<PAGE>
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ---- ACT OF 1934
For the quarterly period ended FOR THE 12 WEEKS ENDED MARCH 25, 1995
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---- EXCHANGE ACT OF 1934
For the transition period from to
----------------------- -------------------
Commission file number: 0-15590
QUALITY FOOD CENTERS, INC.
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1330075
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10112 N.E. 10TH STREET, BELLEVUE, WASHINGTON 98004
(Address of principal executive offices) (Zip Code)
(206) 455-3761
(Registrant's telephone number, including area code)
NOT APPLICABLE.
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X . No .
----- -----
Number of shares of Registrant's common stock,
$.001 par value, outstanding at May 7, 1995: 14,418,795
<PAGE>
PART I. FINANCIAL INFORMATION
QUALITY FOOD CENTERS, INC.
STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Twelve Weeks Ended
March 25, March 19,
1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Sales $138,937,664 $120,986,376
Cost of sales and related occupancy expenses 104,656,255 90,445,755
Marketing, general and administrative expenses 26,570,341 22,396,352
- -------------------------------------------------------------------------------
OPERATING INCOME 7,711,068 8,144,269
Interest income 273,640 161,932
Interest expense (72,018) ---
Other expense (1,400,000) ---
- -------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 6,512,690 8,306,201
Taxes on income
Current 2,332,000 2,401,000
Deferred 400,000 454,000
- -------------------------------------------------------------------------------
Total taxes on income 2,732,000 2,855,000
- -------------------------------------------------------------------------------
NET EARNINGS $ 3,780,690 $ 5,451,201
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
EARNINGS PER SHARE $ .19 $ .28
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Weighted average shares outstanding 19,842,000 19,594,000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Dividends per common share $ .05 $ .05
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
QUALITY FOOD CENTERS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
March 25, December 31,
1995 1994
- -------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 13,108,086 $ 35,162,625
Accounts receivable 7,585,331 3,285,717
Inventories 32,297,855 23,615,073
Prepaid expenses 3,656,532 2,645,579
- -------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 56,647,804 64,708,994
PROPERTIES
Land 9,022,521 9,721,225
Buildings, fixtures and equipment 117,810,949 96,096,154
Leasehold improvements 32,995,801 32,577,792
- -------------------------------------------------------------------------------
159,829,271 138,395,171
Accumulated depreciation and amortization (38,525,923) (36,095,273)
- -------------------------------------------------------------------------------
121,303,348 102,299,898
LEASEHOLD INTEREST, net of accumulated
amortization of $8,237,371 and $7,946,985 28,802,268 16,133,654
Real estate held for investment 19,222,976 19,166,054
GOODWILL, net of accumulated
amortization of $203,018 and $136,137 33,703,511 2,185,369
OTHER ASSETS 10,848,833 3,419,633
- -------------------------------------------------------------------------------
$270,528,740 $207,913,602
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 39,291,064 $ 24,043,452
Accrued payroll and related benefits 8,869,030 9,941,414
Accrued business and sales taxes 2,606,796 3,915,494
Other accrued expenses 3,820,059 2,692,404
Federal income taxes payable 2,747,000 340,000
Current note payable 15,000,000 --
- -------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 72,333,949 40,932,764
DEFERRED INCOME TAXES 13,203,000 8,803,000
OTHER LIABILITIES 5,400,000 --
SHAREHOLDERS' EQUITY
Common stock, at stated value - authorized
60,000,000 shares, issued and outstanding
20,333,511 shares and 19,481,009 shares 45,251,929 26,644,616
Retained earnings 134,339,862 131,533,222
- -------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 179,591,791 158,177,838
- -------------------------------------------------------------------------------
$270,528,740 $207,913,602
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
QUALITY FOOD CENTERS, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
TWELVE WEEKS ENDED MARCH 25, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Common Stock
---------------------- Retained
Shares Amount Earnings Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1994 19,481,009 $26,644,616 $131,533,222 $158,177,838
NET EARNINGS 3,780,690 3,780,690
COMMON STOCK ISSUED 852,502 18,607,313 18,607,313
QUARTERLY CASH DIVIDENDS
($0.05 PER SHARE) (974,050) (974,050)
- -------------------------------------------------------------------------------
BALANCE AT
MARCH 25, 1995 20,333,511 $45,251,929 $134,339,862 $179,591,791
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
QUALITY FOOD CENTERS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Twelve Weeks Ended
March 25, March 19,
1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 3,780,690 $ 5,451,201
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization of properties 3,836,605 2,187,935
Amortization of leasehold interest and other 536,309 317,859
Deferred income taxes 400,000 454,000
CHANGES IN OPERATING ASSETS AND LIABILITIES
Accounts receivable (749,228) (494,272)
Inventories (141,782) (237,271)
Prepaid expenses (1,010,953) (7,093)
Accounts payable 3,455,567 (1,816,894)
Accrued payroll and related benefits (1,072,384) (2,276,644)
Accrued business and sales taxes (1,308,698) (79,957)
Other accrued expenses 1,127,655 326,664
Federal income taxes payable 2,407,000 1,940,000
- -------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 11,260,781 5,765,528
- -------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures, net (6,891,078) (4,583,345)
Cash portion of Olson's merger (17,814,527) ---
Increase in real estate held for investment (56,922) ---
Other 28,803 (110,826)
Proceeds from sale of real estate 1,340,000 ---
- -------------------------------------------------------------------------------
Net Cash Used by Investing Activities (23,393,724) (4,694,171)
- -------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from issuances of common stock 52,454 68,832
Repayment of long-term debt (9,000,000) ---
Quarterly cash dividends paid (974,050) (967,742)
- -------------------------------------------------------------------------------
Cash (Used) by Financing Activities (9,921,596) (898,910)
- -------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (22,054,539) 172,447
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 35,162,625 31,256,492
- -------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $13,108,086 $31,428,939
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID DURING THE TWELVE WEEKS FOR:
Income taxes $ 95,000 $ 461,000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the first quarter of 1995, the Company acquired all of the
outstanding shares of Olson Foods, Inc. in a merger transaction for $60,070,000.
In connection with the merger, liabilities assumed were as follows:
<PAGE>
<TABLE>
<S> <C>
Fair value of assets acquired $71,862,000
Cash paid (18,000,000)
Long-term debt assumed (24,000,000)
Common Stock issued (18,070,000)
-----------
Liabilities assumed $11,792,000
-----------
-----------
</TABLE>
During the first quarter of 1995 the Company recorded $4 million as an
increase in goodwill and deferred income taxes payable to record deferred income
taxes arising from the Olson's merger. In addition a deferred tax asset and
corresponding liability of $5.4 million were recorded to reflect amounts due the
former shareholders of Olson's when tax loss and tax credit carryforwards are
utilized by the Company.
During the first quarter of 1995, a receivable was recorded and common
stock was issued totaling $484,859 relating to the exercise of stock options
that were tendered as part of the Recapitalization.
See accompanying notes to financial statements.
<PAGE>
QUALITY FOOD CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
TWELVE WEEKS ENDED MARCH 25, 1995 AND MARCH 19, 1994
(UNAUDITED)
NOTE A - FINANCIAL STATEMENT PREPARATION
The financial statements as of March 25, 1995 and March 19, 1994 are
unaudited, but in the opinion of management include all adjustments (consisting
of normal recurring adjustments) necessary to present fairly the results for the
periods presented.
These statements have been prepared by the Company pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. These financial
statements should be read in conjunction with the annual audited financial
statements and the accompanying notes included in the Company's Annual Report on
Form 10-K dated March 28, 1995 (File No. 0-15590) filed with the SEC on March
31, 1995.
