<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 12, 1996
Quality Food Centers, Inc.
--------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Washington
--------------------------------------------------------------------------
(State or other jurisdiction of incorporation)
0-15590 91-1330075
- --------------------------------- --------------------------------------
(Commission File Number) (IRS Employer Identification No.)
10112 N.E. 10th Street
Bellevue, Washington 98004
- --------------------------------- --------------------------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code (206) 455-3761
---------------------------------------------------------------------------
(Former name or former address, if changed since last report)
Page 1 of __ Pages
Exhibit Index on Page 4
<PAGE>
2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On February 14, 1997, QFC acquired Keith Uddenberg, Inc. ("KUI") for
approximately $35.3 million in cash and 904,646 shares of QFC Common Stock
and, in connection therewith, assumed $24.3 million of existing KUI
indebtedness (the "KUI Acquisition"). KUI operates 25 stores in the western
and southern Puget Sound region of the state of Washington. Included under
Item 7 hereof are the historical financial statements of KUI, together with
certin pro forma information of QFC, as adjusted to give effect to the KUI
Acquisition and the Hughes Acquisition (as defined below).
ITEM 5. OTHER EVENTS
As previously reported under Item 5 in the Company's Current Report
on Form 8-K dated November 12, 1996, QFC entered into a definitive merger
agreement pursuant to which QFC will acquire Hughes Markets, Inc. ("Hughes")
for approximately $360 million in cash (the "Hughes Acquisition"). The
transaction is expected to be completed on March 19, and is subject to certain
conditions. Included under Item 7 hereof is pro forma information of QFC, as
adjusted to give effect to the Hughes Acquisition and the KUI Acquisition.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Filed as exhibit 99.2 is certain unaudited pro forma information of QFC, as
adjusted to give effect to the Hughes Acquisition and the KUI Acquisition.
(j) EXHIBITS
99.2 Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
September 7, 1996; Unaudited Pro Forma Condensed Consolidated
Statement of Earnings for the fiscal year ended December 30, 1995;
Unaudited Pro Forma Condensed Consolidated Statement of Earnings
for the 36 weeks ended September 7, 1996; Unaudited Pro Forma
Condensed Consolidated Statement of Earnings for the 52 weeks ended
September 7, 1996.
<PAGE>
3
SIGNATURES:
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
QUALITY FOOD CENTERS, INC.
March 14, 1997 By: /s/ MARC W. EVANGER
- -------------------------- ---------------------------------
Marc W. Evanger, Vice President
and Chief Financial Officer
and Secretary/Treasurer
<PAGE>
4
INDEX TO EXHIBITS
Exhibit Number Exhibit Page
99.2 Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
September 7, 1996; Unaudited Pro Forma Condensed Consolidated
Statement of Earnings for the fiscal year ended December 30, 1995;
Unaudited Pro Forma Condensed Consolidated Statement of Earnings
for the 36 weeks ended September 7, 1996; Unaudited Pro Forma
Condensed Consolidated Statement of Earnings for the 52 weeks
ended September 7, 1996.
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements (the "Pro Forma Financial Statements") are based on historical
financial statements of QFC, Hughes Markets, Inc. ("Hughes"), and Keith
Uddenberg, Inc. ("KUI") and have been prepared to illustrate the effects of
the Acquisitions (as defined herein) and other related transactions described
below and the assumed financing therefor.
The unaudited pro forma condensed consolidated statement of earnings for
the year ended December 30, 1995 gives effect to each of the following
transactions as if such transactions had been completed as of January 1,
1995: (i) the proposed acquisition of Hughes (the "Hughes Acquisition") and
certain related transactions; (ii) Hughes' sale to Stater Bros. Markets
("Stater") in November 1996 of a 1% equity interest in Santee Dairies, Inc.
