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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-K/A
AMENDMENT 1
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Fiscal Year Ended Commission File Number
June 25, 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 90631
La Habra, California (Zip code)
(Address of principal executive offices)
(714) 738-2000
(Registrant's telephone number, including area code)
Securities registered pursuant to
Section 12(b) of the Act: None
Securities registered pursuant to
Section 12(g) of the Act: None
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 report(s), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
--- ---
At September 23, 1994 there were 1,506,544 shares of Common Stock
outstanding. As of such date, none of the outstanding shares of Common Stock
were 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-K for the
52 weeks ended June 25, 1994 as set forth in the pages attached hereto.
(i)
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PART I
ITEM 1. BUSINESS
Food 4 Less Supermarkets, Inc. (the "Company") is a leading
supermarket operator with 258 stores located in Southern California, Northern
California and certain areas of the midwest. The Company is one of the largest
supermarket companies in the greater Los Angeles area (Los Angeles, Orange,
Riverside and San Bernardino counties) in terms of sales and the leading
supermarket company serving the high-growth, urban ethnic neighborhoods of the
city of Los Angeles. The Company has achieved strong competitive positions in
each of its marketing areas by successfully tailoring its merchandising
strategy to the particular needs of the individual communities it serves. In
addition, the Company is a vertically integrated supermarket company with a
major manufacturing facility, which includes bakery and creamery operations,
and a full-line warehouse and distribution facility servicing its Southern
California operations.
The Company was organized by The Yucaipa Companies ("Yucaipa"), a
private investment group, in connection with the June 1989 acquisition of Breco
Holding Company, Inc. ("BHC"), which owned the Company's Boys, Viva, and Cala
stores. Concurrently with the acquisition of BHC (the "BHC Acquisition"), Food
4 Less, Inc. ("FFL"), a corporation controlled by an affiliate of Yucaipa,
contributed to the Company all of the outstanding capital stock of Falley's,
Inc. ("Falley's"), which owned the Company's Midwestern stores. The Company
added six stores to its Northern California Division by acquiring Bell Markets,
Inc. ("Bell") on June 30, 1989, and added seven stores to its Southern
California Division by acquiring certain operating assets of ABC Market Corp.
("ABC") on January 15, 1990. On June 17, 1991, the Company acquired all of the
outstanding capital stock of Alpha Beta Company ("Alpha Beta"), which operated
142 stores in seven Southern California counties (the "Alpha Beta
Acquisition"). On March 29, 1994, the Company added ten warehouse format
stores (collectively the "Food Barn Stores") to its Midwestern Division which
it acquired from Associated Wholesale Grocers, Inc.
The Company operates both conventional and warehouse format stores
under various names. The following table sets forth by retail format the
number of stores operated by each of the Company's three divisions at June 25,
1994 (unless otherwise indicated, all references to numbers of stores and other
store data in this Annual Report on Form 10-K are as of June 25, 1994):
<TABLE>
<CAPTION>
Southern Northern
California California Midwestern Total
---------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Alpha Beta 129 - - 129
Boys 24 - - 24
Viva 15 - - 15
Cala - 9 - 9
Bell - 10 - 10
Falley's - - 5 5
--- --- --- ---
Total Conventional 168 19 5 192
Food 4 Less 28 - 33 61
FoodsCo - 5 - 5
--- --- --- ---
Total Warehouse 28 5 33 66
--- --- --- ---
Total Stores 196 24 38 258
=== === === ===
</TABLE>
RECENT EVENTS
On September 14, 1994, the Company, its parent company, Food 4 Less
Holdings, Inc. ("Holdings"), and the parent company of Holdings, FFL, entered
into a definitive Agreement and Plan of Merger (the "Merger Agreement") with
Ralphs Supermarkets, Inc. ("Ralphs") and the stockholders of Ralphs (the
"Ralphs Merger"). Pursuant to the terms of the Merger Agreement, the Company
will, subject to certain terms and conditions being satisfied or waived, be
merged into Ralphs and Ralphs will become a wholly-owned subsidiary of
Holdings.
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Ralphs operates 168 stores in six Southern California counties. Ralphs had
reported sales of $2,730 million, operating income of $152.1 million and
earnings before income taxes of $30.3 million for its most recent fiscal year
ended January 30, 1994. Conditions to the consummation of the Ralphs Merger
include, among other things, receipt of regulatory approvals and other
necessary consents and the completion of financing for the transaction. The
purchase price for Ralphs is approximately $1.5 billion, including the
assumption 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.
The Ralphs Merger will create the leading supermarket operator in
Southern California. The integration of the warehousing, distribution and
manufacturing functions are expected to provide efficiencies which should
create substantial savings to the merged company. In addition, buying
improvements associated with the purchasing volume of the combined companies
and consolidation of administrative functions should create further savings.
Upon consummation of the Ralphs Merger, the operations and activities of the
Company will be significantly impacted due to conversions of the Company's
existing Southern California conventional stores to either Ralphs or Food 4
Less warehouse stores as well as the consolidation of various operating
functions and departments. This consolidation may result in a restructuring
charge and, in conjunction with the Ralphs Merger, the Company intends to
determine if there is any impairment of the value of the Company's existing
assets and goodwill. The amount of the restructuring charge is not presently
determinable due to various factors, including uncertainties inherent in the
completion of the Ralphs Merger; however, the restructuring charge may be
material in relation to the stockholder's equity and financial position of the
Company at June 25, 1994. (See "Southern California Division -- Expansion and
Development" and "Item 7 -- Management Discussion and Analysis of Results of
Operations and Financial Conditions.")
SOUTHERN CALIFORNIA DIVISION
The Southern California Division operates 196 supermarkets in Los
Angeles, Orange and adjacent counties under the names "Alpha Beta," "Food 4
Less," "Boys," and "Viva." The Company's Southern California stores accounted
for 80% of the Company's sales for the fiscal year ended June 25, 1994.
Store Formats
The Company caters to the distinctive tastes and preferences of
consumers in each of the communities it serves, ranging from urban ethnic
communities of Los Angeles served by Boys, Viva and Food 4 Less to the more
suburban areas served by Alpha Beta and Food 4 Less. The Company implements
this strategy by selecting the merchandise, presentation, department size and
layout based on the demographics of a particular store location. This
community-oriented business strategy is illustrated by the Southern California
Division's principal supermarket formats:
Conventional Format Stores. The Company's conventional stores are
located throughout densely populated areas of Los Angeles, Orange, San
Bernardino and Riverside Counties, including both suburban and urban
neighborhoods under the names "Alpha Beta," "Boys," and "Viva." The Company's
merchandising strategy for conventional stores is tailored to the community
each store serves, but emphasizes customer service, quality of merchandise, and
a large variety of product offerings in modern store environments. The
conventional stores' extensive brand-name product selection is complemented by
a range of specialty service departments which include bakeries, delicatessens,
service meat counters, seafood departments and floral departments. The
conventional stores also emphasize competitive pricing and overall value.
The Company's urban stores are located in neighborhoods that have been
largely underserved by other national and regional supermarket chains. The
Company's stores began servicing these neighborhoods over 70 years ago, and the
Company is the leading supermarket operator in these areas. These stores
emphasize the sale of brand-name products at competitive prices, and in many
cases offer specialty grocery items and service departments that
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cater to the specific preferences in the community. Stores located in urban
areas provide useful services which are often not available in competitors'
stores, including a courtesy booth at which customers can cash payroll and
government checks, pay utility bills, and buy money orders, lottery tickets,
and bus passes.
The Company believes it is the leading operator of supermarkets
serving Hispanic communities in the Los Angeles area. Stores which are located
in areas with high concentrations of Hispanic consumers, who currently comprise
more than 38% of the total population of Los Angeles County, generally feature
larger produce and other perishables departments as well as particular meat,
grocery and ethnic packaged food products often preferred by many Hispanic
consumers. In addition, much of the signage and advertising for these stores
is in both Spanish and English. Management believes that its warehouse format
stores (as discussed below) as well as its conventional format stores benefit
from the Company's expertise in marketing to Hispanic consumers.
Warehouse Format Stores. The Company operates 28 stores in Southern
California which cater to the price-conscious segment of the market in both
urban and suburban areas under the name "Food 4 Less." Food 4 Less is a
warehouse-style, price impact store which is positioned to offer the lowest
overall prices in its marketing areas by passing on to the consumer savings
achieved through labor efficiencies and lower overhead and advertising costs
associated with the warehouse format, while providing the product selection
associated with a conventional format. In-store operations are designed to
allow customers to perform certain labor-intensive services usually offered in
conventional supermarkets; for example, merchandise is presented on warehouse
style racks in full cartons, reducing labor intensive unpacking, and customers
bag their own groceries. Labor costs are also reduced because the stores
generally do not have labor-intensive service departments such as
delicatessens, bakeries and fresh seafood departments, although they do offer a
complete line of fresh meat, fish, produce and baked goods.
The Food 4 Less format generally consists of large facilities
constructed with high ceilings to accommodate warehouse racking with overhead
pallet storage. Wide aisles accommodate forklifts, and, compared to
conventional supermarkets, a higher percentage of total store space is devoted
to retail selling because the top of the warehouse-style grocery racks on the
sales floor are used to store inventory. This reduces the need for large
backroom storage. The Food 4 Less warehouse format supermarkets have brightly
painted walls and inexpensive signage in lieu of more expensive graphics. In
addition, a "Wall of Values" located at the entrance of each store presents the
customer with a selection of specially priced merchandise.
Management believes that there is a significant segment of the market,
encompassing a wide range of demographic groups, which prefers to shop in a
warehouse format supermarket because of its lowest overall pricing. This
belief has been borne out by the overall success of the 163 Food 4 Less and
FoodsCo warehouse supermarkets operating in 20 states, including the 66 stores
owned and operated by the Company (28 of which are located in Southern
California). See "Licensing Operations." The Company plans to continue its
rapid growth of the Food 4 Less format by opening 11 new warehouse format
stores in fiscal 1995, including four stores in San Diego, a new market for the
Company. Moreover, the consummation of the Ralphs Merger could cause the
Company to accelerate substantially the planned growth of the Food 4 Less
format through the conversion of existing or acquired stores.
Advertising and Promotion
The Southern California Division tailors its advertising strategy to
the communities it serves, relying heavily on television, radio, major
newspapers and weekly advertising circulars. In addition, the Company's
advertising and promotion strategy for stores located in urban ethnic
neighborhoods, including Hispanic neighborhoods, highlights the merchandise
offered in each store by using ethnic radio and local neighborhood newspaper
advertising and by delivering weekly advertising circulars customized to
particular communities. This allows selected groups of stores to offer special
promotions on items that are of particular importance to local shoppers and to
be more responsive to local competition. Food 4 Less stores utilize print and
radio advertising which emphasizes Food 4 Less' overall low-price leadership,
rather than promoting special prices on individual items.
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Purchasing, Manufacturing and Distribution
In connection with the Alpha Beta Acquisition, the Company entered
into a long-term lease, with Alpha Beta's former parent corporation as lessor,
of Alpha Beta's centralized manufacturing, warehouse and office facility in La
Habra, California. The La Habra complex measures 1,378,083 total square feet
over 75 acres and, in addition to serving warehousing, distribution and office
functions, houses manufacturing operations which include a bakery and creamery.
The 316,000 square foot bakery manufactures a broad line of baked goods, and
the creamery processes and bottles milk, cream and other dairy products, fruit
juices and drinking water. Shipments from the La Habra facility are made
predominantly with the Company's own truck fleet and drivers, supported by an
on-site vehicle maintenance facility. See "Item 2 -- Properties."
Prior to its acquisition by the Company, the La Habra facility had
substantial excess capacity in many of its manufacturing and warehousing
functions. By combining Alpha Beta's volume requirements with those of Food 4
Less, Boys and Viva, the Company realized increased manufacturing and warehouse
efficiencies and buying improvements associated with increased volume.
Management believes that the Southern California Division's warehousing and
distribution operations offer a number of additional benefits related to the
foregoing. These benefits include: (i) rapid turnover at the Company's
warehouse permits its stores to offer consistently fresh, high-quality
products, (ii) due to frequent deliveries to its stores, the Company is able to
reduce in-store stockroom space, thereby increasing available selling space,
(iii) the Company's ability to warehouse merchandise enables it to take
advantage of additional buying opportunities on certain items.
Since the Alpha Beta Acquisition, the Company has entered into several
private label licensing arrangements which allow the Company to exclusively
utilize recognized brand names in connection with certain goods it manufactures
at its La Habra facility or purchases from others, including "Carnation" and
"Sunnyside Farms" (dairy products) and "Van de Kamps" (baked goods). In
addition, the Company has entered into an agreement to distribute private label
dry grocery and frozen products under the "Sunny Select" and "Grocers Pride"
labels and has established its own private label, "EQuality," for health and
beauty aid products. The Company actively promoted its private label products
during fiscal 1994 and management believes that the additional variety,
superior quality, and promotional program resulted in an overall increase in
private label sales and corresponding gross margin.
Combined shipments from the La Habra facility and the Company's other
Southern California warehouse facilities accounted for approximately 67% of the
Southern California Division's total purchases during fiscal 1994. Additional
purchases approximating 7% of the division's total during fiscal 1994 were made
through Certified Grocers of California, Ltd. ("Certified"), a food
distribution cooperative in which the Company is a member. In June 1991, as a
result of its increased warehouse capacity at the La Habra facility, the
Southern California Division terminated its then-existing supply contract with
Certified and is using its other warehouse facility located in Los Angeles for
distribution of certain products, including produce. The Company continues to
make purchases from Certified.
In April 1992, the Company formed a joint venture with a subsidiary of
Certified which operates a general merchandise warehouse in Fresno, California.
This warehouse services the Company's operations in Southern and Northern
California and enables the Company to realize greater efficiencies through
combined purchasing.
Store Operations and Retail Systems
The Southern California Division's store equipment and facilities are
generally in excellent condition and are large enough to serve additional
customers to the extent that the population of its marketing areas grows. The
Alpha Beta, Boys and Viva stores range in size from approximately 15,600 square
feet to 58,000 square feet and average approximately 27,600 square feet. The
Southern California Food 4 Less stores are generally larger and range in size
from approximately 31,000 square feet to 60,100 square feet, and average
approximately 47,800 square feet. The Company believes the Southern California
Division's central warehouse and distribution system and the design of its
stores permit the Company to decrease in-store stockroom space and thereby
increase available selling area.
4
<PAGE> 7
The Southern California Division's management information systems and
optical scanning technology reduce the labor costs attributable to product
pricing and customer check-out, and provide the Company's management with
information that facilitates purchasing and receiving, inventory management,
warehouse reordering and management of accounts payable. The Company's Alpha
Beta stores currently offer an electronic funds transfer system which allows
customers to make purchases, obtain cash and obtain check approvals in
transactions linked to their bank accounts. The Company intends to make its
electronic funds transfer system available in all Southern California Division
stores. In addition, the Company's Alpha Beta stores now offer customers the
convenience of making purchases with credit cards.
Expansion and Development
The Company has undertaken an extensive program of store remodels,
conversions and additions since the Alpha Beta Acquisition which have resulted
in a substantially improved store base. As the Company has remodeled existing
stores, opened new larger stores and closed smaller marginally performing
stores, there has been a net reduction in store count but an increase in
average store size. During fiscal 1994, the Southern California Division spent
approximately $50.7 million on capital improvements. The Company plans to
continue to devote substantial resources during fiscal 1995 and thereafter to
this program.
The Company is able to continuously adjust its store mix in light of
changing demographic trends in local marketing areas. Since the Alpha Beta
Acquisition, the Company has converted 14 stores from conventional formats to
the warehouse format.
During fiscal 1994, the Company opened one new Food 4 Less store and
one new Alpha Beta store in Southern California, converted six stores from
conventional formats to the Food 4 Less format, and remodeled 15 stores,
including 11 Alpha Beta stores. From time to time, the Company closes or sells
marginal operating stores. During fiscal 1994, the Company closed 3 stores in
the Southern California Division.
The Company plans to expand the Southern California Division by
acquiring existing stores and constructing new ones. The Ralphs Merger, which
is subject to the receipt of regulatory approvals and other necessary consents
and financing of the transaction, would add up to 168 stores and more than
double the sales volume of the Southern California Division. The Company
intends to continue to focus its new store construction and store conversion
efforts during fiscal 1995 and future years on the Food 4 Less format,
including in urban areas, as Food 4 Less stores have proven to have a strong
appeal to value-conscious consumers across a wide range of demographic groups.
To this end, the Company plans to continue its store expansion program in
Southern California by opening 16 new stores during fiscal 1995 (including 11
Food 4 Less stores, of which four will be located in San Diego, a new market
for the Company), and additional stores in subsequent years. Moreover, the
consummation of the Ralphs Merger could cause the Company to accelerate
substantially the planned growth of the Food 4 Less format through the
conversion of existing or acquired stores. Remodeling activity during fiscal
1995 will be focused on the conventional formats, which comprise 168 of the
Company's 196 Southern California stores. All 12 of the planned remodels over
the next year will be conventional format stores. The Company's merger,
expansion, remodel and conversion efforts have required, and will continue to
require, the funding of significant capital expenditures. See Item 7 --
"Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Liquidity and Capital Resources."
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The following table sets forth the development of the Company's
Southern California Division supermarkets since July 1989:
<TABLE>
<CAPTION>
53 Weeks 52 Weeks 52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended Ended
June 30, June 29, June 27, June 26, June 25,
1990 1991 1992 1993 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Number of stores:
Beginning 53 66 209 200 197
Built 7 4 2 8 (c) 2
Acquired 7 142 - - -
Sold/Closed (1) (3) (11)(b) (11) (3)
-------- -------- ------- ------ ------
Ending 66 209 200 197 196
======= ======= ======= ====== ======
Remodeled or expanded(a) 14 16 31 31 21
Average square feet/store 34,000 28,700 29,900 30,200 30,500
Annual sales/selling square feet $588 $650 $559 $553 $505
---------------
</TABLE>
(a) Does not reflect remodels or expansions of stores prior to their
acquisition by the Company.