Certain prior years' balances have been reclassified to conform to
classifications used in the current year.
NOTE B - FISCAL PERIODS
The Company's fiscal year ends on the last Saturday in December, and
its reporting quarters consist of three 12-week quarters and a 16-week fourth
quarter, however, 1994 was a 53-week fiscal year which resulted in a 17-week
fourth quarter.
NOTE C - OLSON'S MERGER
On March 2, 1995 the principal operations of Olson's Food Stores, Inc.
were merged into the Company, including assets and liabilities related to 12 of
its grocery stores and its interest in certain grocery stores in various stages
of development, and its rights to several other future sites. The merger was
effected through an acquisition of 100% of the outstanding voting securities of
Olson's for $18,000,000 cash, 752,941 shares of the Company's common stock,
which as of March 2, 1995 had a value of $18,070,000, and the assumption by the
Company of approximately $24,000,000 of indebtedness of Olson's. The merger has
been accounted for under the "purchase" method of accounting.
<PAGE>
QUALITY FOOD CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
TWELVE WEEKS ENDED MARCH 25, 1995 AND MARCH 19, 1994
(UNAUDITED)
(CONTINUED)
Goodwill of $31,067,000 is being amortized over a period of 35 years.
Because the merger was a statutory merger, the Company has a carryover tax basis
and amortization of the excess of the book value over the tax basis of the
assets included in the merger is not deductible for federal income tax purposes.
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. The Company
has recorded $4,000,000 to goodwill and deferred income taxes payable to give
effect to the estimated deferred income taxes arising from the Olson's merger.
Further, as part of the merger agreement, the Company agreed to remit the
benefits, if any, of Olson's net operating loss carryforwards totaling
approximately $12,000,000 and certain other tax credit carryforwards totaling
approximately $1,200,000 to the former shareholders of Olson's when utilized. A
deferred tax asset and a corresponding liability of $5,400,000 related to these
carryforward items have been reflected in Other Assets and Other Liabilities in
the Company's March 25, 1995 financial statements.
Following is a summary of the assets and liabilities recorded as a
result of the Olson's merger:
<TABLE>
<CAPTION>
<S> <C>
Cash $ 185,473
Inventories 8,541,000
Other Current Assets 3,065,527
------------
Total Current Assets 11,792,000
Property Plant and Equipment
(net) 18,087,000
Leasehold Interest 12,829,000
Goodwill 31,067,000
Other Assets 7,487,000
Current Liabilities (11,792,000)
Deferred Income Taxes (4,000,000)
Other Liabilities (5,400,000)
------------
$ 60,070,000
------------
------------
</TABLE>
The $24 million in long-term debt assumed in
connection with the Olson's merger was partially repaid with
cash and partially refinanced with $15 million in borrowings
under the Company's line of credit.
<PAGE>
QUALITY FOOD CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
TWELVE WEEKS ENDED MARCH 25, 1995 AND MARCH 19, 1994
(UNAUDITED)
(CONTINUED)
Pro forma interim results of operations information required under
Rule 10-01 of Regulation S-X is not presented due to the impracticability of
obtaining such information. Pro forma results of operations information for
fiscal years 1994 and 1993 has been included in the Company's Form 8-K/A (File
No. 0-15590) filed on May 1, 1995 and the Company's Schedule 13E-4 (as amended)
filed on March 9, 1995.
NOTE D - RECAPITALIZATION
Subsequent to the end of the first quarter, the Company successfully
completed its recapitalization plan announced in December 1994. The Company's
self-tender offer that commenced on January 18, 1995, for up to 7,000,000 shares
of its common stock at a price of $25.00 per share payable in cash expired on
March 17, 1995. On March 29, 1995, the Company purchased 7,000,000 of the
11,179,838 shares of its common stock that were tendered, resulting in a
proration of 62.6127%; and entered into a new $220 million credit facility to
finance the tender offer. Initial borrowings under the credit facility were
$168 million which were used to refinance the $15 million note outstanding at
March 25, 1995 arising from the Olsons' merger and to finance the tender offer.
Also, the Company sold 1,000,000 newly issued shares of its common stock to
Zell/Chilmark Fund L.P. (Zell/Chilmark) at $25.00 per share on March 29, 1995.
Zell/Chilmark will acquire an additional 2,975,000 shares at $25.00 per share
directly from the Company's chairman and chief executive officer in a separate
transaction that is expected to close on January 15, 1996.
Fees payable in connection with the recapitalization aggregated
approximately $4.3 million. During the first quarter of 1995, $1.4 million of
these fees were recorded as a one-time expense, which is not deductible for
federal income tax purposes. The remaining costs of $2.9 million will be
recorded as a direct reduction in shareholders' equity.
<PAGE>
QUALITY FOOD CENTERS, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TWELVE WEEKS ENDED MARCH 25, 1995 COMPARED TO THE TWELVE WEEKS ENDED MARCH 19,
1994
The following table sets forth the percentage relationship to sales
of items in the statements of earnings:
<TABLE>
<CAPTION>
12 Weeks Ended
-------------------------
March 25, March 19,
1995 1994
% %
--------- ---------
<S> <C> <C>
Sales 100.0% 100.0%
Cost of sales & related
occupancy expenses 75.3 74.8
Marketing, general &
administrative expenses 19.1 18.5
----- -----
Operating income 5.6 6.7
Interest income .2 .2
Interest expense (.1) -
Other expense (1.0) -
----- -----
Earnings before income taxes 4.7 6.9
Taxes on income 2.0 2.4
----- -----
Net earnings 2.7% 4.5%
----- -----
----- -----
</TABLE>
SALES
Sales for the 12 weeks ended March 25, 1995 increased approximately
$18 million, or 14.8%, compared with the same period in 1994. Comparable store
sales decreased 0.8% for the quarter. This sales increase reflects the seven
stores that were new or acquired in 1994, increased sales in two store remodels
completed during the quarter, and three and one-half weeks of sales from the 12
Olson's stores merged into the Company's operations on March 2, 1995. These
factors were offset in part by continued food price deflation of 1% and lower
sales in certain existing stores due to the opening and remodeling of
competitors' stores located near QFC stores.
Sales growth has also been impacted by new and acquired stores, which
have lower sales volumes, becoming a more significant part of the Company's
sales, the maturing of older stores to a level where substantial sales growth is
more difficult, and the Company's strategy of opening stores in certain
locations that enhance the Company's competitive
<PAGE>
QUALITY FOOD CENTERS, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
position and protect its market share but reduce sales in nearby existing
stores. Also, the supermarket industry continues to be highly competitive.
Management believes that these factors will continue to affect sales in the
remainder of 1995, especially if deflation and a softer regional economy
continue.
OPERATING INCOME
The Company's cost of sales and related occupancy expenses increased
from 74.8% of sales for the first quarter of 1994 to 75.3% for the first quarter
of 1995 due to higher occupancy costs associated with the 40% increase in store
square footage over the first quarter a year ago and lower margins in the newer
and recently acquired stores. Marketing, general and administrative expenses
increased from 18.5% of sales during the first quarter last year to 19.1% of
sales for the first quarter of 1995, primarily due to lower profitability levels
in our newly acquired stores, start up and conversion costs associated with
acquired stores, as well as continued increases in labor costs and other
operating expenses coupled with the continued deflation in retail food prices.
Due to the above factors operating margins decreased from 6.7% of sales for the
first quarter of 1994 to 5.6% for the first quarter of 1995. This lower
operating margin more than offset the 14.8% sales increase resulting in a 5.3%
decrease in operating income for the quarter.