("Santee"), which, prior to that sale, was a 51%-owned subsidiary of Hughes,
resulting in Santee ceasing to be a consolidated subsidiary of Hughes; (iii)
KUI's spin off of certain assets and liabilities, primarily related to
non-grocery operations, prior to the recent acquisition of KUI (the "KUI
Acquisition") (iv) the KUI Acquisition and certain related transactions; (v)
the application of the estimated net proceeds from the sale by QFC of
4,500,000 shares of its Common Stock (the "Common Stock Offering") and the
private placement of certain debt securities (the "Notes Offering"; and
collectively with the Common Stock Offering, the "Offerings") and
borrowings under an amended and restated $250 million term loan facility and
an amended and restated $125 million revolving credit facility (together the
"New Credit Facility") to finance the Hughes Acquisition and to refinance
bank debt of QFC expected to be outstanding at the time of the closing of the
Offerings (the "Closing") (including indebtedness which was incurred in
connection with the KUI Acquisition); and (vi) QFC's proposed divestiture of
five recently acquired KUI stores. The unaudited pro forma condensed
consolidated statement of earnings for the 36 weeks ended September 7, 1996
gives effect to the transactions described above as if such transactions had
been completed as of December 31, 1995. The unaudited pro forma condensed
consolidated statement of earnings for the 52 weeks ended September 7, 1996
gives effect to the transactions described above as if such transactions had
been completed as of September 10, 1995. The unaudited pro forma condensed
consolidated balance sheet as of September 7, 1996 gives effect to the
transactions described above as if such transactions had been completed as of
that date. The effect of the proposed divestiture of five recently acquired
KUI stores is reflected in the pro forma balance sheet as assets held for
sale.
The Hughes Acquisition and KUI Acquisition will be accounted for using the
purchase method of accounting. The total purchase price of each of the
Acquisitions will be allocated to the tangible and intangible assets and
liabilities acquired based upon their respective fair values. The allocation of
each of the aggregate purchase prices reflected in the Pro Forma Financial
Statements is preliminary and is subject to adjustment, upon the receipt of,
among other things, certain appraisals of the acquired assets and liabilities.
The Pro Forma Financial Statements do not purport to present the actual
financial position or results of operations that would have occurred had the
transactions and events reflected therein in fact occurred on the dates
specified, nor do they purport to be indicative of the results of operations or
financial condition that may be achieved in the future. The Company anticipates
that the Acquisitions will result in certain synergies and economies of scale
resulting from, among other things, reduction in administrative costs and
enhanced buying power. However, none of these anticipated benefits is reflected
in the Pro Forma Financial Statements and there can be no assurance that they
will be realized. The Pro Forma Financial Statements are based on certain
assumptions and adjustments described in the notes hereto and should be read in
conjunction therewith.
<PAGE>
In addition, the pro forma condensed consolidated statements of earnings
reflect QFC's proposed divestiture of five of the stores recently acquired in
the KUI Acquisition. QFC believes, based upon past experience in selling stores,
that it will be able to dispose of these stores, although it has not entered
into any definitive agreements for that purpose. Accordingly, there can be no
assurance as to the actual sales proceeds which may be received by the Company
therefor or when those stores may be sold. In addition, QFC anticipates that it
will make capital expenditures of approximately $22 million through 1998 in
order to convert certain KUI stores, expected to be retained following the KUI
Acquisition, to the QFC format; such capital expenditures are not reflected in
the Pro Forma Financial Statements.
The Pro Forma Financial Statements should be read in conjunction with
QFC's "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the historical financial statements and notes
thereto of QFC incorporated by reference in QFC's Annual Report on Form 10-K
for the year ended December 30, 1995 and included in its Quarterly Reports on
Form 10-Q for the 12 weeks ended March 23, 1996, the 12 weeks ended June 15,
1996 and the 12 weeks ended September 7, 1996, the historical consolidated
financial statements and notes thereto of Hughes included herein, and the
historical financial statements and notes thereto of KUI included herein.
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 7, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL HISTORICAL
QFC HUGHES HUGHES PRO KUI
SEPTEMBER 7, SEPTEMBER 29, FORMA HUGHES SEPTEMBER 28,
1996(a) 1996(a) ADJUSTMENTS(b) PRO FORMA 1996(a)
------------ ------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash & cash equivalents..................... $ 11,570 $ 10,454 $ (19) $ 10,435 $ 1,865
Accounts receivable......................... 9,655 18,175 (10,437) 7,738 5,190
Inventories................................. 35,670 53,966 (4,290) 49,676 11,523
Prepaid expenses............................ 6,442 9,291 (1,727) 7,564 281
------------ ------------- -------------- ----------- -------------
TOTAL CURRENT ASSETS.................... 63,337 91,886 (16,473) 75,413 18,859
Investment in subsidiary.................... 8,649 8,649
Properties
Land........................................ 15,025 43,913 (6,392) 37,521 2,415
Buildings, fixtures and equipment........... 152,331 221,182 (32,976) 188,206 50,728
Leasehold improvements...................... 43,084 48,385 48,385 2,576
Construction in progress.................... 6,927 11,871 (11,871) 4,017
------------ ------------- -------------- ----------- -------------
217,367 325,351 (51,239) 274,112 59,736
Accumulated depreciation and amortization... (59,878) (131,478) 24,597 (106,881) (29,531)
------------ ------------- -------------- ----------- -------------
157,489 193,873 (26,642) 167,231 30,205
Property under capital leases............... 19,500 19,500
Assets held for sale........................
