SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File Number
April 27, 1997 33-88894
FOOD 4 LESS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0642810
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1100 West Artesia Boulevard
Compton, California 90220
(Address of principal executive offices) (Zip code)
(310) 884-9000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
At June 9, 1997, there were 17,207,882 shares of Common Stock outstanding.
There is no public market for the Common Stock.
FOOD 4 LESS HOLDINGS, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated balance sheets as of
February 2, 1997 and April 27, 1997 2-3
Consolidated statements of operations
for the 12 weeks ended April 21, 1996
and April 27, 1997 4
Consolidated statements of cash flows
for the 12 weeks ended April 21, 1996
and April 27, 1997 5-6
Consolidated statements of stockholders'
deficit as of February 2, 1997 and
April 27, 1997 7
Notes to consolidated financial statements 8-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FOOD 4 LESS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
February 2, April 27,
ASSETS 1997 1997
- --------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 67,589 $ 57,878
Restricted cash - 161,229
Trade receivables, less allowances of $4,057
And $4,225 at February 2, 1997 and
April 27, 1997, respectively 46,560 44,597
Notes and other receivables 531 483
Inventories 502,095 498,763
Patronage receivables from suppliers 4,433 1,459
Prepaid expenses and other 21,925 27,144
- --------------------------------------------------------------------------------------------------------------
Total current assets 643,133 791,553
INVESTMENTS IN AND NOTES RECEIVABLE FROM
SUPPLIER COOPERATIVES:
Associated Wholesale Grocers 7,020 6,797
Certified Grocers of California and others 4,945 4,945
PROPERTY AND EQUIPMENT:
Land 173,803 173,803
Buildings 188,311 190,088
Leasehold improvements 226,159 227,969
Fixtures and equipment 401,716 419,093
Construction in progress 51,117 59,215
Leased property under capital leases 200,199 194,405
Leasehold interests 112,398 112,398
- --------------------------------------------------------------------------------------------------------------
1,353,703 1,376,971
Less: Accumulated depreciation and amortization 301,477 324,624
- --------------------------------------------------------------------------------------------------------------
Net property and equipment 1,052,226 1,052,347
OTHER ASSETS:
Deferred financing costs, less accumulated amortization
of $17,615 and $6,688 at February 2, 1997 and
April 27, 1997, respectively 88,889 51,440
Goodwill, less accumulated amortization of $99,057
and $107,189 at February 2, 1997 and
April 27, 1997, respectively 1,310,956 1,302,824
Other, net 24,824 23,728
- --------------------------------------------------------------------------------------------------------------
$3,131,993 $3,233,634
==============================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
FOOD 4 LESS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
February 2, April 27,
LIABILITIES AND STOCKHOLDERS' DEFICIT 1997 1997
- --------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 371,240 $ 350,202
Accrued payroll and related liabilities 106,764 105,215
Accrued interest 31,011 55,161
Other accrued liabilities 234,046 220,048
Income taxes payable 1,956 1,948
Current portion of self-insurance liabilities 48,251 48,251
Current portion of long-term debt 4,465 148,789
Current portion of obligations under capital leases 28,041 29,027
- --------------------------------------------------------------------------------------------------------------
Total current liabilities 825,774 958,641
SENIOR DEBT, net of current portion 1,263,142 1,285,034
OBLIGATIONS UNDER CAPITAL LEASES 126,336 118,981
SENIOR SUBORDINATED DEBT 671,222 689,747
HOLDINGS DEBENTURES 283,706 292,695
DEFERRED INCOME TAXES 21,074 21,074
SELF-INSURANCE LIABILITIES 91,332 91,214
LEASE VALUATION RESERVE 62,389 61,957
OTHER NON-CURRENT LIABILITIES 106,286 102,526
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Convertible Series A Preferred Stock, $.01 par value, 25,000,000
shares authorized; 16,683,244 shares issued at February 2,
1997 and April 27, 1997 (aggregate liquidation value of
$186.9 million and $190.0 million at February 2, 1997
and April 27, 1997, respectively) 161,831 161,831
Convertible Series B Preferred Stock, $.01 par value,
25,000,000 shares authorized; 3,100,000 shares issued
at February 2, 1997 and April 27, 1997 (aggregate liquidation
value of $34.7 million and $35.3 million at February 2, 1997
and April 27, 1997, respectively) 31,000 31,000
Common Stock, $.01 par value, 60,000,000 shares authorized;
17,207,882 shares and 17,207,882 shares issued at February 2, 1997
and April 27, 1997 172 172
Non-Voting Common Stock, $.01 par value, 25,000,000 shares
authorized; no shares issued at February 2, 1997 or April 27, 1997 - -
Additional capital 56,091 56,091
Notes receivable from stockholders (592) (592)
Retained deficit (564,223) (633,190)
