-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Its39o0+V9I8ZRE85AP4ryWQ6D19QGmcmf6rIYBXbkbXlOAtY4lebIlk6bUvSri+ qZPB6laGrHthy3XOSYcTSQ== 0000950150-98-000723.txt : 19980505 0000950150-98-000723.hdr.sgml : 19980505 ACCESSION NUMBER: 0000950150-98-000723 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980201 FILED AS OF DATE: 19980504 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: RALPHS GROCERY CO /DE/ CENTRAL INDEX KEY: 0000835676 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 954356030 STATE OF INCORPORATION: DE FISCAL YEAR END: 0128 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 033-46750 FILM NUMBER: 98609735 BUSINESS ADDRESS: STREET 1: 3800 SE 22ND AVENUE CITY: PORTLAND STATE: OR ZIP: 97202 BUSINESS PHONE: 5032328844 MAIL ADDRESS: STREET 1: 3800 SE 22ND AVENUE CITY: PORTLAND STATE: OR ZIP: 97202 FORMER COMPANY: FORMER CONFORMED NAME: FOOD 4 LESS SUPERMARKETS INC DATE OF NAME CHANGE: 19931027 10-K 1 FORM 10-K 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 --------------- For Fiscal Year Ended Commission File Number February 1, 1998 33-31152 RALPHS GROCERY COMPANY (Exact name of registrant as specified in its charter) DELAWARE 95-4356030 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1100 West Artesia Boulevard 90220 Compton, California (Zip code) (Address of principal executive offices) (310) 884-9000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: None 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 report(s)), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]. Ralphs Grocery Company meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with the reduced disclosure format specified in General Instruction (I)(2) to such Form 10-K. At March 9, 1998, there were 1,513,938 shares of Common Stock outstanding. As of such date, all shares were held by Food 4 Less Holdings, Inc., and there was no public market for the Common Stock. ================================================================================ 2 CONTENTS
Page PART I Item 1. Business......................................................... 2 Item 2. Properties....................................................... 3 Item 3. Legal Proceedings and Environmental Matters...................... 4 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...................................... 7 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition............................ 8 Item 7A. Quantitative and Qualitative Disclosures About Market Risk...................................................... 13 Item 8. Financial Statements and Supplementary Data...................... 13 Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.............................. 13 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...................................................... 14
NOTE: Items 4, 6, 10, 11, 12 and 13 are omitted pursuant to General Instruction (I)(2) of Form 10-K. 1 3 PART I ITEM 1. BUSINESS Ralphs Grocery Company (the "Company"), a wholly-owned subsidiary of Food 4 Less Holdings, Inc. ("Holdings") and an indirect, wholly-owned subsidiary of Fred Meyer, Inc., a Delaware corporation ("Fred Meyer"), is a retail supermarket company with a total of 409 stores which are located in Southern California (344) , Northern California (27) and certain areas of the Midwest (38). The Company is the largest supermarket operator in Southern California, with an estimated market share of 25 percent in Los Angeles and Orange Counties. 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. The Company has achieved strong competitive positions in each of its marketing areas by successfully tailoring its merchandising strategy to the particular needs of the individual communities it serves. In addition, the Company is a vertically integrated supermarket company with major manufacturing facilities, including a bakery and creamery operations, and full-line warehouse and distribution facilities servicing its Southern California operations. On February 10, 1998, Fred Meyer, Quality Food Centers, Inc. ("QFC") and Holdings entered into a settlement agreement (the "Settlement Agreement") with the State of California to settle potential antitrust and unfair competition claims that the State of California asserted against Fred Meyer, QFC and Holdings relating to the effects of the proposed Fred Meyer and QFC Mergers on supermarket competition in Southern California (the "State Claims"). Without admitting any liability in connection with the State Claims, Fred Meyer, QFC and Holdings agreed in the Settlement Agreement to divest 19 specific stores in Southern California, including 16 Ralphs stores. Under the Settlement Agreement, Fred Meyer must divest 13 stores by September 10, 1998 and the balance of six stores by December 10, 1998. Fred Meyer also agreed not to acquire new stores from third parties in the Southern California areas specified in the Settlement Agreement (covering substantially all of the Los Angeles metropolitan area) for five years following the date of the Settlement Agreement without providing prior notice to the State of California. If Fred Meyer fails to divest the required stores by the two dates set forth in the Settlement Agreement, Fred Meyer has agreed not to object to the appointment of a trustee to effect the required sales. On November 6, 1997, Holdings, Fred Meyer and FFL Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of Fred Meyer ("Acquisition"), entered into an Agreement and Plan of Merger (the "Fred Meyer Merger Agreement"). Pursuant to the terms of the Fred Meyer Merger Agreement, Holdings was merged with Acquisition on March 10, 1998, thereby becoming a wholly-owned subsidiary of Fred Meyer (the "Fred Meyer Merger"). The Fred Meyer Merger was approved by the stockholders of Holdings through a consent solicitation. The QFC Merger was completed on March 9, 1998. On March 11, 1998, Fred Meyer completed certain refinancing transactions related to the Fred Meyer Merger. As part of the refinancing, Holdings and the Company made offers to purchase and consent solicitations with respect to the following debt securities: (i) Food 4 Less Holdings 13-5/8% Senior Discount Debentures due 2005, (ii) Food 4 Less Holdings 13-5/8% Senior Subordinated Pay-In-Kind Debentures due 2007, (iii) Ralphs Grocery Company 10.45% Senior Notes due 2004 (issued 6/95), (iv) Ralphs Grocery Company 10.45% Senior Notes due 2004 (issued 6/96), (v) Ralphs Grocery Company 11% Senior Subordinated Notes due 2005 (issued 6/95) and (vi) Ralphs Grocery Company 11% Senior Subordinated Notes due 2005 (issued 3/97). Payment to the note holders included tendered amounts, interest and consent fees, which were $1,612.7 million, $37.7 million and $209.9 million, respectively. 2 4 The Ralphs Grocery Company 10.45% Senior Notes due 2004 (issued in June 1995) and the Ralphs Grocery Company 11% Senior Subordinated Notes due 2005 (issued in June 1995) were not fully tendered and $20,344,000 and $42,565,000 principal amount of each issue are still outstanding, respectively. In connection with the Fred Meyer Merger, the stockholders and warrantholders of Holdings received an aggregate of 21,670,503 shares of Fred Meyer Common Stock in exchange for their Holdings shares and warrants, and cash payment of $33.6 million to terminate and satisfy Holdings' obligations under existing stock options. On June 14, 1995, Holdings and its subsidiary, Food 4 Less Supermarkets, Inc. ("F4L Supermarkets") completed their acquisition (the "Ralphs Merger") of Ralphs Supermarkets, Inc. ("RSI") and its wholly owned subsidiary, Ralphs Grocery Company ("RGC"). Concurrently with the consummation of the Ralphs Merger, the Company refinanced a substantial portion of the existing indebtedness of F4L Supermarkets and RGC. The Company operates both conventional and warehouse format stores utilizing a retail strategy tailored to the particular needs of the individual communities it serves. The Company operates in three geographic areas: Southern California, Northern California and certain areas of the Midwest, under six different retail formats. The following table sets forth by retail format the number of stores operated by each of the Company's three divisions at February 1, 1998 (unless otherwise indicated, all references to numbers of stores and other store data in this Annual Report on Form 10-K are as of February 1, 1998):
Southern Northern California California Midwestern Total ---------- ---------- ---------- ----- Ralphs 264 - - 264 Cala - 8 - 8 Bell - 13 - 13 Falley's - - 5 5 ---- ---- ---- ---- Total Conventional 264 21 5 290 Food 4 Less 80 - 33 113 FoodsCo - 6 - 6 ---- ---- ---- ---- Total Warehouse 80 6 33 119 ---- ---- ---- ---- Total Stores 344 27 38 409 ==== ==== ==== ====
ITEM 2. PROPERTIES At February 1, 1998, the Company operated 409 supermarkets, as set forth in the table below:
Number of Average Supermarkets Total Square Feet/ Division Owned Leased Square Feet Facility -------- ----- ------ ----------- -------- Southern California 59 (a) 285 13,914,000 40,400 Northern California - 27 654,000 24,200 Midwestern 2 (b) 36 1,423,000 37,400
- ---------- (a) Includes thirteen stores located on real property subject to ground leases. (b) Includes one store that is partially owned and partially leased. 3 5 Most of the Southern California Division's store locations are held pursuant to long-term leases, many of which, in the opinion of management, have below-market rental rates or other favorable lease terms. The average remaining term (including all renewal options) of the Company's supermarket leases is approximately 30 years. In addition to the supermarkets, the Company operates three main warehouse and distribution centers in Southern California. The newly-acquired 90-acre Riverside Facility has more than one million square feet of warehousing and manufacturing space consisting of a creamery and several warehouses for dry grocery, dairy/deli and frozen food storage. The Riverside Facility sublease runs for approximately 23 years, with renewal options through 2043, and provides for annual rent of approximately $8.8 million. The Glendale Facility, consisting of a 170,000 square foot high-rise automated storage and retrieval system warehouse and adjacent "picking" warehouse located in the Atwater District of Los Angeles near Glendale, California, was opened in 1987 and handles non-perishable items. It is ten stories high and has a capacity of approximately 50,000 pallets. The Compton facility was opened in 1992 and is a 5.4 million cubic foot facility designed to process and store all perishable products. The Company also has manufacturing operations located in Compton that produce a variety of dairy and other products, including fluid milk, ice cream, yogurt and bottled waters and juices, as well as packaged ice, cheese and packaged salads. The bakery operation is located at the La Habra complex and measures 316,000 square feet. ITEM 3. LEGAL PROCEEDINGS AND ENVIRONMENTAL MATTERS LEGAL PROCEEDINGS In December 1992, three California state antitrust class action suits were commenced in Los Angeles Superior Court against the Company and other major supermarket chains located in Southern California, alleging that they conspired to refrain from competing in the retail market for fluid milk and to fix the retail price of fluid milk above competitive prices. Specifically, class actions were commenced by Diane Barela and Neila Ross, Ron Moliare and Paul C. Pfeifle on December 7, December 14 and December 23, 1992, respectively. A class has been certified consisting of all purchasers of milk in Los Angeles County from December 7, 1988. The plaintiffs seek unspecified damages. All defendants in the actions, including the Company, have reached tentative settlement agreements, and certain of the settlements have been approved by the trial court. The Company is in the process of finalizing a settlement agreement in the case. On September 13, 1996 a class action lawsuit titled McCampbell, et al. v. Ralphs Grocery Company, et al. was filed in the Superior Court of the State of California, County of San Diego, against the Company and two other grocery store chains operating in the Southern California area. The complaint alleges, among other things, that the Company and others conspired to fix the retail price of eggs in Southern California. The plaintiffs claim that the defendants' actions violate provisions of the California Cartwright Act and constitute unfair competition. Plaintiffs seek unspecified damages they purport to have sustained as a result of the defendants' alleged actions, which damages may be trebled under the applicable statute, and an injunction from future actions in restraint of trade and unfair competition. Discovery has commenced and the action has been certified as a class. Management of the Company intends to defend this action vigorously and the Company has filed an answer to the complaint denying the plaintiffs' allegations and setting forth several defenses. On December 20, 1996, a lawsuit titled Bundy, et al. v. Ralphs Grocery Company, et al. was filed in the Los Angeles Superior Court against the Company. The complaint was filed by eight individual plaintiffs who were terminated in conjunction with the Company's restructuring. The 4 6 plaintiffs claim that they were wrongfully terminated for discriminatory reasons and that the Company engaged in various fraudulent practices. The plaintiffs seek compensatory damages in excess of $15 million, special and punitive damages. Management of the Company intends to defend this action vigorously. In August 1996, a lawsuit entitled Dianne Gober, et al. v. Ralphs was filed alleging sexual harassment by a Ralphs store manager in San Diego County against six female store employees. None of the plaintiffs suffered any loss of earnings nor incurred any medical expenses or expenses for psychotherapy, but the Company has recently been advised that the plaintiffs are, nevertheless, seeking substantial compensatory and punitive damages. Plaintiffs have dismissed the store manager as a defendant. The trial began in April 1998. The Company intends to defend the action vigorously. In addition, the