(b) Includes five stores which closed as a result of the April 1992
civil unrest in Los Angeles.
(c) Includes the reopening of one store which closed as a result of
the April 1992 civil unrest in Los Angeles.
NORTHERN CALIFORNIA DIVISION
The Northern California Division operates 19 conventional supermarkets
in the greater San Francisco Bay Area under the names "Cala" and "Bell," and
five warehouse format stores under the "FoodsCo" name. Management believes
that the Northern California Division has excellent store locations in the city
of San Francisco that are very difficult to replicate. Management also
believes that the Northern California Division's stores, which have operated in
the San Francisco Bay Area for over 25 years, have a reputation for offering
high quality service and merchandise.
Marketing Strategy
The Northern California Division's conventional store strategy is to
attract customers through its convenient locations, broad product line and
emphasis on quality and service. Its stores offer an extensive assortment of
nationally advertised name brand products. They also contain departments
dedicated to dry groceries, produce, meat, seafood, dairy products, wine and
liquor, and limited assortments of general merchandise and health and beauty
aids. Certain of the Bell stores, which are larger than the Division's other
conventional stores, also have a variety of service departments, including
in-store bakeries, delicatessens with fresh and prepared foods and fresh
seafood departments. These products and services generally carry higher
margins than traditional grocery products. The FoodsCo stores emphasize lowest
overall prices rather than promoting special prices on individual items.
Many of the Northern California Division's stores are located in urban
residential neighborhoods of the city of San Francisco that have a varying and
distinct ethnic character. Consequently, the Northern California Division
customizes the merchandise and service departments in each of those stores to
appeal to the tastes of local residents. The Northern California Division's
suburban stores are generally larger than its urban stores, and offer an
expanded selection of food and other merchandise, together with full service
delicatessen and bakery departments.
The Northern California Division's advertising and promotion strategy
highlights the reduced price specials offered in its stores. The Northern
California Division advertises in the major San Francisco newspapers and uses
local neighborhood newspaper advertising to alert customers to the values
offered in its stores. In addition, the Northern California Division delivers
weekly advertising circulars, each customized to particular stores, allowing it
to offer special promotions on items that are of particular importance to local
shoppers. The Northern California Division also uses limited radio
advertising.
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Store Operations and Retail Systems
The Northern California Division's conventional stores range in size
from approximately 8,900 square feet to 32,800 square feet, and average
approximately 19,400 square feet. The Northern California Division's warehouse
stores range in size from approximately 30,000 square feet to 59,600 square
feet, and average approximately 37,900 square feet. The Northern California
Division's management information systems and optical scanning technology
reduce the labor costs attributable to product pricing and customer check-out,
and provide the Company's management with information that facilitates
purchasing and receiving, inventory management, warehouse reordering, and
management of accounts payable.
Purchasing and Distribution
The Northern California Division purchases merchandise from a number
of suppliers; however, approximately 39% of its purchases are made through
Certified pursuant to two supply contracts. No vendor other than Certified
provides a material percentage of the goods or services purchased by the
Northern California Division.
The Northern California Division does not operate its own warehouse
facilities, relying instead on direct delivery to its stores by Certified and
other vendors. Frequent deliveries by Certified and by the suppliers of
produce and fresh meats enable the Northern California Division's stores to
maintain the quality of the fresh foods it offers while maximizing in-store
selling space. Since December 1989, the Southern California Division's
warehouse facilities have supplied a portion of the merchandise sold in the
Northern California Division stores.
Expansion and Development
In fiscal 1990, the Northern California Division initiated a
remodeling program to upgrade its stores and to increase profitability. The
Company remodeled 15 stores during the past five fiscal years, and opened five
new stores during the past four fiscal years. During fiscal 1994, the Company
opened one new warehouse store, converted three existing stores to the
warehouse format and remodeled one conventional format store. In addition, the
Company plans to open one additional warehouse format store and remodel two
conventional format stores during fiscal 1995. Management plans to further
expand the Northern California Division in the future by acquiring existing
stores and constructing new stores, including warehouse stores. The Northern
California Division Food 4 Less warehouse stores were renamed as FoodsCo
warehouse stores in fiscal 1994 following the sale by the Company of rights to
use the "Food 4 Less" name in Northern California to Fleming Companies, Inc.
See "Licensing Operations" for further discussion of the amendment to the
Fleming license.
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The following table sets forth the development of the Company's
Northern California Division supermarkets since July 1989:
<TABLE>
<CAPTION>
53 Weeks 52 Weeks 52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended Ended
June 30, June 29, June 27, June 26, June 25,
1990 1991 1992 1993 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Number of stores:
Beginning 23 22 22 21 23
Built - 1 1 2 1
Acquired - - - - -
Sold/Closed (1) (1) (2) - -
-------- -------- -------- ------ ------
Ending 22 22 21 23 24
======= ======= ======= ======= ======
Remodeled or expanded 2 5 3 1 4
Average square feet/store 20,000 20,400 20,600 22,800 23,300
Annual sales/selling square feet $719 $726 $719 $712 $678
</TABLE>
MIDWESTERN DIVISION
The Midwestern Division operates 38 stores, of which 33, including the
Food Barn Stores, are warehouse format stores operated under the "Food 4 Less"
name, and five are conventional supermarkets operated under the "Falley's"
name. Of these 38 stores, 34 are located in Kansas and four are located in
Missouri. The Company's Food 4 Less stores offer national brand name grocery
products, fresh meat and produce, general merchandise and other items,
including health and beauty aids, at prices typically lower than those offered
by conventional supermarkets. Management believes the Food 4 Less warehouse
format stores are the low-price leaders in each of the markets in which they
compete.
Marketing Strategy
The Midwestern Division's Food 4 Less warehouse format supermarkets,
introduced in 1973, cater to consumers in the price-conscious segment of the
market by offering lower prices than conventional supermarkets. Such lower
prices are achieved through the labor efficiencies and lower overhead and
advertising costs associated with the warehouse format. See "Southern
California Division -- Store Formats -- Warehouse Format Stores" for more
information on the business strategy of Food 4 Less warehouse format
supermarkets.
Store Operations and Retail Systems
The store equipment and facilities of the Midwestern Division's stores
are generally in excellent condition. Its Food 4 Less warehouse format stores
range in size from approximately 8,800 square feet to 60,200 square feet and
average approximately 37,300 square feet. The Company's computer-based
merchandising systems permit quick and accurate accounting for customer
purchases, reduce the labor costs otherwise attributable to product pricing and
customer check-out and provide the Company's management with substantial
information which facilitates, among other things, purchasing and receiving,
inventory management, and management of accounts payable.
Purchasing and Distribution
The Midwestern Division's primary supplier is Associated Wholesale
Grocers ("AWG"), a member-owned wholesale grocery cooperative based in Kansas
City. The Midwestern Division purchases approximately 73% of the merchandise
sold in its stores from AWG. Management believes that, as AWG's largest single
customer, the Midwestern Division has significant buying power, allowing it to
provide a broader product line more economically than it could if it maintained
its own full-line warehouse. No vendor other than AWG provides a material
percentage of the goods or services purchased by the Midwestern Division.
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The Midwestern Division produces approximately 50% of all case-ready
fresh meat items sold in its stores at its central meat plant located in
Topeka, Kansas. Management believes that the Company's meat plant provides it
with a competitive advantage in that it is able to ensure that its supermarkets
have a consistent supply of fresh, high quality meats.
Both Food 4 Less and Falley's stores receive frequent direct
deliveries from AWG, the Division's other vendors and its meat plant, which
enable the Midwestern Division's stores to stock fresh foods without operating
a central warehouse.
Expansion and Development
The Company intends to focus its Midwestern Division expansion
primarily on its Food 4 Less operations. While the Company expects to
construct new stores, it may also expand operations by purchasing existing Food
4 Less stores from unaffiliated licensees, or by acquiring existing
supermarkets and converting them to the Food 4 Less warehouse format.
During fiscal 1994, the Company acquired the Food Barn Stores now
operated as Food 4 Less warehouse stores. This acquisition increased the
Midwestern Division's Food 4 Less warehouse store count from 23 at June 26,
1993 to 33 at June 25, 1994. In addition, the Company remodeled three stores
(including one Food 4 Less warehouse store) during fiscal 1994.
During fiscal 1995, the Company plans to remodel or expand 11 Food 4
Less warehouse stores. Included in the remodel plans for fiscal 1995 are six
Food Barn Stores (two of which were in progress at June 25, 1994).
The following table sets forth the development of the Company's
Midwestern Division supermarkets since July 1989:
<TABLE>
<CAPTION>
53 Weeks 52 Weeks 52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended Ended
June 30, June 29, June 27, June 26, June 25,
1990 1991 1992 1993 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Number of stores:
Beginning 23 27 28 28 28
Built 1 1 1 - -
Acquired 3 - - - 10
Sold/Closed - - (1) - -
-------- -------- -------- -------- --------
Ending 27 28 28 28 38
======= ======= ======= ======= ========
Remodeled or expanded 2 5 - - 3
Average square feet/store 35,600 36,000 36,300 36,300 35,700
Annual sales/selling square feet $383 $372 $344 $342 $315
</TABLE>
COMPETITION
The supermarket industry is highly competitive and characterized by
narrow profit margins. The Company's competitors in each of its operating
divisions include national and regional supermarket chains, independent and
specialty grocers, drug and convenience stores, and the newer "alternative
format" food stores, including warehouse club stores, deep discount drug stores
and "super centers." Supermarket chains generally compete on the basis of
location, quality of products, service, price, product variety and store
condition. The Company regularly monitors its competitors' prices and adjusts
its prices and marketing strategy as management deems appropriate.
9
<PAGE> 12
The Southern California Division competes with several large national
and regional chains, principally Albertsons, Hughes, Lucky, Ralphs, Smith's,
Stater Bros., and Vons, and with smaller independent supermarkets and grocery
stores as well as warehouse clubs and other "alternative format" food stores.
The Northern California Division competes with large national and regional
chains, principally Lucky and Safeway, and with independent supermarket and
grocery store operators and other retailers, including "alternative format"
stores. The Midwestern Division's supermarkets compete with several national
and regional supermarket chains, principally Albertson's, Dillons and
Hypermarket USA, as well as independent and "alternative format" stores. The
Company positions its Food 4 Less warehouse format supermarkets as the overall
low-price leader in each marketing area in which they operate.
EMPLOYEES
The Company believes that its relationship with its employees is
excellent. At June 25, 1994, the Company had a total of 14,687 employees, as
shown in the table below.
<TABLE>
<CAPTION>
Southern Northern
California California Midwestern Total
---------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Administrative 582 56 48 686
Warehouse, manufacturing and transportation 1,298 - 51 1,349
Stores 9,988 1,201 1,463 12,652
------ ----- ----- ------
Total 11,868 1,257 1,562 14,687
====== ===== ===== ======
</TABLE>
Of the Company's 14,687 total employees at June 25, 1994, 11,882 were
covered by union contracts, principally with the United Food and Commercial
Workers Union (the "UFCW"). The table below sets forth information regarding
the Company's union contracts which cover more than 100 employees.
<TABLE>
<CAPTION>
UNION NUMBER OF EMPLOYEES COVERED DATE(S) OF EXPIRATION
- -------------------------------------- ------------------------------ -----------------------
<S> <C> <C>
UFCW 7,908 Southern California October 3, 1996
Division clerks and
meatcutters
Hospital and Service Employees 299 Southern California January 19, 1997
Division store porters
International Brotherhood of Teamsters 886 Southern California September 13, 1998
Division produce drivers
and warehousemen
UFCW 971 Northern California February 28, 1995
Division clerks and
meatcutters
UFCW 1,532 Southern California February 25, 1996
Division clerks and
meatcutters
Bakery and Confectionery Workers 192 Southern California July 8, 1995
Division bakers
</TABLE>
LICENSING OPERATIONS
The Company owns the "Food 4 Less" trademark and service mark and
licenses the "Food 4 Less" name for use by others. In fiscal 1994, earnings
from licensing operations were approximately $270,000. An exclusive license
with the right to sublicense the "Food 4 Less" name in all areas of the United
States except Arkansas, Iowa, Illinois, Minnesota, Nebraska, North Dakota,
South Dakota, Wisconsin, the upper peninsula of Michigan, certain portions of
Kansas, Missouri, and Tennessee has been granted to Fleming Companies, Inc.
("Fleming"), a major food wholesaler and retailer. In August of 1993, the
Company amended (the "Amendment") its licensing agreement
10
<PAGE> 13
with Fleming to give Fleming exclusive use of the Food 4 Less name in Northern
California and the Company exclusive use in Southern California. Fleming paid
the Company a fee of $1.9 million for the Amendment. With the exception of
Northern California, and subject to the Amendment and certain proximity
restrictions, the Company retains the right to open and operate its own "Food 4
Less" warehouse supermarkets throughout the United States. As of June 25,
1994, there were 158 Food 4 Less warehouse supermarkets in 20 states, including
the 61 stores owned or leased and operated by the Company. Of the remaining 97
stores, Fleming operates three under license, 67 are operated under sublicenses
from Fleming and 27 are operated by other licensees.
ITEM 2. PROPERTIES
At June 25, 1994 the Company operated 258 supermarkets, as set forth
in the table below:
<TABLE>
<CAPTION>
Number of
Supermarkets Average
------------ Total Square Feet/
Division Owned Leased Square Feet Facility
-------- ----- ------ ----------- ------------
<S> <C> <C> <C> <C>
Southern California 6(a) 190 5,974,000 30,500
Northern California - 24 559,000 23,300
Midwestern 2(b) 36 1,357,000 35,700
</TABLE>
----------------------
(a) Includes one store located on real property subject to a ground
lease.
(b) Includes one store that is partially owned and partially leased.
Most of the Southern California Division's store locations are held
pursuant to long-term leases, many of which, in the opinion of management, have
below-market rental rates or other favorable lease terms. The average
remaining term (including all renewal options) of the Company's supermarket
leases is approximately 27 years.
In addition to its supermarkets, the Company operates two warehouse
facilities. The largest of such facilities is the Company's central office,
manufacturing and warehouse complex in La Habra, California, which occupies
1,378,083 total square feet over 75 acres. The Company has entered into a
ten-year lease of the La Habra property (which may be extended for up to 25
years at the election of the Company) with American Food and Drug, Inc.
("AFDI"), a subsidiary of American Stores Company, and has an option to
purchase such property during the term of the lease, which was entered into at
the closing of the Alpha Beta Acquisition. Four of the Company's supermarkets
are also leased from AFDI under leases also entered into at the closing of the
Alpha Beta Acquisition.
In addition to the La Habra facility, the Company leases a 321,000
square foot warehouse in Los Angeles. This warehouse, which was formerly owned
by the Company, was the subject of a sale leaseback arrangement entered into by
the Company in August 1990. The Company uses this warehouse for distribution
of certain products, including produce. The Company has subleased a 127,000
square foot warehouse which was previously used by the Company prior to the
Alpha Beta Acquisition.
ITEM 3. LEGAL PROCEEDINGS
In December 1992, three California state antitrust class action suits
were commenced in Los Angeles Superior Court against the Company and other
major supermarket chains located in Southern California, alleging that they
conspired to refrain from competing in and to fix the price of fluid milk above
competitive prices. Specifically, class actions were commenced by Diane Barela
and Neila Ross, Ron Moliare and Paul C. Pfeifle on December 7, December 14 and
December 23, 1992, respectively. To date, the Court has yet to certify any of
these classes, while a demurrer to the complaints was denied. The Company will
vigorously defend itself in these class action suits.
11
<PAGE> 14
In addition, the Company or its subsidiaries are defendants in a
number of other cases currently in litigation or potential claims encountered
in the normal course of business which are being vigorously defended. In the
opinion of management, the resolutions of these matters will not have a
material effect on the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
12
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
There is no public trading market for the Company's common stock, $.01
par value per share (the "Common Stock"). As of September 23, 1994, there was
one holder of record of the Common Stock.
The Company has never paid and does not expect in the foreseeable
future to pay any dividends on its Common Stock. The indentures governing the
Company's Senior Subordinated Notes due 2001 (the "Subordinated Notes") and its
Senior Notes due 2000 (the "Senior Notes") contain certain restrictions on the
payment of cash dividends with respect to the Company's Common Stock, and the
Company's bank credit facility prohibits all such payments.
13
<PAGE> 16
ITEM 6. SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
THE COMPANY
The following table sets forth certain selected consolidated
historical financial data of the Company. The operating results of the Company
for the 52 weeks ended June 29, 1991 include the results of Alpha Beta from
June 17, 1991, the date of its acquisition by the Company. The operating and
balance sheet data of the Company set forth in the table below as of and for
the 52 weeks ended June 25, 1994, the 52 weeks ended June 26, 1993, the 52
weeks ended June 27, 1992, the 52 weeks ended June 29, 1991 and the 53 weeks
ended June 30, 1990 have been derived from the financial statements of the
Company audited by Arthur Andersen LLP, independent public accountants. The
following information should be read in conjunction with the historical
financial statements of the Company and related notes and "Item 7 --
Management's Discussion and Analysis of Results of Operations and Financial
Condition" included elsewhere herein.