Leasehold interest.......................... 27,382 4,946 (464) 4,482
Real estate held for investment............. 5,888 865
Goodwill.................................... 33,857
Other assets................................ 5,657 5,504 (438) 5,066 7,248
------------ ------------- -------------- ----------- -------------
TOTAL ASSETS............................ $ 293,610 $ 315,709 $ (35,368) $ 280,341 $ 57,177
------------ ------------- -------------- ----------- -------------
------------ ------------- -------------- ----------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................ $ 33,414 $ 53,678 $ (12,694) $ 40,984 $ 14,496
Accrued liabilities......................... 27,926 39,893 (5,716) 34,177 4,893
Current portion long term debt.............. 18,900 9,204 (5,000) 4,204 2,662
Current portion capital lease obligation.... 559 559
------------ ------------- -------------- ----------- -------------
TOTAL CURRENT LIABILITIES............... 80,240 103,334 (23,410) 79,924 22,051
Deferred income taxes....................... 11,735 8,644 (169) 8,475
Other liabilities........................... 6,128 6,623 (3,420) 3,203 4,168
Long term debt.............................. 131,100 3,044 3,044 23,621
Capital lease obligation.................... 24,924 24,924
Preferred stock dividend.................... 3,328
Minority interest........................... 8,369 (8,369)
Shareholders' equity........................ 64,407 160,771 160,771 4,009
------------ ------------- -------------- ----------- -------------
TOTAL LIABILITIES & SHAREHOLDERS'
EQUITY................................ $ 293,610 $ 315,709 $ (35,368) $ 280,341 $ 57,177
------------ ------------- -------------- ----------- -------------
------------ ------------- -------------- ----------- -------------
<CAPTION>
PRO FORMA
ADJUSTMENTS FOR QFC/HUGHES/KUI
KUI ACQUISITIONS CONSOLIDATED
PRO FORMA KUI AND PRO FORMA
ADJUSTMENTS(c) PRO FORMA OFFERINGS(d) (AS ADJUSTED)
--------------- ----------- --------------- ----------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash & cash equivalents..................... $ -- $ 1,865 $ (7,466)(d) $ 16,404
Accounts receivable......................... (150) 5,040 22,433
Inventories................................. (2,060) 9,463 23,866(h) 115,175
(3,500)(m)
Prepaid expenses............................ (7) 274 14,280
------- ----------- --------------- ----------------
TOTAL CURRENT ASSETS.................... (2,217) 16,642 12,900 168,292
Investment in subsidiary.................... (2,500)(n) 6,149
Properties
Land........................................ (675) 1,740 3,000(i) 57,286
Buildings, fixtures and equipment........... (3,361) 47,367 20,000(i) 401,804
(6,100)(m)
Leasehold improvements...................... (155) 2,421 93,890
Construction in progress.................... 4,017 10,944
------- ----------- --------------- ----------------
(4,191) 55,545 16,900 563,924
Accumulated depreciation and amortization... 2,129 (27,402) (194,161)
------- ----------- --------------- ----------------
(2,062) 28,143 16,900 369,763
Property under capital leases............... 19,500
Assets held for sale........................ 9,600(m) 9,600
Leasehold interest.......................... 75,000(j) 106,864
Real estate held for investment............. (865) 5,888
Goodwill.................................... 136,625(k) 172,982
2,500(n)
Other assets................................ (183) 7,065 5,930(l) 29,912
6,194(d)
------- ----------- --------------- ----------------
TOTAL ASSETS............................ $ (5,327) $ 51,850 $ 263,149 $ 888,950
------- ----------- --------------- ----------------
------- ----------- --------------- ----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................ $ (917) $ 13,579 $ -- $ 87,977
Accrued liabilities......................... (24) 4,869 66,972
Current portion long term debt.............. 2,662 (21,562)(d) 4,204
Current portion capital lease obligation.... 559
------- ----------- --------------- ----------------
TOTAL CURRENT LIABILITIES............... (941) 21,110 (21,562) 159,712
Deferred income taxes....................... 20,210
Other liabilities........................... 4,168 13,499
Long term debt.............................. (2,000) 21,621 247,279(d) 403,044
Capital lease obligation.................... 24,924
Preferred stock dividend.................... (3,328)
Minority interest...........................
