<PAGE> 1
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 21, 1996 33-88894
RALPHS GROCERY COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 95-4356030
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification Number)
1100 West Artesia Boulevard
Compton, California 90220
(Address of principal executive offices) (Zip code)
(310) 884-9000
(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 29, 1996, there were 1,513,938 shares of Common Stock outstanding.
As of such date, all of the outstanding shares of Common Stock were held by
Food 4 Less Holdings, Inc., and there was no public market for the Common
Stock.
<PAGE> 2
RALPHS GROCERY COMPANY
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated balance sheets as of
January 28, 1996 and April 21, 1996 . . . . . . . . . . . . . . . . 2
Consolidated statements of operations for the 12 weeks ended
April 23, 1995 and April 21, 1996 . . . . . . . . . . . . . . . . . . 4
Consolidated statements of cash flows for the 12 weeks ended
April 23, 1995 and April 21, 1996 . . . . . . . . . . . . . . . . . . 5
Consolidated statements of stockholder's equity as of
January 28, 1996 and April 21, 1996 . . . . . . . . . . . . . . . . . 7
Notes to consolidated financial statements . . . . . . . . . . . . . . . . 8
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 . . . . . . . . . . . . . . . . . . . . . 16
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
1
<PAGE> 4
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
January 28, April 21,
ASSETS 1996 1996
----------- ---------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 67,983 $ 58,542
Trade receivables, net 60,948 65,597
Notes and other receivables 6,452 4,689
Inventories 502,669 483,380
Patronage receivables from suppliers 4,557 1,535
Prepaid expenses and other 34,855 31,990
----------- ----------
Total current assets 677,464 645,733
INVESTMENTS IN AND NOTES RECEIVABLE FROM
SUPPLIER COOPERATIVES:
Associated Wholesale Grocers 7,288 7,020
Certified Grocers of California and others 4,926 4,926
PROPERTY AND EQUIPMENT:
Land 183,125 183,125
Buildings 196,551 196,691
Leasehold improvements 251,856 252,211
Fixtures and equipment 441,760 459,883
Construction in progress 61,296 57,204
Leased property under capital leases 189,061 189,702
Leasehold interests 114,475 109,992
---------- ----------
1,438,124 1,448,808
Less: Accumulated depreciation and amortization 226,451 242,198
---------- -----------
Net property and equipment 1,211,673 1,206,610
OTHER ASSETS:
Deferred financing costs, less accumulated amortization
of $6,964 and $10,300 at January 28, 1996 and
April 21, 1996, respectively 94,100 94,336
Goodwill, less accumulated amortization of $60,407
and $67,609 at January 28, 1996 and
April 21, 1996, respectively 1,173,445 1,166,243
Other, net 19,233 19,907
----------- -----------
$3,188,129 $3,144,775
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
2
<PAGE> 5
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
January 28, April 21,
LIABILITIES AND STOCKHOLDER'S EQUITY 1996 1996
------------ --------------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 385,500 $ 372,731
Accrued payroll and related liabilities 94,011 93,627
Accrued interest 23,870 56,022
Other accrued liabilities 276,162 268,664
Income taxes payable 596 596
Current portion of self-insurance liabilities 21,785 22,004
Current portion of senior debt 31,735 38,979
Current portion of obligations under capital leases 22,261 23,298
---------- -----------
Total current liabilities 855,920 875,921
SENIOR DEBT, net of current portion 1,226,302 1,200,035
OBLIGATIONS UNDER CAPITAL LEASES 130,784 126,215
SENIOR SUBORDINATED DEBT 671,222 671,222
DEFERRED INCOME TAXES 17,988 17,988
SELF-INSURANCE LIABILITIES 127,200 129,856
LEASE VALUATION RESERVE 25,182 24,273
OTHER NON-CURRENT LIABILITIES 74,412 72,127
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value, 5,000,000 shares
authorized; 1,513,938 shares issued 15 15
Additional capital 466,783 466,783
Notes receivable from stockholders of parent (602) (602)
Retained deficit (407,077) (439,058)
---------- ----------
Total stockholder's equity 59,119 27,138
----------- -----------
$3,188,129 $3,144,775
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
3
<PAGE> 6
RALPHS GROCERY COMPANY
(FORMERLY 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 23, April 21,
1995 1996
----------- ----------
<S> <C> <C>
SALES $ 623,598 $1,230,808
COST OF SALES 516,430 982,171
---------- ----------
GROSS PROFIT 107,168 248,637
