<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-Q
QUARTERLY REPORT
UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
_______________
<TABLE>
<S> <C>
For Quarter Ended Commission File Number
January 7, 1995 33-59212
</TABLE>
FOOD 4 LESS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
CALIFORNIA 95-4407768
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
<TABLE>
<S> <C>
777 South Harbor Boulevard
La Habra, California 90631
(Address of principal executive offices) (Zip code)
</TABLE>
(714) 738-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _____.
At February 14, 1995, there were 1,384,309 shares of Common Stock
outstanding. As of such date, none of the outstanding shares of Common Stock
was held by persons other than affiliates and employees of the registrant, and
there was no public market for the Common Stock.
===============================================================================
<PAGE> 2
FOOD 4 LESS HOLDINGS, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated balance sheets as of
January 7, 1995 and June 25, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated statements of operations for the 16 weeks ended
January 7, 1995 and January 8, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated statements of operations for the 28 weeks ended
January 7, 1995 and January 8, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated statements of cash flows for the 28 weeks ended
January 7, 1995 and January 8, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . 6
Consolidated statements of shareholders' equity (deficit) as of
January 7, 1995 and June 25, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Notes to consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . 9
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
1
<PAGE> 4
FOOD 4 LESS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
January 7, June 25,
ASSETS 1995 1994
------------ ------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 15,750 $ 32,996
Trade receivables, less allowances of $1,264
and $1,386 at January 7, 1995 and
June 25, 1994, respectively 25,992 25,039
Notes and other receivables 777 1,312
Inventories 223,261 212,892
Patronage receivables from suppliers 5,093 2,875
Prepaid expenses and other 12,542 6,323
------- -------
Total current assets 283,415 281,437
INVESTMENTS IN AND NOTES RECEIVABLE FROM
SUPPLIER COOPERATIVES:
A. W. G. 6,718 6,718
Certified and Others 5,694 5,984
PROPERTY AND EQUIPMENT:
Land 23,488 23,488
Buildings 24,148 12,827
Leasehold improvements 106,484 97,673
Store equipment and fixtures 153,538 148,249
Transportation equipment 32,363 32,259
Construction in progress 14,459 12,641
Leased property under capital leases 78,222 78,222
Leasehold interests 93,226 93,464
------- -------
525,928 498,823
Less: Accumulated depreciation and amortization 155,758 134,089
------- -------
Net property and equipment 370,170 364,734
OTHER ASSETS:
Deferred financing costs, less accumulated amortization
of $20,166 and $17,083 at January 7, 1995 and
June 25, 1994, respectively 25,529 28,536
Goodwill, less accumulated amortization of $38,113
and $33,945 at January 7, 1995 and
June 25, 1994, respectively 263,658 267,884
Other, net 29,438 24,787
------- -------
$984,622 $980,080
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
2
<PAGE> 5
FOOD 4 LESS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
January 7, June 25,
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) 1995 1994
------------ ------------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $164,981 $180,708
Accrued payroll and related liabilities 39,976 42,805
Accrued interest 7,454 5,474
Other accrued liabilities 60,619 53,910
Income taxes payable 689 2,000
Current portion of self-insurance liabilities 28,616 29,492
Current portion of long-term debt 22,290 18,314
Current portion of obligations under capital leases 3,634 3,616
------- -------
Total current liabilities 328,259 336,319
LONG-TERM DEBT 342,396 310,944
OBLIGATIONS UNDER CAPITAL LEASES 38,071 39,998
SENIOR SUBORDINATED DEBT 145,000 145,000
SENIOR DISCOUNT NOTES 64,541 58,997
DEFERRED INCOME TAXES 14,740 14,740
SELF-INSURANCE LIABILITIES AND OTHER 55,701 64,058
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $.01 par value, 1,600,000 shares
authorized; 1,384,309 shares and 1,381,782
shares issued at January 7, 1995 and June 25,
1994, respectively 14 14
Additional paid-in capital 105,460 105,182
Notes receivable from shareholders (702) (586)
Retained deficit (108,858) (94,586)
------- -------
Total shareholders' equity (deficit) (4,086) 10,024
------- -------
$984,622 $980,080
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
3
<PAGE> 6
FOOD 4 LESS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
16 Weeks 16 Weeks
Ended Ended
January 7, January 8,
1995 1994
------------ ------------
<S> <C> <C>
SALES $805,967 $ 799,597
COST OF SALES (including purchases from related parties for the
16 weeks ended January 7, 1995 and January 8, 1994 of
$58,202 and $58,453, respectively) 671,549 649,720
------- ---------
GROSS PROFIT 134,418 149,877
SELLING, GENERAL, ADMINISTRATIVE AND OTHER, NET 111,009 125,770
AMORTIZATION OF EXCESS COSTS OVER NET ASSETS ACQUIRED 2,381 2,360
RESTRUCTURING CHARGE 5,134 -
--------- ------------
OPERATING INCOME 15,894 21,747
INTEREST EXPENSE:
Interest expense, excluding amortization
of deferred financing costs 23,060 22,121
Amortization of deferred financing costs 1,784 1,709
--------- ----------
24,844 23,830
LOSS (GAIN) ON DISPOSAL OF ASSETS (1) 124
---------- -----------
LOSS BEFORE PROVISION (BENEFIT) FOR INCOME TAXES (8,949) (2,207)
PROVISION (BENEFIT) FOR INCOME TAXES (400) 400
----------- -----------
NET LOSS $ (8,549) $ (2,607)
============ ===========
LOSS PER COMMON SHARE $ (6.18) $ (1.89)
============ ===========
Average Number of Common Shares Outstanding 1,384,255 1,382,558
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE> 7
FOOD 4 LESS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
28 Weeks 28 Weeks
Ended Ended
January 7, January 8,
1995 1994
------------ ------------
<S> <C> <C>
SALES $1,404,665 $1,416,213
COST OF SALES (including purchases from related parties for the
28 weeks ended January 7, 1995 and January 8, 1994 of
$99,367 and $106,060, respectively) 1,167,205 1,153,989
--------- ---------
GROSS PROFIT 237,460 262,224
SELLING, GENERAL, ADMINISTRATIVE AND OTHER, NET 199,161 221,464
AMORTIZATION OF EXCESS COSTS OVER NET ASSETS ACQUIRED 4,168 4,132
RESTRUCTURING CHARGE 5,134 -
----------- -----------
OPERATING INCOME 28,997 36,628
INTEREST EXPENSE:
Interest expense, excluding amortization
of deferred financing costs 40,145 38,635
Amortization of deferred financing costs 3,083 2,948
--------- ---------
43,228 41,583
LOSS (GAIN) ON DISPOSAL OF ASSETS (459) 87
---------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES (13,772) (5,042)
PROVISION FOR INCOME TAXES 500 700
--------- ---------
NET LOSS $ (14,272) $ (5,742)
=========== ==========
LOSS PER COMMON SHARE $ (10.32) $ (4.15)
=========== ==========
Average Number of Common Shares Outstanding 1,383,170 1,383,127
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE> 8
FOOD 4 LESS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
28 Weeks 28 Weeks
Ended Ended
January 7, January 8,
1995 1994
------------ ------------
<S> <C> <C>
CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Cash received from customers $1,404,665 $1,416,213
Cash paid to suppliers and employees (1,389,667) (1,361,103)
Interest paid (32,621) (29,178)
Income taxes refunded (paid) (1,811) 1,652
Interest received 836 486
Other, net 583 2,388
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (18,015) 30,458
CASH PROVIDED (USED) BY INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 7,120 12,307
Payment for purchase of property and equipment (39,049) (20,404)
Other, net (907) 61
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (32,836) (8,036)
CASH PROVIDED (USED) BY FINANCING ACTIVITIES:
Payments of long-term debt (13,272) (10,395)
Payments of capital lease obligation (1,909) (1,565)
Net change in Revolving Loan 48,700 (4,900)
Proceeds from issuance of debt - 28
Sale (purchase) of treasury stock, net 92 (726)
Other, net (6) (161)
--------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 33,605 (17,719)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (17,246) 4,703
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 32,996 25,089
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 15,750 $ 29,792
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
6
<PAGE> 9
FOOD 4 LESS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
28 Weeks 28 Weeks
Ended Ended
January 7, January 8,
1995 1994
------------ ------------
<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED (USED) BY OPERATING ACTIVITIES:
Net loss $(14,272) $(5,742)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 33,878 33,320
Accretion of senior discount notes 5,544 4,721
Restructuring charge 5,134 -
Loss (gain) on sale of assets (459) 87
Change in assets and liabilities:
Accounts and notes receivable (2,725) (9,568)
Inventories (10,369) (16,106)
Prepaid expenses and other (9,097) (5,659)
Accounts payable and accrued liabilities (20,228) 23,752
Self-insurance liabilities (4,110) 3,301
Deferred income taxes - 1,714
Income taxes payable (1,311) 638
------ ------
Total adjustments (3,743) 36,200
------ ------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $(18,015) $30,458
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
7
<PAGE> 10
FOOD 4 LESS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Common Stock
-------------------
Number Share- Add'l Total
of holders' Paid-In Retained Shareholders'
Shares Amount Notes Capital Deficit Equity (Deficit)
------ ------ --------- ------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT JUNE 25, 1994 1,381,782 $14 $(586) $105,182 $(94,586) $10,024
Payment of Shareholders' Notes
(unaudited) - - 70 - - 70
Issuance of Common Stock
(unaudited) 3,644 - (191) 340 - 149
Purchase of Common Stock
(unaudited) (1,117) - 5 (62) - (57)
Net loss
(unaudited) - - - - (14,272) (14,272)
--------- --- ----- -------- --------- -------
BALANCES AT JANUARY 7, 1995
(unaudited) 1,384,309 $14 $(702) $105,460 $(108,858) $(4,086)
========= === ===== ======== ========= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
8
<PAGE> 11
FOOD 4 LESS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated balance sheet of Food 4 Less Holdings, Inc.
("Holdings" or, together with its subsidiaries, the "Company") as of
January 7, 1995 and the consolidated statements of operations and cash
flows for the interim periods ended January 7, 1995 and January 8,
1994 are unaudited, but include all adjustments (consisting of only
normal recurring accruals) which the Company considers necessary for a
fair presentation of its consolidated financial position, results of
operations and cash flows for these periods. These interim financial
statements do not include all disclosures required by generally
accepted accounting principles, and, therefore, should be read in
conjunction with the Company's financial statements and notes thereto
included in the Company's latest annual report filed on Form 10-K.
Results of operations for interim periods are not necessarily
indicative of the results for a full fiscal year.
Holdings is a nonoperating holding company formed for the
purpose of issuing 15.25% Senior Discount Notes due 2004 (the "Notes")
and 121,118 Common Stock Purchase Warrants (the "Warrants").
The Company's subsidiary, Food 4 Less Supermarkets, Inc.
("Supermarkets"), is a vertically integrated supermarket company with
266 stores located in Southern California, Northern California and
certain areas of the midwest. The Company's Southern California
division includes a manufacturing facility, with bakery and creamery
operations, and a full-line warehouse and distribution facility.
2. SIGNIFICANT ACCOUNTING POLICIES
Inventories
Inventories, which consist of grocery products, are stated at
the lower of cost or market. Cost has been principally determined
using the last-in, first-out ("LIFO") method. If inventories had been
valued using the first-in, first-out ("FIFO") method, inventories
would have been higher by $16.2 million and $13.8 million at January
7, 1995 and June 25, 1994, respectively, and gross profit and
operating income would have been greater by $1.4 million and $1.2
million for the 16 weeks ended January 7, 1995 and January 8, 1994,
respectively, and by $2.4 million and $2.2 million for the 28 weeks
ended January 7, 1995 and January 8, 1994, respectively.
Income Taxes
The Company provides for deferred income taxes under an asset
and liability approach in accordance with Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), Accounting for Income
Taxes. SFAS 109 requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax
returns. In estimating future tax consequences, SFAS 109 generally
considers all expected future events other than enactments of changes
in the tax law or rates.
3. RESTATEMENT
The Company has restated the statement of operations for the
16 and 28 weeks ended January 8, 1994 to classify certain buying,
occupancy and labor costs associated with making its products
available for sale as cost of sales. These amounts were previously
classified as selling, general, administrative, and other, net, and
depreciation and amortization of property and equipment, and totalled
$63.4 million and $114.3 million for the 16 and 28 weeks ended January
8, 1994, respectively. The Company has also classified a portion of
its self-insurance cost as interest expense that was previously
recorded in selling, general, administrative and other, net. This
amount was $1.9 million and $3.3 million for the 16 and 28 weeks ended
January 8, 1994, respectively. Depreciation and amortization costs
not classified in cost of sales are included in selling, general,
administrative and other, net. The change in classifications did not
affect the net loss, loss before provision for income taxes, or loss
per common share.
9
<PAGE> 12
4. RALPHS MERGER
On September 14, 1994, Holdings, Supermarkets, and Food 4
Less, Inc. ("FFL") entered into a definitive Agreement and Plan of
Merger (the "Merger") with Ralphs Supermarkets, Inc. ("Ralphs") and
the stockholders of Ralphs. Pursuant to the terms of the Merger
agreement, Supermarkets will, subject to certain terms and conditions
being satisfied or waived, be merged into Ralphs and Ralphs will
become a wholly-owned subsidiary of Holdings. Supermarkets and Ralphs
have reached an agreement with the California Attorney General under
which Supermarkets and Ralphs, on a combined basis, will be required
to sell 27 stores to other food retailers. In addition, the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
has expired and the Federal Trade Commission has advised the Company
that it has closed its investigation of the Merger. Conditions to the
consummation of the Merger include, among other things, the completion
of financing for the transaction and the receipt of other necessary
consents. The purchase price for Ralphs is approximately $1.5
billion, including the assumption of debt. In connection with the
Merger, FFL will merge into Holdings and Holdings will change its
jurisdiction by merging into a newly formed Delaware corporation ("New
Holdings").
The aggregate purchase price, payable to the stockholders of
Ralphs in connection with the Merger, consists of $425 million in cash
and $100 million initial principal amount of 13% Senior Subordinated
Pay-in Kind Debentures due 2006 issued by New Holdings. In addition,
the Company will enter into an agreement with a stockholder of Ralphs
pursuant to which such stockholder will act as a consultant to the
Company with respect to certain real estate and general commercial
matters for a period of five years from the closing of the Merger in
exchange for the payment of a consulting fee.