Shareholders' equity........................ 942 4,951 (165,722)(g) 267,561
167,194(e)
35,960(f)
------- ----------- --------------- ----------------
TOTAL LIABILITIES & SHAREHOLDERS'
EQUITY................................ $ (5,327) $ 51,850 $ 263,149 $ 888,950
------- ----------- --------------- ----------------
------- ----------- --------------- ----------------
</TABLE>
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT
OF EARNINGS FOR THE FISCAL YEAR ENDED DECEMBER 30, 1995
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL QFC HUGHES HISTORICAL KUI
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED HUGHES ENDED
DECEMBER 30, MARCH 3, PRO FORMA HUGHES PRO DECEMBER 30,
1995(a) 1996(a) ADJUSTMENTS(b) FORMA 1995(a)
---------------- ---------------- -------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Sales................................. $ 729,856 $1,147,447 $ (161,678) $ 985,769 $ 319,141
Cost of sales and related occupancy
expenses............................ 550,434 901,951 (139,446) 762,505 250,823
Marketing, general, and administrative
expenses............................ 136,644 215,234 (24,008) 191,226 70,441
---------------- ---------------- -------------- ----------- ----------------
Operating income (loss)............... 42,778 30,262 1,776 32,038 (2,123)
Interest income....................... 501 1,272 (602) 670 79
Interest expense...................... (9,639) (4,335) 50 (4,285) (1,939)
Other income (expense)................ (1,400)(r) 2,066
---------------- ---------------- -------------- ----------- ----------------
Earnings before income taxes.......... 32,240 27,199 1,224 28,423 (1,917)
Total taxes on income................. 12,023 11,382 471 11,853 (674)
---------------- ---------------- -------------- ----------- ----------------
Income before minority interest....... 20,217 15,817 753 16,570 (1,243)
---------------- ---------------- -------------- ----------- ----------------
Equity losses......................... (384) (384)
Minority interest in subsidiary
loss................................ 369 (369)
---------------- ---------------- -------------- ----------- ----------------
Net earnings (loss)................... $ 20,217 $ 16,186 $ -- $ 16,186 $ (1,243)
---------------- ---------------- -------------- ----------- ----------------
---------------- ---------------- -------------- ----------- ----------------
Earnings per share(s)................. $ 1.28
Weighted average shares outstanding... 15,830
<CAPTION>
PRO FORMA
ADJUSTMENTS FOR QFC/HUGHES/KUI
ACQUISITIONS CONSOLIDATED
KUI PRO FORMA KUI AND PRO FORMA
ADJUSTMENTS(c) PRO FORMA OFFERINGS(d) (AS ADJUSTED)
-------------- ----------- --------------- ----------------
<S> <C> <C> <C> <C>
Sales................................. $ (12,761) $ 306,380 $ (36,287)(m) $ 1,985,718
Cost of sales and related occupancy
expenses............................ (11,405) 239,418 (29,936)(m) 1,522,421
Marketing, general, and administrative
expenses............................ (2,793) 67,648 (9,379)(m) 393,451
7,312(o)
-------------- ----------- --------------- ----------------
Operating income (loss)............... 1,437 (686) (4,284) 69,846
Interest income....................... 79 1,250
Interest expense...................... (1,939) (18,937)(p) (34,800)
Other income (expense)................ (522) 1,544 144
-------------- ----------- --------------- ----------------
Earnings before income taxes.......... 915 (1,002) (23,221) 36,440
Total taxes on income................. 311 (363) (6,045)(q) 17,468
-------------- ----------- --------------- ----------------
Income before minority interest....... 604 (639) (17,176) 18,972
-------------- ----------- --------------- ----------------
Equity losses......................... (384)
Minority interest in subsidiary
loss................................