<TABLE>
<CAPTION>
53 Weeks 52 Weeks 52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended Ended
June 30, June 29, June 27, June 26, June 25,
1990 1991(a) 1992 1993 1994(g)
-------- -------- -------- -------- ---------
(dollars in thousands, except store data)
<S> <C> <C> <C> <C> <C>
Operating Data:
Sales $1,318,171 $1,606,559 $2,913,493 $2,742,027 $2,585,160
Cost of sales(b) 1,113,413 1,340,841 2,392,655 2,257,835 2,115,842
--------- --------- --------- --------- ---------
Gross profit(b) 204,758 265,718 520,838 484,192 469,318
Selling, general, administrative
and other, net 157,761 213,083 469,751 434,908 388,836
Amortization of excess costs
over net assets acquired 5,336 5,315 7,795 7,571 7,691
--------- --------- -------- --------- ---------
Operating income(b) 41,661 47,320 43,292 41,713 72,791
Interest expense 50,789 50,084 70,211 69,732 68,250
Loss (gain) on disposal of assets (22) 623 (1,364) (2,083) 37
Provision for earthquake losses - - - - 4,504(e)
Provision for income taxes 986 2,505 3,441 1,427 2,700
--------- --------- --------- --------- ---------
Loss before
extraordinary charges (10,092) (5,892) (28,996) (27,363) (2,700)
Extraordinary charges - 3,757(c) 4,818(d) - -
--------- --------- --------- ---------- ----------
Net loss $ (10,092) $ (9,649) $ (33,814) $ (27,363) $ (2,700)
========= ========= ========= ========= =========
Non-Cash Charges:
Depreciation and amortization
of property and equipment $ 17,373 $ 20,399 $ 37,898 $ 37,426 $ 41,380
Amortization of goodwill and
other assets 8,423 11,453 16,979 20,214 15,703
Amortization of deferred
financing costs 4,085 5,177 6,304 4,901 5,472
Store Data:
Stores at end of period 115 259 249 248 258
Annual sales per
selling square foot $ 552 $ 584 $ 538 $ 533 $ 487
Balance Sheet Data
(end of period)(f):
Working capital (deficit) $ (40,527) $ 13,741 $ (66,254) $ (19,222) $ (54,882)
Total assets 574,741 979,958 998,451 957,840 980,080
Total long-term debt 350,456 540,759 509,829 522,440 495,942
Redeemable stock 5,101 - - - -
Stockholder's equity 20,643 84,557 50,771 72,863 69,021
</TABLE>
(See footnotes on following page)
14
<PAGE> 17
(a) Operating data for the 52 weeks ended June 29, 1991 include the
results of Alpha Beta from June 17, 1991, the date of its acquisition
only. Alpha Beta's sales for the two weeks ended June 29, 1991 were
$59.2 million.
(b) Cost of sales has been principally determined using the last-in,
first-out ("LIFO") method. If cost of goods sold had been determined
using the first-in, first-out ("FIFO") method, gross profit and
operating income would have been greater by $1,999,000, $2,118,000,
$3,554,000, $4,441,000 and $699,000 for the 53 weeks ended June 30,
1990, and the 52 weeks ended June 29, 1991, June 27, 1992, June 26,
1993, and June 25, 1994, respectively.
(c) Represents an extraordinary charge of $3.8 million (net of related
income tax benefit of $2.5 million) relating to the refinancing of the
Company's former bank credit facility (the "Old Credit Agreement") and
the Company's Senior Subordinated Increasing Rate Notes due 1996 (the
"IRNs") in connection with the Alpha Beta Acquisition and the
write-off of related debt issuance costs.
(d) Represents an extraordinary net charge of $4.8 million reflecting the
write-off of $6.7 million (net of related income tax benefit of $2.5
million) of deferred financing costs as a result of the early
redemption of a portion of the Company's Bank Term Loan, partially
offset by a $1.9 million extraordinary gain (net of a related income
tax expense of $0.7 million) on the replacement of partially
depreciated assets following the civil unrest in Los Angeles.
(e) On January 17, 1994, Southern California was struck by a major
earthquake which resulted in the temporary closing of 31 of the
Company's stores. The closures were caused primarily by loss of
electricity, water, inventory, or damage to the affected stores. All
but one of the closed stores reopened within a week of the earthquake.
The final closed store reopened on March 24, 1994. The Company is
insured, subject to deductibles, against earthquake losses (including
business interruption). The pre-tax charge to earnings, net of
insurance claims, was approximately $4.5 million.
(f) Balance sheet data as of June 30, 1990 relate to the Company and
includes the effect of the BHC Acquisition and the related
transactions, as well as the acquisitions of Bell and ABC. Balance
sheet data as of June 29, 1991, June 27, 1992, and June 26, 1993
relate to the Company and reflect the Alpha Beta Acquisition and the
financings and refinancings associated therewith. Balance sheet data
as of June 25, 1994 relate to the Company and reflect the Food Barn
Acquisition.
(g) Operating data for the 52 weeks ended June 25, 1994 include the
results of the Food Barn Stores, which were not material, from March
29, 1994, the date of the Food Barn Acquisition.
15
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS OF THE COMPANY
The following table sets forth the historical operating results of the
Company for the 52 weeks ended June 27, 1992, June 26, 1993, and June 25, 1994:
<TABLE>
<CAPTION>
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended
June 27, 1992 June 26, 1993 June 25, 1994
------------- ------------- -------------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Sales $2,913.5 100.0% $2,742.0 100.0% $2,585.2 100.0%
Gross profit 520.8 17.9 484.2 17.7 469.3 18.1
Selling, general, administrative
and other, net 469.7 16.1 434.9 15.9 388.8 15.0
Amortization of excess costs over
net assets acquired 7.8 0.3 7.6 0.3 7.7 0.3
Operating income 43.3 1.5 41.7 1.5 72.8 2.8
Interest expense 70.2 2.4 69.8 2.5 68.3 2.6
Loss (gain) on disposal of assets (1.3) 0.0 (2.1) -0.1 0.0 0.0
Provision for earthquake losses 0.0 0.0 0.0 0.0 4.5 0.2
Provision for income taxes 3.4 0.1 1.4 0.1 2.7 0.1
Loss before extraordinary charges 29.0 -1.0 27.4 -1.0 2.7 -0.1
Extraordinary charges 4.8 0.2 0.0 0.0 0.0 0.0
Net loss 33.8 -1.2 27.4 -1.0 2.7 -0.1
</TABLE>
COMPARISON OF THE COMPANY'S RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JUNE
25, 1994 WITH THE COMPANY'S RESULTS OF OPERATIONS FOR THE 52
WEEKS ENDED JUNE 26, 1993.
Sales. Sales decreased $156.8 million or 5.7% from $2,742.0 million
in the 52 weeks ended June 26, 1993 to $2,585.2 million in the 52 weeks ended
June 25, 1994. The decrease in sales resulted primarily from a 6.9% decline in
comparable store sales. The decline in comparable store sales primarily
reflects (i) the weak economy in Southern California, (ii) lower levels of
price inflation in certain key food product categories, and (iii) competitive
factors, including new stores, remodeling and recent pricing and promotional
activity. This decrease in sales was partially offset by sales from new and
remodeled stores opened or acquired during fiscal 1994.
Gross Profit. Gross profit increased as a percent of sales from 17.7%
in the 52 weeks ended June 26, 1993 to 18.1% in the 52 weeks ended June 25,
1994. The increase in gross profit margin was attributable to improvements in
product procurement and an increase in vendors' participation in the Company's
promotional costs. These improvements were partially offset by 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 45 at June 26, 1993 to 66 at June 25, 1994, and the
effect of the fixed cost component of gross profit as compared to a lower sales
base.
Selling, General, Administrative and Other, Net. Selling, general,
administrative and other expenses, ("SG&A") were $434.9 million and $388.8
million for the 52 weeks ended June 26, 1993 and June 25, 1994, respectively.
SG&A decreased as a percent of sales from 15.9% to 15.0% for the same periods.
The Company experienced a reduction of workers' compensation and general
liability self-insurance costs of $18.2 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 payroll (due primarily to increased productivity),
advertising, 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 45 at June 26, 1993 to 66 at June 25, 1994,
also contributed to decreased SG&A.
16
<PAGE> 19
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, of which the Company recognized $8.1
million in fiscal 1994 and the remainder of which will be recognized as the
credits are taken in the future. Offsetting the reduction in employer
contributions was a $5.5 million contract ratification bonus and contractual
wage increases.
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.
Interest Expense. Interest expense (including amortization of
deferred financing costs) decreased $1.5 million from $69.8 million to $68.3
million for the 52 weeks ended June 26, 1993 and June 25, 1994, respectively.
The decrease in interest expense is due primarily to reduced borrowings under
the Revolving Credit Facility and the Bank Term Loan.
Provision for Earthquake Losses. On January 17, 1994, Southern
California was struck by a major earthquake which resulted in the temporary
closing of 31 of the Company's stores. The closures were caused primarily by
loss of electricity, water, inventory, or structural damage. All but one of
the closed stores reopened within a week of the earthquake. The final closed
store reopened on March 24, 1994. The Company is insured against earthquake
losses (including business interruption), subject to certain deductibles. The
pre-tax financial impact, net of expected insurance recovery, was approximately
$4.5 million.
Net Loss. Primarily as a result of the factors discussed above, the
Company's net loss decreased from $27.4 million in fiscal 1993 to $2.7 million
in fiscal 1994.
COMPARISON OF THE COMPANY'S RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JUNE
26, 1993 WITH THE COMPANY'S RESULTS OF OPERATIONS FOR THE 52
WEEKS ENDED JUNE 27, 1992.
Sales. Sales decreased $171.5 million or 5.9% from $2,913.5 million
in the 52 weeks ended June 27, 1992 to $2,742.0 million in the 52 weeks ended
June 26, 1993, primarily as a result of a 5.1% decline in comparable store
sales and a net reduction in the Company's total store count of one store at
June 26, 1993 compared to June 27, 1992. Management believes that the decline
in comparable store sales is attributable to (i) the weak economy in Southern
California, and, to a lesser extent, in the Company's other operating areas,
(ii) lower levels of price inflation in certain key food categories, and (iii)
increased competitive store openings in Southern California.
Gross Profit. Gross profit decreased as a percent of sales from 17.9%
in the 52 weeks ended June 27, 1992 to 17.7% in the 52 weeks ended June 26,
1993 primarily as a result of an increase in the number of Food 4 Less
warehouse stores (which have lower gross margins resulting from prices that are
generally 5-12% below the prices in the Company's conventional stores), from 34
stores in fiscal 1992 to 45 stores in fiscal 1993, and as a result of the fixed
cost component of gross profit as compared to a lower sales base, partially
offset by increases in relative margins allowed by competitive conditions,
improvements in the procurement function, and cost savings and operating
efficiencies associated with the Company's warehousing and manufacturing
facilities.
Selling, General, Administrative and Other, Net. Selling, general,
administrative and other expenses ("SG&A") were $469.7 million and $434.9
million for the 52 weeks ended June 27, 1992 and June 26, 1993, respectively.
SG&A decreased as a percent of sales from 16.1% to 15.9% for the same periods
as a result of tight control of direct store expenses, primarily payroll costs,
the impact in fiscal 1992 of a $12.8 million non-cash self-insurance adjustment
to increase reserves partially offset by market-wide contractual increases in
union wages, increases in workers' compensation costs in fiscal 1993 primarily
associated with the new law which took effect in 1990, and the fixed cost
component of SG&A being compared to a lower sales base.
Interest Expense. Interest expense (including amortization of
deferred financing costs) decreased $1.4 million from $70.2 million to $69.8
million for the 52 weeks ended June 27, 1992 and June 26, 1993, respectively.
17
<PAGE> 20
The decrease in interest expense is due to the reduction of indebtedness as a
result of amortization payments combined with decreasing interest rates on the
Term Loan, partially offset by higher interest expense incurred in connection
with the 10.45% Senior Notes due 2000, which replaced lower cost debt under the
Credit Agreement.
Loss Before Extraordinary Charge. Primarily as a result of the
factors discussed above, the Company's loss before extraordinary charge
decreased from $29.0 million in fiscal 1992 to $27.4 million in fiscal 1993.
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 also be
required to complete certain exchange offers, consent solicitations and/or
other transactions with the holders of the currently outstanding debt
securities. The Ralphs purchase price is approximately $1.5 billion, including
the assumption 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 "Item 1 --
Business -- Recent Events.")
During the 52-week period ended June 25,1994, the Company generated
approximately $87.8 million of cash from its operating activities compared to
$16.5 million used by operating activities for the 52 weeks ended June 26,
1993. The improvement is due primarily to changes in operating assets and
liabilities and an increase in operating income for the 52 weeks ended June 25,
1994 compared to the 52 weeks ended June 26, 1993. The Company's principal
use of cash in its operating activities is inventory purchases. The Company's
high inventory turnover allows it to finance a substantial portion of its
inventory through trade payables, thereby reducing its short-term borrowing
needs. At June 25, 1994, this resulted in a working capital deficit of $54.9
million.
Cash used for investing activities was $55.8 million for the 52 weeks
ended June 25, 1994. Investing activities consisted primarily of capital
expenditures of $57.5 million, partially offset by $9.3 million of
sale/leaseback transactions, and $11.1 million of Food Barn Acquisition costs.
The capital expenditures, net of the proceeds from sale/leaseback transactions,
and the Food Barn Acquisition costs were financed from cash provided by
operating activities.
The capital expenditures discussed above were made to build 12 new
stores (three of which have been completed) and remodel or convert 28 stores
(all of which have been completed). 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. At June 25, 1994, the Company had approximately
$2.5 million of unused equipment leasing facilities. 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
business conditions, changing time constraints and cash flow requirements.
Management believes that if the Company were to substantially reduce or
postpone these programs,
18
<PAGE> 21
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 used by financing activities was $24.2 million for the 52 weeks
ended June 25, 1994, which consisted primarily of an $11.4 million repayment of
the Term Loan and repayment of the $4.9 million of borrowings outstanding on
the Revolving Credit Facility at June 26, 1993. At September 20, 1994, there
were no borrowings outstanding under the $70 million Revolving Credit Facility,
and $48.1 million of standby letters of credit had been issued under the $55
million Letter of Credit Facility.
The Company is highly leveraged. At June 25, 1994, the Company's
total long-term indebtedness (including current maturities) and stockholder's
equity were $517.9 million and $69.0 million, respectively. For the 52 weeks
ended June 25, 1994, the ratio of earnings to fixed charges was 1.0.
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.
The supermarket industry is highly competitive and characterized by
narrow profit margins. The Company's competitors in each of its operating
divisions include national and regional supermarket chains, independent and
specialty grocers, drug and convenience stores, and the newer "alternative
format" food stores, including warehouse club stores, deep discount drug stores
and "super centers." Supermarket chains generally compete on the basis of
location, quality of products, service, price, product variety and store
condition. The Company regularly monitors its competitors' prices and adjusts
its prices and marketing strategy as management deems appropriate.
The Southern California Division competes with several large national
and regional chains, principally Albertsons, Hughes, Lucky, Ralphs, Smith's,
Stater Bros., and Vons, and with smaller independent supermarkets and grocery
stores as well as warehouse clubs and other "alternative format" food stores.
The Northern California Division competes with large national and regional
chains, principally Lucky and Safeway, and with independent supermarket and
grocery store operators and other retailers, including "alternative format"
stores. The Midwestern Division's supermarkets compete with several national
and regional supermarket chains, principally Albertson's, Dillons and
Hypermarket USA, as well as independent and "alternative format" stores. The
Company positions its Food 4 Less warehouse format supermarkets as the overall
low-price leader in each marketing area in which they operate.
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.
19
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements and Schedules on page
31.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
20
<PAGE> 23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the
executive officers and directors of the Company. Directors serve until the
election and qualification of their successors.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Ronald W. Burkle* . . . . . . . . . . . 41 Director, Chairman of the Board and Chief Executive Officer
George G. Golleher* . . . . . . . . . . 46 Director, President and Chief Operating Officer
Joe S. Burkle* . . . . . . . . . . . . . 71 Director and Executive Vice President
Greg Mays . . . . . . . . . . . . . . . 48 Executive Vice President - Finance/Administration and Chief
Financial Officer
Harley DeLano . . . . . . . . . . . . . 57 President - Cala Foods
Mark A. Resnik . . . . . . . . . . . . . 47 Director, Vice President and Secretary
</TABLE>
_____________
* Member of Executive Committee of Board of Directors.
Ronald W. Burkle has been a Director and the Chairman of the Board and
Chief Executive Officer of the Company since its inception in 1989. Mr. Burkle
co-founded Yucaipa in 1986 and has served as Director, President and Chief
Executive Officer of FFL since 1987. From 1986 to 1988, Mr. Burkle was
Chairman and Chief Executive Officer of Jurgensen's, a Southern California
gourmet food retailer. Before joining Jurgensen's, Mr. Burkle was a private
investor in Southern California. Mr. Burkle is the son of Joe S. Burkle.
Joe S. Burkle has been a Director and Executive Vice President of the
Company since its inception in 1989, and has been a Director and President of
Falley's since 1987. Mr. Burkle began his career in the supermarket industry
in 1946, and served as President and Chief Executive Officer of Stater Bros.
Markets, a Southern California supermarket chain. Prior to 1987, Mr. Burkle
was a private investor in Southern California. Mr. Burkle is the father of
Ronald W. Burkle.
George G. Golleher has been a Director of the Company since its
inception in 1989 and has been President and Chief Operating Officer of the
Company since January 1990. Mr. Golleher joined the Company in 1984 as Vice
President - Finance, and from 1986 through 1989 he served as Senior Vice
President - Finance and Administration.
Greg Mays became Executive Vice President - Finance and
Administration, and Chief Financial Officer of the Company in December 1992.
From 1989 until 1991, Mr.Mays was Chief Financial Officer of Almac's and, from
1991 to December 1992, President and Chief Financial Officer of Almac's. From
April 1988 to June 1989, Mr.Mays was Chief Financial Officer of F4L Modesto and
Cala Foods, Inc. ("Cala Foods").
Mark A. Resnik, a Director and the Vice President and Secretary of the
Company since its inception in 1989, co-founded Yucaipa in 1986 and has been a
Director, Vice President and Secretary of FFL and Falley's since 1987. From
1986 until 1988, Mr. Resnik served as a Director, Vice President and Secretary
for Jurgensen's.
