<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File Number
May 24, 1998 33-46750
RALPHS GROCERY COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 95-4356030
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification Number)
1100 West Artesia Boulevard
Compton, California 90220
(Address of principal executive offices) (Zip code)
(310) 884-9000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____ .
Ralphs Grocery Company meets the conditions set forth in General
Instruction (H)(1)(a) and (b) of Form 10-Q and is therefore filing this Form
10-Q with the reduced disclosure format specified in General Instruction (H)(2)
to such Form 10-Q.
At June 26, 1998, there were 1,513,938 shares of Common Stock outstanding.
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RALPHS GROCERY COMPANY
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets as of
February 1, 1998 and May 24, 1998 ............................ 2
Consolidated statements of operations for the 16 weeks ended
May 25, 1997 and May 24, 1998................................. 4
Consolidated statements of cash flows for the 16 weeks ended
May 25, 1997 and May 24, 1998................................. 5
Consolidated statements of stockholder's equity (deficit) as of
February 1, 1998 and May 24, 1998............................. 7
Notes to consolidated financial statements....................... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................. 13
Signatures....................................................... 14
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
1
<PAGE> 4
RALPHS GROCERY COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
February 1, May 24,
ASSETS 1998 1998
------------- -----------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 75,601 $ 75,841
Trade receivables, less allowances of
$3,023 and $4,140 at February 1, 1998 and
May 24, 1998, respectively 37,629 31,539
Inventories 514,387 577,398
Patronage receivables from suppliers 4,197 1,839
Prepaid expenses and other 20,325 17,342
---------- -----------
Total current assets 652,139 703,959
INVESTMENTS IN AND NOTES RECEIVABLE FROM
SUPPLIER COOPERATIVES:
Associated Wholesale Grocers 6,797 6,697
Certified Grocers of California 445 3,549
PROPERTY AND EQUIPMENT:
Land 171,651 195,658
Buildings 190,437 193,858
Leasehold improvements 261,047 227,657
Fixtures and equipment 472,158 377,314
Construction in progress 27,706 30,828
Leased property under capital leases 231,413 173,937
Leasehold interests 110,606 136,818
---------- ----------
1,465,018 1,336,070
Less: Accumulated depreciation and amortization 396,013 60,298
---------- ----------
Net property and equipment 1,069,005 1,275,772
OTHER ASSETS:
Deferred financing costs, net 49,863 218
Goodwill, net 1,275,718 2,462,235
Deferred tax assets, net - 471,188
Other, net 22,106 23,197
---------- ----------
$3,076,073 $4,946,815
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
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RALPHS GROCERY COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
February 1, May 24,
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) 1998 1998
------------ -----------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 349,585 $ 372,556
Accrued payroll and related liabilities 105,728 133,586
Accrued interest 29,628 2,892
Other accrued liabilities 224,546 533,688
Income taxes payable 1,361 2,164
Current portion of self-insurance liabilities 48,251 48,251
Current portion of senior debt 6,274 3,145
Current portion of obligations under capital leases 35,691 37,466
---------- ----------
Total current liabilities 801,064 1,133,748
SENIOR DEBT, net of current portion 1,307,510 29,564
OBLIGATIONS UNDER CAPITAL LEASES, net of current portion 120,329 139,091
SENIOR SUBORDINATED DEBT 689,168 44,772
PAYABLE TO PARENT - 2,726,172
DEFERRED INCOME TAXES 21,074 -
SELF-INSURANCE LIABILITIES, net of current portion 90,325 104,669
LEASE VALUATION RESERVE 53,690 51,211
OTHER NON-CURRENT LIABILITIES 109,757 161,505
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY (DEFICIT):
Common stock, $.01 par value, 5,000,000 shares
authorized; 1,513,938 shares issued at
February 1, 1998 and May 24, 1998 15 15
Additional capital 468,895 852,647
Notes receivable from stockholders of parent (584) (71)
Retained deficit (585,170) (296,508)
---------- ----------
Total stockholder's equity (deficit) (116,844) 556,083
---------- ----------
$3,076,073 $4,946,815
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 6
RALPHS GROCERY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
16 Weeks 16 Weeks
Ended Ended
May 25, May 24,
1997 1998
----------- -----------
<S> <C> <C>
SALES $ 1,699,842 $ 1,872,144
COST OF SALES (including purchases from related
parties of $22,321 and $18,699 for the 16 weeks
ended May 25, 1997 and May 24, 1998, respectively) 1,350,791 1,498,337
----------- -----------
GROSS PROFIT 349,051 373,807
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 277,661 318,583
AMORTIZATION OF GOODWILL 10,842 16,509
MERGER-RELATED EXPENSES -- 157,265
----------- -----------
