<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 8-K/A
CURRENT REPORT
AMENDMENT NO. 1
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) March 2, 1995
-------------
Quality Food Centers, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Washington
----------------------------------------------
(State or other jurisdiction of incorporation)
0-15590 91-1330075
- - ------------------------ ---------------------------------
(Commission File Number) (IRS Employer Identification No.)
10112 N.E. 10th Street
Bellevue, Washington 98004
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (206) 455-3761
-------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On March 2, 1995, Olson's Food Stores, Inc. ("Olson's") was merged
with and into Quality Food Centers, Inc. ("QFC") pursuant to an Agreement and
Plan of Merger dated as of December 23, 1994 between QFC and Olson's, as
amended. As consideration for the merger, QFC paid $18 million in cash, issued
752,941 shares of its common stock and assumed $24 million of long-term debt of
Olson's. The merger consideration and other terms were determined through arms-
length negotiation. QFC has refinanced the $24 million of long-term debt
assumed through a credit facility with Bank of America National Trust and
Savings Association, as agent, and certain other financial institutions,
arranged by BA Securities, Inc.
The principal assets acquired are 12 Olson's supermarkets (8 in
Snohomish County and 4 in King County, Washington), 3 additional supermarkets in
various stages of development, and rights to several other future sites in the
same market.
In connection with the merger, QFC agreed to appoint Maurice F. Olson,
the former Chairman and Chief Executive Officer of Olson's, to QFC's Board of
Directors and to make reasonable efforts to cause Mr. Olson to be elected to a
three-year term at the 1995 Annual Meeting of Shareholders. Mr. Olson was so
elected at such meeting on April 25, 1995. Also in connection with the merger,
Mr. Olson entered into a noncompetition agreement with QFC.
ITEM 5. OTHER EVENT
The Registrant hereby files the independent auditors' consent
to the incorporation by reference in Registration Statement No.
33-84202 of the Registrant on Form S-8 of the independent auditors'
report dated March 15, 1995, incorporated by reference in the Annual Report
on Form 10-K of the Registrant for the year ended December 31, 1994, and
filed on March 31, 1995.
2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
The Registrant hereby files the financial statements of Olson's Food
Stores, Inc., for the years ended October 29, 1994 and October 30, 1993, and
the independent auditors' report on such financial statements as follows:
Report of Independent Auditors
Statements of Assets and Liabilities Associated with the Business to
be Acquired of Olson's Food Stores, Inc.
Statements of Revenues and Expenses Associated with the Business to be
Acquired of Olson's Food Stores, Inc.
Notes to Financial Statements of the Business to be Acquired of
Olson's Food Stores, Inc.
(b) PRO FORMA FINANCIAL INFORMATION
The Registrant hereby files the following pro forma financial
information, which has been adjusted to reflect the Registrant's merger
with Olson's Food Stores, Inc.:
Pro Forma Condensed Balance Sheet as of December 31, 1994
Pro Forma Condensed Statement of Earnings for the Registrant's
fiscal year ended December 31, 1994
Notes to Pro Forma Condensed Financial Information as of
December 30, 1994
3
<PAGE>
(c) EXHIBITS
2.1 Agreement and Plan of Merger between the Registrant and Olson's
Food Stores, Inc., dated as of December 23, 1994. (Incorporated
by reference to Exhibit 2.1 to the Registrant's Form 8-K filed
December 30, 1995.)
2.2 First Amendment to Agreement and Plan of Merger between the
Registrant and Olson's Food Stores, Inc., dated as of February
17, 1995. (Incorporated by reference to Exhibit 10.15a to the
Registrant's Form 10-K filed March 31, 1995.)
2.3 Second Amendment to Agreement and Plan of Merger between the
Registrant and Olson's Food Stores, Inc., dated as of March 1,
1995. (Incorporated by reference to Exhibit 10.15b to the
Registrant's Form 10-K filed March 31, 1995.)
2.4 Indemnification and Escrow Agreement between the Registrant and
Maurice F. Olson, dated as of March 1, 1995. (Incorporated by
reference to Exhibit 10.15c to the Registrant's Form 10-K filed
March 31, 1995.)
2.5 Right of First Refusal among the Registrant and Signature Bakery
LLC, North Snohomish Enterprises, Inc., and Olson's Management
Group LLC, dated as of March 1, 1995. (Incorporated by reference
to Exhibit 10.15d to the Registrant's Form 10-K filed March 31,
1995.)
