merger to Food 4 Less Supermarkets, Inc.), the subsidiary
guarantors identified therein, Crawford Stores, Inc. and United States
Trust Company of New York, as trustee (incorporated herein by reference
to Exhibit 4.6.2 of Food 4 Less Holdings, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended July 16, 1995)..........................
4.4.1 Indenture for the 10 1/4% Senior Subordinated Notes due 2002, dated as
of July 29, 1992, by and between Ralphs Grocery Company and United
States Trust Company of New York, as trustee (incorporated herein by
reference to Exhibit 4.3 of Ralphs Grocery Company's Quarterly Report on
Form 10-Q for the quarter ended July 19, 1992)..........................
4.4.2 First Supplemental Indenture for the 10 1/4% Senior Subordinated Notes
due 2002, dated as of May 30, 1995, by and between Ralphs Grocery
Company and United States Trust Company of New York, as trustee
(incorporated herein by reference to Exhibit 4.1 of Ralphs Grocery
Company's Quarterly Report on Form 10-Q for the quarter ended April 23,
1995)...................................................................
</TABLE>
E-1
<PAGE> 171
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
- ------ ------------------------------------------------------------------------ ------------
<S> <C> <C>
4.4.3 Second Supplemental Indenture for the 10 1/4% Senior Subordinated Notes
due 2002, dated as of June 14, 1995, by and between Ralphs Grocery
Company (as successor) and United States Trust Company of New York, as
Trustee (incorporated herein by reference to Exhibit 4.7.3 of Food 4
Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter
ended July 16, 1995)....................................................
4.5.1 Indenture for the 9% Senior Subordinated Notes due 2003, dated as of
March 30, 1993, by and between Ralphs Grocery Company and United States
Trust Company of New York, as trustee (incorporated herein by reference
to Exhibit 4.1 of Ralphs Grocery Company's Registration Statement on
Form S-4, No. 33-61812).................................................
4.5.2 First Supplemental Indenture for the 9% Senior Subordinated Notes due
2003, dated as of June 23, 1993, by and between Ralphs Grocery Company
and United States Trust Company of New York, as trustee (incorporated
herein by reference to Exhibit 4.2 of Ralphs Grocery Company's
Registration Statement on Form S-4, No. 33-61812).......................
4.5.3 Second Supplemental Indenture for the 9% Senior Subordinated Notes due
2003, dated as of May 30, 1995, by and between Ralphs Grocery Company
and United States Trust Company of New York, as trustee (incorporated
herein by reference to Exhibit 4.2 of Ralphs Grocery Company's Quarterly
Report on Form 10-Q, for the quarter ended April 23, 1995)..............
4.5.4 Third Supplemental Indenture for the 9% Senior Subordinated Notes due
2003, dated as of June 14, 1995, by and between Ralphs Grocery Company
(as successor) and United States Trust Company of New York, as trustee
(incorporated herein by reference to Exhibit 4.8.4 of Food 4 Less
Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
July 16, 1995)..........................................................
4.6.1 Indenture for the 10.45% Senior Notes due 2000, dated as of April 15,
1992, by and among Food 4 Less Supermarkets, Inc., the subsidiary
guarantors identified therein and Norwest Bank Minnesota, National
Association, as trustee (incorporated herein by reference to Exhibit 4.1
to Food 4 Less Supermarkets, Inc.'s Registration Statement on Form S-1,
No. 33-46750)...........................................................
4.6.2 First Supplemental Indenture for the 10.45% Senior Notes due 2000, dated
as of July 24, 1992, by and among Food 4 Less Supermarkets, Inc., the
subsidiary guarantors identified therein and Norwest Bank Minnesota,
National Association, as trustee (incorporated herein by reference to
Exhibit 4.1.1 to Food 4 Less Supermarkets, Inc.'s Annual Report on Form
10-K for the fiscal year ended June 27, 1992)...........................
4.6.3 Second Supplemental Indenture for the 10.45% Senior Notes due 2000,
dated as of June 14, 1995, by and among Food 4 Less Supermarkets, Inc.,
the subsidiary guarantors identified therein and Norwest Bank Minnesota,
National Association, as trustee (incorporated herein by reference to
Exhibit 4.9.3 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form
10-Q for the quarter ended July 16, 1995)...............................
4.6.4 Third Supplemental Indenture for the 10.45% Senior Notes due 2000, dated
as of June 14, 1995, by and among Ralphs Grocery Company (as successor
by merger to Food 4 Less Supermarkets, Inc.), the subsidiary guarantors
identified therein and Norwest Bank Minnesota, National Association, as
trustee (incorporated herein by reference to Exhibit 4.9.4 of Food 4
Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter year
ended July 16, 1995)....................................................