-------------- ----------- --------------- ----------------
Net earnings (loss)................... $ 604 $ (639) $ (17,176) $ 18,588
-------------- ----------- --------------- ----------------
-------------- ----------- --------------- ----------------
Earnings per share(s)................. $ 0.88
Weighted average shares outstanding... 5,405 (e)(f) 21,235
</TABLE>
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT
OF EARNINGS FOR THE 36 WEEKS ENDED SEPTEMBER 7, 1996
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL HISTORICAL
QFC HUGHES KUI
36 WEEKS ENDED 9 MONTHS ENDED HUGHES 39 WEEKS ENDED
SEPTEMBER 7, SEPTEMBER 29, PRO FORMA HUGHES SEPTEMBER 28,
1996(a) 1996(a) ADJUSTMENTS(b) PRO FORMA 1996(a)
-------------- -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Sales......................................... $ 547,166 $ 884,734 $ (128,659) $ 756,075 $ 257,537
Cost of sales and related occupancy
expenses.................................... 410,549 686,621 (112,781) 573,840 199,675
Marketing, general, and administrative
expenses.................................... 103,850 172,730 (19,163) 153,567 54,539
-------------- -------------- -------------- ----------- --------------
Operating income (loss)....................... 32,767 25,383 3,285 28,668 3,323
Interest income............................... 301 848 (316) 532 20
Interest expense.............................. (6,901) (2,822) 116 (2,706) (1,291)
Other income (expense)........................ 605
-------------- -------------- -------------- ----------- --------------
Earnings before income taxes.................. 26,167 23,409 3,085 26,494 2,657
Total taxes on income......................... 9,372 10,846 356 11,202 926
-------------- -------------- -------------- ----------- --------------
Income before minority interest............... 16,795 12,563 2,729 15,292 1,731
-------------- -------------- -------------- ----------- --------------
Equity losses................................. (1,391) (1,391)
Minority interest in subsidiary loss.......... 1,338 (1,338)
-------------- -------------- -------------- ----------- --------------
Net earnings.................................. $ 16,795 $ 13,901 $ -- $ 13,901 $ 1,731
-------------- -------------- -------------- ----------- --------------
-------------- -------------- -------------- ----------- --------------
Earnings per share(s)......................... $ 1.14
Weighted average shares outstanding........... 14,766
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR QFC/HUGHES/KUI
KUI ACQUISITIONS CONSOLIDATED
PRO FORMA KUI AND PRO FORMA
ADJUSTMENTS(c) PRO FORMA OFFERINGS(d) (AS ADJUSTED)
--------------- ----------- --------------- ----------------
<S> <C> <C> <C> <C>
Sales......................................... $ (9,292) $ 248,245 $ (32,486)(m) $ 1,519,000
Cost of sales and related occupancy
expenses.................................... (8,360) 191,315 (26,516)(m) 1,149,188
Marketing, general, and administrative
expenses.................................... (2,026) 52,513 (7,982)(m) 307,432
5,484 (o)
------- ----------- --------------- ----------------
Operating income (loss)....................... 1,094 4,417 (3,472) 62,380
Interest income............................... 20 853
Interest expense.............................. (1,291) (14,694) (25,592)
Other income (expense)........................ (381) 224 224
------- ----------- --------------- ----------------
Earnings before income taxes.................. 713 3,370 (18,166) 37,865
Total taxes on income......................... 242 1,168 (4,819)(q) 16,923
------- ----------- --------------- ----------------
Income before minority interest............... 471 2,202 (13,347) 20,942
------- ----------- --------------- ----------------
Equity losses................................. (1,391)
Minority interest in subsidiary loss..........