OPERATING INCOME (LOSS) 60,548 (118,550)
INTEREST EXPENSE 75,426 74,683
----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES
AND EXTRAORDINARY CHARGE (14,878) (193,233)
PROVISION (BENEFIT) FOR INCOME TAXES -- (48,385)
----------- -----------
LOSS BEFORE EXTRAORDINARY CHARGE (14,878) (144,848)
EXTRAORDINARY CHARGE, net of tax effect 47,983 196,674
----------- -----------
NET LOSS $ (62,861) $ (341,522)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 7
RALPHS GROCERY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
16 Weeks 16 Weeks
Ended Ended
May 25, May 24,
1997 1998
----------- -----------
<S> <C> <C>
CASH (USED) PROVIDED BY OPERATING ACTIVITIES:
Cash received from customers $ 1,699,842 $ 1,872,144
Cash paid to suppliers and employees (1,631,267) (1,724,979)
Interest paid (44,423) (100,952)
Interest received 143 --
Other, net (8,879) (5,204)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 15,416 41,009
CASH (USED) PROVIDED BY INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 1,497 4,366
Payment for purchase of property and equipment (41,923) (30,712)
Other, net (499) 2,960
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (40,925) (23,386)
CASH (USED) PROVIDED BY FINANCING ACTIVITIES:
Proceeds from the issuance of long-term debt 713,525 572
Payments of long-term debt (684,821) (2,122,819)
Payments of capital lease obligations (9,029) (10,668)
Increase (decrease) in revolving loan 8,800 (131,400)
Payment of acquisition costs, net of cash acquired (2,424) (352,171)
Proceeds received from parent 150 2,598,303
Proceeds from shareholder's notes -- 800
Deferred financing costs and other (4,509) --
----------- -----------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES 21,692 (17,383)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,817) 240
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 67,589 75,601
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 63,772 $ 75,841
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 8
RALPHS GROCERY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
16 Weeks 16 Weeks
Ended Ended
May 25, May 24,
1997 1998
--------- ---------
<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH
(USED) PROVIDED BY OPERATING ACTIVITIES:
Net loss $ (62,861) $(341,522)
Adjustments to reconcile net loss to net cash
(used) provided by operating activities:
Depreciation and amortization 53,489 63,486
Merger-related expense -- 157,265
Extraordinary charge 39,122 322,946
Amortization of debt discount 143 50
Amortization of debt premium -- (73)
Loss (gain) on sale of assets -- --
Change in assets and liabilities, net of
effects from acquisition of
business:
Accounts and notes receivable 11,863 11,814
Inventories 1,116 27,437
Prepaid expenses and other (10,556) 4,747
Accounts payable and accrued liabilities (16,749) (27,355)
Self-insurance liabilities (133) 2,075
Deferred income taxes -- (179,468)
Income taxes payable (18) (393)
--------- ---------
Total adjustments 78,277 382,531
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 15,416 $ 41,009
========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH
FINANCING ACTIVITIES:
Purchase of property and equipment through the issuance of
capital leases $ 11,095 $ -
========= =========
Retirement of capital leases $ 4,693 $ -
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE> 9
RALPHS GROCERY COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Common Stock
----------------------
Number Total
of Stockholder's Additional Retained Stockholder's
Shares Amount Notes Capital Deficit Equity (Deficit)
----------- ----------- ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT FEBRUARY 1, 1998 1,513,938 $ 15 $ (584) $ 468,895 $ (585,170) $ (116,844)
Net effect of Fred Meyer Merger -- -- -- 383,752 630,184 1,013,936
Payments on Stockholders' Notes -- -- 513 -- -- 513
Net loss (unaudited) -- -- -- -- (341,522) (341,522)
----------- ----------- ----------- ----------- ----------- -----------
BALANCES AT MAY 24, 1998 (unaudited) 1,513,938 $ 15 $ (71) $ 852,647 $ (296,508) $ 556,083
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE> 10
RALPHS GROCERY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 24,1998
(UNAUDITED)
1. ORGANIZATION AND ACQUISITION
Ralphs Grocery Company (the "Company") is a wholly-owned
subsidiary of Food 4 Less Holdings, Inc. ("Holdings"). On March 10,
1998, Holdings was acquired by Fred Meyer, Inc., a Delaware corporation
("Fred Meyer"), and the Company became an indirect, wholly-owned
subsidiary of Fred Meyer (the "Fred Meyer Merger"). On March 9, 1998,
Fred Meyer consummated a merger with Quality Food Centers, Inc. ("QFC")
which owned 57 Hughes Family Markets stores ("Hughes"). As part of the
acquisition of Holdings by Fred Meyer, Hughes' operations were
consolidated with the Company's operations. The Company is a retail
supermarket company with a total of 460 stores which are located in
Southern California (395), Northern California (27) and certain areas of
the Midwest (38). The Company is the largest supermarket operator in
Southern California. 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.