</TABLE>
E-2
<PAGE> 172
<TABLE>
<S> <C> <C>
4.7 Indenture for the 10.45% Senior Notes due 2004, dated as of June 6,
1996, by and among Ralphs Grocery Company, the subsidiary guarantors
identified therein and Norwest Bank Minnesota, National Association, as
trustee (incorporated herein by reference to Exhibit 4.9 of Ralphs
Grocery Company's Registration Statement on Form S-4, No. 333-07005, as
filed with the Securities and Exchange Commission on June 27, 1996).....
4.8 Indenture for the 11% Senior Subordinated Notes due 2005 dated as of
March 26, 1997 by and among Ralphs Grocery Company, the subsidiary
guarantors identified therein, and United States Trust Company of New
York, as trustee+.......................................................
5.1 Opinion of Latham & Watkins regarding the validity of the Exchange Notes
and the guarantees of certain of the Subsidiary Guarantors, including
consent+................................................................
5.2 Opinion of Clutter, Hinkel & Aadalen, LLP regarding the guarantee of
Falley's Inc., including consent+.......................................
8 Opinion of Latham & Watkins regarding certain federal income tax
matters, including consent+.............................................
10.1 Second Amended and Restated Tax Sharing Agreement dated as of June 14,
1995 by and among Food 4 Less Holdings, Inc., Ralphs Grocery Company and
the subsidiaries of Ralphs Grocery Company (incorporated herein by
reference to Exhibit 10.1 of Food 4 Less Holdings, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended July 16, 1995)................
10.2 Stockholders Agreement of Food 4 Less Holdings, Inc. dated as of June
14, 1995 by and among Food 4 Less Holdings, Inc., Ralphs Grocery Company
and the investors listed on the signature pages thereto (incorporated
herein by reference to Exhibit 10.2 of Food for Less Holdings, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended July 16, 1995)......
10.3 Consulting Agreement dated as of June 14, 1995 by and among The Yucaipa
Companies, Food 4 Less Holdings, Inc. and Ralphs Grocery Company
(incorporated herein by reference to Exhibit 10.4 of Food 4 Less
Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
July 16, 1995)..........................................................
10.4 Employment Agreement dated as of June 14, 1995 between Food Less
Holdings, Inc., Ralphs Grocery Company and George G. Golleher
(incorporated herein by reference to Exhibit 10.11 of Food 4 Less
Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
July 16, 1995)..........................................................
10.5 Employment Agreement dated as of June 14, 1995 between Ralphs Grocery
Company and Alfred A. Marasca (incorporated herein by reference to
Exhibit 10.9 of Ralphs Grocery Company's Quarterly Report on Form 10-Q
for the quarter ended July 16, 1995)....................................
10.6 Employment Agreement dated as of June 14, 1995 between Ralphs Grocery
Company and Greg Mays (incorporated herein by reference to Exhibit 10.10
of Ralphs Grocery Company's Quarterly Report on Form 10-Q for the
quarter ended July 16, 1995)............................................
10.7 Employment Agreement dated as of June 14, 1995 between Ralphs Grocery
Company and Harley DeLano (incorporated herein by reference to Exhibit
10.8 of Ralphs Grocery Company's Annual Report on Form 10-K for the
fiscal year ended January 28, 1996).....................................
</TABLE>
E-3
<PAGE> 173
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
- ------ ------------------------------------------------------------------------ ------------
<S> <C> <C>
10.8 Employment Agreement dated as of June 14, 1995 between Ralphs Grocery
Company and Tony Schnug (incorporated herein by reference to Exhibit
10.10 of Ralphs Grocery Company's Annual Report on Form 10-K for the
fiscal year ended January 28, 1996).....................................
10.9 Management Stockholders Agreement dated as of June 14, 1995 between Food
4 Less Holdings, Inc. and the management employees listed on the
signature pages thereto (incorporated herein by reference to Exhibit
10.12 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for
the quarter ended July 16, 1995)........................................
10.10 Consulting Agreement dated as of June 27, 1988 by and between Falley's,
Inc. and Joe S. Burkle (incorporated herein by reference to Exhibit
10.38 to Food 4 Less Supermarkets, Inc.'s Registration Statement on Form
S-1, No. 33-31152)......................................................
10.11 Letter Agreement dated as of December 10, 1990 amending Consulting
Agreement by and between Falley's, Inc. and Joe S. Burkle (incorporated
herein by reference to Exhibit 10.17.1 to Food 4 Less Supermarkets,
Inc.'s Annual Report on Form 10-K for the fiscal year ended June 29,
1991)...................................................................
10.12 Distribution Center Transfer Agreement, dated as of November 1, 1995, by
and between Smith's Food & Drug Centers, Inc., a Delaware corporation,
and Ralphs Grocery Company, relating to the Riverside, California
property (incorporated herein by reference to Exhibit 10.1 to Ralphs
Grocery's Company's Quarterly Report on Form 10-Q for the quarter ended
October 8, 1995)........................................................