Company or its subsidiaries are defendants in a number of other cases currently in litigation or are the subject of potential claims encountered in the normal course of business which are being vigorously defended. In the opinion of management, the resolutions of these matters will not have a material effect on the Company's financial position or results of operations. ENVIRONMENTAL MATTERS Beginning in 1991, the California Regional Water Quality Control Board for the Los Angeles Region (the "Regional Board") requested that the Company conduct certain subsurface characterizations of the Glendale facility property located near Glendale. Significant parts of the San Fernando Valley, including the area where the Glendale facility is located, have been designated federal Superfund sites requiring response actions under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), because of regional groundwater contamination. The Company conducted the requested investigations and reported the results to the Regional Board, and no further investigations have been requested. Beginning in 1991, EPA has made requests for information and issued orders directing more than 60 potentially responsible parties ("PRPs") to investigate and remediate the groundwater contamination in the San Fernando Valley. The Company is one of those PRPs. Among those actions, on November 26, 1996, the EPA issued an Administrative Order for Remedial Action (EPA Docket No. 97-06) against more than 60 respondents, including the Company, in connection with the Superfund site. Under the order, these PRPs are required to take certain actions in connection with the implementation of interim remedies for the treatment of groundwater. The Company's best estimate of its likely costs is based on a 1996 engineering estimate to construct the groundwater extraction and treatment system that was approved by EPA, adjusted by the Company's likely allocable share of those costs. As of 1996, construction and capital costs were estimated at $46,150,000. Operation and maintenance was estimated at $3,620,000 per year. In addition, the PRPs have agreed to EPA's demand that the PRPs reimburse it for its adjusted response costs. As of January 1997, EPA estimated those costs at $12 million. Thus, the Company has estimated that the total costs to be paid by all PRPs will be approximately $106 million stated in 1998 dollars. The Company's best estimate of its allocable share is based on a settlement entered into by Glendale members of the PRP group in or about November 1997. Based on that settlement, the Company expects to pay 1.02 percent of the total costs. Thus, the Company's current best estimate of its likely exposure is approximately $1 million. Actual costs may end up being higher or lower than this estimate for a number of reasons including, but not limited to: (1) one PRP has filed an appeal that, if successful, could result in an increase in the Company's allocable percentage; (2) the PRPs and EPA are currently negotiating the 5 7 terms of a Consent Decree, the terms of which may affect the total cost estimate; and (3) EPA has now issued a Stop Work Order under its prior administrative order requiring construction of the groundwater extraction and treatment system because of current uncertainty whether the City of Glendale will be able to use the treated water as a potable water supply. Although responsibilities for compliance under federal CERCLA law are joint and several, the Glendale PRPs include substantial companies as members, such that the Company anticipates that the results of the PRPs' allocation process will be enforceable to limit its exposure. The Company removed underground storage tanks and remediated soil contamination at the Glendale Facility property. In some instances, the removals and the contamination were associated with grocery business operations; in others, they were associated with prior property users. The Company has received correspondence from the Regional Board confirming the successful completion of the remediation. Apart from the Glendale Facility, the Company has had environmental assessments performed on most of its facilities, including warehouse and distribution facilities. The Company believes that any responsive actions required at the examined properties as a result of such assessments will not have a material adverse effect on its financial condition or results of operations. The Company is subject to a variety of environmental laws, rules, regulations and investigative or enforcement activities, as are other companies in the same or similar business. The Company believes it is in substantial compliance with such laws, rules and regulations. These laws, rules, regulations and agency activities change from time to time, and such changes may affect the ongoing business and operations of the Company. 6 8 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS There is no public trading market for the Company's $.01 par value common stock (the "Common Stock"). As of February 1, 1998, Holdings was the sole stockholder, beneficially and of record, of the Common Stock. The Company has never paid and does not expect in the foreseeable future to pay any dividends on its Common Stock. The indentures governing the Company's outstanding debt securities contain certain restrictions on the payment of cash dividends with respect to the Company's Common Stock, and Fred Meyer's credit facility also restricts such payments. 7 9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION OVERVIEW On June 14, 1995, Holdings and its subsidiary, Food 4 Less Supermarkets, Inc. ("F4L Supermarkets") completed their acquisition (the "Ralphs Merger") of Ralphs Supermarkets, Inc. ("RSI") and its wholly owned subsidiary, Ralphs Grocery Company ("RGC"). Concurrently with the consummation of the Ralphs Merger, the Company refinanced a substantial portion of the existing indebtedness of F4L Supermarkets and RGC. Since the Ralphs Merger, the Company has converted 111 former Alpha Beta, Boys and Viva stores to the Ralphs format, converted 13 former Ralphs format stores to the Food 4 Less warehouse store format, and opened 47 new stores, including nine Southern California stores acquired from Smith's which became available when Smith's withdrew from the California market. The Company has sold or closed 81 stores as a result of divestitures required by the State of California and other steps taken to improve the average size and quality of its store base. As a result of the closure and divestiture of smaller stores and the opening of larger stores, the average square footage per store in Southern California has increased approximately 12 percent from 36,100 square feet at the time of the Ralphs Merger to 40,400 square feet at the end of fiscal 1997. During fiscal 1996, the Company implemented a labor productivity and cost reduction program. As a result, significant reductions were made in store and corporate headcount levels. In addition, through the sublease of Smith's distribution center and creamery in Riverside, California, the Company consolidated its distribution operations into three modern, efficient facilities located in Compton, Glendale and Riverside, California. The elimination of certain smaller and less efficient facilities allowed the Company to reduce transportation costs, management overhead and outside storage costs and to improve its inventory management. These changes have contributed to the Company's improved results in fiscal 1996 and 1997. In fiscal 1997, the Company continued the implementation of new marketing initiatives, begun in 1996, designed to improve its sales performance. Comparable store sales growth was 1.1 percent for fiscal 1997. In 1997, the Company continued its "First in Southern California" marketing campaign. The marketing campaign highlights the Company's belief that more shoppers are choosing Ralphs than any other supermarket in Southern California. The focus of the campaign is on lower retail prices while emphasizing those programs that enhance Ralphs' offerings such as selection, quality, premier perishable departments and customer service. During the third and fourth quarters of fiscal 1997, the Company launched the "Ralphs Club Card" program. The "Ralphs Club Card" program is a frequent shopper program designed to increase customer shopping frequency and transaction size and to provide valuable information about consumer shopping habits. The Company incurred one-time costs of approximately $10 million to develop and launch the program. Operating results improved each quarter during fiscal 1997 from the previous quarters in fiscal 1996, and the Company's EBITDA (defined as earnings before interest, taxes, depreciation, amortization, provision for postretirement benefits, gain/loss on disposal of assets, Ralphs Merger-related transition costs and LIFO charges) margin improved from 6.4 percent in fiscal 1996 to 6.9 percent in fiscal 1997. The Company's EBITDA margin in the fourth quarter of 1997 was 7.2 percent, a 7.5 percent improvement from the comparable period in 1996. The Company's improved EBITDA margin reflects the various initiatives which management has implemented. Gross margin improvements reflect 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 8 10 sold as the benefits of inventory management programs instituted by the Company are realized. SG&A expenses were reduced as a percentage of sales as a result of tighter expense and labor controls at store level and administrative cost reductions, partially offset by the start-up costs associated with the launch of the "Ralphs Club Card" program in Southern California. As a result of the operating improvements which occurred during fiscal 1996, the Company refinanced its existing bank credit agreement (the "Old Credit Facility") in order to reduce interest expense. The refinancing of the Credit Facility was completed on April 17, 1997. The refinancing was structured as an amendment and restatement of the existing credit facility and the amended facility consists of a $325.0 million Revolving Credit Facility, a $200.0 million Term Loan A Facility and a $350.0 million Term Loan B Facility. Prior to the refinancing of the Old Credit Facility, on March 26, 1997, the Company issued $155.0 million of 11% Senior Subordinated Notes due 2005 at a price of 105.5 percent of their principal amount and issued a redemption notice for $140.2 million aggregate principal amount of the Company's outstanding 13.75% Senior Subordinated Notes due 2005 (the "1995 13.75% Senior Subordinated Notes") and $4.8 million aggregate principal amount of the Company's outstanding 13.75% Senior Subordinated Notes due 2001 (the "1991 13.75% Senior Subordinated Notes," and together with the 1995 13.75% Senior Subordinated Notes, the "13.75% Senior Subordinated Notes"). The 13.75% Senior Subordinated Notes were redeemed on April 28, 1997. As discussed previously, on March 9, 1998 and March 10, 1998, Fred Meyer completed its mergers with Holdings and QFC. Following the mergers, Fred Meyer has commenced the integration of the operations of the Company with those of Fred Meyer and QFC. As a result of similar store formats and customer bases, the stores operating under the Hughes Family Market banner will be operated by the Company and will eventually be converted to the Ralphs banner. Such integration will include a restructuring charge and capital expenditures including charges relating to integration of labor forces, elimination of distribution, manufacturing, store and administrative facilities and discontinuing certain product lines. On March 11, 1998, Fred Meyer completed certain refinancing transactions related to the Fred Meyer Merger. As part of the refinancing, Holdings and the Company made offers to purchase and consent solicitations with respect to the following debt securities: (i) Food 4 Less Holdings 13-5/8% Senior Discount Debentures due 2005, (ii) Food 4 Less Holdings 13-5/8% Senior Subordinated Pay-In-Kind Debentures due 2007, (iii) Ralphs Grocery Company 10.45% Senior Notes due 2004 (issued 6/95), (iv) Ralphs Grocery Company 10.45% Senior Notes due 2004 (issued 6/96), (v) Ralphs Grocery Company 11% Senior Subordinated Notes due 2005 (issued 6/95) and (vi) Ralphs Grocery Company 11% Senior Subordinated Notes due 2005 (issued 3/97). Payment to the note holders included tendered amounts, interest and consent fees, which were $1,612.7 million, $37.7 million and $209.9 million, respectively. The Ralphs Grocery Company 10.45% Senior Notes due 2004 (issued 6/95) and the Ralphs Grocery Company 11% Senior Subordinated Notes due 2005 (issued 6/95) were not fully tendered completely and $20,344,000 and $42,565,000 principal amount of each issue are still outstanding, respectively. In connection with the Fred Meyer Merger, the stockholders and warrantholders of Holdings received an aggregate of 21,670,503 shares of Fred Meyer Common Stock in exchange for their Holdings shares and warrants, and cash payment of $33.6 million to terminate and satisfy Holdings' obligations under existing stock options. ACCOUNTING PRESENTATION The Company's results of operations for the 52 weeks ended February 1, 1998 and the 53 9 11 weeks ended February 2, 1997, respectively, reflect operations for the combined Company, while the results of operations for the 52 weeks ended January 28, 1996 reflect 20 weeks of operations of F4L Supermarkets prior to the Ralphs Merger and 32 weeks of operations of the combined Company. Management believes that the Company's results of operations for periods ending after the consummation of the Ralphs Merger are not directly comparable to its results of operations for periods ending prior to such date. This lack of comparability as a result of the Ralphs Merger is attributable to several factors, including the size of the combined Company (since the Ralphs Merger approximately doubled F4L Supermarkets' annual sales volume), the addition of 174 conventional stores to the Company's overall store mix and the material changes in the Company's capital structure. The Ralphs Merger has been accounted for as a purchase of Ralphs by Holdings. As a result, all financial statements for periods subsequent to June 14, 1995, the date the Ralphs Merger was consummated, reflect Ralphs' net assets at their estimated fair market values as of June 14, 1995. The purchase price in excess of the fair market value of Ralphs' net assets was recorded as goodwill and is being amortized over a 40-year period. The Company finalized the allocation of the Ralphs purchase price in the second quarter of fiscal 1996. The Company operates within a conventional 52 or 53-week accounting fiscal year. The Company's year end is the Sunday closest to January 31. Thus, the 52-week period ended January 28, 1996 is referred to as fiscal 1995, the 53-week period ended February 2, 1997 is referred to as fiscal 1996 and the 52-week period ended February 1, 1998 is referred to as fiscal 1997. RECENT ACCOUNTING PRONOUNCEMENTS In the fourth quarter of fiscal 1997, the Company adopted the provisions of the American Institute of Certified Public Accountants' Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 provides guidance on the financial reporting of start-up cost and organization costs and requires these costs to be expensed as incurred. The impact of adoption of SOP 98-5 on the beginning retained deficit was $3.3 million which is reflected as the cumulative effect of change in accounting principle. In addition, the adoption of SOP 98-5 resulted in a pre-tax charge of approximately $2.4 million included in selling, general and administrative expenses. 10 12 RESULTS OF OPERATIONS OF THE COMPANY The following table sets forth the historical operating results of the Company for the 53 weeks ended February 2, 1997 and the 52 weeks ended February 1, 1998:
Fiscal Year Fiscal Year 1996 1997 ------------------- ------------------- (in millions) Sales $5,516.3 100.0% $5,487.5 100.0% Gross profit 1,136.0 20.6 1,139.9 20.8 Selling, general and administrative expenses 933.4 16.9 900.0 16.4 Amortization of goodwill 38.7 0.7 35.2 0.6 Loss on disposal of assets 9.3 0.2 0.1 0.0 Restructuring charge 0.0 0.0 0.0 0.0 Operating income 154.6 2.8 204.6 3.7 Interest expense 248.4 4.5 236.7 4.3 Provision for income taxes 0.0 0.0 0.0 0.0 Loss before extraordinary charge and cumulative effect of change in accounting principle (93.8) (1.7) (32.1) (0.6) Extraordinary charge 0.0 0.0 48.0 0.9 Cumulative effect of change in accounting principle 0.0 0.0 (3.3) (0.0) Net loss (93.8) (1.7) (83.4) (1.5)
COMPARISON OF THE COMPANY'S RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED FEBRUARY 1, 1998 WITH THE COMPANY'S RESULTS OF OPERATIONS FOR THE 53 WEEKS ENDED FEBRUARY 2, 1997. Sales. Sales per week increased $1.4 million, or 1.3 percent, from $104.1 million in the 53 weeks ended February 2, 1997 to $105.5 million in the 52 weeks ended February 1, 1998. Comparable store sales were 1.1 percent for fiscal 1997. Management believes the increase in comparable store sales was primarily attributable to additional consumers' favorable response to the Company's "First in Southern California" marketing program and the "Ralphs Club Card" program. Gross Profit. Gross profit increased as a percentage of sales from 20.6 percent in the 53 weeks ended February 2, 1997 to 20.8 percent in the 52 weeks ended February 1, 1998. 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, partially offset by start-up costs associated with the launch of the "Ralphs Club Card" program. Selling, General and Administrative Expenses. Selling, general, administrative and other expenses ("SG&A") were $933.4 million and $900.0 million for the 53 weeks ended February 2, 1997 and the 52 weeks ended February 1, 1998, respectively. SG&A decreased as a percentage of sales from 16.9 percent to 16.4 percent for those periods. The reduction in SG&A as a percentage of sales reflects the results of tighter expense and labor controls at the store level and continued administrative costs reductions, partially offset by the start-up costs associated with the launch of the "Ralphs Club Card" program. 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 1995, employers contributing to UFCW health and welfare plans received a pro rata share of the excess reserves in the plans through a reduction of current employer contributions. The Company's share 11 13 of the excess reserves recognized in fiscal 1996 was $17.8 million. In fiscal 1997, the Company recognized pension suspension credits of $21.5 million. Offsetting the reduction was a $4.3 million union bonus in fiscal year 1997. Restructuring Charge. During fiscal 1997, the Company utilized $2.4 million and $5.5 million of the remaining restructuring reserve related to the fiscal 1995 $75.2 million and $47.9 million restructuring charges, respectively. The amounts utilized primarily include write-downs of property and equipment ($1.8 million) and payments for lease obligations ($6.1 million). At February 1, 1998, approximately $20.0 million of the restructuring accrual related to the $75.2 million charge and $11.4 million of the restructuring accrual related to the $47.9 million charge remained accrued on the Company's balance sheet consisting primarily of provisions for lease obligations. The Company has completed a majority of the restructuring actions, although certain obligations will continue through 2010. Operating Income. Primarily as a result of the factors discussed above, the Company's operating income increased from $154.6 million in fiscal 1996 to $204.6 million in fiscal 1997. Interest Expense. Interest expense (including amortization of deferred financing costs) was $248.4 million for the 53 weeks ended February 2, 1997 and $236.7 million for the 52 weeks ended February 1, 1998. Loss Before Extraordinary Charge and Cumulative Effect of Change in Accounting Principle. Primarily as a result of the factors discussed above, the Company's loss before extraordinary charge and cumulative effect of change in accounting principle decreased from $93.8 million in fiscal year 1996 to $32.1 million in fiscal year 1997. Extraordinary Charges. Extraordinary charges of $48.0 million were recorded in fiscal 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 Old Credit Facility and the 13.75% Senior Subordinated Notes. Cumulative Effect of Change in Accounting Principle. In the fourth quarter of fiscal 1997, the Company adopted the provisions of the American Institute of Certified Public Accountants' Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 provides guidance on the financial reporting of start-up cost and organization costs and requires these costs to be expensed as incurred. The impact of adoption of SOP 98-5 on the beginning retained deficit was $3.3 million which is reflected as the cumulative effect of change in accounting principle. In addition, the adoption of SOP 98-5 resulted in a pre-tax charge of approximately $2.4 million included in selling, general and administrative expenses. YEAR 2000 COMPLIANCE The Company believes that its accounting and management information systems and inventory control system adequately provide for its current needs. The Company intends to continue to update and enhance its systems in order to improve capabilities and provide for planned growth. The Company has performed an analysis and is modifying its computer software to address the year 2000 issues. The Company is also contacting major suppliers to determine the extent to which the Company may be vulnerable to third-party year 2000 issues. Based on current information, management believes that all software modifications necessary to operate and effectively manage the Company will be performed by the year 2000 and that related costs will not have a material adverse impact on the results of operations, cash flow, or financial condition of future periods. 12 14 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Index to Consolidated Financial Statements and Schedules on page 17. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There has been no change in independent auditors during the last two fiscal years, and there has been no disagreement with the Company's independent auditors on any matter of accounting principles or practices or financial statement disclosure. 13 15 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Financial Statements and Schedules required to be filed hereunder are indexed on page 17 hereof. (b) Reports on Form 8-K The Company filed a report on Form 8-K dated November 6, 1997 on November 13, 1997 to report under Item 5 the Fred Meyer Merger Agreement. (c) Those Exhibits, and the Index thereto, required to be filed by Item 601 of Regulation S-K are attached hereto. Certain management contracts and other compensation plans or arrangements required to be filed are identified on the attached Index with an asterisk. 14 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RALPHS GROCERY COMPANY By: /s/ Terrence J. Wallock ------------------------------------ Terrence J. Wallock Secretary Date: May 4, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ George G. Golleher President, Chief Executive Officer and May 4, 1998 - ---------------------------- Director George G. Golleher /s/ Greg Mays Executive Vice President - Finance and May 4, 1998 - ---------------------------- Administration Greg Mays /s/ Robert G. Miller Director May 4, 1998 - ---------------------------- Robert G. Miller /s/ Kenneth Thrasher Director May 4, 1998 - ---------------------------- Kenneth Thrasher /s/ Roger A. Cooke Director May 4, 1998 - ---------------------------- Roger A. Cooke
15 17 SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT. No annual report or proxy material has been sent to security holders. The Registrant will furnish copies of such report or proxy material if and when such report or proxy material is sent to security holders. 16 18 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Page ---- Report of Independent Public Accountants............................................ 18 Consolidated balance sheets as of February 2, 1997 and February 1, 1998............. 19-20 Consolidated statements of operations for the 52 weeks ended January 28, 1996, the 53 weeks ended February 2, 1997 and the 52 weeks ended February 1, 1998.................................................................... 21 Consolidated statements of cash flows for the 52 weeks ended January 28, 1996, the 53 weeks ended February 2, 1997 and the 52 weeks ended February 1, 1998.................................................................... 22-23 Consolidated statements of stockholder's equity (deficit) for the 52 weeks ended January 28, 1996, the 53 weeks ended February 2, 1997 and the 52 weeks ended February 1, 1998.................................................................... 24 Notes to consolidated financial statements.......................................... 25-50 FINANCIAL STATEMENT SCHEDULE Report of Independent Public Accountants............................................ 51 II Valuation and qualifying accounts........................................... 52
All other schedules have been omitted since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Consolidated Financial Statements and related notes. 17 19 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholder of Ralphs Grocery Company: We have audited the accompanying consolidated balance sheets of Ralphs Grocery Company (a Delaware corporation) (formerly Food 4 Less Supermarkets, Inc. -- See Note 1 in the accompanying Notes to Consolidated Financial Statements) and subsidiaries (the Company) as of February 1, 1998 and February 2, 1997 and the related consolidated statements of operations, stockholder's equity (deficit) and cash flows for the 52 weeks ended February 1, 1998, the 53 weeks ended February 2, 1997 and the 52 weeks ended January 28, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ralphs Grocery Company and subsidiaries as of February 1, 1998 and February 2, 1997 and the results of their operations and their cash flows for the 52 weeks ended February 1, 1998, the 53 weeks ended February 2, 1997 and the 52 weeks ended January 28, 1996 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Los Angeles, California March 9, 1998 18 20 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) ASSETS
As of ---------------------------- February 2, February 1, 1997 1998 ---------- ---------- CURRENT ASSETS: Cash and cash equivalents $ 67,589 $ 75,601 Trade receivables, less allowances of $4,057 and $3,023 at February 2, 1997 and February 1, 1998, respectively 46,560 37,629 Inventories 502,095 514,387 Patronage receivables from suppliers 4,433 4,197 Prepaid expenses and other 22,456 20,325 ---------- ---------- Total current assets 643,133 652,139 INVESTMENTS IN AND NOTES RECEIVABLE FROM SUPPLIER COOPERATIVES: Associated Wholesale Grocers 7,020 6,797 Certified Grocers of California 4,945 445 PROPERTY AND EQUIPMENT: Land 173,803 171,651 Buildings 188,311 190,437 Leasehold improvements 226,159 261,047 Equipment and fixtures 401,716 472,158 Construction in progress 51,117 27,706 Leased property under capital leases 200,199 231,413 Leasehold interests 112,398 110,606 ---------- ---------- 1,353,703 1,465,018 Less: Accumulated depreciation and amortization 301,477 396,013 ---------- ---------- Net property and equipment 1,052,226 1,069,005 OTHER ASSETS: Deferred financing costs, less accumulated amortization of $17,615 and $9,913 at February 2, 1997 and February 1, 1998, respectively 88,889 49,863 Goodwill, less accumulated amortization of $99,057 and $134,295 at February 2, 1997 and February 1, 1998, respectively 1,310,956 1,275,718 Other, net 24,824 22,106 ---------- ---------- $3,131,993 $3,076,073 ========== ==========
The accompanying notes are an integral part of these consolidated balance sheets. 19 21 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) LIABILITIES AND STOCKHOLDER'S DEFICIT