INTEREST
Interest income was up more than $100,000 from the first quarter of
1994 as interest rates were higher than during the comparable period of 1994.
The Company incurred $72,000 in interest expense on borrowings
incurred in connection with the Olson's merger.
OTHER EXPENSE
The Company incurred a one-time charge of $1.4 million in connection
with its recapitalization. This
<PAGE>
QUALITY FOOD CENTERS, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
charge is not deductible for federal income tax purposes. The remaining costs
of approximately $2.9 million incurred in connection with the recapitalization
will be recorded as a reduction in shareholders' equity. See Note D.
NET EARNINGS
The Company's effective federal income tax rate increased to 41.9% in
1995 from 34.4% in 1994 due to the non-deductible one-time charge of $1.4
million. This increase, the decrease in operating income, and the $1.4 million
charge offset in part by the slight increase in net interest income resulted in
a decline in net earnings for the 12 weeks ended March 25, 1995 to $3.8 million
compared with $5.5 million in the first quarter of 1994. Earnings per share
were 19 cents on 19,842,000 weighted average shares outstanding, compared with
28 cents per share on 19,594,000 weighted average shares outstanding for the
first quarter of 1994. Excluding the one-time charge, net earnings would have
been $5.2 million, or 26 cents per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of liquidity has been cash generated
from operations. The Company's cash and cash equivalents decreased $22 million
during the 12 weeks ended March 25, 1995 to $13.1 million due primarily to cash
utilized to complete the Olson's merger. The ratio of current assets to current
liabilities at March 25, 1995 was .78 to 1, compared with 1.58 to 1 at December
31, 1994.
<PAGE>
QUALITY FOOD CENTERS, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
The Company's expansion and remodeling and new store activities for
the period from 1986 through 1994 are summarized below:
<TABLE>
<CAPTION>
NEW OR SQUARE CAPITAL
MAJOR ACQUIRED FEET EXPENDITURES*
REMODELS RE-REMODELS STORES ADDED (IN THOUSANDS)
-------- ----------- -------- ----- --------------
<S> <C> <C> <C> <C> <C>
1986 3 - 1 58,000 $ 3,500
1987 2 - - 8,000 5,700
1988 5 - - 16,000 7,600
1989 2 - 2 85,000 9,900
1990 1 2 3 107,000 16,600
1991 2 1 3 127,000 25,900
1992 5 1 3 137,000 26,800
1993 3 - 5 173,000 43,000
1994 2 2 7 239,000 28,200
-- -- -- ------- --------
TOTAL 25 6 24 950,000 $167,200
-- -- -- ------- --------
-- -- -- ------- --------
<FN>
* Includes purchase of real estate held for investment.
</TABLE>
1994 was the Company's most active year to date in terms of square
footage growth. New stores included one new construction, the acquisition of a
store in Sequim, the Company's first on the Olympic Peninsula, and the
acquisition of five other stores from two independent operators in the Company's
existing market.
1995 will represent an even more aggressive year with an increase in
square footage to date of 48% from the 12 Olson's stores, the Rainier Market
store and the three stores acquired from Puget Sound Marketing on March 26,
1995. The Company acquired the Rainier Market store in Seattle in January 1995.
The store was closed for demolition and a replacement store is being constructed
to be opened in the summer of 1995. The Puget Sound Marketing stores are located
in Auburn, Enumclaw and Gig Harbor, Washington and operated under the Hogan's
Market and Bag & Save names. Additional stores are under construction and the
Company has secured a number of other sites that are still in the entitlement
process or subject to other contingencies and is actively pursuing other new
store locations and acquisition opportunities.
<PAGE>
QUALITY FOOD CENTERS, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
The Company owns the real estate at four of its 60 store facilities in
operation. As of March 25, 1995, the Company owned the strip shopping centers
where three of these stores are located; however, the real estate operations of
these centers are currently insignificant to the Company's results of
operations. One of the centers was sold during the quarter and the others are
for sale, however, the Company plans to retain ownership of its store buildings
and pads. The remaining stores are leased under long-term operating leases.
Capital expenditures, which include the purchase of land, fixtures,
equipment and leasehold improvements as well as the purchase of leasehold
interests, other property rights, goodwill and covenants not to compete, are
projected to remain substantial in 1995 and subsequent years as the Company
continues to expand and remodel existing stores and acquire and open new stores.
During 1994, the Company paid cash dividends of $.20 per share of the
Company's common stock totalling $3.9 million and a dividend of $.05 per share
was paid in February 1995. The payment of dividends has been discontinued
because the credit facility described below restricts payment of dividends prior
to 1997.
The $220 million Credit Facility entered into in connection with the
recapitalization discussed in Note D to the financial statements consists of a
term loan of $140 million (the "Term Loan") and revolving credit loans of up to
$80 million (the "Revolving Loans"). Principal repayments of the Term Loan are
due in quarterly installments from March 1997 through September 2001. The
Revolving Loans are available on a revolving credit basis for general corporate
purposes and any outstanding amounts would become due in September 2001. At the
Company's option, the interest rate per annum applicable to the Credit Facility
is either (1) the greater of the bank agent's reference rate and .5% above the
federal funds rate or (2) LIBOR plus a margin of 1.25% initially, with margin
reductions if the Company meets specified financial ratios. The Credit Facility
contains a number of significant covenants that, among other things, restrict
the ability of the Company to incur additional indebtedness or incur liens on
its assets, in each case subject to specified exceptions, impose specified
financial tests as a precondition to the Company's acquisition of other
businesses, prohibit the Company from making certain restricted payments
(including dividends) and restrict the
<PAGE>
QUALITY FOOD CENTERS, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
Company from making share repurchases above certain amounts before January 1,
1997 and, subject to specified financial tests, restrict its ability to make
such payments and repurchases thereafter. In addition, the Company is required
to comply with specified financial ratios and tests, including a maximum debt to
cash flow ratio, minimum ratios of cash flow to fixed charges, a minimum
accounts payable to inventory ratio and a minimum net worth test. The Credit
Facility is secured by a lien on all of the Company's receivables and intangible
assets. The Company has borrowed $167 million under the facility and the
current interest rate, which is 125 basis points over LIBOR, is 7.3125%.
The amount of the Credit Facility is significantly higher than the
Company's planned current financing needs, which will help to accommodate other
future growth opportunities. While the Company believes the Credit Facility and
existing cash and cash generated from operations will be adequate to fund
planned expansion, the Company believes it can readily obtain additional
capital, if needed, through other institutional financing or further issuance of
debt or equity securities.
INFLATION
During the first quarter of 1995, the Company's sales reflect food
price deflation of approximately 1% compared with deflation of nearly 2% during
the first quarter of 1994.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No material legal proceedings were commenced during the quarter, and
there have been no material developments in the legal proceedings referred to in
the Company's Form 10-K (File No. 0-15590) filed with the Commission on March
31, 1995.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. The following documents are filed as part of this report:
Exhibit 3.2 - Amended and Restated Bylaws.
Exhibit 11.0 - Statement regarding computation of earnings per share.
Exhibit 27.0 - Financial Data Schedule.
B. There were no reports on Form 8-K filed during this quarter.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QUALITY FOOD CENTERS, INC.
(Registrant)
Date: May 7, 1995 /s/ Stuart M. Sloan
------------------------------
Stuart M. Sloan
Chairman
Chief Executive Officer
Date: May 7, 1995 /s/ Marc W. Evanger
------------------------------
Marc W. Evanger
Vice President
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT
3.2 Amended and Restated Bylaws
11.0 Statement regarding computation
of per share earnings
27.0 Financial Data Schedule
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
QUALITY FOOD CENTERS, INC.