- --------------------------------------------------------------------------------------------------------------
(315,721) (384,688)
Treasury stock: 421,237 shares of common stock at
February 2, 1997 and April 27, 1997 (3,547) (3,547)
- --------------------------------------------------------------------------------------------------------------
Total stockholders' deficit (319,268) (388,235)
- --------------------------------------------------------------------------------------------------------------
$3,131,993 $3,233,634
==============================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
FOOD 4 LESS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
12 Weeks 12 Weeks
Ended Ended
April 21, April 27,
1996 1997
- --------------------------------------------------------------------------------------------------------------
<C> <C> <C>
SALES $1,230,808 $1,276,222
COST OF SALES 992,883 1,013,269
- --------------------------------------------------------------------------------------------------------------
GROSS PROFIT 237,925 262,953
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 206,620 209,775
AMORTIZATION OF GOODWILL 7,202 8,132
- --------------------------------------------------------------------------------------------------------------
OPERATING INCOME 24,103 45,046
INTEREST EXPENSE:
Interest expense, excluding amortization
of deferred financing costs 60,601 63,251
Amortization of deferred financing costs 3,336 2,779
- --------------------------------------------------------------------------------------------------------------
63,937 66,030
LOSS BEFORE PROVISION FOR INCOME TAXES
AND EXTRAORDINARY CHARGES (39,834) (20,984)
PROVISION FOR INCOME TAXES - -
- --------------------------------------------------------------------------------------------------------------
LOSS BEFORE EXTRAORDINARY CHARGES (39,834) (20,984)
EXTRAORDINARY CHARGES - 47,983
- --------------------------------------------------------------------------------------------------------------
NET LOSS $ (39,834) $ (68,967)
==============================================================================================================
LOSS PER COMMON SHARE:
Loss before extraordinary charges $ (1.08) $ (0.57)
Extraordinary charges - (1.29)
- --------------------------------------------------------------------------------------------------------------
Net loss $ (1.08) $ (1.86)
==============================================================================================================
Average Number of Common Shares Outstanding 36,991,126 36,991,126
==============================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
FOOD 4 LESS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
12 Weeks 12 Weeks
Ended Ended
April 21, April 27,
1996 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES:
Cash received from customers $ 1,230,808 $ 1,276,222
Cash paid to suppliers and employees (1,156,304) (1,237,729)
Interest paid (20,596) (30,112)
Income taxes paid - (8)
Interest received 541 107
Other, net 3 -
- --------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 54,452 8,480
CASH USED BY INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 31 1,497
Payment for purchase of property and equipment (34,222) (31,026)
Other, net (973) (1,041)
- --------------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (35,164) (30,570)
CASH PROVIDED (USED) BY FINANCING ACTIVITIES:
Proceeds from the issuance of long-term debt - 713,525
Payments of long-term debt (1,623) (540,991)
Restricted cash - (161,229)
Payments of capital lease obligations (6,134) (6,574)
Increase (decrease) in revolving loan, net (17,400) 12,100
Deferred financing costs and other, net (3,572) (4,452)
- --------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (28,729) 12,379
- --------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (9,441) (9,711)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 67,983 67,589
- --------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 58,542 $ 57,878
==============================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
FOOD 4 LESS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
12 Weeks 12 Weeks
Ended Ended
April 21, April 27,
1996 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net loss $ (39,834) $ (68,967)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 40,018 40,555
Extraordinary charges - 47,983
Non-cash interest expense 7,853 8,989
Amortization of debt discount - 107
Gain on sale of assets (3) -
Change in assets and liabilities, net of effects
from acquisition of business:
Accounts and notes receivable 136 4,985
Inventories 19,289 3,332
Prepaid expenses and other 500 (6,190)
Accounts payable and accrued liabilities 23,618 (22,188)
Self-insurance liabilities 2,875 (118)
Income taxes payable - (8)
Total adjustments 94,286 77,447
- --------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 54,452 $ 8,480
==============================================================================================================
SUPPLEMENTAL SCHEDULE OF NON-CASH
