SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
_______________
For Fiscal Year Ended Commission File Number
February 2, 1997 33-31152
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 90220
Compton, California (Zip code)
(Address of principal executive offices)
(310) 884-9000
(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 April 18, 1997, there were 1,513,938 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.
PART I
ITEM 1. BUSINESS
GENERAL
Ralphs Grocery Company (the "Company"), formerly known as Food 4 Less
Supermarkets, Inc. ("F4L Supermarkets"), a wholly-owned subsidiary of Food 4
Less Holdings, Inc. ("Holdings"), is a retail supermarket company with a total
of 405 stores which are located in Southern California (342) , Northern
California (27) and certain areas of the Midwest (36). The Company is the
largest supermarket operator in Southern California, with an estimated market
share of 26 percent in Los Angeles and Orange Counties. The Company operates
the second largest conventional supermarket chain in the region under the
"Ralphs" name and the largest warehouse supermarket chain in the region 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 a bakery and creamery operations, and full-
line warehouse and distribution facilities servicing its Southern California
operations.
On June 14, 1995, F4L Supermarkets, Food 4 Less Holdings, Inc., a
California corporation ("Old Holdings"), and Food 4 Less, Inc. ("FFL") (which
owned a majority of the stock of Old Holdings) completed a definitive agreement
and plan of merger (the "Merger Agreement") with Ralphs Supermarkets, Inc.
("RSI") and the stockholders of RSI. Pursuant to the terms of the Merger
Agreement, as amended, F4L Supermarkets was merged with and into RSI (the "RSI
Merger"). Immediately following the RSI Merger, pre-Merger Ralphs Grocery
Company ("RGC"), which was a wholly-owned subsidiary of RSI, merged with and
into RSI (the "RGC Merger," and together with the RSI Merger, the "Merger"), and
RSI changed its name to Ralphs Grocery Company. Prior to the Merger, FFL merged
with and into Old Holdings, which was the surviving corporation (the "FFL
Merger"). Immediately following the FFL Merger, Old Holdings changed its
jurisdiction of incorporation by merging into a newly-formed, wholly-owned
subsidiary, incorporated in Delaware (the "Reincorporation Merger"). As a
result of the Merger, the FFL Merger and the Reincorporation Merger, the Company
became a wholly-owned subsidiary of Holdings.
The Company operates both conventional and warehouse format stores
utilizing a retail strategy tailored to the particular needs of the individual
communities it serves. The Company operates in three geographic areas: Southern
California, Northern California and certain areas of the Midwest, under six
different retail formats. The following table sets forth by retail format the
number of stores operated by each of the Company's three divisions at February
2, 1997 (unless otherwise indicated, all references to numbers of stores and
other store data in this Annual Report on Form 10-K are as of February 2, 1997):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Southern Northern
California California Midwestern Total
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ralphs 263 - - 263
Cala - 8 - 8
Bell - 13 - 13
Falley's - - 5 5
- ------------------------------------------------------------------------
Total Conventional 263 21 5 289
Food 4 Less 79 - 31 110
FoodsCo - 6 - 6
- ------------------------------------------------------------------------
Total Warehouse 79 6 31 116
- ------------------------------------------------------------------------
Total Stores 342 27 36 405
========================================================================
</TABLE>
SOUTHERN CALIFORNIA DIVISION
The Southern California Division operates 342 supermarkets in eight
counties under the names "Ralphs" and "Food 4 Less." The Company's Southern
California stores accounted for approximately 90 percent of the Company's sales
for the 53 weeks ended February 2, 1997.
The combination of RGC and F4L Supermarkets created the largest
supermarket operator in Southern California. Since the Merger, the Company has
consolidated all of its stores in the region under its two leading complementary
formats. The Company operates the second largest conventional supermarket chain
in the region under the "Ralphs" name and the largest price impact warehouse
supermarket chain under the "Food 4 Less" name. Management believes the
consolidation of its formats in Southern California has improved the Company's
ability to adapt its stores' merchandising strategy to the local markets in
which they operate while achieving cost savings and other efficiencies.
Ralphs Conventional Format. The Company operates 263 Ralphs stores in
Southern California. All of the Company's conventional stores in the region
use the "Ralphs" name and are operated under a single format. Each store is
merchandised to appeal to the local community it serves and offers competitive
pricing with emphasis on overall value. Ralphs' substantial supermarket product
selection is a significant aspect of its marketing efforts. Ralphs stores stock
between 35,000 and 45,000 merchandise items, including approximately 2,800
private label products. Ralphs stores offer name-brand grocery products;
quality and freshness in its produce, meat, seafood, delicatessen and bakery
products; and broad selection in all departments. Most Ralphs stores offer
service delicatessen departments, on-premises bakery facilities and seafood
departments. Ralphs emphasizes store ambiance and cleanliness, fast and
friendly service, the convenience of debit and credit card payment (including
many in-store branch banks) and 24-hour operations in most stores.
Food 4 Less Warehouse Format. The Company operates 79 stores in Southern
California which target 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 and variety 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, which 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.
Marketing and Merchandising
As a result of the consolidation of conventional format stores in Southern
California under the "Ralphs" name, the Company eliminated most of the separate
advertising associated with F4L Supermarkets' conventional Alpha Beta, Boys and
Viva formats. Because the Company's advertising program covers the Southern
California region, the Company has been able to expand the number of Ralphs
stores without significantly increasing advertising costs.
The Company utilizes innovative and aggressive marketing programs in an
effort to increase sales, market share and profitability. In September 1996,
the Company launched its "First in Southern California" marketing program, which
emphasizes Ralphs' lower regular retail prices in conjunction with its premier
quality, wide selection and enhanced customer service. The new marketing
campaign also highlights the Company's belief that more shoppers are choosing
Ralphs than any other supermarket in Southern California. The program is
designed to increase store traffic and sales by a coordinated use of media
advertisement and targeted use of price promotions and double coupon offerings.
Management believes that consumers' favorable response to the "First in Southern
California" marketing campaign has resulted in increased customer traffic at its
stores and has contributed to the increase in 1996 fourth quarter comparable
store sales in Southern California of 3.5 percent. The Company continues to
emphasize its successful merchandising programs and exceptional product mix,
including its home meal replacement program and strong private label program.
The Company intends to continue to expand its home meal replacement program in
its conventional supermarkets. The Company's home meal replacement program
offers a wide range of pre-packaged fresh, refrigerated and frozen food items.
Through its private label program, the Company offers a diverse array of
grocery and general merchandise items under its own brand names which include
"Ralphs," "Private Selection," "Perfect Choice," "Plain Wrap" and "Equality."
The Company has entered into several private label licensing arrangements which
allow it to utilize recognized brand names on an exclusive basis in connection
with certain goods it manufactures 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. The Company's private label program provides quality
comparable to that of national brands at significantly lower prices, while the
Company's gross margins on private label products are generally higher than on
national brands. The Company believes that its private label program is one of
the most successful in the supermarket industry, and the Company intends to
continue the growth of its private label program in the future.
Ralphs stores promote sales through the use of product coupons, consisting
of manufacturers' coupons and Ralphs' own promotional coupons. Ralphs offers a
double coupon program in all stores with Ralphs matching the price reduction
offered by the manufacturer up to certain limits. Ralphs also generates store
traffic through weekly advertised specials, special sales promotions such as
discounts on recreational activities, seasonal and holiday promotions, increased
private label selection, club pack items and exclusive product offerings.
The Food 4 Less warehouse stores utilize print and radio advertising which
emphasizes Food 4 Less' low-price leadership, rather than promoting special
prices on individual items. The Food 4 Less warehouse stores also utilize
weekly advertising circulars, customized to local communities, which highlight
the merchandise offered in each store.
Warehousing, Distribution and Manufacturing
In March 1996, the Company commenced operations in a state-of-the-art
distribution and creamery facility located in Riverside, California (the
"Riverside Facility") which was acquired from Smith's Food & Drug Centers, Inc.
("Smith's") in December 1995. The technologically-advanced 90-acre complex has
improved the quality, service and productivity of the Company's distribution
and manufacturing operations. The Riverside Facility, which was originally
opened in 1994 by Smith's, has more than one million square feet of warehousing
and manufacturing space consisting of a 675,000 square foot dry grocery service
center, a 270,000 square foot refrigerated and frozen food facility and a
115,000 square foot creamery facility. The Riverside Facility sublease runs for
approximately 23 years, with renewal options through 2043, and provides for
annual rent of approximately $8.8 million. The Company also acquired certain
operating assets and inventory at the Riverside Facility when it entered into
the sublease for a purchase price of approximately $20.2 million.
The acquisition of the Riverside Facility allowed the Company to eliminate
certain of its smaller and less efficient warehouse facilities and to
consolidate its distribution operations into the Riverside Facility and two
other modern, efficient facilities located in Compton and Glendale, California.
The consolidation of the distribution operations allowed the Company to reduce
transportation costs, management overhead and outside storage costs and to
improve its inventory management.
The Riverside Facility also increases distribution capacity of the Company
by increasing storage capacity to 120,000 pallets and increasing the assortment
of items that are internally supported (increasing dry grocery from 10,000 to
14,000 SKUs and perishable and frozen items by 1,500 SKUs).
The Company also operates a 17 million cubic foot high-rise automated
storage and retrieval system ("ASRS") warehouse for non-perishable items, near
Glendale, California. The ASRS warehouse has a ground floor area of 170,000
square feet and capacity of approximately 50,000 pallets. Guided by computer
software, ten-story high cranes move pallets from the receiving dock to
programmed locations in the ASRS warehouse while recording the location and time
of storage. Goods are retrieved and delivered by the cranes to conveyors
leading to an adjacent "picking" warehouse where individual store orders are
filled and shipped. The Company's Glendale "picking" warehouse (together with
the ASRS, the "Glendale Facility") was damaged in the Northridge earthquake.
Its operations were transferred to the Riverside Facility while it was being
renovated. The Company completed its renovation of the Glendale "picking"
warehouse in March 1997. The Glendale Facility can hold substantially more
inventory and requires fewer employees to operate than a conventional warehouse
of equal size.
The Company's third major Southern California distribution center is its
5.4 million cubic foot facility in Compton, California designed to process and
store all perishable products (the "Compton Facility"). This facility was
constructed in 1992 and has provided the Company with the ability to deliver
perishable products to its stores on a daily basis, thereby improving the
freshness and quality of these products.
Combined shipments from the Company's Southern California warehouse
facilities accounted for approximately 78 percent of the Southern California
Division's total purchases during the 53 weeks ended February 2, 1997.
Additional purchases, consisting of mostly general merchandise, approximating
one percent of the division's total during this same period, were made through
Certified Grocers of California, Ltd. ("Certified"), a food distribution
cooperative in which the Company is a member.
The Riverside Facility's creamery is the production point for all fluid
milk products bound for sale in the Company's Food 4 Less warehouse stores.
Bottled water, fruit juice and ice for the entire Company are processed and
packaged at the Riverside Facility creamery. Milk bound for the Company's
Ralphs conventional stores, as well as all ice cream and ice cream products, are
processed at the Company's existing creamery in Compton, California. The
Company also processes selected delicatessen items, including packaged salads
and cheeses, and produces cultured products, including sour cream and yogurt in
Compton.
In October 1996, the Company finalized an agreement (the "Agreement") with
American Stores Company ("American Stores") which resulted in termination of the
Company's leases for the La Habra facility and two stores leased from American
Stores. In addition, as required by the Company's settlement agreement with the
State of California entered into at the date of the Merger, the Company sold
one store to American Stores. The Company also entered into a new lease for the
bakery facility at La Habra, which it will continue to operate, and modified the
terms of two other store leases. Operations at the La Habra distribution
facility were previously discontinued as part of the Company's ongoing
consolidation of warehouse and distribution facilities which began with the
acquisition of the Riverside Facility in December 1995.
Store Operations and Retail Systems
The Company has a modern store base with over 60 percent of its stores
having been either opened or remodeled in the last five years. Since the
Merger, the Company has closed 74 smaller, underperforming stores, opened 37
stores, and expanded or remodeled 23 stores. During fiscal 1996, the Company
opened 26 new stores and remodeled 20 stores. These improvements to its store
base have resulted in an increase in Southern California average store size of
approximately 11.6 percent. In addition, as a result of Ralphs' 124 year
history in Southern California, the Company has valuable and well-established
store locations, many of which are in densely populated metropolitan areas.
The Southern California Division's store equipment and facilities are
generally in excellent condition. The Ralphs stores range in size from
approximately 18,900 square feet to 87,000 square feet and average approximately
37,700 square feet. The Southern California Food 4 Less stores are generally
larger and range in size from approximately 27,400 square feet to 109,300 square
feet, and average approximately 55,200 square feet. The Company believes the
Southern California Division's 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.
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. All of the Company's
Southern California Division stores currently offer an electronic funds transfer
system which allows customers to make purchases as well as obtain cash or check
approvals in transactions linked to their bank accounts. In addition, the
Company's stores now offer customers the convenience of making purchases with
major credit cards.
Expansion and Development
The Company's merger, expansion, remodeling and conversion efforts have
required, and will continue to require, the funding of significant capital
expenditures. Remodels and new store openings, among other things, are subject
to the availability of developers' financing, agreements with developers and
landlords, local zoning regulations, construction schedules and other factors,
including costs, often beyond the Company's control. Accordingly, there can be
no assurance that the Company's anticipated expansion schedule will be met.
Further, there is competition for new store sites, and it is possible that this
competition might adversely affect the timing of its new store program. From
time to time, the Company also closes or sells marginal stores. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations ---- Liquidity and Capital Resources."
NORTHERN CALIFORNIA AND MIDWESTERN DIVISIONS
The Northern California Division of the Company operates 21 conventional
supermarkets in the greater San Francisco Bay area under the "Cala" and
"Bell" names, and six 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 would be very difficult to
replicate. The Midwestern Division of the Company operates 36 stores, of which
31, including ten former "Food Barn" stores which the Company acquired in March
1994, are warehouse format stores operated under the "Food 4 Less" name, and
five of which are conventional supermarkets operated under the "Falley's" name.
Of these 36 stores, 32 are located in Kansas and four are located in Missouri.
Management believes the Food 4 Less warehouse format stores are the low-price
leaders in each of the markets in which they compete.
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, and its advertising and promotion strategy
highlights the reduced price specials offered in its stores. In contrast, the
Company's warehouse format stores emphasize lowest overall prices rather than
promoting special prices on individual items. The Northern California
Division's conventional stores range in size from approximately 8,900 square
feet to 32,800 square feet, and average approximately 19,300 square feet. The
Northern California Division's warehouse stores range in size from approximately
29,100 square feet to 59,700 square feet, and average approximately 43,300
square feet. The Midwestern Division's conventional stores range in size from
approximately 18,100 square feet to 30,900 square feet, and average
approximately 25,000 square feet. The Midwestern Division's warehouse format
stores range in size from approximately 8,800 square feet to 60,200 square feet
and average approximately 37,900 square feet.
The Northern California Division purchases merchandise from a number of
suppliers; however, approximately 36 percent of its purchases are made through
Certified Grocers of California, Ltd. ("Certified"), a food distribution
cooperative, pursuant to supply contracts. The Northern California Division
does not operate its own warehouse facilities, relying instead on direct
delivery to its stores by Certified and other vendors. The Company's Southern
California warehouse facilities supply a portion of the merchandise sold in the
Northern California Division stores.
The Company is party to a joint venture with a subsidiary of Certified
which operates a general merchandise warehouse in Fresno, California.
Management has been holding discussions with Certified concerning the possible
termination of the joint venture.
The Midwestern Division's primary supplier is Associated Wholesale Grocers
("AWG"), a member-owned wholesale grocery cooperative based in Kansas City. The
Midwestern Division does not operate a central warehouse, but purchases
approximately 70 percent 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. The Midwestern Division produces approximately 50 percent of all
case-ready fresh meat items sold in its stores at its central meat plant located
in Topeka, Kansas.
Since the beginning of fiscal 1991, the Northern California Division has
remodeled 15 stores, opened seven new stores and, in fiscal 1995, acquired three
stores from Roger Wilco, now operated as Bell 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 the exclusive rights to use
the "Food 4 Less" name in Northern California to Fleming Companies, Inc.
("Fleming"), which previously held a non-exclusive license. See "Licensing
Operations" for further discussion of the amendment to the Fleming license.
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.
The Southern California Division competes with several large national and
regional chains, principally Albertson's, Hughes, Lucky, Stater Bros., and Vons,
and with smaller independent supermarkets and grocery stores as well as
warehouse clubs and other "alternative format" food stores. The Company's
primary competitor in Southern California was recently acquired by a multi-
regional supermarket chain, which may increase competitive pressure for the
Company. 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 and Dillons, as well as
independent grocery and "alternative format" stores such as Hypermarket USA.
The Company positions its warehouse format supermarkets as the overall low-price
leaders in each marketing area in which they operate.
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 1996, earnings from
licensing operations were approximately $244,000. 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, a major food wholesaler and
retailer. In August of 1993, the Company amended its licensing agreement with
Fleming to give Fleming exclusive use of the Food 4 Less name in Northern
California and the Company exclusive use in Southern California (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 February 2, 1997, there were 179 Food 4 Less warehouse
supermarkets in 12 states, including the 110 stores owned or leased and operated
by the Company. Of the remaining 69 stores, 7 are operated by Fleming under
licenses, 10 are operated under sublicenses from Fleming and 52 are operated by
other licensees.
GOVERNMENTAL REGULATION
The Company is subject to regulation by a variety of governmental agencies,
including, but not limited to, the California Department of Alcoholic Beverage
Control, the California Department of Agriculture, the U.S. Food and Drug
Administration, the U.S. Department of Agriculture and state and local health
departments.
EMPLOYEES
The Company believes that its relationship with its employees is excellent.
At February 2, 1997, the Company had a total of 27,254 employees, as shown in
the table below.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Southern Northern
California California Midwestern Total
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Administrative 1,138 61 48 1,247
Warehouse, manufacturing and
transportation 3,350 - 58 3,408
Stores 20,097 1,144 1,358 22,599
- ----------------------------------------------------------------------------------
Total 24,585 1,205 1,464 27,254
==================================================================================
</TABLE>
Of the Company's 27,254 total employees at February 2, 1997, there were
23,419 employees 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> <S>
UFCW 14,214 Southern California October 3, 1999
Division clerks and
meatcutters
UFCW 3,690 Southern California February 26, 2000
Division clerks and
meatcutters
International Brotherhood of Teamsters 2,867 Southern California September 13, 1998
Division drivers
and warehousemen
UFCW 1,054 Northern California March 7, 1998
Division clerks and
meatcutters
Hotel Employees and Restaurant Workers 839 Southern California September 11, 2000
Division culinary workers
Hospital and Service Employees 549 Southern California January 19, 1997 (a)
Division store porters
Bakery and Confectionery Workers 206 Southern California July 7, 2000
Division bakers
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Although negotiations for a new union contract are in progress, there
can be no assurance that a new contract will be reached on terms
satisfactory to the Company or that labor costs will not increase.
ITEM 2. PROPERTIES
At February 2, 1997, the Company operated 405 supermarkets, as set forth in
the table below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Number of Average
Supermarkets Total Square Feet/
Division Owned Leased Square Feet Facility
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Southern California 62(a) 280 14,237,000 41,600
Northern California - 27 665,000 24,600
Midwestern 2(b) 34 1,299,000 36,100
- -------------------------------------------------------------------------------
</TABLE>
- ----------------------
(a) Includes fifteen stores located on real property subject to ground
leases.
(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 30 years.
In addition to the supermarkets, the Company operates three main warehouse
and distribution centers in Southern California. The newly-acquired 90-acre
Riverside Facility has more than one million square feet of warehousing and
manufacturing space consisting of a creamery and several warehouses for dry
grocery, dairy/deli and frozen food storage. The Riverside Facility sublease
runs for approximately 23 years, with renewal options through 2043, and provides
for annual rent of approximately $8.8 million. The Glendale Facility,
consisting of a 170,000 square foot high-rise automated storage and retrieval
system warehouse and adjacent "picking" warehouse located in the Atwater
District of Los Angeles near Glendale, California, was opened in 1987 and
handles non-perishable items. It is ten stories high and has a capacity of
approximately 50,000 pallets. The Compton facility was opened in 1992 and is a
5.4 million cubic foot facility designed to process and store all perishable
products.
The Company also has manufacturing operations located in Compton that
produce a variety of dairy and other products, including fluid milk, ice cream,
yogurt and bottled waters and juices, as well as packaged ice, cheese and
packaged salads. The bakery operation is located at the La Habra complex and
measures 316,000 square feet.
The Company's former central office, manufacturing and warehouse facility
in La Habra, California was leased for a term ending 2001. Operations at the La
Habra facility were discontinued as part of the Company's consolidation of
warehouse and distribution facilities which began with the acquisition of the
Riverside Facility in December 1995. On October 29, 1996, the Company finalized
an agreement (the "Agreement") with American Stores Company ("American Stores")
which resulted in termination of the Company's leases for the La Habra facility
and two stores leased from American Stores. In addition, as required by the
Company's settlement agreement with the State of California entered into at the
date of the Merger, the Company sold one store to American Stores. In addition,
the Company entered into a new lease for the bakery facility at La Habra, which
it will continue to operate, and modified the terms of two other store leases.
In fiscal 1995, the Company recorded a restructuring charge which includes a
$29.6 million provision for lease termination expenses in connection with the
closure of the La Habra and other warehouses (as well as certain other
properties). See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
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 the retail market for fluid milk and to fix the
retail 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.
A class has been certified consisting of all purchasers of milk in Los Angeles
from December 7, 1988. Most defendants in the actions, not including the
Company, have reached tentative settlement agreements, and certain of the
settlements have been approved by the trial court, subject to a pending appeal.
The Company is continuing to actively defend itself in these class action suits.
On September 13, 1996 a class action lawsuit titled McCampbell, et al. v.
Ralphs Grocery Company, et al. was filed in the Superior Court of the State of
California, County of San Diego, against the Company and two other grocery store
chains operating in the Southern California area. The complaint alleges, among
other things, that the Company and others conspired to fix the retail price of
eggs in Southern California. The plaintiffs claim that the defendants' actions
violate provisions of the California Cartwright Act and constitute unfair
competition. The Plaintiffs seek damages they purport to have sustained as a
result of the defendants' alleged actions, which damages may be trebled under
the applicable statute, and an injunction from future actions in restraint of
trade and unfair competition. Because the case was recently filed, discovery
has just commenced and no class action has been certified. Management of the
Company intends to defend this action vigorously and the Company has filed an
answer to the complaint denying the plaintiffs' allegations and setting forth
several defenses.
On December 20, 1996, a lawsuit titled Bundy, et al. v. Ralphs Grocery
Company, et al. was filed in the Los Angeles Superior Court against the Company.
The complaint was filed by eight individual plaintiffs who were terminated in
conjunction with the Company's restructuring. The plaintiffs claim that they
were wrongfully terminated for discriminatory reasons and that the Company
engaged in various fraudulent practices. The plaintiffs seek compensatory
damages in excess of $15 million, special and punitive damages. Management of
the Company believes that the plaintiff's claims are without merit and intends
to defend this action vigorously.
In addition, the Company or its subsidiaries are defendants in a number of
other cases currently in litigation or are the subject of 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.
ENVIRONMENTAL MATTERS
In January 1991, the California Regional Water Quality Control Board for
the Los Angeles Region (the "Regional Board") requested that the Company conduct
a subsurface characterization of its Glendale Facility property located in the
Atwater District of Los Angeles, near Glendale, California. This request was
part of an ongoing effort by the Regional Board, in connection with the U.S.
Environmental Protection Agency (the "EPA"), to identify contributors to
groundwater contamination in the San Fernando Valley. Significant parts of the
San Fernando Valley, including the area where the Glendale Facility is located,
have been designated federal Superfund sites requiring response actions under
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, because of regional groundwater contamination. On June 18,
1991, the EPA made its own request for information concerning the Company's
Glendale Facility. Since that time, the Regional Board has requested further
investigation by the Company. The Company conducted the requested
investigations and reported the results to the Regional Board. Approximately 25
companies have entered into a Consent Order (EPA Docket No. 94-11) with the EPA
to investigate and design a remediation system for contaminated groundwater
beneath an area which includes the Glendale Facility. The Company is not a party
to the Consent Order, but is cooperating with requests of the subject companies
to allow installation of monitoring or recovery wells on its property. On or
about October 12, 1995, the EPA mailed a Special Notice Letter to 44 parties,
including the Company as owner and operator of the Glendale Facility property,
naming them as potentially responsible parties ("PRPs"). On November 26, 1996,
the EPA issued an Administrative Order for Remedial Action (EPA Docket No. 97-
06) against more than 60 respondents, including the Company, in connection with
the Superfund site. Under the order, these PRP's are required to take certain
actions, over an approximately 270-day period, in connection with the
implementation of interim remedies for the treatment of groundwater. The PRP's
have also agreed to an Alternative Dispute Resolution Process to allocate the
costs among themselves. Based upon available information, management does not
believe this matter will have a material adverse effect on the Company's
financial condition or results of operations.
The Company removed underground storage tanks and remediated soil
contamination at the Glendale Facility property. In some instances, the
removals and the contamination were associated with grocery business operations;
in others, they were associated with prior property users. Although the
possibility of other contamination from prior operations or adjacent properties
exists at the Glendale Facility property, management does not believe that the
costs of remediating such contamination will have a material adverse effect on
the Company's financial condition or results of operations.
Apart from the Glendale Facility, the Company has had environmental
assessments performed on most of its facilities, including warehouse and
distribution facilities. The Company believes that any responsive actions
required at the examined properties as a result of such assessments will not
have a material adverse effect on its financial condition or results of
operations.
The Company is subject to a variety of environmental laws, rules,
regulations and investigative or enforcement activities, as are other companies
in the same or similar business. The Company believes it is in substantial
compliance with such laws, rules and regulations. These laws, rules,
regulations and agency activities change from time to time, and such changes may
affect the ongoing business and operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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 April 18, 1997, Holdings was the
sole stockholder, beneficially and 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
outstanding debt securities contain certain restrictions on the payment of cash
dividends with respect to the Company's Common Stock, and the Company's bank
credit facility also restricts such payments.
ITEM 6. SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
THE COMPANY
The following table sets forth certain selected consolidated historical
financial data of Ralphs Grocery Company (formerly F4L Supermarkets). The
operating and balance sheet data of the Company set forth in the table below as
of and for the 53 weeks ended February 2, 1997, the 52 weeks ended January 28,
1996, the 31 weeks ended January 29, 1995, the 52 weeks ended June 25, 1994,
June 26, 1993 and June 27, 1992 have been derived from the financial statements
of the Company which have been 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.
The historical financial information set forth below for the 31 weeks ended
January 29, 1995 and all prior periods reflect the operations of F4L
Supermarkets and its consolidated subsidiaries. The historical financial
information for the 52 weeks ended January 28, 1996 and the 53 weeks ended
February 2, 1997 reflect the acquisition of RSI on June 14, 1995.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
52 Weeks 52 Weeks 52 Weeks 31 Weeks 52 Weeks 53 Weeks
Ended Ended Ended Ended Ended Ended
June 27, June 26, June 25, January 29, January 28, February 2,
1992 1993 1994(a) 1995(b) 1996(c) 1997
- -------------------------------------------------------------------------------------------------------------
(in thousands, except store data)
<S> <C> <C> <C> <C> <C> <C>
Operating Data:
Sales $2,913,493 $2,742,027 $2,585,160 $1,556,522 $4,335,109 $5,516,259
Cost of sales (d) 2,392,655 2,257,835 2,115,842 1,294,147 3,485,993 4,326,230
Gross profit (d) 520,838 484,192 469,318 262,375 849,116 1,190,029
Selling, general, administrative
and other, net 469,751 434,908 388,836 222,359 785,576 987,425
Amortization of goodwill 7,795 7,571 7,691 4,615 21,847 38,650
Loss (gain) on disposal of assets (1,364) (2,083) 37 (455) (547) 9,317
Restructuring charge - - - 5,134(e) 123,083(f) -
- ------------------------------------------------------------------------------------------------------------
Operating income (loss) (d) 44,656 43,796 72,754 30,722 (80,843) 154,637
Interest expense 70,211 69,732 68,250 42,222 178,774 248,428
Provision for earthquake losses - - 4,504(g) - - -
Provision for income taxes 3,441 1,427 2,700 - 500 -
- ------------------------------------------------------------------------------------------------------------
Loss before
extraordinary charges (28,996) (27,363) (2,700) (11,500) (260,117) (93,791)
Extraordinary charges 4,818(h) - - - 23,128(i) -
- ------------------------------------------------------------------------------------------------------------
Net loss(j) $ (33,814) $ (27,363) $ (2,700) $ (11,500) $ (283,245) $ (93,791)
============================================================================================================
Non-Cash Charges:
Depreciation and amortization
of property and equipment $ 37,898 $ 37,426 $ 41,380 $ 25,966 $ 92,282 $ 129,008
Amortization of goodwill and
other assets 16,979 20,214 15,703 10,657 33,047 40,669
Amortization of deferred
financing costs 6,304 4,901 5,472 3,413 8,193 10,667
Store Data:
Stores at end of period 249 248 258 267 408 405
Annual sales per
selling square foot $ 538 $ 533 $ 487 $ 452(k) $ 477 $ 485
Balance Sheet Data
(end of period)(l):
Working capital deficit $ (66,254) $ (19,222) $ (54,882) $ (74,776) $ (178,456) $ (182,641)
Total assets 998,451 957,840 980,080 1,000,695 3,188,129 3,131,993
Total long-term debt 509,829 522,440 495,942 506,576 2,028,308 2,060,700
Stockholder's equity (deficit) 50,771 72,863 69,021 57,803 59,119 (35,562)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
____________________________
(See footnotes on following page)
(a) 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 acquisition of 10 Food Barn Stores.
