<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 23, 1996
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.
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(Exact name of registrant as specified in its charter)
Washington 91-1330075
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10112 N.E. 10th Street, Bellevue, Washington 98004
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(Address of principal executive offices) (Zip Code)
(206) 455-3761
---------------
(Registrant's telephone number, including area code)
Not applicable.
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(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by 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 6, 1996: 14,566,595
<PAGE>
PART I. FINANCIAL INFORMATION
QUALITY FOOD CENTERS, INC.
STATEMENTS OF EARNINGS
(unaudited)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
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- --------------------------------------------------------------------------------
Twelve Weeks Ended
March 23, March 25,
1996 1995
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<S> <C> <C>
Sales $ 176,627 $ 138,938
Cost of sales and related occupancy expenses 133,313 104,656
Marketing, general and administrative expenses 33,486 26,571
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OPERATING INCOME 9,828 7,711
Interest income 72 274
Interest expense (2,588) (72)
Other expense - (1,400)
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EARNINGS BEFORE INCOME TAXES 7,312 6,513
Taxes on income
Current 2,223 2,332
Deferred 406 400
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Total taxes on income 2,629 2,732
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NET EARNINGS $ 4,683 $ 3,781
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EARNINGS PER SHARE $ .32 $ .19
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Weighted average shares outstanding 14,554 19,842
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Dividends per common share $ - $ .05
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</TABLE>
See accompanying notes to financial statements.
<PAGE>
QUALITY FOOD CENTERS, INC.
BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
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- --------------------------------------------------------------------------------
March 23, December 30,
1996 1995
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- --------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 11,146 $ 10,933
Accounts receivable 8,574 9,031
Inventories 35,824 36,706
Prepaid expenses 6,162 5,524
- --------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 61,706 62,194
PROPERTIES
Land 8,576 8,576
Buildings, fixtures and equipment 135,421 132,594
Leasehold improvements 40,434 38,767
Construction in progress 16,665 15,954
- --------------------------------------------------------------------------------
201,096 195,891
Accumulated depreciation and amortization (52,543) (48,810)
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148,553 147,081
LEASEHOLD INTEREST, net of accumulated
amortization of $9,932 and $9,535 30,870 27,954
Real estate held for investment 5,640 5,622
GOODWILL, net of accumulated
amortization of $1,255 and $1,009 34,352 34,599
OTHER ASSETS 5,928 5,428
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$ 287,049 $ 282,878
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 35,101 $ 34,173
Accrued payroll and related benefits 10,066 12,556
Accrued business and sales taxes 3,200 5,037
Other accrued expenses 5,823 4,720
Federal income taxes payable 2,627 405
Current portion of long-term debt 6,300 -
- --------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 63,117 56,891
DEFERRED INCOME TAXES 10,398 9,992
OTHER LIABILITIES 6,127 6,127
LONG-TERM DEBT 157,200 164,500
SHAREHOLDERS' EQUITY
Common stock, at stated value - authorized
60,000,000 shares, issued and outstanding
14,436,000 shares and 14,432,000 shares 29,088 28,932
Retained earnings 21,119 16,436
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TOTAL SHAREHOLDERS' EQUITY 50,207 45,368
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$ 287,049 $ 282,878
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</TABLE>
See accompanying notes to financial statements.
<PAGE>
QUALITY FOOD CENTERS, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
TWELVE WEEKS ENDED MARCH 23, 1996
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common Stock Retained
Shares Amount Earnings Total
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT
DECEMBER 30, 1995 14,432 $ 28,932 $ 16,436 $ 45,368
NET EARNINGS - - 4,683 4,683
COMMON STOCK ISSUED 4 156 - 156
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BALANCE AT
MARCH 23, 1996 14,436 $ 29,088 $ 21,119 $ 50,207
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</TABLE>
See accompanying notes to financial statements.