FINANCING ACTIVITIES:
Fixed assets acquired through the issuance of
capital leases $ 2,577 $ 5,098
==============================================================================================================
Retirement of capital leases $ - $ 4,693
==============================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
FOOD 4 LESS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Preferred Stock Preferred Stock
Series A Series B Common StockTreasury Stock
----------------- ----------------- -------------------------------
Total
Number Number Number Number Stock- Stock-
of of of of holders' Add'l Retained holders'
Shares Amount Shares Amount Shares Amount Shares Amount Notes Capital Deficit Deficit
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT
FEBRUARY 2, 1997 16,683,244 $161,831 3,100,000 $31,000 17,207,882 $172 (421,237) $(3,547) $(592) $56,091 $(564,223) $(319,268)
Net loss (unaudited) - - - - - - - - - - (68,967) (68,967)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCES AT
APRIL 27, 1997
(UNAUDITED) 16,683,244 $161,831 3,100,000 $31,000 17,207,882 $172 (421,237) $(3,547) $(592) $56,091 $(633,190) $(388,235)
==================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
FOOD 4 LESS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 27, 1997
(UNAUDITED)
1. ORGANIZATION AND ACQUISITION
Food 4 Less Holdings, Inc. ("Holdings" or, together with its
subsidiaries, the "Company"), a Delaware corporation, owns all of the
outstanding capital stock of Ralphs Grocery Company ("Ralphs"). Ralphs, a
wholly-owned subsidiary of Holdings, is a retail supermarket company with a
total of 405 stores which are located in Southern California (342),
Northern California (27) and certain areas of the Midwest (36). The
Company is the largest supermarket operator in Southern California. The
Company operates the second largest conventional supermarket chain in the
region under the "Ralphs" name and the largest warehouse supermarket chain
in the region under the "Food 4 Less" name.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated balance sheet and statement of
stockholder's deficit of the Company as of April 27, 1997 and the
consolidated statements of operations and cash flows for the interim
periods ended April 21, 1996 and April 27, 1997 are unaudited, but include
all adjustments (consisting of only normal recurring accruals) which the
Company considers necessary for a fair presentation of its consolidated
financial position, results of operations and cash flows for these periods.
These interim financial statements do not include all disclosures required
by generally accepted accounting principles, and, therefore, should be read
in conjunction with the audited financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year
ended February 2, 1997. The results of operations for the interim periods
are not necessarily indicative of the results for a full fiscal year.
Restricted Cash
Restricted cash represents cash required to be used for the redemption
of the 13.75% Senior Subordinated Notes, the associated call premium and
accrued interest. See note 4 below.
Inventories
Inventories, which consist primarily 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 $24.3 million and $26.1 million at February 2, 1997 and April
27, 1997, respectively, and gross profit and operating income would have
been greater by $1.3 million and $1.7 million for the 12 weeks ended
April 21, 1996 and April 27, 1997, respectively.
Income Taxes
The Company provides for income taxes in interim periods based on the
estimated effective income tax rate for the complete fiscal year. Deferred
taxes result from the future tax consequences associated with temporary
differences between the amount of assets and liabilities recorded for tax
and financial accounting purposes. A valuation allowance for deferred tax
assets is recorded to the extent the Company cannot determine, in
accordance with the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," that the ultimate
realization of net deferred tax assets is more likely than not.
For the period ended April 27, 1997, the estimated effective income
tax rate is less than the U.S. statutory rate primarily due to a 100%
valuation allowance provided against the additional deferred tax assets
that arose from the current operating loss.
Loss Per Common Share
Loss per common share is computed based on the weighted average number
of shares outstanding during the applicable period. Fully diluted loss per
share has been omitted as it is anti-dilutive for all periods presented.
Reclassifications
Certain prior period amounts in the consolidated financial statements
have been reclassified to conform to the April 27, 1997 presentation.
New Accounting Standard
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings per Share," ("SFAS No. 128") was issued. SFAS No. 128 is
effective for earnings per share calculations for periods ending after
December 15, 1997. The new method of calculating earnings per share will
have no effect on the Company's historical earnings per share.