In conjunction with the Fred Meyer Merger, Fred Meyer, QFC and
Holdings entered into a settlement agreement (the "Settlement
Agreement") with the State of California to settle potential antitrust
and unfair competition claims that the State of California asserted
against Fred Meyer, QFC and Holdings relating to the effects of the
proposed Fred Meyer and QFC Mergers on supermarket competition in
Southern California (the "State Claims"). Without admitting any
liability in connection with the State Claims, Fred Meyer, QFC and
Holdings agreed in the Settlement Agreement to divest 19 specific stores
in Southern California, including 16 Ralphs stores. Under the Settlement
Agreement, Fred Meyer must divest 13 stores by September 10, 1998 and
the balance of six stores by December 10, 1998. Fred Meyer also agreed
not to acquire new stores from third parties in the Southern California
areas specified in the Settlement Agreement (covering substantially all
of the Los Angeles metropolitan area) for five years following the date
of the Settlement Agreement without providing prior notice to the State
of California. If Fred Meyer fails to divest the required stores by the
two dates set forth in the Settlement Agreement, Fred Meyer has agreed
not to object to the appointment of a trustee to effect the required
sales.
On March 11, 1998, Fred Meyer completed certain refinancing
transactions related to the Fred Meyer Merger. As part of the
refinancing, Holdings and the Company made offers to purchase and
consent solicitations with respect to the following debt securities: (i)
Food 4 Less Holdings 13-5/8% Senior Discount Debentures due 2005, (ii)
Food 4 Less Holdings 13-5/8% Senior Subordinated Pay-In-Kind Debentures
due 2007, (iii) Ralphs Grocery Company 10.45% Senior Notes due 2004
(issued in June 1995), (iv) Ralphs Grocery Company 10.45% Senior Notes
due 2004 (issued in June 1996), (v) Ralphs Grocery Company 11% Senior
Subordinated Notes due 2005 (issued in June 1995) and (vi) Ralphs
Grocery Company 11% Senior Subordinated Notes due 2005 (issued in March
1997). Payment to the note holders included tendered amounts, interest
and consent fees, which were $1,612.7 million, $37.7 million and $209.9
million, respectively.
The Ralphs Grocery Company 10.45% Senior Notes due 2004 (issued
in June 1995) and the Ralphs Grocery Company 11% Senior Subordinated
Notes due 2005 (issued in June 1995) were not fully tendered and
$13,717,000 and $42,555,000 principal amount of each issue are still
outstanding, respectively.
8
<PAGE> 11
In connection with the Fred Meyer Merger, the stockholders and
warrantholders of Holdings received an aggregate of 21,670,503 shares of
Fred Meyer Common Stock in exchange for their Holdings shares and
warrants, and cash payment of $26.3 million to terminate and satisfy
Holdings' obligations under existing stock options.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated balance sheet and statement of
stockholder's equity (deficit) of the Company as of May 24, 1998 and the
consolidated statements of operations and cash flows for the interim
periods ended May 25, 1997 and May 24, 1998 are unaudited, but include
all adjustments (consisting of only normal recurring accruals) which the
Company considers necessary for a fair presentation of its consolidated
financial position, results of operations and cash flows for these
periods. These interim financial statements do not include all
disclosures required by generally accepted accounting principles and,
therefore, should be read in conjunction with the audited financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K for the fiscal year ended February 1, 1998. The results of
operations for the interim periods are not necessarily indicative of the
results for a full fiscal year.