<PAGE>
QUALITY FOOD CENTERS, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Twelve Weeks Ended
March 23, March 25,
1996 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 4,683 $ 3,781
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization of properties 3,695 2,486
Amortization of leasehold interest and other 850 536
Amortization of debt issuance costs 43 -
Deferred income taxes 406 400
CHANGES IN OPERATING ASSETS AND LIABILITIES
Accounts receivable 457 (749)
Inventories 882 (142)
Prepaid expenses (681) (1,011)
Accounts payable 928 3,455
Accrued payroll and related benefits (2,490) (1,072)
Accrued business and sales taxes (1,837) (1,309)
Other accrued expenses 1,103 1,128
Federal income taxes payable 2,222 2,407
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Net Cash Provided by Operating Activities 10,261 9,910
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INVESTING ACTIVITIES
Capital expenditures, net (8,482) (5,540)
Cash portion of Olson's merger - (17,815)
Increase in real estate held for investment (18) (57)
Other (704) 29
Proceeds from sale of real estate - 1,340
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Net Cash Used by Investing Activities (9,204) (22,043)
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FINANCING ACTIVITIES
Proceeds from issuance of common stock 156 52
Repayments of long-term debt (1,000) (9,000)
Cash dividend paid - (974)
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Net Cash Used by Financing Activities (844) (9,922)
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NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 213 (22,055)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 10,933 35,163
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CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 11,146 $ 13,108
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</TABLE>
See accompanying notes to financial statements.
<PAGE>
QUALITY FOOD CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
TWELVE WEEKS ENDED MARCH 23, 1996 AND MARCH 25, 1995
(unaudited)
NOTE A - NATURE OF OPERATIONS
Quality Food Centers, Inc.(QFC) is the second largest supermarket chain in
the Seattle/Puget Sound region of Washington State, and the largest independent
chain. The Company has been in operation since 1954 and currently operates 62
stores and employs over 4,200 people.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Financial Statement Preparation - The financial statements as of and for the
twelve weeks ended March 23, 1996 and March 25, 1995 are unaudited, but in the
opinion of management include all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the financial position and results of
operations and cash flows 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
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 20, 1996 (File No. 0-15590) for the year ended December 30, 1995
filed with the SEC on March 29, 1996.
Complying with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting periods. Actual results could differ from the estimates.
Certain prior years' balances have been reclassified to conform to
classifications used in the current year.
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.
Earnings Per Share - Earnings per share is based upon the weighted average
number of common shares and common share equivalents outstanding during the
period.
NOTE C - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes and interest expense for the twelve weeks ended
March 23, 1996 and March 25, 1995 was as follows (in thousands):
<TABLE>
<CAPTION>
Twelve Weeks Ended
March 23, March 25,
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Income taxes $ - $ 95
Interest (net of $177 of interest capitalized) 2,163 -
- --------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
QUALITY FOOD CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
TWELVE WEEKS ENDED MARCH 23, 1996 AND MARCH 25, 1995
(unaudited)
NOTE C - continued
During the first quarter of 1995, the Company acquired all of the
outstanding shares of Olson's Foods, Inc. in a merger transaction for $60.1
million (Note D). In connection with the merger, liabilities assumed were as
follows (in thousands):
Fair value of assets acquired $ 69,246
Cash paid (18,000)
Long-term debt assumed (24,000)
Common stock issued (18,070)
----------
Current liabilities assumed $ 9,176
----------
----------
During the first quarter of 1995, the Company recorded $4.0 million as an
increase in goodwill and deferred income taxes 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 $0.5 million relating to the exercise of stock options
that were tendered as part of the Recapitalization (Note E).
NOTE D - 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 $18.0 million cash, 0.8 million shares of the Company's common
stock, which as of March 2, 1995 had a value of $18.1 million, and the
assumption by the Company of approximately $24.0 million of indebtedness of
Olson's. The merger has been accounted for under the "purchase" method of
accounting.
Goodwill of $32.4 million 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.
The Company has recorded $4.0 million to goodwill and deferred income taxes
to give effect to 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 $12.0 million and certain other tax credit carryforwards totaling
approximately $1.2 million to the former shareholders of Olson's when utilized.
A deferred tax asset and a corresponding liability of $5.4 million related to
these carryforward items were recorded in the Company's financial statements.
The Company utilized $653,000 of the tax asset in the second quarter of 1995.
