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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: APRIL 23, 1995
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)
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<TABLE>
<S> <C>
DELAWARE 31-1241926
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1100 WEST ARTESIA BOULEVARD
COMPTON, CALIFORNIA 90220
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 884-9000
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 23, 1995-100.
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RALPHS GROCERY COMPANY
INDEX
PART I
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
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.............................................................. 10
Item 2. Changes in Securities.......................................................... 10
Item 3. Defaults upon Senior Securities................................................ 10
Item 4. Submission of Matters to a Vote of Security Holders............................ 10
Item 5. Other Information.............................................................. 10
Item 6. Exhibits and Reports of Form 8-K............................................... 10
SIGNATURES............................................................................... 11
INDEX TO EXHIBITS
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RALPHS GROCERY COMPANY
UNAUDITED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JANUARY 29, APRIL 23,
1995 1995
----------- ----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents......................................... $ 35,125 $ 30,920
Accounts receivable............................................... 43,597 33,610
Inventories....................................................... 221,388 219,035
Prepaid expenses and other current assets......................... 19,793 19,337
---------- ----------
Total current assets........................................... 319,903 302,902
Property, plant and equipment, net................................ 624,724 617,815
Excess of cost over net assets acquired, net...................... 365,418 362,880
Beneficial lease rights, net...................................... 49,164 47,989
Deferred debt issuance costs, net................................. 23,011 22,349
Deferred income taxes............................................. 112,491 112,927
Other assets...................................................... 15,203 15,668
---------- ----------
Total assets.............................................. $1,509,914 $1,482,530
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Current maturities of long-term debt.............................. $ 83,989 $ 85,425
Short-term debt................................................... 51,500 35,500
Bank overdrafts................................................... 45,669 37,676
Accounts payable.................................................. 130,889 129,402
Accrued expenses.................................................. 99,804 97,708
Current portion of self-insurance reserves........................ 27,552 27,972
---------- ----------
Total current liabilities........................................... 439,403 413,683
Long-term debt.................................................... 883,020 872,650
Self-insurance reserves........................................... 44,954 45,638
Lease valuation reserve........................................... 28,957 28,110
Other non-current liabilities..................................... 86,393 90,381
---------- ----------
Total liabilities................................................... 1,482,727 1,450,462
---------- ----------
Stockholder's equity:
Common stock, $1 par value per share Authorized 1,000 shares;
issued and outstanding, 100 shares at January 29, 1995 and
April 23, 1995................................................. -- --
Additional paid in capital........................................ 175,548 175,548
Accumulated deficit............................................... (148,361) (143,480)
---------- ----------
Total stockholder's equity.......................................... 27,187 32,068
---------- ----------
Total liabilities and stockholder's equity.......................... $1,509,914 $1,482,530
========== ==========
</TABLE>
(See accompanying notes to unaudited consolidated financial statements)
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RALPHS GROCERY COMPANY
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
12 WEEKS ENDED 12 WEEKS ENDED
APRIL 24, 1994 APRIL 23, 1995
----------------- -----------------
$ % $ %
------- ----- ------- -----
<S> <C> <C> <C> <C>
Sales................................................. 615,986 100.0 637,503 100.0
Cost of sales......................................... 474,317 77.0 490,410 76.9
------- ----- ------- -----
Gross profit........................................ 141,669 23.0 147,093 23.1
Selling, general and administrative expense......... 105,040 17.1 113,269 17.8
Amortization of excess of cost over net assets
acquired......................................... 2,538 0.4 2,538 0.4
------- ----- ------- -----
Operating income................................. 34,091 5.5 31,286 4.9
Other expenses:
Interest expense, net............................... 25,691 4.1 26,518 4.1
(Gain) loss on disposal of assets................... (6) -- (113) --
------- ----- ------- -----
Earnings before income taxes.......................... 8,406 1.4 4,881 0.8
Income tax expense.................................... -- -- -- --
------- ----- ------- -----
Net earnings.......................................... 8,406 1.4 4,881 0.8
======= ===== ======= =====
</TABLE>
(See accompanying notes to unaudited consolidated financial statements)
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RALPHS GROCERY COMPANY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
12 WEEKS ENDED 12 WEEKS ENDED
APRIL 24, 1994 APRIL 23, 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings................................................ $ 8,406 $ 4,881
Adjustments to reconcile net earnings to net cash provided
(used in) by operating activities:
Depreciation and amortization............................... 17,228 18,492
