UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: April 24, 1994
-----------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 33-22998
RALPHS GROCERY COMPANY
(Exact name of registrant as specified in its charter)
Delaware 31-1241926
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1100 West Artesia Boulevard, Compton, California, 90220
(Address of principal executive offices)
(310)884-9000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if
changed since last report)
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 ( )
Number of shares of registrant's Common Stock, $1.00 par value,
outstanding as of April 24, 1994-100.
<PAGE>
RALPHS GROCERY COMPANY
INDEX
PART I
FINANCIAL INFORMATION
Page
Item 1. Financial Statements. . . . . . . . . . . . 1
Unaudited Consolidated Balance Sheets . . . 1
Unaudited Consolidated Statements
of Operations. . . . . . . . . . . . . . . 2
Unaudited Consolidated Statements
of Cash Flows. . . . . . . . . . . . . . . 3
Notes to Unaudited Consolidated
Financial Statements . . . . . . . . . . . 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . 5
PART II
OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . 9
Item 2. Changes in Securities . . . . . . . . . . . 9
Item 3. Defaults upon Senior Securities . . . . . . 9
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . 9
Item 5. Other Information . . . . . . . . . . . . . 9
Item 6. Exhibits and Reports of Form 8-K. . . . . . 9
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . 10
INDEX TO EXHIBITS . . . . . . . . . . . . . . . . . . 11
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RALPHS GROCERY COMPANY
UNAUDITED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
January 30, April 24,
ASSETS 1994 1994
- ------ ---------- ---------
Current Assets:
Cash and cash equivalents . . . . $55,080 $ 31,132
Accounts receivable . . . . . . . 30,420 24,257
Inventories . . . . . . . . . . . 202,354 203,549
Prepaid expenses and other
current. . . . . . . . . . . . . 18,111 20,214
------- -------
Total current assets . . . . . 305,965 279,152
Property, plant and equipment,
net. . . . . . . . . . . . . . . 601,897 605,141
Excess of cost over net assets
acquired, net. . . . . . . . . . 376,414 373,876
Beneficial lease rights, net. . . 55,553 53,155
Deferred debt issuance costs,
net. . . . . . . . . . . . . . . 26,583 25,386
Deferred income taxes . . . . . . 109,125 110,325
Other assets. . . . . . . . . . . 8,113 8,217
--------- --------
Total assets. . . . . . . .$1,483,650 $1,455,252
========= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Current maturities of long-term
debt . . . . . . . . . . . . . . $ 70,975 $ 73,779
Short-term debt . . . . . . . . . -- --
Bank overdrafts . . . . . . . . . 37,716 27,586
Accounts payable. . . . . . . . . 138,554 122,869
Accrued expenses. . . . . . . . . 101,543 105,925
Current portion of self-insurance
reserves . . . . . . . . . . . . 30,138 31,159
-------- -------
Total Current liabilities. . . . . . 378,926 361,318
Long-term debt. . . . . . . . . . 927,909 911,095
Self-insurance reserves . . . . . 49,872 50,839
Lease valuation reserve . . . . . 32,575 31,761
Other non-current liabilities . . 89,299 86,764
-------- -------
Total liabilities. . . . . . . . . . 1,478,581 1,441,777
-------- -------
Stockholder's equity:
Common stock, $1 par value per
share Authorized 1,000 shares;
issued and outstanding, 100
shares at January 30, 1994
and April 24, 1994 . . . . . . . -- --
Additional paid in capital. . . . 175,548 175,548
Accumulated deficit . . . . . . . (170,479) (162,073)
--------- --------
Total stockholder's equity . . . . . 5,069 13,475
--------- --------
Total liabilities and stockholder's
equity . . . . . . . . . . . $1,483,650 $1,455,252
========== =========
(See accompanying notes to unaudited consolidated financial
statements)
1
<PAGE>
RALPHS GROCERY COMPANY
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
12 Wks Ended 12 Wks Ended
April 25, 1993 April 24, 1994
$ % $ %
----- ---- ----- ----
Sales. . . . . . . . . . . 632,426 100.0 615,986 100.0
Cost of sales. . . . . . . 490,019 77.5 474,317 77.0
------- ----- ------- -----
Gross profit. . . . . . 142,407 22.5 141,669 23.0
Selling, general and
administrative
expense. . . . . . . . 107,733 17.0 104,433 17.0