As of ------------------------------- February 2, February 1, 1997 1998 ----------- ----------- CURRENT LIABILITIES: Accounts payable $ 343,704 $ 349,585 Accrued payroll and related liabilities 106,764 105,728 Accrued interest 31,011 29,628 Other accrued liabilities 261,582 224,546 Income taxes payable 1,956 1,361 Current portion of self-insurance liabilities 48,251 48,251 Current portion of senior debt 4,465 6,274 Current portion of obligations under capital leases 28,041 35,691 ----------- ----------- Total current liabilities 825,774 801,064 SENIOR DEBT, net of current portion 1,263,142 1,307,510 OBLIGATIONS UNDER CAPITAL LEASES, net of current portion 126,336 120,329 SENIOR SUBORDINATED DEBT 671,222 689,168 DEFERRED INCOME TAXES 21,074 21,074 SELF-INSURANCE LIABILITIES, net of current portion 91,332 90,325 LEASE VALUATION RESERVE 62,389 53,690 OTHER NON-CURRENT LIABILITIES 106,286 109,757 COMMITMENTS AND CONTINGENCIES STOCKHOLDER'S DEFICIT: Cumulative convertible preferred stock, $.01 par value, no shares authorized or issued at February 2, 1997 and February 1, 1998 -- -- Common stock, $.01 par value, 5,000,000 shares authorized: 1,513,938 shares issued at February 2, 1997 and February 1, 1998 15 15 Additional capital 466,783 468,895 Notes receivable from stockholders of parent (592) (584) Retained deficit (501,768) (585,170) ----------- ----------- Total stockholder's deficit (35,562) (116,844) ----------- ----------- $ 3,131,993 $ 3,076,073 =========== ===========
The accompanying notes are an integral part of these consolidated balance sheets. 20 22 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)
For the --------------------------------------------------- 52 Weeks 53 Weeks 52 Weeks Ended Ended Ended January 28, February 2, February 1, 1996 1997 1998 ----------- ----------- ----------- SALES $ 4,335,109 $ 5,516,259 $ 5,487,469 COST OF SALES (including purchases from related parties of $141,432, $95,344 and $64,109 for the 52 weeks ended January 28, 1996, the 53 weeks ended February 2, 1997, and the 52 weeks ended February 1, 1998, respectively) 3,527,120 4,380,241 4,347,549 ----------- ----------- ----------- GROSS PROFIT 807,989 1,136,018 1,139,920 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 744,449 933,414 899,988 AMORTIZATION OF GOODWILL 21,847 38,650 35,238 (GAIN) LOSS ON DISPOSAL OF ASSETS (547) 9,317 93 RESTRUCTURING CHARGE 123,083 -- -- ----------- ----------- ----------- OPERATING (LOSS) INCOME (80,843) 154,637 204,601 INTEREST EXPENSE: Interest expense, excluding amortization of deferred financing costs 170,581 237,761 230,981 Amortization of deferred financing costs 8,193 10,667 5,714 ----------- ----------- ----------- 178,774 248,428 236,695 LOSS BEFORE PROVISION FOR INCOME TAXES, EXTRAORDINARY CHARGE AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (259,617) (93,791) (32,094) PROVISION FOR INCOME TAXES 500 -- -- ----------- ----------- ----------- LOSS BEFORE EXTRAORDINARY CHARGE AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (260,117) (93,791) (32,094) EXTRAORDINARY CHARGE 23,128 -- 47,983 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE -- -- (3,325) ----------- ----------- ----------- NET LOSS $ (283,245) $ (93,791) $ (83,402) =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 21 23 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
For the --------------------------------------------------- 52 Weeks 53 Weeks 52 Weeks Ended Ended Ended January 28, February 2, February 1, 1996 1997 1998 ----------- ----------- ----------- CASH (USED) PROVIDED BY OPERATING ACTIVITIES: Cash received from customers $ 4,335,109 $ 5,516,259 $ 5,487,469 Cash paid to suppliers and employees (4,197,875) (5,160,532) (5,136,042) Interest paid (157,441) (230,620) (232,364) Income taxes refunded (paid) 256 8,344 (395) Interest received 2,562 9,531 (208) Loss (gain) on disposal of assets 547 (9,317) 93 Other, net -- -- (8,861) ----------- ----------- ----------- NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES (16,842) 133,665 109,692 CASH (USED) PROVIDED BY INVESTING ACTIVITIES: Proceeds from sale of property and equipment 21,373 29,503 28,574 Payment for purchase of property and equipment (122,355) (123,622) (143,542) Payment of acquisition costs, net of cash acquired (303,301) (12,705) (9,637) Other, net (1,120) (4,311) (4,460) ----------- ----------- ----------- NET CASH USED BY INVESTING ACTIVITIES (405,403) (111,135) (129,065) CASH (USED) PROVIDED BY FINANCING ACTIVITIES: Proceeds from the issuance of long-term debt 1,050,000 98,946 722,496 Increase (decrease) in revolving loan 100,100 (28,000) 32,000 Payments of long-term debt (576,727) (61,589) (690,258) Payments of capital lease obligations (15,314) (25,935) (33,163) Capital contribution from parent 12,108 -- 2,112 Dividends (7,647) -- -- Deferred financing costs and other (91,852) (6,346) (5,802) ----------- ----------- ----------- NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES 470,668 (22,924) 27,385 ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 48,423 (394) 8,012 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 19,560 67,983 67,589 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 67,983 $ 67,589 $ 75,601 =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 22 24 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
For the --------------------------------------------------- 52 Weeks 53 Weeks 52 Weeks Ended Ended Ended January 28, February 2, February 1, 1996 1997 1998 ----------- ----------- ----------- RECONCILIATION OF NET LOSS TO NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES: Net loss $ (283,245) $ (93,791) $ (83,402) Adjustments to reconcile net loss to net cash (used) provided by operating activities: Depreciation and amortization 133,522 180,344 178,710 Restructuring charge 123,083 -- -- Non-cash extraordinary charge 23,128 -- 39,122 Amortization of debt discount -- 214 464 Amortization of debt premium -- -- (579) Loss (gain) on sale of assets (547) 9,317 93 Change in assets and liabilities, net of effects from acquisition of businesses: Accounts and notes receivable (74) 14,999 13,694 Inventories 762 574 (12,292) Prepaid expenses and other (18,291) 2,721 (13,194) Accounts payable and accrued liabilities 3,327 24,243 (11,322) Self-insurance liabilities 737 (9,402) (1,007) Deferred income taxes 454 3,086 (200) Income taxes payable 302 1,360 (395) ----------- ----------- ----------- Total adjustments 266,403 227,456 193,094 ----------- ----------- ----------- NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES $ (16,842) $ 133,665 $ 109,692 =========== =========== =========== SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Purchase of property and equipment through the issuance of capital leases $ 24,008 $ 28,485 $ 42,276 =========== =========== =========== Retirement of capital leases $ -- $ -- $ 7,470 =========== =========== =========== Acquisition of RSI in fiscal year 1995: Fair value of assets acquired, including goodwill net of cash acquired of $32,595 in fiscal year 1995 $ 2,098,220 $ -- $ -- Net cash paid in acquisition (303,301) -- -- Capital contribution from parent (262,000) -- -- ----------- ----------- ----------- Liabilities assumed $ 1,532,919 $ -- $ -- =========== =========== =========== Accretion of preferred stock $ 3,960 $ -- $ -- =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 23 25 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT) (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 JANUARY 29, 1995 50,000 $ 65,136 1,519,632 $ 15 (12,345) $ (2,071) Net Loss -- -- -- -- -- -- Payments of Stockholders' Notes -- -- -- -- -- -- Accretion of Preferred Stock -- 3,960 -- -- -- -- Cancellation of Preferred Stock (50,000) (69,096) -- -- -- -- Cancellation of F4LSI Common Stock held as Treasury Stock -- -- (5,694) -- 5,694 955 Cancellation of F4L Holdings Common Stock held as Treasury Stock -- -- -- -- 6,651 1,116 Dividend paid to F4L Holdings, Inc. -- -- -- -- -- -- Capital Contribution by F4L Holdings, Inc. -- -- -- -- -- -- Issuance of Stock Options -- -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- BALANCES AT JANUARY 28, 1996 -- -- 1,513,938 15 -- -- Net Loss -- -- -- -- -- -- Payments of Stockholders' Notes -- -- -- -- -- -- Dividend paid to F4L Holdings, Inc. -- -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- BALANCES AT FEBRUARY 2, 1997 -- -- 1,513,938 15 -- -- Net Loss -- -- -- -- -- -- Payments of Stockholders' Notes -- -- -- -- -- -- Capital Contribution by F4L Holdings, Inc. -- -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- BALANCES AT FEBRUARY 1, 1998 -- $ -- 1,513,938 $ 15 -- $ -- ========== ========== ========== ========== ========== ==========
Stock- Stock holders' Add'l Retained holder's Notes Capital Deficit Equity (Deficit) ---------- ---------- ---------- ---------------- BALANCES AT JANUARY 29, 1995 $ (702) $ 107,650 $ (112,225) $ 57,803 Net Loss -- -- (283,245) (283,245) Payments of Stockholders' Notes 100 -- -- 100 Accretion of Preferred Stock -- -- (3,960) -- Cancellation of Preferred Stock -- 69,096 -- -- Cancellation of F4LSI Common Stock held as Treasury Stock -- (955) -- -- Cancellation of F4L Holdings Common Stock held as Treasury Stock -- (1,116) -- -- Dividend paid to F4L Holdings, Inc. -- -- (7,647) (7,647) Capital Contribution by F4L Holdings, Inc. -- 282,108 -- 282,108 Issuance of Stock Options -- 10,000 -- 10,000 ---------- ---------- ---------- ---------- BALANCES AT JANUARY 28, 1996 (602) 466,783 (407,077) 59,119 Net Loss -- -- (93,791) (93,791) Payments of Stockholders' Notes 10 -- -- 10 Dividend paid to F4L Holdings, Inc. -- -- (900) (900) ---------- ---------- ---------- ---------- BALANCES AT FEBRUARY 2, 1997 (592) 466,783 (501,768) (35,562) Net Loss -- -- (83,402) (83,402) Payments of Stockholders' Notes 8 -- -- 8 Capital Contribution by F4L Holdings, Inc. -- 2,112 -- 2,112 ---------- ---------- ---------- ---------- BALANCES AT FEBRUARY 1, 1998 $ (584) $ 468,895 $ (585,170) $ (116,844) ========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 24 26 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND ACQUISITIONS Ralphs Grocery Company (the "Company"), formerly known as Food 4 Less Supermarkets, Inc. ("F4L Supermarkets"), a wholly-owned subsidiary of Food 4 Less Holdings, Inc. ("Holdings"), is a multiple format supermarket operator that tailors its retail strategy to the particular needs of the individual communities it serves. The Company operates in three geographic areas: Southern California, Northern California and certain areas of the Midwest. The Company has four first-tier subsidiaries: Cala Co. ("Cala"), Falley's, Inc. ("Falley's"), Food 4 Less of Southern California, Inc. ("F4L-SoCal"), formerly known as Breco Holding Company, Inc. ("BHC") and Crawford Stores, Inc. Cala Foods, Inc. ("Cala Foods") and Bell Markets, Inc. ("Bell") are subsidiaries of Cala, and Alpha Beta Company ("Alpha Beta") is a subsidiary of F4L-SoCal. On June 14, 1995, Holdings and its subsidiary, Food 4 Less Supermarkets, Inc. ("F4L Supermarkets") completed their acquisition (the "Ralphs Merger") of Ralphs Supermarkets, Inc. ("RSI") and its wholly owned subsidiary, Ralphs Grocery Company ("RGC"). Concurrently with the consummation of the Ralphs Merger, the Company refinanced a substantial portion of the existing indebtedness of F4L Supermarkets and RGC. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The results of operations of pre-Ralphs Merger Ralphs Grocery Company and all previous acquisitions have been excluded from the consolidated financial statements for periods prior to their respective acquisition dates. All intercompany transactions have been eliminated in consolidation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fiscal Year The Company operates within a conventional 52 or 53-week accounting fiscal year. The Company's year end is the Sunday closest to January 31. Thus, the 52-week period ended January 28, 1996 is referred to as fiscal 1995, the 53-week period ended February 2, 1997 is referred to as fiscal 1996 and the 52-week period ended February 1, 1998 is referred to as fiscal 1997. Information presented below concerning subsequent fiscal years starts with fiscal year 1998, which will cover the 52 weeks ended January 31, 1999 and will proceed sequentially forward. 25 27 Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Inventories Inventories, which consist mainly 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 $28.5 million at February 2, 1997 and February 1, 1998, respectively, and gross profit and operating income would have been greater by $2.2 million, $5.6 million and $4.2 million for fiscal year 1995, 1996 and 1997, respectively. Pre-opening Costs In the fourth quarter of fiscal 1997, the Company adopted the provisions of the American Institute of Certified Public Accountants' Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 provides guidance on the financial reporting of start-up cost and organization costs and requires these costs to be expensed as incurred. The impact of adoption of SOP 98-5 on the beginning retained deficit was $3.3 million which is reflected as the cumulative effect of change in accounting principle. In addition, the adoption of SOP 98-5 resulted in a pre-tax charge of approximately $2.4 million included in selling, general and administrative expenses. Closed Store Reserves The Company provides a reserve for the net book value of its property and equipment, net of salvage value, and the present value of the remaining lease obligation, net of sublease income, at the time that management approves a plan to close a store. Property and Equipment Property and equipment are stated at cost. Depreciation expense includes amortization of capital lease assets. Depreciation and amortization is provided using the straight-line method over the following estimated useful lives: Buildings and improvements 5-40 years Equipment and fixtures 3-10 years Property under capital leases and leasehold interests 3-40 years (lease term)
