-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, FivFvD1KY4ZVNkAYLXMgC+A1UNShBlL2m7eOkFa+86ZeBGXYvMFZJw0sxPeJrTJ9 s8DvJqZgA3ctpJmCwwYB3Q== 0000835676-94-000005.txt : 19940302 0000835676-94-000005.hdr.sgml : 19940302 ACCESSION NUMBER: 0000835676-94-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940108 FILED AS OF DATE: 19940222 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOOD 4 LESS SUPERMARKETS INC CENTRAL INDEX KEY: 0000835676 STANDARD INDUSTRIAL CLASSIFICATION: 5411 IRS NUMBER: 954222386 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 34 SEC FILE NUMBER: 033-46750 FILM NUMBER: 94510997 BUSINESS ADDRESS: STREET 1: 777 S HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 BUSINESS PHONE: 7147382000 MAIL ADDRESS: STREET 1: 777 SOUTH HARBOR BOULEVARD CITY: LAHABRA STATE: CA ZIP: 90631 10-Q 1 FORM 10-Q FOR THE 16 WEEKS ENDED JANUARY 8, 1994 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 JANUARY 8, 1994 33-31152 FOOD 4 LESS SUPERMARKETS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 95-4222386 (STATE OR OTHER JURISDICTION OF (I.R.S EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 777 SOUTH HARBOR BOULEVARD LA HABRA, CALIFORNIA 90631 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (714) 738-2000 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HWS 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 21, 1994, THERE WERE 1,503,676 SHARES OF COMMON STOCK OUTSTANDING. AS OF SUCH DATE, NONE OF THE OUTATANDING 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. FOOD 4 LESS SUPERMARKETS, INC. INDEX
Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated balance sheets as of January 8, 1994 and June 26, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Consolidated statements of operations for the 16 weeks ended January 8, 1994 and January 9, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Consolidated statements of operations for the 28 weeks ended January 8, 1994 and January 9, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Consolidated statements of cash flows for the 28 weeks ended January 8, 1994 and January 9, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Consolidated statements of stockholder's equity as of January 8, 1994 and June 26, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS 1 FOOD 4 LESS SUPERMARKETS, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
January 8, June 26, ASSETS 1994 1993 --------- --------- (unaudited) CURRENT ASSETS: Cash and cash equivalents $ 29,792 $ 25,089 Trade receivables, less allowances of $887 and $1,919 at January 8, 1994 and June 26, 1993, respectively 24,856 22,048 Notes and other receivables 5,734 1,278 Inventories 207,573 191,467 Patronage receivables from suppliers 4,984 2,680 Prepaid expenses and other 8,709 6,011 ------- ------- Total current assets 281,648 248,573 INVESTMENTS IN AND NOTES RECEIVABLE FROM SUPPLIER COOPERATIVES: A. W. G. 6,693 6,693 Certified and Others 6,541 6,657 PROPERTY AND EQUIPMENT: Land 23,488 23,912 Buildings 12,837 12,827 Leasehold improvements 86,691 81,049 Store equipment and fixtures 128,046 129,178 Transportation equipment 32,132 31,758 Construction in progress 3,373 757 Leased property under capital leases 75,715 77,553 Leasehold interests 93,613 93,863 ------- ------- 455,895 450,897 Less: Accumulated depreciation and amortization 114,908 96,948 ------- ------- Net property and equipment 340,987 353,949 OTHER ASSETS: Deferred financing costs, less accumulated amortization of $14,559 and $11,611 at January 8, 1994 and June 26, 1993, respectively 31,041 33,778 Goodwill, less accumulated amortization of $30,386 and $26,254 at January 8, 1994 and June 26, 1993, respectively 276,763 280,895 Other, net 25,903 27,295 -------- -------- $969,576 $957,840 ======= =======
The accompanying notes are an integral part of these consolidated balance sheets. 2 FOOD 4 LESS SUPERMARKETS, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
January 8, June 26, LIABILITIES AND STOCKHOLDER'S EQUITY 1994 1993 -------- -------- (unaudited) CURRENT LIABILITIES: Accounts payable $165,822 $140,468 Accrued payroll and related liabilities 38,706 40,319 Accrued interest 6,754 5,293 Other accrued liabilities 39,674 40,467 Income taxes payable 2,691 2,053 Current portion of self-insurance liabilities 23,655 23,552 Current portion of long-term debt 16,398 12,778 Current portion of obligations under capital leases 2,843 2,865 ------- ------- Total current liabilities 296,543 267,795 LONG-TERM DEBT 316,689 335,576 OBLIGATIONS UNDER CAPITAL LEASES 40,321 41,864 SENIOR SUBORDINATED DEBT 145,000 145,000 DEFERRED INCOME TAXES 24,143 22,429 SELF-INSURANCE