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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-Q/A
AMENDMENT 1
QUARTERLY REPORT
UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
_______________
For Quarter Ended Commission File Number
September 17, 1994 33-31152
FOOD 4 LESS SUPERMARKETS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4222386
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification Number)
777 South Harbor Boulevard
La Habra, California 90631
(Address of principal executive offices) (zip code)
(714) 738-2000
(Registrant's telephone number, including area code)
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 _____.
At October 31, 1994, there were 1,506,544 shares of Common Stock
outstanding. As of such date, none of the outstanding shares of Common Stock
was held by persons other than affiliates and employees of the registrant, and
there was no public market for the Common Stock.
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The undersigned registrant hereby amends the following items, financial
statements or other portions of its Quarterly Report on Form 10-Q for the
12 weeks ended September 17, 1994 as set forth in the pages attached hereto.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth the selected unaudited operating
results of the Company for the 12 weeks ended September 17, 1994 and
September 18, 1993:
<TABLE>
<CAPTION>
12 Weeks Ended
----------------------------------------------------------
September 17, 1994 September 18, 1993
------------------------ ------------------------
(dollars in millions)
(unaudited)
<S> <C> <C> <C> <C>
Sales $598.7 100.0% $616.6 100.0%
Gross profit 103.0 17.2% 112.4 18.2%
Selling, general, administrative
and other, net 88.1 14.7% 95.7 15.5%
Amortization of excess costs over
net assets acquired 1.8 0.3% 1.8 0.3%
Operating income 13.1 2.2% 14.9 2.4%
Interest expense 16.0 2.7% 15.7 2.6%
Gain on disposal of assets (0.5) -0.1% 0.0 0.0%
Provision for income taxes 0.9 0.2% 0.3 0.0%
Net loss (3.3) -0.6% (1.1) -0.2%
</TABLE>
Sales. Sales per week decreased $1.5 million, or 2.9%, from $51.4
million in the 12 weeks ended September 18, 1993 to $49.9 million in the
12 weeks ended September 17, 1994 primarily as a result of a 5.8%
decline in same store sales partially offset by sales from 18 new stores opened
since September 18, 1993. Management believes that the decline in comparable
store sales is attributable to the continuing softness of the economy in
Southern California and, to a lesser extent, in the Company's other operating
areas, and increased competitive store openings and remodels in Southern
California.
Gross Profit. Gross profit decreased as a percentage of sales from
18.2% in the 12 weeks ended September 18, 1993 to 17.2% in the 12 weeks ended
September 17, 1994. The decrease in gross profit margin resulted primarily
from pricing and promotional activities related to the Company's "Total Value
Pricing" program, an increase in the number of warehouse format stores (which
have lower gross margins resulting from prices that are generally 5-12% below
the prices in the Company's conventional stores) from 46 at September 18, 1993
to 69 at September 17, 1994, and the effect of the fixed cost component of
gross profit as compared to a lower sales base. The decrease in gross profit
was partially offset by improvements in product procurement and an increase in
vendors' participation in the Company's promotional costs.
Selling, General, Administrative and Other, Net. Selling, general,
administrative and other expenses ("SG&A") were $95.7 million and $88.1 million
for the 12 weeks ended September 18, 1993 and September 17, 1994, respectively.
SG&A decreased as a percentage of sales from 15.5% to 14.7% for the same
periods. The Company experienced a reduction of workers' compensation and
general liability self-insurance costs of $3.5 million due to continued
improvement in the cost and frequency of claims. The improved experience was
due primarily to cost control programs implemented by the Company, including
awards for stores with the best loss experience, specific achievable goals for
each store, and increased monitoring of third-party administrators, and, to a
lesser extent, a lower sales base which reduced the Company's exposure. In
addition, the Company maintained tight control of administrative expenses and
store level expenses, including advertising, payroll (due primarily to
increased productivity), and other controllable store expenses. Because the
Company's warehouse stores have lower SG&A than conventional stores, the
increase in the number of warehouse stores, from 46 at September 18, 1993 to
69 at September 17, 1994, also contributed to decreased SG&A. The reduction in
SG&A as a percentage of sales was partially offset by the effect of the fixed
cost component of SG&A as compared to a lower sales base.
The Company participates in multi-employer health and welfare plans
for its store employees who are members of the United Food and Commercial
Workers Union ("UFCW"). As part of the renewal of the Southern California UFCW
contract in October 1993, employers contributing to UFCW health and welfare
plans are to receive a pro rata share of the excess reserves in the plans
through a reduction of current employer contributions. The Company's share of
the excess reserves was $24.2 million,
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of which the Company recognized $8.1 million in fiscal 1994 and $4.7 million in
the 12 weeks ended September 17, 1994. The remainder of the excess reserves
will be recognized as the credits are taken in the future.
On August 28, 1994, the Teamsters and the Company ratified a new
contract which, among other things, provided for the vesting of sick pay
benefits resulting in a one-time charge of $2.1 million.
Interest Expense. Interest expense (including amortization of
deferred financing costs) increased $0.3 million from $15.7 million to $16.0
million for the 12 weeks ended September 18, 1993 and September 17, 1994,
respectively. The increase in interest expense was due primarily to increasing
interest rates on the Revolving Credit Facility and the Term Loan combined with
increased borrowings under the Revolving Credit Facility. These increases were
partially offset by the reduction of indebtedness under the Term Loan as a
result of amortization payments.
Net Loss. Primarily as a result of the factors discussed above, the
Company's net loss increased from $1.1 million in the 12 weeks ended September
18, 1993 to $3.3 million in the 12 weeks ended September 17, 1994.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations, amounts available under the Revolving
Credit Facility and leases are the Company's principal sources of liquidity.