7
<PAGE>
QUALITY FOOD CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
TWELVE WEEKS ENDED MARCH 23, 1996 AND MARCH 25, 1995
(unaudited)
NOTE D - continued
Following is a summary of the assets and liabilities recorded as a result
of the Olson's merger (in thousands):
Cash $ 182
Inventories 8,541
Other current assets 453
---------
Total current assets 9,176
Property plant and equipment (net) 18,087
Leasehold interest 12,829
Goodwill 32,367
Other assets 7,487
Current liabilities (9,176)
Deferred income taxes (4,000)
Other liabilities (6,700)
---------
$ 60,070
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The $24.0 million in long-term debt assumed in connection with the Olson's
merger was partially repaid with cash and partially refinanced with $15.0
million in borrowings under the Company's credit facility.
Pursuant to the merger agreement, the former shareholders of Olson's are
required to pay the Company the excess of Olson's current liabilities over
current assets as of the merger date. Such amount totaled $10.2 million, of
which $2.5 million remained payable to the Company at March 23, 1996 and
December 30, 1995.
NOTE E - RECAPITALIZATION
During the second quarter of 1995, the Company completed a
recapitalization. The Company's self-tender offer that commenced on January
18, 1995, for up to 7.0 million 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 7.0 million shares of its common stock and
entered into a new $220.0 million credit facility to finance the tender
offer, Olson's merger, and provide additional capital. Additionally, the
Company sold 1.0 million newly issued shares of its common stock to
Zell/Chilmark Fund LP (Zell/Chilmark) at $25.00 per share on March 29, 1995.
Zell/Chilmark acquired 2,975,000 additional shares at $25.00 per share, plus
an amount equal to a 5% annual return on such amount from March 17, 1995
through January 16, 1996, directly from the Company's chairman and chief
executive officer in a separate transaction that closed on January 16, 1996.
To reflect the net reduction in shareholders' equity resulting from the
recapitalization, the Company reduced retained earnings to zero at the beginning
of the second quarter of 1995 and allocated the remaining amount as a reduction
to common stock.
Fees paid 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 were recorded as a direct
reduction to shareholders' equity.
8
<PAGE>
QUALITY FOOD CENTERS, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TWELVE WEEKS ENDED MARCH 23, 1996 COMPARED TO THE TWELVE WEEKS ENDED MARCH 25,
1995
The table below sets forth items in the Company's statements of earnings as
a percentage of sales:
<TABLE>
<CAPTION>
12 Weeks Ended
------------------------------
March 23, March 25,
1996 1995
% %
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<S> <C> <C>
Sales 100.0% 100.0%
Cost of sales & related
occupancy expenses 75.4 75.3
Marketing, general &
administrative expenses 19.0 19.1
---------- ---------
Operating income 5.6 5.6
Interest income .1 .2
Interest expense (1.5) (.1)
Other expense - (1.0)
---------- ---------
Earnings before income taxes 4.2 4.7
Taxes on income 1.5 2.0
---------- ---------
Net earnings 2.7% 2.7%
---------- ---------
---------- ---------
</TABLE>
SALES
Sales for the 12 weeks ended March 23, 1996 increased approximately $37.7
million, or 27.1%, compared with the same period in 1995. The increase in total
sales reflects the addition of 17 stores (12 of which were acquired from Olson's
on March 2, 1995, 3 of which were acquired on March 29, 1995 from another
independent operator, one acquired store that opened in August 1995 and a new
store that opened in November 1995), higher sales in remodeled stores, and an
increase in comparable store sales of approximately 1.0% for the quarter.
These factors were offset in part by lower sales in certain existing stores due
to the opening and remodeling of competitors' stores located near QFC stores.
In addition, sales growth has 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 position and protect its market
share but reduce sales in nearby existing stores. Additionally, the supermarket
industry continues to be highly competitive.
Management believes that this trend in comparable store sales will
continue in the first half of 1996 and become even stronger in the second
half of the year as the Company laps the dates of many of the store openings
and remodelings which impacted the Company's stores in 1995. Further, modest
inflation is anticipated for 1996 and the regional economy is projected to be
healthier than in recent years.