SELLING, GENERAL, ADMINISTRATIVE AND OTHER, NET 91,352 217,335
AMORTIZATION OF GOODWILL 1,829 7,202
---------- ----------
OPERATING INCOME 13,987 24,100
INTEREST EXPENSE:
Interest expense, excluding amortization
of deferred financing costs 15,522 52,748
Amortization of deferred financing costs 1,394 3,336
---------- ----------
16,916 56,084
GAIN ON DISPOSAL OF ASSETS (417) (3)
---------- ----------
LOSS BEFORE PROVISION FOR INCOME TAXES (2,512) (31,981)
PROVISION FOR INCOME TAXES 300 --
---------- ----------
NET LOSS (2,812) (31,981)
PREFERRED STOCK ACCRETION 2,376 --
---------- ----------
LOSS APPLICABLE TO COMMON SHARES $ (5,188) $ (31,981)
========== ==========
LOSS PER COMMON SHARE $ (3.44) $ (21.12)
========== ==========
Average Number of Common Shares Outstanding 1,507,287 1,513,938
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
4
<PAGE> 7
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
12 Weeks 12 Weeks
Ended Ended
April 23, April 21,
1995 1996
---------- ----------
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES:
Cash received from customers $ 623,598 $ 1,230,808
Cash paid to suppliers and employees (595,468) (1,156,304)
Interest paid (18,031) (20,596)
Income taxes refunded (paid) (5) --
Interest received 133 541
Other, net 299 3
---------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,526 54,452
CASH USED BY INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 5,301 31
Payment for purchase of property and equipment (18,238) (34,222)
Other, net (2,694) (973)
--------- -----------
NET CASH USED BY INVESTING ACTIVITIES (15,631) (35,164)
CASH PROVIDED (USED) BY FINANCING ACTIVITIES:
Payments of long-term debt (4,623) (1,623)
Payments of capital lease obligation (925) (6,134)
Net increase (decrease) in revolving loan 8,000 (17,400)
Deferred financing costs and other, net 17 (3,572)
--------- -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 2,469 (28,729)
--------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,636) (9,441)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 19,560 67,983
--------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 16,924 $ 58,542
========= ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
5
<PAGE> 8
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
12 Weeks 12 Weeks
Ended Ended
April 23, April 21,
1995 1996
-------------- --------------
<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net loss $(2,812) $ (31,981)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 16,083 40,018
Gain on sale of assets (417) (3)
Change in assets and liabilities, net of effects
from acquisition of business:
Accounts and notes receivable 9,474 136
Inventories 15,838 19,289
Prepaid expenses and other 1,493 500
Accounts payable and accrued liabilities (27,775) 23,618
Self-insurance liabilities (1,653) 2,875
Income taxes payable 295 --
---------- -------------
Total adjustments 13,338 86,433
-------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 10,526 $ 54,452
======== =========
SUPPLEMENTAL SCHEDULE OF NON-CASH
FINANCING ACTIVITIES:
Accretion of preferred stock $ 2,376 $ --
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
6
<PAGE> 9
RALPHS GROCERY COMPANY
(FORMERLY 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 JANUARY 28, 1996 -- $ -- 1,513,938 $15 -- $ --
Net loss (unaudited) -- -- -- -- -- --
--------- -------- --------- ---- -------- --------
BALANCES AT APRIL 21, 1996 (unaudited) -- $ -- 1,513,938 $ 15 -- $ --
========= ======== ========= === ======== ========
Total
Stock- Stock-
holders' Add'l Retained holder's
Notes Capital Deficit Equity
-------- ------- -------- --------
<S> <C> <C> <C> <C>
BALANCES AT JANUARY 28, 1996 $(602) $466,783 $(407,077) $59,119
Net loss (unaudited) -- -- (31,981) (31,981)
----- -------- -------- -------
BALANCES AT APRIL 21, 1996 (unaudited) $(602) $466,783 $(439,058) $27,138
==== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
7
<PAGE> 10
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated balance sheet and statement of stockholder's
equity of Ralphs Grocery Company (the "Company"), formerly known as
Food 4 Less Supermarkets, Inc. ("F4L Supermarkets") as of April 21,
1996 and the consolidated statements of operations and cash flows for
the interim periods ended April 23, 1995 and April 21, 1996 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 for
the fiscal year ended January 28, 1996. Results of operations for
interim periods are not necessarily indicative of the results for a
full fiscal year.