21
<PAGE> 24
From 1983 through 1986, Mr. Resnik served as a Director, Vice President,
Secretary and General Counsel of Stater Bros. Markets.
Harley DeLano is President of Cala Foods, Inc. and has been since
1990. Mr. DeLano was General Manger of ABC from 1980 to 1990.
The Company does not currently intend to pay any fees or remuneration
to its directors for service on the board or any board committee, but will
reimburse directors for their ordinary out-of-pocket expenses. Holdings and
FFL are parties to an agreement with Mr. Golleher under which FFL will vote its
shares to cause his election to the board of directors of Holdings for so long
as he is the beneficial owner of stock in Holdings.
ITEM 11. EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth information
concerning the compensation of the Chief Executive Officer and the other four
most highly compensated executive officers of the Company (the "Named Executive
Officers"), whose total annual salary and bonus exceeded $100,000 for services
rendered in all capacities to the Company and its subsidiaries for the fiscal
year ended June 25, 1994.
<TABLE>
<CAPTION>
Annual Compensation
-------------------
Fiscal All Other
Name and Principal Position Year Salary Bonus Compensation(4)
- --------------------------- ------ ------ ----- ------------
<S> <C> <C> <C> <C>
Ronald W. Burkle(1) 1994 - - -
Chairman and 1993 - - -
Chief Executive Officer 1992 - - -
George G. Golleher 1994 $500,000 $500,000 $3,937
President 1993 $500,000 $500,000 -
1992 $500,000 $235,000 $5,300
Greg Mays(2) 1994 $250,000 $150,000 -
Executive Vice President - 1993 $108,000 $ 75,000 -
Finance/Administration and 1992 - - -
Chief Financial Officer
Harley DeLano 1994 $197,000 $ 50,000 $3,408
President - Cala Foods 1993 $185,000 $ 40,000 -
1992 $182,000 $ 50,000 $1,522
Joe Burkle(3) 1994 $196,000 $ 50,000 -
Executive Vice President 1993 $156,000 - -
1992 $156,000 - -
</TABLE>
- ---------------------------
(1) Ronald W. Burkle and Mark A. Resnik, Vice President and Secretary,
provide services to the Company pursuant to a management agreement
between Yucaipa and the Company. See "Certain Transactions."
Pursuant to this management agreement, the Company paid Yucaipa and an
affiliate of Yucaipa $2.4 million in the fiscal year ended June 25,
1994 for the services of Messrs. Ronald Burkle and Resnik and other
Yucaipa personnel. Such payments to Yucaipa and its affiliate are not
reflected in the table set forth above.
(2) During fiscal 1993, Greg Mays became Executive Vice President -
Finance/Administration and Chief Financial Officer.
22
<PAGE> 25
(3) Mr. Joe Burkle provides services to Supermarkets pursuant to a
consulting agreement. See "Consulting and Employment Agreements."
(4) The amounts shown in this column represent annual payments by the
Company to the Employee Profit Sharing and Retirement Program of the
Company for the benefit of Mr. Golleher and Mr. DeLano.
CONSULTING AND EMPLOYMENT AGREEMENTS
The Company is a party to an employment agreement with George G.
Golleher, a Director and President of the Company. Mr. Golleher entered into
the employment agreement with a subsidiary of the Company in June 1989 in
connection with the BHC Acquisition. Such agreement, which was amended in
December 1990 and assumed by the Company in June 1991, provides for annual base
compensation of $350,000, plus employee benefits and an incentive bonus
calculated in accordance with a formula based on the Company's earnings. The
amended agreement has a five-year term, which is automatically renewed on
January 1 of each year for a five-year term unless ninety days' notice is given
by either party. Under such agreement, Mr. Golleher is obligated to serve as
an officer of the Company and, with certain exceptions, may not serve any
business enterprise other than the Company, or a parent or subsidiary of the
Company, without the written approval of the Board of Directors of the Company.
The Company may terminate the employment agreement in the event of the death or
disability of Mr. Golleher, or with cause. In the event the Company terminates
the employment agreement without cause, it must continue to pay Mr. Golleher's
salary and benefits for the remainder of the original term of his agreement,
reduced by any remuneration received by him for other employment during such
period. Mr. Golleher may terminate his employment agreement in the event of a
change of control of the Company, in which case he is entitled to receive all
of the salary and benefits provided under the agreement for the remaining term
thereof, notwithstanding the termination of his employment.
The Company's consulting agreement with Mr. Joe Burkle, assigned to
the Company in connection with its acquisition of Falley's, provides for
compensation of $3,000 per week. Mr. Burkle provides the management and
consulting services of an executive vice president under the consulting
agreement. The amended agreement has a five-year term, which is automatically
renewed on January 1 of each year for a five-year term unless sixty days'
notice is given by either party; provided that if the Company terminates for
reasons other than for good cause, the payments due under the agreement
continue for the balance of the term. Management believes that the terms of
the consulting agreement with Mr. Burkle are as favorable to the Company and
Falley's as those that could be obtained from an unaffiliated party.
The Company has entered into employment agreements with Greg Mays and
Harley DeLano, who are the Chief Financial Officer of the Company and the
President of Cala Foods, Inc., respectively, as of July 1, 1994. These
agreements provide for the employment of such officers for a one-year term
commencing on the date of a change of control of the Company, at a base salary
of not less than $250,000 and $200,000, respectively. Each agreement also
provides for the payment of an incentive bonus calculated in accordance with
Company policies, and a special bonus payable upon a change of control
(provided certain financial performance targets have been met), in the amounts
of $150,000 and $75,000, respectively. In addition, the Company has promised
to George Golleher a similar special bonus in a lump sum amount equal to the
base salary due to him under the remaining term of his employment agreement at
the time of a change of control. As a condition of the payment of such bonus,
Mr. Golleher's existing employment agreement would be cancelled, and he and the
Company would enter into a new agreement containing the terms to be mutually
agreed upon.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not have a board committee performing the functions
of a compensation committee. Ronald W. Burkle, Chief Executive Officer of the
Company, and George G. Golleher, President of the Company, made decisions with
regard to the Company's executive officer compensation for the fiscal year
1994.
23
<PAGE> 26
MANAGEMENT EQUITY OWNERSHIP
Certain employees of the Company (the "Management Stockholders")
collectively own 62,829 shares, or 4.5%, of Holdings' Common Stock. Such
shares, which include 15,828 shares owned by George G. Golleher, have been
issued from time to time pursuant to Holdings' Management Equity Program. In
addition, Ronald W. Burkle owns 71,992, or 5.2%, shares of Holdings' Common
Stock which he purchased from a former officer of the Company and which remain
subject to certain terms of the Management Equity Program.
Under the Management Equity Program, the Board of Directors of
Holdings from time to time offers Common Stock for sale to selected employees
at a price and for consideration (which may include a promissory note)
determined at the discretion of the Board. Management Stockholders who have
purchased shares are party to a Management Stockholders Agreement (the
"Stockholders Agreement") with Holdings, a Stockholder Voting Agreement and
Proxy, and such other documents as Holdings may require.
The Stockholders Agreement prohibits the transfer of any of the
Management Stockholder's Common Stock for a period of four years from the date
of its original issuance (although such date may, in the case of certain
Management Stockholders who were shareholders of BHC, relate back to the date
that shares were issued to them by BHC) other than transfers to certain family
members and heirs or pursuant to a registration statement. The Management
Stockholder's shares may be purchased by Holdings if, (a) prior to the fourth
anniversary of their issuance, the Management Stockholder's employment
terminates for any reason, or (b) after such fourth anniversary, the Management
Stockholder wishes to sell his/her Common Stock to a third party. The shares
vest over a three or four-year period for purposes of the repurchase price
determination, which results in a more favorable price for vested stock than
for unvested stock, but the shares do not vest in any other sense.
In the event of the death or permanent disability of the Management
Stockholder, each Management Stockholder has an irrevocable option for six
months to require Holdings to purchase all (or a portion) of his Common Stock
in the manner and on the terms set forth in the Stockholders Agreements;
provided, however, that the Management Stockholder may exercise such option in
the event of death or disability only to the extent that Holdings or the
Company has insurance, under which Holdings or the Company is the named
beneficiary, with respect to such event. Additionally, if shareholders holding
at least fifty percent (50%) of the issued and outstanding Common Stock of
Holdings agree to sell to a third party more than eighty percent (80%) of the
shares of common stock then held by them, then upon the demand of such selling
shareholders, each Management Shareholder must sell to such third party the
same percentage of his Common Stock as is proposed to be sold by the selling
shareholders.
Under the Stockholder Voting Agreement and Proxy, Ronald W. Burkle,
George G. Golleher and Yucaipa Capital Advisors, Inc. have sole voting control
over the shares of Common Stock of Holdings owned by the other Management
Stockholders until December 31, 2002 (unless extended by such Management
Stockholders).
Messrs. Burkle and Golleher have rights which vary in certain respects
from the rights of the other Management Stockholders under the Stockholders
Agreement. Among other differences, Messrs. Burkle and Golleher have (i)
rights to subscribe to offerings of additional shares of the Common Stock of
Holdings, (ii) "piggyback" registration rights in the event of a public
offering of Common Stock (if and to the extent permitted by Holdings'
underwriter) and (iii) "tag-along" rights to participate in certain sales of
Common Stock of Holdings. In addition, Mr. Golleher has the right to be
elected to the Board of Directors of Holdings so long as he beneficially owns
shares of Common Stock of Holdings.
The Stockholders Agreement terminates automatically, in the case of
Messrs. Burkle and Golleher, upon a change of control of Holdings or upon an
underwritten public offering of Holdings' Common Stock (subject to certain
exceptions). In the case of the other Management Stockholders, the
Stockholders Agreement terminates on the tenth anniversary of the original
share issuance.
As of June 25, 1994, there was outstanding $0.6 million principal
amount of notes receivable from certain Management Stockholders, representing
loans for the purchase of Holdings' Common Stock. The notes are due over
various periods, bear interest at the bank "prime" lending rate, and are
secured by such Common Stock.
24
<PAGE> 27
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the capital stock of the Company is owned by Holdings. The
following table sets forth certain information as to the number of shares of
the Common Stock of Holdings beneficially owned as of September 23, 1994 by
each shareholder known to the Company to own beneficially more than 5% of the
1,385,426 outstanding shares of Common Stock of Holdings by the Named Executive
Officers, by each director of the Company and by all executive officers and
directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF
OF SHARES OUTSTANDING
BENEFICIAL OWNER (1) OWNED SHARES
- ----------------- --------- ------------
<S> <C> <C>
Food 4 Less, Inc. 1,246,961 90.0%
3120 South Kansas Ave.,
Topeka, Kansas 66611 (2)(3)
Ronald W. Burkle (2)(4) 71,992 5.2%
George G. Golleher (2)(4) 15,828 1.1%
Greg Mays (4) 536 0.1%
Harley DeLano (4) 911 0.1%
--------- ----
All directors and executive officers
as a group (5 persons) (2)(4) 1,336,228 96.5%
========= ====
</TABLE>
______________________
(1) Except as otherwise indicated, each beneficial owner has the sole power to
vote, as applicable, and to dispose of all shares of Common Stock owned by
such beneficial owner.
(2) FFL is 37.0% owned by F4L Equity Partners, L.P., a California limited
partnership ("F4L Equity L.P.") in which FFL Partners, a California general
partnership, has a 79.7% limited partnership interest. FFL and F4L Equity
L.P. are parties to a Stockholders Agreement with the 1991 Equity Investors
(the "1991 Stockholders Agreement") which gives F4L Equity L.P. the right
to elect a majority of the directors of FFL. Ronald W. Burkle, Mark A.
Resnik and Joe S. Burkle are general partners in FFL Partners, and Ronald
W. Burkle is managing general partner. Ronald W. Burkle, Joe S. Burkle,
George G. Golleher and Mark A. Resnik are directors of FFL. Ronald W.
Burkle, George G. Golleher and Yucaipa Capital Advisors, Inc., a
California corporation which is an affiliate of Yucaipa, are general
partners of F4L Equity L.P. and may be deemed to be beneficial owners of
the Holdings Common Stock owned by FFL. Ronald W. Burkle and Mark A.
Resnik are directors of, and collectively own all of the outstanding
capital stock of Yucaipa Capital Advisors, Inc.
(3) Pursuant to the 1991 Stockholders Agreement, certain corporate actions by
FFL, including asset sales, require the consent of two of the three outside
directors whom the 1991 Investors are entitled to elect to the FFL board of
directors. Geosor Corporation, a New York corporation controlled by Mr.
George Soros, and certain other of the 1991 Equity Investors associated
with Mr. Soros (collectively, the "Soros Investors"), may be deemed to be
beneficial owners of Holdings Common Stock to the extent that the Soros
Investors share with F4L Equity L.P. investment power with respect to the
shares of Holdings Common Stock owned by FFL.
25
<PAGE> 28
(4) Management shareholders of Holdings have entered into a Stockholder Voting
Agreement and Proxy pursuant to which Ronald W. Burkle, George G. Golleher
and Yucaipa Capital Advisors, Inc. have sole voting control over the 50,645
shares of Common Stock currently owned by such management shareholders
until December 31, 2002 (unless extended by such shareholders). Neither
Messrs. Burkle and Golleher nor Yucaipa Capital Advisors, Inc. have the
power to dispose of, or any other form of investment power with respect to,
such shares. Messrs. Burkle and Golleher have sole voting and investment
power with respect to the 71,992 and 15,828 shares of Common Stock of
Holdings they respectively own.
26
<PAGE> 29
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective June 17, 1991, the Company has entered into an Amended and
Restated Consulting Agreement with Yucaipa for certain management and financial
services to be provided to the Company and its subsidiaries. The services of
Messrs. R. Burkle and Resnik, acting in their capacities as directors and
officers, and the services of other Yucaipa personnel are provided to the
Company pursuant to this agreement. See "Item 10 -- Directors and Executive
Officers of the Registrant." Messrs. R. Burkle and Resnik are partners of
Yucaipa. The Amended and Restated Consulting Agreement provides for annual
management fees currently equal to $2 million plus an additional amount based
on the Company's performance. In addition, the Company may retain Yucaipa in
an advisory capacity in connection with acquisition or financing transactions,
in which case the Company will pay Yucaipa an advisory fee. The agreement has
a five-year term, which is automatically renewed on January 1 of each year for
a five-year term unless ninety days' notice is given by either party. The
agreement may be terminated at any time by the Company, provided that Yucaipa
will be entitled to full monthly payments under the agreement for the remaining
term thereof, unless the Company terminates for cause pursuant to the terms of
the agreement. Yucaipa may terminate the agreement if the Company fails to
make a payment due thereunder, or if there occurs a change of control (as
defined in the agreement) of the Company, and upon any such termination Yucaipa
will be entitled to full monthly payments for the remaining term of the
agreement. Pursuant to the agreement, the Company paid Yucaipa a total of $2.4
million in management and advisory fees for the fiscal year ended June 25,
1994.
FFL files a consolidated federal income tax return, under which the
federal income tax liability of FFL and its subsidiaries (which since June 23,
1989 include the Company) is determined on a consolidated basis. FFL has
entered into a federal income tax sharing agreement with the Company and
certain of its subsidiaries (the "Tax Sharing Agreement"). The Tax Sharing
Agreement provides that in any year in which the Company is included in any
consolidated tax liability of FFL and has taxable income, the Company will pay
to FFL the amount of the tax liability that the Company would have had on such
due date if it had been filing a separate return. Conversely, if the Company
generates losses or credits which actually reduce the consolidated tax
liability of FFL and its other subsidiaries, FFL will credit to the Company the
amount of such reduction in the consolidated tax liability. These credits are
passed between FFL and the Company in the form of cash payments. In the event
any state and local income taxes are determinable on a combined or consolidated
basis, the Tax Sharing Agreement provides for a similar allocation between FFL
and the Company of such state and local taxes.
Management believes that the terms of the transactions described above
are or were fair to the Company and are or were on terms at least as favorable
to the Company as those which could be obtained from unaffiliated parties
(assuming that such transactions could be effected with such parties).
27
<PAGE> 30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules required to be filed hereunder are
indexed on page 31 hereof.
(b) No reports on Form 8-K were filed during the last quarter of the
Company's fiscal year ended June 25, 1994.
(c) Those Exhibits, and the Index thereto, required to be filed by Item
601 of Regulation S-K are attached hereto. Certain management
contracts and other compensation plans or arrangements required to be
filed are identified on the attached Index with an asterisk.
28
<PAGE> 31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
FOOD 4 LESS SUPERMARKETS, INC.
By /s/ Mark A. Resnik
------------------------------
Mark A. Resnik
Vice President and Secretary
Date: November 9, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ---
<S> <C> <C>
/s/ Ronald W. Burkle Chief Executive Officer and November 9, 1994
- ----------------------------- Director (Principal Executive
Ronald W. Burkle Officer)
/s/ Greg Mays Executive Vice President - November 9, 1994
- ----------------------------- Finance/Administration and
Greg Mays Chief Financial Officer
/s/ Joe S. Burkle Director November 9, 1994
- -----------------------------
Joe S. Burkle
/s/ George G. Golleher Director November 9, 1994
- -----------------------------
George G. Golleher
/s/ Mark A. Resnik Director November 9, 1994
- -----------------------------
Mark A. Resnik
</TABLE>
29
<PAGE> 32
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
No annual report or proxy material has been sent to security holders.
The Registrant will furnish copies of such report or proxy material if and when
such report or proxy material is sent to security holders.
30
<PAGE> 33
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Food 4 Less Supermarkets, Inc.