2.6 Investors Rights Agreement between the Registrant and Maurice F.
Olson, Charles M. Olson and Maurice S. Olson, Jr., dated as of
March 1, 1995. (Incorporated by reference to Exhibit 10.15e to
the Registrant's Form 10-K filed March 31, 1995.)
2.7 Noncompetition Agreement between the Registrant and Maurice F.
Olson dated as of March 1, 1995. (Incorporated by reference to
Exhibit 10.15f to the Registrant's Form 10-K filed March 31,
1995.)
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Ernst & Young LLP
4
<PAGE>
SIGNATURES:
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
QUALITY FOOD CENTERS, INC.
May 1, 1995 By /s/ MARC W. EVANGER
- - -------------------------- -------------------------------
Date Marc W. Evanger, Vice President
and Chief Financial Officer
and Secretary/Treasurer
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Exhibit
- - -------------- -------
2.1 Agreement and Plan of Merger between the Registrant and
Olson's Food Stores, Inc., dated as of December 23, 1994.
(Incorporated by reference to Exhibit 2.1 to the
Registrant's Form 8-K filed December 30, 1995.)
2.2 First Amendment to Agreement and Plan of Merger between the
Registrant and Olson's Food Stores, Inc., dated as of
February 17, 1995. (Incorporated by reference to Exhibit
10.15a to the Registrant's Form 10-K filed March 31, 1995.)
2.3 Second Amendment to Agreement and Plan of Merger between the
Registrant and Olson's Food Stores, Inc., dated as of March
1, 1995. (Incorporated by reference to Exhibit 10.15b to
the Registrant's Form 10-K filed March 31, 1995.)
2.4 Indemnification and Escrow Agreement between the Registrant
and Maurice F. Olson, dated as of March 1, 1995.
(Incorporated by reference to Exhibit 10.15c to the
Registrant's Form 10-K filed March 31, 1995.)
2.5 Right of First Refusal among the Registrant and Signature
Bakery LLC, North Snohomish Enterprises, Inc., and Olson's
Management Group LLC, dated as of March 1, 1995.
(Incorporated by reference to Exhibit 10.15d to the
Registrant's Form 10-K filed March 31, 1995.)
2.6 Investors Rights Agreement between the Registrant and
Maurice F. Olson, Charles M. Olson and Maurice S. Olson,
Jr., dated as of March 1, 1995. (Incorporated by reference
to Exhibit 10.15e to the Registrant's Form 10-K filed March
31, 1995.)
2.7 Noncompetition Agreement between the Registrant and Maurice
F. Olson dated as of March 1, 1995. (Incorporated by
reference to Exhibit 10.15f to the Registrant's Form 10-K
filed March 31, 1995.)
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Ernst & Young LLP
<PAGE>
Statements of Assets and Liabilities
and Revenues and Expenses Associated
with the Business to be Acquired of
Olson's Food Stores, Inc.
YEARS ENDED OCTOBER 29, 1994 AND OCTOBER 30, 1993
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
Statements of Assets and Liabilities and Revenues and Expenses
Associated with the Business to be Acquired of
Olson's Food Stores, Inc.
Years Ended October 29, 1994 and October 30, 1993
CONTENTS
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . F-1
Audited Financial Statements
Statements of Assets and Liabilities Associated with the Business to be
Acquired of Olson's Food Stores, Inc.. . . . . . . . . . . . . . . . . . . F-2
Statements of Revenues and Expenses Associated with the Business to be
Acquired of Olson's Food Stores, Inc.. . . . . . . . . . . . . . . . . . . F-3
Notes to Financial Statements of the Business to be
Acquired of Olson's Food Stores, Inc.. . . . . . . . . . . . . . . . . . . F-4
<PAGE>
[Ernst & Young LLP Letterhead]
Report of Independent Auditors
The Board of Directors and Stockholders
Olson's Food Stores, Inc.