2. ORGANIZATION AND ACQUISITION
The Company, a wholly-owned subsidiary of Food 4 Less
Holdings, Inc. ("Holdings"), is a retail supermarket company with a
total of 407 stores which are located in Southern California (345),
Northern California (26) and certain areas of the Midwest (36). The
Company is the second largest conventional supermarket chain in
Southern California, operating 269 stores, under the "Ralphs" name
and the largest warehouse supermarket chain in Southern California,
operating 76 warehouse stores, under the "Food 4 Less" name. 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 major manufacturing facilities, including bakery and creamery
operations, and full-line warehouse and distribution facilities
servicing its Southern California operations. The Company has four
first-tier subsidiaries: Cala Co. ("Cala"), Falley's, Inc.
("Falley's"), Food 4 Less of Southern California, Inc. ("F4L-SoCal"),
formerly known as Breco Holding Company, Inc. ("BHC") and Crawford
Stores, Inc. 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 So-Cal.
Ralphs Merger
On June 14, 1995, F4L Supermarkets acquired all of the common
stock of Ralphs Supermarkets, Inc. ("RSI") in a transaction accounted
for as a purchase by F4L Supermarkets. The consideration for the
acquisition consisted of $388.1 million in cash, $131.5 million
principal amount of 13-5/8% Senior Subordinated Pay-In-Kind Debentures
due 2007 of Holdings (the "Seller Debentures") and $18.5 million
initial accreted value of 13-5/8% Senior Discount Debentures due 2005
of Holdings (the "New Discount Debentures"). F4L Supermarkets, RSI
and RSI's wholly owned subsidiary Ralphs Grocery Company ("RGC")
combined through mergers (the "Merger") in which RSI remained as the
surviving entity and changed its name to Ralphs Grocery Company
(referred to as the "Company" herein). The financial statements
reflect management's preliminary estimates of the purchase price
allocation at April 21, 1996. The actual purchase accounting
adjustments will be determined within one year following the Merger
and may vary from the preliminary estimates at April 21, 1996.
8
<PAGE> 11
The following unaudited pro forma information presents the
results of the Company's operations, adjusted to reflect interest
expense and depreciation and amortization, as though the Merger had
been consummated at the beginning of fiscal 1995.
<TABLE>
<CAPTION>
12 Weeks Ended
April 23, 1995
------------------------
(dollars in thousands,
except share amounts)
<S> <C>
Sales $1,261,101
Restructuring charge (75,187)
Loss before extraordinary charge (119,642)
Net loss (142,770)
Loss per share:
Loss before extraordinary charge (79.03)
Net loss (94.30)
</TABLE>
The unaudited pro forma results of operations are not
necessarily indicative of the actual results of operations that would
have occurred had the purchase actually been made at the beginning of
fiscal 1995, or of the results which may occur in the future.
3. SIGNIFICANT ACCOUNTING POLICIES
Inventories
Inventories, which consist primarily 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 $18.7 million and $20.0
million at January 28, 1996 and April 21, 1996, respectively, and
gross profit and operating income would have been greater by $1.0
million and $1.3 million for the 12 weeks ended April 23, 1995 and
April 21, 1996, respectively.
Reclassifications
Certain prior period amounts in the consolidated financial
statements have been reclassified to conform to the April 21, 1996
presentation.