- ------------------------------
Report of Independent Public Accountants
Arthur Andersen LLP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Consolidated balance sheets as of June 26, 1993 and June 25, 1994 . . . . . . . . . . . . . . 33
Consolidated statements of operations for the 52 weeks ended
June 27, 1992, the 52 weeks ended June 26, 1993
and the 52 weeks ended June 25, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Consolidated statements of cash flows for the 52 weeks ended
June 27, 1992, the 52 weeks ended June 26, 1993
and the 52 weeks ended June 25, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Consolidated statements of stockholder's equity for the 52 weeks ended
June 27, 1992, the 52 weeks ended June 26, 1993
and the 52 weeks ended June 25, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Notes to consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . . 39
Financial Statement Schedules
- -----------------------------
Report of Independent Public Accountants
Arthur Andersen LLP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
II Amounts receivable from related parties and underwriters,
promoters, and employees other than related parties . . . . . . . . . . . . . . . . 54
V Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
VI Accumulated depreciation and amortization
of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
VIII Valuation and qualifying accounts . . . . . . . . . . . . . . . . . . . . . . . . . 57
</TABLE>
All other schedules have been omitted since the required information is not
applicable or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the Consolidated
Financial Statements and related notes.
31
<PAGE> 34
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholder of Food 4 Less Supermarkets, Inc.:
We have audited the accompanying consolidated balance sheets of Food 4
Less Supermarkets, Inc. (a Delaware corporation) and subsidiaries (the Company)
as of June 26, 1993 and June 25, 1994, and the related consolidated statements
of operations, stockholder's equity and cash flows for the 52 weeks ended June
27, 1992, the 52 weeks ended June 26, 1993, and the 52 weeks ended June 25,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Food
4 Less Supermarkets, Inc. and subsidiaries as of June 26, 1993 and June 25,
1994, and the results of their operations and their cash flows for the 52 weeks
ended June 27, 1992, the 52 weeks ended June 26, 1993, and the 52 weeks ended
June 25, 1994 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
July 29, 1994 (except with respect
to the matter discussed in
Note 14, as to which the date is
September 14, 1994, and with respect
to the matter discussed in
Note 15, as to which the date is
October 14, 1994)
32
<PAGE> 35
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
June 26, June 25,
1993 1994
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 25,089 $ 32,996
Trade receivables, less allowances of $1,919
and $1,386 at June 26, 1993 and
June 25, 1994, respectively 22,048 25,039
Notes and other receivables 1,278 1,312
Inventories 191,467 212,892
Patronage receivables from suppliers 2,680 2,875
Prepaid expenses and other 6,011 6,323
------- -------
Total current assets 248,573 281,437
INVESTMENTS IN AND NOTES RECEIVABLE
FROM SUPPLIER COOPERATIVES:
A.W.G. 6,693 6,718
Certified & Other 6,657 5,984
PROPERTY AND EQUIPMENT:
Land 23,912 23,488
Buildings 12,827 12,827
Leasehold improvements 81,049 97,673
Store equipment and fixtures 129,178 148,249
Transportation equipment 31,758 32,259
Construction in progress 757 12,641
Leased property under capital leases 77,553 78,222
Leasehold interests 93,863 93,464
------- -------
450,897 498,823
Less: Accumulated depreciation and amortization 96,948 134,089
------- -------
Net property and equipment 353,949 364,734
OTHER ASSETS:
Deferred financing costs, less accumulated amortization of
$11,611 and $17,083 at June 26, 1993 and June 25,
1994, respectively 33,778 28,536
Goodwill, less accumulated amortization of $26,254
and $33,945 at June 26, 1993 and June 25,
1994, respectively 280,895 267,884
Other, net 27,295 24,787
------- -------
$957,840 $980,080
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
33
<PAGE> 36
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
June 26, June 25,
1993 1994
-------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $140,468 $180,708
Accrued payroll and related liabilities 40,319 42,805
Accrued interest 5,293 5,474
Other accrued liabilities 40,467 53,910
Income taxes payable 2,053 2,000
Current portion of self-insurance liabilities 23,552 29,492
Current portion of long-term debt 12,778 18,314
Current portion of obligations under capital leases 2,865 3,616
------- -------
Total current liabilities 267,795 336,319
LONG-TERM DEBT 335,576 310,944
OBLIGATIONS UNDER CAPITAL LEASES 41,864 39,998
SENIOR SUBORDINATED DEBT 145,000 145,000
DEFERRED INCOME TAXES 22,429 14,740
SELF-INSURANCE LIABILITIES AND OTHER 72,313 64,058
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDER'S EQUITY:
Cumulative convertible preferred stock, $.01 par value,
200,000 shares authorized and 50,000 shares issued at June 26, 1993 and
June 25, 1994 (aggregate liquidation value of $53.8 million
and $62.2 million at June 26, 1993 and June 25, 1994, respectively) 50,230 58,997
Common stock, $.01 par value, 1,600,000 shares authorized and
1,519,632 shares issued at June 26, 1993 and June 25, 1994) 15 15
Additional paid-in capital 107,650 107,650
Notes receivable from shareholders of parent (714) (586)
Retained deficit (83,119) (94,586)
------- -------
74,062 71,490
Treasury stock: 13,249 shares and 16,732 shares of common stock at
June 26, 1993 and June 25, 1994, respectively (1,199) (2,469)
------- -------
Total stockholder's equity 72,863 69,021
------- -------
$957,840 $980,080
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
34
<PAGE> 37
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
June 27, June 26, June 25,
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
SALES $2,913,493 $2,742,027 $2,585,160
COST OF SALES (including purchases from related parties
of $277,812, $204,028 and $175,929 for the 52 weeks ended
June 27, 1992, June 26, 1993, and June 25, 1994,
respectively) 2,392,655 2,257,835 2,115,842
--------- --------- ---------
GROSS PROFIT 520,838 484,192 469,318
SELLING, GENERAL, ADMINISTRATIVE AND OTHER, NET 469,751 434,908 388,836
AMORTIZATION OF EXCESS COSTS OVER NET
ASSETS ACQUIRED 7,795 7,571 7,691
--------- --------- ---------
OPERATING INCOME 43,292 41,713 72,791
INTEREST EXPENSE 70,211 69,732 68,250
LOSS (GAIN) ON DISPOSAL OF ASSETS (1,364) (2,083) 37
PROVISION FOR EARTHQUAKE LOSSES - - 4,504
--------- --------- ---------
LOSS BEFORE PROVISION FOR INCOME TAXES
AND EXTRAORDINARY CHARGES (25,555) (25,936) -
PROVISION FOR INCOME TAXES 3,441 1,427 2,700
--------- --------- ---------
LOSS BEFORE EXTRAORDINARY CHARGES (28,996) (27,363) (2,700)
EXTRAORDINARY CHARGES:
Loss on extinguishment of debt, net of income
tax benefit of $2,484 6,716 - -
Gain on partially depreciated assets replaced
by insurance companies, net of income tax
expense of $702 (1,898) - -
---------- --------- ---------
NET LOSS $ (33,814) $ (27,363) $ (2,700)
========== ========= =========
PREFERRED STOCK ACCRETION - 3,882 8,767
LOSS APPLICABLE TO COMMON SHARES $ (33,814) $ (31,245) $ (11,467)
========= ========= =========
LOSS PER COMMON SHARE:
Loss before extraordinary charges $ (20.74) $ (21.52) $ (7.63)
Extraordinary charges (3.45) - -
---------- --------- ---------
Net loss $ (24.19) $ (21.52) $ (7.63)
========= ========= =========
Average Number of Common Shares Outstanding 1,397,939 1,452,184 1,503,828
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
35
<PAGE> 38
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
June 27, June 26, June 25,
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Cash received from customers $2,913,493 $2,742,027 $2,585,160
Cash paid to suppliers and employees (2,752,442) (2,711,779) (2,441,353)
Interest paid (56,234) (58,807) (56,762)
Income taxes (paid) refunded (4,665) 2,971 (247)
Interest received 1,266 993 903
Other, net 4,734 8,093 121
--------- --------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 106,152 (16,502) 87,822
CASH PROVIDED (USED) BY INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 17,395 15,685 11,953
Payment for purchase of property and equipment (60,263) (53,467) (57,471)
Proceeds (payment) for sale (purchase) of other assets (4,754) (18) 813
Business acquisition costs, net of cash acquired (27,563) - (11,050)
Receivable received from seller of business acquired 12,259 - -
--------- --------- ---------
NET CASH USED BY INVESTING ACTIVITIES (62,926) (37,800) (55,755)
CASH PROVIDED (USED) BY FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 177,500 26,557 28
Net increase (decrease) in revolving loan (23,900) 4,900 (4,900)
Payments of long-term debt (184,389) (14,319) (14,224)
Proceeds from the issuance of preferred stock - 46,348 -
Proceeds from issuance of common stock, net 341 3,652 -
Purchase of treasury stock, net (313) (545) (1,192)
Payments of capital lease obligation (2,814) (2,840) (3,693)
Deferred financing costs and other (6,656) (8,839) (179)
--------- --------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (40,231) 54,914 (24,160)
--------- --------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,995 612 7,907
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 21,482 24,477 25,089
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 24,477 $ 25,089 $ 32,996
========= ========= =========
</TABLE>
36
<PAGE> 39
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
June 27, June 26, June 25,
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net loss $(33,814) $(27,363) $ (2,700)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 61,181 62,541 62,555
Extraordinary charge 4,818 - -
Loss (gain) on sale of assets (1,364) (4,613) 65
Equity loss (earnings) on investments in supplier cooperative 472 207 -
Change in assets and liabilities, net of effects from
acquisition of businesses:
Accounts and notes receivable (7,688) 17,145 (3,220)
Inventories 202 17,697 (17,125)
Prepaid expenses and other (2,834) (6,163) (5,717)
Accounts payable and accrued liabilities 71,369 (83,286) 55,301
Self-insurance liabilities 15,034 2,935 (3,790)
Deferred income taxes 2,033 4,004 2,506
Income taxes payable (3,257) 394 (53)
------- ------- -------
Total adjustments 139,966 10,861 90,522
------- ------- -------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $106,152 $(16,502) $ 87,822
======= ======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Purchase of property and equipment
through issuance of capital lease obligation $ - $ - $ 2,575
======= ======= =======
Reduction of goodwill and deferred income taxes $ - $ - $ 9,896
======= ======= =======
Acquisition of businesses:
Fair value of assets acquired $ - $ - $ 11,241
Net cash paid in acquisition - - (11,050)
------- ------- -------
Liabilities assumed $ - $ - $ 191
======= ======= =======
Final purchase price allocation for the
Alpha Beta Acquisition:
Property and equipment valuation adjustment $ 44,231 $ - $ -
======= ======= =======
Additional acquisition liabilities $ 14,305 $ - $ -
======= ======= =======
Deferred tax benefit $ 12,800 $ - $ -
======= ======= =======
Accretion of preferred stock $ - $ 3,882 $ 8,767
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
37
<PAGE> 40
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Treasury Stock
--------------- ----------------- -----------------
Total
Number Number Number Share- Add'l Stock-
of of of holders' Paid-In Retained holder's
Shares Amount Shares Amount Shares Amount Notes Capital (Deficit) Equity
------ ------ --------- ------ ------- ------ -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT JUNE 29, 1991 - $ - 1,396,878 $ 14 (1,250) $ (125) $(930) $103,658 $(18,060) $ 84,557
Net loss - - - - - - - - (33,814) (33,814)
Issuance of Common Stock - - 1,636 - - - (190) 341 - 151
Purchase of Treasury Stock - - - - (3,947) (463) 131 - - (332)
Sale of Treasury Stock - - - - 1,560 159 (50) - - 109
Payments of Shareholders' Notes - - - - - - 100 - - 100
------ ------ --------- ----- ------- ------ ---- ------- ------- ------
BALANCES AT JUNE 27, 1992 - - 1,398,514 14 (3,637) (429) (939) 103,999 (51,874) 50,771
Net loss - - - - - - - - (27,363) (27,363)
Issuance of Common Stock - - 121,118 1 - - - 3,651 - 3,652
Purchase of Treasury Stock - - - - (9,612) (770) 225 - - (545)
Issuance of Cumulative
Convertible Preferred Stock 50,000 46,348 - - - - - - - 46,348
Accretion of Preferred Stock - 3,882 - - - - - - (3,882) -
------ ------ --------- ----- ------- ------ ---- ------- ------- ------
BALANCES AT JUNE 26, 1993 50,000 50,230 1,519,632 15 (13,249) (1,199) (714) 107,650 (83,119) 72,863
Net loss - - - - - - - - (2,700) (2,700)
Purchase of Treasury Stock - - - - (3,483) (1,270) 78 - - (1,192)
Payments of Shareholders' Notes - - - - - - 50 - - 50
Accretion of Preferred Stock - 8,767 - - - - - - (8,767) -
------ ------ --------- ----- ------- ------ ---- ------- ------- ------
BALANCES AT JUNE 25, 1994 50,000 $58,997 1,519,632 $ 15 (16,732) $(2,469) $(586) $107,650 $(94,586) $69,021
====== ====== ========= ===== ======= ====== ==== ======= ======= ======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
38
<PAGE> 41
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND ACQUISITIONS
Food 4 Less Supermarkets, Inc. (the "Company"), a wholly-owned
subsidiary of Food 4 Less Holdings, Inc. ("Holdings"), is a multiple
format supermarket operator that tailors its retail strategy to the
particular needs of the individual communities it serves. Holdings is
a majority-owned subsidiary of Food 4 Less, Inc. ("FFL"). The Company
operates in three geographic areas: Southern California, Northern
California and certain areas of the Midwest. The Company has three
first-tier subsidiaries: Cala Co. ("Cala"), Falley's, Inc.
("Falley's") and Food 4 Less of Southern California, Inc.
("F4L-SoCal"), formerly known as Breco Holding Company, Inc. ("BHC").
Cala Foods, Inc. ("Cala Foods") and Bell Markets, Inc. ("Bell") are
subsidiaries of Cala, and Alpha Beta Company ("Alpha Beta") is a
subsidiary of F4L-SoCal.
Acquisitions
On March 29, 1994, the Company purchased certain operating
assets formerly owned by Food Barn Stores, Inc. (the "Food Barn
Stores") from Associated Wholesale Grocers, Inc. ("AWG") (the "Food
Barn Acquisition") for $11,241,000 (including acquisition costs of
$180,000). The financial statements reflect the preliminary
allocation of the purchase price as the purchase price allocation has
not been finalized. The effect of the acquisition was not material to
the Company's financial position and results of operations. Falley's
has agreed to purchase merchandise (as defined) for the Food Barn
Stores from AWG through March 24, 2001. Falley's has pledged its
patronage dividends and notes receivable from AWG as security under
this supply agreement.
On June 17, 1991, the Company acquired all of the common stock
of Alpha Beta for $270,513,000 (including acquisition costs of
$41,477,000) in a transaction accounted for as a purchase.
In January 1990, the Company purchased certain operating
assets of ABC Market Corp. ("ABC") for $14,675,000, plus approximately
$1,000,000 in fees and expenses.
On June 30, 1989, the Company acquired Bell for approximately
$13,700,000, which includes $8,000,000 of notes and the assumption of
Bell's long-term debt. The transaction was accounted for as a
purchase. Certified Grocers of California, Ltd. ("Certified") has
guaranteed up to $4,000,000 of notes issued by the Company to the
seller in connection with the purchase and the performance of a lease.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
The Company is engaged primarily in the operation of retail
supermarkets.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. The
results of operations of Alpha Beta, F4L-SoCal (BHC), Bell, ABC and
the Food Barn Stores have been excluded from the consolidated
financial statements prior to their respective acquisition dates. The
excess of the purchase price over the fair value of the net assets
acquired is classified as goodwill. All intercompany transactions
have been eliminated in consolidation.
39
<PAGE> 42
Fiscal Years
The Company's fiscal year is the 52 or 53-week period which
ends on the last Saturday in June. Fiscal years 1994, 1993, and 1992
include 52 weeks.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company
considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Inventories
Inventories, which consist of grocery products, are stated at
the lower of cost or market. Cost has been principally determined
using the last-in, first-out ("LIFO") method. If inventories had been
valued using the first-in, first-out ("FIFO") method, inventories
would have been higher by $13,103,000 and $13,802,000 at June 26, 1993
and June 25, 1994, respectively, and gross profit and operating income
would have been greater by $3,554,000, $4,441,000 and $699,000 for the
52 weeks ended June 27, 1992, the 52 weeks ended June 26, 1993, and
the 52 weeks ended June 25, 1994, respectively.
Pre-opening Costs
The costs associated with opening new stores are deferred and
amortized over one year following the opening of each new store.
Closed Store Reserves
When a store is closed, the Company provides a reserve for the
net book value of any store assets, net of salvage value, and the net
present value of the remaining lease obligation, net of sublease
income.
Investments in Supplier Cooperatives
The investment in Certified is accounted for on the cost
method. There are certain restrictions on the sale of this
investment.
Investment in Food 4 Less of Modesto, Inc.
During the 52 weeks ended June 26, 1993, the Company sold its
20% investment in Food 4 Less of Modesto, Inc. ("Modesto") for gross
proceeds of $4.5 million, which included a $1.5 million note
receivable, resulting in a gain of $2.5 million. The Company
previously accounted for this investment using the cost method.
Property and Equipment
Property and equipment are stated at cost and are depreciated
principally using the straight-line method over the following
estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements 5-40 years
Equipment and fixtures 3-10 years
Property under capital leases
and leasehold interests 3-45 years (lease term)
</TABLE>
Deferred Financing Costs
Costs incurred in connection with the issuance of debt are
amortized over the term of the related debt using the effective
interest method.
40
<PAGE> 43
Goodwill and Covenants Not to Compete
The excess of the purchase price over the fair value of the
net assets of businesses acquired is amortized on a straight-line
basis over 40 years beginning at the date of acquisition. Covenants
not to compete, which are included in Other Assets, are amortized on a
straight-line basis over the term of the covenant.
Current and undiscounted future operating cash flows are
compared to current and undiscounted future goodwill amortization to
determine if an impairment of goodwill has occurred and is continuing.