3. RESTRUCTURING CHARGE
During the 12 weeks ended April 27, 1997, the Company utilized $0.9
million and $0.1 million of the remaining restructuring reserve related to
the fiscal 1995 $75.2 and $47.9 million restructuring charges,
respectively. The amounts utilized include write-downs of property and
equipment ($1.0 million) and expenditures associated with the closed stores
and the warehouse facility ($0.5 million).
4. DEBT
During the quarter, Ralphs issued $155 million principal amount of 11%
Senior Subordinated Notes due 2005 (the "1997 11% Senior Subordinated
Notes") with terms substantially identical to Ralphs' existing 11% Senior
Subordinated Notes at a price of 105.5% of their principal amount,
resulting in gross proceeds of $163.5 million. At April 27, 1997, $161.2
million of these proceeds was included in restricted cash and was
subsequently used to redeem all of Ralphs' $145 million principal amount of
13.75% Senior Subordinated Notes at a price of 106.1% of their principal
amount and to pay the related accrued interest through the redemption date,
which was April 28, 1997. As a result, the Company has classified the
principal amount of the $145 million 13.75% Senior Subordinated Notes as
current in the accompanying balance sheet at April 27, 1997. The remaining
proceeds were used to pay fees and expenses associated with the issuance of
the 1997 11% Senior Subordinated Notes.
During the quarter, the Company also amended and restated its existing
credit facility ("Old Credit Facility") to lower interest margins and allow
more flexibility with respect to application of proceeds from certain
assets sales and capital expenditures. The amended and restated credit
facility (the "New Credit Facility") consists of a $200.0 million Term Loan
A Facility and a $350.0 million Term Loan B Facility (together, the "Term
Loans") and a $325 million Revolving Credit Facility ("Revolving Facility")
under which working capital loans may be made and commercial or standby
letters of credit in the maximum of $150.0 may be issued.
Borrowings under the New Credit Facility bear interest at the bank's
Base Rate (as defined) plus a margin ranging from 0.25 percent to 1.75
percent or the Eurodollar Rate (as defined) plus a margin ranging from 1.25
percent to 2.75 percent. At April 27, 1997, $550.0 million was outstanding
under the Term Loans, $111.5 was outstanding under the Revolving Facility,
and $89.1 million of standby Letters of Credit had been issued on behalf of
the Company. At April 27, 1997, the weighted average interest rate on the
Term Loans was 7.76 percent and the interest rate on the Revolving Facility
was 8.21 percent. Quarterly principal installments on the Term Loans
continue to 2004, with principal amounts due as follows: $2.6 million in
fiscal 1997, $3.5 million in fiscal 1998, $25.5 million in fiscal 1999,
$62.6 million in fiscal 2000, $87.5 million in fiscal 2001 and $368.3
million thereafter.
As a result of the refinancings described above, the Company recorded
extraordinary charges in the first quarter of fiscal 1997 of approximately
$48.0 million, consisting of the call premium on the 13.75% Senior
Subordinated Notes and the write-off of deferred financing costs associated
with the Old Credit Facility and the 13.75% Senior Subordinated Notes.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth the selected unaudited operating results of
the Company for the 12 weeks ended April 21, 1996 and April 27, 1997:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
12 WEEKS ENDED
-------------------------------------------------------
APRIL 21, 1996 APRIL 27, 1997
- --------------------------------------------------------------------------------------------------------------
(IN MILLIONS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Sales $1,230.8 100.0% $1,276.2 100.0%
Gross profit 237.9 19.3 262.9 20.6
Selling, general and administrative expenses 206.6 16.8 209.8 16.4
Amortization of goodwill 7.2 0.6 8.1 0.6
Operating income 24.1 2.0 45.0 3.5
Interest expense 63.9 5.2 66.0 5.2
Provision for income taxes - - - -
Loss before extraordinary charges (39.8) (3.2) (21.0) (1.6)
Extraordinary charges - - 48.0 3.8
Net loss (39.8) (3.2) (69.0) (5.4)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Sales. Sales increased $45.4 million, or 3.7 percent, from $1,230.8
million for the 12 weeks ended April 21, 1996 to $1,276.2 million for the 12
weeks ended April 27, 1997. The increase in sales was primarily attributable to
a 4.1 percent increase in comparable store sales and the continued success of
new store openings, partially offset by store closings. Since the beginning of
fiscal 1996, 27 stores have been opened and 31 stores have been closed. The
first quarter of fiscal 1997 represents the fourth consecutive quarter that the
Company has achieved positive comparable store sales.