Recent Accounting Pronouncements
In the first quarter of fiscal 1996, the Company adopted
Statement of Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of" (SFAS 121). The adoption of SFAS 121 had no impact on the
Company's financial position or on its results of operations.
4. RESTRUCTURING CHARGE
During fiscal 1995, the Company recorded a $75.2 million
charge associated with the closure of 58 former F4L Supermarkets
stores and one former F4L Supermarkets warehouse facility. The
stores were closed to comply with a settlement agreement with the
State of California in connection with the Merger or due to
under-performance. Three RGC stores were also required to be sold to
comply with the settlement agreement. The $75.2 million
restructuring charge consisted of write-downs of property and
equipment ($52.2
9
<PAGE> 12
million) less estimated proceeds ($16.0 million); reserve for closed
stores and warehouse facility ($16.1 million); write-off of the Alpha
Beta trademark ($8.3 million); write-off of other assets ($8.0
million); lease termination expenses ($4.0 million); and miscellaneous
expenses ($2.6 million). During fiscal year 1995, the Company
utilized $34.7 million of the reserve for restructuring costs ($50.0
million of costs partially offset by $15.3 million of proceeds from
the divestiture of stores). During the 12 weeks ended April 21, 1996,
the Company utilized $5.5 million of the reserve for restructuring
costs. The charges consisted of write-downs of property and equipment
($4.8 million) and expenditures associated with the closed stores and
the warehouse facility ($0.7 million).
On December 29, 1995, the Company consummated an agreement
with Smith's Food & Drug Centers, Inc. ("Smith's") to sublease its
one million square foot distribution center and creamery facility in
Riverside, California for approximately 23 years, with renewal options
through 2043, and to acquire certain operating assets and inventory at
that facility. In addition, the Company also acquired nine of
Smith's Southern California stores which became available when Smith's
withdrew from the California market. As a result of the acquisition
of the Riverside distribution center and creamery, the Company closed
its La Habra distribution center in the first quarter of fiscal 1996.
Also, the Company closed nine of its smaller and less efficient stores
which were near the stores acquired from Smith's. During the fourth
quarter of fiscal year 1995, the Company recorded a $47.9 million
restructuring charge to recognize the cost of closing these
facilities, consisting of write-downs of property and equipment
($16.1 million), closure costs ($2.2 million), and lease termination
expenses ($29.6 million). During the 12 weeks ended April 21, 1996,
the Company utilized $9.9 million of the reserve for restructuring
costs. The charges consisted of write-downs of property and equipment
($6.8 million), closure costs ($2.1 million), and lease termination
expenditures ($1.0 million).
10
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
On June 14, 1995, Food 4 Less Supermarkets, Inc. ("F4L Supermarkets")
completed its acquisition of Ralphs Supermarkets, Inc. ("RSI") and its wholly
owned subsidiary, Ralphs Grocery Company ("RGC"). The acquisition was effected
through the merger of F4L Supermarkets with and into RSI (the "RSI Merger"),
followed by the merger of RGC with and into RSI (the "RGC Merger" and, together
with the RSI Merger, the "Merger"). The surviving corporation in the Merger
was renamed Ralphs Grocery Company (the "Company"). Concurrently with the
consummation of the Merger, the Company received a significant equity
investment from its parent, Food 4 Less Holdings, Inc. ("Holdings") and
refinanced a substantial portion of the existing indebtedness of F4L
Supermarkets and RGC.
The Company's results of operations for the 12 weeks ended April 21,
1996 reflect operations for the combined Company, while the results of
operations for the 12 weeks ended April 23, 1995 reflect only the operations
of F4L Supermarkets prior to the Merger. Management believes that the
Company's results of operations for periods ending after the consummation of
the Merger are not directly comparable to its results of operations for periods
ending prior to such date. This lack of comparability as a result of the
Merger is attributable to several factors, including the size of the combined
Company (the Merger approximately doubled F4L Supermarkets' annual sales), the
addition of 174 conventional stores to the Company's overall store mix and the
material changes in the Company's capital structure.