As of June 25, 1994, no impairment exists.
Income Taxes
On June 27, 1993, the Company prospectively adopted Statement
of Financial Accounting Standards No. 109 (SFAS 109), Accounting for
Income Taxes. SFAS 109 is an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns. In
estimating future tax consequences, SFAS 109 generally considers all
expected future events other than enactments of changes in the tax law
or rates. Previously, the Company used the SFAS 96 asset and
liability approach that gave no recognition to future events other
than the recovery of assets and settlement of liabilities at their
carrying amounts.
Under SFAS 109, the Company recognizes to a greater degree the
future tax benefits of expenses which have been recognized in the
financial statements.
The implementation of SFAS No. 109 did not have a material
effect on the accompanying consolidated financial statements.
Notes Receivable from Shareholders of Parent
Notes receivable from shareholders of parent represent loans
to employees of the Company for purchases of Holdings' stock. The
notes are due over various periods, bear interest at the prime rate,
and are secured by each shareholder's shares of common stock.
Self-Insurance
Certain of the Company's subsidiaries are self-insured for a
portion of workers' compensation, general liability and automobile
accident claims. The Company establishes reserves based on an
independent actuary's review of claims filed and an estimate of claims
incurred but not yet filed.
Discounts and Promotional Allowances
Promotional allowances and vendor discounts are recorded as a
reduction of cost of sales in the accompanying consolidated statements
of operations. Allowance proceeds received in advance are deferred
and recognized over the period earned.
Provision for Earthquake Losses
On January 17, 1994, Southern California was struck by a major
earthquake which resulted in the temporary closing of 31 of the
Company's stores. The closures were caused primarily by loss of
electricity, water, inventory, or structural damage. All but one of
the closed stores reopened within a week of the earthquake. The final
closed store reopened on March 24, 1994. The Company is insured
against earthquake losses (including business interruption), subject
to certain deductibles. The pre-tax financial
41
<PAGE> 44
impact, net of insurance claims, was approximately $4.5 million. At
June 25, 1994, the Company had received all expected insurance
proceeds related to this claim.
Extraordinary Items
For the 52 weeks ended June 27, 1992, the Company classified
the write-off of deferred financing costs associated with the early
extinguishment of debt as an extraordinary item. For the 52 weeks
ended June 27, 1992, the Company also classified the difference
between the net book value and replacement cost of property and
equipment destroyed during the April 1992 civil unrest in Los Angeles
and replaced by insurance companies as an extraordinary item.
Proceeds received from insurance companies for business interruption
related to the civil unrest are included as a component of selling,
general, administrative and other expenses.
Loss Per Common Share
Loss per common share is computed based on the weighted
average number of shares outstanding during the applicable period.
Fully diluted loss per share has been omitted as it is anti-dilutive
for all periods presented.
Reclassifications
Certain prior period amounts in the consolidated financial
statements have been reclassified to conform to the June 25, 1994
presentation.
3. PREFERRED STOCK
On December 31, 1992, the Company issued 50,000 shares of $.01
par value Series A cumulative convertible preferred stock (the
"Preferred Stock") with a liquidation value of $1,000 per share and
121,118 shares of its $.01 par value common stock (the "Common Stock")
to its parent company, Food 4 Less Holdings, Inc. ("Holdings") in
exchange for gross proceeds of $50.0 million. The Preferred Stock is
convertible into common stock at the option of the holder based upon a
conversion price which results in a one-for-one exchange. The
Preferred Stock has a stated dividend rate of $152.50 per share, per
annum, and is anti-dilutive. The Company may pay dividends on or
before December 31, 1997 only by issuing additional shares of
Preferred Stock. The Company may redeem the Preferred Stock at any
time after December 31, 1997 for its liquidation value. At June 25,
1994, the Company had accrued approximately $12,649,000 for the
Preferred Stock dividends earned but not yet declared.
In order to finance the purchase of the Preferred and Common
Stock from the Company, Holdings issued $103.6 million aggregate
principal amount of 15.25% Senior Discount Notes due 2004 (the
"Holdings Notes") and 121,118 Common Stock Purchase Warrants (the
"Warrants") for gross proceeds of $50.0 million. No cash interest is
payable on the Notes until June 15, 1998.
At the present time, Holdings has no other income or assets
other than its investment in the Company's Common and Preferred Stock
and intends to service the interest payments on the Holdings Notes
when they become payable in cash (in fiscal 1998) through dividends it
receives on the Company's capital stock.
42
<PAGE> 45
4. LONG-TERM DEBT AND SENIOR SUBORDINATED DEBT
The Company's long-term debt is summarized as follows:
<TABLE>
<CAPTION>
June 26, June 25,
1993 1994
-------- --------
<S> <C> <C>
Bank Term Loan, principal due quarterly through
January 1999, with interest payable monthly
in arrears $148,478,000 $137,064,000
10.45 percent Senior Notes principal due 2000 with
interest payable semi-annually in arrears 175,000,000 175,000,000
Revolving Loan 4,900,000 -
10.625 percent first real estate mortgage due 1998,
$12,000 of principal plus interest payable
monthly secured by land and building with a net
book value of $2,122,000 1,558,000 1,521,000
9.2 to 9.25 percent notes payable, collateralized by
equipment, due September 1994, $67,000 of
principal plus interest payable monthly, plus
balloon payment of $992,000 1,772,000 1,103,000
10.8 percent notes payable, collateralized by
equipment, due September 1995, $72,000 of
principal plus interest payable monthly, plus
balloon payment of $1,004,000 2,447,000 1,819,000
10.0 percent secured promissory note,
collateralized by the stock of Bell, due 1996,
interest payable quarterly through June 1996 8,000,000 8,000,000
10.08 percent notes payable, collateralized by
equipment, due November 1996, $34,000 of
principal plus interest payable monthly, plus
balloon payment of $493,000 1,515,000 1,242,000
10.15 percent notes payable, collateralized by
equipment, due December 1996, $45,000 of
principal and interest payable monthly, plus
balloon payment of $640,000 1,994,000 1,675,000
10.0 percent real estate mortgage due 2000,
$8,000 of principal and interest payable
monthly 474,000 419,000
Other long-term debt 2,216,000 1,415,000
----------- -----------
348,354,000 329,258,000
Less--current portion 12,778,000 18,314,000
----------- -----------
$335,576,000 $310,944,000
=========== ===========
</TABLE>
In June 1991, the Company and certain of its subsidiaries
entered into a Credit Agreement (the "Credit Agreement") with certain
banks, comprised of a $315,000,000 Term Loan (the "Bank Term Loan")
facility, a $70,000,000 Revolving Loan (the "Revolving Loan") facility
and a $55,000,000 standby letter of credit facility (the "Letter of
Credit Facility"). At June 25, 1994, $137,064,000 was outstanding
under the Bank Term Loan, there were no borrowings outstanding under
the Revolving Loan and $48,131,000 of standby letters of credit had
been issued on behalf of the Company. A commitment fee of 1/2 of 1
percent is charged on the average daily unused portion of the
Revolving Loan and the Letter of Credit Facility; such commitment fees
are due quarterly in arrears. Interest on borrowings under the Bank
Term Loan is at the bank's Base Rate (as defined) plus 1.25 percent or
the Eurodollar Rate (as defined) plus 2.5 percent. At June 25, 1994,
the weighted average interest rate on the Bank Term Loan was 6.5
percent.
43
<PAGE> 46
In accordance with certain requirements of the Credit Agreement, the
Company purchased an interest rate cap for a principal amount of
approximately $91.4 million on the three-month Libor rate at 5.5%
which expires on January 3, 1995. Quarterly principal installments on
the Bank Term Loan continue to December 1998, with $15,580,000 payable
in fiscal year 1995, $21,245,000 payable in fiscal year 1996,
$22,661,000 payable in fiscal 1997, $40,489,000 payable in fiscal
1998, and $37,089,000 payable in fiscal 1999. Interest on borrowings
under the Revolving Loan is at the bank's Base Rate (as defined) plus
1.25 percent. At June 25, 1994, the interest rate on the Revolving
Loan was 8.5 percent. To the extent borrowings under the Revolving
Loan are not paid earlier, they are due in June 1996. The common
stock of F4L-SoCal, Falley's, Cala and certain of their direct and
indirect subsidiaries has been pledged as security under the Credit
Agreement.
In April 1992, the Company and its wholly-owned subsidiaries
issued $175,000,000 of 10.45 percent Senior Notes (the "Senior
Notes"). These notes are due in two equal sinking fund payments on
April 15, 1999 and 2000. They are general unsecured obligations of
the Company and rank senior in right of payment to all subordinated
indebtedness (as defined). The Senior Notes rank "pari passu" in
right of payment with all borrowings and other obligations of the
Company under its bank Credit Agreement; however, the obligations
under the Credit Agreement are secured by substantially all the assets
of the Company and its subsidiaries. The Senior Notes may be redeemed
beginning in 1996 at 104.5 percent, declining ratably to 100 percent
in 1999. The proceeds received, net of issuance costs, were used to
pay down borrowings under the Bank Term Loan. Deferred financing
costs related to the portion of the Bank Term Loan that was retired of
$6.7 million, net of related tax benefit of $2.5 million, are
classified as an extraordinary item in the Company's consolidated
statement of operations for the 52 weeks ended June 27, 1992.
Scheduled maturities of principal of Long-Term Debt at June
25, 1994 are as follows:
<TABLE>
<S> <C>
1995 $18,314,000
1996 23,384,000
1997 32,322,000
1998 40,701,000
1999 124,823,000
Later years 89,714,000
-----------
$329,258,000
===========
</TABLE>
The Company issued $145,000,000 principal amount of Senior
Subordinated Notes (the "Subordinated Notes") in connection with the
acquisition of Alpha Beta as described in Note 1. The Subordinated
Notes bear interest, payable semi-annually on June 15 and December 15,
at an annual rate of 13.75 percent. The Subordinated Notes are
subordinated to all Senior Indebtedness (as defined) of the Company,
and may be redeemed beginning in 1996 at a redemption price of 106
percent. The redemption price declines ratably to 100 percent in
2000.
The debt agreements, among other things, require the Company
to maintain minimum levels of net worth (as defined), to maintain
minimum levels of earnings (as defined), to maintain a hedge agreement
to provide interest rate protection, and to comply with certain ratios
related to interest expense (as defined), fixed charges (as defined),
working capital and indebtedness. In addition, the debt agreements
limit, among other things, additional borrowings, dividends on, and
redemption of, capital stock, capital expenditures, incurrence of
lease obligations, and the acquisition and disposition of assets. At
June 26, 1993 and June 25, 1994, the Company was in compliance with
the financial covenants of its debt agreement. At June 25, 1994,
dividends and certain other payments are restricted based on terms in
the debt agreements.
44
<PAGE> 47
5. LEASES
The Company's operations are conducted primarily in leased
properties. Substantially all leases contain renewal options. Rental
expense under operating leases was as follows:
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
June 27, June 26, June 25,
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Minimum rents $46,706,000 $44,504,000 $49,788,000
Rents based on sales 7,656,000 5,917,000 3,806,000
</TABLE>
Following is a summary of future minimum lease payments under
operating leases at June 25, 1994:
<TABLE>
<S> <C>
1995 $52,542,000
1996 48,966,000
1997 45,325,000
1998 38,925,000
1999 34,423,000
Later years 269,332,000
-----------
$489,513,000
===========
</TABLE>
The Company has entered into lease agreements for new
supermarket sites which were not in operation at June 25, 1994.
Future minimum lease payments under such operating leases generally
begin when such supermarkets open and at June 25, 1994 are: 1995 -
$5,990,000; 1996 - $11,772,000; 1997 - $11,825,000; 1998 -
$11,810,000; 1999 - $11,819,000; later years - $218,480,000.
Certain leases qualify as capital leases under the criteria
established in Statement of Financial Accounting Standards No. 13,
"Accounting for Leases," and are classified on the consolidated
balance sheets as leased property under capital leases. Future
minimum lease payments for the property under capital leases at June
25, 1994 are as follows:
<TABLE>
<S> <C>
1995 $ 7,948,000
1996 7,521,000
1997 6,995,000
1998 6,374,000
1999 6,071,000
Later years 44,108,000
----------
Total minimum lease payments 79,017,000
Less: amounts representing interest 35,403,000
----------
Present value of minimum lease payments 43,614,000
Less: current portion 3,616,000
----------
$39,998,000
==========
</TABLE>
Accumulated depreciation related to capital leases was
$20,356,000 and $24,041,000 at June 26, 1993 and June 25, 1994,
respectively.
The Company is leasing a distribution facility and four store
locations from the previous owner of Alpha Beta. The agreement
contains a purchase option for the land, buildings and improvements
and equipment at a price that equals or exceeds the estimated fair
market value throughout the term of the lease.
45
<PAGE> 48
6. INVESTMENT IN A.W.G.
The investment in Associated Wholesale Grocers ("A.W.G.")
consists principally of the cooperative's six percent interest-
bearing seven and eight-year patronage certificates received in
payment of certain rebates. Following is a summary of future
maturities based upon current redemption terms:
<TABLE>
<S> <C>
1995 $ -
1996 -
1997 795,000
1998 1,420,000
1999 1,520,000
Later years 2,983,000
---------
$6,718,000
=========
</TABLE>
7. INCOME TAXES
The provision (benefit) for income taxes consists of the
following:
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
June 27, June 26, June 25,
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal $2,507,000 $ - $3,251,000
State and other 934,000 82,000 712,000
--------- --------- ---------
3,441,000 82,000 3,963,000
--------- --------- ---------
Deferred:
Federal - 1,345,000 (70,000)
State and other - - (1,193,000)
--------- --------- ---------
- 1,345,000 (1,263,000)
--------- --------- ---------
$3,441,000 $1,427,000 $2,700,000
========= ========= =========
</TABLE>
A reconciliation of the provision (benefit) for income taxes
to amounts computed at the federal statutory rates of 34% for fiscal
1992 and 1993 and 35% for fiscal 1994 is as follows:
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
June 27, June 26, June 25,
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Federal income taxes at statutory rate
on loss before provision for
income taxes and extraordinary charges $(8,689,000) $(8,818,000) $ -
State and other taxes, net of federal tax
benefit 934,000 82,000 (1,000)
Alternative minimum tax 2,507,000 - -
Effect of permanent differences resulting
primarily from amortization of goodwill 2,706,000 2,850,000 2,820,000
Accounting limitation (recognition)
of deferred tax benefit 5,983,000 7,313,000 ( 119,000)
--------- --------- ---------
$3,441,000 $1,427,000 $2,700,000
========= ========= =========
</TABLE>
46
<PAGE> 49
The provision (benefit) for deferred taxes consists of the following:
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
June 27, June 26, June 25,
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Depreciation $ 6,282,000 $7,756,000 $2,536,000
Difference between book and tax basis
of assets sold 2,514,000 3,198,000 (4,223,000)
Deferred revenues and allowances (7,028,000) 40,000 (2,349,000)
Pre-opening costs 1,072,000 (512,000) 174,000
Accounts receivable reserves - (270,000) 249,000
Unicap (124,000) (5,000) (536,000)
Capital lease obligation (2,010,000) (1,385,000) 2,792,000
Self-insurance reserves (13,558,000) (4,082,000) (535,000)
Inventory shrink reserve (528,000) 777,000 (869,000)
LIFO 7,104,000 (554,000) (1,010,000)
Closed store reserve 964,000 1,092,000 440,000
Accrued expense - - (582,000)
Accrued payroll and related liabilities (2,656,000) 193,000 1,721,000
Damaged inventory reimbursement 1,195,000 - -
Acquisition costs 4,974,000 2,626,000 1,397,000
Sales tax reserves - (715,000) (418,000)
Deferred rent subsidy - (483,000) (624,000)
Net operating loss usage - - 5,782,000
Tax credits benefited - (1,392,000) (4,477,000)
Accounting limitation (recognition)
of deferred tax benefit 1,588,000 (4,591,000) (1,085,000)
Other, net 211,000 (348,000) 354,000
---------- --------- ---------
$ - $1,345,000 $(1,263,000)
========== ========= =========
</TABLE>
47
<PAGE> 50
The significant components of the Company's deferred tax
assets (liabilities) are as follows:
<TABLE>
<CAPTION>
June 26, June 25,
1993 1994
-------- --------
<S> <C> <C>
Deferred tax assets:
Accrued payroll and related liabilities $ 4,064,000 $ 2,448,000
Other accrued liabilities 13,488,000 13,953,000
Property and equipment 9,674,000 2,997,000
Self-insurance liabilities 30,907,000 27,744,000
Loss carryforwards 27,863,000 20,675,000
Tax credit carryforwards 1,392,000 5,869,000
Other 1,223,000 580,000
------------ ------------
Gross deferred tax assets 88,611,000 74,266,000
Valuation allowance (45,008,000) (31,149,000)
------------ ------------
Net deferred tax assets $ 43,603,000 $ 43,117,000
------------ ------------
Deferred tax liabilities:
Inventories $(20,243,000) $(16,738,000)
Property and equipment (38,298,000) (30,516,000)
Obligations under capital leases (5,802,000) (8,733,000)
Other (1,689,000) (1,870,000)
------------ ------------
Gross deferred tax liability (66,032,000) (57,857,000)
------------ ------------
Net deferred tax liability $(22,429,000) $(14,740,000)
============ ============
</TABLE>
The Company recorded a valuation allowance to reserve a
portion of its gross deferred tax assets at June 25, 1994 due
primarily to financial and tax losses in recent years. Under SFAS
109, this valuation allowance will be adjusted in future periods as
appropriate. However, the timing and extent of such future
adjustments to the allowance cannot be determined at this time.
At June 25, 1994, approximately $8,864,000 of the valuation
allowance for deferred tax assets will reduce goodwill when the
allowance is no longer required.