(b) F4L Supermarkets changed its fiscal year end from the 52 or 53-week period
which ends on the last Saturday in June to the 52 or 53-week period which
ends on the Sunday closest to January 31, resulting in a 31-week transition
period.
(c) Operating data for the 52 weeks ended January 28, 1996 reflect the
acquisition of RSI on June 14, 1995.
(d) Cost of sales has been principally determined using the last-in, first-out
("LIFO") method of valuing inventory. 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 $3,554,000, $4,441,000,
$699,000, $2,729,000, $2,214,000 and 5,580,000 for the 52 weeks ended
June 27, 1992, June 26, 1993, and June 25, 1994, the 31 weeks ended
January 29, 1995, the 52 weeks ended January 28, 1996 and the 53 weeks
ended February 2, 1997, respectively.
(e) The Company converted 11 of its conventional supermarkets to warehouse
stores. During the 31 weeks ended January 29, 1995, the Company recorded a
non-cash restructuring charge for the write-off of property and equipment
at the 11 stores of $5.1 million.
(f) The Company recorded a $75.2 million restructuring charge associated with
the closing of 58 stores and one warehouse facility in the 52 weeks ended
January 28, 1996. Pursuant to the settlement agreement with the State of
California, 24 Food 4 Less stores (as well as 3 Ralphs stores) were
required to be divested and an additional 34 under-performing stores were
closed. The Company also recorded a $47.9 million restructuring charge
associated with the closing of 9 stores and one warehouse facility in the
52 weeks ended January 28, 1996, in conjunction with the agreement with
Smith's to lease the Riverside warehouse facility and 9 stores.
(g) 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 recoveries, was approximately $4.5 million.
(h) 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 related income tax expense of $0.7
million) on the replacement of partially depreciated assets following the
civil unrest in Los Angeles.
(i) Represents an extraordinary charge of $23.1 million relating to the
refinancing of F4L Supermarkets' old credit facility, 10.45% Senior Notes
due 2000 (the "Old F4L Senior Notes"), 13.75% Senior Subordinated Notes due
2001 (the "Old F4L Senior Subordinated Notes") and Holdings' 15.25% Senior
Discount Notes due 2004 in connection with the Merger and the write-off of
their related debt issuance costs.
(j) Net loss includes a pre-tax provision for self insurance, which is
classified in cost of sales, selling, general and administrative expenses,
and interest expense, of $51.1 million, $43.9 million, $25.7 million,
$9.8 million, $32.6 million and $29.2 million for the 52 weeks ended
June 27, 1992, June 26, 1993, and June 25, 1994, the 31 weeks ended
January 29, 1995, the 52 weeks ended January 28, 1996 and the 53 weeks
ended February 2, 1997, respectively. Included in the 52 weeks ended June
25, 1994, the 31 weeks ended January 29, 1995 and the 52 weeks ended
January 28, 1996 are reduced employer contributions of $8.1 million, $14.3
million and $26.1 million, respectively, related to union health and
welfare benefit plans. Included in the 53 weeks ended February 2, 1997 are
reduced employer contributions of $17.8 million related to union pension
and health and welfare benefit plans.
(k) Amount represents the Company's sales for the 1995 transition period
divided by total selling square feet prorated for the 31 weeks ended
January 29, 1995.
(l) Balance sheet data as of June 25, 1994 reflect the acquisition of 10 Food
Barn Stores. Balance sheet data as of January 28, 1996 reflect the
Merger and the financings and refinancings associated therewith.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
OVERVIEW
On June 14, 1995, Holdings and F4L Supermarkets completed their acquisition
of RSI and its wholly owned subsidiary, RGC. Concurrently with the consummation
of the Merger, the Company refinanced a substantial portion of the existing
indebtedness of F4L Supermarkets and RGC. See "Business ---- The Merger and the
Financing."
Since the Merger, the Company has converted 111 former Alpha Beta, Boys and
Viva stores to the Ralphs format, converted 13 former Ralphs format stores to
the Food 4 Less warehouse store format, and opened 37 new stores, including nine
Southern California stores acquired from Smith's which became available when
Smith's withdrew from the California market. The Company has sold or closed 74
stores as a result of divestitures required by the State of California and other
steps taken to improve the average size and quality of its store base. As a
result of the closure and divestiture of smaller stores and the opening of
larger stores, the average square footage per store in Southern California has
increased approximately 11.6 percent from 36,100 square feet at the time of the
Merger to 40,300 square feet at the end of fiscal 1996.
Following the consummation of the Merger, sales in the Company's Southern
California Division fell short of anticipated levels for the second half of
fiscal 1995. This shortfall resulted primarily from achieving less benefit from
the Company's advertising program and experiencing greater competitive activity
than originally expected. In addition, the Company's operating margins were
affected by delays in the implementation of certain buying and other programs to
lower the cost of goods, excessive price markdowns in stores undergoing
conversion and a less advantageous than expected product mix in certain stores.
The realization of cost savings was also delayed in certain areas. In
particular, store operating expenses were higher than anticipated, due primarily
to lower productivity and higher labor costs than originally anticipated and
difficulties in introducing RGC merchandising and service standards into the
smaller conventional supermarkets formerly operated by F4L Supermarkets. Also,
as the Company's backstage facilities were integrated, the Company experienced
higher than expected warehouse and distribution costs resulting from, among
other things, higher than expected inventory levels, delays in the transfer of
distribution personnel from Food 4 Less to Ralphs facilities, and other
backstage operational inefficiencies.
At the beginning of fiscal 1996, the Company streamlined its management
structure and implemented several strategic initiatives designed to improve its
sales and margins. These changes have contributed to the Company's improved
results in fiscal 1996.
In the first quarter of fiscal 1996, the Company began to implement new
marketing initiatives designed to improve its sales performance. Comparable
store sales trends have been improving since that time. Comparable store sales
growth was positive in each of the last three quarters of fiscal 1996, and
reached 2.9 percent for the fourth quarter, which resulted in comparable store
sales growth of 1.8 percent for fiscal 1996. On September 11, 1996, the Company
launched its new "First in Southern California" marketing campaign. The new
marketing campaign highlights the Company's belief that more shoppers are
choosing Ralphs than any other supermarket in Southern California. The focus of
the new campaign is on lower retail prices while emphasizing those programs that
enhance Ralphs' offerings such as selection, quality, premier perishable
departments and customer service.
During the first quarter of fiscal 1996, the Company implemented a labor
productivity and cost reduction program. As a result, significant reductions
were made in store and corporate headcount levels. In addition, through the
sublease of Smith's distribution center and creamery in Riverside, California,
the Company was able to consolidate its distribution operations into three
modern, efficient facilities located in Compton, Glendale and Riverside,
California. The elimination of certain smaller and less efficient facilities
allowed the Company to reduce transportation costs, management overhead and
outside storage costs and to improve its inventory management.
Operating results improved each quarter during fiscal 1996, and the
Company's EBITDA margin (defined as earnings before interest, taxes,
depreciation, amortization, provision for postretirement benefits, gain/loss on
disposal of assets, Merger-related transition costs and LIFO charges) improved
from 5.7 percent in fiscal 1995 to 6.4 percent in fiscal 1996. The Company's
EBITDA margin in the fourth quarter of 1996 was 6.7 percent, a 21.8 percent
improvement from the comparable period in 1995. The Company's improved EBITDA
margin reflects the various initiatives which management has implemented. Gross
margin improvements reflect a reduction in warehousing and distribution costs as
a result of the consolidation of the Company's distribution operations, as well
as a reduction in the cost of goods sold as the benefits of inventory management
programs instituted by the Company are realized. SG&A expenses were reduced as
a percentage of sales as a result of tighter expense and labor controls at store
level and administrative cost reductions.
As a result of the operating improvements which occurred during fiscal
1996, the Company refinanced its existing bank credit agreement (the "Credit
Facility") in order to reduce interest expense. The refinancing of the Credit
Facility was completed on April 17, 1997. The refinancing was structured as an
amendment and restatement of the existing credit facility (the "Refinanced
Credit Facility") and the amended facility consists of a $325.0 million
Revolving Credit Facility, a $200.0 million Term Loan A Facility and a $350.0
million Term Loan B Facility. Prior to the refinancing of the Credit Facility,
on March 26, 1997, the Company issued $155.0 million of 11% Senior Subordinated
Notes due 2005 at a price of 105.5 percent of their principal amount and issued
a redemption notice for $140.2 million aggregate principal amount of the
Company's outstanding 13.75% Senior Subordinated Notes due 2005 (the "1995
13.75% Senior Subordinated Notes") and $4.8 million aggregate principal amount
of the Company's outstanding 13.75% Senior Subordinated Notes due 2001 (the
"1991 13.75% Senior Subordinated Notes," and together with the 1995 13.75%
Senior Subordinated Notes, the "13.75% Senior Subordinated Notes"). The 13.75%
Senior Subordinated Notes were redeemed on April 28, 1997. It is anticipated
that the refinancing of the Credit Facility, together with the lower interest
cost associated with the replacement of the 13.75% Senior Subordinated Notes
with the 1997 11% Senior Subordinated Notes offering, will reduce the Company's
annual interest expense by approximately $12 million. See "Debt Refinancing."
ACCOUNTING PRESENTATION
The Company's results of operations for the 53 weeks ended February 2, 1997
reflect operations for the combined Company, while the results of operations for
the 52 weeks ended January 28, 1996 reflect 20 weeks of operations of F4L
Supermarkets prior to the Merger and 32 weeks of operations of the combined
Company. Management believes that the Company's results of operations for
periods ending after the consummation of the Merger are not directly
comparableto 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 (since the Merger
approximately doubled F4L Supermarkets' annual sales volume), 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 has been accounted for as a purchase of Ralphs by Holdings. As
a result, all financial statements for periods subsequent to June 14, 1995,
the date the Merger was consummated, reflect Ralphs' net assets at their
estimated fair market values as of June 14, 1995. The purchase price in excess
of the fair market value of Ralphs' net assets was recorded as goodwill and is
being amortized over a 40-year period. The Company finalized the allocation of
the Ralphs purchase price in the second quarter of fiscal 1996.
The Company operates within a conventional 52 or 53-week accounting fiscal
year. F4L Supermarkets, together with its subsidiaries, changed its fiscal
year-end from the last Saturday in June to the Sunday closest to January 31,
resulting in a 31-week transition period ended January 29, 1995. As a result of
the fiscal year-end change, the 31-week period ended January 29, 1995 is
referred to as the 1995 transition period, the 52-week period ended January 28,
1996 is referred to as fiscal 1995 and the 53-week period ended February 2, 1997
is referred to as fiscal 1996. The operating results for the 1995 transition
period are not directly comparable to those of fiscal 1996 or 1995, as these
periods include 53 and 52 weeks of operations, respectively.
RESULTS OF OPERATIONS OF THE COMPANY
The following table sets forth the historical operating results of the
Company for the 52 weeks ended June 25, 1994, the 31 weeks ended January 29,
1995, the 52 weeks ended January 28, 1996 and the 53 weeks ended February 2,
1997:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Fiscal Year 1995 Fiscal Year Fiscal Year
1994 Transition Period 1995 1996
- ---------------------------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $2,585.2 100.0% $1,556.5 100.0% $4,335.1 100.0% $5,516.3 100.0%
Gross profit 469.3 18.1 262.4 16.9 849.1 19.6 1,190.0 21.6
Selling, general,
administrative and
other, net 388.8 15.0 222.4 14.3 785.6 18.1 987.4 17.9
Amortization of goodwill 7.7 0.3 4.6 0.3 21.8 0.5 38.7 0.7
Loss (gain) on disposal
of assets 0.0 0.0 (0.5) (0.0) (0.5) (0.0) 9.3 0.2
Restructuring charge 0.0 0.0 5.1 0.3 123.1 2.8 0.0 0.0
Operating income (loss) 72.8 2.8 30.7 2.0 (80.8) (1.9) 154.6 2.8
Interest expense 68.3 2.6 42.2 2.7 178.8 4.1 248.4 4.5
Provision for earthquake
losses 4.5 0.2 0.0 0.0 0.0 0.0 0.0 0.0
Provision for income taxes 2.7 0.1 0.0 0.0 0.5 0.0 0.0 0.0
Loss before extraordinary
charge (2.7) (0.1) (11.5) (0.7) (260.1) (6.0) (93.8) (1.7)
Extraordinary charge 0.0 0.0 0.0 0.0 23.1 0.5 0.0 0.0
Net loss (2.7) (0.1) (11.5) (0.7) (283.2) (6.5) (93.8) (1.7)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
COMPARISON OF THE COMPANY'S RESULTS OF OPERATIONS FOR THE 53 WEEKS ENDED
FEBRUARY 2, 1997 WITH THE COMPANY'S RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED
JANUARY 28, 1996.
Sales. Sales per week increased $20.7 million, or 24.8 percent, from
$83.4 million in the 52 weeks ended January 28, 1996 to $104.1 million in the 53
weeks ended February 2, 1997. The increase in sales was primarily attributable
to the addition of 174 conventional supermarkets acquired through the Merger,
new store openings and the improved performance of converted stores partially
offset by the closing of 74 smaller stores since the Merger. Comparable store
sales trends have been improving each quarter since the Merger, and the fourth
quarter represents the third consecutive quarter the Company has achieved
positive comparable store sales, increasing by 2.9 percent. Excluding stores
being divested or closed in connection with the Merger, comparable store sales
for fiscal 1996 increased 1.8 percent. Management believes the increase in
comparable store sales was primarily attributable to additional consumers'
favorable response to the Company's "First in Southern California" marketing
program.
Gross Profit. Gross profit increased as a percentage of sales from 19.6
percent in the 52 weeks ended January 28, 1996 to 21.6 percent in the 53 weeks
ended February 2, 1997. The increase in gross profit margin reflects a
reduction in warehousing and distribution costs as a result of the consolidation
of the Company's distribution operations, as well as a reduction in the cost of
goods sold as the benefits of inventory management programs instituted by the
Company are realized. The increase in gross profit margin was also attributable
to the addition of RGC's conventional supermarkets which diluted 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 in 1995 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 $785.6 million and $987.4
million for the 52 weeks ended January 28, 1996 and the 53 weeks ended
February 2, 1997, respectively. SG&A decreased as a percentage of sales from
18.1 percent to 17.9 percent for those periods. The reduction in SG&A as a
percentage of sales reflects the results of tighter expense and labor controls
at store level and administrative costs reductions. The decrease in SG&A as a
percentage of sales was offset by an increase in SG&A due primarily to the
addition of RGC's conventional supermarkets acquired through the Merger. The
additional conventional supermarkets diluted the effect of the Company's
warehouse stores which have lower SG&A than the Company's conventional
supermarkets. 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 1995, employers contributing to UFCW health and welfare
plans received 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 recognized in fiscal 1996 was $17.8 million, which partially offset the
increase in SG&A. SG&A was also impacted in fiscal 1995 and 1996 by certain
one-time costs associated with the integration of the Company's operations. See
"Operating Income (Loss)."
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. 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 fiscal year 1996, the Company utilized $15.1
million of the reserve for restructuring costs, consisting mainly of write-downs
of property and equipment, expenditures associated with the closed stores and
the warehouse facility and lease termination expenses ($15.2 million).
On December 29, 1995, the Company consummated an agreement with 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 year 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. During fiscal year 1996, the Company utilized $33.9 million
of the reserve for restructuring costs, consisting mainly of write-downs of
property and equipment ($18.3 million) and lease termination expenses ($15.6
million).
Operating Income (Loss). In addition to the factors discussed above,
operating income for fiscal year 1996 was impacted by approximately $13.5
million of costs associated with the integration of the Smith's distribution
center and the continuing integration of the stores acquired from Smith's and
approximately $8.9 million associated with closed store reserves, which was
recorded in the fourth quarter.
Interest Expense. Interest expense (including amortization of deferred
financing costs) was $178.8 million for the 52 weeks ended January 28, 1996 and
$248.4 million for the 53 weeks ended February 2, 1997. The increase in
interest expense was primarily due to the increased indebtedness incurred in
conjunction with the Merger. See "Liquidity and Capital Resources."
Loss Before Extraordinary Charge. Primarily as a result of the factors
discussed above, the Company's loss before extraordinary charge decreased from
$260.1 million for fiscal year 1995 to $93.8 million in fiscal year 1996.
COMPARISON OF THE COMPANY'S RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED
JANUARY 28, 1996 WITH THE COMPANY'S RESULTS OF OPERATIONS FOR THE 31 WEEKS ENDED
JANUARY 29, 1995.
Sales. Sales per week increased $33.2 million, or 66.1 percent, from
$50.2 million in the 31 weeks ended January 29, 1995 to $83.4 million in the 52
weeks ended January 28, 1996. The increase in sales was primarily attributable
to the addition of 174 conventional supermarkets acquired through the Merger.
The sales increase was partially offset by a pro-forma comparable store sales
(includes the combined sales of F4L Supermarkets and RGC for the period prior
to the Merger) decline of 1.9 percent for the 52 weeks ended January 28, 1996 as
compared to the 52 weeks ended January 28, 1995. Excluding stores scheduled
for divestiture or closing, pro-forma comparable store sales decreased 1.2
percent. Management believes the decline in comparable store sales was
primarily attributable to additional competitive store openings and remodels in
Southern California, as well as the Company's own new store openings and
conversions.
Gross Profit. Gross profit increased as a percentage of sales from 16.9
percent in the 31 weeks ended January 29, 1995 to 19.6 percent in the 52 weeks
ended January 28, 1996. The increase in gross profit margin was primarily
attributable to the addition of 174 conventional supermarkets which diluted 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 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 $222.4 million and $785.6
million for the 31 weeks ended January 29, 1995 and the 52 weeks ended January
28, 1996, respectively. SG&A increased as a percentage of sales from 14.3
percent to 18.1 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 diluted 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. 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 received 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 recognized in fiscal 1995 was $26.1 million, which partially offset the
increase in SG&A. SG&A was also impacted by certain one-time costs associated
with the integration of the Company's operations. See "Operating Income (Loss)."
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. Twenty-four of these
stores were required to be closed pursuant to a settlement agreement with the
State of California in connection with the Merger. Three RGC stores were also
required to be sold. Thirty-four of the closed stores were under-performing
former F4L Supermarkets stores. The $75.2 million restructuring charge
consisted of write-downs of property and equipment ($52.2 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). The charges consisted of write-downs of property and
equipment ($33.2 million); write-off of the Alpha Beta trademark ($8.3 million);
and expenditures associated with the closed stores and the warehouse facility,
write-off of other assets, lease termination expenditures and miscellaneous
expenditures ($8.5 million). Future lease payments of approximately $19.1
million will be offset against the remaining reserve.
On December 29, 1995, the Company consummated an agreement with 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 year 1996. Also, the Company closed nine
of its stores which were near the acquired former Smith's stores. 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).
Operating Income (Loss). In addition to the factors discussed above,
operating income includes charges of approximately $75 million for costs
associated with the conversion of stores and integration of the Company's
operations. These costs related primarily to (i) markdowns on clearance
inventory at F4L Supermarkets' Alpha Beta, Boys and Viva stores converted to
the Ralphs format, (ii) an advertising campaign announcing the Merger, and
(iii) incremental labor cost associated with the training of Company personnel
following store conversions. In addition, the Company has experienced higher
than anticipated warehousing and distribution costs since the Merger, primarily
due to the delay in the planned consolidation of the Company's distribution
facilities resulting from the acquisition of the Smith's Riverside distribution
center.
Interest Expense. Interest expense (including amortization of deferred
financing costs) was $42.2 million for the 31 weeks ended January 29, 1995 and
$178.8 million for the 52 weeks ended January 28, 1996. The increase in
interest expense was primarily due to the increased indebtedness incurred in
conjunction with the Merger. See "Liquidity and Capital Resources."
Loss Before Extraordinary Charge. Primarily as a result of the factors
discussed above, the Company's loss before extraordinary charge increased from
$11.5 million for the 1995 transition period to $260.1 million for fiscal year
1995.
Extraordinary Charge. An extraordinary charge of $23.1 million was
recorded during fiscal year 1995 relating to retirement of indebtedness of F4L
Supermarkets in connection with the Merger and the write-off of the related
deferred financing costs.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations, amounts available under 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 during
fiscal 1997.
At February 2, 1997, there were borrowings of $99.4 million under the
Revolving Facility and $89.1 million of standby letters of credit had been
issued. Under the terms of the 1995 Credit Facility, the Company was required
to make amortization payments of $2.2 million in 1996. In addition, the Company
prepaid term loans in the amount of $46.8 million with proceeds from 1996 10.45%
Senior Notes and proceeds from asset sales. The level of borrowings under the
Company's Revolving Facility is dependent upon cash flows from operations, the
timing of disbursements, seasonal requirements and capital expenditure activity.
The Company was required to reduce loans outstanding under the Revolving
Facility to $150.0 million for a period of not less than 30 consecutive days
during the period between the first day of the fourth fiscal quarter of 1996 and
the last day of the first fiscal quarter of 1997. The Company satisfied this
requirement during the fourth quarter of fiscal 1996. At April 18, 1997, the
Company had $140.7 million available for borrowing under the Revolving Facility.
During fiscal year 1996, cash provided by operating activities was
approximately $133.7 million as compared to cash used by operating activities of
approximately $16.8 million in fiscal year 1995. The increase in cash from
operating activities is due primarily to a significant improvement in operating
income for the 53 weeks ended February 2, 1997. The Company's principal use of
cash in its operating activities is inventory purchases. The Company's high
inventory turnover rate allows it to finance a substantial portion of its
inventory through trade payables, thereby reducing its short-term borrowing
needs.
Cash used for investing activities was $111.1 million for fiscal year 1996.
Investing activities consisted primarily of capital expenditures of $123.6
million, partially offset by $25.6 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 32 new stores (26 of
which had been completed at February 2, 1997) and the remodeling of 29 stores
(24 of which had been completed at February 2, 1997). The Company currently
anticipates that its aggregate capital expenditures for fiscal 1997 will be
approximately $155.0 million (or $140.0 million, net of expected capital
leases). Consistent with past practices, the Company intends to finance these
capital expenditures primarily with cash provided by operations and through
leasing transactions. No assurance can be given that sources of financing for
capital expenditures will be available or sufficient 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 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 future 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.
The Company continues to monitor and evaluate the performance of individual
stores as well as operating markets in relation to its overall business
objectives. As a result of this evaluation, alternative strategies may be
considered by the Company which could result in the dispositions of certain
assets.
Cash used by financing activities was $22.9 million for fiscal year 1996.
Financing activities consisted primarily of a $28.0 million net reduction of the
amount outstanding under the Revolving Facility, principal payments on long-term
debt and payments on capital leases of $87.5 million, offset by proceeds from
the June 1996 issuance of $100.0 million aggregate principal amount of 10.45%
Senior Notes due 2004 (the "1996 10.45% Senior Notes"). The terms of the 1996
10.45% Senior Notes are substantially identical to those of the Company's 1995
10.45% Senior Notes, which were issued in a registered offering in June 1995 and
of which $520.3 million aggregate principal amount is outstanding. The 1996
10.45% Senior Notes were issued with original issue discount resulting in gross
proceeds to the Company of $94.6 million.
The $94.6 million of gross proceeds from the 1996 10.45% Senior Notes was
used to (i) repay $22.7 million of Term Loans, which was due within the
following twelve months, (ii) repay $21.7 million of additional Term Loans, pro
rata over the term thereof, (iii) repay $47.6 million in borrowings under the
Revolving Facility (without any reduction in amounts available for future
borrowing thereunder) and (iv) pay fees and expenses related to the 1996 10.45%
Senior Notes of approximately $2.6 million.
In November 1996, the Company amended the Term Loans to pay down $125
million of one of the four original tranches (Tranche A) and initiated new
tranches, Tranche E, Tranche F and Tranche G, in the amounts of $75.0 million,
$25.0 million and $25 million, respectively. The amortization of the new
tranches mirrored the maturity of the initial Tranche B, initial Tranche C and
initial Tranche D.
The Company is a wholly-owned subsidiary of Holdings. Holdings has
outstanding $123.8 million accreted value of Discount Debentures and $159.9
million 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 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 pay other
dividends to Holdings in connection with certain employee stock repurchases and
for routine administrative expenses.
The Company has entered into an interest rate collar agreement with the
Credit Facility Administrative Agent that effectively sets interest rate limits
on the Company's term loans. The notational principal amount at February 2,
1997 and January 28, 1996 was $325 million. The agreement, which was entered
into on October 11, 1995 and expires on October 21, 1997, limits the interest
rate fluctuation of the 3-month Adjusted Eurodollar Rate (as defined) to a range
between 4.5 percent and 8.0 percent. The agreement requires quarterly cash
settlement for interest rate fluctuations outside of the limits. The agreement
satisfies the interest rate protection requirements under the Credit Facility.
As of February 2, 1997 and January 28, 1996, the 3-month Adjusted Eurodollar
Rate was 5.56 percent and 5.50 percent, respectively. No adjustments to
interest expense were recorded during fiscal year 1996 or 1995 as a result of
this agreement.
The Company is highly leveraged. At February 2, 1997, the Company's total
long-term indebtedness (including current maturities) and stockholder's deficit
were $2.1 billion and $35.6 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.
There can be no assurance, however, 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.
DEBT REFINANCING
On March 26, 1997, the Company issued $155 million of 11% Senior
Subordinated Notes due 2005 (the "1997 11% Senior Subordinated Notes") and
called all of the 13.75% Senior Subordinated Notes. The terms of the 1997 11%
Senior Subordinated Notes are substantially identical to those of the Company's
11% Senior Subordinated Notes due 2005 issued in June 1995. The 1997 11% Senior
Subordinated Notes were issued at a premium price of 105.5, resulting in gross
proceeds of $163.5 million. The proceeds were used to (i) redeem an aggregate
of $145.0 million of its outstanding 13.75% Senior Subordinated Notes and (ii)
pay accrued interest, call premiums, fees and expenses related to the 1997 11%
Senior Subordinated Notes. The redemption price was 106.1 percent of the
principal amount outstanding.
On April 17, 1997, the Company replaced its existing credit facilities (the
"Refinanced Credit Facility") with a facility with lower interest rates and a
longer average life. The refinancing was structured as an amendment and
restatement of the existing Credit Facility and the amended facility consists of
a $325.0 million Revolving Credit Facility, a $200.0 million Term Loan A
Facility and a $350.0 million Term Loan B Facility. The new Term Loan A and
Term Loan B facilities replaced the existing term loan facilities with an
outstanding principal balance of $540.4 million at the time of refinancing.