ARTICLE I
REGISTERED OFFICE AND REGISTERED AGENT
The registered office of the Corporation shall be located in the
State of Washington at such place as may be fixed from time to time by the Board
of Directors upon filing of such notices as may be required by law, and the
registered agent shall have a business office identical with such registered
office. A registered agent so appointed shall consent to appointment in writing
and such consent shall be filed with the Secretary of State of the State of
Washington.
If a registered agent changes the street address of the agent's
business office, the registered agent may change the street address of the
registered office of the Corporation by notifying the Corporation in writing of
the change and signing, either manually or in facsimile, and delivering to the
Secretary of State for filing a statement of such change, as required by law.
The Corporation may change its registered agent at any time upon the
filing of an appropriate notice with the Secretary of State, with the written
consent of the new registered agent either included in or attached to such
notice.
ARTICLE II
SHAREHOLDERS' MEETINGS
1. MEETING PLACE. All meetings of the shareholders shall be
held, pursuant to proper notice as set forth in Article II Section 5 of these
Bylaws, at the principal executive office of the Corporation, or at such other
place as shall be determined from time to time by the Board of Directors.
2. ANNUAL MEETING TIME. The annual meeting of the shareholders
for the election of directors and for the transaction of such other business as
may properly come before the meeting shall be held each year not later than the
end of the fifth month following the end of the fiscal year, with the Board of
Directors to determine the exact date in each year.
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3. ANNUAL MEETING - ORDER OF BUSINESS. At the annual meeting
of shareholders, the order of business shall be as follows:
(a) Call to order.
(b) Proof of notice of meeting (or filing of waiver).
(c) Reading of minutes of last annual meeting.
(d) Reports of officers.
(e) Reports of committees.
(f) Election of directors.
(g) Other business.
4. SPECIAL MEETINGS. Special meetings of the shareholders for
any purpose may be called only as provided in the Articles of Incorporation.
Special shareholders' meetings shall be held at the Corporation's principal
executive office or at such other place as shall be identified in the notice of
such meeting.
5. NOTICE.
(a) Except as provided in subsection (c) hereunder, notice
of the date, time and place of the annual meeting of shareholders shall be given
by delivering personally or by mailing a written or printed notice of the same,
at least ten days, and not more than sixty days, prior to the meeting to each
shareholder of record entitled to vote at such meeting.
(b) Except as provided in subsection (c) hereunder, written
or printed notice of each special meeting of shareholders shall be given at
least ten days and not more than sixty days prior to the meeting. Such notice
shall state the date, time and place of such meeting, and the purpose or
purposes for which the meeting is called, and shall be delivered personally, or
mailed to each shareholder of record entitled to vote at such meeting.
(c) Notice of a shareholders' meeting at which the
shareholders will be called to act on an amendment to the articles of
incorporation, a plan of merger or share exchange, a proposed sale of assets
other than in the regular course of business or the dissolution of the
Corporation shall be given not fewer than twenty days and not more than sixty
days before the meeting date.
6. RECORD DATE. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders, or at any
adjournment thereof, or entitled to receive dividends or distributions, the
Board of Directors shall fix in advance a record date for any such determination
of
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shareholders, such date to be not more than seventy days and, in case of a
meeting of shareholders, not less than ten days prior to the date on which the
particular action requiring such determination of shareholders is to be taken.
7. SHAREHOLDERS' LIST. After fixing a record date for a
shareholders' meeting, the Corporation shall prepare an alphabetical list of the
names of all its shareholders on the record date who are entitled to notice of a
shareholders' meeting. Such list shall be arranged by voting group, and within
each voting group by class or series of shares, and show the address of and
number of shares held by each shareholder. The shareholders' list shall be kept
on file at the registered office of the Corporation for a period beginning ten
days prior to such meeting and shall be kept open at the time and place of such
meeting for the inspection by any shareholder, or any shareholder's agent or
attorney.
8. QUORUM. Except as otherwise required by law, a quorum at
any annual or special meeting of shareholders shall consist of shareholders
representing, either in person or by proxy, a majority of the votes entitled to
be cast on the matter by each voting group.
9. VOTING.
(a) Except as otherwise provided in the Articles of
Incorporation and subject to the provisions of the laws of the State of
Washington, each outstanding share, regardless of class, is entitled to one vote
on each matter voted on at a shareholders' meeting.
(b) If a quorum exists, action on a matter, other than the
election of directors, is approved by a voting group if the votes cast within
the voting group favoring the action exceed the votes cast within the voting
group opposing the action, unless the question is one which by express provision
of law, of the Articles of Incorporation or of these Bylaws a greater number of
affirmative votes is required.
(c) Unless otherwise provided in the Articles of
Incorporation, in any election of directors the candidates elected are those
receiving the largest numbers of votes cast by the shares entitled to vote in
the election, up to the number of directors to be elected by such shares.
10. PROXIES. A shareholder may vote either in person or by
appointing a proxy by signing an appointment form, either personally or by the
shareholder's attorney-in-fact or agent. An appointment of a proxy is effective
when received by the person authorized to tabulate votes for the Corporation.
An appointment
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of a proxy is valid for eleven months unless a longer period is expressly
provided in the appointment form.
11. WAIVER OF NOTICE. A written waiver of any notice required
to be given to any shareholder, signed by the person or persons entitled to such
notice, whether before or after the time stated therein for the meeting, shall
be deemed the giving of such notice by the Corporation, provided that such
waiver has been delivered to the Corporation for inclusion in the minutes or
filing with the Corporation's records. A shareholder's attendance at a meeting
waives any notice required, unless the shareholder at the beginning of the
meeting objects to holding the meeting or transacting business at the meeting.
ARTICLE III
SHARES OF STOCK
1. ISSUANCE OF SHARES. No shares of the Corporation shall be
issued unless authorized by the Board of Directors. Such authorization shall
include the number of shares to be issued, the consideration to be received and
a statement regarding the adequacy of the consideration.
2. CERTIFICATES. Certificates, certificates of stock shall be
issued in numerical order, and each shareholder shall be entitled to a
certificate signed, either manually or in facsimile, by the President or a Vice
President, and the Secretary, and such certificate may bear the seal of the
Corporation or a facsimile thereof. If an officer who has signed or whose
facsimile signature has been placed upon such certificate ceases to be such
officer before the certificate is issued, it may be issued by the Corporation
with the same effect as if the person were an officer on the date of issue.
At a minimum each certificate of stock shall state:
(a) the name of the Corporation;
(b) that the Corporation is organized under the laws of the
State of Washington;
(c) the name of the person to whom the certificate is
issued;
(d) the number and class of shares and the designation of
the series, if any, the certificate represents; and
(e) if the Corporation is authorized to issue different
classes of shares or different series within a class, the designations, relative
rights, preferences and limitations
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applicable to each class and the variations in rights, preferences and
limitations determined for each series, and the authority of the Board of
Directors to determine variations for future series, must be summarized either
on the front or back of the certificate. Alternatively, the certificate may
state conspicuously on its front or back that the Corporation will furnish the
shareholder this information without charge on request in writing.
In case of any mutilation, loss or destruction of any certificate of
stock, another certificate may be issued in its place on proof of such
mutilation, loss or destruction. The Board of Directors may impose conditions
on such issuance and may require the giving of a satisfactory bond or indemnity
to the Corporation in such sum as it might determine or establish such other
procedures as it deems necessary or appropriate.