Deferred Financing Costs Costs incurred in connection with the issuance of debt are amortized over the term of the related debt using the effective interest method. Long-Lived Assets Goodwill, representing the excess of the purchase price over the fair value of the net assets of businesses acquired, is amortized on a straight-line basis over 40 years beginning at the date of acquisition. In fiscal 1996, the Company adopted Statement of Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be 26 28 Disposed of" ("SFAS 121"). The adoption of SFAS 121 had no impact on the Company's financial position or on its results of operations in fiscal 1997. In accordance with SFAS No. 121, long-lived assets and certain identifiable intangibles held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of goodwill and other long-lived assets, the recoverability test is performed using undiscounted net cash flows for groupings of stores consistent with the past acquisitions that gave rise to the goodwill. Income Taxes The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 is an asset and liability approach that 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 proposed changes in the tax law or rates. Notes Receivable from Stockholders of Holdings Notes receivable from stockholders of Holdings represent loans to employees of the Company for purchases of Holdings' common stock. The notes are due over various periods, bear interest at the prime rate, and are secured by each stockholder's shares of Holdings' common stock. Self-Insurance The Company is self-insured for its workers' compensation, general liability and vehicle accident claims. The Company establishes reserves based on an independent actuary's valuation of open claims reported and an estimate of claims incurred but not yet filed. Discounts and Promotional Allowances Promotional allowances and vendor discounts are recorded as a reduction of cost of sales in the accompanying consolidated statements of operations. Allowance proceeds received in advance are deferred and recognized in the period earned. Extraordinary Items For the 52 weeks ended February 1, 1998, the Company recorded an extraordinary charge primarily relating to 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. For the 52 weeks ended January 28, 1996, the Company recorded an extraordinary charge relating to the refinancing of F4L Supermarkets' Old Credit Facility, 10.45% Senior Notes due 2000 (the "Old F4L Senior Notes"), 13.75% Senior Subordinated Notes due 2001 (the "Old F4L Senior Subordinated Notes"), the repayment of Holdings' 15.25% Senior Discount Notes due 2004 in connection with the Ralphs Merger and the write-off of their related debt issuance costs. 27 29 Derivative Financial Instruments The Company utilizes an interest rate collar agreement to set interest rate limits on its Term Loans to satisfy the interest rate protection requirements under its Credit Facility. Favorable or unfavorable movements of interest rates outside of the interest rate limits are recorded as adjustments to interest expense in the period in which the unfavorable movement occurs. Advertising Costs Advertising costs are expensed as incurred. Advertising expense for fiscal 1997, fiscal 1996 and fiscal 1995 was $70.7 million, $63.7 million and $54.8 million, respectively. Reclassifications Certain prior period amounts in the consolidated financial statements have been reclassified to conform to the fiscal year 1997 presentation. 3. PREFERRED STOCK On December 31, 1992, the Company issued 50,000 shares of $.01 par value Series A cumulative convertible preferred stock (the "Preferred Stock") with a liquidation value of $1,000 per share and 121,118 shares of its $.01 par value common stock (the "Common Stock") to its parent company, Holdings, in exchange for gross proceeds of $50.0 million. The Preferred Stock had a stated dividend rate of $152.50 per share, per annum. In order to finance the purchase of the Preferred Stock and Common Stock from the Company, Holdings issued $103.6 million aggregate principal amount of 15.25% Senior Discount Notes due 2004 (the "Holdings Notes") and 121,118 Common Stock Purchase Warrants (the "Warrants") for gross proceeds of $50.0 million. In connection with the Ralphs Merger, the Preferred Stock was cancelled. The accreted amount of the Preferred Stock at the date of the Ralphs Merger was contributed to the Company's capital and is reflected in the Consolidated Statement of Stockholder's Equity (Deficit) as a component of additional paid-in capital. Also, at the time of the Ralphs Merger, Holdings repaid its borrowings under the Holdings Notes. 28 30 4. SENIOR DEBT AND SENIOR SUBORDINATED DEBT The Company's senior debt is summarized as follows (in thousands):
As of ---------------------------- February 2, February 1, 1997 1998 ---------- ---------- Term Loans $ 541,432 $ 547,375 10.45% Senior Notes, principal due 2004 with interest payable semi-annually in arrears 520,326 520,326 10.45% Senior Notes, principal due 2004 with interest payable semi-annually in arrears, net of unamortized debt discount of $5,161 and $4,697 at February 2, 1997 and February 1, 1998, respectively, 11.5% yield to maturity 94,839 95,303 10.45% Senior Notes, principal due 2000 with interest payable semi-annually in arrears 4,674 4,674 Revolving Facility 99,400 131,400 Other senior debt 6,936 14,706 ---------- ---------- 1,267,607 1,313,784 Less-current portion 4,465 6,274 ---------- ---------- $1,263,142 $1,307,510 ========== ==========
Senior Debt As part of the Ralphs Merger financing, the Company entered into a bank credit agreement (the "Old Credit Facility") comprised of a $600.0 million term loan facility and a revolving credit facility of $325.0 million under which working capital loans could be made and commercial or standby letters of credit in the maximum aggregate amount of up to $150.0 million could be issued. The Old Credit Facility was collateralized by inventory, receivables, certain fixed assets, deposit accounts, collection proceeds and certain intangibles. During the first quarter of fiscal 1997, the Company 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 $200.0 million Term Loan A Facility and a $350.0 million Term Loan B Facility (together, the "Term Loans") and a $325.0 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 million 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 Eurdollar Rate (as defined) plus a margin ranging from 1.25 percent to 2.75 percent. At February 1, 1998, $547.4 million was outstanding under the Term Loans, $131.4 million was outstanding under the Revolving Facility, including $75.5 million of standby letters of credit had been issued on behalf of the Company. A commitment fee of one-half of one percent per annum is charged on the average daily unused portion of the Revolving Facility; such commitment fees are due quarterly in arrears. At February 1, 1998, the weighted average interest rate on the Term Loans was 7.94 percent and the interest rate on the Revolving Facility was 7.75 percent. 29 31 Quarterly principal installments on the Term Loans continue to 2004, with principal amounts due as follows: $3.5 million in fiscal 1998, $25.5 million in fiscal 1999, $62.6 million in fiscal 2000, $87.5 million in fiscal 2001, $112.8 million in fiscal 2002 and $255.5 million thereafter. The principal installments can be accelerated if the Company receives proceeds on the sale of certain of its assets in the future. To the extent that borrowings under the Revolving Facility are not paid earlier, they are due in February 2003. The common stock of the Company and certain of its direct and indirect subsidiaries has been pledged as security under the Credit Facility. The Company had entered into an interest rate collar agreement with the Credit Facility Administrative Agent that effectively sets interest rate limits on the Company's term loans. The notational principal amount at February 2, 1997 was $325.0 million. The agreement, which was entered into on October 11, 1995 and expired on October 21, 1997, limited the interest rate fluctuation of the 3-month Adjusted Eurodollar Rate (as defined) to a range between 4.5 percent and 8.0 percent. The agreement required quarterly cash settlement for interest rate fluctuations outside of the limits. The agreement satisfied the interest rate protection requirements under the Old Credit Facility. No adjustments to interest expense were recorded during fiscal year 1997 or 1996 as a result of this agreement. The Company issued $350.0 million of 10.45% Senior Notes due 2004 (the "1995 10.45% Senior Notes") and exchanged $170.3 million principal amount of 1995 10.45% Senior Notes for an equal amount of the 10.45% F4L Senior Notes due 2000 (the "Old F4L Senior Notes") (together with the 1995 10.45% Senior Notes, the "Senior Notes"), leaving an outstanding balance of $4.7 million of the Old F4L Senior Notes. The Old F4L Senior Notes are due in two equal sinking fund payments on April 15, 1999 and 2000. The Senior Notes are senior unsecured obligations of the Company and rank "pari passu" in right of payment with other senior unsecured indebtedness of the Company. However, the Senior Notes are effectively subordinated to all secured indebtedness of the Company and its subsidiaries, including indebtedness under the Credit Facility. Interest on the 1995 10.45% Senior Notes is payable semiannually in arrears on each June 15 and December 15. Interest on the Old F4L Senior Notes is payable semiannually in arrears on each April 15 and October 15. In June 1996, the Company issued $100.0 million aggregate principal amount of 10.45% Senior Notes due 2004 (the "1996 10.45% Senior Notes"). The terms of the 1996 10.45% Senior Notes are substantially identical to those of the Company's 1995 10.45% Senior Notes, which were issued in a registered offering in June 1995 and of which $520.3 million aggregate principal amount is outstanding. The 1996 10.45% Senior Notes were issued with original issue discount resulting in gross proceeds to the Company of $94.6 million. In July 1996, the Company initiated an offer to exchange (the "Exchange Offer") $1,000 principal amount of its 1996 10.45% Senior Notes, which exchange has been registered under the Securities Act of 1933, as amended, for each $1,000 principal amount of its 1996 10.45% Senior Notes. The Exchange Offer was completed in August 1996. The $94.6 million of gross proceeds from the 1996 10.45% Senior Notes was used to (i) repay $22.7 million of Term Loans, which was due within the following twelve months, (ii) repay $21.7 million of additional Term Loans, pro rata over the term thereof, (iii) repay $47.6 million in borrowings under the Revolving Facility (without any reduction in amounts available for future borrowing thereunder) and (iv) pay fees and expenses related to the 1996 10.45% Senior Notes of approximately $2.6 million. The 1995 10.45% Senior Notes and the 1996 10.45% Senior Notes (the "New Senior Notes") may be redeemed, at the option of the Company, in whole at any time or in part from 30 32 time to time, beginning in fiscal 2000, at a redemption price of 105.2 percent. The redemption price declines ratably to 100 percent in fiscal 2003. In addition, on or prior to June 15, 1998, the Company may, at its option, use the net cash proceeds of one or more public equity offerings to redeem up to an aggregate of 35 percent of the principal amount of the New Senior Notes originally issued, at a redemption price equal to 110.4 percent, 108.9 percent, and 107.5 percent of the principal amount thereof if redeemed during the 12 months commencing on June 15, 1995, June 15, 1996, and June 15, 1997, respectively, in each case plus accrued and unpaid interest, if any, to the redemption date. The Old F4L Senior Notes may be redeemed beginning in fiscal year 1996 at 104.5 percent, declining ratably to 100 percent in fiscal year 1999. Scheduled maturities of principal of senior debt at February 1, 1998 are as follows (in thousands):
Fiscal Year ----------- 1998 $ 6,274 1999 7,652 2000 42,158 2001 82,802 2002 108,013 Later years 1,066,885 ---------- $1,313,784 ==========
The Company's senior subordinated debt is summarized as follows (in thousands):
As of --------------------------- February 2, February 1, 1997 1998 ---------- ----------- 11.00% Senior Subordinated Notes $524,005 $524,005 principal due 2005 with interest payable semi-annually in arrears 11.00% Senior Subordinated Notes -- 162,946 principal due 2005 with interest payable semi-annually in arrears, net of unamortized debt premium of $7,946 13.75% Senior Subordinated Notes 140,184 -- principal due 2005 with interest payable semi-annually in arrears 13.75% Senior Subordinated Notes 4,816 -- principal due 2001 with interest payable semi-annually in arrears Other Senior Subordinated debt 2,217 2,217 -------- -------- $671,222 $689,168 ======== ========