LIABILITIES AND OTHER 75,714 72,313 COMMITMENTS AND CONTINGENCIES - - STOCKHOLDER'S EQUITY: Cumulative convertible preferred stock, $.01 par value, 200,000 shares authorized and 50,000 shares outstanding at January 8, 1994 and June 26, 1993 (aggregate liquidation value of $58.1 million and $53.8 million at January 8, 1994 and June 26, 1993, respectively) 54,951 50,230 Common stock, $.01 par value, 1,600,000 shares authorized; 1,519,632 shares issued at January 8, 1994 and June 26, 1993 15 15 Additional paid-in capital 107,650 107,650 Notes receivable from shareholders of parent (626) (714) Retained deficit (88,861) (83,119) ------- ------- 73,129 74,062 Treasury stock: 15,956 and 13,249 shares of common stock at January 8, 1994 and June 26, 1993, respectively 1,963 1,199 ------- ------- Total stockholder's equity 71,166 72,863 ------- ------- $969,576 $957,840 ======= =======
The accompanying notes are an integral part of these consolidated balance sheets. 3 FOOD 4 LESS SUPERMARKETS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) (UNAUDITED)
16 Weeks 16 Weeks Ended Ended January 8, January 9, 1994 1993 --------- --------- SALES $ 799,597 $ 845,339 COST OF SALES (including purchases from related parties for the 16 weeks ended January 8, 1994 and January 9, 1993 of $58,453 and $69,128, respectively) 586,296 624,676 ------- ------- GROSS PROFIT 213,301 220,663 SELLING, GENERAL, ADMINISTRATIVE AND OTHER, NET excluding depreciation and amortization 176,216 193,538 DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT 12,781 11,982 AMORTIZATION OF GOODWILL AND OTHER ASSETS 4,567 6,208 ------- ------- OPERATING INCOME 19,737 8,935 INTEREST EXPENSE: Interest expense, excluding amortization of deferred financing costs 17,537 17,834 Amortization of deferred financing costs 1,709 1,441 ------- ------- 19,246 19,275 INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 491 (10,340) PROVISION FOR INCOME TAXES 400 92 ------- ------- NET INCOME (LOSS) $ 91 $ (10,432) ======= ======= LOSS APPLICABLE TO COMMON SHARES $ (2,607) $ (10,622) ======= ======= LOSS PER COMMON SHARE $ (1.73) $ (7.54) ======= ======= Average Number of Common Shares Outstanding 1,503,676 1,408,247 ========= =========
The accompanying notes are an integral part of these consolidated statements. 4 FOOD 4 LESS SUPERMARKETS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) (UNAUDITED)
28 Weeks 28 Weeks Ended Ended January 8, January 9, 1994 1993 --------- --------- SALES $1,416,213 $1,498,970 COST OF SALES (including purchases from related parties for the 28 weeks ended January 8, 1994 and January 9, 1993 of $106,060 and $118,932, respectively) 1,039,655 1,111,060 --------- --------- GROSS PROFIT 376,558 387,910 SELLING, GENERAL, ADMINISTRATIVE AND OTHER, NET excluding depreciation and amortization 312,920 342,009 DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT 21,832 20,298 AMORTIZATION OF GOODWILL AND OTHER ASSETS 8,540 10,237 --------- --------- OPERATING INCOME 33,266 15,366 INTEREST EXPENSE: Interest expense, excluding amortization of deferred financing costs 30,639 31,624 Amortization of deferred financing costs 2,948 2,520 --------- --------- 33,587 34,144 --------- --------- LOSS BEFORE PROVISION FOR INCOME TAXES (321) (18,778) PROVISION FOR INCOME TAXES 700 368 --------- --------- NET LOSS $ (1,021) $ (19,146) ========= ========== LOSS APPLICABLE TO COMMON SHARES $ (5,742) $ (19,336) ========= ========== LOSS PER COMMON SHARE $ (3.82) $ (13.77) ========= ========== Average Number of Common Shares Outstanding 1,504,245 1,404,076 ========= =========
The accompanying notes are an integral part of these consolidated statements. 5 FOOD 4 LESS SUPERMARKETS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
28 Weeks 28 Weeks Ended Ended January 8, January 9, 1994 1993 --------- --------- CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Cash received from customers $1,416,213 $1,498,970 Cash paid to suppliers and employees (1,361,103) (1,499,975) Interest paid (29,178) (30,721) Income taxes refunded 1,652 344 --------- --------- Other, net 2,874 3,208 NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 30,458 (28,174) CASH PROVIDED (USED) BY INVESTING ACTIVITIES: Proceeds from sale of property and equipment 12,307 12,101 Payment for purchase of property and equipment (20,404) (38,913) Other, net 61 (1,780) --------- --------- NET CASH USED BY INVESTING ACTIVITIES (8,036) (28,592) CASH PROVIDED (USED) BY FINANCING ACTIVITIES: Payments of long-term debt (10,395) (9,572) Payments of capital lease obligation (1,565) (1,511) Net change in Revolving Loan (4,900) 4,100 Proceeds from issuance of debt 28 26,231 Proceeds from sale of preferred stock - 46,348 Proceeds from sale of common stock - 3,652 Purchase of treasury stock, net (726) (276) Other, net (161) (7,601) --------- --------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (17,719) 61,371 NET INCREASE IN CASH AND CASH EQUIVALENTS 4,703 4,605 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 25,089 24,477 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 29,792 $ 29,082 ========= =========