The financing required to complete the Merger will include the
issuance of significant additional equity by New Holdings, the
issuance of new debt securities by New Holdings and Supermarkets and
the incurrence of additional bank financing by Supermarkets. The
equity issuance would be made to a group of investors led by Apollo
Advisors, L.P., which has committed to purchase up to $150 million in
New Holdings stock. It is presently anticipated that the issuance of
new debt securities would be in the form of senior notes of
Supermarkets up to $400 million. The bank financing would be made
pursuant to a commitment by Bankers Trust Company to provide up to
$1,075 million in such financing. In connection with the receipt of
new financing, Holdings and Supermarkets will also be required to
complete certain exchange offers, consent solicitations and or other
transactions with the holders of theirs and Ralphs' currently
outstanding debt securities.
As of October 9, 1994, Ralphs had outstanding indebtedness of
approximately $1,001 million. Ralphs had sales of $2,730 million,
operating income of $152.1 million and earnings before income taxes of
$30.3 million for its most recent reported fiscal year ended January
30, 1994.
Upon consummation of the Merger, the operations and activities
of the Company will be significantly impacted due to conversions of
the Company's existing Southern California conventional stores to
either Ralphs or Food 4 Less warehouse stores as well as the
consolidation of various operating functions and departments. This
consolidation may result in an additional restructuring charge. The
amount of the additional restructuring charge is not presently
determinable due to various factors, including uncertainties inherent
in the completion of the Merger; however, the restructuring charge may
be material in relation to the stockholder's equity and financial
position of the Company at January 7, 1995.
5. RESTRUCTURING CHARGE
The Company has converted 11 of its conventional supermarkets
to warehouse stores. During the 28 weeks ended January 7, 1995, the
Company recorded a restructuring charge for the write-off of property
and equipment at the 11 stores of $5.1 million.
10
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (UNAUDITED)
General
Holdings was incorporated in California on December 8, 1992 for the
purpose of issuing $103.6 million aggregate principal amount of the Notes and
121,118 Warrants and contributing the gross proceeds of $50.0 million therefrom
to Supermarkets in exchange for preferred and common stock. Concurrently, with
the issuance of the Notes, Supermarkets became a wholly-owned subsidiary of
Holdings. Holdings does not have any business operations of its own and its
assets consist solely of all the outstanding capital stock of Supermarkets.
Comparison of Results of Operations
The following table sets forth the selected unaudited operating
results of the Company for the 16 and 28 weeks ended January 7, 1995 and
January 8, 1994:
<TABLE>
<CAPTION>
16 Weeks Ended 28 Weeks Ended
-------------- --------------
January 7, 1995 January 8, 1994 January 7, 1995 January 8, 1994
--------------- --------------- --------------- ---------------
(dollars in millions)
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $806.0 100.0 % $799.6 100.0 % $1,404.7 100.0 % $1,416.2 100.0 %
Gross profit 134.4 16.7 % 149.9 18.7 % 237.5 16.9 % 262.2 18.5 %
Selling, general, administrative and
other, net 111.0 13.8 % 125.8 15.7 % 199.2 14.2 % 221.5 15.6 %
Amortization of excess costs over
net assets acquired 2.4 0.3 % 2.4 0.3 % 4.2 0.3 % 4.1 0.3 %
Restructuring charge 5.1 0.6 % 0.0 0.0 % 5.1 0.4 % 0.0 0.0 %
Operating income 15.9 2.0 % 21.7 2.7 % 29.0 2.0 % 36.6 2.6 %
Interest expense 24.8 3.1 % 23.8 2.9 % 43.2 3.0 % 41.5 2.9 %
Loss (gain) on disposal of assets 0.0 0.0 % 0.1 0.0 % (0.5) 0.0 % 0.1 0.0 %
Provision (benefit) for income taxes 0.4 0.0 % 0.4 0.1 % 0.5 0.0 % 0.7 0.1 %
Net loss (8.5) (1.1)% (2.6) (0.3)% (14.3) (1.0)% (5.7) (0.4)%
</TABLE>
Sales. Sales per week increased $0.4 million, or 0.8%, from $50.0
million in the 16 weeks ended January 8, 1994 to $50.4 million in the 16 weeks
ended January 7, 1995 and decreased $0.4 million, or 0.8%, from $50.6 million
in the 28 weeks ended January 8, 1994 to $50.2 million in the 28 weeks ended
January 7, 1995. The increase in sales for the 16 weeks ended January 7,1995
resulted primarily from new and acquired stores opened since January 8, 1994,
partially offset by a comparable store sales decline of 3.5%. The decline in
sales for the 28 weeks ended January 7, 1995 resulted primarily from a 4.5%
decline in comparable store sales, partially offset by sales from new and
acquired stores opened since January 8, 1994. Management believes that the
decline in comparable store sales is attributable to the weak economy in
Southern California and, to a lesser extent, in the Company's other operating
areas, and competitive store openings and remodels in Southern California.
Gross Profit. Gross profit decreased as a percentage of sales from
18.7% in the 16 weeks ended January 8, 1994 to 16.7% in the 16 weeks ended
January 7, 1995 and decreased from 18.5% in the 28 weeks ended January 8, 1994
to 16.9% in the 28 weeks ended January 7, 1995. Decreases in gross profit
margin were primarily attributable to pricing and promotional activities
related to the Company's "Total Value Pricing" program and an increase in the
number of warehouse format stores (which have lower gross margins resulting
from prices that are generally 5-12% below the prices in the Company's
conventional stores) from 48 at January 8, 1994 to 87 at January 7, 1995. The
decrease in the gross profit margin was partially offset by improvements in
product procurement.
Selling, General, Administrative and Other, Net. Selling, general,
administrative and other expenses ("SG&A") were $125.8 million and $111.0
million for the 16 weeks and $221.5 million and $199.2 million for the 28 weeks
ended January 8, 1994 and January 7, 1995, respectively. SG&A decreased as a
percentage of sales from 15.7% to 13.8% and from 15.6% to 14.2% for the same
periods. The Company experienced a reduction of workers' compensation and
general liability self-insurance
11
<PAGE> 14
costs of $6.1 million and $9.7 million in the 16 and 28 weeks ended January 7,
1995, respectively, due to continued improvement in the cost and frequency of
claims. The improved experience was due primarily to cost control programs
implemented by the Company, including awards for stores with the best loss
experience, specific achievable goals for each store, and increased monitoring
of third-party administrators. In addition, the Company maintained tight
control of administrative expenses and store level expenses, including payroll
(due primarily to increased productivity), advertising, and other controllable
store expenses. Because the Company's warehouse stores have lower SG&A than
conventional stores, the increase in the number of warehouse stores, from 48 at
January 8, 1994 to 87 at January 7, 1995, also contributed to decreased SG&A.
The Company participates in multi-employer health and welfare plans
for its store employees who are members of the United Food and Commercial
Workers Union ("UFCW"). As part of the renewal of the Southern California UFCW
contract in October 1993, employers contributing to UFCW health and welfare
plans are to receive a pro rata share of the excess reserves in the plans
through a reduction of current employer contributions. The Company's share of
the excess reserves was $24.2 million, of which the Company recognized $8.4
million in fiscal 1994 and $9.0 million and $13.7 million in the 16 and 28
weeks ended January 7, 1995, respectively. The remainder of the excess
reserves will be recognized as the credits are taken in the future.
On August 28, 1994, the Teamsters and the Company ratified a new
contract which, among other things, provided for the vesting of sick pay
benefits resulting in a one-time charge of $2.1 million.