Gross Profit. Gross profit increased as a percentage of sales from 19.3
percent in the 12 weeks ended April 21, 1996 to 20.6 percent in the 12 weeks
ended April 27, 1997. The increase in gross profit margin reflects a reduction
in warehousing and distribution costs as a result of the consolidation of the
Company's distribution operations, as well as a reduction in the cost of goods
sold as the benefits of product procurement programs instituted by the Company
are realized.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") were $206.6 million and $209.8 million for the
12 weeks ended April 21, 1996 and April 27, 1997, respectively. SG&A decreased
as a percentage of sales from 16.8 percent to 16.4 percent for the same
periods. The reduction in SG&A as a percentage of sales reflects the continued
results of tighter expense and labor controls at the store level and continued
administrative cost reductions.
Operating Income. Primarily as a result of the factors discussed above,
the Company's operating income increased from $24.1 million in the 12 weeks
ended April 21, 1996 to $45.0 million in the 12 weeks ended April 27, 1997.
Loss Before Extraordinary Charges. Primarily as a result of the factors
discussed above, the Company's loss before extraordinary charges decreased from
$39.8 million in the 12 weeks ended April 21, 1996 to $21.0 million in the 12
weeks ended April 27, 1997.
Extraordinary Charges. Extraordinary charges of $48.0 million were
recorded during the 12 weeks ended April 27, 1997. These charges relate to the
call premium on the 13.75% Senior Subordinated Notes and the write-off of
deferred financing costs associated with the Company's previous bank facility
("Old Credit Facility") and the 13.75% Senior Subordinated Notes.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations, amounts available under the Company's $325
million revolving facility ("Revolving Facility") and lease financing are the
Company's principal sources of liquidity. The Company believes that these
sources will be adequate to meet its anticipated capital expenditure, working
capital and debt service requirements for the remainder of fiscal 1997.
At April 27, 1997, borrowings of $111.5 million under the Revolving
Facility and $89.1 million of standby letters of credit were outstanding. The
level of borrowings under the Company's Revolving Facility is dependent upon
cash flows from operations, the timing of disbursements, seasonal requirements
and capital expenditure activity. The Company is required to reduce loans
outstanding under the Revolving Facility to $110.0 million for a period of not
less than 30 consecutive days during the twelve consecutive month-period ended
on the last day of fiscal 1997. At May 23, 1997, the Company had $139.5
million available for borrowing under the Revolving Facility.
During the first quarter of fiscal 1997, cash provided by operating
activities was approximately $8.5 million compared to $54.5 million in the first
quarter of fiscal 1996. The decline in cash from operating activities in the
current quarter is primarily due to the timing of payments of accounts payable
and accrued liabilities and prepaid expenses. These reductions in cash were
partially offset by an improvement in operating income of approximately $20.9
million. The improvement in operating income can primarily be attributed to
strong comparable store sales, a reduction in warehousing and distribution costs
resulting from the consolidation of the company's distribution operations, and a
reduction in cost of goods sold as the benefits of product procurement programs
are realized. The Company's principal use of cash in its operating activities
is inventory purchases. The Company's high inventory turnover rate generally
allows it to finance a substantial portion of its inventory through trade
payables, thereby reducing its short-term borrowing needs.
Cash used by investing activities was $30.6 million for the first quarter
of fiscal 1997. Investing activities consisted primarily of capital
expenditures of $31.0 million. The capital expenditures were financed primarily
from cash provided by operating and financing activities.
The capital expenditures in the first quarter of fiscal 1997, as discussed
above, relate to six new stores (one of which had been completed at April 27,
1997) and the remodeling of 43 stores (16 of which had been completed at April
27, 1997). The Company currently anticipates that its aggregate capital
expenditures for fiscal 1997 will be approximately $155.0 million (or $140.0
million, net of expected capital leases) and will include eight new stores and
58 remodels. Consistent with past practices, the Company intends to finance
these capital expenditures primarily with cash provided by operations,
borrowings under the Revolving Facility and through leasing transactions. No
assurance can be given that sources of financing for capital expenditures will
be available or sufficient to finance its anticipated capital expenditure
requirements; however, management believes the capital expenditure program has
substantial flexibility and is subject to revision based on various factors,
including changes in business conditions and cash flow requirements. Management
believes that if the Company were to substantially reduce or postpone these
programs, there would be no substantial impact on short-term operating
profitability. However, management also believes that the construction of new
stores is an important component of its future operating strategy.