The Merger is being accounted for as a purchase of RGC by F4L
Supermarkets. As a result, all financial statements for periods subsequent to
June 14, 1995, the date the Merger was consummated, reflect RGC's net assets
at their estimated fair market values as of June 14, 1995. The purchase price
in excess of the fair market value of RGC's net assets was recorded as
goodwill and is being amortized over a 40-year period. The purchase price
allocation reflected in the Company's unaudited balance sheet at April 21, 1996
is based on management's preliminary estimates. The actual purchase accounting
adjustments will be determined within one year following the Merger and may
vary from the preliminary estimates at April 21, 1996.
At April 21, 1996, the Company operated 270 conventional supermarkets
and 76 Food 4 Less warehouse stores in Southern California. It also operated
62 additional stores in Northern California and certain areas of the Midwest.
Following the Merger, the Company converted F4L Supermarkets' Alpha Beta, Boys
and Viva stores to the Ralphs format and converted selected Ralphs stores to
the Food 4 Less warehouse format.
As of April 21, 1996, the Company's bakery, creamery and deli
manufacturing operations and the management of major corporate departments had
been consolidated. The full integration of the Company's administrative
departments is expected to be completed by the end of June 1996. The
previously planned integration and consolidation of the Company's warehousing
and distribution facilities into three primary facilities has been modified and
will now be completed by the end of the fiscal year. This delay was a result
of the acquisition of the Smith's Riverside, California distribution and
creamery facility.
11
<PAGE> 14
RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth the selected unaudited operating
results of the Company for the 12 weeks ended April 23, 1995 and April 21,
1996:
<TABLE>
<CAPTION>
12 WEEKS ENDED
---------------------------------------------
APRIL 23, 1995 APRIL 21, 1996
-------------- --------------
(DOLLARS IN MILLIONS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Sales $623.6 100.0% $1,230.8 100.0%
Gross profit 107.2 17.2 248.6 20.2
Selling, general, administrative
and other, net 91.4 14.7 217.3 17.7
Amortization of goodwill 1.8 0.3 7.2 0.6
Operating income 14.0 2.2 24.1 2.0
Interest expense 16.9 2.7 56.1 4.6
Loss (gain) on disposal of assets (0.4) (0.1) (0.0) (0.0)
Provision for income taxes 0.3 0.0 -- --
Net loss (2.8) (0.4) (32.0) (2.6)
</TABLE>
Sales. Sales per week increased $50.6 million, or 97.3 percent, from
$52.0 million in the 12 weeks ended April 23, 1995 to $102.6 million in the 12
weeks ended April 21, 1996. The increase in sales for the 12 weeks ended April
21, 1996, was primarily attributable to the addition of 174 conventional
supermarkets acquired through the Merger. The sales increase was partially
offset by a comparable store sales decline of 0.7 percent for the 12 weeks
ended April 21, 1996. Excluding stores being divested or closed in connection
with the Merger, and excluding the impact from last year's Northern California
labor dispute, comparable store sales decreased 0.2 percent for the 12 weeks
ended April 21, 1996. Management believes that the decline in comparable store
sales is partially attributable to additional competitive store openings and
remodels in Southern California, as well as the Company's own new store
openings and conversions. Management believes that, following the consummation
of the Merger, the decline in comparable store sales was also attributable to
smaller than anticipated benefits from the Company's advertising program.
Though the largest impact was experienced by the Company's Alpha Beta, Boys and
Viva stores which were converted to the Ralphs format, the base Ralphs stores
were also affected.
Gross Profit. Gross profit increased as a percentage of sales from
17.2 percent in the 12 weeks ended April 23, 1995 to 20.2 percent in the 12
weeks ended April 21, 1996. The increase in gross profit margin was primarily
attributable to the addition of 174 conventional supermarkets which offset the
effect of the Company's warehouse stores (which have lower gross margins than
the Company's conventional supermarkets) on its overall gross margin for the
period. Gross profit during the 12 weeks ended April 21, 1996 was also
impacted by certain one-time costs associated with the integration of the
Company's operations. See "Operating Income (Loss)."