On March 10, 1998, Holdings was acquired by Fred Meyer. The
transaction was accounted for under the purchase method of accounting.
The consolidated financial statements for the 16 weeks ended May 24,
1998 reflect the preliminary allocation of the purchase price. The
purchase price is expected to be finalized by the end of the first
quarter of fiscal year 1999. In conjunction with the transaction, Fred
Meyer refinanced substantially all of the existing indebtedness of the
Company. In addition, the accompanying consolidated financial statements
include the results of Fred Meyer's indirectly wholly-owned subsidiary,
Hughes, from the date of Fred Meyer's acquisition of Holdings.
Inventories
Inventories, which consist mainly 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 $28.5 million and $2.0 million at February 1, 1998
and May 24, 1998, respectively, and gross profit and operating income
would have been greater by $2.3 million and $2.0 million for the 16
weeks ended May 25, 1997 and the 16 weeks ended May 24, 1998,
respectively.
Income Taxes
The Company provides for income taxes in interim periods based on
the estimated effective income tax rate for the complete fiscal year.
The deferred tax assets on the consolidated balance sheet are a result
of recognizing the benefit of the Company's past net operating losses
and other tax assets. In addition, the Company has given benefit to
merger related charges, extraordinary items and the current year
operating loss. Based upon a review of the Company's tax position,
management believes that these assets will be fully utilized within the
next 15 years.
Reclassifications
Certain prior period amounts in the consolidated financial
statements have been reclassified to conform to the May 24, 1998
presentation.
9
<PAGE> 12
3. MERGER-RELATED EXPENSES
Merger-related expenses of $157.3 million were recorded in the 16
weeks ended May 24, 1998. The expenses were incurred as a result of the
Fred Meyer Merger and consist primarily of a $26.3 million charge for
the settlement of outstanding stock options; $83.1 million in asset
impairment charges related to the Hughes dairy facility, the closure of
the Hughes main office and distribution facility and three stores
required to be divested pursuant to the Settlement Agreement; and $47.9
million in transition and integration costs related to the Fred Meyer
Merger.
4. DEBT
On March 11, 1998, Fred Meyer completed certain refinancing
transactions related to the Fred Meyer Merger. As part of the
refinancing, Holdings and the Company made offers to purchase and
consent solicitations with respect to the following debt securities: (i)
Food 4 Less Holdings 13-5/8% Senior Discount Debentures due 2005, (ii)
Food 4 Less Holdings 13-5/8% Senior Subordinated Pay-In-Kind Debentures
due 2007, (iii) Ralphs Grocery Company 10.45% Senior Notes due 2004
(issued in June 1995), (iv) Ralphs Grocery Company 10.45% Senior Notes
due 2004 (issued in June 1996), (v) Ralphs Grocery Company 11% Senior
Subordinated Notes due 2005 (issued in June 1995) and (vi) Ralphs
Grocery Company 11% Senior Subordinated Notes due 2005 (issued in March
1997). Payment to the note holders included tendered amounts, interest
and consent fees, which were $1,612.7 million, $37.7 million and $209.9
million, respectively.
In conjunction with the refinancing transactions discussed above,
the Company has unconditionally guaranteed certain indebtedness of Fred
Meyer, including the $1.625 billion five-year term note, the $1.875
billion five-year revolving credit agreement and the $1.750 billion
senior unsecured notes. The $2.7 billion payable to parent in the
accompanying consolidated balance sheet represents funds advanced from
Fred Meyer to extinguish the Company's pre-merger debt. In addition,
included in the results of operations for the 16 weeks ended May 24,
1998 is $41.0 million of intercompany interest expense related to the
payable to parent.
The Ralphs Grocery Company 10.45% Senior Notes due 2004 (issued
in June 1995) and the Ralphs Grocery Company 11% Senior Subordinated
Notes due 2005 (issued in June 1995) were not fully tendered and
$13,717,000 and $42,555,000 principal amount of each issue are still
outstanding, respectively.