Borrowings under the Refinanced Credit Facility bear interest at the bank's
Base Rate (as defined) plus a margin ranging from 0.25 percent to 1.25 percent
for the Revolving Credit Facility and the Term Loan A Facility and the bank's
Base Rate (as defined) plus a margin ranging from 0.75 percent to 1.75 percent
for the Term Loan B Facility or the Eurodollar Rate (as defined) plus a margin
ranging from 1.25 percent to 2.25 percent for the Revolving Credit Facility and
the Term Loan A Facility and the Eurodollar Rate (as defined) plus a margin
ranging from 1.75 percent to 2.75 percent for the Term Loan B Facility. The
interest rate for the Revolving Credit Facility and the Term Loan A Facility
currently is the bank's Base Rate (as defined) plus a margin of 0.75 percent or
the Eurodollar Rate (as defined) plus a margin of 1.75 percent. The interest
rate for the Term Loan B Facility currently is the bank's Base Rate (as defined)
plus a margin of 1.25 percent or the Eurodollar rate ( as defined) plus a margin
of 2.25 percent.
Quarterly principal installments on the Refinanced Credit Facility continue
to 2004, with amounts payable in each year as follows: $2.6 million in fiscal
1997, $3.5 million in fiscal 1998, $25.5 million in fiscal 1999, $62.6 million
in fiscal 2000, $87.5 million in fiscal 2001 and $368.3 million thereafter.
Certain other terms and provisions of the previous Credit Facility were
also changed, including, but not limited to, application of proceeds of selected
asset sales and stock offerings and permitted capital expenditures. Management
believes that this refinancing provides increased operational and financial
flexibility through lower interest costs and lower short-term loan amortization.
As a result of the refinancings described above, the Company will incur an
extraordinary loss in the first quarter of fiscal 1997 of approximately $48.9
million, consisting of the call premium on the 13.75% Senior Subordinated Notes
and write-off of deferred financing costs.
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.
FORWARD-LOOKING STATEMENTS
When used in this annual report on Form 10-K, the words "estimate,"
"expect," "project" and similar expressions are intended to identify forward-
looking statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). These forward-looking statements speak only as of the date
hereof. All of these forward-looking statements are based on estimates and
assumptions made by management of the Company, which, although believed to be
reasonable, are inherently uncertain and difficult to predict; therefore, undue
reliance should not be placed upon such estimates. Such statements are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those projected. These factors include, but are not limited to:
(i) increased competitive pressures from existing competitors and new entrants,
including price-cutting strategies, store openings and remodels; (ii) loss or
retirement of key members of management or the termination of the Company's
Consulting Agreement with Yucaipa; (iii) inability to negotiate more favorable
terms with suppliers; (iv) increases in interest rates or the Company's cost of
borrowing or a default under any material debt agreements; (v) inability to
develop new stores in advantageous locations or to successfully convert or
remodel additional stores; (vi) prolonged labor disruption; (vii) deterioration
in general or regional economic conditions; (viii) adverse state or federal
legislation or regulation that increases the costs of compliance, or adverse
findings by a regulator with respect to existing operations; (ix) loss of
customers or sales weakness; (x) adverse determinations in connection with
pending or future litigations or other material claims against the Company; (xi)
inability to achieve future sales levels or other operating results that support
the cost savings; (xii) the unavailability of funds for capital expenditures;
(xiii) increases in labor costs; (xiv) inability to control inventory levels;
and (xv) operational inefficiencies in distribution or other Company systems.
Many of such factors are beyond the control of the Company. Following the
Merger, the Company has experienced certain unanticipated costs and delays in
the realization of certain projected cost savings. There can be no assurance
that new or additional unforeseen costs or delays will not arise either in
connection with the integration or the Company's operations or the ongoing
conduct of its business. Accordingly, any forward-looking statements included
herein do not purport to be predictions of future events or circumstances and
may not be realized.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements and Schedules on page 43.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
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 as of April 18, 1997. Directors serve
until the election and qualification of their successors.
<TABLE>
<CAPTION>
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NAME AGE POSITION
- ------------------------------------------------------------------------------------------
<S> <C> <S>
Ronald W. Burkle 44 Chairman of the Board and Director
George G. Golleher 49 Chief Executive Officer
and Director
Alfred A. Marasca 55 President, Chief Operating Officer and Director
Joe S. Burkle 73 Chief Executive Officer - Falley's and Director
Greg Mays 50 Executive Vice President - Finance & Administration
John Standley 34 Senior Vice President and Chief Financial Officer
Harley DeLano 59 President - Cala Foods
Tony Schnug 52 Group Senior Vice President - Support Operations
Christopher Hall 32 Group Vice President - Finance, Controller and Chief
Accounting Officer
Robert I. Bernstein 34 Director
Robert Beyer 37 Director
Peter Copses 38 Director
Patrick L. Graham 47 Director
Lawrence K. Kalantari 37 Director
John Kissick 55 Director
- ------------------------------------------------------------------------------------------
</TABLE>
Ronald W. Burkle has been Chairman of the Board since February 1997. He
has been a Director since June 1995. He also served as Chairman of the Board
from June 1995 to January 1996. Mr. Burkle was a Director, Chairman of the
Board and Chief Executive Officer of F4L Supermarkets from its inception in
1989 until the Merger. Mr. Burkle co-founded The Yucaipa Companies in 1986 and
served as Director, Chairman of the Board, President and Chief Executive Officer
of FFL from 1987 and of Holdings from 1992 until the Merger, respectively. Mr.
Burkle has been Chairman of the Board of Dominick's Finer Foods, Inc. since
March 1995 and served as Chief Executive Officer from March 1995 until January
1996. Mr. Burkle also served as Chairman of the Board of Smitty's Supermarkets,
Inc. ("Smitty's") from June 1994 until its merger in May 1996 with Smith's Food
& Drug Centers, Inc. ("Smith's"). He has been Chief Executive Officer of
Smith's since May 1996. He has also served as a Director of Kaufman & Broad
Home Corporation, Inc. since March 1995. Mr. Burkle is the son of
Joe S. Burkle.
George G. Golleher has been Chief Executive Officer since January 1996 and
a Director since June 1995. He was Vice Chairman from June 1995 to January
1996. He was a Director of F4L Supermarkets from its inception in 1989 and was
the President and Chief Operating Officer of F4L Supermarkets from January 1990
until the Merger. From 1986 through 1989, Mr. Golleher served as Senior Vice
President - Finance and Administration of The Boys Markets, Inc. Mr. Golleher
served as a Director of Dominick's Finer Foods Inc., an affiliate of The Yucaipa
Companies, from March 1995 until October 1996.
Alfred A. Marasca has been President, Chief Operating Officer and a
Director since June 1995. He was President and Chief Operating Officer of RGC
from February 1994 until the Merger. He was President of RGC from 1993 to
1994, Executive Vice President - Retail from 1991 to 1993, and Executive Vice
President - Marketing from 1985 to 1991.
Joe S. Burkle has been a Director since June 1995 and Chief Executive
Officer of Falley's, Inc. since 1987. He was a Director and Executive Vice
President of F4L Supermarkets from its inception in 1989 until the Merger. 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.
Greg Mays has been Executive Vice President - Finance & Administration
since February 1997. He was Executive Vice President - Finance & Administration
and Chief Financial Officer from September 1995 to February 1997. He was
Executive Vice President - Finance & Administration from June 1995 to September
1995. He was Executive Vice President - Finance & Administration and Chief
Financial Officer of F4L Supermarkets and of Holdings from December 1992 until
the Merger. From 1991 to December 1992, Mr. Mays was President and Chief
Financial Officer of Almac's and from 1989 to 1991, he was Chief Financial
Officer of Almac's, Inc. From April 1988 to June 1989, Mr. Mays was Chief
Financial Officer of Food 4 Less of Modesto, Inc. and Cala Foods, Inc.
John Standley has been Senior Vice President and Chief Financial Officer
since February 1997. He was Senior Vice President - Administration of Smith's
from May 1996 to February 1997. He was Chief Financial Officer, Vice President
and Assistant Secretary of Smitty's from December 1994 to May 1996. From 1991
to 1994, Mr. Standley was Vice President of Finance of Food 4 Less Supermarkets,
Inc. Prior to 1991, he was a manager at Arthur Andersen LLP.
Harley DeLano has been President of Cala Foods, Inc. since 1990. Mr.
DeLano was General Manager of ABC from 1980 to 1990. He serves as a Director of
Certified Grocers.
Tony Schnug has been Group Senior Vice President - Support Operations since
January 1996. He was Senior Vice President of Manufacturing and Construction
from June 1995 to January 1996. He was Senior Vice President - Corporate
Operations of F4L Supermarkets from 1990 until the Merger. Before joining F4L
Supermarkets, he was Managing Director of SAGE, a wholly-owned subsidiary of
Ogilvy & Mather, and Vice President - Management Information Systems of The Vons
Companies, Inc.
Christopher Hall has been Group Vice President - Finance, Controller, and
Chief Accounting Officer since February 1997. He was Group Vice
President/Controller from September 1995 to February 1997. He was Vice
President, Accounting from June 1995 to September 1995. Prior to that, he was
Controller at Food 4 Less Supermarkets from 1993 to June 1995, and joined
Food 4 Less Supermarkets in 1992 as Director - Finance. Prior to 1992, he was a
member of the audit practice at Arthur Andersen LLP.
Robert I. Bernstein has been a Director since March 1997. He has been a
general partner of The Yucaipa Companies since joining the firm in December
1995. From 1986 to 1989 and from 1993 to 1995, Mr. Bernstein was employed by
Bankers Trust. From 1989 to 1992, he was an infantry officer in the U.S. Marine
Corps.
Robert Beyer has been a Director since June 1995. He has been a Group
Managing Director of Trust Company of the West ("TCW") since 1995. Mr. Beyer
was Co-Chief Executive Officer of Crescent Capital Corporation, a registered
investment advisor, from 1991 until its acquisition by TCW in 1995. From 1986
to 1991, Mr. Beyer was a member of the investment banking department of Drexel
Burnham Lambert, Incorporated. From 1983 to 1986, Mr. Beyer was a member of the
investment banking department of Bear, Stearns & Co., Inc.
Peter Copses has been a Director since June 1995. He has been a Principal
since 1990 of Apollo Advisors, L.P. which, together with an affiliate, acts as
managing general partner of Apollo Investment Fund, L.P., AIF II, L.P. and
Apollo Investment Fund III, L.P., private securities investment funds, and of
Lion Advisors, L.P., which acts as financial advisor to and representative for
certain institutional investors with respect to securities investments. Mr.
Copses is a Director of Dominicks Finer Foods, Inc., Family Restaurants, Inc.,
Forum Group, Inc. and Zale Corporation.
Patrick L. Graham has been a Director since June 1995. He joined The
Yucaipa Companies as a general partner in January 1993. Prior to that time, he
was a Managing Director in the Corporate Finance Department of Libra
Investments, Inc. from 1992 to 1993 and Paine Webber, Inc. from 1990 to 1992.
From 1982 to 1990, he was a Managing Director of the Corporate Finance
Department of Drexel Burnham Lambert, Inc. and an Associate Director of the
Corporate Finance Department of Bear Stearns & Co., Inc. Mr. Graham has served
as a Director of Smitty's Supermarkets, Inc. from June 1994 to May 1996 and of
Dominick's Finer Foods, Inc. since March 1995.
Lawrence K. Kalantari has been a Director since March 1997. He has been a
general partner of The Yucaipa Companies since joining the firm in December
1995. Prior to that time, he was a Managing Director for Bankers Trust during
1995. Previously he was employed by CS First Boston Corporation from July 1993
to May 1995 and Paine Webber, Inc. from March 1990 to June 1993.
John Kissick has been a Director since June 1995. He is a principal of
Apollo Advisors, L.P. which, together with an affiliate, acts as managing
general partner of Apollo Investment Fund, L.P., AIF II, L.P. and Apollo
Investment Fund III, L.P., private securities investment funds, and of
Lion Advisors, L.P., which acts as financial advisor to and representative for
certain institutional investors with respect to securities investments. From
1990 to 1991, Mr. Kissick was a consultant with Kissick & Associates, a private
investment advisory firm. He serves as Director of Continental Graphics
Holdings, Inc., Converse, Inc., The Florsheim Shoe Company, Inc. and Furniture
Brands International, Inc.
The Company does not currently 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.
Messrs. R. Burkle, Golleher, J. Burkle, Bernstein, Beyer, Copses, Graham,
Kalantari and Kissick are directors of Holdings.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation of
the Chief Executive Officer, the four other most highly compensated executive
officers and one additional highly compensated former executive officer of the
Company (the "Named Executive Officers"), whose total salary and bonus for the
53 weeks ended February 2, 1997 exceeded $100,000 for services rendered in all
capacities to the Company and its subsidiaries for the same time period.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
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Annual Compensation
No. of Shares
Transition Underlying All Other
Period/Fiscal Salary Bonus Options Compensation(10)
Name and Principal Position Year Ended ($) (7) ($) (7) (#) ($)
- --------------------------------------------------------------------------------------------------------------
<S> <S> <C> <C> <C> <C>
Byron E. Allumbaugh(1) February 2, 1997 1,155,449 - - 1,500
Chairman January 28, 1996 883,333 547,692 820,227(9) 1,848
January 29, 1995(6) - - - -
June 25, 1994 - - - -
George G. Golleher(2) February 2, 1997 770,833 - 100,000 1,500
Chief Executive Officer January 28, 1996 503,205 1,950,000(8) 200,000(9) 1,783
January 29, 1995(6) 298,100 300,000 - 3,329
June 25, 1994 500,000 500,000 - 3,937
Alfred A. Marasca(3) February 2, 1997 600,000 - - 1,500
President and January 28, 1996 466,667 333,846 300,000(9) 3,000
Chief Operating Officer January 29, 1995(6) - - - -
June 25, 1994 - - - -
Greg Mays(4) February 2, 1997 314,583 - 60,000 1,500
Executive Vice President - January 28, 1996 286,378 355,000(8) - 1,783
Finance / Administration and January 29, 1995(6) 154,300 85,000 - 2,687
Chief Financial Officer June 25, 1994 250,000 150,000 - -
Harley DeLano February 2, 1997 215,000 48,887 30,000 1,500
President, Cala Foods January 28, 1996 211,218 150,000 - 1,783
January 29, 1995(6) 115,385 50,000 - 2,247
June 25, 1994 197,404 40,000 - 3,329
Tony Schnug(5) February 2, 1997 247,500 - 35,000 1,500
Group Senior Vice President - January 28, 1996 206,282 201,000 - 1,783
Support Operations January 29, 1995(6) 210,385 100,000 - 2,247
June 25, 1994 190,000 40,000 - 3,145
- --------------------------------------------------------------------------------------------------------------
</TABLE>
__________________________________
(1) In January 1996, Byron E. Allumbaugh became Chairman. Mr. Allumbaugh
retired as Chairman in January 1997.
(2) In January 1996, George G. Golleher became Chief Executive Officer.
(3) In June 1995, Alfred A. Marasca became President and Chief Operating
Officer.
(4) In September 1995, Greg Mays became Executive Vice President - Finance &
Administration and Chief Financial Officer.
(5) In January 1996, Tony Schnug became Group Senior Vice President - Support
Operations.
(6) F4L Supermarkets changed its fiscal year from the 52 or 53-week period
which ends on the last Saturday in June to the 52 to 53-week period which
ends on the Sunday closest to January 31, resulting in a 31-week transition
period.
(7) Salary and bonus payments are reflected in the period they are paid.
(8) Includes payment of a special bonus upon change of control, in connection
with the Ralphs Merger, for George Golleher and Greg Mays in the amount of
$1,750,000 and $150,000, respectively.
(9) All options shown were granted in connection with the Merger. Of such
options, 220,227 and 100,000 were granted to Messrs. Allumbaugh and
Marasca, respectively, in exchange for the cancellation of certain
payments to such individuals under RGC equity appreciation rights.
(10) The amounts shown in this column represent annual payments by the Company
to the Employee Profit Sharing and Retirement Program of the Company.
The following table sets forth information concerning options granted in
fiscal 1996 to each of the Named Executive Officers pursuant to Holdings' 1995
Stock Option Plan. All options are exercisable for shares of Holdings' Common
Stock.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
OPTION GRANTS IN FISCAL 1996
- -------------------------------------------------------------------------------------------------------------------
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
------------------------------------------------------- ------------------------------
No. of % of Total Options Exercise or
Options Granted to Employees Base Price Expiration
Granted(1) in Fiscal Year ($/Sh) Date 5% ($) 10%($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Byron E. Allumbaugh - - - - - -
George G. Golleher 100,000 13.7% 10.00 4/29/06 628,895 1,593,742
Alfred A. Marasca - - - - - -
Greg Mays 60,000 8.2% 10.00 4/29/06 377,337 956,245
Harley DeLano 30,000 4.1% 10.00 4/29/06 188,688 478,123
Tony Schnug 35,000 4.8% 10.00 4/29/06 220,113 557,810
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
________________________
(1)Mr. Golleher's options are immediately exercisable. Options held by Messrs.
Mays, DeLano and Schnug vest over a five-year period commencing June 14,
1996.
The following tables sets forth for each of the Named Executive Officers,
as to outstanding options at February 2, 1997, the number of unexercised options
and the aggregate unrealized appreciation on "in-the-money" unexercised options
held at such date. No options were exercised by any of the Named Executive
Officers during fiscal 1996.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
1996 FISCAL YEAR END OPTION VALUES
- ---------------------------------------------------------------------------------------------------------------------
Number of
Shares Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Fiscal Year End Fiscal Year End
Exercisable / Exercisable /
Name Unexercisable (#) Unexercisable ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Byron E. Allumbaugh 820,227 / 0 2,198,208 / 0
George G. Golleher 300,000 / 0 0 / 0
Alfred A. Marasca 300,000 / 0 999,000 / 0
Greg Mays 12,000 / 48,000 0 / 0
Harley DeLano 6,000 / 24,000 0 / 0
Tony Schnug 7,000 / 28,000 0 / 0
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
CONSULTING AND EMPLOYMENT AGREEMENTS
In connection with the consummation of the Merger, Food 4 Less' board of
directors authorized the payment of a special bonus of $1,750,000 to George
Golleher in a lump sum amount equal to the base salary due him under the
remaining term of his then existing employment agreement. As a condition of the
payment of such bonus, Mr. Golleher's existing employment agreement was
cancelled, and he entered into a new agreement which provides for an annual
salary currently equal to $1,000,000 plus a bonus equal to his salary in each
year if the Earnings Targets are reached. Mr. Golleher's new employment
agreement continues in effect certain additional rights, including the right to
be elected to the Company's board of directors and the right to require the
Company to repurchase certain of his shares of New Holdings stock upon his
death, disability or termination without cause.
The employment agreement between the Company and Alfred Marasca provides
for a salary currently equal to $600,000 per annum and an annual bonus equal to
his salary if the Earnings Targets for the year are reached.
The employment agreement between the Company and Greg Mays provides for a
salary currently equal to $375,000 per annum and an annual bonus equal to his
salary if the Earnings Targets for the year are reached. Mr. Mays also received
a special bonus of $150,000 in fiscal 1995 upon the change of control in
connection with the Merger.
The employment agreements described above are for a term of three years and
provide generally that the Company may terminate the agreement for cause or upon
the failure of the employee to render services to the Company for a specified
period and the employee may terminate the agreement because of the employee's
disability. In addition, the employee's services may be suspended upon notice
by the Company and in such event the employee will continue to be compensated by
the Company during the remainder of the term of the agreement, subject to
certain offsets if the employee becomes engaged in another business.
The Company's consulting agreement with Mr. Joe Burkle 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 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not have a board committee performing the functions of a
compensation committee. Byron E. Allumbaugh, Chairman, and George G. Golleher,
Chief Executive Officer of the Company, together with Alfred Marasca, President
and Greg Mays, Executive Vice President, made decisions with regard to the
Company's executive officer compensation for fiscal 1996.
RETIREMENT PLANS
Retirement Plan. The Ralphs Grocery Company Retirement Plan (the
"Retirement Plan") is a defined benefit pension plan for salaried and hourly
nonunion employees with at least one year of service (1,000 hours). The Company
makes annual contributions to the Retirement Plan in such amounts as are
actuarially required to fund the benefits payable to participants in accordance
with the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
Non-Qualified Retirement Plans. To allow the Company's retirement program
to provide benefits based upon a participant's total compensation and without
regard to other ERISA or tax code pension plan limitations, eligible executive
employees of the Company participate in the Ralphs Grocery Company Supplemental
Executive Retirement Plan (the "SERP") and the Ralphs Grocery Company Retirement
Supplement Plan (the "Supplement Plan"). The SERP and the Supplement Plan also
modify the benefit formula under the Retirement Plan in other respects. The
Company has purchased split dollar life insurance policies for participants
under the SERP. Under certain circumstances, the cash surrender value of
certain split dollar life insurance policies will offset the Company's
obligations under the SERP.
The following table sets forth the combined estimated annual benefits
payable in the form of a (single) life annuity under the Retirement Plan, the
SERP and the Supplement Plan (unreduced by the cash surrender value of any life
insurance policies) to a participant in the above plans who is retiring at a
normal retirement date on January 1, 1997 for the specified final average
salaries and years of credited service.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Final Years of Credited Service
Average -------------------------------------------------------------
Salary 15 20 25 30 35
- ----------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 100,000 $ 19,348 $ 25,798 $ 32,347 $ 38,697 $ 45,146
200,000 41,848 55,798 69,747 83,697 97,646
300,000 90,000 120,000 150,000 180,000 180,000
400,000 120,000 160,000 200,000 240,000 240,000
600,000 180,000 240,000 300,000 360,000 360,000
800,000 240,000 320,000 400,000 480,000 480,000
1,000,000 300,000 400,000 500,000 600,000 600,000
1,040,000
and above 312,000 416,000 520,000 624,000 624,000
- ----------------------------------------------------------------------------------------------
</TABLE>
Messrs. Allumbaugh, Golleher, Marasca, Mays, Schnug and DeLano have
completed 39, 12, 33, 9, 7 and 12 years of credited service, respectively.
Compensation covered by the Retirement Plan, the SERP and Supplement Plan
includes both salary and bonus. The calculation of retirement benefits
generally is based on average compensation for the highest five consecutive
years of the ten years preceding retirement under the Retirement Plan and the
Supplement Plan. The calculation of retirement benefits generally is based on
average compensation for the highest three years of the ten years preceding
retirement under the SERP. The benefits earned by a participant under the SERP
and Supplement Plan are reduced by any benefits which the participant has earned
under the Retirement Plan and may be offset under certain circumstances by the
cash surrender value of life insurance policies maintained by the Company
pursuant to the insurance agreements entered into by the Company and the
executive. Benefits are not subject to any deduction for social security
offset.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the ownership of Common Stock and Series A
Preferred Stock and Series B Preferred Stock of Holdings by each person who, to
the knowledge of Holdings, owns 5 percent or more of Holdings' outstanding
voting stock, by each person who is a director or Named Executive Officer of the
Company, and by all executive officers and directors of the Company as a group,
as of April 18, 1997.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Common Series A Series B
Stock (1) Preferred Stock Preferred Stock
------------------ ----------------- ----------------
Percentage Percentage
Number Number Number of Total of all
of of of Voting Outstanding
Beneficial Owner (2) Shares % Shares % Shares % Power(1) Stock(1)(3)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Yucaipa and affiliates:
The Yucaipa Companies (4) 17,566,389 65.6% - - - - 38.5% 35.8%
Ronald W. Burkle (5) 1,777,390 9.5% - - - - 4.7% 4.3%
George G. Golleher (5)(6) 562,525 2.9% - - - - 1.5% 1.4%
10000 Santa Monica Blvd.
Los Angeles, CA 90067
- -------------------------------------------------------------------------------------------------------------------
Total 19,906,304 73.5% - - - - 43.3% 40.3%
Alfred A. Marasca (7) 300,000 1.6% - - - - 0.8% 0.7%
Greg Mays (8) 68,890 0.4% - - - - 0.2% 0.2%
Harley Delano (9) 30,000 0.2% - - - - 0.1% 0.1%
Tony Schnug (9) 35,000 0.2% - - - - 0.1% 0.1%
Apollo Advisors, L.P.,
Apollo Advisors II, L.P. (10)
2 Manhattanville Road
Purchase, NY 10577 1,285,165 6.8% 10,733,244 64.3% - - 35.6% 32.6%
BT Investment Partners, Inc.(11)
130 Liberty Street
New York, NY 10006 509,812 2.7% 900,000 5.4% 3,100,000 100.0% 4.1% 12.2%
Other 1995 equity investors
as a group (12) 40,172 0.2% 5,000,000 30.3% - - 15.1% 13.8%
All directors and executive
officers as a group
(15 persons)
(4)(5)(6)(7)(8)(9)(13) 20,350,194 73.9% - - - - 43.9% 40.8%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
_____________________________
(1) Gives effect to the assumed exercise of outstanding warrants, held by
certain institutional investors, to acquire 2,008,874 shares of Holdings
common stock.
(2) Except as otherwise indicated, each beneficial owner has the sole power to
vote, as applicable, and to dispose of all shares of Common Stock or Series
A Preferred Stock or Series B Preferred Stock owned by such beneficial
owner.
(3) Assumes the conversion of all outstanding Series A Preferred Stock and
Series B Preferred Stock into Common Stock at the conversion rate
applicable as of March 15, 1997.
(4) Represents shares owned by The Yucaipa Companies, F4L Equity Partners,
L.P., FFL Partners, Yucaipa Capital Fund and Yucaipa/F4L Partners. These
entities are affiliated partnerships which are controlled, directly or
indirectly, by Ronald W. Burkle. The foregoing entities are parties to a
stockholders agreement with other Holdings investors which gives to
Yucaipa the right to elect a majority of the directors of Holdings. Share
amount and percentages shown for Yucaipa include a warrant to purchase
8,000,000 shares of Holdings Common Stock held by Yucaipa. Such warrant
will become exercisable only upon the occurrence of an initial public
offering or certain sales transactions involving Holdings.
(5) Certain management stockholders who own in the aggregate 431,096 shares of
Common Stock 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 shares currently owned by
such management stockholders until June 14, 2005. The 431,096 shares have
been included, solely for purposes of the above table, in the share amounts
shown for Mr. Burkle but not for Mr. Golleher. 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
1,346,294 and 562,525 shares of Common Stock they respectively own
(including in the case of Mr. Golleher, 300,000 shares issuable upon the
exercise of options).
(6) Includes 300,000 shares issuable upon the exercise of options held by Mr.
Golleher.
(7) Represents shares issuable upon the exercise of options held by Mr.
Marasca.
(8) Includes 60,000 shares issuable upon the exercise of options held by Mr.
Mays. In addition, Mr. Mays owns 8,890 of the 431,096 shares of Common
Stock that are subject to the Stockholder Voting Agreement and Proxy
described in note (4) above.
(9) Represents shares issuable upon the exercise of options by Messrs. DeLano
and Schnug.
(10) Represents shares owned by one or more entities managed by or affiliated
with Apollo Advisors, L.P., or Apollo Advisors II, L.P. (collectively,
"Apollo"), together with certain affiliates or designees of Apollo.
(11) Represents shares owned by BT Investment Partners, Inc. ("BTIP"), Bankers
Trust New York Corporation and BT Securities Corporation. Bankers Trust
New York Corporation and BT Securities Corporation are affiliated with
BTIP. BTIP expressly disclaims beneficial ownership of all shares owned by
Bankers Trust New York Corporation and BT Securities Corporation.
(12) Includes certain institutional investors, other than Apollo and BTIP, which
purchased Series A Preferred Stock of Holdings in connection with the
Merger. Pursuant to the 1995 Stockholders Agreement, certain corporate
actions by Holdings and its subsidiaries require the consent of the
directors whom the 1995 equity investors, including Apollo and BTIP, are
entitled to elect to the Holdings Board of Directors. Such investors do
not affirm the existence of a "group" within the meaning of Rule 13d-5
under the Exchange Act, and expressly disclaim beneficial ownership of all
Holdings shares except for those shares held of record by each such
investor or its nominees.
(13) Includes 10,000 shares issuable upon the exercise of options held by
executive officers other than the named executive officers above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is a party to a consulting agreement with Yucaipa which
provides for certain management and financial services to be performed by
Yucaipa for the benefit of the Company and its subsidiaries. The services of
Messrs. R. Burkle, Bernstein, Graham and Kalantari acting in their capacities
as directors, 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, Bernstein, Graham and Kalantari
are partners of Yucaipa. The consulting agreement provides for an annual
management fee payable by the Company to Yucaipa in the amount of $4 million.