We have audited the accompanying statement of assets and liabilities associated
with the business to be acquired (the Business) of Olson's Food Stores, Inc. as
of October 29, 1994 and October 30, 1993, and the related statements of revenues
and expenses for each of the two years in the period then ended. These
financial statements are the responsibility of the management of Olson's Food
Stores, Inc. 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 financial statements referred to above present fairly the
assets and liabilities associated with the business to be acquired of Olson's
Food Stores, Inc. at October 29, 1994 and October 30, 1993, and its revenues and
expenses for each of the two years in the period then ended, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
March 3, 1995
F-1
<PAGE>
Statements of Assets and Liabilities Associated with the
Business to be Acquired
of Olson's Food Stores, Inc.
<TABLE>
<CAPTION>
OCTOBER 29, OCTOBER 30,
1994 1993
-------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 229,000 $ 183,000
Patronage dividends and accounts receivable, net of
allowance of $128,000 and $28,000 in 1994 and 1993,
respectively 1,390,000 1,264,000
Inventories 6,075,000 4,080,000
Receivable from affiliates 1,256,000 --
-------------------------------
Total current assets 8,950,000 5,527,000
Property and equipment, net of accumulated depreciation 15,450,000 8,861,000
Other assets:
Leasehold interest, net of accumulated amortization 887,000 936,000
Other 74,000 76,000
-------------------------------
961,000 1,012,000
-------------------------------
Total assets $25,361,000 $15,400,000
-------------------------------
-------------------------------
LIABILITIES AND NET ASSETS
Current liabilities:
Accounts payable and accrued liabilities $ 8,344,000 $ 5,641,000
Current portion of long-term debt 1,253,000 1,542,000
-------------------------------
Total current liabilities 9,597,000 7,183,000
Long-term debt 4,665,000 2,787,000
-------------------------------
Total liabilities 14,262,000 9,970,000
-------------------------------
Net assets $11,099,000 $ 5,430,000
-------------------------------
-------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-2
<PAGE>
Statements of Revenues and Expenses Associated with the
Business to be Acquired
of Olson's Food Stores, Inc.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 29, OCTOBER 30,
1994 1993
--------------------------------
<S> <C> <C>
Net sales $112,098,000 $92,586,000
Cost of products sold 75,642,000 61,562,000
--------------------------------
Gross profit 36,456,000 31,024,000
Operating, general, and administrative expenses 28,852,000 24,037,000
Depreciation and amortization 2,641,000 1,918,000
Interest expense 342,000 327,000
Other income (1,048,000) (980,000)
--------------------------------
30,787,000 25,302,000
--------------------------------
Net income before income taxes 5,669,000 5,722,000
Income taxes (NOTE 7) -- --
--------------------------------
Net income $ 5,669,000 $ 5,722,000
--------------------------------
--------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
Notes to Financial Statements
of the Business to be Acquired
of Olson's Food Stores, Inc.
October 29, 1994
1. PLAN OF MERGER
On December 23, 1994, Quality Food Centers, Inc. (QFC) and Olson's Food Stores,
Inc. (Olson's) entered into an agreement and plan of merger (the Agreement),
whereby QFC would acquire the remaining assets and liabilities of Olson's Food
Stores, Inc. after Olson's disposed of certain assets and liabilities prior to
the merger. As outlined in the Agreement, the assets and liabilities to be
acquired by QFC (the Business) include the following:
- - - Nine stores operating under the name "Olson's" as of December 23, 1994
- - - Four sites committed for development of stores in the future
- - - Nine shares of Class A common stock of Associated Grocers, Inc. (A.G.)
- - - Certain software and trademarks
Under the Agreement which closed on March 1, 1995, QFC assumed the indebtedness
of Olson's (not to exceed $24 million), paid the stockholders of Olson's $18
million in cash, and exchanged 752,941 common shares of QFC for all outstanding
Olson's stock. A final adjustment will be made to the purchase price within 60
days of closing, dependent on certain asset and liability balances at March 1,
1995.
Historically, the Business had no separate legal status, as it was an integral
part of Olson's overall operations. As a result, separate financial statements
of the Business were not previously prepared. The accompanying financial
statements have been prepared from the historical accounting records of Olson's
and present the assets and liabilities associated with the Business to be
acquired and the revenues and expenses of the Business, including allocations of
certain common expenses (see Note 2). Since the entity being sold is not a
separate reporting unit of Olson's, it was not practicable to present full
financial statements, including statements of cash flows.
2. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
Olson's is primarily engaged in the retail sale of food and grocery products
through leased stores located in neighborhood shopping malls in the Seattle and
Everett area. The Company reports its operations on a 52/53-week basis, whereby
the year-end occurs on the Saturday closest to October 31.