9
<PAGE>
QUALITY FOOD CENTERS, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
OPERATING INCOME
The Company's cost of sales and related occupancy expenses increased
slightly from 75.3% of sales for the first quarter of 1995 to 75.4% for the
first quarter of 1996 due to higher occupancy expenses resulting from the 1995
acquisitions and a $100,000 LIFO charge in 1996 compared to no charge in the
first quarter of 1995. Marketing, general and administrative expenses decreased
slightly from 19.1% of sales during the first quarter last year to 19.0% of
sales for the first quarter of 1996, primarily due to the increase in comparable
store sales and lower operating expense ratios in new and acquired stores.
Due to the above factors, operating margins remained unchanged at 5.6% of
sales for both the first quarter of 1996 and 1995.
INTEREST
Interest income decreased to $72,000 in the first quarter of 1996, compared
to $273,000 in the same period in 1995, reflecting lower cash balances due to
the recapitalization completed on March 29, 1995, offset by higher interest
rates in 1996 than in 1995.
Interest expense of $2.6 million for the first quarter of 1996 reflects
interest on the debt assumed (and refinanced) in the Olson's merger and debt
incurred in connection with the recapitalization. Interest expense is net of
approximately $177,000 of interest capitalized in connection with store
construction and remodeling costs incurred during the 12 weeks ended March 23,
1996.
OTHER EXPENSE
The Company incurred a one-time charge of $1.4 million in the first quarter
of 1995 for fees paid in connection with its recapitalization. This charge is
not deductible for federal income tax purposes. The remaining costs of
approximately $2.9 million incurred in connection with the recapitalization were
recorded as a reduction in shareholders' equity (see Note E to the financial
statements).
INCOME TAXES
The Company's effective federal income tax rate decreased from 41.9% in
1995 to 36.0% in 1996 due to the non-deductible one-time charge of $1.4 million
recorded in the first quarter of 1995. The difference between the Company's
effective income tax rate and the federal statutory rate for the first quarter
of 1996 is primarily due to the non-deductible amortization of goodwill and
certain other assets that were included in the Olson's merger.
NET EARNINGS
The increase in sales and the decrease in the effective tax rate offset by
higher interest expense, resulted in an increase in net earnings for the 12
weeks ended March 23, 1996 to $4.7 million compared with $3.8 million in the
first quarter of 1995. Earnings per share were 32 cents on 14,554,000 weighted
average shares outstanding, compared with 19 cents per share on 19,842,000
weighted average shares outstanding for the first quarter of 1995. Excluding
the one-time charge, net earnings for 1995 would have been $5.2 million, or 26
cents per share.
10
<PAGE>
QUALITY FOOD CENTERS, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of liquidity has been cash generated from
operations. The Company's cash and cash equivalents increased $0.2 million
during the 12 weeks ended March 23, 1996 to $11.1 million as cash provided by
operations of $10.3 million more than offset capital expenditures of $8.5
million and the repayment of $1.0 million of long-term debt. The ratio of
current assets to current liabilities at March 23, 1996 was .98 to 1, compared
with 1.09 to 1 at December 30, 1995.
The Company's expansion and remodeling and new store activities for the
period from 1986 through March 23, 1996 are summarized below (dollars in
thousands):
<TABLE>
<CAPTION>
NEW OR SQUARE
MAJOR ACQUIRED FEET CAPITAL
REMODELS RE-REMODELS STORES ADDED EXPENDITURES*
-------- ----------- ------ ----- -------------
<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
1995 5 2 17 609,000 89,100
1996 1 1 - 27,000 8,500
---- ---- ---- --------- --------
TOTAL 31 9 41 1,586,000 $264,800
---- ---- ---- --------- --------
---- ---- ---- --------- --------
</TABLE>
* Includes purchase of real estate held for investment.
1995 was the Company's most active year to date in terms of growth with
an increase in square footage of 46% from the 17 stores added. The Company
opened a new 41,000 square foot store in the Northgate area on March 20,
1996, which replaced a 14,000 square foot store in the same area.