Amortization of discounts and deferred debt issuance
costs.................................................... 2,191 1,884
LIFO charge................................................. 637 645
(Gain) loss on sale of assets............................... (6) (113)
Provision for postretirement benefits....................... 607 680
Other changes in assets and liabilities:
Accounts receivable......................................... 6,163 9,987
Inventories at replacement cost............................. (1,832) 1,709
Prepaid expenses and other current assets................... (2,103) 456
Other assets................................................ (144) (513)
Interest payable............................................ 2,765 2,594
Accounts payable and accrued liabilities.................... (13,067) (1,086)
Deferred tax asset.......................................... (1,200) (436)
Self insurance reserves..................................... 1,988 1,103
Other liabilities........................................... (4,199) 2,238
-------- --------
Cash provided by operating activities......................... 17,434 42,521
-------- --------
Cash flows from investing activities:
Capital expenditures........................................ (13,900) (7,686)
Proceeds from sale of property, plant and equipment......... 5 6,586
-------- --------
Cash used in investing activities............................. (13,895) (1,100)
-------- --------
Cash flows from financing activities:
Capitalized financing and acquisition costs................. (295) (568)
Decrease in bank overdrafts................................. (10,130) (7,993)
Net borrowings under lines-of-credit........................ -- (16,000)
Dividends paid.............................................. -- --
Principal payments on long-term debts....................... (17,062) (21,065)
-------- --------
Cash used in financing activities............................. (27,487) (45,626)
Net decrease in cash and cash equivalents................... (23,948) (4,205)
Cash and cash equivalents at beginning of period............ 55,080 35,125
-------- --------
Cash and cash equivalents at end of period.................... $ 31,132 $ 30,920
======== ========
</TABLE>
(See accompanying notes to unaudited consolidated financial statements)
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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 23, 1995 and
the results of Ralphs' operations and cash flows for the twelve weeks ended
April 24, 1994, 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
<TABLE>
<CAPTION>
12 WEEKS ENDED 12 WEEKS ENDED
APRIL 24, 1994 APRIL 23, 1995
-------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Supplemental cash flow disclosure:
Interest paid, net of amounts capitalized..... $18,648 $20,247
Income taxes paid............................. $ 1,010 $ --
</TABLE>
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.
Supplemental schedule of noncash investing and financing activities:
Capital lease obligations of approximately $12.2 million and $3.6 million
were incurred for the respective twelve weeks ended April 23, 1995 and the
twelve weeks ended April 24, 1994 when the Company entered into lease agreements
for new equipment.
(3) PROVISION FOR INCOME TAXES
The provision for income taxes for the twelve weeks ended April 24, 1994
and the twelve weeks ended April 23, 1995 consists of the following:
<TABLE>
<CAPTION>
12 WEEKS ENDED
-----------------------
APRIL 24, APRIL 23,
1994 1995
--------- ---------
<S> <C> <C>
Federal Income Taxes..................................... $ 220 $ --
State Income Taxes....................................... 980 436
Adjustment to Valuation Allowance for Deferred Tax
Assets................................................. (1,200) (436)
------- -----
Total Income Tax Provision..................... $ -- $ --
======= =====
</TABLE>
4
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
TWELVE WEEKS ENDED APRIL 23, 1995 COMPARED WITH THE TWELVE WEEKS ENDED APRIL
24, 1994.
Sales
For the first quarter 1995 (the twelve weeks ended April 23, 1995), sales
were $637.5 million, an increase of $21.5 million or 3.5% from the first quarter
1994 (the twelve weeks ended April 24, 1994).
During the first quarter 1995, Ralphs opened two new stores (both in Los
Angeles County) and closed one store (in conjunction with a new store opening in
the same area).
Comparable store sales decreased 2.2%, which included an increase of 0.5%
for replacement store sales, from $614.8 million in the first quarter 1994 to
$601.1 million in the first quarter 1995. Ralphs' sales continued to be
adversely affected by the continuing softness of the economy in Southern
California, continuing competitive new store and remodeling activity and pricing
and promotional changes by competitors. Notwithstanding these factors,
comparable store sales in the second quarter 1995 (the twelve weeks ending July
16, 1995) are improving relative to recent years.
Ralphs continued to take steps to attempt to mitigate the impact of the
weak retailing environment in its markets, which included continuing its own new
store and remodeling program and the Ralphs Savings Plan initiated in February
1994, a 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 approximately 2,800 products provides value to the
customer. Ralphs continues to aggressively promote perishables through weekly ad
features and lower prices.
Cost of Sales
Cost of sales increased $16.1 million or 3.4% from $474.3 million in the
first quarter 1994 to $490.4 million in the first quarter 1995. As a percentage
of sales, cost of sales decreased to 76.9% in the first quarter 1995 from 77.0%
in the first quarter 1994. Increases in cost of sales were partially offset by
warehousing and distribution cost savings, the pass-through of increased
operating costs and increases in relative margins where allowed by competitive
conditions. In addition, in the first quarter 1994, credits were recognized due
to an overfunding to the United Food and Commercial Workers ("UFCW") health care
benefit plans based upon the collective bargaining agreement then currently in
force that reduced expenses in the first quarter 1994 compared to the first
quarter 1995.