At June 25, 1994, the Company has net operating loss
carryforwards for federal income tax purposes of $59,071,000, which
expire in 2007 through 2008. The Company has federal and state
Alternative Minimum Tax ("AMT") credit carryforwards of approximately
$4,090,000 which are available to reduce future regular taxes in
excess of AMT. Currently, there is no expiration date for these
credits.
FFL files a consolidated federal income tax return, under
which the federal income tax liability of FFL and its subsidiaries
(which since June 23, 1989 include the Company) is determined on a
consolidated basis. FFL has entered into a federal income tax sharing
agreement with the Company and certain of its subsidiaries (the "Tax
Sharing Agreement"). The Tax Sharing Agreement provides that in any
year in which the Company is included in any consolidated tax
liability of FFL and has taxable income, the Company will pay to FFL
the amount of the tax liability that the Company would have had on
such due date if it had been filing a separate return. Conversely, if
the Company generates losses or credits which actually reduce the
consolidated tax liability of FFL and its other subsidiaries, FFL will
credit to the Company the amount of such reduction in the consolidated
tax liability. These credits are passed between FFL and the Company
in the form of cash payments. In the event any state and local income
taxes are determinable on a combined or consolidated basis, the Tax
Sharing Agreement provides for a similar allocation between FFL and
the Company of such state and local taxes.
The Company currently has an Internal Revenue Service
examination in process covering its 1990 and 1991 fiscal years. The
Internal Revenue Service has not yet made any additional tax
assessments related to these years.
48
<PAGE> 51
8. RELATED PARTY TRANSACTIONS
The Company has a five-year consulting agreement with an
affiliated company effective June 17, 1991 for management, financing,
acquisition and other services. The agreement is automatically
renewed on January 1 of each year for the five-year term unless ninety
(90) days' notice is given by either party. The contract provides for
annual management fees equal to $2 million plus an additional amount
based on the Company's performance and advisory fees for acquisition
and financing transactions.
Fees paid or accrued associated with management services were
$2,270,000 during the 52 weeks ended June 25, 1994, $2,000,000 during
the 52 weeks ended June 26, 1993, and $2,000,000 during the 52 weeks
ended June 27, 1992. Advisory fees paid or accrued were $170,000
during the 52 weeks ended June 25, 1994, $1,795,000 for the 52 weeks
ended June 26, 1993, and $116,000 for the 52 weeks ended June 27,
1992. Advisory fees paid or accrued for financing transactions are
capitalized and amortized over the term of the related financing. In
connection with the acquisitions of Alpha Beta, ABC and the Food Barn
Stores, the Company capitalized fees of $8,000,000, $500,000 and
$92,000, respectively, which were paid to this affiliated company for
acquisition services.
9. COMMITMENTS AND CONTINGENCIES
The Company is contingently liable to former stockholders of
certain predecessors for any prorated gains which may be realized
within ten years of the acquisition of the respective companies
resulting from the sale of the Certified stock. Such gains are only
payable if Certified is purchased or dissolved, or if the Company
sells the shares to Certified within the period noted above.
The Company is a partner in a supplier partnership, in which
it is contingently liable for the partnership's long-term debt. The
Company's portion of such debt is approximately $1,650,000.
The Company has entered into lease agreements with the
developers of several new sites in which the Company has agreed to
provide construction financing. At June 25, 1994, the Company had
capitalized construction costs of $10,435,000 on total commitments of
$19,250,000.
In December 1992, three California state antitrust class
action suits were commenced in Los Angeles Superior Court against the
Company and other major supermarket chains located in Southern
California, alleging that they conspired to refrain from competing in
and to fix the price of fluid milk above competitive prices.
Specifically, class actions were commenced by Diane Barela and Neila
Ross, Ron Moliare and Paul C. Pfeifle on December 7, December 14 and
December 23, 1992, respectively. To date, the Court has yet to
certify any of these classes, while a demurrer to the complaints was
denied. The Company will vigorously defend itself in these class
action suits.
In addition, the Company or its subsidiaries are defendants in
a number of other cases currently in litigation or potential claims
encountered in the normal course of business which are being
vigorously defended. In the opinion of management, the resolutions of
these matters will not have a material effect on the Company's
financial position or results of operations.
10. EMPLOYEE BENEFIT PLANS
The Company and its subsidiaries sponsor several defined
contribution benefit plans. The full-time employees of Falley's who
are not members of a collective bargaining agreement are covered under
a 401(k) plan under which the Company matches certain employee
contributions with cash or FFL stock (the "Falley's ESOP"). As part
of the original stock sale agreement between FFL and the Falley's
ESOP, which has been amended from time to time, an affiliate of the
Company has assumed the obligation to purchase any FFL shares as to
which terminated plan participants have exercised a put option under
the terms of Falley's ESOP. As part of that agreement, the Company
may, at its sole discretion, after
49
<PAGE> 52
providing a right of first refusal to the affiliate, purchase FFL
shares put under the provisions of the plan. During the year ended
June 25, 1994, the Company elected to purchase $1.0 million of FFL
shares as to which terminated plan participants had exercised their
put option. FFL shares purchased by the Company are classified as
treasury stock.
All other full-time employees of the Company who are not
members of a collective bargaining agreement are covered under a
separate 401(k) plan (the "Management Plan"). The Management Plan
provides for annual contributions which are determined at the
discretion of the Company. The Company contributions are allocated to
participants based on employee compensation and matching of certain
employee contributions. A portion of the Company contribution
allocated based on compensation is made in the form of stock or cash
for the purchase of stock.
Total charges against operations related to all employee
benefit plans sponsored by the Company and its subsidiaries were
$337,000, $284,000 and $699,000 for the 52 weeks ended June 27, 1992,
the 52 weeks ended June 26, 1993, and the 52 weeks ended June 25,
1994, respectively. No contributions were made with stock and no
stock was acquired by any plans in fiscal 1992, fiscal 1993 or fiscal
1994.
The Company contributes to multi-employer pension plans
administered by various trustees. Contributions to these plans are
based upon negotiated wage contracts. These plans may be deemed to be
defined benefit plans. Information related to accumulated plan
benefits and plan net assets as they may be allocated to the Company
at June 25, 1994 is not available. The Company contributed $78.6
million, $69.4 million and $57.2 million to these plans for the 52
weeks ended June 27, 1992, June 26, 1993, and June 25, 1994,
respectively. Management is not aware of any plans to terminate such
plans.
The United Food and Commercial Workers health and welfare
plans were overfunded and those employers who contributed to the plans
are to receive a pro rata share of the excess reserves in these plans
through a reduction of current contributions. The Company's share of
the excess reserve was $24.2 million, of which $8.1 million was
recognized in the 52 weeks ended June 25, 1994, with the remainder to
be recognized in future periods as the credits are taken. Offsetting
the reduction in employer contributions was a $5.5 million union
contract ratification bonus and contractual wage increases.
11. COMMON STOCK
On December 31, 1992, concurrent with the sale of the
Preferred Stock, the Company sold 121,118 shares of common stock to
Holdings. Concurrently, the remaining shares of common stock of the
Company were exchanged for shares of Holdings common stock on a one
for one basis.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate
the fair value of each class of financial instruments for which it is
practicable to estimate that value:
Cash and Cash Equivalents
The carrying amount approximates fair value as a result of the
short maturity of these instruments.
Short-Term Notes and Other Receivable
The carrying amount approximates fair value as a result of the
short maturity of these instruments.
Investments In and Notes Receivable From Supplier Cooperative
50
<PAGE> 53
The Company maintains a non-current deposit with Certified in
the form of Class B shares of Certified. Certified is not obligated
in any fiscal year to redeem more than a prescribed number of the
Class B shares issued. Therefore, it is not practicable to estimate
the fair value of this investment.
The Company maintains a non-current note receivable from
A.W.G. There are no quoted market prices for this investment and a
reasonable estimate could not be made without incurring excessive
costs. Additional information pertinent to the value of this
investment is provided in Note 6.
Long-Term Debt
The fair value of the $175.0 million Senior Notes, the $145.0
million Subordinated Notes and the Bank Term Loan is based on quoted
market prices. Market quotes for the fair value of the remainder of
the Company's debt are not available, and a reasonable estimate of the
fair value could not be made without incurring excessive costs.
Additional information pertinent to the value of the unquoted debt is
provided in Note 4.
The estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
June 25, 1994
-----------------------------
Carrying Fair
Amount Value
-------- -----
<S> <C> <C>
Cash and cash equivalents $32,996,000 $ 32,996,000
Short-term notes and other receivables 4,187,000 4,187,000
Investments in and notes receivable from
supplier cooperatives 12,702,000 -
Long-term debt for which it is:
o Practicable to estimate fair values 457,064,000 472,779,000
o Not practicable 17,194,000 -
</TABLE>
13. OTHER INCOME, NET
The components of other income items included in SG&A are as
follows:
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
June 27, June 26, June 25,
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Interest income $1,266,000 $ 993,000 $903,000
Licensing fees 493,000 246,000 270,000
Other income (expense) 769,000 3,710,000 (177,000)
--------- ---------- -------
$2,528,000 $4,949,000 $996,000
========= ========= =======
</TABLE>
14. SUBSEQUENT EVENT (UNAUDITED)
On September 14, 1994, the Company, Holdings, and FFL entered
into a definitive Agreement and Plan of Merger (the "Merger") with
Ralphs Supermarkets, Inc. ("Ralphs") and the stockholders of Ralphs.
Pursuant to the terms of the Merger Agreement, the Company will,
subject to certain terms and conditions being satisfied or waived, be
merged into Ralphs and Ralphs will become a wholly-owned subsidiary of
Holdings. Conditions to the consummation of the Merger include, among
other things,
51
<PAGE> 54
receipt of regulatory approvals and other necessary consents and the
completion of financing for the transaction. The purchase price for
Ralphs is approximately $1.5 billion, including the assumption of
debt.
Upon the effectiveness of the Merger, each outstanding share
of common stock, par value $1.00 per share, of Ralphs will be
converted into and become a right to receive (a) approximately $16.61
in cash and (b) approximately $3.91 principal amount of 13% Senior
Subordinated Pay-in Kind Debentures due 2006 issued by Holdings (the
"Debentures"). This represents an aggregate purchase price, payable
to the stockholders of Ralphs, of $425 million in cash and $100
million initial principal amount of Debentures. 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.
The financing required to complete the Merger will include 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 also be required to complete certain exchange offers, consent
solicitations and or other transactions with the holders of their
currently outstanding debt securities.
As of July 17, 1994, Ralphs had outstanding indebtedness of
approximately $990 million. Ralphs had sales of $2,730 million,
operating income of $152.1 million and earnings before income taxes of
$30.3 million for its most recent fiscal year ended January 30, 1994.
Upon consummation of the Merger, the operations and activities
of the Company will be significantly impacted due to conversions of
the Company's existing Southern California conventional stores to
either Ralphs or Food 4 Less warehouse stores as well as the
consolidation of various operating functions and departments. This
consolidation may result in a restructuring charge and, in conjunction
with the Merger, the Company intends to determine if there is any
impairment of the value of the Company's existing assets and goodwill.
The amount of the restructuring charge is not presently determinable
due to various factors, including uncertainties inherent in the
completion of the Merger; however, the restructuring charge may be
material in relation to the stockholder's equity and financial
position of the Company at June 25, 1994.
15. RESTATEMENT
The Company has restated the statements of operations for its
fiscal years ended June 27, 1992, June 26, 1993 and June 25, 1994 to
classify certain buying, occupancy and labor costs associated with
making its products available for sale as cost of sales. These
amounts were previously classified as selling, general, administrative
and other, net, and depreciation and amortization of property and
equipment, and totalled $236,152,000, $224,469,000 and $219,548,000
for the fiscal years ended June 27, 1992, June 26, 1993 and June 25,
1994, respectively. The Company has also classified a portion of its
self-insurance costs as interest expense that were previously recorded
in selling, general, administrative and other, net. These amounts
were $4,960,000, $5,865,000 and $5,836,000 for the fiscal years 1992,
1993 and 1994, respectively. Depreciation and amortization costs not
classified in cost of sales are included in selling, general,
administrative and other, net. The change in classifications did not
affect the net loss, loss before provision for income taxes and
extraordinary charges, or loss per common share.
52
<PAGE> 55
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholder of Food 4 Less Supermarkets, Inc.:
We have audited, in accordance with generally accepted auditing
standards, the consolidated balance sheets of Food 4 Less Supermarkets, Inc.
and subsidiaries as of June 26, 1993 and June 25, 1994, and the related
consolidated statements of operations, stockholder's equity and cash flows for
the 52 weeks ended June 27, 1992, the 52 weeks ended June 26, 1993, and the 52
weeks ended June 25, 1994 and have issued our report thereon dated July 29,
1994 (except with respect to the matter discussed in Note 14, as to which the
date is September 14, 1994, and with respect to the matter discussed in Note
15, as to which the date is October 14, 1994). Our audits were made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. The schedules listed on page 31 are the responsibility of the Company's
management and are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic consolidated
financial statements. These schedules have been subjected to the auditing
procedures applied in the audits of the basic consolidated financial statements
and, in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic consolidated
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Los Angeles, California
July 29, 1994 (except with
respect to the matter discussed in
Note 14, as to which the date is
September 14, 1994, and with respect
to the matter discussed in
Note 15, as to which the date is
October 14, 1994)
53
<PAGE> 56
FOOD 4 LESS SUPERMARKETS, INC.
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED
PARTIES AND UNDERWRITERS, PROMOTERS, AND
EMPLOYEES OTHER THAN RELATED PARTIES
52 WEEKS ENDED JUNE 25, 1994, 52 WEEKS ENDED JUNE 26, 1993, AND 52 WEEKS ENDED
JUNE 27, 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT END
BALANCE AT OF PERIOD
BEGINNING AMOUNTS OTHER ---------------
OF PERIOD ADDITIONS COLLECTED CHANGES CURRENT NONCURRENT
--------- --------- --------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
52 weeks ended June 25, 1994
None $ - $ - $ - $ - $ - $ -
--- --- --- --- --- ---
$ - $ - $ - $ - $ - $ -
=== === === === === ===
52 weeks ended June 26, 1993
Spencer Deese $100 $ - $100 $ - $ - $ -
--- --- --- --- --- ---
$100 $ - $100 $ - $ - $ -
=== === === === === ===
52 weeks ended June 27, 1992
Spencer Deese $105 $ - $ 5 $ - $ - $100
--- --- --- --- --- ---
$105 $ - $ 5 $ - $ - $100
=== === === === === ===
</TABLE>
54
<PAGE> 57
FOOD 4 LESS SUPERMARKETS, INC.
SCHEDULE V - PROPERTY AND EQUIPMENT
52 WEEKS ENDED JUNE 25, 1994, 52 WEEKS ENDED JUNE 26, 1993, AND 52 WEEKS ENDED
JUNE 27, 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at
beginning of Other Balance at end
period Additions Retirements changes(a) of period
------------ --------- ----------- ---------- --------------
<S> <C> <C> <C> <C> <C>
52 weeks ended June 25, 1994:
Land $ 23,912 $ - $ 424 $ - $ 23,488
Buildings 12,827 - - - 12,827
Leasehold improvements 81,049 17,292 668 - 97,673
Store equipment & fixtures 129,178 27,324 11,643 3,390 148,249
Transportation equipment 31,758 971 470 - 32,259
Construction in progress 757 11,884 - - 12,641
Leased property under capital leases 77,553 2,575 1,906 - 78,222
Leasehold interests 93,863 - 399 - 93,464
------- ------ ------ ------- -------
$450,897 $60,046 $15,510 $ 3,390 $498,823
======= ====== ====== ======= =======
52 weeks ended June 26, 1993:
Land $ 26,952 $ 652 $ 3,692 $ - $ 23,912
Buildings 12,568 207 126 178 12,827
Leasehold improvements 58,846 20,853 1,912 3,262 81,049
Store equipment & fixtures 104,473 24,956 2,328 2,077 129,178
Transportation equipment 29,415 2,531 188 - 31,758
Construction in progress 8,679 1,601 2,513 (7,010) 757
Leased property under capital leases 80,369 115 2,931 - 77,553
Leasehold interests 92,193 2,552 882 - 93,863
------- ------ ------ ------- -------
$413,495 $53,467 $14,572 $ (1,493) $450,897
======= ====== ====== ======= =======
52 weeks ended June 27, 1992:
Land $ 26,952 $ - $ - $ - $ 26,952
Buildings 12,568 - - - 12,568
Leasehold improvements 41,730 19,592 2,476 - 58,846
Store equipment & fixtures 130,497 27,819 21,072 (32,771) 104,473
Transportation equipment 28,937 651 173 - 29,415
Construction in progress 1,947 12,201 5,469 - 8,679
Leased property under capital leases 80,399 - 30 - 80,369
Leasehold interests 100,710 - 357 (8,160) 92,193
------- ------ ------ ------- -------
$423,740 $60,263 $29,577 $(40,931) $413,495
======= ====== ====== ======= =======
</TABLE>
_______________
(a) Consists of (1) the acquisition of Food Barn in March 1994, (2) final
Alpha Beta purchase price allocation adjustments, and (3) gains and losses
on involuntary conversion of assets.
55
<PAGE> 58
FOOD 4 LESS SUPERMARKETS, INC.