Senior Subordinated Debt Concurrent with the Ralphs Merger, the Company issued $100.0 million of 11% Senior Subordinated Notes due 2005 (the "1995 11% Senior Subordinated Notes") and (i) exchanged $142.2 million principal amount of the RGC 9% Senior Subordinated Notes due 2003 (the "Old RGC 9% Notes") and $281.8 million principal amount of the RGC 10.25% Senior Subordinated Notes due 2002 (the "Old RGC 10.25% Notes," and together with the Old RGC 9% Notes, the "Old RGC Notes") for an equal amount of 1995 11% Senior Subordinated Notes, (ii) purchased $7.5 million principal amount of Old RGC 9% Notes and 31 33 $15.2 million principal amount of Old RGC 10.25% Notes in conjunction with the offers, and (iii) subsequently purchased $0.1 million principal amount of Old RGC 9% Notes and $1.0 million principal amount of Old RGC 10.25% Notes subject to the change of control provision, leaving an outstanding balance of $0.1 million on the Old RGC 9% Notes and an outstanding balance of $2.1 million on the Old RGC 10.25% Notes. The 1995 11% Senior Subordinated Notes are senior subordinated, unsecured obligations of the Company and are subordinated in right of payment to all senior indebtedness, including the Company's obligations under the New Credit Facility and the New Senior Notes and the Old F4L Senior Notes. Interest on the New RGC Notes is payable semiannually in arrears on each June 15 and December 15. The 1995 11% Senior Subordinated Notes may be redeemed at the option of the Company, in whole at any time or in part from time to time, beginning in fiscal year 2000, at an initial redemption price of 105.5 percent. The redemption price declines ratably to 100 percent in fiscal year 2003. In addition, on or prior to June 15, 1998, the Company may, at its option, use the net cash proceeds of one or more public equity offerings to redeem up to an aggregate of 35 percent of the principal amount of the 1995 11% Senior Subordinated Notes originally issued, at a redemption price equal to 111.0 percent, 109.4 percent, and 107.9 percent of the principal amount thereof if redeemed during the 12 months commencing on June 15, 1995, June 15, 1996, and June 15, 1997, respectively, in each case plus accrued and unpaid interest, if any, to the redemption date. The Company exchanged $140.2 million 13.75% Senior Subordinated Notes due 2005 (the "New F4L Senior Subordinated Notes") for an equal amount of F4L 13.75% Senior Subordinated Notes due 2001 (the "Old F4L Senior Subordinated Notes," and together with the New F4L Senior Subordinated Notes, the "13.75% Senior Subordinated Notes") of the Company, leaving an outstanding balance of $4.8 million of the Old F4L Senior Subordinated Notes. The 13.75% Senior Subordinated Notes were senior subordinated unsecured obligations of the Company and were subordinated in right of payment to all senior indebtedness, including the Company's obligations under the Old Credit Facility, the New Senior Notes, and the Old F4L Senior Notes and the 1995 11% Senior Subordinated Notes. Interest on the 13.75% Senior Subordinated Notes was payable semiannually in arrears on each June 15 and December 15 commencing on December 15, 1995. The New F4L Senior Subordinated Notes could be redeemed beginning in fiscal year 1996 at a redemption price of 106.111 percent. The redemption price declined ratably to 100 percent in fiscal year 2000. During the first quarter of fiscal 1997, the Company issued $155 million principal amount of 11% Senior Subordinated Notes due 2005 (the "1997 11% Senior Subordinated Notes") with terms substantially identical to the 1995 11% Senior Subordinated Notes at a price of 105.5% of their principal amount, resulting in gross proceeds of $163.5 million. The proceeds were used to redeem all of the Company's $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. The remaining proceeds were used to pay fees and expenses associated with the issuance of the 1997 11% Senior Subordinated Notes. 32 34 Scheduled maturities of principal of senior subordinated debt at February 1, 1998 are as follows (in thousands):
Fiscal Year ----------- 1998 $ -- 1999 -- 2000 -- 2001 -- 2002 2,072 Later years 687,096 -------- $689,168 ========
Financial Covenants The New Credit Facility, among other things, requires the Company to maintain minimum levels of net worth (as defined), to maintain minimum levels of earnings and to comply with certain ratios related to fixed charges and indebtedness. During fiscal 1995, certain financial covenants and other terms of the Old Credit Facility were amended to, among other things, provide for the acquisition of Smith's Food and Drug Centers, Inc. ("Smith's") Riverside distribution and creamery facility, the acquisition of certain operating assets and inventory at that facility, the acquisition of nine of the Smith's Southern California stores and the closure of up to nine stores in conjunction with these acquisitions. In addition, the New Credit Facility and the indentures governing the New Senior Notes, the 1995 11% Senior Subordinated Notes and the 1997 11% Senior Subordinated Notes limit, among other things, additional borrowings, dividends on, and redemption of, capital stock and the acquisition and the disposition of assets. At February 1, 1998, the Company was in compliance with the financial covenants of its debt agreements. At February 1, 1998, dividends and certain other payments are restricted based on terms in the debt agreements. Subsidiary Guarantors All of the Company's wholly-owned subsidiaries have fully and unconditionally guaranteed, on a joint and several basis, the Company's obligations under the New Senior Notes, the 1995 11% Senior Subordinated Notes and the 1997 11% Senior Subordinated Notes, as provided in the indentures related thereto. The separate financial statements of the subsidiary guarantors are not presented because the Company's management believes that the operating results and assets of the subsidiary guarantors are not material to the consolidated operating results and assets of the Company and that, accordingly, such financial statements are not material to investors. 33 35 Presented below is summarized financial information for the subsidiary guarantors on a combined basis (in thousands):
As of -------------------------- February 2, February 1, 1997 1998 -------- -------- Current assets $ 53,706 $ 58,597 Non-current assets 279,674 256,929 Current liabilities 47,800 49,610 Non-current liabilities 8,399 8,092
For the --------------------------------------------- 52 Weeks 53 Weeks 52 Weeks Ended Ended Ended January 28, February 2, February 1, 1996 1997 1998 --------- --------- --------- Sales $ 557,316 $ 557,994 $ 536,133 Gross Profit 108,697 113,730 108,525 Net Loss (10,418) (8,083) (4,058)
5. LEASES The Company's operations are conducted primarily in leased properties. Substantially all leases contain renewal options. Rental expense under operating leases was as follows (in thousands):
For the ------------------------------------------- 52 Weeks 53 Weeks 52 Weeks Ended Ended Ended January 28, February 2, February 1, 1996 1997 1998 ----------- ----------- ----------- Minimum rents $ 97,752 $146,101 $139,578 Rents based on sales 3,439 3,786 3,719 Sublease income 3,669 3,903 4,323
Following is a summary of future minimum lease payments under operating leases at February 1, 1998 (in thousands):
Fiscal Year ----------- 1998 $ 144,475 1999 147,451 2000 142,897 2001 130,964 2002 124,204 Later years 1,320,806 ---------- $2,010,797 ==========
34 36 The Company has entered into lease agreements for new supermarket sites which were not in operation at February 1, 1998. Future minimum lease payments under such operating leases generally begin when such facilities open and at February 1, 1998 are: 1998 - $3.6 million; 1999 - $9.0 million; 2000 - $9.0 million; 2001 - $9.0 million; 2002 - $9.0 million; later years - $161.5 million. Certain leases qualify as capital leases under the criteria established in Statement of Financial Accounting Standards No. 13, "Accounting for Leases," and are classified on the consolidated balance sheets as leased property under capital leases. Future minimum lease payments for the property under capital leases at February 1, 1998 are as follows (in thousands):
Fiscal Year ----------- 1998 $ 46,768 1999 38,188 2000 29,930 2001 19,540 2002 15,451 Later years 95,254 --------- Total minimum lease payments 245,131 Less: amounts representing interest 89,111 --------- Present value of minimum lease payments 156,020 Less: current portion 35,691 --------- $ 120,329 =========
Accumulated depreciation related to leased property under capital leases was $62.0 million and $87.5 million at February 2, 1997, and February 1, 1998, respectively. 6. INVESTMENT IN ASSOCIATED WHOLESALE GROCERS The Company's investment in Associated Wholesale Grocers ("A.W.G.") consists of seven- and eight-year patronage certificates received in payment of certain rebates. The instruments bear interest at 6 percent per annum. The Company classifies these investments as held-to-maturity securities, which are carried at amortized cost in accordance with SFAS No. 115. The investment in Certified is accounted for on the cost method. There are certain restrictions on the sale of this investment. The contractual maturities at February 1, 1998 were as follows (in thousands): Within one year $ -- After one year through five years 5,298 After five years through ten years 1,499 ------- $ 6,797 =======
35 37 7. INCOME TAXES The provision (benefit) for income taxes consists of the following (in thousands):
52 Weeks 53 Weeks 52 Weeks Ended Ended Ended January 28, February 2, February 1, 1996 1997 1998 ----------- ----------- ----------- Current: Federal $ -- $ -- $ -- State and other 46 -- -- ----- ----- ----- 46 -- -- ----- ----- ----- Deferred: Federal -- -- -- State and other 454 -- -- ----- ----- ----- 454 -- -- ----- ----- ----- $ 500 $ -- $ -- ===== ===== =====
A reconciliation of the provision (benefit) for income taxes to amounts computed at the federal statutory rates of 35 percent for fiscal year 1995, fiscal year 1996 and fiscal year 1997 is as follows (in thousands):
52 Weeks 53 Weeks 52 Weeks Ended Ended Ended January 28, February 2, February 1, 1996 1997 1998 --------- --------- --------- Federal income taxes at statutory rate on loss before provision for income taxes and extraordinary charges $ (98,959) $ (32,827) $ (29,202) State and other taxes, net of federal tax benefit (16,794) (244) (1,724) Effect of permanent differences resulting primarily from amortization of goodwill (1,665) 9,801 8,344 Tax credits and other 3,769 (4,818) (2,587) Accounting limitation of deferred tax benefit 114,149 28,088 25,169 --------- --------- --------- $ 500 $ -- $ -- ========= ========= =========
36 38 The provision (benefit) for deferred taxes consists of the following (in thousands):
52 Weeks 53 Weeks 52 Weeks Ended Ended Ended January 28, February 2, February 1, 1996 1997 1998 --------- --------- --------- Property and equipment $ (461) $ 20,606 $ (8,864) Inventory (8,479) 40 (6,558) Capital lease obligation (502) (5,253) 3,337 Self-insurance reserves 2,104 2,276 78 Accrued expense (26,304) (1,435) (10,060) Accrued payroll and related liabilities (6,206) (2,916) (2,049) Tax intangibles 6,234 10,182 10,142 State taxes (20,639) (3,879) (5,193) Net operating losses (61,219) (49,773) (13,989) Tax credits 3,601 -- 93 Accounting limitation of deferred tax benefit 114,149 28,088 25,169 Other, net (1,824) 2,064 7,894 --------- --------- --------- $ 454 $ -- $ -- ========= ========= =========
The significant components of the Company's deferred tax assets (liabilities) are as follows (in thousands):
February 2, February 1, 1997 1998 --------- --------- Deferred tax assets: Accrued payroll and related liabilities $ 30,495 $ 32,544 Other accrued liabilities 73,389 83,449 Obligations under capital leases 42,837 39,500 Self-insurance liabilities 47,497 47,419 Loss carryforwards 203,975 217,965 Tax credit carryforwards 913 820 State taxes 34,090 39,282 Other 16,075 7,543 --------- --------- Gross deferred tax assets 449,271 468,522 Valuation allowance (313,594) (338,763) --------- --------- Net deferred tax assets $ 135,677 $ 129,759 --------- --------- Deferred tax liabilities: Inventories $ (9,802) $ (3,244) Property and equipment (129,808) (120,944) Tax intangibles (16,416) (26,558) Other (725) (87) --------- --------- Gross deferred tax liability (156,751) (150,833) --------- --------- Net deferred tax liability $ (21,074) $ (21,074) ========= =========
The Company recorded a valuation allowance to reserve a portion of its gross deferred tax assets at February 1, 1998 due primarily to financial and tax losses in recent years. Under SFAS 109, this valuation allowance will be adjusted in future periods as appropriate. However, the timing and extent of such future adjustments to the allowance cannot be determined at this time. 37 39 At February 1, 1998, approximately $139.0 million of the valuation allowance for deferred tax assets will reduce goodwill when the allowance is no longer required. At February 1, 1998, the Company has net operating loss carryforwards for federal income tax purposes of $622.8 million, which expire from 2007 through 2012. The Company has federal Alternative Minimum Tax ("AMT") credit carryforwards of approximately $0.8 million which are available to reduce future regular taxes in excess of AMT. Currently, there is no expiration date for these credits. A portion of the loss carryforwards described above are subject to the provisions of the Tax Reform Act of 1986, specifically Internal Revenue Code Section 382. The law limits the use of net operating loss carryforwards when changes of ownership of more than 50 percent occur during a three-year testing period. Due to the Ralphs Merger, the ownership of pre-Ralphs Merger F4L Supermarkets and pre-Ralphs Merger RSI changed in excess of 50 percent. As a result, the Company's utilization of approximately $78.0 million of F4L Supermarkets' and $187.0 million of RSI's federal net operating losses will be subject to an annual usage limitation. The Company's annual limitations under Section 382 for F4L Supermarkets' and RSI's net operating losses are approximately $15.6 million and $15.0 million, respectively. Furthermore, all of the Company's pre-Ralphs Merger RSI net operating losses and a portion of the Company's post-Ralphs Merger losses will reduce goodwill when utilized in future federal income tax returns. Holdings files a consolidated federal income tax return, under which the federal income tax liability of Holdings and its subsidiaries is determined on a consolidated basis. Holdings is a party to a federal income tax sharing agreement with the Company and certain of its subsidiaries (the "Tax Sharing Agreement"). The Tax Sharing Agreement provides that in any year in which the Company is included in any consolidated tax liability of Holdings and has taxable income, the Company will pay to Holdings the amount of the tax liability that the Company would have had on such due date if it had been filing a separate return. Conversely, if the Company generates losses or credits which actually reduce the consolidated tax liability of Holdings and its other subsidiaries, Holdings will credit to the Company the amount of such reduction in the consolidated tax liability. These credits are passed between Holdings and the Company in the form of cash payments. In the event any state and local income taxes are determinable on a combined or consolidated basis, the Tax Sharing Agreement provides for a similar allocation between Holdings and the Company of such state and local taxes. The Company currently has Internal Revenue Service examinations in process covering the years 1992 through 1993. Management believes that any required adjustment to the Company's tax liabilities will not have a material adverse impact on its financial position or results of operations. 