5. RELATED PARTY TRANSACTIONS
During the 16 weeks ended May 24, 1998 and the 16 weeks ended May
25, 1997, the Company purchased $18.7 million and $22.3 million,
respectively, in inventory from Certified Grocers.
10
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS(1)
RECENT EVENTS
Ralphs Grocery Company (the "Company") is a wholly-owned subsidiary of
Food 4 Less Holdings, Inc. ("Holdings"). On March 10, 1998, Holdings was
acquired by Fred Meyer, Inc., a Delaware corporation ("Fred Meyer"), and the
Company became an indirect, wholly-owned subsidiary of Fred Meyer (the "Fred
Meyer Merger"). On March 9, 1998, Fred Meyer consummated a merger with Quality
Food Centers, Inc. ("QFC") which owned 57 Hughes Family Markets stores
("Hughes"). As part of the acquisition of Holdings by Fred Meyer, Hughes'
operations were consolidated with the Company's operations. The Company is a
retail supermarket company with a total of 460 stores which are located in
Southern California (395), Northern California (27) and certain areas of the
Midwest (38). The Company is the largest supermarket operator in Southern
California. 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.
In conjunction with the Fred Meyer Merger, Fred Meyer, QFC and Holdings
entered into a settlement agreement (the "Settlement Agreement") with the State
of California to settle potential antitrust and unfair competition claims that
the State of California asserted against Fred Meyer, QFC and Holdings relating
to the effects of the proposed Fred Meyer and QFC Mergers on supermarket
competition in Southern California (the "State Claims"). Without admitting any
liability in connection with the State Claims, Fred Meyer, QFC and Holdings
agreed in the Settlement Agreement to divest 19 specific stores in Southern
California, including 16 Ralphs stores. Under the Settlement Agreement, Fred
Meyer must divest 13 stores by September 10, 1998 and the balance of six stores
by December 10, 1998. Fred Meyer also agreed not to acquire new stores from
third parties in the Southern California areas specified in the Settlement
Agreement (covering substantially all of the Los Angeles metropolitan area) for
five years following the date of the Settlement Agreement without providing
prior notice to the State of California. If Fred Meyer fails to divest the
required stores by the two dates set forth in the Settlement Agreement, Fred
Meyer has agreed not to object to the appointment of a trustee to effect the
required sales.
On March 11, 1998, Fred Meyer completed certain refinancing transactions
related to the Fred Meyer Merger. As part of the refinancing, Holdings and the
Company made offers to purchase and consent solicitations with respect to the
following debt securities: (i) Food 4 Less Holdings 13-5/8% Senior Discount
Debentures due 2005, (ii) Food 4 Less Holdings 13-5/8% Senior Subordinated
Pay-In-Kind Debentures due 2007, (iii) Ralphs Grocery Company 10.45% Senior
Notes due 2004 (issued in June 1995), (iv) Ralphs Grocery Company 10.45% Senior
Notes due 2004 (issued in June 1996), (v) Ralphs Grocery Company 11% Senior
Subordinated Notes due 2005 (issued in June 1995) and (vi) Ralphs Grocery
Company 11% Senior Subordinated Notes due 2005 (issued in March 1997). Payment
to the note holders included tendered amounts, interest and consent fees, which
were $1,612.7 million, $37.7 million and $209.9 million, respectively.
The Ralphs Grocery Company 10.45% Senior Notes due 2004 (issued in June
1995) and the Ralphs Grocery Company 11% Senior Subordinated Notes due 2005
(issued in June 1995) were not fully tendered and $13,717,000 and $42,555,000
principal amount of each issue are still outstanding, respectively.
- --------
(1) Pursuant to General Instruction (H)(2)(a) of Form 10-Q, the Company is
substituting a management's narrative analysis of the results of operations for
Item 2.
11
<PAGE> 14
In connection with the Fred Meyer Merger, the stockholders and
warrantholders of Holdings received an aggregate of 21,670,503 shares of Fred
Meyer Common Stock in exchange for their Holdings shares and warrants, and cash
payment of $26.3 million to terminate and satisfy Holdings' obligations under
existing stock options.