Warehousing and distribution cost savings were mainly attributable to
Ralphs' automated storage and retrieval system warehouse (the "ASRS") and
perishable service center (the "PSC") facilities. The ASRS facility can hold
substantially more inventory and requires fewer employees to operate than does a
conventional warehouse of equal size. This facility has reduced Ralphs'
warehousing costs of non-perishable items markedly, enabling it to take
advantage of advance buying opportunities and minimize "out-of-stocks." Ralphs
engages in forward-buy purchases to take advantage of special prices or to delay
the impact of upcoming price increases by purchasing and warehousing larger
quantities of merchandise than immediately required. The PSC facility has
consolidated the operations of three existing facilities and holds more
inventory than the facilities it replaced, thereby reducing Ralphs' warehouse
distribution costs.
The Company believes that through achieving costs savings and applying
effective pricing policies both costs and gross margins can be improved.
However, given the highly competitive nature of the Southern California grocery
market, such cost and gross margin improvements cannot be assured.
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Selling, General and Administrative Expense
Selling, general and administrative expense increased $8.3 million or 7.9%
from $105.0 million in the first quarter 1994 to $113.3 million in the first
quarter 1995. As a percentage of sales, selling, general and administrative
expense increased from 17.1% in the first quarter 1994 to 17.8% in the first
quarter 1995. The increase in expense was primarily a result of increases in
union wage rates, increased rent expense resulting from additional new stores,
including fixture and equipment financing and credits recorded in the first
quarter 1994. In the first quarter 1994, credits were recognized due to an
overfunding to the UFCW health care benefit plans based upon the collective
bargaining agreement then currently in force. Also, in the first quarter 1994, a
business interruption credit was recorded due to the January 17, 1994 earthquake
in Southern California. These credits reduced expenses in the first quarter 1994
compared to the first quarter 1995. Increases in expense were partially offset
by the results of cost savings programs instituted by Ralphs.
Operating Income
Operating income in the first quarter 1995 decreased 8.2% to $31.3 million
from $34.1 million in the first quarter 1994. Operating margin, defined as
operating income as a percentage of sales, decreased in the first quarter 1995
to 4.9% from 5.5% in the first quarter 1994. EBITDA, defined as earnings before
interest, taxes, depreciation, amortization, provision for postretirement
benefits, gain/loss on disposal of assets, transition expense and LIFO charges,
decreased to 8.2% of sales or $52.3 million in the first quarter 1995 from 8.6%
of sales or $52.7 million in the first quarter 1994.
Interest Expense
Net interest expense for the first quarter 1995 was $26.5 million versus
$25.7 million for the first quarter 1994. Interest expense increased due to
increases in interest rates. Included as interest expense during the first
quarter 1995 was $23.2 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"), the $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 and amendments, the "1992 Credit Agreement"),
promissory notes to Metropolitan Life Insurance Company in the aggregate amount
of $174.7 million, interest on capitalized leases and expense related to a swap
agreement. Comparable interest expense for the first quarter 1994 was $21.9
million. Also included in interest expense for the first quarter 1995 period was
$3.3 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 $3.8 million for the first quarter 1994. Investment income, which is
immaterial, has been offset against interest expense.
During Fiscal 1992 the Company entered into an interest rate cap agreement
and an interest rate swap agreement. The interest rate cap agreement hedges the
interest rate in excess of 6.5% LIBOR on $105.0 million principal amount against
increases in the short-term rates. In addition, Ralphs entered into an interest
rate swap agreement on $150.0 million notional principal amount. Under the
interest rate swap agreement, Ralphs is required to pay interest based on LIBOR
at the end of each six month calculation period and Ralphs will receive interest
payments based on LIBOR at the beginning of each six month calculation period.
Net Earnings
For the first quarter 1995, Ralphs reported net earnings of $4.9 million
compared to net earnings of $8.4 million for the first quarter 1994. The
decrease in net earnings is primarily the result of decreased operating income
and higher interest expense due to increases in interest rates.
6
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Liquidity and Capital Resources
Ralphs' total long-term debt (including current maturities) at April 23,
1995 was $958.1 million. All mandatory principal reductions required by the
various agreements during the twelve weeks ended April 23, 1995 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 $110.8 million at April 23, 1995.
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 $35.5 million in short-term debt and $85.4 million in current maturities of
long-term debt. Ralphs' primary sources of liquidity during the twelve weeks
ended April 23, 1995 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 $42.5 million
for the twelve weeks ended April 23, 1995. Capital expenditures for the twelve
weeks ended April 23, 1995, was $7.7 million.
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. As of April 23,
1995, $45.2 million of letters of credit and $35.5 million in borrowings were
outstanding, with $39.3 million available under the working capital credit line.
The 1992 Credit Agreement requires Ralphs to reduce its working capital credit
line to zero for 30 consecutive days annually. The current annual period extends
from July 1, 1994 to June 30, 1995. The Company has not yet complied with this
annual covenant, however, a limited waiver and extension of this clean-down
requirement until September 30, 1995 has been granted by the Company's lenders.