Amortization of excess
of cost over net
assets acquired. . . . 2,538 0.4 2,538 0.4
Provision for
postretirement benefits
other than pension. . 693 0.1 607 0.1
------ ---- ------ ----
Operating income . . . 31,443 5.0 34,091 5.5
Other expenses:
Interest expense, net . . 26,464 4.2 25,691 4.1
(Gain) loss on disposal
of assets. . . . . . . . 86 -- (6) --
------ ---- ------- ----
Earnings before income
taxes . . . . . . . . . . 4,893 0.8 8,406 1.4
Income tax expense . . . . 979 0.2 -- --
------ ---- ------- ----
Net earnings . . . . . . . 3,914 0.6 8,406 1.4
====== ==== ======= ====
(See accompanying notes to unaudited consolidated financial
statements)
2
<PAGE>
RALPHS GROCERY COMPANY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
12 Wks Ended 12 Wks Ended
April 25, 1993 April 24, 1994
-------------- --------------
Cash flows from operating
activities:
Net earnings . . . . . . . $ 3,914 $ 8,406
Adjustments to reconcile
net earnings to net cash
provided(used in) by
operating activities:
Depreciation and
amortization . . . . . . 18,241 17,228
Amortization of discounts
& deferred debt issuance
costs . . . . . . . . . . 2,263 2,191
LIFO charge. . . . . . . . 974 637
(Gain) loss on sale of
assets . . . . . . . . . . 86 (6)
Provision for
postretirement benefits. . 693 607
Other changes in assets and
liabilities:
Accounts receivable . . . . 1,239 6,163
Inventories at replacement
cost . . . . . . . . . . . 2,088 (1,832)
Prepaid expenses and
other current assets . . . (2,403) (2,103)
Other assets. . . . . . . . (8) (144)
Interest payable. . . . . . (913) 2,765
Accounts payable and
accrued liabilities. . . . (24,357) (13,257)
Income taxes payable. . . . 383 190
Deferred tax asset. . . . . -- (1,200)
Self insurance reserves . . 845 1,988
Other liabilities . . . . . (947) (4,199)
------- -------
Cash provided by operating
activities . . . . . . . . . 2,098 17,434
------- -------
Cash flows from investing
activities:
Capital expenditures. . . . (8,139) (13,900)
Proceeds from sale of
property, plant and
equipment . . . . . . . . 28 5
------- -------
Cash used in investing
activities . . . . . . . . . (8,111) (13,895)
------- -------
Cash flows from financing
activities:
Capitalized financing
and acquisition costs. . . (3,444) (295)
Decrease in bank
overdrafts. . . . . . . . (6,261) (10,130)
Net borrowings under
lines-of-credit . . . . . 2,500 --
Proceeds from issuance
of long-term debt . . . . 150,000 --
Principal payments on
long-term debts . . . . . (150,422) (17,062)
-------- -------
Cash used in financing
activities . . . . . . . . . (7,627) (27,487)
Net decrease in cash and
cash equivalents. . . . . (13,640) (23,948)
Cash and cash equivalents at
beginning of period . . . 46,192 55,080
-------- -------
Cash and cash equivalents at
end of period. . . . . . . . $ 32,552 $ 31,132
======== =======
(See accompanying notes to unaudited consolidated financial
statements)
3
<PAGE>
RALPHS GROCERY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The interim financial statements included herein have
been prepared by Ralphs Grocery Company ("Ralphs" or the "Company")
without audit, pursuant to the rules and regulations promulgated by
the Securities and Exchange Commission (the "Commission"). Certain
information and footnote disclosures, normally included in the
financial statements prepared in accordance with generally accepted
accounting principles, have been omitted pursuant to Commission
rules and regulations; nevertheless, Ralphs believes that the
disclosures are adequate to make the information presented not
misleading. These consolidated financial statements should be read
in conjunction with the audited financial statements and notes
thereto included in the Company's latest annual report filed on
Form 10-K. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to
present fairly the financial position of Ralphs with respect to the
interim financial statements, and of the results of Ralphs'
operations and cash flows for the twelve weeks ended April 24, 1994
and the results of Ralphs' operations and cash flows for the twelve
weeks ended April 25, 1993, have been included. The results of
operations for the interim periods are not necessarily indicative
of the results for the full year.