Restructuring Charge. The Company has converted 11 of its
conventional supermarkets to warehouse stores. During the 28 weeks ended
January 7, 1995, the Company recorded a restructuring charge for the write-off
of property and equipment at the 11 stores of $5.1 million.
Interest Expense. Interest expense (including amortization of
deferred financing costs) was $23.8 million and $24.8 million for the 16 weeks
and $41.5 million and $43.2 million for the 28 weeks ended January 8, 1994 and
January 7, 1995, respectively. The increase in interest expense was due
primarily to higher interest rates on the Term Loan and Revolving Credit
Facility combined with increased indebtedness under the Senior Discount Notes
and the $70 million Revolving Credit Facility, partially offset by the
reduction of indebtedness under the Term Loan as a result of amortization
payments.
Net Loss. Primarily as a result of the factors discussed above, net
loss increased from $2.6 million in the 16 weeks ended January 8, 1994 to $8.5
million in the 16 weeks ended January 7, 1995 and from $5.7 million in the 28
weeks ended January 8, 1994 to $14.3 million in the 28 weeks ended January 7,
1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations, amounts available under the Revolving
Credit Facility and leases are the Company's principal sources of liquidity.
The Company believes that these sources will be adequate to meet its
anticipated capital expenditures, working capital needs and debt service
requirements during fiscal 1995. However, there can be no assurance that the
Company will continue to generate cash flow from operations at historical
levels or that it will be able to make future borrowings under the Revolving
Credit Facility.
The Merger, which is subject to, among other things, the completion of
the financing for the transaction and the receipt of other necessary consents,
will require the issuance of significant additional equity by New Holdings, the
issuance of new debt securities by New Holdings and Supermarkets and the
incurrence of additional bank financing by Supermarkets. The equity issuance
would be made to a group of investors led by Apollo Advisors, L.P., which has
committed to purchase up to $150 million in New Holdings stock. It is
presently anticipated that the issuance of new debt securities would be in the
form of senior notes of Supermarkets up to $400 million. The bank financing
would be made pursuant to a commitment by Bankers Trust Company to provide up
to $1,075 million in such financing. In connection with the receipt of new
financing, Holdings and Supermarkets will be required to complete certain
exchange offers, consent solicitations and/or other transactions with the
holders of the currently outstanding debt securities. The transaction will
also require the assumption of approximately $160 million of other existing
indebtedness of Ralphs. The proceeds of the foregoing financings will be used
to acquire the outstanding stock of Ralphs, to repay certain existing
indebtedness, and to pay fees and expenses in connection with the Merger and
related transactions. The Ralphs purchase price is approximately $1.5 billion,
including the assumption or repayment of debt. The consideration payable to
the stockholders of Ralphs consists of $425 million in cash and $100 million
initial principal amount of 13% Senior Subordinated Pay-in-Kind Debentures due
2006 to be issued by New Holdings. In addition, the Company will enter into an
agreement with a stockholder of Ralphs pursuant to which such stockholder will
act as a consultant to the Company with
12
<PAGE> 15
respect to certain real estate and general commercial matters for a period of
five years from the closing of the Merger in exchange for the payment of a
consulting fee. (See "Note 4 -- Ralphs Merger")
During the 28-week period ended January 7, 1995, the Company used
approximately $18.0 million of cash for its operating activities compared to
cash provided by operating activities of $30.5 million for the 28 weeks ended
January 8, 1994. The decrease in cash from operating activities is due
primarily to changes in operating assets and liabilities for the 28 weeks ended
January 7, 1995. The Company's principal use of cash in its operating
activities is inventory purchases. The Company's high inventory turnover
allows it to finance a substantial portion of its inventory through trade
payables, thereby reducing its short-term borrowing needs. At January 7, 1995,
this resulted in a working capital deficit of $45.4 million.
Cash used for investing activities was $32.8 million for the 28 weeks ended
January 7, 1995. Investing activities consisted primarily of capital
expenditures of $39.0 million, partially offset by $6.5 million of
sale/leaseback transactions. The capital expenditures, net of the proceeds
from sale/leaseback transactions, were financed primarily from cash provided by
financing activities.
The capital expenditures discussed above were made to build or acquire
20 new stores (13 of which have opened) and convert 11 conventional stores to
the warehouse format (all of which have been completed). The Credit Agreement
has been amended to, among other things, allow for the acceleration of the
capital expenditures and other costs associated with the conversion of stores
to the warehouse format. The Company currently anticipates that its aggregate
capital expenditures for fiscal 1995 will be approximately $67.6 million.
Consistent with its past practices, the Company intends to finance these
capital expenditures primarily with cash provided by operations and through
leasing transactions. At January 7, 1995, the Company had approximately $4.0
million of unused equipment leasing facilities. No assurance can be given that
sources of financing for capital expenditures will be available or sufficient.
However, the capital expenditure program has substantial flexibility and is
subject to revision based on various factors, including business conditions,
changing time constraints and cash flow requirements. Management believes that
if the Company were to substantially reduce or postpone these programs, there
would be no substantial impact on short-term operating profitability. However,
management also believes that the construction of warehouse format stores is an
important component of its operating strategy. In the long term, if these
programs were substantially reduced, management believes its operating
businesses, and ultimately its cash flow, would be adversely affected. The
capital expenditures discussed above do not include potential acquisitions,
including the Merger or the related costs of converting additional stores,
which the Company could make to expand within its existing markets or to enter
other markets. The Company has grown through acquisitions in the past and from
time to time engages in discussions with potential sellers of individual
stores, groups of stores or other retail supermarket chains.
Cash provided by financing activities was $33.6 million for the 28
weeks ended January 7, 1995, which was primarily the $48.7 million of
borrowings outstanding on the $70 million Revolving Credit Facility at January
7, 1995 partially offset by a $11.3 million repayment of the Term Loan. At
January 7, 1995, $48.1 million of standby letters of credit had been issued
under the $55 million Letter of Credit Facility.
The Company is highly leveraged. At January 7, 1995, the Company's
total long-term indebtedness (including current maturities) and stockholder's
deficit were $615.9 million and $4.1 million, respectively.
EFFECTS OF INFLATION AND COMPETITION
The Company's primary costs, inventory and labor, are affected by a
number of factors that are beyond its control, including availability and price
of merchandise, the competitive climate and general and regional economic
conditions. As is typical of the supermarket industry, the Company has
generally been able to maintain margins by adjusting its retail prices, but
competitive conditions may from time to time render it unable to do so while
maintaining its market share.
13
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
19.1 Sixth Modification Agreement to the Credit Agreement
dated as of November 22, 1994 by and among
Supermarkets, Alpha Beta Company, Cala Foods, Inc.,
Falley's, Inc. and Food 4 Less Merchandising, Inc. as
Borrowers, Citicorp North America, Inc., Bankers
Trust Company and Chemical Bank (successor in
interest to Manufacturers Hanover Trust Company) as
Co-Agents, Citicorp North America, Inc. as
Administrative Agent and the Required Lenders and
other Loan Parties, all as identified therein.
19.2 Seventh Modification Agreement to the Credit
Agreement dated as of January 23, 1995 by and among
Supermarkets, Alpha Beta Company, Cala Foods, Inc.,
Falley's, Inc. and Food 4 Less Merchandising, Inc. as
Borrowers, Citicorp North America, Inc., Bankers
Trust Company and Chemical Bank (successor in
interest to Manufacturers Hanover Trust Company) as
Co-Agents, Citicorp North America, Inc. as
Administrative Agent and the Required Lenders and
other Loan Parties, all as identified therein.