F-4
<PAGE>
2. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Generally, the only assets and liabilities directly associated with the Business
were included in the accompanying statement of assets and liabilities associated
with the business to be acquired. However, since the Business was an integral
part of Olson's prior to being merged, certain of Olson's assets and liabilities
and expenses and revenues have been allocated to the Business in the
accompanying financial statements. The allocations of assets and liabilities
were performed primarily by applying the percentage of activity associated with
the Business to the total business activity of Olson's. The allocations of
expenses were performed primarily based on relative sales volume, relative
number of stores, and relative business activities. Interest has been charged
to the Business on loans and debts specifically identified as pertaining to the
Business. No interest expense has been allocated relative to the corporate debt
of Olson's.
Allocations of assets and liabilities and expenses to the Business are based on
various factors which the management of Olson's believes are reasonable.
However, these allocations are not necessarily indicative of actual activity had
the Business operated as a stand-alone business. Further, if alternate methods
of allocation were used, significantly different results may be achieved.
INVESTMENT IN ASSOCIATED GROCERS
Olson's is a member of the Associated Grocers, Inc. (A.G.) cooperative. A.G. is
a wholesale food cooperative, which provides a variety of services to its
members. As a member of A.G., Olson's receives various purchasing rebates and
an annual patronage dividend. These purchase rebates and the patronage dividend
are recorded as reductions of costs of products sold when earned. Also, the
Business has obtained financing from an A.G. affiliate.
INVENTORY VALUATION
Inventory is stated at the lower of cost or market, with cost determined by the
retail last-in, first-out (LIFO) method for approximately 90% of the inventory.
The remainder of the inventory cost is determined by using the first-in, first-
out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method based upon the estimated useful lives of the related
assets. Maintenance and
F-5
<PAGE>
2. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
repairs are charged to operations as incurred, and improvements are capitalized.
Noncapital expenditures incurred in opening new stores or remodeling existing
stores are expensed as incurred.
LEASEHOLD INTERESTS
Purchased leasehold interests have been capitalized and are amortized over the
respective lease terms using the straight-line method. Accumulated amortization
was $289,000 and $240,000 at October 29, 1994 and October 30, 1993,
respectively.
INCOME TAXES
Investment tax credits, when utilized, are applied as a reduction of the current
provision for federal income taxes using the flow-through method.
3. INVENTORY
Information related to the FIFO method may be useful in comparing operating
results to those of companies which do not use the LIFO method. If all
inventories had been valued at current cost, inventory would have been
$1,080,000 and $939,000 greater at October 29, 1994 and October 30, 1993,
respectively.
During the year ended October 30, 1993, certain inventory quantities were
reduced. This reduction resulted in a liquidation of LIFO inventory quantities
carried at lower costs prevailing in prior years, as compared with the costs of
fiscal year 1993 purchases. The effect of this liquidation was to increase 1993
net income by approximately $29,000.
F-6
<PAGE>
4. PROPERTY AND EQUIPMENT
Property and equipment, including items capitalized under capital leases,
consist of the following:
<TABLE>
<CAPTION>
OCTOBER 29, OCTOBER 30,
1994 1993
----------------------------
<S> <C> <C>
Furniture, fixtures, and equipment $15,929,000 $18,416,000
Leasehold improvements 9,881,000 4,145,000
Construction in process 2,823,000 848,000
----------------------------
28,633,000 23,409,000
Less accumulated depreciation and amortization 13,183,000 14,548,000
----------------------------
$15,450,000 $ 8,861,000
----------------------------
----------------------------
</TABLE>
Capitalized interest totaled $130,000 and $22,000 for the years ended
October 29, 1994 and October 30, 1993, respectively.
5. FINANCING
Long-term debt consists of the following:
<TABLE>
<CAPTION>
OCTOBER 29, OCTOBER 30,
1994 1993
----------------------------
<S> <C> <C>
Secured notes payable to a finance company, due
in weekly installments of $33,631, including
interest at rates ranging from the prime rate
(7.75% at October 29, 1994) plus 0.5% to the
prime rate plus 2% maturing through 2001 $ 5,906,000 $ 3,982,000
Secured demand notes payable to a finance
company, interest only is payable monthly at
prime rate plus 1% -- 332,000
Other 12,000 15,000
----------------------------
5,918,000 4,329,000
Less current portion 1,253,000 1,542,000
----------------------------
$ 4,665,000 $ 2,787,000
----------------------------
----------------------------
</TABLE>
Substantially all of the Business's inventories and property and equipment were
pledged as collateral for the secured notes payable.