In addition, the Company may retain Yucaipa in an advisory capacity in
connection with acquisition or sale transactions, in which case the Company will
pay Yucaipa an advisory fee, except that the retention of Yucaipa in connection
with a sale of the entire Company would require approval by a majority of the
disinterested directors. The agreement has a five-year term, which is
automatically renewed on each anniversary of the Merger 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, Yucaipa earned a total of $4.0 million in management fees for fiscal
1996.
Holdings files a consolidated federal income tax return, under which the
federal income tax liability of Holdings and its subsidiaries is determined on
a consolidated basis. Holdings is a party to 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 Holdings and has
taxable income, the Company will pay to Holdings 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 Holdings and its other
subsidiaries, Holdings will credit to the Company the amount of such reduction
in the consolidated tax liability.
These credits are passed between Holdings 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 Holdings and the Company of such state and local
taxes.
FFL Partners, a partnership controlled by Ronald W. Burkle, is obligated,
pursuant to an agreement with Holdings, to repurchase shares of Holding's common
stock from certain terminated participants in an employee benefit plan
maintained by one of the Company's subsidiaries. See "Note 10 of Notes to
Consolidated Financial Statements of Ralphs Grocery Company." From time to
time, the Company advances funds to plan participants on behalf of FFL Partners
and records a receivable from FFL Partners fo the amount advanced. During
fiscal 1996, FFL Partners reimbursed the Company $2.6 million in fulfillment of
its purchase obligation. At February 2, 1997, the outstanding receivable from
FFL Partners was approximately $271,000.
On June 6, 1996, the Company issued the 1996 10.45% Senior Notes to BT
Securities Corporation ("BT Securities"), an affiliate of BT Investment
Partners, Inc. ("BTIP"), which resold the notes pursuant to Rule 144A under the
Securities Act. BT Securities received a fee in the amount of $2.3 million for
acting as initial purchaser in the offering. On March 26, 1997, the Company
issued the 1997 11% Senior Subordinated Notes to BT Securities and certain other
investment banks, which resold the Notes pursuant to Rule 144A under the
Securities Act. BT Securities received a fee of $1.6 million for acting as
initial purchaser in the offering. Bankers Trust Company, an affiliate of BTIP
and BT Securities has acted as Agent under the Credit Facility and receives
customary fees for such services.
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 44 hereof.
(b) Reports on Form 8-K
None.
(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.
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.
RALPHS GROCERY COMPANY
By: /s/ Wayne S. Bell
Wayne S. Bell
Assistant Secretary
Date: May 5, 1997
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>
<S> <S> <C>
SIGNATURE TITLE DATE
- ----------------------- ------------------------------------- ---------------
/s/ Ronald W. Burkle Chairman of the Board and Director May 5, 1997
Ronald W. Burkle
/s/ George G. Golleher Chief Executive Officer and Director May 5, 1997
George G. Golleher
/s/ Alfred A. Marasca President, Chief Operating Officer and Director May 5, 1997
Alfred A. Marasca
/s/ Joe S. Burkle Chief Executive Officer - Falley's and Director May 5,1997
Joe S. Burkle
/s/ Greg Mays Executive Vice President - Finance and Administration May 5, 1997
Greg Mays
/s/ John Standley Senior Vice President and Chief Financial Officer May 5, 1997
John Standley
/s/ Christopher Hall Group Vice President - Finance, Controller and Chief Accounting Officer May 5, 1997
Christopher Hall
/s/ Robert I. Bernstein Director May 5, 1997
Robert I. Bernstein
/s/ Robert Beyer Director May 5, 1997
Robert Beyer
/s/ Peter Copses Director May 5, 1997
Peter Copses
/s/ Patrick L. Graham Director May 5, 1997
Patrick L. Graham
/s/ Lawrence K. Kalantari Director May 5, 1997
Lawrence K. Kalantari
/s/ John Kissick Director May 5, 1997
John Kissick
</TABLE>
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.
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULES
<TABLE>
<S> <C>
Page
----
Report of Independent Public Accountants 45
Consolidated balance sheets as of January 29, 1995, January 28, 1996 and
February 2, 1997 46-47
Consolidated statements of operations for the 52 weeks ended June 25, 1994,
the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996 and
the 53 weeks ended February 2, 1997 48
Consolidated statements of cash flows for the 52 weeks ended June 25, 1994,
the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996 and
the 53 weeks ended February 2, 1997. 49-50
Consolidated statements of stockholder's equity (deficit) for the 52 weeks
ended June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended
January 28, 1996 and the 53 weeks ended February 2, 1997 51
Notes to consolidated financial statements 52-78
Financial Statement Schedule
Report of Independent Public Accountants 79
II Valuation and qualifying accounts 80
</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.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholder of Ralphs Grocery Company:
We have audited the accompanying consolidated balance sheets of Ralphs
Grocery Company (a Delaware corporation) (formerly Food 4 Less Supermarkets,
Inc. ---- See Note 1 in the accompanying Notes to Consolidated Financial
Statements) and subsidiaries (the Company) as of January 29, 1995, January 28,
1996 and February 2, 1997 and the related consolidated statements of operations,
stockholder's equity (deficit) and cash flows for the 52 weeks ended June 25,
1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996
and the 53 weeks ended February 2, 1997. 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 Ralphs
Grocery Company and subsidiaries as of January 29, 1995, January 28, 1996 and
February 2, 1997 and the results of their operations and their cash flows for
the 52 weeks ended June 25, 1994, the 31 weeks ended January 29, 1995, the 52
weeks ended January 28, 1996 and the 53 weeks ended February 2, 1997 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
March 21, 1997 (except with respect to the
matter discussed in Note 14, as to which the
date is April 17, 1997)
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
As of
------------------------------------------------
January 29, January 28, February 2,
1995 1996 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 19,560 $ 67,983 $ 67,589
Trade receivables, less allowances of $1,192,
$1,954 and $4,057 at January 29, 1995,
January 28, 1996 and February 2, 1997, respectively 23,377 60,948 46,560
Notes and other receivables 3,985 6,452 531
Inventories 224,686 502,669 502,095
Patronage receivables from suppliers 5,173 4,557 4,433
Prepaid expenses and other 13,051 34,855 21,925
- ------------------------------------------------------------------------------------------------------------------------------
Total current assets 289,832 677,464 643,133
INVESTMENTS IN AND NOTES RECEIVABLE
FROM SUPPLIER COOPERATIVES:
Associated Wholesale Grocers 6,718 7,288 7,020
Certified Grocers of California & Other 5,686 4,926 4,945
PROPERTY AND EQUIPMENT:
Land 23,488 183,125 173,803
Buildings 24,172 196,551 188,311
Leasehold improvements 110,020 251,856 226,159
Equipment and fixtures 190,016 441,760 401,716
Construction in progress 8,042 61,296 51,117
Leased property under capital leases 82,526 189,061 200,199
Leasehold interests 96,556 114,475 112,398
- ------------------------------------------------------------------------------------------------------------------------------
534,820 1,438,124 1,353,703
Less: Accumulated depreciation and amortization 154,382 226,451 301,477
- -----------------------------------------------------------------------------------------------------------------------------
Net property and equipment 380,438 1,211,673 1,052,226
OTHER ASSETS:
Deferred financing costs, less accumulated amortization of
$20,496, $6,964 and $17,615 at January 29, 1995,
January 28, 1996 and February 2, 1997, respectively 25,469 94,100 88,889
Goodwill, less accumulated amortization of $38,560,
$60,407 and $99,057 at January 29, 1995,
January 28, 1996 and February 2, 1997, respectively 263,112 1,173,445 1,310,956
Other, net 29,440 19,233 24,824
- -----------------------------------------------------------------------------------------------------------------------------
$1,000,695 $3,188,129 $3,131,993
=============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
As of
-----------------------------------------------
January 29, January 28, February 2,
1995 1996 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 190,455 $ 385,500 $ 371,240
Accrued payroll and related liabilities 42,007 94,011 106,764
Accrued interest 10,730 23,870 31,011
Other accrued liabilities 65,279 248,181 234,046
Income taxes payable 293 596 1,956
Current portion of self-insurance liabilities 28,616 21,785 48,251
Current portion of senior debt 22,263 31,735 4,465
Current portion of obligations under capital leases 4,965 22,261 28,041
- ------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 364,608 827,939 825,774
SENIOR DEBT, net of current portion 320,901 1,226,302 1,263,142
OBLIGATIONS UNDER CAPITAL LEASES 40,675 130,784 126,336
SENIOR SUBORDINATED DEBT 145,000 671,222 671,222
DEFERRED INCOME TAXES 17,534 17,988 21,074
SELF-INSURANCE LIABILITIES 44,123 127,200 91,332
LEASE VALUATION RESERVE - 25,182 62,389
OTHER NON-CURRENT LIABILITIES 10,051 102,393 106,286
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY (DEFICIT):
Cumulative convertible preferred stock, $.01 par value,
200,000 shares authorized and 50,000 shares issued
at January 29, 1995 (aggregate liquidation value of
$67.9 million at January 29, 1995) and no shares
authorized or issued at January 28, 1996 and
February 2, 1997 65,136 - -
Common stock, $.01 par value, 5,000,000 shares authorized:
1,519,632 shares, 1,513,938 shares and 1,513,938 shares issued at
January 29, 1995, January 28, 1996 and February 2, 1997, respectively 15 15 15
Additional capital 107,650 466,783 466,783
Notes receivable from stockholders of parent (702) (602) (592)
Retained deficit (112,225) (407,077) (501,768)
- ------------------------------------------------------------------------------------------------------------------------------
59,874 59,119 (35,562)
Treasury stock: 12,345 shares, no shares, and no shares
of common stock at January 29, 1995, January 28, 1996 and
February 2, 1997, respectively (2,071) - -
- ------------------------------------------------------------------------------------------------------------------------------
Total stockholder's equity (deficit) 57,803 59,119 (35,562)
- ------------------------------------------------------------------------------------------------------------------------------
$1,000,695 $3,188,129 $3,131,993
==============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
For the
52 Weeks 31 Weeks 52 Weeks 53 Weeks
Ended Ended Ended Ended
June 25, January 29, January 28, February 2,
1994 1995 1996 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES $2,585,160 $1,556,522 $4,335,109 $5,516,259
COST OF SALES (including purchases from
related parties of $175,929, $104,407, $141,432
and $95,341 for the 52 weeks ended June 25,
1994, the 31 weeks ended January 29, 1995,
the 52 weeks ended January 28, 1996, and the
53 weeks ended February 2, 1997, respectivel) 2,115,842 1,294,147 3,485,993 4,326,230
- -----------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 469,318 262,375 849,116 1,190,029
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 388,836 222,359 785,576 987,425
AMORTIZATION OF GOODWILL 7,691 4,615 21,847 38,650
LOSS (GAIN) ON DISPOSAL OF ASSETS 37 (455) (547) 9,317
RESTRUCTURING CHARGE - 5,134 123,083 -
- -----------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) 72,754 30,722 (80,843) 154,637
INTEREST EXPENSE:
Interest expense, excluding amortization of
deferred financing costs 62,778 38,809 170,581 237,761
Amortization of deferred financing costs 5,472 3,413 8,193 10,667
- -----------------------------------------------------------------------------------------------------------------------------
68,250 42,222 178,774 248,428
PROVISION FOR EARTHQUAKE LOSS 4,504 - - -
- -----------------------------------------------------------------------------------------------------------------------------
LOSS BEFORE PROVISION FOR
INCOME TAXES AND EXTRAORDINARY CHARGE - (11,500) (259,617) (93,791)
PROVISION FOR INCOME TAXES 2,700 - 500 -
- -----------------------------------------------------------------------------------------------------------------------------
LOSS BEFORE EXTRAORDINARY CHARGE (2,700) (11,500) (260,117) (93,791)
EXTRAORDINARY CHARGE - - 23,128 -
- -----------------------------------------------------------------------------------------------------------------------------
NET LOSS $ (2,700) $ (11,500) $ (283,245) $ (93,791)
=============================================================================================================================
PREFERRED STOCK ACCRETION 8,767 6,139 3,960 -
LOSS APPLICABLE TO COMMON SHARES $ (11,467) $ (17,639) $ (287,205) $ (93,791)
=============================================================================================================================
LOSS PER COMMON SHARE:
Loss before extraordinary charge $ (7.63) $ (11.72) $ (174.72) $ (61.95)
Extraordinary charge - - (15.30) -
- -----------------------------------------------------------------------------------------------------------------------------
Net loss $ (7.63) $ (11.72) $ (190.02) $ (61.95)
=============================================================================================================================
Average Number of Common Shares Outstanding 1,503,828 1,504,425 1,511,453 1,513,938
=============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
For the
-----------------------------------------------------------------
52 Weeks 31 Weeks 52 Weeks 53 Weeks
Ended Ended Ended Ended
June 25, January 29, January 28, February 2,
1994 1995 1996 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Cash received from customers $ 2,585,160 $1,556,522 $4,335,109 $5,516,259
Cash paid to suppliers and employees (2,441,353) (1,507,523) (4,197,875) (5,160,532)
Interest paid (56,762) (33,553) (157,441) (230,620)
Income taxes refunded (paid) (247) 1,087 256 8,344
Interest received 903 867 2,562 9,531
Loss (gain) on disposal of assets 37 455 547 (9,317)
Other, net 84 (234) - -
- -----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 87,822 17,621 (16,842) 133,665
CASH PROVIDED (USED) BY INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 11,953 7,199 21,373 29,503
Payment for purchase of property and equipment (57,471) (49,023) (122,355) (123,622)
Payment of acquisition costs, net of cash acquired (11,050) - (303,301) (12,705)
Other, net 813 (797) (1,120) (4,311)
- -----------------------------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (55,755) (42,621) (405,403) (111,135)
CASH PROVIDED (USED) BY
FINANCING ACTIVITIES:
Proceeds from the issuance of long-term debt 28 - 1,050,000 98,946
Increase (decrease) in revolving loan, net (4,900) 27,300 100,100 (28,000)
Payments of long-term debt (14,224) (13,394) (576,727) (61,589)
Proceeds from issuance of common stock, net - 269 - -
Purchase of treasury stock, net (1,192) (57) - -
Payments of capital lease obligations (3,693) (2,278) (15,314) (25,935)
Capital contribution from parent - - 12,108 -
Dividends - - (7,647) -
Deferred financing costs and other, net (179) (276) (91,852) (6,346)
- -----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (24,160) 11,564 470,668 (22,924)
- -----------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 7,907 (13,436) 48,423 (394)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 25,089 32,996 19,560 67,983
- -----------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 32,996 $ 19,560 $ 67,983 $ 67,589
============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
For the
---------------------------------------------------------------
52 Weeks 31 Weeks 52 Weeks 53 Weeks
Ended Ended Ended Ended
June 25, January 29, January 28, February 2,
1994 1995 1996 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net loss $ (2,700) $ (11,500) $ (283,245) $ (93,791)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 62,555 40,036 133,522 180,344
Restructuring charge - 5,134 123,083 -
Extraordinary charge - - 23,128 -
Amortization of debt discount - - - 214
Loss (gain) on sale of assets 65 (455) (547) 9,317
Change in assets and liabilities,
net of effects from acquisition of businesses:
Accounts and notes receivable (3,220) (3,398) (74) 14,999
Inventories (17,125) (11,794) 762 574
Prepaid expenses and other (5,717) (11,239) (18,291) 2,721
Accounts payable and accrued liabilities 55,301 18,715 3,327 24,243
Self-insurance liabilities (3,790) (8,965) 737 (9,402)
Deferred income taxes 2,506 2,794 454 3,086
Income taxes payable (53) (1,707) 302 1,360
- -----------------------------------------------------------------------------------------------------------------------------
Total adjustments 90,522 29,121 266,403 227,456
- -----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES $ 87,822 $ 17,621 $ (16,842) $ 133,665
=============================================================================================================================
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Fixed assets acquired
through the issuance of capital leases $ 2,575 $ 4,304 $ 24,008 $ 28,485
=============================================================================================================================
Reduction of goodwill and deferred income taxes $ 9,896 $ - $ - $ -
=============================================================================================================================
Acquisition of stores in fiscal year 1994 and
RSI in fiscal year 1995:
Fair value of assets acquired, less cash acquired
of $32,595 in fiscal year 1995 $ 11,241 $ - $2,098,220 $ -
Net cash paid in acquisition (11,050) - (303,301) -
Capital contribution from parent - - (262,000) -
- -----------------------------------------------------------------------------------------------------------------------------
Liabilities assumed $ 191 $ - $1,532,919 $ -
=============================================================================================================================
Accretion of preferred stock $ 8,767 $ 6,139 $ 3,960 $ -
=============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- ---------------------------------------------------------------------------------------------------------------------------------
Preferred Stock Common Stock Treasury Stock
---------------- --------------- ----------------- Stock-
Number Number Number Stock- holders'
of of of holders' Add'l Retained Equity
Shares Amount Shares Amount Shares Amount Notes Capital Deficit (Deficit)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 Stockholders' 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
Net Loss - - - - - - - - (11,500) (11,500)
Issuance of Treasury Stock - - - - 5,504 460 (191) - - 269
Purchase of Treasury Stock - - - - (1,117) (62) 5 - - (57)
Payments of Stockholders' Notes - - - - - - 70 - - 70
Accretion of Preferred Stock - 6,139 - - - - - - (6,139) -
BALANCES AT JANUARY 29, 1995 50,000 65,136 1,519,632 15 (12,345) (2,071) (702) 107,650 (112,225) 57,803
Net Loss - - - - - - - - (283,245) (283,245)
Payments of Stockholders' Notes - - - - - - 100 - - 100
Accretion of Preferred Stock - 3,960 - - - - - - (3,960) -
Cancellation of Preferred Stock (50,000) (69,096) - - - - - 69,096 - -
Cancellation of F4LSI Common
Stock held as Treasury Stock - - (5,694) - 5,694 955 - (955) - -
Cancellation of F4L Holdings
Common Stock held as
Treasury Stock - - - - 6,651 1,116 - (1,116) - -
Dividend paid to F4L Holdings,
Inc. - - - - - - - - (7,647) (7,647)
Capital Contribution by F4L
Holdings, Inc. - - - - - - - 282,108 - 282,108
Issuance of Stock Options - - - - - - - 10,000 - 10,000
BALANCES AT JANUARY 28, 1996 - - 1,513,938 15 - - (602) 466,783 (407,077) 59,119
Net Loss - - - - - - - - (93,791) (93,791)
Payments of Stockholders'
Notes - - - - - - 10 - - 10
Dividend paid to F4L Holdings,
Inc. - - - - - - - - (900) (900)
BALANCES AT FEBRUARY 2, 1997 - $ - 1,513,938 $ 15 - $ - $(592) $466,783 $(501,768) $(35,562)
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND ACQUISITIONS
Ralphs Grocery Company (the "Company"), formerly known as Food 4 Less
Supermarkets, Inc. ("F4L Supermarkets"), 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. The Company operates in three geographic
areas: Southern California, Northern California and certain areas of the
Midwest. 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-SoCal.
Ralphs Merger
On June 14, 1995, F4L Supermarkets, Food 4 Less Holdings, Inc., a
California corporation ("Old Holdings"), and Food 4 Less, Inc. ("FFL")
(which owned a majority of the stock of Old Holdings) completed a
definitive agreement and plan of merger (the "Merger Agreement") with
Ralphs Supermarkets, Inc. ("RSI") and the stockholders of RSI. Pursuant to
the terms of the Merger Agreement, as amended, F4L Supermarkets was merged
with and into RSI (the "RSI Merger"). Immediately following the RSI
Merger, pre-Merger Ralphs Grocery Company ("RGC"), which was a wholly-owned
subsidiary of RSI, merged with and into RSI (the "RGC Merger," and
together with the RSI Merger, the "Merger"), and RSI changed its name to
Ralphs Grocery Company. Prior to the Merger, FFL merged with and into Old
Holdings, which was the surviving corporation (the "FFL Merger").
Immediately following the FFL Merger, Old Holdings changed its
jurisdiction of incorporation by merging into a newly-formed, wholly-owned
subsidiary, incorporated in Delaware (the "Reincorporation Merger"). As a
result of the Merger, the FFL Merger and the Reincorporation Merger, the
Company became a wholly-owned subsidiary of Holdings.
The purchase price for the outstanding capital stock of RSI was $538.1
million; the Company paid $288.1 million in cash, Holdings paid $100.0
million in cash, and Holdings issued $131.5 million of its Seller
Debentures and $18.5 million of its Discount Debentures as consideration
for the purchase. The Company also paid fees associated with the
acquisition of $47.8 million (including a prepayment premium on outstanding
mortgage debt of RGC of $19.7 million), which was offset by RGC's cash on
hand at the Merger date of $32.6 million.
The merger has been accounted for in accordance with the purchase
method of accounting and, accordingly, the net assets acquired have been
included in the Company's consolidated balance sheets based upon their
estimated fair values as of the effective date. The purchase price in
excess of the fair market value of RSI's net assets was recorded as
goodwill and is being amortized over a 40-year period. The Company
finalized the allocation of the RSI's purchase price in the second quarter
of fiscal 1996. The Company's consolidated statements of operations
include the revenues and expenses of RSI after the effective date of the
Merger.
The proceeds from the Credit Facility, the 1995 10.45% Senior Notes
and the 1995 11% Senior Subordinated Notes (all as defined below)
provided the sources of financing required to pay the Company's portion of
the purchase price and to repay outstanding bank debt of F4L Supermarkets
and RGC of $176.5 million and $228.9 million, respectively, and to repay
existing mortgage debt of $174.0 million of RGC. In addition, the
Company exchanged certain of its newly issued senior notes and senior
subordinated notes for outstanding indebtedness of RGC and F4L
Supermarkets. Proceeds from the Credit Facility also were used to pay
certain exchange and consent solicitation fees associated with the above
transactions, and to pay accrued interest on all exchanged debt securities
in the amount of $27.8 million, to pay $17.8 million to the holders of the
RGC Equity Appreciation Rights and to loan $5.0 million to an affiliate for
the benefit of such holders, to pay approximately $93.3 million of fees and
expenses of the Merger and the related financing and to pay $3.5 million to
purchase shares of common stock of Old Holdings from certain dissenting
shareholders. In addition, Holdings issued $22.5 million of its Discount
Debentures in consideration for certain Merger-related services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. The results of
operations of pre-Merger Ralphs Grocery Company and all previous
acquisitions have been excluded from the consolidated financial statements
for periods prior to their respective acquisition dates. All intercompany
transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fiscal Year
The Company operates within a conventional 52 or 53-week accounting
fiscal year. F4L Supermarkets, together with its subsidiaries, changed its
fiscal year-end from the last Saturday in June to the Sunday closest to
January 31, resulting in a 31-week transition period ended January 29,
1995. As a result of the fiscal year-end change, the 52-week period ended
June 25, 1994 is referred to as fiscal 1994, the 31-week period ended
January 29, 1995 is referred to as the 1995 transition period, the 52-week
period ended January 28, 1996 is referred to as fiscal 1995 and the 53-week
period ended February 2, 1997 is referred to as fiscal 1996. Information
presented below concerning subsequent fiscal years starts with fiscal year
1997, which will cover the 52 weeks ended February 1, 1998 and will
proceed sequentially forward.
Cash and Cash Equivalents
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 $16.5 million, $18.7 million and $24.3 million at January 29, 1995,
January 28, 1996 and February 2, 1997, respectively, and gross profit and
operating income would have been greater by $0.7 million, $2.7 million,
$2.2 million and $5.6 million for fiscal year 1994, the 1995 transition
period, fiscal year 1995 and fiscal year 1996, respectively.
Pre-opening Costs
Certain 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 its property and equipment, 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.
Property and Equipment
Property and equipment are stated at cost. Depreciation expense
includes amortization of capital lease assets. Depreciation is provided
using the straight-line method over the following estimated useful lives:
Buildings and improvements 5-40 years
Equipment and fixtures 3-10 years
Property under capital leases
and leasehold interests 3-45 years (lease term)
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.
Long-Lived Assets
Goodwill, representing 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.
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.
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109").
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 proposed changes
in the tax law or rates.
Notes Receivable from Stockholders of Parent
Notes receivable from stockholders of parent represent loans to
employees of the Company for purchases of Holdings' common stock. The
notes are due over various periods, bear interest at the prime rate, and
are secured by each stockholder's shares of Holdings' common stock.
Self-Insurance
The Company is self-insured for its workers' compensation, general
liability and vehicle accident claims. The Company establishes reserves
based on an independent actuary's valuation of open claims reported 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 in the period earned.
Provision for Earthquake Losses
On January 17, 1994, Southern California was struck by a major
earthquake which resulted in the temporary closure 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 loss,
net of insurance recoveries, was approximately $4.5 million.
Extraordinary Items
For the 52 weeks ended January 28, 1996, the Company recorded an
extraordinary charge relating to the refinancing of F4L Supermarkets' Old
Credit Facility, 10.45% Senior Notes due 2000 (the "Old F4L Senior Notes"),
13.75% Senior Subordinated Notes due 2001 (the "Old F4L Senior Subordinated
Notes"), the repayment of Holdings' 15.25% Senior Discount Notes due 2004
in connection with the Merger and the write-off of their related debt
issuance costs.
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.
Derivative Financial Instruments
The Company utilizes an interest rate collar agreement to set interest
rate limits on its Term Loans to satisfy the interest rate protection
requirements under its Credit Facility. Favorable or unfavorable movements
of interest rates outside of the interest rate limits are recorded as
adjustments to interest expense in the period in which the unfavorable
movement occurs.
Reclassifications
Certain prior period amounts in the consolidated financial statements
have been reclassified to conform to the fiscal year 1996 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,
Holdings, in exchange for gross proceeds of $50.0 million. The Preferred
Stock had a stated dividend rate of $152.50 per share, per annum. In order
to finance the purchase of the Preferred Stock 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.
In connection with the Merger, the Preferred Stock was cancelled. The
accreted amount of the Preferred Stock at the date of the Merger was
contributed to the Company's capital and is reflected in the Consolidated
Statement of Stockholder's Equity (Deficit) as a component of additional
paid-in capital. Also, at the time of the Merger, Holdings repaid its
borrowings under the Holdings Notes.
4. SENIOR DEBT AND SENIOR SUBORDINATED DEBT
The Company's senior debt is summarized as follows (in thousands):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
As of
-----------------------------------------------
January 29, January 28, February 2,
1995 1996 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Term Loans $ - $ 590,426 $ 541,432
Old Term Loan 125,732 - -
10.45% Senior Notes, principal due 2004 with
interest payable semi-annually in arrears - 520,326 520,326
10.45% Senior Notes, principal due 2004 with
interest payable semi-annually in arrears,
net of unamortized debt discount of $5,161
at February 2, 1997, 11.5% yield to maturity - - 94,839
10.45% Senior Notes, principal due 2000 with
interest payable semi-annually in arrears 175,000 4,674 4,674
Revolving Facility - 127,400 99,400
Old Revolving Loan 27,300 - -
10.0% secured promissory note, collateralized
by the stock of Bell, due June 1996, interest
payable quarterly 8,000 8,000 -
Other senior debt 7,132 7,211 6,936
- ------------------------------------------------------------------------------------------------------------
343,164 1,258,037 1,267,607
Less--current portion 22,263 31,735 4,465
- ------------------------------------------------------------------------------------------------------------
$320,901 $1,226,302 $1,263,142
============================================================================================================
</TABLE>
Senior Debt
As part of the Merger financing, the Company entered into a bank
credit agreement (the "Credit Facility") comprised of a $600.0 million
term loan facility (the "Term Loans") and a revolving credit facility of
$325.0 million (the "Revolving Facility") under which working capital loans
may be made and commercial or standby letters of credit in the maximum
aggregate amount of up to $150.0 million may be issued. The Credit
Facility is collateralized by inventory, receivables, certain fixed assets,
deposit accounts, collection proceeds and certain intangibles.
At February 2, 1997, $541.4 million was outstanding under the Term
Loans, $99.4 million was outstanding under the Revolving Facility, and
$89.1 million of standby letters of credit had been issued on behalf of the
Company. A commitment fee of one-half of one percent per annum is charged
on the average daily unused portion of the Revolving Facility; such
commitment fees are due quarterly in arrears. At February 2, 1997, the
weighted average interest rate on the Term Loans was 8.99 percent and the
interest rate on the Revolving Facility was 8.68 percent.