Selling, General, Administrative and Other, Net. Selling, general,
administrative and other expenses ("SG&A") were $91.4 million and $217.3
million for the 12 weeks ended April 23, 1995 and April 21, 1996,
respectively. SG&A increased as a percentage of sales from 14.7 percent to
17.7 percent for the same periods. The increase in SG&A as a percentage of
sales was due primarily to the addition of 174 conventional supermarkets
acquired through the Merger. The additional conventional supermarkets offset
the effect of the Company's warehouse stores (which have lower SG&A than the
Company's conventional supermarkets) on its SG&A margin for the period. SG&A
during the 12 weeks ended April 21, 1996 was also impacted by certain one-time
costs associated with the integration of the Company's operations. See
"Operating Income (Loss)."
12
<PAGE> 15
Operating Income. In addition to the factors discussed above,
operating income for the 12 weeks ended April 21, 1996 was impacted by
approximately $7.6 million for costs associated with the consolidation of
warehousing and distribution and other continuing integration of the Company's
operations. Management anticipates these integration costs to continue during
the second quarter of 1996 until the consolidation plans are completed.
Interest Expense. Interest expense (including amortization of
deferred financing costs) was $16.9 million and $56.1 million for the 12 weeks
ended April 23, 1995 and April 21, 1996, respectively. The increase in
interest expense was primarily due to the increased indebtedness incurred in
conjunction with the Merger. See "Liquidity and Capital Resources."
Net Loss. Primarily as a result of the factors discussed above, the
Company's net loss increased from $2.8 million in the 12 weeks ended April 23,
1995 to $32.0 million in the 12 weeks ended April 21, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations, amounts available under the $325.0 million
revolving credit facility (the "Revolving Facility") and lease financing are
the Company's principal sources of liquidity. The Company believes that these
sources will be adequate to meet its anticipated capital expenditure, working
capital and debt service requirements for the remainder of fiscal 1996.
However, there can be no assurance that the Company will continue to generate
cash flow from operations at historical levels or that it will be able to make
future borrowings under the Revolving Facility.
During the 12 week period ending April 21, 1996, cash provided by
operating activities was approximately $54.5 million compared to $10.5 million
for the 12 weeks ending April 23, 1995. The increase in cash from operating
activities is due primarily to changes in operating assets and liabilities for
the 12 weeks ending April 21, 1996, partially offset by the impact of certain
costs associated with the integration of the Company's operations subsequent to
the Merger. 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 21, 1996, this resulted in a
working capital deficit of $230.2 million.
Cash used for investing activities was $35.2 million for the 12 weeks
ended April 21, 1996. Investing activities consisted primarily of capital
expenditures of $34.2 million, partially offset by $2.2 million of
sale/leaseback transactions. The capital expenditures, net of the proceeds
from sale/leaseback transactions, were financed primarily from cash provided by
operating and financing activities.
The capital expenditures discussed above relate to 28 new stores (14
of which had been completed at April 21, 1996) and the remodeling of 7 stores
(all of which had been completed at April 21, 1996). The Company currently
anticipates that its aggregate capital expenditures for fiscal 1996 will be
approximately $105.0 million ($95.0 million, net of expected capital leases),
of which approximately $96.0 million relate to ongoing expenditures for new
stores, equipment and maintenance and approximately $9.0 million relate to
Merger-related and other non- recurring items. Consistent with past
practices, the Company intends to finance these capital expenditures primarily
with cash provided by operations and through leasing transactions. At May 28,
1996, the Company had approximately $5.2 million of unused equipment leasing
facilities. No assurance can be given that sources of financing for capital
expenditures will be available or sufficient to finance its anticipated capital
expenditure requirements; however, management believes the capital expenditure
program has substantial flexibility and is subject to revision based on various
factors, including changes in business conditions and cash flow requirements.