27. Financial Data Schedule
(b) Reports on Form 8-K
None
14
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned, thereunto duly authorized, in the County of Orange, State of
California.
Dated: February 20, 1995 FOOD 4 LESS HOLDINGS, INC.
/s/ Ronald W. Burkle
--------------------------
Ronald W. Burkle
Chief Executive Officer
/s/ Greg Mays
--------------------------
Greg Mays
Chief Financial Officer
15
<PAGE> 1
Exhibit 19.1
SIXTH MODIFICATION AGREEMENT
This SIXTH MODIFICATION AGREEMENT, dated as of November 22, 1994, is
made by and among (i) Food 4 Less Supermarkets, Inc., a Delaware corporation
("Supermarkets"), (ii) Alpha Beta Company, a California corporation ("Alpha
Beta"), Cala Foods, Inc., a California corporation ("Cala"), Falley's, Inc., a
Kansas corporation ("Falley's"), and Food 4 Less Merchandising, Inc., a
California corporation (together with Alpha Beta, Cala and Falley's, the
"Subsidiary Borrowers"), (iii) Bay Area Warehouse Stores, Inc., a California
corporation, Bell Markets, Inc., a California corporation, Cala Co., a Delaware
corporation, Food 4 Less GM, Inc., a California corporation, Food 4 Less of
California, Inc., a California corporation, and Food 4 Less of Southern
California, Inc., a Delaware corporation (together with Supermarkets and the
Subsidiary Borrowers, the "Loan Parties"), (iv) the Lender Parties (as defined
in the Credit Agreement referred to below) whose signatures appear on the
execution pages hereof, (v) Bankers Trust Company, Citicorp North America, Inc.
("Citicorp") and Chemical Bank (successor in interest to Manufacturers Hanover
Trust Company), as co-agents for the Lender Parties (in such capacity, the
"Co-Agents"), and (vi) Citicorp, as administrative agent for the Lender Parties
(in such capacity, the "Administrative Agent").
PRELIMINARY STATEMENTS:
(1) Supermarkets, the Subsidiary Borrowers, the Lenders, the
Designated Issuers of the Lenders, the Co-Agents and the Administrative Agent
have entered into a Credit Agreement dated as of June 17, 1991, as amended by
the First Modification Agreement dated as of January 24, 1992, the Second
Modification Agreement dated as of April 13, 1992, the Third Modification
Agreement dated as of September 15, 1992, the Fourth Modification Agreement
dated as of October 9, 1992 and the Fifth Modification Agreement dated as of
December 21, 1992 (as so amended, the "Credit Agreement"). Unless otherwise
defined herein, terms defined in the Credit Agreement are used herein as
therein defined.
(2) The Borrower has requested that the Required Lenders agree to
amend certain provisions of the Credit Agreement as set forth herein to provide
for the issuance by the Borrower of Notes in registered form. The undersigned
Lender Parties have agreed to do so as hereinafter set forth upon the terms and
conditions set forth below.
SECTION 1. Amendments to Credit Agreement. Subject to the fulfillment
of the conditions set forth in Section 2 hereof, the Credit Agreement is hereby
amended as follows:
1
<PAGE> 2
(a) Section 1.01 of the Credit Agreement is amended by adding the
following definitions:
"'Non-U.S. Lender' has the meaning set forth in Section 2.05(d)."
"'Notes' means any promissory notes (including, without
limitation, Registered Notes) delivered by any of the Borrowers
pursuant to Section 2.05."
"'Registered Note' means a Note that has been issued in
registered form pursuant to Section 2.05(d)."
"'U.S. Person' means any Person that is created or organized
under the laws of the United States of America or any State thereof,
or any estate or trust that is subject to United States Federal income
taxation regardless of the source of its income."
"'U.S. Taxes' means any present or future tax, assessment or
other charge or levy imposed by or on behalf of the United States of
America or any taxing authority thereof."
(b) Section 2.05 of the Credit Agreement is amended by adding at
the end thereof a new subsection (d) to read as follows:
"(d) Any Lender that is not a U.S. Person (each such Person
being a 'Non-U.S. Lender') and that could become completely exempt
from withholding of U.S. Taxes in respect to payment of the
Obligations due to such Lender hereunder relating to its Term Advances
if the Note or Notes evidencing its Term Advances were in registered
form for United States Federal income tax purposes, may request, in a
notice to Supermarkets and the Agent, (i) the exchange of such
Non-U.S. Lender's Note or Notes evidencing its Term Advances for a
Registered Note or Registered Notes (in which case Supermarkets agrees
to promptly thereafter exchange such Note or Notes for a Registered
Note or Registered Notes), or (ii) if Supermarkets has not previously
issued a Note or Notes evidencing such Non-U.S. Lender's Term
Advances, the issuance of a Registered Note or Registered Notes to
evidence its Term Advances (in which event Supermarkets agrees to
promptly thereafter issue such Registered Note or Registered Notes)
(which Notes in either such case shall be in substantially the form of
Exhibit L-1, except that it shall be legended on the face thereof as a
'Registered Note' and shall be made payable to such Non-U.S. Lender or
its registered assigns). Registered Notes may not be exchanged for
Notes that are not in registered form."
(c) Section 4.07 (e) of the Credit Agreement is amended by
inserting the following after the first sentence thereof:
2
<PAGE> 3
"If a Lender Party provides a form specified in clause (iii)
above, such Lender Party shall deliver to Supermarkets an annual
certificate stating that (A) such Lender Party is not a 'bank' within
the meaning of Section 881(c)(3)(A) of the Internal Revenue Code and
(ii) such Lender Party shall promptly notify Supermarkets after it
obtains knowledge that any fact set forth in such form or certificate
ceases to be true and correct or if it otherwise determines that it is
no longer in a position to provide such form or certificate to
Supermarkets."