RESULTS OF OPERATIONS (UNAUDITED)
Sales for the 16 weeks ended May 24, 1998 increased $172.3 million to
$1,872.1 million from $1,699.8 million for the 16 weeks ended May 25, 1997. The
increase in sales was primarily attributable to the addition of 55 Hughes Family
Market stores and the continued success of new store openings, partially offset
by store closings. Since the beginning of fiscal 1996, 37 stores have been
opened, 37 stores have been closed and a total of 69 stores have been remodeled.
Gross profit was $349.1 million and $373.8 million for the 16 weeks
ended May 25, 1997 and May 24, 1998, respectively. Gross profit decreased as a
percentage of sales from 20.5 percent to 20.0 percent in the 16 weeks ended May
25, 1997 and May 24, 1998, respectively. Selling, general and administrative
expenses ("SG&A") were $277.7 million and $318.6 million for the 16 weeks ended
May 25, 1997 and May 24, 1998, respectively. SG&A increased as a percentage of
sales from 16.3 percent to 17.0 percent for the 16 weeks ended May 25, 1997 and
May 24, 1998, respectively. The changes in gross profit and SG&A were primarily
attributable to the addition of 55 Hughes stores, offset by operating
efficiencies and expense controls.
Merger-related expenses of $157.3 million were recorded in the 16 weeks
ended May 24, 1998. The expenses were incurred as a result of the Fred Meyer
Merger and consist primarily of a $26.3 million charge for the settlement of
outstanding stock options; $83.1 million in asset impairment charges related to
the Hughes dairy facility, the closure of the Hughes main office and
distribution facility and three stores required to be divested pursuant to the
Settlement Agreement; and $47.9 million in transition and integration costs
related to the Fred Meyer Merger.
Primarily as a result of the factors discussed above, the Company's
operating income decreased from $60.5 million in the 16 weeks ended May 25, 1997
to an operating loss of $118.6 million in the 16 weeks ended May 24, 1998 and
the Company's loss before extraordinary charge increased from $14.9 million in
the 16 weeks ended May 25, 1997 to $144.8 million in the 16 weeks ended May 24,
1998.
An extraordinary charge of $196.7 million, net of taxes, was recorded
during the 16 weeks ended May 24, 1998. This charge related to the premiums
paid, deferred financing costs and fees associated with early extinguishment of
debt.
12
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27. Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a report on Form 8-K dated March 10, 1998 to
report under Items 2 and 7 the acquisition of the Company's
parent, Food 4 Less Holdings, Inc., by Fred Meyer, Inc.
The Company filed a report on Form 8-K dated May 23, 1998 to
report under Item 5 the adoption of the Fred Meyer, Inc. fiscal
quarter end dates.
The Company filed a report on Form 8-K/A dated July 7, 1998 to
report under Item 5 a change in the Company's fiscal quarter end
dates previously adopted on the Company's Form 8-K dated May 23,
1998.
13
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned, thereunto duly authorized, in the County of Los Angeles, State
of California.
Dated: July 8, 1998 RALPHS GROCERY COMPANY
/s/ TERRENCE J. WALLOCK
---------------------------------
Terrence J. Wallock
Senior Vice President,
General Counsel and Secretary
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
CONSOLIDATED BALANCE SHEETS AND UNAUDITED STATEMENTS OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 16 WEEKS ENDED MAY 24, 1998
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-02-1998
<PERIOD-END> MAY-24-1998
<CASH> 75,841
<SECURITIES> 0
<RECEIVABLES> 35,679
<ALLOWANCES> (4,140)
<INVENTORY> 577,398
<CURRENT-ASSETS> 703,959
<PP&E> 1,336,070
<DEPRECIATION> (60,298)
<TOTAL-ASSETS> 4,946,815
<CURRENT-LIABILITIES> 1,133,748
<BONDS> 2,939,599
0
0
<COMMON> 15
<OTHER-SE> 556,068
<TOTAL-LIABILITY-AND-EQUITY> 4,946,815
<SALES> 1,872,144
<TOTAL-REVENUES> 1,872,144
<CGS> 1,498,337
<TOTAL-COSTS> 1,498,337
<OTHER-EXPENSES> 492,357
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 74,683
<INCOME-PRETAX> (193,233)
<INCOME-TAX> (48,385)
<INCOME-CONTINUING> (144,848)
<DISCONTINUED> 0
<EXTRAORDINARY> 196,674
<CHANGES> 0
<NET-INCOME> (341,522)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