The accompanying notes are an integral part of these consolidated statements. 6 FOOD 4 LESS SUPERMARKETS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
28 Weeks 28 Weeks Ended Ended January 8, January 9, 1994 1993 -------- -------- RECONCILIATION OF NET LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Net loss $(1,021) $(19,146) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Depreciation and amortization 33,320 33,055 Provision for self-insurance, net 3,301 (1,695) Loss (gain) on sale of assets 87 (14) Equity loss on investments in supplier cooperative 294 - Change in assets and liabilities: Accounts and notes receivable (9,568) 9,970 Inventories (16,106) 28,757 Other assets (5,953) (7,328) Accounts payable and accrued liabilities 23,752 (72,485) Deferred income taxes 1,714 350 Income taxes payable 638 362 ------ ------ Total adjustments 31,479 ( 9,028) ------ ------ NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $30,458 $(28,174) ====== ====== SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES: Accretion of preferred stock $ 4,721 $ 190 ====== =======
The accompanying notes are an integral part of these consolidated statements. 7 FOOD 4 LESS SUPERMARKETS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Preferred Stock Common Stock Treasury Stock ------------------------ ---------------------- ----------------------- Number Number Number of of of Shares Amount Shares Amount Shares Amount -------- -------- --------- ------- -------- ------- BALANCES AT JUNE 26, 1993 50,000 $50,230 1,519,632 $ 15 (13,249) $(1,199) Payment of Shareholders' Notes - - - - - - (unaudited) Purchase of Treasury Stock (unaudited) - - - - (2,707) (764) Accretion of Preferred Stock (unaudited) - 4,721 - - - - Net loss (unaudited) - - - - - - ------ ------ --------- --- ------ --- BALANCES AT JANUARY 8, 1994 (unaudited) 50,000 $54,951 1,519,632 $ 15 (15,956) $(1,963) ====== ====== ========= === ====== =====
Share- Add'l Total holders' Paid-In Retained Stockholder's Notes Capital Deficit Equity -------- -------- --------- ---------- BALANCES AT JUNE 26, 1993 $(714) $107,650 $(83,119) $72,863 Payment of Shareholders' Notes 50 - - 50 (unaudited) Purchase of Treasury Stock (unaudited) 38 - - (726) Accretion of Preferred Stock (unaudited) - - (4,721) - Net loss (unaudited) - - (1,021) (1,021) --- -------- ------ ------ BALANCES AT JANUARY 8, 1994 (unaudited) $(626) $107,650 $(88,861) $71,166 === ======= ====== ======
The accompanying notes are an integral part of these consolidated statements. 8 FOOD 4 LESS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The consolidated balance sheet of Food 4 Less Supermarkets, Inc. (the "Company") as of January 8, 1994 and the consolidated statements of operations and cash flows for the interim periods ended January 8, 1994 and January 9, 1993 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. The Company is a vertically integrated supermarket company with 249 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 $15,323,000 and $13,103,000 at January 8, 1994 and June 26, 1993, respectively, and gross profit and operating income would have been greater by $1,209,000 and $1,381,000 for the 16 weeks ended January 8, 1994 and January 9, 1993, respectively, and by $2,220,000 and $2,381,000 for the 28 weeks ended January 8, 1994 and January 9, 1993, respectively. Income Taxes The Company implemented SFAS No. 109, Accounting for Income Taxes, effective June 27, 1993. Income taxes for the 28 weeks ended January 9, 1993 have not been restated for this change. Under SFAS No. 109 deferred tax assets and liabilities (and related income tax expense) are determined based on differences between the financial reporting and tax basis of assets and liabilities. The measurement of deferred income tax assets is adjusted by a valuation reserve, if necessary, so that the net tax benefits are recognized only to the extent that they will be realized. 9 The implementation of SFAS No. 109 did not have a material effect on the accompanying unaudited consolidated financial statements. Reclassifications Certain prior-period amounts in the consolidated financial statements have been reclassified to conform to the January 8, 1994 presentation. 