Consequently, management believes that if these programs were substantially
reduced, future operating results, and ultimately its cash flow, would be
adversely affected.
The capital expenditures discussed above do not include potential
acquisitions which the Company could make to expand within its existing markets
or to enter other markets. The Company has grown through acquisitions in the
past and from time to time engages in discussions with potential sellers of
individual stores, groups of stores or other retail supermarket chains.
The Company continues to monitor and evaluate the performance of individual
stores as well as operating markets in relation to its overall business
objectives. As a result of this evaluation, alternative strategies may be
considered by the Company which could result in the disposition of certain
assets.
Cash provided by financing activities was $12.4 million for the first
quarter of fiscal 1997, resulting primarily from refinancing activities.
Refinancing activities consisted of the issuance of 11% Senior Subordinated
Notes to refinance Ralphs' 13.75% Senior Subordinated Notes and the refinancing
and amendment of the Old Credit Facility (discussed below). In total, financing
activities consisted primarily of proceeds of $713.5 million from the issuance
of long-term debt and net borrowings of $12.1 million under the Revolving
Facility, partially offset by principal payments of long-term debt of $541.0
million, restricted cash of $161.2 million and capital lease payments of $6.6
million.
During the quarter, Ralphs issued $155 million principal amount of 11%
Senior Subordinated Notes due 2005 (the "1997 11% Senior Subordinated Notes")
with terms substantially identical to its existing 11% Senior Subordinated Notes
at a price of 105.5% of their principal amount, resulting in gross proceeds of
$163.5 million. At April 27, 1997, $161.2 million of these proceeds was
included in restricted cash and was subsequently used to redeem all of Ralphs'
$145 million principal amount of 13.75% Senior Subordinated Notes at a price of
106.1% of their principal amount and to pay the related accrued interest through
the redemption date, which was April 28, 1997. As a result, the Company has
classified the principal amount of the $145 million 13.75% Senior Subordinated
Notes as current in the accompanying balance sheet at April 27, 1997. The
remaining proceeds were used to pay fees and expenses associated with the
issuance of the 1997 11% Senior Subordinated Notes.
During the quarter, the Company also amended and restated its Old Credit
Facility to lower interest margins and allow more flexibility with respect to
application of proceeds from certain asset sales and capital expenditures. The
amended and restated credit facility (the "New Credit Facility") consists of a
$200.0 million Term Loan A Facility and a $350.0 million Term Loan B Facility
(together, the "Term Loans") and a $325 million Revolving Credit Facility
("Revolving Facility") under which working capital loans may be made and
commercial or standby letters of credit in the maximum of $150.0 may be issued.
Quarterly principal installments on the Term Loans continue to 2004, with
principal amounts due as follows: $2.6 million in fiscal 1997, $3.5 million in
fiscal 1998, $25.5 million in fiscal 1999, $62.6 million in fiscal 2000, $87.5
million in fiscal 2001 and $368.3 million thereafter.
As a result of the refinancings described above, the Company recorded
extraordinary charges in the first quarter of fiscal 1997 of approximately $48.0
million, consisting of the call premium on the 13.75% Senior Subordinated Notes
and write-off of deferred financing costs associated with the Old Credit
Facility and the 13.75% Senior Subordinated Notes.
Holdings has outstanding $127.7 million accreted value of Discount
Debentures and $165.0 million principal amount of Pay-In-Kind Debentures
outstanding. Holdings is a holding company which has no assets other than the
capital stock of the Company. Holdings will be required to commence semi-annual
cash payments of interest on the Discount Debentures and the Pay-In-Kind
Debentures commencing December 15, 2000 in the amount of approximately $61
million per annum. Subject to the limitations contained in its debt
instruments, Ralphs intends to make dividend payments to Holdings in amounts
which are sufficient to permit Holdings to service its cash interest
requirements. Ralphs may pay other dividends to Holdings in connection with
certain employee stock repurchases and for routine administrative expenses.
The Company is highly leveraged. At April 27, 1997, the Company's total
long-term indebtedness (including current maturities) and stockholder's deficit
were $2.6 billion and $388.2 million, respectively. Based upon current levels
of operations and anticipated cost savings and future growth, the Company
believes that its cash flow from operations, together with available borrowings
under the Revolving Facility and its other sources of liquidity (including lease
financing), will be adequate to meet its anticipated requirements for working
capital, capital expenditures, other long-term liabilities and debt service
payments. There can be no assurance, however, that the Company's business will
continue to generate cash flow at or above current levels or that future cost
savings and growth can be achieved.