F-7
<PAGE>
5. FINANCING (CONTINUED)
This debt is classified as long-term because scheduled maturities on October 29,
1994 extended over one year. However, this debt was paid in full during March
1995 in connection with the consummation of the agreement.
6. LEASES
The Business leases land and buildings related to its retail operations.
Commitments for future minimum lease payments under operating leases are as
follows. A number of the leases have renewal options which expire through 2054:
<TABLE>
<CAPTION>
OPERATING
FISCAL YEAR ENDING LEASES
------------------ -----------
<S> <C>
1995 $ 3,659,000
1996 3,678,000
1997 3,725,000
1998 3,724,000
1999 3,729,000
Thereafter through 2024 56,813,000
-----------
$75,328,000
-----------
-----------
</TABLE>
Equipment for one store location and the site of one store location are leased
under terms of operating leases from Olson's majority stockholder. In
connection with these leases, the Business paid the majority stockholder
$125,000 in rents during both years ended October 29, 1994 and October 30, 1993.
Operating lease commitments include $811,000 payable to the majority stockholder
of Olson's.
Rental expense and sublease income for the years ended October 29, 1994 and
October 30, 1993 for all operating leases, including month-to-month leases,
consisted of:
<TABLE>
<CAPTION>
1994 1993
-------------------------
<S> <C> <C>
Minimum rentals $3,201,000 $1,866,000
Contingent rentals 2,000 8,000
Sublease income 337,000 164,000
</TABLE>
Contingent rentals are paid when store volumes exceed preestablished levels.
F-8
<PAGE>
6. LEASES (CONTINUED)
Future minimum lease payments to be received under subleases are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING SUBLEASES
------------------ ----------
<S> <C>
1995 $ 355,000
1996 325,000
1997 294,000
1998 294,000
1999 294,000
Thereafter 835,000
----------
$2,397,000
----------
----------
</TABLE>
7. INCOME TAXES
Olson's files a federal income tax return which includes the operations of the
Business. Olson's has significant net operating loss carryforwards which are
available to offset taxable income. Therefore, no income taxes are provided in
the accompanying financial statements. No deferred taxes are provided as
Olson's has net deferred tax assets which are offset by a reserve against those
assets.
The following pro forma analysis excludes the effect of utilizing the net
operating losses of Olson's which will be part of the Business merged. If
federal income taxes were computed assuming the Business filed a separate
federal income tax return, the effect on net income would be as follows.
<TABLE>
<CAPTION>
YEAR ENDED
1994 1993
------------------------
<S> <C> <C>
Income before federal income taxes as reported
in the accompanying financial statements $5,669,000 $5,722,000
Provision for federal income taxes assuming
computation on a separate return basis 1,927,000 1,945,000
------------------------
Pro forma net income $3,742,000 $3,777,000
------------------------
------------------------
</TABLE>
F-9
<PAGE>
7. INCOME TAXES (CONTINUED)
At October 29, 1994, for federal income tax purposes, Olson's had net operating
losses, general business credits, and alternative minimum tax credit
carryforwards of $10,500,000, $200,000, and $950,000, respectively. The net
operating loss carryforwards expire from 2004 through 2009. The general
business credits expire through 2001. The utilization of the general business
credits and net operating loss carryforwards are limited by provisions of the
Internal Revenue Code.
8. EMPLOYER BENEFIT PLANS
Olson's has a profit-sharing plan which covers all employees except those
included in any Collective Bargaining Agreement. The contributions to the plan
are made from the annual net profits of Olson's and are determined at the
discretion of the Board of Directors. No separate allocation of contributions
were made to the Business. Total amounts contributed to the plan were
approximately $142,000 for the year ended October 30, 1993. There were no
contributions for the year ended October 29, 1994.
Employees included in Collective Bargaining Agreements are covered by defined
benefit, multi-employer pension plans. Olson's incurred expense for these plans
totaling $404,000 and $505,000 for the years ended October 29, 1994 and October
30, 1993, respectively.