------- ----------- --------------- ----------------
Net earnings.................................. $ 471 $ 2,202 $ (13,347) $ 19,551
------- ----------- --------------- ----------------
------- ----------- --------------- ----------------
Earnings per share(s)......................... $ 0.97
Weighted average shares outstanding........... 5,405 (e)(f) 20,171
</TABLE>
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT
OF EARNINGS FOR THE 52 WEEKS ENDED SEPTEMBER 7, 1996
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL HISTORICAL
QFC HUGHES KUI
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
SEPTEMBER 7, SEPTEMBER 29, HUGHES PRO FORMA HUGHES SEPTEMBER 28,
1996(a) 1996(a) ADJUSTMENTS(b) PRO FORMA 1996(a)
------------------- -------------------- ----------------- ---------- --------------------
<S> <C> <C> <C> <C> <C>
Sales....................... $ 786,488 $1,175,393 $ (169,782) $1,005,611 $ 339,580
Cost of sales and related
occupancy expenses........ 591,806 922,789 (147,553) 775,236 264,397
Marketing, general, and
administrative expenses... 148,018 219,096 (25,138) 193,958 72,920
---------- ----------- ----------------- ---------- ----------
Operating income............ 46,664 33,508 2,909 36,417 2,263
Interest income............. 376 776 (102) 674 32
Interest expense............ (10,655) (3,840) 63 (3,777) (1,767)
Other income (expense)...... 1,638
---------- ----------- ----------------- ---------- ----------
Earnings before income
taxes..................... 36,385 30,444 2,870 33,314 2,166
Total taxes on income....... 13,042 13,654 302 13,956 727
---------- ----------- ----------------- ---------- ----------
Income before minority
interest.................. 23,343 16,790 2,568 19,358 1,439
---------- ----------- ----------------- ---------- ----------
Equity losses............... (1,309) (1,309)
Minority interest in
subsidiary loss........... 1,259 (1,259)
---------- ----------- ----------------- ---------- ----------
Net earnings (loss)......... $ 23,343 $ 18,049 $ -- $ 18,049 $ 1,439
---------- ----------- ----------------- ---------- ----------
---------- ----------- ----------------- ---------- ----------
Earnings per share(s)....... $ 1.59
Weighted average shares
outstanding............... 14,694
<CAPTION>
PRO FORMA
ADJUSTMENTS FOR QFC/HUGHES/KUI
KUI ACQUISITIONS CONSOLIDATED
PRO FORMA KUI AND PRO FORMA
ADJUSTMENTS(c) PRO FORMA OFFERINGS(d) (AS ADJUSTED)
-------------- ----------- --------------- ----------------
<S> <C> <C> <C> <C>
Sales....................... $ (12,864) $ 326,716 $ (42,618)(m) $ 2,076,197
Cost of sales and related
occupancy expenses........ (11,436) 252,961 (33,961)(m) 1,586,042
Marketing, general, and
administrative expenses... (2,822) 70,098 (11,368)(m) 408,018
7,312(o)
-------------- ----------- --------------- ----------------
Operating income............ 1,394 3,657 (4,601) 82,137
Interest income............. 32 1,082
Interest expense............ (1,767) (18,093) (p) (34,292)
Other income (expense)...... (534) 1,104 1,104
-------------- ----------- --------------- ----------------
Earnings before income
taxes..................... 860 3,026 (22,694) 50,031
Total taxes on income....... 292 1,019 (5,845)(q) 22,172
-------------- ----------- --------------- ----------------
Income before minority
interest.................. 568 2,007 (16,849) 27,859
-------------- ----------- --------------- ----------------
Equity losses............... (1,309)
Minority interest in
subsidiary loss...........
-------------- ----------- --------------- ----------------
Net earnings (loss)......... $ 568 $ 2,007 $ (16,849) $ 26,550
-------------- ----------- --------------- ----------------
-------------- ----------- --------------- ----------------
Earnings per share(s)....... $ 1.32
Weighted average shares
outstanding............... 5,405 (e)(f) 20,099
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(a) QFC's fiscal year ends on the last Saturday in December, and its
reporting quarters consist of three 12-week quarters and a 16-week
quarter. The fiscal year ended December 30, 1995 was a 52-week year.
Hughes' fiscal year ends on the Sunday closest to the last day of
February. The fiscal year ended March 3, 1996 was a 53-week year. The
unaudited pro forma condensed consolidated balance sheet as of September
7, 1996, reflects Hughes' financial position as of September 29, 1996.
The unaudited pro forma condensed consolidated statement of earnings for
the 36 weeks ended September 7, 1996 reflects Hughes' results of
operations for the nine months ended September 29, 1996 (which covered
39 weeks).
KUI's fiscal year ends on the last Saturday in December, and each
quarter consists of a 13-week period. The fiscal year ended December 30,
1995 was a 52-week year. The unaudited pro forma condensed consolidated
balance sheet as of September 7, 1996, reflects KUI's financial position
as of September 28, 1996. The unaudited pro forma condensed consolidated
statement of earnings for the 36 weeks ended September 7, 1996 reflects
KUI's results of operations for the 39 weeks ended September 28, 1996.