At April 23, 1995, Ralphs is in compliance with all its 1992 Credit Agreement
restrictive covenants. The Company currently anticipates that it may be out of
compliance with certain other maintenance covenants at the end of the second
quarter 1995. The Company intends to seek the necessary waivers from its lenders
should these events of non-compliance ultimately occur, but there is no
assurance that such waivers will be granted, or, if granted, will be on terms
acceptable to the Company.
During the twelve weeks ended April 23, 1995, cash used in investing
activities was $1.1 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 $45.6 million for the
twelve weeks ended April 23, 1995. Reductions of capital lease obligations and
principal payments on long-term debt of $3.6 million and $21.1 million,
respectively, reduced cash flow.
During the twelve weeks ended April 23, 1995 cash provided from operating
activities of $42.5 million, cash used in investing activities of $1.1 million
and cash used in financing activities of $45.6 million, resulted in a net
decrease in cash and cash equivalents of $4.2 million at April 23, 1995 as
compared to January 29, 1995.
Merger Update
On September 14, 1994, Food 4 Less Supermarkets, Inc. ("Food 4 Less"), Food
4 Less Holdings, Inc. ("Holdings"), and the parent company of Holdings, Food 4
Less, Inc. ("FFL"), entered into a definitive
7
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Agreement and Plan of Merger (as amended from time to time, the "Merger
Agreement") with Ralphs Supermarkets, Inc. (the "Holding Company") and its
stockholders. Pursuant to the terms of the Merger Agreement, Food 4 Less will be
merged with and into Holding Company (the "RSI merger") and Holding Company will
continue as the surviving corporation. Food 4 Less is a multiple format
supermarket operator that operates in three geographic areas: Southern
California, Northern California and certain areas of the Midwest.
Immediately following the RSI merger, Ralphs Grocery Company ("RGC"), which
is currently a wholly-owned subsidiary of Holding Company, will merge with and
into Holding Company (the "RGC Merger," and together with the RSI Merger, the
"Merger"), and Holding Company will change its name to Ralphs Grocery Company
(the "New Company"). Prior to the Merger, FFL will merge with and into Holdings,
which will be the surviving corporation (the "FFL Merger"). Immediately
following the FFL Merger, Holdings will change its jurisdiction of incorporation
by merging with a newly-formed, wholly-owned subsidiary ("New Holdings"),
incorporated in Delaware (the "Reincorporation Merger"). As a result of the
Merger, the FFL Merger and the Reincorporation Merger, the New Company will
become a wholly-owned subsidiary of New Holdings. Agreement has been reached
with each of the California Attorney General and the Federal Trade Commission
for approval of the Merger. Food 4 Less and Ralphs have agreed in a settlement
agreement with the Attorney General to divest 27 specific stores in Southern
California. Under the agreement, the Company must divest 14 stores by June 30,
1995, and the balance of 13 stores by December 31, 1995. It is currently
contemplated that the Merger will close on or about June 14, 1995.
In order to consummate the Merger, Food 4 Less has made an Offer to
Exchange and Offer to Purchase and Solicit Consents with respect to the holders
of the 9% Senior Subordinated Notes (the "Old RGC 9% Notes") due April 1, 2003
of RGC and the 10 1/4% Senior Subordinated Notes due July 15, 2002 of RGC (the
"Old RGC 10 1/4% Notes," and together with the Old RGC 9% Notes, the "Old RGC
Notes") (i) to exchange (as so amended and restated, the "Exchange Offers") such
Old RGC Notes for New Senior Subordinated Notes due 2005 (the "New Notes") plus
a cash payment of $20.00 in cash for each $1,000 principal amount of Old RGC
Notes tendered for exchange or (ii) to purchase (the "Cash Offers," and together
with the Exchange Offers, the "Offers") Old RGC Notes for $1,010 in cash per
$1,000 principal amount of Old RGC Notes accepted for purchase, in each case,
plus accrued and unpaid interest to the date of exchange of purchase. The Offers
are subject to the terms and conditions set forth in an Amended and Restated
Prospectus and Solicitation Statement, filed by Food 4 Less with the Securities
and Exchange Commission (the "Prospectus"), including: (1) satisfaction of a
minimum tender amount (i.e., at least a majority of the aggregate principal
amount of the outstanding Old RGC Notes being validly tendered for exchange for
New Notes and not withdrawn pursuant to the Offers prior to the date of
expiration); (2) the receipt of the requisite consents to certain amendments to
the indentures (the "Indentures") under which the Old RGC Notes were issued
(i.e., consents from holders of Old RGC Notes representing at least a majority
in aggregate principal amount of each issue of Old RGC Notes held by persons
other than Ralphs and its affiliates) on or prior to the date of expiration; (3)
the satisfaction or waiver, in Food 4 Less' sole discretion, of all conditions
precedent to the Merger; (4) the prior or contemporaneous consummation of other
exchange offers, consent solicitations and public offerings contemplated by the
Prospectus; and (5) the prior or contemporaneous consummation of the bank
financing and the equity investment described in the Prospectus. As a result of
the RSI Merger and the RGC Merger, the New Notes and any outstanding Old RGC
Notes not tendered in the Offers will be the obligations of the New Company.