F-10
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following pro forma financial information sets forth historical
information which has been adjusted to reflect the Olson's merger. Pro forma
statement of income information assumes the Olson's merger took place at the
beginning of the period presented. Pro forma condensed balance sheet
information assumes the Olson's merger took place on the date presented. See
Notes to Pro Forma Condensed Financial Information herein (the "Notes"). The
pro forma information is based on certain assumptions and estimates and
therefore does not purport to be indicative of (a) the results which actually
would have been attained had the Olson's merger occurred at the date indicated
or (b) the results which may be attained in the future. The pro forma financial
information should be read in conjunction with the Notes, which are an
integral part of the pro forma financial information, and the audited
financial statements and related notes set forth and incorporated by
reference in the Company's 1994 Annual Report on Form 10-K.
P-1
<PAGE>
QUALITY FOOD CENTERS, INC.
PRO FORMA CONDENSED BALANCE SHEET
DECEMBER 31, 1994
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, PRO FORMA DECEMBER 31,
1994 OLSON'S (1) ADJUSTMENTS 1994
--------------- -------------- ------------------ ---------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents........... $ 35,162,625 $ 229,000 $ (18,000,000)(2) $ 17,391,625
Other current assets... 29,546,369 8,721,000 38,267,369
Land................... 9,721,225 9,721,225
Buildings, fixtures,
equipment and
leasehold
improvements.......... 128,673,946 28,633,000 157,306,946
--------------- -------------- ------------------ ---------------
138,395,171 28,633,000 167,028,171
Accumulated
depreciation and
amortization.......... (36,095,273) (13,183,000) (49,278,273)
--------------- -------------- ------------------ ---------------
102,299,898 15,450,000 117,749,898
Leasehold interest, net
of accumulated
amortization.......... 16,133,654 887,000 17,020,654
Real estate held for
investment............ 19,166,054 19,166,054
Other assets........... 5,605,002 74,000 46,053,000(3)(10) 51,732,002
--------------- -------------- ------------------ ---------------
$ 207,913,602 $ 25,361,000 $ 28,053,000 $ 261,327,602
--------------- -------------- ------------------ ---------------
--------------- -------------- ------------------ ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities.... $ 40,932,764 $ 8,344,000 $ $ 49,276,764
24,000,000 (4)
Long-term debt......... 5,918,000 (5,918,000)(4) 24,000,000
Deferred income
taxes................. 8,803,000 3,000,000(10) 11,803,000
Shareholders' equity... 18,070,000 (5)
158,177,838 11,099,000 (11,099,000)(5) 176,247,838
--------------- -------------- ------------------ ---------------
$ 207,913,602 $ 25,361,000 $ 28,053,000 $ 261,327,602
--------------- -------------- ------------------ ---------------
--------------- -------------- ------------------ ---------------
Outstanding shares 19,481,009 752,941 (5) 20,223,950
</TABLE>
See accompanying "Notes to Pro Forma Condensed Financial Information."
P-2
<PAGE>
QUALITY FOOD CENTERS, INC.
PRO FORMA CONDENSED STATEMENT OF EARNINGS
FISCAL YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED PRO FORMA YEAR ENDED
DECEMBER 31, 1994 OLSON'S (6) ADJUSTMENTS DECEMBER 31, 1994
----------------- -------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Sales................... $ 575,878,589 $ 112,098,000 $ $ 687,976,589
Operating income........ 39,211,940 6,011,000 (1,033,000)(7) 44,189,940
Interest income......... 932,596 (501,000)(2) 431,596
Interest expense........ (1,920,000)(8) (1,920,000)
Earnings before income
taxes.................. 40,144,536 6,011,000 (3,454,000) 42,701,536
Net earnings............ 26,376,536 3,907,150 (2,590,927)(9) 27,692,759
Earnings per share...... $ 1.34 $ 1.36
Weighted average shares
outstanding............ 19,656,000 752,941(5) 20,408,941
</TABLE>
See accompanying "Notes to Pro Forma Condensed Financial Information."
P-3
<PAGE>
QUALITY FOOD CENTERS, INC.
NOTES TO PRO FORMA CONDENSED FINANCIAL INFORMATION
(1) Represents the October 29, 1994 balance sheet of Olson's adjusted to
reflect the nine Olson's stores which the Company acquired on March 2,
1995. (See note (7) below).