3. SUBSEQUENT EVENT On January 17, 1994, Southern California was struck by a major earthquake which resulted in the closure of 31 of the Company's stores. All but one of the closed stores reopened within a week of the earthquake, and the remaining closed store is scheduled to open during the Company's third quarter. The Company believes that all but $3.0 to $5.0 million of its losses (including those resulting from business interruption) will be covered by insurance and will be reflected in the Company's third quarter results. 4. SUBSIDIARY REGISTRANTS Separate financial statements of the Company's subsidiaries (collectively, the "Subsidiary Guarantors") neither are included herein nor otherwise filed on Form 10-Q because such Subsidiary Guarantors are jointly and severally liable as guarantors of the Company's 10.45% Senior Notes due 2000 and 13-3/4% Senior Subordinated Notes due 2001, and the aggregate assets, earnings and equity of the Subsidiary Guarantors are substantially equivalent to the assets, earnings and equity of the Company on a consolidated basis. 10 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 16 and 28 weeks ended January 8, 1994 and January 9, 1993:
16 Weeks Ended 28 Weeks Ended ----------------------------------- ----------------------------------- January 8, 1994 January 9, 1993 January 8, 1994 January 9, 1993 --------------- --------------- --------------- --------------- (dollars in millions) (unaudited) Sales $799.6 100.0% $845.3 100.0 % $1,416.2 100.0 % $1,499.0 100.0 % Gross profit 213.2 26.7% 220.6 26.1 % 376.6 26.6 % 387.9 25.9 % Selling, general, administrative and other expenses 176.2 22.0% 193.5 22.9 % 312.9 22.1 % 342.0 22.9 % Depreciation and amortization 17.3 2.2% 18.2 2.1 % 30.4 2.1 % 30.5 2.0 % Operating income 19.7 2.5% 8.9 1.1 % 33.3 2.4 % 15.4 1.0 % Interest expense 19.2 2.4% 19.2 2.3 % 33.6 2.4 % 34.1 2.3 % Income tax expense 0.4 0.1% 0.1 0.0 % 0.7 0.1 % 0.4 0.0 % Net income (loss) 0.1 0.0% (10.4) (1.2)% (1.0) (0.1)% (19.1) (1.3)%
Sales. Sales per week decreased $2.8 million, or 5.4%, from $52.8 million in the 16 weeks ended January 9, 1993 to $50.0 million in the 16 weeks ended January 8, 1994 and decreased $2.9 million, or 5.5%, from $53.5 million in the 28 weeks ended January 9, 1993 to $50.6 million in the 28 weeks ended January 8, 1994. The decline in sales primarily resulted from a 6.5% and a 7.1% decline in same store sales for the 16 and 28 weeks ended January 8, 1994, respectively, partially offset by sales from new stores opened during fiscal 1993 and the 28 weeks ended January 8, 1994. Management believes that the decline in same store sales is attributable to the weak economy in Southern California and, to a lesser extent, in the Company's other operating areas, and increased competitive store openings in Southern California. Gross Profit. Gross profit increased as a percentage of sales from 26.1% in the 16 weeks ended January 9, 1993 to 26.7% in the 16 weeks ended January 8, 1994 and increased from 25.9% in the 28 weeks ended January 9, 1993 to 26.6% in the 28 weeks ended January 8, 1994. Increases in gross profit margin are primarily attributable to improvements in product procurement, cost savings and operating efficiencies associated with the Company's manufacturing, warehousing and distribution facilities. These increases are partially offset by 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 40 at January 9, 1993 to 48 at January 8, 1994, and the fixed cost component of gross profit being compared to a lower sales base. Selling, General, Administrative and Other Expenses. Selling, general, administrative and other expenses, excluding depreciation and amortization ("SG&A") were $193.5 million and 11 $176.2 million for the 16 weeks and $342.0 million and $312.9 million for the 28 weeks ended January 9, 1993 and January 8, 1994, respectively. SG&A decreased as a percentage of sales from 22.9% to 22.0% and from 22.9% to 22.1% for the same periods as a result of tight control of administrative and store level expenses, primarily payroll costs, and increased labor productivity, partially offset by the fixed cost component of SG&A being compared to a lower sales base. Depreciation and Amortization. Depreciation and amortization decreased $0.9 million from $18.2 million to $17.3 million and decreased $0.1 million from $30.5 million to $30.4 million for the 16 weeks and the 28 weeks ended January 9, 1993 and January 8, 1994, respectively, primarily as a result of a decrease in amortizable assets, partially offset by an increase in depreciable assets resulting from new