Conditions to the consummation of the RSI Merger include the receipt of
necessary consents and the completion of financing of the transaction. The
purchase price for Holding Company is approximately $1.5 billion, including the
assumption or repayment of debt. The consideration payable to the stockholders
of Holding Company consists of $375 million in cash, $131.5 million principal
amount of 13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 to be
issued to the selling shareholders of Holding Company (the "Seller Debentures")
by New Holdings and $18.5 million initial accreted value of 13 5/8% Senior
Discount Debentures due 2005 (the "New Discount Debentures"). New Holdings will
use $100 million of the cash received from a new equity investment (the "New
Equity Investment"), together with the Seller Debentures and the New Discount
Debentures, to acquire approximately 48% of the capital stock of Holding Company
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immediately prior to consummation of the RSI merger. New Holdings will then
contribute the $250 million of purchased shares of Holding Company stock to Food
4 Less, and pursuant to the RSI merger the remaining shares of Holding Company
stock will be acquired for $275 million in cash.
Standard & Poor's has publicly announced that, upon consummation of the
Merger, it intends to assign a new rating to the Old RGC Notes. Such new rating
assignments, if implemented, would constitute a Rating Decline pursuant to the
Indentures. The consummation of the Merger and the resulting change in
composition of the Board of Directors of RGC, together with the anticipated
Rating Decline, would constitute a Change of Control Triggering Event under the
Indentures. Although RGC does not anticipate that there will be a significant
amount of Old RGC Notes outstanding following consummation of the Exchange
Offers, upon such a Change of Control Triggering Event, the New Company would be
obligated to make the Change of Control Offer following the Merger for all
outstanding Old RGC Notes at 101% of the principal amount thereof plus accrued
and unpaid interest to the date of repurchase.
Due to the increased size, dual format strategy and integration related
costs, after giving effect to or in connection with the Merger, RGC believes
that its future operating results will not be directly comparable to the
historical operating results of RGC. Upon consummation of the Merger, the
operations and activities of RGC will be significantly impacted due to
conversions of some existing stores to Food 4 Less warehouse stores as well as
the consolidation of various operating functions and departments. This
consolidation is expected to result in a restructuring charge for the New
Company. The restructuring charge may be material in relation to the
stockholders' equity and financial position of RGC and the New Company.
Following the consummation of the Merger, the New Company will be highly
leveraged.
9
<PAGE> 12
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
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(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.
(b) Reports on Form 8-K.
Not applicable.
10
<PAGE> 13
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.
Date: June 7, 1995
------------------------
RALPHS GROCERY COMPANY
(Registrant)
/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
11
<PAGE> 14
RALPHS GROCERY COMPANY
INDEX TO EXHIBITS
The following exhibits are filed as a separate section of this report:
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NO. DESCRIPTION OF EXHIBIT NUMBERED PAGE
- ------- ---------------------- -------------
<S> <C> <C>
4.1 First Supplemental Indenture, dated as of May 30,
1995, to the Indenture between Ralphs Grocery
Company and United States Trust Company, as
Trustee, dated as of July 29, 1992 (the "1992
Indenture"), with respect to the 10 1/4% Senior
Subordinated Notes due 2002.
4.2 Second Supplemental Indenture, dated as of May 30,
1995, to the Indenture between Ralphs Grocery
Company and United States Trust Company, as
Trustee, dated as of March 30, 1993 (the "1993
Indenture"), with respect to the Initial Notes and
Exchange Notes.
</TABLE>
The following exhibits are incorporated herein by reference:
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED BY
NO. DESCRIPTION OF EXHIBIT NUMBERED PAGE
- ------- ---------------------- -------------
<S> <C> <C>
4.3 Indenture between Ralphs Grocery Company and Exhibit 4.3 to Registrant's
United States Trust Company, as Trustee, dated as Quarterly Report on Form 10-Q
of July 29, 1992, with respect to the 10 1/4% dated September 1, 1992 and
Senior Subordinated Notes due 2002. filed on September 2, 1992.
4.4 Indenture between Ralphs Grocery Company and Exhibit 4.1 to Registration
United States Trust Company, as Trustee, dated as Statement No. 33-61812 on Form
of March 30, 1993, with respect to the Initial S-4.
Notes and Exchange Notes.
