<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM 10-Q
QUARTERLY REPORT
UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
---------
For Quarter Ended Commission File Number
April 2, 1994 33-31152
FOOD 4 LESS SUPERMARKETS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4222386
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification Number)
777 South Harbor Boulevard
La Habra, California 90631
(Address of principal executive offices) (Zip code)
(714) 738-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
----- -----
At May 17, 1994, there were 1,503,106 shares of Common Stock
outstanding. As of such date, none of the outstanding shares of
Common Stock was held by persons other than affiliates and
employees of the registrant, and there was no public market for
the Common Stock.
<PAGE>
FOOD 4 LESS SUPERMARKETS, INC.
INDEX
<TABLE>
<CAPTION>
Page
-----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated balance sheets as of
April 2, 1994 and June 26, 1993 . . . . . . . 2
Consolidated statements of operations for the 12 weeks
ended April 2, 1994 and April 3, 1993 . . . . . . . 4
Consolidated statements of operations for the 40 weeks
ended April 2, 1994 and April 3, 1993 . . . . . . . 5
Consolidated statements of cash flows for the 40 weeks
ended April 2, 1994 and April 3, 1993 . . . . . . . 6
Consolidated statements of stockholder's equity as of
April 2, 1994 and June 26, 1993 . . . . . . . 8
Notes to consolidated financial statements . . . 9
Item 2. Management's Discussion and Analysis of Financial
Condition
and Results of Operations . . . . . . . . . . 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . 14
Signatures . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
1
<PAGE>
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
April 2, June 26,
ASSETS 1994 1993
-------- --------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 38,871 $ 25,089
Trade receivables, less allowances of $899
and $1,919 at April 2, 1994 and
June 26, 1993, respectively 24,232 22,048
Notes and other receivables 9,401 1,278
Inventories 203,982 191,467
Patronage receivables from suppliers 1,895 2,680
Prepaid expenses and other 11,415 6,011
------- -------
Total current assets 289,796 248,573
INVESTMENTS IN AND NOTES RECEIVABLE FROM
SUPPLIER COOPERATIVES:
A. W. G. 6,718 6,693
Certified and Others 6,092 6,657
PROPERTY AND EQUIPMENT:
Land 23,488 23,912
Buildings 12,827 12,827
Leasehold improvements 90,752 81,049
Store equipment and fixtures 138,315 129,178
Transportation equipment 32,223 31,758
Construction in progress 2,757 757
Leased property under capital leases 77,259 77,553
Leasehold interests 94,004 93,863
------- -------
471,625 450,897
Less: Accumulated depreciation
and amortization 124,249 96,948
------- -------
Net property and equipment 347,376 353,949
OTHER ASSETS:
Deferred financing costs, less accumulated amortization
of $15,821 and $11,611 at April 2, 1994 and
June 26, 1993, respectively 29,792 33,778
Goodwill, less accumulated
amortization of $32,158
and $26,254 at April 2, 1994 and
June 26, 1993, respectively 277,414 280,895
Other, net 25,537 27,295
------- --------
$982,725 $957,840
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
balance sheets.