8. RELATED PARTY TRANSACTIONS The Company has a five-year consulting agreement with an affiliated company effective June 14, 1995 for management, financing, acquisition and other services. The agreement is automatically renewed on June 14 of each year for the five-year term unless 90 days' notice is given by either party. The contract provides for annual management fees equal to $4 million plus advisory fees for certain acquisition transactions if the affiliated company is retained by the Company. Management services expenses were $3.6 million during fiscal year 1995, $4.0 million during fiscal year 1996 and $4.0 million during fiscal year 1997. Advisory fees were 38 40 $21.5 million during fiscal year 1995, $1.7 million during fiscal year 1996 and less than $1.0 million during fiscal year 1997. Advisory fees for financing transactions are capitalized and amortized over the term of the related financing. 9. COMMITMENTS AND CONTINGENCIES The Company is contingently liable to former stockholders of certain predecessors for any prorated gains which may be realized within ten years of the acquisition of the respective companies resulting from the sale of certain Certified stock. Such gains are only payable if Certified is purchased or dissolved, or if the Company sells such Certified Stock within the period noted above. In connection with the bankruptcy reorganization of Federated Department Stores, Inc. ("Federated") and its affiliates, Federated agreed to pay certain potential tax liabilities relating to RGC as a member of the affiliated group of companies comprising Federated and its subsidiaries. In consideration thereof, RSI and RGC agreed to pay Federated a total of $10 million, payable $1 million on each of February 3, 1992, 1993, 1994, 1995 and 1996 and $5 million on February 3, 1997. In the event Federated is required to pay certain tax liabilities, RSI and RGC agreed to reimburse Federated up to an additional $10 million, subject to certain adjustments. Pursuant to the terms of the Ralphs Merger, the potential $10 million payment will be paid in cash. The Company has entered into lease agreements with the developers of several new sites in which the Company has agreed to provide construction financing. At February 1, 1998, the Company had capitalized construction costs of $15.0 million on total commitments of $15.0 million. In December 1992, three California state antitrust class action suits were commenced in Los Angeles Superior Court against the Company and other major supermarket chains located in Southern California, alleging that they conspired to refrain from competing in the retail market for fluid milk and to fix the retail price of fluid milk above competitive prices. Specifically, class actions were commenced by Diane Barela and Neila Ross, Ron Moliare and Paul C. Pfeifle on December 7, December 14 and December 23, 1992, respectively. A class has been certified consisting of all purchasers of milk in Los Angeles County from December 7, 1988. The plaintiffs seek unspecified damages. All defendants in the actions, including the Company, have reached tentative settlement agreements, and certain of the settlements have been approved by the trial court. The Company is in the process of finalizing a settlement agreement in the case. On September 13, 1996 a class action lawsuit titled McCampbell, et al. v. Ralphs Grocery Company, et al. was filed in the Superior Court of the State of California, County of San Diego, against the Company and two other grocery store chains operating in the Southern California area. The complaint alleges, among other things, that the Company and others conspired to fix the retail price of eggs in Southern California. The plaintiffs claim that the defendants' actions violate provisions of the California Cartwright Act and constitute unfair competition. Plaintiffs seek unspecified damages they purport to have sustained as a result of the defendants' alleged actions, which damages may be trebled under the applicable statute, and an injunction from future actions in restraint of trade and unfair competition. Discovery has commenced and the action has been certified as a class. Management of the Company intends to defend this action vigorously and the Company has filed an answer to the complaint denying the plaintiffs' allegations and setting forth several defenses. 39 41 On December 20, 1996, a lawsuit titled Bundy, et al. v. Ralphs Grocery Company, et al. was filed in the Los Angeles Superior Court against the Company. The complaint was filed by eight individual plaintiffs who were terminated in conjunction with the Company's restructuring. The plaintiffs claim that they were wrongfully terminated for discriminatory reasons and that the Company engaged in various fraudulent practices. The plaintiffs seek compensatory damages in excess of $15 million, special and punitive damages. Management of the Company intends to defend this action vigorously. In August 1996, a lawsuit entitled Dianne Gober, et al. v. Ralphs was filed alleging sexual harassment by a Ralphs store manager in San Diego County against six female store employees. None of the plaintiffs suffered any loss of earnings nor incurred any medical expenses or expenses for psychotherapy, but the Company has recently been advised that the plaintiffs are, nevertheless, seeking substantial compensatory and punitive damages. Plaintiffs have dismissed the store manager as a defendant. The trial began in April . The Company intends to defend this action vigorously. In addition, the Company or its subsidiaries are defendants in a number of other cases currently in litigation or are the subject of potential claims encountered in the normal course of business which are being vigorously defended. In the opinion of management, the resolutions of these matters will not have a material effect on the Company's financial position or results of operations. The Company self-insures its workers' compensation, general liability and auto liability. For fiscal year 1995, fiscal year 1996 and fiscal year 1997, the self-insurance loss provisions were $32.6 million, $29.2 million and $39.0 million, respectively. The Company discounted its self-insurance liability using a 7.5 percent discount rate. Management believes that this rate approximates the time value of money over the anticipated payout period (approximately 10 years) for essentially risk-free investments. The Company's historical self-insurance liability at the end of the two most recent fiscal years is as follows (in thousands):
As of ------------------------ February 2, February 1, 1997 1998 -------- -------- Self-insurance liability $151,465 $153,832 Less: Discount (11,882) (15,256) -------- -------- Net self-insurance liability $139,583 $138,576 ======== ========
The Company expects that cash payments for claims will aggregate approximately $51.7 million, $36.2 million, $23.6 million, $14.8 million and $9.0 million for the fiscal year 1998, the fiscal year 1999, the fiscal year 2000, the fiscal year 2001 and the fiscal year 2002, respectively. Environmental Matters Beginning in 1991, the California Regional Water Quality Control Board for the Los Angeles Region (the "Regional Board") requested that the Company conduct certain subsurface characterizations of the Glendale facility property located near Glendale. Significant parts of the San Fernando Valley, including the area where the Glendale facility is located, have been designated federal Superfund sites requiring response actions under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as 40 42 amended ("CERCLA"), because of regional groundwater contamination. The Company conducted the requested investigations and reported the results to the Regional Board, and no further investigations have been requested. Beginning in 1991, EPA has made requests for information and issued orders directing more than 60 potentially responsible parties ("PRPs") to investigate and remediate the groundwater contamination in the San Fernando Valley. The Company is one of those PRPs. Among those actions, on November 26, 1996, the EPA issued an Administrative Order for Remedial Action (EPA Docket No. 97-06) against more than 60 respondents, including the Company, in connection with the Superfund site. Under the order, these PRPs are required to take certain actions in connection with the implementation of interim remedies for the treatment of groundwater. The Company's best estimate of its likely costs is based on a 1996 engineering estimate to construct the groundwater extraction and treatment system that was approved by EPA, adjusted by the Company's likely allocable share of those costs. As of 1996, construction and capital costs were estimated at $46,150,000. Operation and maintenance was estimated at $3,620,000 per year. In addition, the PRPs have agreed to EPA's demand that the PRPs reimburse it for its adjusted response costs. As of January 1997, EPA estimated those costs at $12 million. Thus, the Company has estimated that the total costs to be paid by all PRPs will be approximately $106 million stated in 1998 dollars. The Company's best estimate of its allocable share is based on a settlement entered into by Glendale members of the PRP group in or about November 1997. Based on that settlement, the Company expects to pay 1.02 percent of the total costs. Thus, the Company's current best estimate of its likely exposure is approximately $1 million. Actual costs may end up being higher or lower than this estimate for a number of reasons including, but not limited to: (1) one PRP has filed an appeal that, if successful, could result in an increase in the Company's allocable percentage; (2) the PRPs and EPA are currently negotiating the terms of a Consent Decree, the terms of which may affect the total cost estimate; and (3) EPA has now issued a Stop Work Order under its prior administrative order requiring construction of the groundwater extraction and treatment system because of current uncertainty whether the City of Glendale will be able to use the treated water as a potable water supply. Although responsibilities for compliance under federal CERCLA law are joint and several, the Glendale PRPs include substantial companies as members, such that the Company anticipates that the results of the PRPs' allocation process will be enforceable to limit its exposure. The Company removed underground storage tanks and remediated soil contamination at the Glendale Facility property. In some instances, the removals and the contamination were associated with grocery business operations; in others, they were associated with prior property users. The Company has received correspondence from the Regional Board confirming the successful completion of the remediation. Apart from the Glendale Facility, the Company has had environmental assessments performed on most of its facilities, including warehouse and distribution facilities. The Company believes that any responsive actions required at the examined properties as a result of such assessments will not have a material adverse effect on its financial condition or results of operations. 41 43 The Company is subject to a variety of environmental laws, rules, regulations and investigative or enforcement activities, as are other companies in the same or similar business. The Company believes it is in substantial compliance with such laws, rules and regulations. These laws, rules, regulations and agency activities change from time to time, and such changes may affect the ongoing business and operations of the Company. 10. EMPLOYEE BENEFIT PLANS As a result of the Ralphs Merger, the Company adopted certain employee benefit plans previously sponsored by RGC. These employee benefit plans include the Ralphs Grocery Company Retirement Plan (the "Pension Plan"), the Ralphs Grocery Company Supplemental Executive Retirement Plan (the "SERP"), and the Ralphs Grocery Company Retirement Supplement Plan (the "Retirement Supplement Plan"). Pension Plan The Pension Plan covers substantially all employees not already covered by collective bargaining agreements with at least one year of service during which 1,000 hours have been worked. Employees who were employed by F4L Supermarkets and who are otherwise eligible to participate in the Pension Plan became eligible to participate in fiscal year 1995. The Company's policy is to fund pension costs at or above the minimum annual requirement. SERP The SERP covers certain key officers of the Company. The Company has purchased split dollar life insurance policies for certain participants under this plan. Under certain circumstances, the cash surrender value of the split dollar life insurance policies will offset the Company's obligations under the SERP. Retirement Supplement Plan The Retirement Supplement Plan is a non-qualified retirement plan designed to provide eligible participants with benefits based on earnings over the indexed amount of $150,000. The following actuarially determined components were included in the net pension expense for the above plans for fiscal years 1995, 1996 and 1997 (dollars in thousands):
52 Weeks 53 Weeks 52 Weeks Ended Ended Ended January 28, February 2, February 1, 1996 1997 1998 ------- ------- ------- Service cost $ 2,841 $ 6,187 $ 5,231 Interest cost on projected benefit obligation 2,543 5,293 5,449 Actual return on assets (3,223) (5,684) (9,203) Net amortization and deferral 1,365 1,907 4,853 ------- ------- ------- Net pension expense $ 3,526 $ 7,703 $ 6,330 ======= ======= =======
Following are the assumptions used in determining the net pension expense: 42 44
1995 1996 1997 ------- ------- ------- Discount rate 7.50% 7.00% 7.50% Expected long term rate of return on plan assets 9.00% 9.00% 9.00% Rate of pay increase 5.00% 5.00% 5.00%
The funded status of the Pension Plan (based on December 1996 and December 1997 asset values) is as follows (dollars in thousands):