CAUTIONARY STATEMENT FOR PURPOSES OF "SAFE HARBOR PROVISIONS" OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
When used in this report, the words "believe," "estimate," "expect,"
"project" and similar expressions, together with other discussion of future
trends or results, are intended to identify forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Such statements are subject to certain risks and
uncertainties, including those discussed below, that could cause actual results
to differ materially from those projected. These forward-looking statements
speak only as of the date hereof. All of these forward-looking statements are
based on estimates and assumptions made by management of the Company which,
although believed to be reasonable, are inherently uncertain and difficult to
predict; therefore, undue reliance should not be placed upon such estimates.
There can be no assurance that the savings or other benefits anticipated in
these forward-looking statements will be achieved. The following important
factors, among others, could cause the Company not to achieve the cost savings
or other benefits contemplated herein or otherwise cause the Company's results
of operations to be adversely affected in future periods: (i) increased
competitive pressures from existing competitors and new entrants, including
price-cutting strategies, store openings and remodels; (ii) loss or retirement
of key members of management or the termination of the Company's Consulting
Agreement with Yucaipa; (iii) inability to negotiate more favorable terms with
suppliers; (iv) increases in interest rates or the Company's cost of borrowing
or a default under any material debt agreements; (v) inability to develop new
stores in advantageous locations or to successfully convert or remodel
additional stores; (vi) prolonged labor disruption; (vii) deterioration in
general or regional economic conditions, particularly in Southern California,
the Company's principal operating region; (viii) adverse state or federal
legislation or regulation that increases the costs of compliance, or adverse
findings by a regulator with respect to existing operations; (ix) loss of
customers or sales weakness; (x) adverse determinations in connection with
pending or future litigation or other material claims against the Company; (xi)
inability to achieve future sales levels or other operating results that support
its programs to reduce costs; (xii) the unavailability of funds for capital
expenditures; (xiii) increases in labor costs; (xiv) inability to control
inventory levels; and (xv) operational inefficiencies in distribution or other
Company systems. Many of such factors are beyond the control of the Company.
There can be no assurance that the Company will not incur new or additional
unforeseen costs in connection with the ongoing conduct of its business.
Accordingly, any forward-looking statements included herein do not purport to be
predictions of future events or circumstances and may not be realized. In
addition, assumptions relating to budgeting, marketing, advertising, litigation
and other management decisions are subjective in many respects and thus
susceptible to interpretations and periodic revisions based on actual experience
and business developments, the impact of which may cause the Company to alter
its marketing, capital expenditure or other budgets, which may in turn affect
the Company's financial position and results of operations.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
4.1.
Indenture for the 11% Senior Subordinated Notes due 2005, dated
as of March 26, 1997, by and between Ralphs Grocery Company, the
subsidiary guarantors therein and United States Trust Company of
New York, as trustee (incorporated herein by reference to Exhibit
4.8 of Ralphs Grocery Company's Registration Statement on Form S-
4 dated June 9, 1997).
4.2.
Amended and Restated Credit Agreement dated as of April 17, 1997
by and among Food 4 Less Holdings, Inc., Ralphs Grocery Company,
the Lenders listed therein and Bankers Trust Company
(incorporated herein by reference to Exhibit 4.1 of Ralphs
Grocery Company's Registration Statement on Form S-4, dated June
9, 1997).
27. Financial Data Schedule.
(b) Reports on Form 8-K
None.
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 Los Angeles, State
of California.
Dated: June 9, 1997 FOOD 4 LESS HOLDINGS, INC.
/s/ John T. Standley
----------------------------
John T. Standley
Senior Vice President and
Chief Financial Officer
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<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 27,
1997.
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<PERIOD-END> APR-27-1997
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<RECEIVABLES> 49,305
<ALLOWANCES> (4,225)
<INVENTORY> 498,763
<CURRENT-ASSETS> 791,553
<PP&E> 1,376,971
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192,831
<COMMON> 172
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<TOTAL-LIABILITY-AND-EQUITY> 3,233,634
<SALES> 1,276,222
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<INTEREST-EXPENSE> 66,030
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