2
<PAGE>
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
April 2, June 26,
LIABILITIES AND STOCKHOLDER'S EQUITY 1994 1993
-------- --------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $154,516 $140,468
Accrued payroll and related liabilities 45,948 40,319
Accrued interest 15,646 5,293
Other accrued liabilities 53,471 40,467
Income taxes payable 2,793 2,053
Current portion of self-insurance liabilities 24,080 23,552
Current portion of long-term debt 17,844 12,778
Current portion of obligations
under capital leases 3,595 2,865
------- -------
Total current liabilities 317,893 267,795
LONG-TERM DEBT 311,877 335,576
OBLIGATIONS UNDER CAPITAL LEASES 39,651 41,864
SENIOR SUBORDINATED DEBT 145,000 145,000
DEFERRED INCOME TAXES 23,675 22,429
SELF-INSURANCE LIABILITIES AND OTHER 78,008 72,313
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDER'S EQUITY:
Cumulative convertible preferred stock, $.01 par value,
200,000 shares authorized and 50,000 shares outstanding at
April 2, 1994 and June 26, 1993 (aggregate liquidation
value of $60.2 million and $53.8 million at
April 2, 1994 and June 26, 1993,
respectively) 56,974 50,230
Common stock, $.01 par value, 1,600,000 shares
authorized; 1,519,632 shares issued
at April 2, 1994 and June 26, 1993 15 15
Additional paid-in capital 107,650 107,650
Notes receivable from shareholders of parent (596) (714)
Retained deficit (95,211) (83,119)
------- -------
68,832 74,062
Treasury stock: 16,320 and 13,249
shares of common stock at
April 2, 1994 and June 26, 1993,
respectively 2,211 1,199
------- -------
Total stockholder's equity 66,621 72,863
------- -------
$982,725 $957,840
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
balance sheets.
3
<PAGE>
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
12 Weeks 12 Weeks
Ended Ended
April 2, April 3,
1994 1993
--------- ----------
<S> <C> <C>
SALES $ 587,871 $ 620,010
COST OF SALES (including purchases
from related parties for the
12 weeks ended April 2, 1994
and April 3, 1993 of
40,223 and $43,492, respectively) 432,174 456,205
GROSS PROFIT 155,697 163,805
SELLING, GENERAL, ADMINISTRATIVE AND OTHER, NET
excluding depreciation and amortization 127,647 140,617
DEPRECIATION AND AMORTIZATION OF PROPERTY
AND EQUIPMENT 9,597 8,961
AMORTIZATION OF GOODWILL AND OTHER ASSETS 3,416 5,328
--------- ---------
OPERATING INCOME 15,037 8,899
INTEREST EXPENSE:
Interest expense, excluding amortization
of deferred financing costs 13,198 13,337
Amortization of deferred financing costs 1,262 1,140
--------- ---------
14,460 14,477
--------- ---------
UNUSUAL EARTHQUAKE LOSSES 4,504 -
LOSS BEFORE PROVISION FOR INCOME TAXES (3,927) (5,578)
PROVISION FOR INCOME TAXES 400 200
--------- ---------
NET LOSS $ (4,327) $ (5,778)
========= ==========
LOSS APPLICABLE TO COMMON SHARES $ (6,350) $ (7,624)
======== ==========
LOSS PER COMMON SHARE $ (4.22) $ (5.04)
========= ==========
Average Common Shares Outstanding 1,503,641 1,513,938
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
4
<PAGE>
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
40 Weeks 40 Weeks
Ended Ended
April 2, April 3,
1994 1993
---------- ---------
<S> <C> <C>
SALES $2,004,084 $2,118,980
COST OF SALES (including purchases
from related parties for the
40 weeks ended April 2, 1994
and April 3, 1993 of
$146,283 and $162,424, respectively) 1,471,829 1,567,265
--------- ---------
GROSS PROFIT 532,255 551,715
SELLING, GENERAL, ADMINISTRATIVE AND OTHER, NET
excluding depreciation and amortization 440,567 482,626
DEPRECIATION AND AMORTIZATION OF PROPERTY
AND EQUIPMENT 31,429 29,259
AMORTIZATION OF GOODWILL AND OTHER ASSETS 11,956 15,565
--------- ---------
OPERATING INCOME 48,303 24,265
INTEREST EXPENSE:
Interest expense, excluding amortization
of deferred financing costs 43,837 44,961
Amortization of deferred financing costs 4,210 3,660
--------- ---------
48,047 48,621
--------- ---------
UNUSUAL EARTHQUAKE LOSSES 4,504 -
LOSS BEFORE PROVISION FOR INCOME TAXES (4,248) (24,356)
PROVISION FOR INCOME TAXES 1,100 568
NET LOSS $ (5,348)$ (24,924)
========= =========
LOSS APPLICABLE TO COMMON SHARES $ (12,092)$ (26,960)
========= =========
LOSS PER COMMON SHARE $ (8.04)$ (18.80)