The Company has entered into an interest rate collar agreement with
the Credit Facility Administrative Agent that effectively sets interest
rate limits on the Company's term loans. The notational principal amount
at February 2, 1997 and January 28, 1996 was $325 million. The agreement,
which was entered into on October 11, 1995 and expires on October 21, 1997,
limits the interest rate fluctuation of the 3-month Adjusted Eurodollar
Rate (as defined) to a range between 4.5 percent and 8.0 percent. The
agreement requires quarterly cash settlement for interest rate fluctuations
outside of the limits. The agreement satisfies the interest rate
protection requirements under the Credit Facility. As of February 2, 1997
and January 28, 1996, the 3-month Adjusted Eurodollar Rate was 5.56 percent
and 5.50 percent, respectively. No adjustments to interest expense were
recorded during fiscal year 1996 or 1995 as a result of this agreement.
In November 1996, the Company amended the Term Loans to pay down
$125.0 million on one of the original tranches (Tranche A) and initiated
new tranches, Tranche E, Tranche F, and Tranche G, in the amounts of $75.0
million, $25.0 million and $25.0 million, respectively. The amortization
of the new tranches mirrors the maturity of the initial Tranche B, initial
Tranche C and initial Tranche D.
Quarterly principal installments on the Term Loans continue to
December 2003, with amounts payable in each year as follows: $4.3 million
in fiscal 1997, $4.3 million in fiscal 1998, $29.0 million in fiscal 1999,
$66.4 million in fiscal 2000, $118.2 million in fiscal 2001 and $319.2
million thereafter. The principal installments can be accelerated if the
Company receives proceeds on the sale of certain of its assets in the
future. To the extent that borrowings under the Revolving Facility are
not paid earlier, they are due in December 2003. The common stock of the
Company and certain of its direct and indirect subsidiaries has been
pledged as security under the Credit Facility.
The Company issued $350.0 million of 10.45% Senior Notes due 2004
(the "1995 10.45% Senior Notes") and exchanged $170.3 million principal
amount of 1995 10.45% Senior Notes for an equal amount of the 10.45% F4L
Senior Notes due 2000 (the "Old F4L Senior Notes") (together with the 1995
10.45% Senior Notes, the "Senior Notes"), leaving an outstanding balance
of $4.7 million of the Old F4L Senior Notes. The Old F4L Senior Notes are
due in two equal sinking fund payments on April 15, 1999 and 2000. The
Senior Notes are senior unsecured obligations of the Company and rank "pari
passu" in right of payment with other senior unsecured indebtedness of the
Company. However, the Senior Notes are effectively subordinated to all
secured indebtedness of the Company and its subsidiaries, including
indebtedness under the Credit Facility. Interest on the 1995 10.45%
Senior Notes is payable semiannually in arrears on each June 15 and
December 15. Interest on the Old F4L Senior Notes is payable semiannually
in arrears on each April 15 and October 15.
In June 1996, the Company issued $100.0 million aggregate principal
amount of 10.45% Senior Notes due 2004 (the "1996 10.45% Senior Notes").
The terms of the 1996 10.45% Senior Notes are substantially identical to
those of the Company's 1995 10.45% Senior Notes, which were issued in a
registered offering in June 1995 and of which $520.3 million aggregate
principal amount is outstanding. The 1996 10.45% Senior Notes were issued
with original issue discount resulting in gross proceeds to the Company of
$94.6 million. In July 1996, the Company initiated an offer to exchange
(the "Exchange Offer") $1,000 principal amount of its 1996 10.45% Senior
Notes, which exchange has been registered under the Securities Act of 1933,
as amended, for each $1,000 principal amount of its 1996 10.45% Senior
Notes. The Exchange Offer was completed in August 1996.
The $94.6 million of gross proceeds from the 1996 10.45% Senior Notes
was used to (i) repay $22.7 million of Term Loans, which was due within the
following twelve months, (ii) repay $21.7 million of additional Term Loans,
pro rata over the term thereof, (iii) repay $47.6 million in borrowings
under the Revolving Facility (without any reduction in amounts available
for future borrowing thereunder) and (iv) pay fees and expenses related to
the 1996 10.45% Senior Notes of approximately $2.6 million.
The 1995 10.45% Senior Notes and the 1996 10.45% Senior Notes (the
"New Senior Notes") may be redeemed, at the option of the Company, in whole
at any time or in part from time to time, beginning in fiscal 2000, at a
redemption price of 105.2 percent. The redemption price declines ratably
to 100 percent in fiscal 2003. In addition, on or prior to June 15, 1998,
the Company may, at its option, use the net cash proceeds of one or more
public equity offerings to redeem up to an aggregate of 35 percent of the
principal amount of the New Senior Notes originally issued, at a redemption
price equal to 110.4 percent, 108.9 percent, and 107.5 percent of the
principal amount thereof if redeemed during the 12 months commencing on
June 15, 1995, June 15, 1996, and June 15, 1997, respectively, in each case
plus accrued and unpaid interest, if any, to the redemption date. The Old
F4L Senior Notes may be redeemed beginning in fiscal year 1996 at 104.5
percent, declining ratably to 100 percent in fiscal year 1999.
Scheduled maturities of principal of senior debt at February 2, 1997
are as follows (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------
Fiscal Year
- --------------------------------------------
<C> <C>
1997 $ 4,465
1998 4,571
1999 30,571
2000 71,292
2001 118,401
Later years 1,038,307
- --------------------------------------------
$1,267,607
============================================
</TABLE>
The Company's senior subordinated debt is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
As of
--------------------------------------------------
January 29, January 28, February 2,
1995 1996 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
11.00% Senior Subordinated Notes $ - $524,005 $524,005
principal due 2005 with interest payable
semi-annually in arrears
13.75% Senior Subordinated Notes - 140,184 140,184
principal due 2005 with interest payable
semi-annually in arrears
13.75% Senior Subordinated Notes 145,000 4,816 4,816
principal due 2001 with interest payable
semi-annually in arrears
Other Senior Subordinated debt - 2,217 2,217
- --------------------------------------------------------------------------------------------------------------
$145,000 $671,222 $671,222
==============================================================================================================
</TABLE>
Senior Subordinated Debt
Concurrent with the Merger, the Company issued $100.0 million of 11%
Senior Subordinated Notes due 2005 (the "1995 11% Senior Subordinated
Notes") and (i) exchanged $142.2 million principal amount of the RGC 9%
Senior Subordinated Notes due 2003 (the "Old RGC 9% Notes") and $281.8
million principal amount of the RGC 10.25% Senior Subordinated Notes due
2002 (the "Old RGC 10.25% Notes," and together with the Old RGC 9% Notes,
the "Old RGC Notes") for an equal amount of 1995 11% Senior Subordinated
Notes, (ii) purchased $7.5 million principal amount of Old RGC 9% Notes
and $15.2 million principal amount of Old RGC 10.25% Notes in conjunction
with the offers, and (iii) subsequently purchased $0.1 million principal
amount of Old RGC 9% Notes and $1.0 million principal amount of Old RGC
10.25% Notes subject to the change of control provision, leaving an
outstanding balance of $0.1 million on the Old RGC 9% Notes and an
outstanding balance of $2.1 million on the Old RGC 10.25% Notes. The 1995
11% Senior Subordinated Notes are senior subordinated, unsecured
obligations of the Company and are subordinated in right of payment to all
senior indebtedness, including the Company's obligations under the Credit
Facility and the New Senior Notes and the Old F4L Senior Notes. Interest
on the New RGC Notes is payable semiannually in arrears on each June 15 and
December 15.
The 1995 11% Senior Subordinated Notes may be redeemed at the option
of the Company, in whole at any time or in part from time to time,
beginning in fiscal year 2000, at an initial redemption price of 105.5
percent. The redemption price declines ratably to 100 percent in fiscal
year 2003. In addition, on or prior to June 15, 1998, the Company may, at
its option, use the net cash proceeds of one or more public equity
offerings to redeem up to an aggregate of 35 percent of the principal
amount of the 1995 11% Senior Subordinated Notes originally issued, at a
redemption price equal to 111.0 percent, 109.4 percent, and 107.9 percent
of the principal amount thereof if redeemed during the 12 months commencing
on June 15, 1995, June 15, 1996, and June 15, 1997, respectively, in each
case plus accrued and unpaid interest, if any, to the redemption date.
The Company exchanged $140.2 million 13.75% Senior Subordinated Notes
due 2005 (the "New F4L Senior Subordinated Notes") for an equal amount of
F4L 13.75% Senior Subordinated Notes due 2001 (the "Old F4L Senior
Subordinated Notes," and together with the New F4L Senior Subordinated
Notes, the "13.75% Senior Subordinated Notes") of the Company, leaving an
outstanding balance of $4.8 million of the Old F4L Senior Subordinated
Notes. The 13.75% Senior Subordinated Notes are senior subordinated
unsecured obligations of the Company and are subordinated in right of
payment to all senior indebtedness, including the Company's obligations
under the Credit Facility, the New Senior Notes, and the Old F4L Senior
Notes and the 1995 11% Senior Subordinated Notes. Interest on the 13.75%
Senior Subordinated Notes is payable semiannually in arrears on each June
15 and December 15 commencing on December 15, 1995. The New F4L Senior
Subordinated Notes may be redeemed beginning in fiscal year 1996 at a
redemption price of 106.111 percent. The redemption price declines ratably
to 100 percent in fiscal year 2000.
Scheduled maturities of principal of senior subordinated debt at
February 2, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------
Fiscal Year
- --------------------------------------------------
<C> <C>
1997 $ -
1998 -
1999 -
2000 -
2001 4,816
Later years 666,406
- --------------------------------------------------
$671,222
==================================================
</TABLE>
Financial Covenants
The Credit Facility, among other things, requires the Company to
maintain minimum levels of net worth (as defined), to maintain minimum
levels of earnings, to maintain a hedge agreement to provide interest rate
protection, and to comply with certain ratios related to fixed charges and
indebtedness. During fiscal 1995, certain financial covenants and other
terms of the Credit Facility were amended to, among other things, provide
for the acquisition of Smith's Food and Drug Centers, Inc. ("Smith's")
Riverside distribution and creamery facility, the acquisition of certain
operating assets and inventory at that facility, the acquisition of nine of
the Smith's Southern California stores and the closure of up to nine stores
in conjunction with these acquisitions. In addition, the Credit Facility
and the indentures governing the New Senior Notes, the 1995 11% Senior
Subordinated Notes and the New F4L Senior Subordinated Notes limit, among
other things, additional borrowings, dividends on, and redemption of,
capital stock and the acquisition and the disposition of assets. At
February 2, 1997, the Company was in compliance with the financial
covenants of its debt agreements. At February 2, 1997, dividends and
certain other payments are restricted based on terms in the debt
agreements.
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 (in thousands):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
For the
-----------------------------------------------
52 Weeks 31 Weeks 52 Weeks 53 Weeks
Ended Ended Ended Ended
June 25, January 29, January 28, February 2,
1994 1995 1996 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rents $49,788 $33,458 $97,752 $146,101
Rents based on sales 3,806 1,999 3,439 3,786
===============================================================================================
</TABLE>
Following is a summary of future minimum lease payments under operating
leases at February 2, 1997 (in thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------
Fiscal Year
- ---------------------------------------------------
<C> <C>
1997 $ 145,675
1998 138,038
1999 135,227
2000 131,243
2001 118,973
Later years 1,279,824
- ---------------------------------------------------
$ 1,948,980
===================================================
</TABLE>
The Company has entered into lease agreements for new supermarket
sites which were not in operation at February 2, 1997. Future minimum
lease payments under such operating leases generally begin when such
facilities open and at February 2, 1997 are: 1997 - $3.6 million; 1998 -
$6.9 million; 1999 - $6.9 million; 2000 - $6.9 million; 2001 - $6.9
million; later years - $112.5 million.
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 February 2, 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Fiscal Year
- ------------------------------------------------------------------------------------------
<C> <C>
1997 $ 42,467
1998 36,104
1999 28,207
2000 22,515
2001 14,146
Later years 101,838
- ------------------------------------------------------------------------------------------
Total minimum lease payments 245,277
Less: amounts representing interest 90,900
- ------------------------------------------------------------------------------------------
Present value of minimum lease payments 154,377
Less: current portion 28,041
- ------------------------------------------------------------------------------------------
$126,336
==========================================================================================
</TABLE>
Accumulated depreciation related to leased property under capital
leases was $27.6 million, $42.7 million and $62.0 million at January
29, 1995, January 28, 1996 and February 2, 1997, respectively.
6. INVESTMENT IN A.W.G.
The investment in Associated Wholesale Grocers ("A.W.G.") consists
principally of A.W.G.'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 (in
thousands):
<TABLE>
<CAPTION>
- --------------------------------------------
Fiscal Year
- --------------------------------------------
<C> <C>
1997 $ -
1998 757
1999 1,504
2000 1,478
2001 1,724
Later years 1,557
- --------------------------------------------
$ 7,020
============================================
</TABLE>
7. INCOME TAXES
The provision (benefit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
52 Weeks 31 Weeks 52 Weeks 53 Weeks
Ended Ended Ended Ended
June 25, January 29, January 28, February 2,
1994 1995 1996 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current:
Federal $ 3,251 $(2,894) $ - $ -
State and other 712 100 46 -
- ----------------------------------------------------------------------------------------------------------------
3,963 (2,794) 46 -
Deferred:
Federal (70) 2,794 - -
State and other (1,193) - 454 -
- ----------------------------------------------------------------------------------------------------------------
(1,263) 2,794 454 -
- ----------------------------------------------------------------------------------------------------------------
$ 2,700 $ - $ 500 $ -
================================================================================================================
</TABLE>
A reconciliation of the provision (benefit) for income taxes to amounts
computed at the federal statutory rates of 35 percent for fiscal 1994, the
1995 transition period, fiscal 1995 and fiscal year 1996 is as follows
(in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
52 Weeks 31 Weeks 52 Weeks 53 Weeks
Ended Ended Ended Ended
June 25, January 29, January 28, February 2,
1994 1995 1996 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal income taxes at statutory
rate on loss before provision
for income taxes and
extraordinary charges $ - $(4,025) $ (98,959) $(32,827)
State and other taxes,
net of federal tax benefit (1) 65 (16,794) (244)
Effect of permanent differences
resulting primarily from
amortization of goodwill 2,820 1,701 (1,665) 9,801
Tax credits and other - - 3,769 (4,818)
Accounting limitation (recognition)
of deferred tax benefit (119) 2,259 114,149 28,088
- --------------------------------------------------------------------------------------------------------------
$2,700 $ - $ 500 $ -
==============================================================================================================
</TABLE>
The provision (benefit) for deferred taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
52 Weeks 31 Weeks 52 Weeks 53 Weeks
Ended Ended Ended Ended
June 25, January 29, January 28, February 2,
1994 1995 1996 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Property and equipment $(1,687) $ 992 $ (461) $ 20,606
Inventory (2,415) (2,627) (8,479) 40
Capital lease obligation 2,792 527 (502) (5,253)
Self-insurance reserves (535) 5,523 2,104 2,276
Accrued expense (2,136) (3,807) (26,304) (1,435)
Accrued payroll and related
liabilities 1,721 (3,879) (6,206) (2,916)
Tax intangibles - - 6,234 10,182
State taxes - - (20,639) (3,879)
Net operating losses 5,782 (6,963) (61,219) (49,773)
Tax credits (4,477) 1,711 3,601 -
Accounting limitation (recognition)
of deferred tax benefit (1,085) 10,494 114,149 28,088
Other, net 777 823 (1,824) 2,064
- ------------------------------------------------------------------------------------------------------------
$(1,263) $ 2,794 $ 454 $ -
============================================================================================================
</TABLE>
The significant components of the Company's deferred tax assets
(liabilities) are as follows (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
January 29, January 28, February 2,
1995 1996 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Accrued payroll and related liabilities $ 6,248 $ 27,579 $ 30,495
Other accrued liabilities 12,080 71,954 73,389
Obligations under capital leases - 37,584 42,837
Self-insurance liabilities 25,204 49,773 47,497
Loss carryforwards 27,638 154,202 203,975
Tax credit carryforwards 4,157 913 913
State taxes - 30,210 34,090
Other 570 18,026 16,075
- ---------------------------------------------------------------------------------------------------------------
Gross deferred tax assets 75,897 390,241 449,271
Valuation allowance (41,643) (285,506) (313,594)
- ---------------------------------------------------------------------------------------------------------------
Net deferred tax assets $ 34,254 $104,735 $ 135,677
- ---------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Inventories $(11,690) $ (9,762) $ (9,802)
Property and equipment (28,527) (106,116) (129,808)
Obligations under capital leases (9,261) - -
Tax intangibles - (6,234) (16,416)
Other (2,310) (611) (725)
- ---------------------------------------------------------------------------------------------------------------
Gross deferred tax liability (51,788) (122,723) (156,751)
- ---------------------------------------------------------------------------------------------------------------
Net deferred tax liability $(17,534) $ (17,988) $ (21,074)
===============================================================================================================
</TABLE>
The Company recorded a valuation allowance to reserve a portion of its
gross deferred tax assets at February 2, 1997 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 February 2, 1997, approximately $139.0 million of the valuation
allowance for deferred tax assets will reduce goodwill when the allowance
is no longer required.
At February 2, 1997, the Company has net operating loss carryforwards
for federal income tax purposes of $583.0 million, which expire from 2007
through 2012. The Company has federal Alternative Minimum Tax ("AMT")
credit carryforwards of approximately $0.9 million which are available to
reduce future regular taxes in excess of AMT. Currently, there is no
expiration date for these credits.
A portion of the loss carryforwards described above are subject to the
provisions of the Tax Reform Act of 1986, specifically Internal Revenue
Code Section 382. The law limits the use of net operating loss
carryforwards when changes of ownership of more than 50 percent occur
during a three-year testing period. Due to the Merger, the ownership of
pre-Merger F4L Supermarkets and pre-Merger RSI changed in excess of 50
percent. As a result, the Company's utilization of approximately $78.0
million of F4L Supermarkets' and $187.0 million of RSI's federal net
operating losses will be subject to an annual usage limitation. The
Company's annual limitations under Section 382 for F4L Supermarkets' and
RSI's net operating losses are approximately $15.6 million and $15.0
million, respectively. Furthermore, all of the Company's pre-Merger RSI
net operating losses and a portion of the Company's Ralphs post-Merger
losses will reduce goodwill when utilized in future federal income tax
returns.
Holdings files a consolidated federal income tax return, under which the
federal income tax liability of Holdings and its subsidiaries is
determined on a consolidated basis. Holdings is a party to 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 Holdings and has taxable income, the Company
will pay to Holdings 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 Holdings and its other
subsidiaries, Holdings will credit to the Company the amount of such
reduction in the consolidated tax liability. These credits are passed
between Holdings 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 Holdings and the Company of such state and local taxes.
The Company currently has Internal Revenue Service examinations in
process covering the years 1990 through 1993. Management believes that any
required adjustment to the Company's tax liabilities will not have a
material adverse impact on its financial position or results of operations.
8. RELATED PARTY TRANSACTIONS
The Company has a five-year consulting agreement with an affiliated
company effective June 14, 1995 for management, financing, acquisition and
other services. The agreement is automatically renewed on June 14 of each
year for the five-year term unless 90 days' notice is given by either
party. The contract provides for annual management fees equal to $4
million plus advisory fees for certain acquisition transactions if the
affiliated company is retained by the Company.
Management services expenses were $2.3 million during fiscal year 1994,
$1.2 million during the 1995 transition period, $3.6 million during
fiscal year 1995 and $4.0 million during fiscal year 1996. Advisory fees
were $0.2 million during fiscal year 1994, $21.5 million during fiscal
year 1995 and $1.7 million during fiscal year 1996. There were no such
advisory fees for the 1995 transition period. Advisory fees for financing
transactions are capitalized and amortized over the term of the related
financing.
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
certain Certified stock. Such gains are only payable if Certified is
purchased or dissolved, or if the Company sells such Certified Stock within
the period noted above.
In connection with the bankruptcy reorganization of Federated Department
Stores, Inc. ("Federated") and its affiliates, Federated agreed to pay
certain potential tax liabilities relating to RGC as a member of the
affiliated group of companies comprising Federated and its subsidiaries.
In consideration thereof, RSI and RGC agreed to pay Federated a total of
$10 million, payable $1 million on each of February 3, 1992, 1993, 1994,
1995 and 1996 and $5 million on February 3, 1997. In the event Federated is
required to pay certain tax liabilities, RSI and RGC agreed to reimburse
Federated up to an additional $10 million, subject to certain adjustments.
Pursuant to the terms of the Merger, the $5 million payment and the
potential $10 million payment will be paid in cash.
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 February 2, 1997, the Company had capitalized construction
costs of $20.3 million on total commitments of $24.0 million.
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.
On September 13, 1996 a class action lawsuit titled McCampbell, et al.
v. Ralphs Grocery Company, et al. was filed in the Superior Court of the
State of California, County of San Diego, against the Company and two other
grocery store chains operating in the Southern California area. The
complaint alleges, among other things, that the Company and others
conspired to fix the retail price of eggs in Southern California. The
plaintiffs' claim that the defendants' actions violate provisions of the
California Cartwright Act and constitute unfair competition. Plaintiffs
seek damages they purport to have sustained as a result of the defendants'
alleged actions, which damages may be trebled under the applicable
statute, and an injunction from future actions in restraint of trade and
unfair competition. Because the case was recently filed, discovery has
just commenced. Management of the Company intends to defend this action
vigorously and the Company has filed an answer to the complaint denying the
plaintiffs' allegations and setting forth several defenses.
On December 20, 1996, a lawsuit titled Bundy, et al. v. Ralphs Grocery
Company, et al. was filed in the Los Angeles Superior Court against the
Company. The complaint was filed by eight individual plaintiffs who were
terminated in conjunction with the Company's restructuring. The plaintiffs
claim that they were wrongfully terminated for discriminatory reasons and
that the Company engaged in various fraudulent practices. The plaintiffs
seek compensatory damages in excess of $15 million, special and punitive
damages. Management of the Company believes that the plaintiff's claims
are without merit and intends to defend this action vigorously.
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.
The Company self-insures its workers' compensation and general
liability. For fiscal year 1994, the 1995 transition period, fiscal year
1995 and fiscal year 1996, the self-insurance loss provisions were $19.9
million, $6.3 million, $32.6 million and $29.2 million, respectively.
During fiscal year 1994, the Company discounted its self-insurance
liability using a 7.0 percent discount rate. In the 1995 transition
period, the Company changed the discount rate to 7.5 percent. In fiscal
1995, the Company changed the discount rate to 7.0 percent. In fiscal
1996, the Company changed the discount rate to 7.5 percent. Management
believes that this rate approximates the time value of money over the
anticipated payout period (approximately 10 years) for essentially
risk-free investments.
The Company's historical self-insurance liability at the end of the
three most recent fiscal years and the 1995 transition period is as
follows (in thousands):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
As of
-------------------------------------------------------
June 25, January 29, January 28, February 2,
1994 1995 1996 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Self-insurance liability $90,898 $ 84,286 $ 161,391 $ 151,465
Less: Discount (9,194) (11,547) (12,406) (11,882)
- -------------------------------------------------------------------------------------------------------
Net self-insurance liability $81,704 $ 72,739 $ 148,985 $ 139,583
=======================================================================================================
</TABLE>
The Company expects that cash payments for claims will aggregate
approximately $52.6 million, $37.5 million, $23.9 million, $14.5 million
and $8.7 million for the fiscal year 1997, the fiscal year 1998, the
fiscal year 1999, the fiscal year 2000 and the fiscal year 2001,
respectively.
Environmental Matters
In January 1991, the California Regional Water Quality Control Board for
the Los Angeles Region (the "Regional Board") requested that the Company
conduct a subsurface characterization of its Glendale Facility property
located in the Atwater District of Los Angeles, near Glendale, California.
This request was part of an ongoing effort by the Regional Board, in
connection with the U.S. Environmental Protection Agency (the "EPA"), to
identify contributors to groundwater contamination in the San Fernando
Valley. Significant parts of the San Fernando Valley, including the area
where the Glendale Facility is located, have been designated federal
Superfund sites requiring response actions under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended,
because of regional groundwater contamination. On June 18, 1991, the EPA
made its own request for information concerning the Company's Glendale
Facility. Since that time, the Regional Board has requested further
investigation by the Company. The Company conducted the requested
investigations and reported the results to the Regional Board.
Approximately 25 companies have entered into a Consent Order (EPA Docket
No. 94-11) with the EPA to investigate and design a remediation system for
contaminated groundwater beneath an area which includes the Glendale
Facility. The Company is not a party to the Consent Order, but is
cooperating with requests of the subject companies to allow installation of
monitoring or recovery wells on its property. On or about October 12,
1995, the EPA mailed a Special Notice Letter to 44 parties, including the
Company as owner and operator of the Glendale Facility property, naming
them as potentially responsible parties ("PRPs"). On November 26, 1996,
the EPA issued an Administrative Order for Remedial Action (EPA Docket No.
97-06) against more than 60 respondents, including the Company, in
connection with the Superfund site. Under the order, these PRP's are
required to take certain actions, over an approximately 270-day period, in
connection with the implementation of interim remedies for the treatment of
groundwater. The PRP's have also agreed to an Alternative Dispute
Resolution Process to allocate the costs among themselves. Based upon
available information, management does not believe this matter will have a
material adverse effect on the Company's financial condition or results of
operations.
The Company removed underground storage tanks and remediated soil
contamination at the Glendale Facility property. In some instances, the
removals and the contamination were associated with grocery business
operations; in others, they were associated with prior property users.
Although the possibility of other contamination from prior operations or
adjacent properties exists at the Glendale Facility property, management
does not believe that the costs of remediating such contamination will have
a material adverse effect on the Company's financial condition or results
of operations.
Apart from the Glendale Facility, the Company has had environmental
assessments performed on most of its facilities, including warehouse and
distribution facilities. The Company believes that any responsive actions
required at the examined properties as a result of such assessments will
not have a material adverse effect on its financial condition or results of
operations.
At the time that Food 4 Less acquired Alpha Beta in 1991, it learned
that certain underground storage tanks located on the site of the La Habra
facility may have previously released hydrocarbons. In connection with the
acquisition of Alpha Beta, the seller (who is also the lessor of the
La Habra facility) agreed to retain responsibility, subject to certain
limitations, for remediation of the release.
The Company is subject to a variety of environmental laws, rules,
regulations and investigative or enforcement activities, as are other
companies in the same or similar business. The Company believes it is in
substantial compliance with such laws, rules and regulations. These laws,
rules, regulations and agency activities change from time to time, and such
changes may affect the ongoing business and operations of the Company.
10. EMPLOYEE BENEFIT PLANS
As a result of the Merger, the Company adopted certain employee benefit
plans previously sponsored by RGC. These employee benefit plans include
the Ralphs Grocery Company Retirement Plan (the "Pension Plan"), the
Ralphs Grocery Company Supplemental Executive Retirement Plan (the "SERP"),
and the Ralphs Grocery Company Retirement Supplement Plan (the "Retirement
Supplement Plan").
Pension Plan
The Pension Plan covers substantially all employees not already covered
by collective bargaining agreements with at least one year of service
during which 1,000 hours have been worked. Employees who were employed by
F4L Supermarkets and who are otherwise eligible to participate in the
Pension Plan became eligible to participate in fiscal year 1995. The
Company's policy is to fund pension costs at or above the minimum annual
requirement.
SERP
The SERP covers certain key officers of the Company. The Company has
purchased split dollar life insurance policies for certain participants
under this plan. Under certain circumstances, the cash surrender value of
the split dollar life insurance policies will offset the Company's
obligations under the SERP.
Retirement Supplement Plan
The Retirement Supplement Plan is a non-qualified retirement plan
designed to provide eligible participants with benefits based on earnings
over the indexed amount of $150,000.