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY AND EQUIPMENT
52 WEEKS ENDED JUNE 25, 1994, 52 WEEKS ENDED JUNE 26, 1993, AND 52 WEEKS ENDED
JUNE 27, 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at
beginning of Other Balance at end
period Additions Retirements changes(a) of period
------------ --------- ----------- ---------- --------------
<S> <C> <C> <C> <C> <C>
52 weeks ended June 25, 1994:
Buildings $ 2,515 $ 441 $ - $ - $ 2,956
Leasehold improvements 25,050 7,097 185 - 31,962
Store equipment & fixtures 36,506 20,789 1,762 - 55,533
Transportation equipment 7,036 2,461 337 - 9,160
Leased property under capital leases 20,356 5,591 1,906 - 24,041
Leasehold interests 5,485 5,001 49 - 10,437
------- ------- ------- ----- --------
$96,948 $41,380 $ 4,239 $ - $134,089
======= ======= ======= ===== ========
52 weeks ended June 26, 1993:
Buildings $ 1,861 $ 682 $ 24 $ (4) $ 2,515
Leasehold improvements 15,534 9,692 15 (161) 25,050
Store equipment & fixtures 19,818 18,051 673 (690) 36,506
Transportation equipment 5,040 2,180 184 - 7,036
Leased property under capital leases 16,655 5,342 1,641 - 20,356
Leasehold interests 4,051 1,479 45 - 5,485
------- ------- ------- ----- --------
$62,959 $37,426 $ 2,582 $(855) $ 96,948
======= ======= ======= ===== ========
52 weeks ended June 27, 1992:
Buildings $ 1,252 $ 688 $ 79 $ - $ 1,861
Leasehold improvements 7,800 8,649 915 - 15,534
Store equipment and fixtures 12,275 19,224 11,681 - 19,818
Transportation equipment 3,323 1,751 34 - 5,040
Leased property under capital lease 10,306 6,379 30 - 16,655
Leasehold interests 2,888 1,207 44 - 4,051
------- ------- ------- ----- --------
$37,844 $37,898 $12,783 $ - $ 62,959
======= ======= ======= ===== ========
</TABLE>
________________________
(a) Consists of gains and losses on involuntary conversion of assets.
56
<PAGE> 59
FOOD 4 LESS SUPERMARKETS, INC.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
52 WEEKS ENDED JUNE 25, 1994, 52 WEEKS ENDED JUNE 26, 1993, AND 52 WEEKS ENDED
JUNE 27, 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Provisions Charged
Balance at charged to Balance
beginning to interest Other at end
of period expense expense(b) Payments changes of period
---------- -------- ---------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Self-insurance liabilities
52 weeks ended June 25, 1994 $85,494 $19,880 $5,836 $29,506 $ - $81,704
======= ======= ====== ======= ====== =======
52 weeks ended June 26, 1993 $82,559 $38,040 $5,865 $40,970 $ - $85,494
======= ======= ====== ======= ====== =======
52 weeks ended June 27, 1992 $59,525 $46,140 $4,960 $36,066 $8,000(a) $82,559
======= ======= ====== ======= ====== =======
</TABLE>
_______________
(a) Reflects self-insurance reserve related to Alpha Beta resulting from the
acquisition of Alpha Beta.
(b) Amortization of discount on self-insurance reserves charged to interest
expense.
57
<PAGE> 60
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------ ----------- ----
<S> <C>
2.1 Agreement and Plan of Merger by and among Food 4 Less, Inc.,
Food 4 Less Holdings, Inc., the Company, Ralphs Supermarkets, Inc. and
the Stockholders of Ralphs Supermarkets, Inc. (incorporated by
reference to Exhibit 99 to the Company's Form 8-K dated September 14,
1994).
3.1 Certificate of Incorporation of the Company, as amended.
3.2 Bylaws of the Company, as amended (incorporated herein by reference to
Exhibit 3.2 to the Company's Registration Statement on Form S-1, No.
33-31152).
4.1 Senior Note Indenture dated as of April 15, 1992 by and among the
Company, the subsidiary guarantors identified therein and Norwest Bank
Minnesota, N.A., as trustee (incorporated herein by reference to
Exhibit 4.1 to the Company's Registration Statement on Form S-1, No.
33-46750).
4.1.1 First Supplemental Indenture dated as of July 24, 1992 by and among the
Company, Bay Area Warehouse Stores, Inc. and Norwest Bank Minnesota,
N.A., as trustee (incorporated herein by reference to Exhibit 4.1.1 to
the Company's Annual Report on Form 10-K for the fiscal year ended June
27, 1992.)
4.2 Senior Subordinated Note Indenture dated as of June 15, 1991 by and
among the Company, the subsidiary guarantors identified therein and
United States Trust Company of New York as trustee (incorporated herein
by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K
for the fiscal year ended June 29, 1991).
4.2.1 First Supplemental Indenture dated as of April 8, 1992 by and among the
Company, Food 4 Less GM, Inc. and United States Trust Company of New
York, as trustee (incorporated herein by reference to Exhibit 4.2.1 to
the Company's Annual Report on Form 10-K for the fiscal year ended June
27, 1992.)
4.2.2 Second Supplemental Indenture dated as of May 18, 1992 by and among the
Company, the Subsidiary Guarantors and United States Trust Company of
New York, as trustee (incorporated herein by reference to Exhibit 4.2.2
to the Company's Annual Report on Form 10-K for the fiscal year ended
June 27, 1992.)
</TABLE>
E-1
<PAGE> 61
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------ ----------- ----
<S> <C>
4.2.3 Third Supplemental Indenture dated as of July 24, 1992 by and among the
Company, Bay Area Warehouse Stores, Inc. and United States Trust
Company of New York, as trustee (incorporated herein by reference to
Exhibit 4.2.3 to the Company's Annual Report on Form 10-K for the
fiscal year ended June 27, 1992.)
4.3 Credit Agreement dated as of June 17, 1991 by and among the Company,
Alpha Beta Company, The Boys Markets, Inc., Cala Foods, Inc., Falley's,
Inc. and Food 4 Less Merchandising, Inc., as borrowers; Citicorp North
America, Inc., Bankers Trust Company and Manufacturers Hanover Trust
Company, as Co-Agents, Citicorp North America, Inc. as Administrative
Agent and the Initial Lenders and the Designated Issuers, all as
identified therein (incorporated herein by reference to Exhibit 4.4 to
the Company's Annual Report on Form 10-K for the fiscal year ended
June 29, 1991).
4.3.1 First Modification Agreement dated as of January 24, 1992 by and among
the Company, Alpha Beta Company, The Boys Markets, Inc., Cala Foods,
Inc., Falley's, Inc. and Food 4 Less Merchandising, Inc., as borrowers;
Citicorp North America, Inc., Bankers Trust Company and Manufacturers
Hanover Trust Company, as Co-Agents, Citicorp North America, Inc. as
Administrative Agent and the Required Lenders and the other Loan
Parties, all as identified therein (incorporated herein by reference to
Exhibit 4.5.1 to the Company's Annual Report on Form 10-K for the
fiscal year ended June 27, 1992.)
4.3.2 Second Modification Agreement dated as of April 13, 1992 by and among
the Company, Alpha Beta Company, Cala Foods, Inc., Falley's, Inc. and
Food 4 Less Merchandising, Inc., as borrowers; Citicorp North America,
Inc., Bankers Trust Company and Manufacturers Hanover Trust Company, as
Co-Agents, Citicorp North America, Inc. as Administrative Agent and the
Required Lenders and the other Loan Parties, all as identified therein
(incorporated herein by reference to Exhibit 4.5.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended June 27, 1992.)
4.3.3 Third Modification Agreement dated as of September 15, 1992 by and
among the Company, Alpha Beta Company, Cala Foods, Inc., Falley's, Inc.
and Food 4 Less Merchandising, Inc., as borrowers; Citicorp North
America, Inc., Bankers Trust Company and Manufacturers Hanover Trust
Company, as Co-Agents, Citicorp North America, Inc. as Administrative
Agent and the Required Lenders and the other Loan Parties, all as
identified therein (incorporated herein by reference to Exhibit 4.5.3
to the Company's Annual Report on Form 10-K for the fiscal year ended
June 27, 1992.)
4.3.4 Fourth Modification Agreement dated as of October 9, 1992 by and among
the Company, Alpha Beta Company, Cala Foods, Inc., Falley's, Inc. and
Food 4 Less Merchandising, Inc., as borrowers; Citicorp North America,
Inc., Bankers Trust Company and Manufacturers Hanover Trust Company, as
Co-Agents, Citicorp North America, Inc. as Administrative Agent and the
Required Lenders and the other Loan Parties, all as identified therein
(incorporated herein by reference to Exhibit 4.5.4 to the Company's
Annual Report on Form 10-K for the fiscal year ended June 27, 1992.)
</TABLE>
E-2
<PAGE> 62
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------ ----------- ----
<S> <C>
4.3.5 Fifth Modification Agreement dated as of December 21, 1992 by and among
the Company, Alpha Beta Company, Cala Foods, Inc., Falley's, Inc. and
Food 4 Less Merchandising, Inc., as borrowers; Citicorp North America,
Inc., Bankers Trust Company and Chemical Bank (as successor in interest
to Manufacturers Hanover Trust Company), as Co-Agents, Citicorp North
America, Inc. as Administrative Agent and the Required Lenders and the
other Loan Parties, all as identified therein (incorporated herein by
reference to Exhibit 19.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended April 3, 1993).
4.4 Guaranty dated as of June 17, 1991 by the Company, Alpha Beta Company,
Bell Markets, Inc., The Boys Markets, Inc., Cala Co., Cala Foods, Inc.,
Falley's, Inc., Food 4 Less of California, Inc., Food 4 Less
Merchandising, Inc., and Food 4 Less of Southern California, Inc., in
favor of the Lender Parties identified therein and Citicorp North
America, Inc., as Administrative Agent for such Lender Parties
(incorporated herein by reference to Exhibit 4.5 to the Company's
Annual Report on Form 10-K for the fiscal year ended June 29, 1991).
9 Stockholder Voting Agreement and Proxy dated as of December 31, 1992 by
and among Ronald W. Burkle, George Golleher, Yucaipa Capital Advisors,
Inc. and the Management Shareholders of Food 4 Less Holdings, Inc.
(incorporated herein by reference to Exhibit 9 to Food 4 Less Holdings,
Inc.'s Registration Statement on Form S-4, No. 33-59214).
10.1 Lease dated as of June 17, 1991 by and between the Company and American
Food and Drug, Inc. relating to La Habra, California property
(incorporated herein by reference to Exhibit 10.4 to the Company's
Annual Report on Form 10-K for the fiscal year ended June 29, 1991).
10.2 Stockholders Agreement dated as of June 23, 1989 by and among the
Company, Food 4 Less, Inc. and Peter J. Sodini (incorporated herein by
reference to Exhibit 10.16 to the Company's Registration Statement on
Form S-1, No. 33-31152).
10.2.1 Amendment dated as of May 4, 1990 to Stockholders Agreement by and
among the Company, Food 4 Less, Inc. and Peter J. Sodini (incorporated
herein by reference to Exhibit 10.58 to the Company's Registration
Statement on Form S-1, No. 33-31152).
10.2.2 Letter Agreement dated as of June 27, 1990 by and among Peter J.
Sodini, The Boys Markets, Inc., the Company and certain affiliates,
officers, directors and employees of the Company (incorporated herein
by reference to Exhibit 10.39.1 to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1990).
10.2.3 Assignment and Assumption Agreement dated as of August 22, 1990 by and
between Peter J. Sodini and Ronald W. Burkle with respect to
Stockholders Agreement by and among the Company, Food 4 Less, Inc. and
Peter J. Sodini (incorporated herein by reference to Exhibit 10.16.2 to
the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1990).
</TABLE>
E-3
<PAGE> 63
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------ ----------- ----
<S> <C>
10.2.4 Amendment dated as of December 31, 1992 by and among Food 4 Less, Inc.,
Food 4 Less Holdings, Inc., Food 4 Less Supermarkets, Inc. and
Ronald W. Burkle to Stockholders Agreement by and among Food 4 Less
Supermarkets, Inc., Food 4 Less, Inc. and Peter J. Sodini (incorporated
herein by reference to Exhibit 10.6.2 to Food 4 Less Holdings, Inc.'s
Registration Statement on Form S-4, No. 33-59214).
10.3 Stockholders Agreement dated as of June 23, 1989 by and among the
Company, Food 4 Less, Inc. and George G. Golleher (incorporated herein
by reference to Exhibit 10.17 to the Company's Registration Statement
on Form S-1, No. 33-31152).
10.3.1 Amendment dated as of May 4, 1990 to Stockholders Agreement by and
among the Company, Food 4 Less, Inc. and George G. Golleher
(incorporated herein by reference to Exhibit 10.59 to the Company's
Registration Statement on Form S-1, No. 33-31152).
10.3.2 Amendment dated as of December 31, 1992 by and among Food 4 Less
Holdings, Inc., the Company, Food 4 Less, Inc. and George G. Golleher
to Stockholders Agreement by and among the Company, Food 4 Less, Inc.
and George G. Golleher (incorporated herein by reference to Exhibit
10.8.2 to Food 4 Less Holdings, Inc.'s Registration Statement on Form
S-4, No. 33-59214).
10.4 Letter Agreement dated as of September 14, 1994 by and among FFL
Partners, Food 4 Less, Inc., Food 4 Less Holdings, Inc., Food 4 Less
Supermarkets, Inc. and Falley's, Inc. relating to certain obligations
arising under the Falley's, Inc. Stock Ownership Plan and Trust, as
amended.
10.5 * Amended and Restated Consulting Agreement dated as of June 17, 1991 by
and among Yucaipa Management Company, The Yucaipa Companies and the
Company (incorporated herein by reference to Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the fiscal year ended June 29,
1991).
10.6 * Consulting Agreement dated as of June 27, 1988 by and between Falley's,
Inc. and Joe S. Burkle (incorporated herein by reference to Exhibit
10.38 to the Company's Registration Statement on Form S-1, No. 33-
31152).
10.6.1 * Letter Agreement dated as of December 10, 1990 amending Consulting
Agreement by and between Falley's, Inc. and Joe S. Burkle (incorporated
herein by reference to Exhibit 10.17.1 to the Company's Annual Report
on Form 10-K for the fiscal year ended June 29, 1991).
10.7 * Employment Agreement dated as of June 24, 1989 by and between The Boys
Markets, Inc. and George G. Golleher (incorporated herein by reference
to Exhibit 10.40 to the Company's Registration Statement on Form S-1,
No. 33-31152).
</TABLE>
E-4
<PAGE> 64
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------ ----------- ----
<S> <C>
10.7.1 * First Amendment dated as of December 10, 1990 to Employment Agreement
by and between The Boys Markets, Inc. and George G. Golleher
(incorporated herein by reference to Exhibit 10.40.1 to the Company's
Amendment No. 1 to Post-Effective Amendment No. 1 to Registration
Statement on Form S-1, No. 33-31152).
10.7.2 * Second Amendment dated as of June 17, 1991 to Employment Agreement by
and among The Boys Markets, Inc., the Company and George G. Golleher
(incorporated herein by reference to Exhibit 10.19.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended June 29, 1991).
10.8 Amended and Restated Tax Sharing Agreement dated as of June 17, 1991 by
and among Food 4 Less, Inc., the Company and the subsidiaries of the
Company (incorporated herein by reference to Exhibit 10.20 to the
Company's Annual Report on Form 10-K for the fiscal year ended June 29,
1991).
10.9 * Employment Agreement dated as of July 1, 1994 between Food 4 Less
Supermarkets, Inc. and Harley DeLano.
10.10 * Employment Agreement dated as of July 1, 1994 between the Food 4 Less
Supermarkets, Inc. and Greg Mays.
12 Statement regarding computation of ratio of earnings to fixed charges.
21 Subsidiaries of Food 4 Less Supermarkets, Inc.
27 Financial Data Schedule.
</TABLE>
E-5
<PAGE> 1
EXHIBIT 12
FOOD 4 LESS SUPERMARKETS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
52 Weeks Ended
June 25, 1994
----------------------------------
Fixed
Earnings Charges
-------- -------
<S> <C> <C>
Income (loss) before provision for income taxes,
minority interest and extraordinary charge $ - $ -
Add Fixed Charges:
Interest expense, including amortization of
debt discount and deferred financing costs 68,250 68,250
Interest factor in rent expense(1) 16,596 16,596
------ ------
$84,846 $84,846
====== ======
Ratio of earnings to fixed charges 1.0
======
</TABLE>
________________________
(1) Calculated as one-third of minimum rent expense (see note 5 in the audited
financial statements.)
<TABLE>
<CAPTION>
1994
--------
<S> <C>
Minimum rent $49,788
/ 3
------
Interest factor $16,596
======
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF FOOD 4 LESS SUPERMARKETS, INC.
Alpha Beta Company, a California corporation
Bay Area Warehouse Stores, Inc., a California corporation
Bell Markets, Inc., a California corporation
Cala Co., a Delaware corporation
Cala Foods, Inc., a California corporation
Falley's, Inc., a Kansas corporation
Food 4 Less GM, Inc., a California corporation
Food 4 Less of Califoria, Inc., a California corporation
Food 4 Less Merchandising, Inc., a California corporation
Food 4 Less of Southern California, Inc., a Delaware corporation
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-25-1994
<PERIOD START> JUN-27-1993
<PERIOD-END> JUN-25-1994
<CASH> 32,996
<SECURITIES> 0
<RECEIVABLES> 27,737
<ALLOWANCES> (1,386)
<INVENTORY> 212,892
<CURRENT-ASSETS> 281,437
<PP&E> 498,823
<DEPRECIATION> (134,089)
<TOTAL-ASSETS> 980,080
<CURRENT-LIABILITIES> 336,319
<BONDS> 495,942
<COMMON> 107,665
0
58,997
[COMMON] 107,665
<OTHER-SE> (97,641)
<TOTAL-LIABILITY-AND-EQUITY> 980,080
<SALES> 2,585,160
<TOTAL-REVENUES> 2,585,160
<CGS> 2,115,842
<TOTAL-COSTS> 2,115,842
<OTHER-EXPENSES> 401,068
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68,250
<INCOME-PRETAX> 0
<INCOME-TAX> 2,700
<INCOME-CONTINUING> (2,700)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,700)
<EPS-PRIMARY> (7.63)
<EPS-DILUTED> (7.63)
</TABLE>