========= =========
Average Common Shares Outstanding 1,504,064 1,433,971
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
5
<PAGE>
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
40 Weeks 40 Weeks
Ended Ended
April 2, April 3,
1994 1993
-------- --------
<S> <C> <C>
CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Cash received from customers $2,004,084 $2,118,980
Cash paid to suppliers and employees (1,912,797) (2,106,515)
Interest paid (33,485) (35,115)
Income taxes refunded 1,354 544
Other, net 2,354 3,857
----------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 61,510 (18,249)
CASH PROVIDED (USED) BY INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 12,626 13,271
Payment for purchase of property and equipment (32,694) (46,683)
Payment of business acquisition costs (6,570) -
Other, net 143 (813)
-------- ---------
NET CASH USED BY INVESTING ACTIVITIES (26,495) (34,225)
CASH PROVIDED (USED) BY FINANCING ACTIVITIES:
Payments of long-term debt (13,761) (10,111)
Payments of capital lease obligation (3,096) (2,152)
Net change in Revolving Loan (4,900) 5,683
Proceeds from issuance of debt 1,641 26,531
Proceeds from sale of preferred stock - 46,348
Proceeds from sale of common stock - 3,652
Purchase of treasury stock, net (944) (276)
Other, net (173) (8,503)
--------- ---------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES (21,233) 61,172
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 13,782 8,698
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 25,089 24,477
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 38,871 $ 33,175
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
6
<PAGE>
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
40 Weeks 40 Weeks
Ended Ended
April 2, April 3,
1994 1993
-------- --------
<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED (USED) BY OPERATING ACTIVITIES:
Net loss $(5,348) $(24,924)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 47,594 48,484
Provision for self-insurance, net 6,165 (733)
Loss (gain) on sale of assets 66 (516)
Equity loss on investments in
supplier cooperative 540 -
Change in assets and liabilities:
Accounts and notes receivable (9,522) 19,812
Inventories (8,216) 25,115
Prepaid expenses and deposits (9,841) (7,954)
Other assets - 289
Accounts payable and accrued liabilities 37,618 (78,934)
Deferred income taxes 1,714 550
Income taxes payable 740 562
------ ------
Total adjustments 66,858 6,675
------ ------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES $61,510 $(18,249)
====== ======
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Accretion of preferred stock $ 6,744 $ 2,036
====== =======
Acquistion of business:
Fair value of assets acquired $11,187 $ -
Cash paid in acquisition (6,570) -
------ -------
Liabilities assumed $ 4,617 $ -
====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
7
<PAGE>
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
----------------- ----------------- -----------------
Number Number Number
of of of
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT JUNE 26,1993 50,000 $50,230 1,519,632 $15 (13,249) $(1,199)
Payment of Shareholders' Notes - - - - - -
(unaudited)
Purchase of Treasury Stock - - - - (3,071) (1,012)
(unaudited)
Accretion of Preferred Stock - 6,744 - - - -
(unaudited)
Net loss - - - - - -
(unaudited)
------ ------- --------- --- -------- --------
BALANCES AT APRIL 2,1994 50,000 $56,974 1,519,632 $15 (16,320) $(2,211)
(unaudited) ====== ======= ========= === ======== ========
</TABLE>
<TABLE>
<CAPTION>
Share- Add'l Total
holders' Paid-In Retained Stockholder's
Notes Capital Deficit Equity
------- -------- --------- -------------
<S> <C> <C> <C> <C>
BALANCES AT JUNE 26,1993 $(714) $107,650 $(83,119) $72,863
Payment of Shareholders' Notes 50 - - 50
(unaudited)
Purchase of Treasury Stock 68 - - (944)
(unaudited)
Accretion of Preferred Stock - - (6,744) -
(unaudited)
Net loss - - (5,348) (5,348)
(unaudited)
------ -------- --------- -------
BALANCES AT APRIL 2,1994 $(596) $107,650 $(95,211) $66,621
(unaudited) ====== ======== ========= =======
</TABLE>
The accompanying notes are an integral part
of these consolidated statements.