3. TRANSFERS.
(a) Transfers of stock shall be made only upon the stock
transfer records of the Corporation, which records shall be kept at the
registered office of the Corporation or at its principal place of business, or
at the office of its transfer agent or registrar. The Board of Directors may,
by resolution, open a share register in any state of the United States, and may
employ an agent or agents to keep such register and to record transfers of
shares therein.
(b) Shares of certificated stock shall be transferred by
delivery of the certificates therefor, accompanied either by an assignment in
writing on the back of the certificate or an assignment separate from
certificate, or by a written power of attorney to sell, assign and transfer the
same, signed by the holder of said certificate. No shares of certificated stock
shall be transferred on the records of the Corporation until the outstanding
certificates therefor have been surrendered to the Corporation or to its
transfer agent or registrar.
4. SHARES OF ANOTHER CORPORATION. Shares owned by the
Corporation in another Corporation, domestic or foreign, may be voted by such
officer, agent or proxy as the Board of Directors may determine or, in the
absence of such determination, by the President of the Corporation.
ARTICLE IV
BOARD OF DIRECTORS
1. NUMBER AND POWERS; VACANCIES.
(a) The management of all the affairs, property and
interests of the Corporation shall be vested in a Board of
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Directors. In addition to the powers and authorities expressly conferred upon
it by these Bylaws and by the Articles of Incorporation, the Board of Directors
may exercise all such powers of the Corporation and do all such lawful acts as
are not prohibited by statute or by the Articles of Incorporation or by these
Bylaws or as directed or required to be exercised or done by the shareholders.
(b) The Board of Directors shall consist of not less than
two persons and not more than nine persons, as determined by resolution from
time to time by the Board of Directors. Directors need not be Shareholders or
residents of the State of Washington.
(c) The number of directors may at any time be increased or
decreased by amendment to these Bylaws by resolution of either the shareholders
or directors at any annual or special meeting; PROVIDED, that no decrease in
the number of directors shall have the effect of shortening the term of any
incumbent director, except as provided in Section 3 of this Article IV.
(d) Except as provided in the Articles of Incorporation, all
vacancies in the Board of Directors, whether caused by resignation, death or
otherwise, may be filled by the affirmative vote of a majority of the remaining
directors in office though less than a quorum of the Board of Directors. A
director elected to fill a vacancy shall hold office until the next
shareholders' meeting at which directors are elected and until his or her
successor is elected and qualified. Any directorship to be filled by reason of
an increase in the number of directors may be filled by the Board of Directors
for a term of office continuing only until the next election of directors by the
shareholders and until his or her successor is elected and qualified.
2. GENERAL STANDARDS FOR DIRECTORS.
(a) A director shall discharge the duties of a director,
including duties as a member of a committee:
(i) in good faith;
(ii) with the care an ordinary prudent person in a like
position would exercise under similar circumstances; and
(iii) in a manner the director reasonably believes to be
in the best interests of the Corporation.
3. RESIGNATION. A director may resign at any time by
delivering written notice to the Board of Directors, the President or the
Secretary. A resignation is effective when the
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notice is delivered unless the notice specifies a later effective date.
4. REGULAR MEETINGS. Regular meetings of the Board of
Directors or any committee may be held without notice at the principal place of
business of the Corporation or at such other place or places, either within or
without the State of Washington, as the Board of Directors or such committee, as
the case may be, may from time to time designate. The annual meeting of the
Board of Directors shall be held without notice immediately after adjournment of
the annual meeting of shareholders.
5. SPECIAL MEETINGS.
(a) Special meetings of the Board of Directors may be called
at any time by the Chairman, President, Secretary or any two directors to be
held at the principal place of business of the Corporation or at such other
place or places as the Board of Directors or the person or persons calling such
meeting may from time to time designate. Notice of all special meetings of the
Board of Directors, stating the date, time and place thereof, shall be given at
least two days prior to the date of the meeting, in accordance with the
provisions set forth in Article VII of these Bylaws. Such notice need not
specify the business to be transacted at, or the purpose of, the meeting.
(b) Special meetings of any committee of the Board of
Directors may be called at any time by such person or persons and with such
notice as shall be specified for such committee by the Board of Directors, or in
the absence of such specification, in the manner and with the notice required
for special meetings of the Board of Directors.
6. WAIVER OF NOTICE. A director may waive any notice required
by law, by the Articles of Incorporation or by these Bylaws before or after the
time stated for the meeting, and such waiver shall be equivalent to the giving
of such notice. Such waiver must be in writing, signed by the director entitled
to such notice and delivered to the Corporation for inclusion in the minutes or
filing with the corporate records. A director's attendance at or participation
in a meeting shall constitute a waiver of any required notice to the director of
the meeting unless the director at the beginning of the meeting, or promptly
upon the director's arrival, objects to holding the meeting or transacting
business at the meeting and does not thereafter vote for or assent to action
taken at the meeting.
7. QUORUM. Except as otherwise provided by law:
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(a) A majority of the full Board of Directors shall be
necessary at all meetings to constitute a quorum for the transaction of
business.
(b) If a quorum is present when a vote is taken, the
affirmative vote of a majority of directors present is the act of the Board of
Directors.
8. REGISTERING DISSENT. A director who is present at a meeting
of the Board of Directors at which action on a corporate matter is taken is
deemed to have assented to such action unless:
(a) the director objects at the beginning of the meeting, or
promptly upon the director's arrival, to the holding of, or transaction of
business at, the meeting;
(b) the director's dissent or abstention from the action is
entered in the minutes of the meeting; or
(c) the director delivers written notice of the director's
dissent or abstention to the presiding officer of the meeting before its
adjournment or to the Corporation within a reasonable time after adjournment of
the meeting. The right to dissent or abstain is not available to a director who
voted in favor of the action taken.
9. ACTION BY DIRECTORS WITHOUT A MEETING.
(a) Any action required or permitted to be taken at a
meeting of the Board of Directors, or of a committee thereof, may be taken
without a meeting if the action is taken by all members of the Board of
Directors. The action must be evidenced by one or more written consents setting
forth the action taken, signed by each of the directors, or by each of the
members of the committee, as the case may be, either before or after the action
taken, and delivered to the Corporation for inclusion in the minutes or filing
with the Corporation's records.
(b) Action taken under this section is effective when the
last director signs the consent, unless the consent specifies a later effective
date.
10. PARTICIPATION BY MEANS OF COMMUNICATIONS EQUIPMENT. Any or
all directors may participate in a regular or special meeting of the Board of
Directors (or of a committee thereof) by, or may conduct the meeting through the
use of, any means of communication by which all directors participating can hear
each other during the meeting.
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11. COMMITTEES.
(a) The Board of Directors, by resolution adopted by a
majority of the full Board of Directors, may designate from among its members an
Executive Committee and one or more other standing or special committees. Each
committee must have two or more members who serve at the pleasure of the Board
of Directors. The Executive Committee shall have and may exercise all of the
authority of the Board of Directors, and other standing or special committees
may be invested with such powers, subject to such conditions as the Board of
Directors shall see fit; PROVIDED, that no committee shall have the authority
to:
(i) authorize or approve a distribution except
according to a general formula or method prescribed by the Board of Directors;
(ii) approve or propose to shareholders action that by
law is required to be approved by shareholders;
(iii) fill vacancies on the Board of Directors or any of
its committees;
(iv) amend the Articles of Incorporation;
(v) adopt, amend or repeal these Bylaws;
(vi) approve a plan of merger not requiring shareholder
approval; or
(vii) authorize or approve the issuance or sale or
contract for sale of shares, or determine the designation and relative rights,
preferences and limitations of a class or series of shares, except that the
Board of Directors may authorize a committee (or a senior executive officer of
the Corporation) to do so within limits specifically prescribed by the Board of
Directors.