The unaudited pro forma condensed consolidated statement of earnings for
the 52 weeks ended September 7, 1996 represents a 52-week period ended
September 7, 1996, September 29, 1996, and September 28, 1996 for QFC,
Hughes and KUI, respectively.
(b) Gives effect to the sale by Hughes to Stater of a 1% equity interest in
Santee, resulting in (i) Hughes (which previously owned 51% of Santee)
and Stater (which previously owned 49% of Santee) each becoming 50%
owners of Santee and (ii) Santee ceasing to be a consolidated subsidiary
of Hughes and being reflected in the accompanying Pro Forma Financial
Statements using the equity method of accounting.
(c) Gives effect to the elimination of certain assets and liabilities of
KUI, primarily related to non-grocery operations, and the elimination of
sales and certain expenses attributable to those assets and liabilities,
which were spun off by KUI prior to its acquisition by QFC.
(d) Gives effect to (i) the consummation of the Hughes Acquisition at an
assumed purchase price of $358.8 million equity value ($360.0 million
less $956,701 of shareholder loans and $209,670 preferred stock
redemption) (the "Hughes purchase price") and the allocation of the
purchase price to the acquired assets and liabilities including the
elimination of Hughes' shareholders equity in the amount of $160.8
million; and (ii) the consummation of the KUI Acquisition at a purchase
price of $95.6 million ($35.3 million paid in cash, $36.0 million paid
through the issuance of 904,646 shares of QFC Common Stock, and the
remaining $24.3 million paid through assumption of KUI indebtedness)
(the "KUI purchase price") and the allocation of the purchase price to
the acquired assets and liabilities, including the elimination of KUI's
shareholders equity in the amount of $5.0 million. The Hughes purchase
price is subject to certain adjustments, and the actual purchase price
may differ from such assumed purchase price, which would affect the
amount of financing required for the Hughes Acquisition.
Also gives effect to the financing of these Acquisitions (as shown in
the tables below) through the assumed receipt of (i) $167.2 million of
estimated total net proceeds from the Common Stock Offering; (ii) $59.6
million of borrowings under QFC's existing credit facility (the
"Current Credit Facility") to finance the $35.3 million cash portion of
the KUI purchase price and to repay the $24.3 million in debt assumed
in the KUI Acquisition; (iii) $247.9 million estimated total net
proceeds under the assumed terms of the New Credit Facility; and
(iv) $145.9 million estimated total net proceeds from the Notes
Offering. Related deferred financing and other fees are estimated to be
$6.2 million ($2.1 million under the New Credit Facility and $4.1
million under the Notes Offering). These fees will be
<PAGE>
amortized based on the life of the related debt.
Using the net proceeds from the above described borrowings, management
intends to repay borrowings of $209.6 million, which it is anticipated
will be outstanding under the Current Credit Facility at Closing, as
reflected in the tables below.
Adjustments to cash:
Net proceeds from Common Stock Offering.................... $ 167,194
Net proceeds under New Credit Facility..................... 247,915
Net proceeds from Notes Offering........................... 145,891
Borrowings under Current Credit Facility................... 59,600
Repayment of borrowings under Current Credit Facility...... (209,600)
Hughes purchase price...................................... (358,834)
Cash portion of KUI purchase price......................... (35,349)
Repayment of KUI debt...................................... (24,283)
----------
Net adjustment to cash................................. $ (7,466)
----------
----------
Adjustments to the current portion of long-term debt:
Repayment of borrowings under Current Credit Facility...... $ (18,900)
Repayment of KUI debt...................................... (2,662)
----------
Net adjustment to current portion of long-term debt.... $ (21,562)
----------
----------
Adjustments to long-term debt:
Borrowings under New Credit Facility....................... $ 250,000
Borrowings from Notes Offering............................. 150,000
Borrrowings under Current Credit Facility.................. 59,600
Repayment of borrowings under Current Credit Facility...... (190,700)
Repayment of KUI debt...................................... (21,621)
----------
Net adjustment to long-term debt....................... $ 247,279
----------
----------
(e) Gives effect to the issuance of 4,500,000 shares of QFC Common Stock in
the Common Stock Offering at a public offering price of $39.00 per
share, net of estimated issuance costs of $8.3 million, for net
proceeds of $167.2 million.