8
<PAGE>
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated balance sheet of Food 4 Less
Supermarkets, Inc. (the "Company") as of April 2, 1994 and
the consolidated statements of operations and cash flows for
the interim periods ended April 2, 1994 and April 3, 1993
are unaudited, but include all adjustments (consisting of
only normal recurring accruals) which the Company considers
necessary for a fair presentation of its consolidated
financial position, results of operations, and cash flows
for these periods. These interim financial statements do
not include all disclosures required by generally accepted
accounting principles, and, therefore, should be read in
conjunction with the Company's financial statements and
notes thereto included in the Company's latest annual report
filed on Form 10-K. Results of operations for interim
periods are not necessarily indicative of the results for a
full fiscal year.
The Company is a vertically integrated supermarket
company with 259 stores located in Southern California,
Northern California, and certain areas of the midwest. The
Company's Southern California division includes a
manufacturing facility, with bakery and creamery operations,
and a full-line warehouse and distribution facility.
2. SIGNIFICANT ACCOUNTING POLICIES
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 $16,058,000 and $13,103,000 at April 2, 1994 and June 26,
1993, respectively, and gross profit and operating income
would have been greater by $735,000 and $1,005,000 for the
12 weeks ended April 2, 1994 and April 3, 1993,
respectively, and $2,955,000 and $3,386,000 for the 40 weeks
ended April 2, 1994 and April 3, 1993, respectively.
Income Taxes
The Company implemented SFAS No. 109, Accounting for
Income Taxes, effective June 27, 1993. Income taxes for the
40 weeks ended April 3, 1993 have not been restated for this
change. Under SFAS No. 109 deferred tax assets and
liabilities (and related income tax expense) are determined
based on differences between the financial reporting and tax
basis of assets and liabilities. The measurement of
deferred income tax assets is adjusted by a valuation
reserve, if necessary, so that the net tax benefits are
recognized only to the extent that they will be realized.
The implementation of SFAS No. 109 did not have a
material effect on the accompanying unaudited consolidated
financial statements.
Reclassifications
Certain prior period amounts in the consolidated
financial statements have been reclassified to conform to
the April 2, 1994 presentation.
9
<PAGE>
3. UNUSUAL EARTHQUAKE LOSSES
On January 17, 1994, Southern California was struck by
a major earthquake which resulted in the 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). The pre-tax financial
impact, net of insurance claims, is estimated to be
approximately $4.5 million. The Company reserved for this
charge during the 12 weeks ended April 2, 1994.
4. ACQUISITION
On March 29, 1994, the Company purchased certain
operating assets of Food Barn (the "Food Barn Acquisition")
for $11,187,000 (including acquisition costs of $180,000).
The financial statements reflect the preliminary allocation
of the purchase price as certain appraisals and other
information required to finalize the purchase price
allocations have not been completed.
5. SUBSIDIARY REGISTRANTS
Separate financial statements of the Company's
subsidiaries (collectively, the "Subsidiary Guarantors")
neither are included herein nor otherwise filed on Form 10-Q
because such Subsidiary Guarantors are jointly and severally
liable as guarantors of the Company's 10.45% Senior Notes
due 2000 and 13-3/4% Senior Subordinated Notes due 2001, 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.