(2) Supplemental Cash Flow Information
12 Wks Ended 12 Wks Ended
April 25, 1993 April 24, 1994
-------------- --------------
Supplemental cash flow
disclosure:
Interest paid, net of
amounts capitalized. . . . . $20,227 $18,648
Income taxes paid. . . . . . $ 600 $ 1,010
Disclosure of accounting policy:
--------------------------------
For purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments with a maturity of
three months or less to be cash equivalents.
4
<PAGE>
(3) Provision for Income Taxes
The provision for income taxes for the twelve weeks ended
April 24, 1994 and the twelve weeks ended April 25, 1993 consists
of the following:
12 Wks Ended
April 25, April 24,
1993 1994
-------- --------
Federal Income Taxes . . . . . $ 776 $ 220
State Income Taxes . . . . . . 203 980
Adjustment to Valuation Allowance
for Deferred Tax Assets . . . -- (1,200)
------- -------
Total Income Tax Provision. . $ 979 $ --
======= =======
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Twelve Weeks Ended April 24, 1994 compared with the Twelve Weeks
Ended April 25, 1993.
Sales
For the first quarter 1994 (the twelve weeks ended April 24,
1994), sales were $616.0 million, a decrease of $16.4 million or
2.6% from the first quarter 1993 (the twelve weeks ended April 25,
1993).
During the first quarter 1994, Ralphs opened one new store in
Riverside County, which replaced a stored closed in the first
quarter 1994, and completed two store remodels.
Comparable store sales decreased 3.9%, which included an
increase of 0.4% for replacement store sales, from $619.7 million
in the first quarter 1993 to $595.7 million in the first quarter
1994. Ralphs' sales continue to be adversely affected by the
significant recession in Southern California, continuing
competitive new store and remodeling activity and recent pricing
and promotional changes by competitors. The recession, high
unemployment, competitive store openings and pricing and
promotional changes contributed to the declines in both total and
comparable store sales. The Company believes that store sales
levels were also negatively affected by the impact on the consumer
of property and income tax payments during the first quarter 1994.
Ralphs continued to take steps to mitigate the impact of the
weak retailing environment in its markets. These actions included
continuing the active remodeling program commenced in the fall
of 1988. In February, 1994, Ralphs launched the Ralphs Savings
Plan, a new marketing campaign specifically designed to enhance
customer value. The Ralphs Savings Plan is comprised of six major
components: Guaranteed Low Prices (GLPs), Price Breakers, Big
Buys, Multi-Buys, Ralphs Brand Products and Double Coupons. GLPs
guarantee low prices on certain high volume items that are surveyed
and updated every four weeks. Price Breakers are weekly advertised
items that offer significant savings. Big Buys are club size items
at prices competitive to club store prices and Multi-Buys offer
Ralphs' shoppers the opportunity to purchase club store quantities
of regular sized items at prices competitive to club store prices.
In conjunction with this new campaign Ralphs private label offering
of over 2,000 products provides value to the customer.
5
<PAGE>
On January 17, 1994, an earthquake in Southern California
caused considerable damage in Los Angeles and surrounding areas.
Several Ralphs supermarkets suffered earthquake damage with 54
stores completely shutdown on the morning of January 17th.
Thirty-four stores reopened within one day and an additional 17
stores reopened within three days. Suffering major structural
damage were three stores in the San Fernando Valley area of Los
Angeles. All three stores have since reopened for business with
the last reopening on April 15, 1994. Management believes that
there was some negative impact on sales resulting from the
temporary disruption of business resulting from the earthquake.
Ralphs is insured for earthquake losses. The pre-tax
financial impact, net of insurance claims, is expected to be
approximately $11.0 million and the Company reserved for this loss
in fiscal year 1993 (the fifty-two weeks ended January 30, 1994).
Cost of Sales
Cost of sales decreased $15.7 million or 3.2% from $490.0
million in the first quarter 1993 to $474.3 million in the first
quarter 1994. As a percentage of sales, cost of sales declined to
77.0% in the first quarter 1994 from 77.5% in the first quarter
1993. The decrease in cost of sales as a percentage of sales was
the result of savings in warehousing and distribution costs, the
pass-through of increased operating costs and increases in relative
margins where allowed by competitive conditions.
Selling, General and Administrative Expense
Selling, general and administrative expense decreased $3.3
million or 3.1% from $107.7 million in the first quarter 1993 to
$104.4 million in the first quarter 1994. As a percentage of
sales, selling, general and administrative expense was 17.0% in the
first quarter 1993 and in the first quarter 1994. The decrease in
selling , general and administrative expense was the result of
several factors including a reduction in contributions to the
United Food and Commercial Workers health care benefit plans, due
to an excess reserve in these plans, business interruption credits
relating to earthquake losses reserved for in fiscal year 1993 and
the results of cost savings programs instituted by Ralphs. The
Company is continuing its expense reduction program. Decreases in
selling, general and administrative expense were partially offset
by increases in union wage rates and generally higher expenses in
the service departments of new and remodeled stores.