Construction of a 66,000 square foot store that will replace the 31,000
square foot University Village store, and the new 45,000 square foot Harvard
market store are underway. Additionally, several store remodels and
re-remodels are underway or on the drawing table. 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.
The Company owns the real estate at five of its 62 store facilities in
operation. The Company owns 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. Another
shopping center owned by the Company was sold during the first quarter of 1995
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.
11
<PAGE>
QUALITY FOOD CENTERS, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
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 be approximately $30.0 million in 1996 based on the Company's
announced plans, and to remain substantial in subsequent years as the Company
continues to expand and remodel existing stores and acquire and open new stores.
The Company paid a cash dividend of $.05 per share in February 1995. The
payment of dividends has been discontinued because the credit facility described
below restricts payment of dividends prior to 1997.
The $220.0 million credit facility entered into in connection with the
recapitalization discussed in Note E to the financial statements consists of a
term loan of $140.0 million and revolving credit loans of up to $80.0 million.
Principal repayments of the term loan are due in quarterly installments from
March 1997 through September 2001. The revolving loans are available 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 or .5% above the federal funds rate or (2) IBOR 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 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 had $163.5 million of borrowings under the facility, with an interest
rate of 1.25% over IBOR, or 6.57%, at March 23, 1996. The Company is currently
in compliance with all financial covenants contained in the credit facility.
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.
Statement of Financial Accounting Standard (SFAS) No. 123, "Accounting for
Stock-Based Compensation," was recently issued and is effective for the
Company's fiscal year ending December 28, 1996. The Company, as allowed,
intends to continue to measure stock-based compensation using its current method
of accounting prescribed by Accounting Principle Board (APB) Opinion No. 25.
The Company will be required to disclose certain additional information related
to its stock options and Employee Stock Purchase Plan; however, management
believes the impact to the financial statements, taken as a whole, will not be
material.
INFLATION
The Company's sales for the first quarter of 1996 reflect no food price
inflation or deflation, while sales for the first quarter of 1995 reflect food
price deflation of approximately 1%.
FORWARD LOOKING INFORMATION
The above discussion contains forward-looking statements that involve a
number of risks and uncertainties. There are certain important factors that
could cause results to differ materially from those anticipated by such
statements. These include, but are not limited to, the competitive
environment in the supermarket industry generally and specifically in the
Company's market areas, economic conditions, inflation, cost changes and
changes in the Company's expansion plans.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No material legal proceedings were commenced during the quarter.
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 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.
13
<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 6, 1996 /s/ Stuart M. Sloan
-----------------------------
Stuart M. Sloan
Chairman
Chief Executive Officer
Date: May 6, 1996 /s/ Marc W. Evanger
-----------------------------
Marc W. Evanger
Vice President
Chief Financial Officer
14
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT
- -------------- -------
11.0 Statement regarding computation
of per share earnings
27.0 Financial Data Schedule
15
<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 23, 1996 and March 25, 1995 are based on the
following:
<TABLE>
<CAPTION>
Twelve Weeks Ended
March 23, 1996 March 25, 1995
-------------- --------------
<S> <C> <C>
Weighted average
shares outstanding 14,436,000 19,698,000
Dilutive effect of
stock options 118,000 144,000
-------------- --------------
Weighted average
number of shares 14,554,000 19,842,000
-------------- --------------
-------------- --------------
</TABLE>
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> MAR-23-1996
<CASH> 11,146
<SECURITIES> 0
<RECEIVABLES> 8,574
<ALLOWANCES> 0
<INVENTORY> 35,824
<CURRENT-ASSETS> 61,706
<PP&E> 201,096
<DEPRECIATION> (52,543)
<TOTAL-ASSETS> 287,049
<CURRENT-LIABILITIES> 63,117
<BONDS> 0
29,088
0
<COMMON> 0
<OTHER-SE> 21,119
<TOTAL-LIABILITY-AND-EQUITY> 287,049
<SALES> 176,627
<TOTAL-REVENUES> 0
<CGS> 133,313
<TOTAL-COSTS> 166,799
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,588)
<INCOME-PRETAX> 7,312
<INCOME-TAX> 2,629
<INCOME-CONTINUING> 4,683
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,683
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