10
<PAGE>
ITEM 2. MANAGEMRNT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth the selected unaudited
operating results of the Company for the 12 and 40 weeks ended
April 2, 1994 and April 3, 1993:
<TABLE>
<CAPTION>
12 Weeks Ended 40 Weeks Ended
------------------------------------- -------------------------------------
April 2, 1994 April 3, 1993 April 2, 1994 April 3, 1993
----------------- ----------------- ----------------- -----------------
(dollars in millions)
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $587.8 100.0 % $620.0 100.0 % $2,004.1 100.0 % $2,119.0 100.0 %
Gross profit 155.6 26.5 % 163.8 26.4 % 532.3 26.6 % 551.7 26.0 %
Selling, general, administrative
and other, net 127.6 21.7 % 140.6 22.7 % 440.6 22.0 % 482.6 22.8 %
Depreciation and amortization 13.0 2.2 % 14.3 2.3 % 43.4 2.2 % 44.8 2.1 %
Operating income 15.0 2.6 % 8.9 1.4 % 48.3 2.4 % 24.3 1.1 %
Interest expense 14.4 2.4 % 14.5 2.3 % 48.0 2.4 % 48.6 2.3 %
Unusual earthquake losses 4.5 0.8 % - 0.0 % 4.5 0.2 % - 0.0 %
Income tax expense 0.4 0.1 % 0.2 0.0 % 1.1 0.1 % 0.6 0.0 %
Net loss (4.3) (0.7)% (5.8) (0.9)% (5.3) (0.3)% (24.9) (1.2)%
</TABLE>
Sales. Sales per week decreased $2.7 million, or 5.2%, from
$51.7 million in the 12 weeks ended April 3, 1993 to $49.0
million in the 12 weeks ended April 2, 1994 and decreased $2.9
million, or 5.4%, from $53.0 million in the 40 weeks ended April
3, 1993 to $50.1 million in the 40 weeks ended April 2, 1994.
The decline in sales for the 12 weeks ended April 2, 1994
resulted primarily from a 4.7% decline in same store sales and
the temporary closure of seven stores being converted from
conventional formats to the warehouse format. These decreases
are partially offset by sales from new and remodeled stores
opened since the 12 weeks ended April 3, 1993. The decline in
sales for the 40 weeks ended April 2, 1994 resulted primarily
from a 6.4% decline in same store sales, partially offset by
sales from new and remodeled stores opened during fiscal 1993 and
the 40 weeks ended April 2, 1994. Management believes that the
decline in same store sales is attributable to the weak economy
in Southern California and, to a lesser extent, in the Company's
other operating areas, and increased competitive store openings
in Southern California.
Gross Profit. Gross profit increased as a percentage of
sales from 26.4% in the 12 weeks ended April 3, 1993 to 26.5% in
the 12 weeks ended April 2, 1994 and increased from 26.0% in the
40 weeks ended April 3, 1993 to 26.6% in the 40 weeks ended April
2, 1994. Increases in gross profit margin are primarily
attributable to improvements in product procurement, cost
savings, and operating efficiencies associated with the Company's
manufacturing and distribution facilities 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 44 at April 3,
1993 to 65 at April 2, 1994, and the fixed cost component of
gross profit being compared to a lower sales base.
Selling, General, Administrative and Other Expenses.
Selling, general, administrative and other expenses, excluding
depreciation and amortization ("SG&A") were $140.6 million and
$127.6 million for the 12 weeks and $482.6 million and $440.6
million for the 40 weeks ended April 3, 1993 and April 2, 1994,
respectively. SG&A decreased as a percentage of sales from 22.7%
to 21.7% and from 22.8% to 22.0% for the same periods as a result
of tight control of administrative and store level expenses,
primarily payroll costs due to increased labor productivity and
Commercial Workers Unions contract. The cost reductions were
partially offset by a greater fixed cost component resulting from
a lower sales base and increased rent attributable to additional
operating leases associated with equipment in new and remodeled
stores.
11
<PAGE>
Depreciation and Amortization. Depreciation and
amortization decreased $1.3 million from $14.3 million to $13.0
million and decreased $1.4 million from $44.8 million to $43.4
million for the 12 weeks and the 40 weeks ended April 3, 1993 and
April 2, 1994, respectively. Depreciation and amortization
decreased primarily as a result of a decrease in amortizable
assets, partially offset by an increase in depreciable assets
resulting from new stores and remodels completed during the 40
weeks ended April 2, 1994.