The following actuarially determined components were included in the net
pension expense for the above plans for fiscal year 1996 (dollars in
thousands):
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Service cost $ 6,187
Interest cost on projected benefit obligation 5,293
Actual return on assets (5,684)
Net amortization and deferral 1,907
- --------------------------------------------------------------------------------
Net pension expense $ 7,703
================================================================================
</TABLE>
Following are the assumptions used in determining the net pension
expense:
Discount rate 7.00%
Expected long term rate of return on plan assets 9.00%
Rate of pay increase 5.00%
The funded status of the Pension Plan (based on December 1996 asset
values) is as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
As of
February 2,
1997
(dollars in thousands)
- -----------------------------------------------------------------------------------------------
<S> <C>
Assets Exceed Accumulated Benefits:
Actuarial present value of benefit obligations:
Vested benefit obligation (45,965)
Accumulated benefit obligation (46,351)
Projected benefit obligation (66,858)
Plan assets at fair value 50,189
- -----------------------------------------------------------------------------------------------
Projected benefit obligation in excess of Plan Assets (16,669)
Unrecognized net gain (3,376)
Unrecognized prior service cost 1,023
- -----------------------------------------------------------------------------------------------
Accrued pension cost (19,022)
===============================================================================================
</TABLE>
The funded status of the SERP and Retirement Supplement Plan (based on
December 1996 asset values) is as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
As of
February 2,
1997
(dollars in thousands)
- ---------------------------------------------------------------------------------------------
<S> <C>
Accumulated Benefits Exceed Assets:
Actuarial present value of benefit obligations:
Vested benefit obligation (5,006)
Accumulated benefit obligation (5,236)
Projected benefit obligation (10,033)
Plan assets at fair value -
- --------------------------------------------------------------------------------------------
Projected benefit obligation in excess of Plan Assets (10,033)
Unrecognized net loss 607
Unrecognized prior service cost 1,725
Adjustment required to recognize minimum liability (2)
- --------------------------------------------------------------------------------------------
Accrued pension cost (7,703)
============================================================================================
</TABLE>
Following are the assumptions used in determining the funded status:
Discount rate 7.50%
Rate of pay increase 5.00%
The assets of the Pension Plan consist primarily of common stocks,
bonds, debt securities, and a money market fund. Plan benefits are based
primarily on years of service and on average compensation during the last
years of employment.
Employee Stock Ownership Plans
The Company implemented Statement of Position No. 93-6 (the "SOP"),
"Employer Accounting for Employee Stock Ownership Plans," effective June
26, 1994. The implementation of the SOP did not have a material effect on
the accompanying consolidated financial statements.
The full-time employees of Falley's who are not members of a collective
bargaining agreement are covered under a 401(k) plan, a portion of which is
invested in Holdings stock (the "Falley's ESOP"). As is required pursuant
to IRS and ERISA requirements, any participant who receives stock from the
Falley's ESOP has the right to put that stock to Falley's or an affiliate
of Falley's. However, as part of the original stock sale agreement among
the then stockholders of Falley's, FFL and the Falley's ESOP, which has
been amended from time to time, a partnership which owns stock of Holdings
entered into an agreement with Falley's and Holdings to assume the
obligation to purchase any Holdings shares as to which terminated plan
participants exercise a put option under the terms of Falley's ESOP. As a
result, neither Falley's nor the Company is required to make cash payments
to redeem the shares. As part of that agreement, the Company may elect,
after providing a right of first refusal to the partnership, to purchase
Holdings shares put under the provisions of the plan. However, the
partnership's obligation to purchase such Holdings shares is
unconditional, and any repurchase of shares by the Company is at the
Company's sole election. During fiscal year 1996, the Company did not
purchase any of the Holdings shares. As of February 2, 1997, the fair
value of the shares allocated which are subject to repurchase obligation by
the partnership referred to above was approximately $10.9 million.
In addition, the Company also sponsors two ESOPs for employees of the
Company who are members of certain collective bargaining agreements (the
"Union ESOPs"). The Union ESOPs provide for annual contributions based on
hours worked at a rate specified by the terms of the collective bargaining
agreements. The Company contributions are made in the form of Holdings
stock or cash for the purchase of Holdings stock and are to be allocated to
participants based on hours worked. During fiscal year 1995 and the 1995
transition period, the Company recorded a charge against operations of
approximately $0.8 million and $0.3 million, respectively, for benefits
under the Union ESOPs. There were no shares issued to the Union ESOPs or
to the Company's profit sharing plan at January 28, 1996 or February 2,
1997.
Defined Contribution Plan
The Company sponsors the Ralphs Grocery Company Savings Plan Plus -
Primary, the Ralphs Grocery Company Savings Plan Plus - Basic and the
Ralphs Grocery Company Savings Plan Plus - ESOP (collectively referred to
as the "401(k) Plan") covering substantially all employees who are not
covered by collective bargaining agreements and who have at least one year
of service during which 1,000 hours has been worked. The 401(k) Plan
provides for both pre-tax and after-tax contributions by participating
employees. With certain limitations, participants may elect to contribute
on a pre-tax basis to the 401(k) Plan. The Company has committed to
match a minimum of 20 percent of an employee's contribution to the 401(k)
Plan that does not exceed 5 percent of the employee's eligible
compensation. Expenses under the 401(k) Plan for fiscal year 1994, 1995
and 1996 were $0.7 million, $0.7 million and $0.8 million, respectively.
Multi-Employer Benefit Plans
The Company contributes to multi-employer benefit 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 January 28, 1996 is not available.
The Company contributed $57.2 million, $21.6 million, $102.1 million and
$138.8 million to these plans for fiscal year 1994, the 1995 transition
period, fiscal year 1995 and fiscal year 1996, respectively. Management
is not aware of any plans to terminate such plans.
The United Food and Commercial Workers health and welfare plans were
over-funded and those employers who contributed to the plans received a pro
rata share of the excess reserves in the plans through reduction of current
contributions. The Company's share of the excess reserve was $24.2
million, of which $8.1 million, $14.3 million and $1.8 million was
recognized in fiscal year 1994, the 1995 transition period, and fiscal year
1995, respectively. Offsetting the reduction in employer contributions was
a $5.5 million union contract ratification bonus and contractual wage
increases in the 1995 transition period. As part of the renewal of the
Southern California UFCW contract in October 1995, employers contributing
to UFCW health and welfare plans received 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 recognized in
fiscal 1996 was $17.8 million. Offsetting the reduction was a $3.5 million
union bonus in fiscal year 1996.
Post-Retirement Medical Benefit Plans
The Company adopted postretirement medical benefit plans
("Postretirement Medical Plans"), previously sponsored by RGC, which cover
substantially all employees who are not members of a collective bargaining
agreement and who retire under certain age and service requirements. The
Postretirement Medical Plans are insured plans and provide outpatient,
inpatient and various other covered services. The Company's policy is to
fund the Plans as insurance premiums are incurred. For persons who are
less than age 65 at retirement and for certain executives, the calendar
1996 year deductible is $1,000 per individual, indexed to the medical care
component of the Consumer Price Index.
The net postretirement benefit cost of the Postretirement Medical Plans
include the following components for fiscal year 1996 (dollars in
thousands):
<TABLE>
- --------------------------------------------------------------------------
<S> <C>
Service cost $ 909
Interest cost 989
Return on plan assets -
Net amortization and deferral (281)
- --------------------------------------------------------------------------
Net postretirement benefit cost $ 1,617
==========================================================================
</TABLE>
Following are the assumptions used in determining the net postretirement
benefit cost:
Discount rate 7.00%
Expected long term rate of return on plan assets N/A
Medical cost trend 9.00%*
* 1997 percentage decreases by 0.50% per year until 6.00% in
2002 and all future years.
The funded status of the postretirement benefit plan (based on December
31, 1996 asset values) is as follows (dollars in thousands):
<TABLE>
- --------------------------------------------------------------------------------------
<S> <C>
Accumulated postretirement benefit obligation:
Retirees $ (2,242)
Fully eligible plan participants (1,777)
Other active plan participants (10,126)
Plan assets at fair value -
- --------------------------------------------------------------------------------------
Accumulated postretirement obligations
in excess of plan assets (14,145)
Unrecognized gain (1,580)
Unrecognized prior service cost (2,965)
- --------------------------------------------------------------------------------------
Accrued post retirement benefit obligation $ (18,690)
======================================================================================
</TABLE>
Following are the assumptions used in determining the funded status:
Discount rate 7.50%
Expected long term rate of return on plan assets N/A
Medical cost trend 8.50%*
* 1997 percentage decreases by 0.50% per year until 6.00% in
2002 and all future years
The effect of a 1.00 percent increase in the medical cost trend would
increase the fiscal 1996 service and interest cost by $0.7 million. The
accumulated postretirement benefit obligation at February 2, 1997 would
also increase by $5.1 million.
Stock Plans
Holdings has one employee stock option plan, the Food 4 Less Holdings,
Inc. 1995 Stock Option Plan (the "Plan"). The Plan provides for an
aggregate of 3,000,000 shares of the Holdings' common stock to be available
for grants to officers and other key employees of Holdings or its
subsidiaries. Grants may be at the fair market value at the date of grant
or at a price determined by a committee consisting of two or more non-
employee directors of Holdings (the "Committee"). If a grantee owns 10
percent or more of the total combined voting power of all classes of
capital stock of Holdings, the option exercise price shall be at least 110
percent of the Fair Market Value of Common Stock on the date of grant.
Options expire ten years from the date of grant and become exercisable at
the rate of 20 percent per year, or over a vesting period determined by the
Committee. To date, options issued under the Plan have been granted
exclusively to employees of the Company.
The following table summarizes stock options available for grant:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
52 Weeks 53 Weeks
Ended Ended
January 28, February 2,
1996 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Beginning balance - 715,000
Authorized 3,000,000 -
Granted (2,415,000) (727,500)
Canceled 130,000 210,250
- ------------------------------------------------------------------------------------------------------
Available for future grant 715,000 197,750
======================================================================================================
</TABLE>
A summary of the status of the Plan as of fiscal year 1996 and fiscal
year 1995 and changes during the years ending on those dates is presented
below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Fiscal Year 1995 Fiscal Year 1996
-------------------------- --------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year - $ - 2,285,000 $ 5.78
Granted 2,415,000 5.86 727,500 10.00
Exercised - - - -
Canceled (130,000) 5.39 (210,250) 5.72
- ----------------------------------------------------------------------------------------------------------
Outstanding at end of year 2,285,000 5.89 2,802,250 6.97
==========================================================================================================
Exercisable at end of year 2,225,000 5.78 2,254,000 6.23
==========================================================================================================
Weighted-average fair value of
options granted during the year $ 3.35 $ 3.55
==========================================================================================================
</TABLE>
The following table summarizes information about stock options
outstanding at February 2, 1997:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
------------------------------------------- -------------------------------
Weighted- Weighted- Weighted-
Number Average Average Number Average
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Prices at 02/02/97 Contractual Life Price at 02/02/97 Price
- ------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$0.79 to $1.09 224,357 8.2 years $ 0.84 224,357 $ 0.84
$1.58 to $2.31 172,083 8.2 1.82 172,083 1.82
$2.73 to $4.00 172,500 8.2 3.04 172,500 3.04
$4.29 to $6.00 120,833 8.2 4.76 120,833 4.76
$6.67 to $7.32 1,120,227 8.2 7.15 1,120,227 7.15
$10.00 992,250 8.9 10.00 444,500 10.00
- ------------------------------------------------------------------------------------------------------------
$0.79 to $10.00 2,802,250 8.5 years $ 6.97 2,254,500 $ 6.23
============================================================================================================
</TABLE>
At February 2, 1997, 3.0 million shares of Holdings' Common Stock were
reserved for issuance under Holdings' stock option plan.
The Company applies APB Opinion 25 and related Interpretations in
accounting for the Plan and, accordingly, no compensation cost has been
recognized. Pro forma information regarding net income and earnings per
share is required by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" ("SFAS No. 123"), and has been
determined as if the Company had accounted for employee stock options under
the fair value method of SFAS No. 123. The fair value for stock options
was estimated at the date of grant using the minimum value method with the
following assumptions for fiscal 1995 and 1996, respectively: weighted
average risk-free interest rates of 6.01 percent and 6.46 percent and a
weighted average expected life of the options of 7.0 years and 7.0 years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. At the
time of Merger, 2.3 million Stock Options were granted, 2.2 million of
which became immediately vested. As a result, the effects of applying
SFAS 123 for providing pro forma disclosures in fiscal year 1996 and 1995
are not likely to be representative of the effects on reported net income
for future years. The Company's pro forma information follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Fiscal Year Fiscal Year
Ended Ended
January 28, February 2,
1996 1997
- --------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C>
NET LOSS:
--------
As reported:
Loss before extraordinary charge $(260,117) $(93,791)
Extraordinary charge 23,128 -
Net loss (283,245) (93,791)
Pro forma:
Loss before extraordinary charge $(264,524) $(94,299)
Extraordinary charge 23,128 -
Net loss (287,652) (94,299)
LOSS PER COMMON SHARE:
----------------------
As reported:
Loss before extraordinary charge $ (174.72) $ (61.95)
Extraordinary charge (15.30) -
Net loss (190.02) (61.95)
Pro forma:
Loss before extraordinary charge $ (177.64) $ (62.29)
Extraordinary charge (15.30) -
Net loss (192.94) (62.29)
- ------------------------------------------------------------------------------------------------
</TABLE>
11. 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 Receivables
The carrying amount approximates fair value as a result of the short
maturity of these instruments.
Interest Rate Derivatives
The carrying amount of the interest rate collar agreement, which
represents favorable or unfavorable movements of interest rates outside of
the interest rate limits, approximates fair value.
Investments In and Notes Receivable From Supplier Cooperatives
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 non-current notes 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 New Senior Notes, the 1995 11% Senior
Subordinated Notes and the 13.75% Senior Subordinated Notes is based on
quoted market prices. The Term Loans and the Revolving Facility are
estimated to be recorded at the fair value of the debt. 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 (in thousands):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
As of
February 2, 1997
- -----------------------------------------------------------------------------------------------------------
Carrying Fair
Amount Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 67,589 $ 67,589
Short-term notes and other receivables 531 531
Interest rate collar - -
Investments in and notes receivable from
supplier cooperatives (not practicable) 11,965 -
Long-term debt for which it is:
Practicable to estimate fair values 1,920,186 2,000,740
Not practicable 18,643 -
- -----------------------------------------------------------------------------------------------------------
</TABLE>
12. 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 to improve the Company's future operating
results. Three RGC stores were also required to be sold to comply with the
settlement agreement. 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 fiscal year 1996, the Company utilized $15.1 million of
the reserve for restructuring costs, consisting mainly of write-downs of
property and equipment, expenditures associated with the closed stores and
the warehouse facility and lease termination expenses ($15.2 million)
partially offset by proceeds from the sale of certain related assets.
On December 29, 1995, the Company consummated an agreement with 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 year 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. During fiscal year 1996,
the Company utilized $33.9 million of the reserve for restructuring costs,
consisting mainly of write-downs of property and equipment ($18.3 million)
and lease termination expenses ($15.6 million).
13. SELECTED QUARTERLY FINANCIAL RESULTS (UNAUDITED)
The tables below set forth the selected quarterly financial information
for fiscal year 1995 and fiscal year 1996 (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
12 Weeks 12 Weeks 12 Weeks 16 Weeks
Ended Ended Ended Ended
Fiscal Year 1995 04/23/95 07/16/95 10/08/95 01/28/96
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $ 623,598 $ 857,344 $1,207,093 $1,647,074
Gross Profit 107,168 161,617 241,117 339,214
Loss Before Extraordinary Items (2,812) (102,534) (49,750) (105,021)
Net Loss (2,812) (125,662) (49,750) (105,021)
Loss Applicable to Common Shares (5,188) (127,246) (49,750) (105,021)
Loss Per Common Share:
Loss Before Extraordinary Items $ (3.44) $ (68.96) $ (32.86) $ (69.37)
Loss Per Common Share $ (3.44) $ (84.28) $ (32.86) $ (69.37)
- --------------------------------------------------------------------------------------------------------------
12 Weeks 12 Weeks 12 Weeks 17 Weeks
Ended Ended Ended Ended
Fiscal Year 1996 04/21/96 07/14/96 10/06/96 02/02/97
- --------------------------------------------------------------------------------------------------------------
Net Sales $ 1,230,808 $ 1,243,768 $1,221,018 $1,820,665
Gross Profit 248,637 262,247 276,079 403,066
Net Loss (31,981) (21,539) (11,865) (28,406)
Loss Per Common Share $ (21.12) $ (14.23) $ (7.84) $ (18.76)
</TABLE>
14. SUBSEQUENT EVENT
On March 26, 1997, the Company issued $155 million of 11% Senior
Subordinated Notes due 2005 (the "1997 11% Senior Subordinated Notes") and
called all of the 13.75% Senior Subordinated Notes. The terms of the 1997
11% Senior Subordinated Notes are substantially identical to those of the
Company's 11% Senior Subordinated Notes due 2005 issued in June 1995. The
1997 11% Senior Subordinated Notes were issued at a premium price of 105.5,
resulting in gross proceeds of $163.5 million. The proceeds were used to
(i) redeem an aggregate of $145.0 million of its outstanding 13.75% Senior
Subordinated Notes and (ii) pay accrued interest, call premiums, fees and
expenses related to the 1997 11% Senior Subordinated Notes. The redemption
price was 106.1 percent of the principal amount outstanding.
On April 17, 1997, the Company replaced its existing credit facilities
(the "Refinanced Credit Facility") with a facility with lower interest
rates and a longer average life. The refinancing was structured as an
amendment and restatement of the existing Credit Facility and the amended
facility consists of a $325.0 million Revolving Credit Facility, a $200.0
million Term Loan A Facility and a $350.0 million Term Loan B Facility.
The new Term Loan A and Term Loan B facilities replaced the existing term
loan facilities with an outstanding principal balance of $540.4 million at
the time of refinancing.
Borrowings under the Refinanced Credit Facility bear interest at the
bank's Base Rate (as defined) plus a margin ranging from 0.25 percent to
1.25 percent for the Revolving Credit Facility and the Term Loan A Facility
and the bank's Base Rate (as defined) plus a margin ranging from 0.75
percent to 1.75 percent for the Term Loan B Facility or the Eurodollar Rate
(as defined) plus a margin ranging from 1.25 percent to 2.25 percent for
the Revolving Credit Facility and the Term Loan A Facility and the
Eurodollar Rate (as defined) plus a margin ranging from 1.75 percent to
2.75 percent for the Term Loan B Facility. The interest rate for the
Revolving Credit Facility and the Term Loan A Facility currently is the
bank's Base Rate (as defined) plus a margin of 0.75 percent or the
Eurodollar Rate (as defined) plus a margin of 1.75 percent. The interest
rate for the Term Loan B Facility currently is the bank's Base Rate (as
defined) plus a margin of 1.25 percent or the Eurodollar rate ( as defined)
plus a margin of 2.25 percent.
Quarterly principal installments on the Refinanced Credit Facility
continue to 2004, with amounts payable in each year as follows: $2.6
million in fiscal 1997, $3.5 million in fiscal 1998, $25.5 million in
fiscal 1999, $62.6 million in fiscal 2000, $87.5 million in fiscal 2001 and
$368.3 million thereafter.
Certain other terms and provisions of the previous Credit Facility were
also changed, including, but not limited to, application of proceeds of
selected asset sales and stock offerings and permitted capital
expenditures. Management believes that this refinancing provides increased
operational and financial flexibility through lower interest costs and
lower short-term loan amortization.
As a result of the refinancings described above, the Company will incur
an extraordinary loss in the first quarter of fiscal 1997 of approximately
$48.9 million, consisting of the call premium on the 13.75% Senior
Subordinated Notes and write-off of deferred financing costs.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholder of Ralphs Grocery Company:
We have audited, in accordance with generally accepted auditing standards,
the consolidated balance sheets of Ralphs Grocery Company (formerly Food 4 Less
Supermarkets, Inc. ---- See Note 1 in the accompanying Notes to Consolidated
Financial Statements) and subsidiaries as of January 29, 1995, January 28,
1996, and February 2, 1997 and the related consolidated statements of
operations, stockholder's equity (deficit) and cash flows for the 52 weeks ended
June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January
28, 1996 and the 53 weeks ended February 2, 1997, and have issued our report
thereon dated March 21, 1997 (except with respect to the matter discussed in
Note 14, as to which the date is April 17, 1997). Our audits were made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. The schedule on page 80 is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic consolidated financial statements and, in our
opinion, fairly states 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
March 21, 1997 (except with respect to the
matter discussed in Note 14, as to which the
date is April 17, 1997)
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
53 WEEKS ENDED FEBRUARY 2, 1997, 52 WEEKS ENDED JANUARY 28, 1996,
31 WEEKS ENDED JANUARY 29, 1995, AND 52 WEEKS ENDED JUNE 25, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Provisions Charged
Balance at charged to Balance
beginning to interest Other at end
of period expense expense(a) Payments changes(b) of period
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Self-insurance liabilities
53 weeks ended February 2, 1997 $148,985 $29,184 $10,818 $49,404 $ - $139,583
52 weeks ended January 28, 1996 $ 72,739 $32,603 $10,287 $42,153 $75,509 $148,985
31 weeks ended January 29, 1995 $ 81,704 $ 6,304 $ 3,453 $18,722 $ - $ 72,739
52 weeks ended June 25, 1994 $ 85,494 $19,880 $ 5,836 $29,506 $ - $ 81,704
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
_______________
(a) Amortization of discount on self-insurance reserves charged to interest
expense.
(b) Reflects self-insurance reserve of Ralphs Grocery Company which was
acquired on June 14, 1995.
INDEX TO EXHIBITS
Exhibit
Number Description
3.1 Restated Certificate of Incorporation, as amended, of Ralphs Grocery
Company (incorporated herein by reference to Exhibit 3.1 of Ralphs
Grocery Company's Quarterly Report on Form 10-Q for the quarter ended
July 16, 1995).
3.2 Restated bylaws of Ralphs Grocery Company (incorporated herein by
reference to Exhibit 3.2 of Ralphs Grocery Company's Registration
Statement on Form S-4, No. 333-07005, as filed with the Securities
and Exchange Commission on June 27, 1996.)
4.1.1 Credit Agreement, dated as of June 14, 1995, by and among Food 4 Less
Holdings, Inc., Food 4 Less Supermarkets, Inc., the Lenders, Co-
Agents, and Co-Arrangers named therein and Bankers Trust Company
(incorporated herein by reference to Exhibit 4.1 of Food 4 Less
Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
July 16, 1995).
4.1.2 First Amendment to Credit Agreement, dated as of August 18, 1995,
among Food 4 Less Holdings, Inc., Ralphs Grocery Company and the
financial institutions listed therein (incorporated herein by
reference to Exhibit 4.1.2 of Ralphs Grocery Company's Annual Report
on Form 10-K for the fiscal year ended January 28, 1996).
4.1.3 Second Amendment to Credit Agreement, dated as of December 11, 1995,
among Food 4 Less Holdings, Inc., Ralphs Grocery Company and the
financial institutions listed therein (incorporated herein by
reference to Exhibit 4.1.3 of Ralphs Grocery Company's Annual Report
on Form 10-K for the fiscal year ended January 28, 1996).
4.1.4 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 therein (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).
4.1.5# Fourth Amendment to Credit Agreement, dated as of November 7, 1996,
among Food 4 Less Holdings, Inc., Ralphs Grocery Company and the
financial institutions listed on the signature pages thereto.
4.2.1 Indenture for the 10.45% Senior Notes due 2004, dated as of June 1,
1995, by and among Food 4 Less Supermarkets, Inc., the subsidiary
guarantors identified therein and Norwest Bank Minnesota, National
Association, as trustee (incorporated herein by reference to Exhibit
4.4.1 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q
for the quarter ended July 16, 1995).
4.2. 2 First Supplemental Indenture for the 10.45% Senior Notes due 2004,
dated as of June 14, 1995, by and among Ralphs Grocery Company (as
successor by merger to Food 4 Less Supermarkets, Inc.), the subsidiary
guarantors identified therein, Crawford Stores, Inc. and Norwest Bank
Minnesota, National Association, as trustee (incorporated herein by
reference to Exhibit 4.4.2 of Food 4 Less Holdings, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended July 16, 1995).
4.2.3 Indenture for the 10.45% Senior Notes due 2004, dated as of June 6,
1996, by and among Ralphs Grocery Company, the subsidiary guarantors
identified therein and Norwest Bank Minnesota, National Association,
as trustee (incorporated herein by reference to Exhibit 4.9 of Ralphs
Grocery Company's Registration Statement on Form S-4, No. 333-07005,
as filed with the Securities and Exchange Commission on June 27,
1996).
4.3.1 Indenture for the 13.75% Senior Subordinated Notes due 2005, dated as
of June 1, 1995, by and among Food 4 Less Supermarkets, Inc., the
subsidiary guarantors identified herein and United States Trust
Company of New York, as trustee (incorporated herein by reference to
Exhibit 4.5.1 of Food 4 Less Holdings, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended July 16, 1995).
4.3.2 First Supplemental Indenture for the 13.75% Senior Subordinated Notes
due 2005, dated as of June 14, 1995, by and among Ralphs Grocery
Company (as successor by merger to Food 4 Less Supermarkets, Inc.),
the subsidiary guarantors identified therein, Crawford Stores, Inc.
and United States Trust Company of New York, as trustee (incorporated
herein by reference to Exhibit 4.5.2 of Food 4 Less Holdings, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended July 16, 1995).
4.4.1 Indenture for the 11% Senior Subordinated Notes due 2005, dated as of
June 1, 1995, by and among Food 4 Less Supermarkets, Inc., the
subsidiary guarantors identified therein and United States Trust
Company of New York, as trustee (incorporated herein by reference to
Exhibit 4.6.1 of Food 4 Less Holdings, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended July 16, 1995).
4.4.2 First Supplemental Indenture for the 11% Senior Subordinated Notes
due 2005, dated as of June 14, 1995, by and among Ralphs Grocery
Company (as successor by merger to Food 4 Less Supermarkets, Inc.),
the subsidiary guarantors identified therein, Crawford Stores, Inc.
and United States Trust Company of New York, as trustee (incorporated
herein by reference to Exhibit 4.6.2 of Food 4 Less Holdings, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended July 16, 1995).
4.5.1 Indenture for the 10-1/4% Senior Subordinated Notes due 2002, dated
as of July 29, 1992, by and between Ralphs Grocery Company and United
States Trust Company of New York, as trustee (incorporated herein by
reference to Exhibit 4.3 of Ralphs Grocery Company's Quarterly Report
on Form 10-Q for the quarter ended July 19, 1992).
4.5.2 First Supplemental Indenture for the 10-1/4% Senior Subordinated
Notes due 2002, dated as of May 30, 1995, by and between Ralphs
Grocery Company and United States Trust Company of New York, as
trustee (incorporated herein by reference to Exhibit 4.1 of Ralphs
Grocery Company's Quarterly Report on Form 10-Q for the quarter ended
April 23, 1995).
4.5.3 Second Supplemental Indenture for the 10-1/4% Senior Subordinated
Notes due 2002, dated as of June 14, 1995, by and between Ralphs
Grocery Company (as successor) and United States Trust Company of New
York, as trustee (incorporated herein by reference to Exhibit 4.7.3
of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended July 16, 1995).
4.6.1 Indenture for the 9% Senior Subordinated Notes due 2003, dated as of
March 30, 1993, by and between Ralphs Grocery Company and United
States Trust Company of New York, as trustee (incorporated herein by
reference to Exhibit 4.1 of Ralphs Grocery Company's Registration
Statement on Form S-4, No. 33-61812).
4.6.2 First Supplemental Indenture for the 9% Senior Subordinated Notes due
2003, dated as of June 23, 1993, by and between Ralphs Grocery
Company and United States Trust Company of New York, as trustee
(incorporated herein by reference to Exhibit 4.2 of Ralphs Grocery
Company's Registration Statement on Form S-4, No. 33-61812).
4.6.3 Second Supplemental Indenture for the 9% Senior Subordinated Notes
due 2003, dated as of May 30, 1995, by and between Ralphs Grocery
Company and United States Trust Company of New York, as trustee
(incorporated herein by reference to Exhibit 4.2 of Ralphs Grocery
Company's Quarterly Report on Form 10-Q for the quarter ended April
23, 1995).
4.6.4 Third Supplemental Indenture for the 9% Senior Subordinated Notes due
2003, dated as of June 14, 1995, by and between Ralphs Grocery
Company (as successor) and United States Trust Company of New York,
as trustee (incorporated herein by reference to Exhibit 4.8.4 of Food
4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter
ended July 16, 1995).
4.7.1 Senior Note Indenture, dated as of April 15, 1992, by and among Food
4 Less Supermarkets, Inc., the subsidiary guarantors identified
therein and Norwest Bank Minnesota, National Association, as trustee
(incorporated herein by reference to Exhibit 4.1 to Food 4 Less
Supermarkets, Inc.'s Registration Statement on Form S-1, No. 33-
46750).