(d) Section 10.09 of the Credit Agreement is amended as follows:
(i) By inserting after the last parenthetical phrase in
clause (iii) of subsection (a) thereof the following: "and, in the
case of an assignment of a Registered Note, such Note, duly endorsed
by (or accompanied by a written instrument of assignment or transfer
duly executed by) the assigning Lender (as the registered holder
thereof) to the assignee";
(ii) By inserting after the words "Assignment and
Acceptance" the first time such words appear in the second sentence of
subsection (a) thereof the following: "(which shall not be any
earlier than the date on which the Agent so accepts and records the
Assignment and Acceptance in the Register)";
(iii) By inserting after the words "Administrative Agent"
in the first line of subsection (c) thereof the following: ", acting
for this purpose as agent for the Borrower,";
(iv) By inserting after the first sentence of subsection
(c) thereof the following: "The Agent shall incur no liability of any
kind to any Loan Party, any Lender Party or any other Person with
respect to its maintenance of the Register or the recordation of
information therein.";
(v) By deleting the word "may" in the original second
sentence of subsection (c) thereof and inserting "shall" in lieu
thereof, and by inserting after the word "hereunder" in the same
sentence the following: "(and, in the case of Registered Notes, as
the owner of the Registered Notes registered to it)";
(vi) By inserting after the words "Eligible Assignee" in
subsection (d) thereof the following: "and, in the case of an
assignment of a Registered Note, such Note, duly endorsed by (or
accompanied by a written instrument of assignment or transfer duly
executed by) the assigning Lender (as the registered holder thereof)
to the assignee"; and
(vii) By adding after subsection (d) thereof a new
subsection (d-1) to read in its entirety as follows:
3
<PAGE> 4
"(d-1) Upon the acceptance by the Administrative
Agent of the Assignment and Acceptance, the parties to such
Assignment and Acceptance may at any time request that new
Notes be issued to the assigning Lender and the assignee by
(i) providing written notice of such request to the
Administrative Agent and the applicable Borrower and (ii)
delivering such assigning Lender's Notes, duly endorsed by (or
accompanied by a written instrument of assignment or transfer
duly executed by) the assigning Lender to the assignee, to the
applicable Borrower (or, in the case of Registered Notes, to
the Administrative Agent as agent for Supermarkets) for
cancellation and exchange. The Administrative Agent, in the
case of Registered Notes, shall register such transfer in the
Register and shall forward the Registered Notes to
Supermarkets for cancellation and exchange. Within five
Business Days after its receipt of any Notes for cancellation
and exchange pursuant to this subsection (d-1), together with
notice from the Administrative Agent that is has accepted and
recorded the Assignment and Acceptance, the applicable
Borrower, at its own expense, shall execute and deliver to the
assignee in exchange for the surrendered Notes a new Note or
Notes payable to the order of such assignee (or, in the case
of Registered Notes, payable to the assignee or its registered
assigns) in an amount in each case equal to the applicable
Commitment or Commitments assumed by it pursuant to such
Assignment and Acceptance and, if the assigning Lender has
retained any Commitments hereunder, a new Note or Notes
payable to the order of the assigning Lender (or, in the case
of Registered Notes, payable to the assignor or its registered
assigns) in an amount in each case equal to the applicable
Commitment or Commitments retained by it hereunder. Such new
Note or Notes shall be in an aggregate principal amount equal
to the aggregate principal amount of such surrendered Note or
Notes, shall be dated the effective date of such Assignment
and Acceptance and shall otherwise be in substantially the
form of Exhibit L-1, L- 2 or L-3, as applicable. The
Administrative Agent shall incur no liability of any kind to
any Loan Party, any Lender Party or any other Person with
respect to the transfer, surrender, cancellation or exchange
of the Notes."
(e) Schedule 1 to Exhibit B (Assignment and Acceptance) to the
Credit Agreement is amended by inserting the following prior to the line that
begins with the words "Designated Issuer":
"Type of Note, if
any (indicate Registered
or Non-Registered) ____________________________"
4
<PAGE> 5
SECTION 2. Conditions of Effectiveness. The effectiveness of this
Sixth Modification Agreement and the amendments set forth in Section 1 hereof
shall be subject to receipt by the Administrative Agent of counterparts of this
Sixth Modification Agreement executed by (A) Supermarkets, each of the
Subsidiary Borrowers, and each of the other Loan Parties and (B) the Required
Lenders (or, as to any of the Required Lenders, advice satisfactory to the
Administrative Agent that such Required Lenders have executed this Sixth
Modification Agreement).
SECTION 3. Reference to and Effect on the Loan Documents. (a) On and
after the effectiveness of this Sixth Modification Agreement, (i) each
reference in the Credit Agreement to its name, "this Agreement", "hereunder",
"hereof" or words of like import referring thereto, and each reference in the
other Loan Documents to such name, "thereunder", "thereof" or words of like
import referring to the Credit Agreement, shall mean and be a reference to the
Credit Agreement as amended hereby, and (ii) each reference in any Loan
Document to any term defined in the Credit Agreement shall mean and be a
reference to such term as defined therein after giving effect to the amendments
set forth herein.
(b) Except as specifically amended above, the Credit Agreement,
the Guaranty and all other Loan Documents are and shall continue to be in full
force and effect and are hereby in all respects ratified and confirmed.
(c) The execution, delivery and effectiveness of this Sixth
Modification Agreement shall not, except as expressly provided herein, operate
as a waiver of any right, power or remedy of any Lender Party under any of the
Loan Documents, nor constitute a waiver of any provision of any of the Loan
Documents.
SECTION 4. Execution in Counterparts. This Sixth Modification
Agreement may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so executed and
delivered shall be deemed to be an original and all of which taken together
shall constitute but one and the same agreement.
SECTION 5. GOVERNING LAW. THIS SIXTH MODIFICATION AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW RULES OF ANY JURISDICTION).
5
<PAGE> 6
S-1
IN WITNESS WHEREOF, the parties hereto have caused this Sixth
Modification Agreement to be executed by their respective officers thereunto
duly authorized, as of the date first above written.
BORROWERS:
---------
FOOD 4 LESS SUPERMARKETS, INC.
By: /s/ Mark A. Resnik
--------------------------------
Title: Vice President
ALPHA BETA COMPANY
By: /s/ Mark A. Resnik
--------------------------------
Title: Vice President
CALA FOODS, INC.
By: /s/ Mark A. Resnik
--------------------------------
Title: Vice President
FALLEY'S, INC.
By: /s/ Mark A. Resnik
--------------------------------
Title: Vice President
FOOD 4 LESS MERCHANDISING, INC.
By: /s/ Mark A. Resnik
--------------------------------
Title: Vice President
<PAGE> 7
S-2
OTHER LOAN PARTIES:
------------------
BAY AREA WAREHOUSE STORES, INC.
By: /s/ Mark A. Resnik
---------------------------------
Title: Vice President
BELL MARKETS, INC.
By: /s/ Mark A. Resnik
---------------------------------
Title: Vice President
CALA CO.
By: /s/ Mark A. Resnik
---------------------------------
Title: Vice President
FOOD 4 LESS GM, INC.
By: /s/ Mark A. Resnik
---------------------------------
Title: Vice President
FOOD 4 LESS OF CALIFORNIA, INC.
By: /s/ Mark A. Resnik
---------------------------------
Title: Vice President
FOOD 4 LESS OF SOUTHERN
CALIFORNIA, INC.
By: /s/ Mark A. Resnik
---------------------------------
Title: Vice President
<PAGE> 1
Exhibit 19.2
SEVENTH MODIFICATION AGREEMENT
This SEVENTH MODIFICATION AGREEMENT, dated as of January 23, 1995, is
made by and among (i) Food 4 Less Supermarkets, Inc., a Delaware corporation
("Supermarkets"), (ii) Alpha Beta Company, a California corporation ("Alpha
Beta"), Cala Foods, Inc., a California corporation ("Cala"), Falley's, Inc., a
Kansas corporation ("Falley's"), and Food 4 Less Merchandising, Inc., a
California corporation (together with Alpha Beta, Cala and Falley's, the
"Subsidiary Borrowers"), (iii) Bay Area Warehouse Stores, Inc., a California
corporation, Bell Markets, Inc., a California corporation, Cala Co., a Delaware
corporation, Food 4 Less GM, Inc., a California corporation, Food 4 Less of
California, Inc., a California corporation, and Food 4 Less of Southern
California, Inc., a Delaware corporation (together with Supermarkets and the
Subsidiary Borrowers, the "Loan Parties"), (iv) the Lender Parties (as defined
in the Credit Agreement referred to below) whose signatures appear on the
execution pages hereof, (v) Bankers Trust Company, Citicorp North America, Inc.
("Citicorp") and Chemical Bank (successor in interest to Manufacturers Hanover
Trust Company), as co-agents for the Lender Parties (in such capacity, the
"Co-Agents"), and (vi) Citicorp, as administrative agent for the Lender Parties
(in such capacity, the "Administrative Agent").