Interest Expense. Interest expense (including amortization
of deferred financing costs) was $14.5 million and $14.4 million
for the 12 weeks and $48.6 million and $48.0 million for the 40
weeks ended April 3, 1993 and April 2, 1994, respectively. The
decrease in interest expense is due primarily to the reduction of
indebtedness as a result of reduced borrowings under the
Revolving Credit Facility combined with decreased interest rates
on the Term Loan.
Unusual Earthquake Losses. On January 17, 1994, Southern
California was struck by a major earthquake which resulted in the
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). The pre-tax financial impact,
net of insurance claims, is expected to be approximately $4.5
million. The Company reserved for this charge during the 12
weeks ended April 2, 1994.
Net Loss. Net loss of $5.8 million and $24.9 million in the
12 and 40 weeks ended April 3, 1993 decreased to a net loss of
$4.3 million and $5.3 million in the 12 and 40 weeks ended April
2, 1994 primarily as a result of the factors discussed above.
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
1994. 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.
During the 40-week period ended April 2, 1994, the Company
generated approximately $61.5 million of cash from its operating
activities compared to $18.2 million used by operating activities
for the 40 weeks ended April 3, 1993. The improvement is due
primarily to changes in operating assets and liabilities and an
increase in operating income for the 40 weeks ended April 2, 1994
compared to the 40 weeks ended April 3, 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
April 2, 1994, this resulted in a working capital deficit of
$28.1 million.
Cash used for investing activities was $26.5 million for the
40 weeks ended April 2, 1994. Investing activities consisted
primarily of capital expenditures of $32.7 million, partially
offset by $10.0 million of sale/leaseback transactions, and $6.6
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
nine new stores (two of which have been completed) and remodel or
convert 23 stores (all of which have been completed). The
Company currently anticipates that its aggregate capital
Consistent with its past practices, the Company intends to
finance these capital expenditures primarily with cash provided
by operations and through operating leases. At April 2, 1994,
the Company had approximately $1.0 million of unused equipment
leasing facilities. No assurance can be given that sources of
12
<PAGE>
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, 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 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 $21.2 million for the
40 weeks ended April 2, 1994, which was primarily 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 May 17, 1994, there were no
borrowings outstanding on the $70 million Revolving Credit
Facility, and $50.4 million of standby letters of credit had been
issued under the $55 million Letter of Credit Facility.
The Company is highly leveraged. At April 2, 1994, the
Company's total long-term indebtedness (including current
maturities) and stockholder's equity were $518.0 million and
$66.6 million, respectively. For the 40 weeks ended April 2,
1994, earnings were inadequate to cover fixed charges by $4.2
million. However, the earnings for such period included non-cash
charges of $47.6 million, primarily consisting of depreciation
and amortization.
EFFECTS OF INFLATION AND COMPETITION
The Company's primary costs, inventory and labor, are
affected by a number of factors that are beyond its control,
including availability and price of merchandise, the competitive
climate and general and regional economic conditions. As is
typical of the supermarket industry, the Company has generally
been able to maintain margins by adjusting its retail prices, but
competitive conditions may from time to time render it unable to
do so while maintaining its market share.
SUBSIDIARY REGISTRANTS
Separate financial statements of the Company's subsidiaries
(collectively, the "Subsidiary Guarantors") are neither included
herein nor otherwise filed on Form 10-Q because such Subsidiary
Guarantors are jointly and severally liable as guarantors of the
Company's Senior Notes and Subordinated Notes, and the aggregate
assets, earnings and equity of the Subsidiary Guarantors are
substantially equivalent to the assets, earnings and equity of
the Company on a consolidated basis.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
None
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the Registrant has duly caused this Quarterly Report to
be signed on its behalf by the undersigned, thereunto duly
authorized, in the County of Orange, State of California.
Dated: May 17, 1994 FOOD 4 LESS SUPERMARKETS, INC.
/s/ Ronald W. Burkle
----------------------------
Ronald W. Burkle
Chief Executive Officer
/s/ Greg Mays
----------------------------
Greg Mays
Chief Financial Officer
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