Management believes that
13
<PAGE> 16
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 new stores is an important
component of its operating strategy. Consequently, management believes if
these programs were substantially reduced, future operating results, 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 $28.7 million for the 12 weeks
ended April 21, 1996. Financing activities consisted primarily of a $17.4
million reduction of the amount outstanding under the Revolving Facility,
principal payments on long-term debt and payments on capital leases of $7.8
million. At April 21, 1996, there was $110.0 million of borrowings under the
Revolving Facility and $104.3 million of standby letters of credit had been
issued. At May 28, 1996, the Company had $137.6 million available for
borrowing under the Revolving Facility.
The Company is a wholly-owned subsidiary of Holdings. Holdings has
outstanding $100 million initial accreted value of the New Discount Debentures
and $131.5 million initial principal amount of Seller Debentures outstanding.
Holdings is a holding company which has no assets other than the capital stock
of the Company. Holdings will be required to commence semi-annual cash
payments of interest on the New Discount Debentures and the Seller Debentures
commencing December 15, 2000 in the amount of approximately $61 million per
annum. Subject to the limitations contained in its debt instruments, the
Company intends to make dividend payments to Holdings in amounts which are
sufficient to permit Holdings to service its cash interest requirements. The
Company may make payments to Holdings in connection with certain employee stock
repurchases and for routine administrative expenses.
The Company is highly leveraged. At April 21, 1996, the Company's
total long-term indebtedness (including current maturities) and stockholder's
equity were $2.1 billion and $27.1 million, respectively. Based upon current
levels of operations and anticipated cost savings and future growth, the
Company believes that its cash flow from operations, together with available
borrowings under the Revolving Facility and its other sources of liquidity
(including lease financing), will be adequate to meet its anticipated
requirements for working capital, capital expenditures, integration costs and
debt service payments. However, there can be no assurance that the Company's
business will continue to generate cash flow at or above current levels or that
future cost savings and growth can be achieved.
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
14
<PAGE> 17
competitors' prices and adjusts its prices and marketing strategy as management
deems appropriate.
RECENT ACCOUNTING PRONOUNCEMENTS
In the first quarter of fiscal 1996, the Company adopted Statement of
Financial Accounting Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" (SFAS 121). The
adoption of SFAS 121 had no impact on the Company's financial position or on its
results of operations.
15
<PAGE> 18
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
4.1. Third Amendment, Consent and Waiver to Credit
Agreement dated as of March 8, 1996 among Food 4 Less
Holdings, Inc., Ralphs Grocery Company and the
financial institutions listed on the signature pages
thereto (incorporated herein by reference to Exhibit
4.1.4. of Ralphs Grocery Company's Annual Report on
Form 10-K for the fiscal year ended January 28,
1996).
27. Financial Data Schedule.
(b) Reports on Form 8-K
None.
16
<PAGE> 19
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 Los Angeles, State
of California.
Dated: May 29, 1996
RALPHS GROCERY COMPANY
/s/ GREG MAYS
--------------------------------
Greg Mays
Executive Vice President
Finance & Administration
Chief Financial Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
CONSOLIDATED BALANCE SHEETS AND UNAUDITED STATEMENTS OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 12 WEEKS ENDED APRIL 21, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-02-1997
<PERIOD-START> JAN-29-1996
<PERIOD-END> APR-21-1996
<CASH> 58,542
<SECURITIES> 0
<RECEIVABLES> 71,860
<ALLOWANCES> (1,574)
<INVENTORY> 483,380
<CURRENT-ASSETS> 645,733
<PP&E> 1,448,808
<DEPRECIATION> (242,198)
<TOTAL-ASSETS> 3,144,775
<CURRENT-LIABILITIES> 875,921
<BONDS> 1,997,472
0
0
<COMMON> 466,798
<OTHER-SE> (439,660)
<TOTAL-LIABILITY-AND-EQUITY> 3,144,775
<SALES> 1,230,808
<TOTAL-REVENUES> 1,230,808
<CGS> 982,171
<TOTAL-COSTS> 982,171
<OTHER-EXPENSES> 224,534
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56,084
<INCOME-PRETAX> (31,981)
<INCOME-TAX> 0
<INCOME-CONTINUING> (31,981)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (31,981)
<EPS-PRIMARY> (21.12)
<EPS-DILUTED> 0
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