PRELIMINARY STATEMENTS:
(1) Supermarkets, the Subsidiary Borrowers, the Lenders, the
Designated Issuers of the Lenders, the Co-Agents and the Administrative Agent
have entered into a Credit Agreement dated as of June 17, 1991, as amended by
the First Modification Agreement dated as of January 24, 1992, the Second
Modification Agreement dated as of April 13, 1992, the Third Modification
Agreement dated as of September 15, 1992, the Fourth Modification Agreement
dated as of October 9, 1992, the Fifth Modification Agreement dated as of
December 21, 1992 and the Sixth Modification Agreement dated as of November 22,
1994 (as so amended, the "Credit Agreement"). Unless otherwise defined herein,
terms defined in the Credit Agreement are used herein as therein defined.
(2) The Borrower has requested that the Required Lenders agree to
amend certain provisions of the Credit Agreement as set forth herein. The
undersigned Lender Parties have agreed to do so as hereinafter set forth upon
the terms and conditions set forth below.
SECTION 1. Amendments to Credit Agreement. Subject to the fulfillment
of the conditions set forth in Section 3 hereof, the Credit Agreement is hereby
amended as follows:
1
<PAGE> 2
(a) Section 1.01 of the Credit Agreement is amended as follows:
(i) The following definitions are added to Section 1.01
to read as follows:
"Refinancing Date" means May 30, 1995.
"Refinancing Event" means that the Borrower shall
have fully prepaid the Advances and all other amounts owing to
the Lenders under the terms of the Agreement.
(ii) The definition of "Earnings" in Section 1.01 is
amended by adding the following clause to the end thereof immediately
following the words "added to the foregoing sum": "; and provided
further, however, that for purposes of calculating Earnings for any
Fiscal Quarter in Fiscal Year 1995. Earnings shall not include
non-cash charges up to $8,000,000 in the aggregate for all such Fiscal
Quarters incurred in such Fiscal Quarter for the disposition or
write-off of Equipment, leases of Equipment or Leases in connection
with the remodel and conversion of Stores from one format to another."
(iii) The definition of "Adjusted Net Worth" in Section
1.01 is amended by adding after clause (c) thereof the following: ",
plus (f) in the case of Supermarkets and its Subsidiaries on a
consolidated basis, an amount equal to the product of (i) 100% minus
the Effective Tax Rate for Fiscal Year 1995, times (ii) non-cash
charges up to $8,000,000 in the aggregate for Fiscal Year 1995 for the
disposition or write-off of Equipment, leases of Equipment or Leases
in connection with the remodel and conversion of Stores from one
format to another."
(b) Section 4.01 of the Credit Agreement is amended by adding
after subsection (d) thereof a new subsection (e) to read as follows:
"(e) Refinancing Date Fee. In the event that the
Refinancing Event shall not have occurred on or before the Refinancing
Date, the Borrower hereby agrees to pay to the Administrative Agent on
or before June 2, 1995, for the ratable account of the Lenders, a
non-refundable fee in an amount equal to 0.25% of the sum of (a) the
unpaid principal amount of the Term Advances of the Lenders
outstanding as of May 30, 1995 plus (b) the aggregate amount of the
Revolving Commitments and Letter of Credit Commitments of the Lenders
outstanding as of May 30, 1995. The ratable share of each Lender
shall be computed on the basis of the sum of the aggregate amount of
the Term Advances owing to such Lender plus the aggregate amount of
the Revolving Commitments and Letter of Credit Commitments of such
Lender, in each case determined as of May 30, 1995."
2
<PAGE> 3
(c) Section 7.02(e)(ii) of the Credit Agreement is amended by (1)
deleting the figure under the heading "Amount" opposite "1995" and inserting in
lieu of such figure "$58,000,000", and (2) deleting the figure under the
heading "Amount" opposite "1996" and inserting in lieu of such figure
$41,000,000".
(d) Section 7.02(e)(iii)(A) of the Credit Agreement is amended by
deleting the two lines under the heading "Fiscal Year 1995" and inserting in
lieu thereof the following:
<TABLE>
<S> <C>
"First Semiannual Period $15,100,000
Second Semiannual Period 15,500,000"
</TABLE>
(e) Section 7.02(e)(iii)(B) of the Credit Agreement is amended by
deleting the two lines under the heading "Fiscal Year 1996" and inserting in
lieu thereof the following:
<TABLE>
<S> <C>
"First Semiannual Period $2,000,000
Second Semiannual Period $2,000,000"
</TABLE>
(f) Section 7.03(a)(ii) of the Credit Agreement is amended by
deleting the lines that begin "Second Fiscal Quarter", "Third Fiscal Quarter"
and "Fourth Fiscal Quarter" under the heading "Fiscal Year 1995" and inserting
in lieu thereof the following:
<TABLE>
<S> <C>
"Second Fiscal Quarter 0.93 to 1.00
Third Fiscal Quarter 0.93 to 1.00
Fourth Fiscal Quarter 1.02 to 1.00"
</TABLE>
SECTION 2. Seventh Modification Fee. On or before January 25, 1995,
the Borrower hereby agrees to pay to the Administrative Agent for the ratable
account of each of the Responding Lenders (as hereinafter defined), a
non-refundable fee (the "Seventh Modification Fee") in an amount equal to 0.05%
of the sum of (a) the unpaid principal amount of the Term Advances of the
Responding Lenders outstanding as of January 23, 1995 plus (b) the aggregate
amount of the Revolving Commitments and Letter of Credit Commitments of the
Responding Lenders outstanding as of January 23, 1995. As used herein, the
term "Responding Lenders" shall mean and include each Lender that executes and
delivers to the Administrative Agent this Seventh Modification Agreement on or
before January 23, 1995 at 5:00 p.m. (Los Angeles time). The obligation of the
Borrower to pay the Seventh Modification Fee (a) shall be in addition to the
Borrower's obligations with respect to any other fees and amounts owing by the
Borrower to the Lenders under the Credit Agreement, and (b) shall survive the
making and repaying of Advances, the termination of all Letter of Credit
Liability and the termination of the Credit Agreement. The ratable share of
each such Responding Lender shall be computed on the basis of the sum of the
aggregate
3
<PAGE> 4
amount of the Term Advances owing to such Responding Lender plus the aggregate
amount of the Revolving Commitments and Letter of Credit Commitments of each
such Responding Lender, in each case determined as of January 23, 1995.
SECTION 3. Conditions of Effectiveness. The effectiveness of this
Seventh Modification Agreement and the amendments set forth in Section 1 hereof
shall be subject to (a) receipt by the Administrative Agent of counterparts of
this Seventh Modification Agreement executed by (1) Supermarkets, each of the
Subsidiary Borrowers, and each of the other Loan Parties and (2) the Required
Lenders (or, as to any of the Required Lenders, advice satisfactory to the
Administrative Agent that such Required Lenders have executed this Seventh
Modification Agreement), and (b) the payment by the Borrower to the Seventh
Modification Fee in accordance with Section 2 hereof.
SECTION 4. Reference to and Effect on the Loan Documents.
(a) On and after the effectiveness of this Seventh Modification
Agreement, (i) each reference in the Credit Agreement to its name, "this
Agreement", "hereunder", "hereof", or words of like import referring thereto,
and each reference in the other Loan Documents to such name, "thereunder",
"thereof", or words of like import referring to the Credit Agreement, shall
mean and be a reference to the Credit Agreement as amended hereby, and (ii)
each reference in any Loan Document to any term defined in the Credit Agreement
shall mean and be a reference to such term as defined therein after giving
effect to the amendments set forth herein.