10.13.1 Ralphs Grocery Company Retirement Supplement Plan, effective as of
January 1, 1994 (incorporated herein by reference to Exhibit 10.15.1 of
Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year
ended January 28, 1996).................................................
10.13.2 Amendment to the Retirement Supplement Plan, effective as of January 1,
1995 (incorporated herein by reference to Exhibit 10.15.2 of Ralphs
Grocery Company's Annual Report on Form 10-K for the fiscal year ended
January 28, 1996).......................................................
10.13.3 Second Amendment to the Retirement Supplement Plan, effective as of June
14, 1995, by and between Ralphs Grocery Company and Ralphs Grocery
Company Retirement Supplement Plan (incorporated herein by reference to
Exhibit 10.15.3 of Ralphs Grocery Company's Annual Report on Form 10-K
for the fiscal year ended January 28, 1996).............................
10.14.1 Ralphs Grocery Company Supplemental Executive Retirement Plan, amended
and restated as of April 9,1994 (incorporated herein by reference to
Exhibit 10.16.1 of Ralphs Grocery Company's Annual Report on Form 10-K
for the fiscal year ended January 28, 1996).............................
10.14.2 Amendment to the Amended and Restated Supplemental Executive Retirement
Plan, effective as of January 1, 1995 (incorporated herein by reference
to Exhibit 10.16.2 of Ralphs Grocery Company's Annual Report on Form
10-K for the fiscal year ended January 28, 1996)........................
10.14.3 Second Amendment to the Supplemental Executive Retirement Plan, dated as
of June 14, 1995, by and between Ralphs Grocery Company and Ralphs
Grocery Company Supplemental Executive Retirement Plan (incorporated
herein by reference to Exhibit 10.16.3 of Ralphs Grocery Company's
Annual Report on Form 10-K for the fiscal year ended January 28,
1996)...................................................................
</TABLE>
E-4
<PAGE> 174
<TABLE>
<S> <C> <C>
10.14.4 Third Amendment to the Ralphs Grocery Company Supplemental Executive
Plan, effective as of July 1, 1995 (incorporated herein by reference to
Exhibit 10.16.4 of Ralphs Grocery Company's Annual Report on Form 10-K
for the fiscal year ended January 28, 1996).............................
10.15 Purchase Agreement for the 11% Senior Subordinated Notes due 2005 dated
as of March 21, 1997 by and among Ralphs Grocery Company, the subsidiary
guarantors identified therein, and BT Securities Corporation, Bankers
Trust International, PLC CIBC Wood Gundy Securities Corp., Credit Suisse
First Boston, and Donaldson, Lufkin & Jenrette Securities
Corporation+............................................................
10.16 Registration Rights Agreement for the 11% Senior Subordinated Notes due
2005 dated as of March 26, 1997 by and among Ralphs Grocery Company, the
subsidiary guarantors identified therein, and BT Securities Corporation,
Bankers Trust International, PLC, CIBC Wood Gundy Securities Corp.,
Credit Suisse First Boston and Donaldson, Lufkin & Jenrette Securities
Corporation+............................................................
12 Computation of Ratio of Earnings to Fixed Charges+......................
21 Subsidiaries (incorporated herein by reference to Exhibit 21 of Ralphs
Grocery Company's Annual Report on Form 10-K for the fiscal year ended
February 2, 1997).......................................................
23.1 Consent of Arthur Andersen LLP, independent public accountants..........
23.2 Consent of KPMG Peat Marwick LLP, independent certified public
accountants+............................................................
23.3 Consent of Latham & Watkins (included in the opinions filed as Exhibits
5.1 and 8 to the Registration Statement)................................
23.4 Consent of Irwin, Clutter & Severson (included in the opinion filed as
Exhibit 5.2 to the Registration Statement)..............................
24.1 Power of Attorney of Directors and Officers of Ralphs Grocery Company
(included in the signature pages in Part II of the Registration
Statement)+.............................................................
24.2 Power of Attorney of Directors and Officers of Crawford Stores, Inc.
(included in the signature pages in Part II of the Registration
Statement)+.............................................................
24.3 Power of Attorney of Directors and Officers of Alpha Beta Company
(included in the signature pages in Part II of the Registration
Statement)+.............................................................
24.4 Power of Attorney of Directors and Officers of Falley's, Inc. (included
in the signature pages in Part II of the Registration Statement)+.......
25 Statement of Eligibility and Qualification on Form T-1 of United States
Trust Company of New York, as trustee+..................................
99.1 Letter of Transmittal with respect to the Exchange Offer+...............
99.2 Notice of Guaranteed Delivery with respect to the Exchange Offer+.......
99.3 Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9+....................................................
</TABLE>
- ------------------------
+ Previously filed
E-5
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Los Angeles, California
October 3, 1997