Operating Income
Operating income in the first quarter 1994 increased 8.4% to
$34.1 million from $31.4 million in the first quarter 1993.
Operating margin, defined as operating income as a percentage of
sales, increased in the first quarter 1994 to 5.5% from 5.0% in the
first quarter 1993. EBITDA, defined as earnings before interest,
taxes, depreciation, amortization, FAS 106 postretirement benefits,
gain/loss on disposal of assets and LIFO charges, improved to 8.6%
of sales or $52.7 million in the first quarter 1994 from 8.1% of
sales or $51.4 million in the first quarter 1993.
6
<PAGE>
Interest Expense
Net interest expense for the first quarter 1994 was $25.7
million versus $26.4 million for the first quarter 1993. Included
as interest expense during the first quarter 1994 was $21.9
million, representing interest expense for the 10 1/4% Senior
Subordinated Notes due 2002, the 9% Senior Subordinated Notes due
2003 (the "Initial Notes"), the 9% Series B Senior Subordinated
Notes due 2003 (the "Exchange Notes"), a $470.0 million bank
facility (consisting of a $350.0 million term loan facility (the
"1992 Term Loan Facility") and a $120.0 million working capital
facility (the "1992 Working Capital Facility" ) and, together with
the 1992 Term Loan Facility, the "1992 Credit Agreement"),
promissory notes to Metropolitan Life Insurance Company in the
aggregate amount of $175.6 million and interest on capitalized
leases. Comparable interest expense for the first quarter
1993 was $22.8 million. Also included in interest expense for the
first quarter 1994 period was $3.8 million representing certain
other charges relating to amortization of debt issuance costs,
self-insurance discount, lease valuation reserves and other
miscellaneous charges (categorized by Ralphs as non-cash interest
expense) as compared to $3.6 million for the first quarter 1993.
Investment income has been offset against interest expense.
Net Earnings
For the first quarter 1994, Ralphs reported net earnings of
$8.4 million compared to net earnings of $3.9 million for the first
quarter 1993. The increase in net earnings is primarily the
result of increased operating income, lower interest expense
resulting from the recapitalization plan and a decrease in income
tax expense due to an adjustment in the valuation allowance for
deferred tax assets.
Over the last several years, the Company has been implementing
modifications in its workers compensation and general liability
insurance programs. Based on preliminary review, the Company
believes that these modifications may result in a reduction in self
insurance costs for the fiscal year ending January 29, 1995.
Liquidity and Capital Resources
Ralphs' total long-term debt (including current maturities) at
April 24, 1994 was $984.9 million. All mandatory principal
reductions required by the various agreements during the twelve
weeks ended April 24, 1994 were satisfied. Management believes
that operating cash flow, supplemented by capital and operating
leases, will be sufficient to meet Ralphs' operating needs and
scheduled capital expenditures and will enable Ralphs to service
its debt in accordance with its terms. It is possible, however,
that additional financing may be required and there can be no
assurance that such financing will be available, or, if available,
will be on terms favorable to Ralphs.
Working capital was a deficit of $82.2 million at April 24,
1994. Supermarket operators typically require small amounts of
working capital since inventory is generally sold prior to the time
that payments to suppliers are due. Therefore, cash provided from
operations is frequently used for non-current purposes such as
investing and financing activities. Included in working capital
was $73.8 million in current maturities of long-term debt. Ralphs'
primary sources of liquidity during the twelve weeks ended April
24, 1994 were cash flow from operations, and borrowings under the
1992 Credit Agreement. Cash flow provided from operating
activities after payment of interest expense and before capital
expenditures was $17.4 million for the twelve weeks ended April 24,
1994. Capital expenditures for the twelve weeks ended April 24,
1994, was $13.9 million.
7
<PAGE>
The 1992 Working Capital Facility is a $120.0 million credit
line which is available for working capital requirements and
general corporate purposes. Up to $60.0 million of the 1992
Working Capital Facility may be used to support standby letters of
credit and up to $10.0 million in the aggregate may be borrowed on
same-day notice as swing-line loans. The letters of credit may
be used to cover workers' compensation contingencies and for such
other purposes as are permitted under the 1992 Credit Agreement.