(b) All committees so appointed shall keep regular minutes
of their meetings and shall cause them to be recorded in books kept for that
purpose in the office of the Corporation.
(c) The creation of, delegation of authority to or action by
a committee does not alone constitute compliance by a director with the
standards of conduct required by the Washington Business Corporation Act and
these Bylaws.
12. REMUNERATION. No stated salary shall be paid directors, as
such, for their service, but by resolution of the Board of Directors, a fixed
sum and expenses of attendance, if
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any, may be allowed for attendance at each regular or special meeting of the
Board of Directors or of a committee thereof; provided, that nothing herein
contained shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
ARTICLE V
OFFICERS
1. DESIGNATIONS. The officers of the Corporation shall be a
Chairman, a President, a Secretary and, at the discretion of the Board of
Directors, one or more Vice-Presidents (one or more of whom may be Executive
Vice-Presidents), a Treasurer, Assistant Secretaries and Assistant Treasurers.
The Board of Directors shall appoint all officers. Any two or more offices may
be held by the same individual.
2. APPOINTMENT AND TERM OF OFFICE. The officers of the
Corporation shall be appointed annually by the Board of Directors at the first
meeting of the Board of Directors held after each annual meeting of the
shareholders. Each officer shall hold office until a successor shall have been
appointed and qualified, or until such officer's earlier death, resignation or
removal.
3. POWERS AND DUTIES. If the Board appoints persons to fill
the following positions, such officers shall have the power and duties set forth
below:
(a) THE CHAIRMAN: The Chairman shall have general control
and management of the Board of Directors and may also be the chief executive
officer of the Corporation. Except where by law the signature of the President
is required, the Chairman shall possess the same power as the President to sign
all certificates, contracts and other instruments of the Corporation. During
the absence or disability of the President, the Chairman shall exercise all the
powers and discharge all of the duties of the President. He shall preside at
all meetings of the Board of Directors at which he is present; and, in his
absence, the President shall preside at such meetings. He shall have such other
powers and perform such other duties as from time to time may be conferred or
imposed upon him by the Board of Directors.
(b) THE PRESIDENT: The President of the Corporation shall
be the chief executive officer of the Corporation, unless such position is held
by the Chairman. During the absence or disability of the Chairman, he shall
exercise all of the powers and discharge all of the duties of the Chairman. He
shall be generally responsible for the proper conduct of the business of the
Corporation. He shall possess
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power to sign all certificates, contracts and other instruments of the
Corporation. He shall preside at all meetings of the shareholders and, in the
absence of the Chairman of the Board of Directors. He shall perform all such
other duties as are incident to his office or are properly required of him by
the Board of Directors.
(c) VICE PRESIDENT: During the absence or disability of
the President, the Executive Vice-Presidents, if any, and the Vice-Presidents in
the order designated by the Board of Directors, shall exercise all the functions
of the President. Each Vice-President shall have such powers and discharge such
duties as may be assigned to him from time to time by the Board of Directors.
(d) SECRETARY AND ASSISTANT SECRETARIES. The Secretary
shall issue notices for all meetings, except for notices for special meetings of
the shareholders and special meetings of the directors which are called by the
requisite number of shareholders or directors, shall keep minutes of all
meetings, shall have charge of the seal and the corporate books, and shall make
such reports and perform such other duties as are incident to his office, or are
properly required of him by the Board of Directors. The Assistant Secretary, or
Assistant Secretaries in order designated by the Board of Directors, shall
perform all of the duties of the Secretary during the absence or disability of
the Secretary, and at other times may perform such duties as are directed by the
President or the Board of Directors.
(e) THE TREASURER: The Treasurer shall have the custody
of all moneys and securities of the Corporation and shall keep regular books of
account. He shall disburse the funds of the Corporation in payment of the just
demands against the Corporation or as may be ordered by the Board of Directors,
taking proper vouchers for such disbursements, and shall render to the Board of
Directors from time to time as may be required of him an account of all his
transactions as Treasurer and of the financial condition of the Corporation. He
shall perform such other duties incident to his office of that are properly
required of him by the Board of Directors. The Assistant Treasurer, or
Assistant Treasurers in the order designated by the Board of Directors, shall
perform all of the duties of the Treasurer in the absence or disability of the
Treasurer, and at other times may perform such other duties as are directed by
the President or the Board of Directors.
4. STANDARDS OF CONDUCT FOR OFFICERS.
(a) An officer with discretionary authority shall discharge
such officer's duties under that authority:
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(i) in good faith;
(ii) with the care an ordinary prudent person in a like
position would exercise under similar circumstances; and
(iii) in a manner the officer reasonably believes to be
in the best interests of the Corporation.
5. DELEGATION. In the case of absence or inability to act of
any officer of the Corporation and of any person herein authorized to act in
such officer's place, the Board of Directors may from time to time delegate the
powers or duties of such officer to any other officer or any director or other
person whom it may in its sole discretion select.
6. VACANCIES. Vacancies in any office arising from any cause
may be filled by the Board of Directors at any regular or special meeting of the
Board. The appointee shall hold office for the unexpired term and until his
successor is duly elected and qualified.
7. OTHER OFFICERS. The Board of Directors, or a duly appointed
officer to whom such authority has been delegated by Board resolution, may
appoint such other officers and agents as it shall deem necessary or expedient,
who shall hold their offices for such terms and shall exercise such powers and
perform such duties as shall be determined from time to time by the Board of
Directors.
8. RESIGNATION. An officer may resign at any time by
delivering notice to the Corporation. Such notice shall be effective when
delivered unless the notice specifies a later effective date. Any such
resignation shall not affect the Corporation's contract rights, if any, with the
officer.
9. REMOVAL. Any officer elected or appointed by the Board of
Directors may be removed at any time, with or without cause, by the affirmative
vote of a majority of the whole Board of Directors, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
10. BONDS. The Board of Directors may, by resolution, require
any and all of the officers to give bonds to the Corporation, with sufficient
surety or sureties, conditioned for the faithful performance of the duties of
their respective offices, and to comply with such other conditions as may from
time to time be required by the Board of Directors.
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ARTICLE VI
DISTRIBUTIONS AND FINANCE
1. DISTRIBUTIONS. The Board of Directors may authorize and the
Corporation may make distributions to its shareholders; provided that no
distribution may be made if, after giving it effect, either:
(a) The Corporation would not be able to pay its debts as
they become due in the usual course of business; or
(b) The Corporation's total assets would be less than the
sum of its total liabilities plus the amount which would be needed, if the
Corporation were to be dissolved at the time of the distribution, to satisfy the
preferential rights upon dissolution of shareholders whose preferential rights
are superior to those receiving the distribution.
The Board of Directors may authorize distributions to holders of
record at the close of business on any business day prior to the date on which
the distribution is made. If the Board of Directors does not fix a record date
for determining shareholders entitled to a distribution, the record date shall
be the date on which the Board of Directors authorizes the distribution.
2. MEASURE OF EFFECT OF A DISTRIBUTION. For purposes of
determining whether a distribution may be authorized by the Board of Directors
and paid by the Corporation under Article VI, Section 1 of these Bylaws, the
effect of the distribution is measured:
(a) In the case of a distribution of indebtedness, the terms
of which provide that payment of principal and interest are made only if and to
the extent that payment of a distribution to shareholders could then be made
under this section, each payment of principal or interest is treated as a
distribution, the effect of which is measured on the date the payment is
actually made; or
(b) In the case of any other distribution:
(i) if the distribution is by purchase, redemption, or
other acquisition of the Corporation's shares, the effect of the distribution is
measured as of the earlier of the date any money or other property is
transferred or debt incurred by the Corporation, or the date the shareholder
ceases to be a shareholder with respect to the acquired shares;
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(ii) if the distribution is of an indebtedness other
than described in subsection 2(a) and (b)(i) of this section, the effect of the
distribution is measured as of the date the indebtedness is distributed; and
(iii) in all other cases, the effect of the distribution
is measured as of the date the distribution is authorized if payment occurs
within 120 days after the date of authorization, or the date the payment is made
if it occurs more than 120 days after the date of authorization.