(2) To give effect to the use of $18,000,000 to complete the Olson's merger
and the resulting reduction in interest income for the periods presented.
(3) To adjust for the excess of the Olson's purchase price over tangible net
assets acquired based upon the 60,070,000 purchase price and the historic
balance sheet presented. (See note (7) below).
(4) To give effect to the assumption of $24,000,000 of long term debt assumed
in connection with the Olson's merger.
(5) To give effect to 752,941 Shares issued by the Company in connection with
the Olson's merger at a value of $24.00 per share (closing bid price on the
date the merger was consumated) and the elimination of Olson's existing
shareholders' equity.
(6) Represents results of operations for the 52 weeks ended October 29, 1994
of nine Olson's stores acquired by the Company which were operated during
that period. The amounts are based upon certain assumptions and estimates
that were required in order to separate the nine stores to be acquired by
the Company from the historic financial statements which included other
stores and other operations of Olson's. The combined pro forma results do
not reflect any benefits from economies which might be achieved from the
combined operations, and do not necessarily represent results which would
have occurred if the entities had constituted a single entity during such
period and may not be indicative of future results. No adjustment has been
made to reflect the fact that the Company will be acquiring 12 stores
instead of the lower number included in these pro forma statements. (See
note (7) below). Interest expense incurred by Olson's on a historic basis
has been excluded and a pro forma income tax provision has been computed
assuming a 35% effective rate.
(7) Represents the net adjustment to depreciation and amortization expense to
reflect the $60,070,000 price paid by the Company in connection with the
Olson's merger, which is estimated to be approximately $35,000,000 in
excess of the fair value of the tangible net assets to be acquired at
closing and will be allocated to leasehold interest, a non-competition
agreement and goodwill. The price paid by the Company includes the
purchase of 12 stores from Olson's of which nine were operated by Olson's
as of October 29, 1994. The remaining stores were opened or acquired by
Olson's subsequent to the balance sheet date. The net adjustment to
depreciation and amortization expense, therefore, has not been computed
based on the excess of purchase price over the fair value of the tangible
net assets acquired shown in the December 31, 1994 pro forma condensed
balance sheet.
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(8) To record interest expense on the $24,000,000 of long-term debt to be
assumed in connection with the Olson's merger at an assumed rate of 8% per
annum. The 8% is based upon LIBOR plus 125 basis points plus the
amortization of debt issuance costs and other bank fees related to a credit
facility the Company has entered into. Actual interest expense will
increase or decrease periodically as LIBOR changes.
(9) Reflects adjustment for income taxes on pro forma adjustments, taking into
account the nondeductibility of amortization related to the Olson's merger
of approximately $900,000 per annum and tax-free interest income earned on
cash balances during 1994.
(10) To give effect to estimated deferred income taxes arising from the Olson's
merger. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Further, as part of the Merger Agreement, the Company agreed to remit the
benefits, if any, of Olson's net operating loss carryforwards and certain
other tax credit carryforwards to the former shareholders of Olson's when
utilized. Accordingly, no recognition has been given to these carryforward
items.
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EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
Board of Directors
and Shareholders
Quality Food Centers, Inc.
Bellevue, Washington
We consent to the incorporation by reference in Registration Statement No.
33-84202 of Quality Food Centers, Inc. on Form S-8 of our report dated March 15,
1995, incorporated by reference in the Annual Report on Form 10-K of Quality
Food Centers, Inc. for the year ended December 31, 1994.
/s/ Deloitte & Touche LLP
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Seattle, Washington
May 1, 1995
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
Quality Food Centers, Inc.
Bellevue, Washington
We consent to the incorporation by reference in Registration Statement Nos.
33-32878, 33-34073, 33-38736, 33-69512, 33-69514 and 33-84202 of Quality Food
Centers, Inc. ("QFC") all on Form S-8 of our report dated March 3, 1995, on the
statements of assets and liabilities associated with the business to be acquired
and the related statements of revenues and expenses of Olson's Food Stores, Inc.
as of and for the years ended October 29, 1994 and October 30, 1993 included in
Quality Food Centers, Inc.'s Current Report on Form 8-K/A dated March 2, 1995,
filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
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Seattle, WA
May 1, 1995