stores and remodels completed during fiscal 1993 and the 28 weeks ended January 8, 1994. Interest Expense. Interest expense (including amortization of deferred financing costs) was $19.2 million and $19.2 million for the 16 weeks and $34.1 million and $33.6 million for the 28 weeks ended January 9, 1993 and January 8, 1994, respectively. The decrease in interest expense for the 28 weeks ended January 8, 1994 is due to the reduction of indebtedness as a result of reduced borrowings under the Revolving Credit Facility combined with decreased interest rates on the Term Loan. Net Income (Loss). Net income increased from a loss of $(10.4) million in the 16 weeks ended January 9, 1993 to income of $0.1 million in the 16 weeks ended January 8, 1994 and net loss decreased from $(19.1) million in the 28 weeks ended January 9, 1993 to $(1.0) million in the 28 weeks ended January 8, 1994 primarily as a result of the factors discussed above. 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 1994. There can be no assurance that the Company will continue to generate cash flow from operations at current levels or that it will be able to make future borrowings under the Revolving Credit Facility. During the 28-week period ended January 8, 1994, the Company generated approximately $30.5 million of cash from its operating activities compared to $28.2 million used by operating activities for the 28 weeks ended January 9, 1993. The improvement is due primarily to changes in operating assets and liabilities and an increase in operating income for the 28 weeks ended January 8, 1994 compared to the 28 weeks ended January 9, 1993. The Company's principal use of cash in its operating activities is inventory purchases. Its high inventory turnover allows it to finance a substantial portion of its inventory through trade payables, thereby reducing its short-term borrowing needs. At 12 January 8, 1994, this resulted in a working capital deficit of $14.9 million. The capital expenditures of the Company were $20.4 million, partially funded by $9.7 million of sale/leaseback transactions structured as operating leases, for the 28 weeks ended January 8, 1994. These expenditures were made to build seven new stores (two of which have been completed) and remodel 15 stores (12 of which have been completed). The Company currently anticipates that its aggregate capital expenditures for fiscal 1994 will be approximately $55.0 million. Consistent with its past practices, the Company intends to finance these capital expenditures primarily with cash provided by operations and through operating leases. 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 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 used by financing activities was $17.7 million for the 28 weeks ended January 8, 1994, which was primarily an $8.6 million repayment of the Term Loan and repayment of the $4.9 million of borrowings outstanding on the Revolving Credit Facility at June 26, 1993. At January 8, 1994, there were no borrowings outstanding on the $70 million Revolving Credit Facility, and $48.9 million of standby letters of credit had been issued under the $55 million Letter of Credit Facility. The Company is highly leveraged. At January 8, 1994, the Company's total long-term indebtedness (including current maturities) and stockholder's equity were $521.3 million and $71.2 million, respectively. For the 28 weeks ended January 8, 1994, earnings were inadequate to cover fixed charges by $0.3 million. However, the earnings for such period included non-cash charges of $33.3 million, primarily consisting of depreciation and amortization. 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, 13 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. SUBSIDIARY REGISTRANTS Separate financial statements of the Company's subsidiaries (collectively, the "Subsidiary Guarantors") are neither included herein nor otherwise filed on Form 10-Q because such Subsidiary Guarantors are jointly and severally liable as guarantors of the Company's Senior Notes and Subordinated Notes, and the aggregate assets, earnings and equity of the Subsidiary Guarantors are substantially equivalent to the assets, earnings and equity of the Company on a consolidated basis. 14 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. None (b) Reports on Form 8-K None 15 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 21, 1994 FOOD 4 LESS SUPERMARKETS, INC. /s/ Ronald W. Burkle --------------------------------- Ronald W. Burkle Chief Executive Officer /s/ Greg Mays --------------------------------- Greg Mays Chief Financial Officer 16 -----END PRIVACY-ENHANCED MESSAGE-----