3. DEPOSITORIES. The monies of the Corporation shall be
deposited in the name of the Corporation in such bank or banks or trust company
or trust companies as the Board of Directors shall designate, and shall be drawn
out only by check or other order for payment of money signed by such persons and
in such manner as may be determined by resolution of the Board of Directors.
ARTICLE VII
NOTICES
Except as may otherwise be required by law, any notice to any
shareholder or director must be in writing and may be transmitted by: mail,
private carrier or personal delivery; telegraph or teletype; or telephone, wire
or wireless equipment which transmits a facsimile of the notice. Written notice
by the Corporation to its shareholders shall be deemed effective when mailed, if
mailed with first-class postage prepaid and correctly addressed to the
shareholder's address shown in the Corporation's current record of shareholders.
Except as set forth in the previous sentence, written notice shall be deemed
effective at the earliest of the following: (i) when received; (ii) five days
after its deposit in the United States mail, as evidenced by the postmark, if
mailed with first-class postage, prepaid and correctly addressed; or (iii) on
the date shown on the return receipt, if sent by registered or certified mail,
return receipt requested, and receipt is signed by or on behalf of the
addressee.
ARTICLE VIII
SEAL
The Corporation may adopt a corporate seal which seal shall be in
such form and bear such inscription as may be adopted by resolution of the Board
of Directors.
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ARTICLE IX
INDEMNIFICATION OF OFFICERS,
DIRECTORS, EMPLOYEES AND AGENTS
1. DEFINITIONS. For purposes of this Article:
(a) "Corporation" includes any domestic or foreign
predecessor entity of the Corporation in a merger or other transaction in which
the predecessor's existence ceased upon consummation of the transaction.
(b) "Director" means an individual who is or was a director
of the Corporation or an individual who, while a director of the Corporation, is
or was serving at the Corporation's request as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan, or other enterprise.
A director is considered to be serving an employee benefit plan at the
Corporation's request if the director's duties to the Corporation also impose
duties on, or otherwise involve services by, the director to the plan or to
participants in or beneficiaries of the plan. "Director" includes, unless the
context requires otherwise, the estate or personal representative of a director.
(c) "Expenses" include counsel fees.
(d) "Liability" means the obligation to pay a judgment,
settlement, penalty, fine, including an excise tax assessed with respect to an
employee benefit plan, or reasonable expenses incurred with respect to a
proceeding.
(e) "Official capacity" means: (i) When used with respect to
a director, the office of director in the Corporation; and (ii) when used with
respect to an individual other than a director, as contemplated in Section 8 of
this Article IX, the office in the Corporation held by the officer or the
employment or agency relationship undertaken by the employee or agent on behalf
of the Corporation. "Official capacity" does not include service for any other
foreign or domestic corporation or any partnership, joint venture, trust,
employee benefit plan, or other enterprise.
(f) "Party" includes an individual who was, is, or is
threatened to be made a named defendant or respondent in a proceeding.
(g) "Proceeding" means any threatened, pending, or completed
action, suit, or proceeding, whether civil,
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criminal, administrative or investigative and whether formal or informal.
2. RIGHT OF INDEMNIFICATION.
(a) The Corporation shall indemnify any person (or the
estate of any person) who was or is a party to any proceeding, whether or not
brought by or in the right of the Corporation, by reason of the fact that such
person is or was a director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise (all such persons, hereinafter "Agent"), against reasonable
expenses incurred by such person in connection with the proceeding.
(b) Except as provided in subsection (e) of this Section 2,
the Corporation shall indemnify an individual made a party to a proceeding
because the individual is or was an Agent (as defined above) against liability
incurred in the proceeding if:
(i) The individual acted in good faith; and
(ii) The individual reasonably believed:
(A) In the case of conduct in the individual's
official capacity with the Corporation, that the individual's conduct was in the
Corporation's best interests;
(B) In all other cases, that the individual's
conduct was at least not opposed to the Corporation's best interests; and
(iii) In the case of any criminal proceeding, the
individual had no reasonable cause to believe the individual's conduct was
unlawful.
(c) A director's conduct with respect to an employee benefit
plan for a purpose the director reasonably believed to be in the interests of
the participants in and beneficiaries of the plan is conduct that satisfies the
requirement of subsection (b)(ii) of this Section 2.
(d) The termination of a proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent is
not, of itself, determinative that the director did not meet the standard of
conduct described in this Section.
(e) The Corporation shall not indemnify an Agent under this
Section 2:
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<PAGE>
(i) In connection with a proceeding by or in the right
of the Corporation in which the Agent was adjudged liable to the Corporation; or
(ii) In connection with any other proceeding charging
improper personal benefit to the Agent, whether or not involving action in the
Agent's official capacity, in which the director was adjudged liable on the
basis that personal benefit was improperly received by the Agent.
(f) Indemnification under this Article IX, Section 2 in
connection with a proceeding by or in the right of the Corporation is limited to
reasonable expenses incurred in connection with the proceeding.
3. ADVANCE FOR EXPENSES.
(a) The Corporation shall pay for or reimburse the
reasonable expenses incurred by an Agent who is a party to a proceeding in
advance of final disposition of the proceeding if:
(i) The Agent furnishes the Corporation a written
affirmation of the Agent's good faith belief that the director has met the
standard of conduct described in Section 2 of this Article IX; and
(ii) The Agent furnishes the Corporation a written
undertaking, executed personally or on the Agent's behalf, to repay the advance
if it is ultimately determined that the Agent did not meet the standard of
conduct.
(b) The undertaking required by subsection (a)(i) of this
Section 3 must be an unlimited general obligation of the Agent but need not be
secured and may be accepted without reference to financial ability to make
repayment.
4. COURT-ORDERED INDEMNIFICATION. An Agent of the Corporation
who is a party to a proceeding may apply for indemnification or advance of
expenses to the court conducting the proceeding or to another court of competent
jurisdiction. On receipt of an application, the court after giving any notice
the court considers necessary, may order indemnification or advance of expenses
if it determines:
(a) The Agent is entitled to mandatory indemnification
pursuant to RCW 23B.08.520, in which case the court shall also order the
Corporation to pay the Agent's reasonable expenses incurred to obtain
court-ordered indemnification;
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<PAGE>
(b) The Agent is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances, whether or not the
director met the standard of conduct set forth in Section 2 of this Article IX,
or was adjudged liable as described in Section 2(e) of this Article IX, but if
the Agent was adjudged so liable, the Agent's indemnification is limited to
reasonable expenses incurred; or
(c) In the case of an advance of expenses, the Agent is
entitled pursuant to the Articles of Incorporation, Bylaws, or any applicable
resolution or contract, to payment or reimbursement of the Agent's reasonable
expenses incurred as a party to the proceeding in advance of final disposition
of the proceeding.
5. DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION.
(a) The Corporation shall not indemnify an Agent under this
Article IX unless authorized in the specific case after a determination has been
made that indemnification of the Agent is permissible in the circumstances
because the Agent has met the standard of conduct set forth in Section 2(b) of
this Article IX.