(b) Except as specifically amended above, the Credit Agreement,
the Guaranty and all other Loan Documents are and shall continue to be in full
force and effect and are hereby in all respects ratified and confirmed.
(c) The execution, delivery and effectiveness of this Seventh
Modification Agreement shall not, except as expressly provided herein, operate
as a waiver of any right, power or remedy of any Lender Party under any of the
Loan Documents, nor constitute a waiver of any provision of any of the Loan
Documents.
SECTION 5. Execution in Counterparts. This Seventh Modification
Agreement may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so executed and
delivered shall be deemed to be an original and all of which taken together
shall constitute but one and the same agreement.
SECTION 6. GOVERNING LAW. THIS SEVENTH MODIFICATION AGREEMENT SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW RULES OF ANY JURISDICTION).
4
<PAGE> 5
S-1
IN WITNESS WHEREOF, the parties hereto have caused this Seventh
Modification Agreement to be executed by their respective officers thereunto
duly authorized, as of the date first above written.
BORROWERS:
---------
FOOD 4 LESS SUPERMARKETS, INC.
By: _____________________________________
Title:
ALPHA BETA COMPANY
By: ____________________________________
Title:
CALA FOODS, INC.
By: ____________________________________
Title:
FALLEY'S, INC.
By: ____________________________________
Title:
FOOD 4 LESS MERCHANDISING, INC.
By: ____________________________________
Title:
<PAGE> 6
S-2
OTHER LOAN PARTIES:
------------------
BAY AREA WAREHOUSE STORES, INC.
By: ____________________________________
Title:
BELL MARKETS, INC.
By: ____________________________________
Title:
CALA CO.
By: ____________________________________
Title:
FOOD 4 LESS GM, INC.
By: ____________________________________
Title:
FOOD 4 LESS OF CALIFORNIA, INC.
By: ____________________________________
Title:
FOOD 4 LESS OF SOUTHERN CALIFORNIA, INC.
By: ____________________________________
Title:
<PAGE> 7
S-3
CO-AGENTS AND ADMINISTRATIVE AGENT:
----------------------------------
BANKERS TRUST COMPANY, as Co-Agent
By: ____________________________________
Title:
CITICORP NORTH AMERICA, INC., as Co-Agent
and Administrative Agent
By: _____________________________________
Title:
CHEMICAL BANK (successor in interest to
Manufacturers Hanover Trust Company),
as Co-Agent
By: _____________________________________
Title:
LENDERS:
-------
CITICORP NORTH AMERICA, INC.
By: _____________________________________
Title:
BANKERS TRUST COMPANY
By: _____________________________________
Title:
CHEMICAL BANK (successor in interest to
Manufacturers Hanover Trust Company)
By: _____________________________________
Title:
<PAGE> 8
S-4
BANQUE PARIBAS
By: _____________________________________
Title:
THE CHASE MANHATTAN BANK, N.A.
By: _____________________________________
Title:
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By: _____________________________________
Title:
THE LONG-TERM CREDIT BANK OF
JAPAN, LIMITED
By: _____________________________________
Title:
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By: _____________________________________
Title:
CAISSE NATIONALE DE CREDIT AGRICOLE
By: _____________________________________
Title:
<PAGE> 9
S-5
CREDIT LYONNAIS
By: _____________________________________
Title:
CREDIT LYONNAIS CAYMAN ISLAND BRANCH
By: _____________________________________
Title:
ABN AMRO BANK, N.V., LOS ANGELES
INTERNATIONAL BRANCH
By: _____________________________________
Title:
BANCA COMMERCIALE ITALIANA
LOS ANGELES FOREIGN BRANCH
By: _____________________________________
Title:
BANQUE FRANCAISE DU COMMERCE EXTERIEUR
By: _____________________________________
Title:
DRESDNER BANK AKTIENGESELLSCHAFT
LOS ANGELES AGENCY
By: _____________________________________
Title:
<PAGE> 10
S-6
RAIFFEISEN ZENTRALBANK OESTERREICH
By: _____________________________________
Title:
SOCIETE GENERALE
By: _____________________________________
Title:
THE MITSUI TRUST AND BANKING CO., LIMITED,
LOS ANGELES AGENCY
By: _____________________________________
Title:
UNION BANK
By: _____________________________________
Title:
UNITED STATES NATIONAL BANK OF OREGON
By: _____________________________________
Title:
<PAGE> 11
S-7
PILGRIM PRIME RATE TRUST
By: _____________________________________
Title:
VAN KAMPEN MERRITT PRIME RATE
INCOME TRUST
By: _____________________________________
Title:
BANQUE NATIONALE DE PARIS
By: _____________________________________
Title:
RESTRUCTURED OBLIGATIONS BACKED BY
SENIOR ASSETS, B.V.
By: CHANCELLOR SENIOR SECURED
MANAGEMENT, INC., as Portfolio Advisor
By: ________________________________
Title:
RESTRUCTURED OBLIGATIONS BACKED BY
SENIOR ASSETS 2 (ROSA 2)
By: CHANCELLOR SENIOR SECURED
MANAGEMENT, INC., as Portfolio Advisor
By: _______________________________
Title:
<PAGE> 12
S-8
STRATA FUNDING
By: CHANCELLOR SENIOR SECURED
MANAGEMENT, INC., as Portfolio Advisor
By: _______________________________
Title:
CERES FINANCE LTD.
By: CHANCELLOR SENIOR SECURED
MANAGEMENT, INC., as Portfolio Advisor
By: _______________________________
Title:
GIROCREDIT BANK, NEW YORK BRANCH
(formerly Girozentrale Vienna)
By: _____________________________________
Title:
NICHIJUKIN (USA) Limited
By: _____________________________________
Title:
PROSPECT STREET SENIOR PORTFOLIO, L.P.
By: PROSPECT STREET SENIOR LOAN CORP.,
Managing General Partner
By: _______________________________
Title:
<PAGE> 13
S-9
BANQUE INDOSUEZ
By: _____________________________________
Title:
CITIBANK, N.A.
By: _____________________________________
Title:
MORGAN GUARANTY TRUST CO.
By: _____________________________________
Title:
DESIGNATED ISSUERS:
------------------
CITIBANK, N.A., as Designated Issuer for
Citicorp North America, Inc.
By: _____________________________________
Title: Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUN-24-1995
<PERIOD-START> JUN-26-1994
<PERIOD-END> JAN-07-1995
<CASH> 15,750
<SECURITIES> 0
<RECEIVABLES> 27,256
<ALLOWANCES> (1,264)
<INVENTORY> 223,261
<CURRENT-ASSETS> 283,415
<PP&E> 525,928
<DEPRECIATION> (155,758)
<TOTAL-ASSETS> 984,622
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<BONDS> 590,008
<COMMON> 105,474
0
0
<OTHER-SE> (109,560)
<TOTAL-LIABILITY-AND-EQUITY> 984,622
<SALES> 1,404,665
<TOTAL-REVENUES> 1,404,665
<CGS> 1,167,205
<TOTAL-COSTS> 1,167,205
<OTHER-EXPENSES> 208,004
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,228
<INCOME-PRETAX> (13,772)
<INCOME-TAX> 500
<INCOME-CONTINUING> (14,272)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,272)
<EPS-PRIMARY> (10.32)
<EPS-DILUTED> (10.32)
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