4.5 Form of Supplemental Indenture, dated as of June Exhibit 4.2 to Registration
23, 1993, to the 1993 Indenture. Statement No. 33-61812 on Form
S-4.
</TABLE>
<PAGE> 1
EXHIBIT 4.1
RALPHS GROCERY COMPANY
ISSUER,
AND
UNITED STATES TRUST COMPANY OF
NEW YORK,
TRUSTEE
------------------------
FIRST SUPPLEMENTAL INDENTURE
DATED AS OF MAY 30, 1995
------------------------
10 1/4% SENIOR SUBORDINATED NOTES DUE 2002
<PAGE> 2
This FIRST SUPPLEMENTAL INDENTURE to the Indenture (as defined below) (the
"First Supplemental Indenture") is dated as of May 30, 1995, and is made by and
among Ralphs Grocery Company, a Delaware corporation (the "Company"), and United
States Trust Company of New York (the "Trustee").
RECITALS
A. Pursuant to an Indenture dated as of July 29, 1992 (the "Indenture"),
between the Company and the Trustee, the Company issued $300,000,000 in
aggregate principal amount of 10 1/4% Senior Subordinated Notes due 2002 (the
"Securities").
B. Capitalized terms used herein without definition shall have the
meanings assigned to them in the Indenture.
C. Pursuant to a definitive Agreement and Plan of Merger, dated as of
September 14, 1994 and amended on January 12, 1995, February 24, 1995 and April
26, 1995, by and among Food 4 Less, Inc., a Delaware corporation, Food 4 Less
Holdings, Inc., a California corporation, Food 4 Less Holdings, Inc., a Delaware
corporation, Food 4 Less Supermarkets, Inc., a Delaware corporation ("Food 4
Less"), Ralphs Supermarkets, Inc., a Delaware corporation ("RSI"), and the
stockholders of RSI, Food 4 Less will be merged with and into RSI and
immediately thereafter the Company, which is a wholly-owned subsidiary of RSI,
will merge with and into RSI and RSI will change its name to Ralphs Grocery
Company (together, the "Merger").
D. In connection with the Merger, Food 4 Less has filed a Registration
Statement on Form S-4 (File No. 33-56445) with the Securities and Exchange
Commission (the "Registration Statement") pursuant to which Food 4 Less has made
an offer to the holders of the Securities to exchange such Securities for
certain new Senior Subordinated Notes due June 1, 2005 or to purchase such
Securities for cash as described in such Registration Statement. Such offer, as
described in such Registration Statement, is referred to in this First
Supplemental Indenture as the "Offer." In connection with the Offer, Food 4 Less
has solicited consents to the amendments set forth below.
E. Section 902 of the Indenture provides that with the consent of the
Holders of not less than a majority in principal amount of the Outstanding
Securities, by Act of such Holders delivered to the Company and the Trustee, the
Company, when authorized by a Board Resolution, and the Trustee may enter into
one or more indentures supplemental thereto for the purpose of changing or
amending the Securities and the Indenture, as set forth below.
F. The Holders of not less than a majority in principal amount of the
Outstanding Securities having given their consent to the amendments set forth
below by Act delivered to the Company and the Trustee, and the Company having
been duly authorized by a Board Resolution, and the Trustee, having received an
Opinion of Counsel stating that the execution of this First Supplemental
Indenture is authorized or permitted by the Indenture, the Company and the
Trustee are authorized to execute and deliver this First Supplemental Indenture
pursuant to Article 9 of the Indenture.
G. All of the conditions and requirements necessary to make this First
Supplemental Indenture, when duly executed and delivered, a valid and binding
agreement, enforceable in accordance with its terms (subject to becoming
effective as provided in paragraph 3, below), have been performed and fulfilled.
NOW, THEREFORE, it is agreed as follows:
1. Pursuant to Section 902 of the Indenture and having received the written
consents of the Holders of at least a majority in principal amount of the
Outstanding Securities required thereby, the Indenture is amended, effective as
set forth in paragraph 3, below, as follows:
a. The covenant entitled "Limitation on Indebtedness", set forth in
Section 1007 of the Indenture, is hereby deleted in its entirety.
b. The covenant entitled "Limitation on Restricted Payments", set
forth in Section 1008 of the Indenture, is hereby deleted in its entirety.
1
<PAGE> 3
c. The covenant entitled "Transactions with Affiliates", set forth in
Section 1009 of the Indenture, is hereby deleted in its entirety.
d. The covenant entitled "Limitation on Liens Securing Subordinated
Indebtedness", set forth in Section 1010 of the Indenture, is hereby
deleted in its entirety.
e. The covenant entitled "Restrictions on Preferred Stock of
Subsidiaries", set forth in Section 1012 of the Indenture, is hereby
deleted in its entirety.
f. The covenant entitled "Limitation on Dividends and Other Payment
Restrictions Affecting Subsidiaries", set forth in Section 1013 of the
Indenture, is hereby deleted in its entirety.
g. Section 801(iii) of the Indenture under the covenant entitled
"Company May Consolidate, etc., Only on Certain Terms" is hereby deleted in
its entirety.
h. The following definition is hereby added to Section 101 of the
Indenture:
"New Credit Facility" means the senior bank facility pursuant to
which Bankers Trust Company has agreed, subject to certain conditions,
to provide up to $1,075 million of financing.
i. All definitions set forth in Section 101 of the Indenture that
relate to defined terms used solely in covenants or sections deleted hereby
are deleted in their entirety.