4.7.2 First Supplemental Indenture, dated as of July 24, 1992, by and among
Food 4 Less Supermarkets, Inc., the subsidiary guarantors identified
therein and Norwest Bank Minnesota, National Association, as trustee
(incorporated herein by reference to Exhibit 4.1.1 to Food 4 Less
Supermarkets, Inc.'s Annual Report on Form 10-K for the fiscal year
ended June 27, 1992).
4.7.3 Second Supplemental Indenture for the 10.45% Senior Notes due 2000,
dated as of June 14, 1995, by and among Food 4 Less Supermarkets,
Inc., the subsidiary guarantors identified therein and Norwest Bank
Minnesota, National Association, as trustee (incorporated herein by
reference to Exhibit 4.9.3 of Food 4 Less Holdings, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended July 16, 1995).
4.7.4 Third Supplemental Indenture for the 10.45% Senior Notes due 2000,
dated as of June 14, 1995, by and among Ralphs Grocery Company (as
successor by merger to Food 4 Less Supermarkets, Inc.), the
subsidiary guarantors identified therein and Norwest Bank Minnesota,
National Association, as trustee (incorporated herein by reference to
Exhibit 4.9.4 of Food 4 Less Holdings, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended July 16, 1995).
4.8.1 Senior Subordinated Note Indenture, dated as of June 15, 1991, by and
among Food 4 Less Supermarkets, Inc., the subsidiary guarantors
identified therein and United States Trust Company of New York, as
trustee (incorporated herein by reference to Exhibit 4.1 to Food 4
Less Supermarkets, Inc.'s Annual Report on Form 10-K for the fiscal
year ended June 29, 1991).
4.8.2 First Supplemental Indenture, dated as of April 8, 1992, by and among
Food 4 Less Supermarkets, Inc., the subsidiary guarantors identified
therein and United States Trust Company of New York, as trustee
(incorporated herein by reference to Exhibit 4.2.1 to Food 4 Less
Supermarkets, Inc.'s Annual Report on Form 10-K for the fiscal year
ended June 27, 1992).
4.8.3 Second Supplemental Indenture, dated as of May 18, 1992, by and among
Food 4 Less Supermarkets, Inc., the subsidiary guarantors identified
therein and United States Trust Company of New York, as trustee
(incorporated herein by reference to Exhibit 4.2.2 of Food 4 Less
Supermarkets, Inc.'s Annual Report on Form 10-K for the fiscal year
ended June 27, 1992).
4.8.4 Third Supplemental Indenture, dated as of July 24, 1992, by and among
Food 4 Less Supermarkets, Inc., the subsidiary guarantors identified
therein and United States Trust Company of New York, as trustee
(incorporated herein by reference to Exhibit 4.2.3 to Food 4 Less
Supermarkets, Inc.'s Annual Report on Form 10-K for the fiscal year
ended June 27, 1992).
4.8.5 Fourth Supplemental Indenture for the 13.75% Senior Subordinated
Notes due 2001, dated as of May 30, 1995, by and among Food 4 Less
Supermarkets, Inc., the subsidiary guarantors identified therein and
United States Trust Company of New York, as trustee (incorporated
herein by reference to Exhibit 4.10.5 of Food 4 Less Holdings, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended July 16, 1995).
4.8.6 Fifth Supplemental Indenture for the 13.75% Senior Subordinated Notes
due 2001, dated as of June 14, 1995, by and among Ralphs Grocery
Company (as successor by merger to Food 4 Less Supermarkets, Inc.),
the subsidiary guarantors identified therein and United States Trust
Company of New York, as trustee (incorporated herein by reference to
Exhibit 4.10.6 of Food 4 Less Holdings, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended July 16, 1995).
10.1 Second Amended and Restated Tax Sharing Agreement, dated as of June
14, 1995, by and among Food 4 Less Holdings, Inc., Ralphs Grocery
Company and the subsidiaries of Ralphs Grocery Company (incorporated
herein by reference to Exhibit 10.1 of Food 4 Less Holdings, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended July 16, 1995).
10.2 Stockholders Agreement of Food 4 Less Holdings, Inc., dated as of
June 14, 1995, by and among Food 4 Less Holdings, Inc., Ralphs
Grocery Company and the investors listed on the signature pages
thereto (incorporated herein by reference to Exhibit 10.2 of Food 4
Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter
ended July 16, 1995).
10.3 Consulting Agreement, dated as of June 14, 1995, by and among The
Yucaipa Companies, Food 4 Less Holdings, Inc. and Ralphs Grocery
Company (incorporated herein by reference to Exhibit 10.4 of Food 4
Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter
ended July 16, 1995).
10.4* Employment Agreement dated as of June 14, 1995 between Food 4 Less
Holdings, Inc., Ralphs Grocery Company and George G. Golleher
(incorporated herein by reference to Exhibit 10.11 of Food 4 Less
Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
July 16, 1995).
10.5* Employment Agreement dated as of June 14, 1995 between Ralphs Grocery
Company and Alfred A. Marasca (incorporated herein by reference to
Exhibit 10.9 of Ralphs Grocery Company's Quarterly Report on Form
10-Q for the quarter ended July 16, 1995).
10.6* Employment Agreement dated as of June 14, 1995 between Ralphs Grocery
Company and Greg Mays (incorporated herein by reference to Exhibit
10.10 of Ralphs Grocery Company's Quarterly Report on Form 10-Q for
the quarter ended July 16, 1995).
10.7* Employment Agreement, dated as of June 14, 1995, between Ralphs
Grocery Company and Harley DeLano (incorporated herein by reference
to Exhibit 10.8 of Ralphs Grocery Company's Annual Report on Form
10-K for the fiscal year ended January 28, 1996).
10.8* Employment Agreement, dated as of June 14, 1995, between Ralphs
Grocery Company and Tony Schnug (incorporated herein by reference to
Exhibit 10.10 of Ralphs Grocery Company's Annual Report on Form 10-K
for the fiscal year ended January 28, 1996).
10.9* Management Stockholders Agreement, dated as of June 14, 1995, between
Food 4 Less Holdings, Inc. and the management employees listed on the
signature page thereto (incorporated herein by reference to Exhibit
10.12 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q
for the quarter ended July 16, 1995).
10.10* 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 Food 4 Less Supermarkets, Inc.'s Registration
Statement on Form S-1, No. 33-31152).
10.11* Letter Agreement, dated as of December 10, 1990, amending the
Consulting Agreement by and between Falley's, Inc. and Joe S. Burkle
(incorporated herein by reference to Exhibit 10.17.1 to Food 4 Less
Supermarkets, Inc.'s Annual Report on Form 10-K for the fiscal year
ended June 29, 1991).
10.12 Distribution Center Transfer Agreement, dated as of November 1, 1995,
by and between Smith's Food & Drug Centers, Inc., a Delaware
corporation, and Ralphs Grocery Company relating to the Riverside,
California property (incorporated herein by reference to Exhibit 10.1
to Ralphs Grocery Company's Quarterly Report on Form 10-Q for the
quarter ended October 8, 1995).
10.13.1* Ralphs Grocery Company Retirement Supplement Plan, effective as of
January 1, 1994 (incorporated herein by reference to Exhibit 10.15.1
of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal
year ended January 28, 1996).
10.13.2* Amendment to the Retirement Supplement Plan, effective as of January
1, 1995 (incorporated herein by reference to Exhibit 10.15.2 of
Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal
year ended January 28, 1996).
10.13.3* Second Amendment to the Retirement Supplement Plan, effective as of
June 14, 1995, by and between Ralphs Grocery Company and Ralphs
Grocery Company Retirement Supplement Plan (incorporated herein by
reference to Exhibit 10.15.3 of Ralphs Grocery Company's Annual
Report on Form 10-K for the fiscal year ended January 28, 1996).
10.14.1* Ralphs Grocery Company Supplemental Executive Retirement Plan,
amended and restated as of April 9, 1994 (incorporated herein by
reference to Exhibit 10.16.1 of Ralphs Grocery Company's Annual
Report on Form 10-K for the fiscal year ended January 28, 1996).
10.14.2* Amendment to the Amended and Restated Supplemental Executive
Retirement Plan, effective as of January 1, 1995 (incorporated
herein by reference to Exhibit 10.16.2 of Ralphs Grocery Company's
Annual Report on Form 10-K for the fiscal year ended January 28,
1996).
10.14.3* Second Amendment to the Supplemental Executive Retirement Plan, dated
as of June 14, 1995, by and between Ralphs Grocery Company and Ralphs
Grocery Company Supplemental Executive Retirement Plan (incorporated
herein by reference to Exhibit 10.16.3 of Ralphs Grocery Company's
Annual Report on Form 10-K for the fiscal year ended January 28,
1996).
10.14.4* Third Amendment to the Ralphs Grocery Company Supplemental Executive
Plan, effective as of July 1, 1995 (incorporated herein by reference
to Exhibit 10.16.4 of Ralphs Grocery Company's Annual Report on Form
10-K for the fiscal year ended January 28, 1996).
21# Subsidiaries
27# Financial Data Schedule
________________________
# Filed herewith.
* Management contract, or compensatory plan or arrangement.
11
RALPHS GROCERY COMPANY
FOURTH AMENDMENT TO CREDIT AGREEMENT
This FOURTH AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT") is dated
as of November 7, 1996 and entered into by and among Food 4 Less Holdings, Inc.,
a Delaware corporation ("NEW HOLDINGS"), Ralphs Grocery Company, a Delaware
corporation and legal successor to Food 4 Less Supermarkets, Inc. ("COMPANY"),
the financial institutions listed on the signature pages hereof ("LENDERS"), the
Co-Agents and Co-Arrangers listed on the signature pages hereof and Bankers
Trust Company, as administrative agent for Lenders ("AGENT"), and, for purposes
of Section 4 hereof, the Credit Support Parties (as defined in Section 4 hereof)
listed on the signature pages hereof, and is made with reference to that certain
Credit Agreement dated as of June 14, 1995, by and among New Holdings, Company,
the Lenders, the Co-Agents and Co-Arrangers party thereto, and Agent, as amended
by that certain First Amendment dated as of August 18, 1995, that certain Second
Amendment dated as of December 11, 1995 and that certain Third Amendment dated
as of March 8, 1996 (as so amended, the "CREDIT AGREEMENT"). Capitalized terms
used herein without definition shall have the same meanings herein as set forth
in the Credit Agreement.
RECITALS
WHEREAS, New Holdings, Company and Lenders desire to amend the Credit
Agreement to (i) provide for additional Term Loans in the aggregate principal
amount of $125 million, the proceeds of which will be used to prepay Tranche A
Term Loans in forward order of maturity, (ii) amend certain of the negative
covenants contained therein and (iii) make certain other amendments, all as more
specifically set forth herein;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT
1.1 AMENDMENTS TO SECTION 1: DEFINITIONS
A. CERTAIN DEFINED TERMS. Subsection 1.1 of the Credit Agreement is
hereby amended as follows:
(1) by adding thereto the following definitions, which shall be
inserted in proper alphabetical order:
"`ADDITIONAL CLASS' means, with respect to Lenders, each
additional class of Lenders under this Agreement, with there being two
separate additional classes of Lenders, i.e., (i) Lenders having Tranche A
Term Loan Exposure and/or Revolving Loan Exposure (taken together as a
single class) and (ii) Lenders having Tranche B Term Loan Exposure, Lenders
having Tranche C Term Loan Exposure, Lenders having Tranche D Term Loan
Exposure, Lenders having Tranche E Term Loan Exposure, Lenders having
Tranche F Term Loan Exposure and/or Lenders having Tranche G Term Loan
Exposure (taken together as a single class).
`FOURTH AMENDMENT' means the Fourth Amendment to Credit Agreement
dated as of November 7, 1996, among New Holdings, Company, Lenders and
Agent.
`FOURTH AMENDMENT EFFECTIVE DATE' means the date on which the
conditions precedent to the effectiveness of the Fourth Amendment set forth
in Section 2 thereof shall have been satisfied.
`MAJORITY LENDERS' means Lenders having or holding a majority of
the sum of: the aggregate Term Loan Exposure of all Types of all Term
Lenders plus the aggregate Revolving Loan Exposure of all Revolving
Lenders.
`MAJORITY ADDITIONAL CLASS LENDERS' means, at any time, (i) for
the Additional Class Lenders having Tranche A Term Loan Exposure and/or
Revolving Loan Exposure, Lenders having or holding 66 and _% of the sum of
the aggregate Tranche A Term Loan Exposure of all Lenders plus the
aggregate Revolving Loan Exposure of all Lenders, and (ii) for the
Additional Class Lenders having Tranche B Term Loan Exposure, Tranche C
Term Loan Exposure, Tranche D Term Loan Exposure, Tranche E Term Loan
Exposure, Tranche F Term Loan Exposure and/or Tranche G Term Loan Exposure,
Lenders having or holding 66 and _% of the sum of the aggregate Tranche B
Term Loan Exposure of all Lenders plus the aggregate Tranche C Term Loan
Exposure of all Lenders plus the aggregate Tranche D Term Loan Exposure of
all Lenders plus the aggregate Tranche E Term Loan Exposure of all Lenders
plus the aggregate Tranche F Term Loan Exposure of all Lenders plus the
aggregate Tranche G Term Loan Exposure of all Lenders.
`TRANCHE E TERM LENDER' or `TRANCHE E TERM LENDERS' means the
Lender or Lenders having a Tranche E Term Loan Commitment or having a
Tranche E Term Loan outstanding.
`TRANCHE E TERM LOAN COMMITMENT' means the commitment of a Tranche
E Term Lender to make a Tranche E Term Loan to Company pursuant to
subsection 2.1A(vii), and `TRANCHE E TERM LOAN COMMITMENTS' means such
commitments of all Tranche E Term Lenders in the aggregate.
`TRANCHE E TERM LOANS' means the Loans made by Tranche E Term
Lenders to Company pursuant to subsection 2.1A(vii).
`TRANCHE F TERM LENDER' or `TRANCHE F TERM LENDERS' means the
Lender or Lenders having a Tranche F Term Loan Commitment or having a
Tranche F Term Loan outstanding.
`TRANCHE F TERM LOAN COMMITMENT' means the commitment of a Tranche
F Term Lender to make a Tranche F Term Loan to Company pursuant to
subsection 2.1A(viii), and `TRANCHE F TERM LOAN COMMITMENTS' means such
commitments of all Tranche F Term Lenders in the aggregate.
`TRANCHE F TERM LOANS' means the Loans made by Tranche F Term
Lenders to Company pursuant to subsection 2.1A(viii).
`TRANCHE G TERM LENDER' or `TRANCHE G TERM LENDERS' means the
Lender or Lenders having a Tranche G Term Loan Commitment or having a
Tranche G Term Loan outstanding.
`TRANCHE G TERM LOAN COMMITMENT' means the commitment of a Tranche
G Term Lender to make a Tranche G Term Loan to Company pursuant to
subsection 2.1A(ix), and `TRANCHE G TERM LOAN COMMITMENTS' means such
commitments of all Tranche G Term Lenders in the aggregate.
`TRANCHE G TERM LOANS' means the Loans made by Tranche G Term
Lenders to Company pursuant to subsection 2.1A(ix).";
(2) by deleting the definitions "NOTES", "TERM LOANS", "TERM
NOTES", and "TYPE" in their entirety and substituting the following therefor:
"`NOTES' means one or more of the Term Notes, Revolving Notes or
Swing Line Note or any combination thereof.
`TERM LOANS' means one or more of the Tranche A Term Loans, the
Tranche B Term Loans, the Tranche C Term Loans, the Tranche D Term Loans,
the Tranche E Term Loans, the Tranche F Term Loans or the Tranche G Term
Loans.
`TERM NOTES' means (i) the promissory notes of Company evidencing
the Term Loans of a Type of Term Loan issued pursuant to subsection 2.1E on
the Closing Date or on the Fourth Amendment Effective Date, and (ii) any
promissory notes issued by Company pursuant to the last sentence of
subsection 11.1B(i) in connection with assignments of the Term Loan
Commitments of such Type or of the Term Loans of such Type, in each case
substantially in the form of Exhibits IV-VII annexed hereto in the case of
Tranche A Term Loans, Tranche B Term Loans, Tranche C Term Loans and
Tranche D Term Loans, respectively, and substantially in the form of
Exhibits XXVI-A, XXVI-B and XXVI-C annexed hereto, in the case of Tranche E
Term Loans, Tranche F Term Loans and Tranche G Term Loans, respectively, in
each case as they may be amended, supplemented or otherwise modified from
time to time.
`TYPE' means a Term Loan, a Revolving Loan or a Swing Line Loan
(each of which is a "TYPE" of Loan) and with respect to a Term Loan, a
Tranche A Term Loan, a Tranche B Term Loan, a Tranche C Term Loan, a
Tranche D Term Loan, a Tranche E Term Loan, a Tranche F Term Loan or a
Tranche G Term Loan (each of which is a "TYPE" of Term Loan)."; and
(3) by deleting the phrase "Requisite Lenders" each place it
appears in the definitions of "REQUIRED DISPOSITION" and "SUBORDINATED
INDEBTEDNESS" and by substituting therefor the phrase "Requisite Lenders and
Majority Lenders".
1.2 AMENDMENTS TO SECTION 2: AMOUNTS AND TERMS OF
COMMITMENTS AND LOANS
A. COMMITMENTS. Subsection 2.1A of the Credit Agreement is
hereby amended as follows:
(1) by deleting the first sentence thereof in its entirety and by
substituting therefor the following:
"Subject to the terms and conditions of this Agreement and in
reliance upon the representations and warranties of Holdings and Company
herein set forth, each Lender hereby severally agrees to make the Loans
described in subsections 2.1A(i)-(v) and 2.1A(vii)-(ix), as applicable, and
Swing Line Lender hereby agrees to make the Loans described in subsection
2.1A(vi)."; and
(2) by adding after paragraph (vi) thereof the following:
"(vii) Tranche E Term Loans. Each Tranche E Term Lender
severally agrees to lend to Company on the Fourth Amendment Effective Date
an amount not exceeding its Pro Rata Share of the aggregate amount of the
Tranche E Term Loan Commitments to be used for the purposes identified in
subsection 2.5A. The amount of each Tranche E Term Lender's Tranche E Term
Loan Commitment is set forth opposite its name on Schedule 2.1 annexed
hereto and the aggregate amount of the Tranche E Term Loan Commitments is
$75,000,000; provided that the Tranche E Term Loan Commitments of Tranche E
Term Lenders shall be adjusted to give effect to any assignments of the
Tranche E Term Loan Commitments pursuant to subsection 11.1B. Each Tranche
E Term Lender's Tranche E Term Loan Commitment shall expire immediately and
without further action on November 27, 1996 if the Tranche E Term Loans are
not made on or before that date. Company may make only one borrowing on
the Fourth Amendment Effective Date under the Tranche E Term Loan
Commitments. Amounts borrowed under this subsection 2.1A(vii) and
subsequently repaid or prepaid may not be reborrowed.
(viii) Tranche F Term Loans. Each Tranche F Term Lender
severally agrees to lend to Company on the Fourth Amendment Effective Date
an amount not exceeding its Pro Rata Share of the aggregate amount of the
Tranche F Term Loan Commitments to be used for the purposes identified in
subsection 2.5A. The amount of each Tranche F Term Lender's Tranche F Term
Loan Commitment is set forth opposite its name on Schedule 2.1 annexed
hereto and the aggregate amount of the Tranche F Term Loan Commitments is
$25,000,000; provided that the Tranche F Term Loan Commitments of Tranche F
Term Lenders shall be adjusted to give effect to any assignments of the
Tranche F Term Loan Commitments pursuant to subsection 11.1B. Each Tranche
F Term Lender's Tranche F Term Loan Commitment shall expire immediately and
without further action on November 27, 1996 if the Tranche F Term Loans are
not made on or before that date. Company may make only one borrowing on
the Fourth Amendment Effective Date under the Tranche F Term Loan
Commitments. Amounts borrowed under this subsection 2.1A(viii) and
subsequently repaid or prepaid may not be reborrowed.
(ix) Tranche G Term Loans. Each Tranche G Term Lender severally
agrees to lend to Company on the Fourth Amendment Effective Date an amount
not exceeding its Pro Rata Share of the aggregate amount of the Tranche G
Term Loan Commitments to be used for the purposes identified in subsection
2.5A. The amount of each Tranche G Term Lender's Tranche G Term Loan
Commitment is set forth opposite its name on Schedule 2.1 annexed hereto
and the aggregate amount of the Tranche G Term Loan Commitments is
$25,000,000; provided that the Tranche G Term Loan Commitments of Tranche G
Term Lenders shall be adjusted to give effect to any assignments of the
Tranche G Term Loan Commitments pursuant to subsection 11.1B. Each Tranche
G Term Lender's Tranche G Term Loan Commitment shall expire immediately and
without further action on November 27, 1996 if the Tranche G Term Loans are
not made on or before that date. Company may make only one borrowing on
the Fourth Amendment Effective Date under the Tranche G Term Loan
Commitments. Amounts borrowed under this subsection 2.1A(ix) and
subsequently repaid or prepaid may not be reborrowed."
B. THE REGISTER. Subsection 2.1D(ii) of the Credit Agreement is
hereby amended by deleting the phrase "the Tranche A Term Loan Commitment, the
Tranche B Term Loan Commitment, the Tranche C Term Loan Commitment and the
Tranche D Term Loan Commitment" and by substituting therefor the phrase "each
Type of Term Loan Commitment".
C. NOTES. Subsection 2.1E of the Credit Agreement is hereby amended
by adding at the end thereof the following:
"Company shall execute and deliver on the Fourth Amendment
Effective Date (i) to each Tranche E Term Lender (or to Agent for that
Lender) a Tranche E Term Note substantially in the form of Exhibit XXVI-A
annexed hereto to evidence that Lender's Tranche E Term Loan Commitment, in
the principal amount of that Lender's Tranche E Term Loan and that Lender's
Tranche E Term Loan Commitment and with other appropriate insertions, (ii)
to each Tranche F Term Lender (or Agent for that Lender) a Tranche F Term
Note substantially in the form of Exhibit XXVI-B annexed hereto to evidence
that Lender's Tranche F Term Loan, in the principal amount of that Lender's
Tranche F Term Loan and with other appropriate insertions and (iii) to each
Tranche G Term Lender (or to Agent for that Lender) a Tranche G Term Note
substantially in the form of Exhibit XXVI-C annexed hereto to evidence that
Lender's Tranche G Term Loan, in the principal amount of that Lender's
Tranche G Term Loan and with other appropriate insertions."
D. INTEREST. Subsection 2.2A of the Credit Agreement is hereby
amended by deleting the phrases "Tranche B Term Loans", "Tranche C Term Loans"
and "Tranche D Term Loans" each place each such phrase appears and by
substituting therefor the phrases "Tranche B Term Loans and Tranche E Term
Loans", "Tranche C Term Loans and Tranche F Term Loans" and "Tranche D Term
Loans and Tranche G Term Loans", respectively.
E. INTEREST PERIODS. Subsection 2.2B(v) is hereby amended by
deleting the phrases "Tranche B Term Loans", "Tranche C Term Loans" and "Tranche
D Term Loans" each place each such phrase appears and by substituting therefor
the phrases "Tranche B Term Loans and Tranche E Term Loans", "Tranche C Term
Loans and Tranche F Term Loans" and "Tranche D Term Loans and Tranche G Term
Loans", respectively.
F. SCHEDULED PAYMENTS. Subsection 2.4A of the Credit Agreement is
hereby amended by adding at the end thereof the following:
"(v) Scheduled Payments of Tranche E Term Loans. Company shall
make principal payments on the Tranche E Term Loans in equal quarterly
installments on March 15, June 15, September 15 and December 15 of each
year, commencing on December 15, 1996, such quarterly installments to
comprise the aggregate amounts set forth opposite the corresponding Payment
Period as follows:
Scheduled Repayment
Payment Period of Tranche E Term Loans
December 15, 1996 - June 15, 1997 $ 562,500
September 15, 1997 - June 15, 1998 $ 750,000
September 15, 1998 - June 15, 1999 $ 750,000
September 15, 1999 - June 15, 2000 $ 750,000
September 15, 2000 - June 15, 2001 $ 750,000
September 15, 2001 - June 15, 2002 $ 71,437,500
------------
$ 75,000,000
; provided that the scheduled installments of principal of the Tranche E
Term Loans set forth above shall be reduced in connection with any
voluntary or mandatory prepayments of the Term Loans in accordance with
subsection 2.4B(iv); and provided still further that the Tranche E Term
Loans and all other amounts owed hereunder with respect to the Tranche E
Term Loans shall be paid in full no later than June 15, 2002, and the final
installment payable by Company in respect of the Tranche E Term Loans on
such date shall be in an amount, if such amount is different from that
specified above, sufficient to repay all amounts owing by Company under
this Agreement with respect to the Tranche E Term Loans.
(vi) Scheduled Payments of Tranche F Term Loans. Company shall
make principal payments on the Tranche F Term Loans in equal quarterly
installments on March 15, June 15, September 15 and December 15 of each
year, commencing on December 15, 1996, such quarterly installments to
comprise the aggregate amounts set forth opposite the corresponding Payment
Period as follows:
Scheduled Repayment
Payment Period of Tranche F Term Loans
December 15, 1996 - June 15, 1997 $ 187,500
September 15, 1997 - June 15, 1998 $ 250,000
September 15, 1998 - June 15, 1999 $ 250,000
September 15, 1999 - June 15, 2000 $ 250,000
September 15, 2000 - June 15, 2001 $ 250,000
September 15, 2001 - June 15, 2002 $ 250,000
September 15, 2002 - June 15, 2003 $ 23,562,500
------------
$ 25,000,000
; provided that the scheduled installments of principal of the Tranche F
Term Loans set forth above shall be reduced in connection with any
voluntary or mandatory prepayments of the Term Loans in accordance with
subsection 2.4B(iv); and provided still further that the Tranche F Term
Loans and all other amounts owed hereunder with respect to the Tranche F
Term Loans shall be paid in full no later than June 15, 2003, and the final
installment payable by Company in respect of the Tranche F Term Loans on
such date shall be in an amount, if such amount is different from that
specified above, sufficient to repay all amounts owing by Company under
this Agreement with respect to the Tranche F Term Loans.
(vii) Scheduled Payments of Tranche G Term Loans. Company
shall make principal payments on the Tranche G Term Loans in equal
quarterly installments on March 15, June 15, September 15 and December 15
of each year, commencing on December 15, 1996, such quarterly installments
to comprise the aggregate amounts set forth opposite the corresponding
Payment Period as follows:
Scheduled Repayment
Payment Period of Tranche G Term Loans
December 15, 1996 - June 15, 1997 $ 187,500
September 15, 1997 - June 15, 1998 $ 250,000
September 15, 1998 - June 15, 1999 $ 250,000
September 15, 1999 - June 15, 2000 $ 250,000
September 15, 2000 - June 15, 2001 $ 250,000
September 15, 2001 - June 15, 2002 $ 250,000
September 15, 2002 - June 15, 2003 $ 250,000
September 15, 2003 - February 15, 2004 $ 23,312,500
------------
$ 25,000,000
; provided that the scheduled installments of principal of the Tranche G
Term Loans set forth above shall be reduced in connection with any
voluntary or mandatory prepayments of the Term Loans in accordance with
subsection 2.4B(iv); and provided still further that the Tranche G Term
Loans and all other amounts owed hereunder with respect to the Tranche G
Term Loans shall be paid in full no later than February 15, 2004, and the
final installment payable by Company in respect of the Tranche G Term Loans
on such date shall be in an amount, if such amount is different from that
specified above, sufficient to repay all amounts owing by Company under
this Agreement with respect to the Tranche G Term Loans."
G. PREPAYMENTS AND REDUCTIONS IN COMMITMENTS. Subsection 2.4B(iii)
of the Credit Agreement is hereby amended by adding the following sentence
immediately after the first sentence of subparagraph (b) of subsection
2.4B(iii):
"Upon receipt of the proceeds of the Tranche E Term Loans, the Tranche F
Term Loans and the Tranche G Term Loans on the Fourth Amendment Effective
Date, Company shall prepay the Tranche A Term Loans in an amount equal to
such $125,000,000 in proceeds."