(f) Gives effect to the issuance of 904,646 shares of QFC Common Stock at a
market value of $39.75 per share to KUI shareholders as partial
consideration for the KUI Acquisition.
<PAGE>
(g) Gives effect to the elimination of the Hughes and KUI shareholders'
equity, in the amounts shown below:
Hughes shareholders' equity................................ $ 160,771
KUI shareholders' equity................................... 4,951
---------
$ 165,722
---------
---------
(h) Gives effect to the elimination of Hughes and KUI historical LIFO
reserves, in the amounts shown below:
Elimination of Hughes historical LIFO reserves............. $ 17,068
Elimination of KUI historical LIFO reserves................ 6,798
---------
$ 23,866
---------
---------
(i) Gives effect to the estimated write-up to estimated fair value of Hughes
buildings, fixtures and equipment, in the amount of $20.0 million and
KUI land in the amount of $3.0 million, as of the dates of the
respective Acquisitions.
(j) Gives effect to the estimated write-up to estimated fair value of
Hughes and KUI leasehold interest as of the dates of the respective
Acquisitions, in the amounts shown below:
Estimated write-up of Hughes leasehold interest............ $ 55,000
Estimated write-up of KUI leasehold interest............... 20,000
---------
$ 75,000
---------
---------
(k) Gives effect to the excess of the estimated Hughes and KUI purchase
prices over the respective fair value of the net tangible assets
acquired as of the dates of the respective Acquisitions, in the amounts
shown below:
Estimated Hughes goodwill................................. $ 105,995
Estimated KUI goodwill.................................... 30,630
---------
$ 136,625
---------
---------
(l) Gives effect to the estimated write-up to estimated fair value of KUI's
investment in Associated Grocers as of the date of the KUI Acquisition,
in the amount of $5.9 million.
(m) Management intends to divest five of the recently acquired KUI stores.
The estimated value of such assets is $9.6 million and has been
reflected in the pro forma balance sheet as assets held for sale. The
pro forma statements of earnings give effect to the proposed
divestiture of these five stores as if it had occurred at the beginning
of the periods presented, and reflect the elimination of these stores
from results of operations for those periods. QFC has not entered into
any agreements to sell any of these stores, and the actual proceeds
from the divestiture of these stores will likely differ from the
assumed amount reflected herein.
(n) Gives effect to $2.5 million accrual of Hughes' 50% share of the
discounted present value of management's estimated exit costs expected
to be incurred for the closure of the existing Santee dairy plant at
such time as the new dairy is operational.
(o) Gives effect to the additional depreciation and amortization expense
resulting from the allocations of the purchase price for KUI and the
estimated purchase price of Hughes to the assets acquired, including an
increase in property, plant, and equipment, leasehold interest, and
<PAGE>
identifiable intangible assets to their estimated fair market values and
the recording of goodwill associated with the acquisitions. Goodwill is
amortized over 40 years.
(p) Reflects the adjustment to interest expense arising from (i) the
estimated borrowings described in note (d) above, assuming a weighted
average rate of approximately 7.21% per annum for borrowings under the
New Credit Facility and the Notes Offering, (ii) the corresponding
adjustments to the amortization of related deferred financing fees and
other fees, and (iii) the reduction in historic interest expense of QFC
and KUI, resulting from the refinancing of outstanding debt.
(q) Gives effect to the adjustment for federal and state income taxes at a
blended statutory rate of 38%, adjusted for non-deductible depreciation
and amortization, estimated to be approximately $7.3 million for the
year ended December 30, 1995, $5.5 million for the 36 weeks ended
September 7, 1996 and $7.3 million for the 52 weeks ended
September 7, 1996 and the impact of including QFC's historical operating
results within a unitary tax filing in the state of California.
(r) No effect has been given to eliminate the $1.4 million non-recurring
charge, which was incurred in connection with QFC's recapitalization
during the first quarter of 1995.
(s) Earnings per share is based on the weighted average number of shares of
Common Stock outstanding during the period after consideration of the
dilutive effect, if any, of stock options granted. Pro forma (as
adjusted) earnings per share gives effect to the adjustments described
in footnotes (b) through (q) above.