2. The parties hereto agree that the New Credit Facility shall be deemed to
constitute a refinancing of the credit facility made pursuant to the 1992 Credit
Agreement.
3. The amendments to the Indenture set forth in this First Supplemental
Indenture shall become effective only upon the acceptance by Food 4 Less of the
Securities that are validly tendered and not withdrawn pursuant to the Offer.
4. This instrument may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument, and any of
the parties hereto may execute the instrument by signing such counterpart.
2
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto caused this First Supplemental
Indenture to be signed and acknowledged by their respective officers thereunto
duly authorized and their respective corporate seals to be hereunto duly affixed
and attested, all as of the day and year first above written.
RALPHS GROCERY COMPANY
<TABLE>
<S> <C>
[Seal]
Attest:
/s/ JAN CHARLES GRAY
- ----------------------------------- -----------------------------------
By: Jan Charles Gray
Its: Senior Vice President, General
Counsel and Secretary
UNITED STATES TRUST COMPANY
OF NEW YORK
[Seal]
Attest:
/s/ CHRISTINE COLLINS
- ----------------------------------- -----------------------------------
By: Christine Collins
Its: Assistant Vice President
</TABLE>
3
<PAGE> 1
EXHIBIT 4.2
RALPHS GROCERY COMPANY
ISSUER,
AND
UNITED STATES TRUST COMPANY OF
NEW YORK,
TRUSTEE
------------------------
SECOND SUPPLEMENTAL INDENTURE
DATED AS OF MAY 30, 1995
------------------------
9% SENIOR SUBORDINATED NOTES DUE 2003
AND 9% SERIES B SENIOR SUBORDINATED NOTES DUE 2003
<PAGE> 2
This SECOND SUPPLEMENTAL INDENTURE to the Indenture (as defined below) (the
"Second Supplemental Indenture") is dated as of May 30, 1995, and is made by and
among Ralphs Grocery Company, a Delaware corporation (the "Company"), and United
States Trust Company of New York (the "Trustee").
RECITALS
A. Pursuant to an Indenture dated as of March 30, 1993 (the "Indenture"),
between the Company and the Trustee, the Company issued $150,000,000 in
aggregate principal amount of 9% Senior Subordinated Notes due 2003 (the
"Initial Securities").
B. Pursuant to the First Supplemental Indenture to the Indenture dated
June 23, 1993, between the Company and the Trustee, the Company consummated an
exchange offer for the Initial Securities whereby the Company offered to
exchange $1,000 principal amount of its 9% Series B Senior Subordinated Notes
due 2003 (the "Exchange Securities," and together with the Initial Securities,
the "Securities"), for each $1,000 principal amount of its Initial Securities.
C. Capitalized terms used herein without definition shall have the
meanings assigned to them in the Indenture.
D. Pursuant to a definitive Agreement and Plan of Merger, dated as of
September 14, 1994 and amended on January 12, 1995, February 24, 1995 and April
26, 1995, by and among Food 4 Less, Inc., a Delaware corporation, Food 4 Less
Holdings, Inc., a California corporation, Food 4 Less Holdings, Inc., a Delaware
corporation, Food 4 Less Supermarkets, Inc., a Delaware corporation ("Food 4
Less"), Ralphs Supermarkets, Inc., a Delaware corporation ("RSI"), and the
stockholders of RSI, Food 4 Less will be merged with and into RSI and
immediately thereafter the Company, which is a wholly-owned subsidiary of RSI,
will merge with and into RSI and RSI will change its name to Ralphs Grocery
Company (together, the "Merger").
E. In connection with the Merger, Food 4 Less has filed a Registration
Statement on Form S-4 (File No. 33-56445) with the Securities and Exchange
Commission (the "Registration Statement") pursuant to which Food 4 Less has made
an offer to the holders of the Securities to exchange such Securities for
certain new Senior Subordinated Notes due June 1, 2005 or to purchase such
Securities for cash as described in such Registration Statement. Such offer, as
described in such Registration Statement, is referred to in this Second
Supplemental Indenture as the "Offer." In connection with the Offer, Food 4 Less
has solicited consents to the amendments set forth below.