(b) The determination shall be made:
(i) By the Board of Directors by majority vote of a
quorum consisting of directors not at the time parties to the proceeding;
(ii) If a quorum cannot be obtained under (i) of this
subsection, by majority vote of a committee duly designated by the Board of
Directors, in which designation directors who are parties may participate,
consisting solely of two or more directors not at the time parties to the
proceeding;
(iii) By special legal counsel:
(A) Selected by the Board of Directors or its
committee in the manner prescribed in (i) or (ii) of this subsection; or
(B) If a quorum of the Board of Directors cannot
be obtained under (i) of this subsection and a committee cannot be designated
under (ii) of this subsection, selected by majority vote of the full Board of
Directors, in which selection directors who are parties may participate; or
(iv) By the shareholders, but shares owned by or voted
under the control of directors who are at the time parties to the proceeding may
not be voted on the determination.
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<PAGE>
(c) Authorization of indemnification and evaluation as to
reasonableness of expenses shall be made in the same manner as the determination
that indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled under subsection (b)
(iii) of this Section to select counsel.
6. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of an individual who is or was a director, officer,
employee, or agent of the Corporation, or who, while a director, officer,
employee, or agent of the Corporation, is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee, or agent of
another foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise, against liability asserted against
or incurred by the individual in that capacity or arising from the individual's
status as a director, officer, employee, or agent, whether or not the
Corporation would have power to indemnify the individual against the same
liability under this Article IX.
7. INDEMNIFICATION AS A WITNESS. This Article IX does not
limit a Corporation's power to pay or reimburse expenses incurred by an Agent in
connection with the Agent's appearance as a witness in a proceeding at a time
when the Agent has not been made a named defendant or respondent to the
proceeding.
8. REPORT TO SHAREHOLDERS. If the Corporation indemnifies or
advances expenses to a director pursuant to this Article IX in connection with a
proceeding by or in the right of the Corporation, the Corporation shall report
the indemnification or advance in writing to the shareholders with or before the
notice of the next shareholders' meeting.
9. SHAREHOLDER AUTHORIZED INDEMNIFICATION.
(a) If authorized by a resolution adopted or ratified,
before or after the event, by the shareholders of the Corporation, the
Corporation shall have the power to indemnify or agree to indemnify a director
made a party to a proceeding, or obligate itself to advance or reimburse
expenses incurred in a proceeding, without regard to the limitations contained
in this Article IX (other than this Section 9); provided that no such indemnity
shall indemnify any director from or on account of:
(i) Acts or omissions of the director finally adjudged
to be intentional misconduct or a knowing violation of law;
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<PAGE>
(ii) Conduct of the director finally adjudged to be an
unlawful distribution under RCW 23B.08.310; or
(iii) Any transaction with respect to which it was
finally adjudged that such director personally received a benefit in money,
property, or services to which the director was not legally entitled.
(b) Unless a resolution adopted or ratified by the
shareholders of the Corporation provides otherwise, any determination as to any
indemnity or advance of expenses under subsection (a) of this Section 9 shall be
made in accordance with Section 5 of this Article IX.
10. SAVINGS CLAUSE. If this Article IX or any portion thereof
shall be invalidated on any ground by any court of competent jurisdiction, the
Corporation shall nevertheless indemnify each Agent as to expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement with respect
to any proceeding whether or not brought by or in the right of the Corporation,
to the full extent permitted by any applicable portion of this Article IX that
shall not have been invalidated, or by any other applicable law.
ARTICLE X
BOOKS AND RECORDS
The Corporation shall maintain appropriate accounting records and
shall keep as permanent records minutes of all meetings of its shareholders and
Board of Directors, a record of all actions taken by the shareholders or the
Board of Directors without a meeting and a record of all actions taken by a
committee of the Board of Directors. In addition, the Corporation shall keep at
its registered office or principal place of business, or at the office of its
transfer agent or registrar, a record of its shareholders, giving the names and
addresses of all shareholders in alphabetical order by class of shares showing
the number and class of the shares held by each. Any books, records and minutes
may be in written form or any other form capable of being converted into written
form within a reasonable time.
The Corporation shall keep a copy of the following records at its
principal office:
1. The Articles or Restated Articles of Incorporation and all
amendments thereto currently in effect;
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<PAGE>
2. The Bylaws or Restated Bylaws and all amendments thereto
currently in effect;
3. The minutes of all shareholders' meetings, and records of all
actions taken by shareholders without a meeting, for the past three years;
4. Its financial statements for the past three years, including
balance sheets showing in reasonable detail the financial condition of the
Corporation as of the close of each fiscal year, and an income statement showing
the results of its operations during each fiscal year prepared on the basis of
generally accepted accounting principles or, if not, prepared on a basis
explained therein;
5. All written communications to shareholders generally within
the past three years;
6. A list of the names and business addresses of its current
directors and officers; and
7. Its most recent annual report delivered to the Secretary of
State of Washington.
ARTICLE XI
AMENDMENTS
1. Subject to the Articles of Incorporation:
(a) The Board of Directors shall have power to amend or
repeal the Bylaws of, or adopt new bylaws for, the Corporation. However, any
such Bylaws, or any alteration, amendment or repeal of the Bylaws, may be
subsequently changed or repealed by the holders of a majority of the stock
entitled to vote at any shareholders' meeting.
(b) These Bylaws may be amended or repealed by the
shareholders in the manner set forth in Article II Section 9 of these Bylaws at
any regular or special meeting of the shareholders.
2. EMERGENCY BYLAWS. The Board of Directors may adopt
emergency Bylaws, subject to repeal or change by action of the shareholders,
which shall be operative during any emergency in the conduct of the business of
the Corporation resulting from an attack on the United States, any state of
emergency declared by the federal government or any subdivision thereof, or any
other catastrophic event.
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<PAGE>
Adopted by resolution of the Corporation's Board of Directors on
March 29, 1995.
/s/ Marc W. Evanger
----------------------------------
Marc W. Evanger
Secretary
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<PAGE>
QUALITY FOOD CENTERS, INC.
EXHIBIT 11.0
COMPUTATION OF PER SHARE EARNINGS
Calculations of per share earnings reported in this report on Form
10-Q for the 12 week periods ended March 25, 1995 and March 19, 1994 are based
on the following:
<TABLE>
<CAPTION>
12 Weeks Ended 12 Weeks Ended
March 25, 1995 March 19, 1994
-------------- --------------
<S> <C> <C>
Weighted average
shares outstanding 19,698,262 19,353,546
Dilutive effect of
stock options 143,738 240,454
---------- ----------
Weighted average
number of shares 19,842,000 19,594,000
---------- ----------
---------- ----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY
BALANCE SHEET AS OF MARCH 25, 1995 AND STATEMENT OF EARNINGS FOR THE 12 WEEKS
THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-25-1995
<CASH> 13,108
<SECURITIES> 0
<RECEIVABLES> 7,585
<ALLOWANCES> 0
<INVENTORY> 32,298
<CURRENT-ASSETS> 56,648
<PP&E> 159,829
<DEPRECIATION> 38,525
<TOTAL-ASSETS> 270,529
<CURRENT-LIABILITIES> 72,334
<BONDS> 0
<COMMON> 45,252
0
0
<OTHER-SE> 134,340
<TOTAL-LIABILITY-AND-EQUITY> 270,529
<SALES> 138,938
<TOTAL-REVENUES> 138,938
<CGS> 104,656
<TOTAL-COSTS> 26,570
<OTHER-EXPENSES> 1,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72
<INCOME-PRETAX> 6,513
<INCOME-TAX> 2,732
<INCOME-CONTINUING> 3,781
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,781
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