The Company believes that these sources will be adequate to meet its
anticipated capital expenditures, working capital needs and debt service
requirements during fiscal 1995. There can be no assurance that the Company
will continue to generate cash flow from operations at current levels or that
it will be able to make future borrowings under the Revolving Credit Facility.
The Ralphs Merger, which is subject to, among other things, receipt of
regulatory approvals and other necessary consents and the completion of the
financing for the transaction, will require the issuance of significant
additional equity by FFL, the issuance of new debt securities by the Company
and Holdings and the incurrence of additional bank financing by the Company.
The equity issuance would be made to a group of investors led by Apollo
Advisors, L.P., which has committed to purchase up to $150 million in FFL
stock, and the bank financing would be made pursuant to a commitment by Bankers
Trust Company to provide up to $1,225 million in such financing. In connection
with the receipt of new financing, the Company and Holdings will be required to
complete certain exchange offers, consent solicitations and/or other
transactions with the holders of the currently outstanding debt securities.
The transaction will also require the assumption of approximately $265 million
of other existing indebtedness of the Company and Ralphs. The proceeds of the
foregoing financings will be used to acquire the outstanding stock of Ralphs,
to repay certain existing indebtedness, and to pay fees and expenses in
connection with the merger and related transactions. The Ralphs purchase price
is approximately $1.5 billion, including the assumption or repayment of debt.
The consideration payable to the stockholders of Ralphs consists of $425
million in cash and $100 million initial principal amount of 13% Senior
Subordinated Pay-in-Kind Debentures due 2006 to be issued by Holdings. In
addition, the Company will enter into an agreement with a stockholder of Ralphs
pursuant to which such stockholder will act as a consultant to the Company with
respect to certain real estate and general commercial matters for a period of
five years from the closing of the Ralphs Merger in exchange for the payment of
a consulting fee. (See "Note 4 -- Recent Events.")
During the 12-week period ended September 17, 1994, the Company
generated approximately $9.5 million of cash from its operating activities
compared to $29.1 million for the 12 weeks ended September 18, 1993. The
decrease in cash from operating activities is due primarily to changes in
operating assets and liabilities for the 12 weeks ended September 17, 1994.
The Company's principal use of cash in its operating activities is inventory
purchases. Its high inventory turnover allows it to finance a substantial
portion of its inventory through trade payables, thereby reducing its
short-term borrowing needs. At September 17, 1994, this resulted in a working
capital deficit of $58.1 million.
Cash used for investing activities was $14.0 million for the 12 weeks
ended September 17, 1994. Investing activities consisted primarily of capital
expenditures of $16.8 million, partially offset by $2.1 million of
sale/leaseback transactions. The capital expenditures, net of the proceeds
from sale/leaseback transactions, were financed primarily from cash provided by
operating activities.
The capital expenditures discussed above were made to build 5 new
stores. The Company currently anticipates that its aggregate capital
expenditures for fiscal 1995 will be approximately $59.3 million. Consistent
with its past practices, the Company intends to finance these capital
expenditures primarily with cash provided by operations and through leasing
transactions. No assurance can be given that sources of financing for capital
expenditures will be available or sufficient. However, the capital expenditure
program has substantial flexibility and is subject to revision based on various
factors, including
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business conditions, changing time constraints and cash flow requirements.
Management believes that if the Company were to substantially reduce or
postpone these programs, there would be no substantial impact on short-term
operating profitability. However, management also believes that the
construction of warehouse format stores is an important component of its
operating strategy. In the long-term, if these programs were substantially
reduced, management believes its operating businesses, and ultimately its cash
flow, would be adversely affected. The capital expenditures discussed above do
not include potential acquisitions, including the Ralphs Merger or related
store conversion costs, which the Company could make to expand within its
existing markets or to enter other markets. The Company has grown through
acquisitions in the past and from time to time engages in discussions with
potential sellers of individual stores, groups of stores or other retail
supermarket chains.
Cash provided by financing activities was $0.9 million for the
12 weeks ended September 17, 1994, which was primarily the $6.1 million of
borrowings outstanding on the $70 million Revolving Credit Facility at
September 17, 1994 partially offset by a $2.8 million repayment of the Term
Loan. At September 17, 1994, $48.1 million of standing letters of credit had
been issued under the $55 million Letter of Credit Facility.
The Company is highly leveraged. At September 17, 1994, the Company's
total long-term indebtedness (including current maturities) and stockholder's
equity were $518.8 million and $65.7 million, respectively.
EFFECTS OF INFLATION AND COMPETITION
The Company's primary costs, inventory and labor, are affected by a
number of factors that are beyond its control, including availability and price
of merchandise, the competitive climate and general and regional economic
conditions. As is typical of the supermarket industry, the Company has
generally been able to maintain margins by adjusting its retail prices, but
competitive conditions may from time to time render it unable to do so while
maintaining its market share.
SUBSIDIARY REGISTRANTS
Separate financial statements of the Company's subsidiaries
(collectively, the "Subsidiary Guarantors") are neither included herein nor
otherwise filed on Form 10-K because such Subsidiary Guarantors are jointly and
severally liable as guarantors of the Company's Senior Notes and Subordinated
Notes, and the aggregate assets, earnings and equity of the Subsidiary
Guarantors are substantially equivalent to the assets, earnings and equity of
the Company on a consolidated basis.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned, thereunto duly authorized, in the County of Orange, State of
California.
Dated: November 9, 1994 FOOD 4 LESS SUPERMARKETS, INC.
/s/ Ronald W. Burkle
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Ronald W. Burkle
Chief Executive Officer
/s/ Greg Mays
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Greg Mays
Chief Financial Officer
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