The 1992 Working Capital Facility is a non-amortizing line of
credit available through the earlier of June 30, 1998 or the date
the 1992 Credit Agreement is paid in full. Borrowings under the
1992 Working Capital Facility generally are required to be reduced
to zero for 30 consecutive days in each period of twelve
consecutive months. There were no outstanding borrowings under the
Working Capital Facility at the end of the first quarter 1994. The
amount available under the 1992 Credit Agreement's working capital
facility was $67.6 million at April 24, 1994. Effective May 1,
1994, the letter of credit required by the State of California to
support worker's compensation contingencies was increased from
$41.7 million to $43.1 million. This increase reduces the amount
available under the 1992 Working Capital Facility.
During the twelve weeks ended April 24, 1994, cash used in
investing activities was $13.9 million. This amount reflects
increased capital expenditures related to store remodels and new
store openings (including store acquisitions) and, to a lesser
extent, expansion of other warehousing, distribution and
manufacturing facilities and equipment, including data processing
and computer systems.
Cash used in financing activities was approximately $27.5
million for the twelve weeks ended April 24, 1994. Reductions of
capital lease obligations of $2.5 million reduced cash flow.
During the twelve weeks ended April 24, 1994 cash provided
from operating activities of $17.4 million, cash used in investing
activities of $13.9 million and cash used in financing activities
of $27.5 million, resulted in a net decrease in cash and cash
equivalents of $24.0 million at April 24, 1994 as compared to
January 30, 1994.
8
<PAGE>
PART II. OTHER INFORMATION
References throughout this report to "the Company" and
"Ralphs" shall be deemed to refer to the registrant, Ralphs Grocery
Company, and references to "Ralphs Supermarkets" and "the Holding
Company" shall be deemed to refer to Ralphs Supermarkets, Inc., the
sole stockholder of Ralphs.
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not Applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
In February 1994, the Board of Directors of the
Company authorized a dividend of $10.0 million to be
paid to the Holding Company and the Board of
Directors of the Holding Company authorized
distribution of this dividend to its shareholders
subject to certain restrictive covenants in the
instruments governing certain of Ralphs'
indebtedness that impose limitation on the
declarations or payment of dividends. The 1992
Credit Agreement was amended to allow the payment of
the dividend to the Holding Company for distribution
to the Holding Company's shareholders. The fee for
the amendment was approximately $500,000. The
dividend was distributed to the shareholders of the
Holding Company subsequent to the first quarter
1994.
Item 6. Exhibits and Reports on Form 8K
(a) Exhibits
For the exhibits incorporated by reference and
for the exhibits filed as part of this
Quarterly Report on Form 10-Q, see the
Exhibit Index appearing on page 11 hereof.
(b) Reports on Form 8-K.
Not applicable.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
RALPHS GROCERY COMPANY
(Registrant)
Date: June 8, 1994
------------
/s/ Alan J. Reed
____________________________
Alan J. Reed
Senior Vice President,
Chief Financial Officer
/s/ Jan Charles Gray
____________________________
Jan Charles Gray
Senior Vice President,
General Counsel and
Secretary
/s/ Robert W. Gossman
____________________________
Robert W. Gossman
Group Vice President,
Controller
10
<PAGE>
RALPHS GROCERY COMPANY
INDEX TO EXHIBITS
The following exhibits are incorporated herein by reference:
Exhibit Incorporated by
No. Description of Exhibit Reference
- ------- --------------------------------- ---------------
4.1 Indenture between Ralphs Grocery Exhibit 4.3 to
Company and United States Trust Registrant's
Company, as Trustee, dated as of Quarterly Report
July 29, 1992, with respect to the on Form 10-Q dated
10 1/4% Senior Subordinated Notes Sept. 1, 1992
due 2002. and filed on
Sept. 2, 1992.
4.2 Indenture between Ralphs Grocery Exhibit 4.1 to
Company and United States Trust Registration
Company, as Trustee, dated Statement No.
as of March 30, 1993 33-61812 on Form
(the "1993 Indenture"), with S-4.
respect to the Initial Notes
and Exchange Notes.
4.3 Form of Supplemental Indenture, Exhibit 4.2 to
dated as of June 23, 1993, to Registration
the 1993 Indenture. Statement No.
33-61812 on
Form S-4.
11