H. APPLICATION OF PREPAYMENTS. Subsection 2.4B(iv) of the Credit
Agreement is hereby amended as follows:
(1) by deleting the last sentence of subparagraph (a) thereof in its
entirety and by substituting therefor the following:
"Any voluntary prepayments of the Term Loans pursuant to subsection 2.4B(i)
shall be applied (x) to each Type of Term Loan on a pro rata basis and (y)
to reduce the unpaid scheduled installments of the principal of the Term
Loans set forth in subsections 2.4A(i)-(vii) on a pro rata basis.";
(2) by deleting subparagraph (b) thereof in its entirety and by
substituting therefor the following:
"(b) Application of Mandatory Prepayments of Term Loans by Order
of Maturity. Any mandatory prepayments of the Term Loans pursuant to
subsection 2.4B(iii) shall be applied (x) to each Type of Term Loan on a
pro rata basis, (y) in the case of any mandatory prepayments to be applied
to the Tranche A Term Loans from Selected Asset Proceeds pursuant to clause
(A) of subsection 2.4B(iii)(a) or from Initial Net Debt Proceeds pursuant
to clause (1) of subsection 2.4B(iii)(b), to reduce unpaid scheduled
installments of principal of the Tranche A Term Loans set forth in
subsection 2.4A(i) in forward order of maturity for up to the immediately
succeeding twelve-month period, and (z) in the case of any mandatory
prepayments to be applied to the Tranche A Term Loans from the proceeds of
the Tranche E Term Loans, the Tranche F Term Loans and the Tranche G Term
Loans pursuant to the second sentence of subsection 2.4B(iii)(b), to reduce
unpaid scheduled installments of principal of the Tranche A Term Loans set
forth in subsection 2.4A(i) in forward order of maturity, and in the case
of all other mandatory prepayments, to reduce the unpaid scheduled
installments of principal of the Term Loans set forth in subsections
2.4A(i)-(vii) on a pro rata basis; provided that, in the case of Term Loans
other than the Tranche A Term Loans, upon receipt of any mandatory
prepayments pursuant to subsection 2.4B(iii) with respect to which Company
has given Agent written notification prior to such receipt that Company has
elected to give such Term Lenders the right to waive such Lenders' right to
receive such prepayment (the "WAIVABLE MANDATORY PREPAYMENT"), Agent shall
notify such Term Lenders of such receipt and the amount of the prepayment
to be applied to each such Lender's Term Loans; provided still further that
Company shall use its reasonable efforts to notify such Term Lenders of
such Waivable Mandatory Prepayment three (3) Business Days prior to the
payment to Agent of such Waivable Mandatory Prepayments (it being
understood that Company shall have no liabilities for failing to so notify
such Lenders). In the event any such Term Lender desires to waive such
Lender's right to receive any such Waivable Mandatory Prepayment, such
Lender shall so advise Agent no later than the close of business on the
date of such notice from Agent. In the event that any such Lender waives
such Lender's right to any such Waivable Mandatory Prepayment, Agent shall
apply 50% of the amount so waived by such Lender to prepay the Tranche A
Term Loans and to reduce unpaid scheduled installments of principal of the
Tranche A Term Loans set forth in subsection 2.4A(i) on a pro rata basis.
Agent shall return the remainder of the amount so waived by such Lender to
Company."; and
(3) by deleting the first sentence of subparagraph (c) thereof in its
entirety and by substituting therefor the following:
"Considering each Type of Loan being prepaid separately, any prepayment
thereof shall be applied first to Base Rate Loans to the full extent
thereof before application to Eurodollar Rate Loans, in each case in a
manner which minimizes the amount of any payments required to be made by
Company pursuant to subsection 2.6D."
I. USE OF PROCEEDS. Subsection 2.5A is hereby amended by adding at
the end thereof the following:
"The proceeds of the Term Loans made on the Fourth Amendment Effective Date
shall be applied by the Company to repay in full amounts outstanding under
the Tranche A Term Loans in forward order of maturity pursuant to clause
(z) of subsection 2.4B(iv)(b)."
1.3 AMENDMENTS TO SECTION 4: CONDITIONS TO LOANS AND LETTERS
OF CREDIT.
A. CONDITIONS TO ALL LOANS. Subsection 4.2(B)(vi) of the Credit
Agreement is hereby amended by deleting the phrase "Requisite Lenders" each
place it appears and by substituting therefor the phrase "Requisite Lenders and
Majority Lenders".
1.4 AMENDMENTS TO SECTION 6: AFFIRMATIVE COVENANTS.
A. AFFIRMATIVE COVENANTS. Section 6 of the Credit Agreement is
hereby amended by deleting the phrase "Requisite Lenders" each place it appears
and by substituting therefor the phrase "Requisite Lenders and Majority Lenders"
in the first sentence in Section 6 and the phrase "Requisite Lenders or Majority
Lenders" in subsection 6.5 thereof, respectively.
1.5 AMENDMENTS TO SECTION 7: NEGATIVE COVENANTS.
A. NEGATIVE COVENANTS. Section 7 of the Credit Agreement is hereby
amended by deleting the phrase "Requisite Lenders" each place it appears and by
substituting therefor the phrase "Requisite Lenders and Majority Lenders".
B. RESTRICTIONS ON FUNDAMENTAL CHANGES; ASSET SALES AND ACQUISITIONS.
Subsection 7.7 of the Credit Agreement is hereby amended as follows:
(1) by deleting subparagraph (v) thereof in its entirety and by
substituting therefor the following:
"(v) Company and its Subsidiaries may sell (a) furniture, fixtures
and/or equipment acquired after December 14, 1994 and (b) grocery stores
(including furniture, fixtures and equipment located therein and acquired
after December 14, 1994) opened or acquired after December 14, 1994, in
each case in connection with a concurrent lease-back of such furniture,
fixtures and/or equipment and/or of such grocery stores to the extent such
transactions are permitted under subsection 7.10 and Agent shall release
any security interests in favor of Agent for the benefit of Lenders in such
furniture, fixtures and/or equipment and/or such grocery stores;"
(2) by deleting subsection (vi) thereof in its entirety and by
substituting therefor the following:
"(vi) (A) Company and its Subsidiaries may sell up to eight
grocery stores in any Fiscal Year, plus, in any Fiscal Year after Fiscal
Year 1995, a number of stores equal to the difference between eight and the
number of stores sold under this clause (vi) in the immediately preceding
Fiscal Year, which stores are no longer useful to the businesses of Company
and its Subsidiaries; provided that, in addition to the foregoing, the
Company may dispose of up to nine (9) southern California grocery stores in
connection with its potential acquisition of up to nine (9) southern
California grocery stores from Smith's; and (B) with the approval of Agent,
Company and its Subsidiaries may terminate the leases on up to six (6)
grocery stores or other facilities in any Fiscal Year, which grocery stores
or other facilities are no longer useful to the businesses of Company and
its Subsidiaries and Agent shall release any security interests in favor of
Agent for the benefit of Lenders in Company's or its Subsidiaries'
leasehold interests in such stores or other facilities and any personal
property remaining on any such premises;"; and
(3) by deleting the phrase "on or prior to the first anniversary of
the Closing Date" from subsection (vii) thereof and by substituting therefor the
phrase "on or prior to December 31, 1996".
1.6 AMENDMENTS TO SECTION 8: EVENTS OF DEFAULT.
A. EVENTS OF DEFAULT. Section 8 of the Credit Agreement is hereby
amended by deleting the phrase "Requisite Lenders" each place it appears and by
substituting therefor the phrase "Requisite Lenders and Majority Lenders".
1.7 AMENDMENTS TO SECTION 10: AGENT.
A. AGENT. Section 10 of the Credit Agreement is hereby amended by
deleting the phrase "Requisite Lenders" each place it appears and by
substituting therefor the phrase "Requisite Lenders and Majority Lenders".
1.8 AMENDMENTS TO SECTION 11: MISCELLANEOUS.
A. EXPENSES. Subsection 11.2 of the Credit Agreement is hereby
amended by deleting the phrase "Requisite Lenders" each place it appears and by
substituting therefor the phrase "Requisite Lenders and Majority Lenders".
B. AMENDMENTS AND WAIVERS. Subsection 11.6 of the Credit Agreement
is hereby amended by adding the phrase "A. Amendments and Waivers" immediately
in front of the first sentence thereof and by adding at the end thereof the
following:
"B. ADDITIONAL REQUIREMENTS FOR CERTAIN AMENDMENTS AND WAIVERS.
In addition to the requirements of subsection 11.6A, no amendment,
modification, termination or waiver of any provision of this Agreement or
of the Notes, or consent to any departure by Holdings or Company therefrom,
shall in any event be effective without the written concurrence of Majority
Lenders; provided that any such amendment, modification, termination,
waiver or consent which changes in any manner the definitions of "Majority
Lenders" or "Majority Additional Class Lenders" shall be effective only if
evidenced by a writing signed by or on behalf of all Lenders affected
thereby. In addition, no amendment, modification, termination or waiver of
any provision of subsection 2.4 which has the effect of changing any
interim scheduled payments, voluntary or mandatory prepayments or
Commitment reductions applicable to any Additional Class (an "AFFECTED
ADDITIONAL CLASS") in a manner that disproportionately disadvantages such
Additional Class relative to the other Additional Class shall be effective
without the written concurrence of the Majority Additional Class Lenders of
the Affected Additional Class (it being understood and agreed that any
amendment, modification, termination or waiver of any provision which only
postpones or reduces any interim scheduled payment, voluntary or mandatory
prepayment or Commitment reduction from those set forth in subsection 2.4
with respect to only one Additional Class shall be deemed to not
disproportionately disadvantage the other Additional Class and, therefore,
shall not require the consent of Majority Additional Class Lenders of such
other Additional Class)."
1.9 ADDITION TO AND MODIFICATION OF SCHEDULES TO THE CREDIT AGREEMENT
A. LENDERS' COMMITMENTS AND PRO RATA SHARES. The Credit Agreement is
hereby amended by adding thereto a new Schedule 2.1 in the form of Annex A to
this Amendment.
1.10 ADDITION TO AND MODIFICATION OF EXHIBITS TO THE CREDIT AGREEMENT
A. NOTICE OF BORROWING. Exhibit I to the Credit Agreement is hereby
amended by deleting the phrase "Tranche [A][B][C][D] Term/Revolving Loans" each
place it appears and by substituting therefor the phrase "Tranche
[A][B][C][D][E][F][G] Term/Revolving Loans".
B. NOTICE OF CONVERSION/CONTINUATION. Exhibit II to the Credit
Agreement is hereby amended by deleting the phrase "[Tranche [A] [B] [C] [D]
Term/Revolving] Loans" each place it appears and by substituting therefor the
phase "[Tranche [A] [B] [C] [D] [E] [F] [G] Term/Revolving] Loans".
C. ASSIGNMENT AGREEMENT. Exhibit XXII to the Credit Agreement is
hereby amended by deleting the Schedule of Terms therefrom and by substituting
therefor a new the Schedule of Terms in the form of Annex B to this Amendment.
D. ADDITIONAL TERM NOTES. The Credit Agreement is hereby amended by
adding thereto new Exhibits XXVI-A, XXVI-B, and XXVI-C in the forms of Annexes
C, D and E, respectively, to this Amendment.
SECTION 2. CONDITIONS TO EFFECTIVENESS
Section 1 of this Amendment shall become effective only upon the
satisfaction of all of the following conditions precedent (the date of
satisfaction of such conditions being referred to herein as the "FOURTH
AMENDMENT EFFECTIVE DATE"):
A. On or before the Fourth Amendment Effective Date, each of New
Holdings and Company shall deliver to Agent for Lenders five originally executed
copies of the following, each, unless otherwise noted, dated the Fourth
Amendment Effective Date:
1. Certified copies of Company's Certificate of Incorporation, or a
certificate by its corporate secretary or an assistant secretary certifying
that there has been no change in the Company's Certificate of Incorporation
subsequent to the Closing Date, except as disclosed in such certificate and
attaching thereto copies of any such amendments certified by the Secretary
of State of Delaware, together with a good standing certificate from the
Secretary of State of the States of Delaware and California, each dated a
recent date prior to the Fourth Amendment Effective Date;
2. Copies of Company's Bylaws, certified as of the Fourth Amendment
Effective Date by its corporate secretary or an assistant secretary or a
certificate by such secretary or assistant secretary certifying that there
has been no change in the Bylaws subsequent to the Closing Date;
3. Resolutions of each of New Holdings' and Board of Directors
approving and authorizing the execution, delivery and performance of this
Amendment and, in the case of Company, approving and authorizing the
execution, delivery and payment of the Term Notes issued to the Tranche E
Term Lenders, the Tranche F Term Lenders and the Tranche G Term Lenders
(the "NEW TERM NOTES"), certified as of the Fourth Amendment Effective Date
by its corporate secretary or an assistant secretary as being in full force
and effect without modification or amendment;
4. Signature and incumbency certificates of its officers executing
this Amendment and, in the case of Company, the New Term Notes; and
5. This Amendment executed by each of New Holdings, Company and each
Credit Support Party, the New Term Notes, executed by Company, drawn to the
order of each of the Tranche E Term Lenders, the Tranche F Term Lenders and
the Tranche G Term Lenders.
B. On or before the Fourth Amendment Effective Date, Lenders and
their counsel shall have received originally executed copies of one or more
favorable written opinions of Jan Charles Gray, Esq., General Counsel to
Company, and the Latham & Watkins, Counsel to Loan Parties, in form and
substance reasonably satisfactory to Agent and its counsel, dated as of the
Fourth Amendment Effective Date, substantially in the form set forth in Annex F
hereto and as to such other matters as Agent acting on behalf of Lenders may
reasonably request.
C. Requisite Lenders and Requisite Class Lenders for Class Lenders
having Tranche B Term Loan Exposure, Tranche C Term Loan Exposure and Tranche D
Term Loan Exposure shall have executed and delivered copies of this Amendment to
Agent.
D. On or before the Fourth Amendment Effective Date, all corporate
and other proceedings taken or to be taken in connection with the transactions
contemplated hereby and all documents incidental thereto not previously found
acceptable by Agent, acting on behalf of Lenders, and its counsel shall be
satisfactory in form and substance to Agent and such counsel, and Agent and such
counsel shall have received all such counterpart originals or certified copies
of such documents as Agent may reasonably request.
SECTION 3. REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Amendment and to amend
the Credit Agreement and the other Loan Documents in the manner provided herein,
each of New Holdings and Company represents and warrants to each Lender that the
following statements are true, correct and complete:
A. CORPORATE POWER AND AUTHORITY. Each Loan Party party hereto has
all requisite corporate power and authority to enter into this Amendment and
each such Loan Party has all requisite power and authority to carry out the
transactions contemplated by, and perform its obligations under, the Credit
Agreement and the other Loan Documents as amended by this Amendment (the
"AMENDED AGREEMENTS").
B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this
Amendment have been duly authorized by all necessary corporate action on the
part of each Loan Party hereto and the performance of the Amended Agreements
have been duly authorized by all necessary corporate action on the part of each
of such Loan Party.
C. GOVERNMENTAL CONSENTS. The execution and delivery by each Loan
Party party hereto of this Amendment and the performance by each of such Loan
Party of the Amended Agreements do not and will not require any registration
with, consent or approval of, or notice to, or other action to, with or by, any
federal, state or other governmental authority or regulatory body.
D. BINDING OBLIGATION. This Amendment has been duly executed and
delivered by each Loan Party party hereto and is the legally valid and binding
obligations of each Loan Party party hereto and the Amended Agreements are the
legally valid and binding obligations of each of such Loan Party, in each case
enforceable against New Holdings, Company and the other Loan Parties party
hereto in accordance with the respective terms of this Amendment and the Amended
Agreements, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors' rights generally
or by equitable principles relating to enforceability.
E. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT
AGREEMENT. The representations and warranties contained in Section 5 of the
Credit Agreement are and will be true, correct and complete in all material
respects on and as of the Fourth Amendment Effective Date to the same extent as
though made on and as of that date, except to the extent such representations
and warranties specifically relate to an earlier date, in which case they were
true, correct and complete in all material respects on and as of such earlier
date.
F. ABSENCE OF DEFAULT. No event nts Security Agreement, in each case
as amended through the Fourth Amendment Effective Date, pursuant to which
Company has (i) created Liens in favor of Agent on certain Collateral to secure
its respective Secured Obligations and (ii) pledged certain Collateral to secure
its respective Secured Obligations (as defined in the Pledge Agreements) as the
case may be. New Holdings has entered into the Holdings Guaranty and is a party
to the Holdings Pledge Agreement, the Security Agreement, and the Deposit
Accounts Security Agreement, in each case as amended through the Fourth
Amendment Effective Date, pursuant to which New Holdings has (i) guarantied the
Obligations, (ii) created Liens in favor of Agent on certain Collateral to
secure its respective Secured Obligations (as defined in each of the Security
Agreement and the Deposit Accounts Security Agreement) and (iii) pledged certain
Collateral to Agent to secure its obligations under the Holdings Guaranty, as
the case may be. Each of Falley's, Cala Co, F4LSC, Bay Area, Cala, Bell
Markets, Alpha Beta, F4LGM, F4L Merchandising, F4L California and Crawford (each
as defined in the Collateral Documents) is a party to each of the Guaranty, the
Security Agreement, the Trademark Security Agreement, the Deposit Accounts
Security Agreement, its respective Pledge Agreement, its respective Deed of
Trust, if applicable, in each case as amended through the Fourth Amendment
Effective Date, pursuant to which each of such Subsidiaries of Company has (i)
guarantied the Obligations, (ii) created Liens in favor of Agent on certain
Collateral to secure their respective Secured Obligations (as defined in each of
the Security Agreement, the Trademark Security Agreement and the Deposit
Accounts Security Agreement) and (iii) pledged certain Collateral to Agent to
secure its respective Secured Obligations (as defined in the Pledge Agreements)
as the case may be. F4LGM is a party to the F4LGM Security Agreement, as
amended through the Fourth Amendment Effective Date, pursuant to which F4LGM has
pledged certain Collateral to Agent to secure its obligations under the
Guaranty. New Holdings, Company and each of such Subsidiaries of Company are
collectively referred to herein as the "CREDIT SUPPORT PARTIES", and the
Holdings Guaranty, the Holdings Pledge Agreement, the Security Agreement, the
Deposit Accounts Security Agreement, the Guaranty, the Trademark Security
Agreement, the Pledge Agreements, the Deeds of Trust, the Collateral Account
Agreement, and the F4LGM Security Agreement are collectively referred to herein
as the "CREDIT SUPPORT DOCUMENTS".
Each Credit Support Party hereby acknowledges that it has reviewed the
terms and provisions of the Credit Agreement and this Amendment and consents to
the amendment of the Credit Agreement and the other Loan Documents effected
pursuant to this Amendment. Each Credit Support Party hereby confirms that each
Credit Support Document to which it is a party or otherwise bound and all
Collateral encumbered thereby will continue to guaranty or secure, as the case
may be, to the fullest extent possible the payment and performance of all
"Obligations," "Guarantied Obligations" and "Secured Obligations," as the case
may be (in each case as such terms are defined in the applicable Credit Support
Document), including without limitation the payment and performance of all such
"Obligations," "Guarantied Obligations" or "Secured Obligations," as the case
may be, in respect of the Obligations of Company now or hereafter existing under
or in respect of the Amended Agreements and the Notes defined therein.
Each Credit Support Party acknowledges and agrees that any of the
Credit Support Documents to which it is a party or otherwise bound shall
continue in full force and effect and that all of its obligations thereunder
shall be valid and enforceable and shall not be impaired or limited by the
execution or effectiveness of this Amendment except as otherwise expressly
provided by this Amendment. Each Credit Support Party represents and warrants
that all representations and warranties contained in the Amended Agreements and
the Credit Support Documents to which it is a party or otherwise bound are true,
correct and complete in all material respects on and as of the Fourth Amendment
Effective Date to the same extent as though made on and as of that date, except
to the extent such representations and warranties specifically relate to an
earlier date, in which case they were true, correct and complete in all material
respects on and as of such earlier date.
Each Credit Support Party acknowledges and agrees that
(i) notwithstanding the conditions to effectiveness set forth in this Amendment,
such Credit Support Party is not required by the terms of the Credit Agreement
to consent to the amendments to the Credit Agreement effected pursuant to this
Amendment and (ii) nothing in the Credit Agreement, this Amendment or any other
Loan Document shall be deemed to require the consent of such Credit Support
Party to any future amendments to the Credit Agreement.
SECTION 5. MISCELLANEOUS
A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
(i) On and after the Fourth Amendment Effective Date, each reference
in the Credit Agreement to "this Agreement", "hereunder", "hereof",
"herein" or words of like import referring to the Credit Agreement and each
reference in the other Loan Documents to any such agreement shall mean and
be a reference to the Amended Agreements.
(ii) Except as specifically amended by this Amendment, the Credit
Agreement and the other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this Amendment
shall not, except as expressly provided herein, constitute a waiver of any
provision of, or operate as a waiver of any right, power or remedy of Agent
or any Lender under, the Credit Agreement or any of the other Loan
Documents.
B. FEES AND EXPENSES. Company acknowledges that all costs, fees and
expenses as described in subsection 11.2 of the Credit Agreement incurred by
Agent and its counsel with respect to this Amendment and the documents and
transactions contemplated hereby shall be for the account of Company.
C. HEADINGS. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.
D. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING
WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF
NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
E. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
RALPHS GROCERY COMPANY
By:
Title:
FOOD 4 LESS HOLDINGS, INC.
By:
Title:
FALLEY'S, INC.,
as a Credit Support Party
By:
Title:
CALA CO.,
as a Credit Support Party
By:
Title:
FOOD 4 LESS OF SOUTHERN CALIFORNIA,
as a Credit Support Party
By:
Title:
BAY AREA WAREHOUSE STORES, INC.,
as a Credit Support Party
By:
Title:
CALA FOODS, INC.,
as a Credit Support Party
By:
Title:
BELL MARKETS, INC.,
as a Credit Support Party
By:
Title:
ALPHA BETA COMPANY,
as a Credit Support Party
By:
Title:
FOOD 4 LESS GM, INC.,
as a Credit Support Party
By:
Title:
FOOD 4 LESS MERCHANDISING, INC.,
as a Credit Support Party
By:
Title:
FOOD 4 LESS OF CALIFORNIA, INC.,
as a Credit Support Party
By:
Title:
CRAWFORD STORES, INC.,
as a Credit Support Party
By:
Title:
BANKERS TRUST COMPANY, INDIVIDUALLY AND AS AGENT
By:
Title:
BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION,
individually and as Co-Arranger
By:
Title:
THE CHASE MANHATTAN BANK, N.A.,
individually and as Co-Arranger
By:
Title:
COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE,
individually and as Co-Arranger
By:
Title:
By:
Title:
CREDIT SUISSE, individually and as Co-Arranger
By:
Title:
By:
Title:
THE MITSUBISHI TRUST AND BANKING CORPORATION,
individually and as Co-Arranger
By:
Title:
UNION BANK OF CALIFORNIA, N.A., individually and as
Co-Arranger
By:
Title:
UNITED STATES NATIONAL BANK OF OREGON, individually
and as Co-Arranger
By:
Title:
WELLS FARGO BANK, N.A., individually and as
Co-Arranger
By:
Title:
BANQUE PARIBAS, individually and as Co-Agent
By:
Title:
By:
Title:
CREDIT LYONNAIS, CAYMAN ISLAND BRANCH, individually
and as Co-Agent
By:
Title:
ACADIA PARTNERS, L.P.
By:
Title:
BANK OF AMERICA ILLINOIS
By:
Title:
THE BANK OF NOVA SCOTIA
By:
Title:
AERIES FINANCE LTD.
By: Chancellor Senior Secured Management, Inc.,
as Financial Manager
By:
Title:
CAPTIVA FINANCE LTD.
By: Chancellor Senior Secured Management, Inc.,
as Financial Manager
By:
Title:
CERES FINANCE LTD.
By: Chancellor Senior Secured Management, Inc.,
as Financial Manager
By:
Title:
STRATA FUNDING LTD.
By: Chancellor Senior Secured Management, Inc.,
as Financial Manager
By:
Title:
RESTRUCTURED OBLIGATIONS BACKED BY SENIOR ASSETS B.V.
By: Chancellor Senior Secured Management, Inc.,
as Portfolio Advisor
By:
Title:
STICHTING RESTRUCTURED OBLIGATIONS BACKED BY SENIOR
ASSETS 2 (ROSA2)
By: Chancellor Senior Secured Management, Inc.,
as Portfolio Advisor
By:
Title:
KEYPORT LIFE INSURANCE COMPANY
By: Chancellor Senior Secured Management, Inc.,
as Portfolio Advisor
By:
Title:
CITIBANK, N.A.
By:
Title:
DAI-ICHI KANGYO BANK, LIMITED, LOS ANGELES AGENCY
By:
Title:
FIRST NATIONAL BANK OF BOSTON
By:
Title:
FIRSTRUST BANK
By:
Title:
FLEET CAPITAL
By:
Title:
INDOSUEZ CAPITAL FUNDING II, LIMITED
By: Indosuez Capital as Portfolio Advisor
By:
Title:
THE INDUSTRIAL BANK OF JAPAN, LIMITED, LOS ANGELES
AGENCY
By:
Title:
JACKSON NATIONAL LIFE INSURANCE COMPANY
By: PPM America, Inc., as Attorney in Fact, on
behalf of Jackson National Life Insurance Company
By:
Title:
LEHMAN COMMERCIAL PAPER INC.
By:
Title:
MASSACHUSETTS MUTUAL CORPORATE VALUE PARTNERS, LTD.
By:
Title:
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
By:
Title:
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Management, L.P., as
Investment Advisor
By:
Title:
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.
By:
Title:
MORGAN STANLEY SENIOR FUNDING, INC.
By:
Title:
NATIONSBANK, N.A.
By:
Title:
NIPPON CREDIT BANK, LTD., LOS ANGELES AGENCY
By:
Title:
OAK HILL SECURITIES FUND, L.P.
By:
Title:
PILGRIM AMERICA PRIME RATE TRUST
By:
Title:
PRIME INCOME TRUST
By:
Title:
PROTECTIVE LIFE INSURANCE COMPANY
By:
Title:
SENIOR DEBT PORTFOLIO
By: Boston Management and Research, as Investment
Advisor
By:
Title:
SENIOR HIGH INCOME PORTFOLIO, INC.
By:
Title:
SIROCCA LIMITED PARTNERSHIP
By: Planden Corporation, General Partner
By:
Title:
THE SUMITOMO TRUST & BANKING CO., LTD., LOS ANGELES
AGENCY
By:
Title:
TRANSAMERICA BUSINESS CREDIT CORPORATION
By:
Title:
VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST
By:
Title:
EXHIBIT 21
SUBSIDIARIES OF RALPHS GROCERY COMPANY
Alpha Beta Company
Bay Area Warehouse Stores, Inc.
Bell Markets, Inc.
Cala Co.
Cala Foods, Inc.
Crawford Stores, Inc.
Falley's Inc.
Food 4 Less GM, Inc.
Food 4 Less Merchandising, Inc.
Food 4 Less of California, Inc.
Food 4 Less of Southern California, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
CONSOLIDATED BALANCE SHEETS AND AUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 53 WEEKS ENDED FEBRUARY 2,
1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-02-1997
<PERIOD-END> FEB-02-1997
<CASH> 67,589
<SECURITIES> 0
<RECEIVABLES> 51,148
<ALLOWANCES> (4,057)
<INVENTORY> 502,095
<CURRENT-ASSETS> 643,133
<PP&E> 1,353,703
<DEPRECIATION> (301,477)
<TOTAL-ASSETS> 3,131,993
<CURRENT-LIABILITIES> 825,774
<BONDS> 2,060,700
0
0
<COMMON> 466,798
<OTHER-SE> (502,360)
<TOTAL-LIABILITY-AND-EQUITY> 3,131,993
<SALES> 5,516,259
<TOTAL-REVENUES> 5,516,259
<CGS> 4,326,230
<TOTAL-COSTS> 4,326,230
<OTHER-EXPENSES> 1,035,392
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 248,428
<INCOME-PRETAX> (93,791)
<INCOME-TAX> 0
<INCOME-CONTINUING> (93,791)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (93,791)
<EPS-PRIMARY> (61.95)
<EPS-DILUTED> (61.95)
</TABLE>