F. Section 902 of the Indenture provides that with the consent of the
Holders of not less than a majority in principal amount of the Outstanding
Securities, by Act of such Holders delivered to the Company and the Trustee, the
Company, when authorized by a Board Resolution, and the Trustee may enter into
one or more indentures supplemental thereto for the purpose of changing or
amending the Securities and the Indenture, as set forth below.
G. The Holders of not less than a majority in principal amount of the
Outstanding Securities having given their consent to the amendments set forth
below by Act delivered to the Company and the Trustee, and the Company having
been duly authorized by a Board Resolution, and the Trustee, having received an
Opinion of Counsel stating that the execution of this Second Supplemental
Indenture is authorized or permitted by the Indenture, the Company and the
Trustee are authorized to execute and deliver this Second Supplemental Indenture
pursuant to Article 9 of the Indenture.
H. All of the conditions and requirements necessary to make this Second
Supplemental Indenture, when duly executed and delivered, a valid and binding
agreement, enforceable in accordance with its terms (subject to becoming
effective as provided in paragraph 3, below), have been performed and fulfilled.
1
<PAGE> 3
NOW, THEREFORE, it is agreed as follows:
1. Pursuant to Section 902 of the Indenture and having received the written
consents of the Holders of at least a majority in principal amount of the
Outstanding Securities required thereby, the Indenture is amended, effective as
set forth in paragraph 3, below, as follows:
a. The covenant entitled "Limitation on Indebtedness", set forth in
Section 1007 of the Indenture, is hereby deleted in its entirety.
b. The covenant entitled "Limitation on Restricted Payments", set
forth in Section 1008 of the Indenture, is hereby deleted in its entirety.
c. The covenant entitled "Transactions with Affiliates", set forth in
Section 1009 of the Indenture, is hereby deleted in its entirety.
d. The covenant entitled "Limitation on Liens Securing Subordinated
Indebtedness", set forth in Section 1010 of the Indenture, is hereby
deleted in its entirety.
e. The covenant entitled "Restrictions on Preferred Stock of
Subsidiaries", set forth in Section 1012 of the Indenture, is hereby
deleted in its entirety.
f. The covenant entitled "Limitation on Dividends and Other Payment
Restrictions Affecting Subsidiaries", set forth in Section 1013 of the
Indenture, is hereby deleted in its entirety.
g. Section 801(iii) of the Indenture under the covenant entitled
"Company May Consolidate, etc., Only on Certain Terms" is hereby deleted in
its entirety.
h. The following definition is hereby added to Section 101 of the
Indenture:
"New Credit Facility" means the senior bank facility pursuant to
which Bankers Trust Company has agreed, subject to certain conditions,
to provide up to $1,075 million of financing.
i. All definitions set forth in Section 101 of the Indenture that
relate to defined terms used solely in covenants or sections deleted hereby
are deleted in their entirety.
2. The parties hereto agree that the New Credit Facility shall be deemed to
constitute a refinancing of the credit facility made pursuant to the 1992 Credit
Agreement.
3. The amendments to the Indenture set forth in this Second Supplemental
Indenture shall become effective only upon the acceptance by Food 4 Less of the
Securities that are validly tendered and not withdrawn pursuant to the Offer.
4. This instrument may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument, and any of
the parties hereto may execute the instrument by signing such counterpart.
2
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto caused this Second Supplemental
Indenture to be signed and acknowledged by their respective officers thereunto
duly authorized and their respective corporate seals to be hereunto duly affixed
and attested, all as of the day and year first above written.
RALPHS GROCERY COMPANY
<TABLE>
<S> <C>
[Seal]
Attest:
/s/ JAN CHARLES GRAY
- ----------------------------------- -----------------------------------
By: Jan Charles Gray
Its: Senior Vice President, General
Counsel and Secretary
UNITED STATES TRUST COMPANY
OF NEW YORK
[Seal]
Attest:
/s/ CHRISTINE COLLINS
- ----------------------------------- -----------------------------------
By: Christine Collins
Its: Assistant Vice President
</TABLE>
3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
CONSOLIDATED BALANCE SHEETS AND UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 12 WEEKS ENDED APRIL 23,
1995
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-28-1996
<PERIOD-END> APR-23-1995
<CASH> 30,920
<SECURITIES> 0
<RECEIVABLES> 33,610
<ALLOWANCES> 0
<INVENTORY> 219,035
<CURRENT-ASSETS> 302,902
<PP&E> 617,815<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,482,530
<CURRENT-LIABILITIES> 413,683
<BONDS> 872,650
<COMMON> 0
0
0
<OTHER-SE> 32,068
<TOTAL-LIABILITY-AND-EQUITY> 1,482,530
<SALES> 637,503
<TOTAL-REVENUES> 637,503
<CGS> 490,410
<TOTAL-COSTS> 490,410
<OTHER-EXPENSES> 115,807
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,518
<INCOME-PRETAX> 4,881
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,881
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,881
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>PP&E, net
</FN>
</TABLE>