As of As of February 2, February 1, 1997 1998 -------- -------- Assets Exceed Accumulated Benefits: Actuarial present value of benefit obligations: Vested benefit obligation $(45,965) $(49,879) Nonvested benefit obligation (386) (317) -------- -------- Accumulated benefit obligation (46,351) (50,196) Projected benefit obligation (66,858) (70,421) Plan assets at fair value 50,189 61,879 -------- -------- Projected benefit obligation in excess of Plan Assets (16,669) (8,542) Unrecognized net gain (3,376) (11,998) Unrecognized prior service cost 1,023 946 -------- -------- Accrued pension cost $(19,022) $(19,594) ======== ========
43 45 The funded status of the SERP and Retirement Supplement Plan (based on December 1996 and December 1997 asset values) is as follows (dollars in thousands):
As of As of February 2, February 1, 1997 1998 -------- -------- Accumulated Benefits Exceed Assets: Actuarial present value of benefit obligations: Vested benefit obligation $ (5,006) $ (7,096) Nonvested benefit obligation (230) (16) -------- -------- Accumulated benefit obligation (5,236) (7,112) Projected benefit obligation (10,033) (10,918) Plan assets at fair value -- -- -------- -------- Projected benefit obligation in excess of Plan Assets (10,033) (10,918) Unrecognized net (gain)/loss 607 (1,171) Unrecognized prior service cost 1,725 3,043 Adjustment required to recognize minimum liability (2) (866) -------- -------- Accrued pension cost $ (7,703) $ (9,912) ======== ========
Following are the assumptions used in determining the funded status:
1996 1997 ---- ---- Discount rate 7.50% 7.50% Rate of pay increase 5.00% 5.00%
The assets of the Pension Plan consist primarily of common stocks, bonds, debt securities, and a money market fund. Plan benefits are based primarily on years of service and on average compensation during the last years of employment. Employee Stock Ownership Plans The Company accounts for its employee stock ownership plans in accordance with Statement of Position No. 93-6 (the "SOP"), "Employer Accounting for Employee Stock Ownership Plans," effective June 26, 1994. The full-time employees of Falley's who are not members of a collective bargaining agreement are covered under a 401(k) plan, a portion of which is invested in Holdings stock (the "Falley's ESOP"). As is required pursuant to IRS and ERISA requirements, any participant who receives stock from the Falley's ESOP has the right to put that stock to Falley's or an affiliate of Falley's. However, as part of the original stock sale agreement among the then stockholders of Falley's, FFL and the Falley's ESOP, which has been amended from time to time, a partnership which owns stock of Holdings entered into an agreement with Falley's and Holdings to assume the obligation to purchase any Holdings shares as to which terminated plan participants exercise a put option under the terms of Falley's ESOP. As a result, neither Falley's nor the Company is required to make cash payments to redeem the shares. As part of that agreement, the Company may elect, after providing a right of first refusal to the partnership, to purchase Holdings shares put under the provisions of the plan. However, the partnership's obligation to purchase such Holdings shares is unconditional, and any repurchase of shares by the Company is at the Company's 44 46 sole election. During fiscal year 1997, the Company did not purchase any of the Holdings shares. As of February 1, 1998, the fair value of the shares allocated which are subject to repurchase obligation by the partnership referred to above was approximately $9.3 million. In addition, the Company also sponsors two ESOPs for employees of the Company who are members of certain collective bargaining agreements (the "Union ESOPs"). The Union ESOPs provide for annual contributions based on hours worked at a rate specified by the terms of the collective bargaining agreements. The Company contributions are made in the form of Holdings stock or cash for the purchase of Holdings stock and are to be allocated to participants based on hours worked. During fiscal year 1995, the Company recorded a charge against operations of approximately $0.8 million for benefits under the Union ESOPs. There were no shares issued to the Union ESOPs or to the Company's profit sharing plan at February 2, 1997 or February 1, 1998. Defined Contribution Plan The Company sponsors the Ralphs Grocery Company Savings Plan Plus - Primary, the Ralphs Grocery Company Savings Plan Plus - Basic and the Ralphs Grocery Company Savings Plan Plus - ESOP (collectively referred to as the "401(k) Plan") covering substantially all employees who are not covered by collective bargaining agreements and who have at least one year of service during which 1,000 hours has been worked. The 401(k) Plan provides for both pre-tax and after-tax contributions by participating employees. With certain limitations, participants may elect to contribute on a pre-tax basis to the 401(k) Plan. The Company has committed to match a minimum of 20 percent of an employee's contribution to the 401(k) Plan that does not exceed 5 percent of the employee's eligible compensation. Expenses under the 401(k) Plan for fiscal year 1995, 1996 and 1997 were $0.7 million, $0.8 million and $0.7 million, respectively. Multi-Employer Benefit Plans The Company contributes to multi-employer benefit plans administered by various trustees. Contributions to these plans are based upon negotiated wage contracts. These plans may be deemed to be defined benefit plans. The Company contributed $102.1 million, $138.8 million and $138.0 million to these plans for fiscal year 1995, fiscal year 1996 and fiscal year 1997, respectively. Management is not aware of any plans to terminate such plans. The United Food and Commercial Workers health and welfare plans were over-funded and those employers who contributed to the plans received a pro rata share of the excess reserves in the plans through reduction of current contributions. The Company's share of the excess reserve was $24.2 million, of which $1.8 million was recognized in fiscal year 1995. As part of the renewal of the Southern California UFCW contract in October 1995, employers contributing to UFCW health and welfare plans received 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 recognized in fiscal year 1996 and 1997 were $17.8 million and $21.5 million, respectively. Offsetting the reduction was a $4.3 million union bonus in fiscal year 1997. Post-Retirement Medical Benefit Plans The Company adopted postretirement medical benefit plans ("Postretirement Medical Plans"), previously sponsored by RGC, which cover substantially all employees who are not members of a collective bargaining agreement and who retire under certain age and service 45 47 requirements. The Postretirement Medical Plans are insured plans and provide outpatient, inpatient and various other covered services. The Company's policy is to fund the Plans as insurance premiums are incurred. For persons who are less than age 65 at retirement and for certain executives, the calendar 1997 year deductible is $1,000 per individual, indexed to the medical care component of the Consumer Price Index. The net postretirement benefit cost of the Postretirement Medical Plans include the following components for fiscal years 1995, 1996 and 1997 (dollars in thousands):
52 Weeks 53 Weeks 52 Weeks Ended Ended Ended January 28, February 2, February 1, 1996 1997 1998 ------- ------- ------- Service cost $ 468 $ 909 $ 805 Interest cost 561 989 981 Net amortization and deferral (116) (281) (351) ------- ------- ------- Net postretirement benefit cost $ 913 $ 1,617 $ 1,435 ======= ======= =======
Following are the assumptions used in determining the net postretirement benefit cost:
1995 1996 1997 ---- ---- ---- Discount rate 7.50% 7.00% 7.50% Medical cost trend 10.50% 9.00% 8.50%
The funded status of the postretirement benefit plan (based on December 31, 1996 and December 31, 1997 asset values) is as follows (dollars in thousands):
As of As of February 2, February 1, 1997 1998 -------- -------- Accumulated postretirement benefit obligation: Retirees $ (2,242) $ (2,074) Fully eligible plan participants (1,777) (1,730) Other active plan participants (10,126) (10,987) Plan assets at fair value -- -- -------- -------- Accumulated postretirement obligations in excess of plan assets (14,145) (14,791) Unrecognized gain (1,580) (2,502) Unrecognized prior service cost (2,965) (2,684) -------- -------- Accrued post retirement benefit obligation $(18,690) $(19,977) ======== ========
Following are the assumptions used in determining the funded status:
1996 1997 ---- ---- Discount rate 7.50% 7.50% Medical cost trend 8.50% 8.50%
46 48 The effect of a 1.00 percent increase in the medical cost trend would increase the fiscal 1997 service and interest cost by $0.6 million. The accumulated postretirement benefit obligation at February 1, 1998 would also increase by $4.9 million. 11. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and Cash Equivalents The carrying amount approximates fair value as a result of the short maturity of these instruments. Short-Term Notes and Other Receivables The carrying amount approximates fair value as a result of the short maturity of these instruments. Investments In and Notes Receivable From Supplier Cooperatives The Company maintains a non-current deposit with Certified in the form of Class B shares of Certified. Certified is not obligated in any fiscal year to redeem more than a prescribed number of the Class B shares issued. Therefore, it is not practicable to estimate the fair value of this investment. The Company maintains non-current notes receivable from A.W.G. There are no quoted market prices for this investment and a reasonable estimate could not be made without incurring excessive costs. Additional information pertinent to the value of this investment is provided in Note 6. Long-Term Debt The fair value of the New Senior Notes, the 1995 11% Senior Subordinated Notes and the 1997 11% Senior Subordinated Notes is based on quoted market prices. The Term Loans and the Revolving Facility are estimated to be recorded at the fair value of the debt. Market quotes for the fair value of the remainder of the Company's debt are not available, and a reasonable estimate of the fair value could not be made without incurring excessive costs. Additional information pertinent to the value of the unquoted debt is provided in Note 4. 47 49 The estimated fair values of the Company's financial instruments are as follows (in thousands):
As of February 1, 1998 ---------------------------- Carrying Fair Amount Value ---------- ---------- Cash and cash equivalents $ 75,601 $ 75,601 Short-term notes and other receivables 504 504 Investments in and notes receivable from supplier cooperatives (not practicable) 7,242 -- Long-term debt for which it is: - Practicable to estimate fair values 1,981,355 2,173,299 - Not practicable 21,597 --
12. RESTRUCTURING CHARGE During fiscal 1995, the Company recorded a $75.2 million charge associated with the closure of 58 former F4L Supermarkets stores and one former F4L Supermarkets warehouse facility. The stores were closed to comply with a settlement agreement with the State of California in connection with the Ralphs Merger or to improve the Company's future operating results. Three RGC stores were also required to be sold to comply with the settlement agreement. During fiscal year 1995, the Company utilized $34.7 million of the reserve for restructuring costs ($50.0 million of costs partially offset by $15.3 million of proceeds from the divestiture of stores). During fiscal year 1996, the Company utilized $15.1 million of the reserve for restructuring costs, consisting mainly of write-downs of property and equipment, expenditures associated with the closed stores and the warehouse facility and lease termination expenses ($15.2 million) partially offset by proceeds from the sale of certain related assets. On December 29, 1995, the Company consummated an agreement with Smith's to sublease its one million square foot distribution center and creamery facility in Riverside, California for approximately 23 years, with renewal options through 2043, and to acquire certain operating assets and inventory at that facility. In addition, the Company also acquired nine of Smith's Southern California stores which became available when Smith's withdrew from the California market. As a result of the acquisition of the Riverside distribution center and creamery, the Company closed its La Habra distribution center in the first quarter of fiscal year 1996. Also, the Company closed nine of its smaller and less efficient stores which were near the stores acquired from Smith's. During the fourth quarter of fiscal year 1995, the Company recorded a $47.9 million restructuring charge to recognize the cost of closing these facilities. During fiscal year 1996, the Company utilized $33.9 million of the reserve for restructuring costs, consisting mainly of write-downs of property and equipment ($18.3 million) and lease termination expenses ($15.6 million). During fiscal 1997, the Company utilized $2.4 million and $5.5 million of the remaining restructuring reserve related to the fiscal 1995 $75.2 million and $47.9 million restructuring charges, respectively. The amounts utilized primarily include write-downs of property and equipment ($1.8 million) and payments for lease obligations ($6.1 million). At February 1, 1998, approximately $20.0 million of the restructuring accrual related to the $75.2 million charge and $11.4 million of the restructuring accrual related to the $47.9 million charge remained accrued on the Company's balance sheet consisting primarily of provisions for 48 50 lease obligations. The Company has completed a majority of the restructuring actions, although certain lease obligations will continue through 2010. 13. SELECTED QUARTERLY FINANCIAL RESULTS (UNAUDITED) The tables below set forth the selected quarterly financial information for fiscal year 1996 and fiscal year 1997 (in thousands):
12 Weeks 12 Weeks 12 Weeks 17 Weeks Ended Ended Ended Ended Fiscal Year 1996 04/21/96 07/14/96 10/06/96 02/02/97 ---------------- -------- -------- -------- -------- Net Sales $1,230,808 $1,243,768 $1,221,018 $1,820,665 Gross Profit 237,925 252,544 263,765 381,784 Net Loss (31,981) (21,539) (11,865) (28,406)
12 Weeks 12 Weeks 12 Weeks 16 Weeks Ended Ended Ended Ended Fiscal Year 1997 04/27/97 07/20/97 10/12/97 02/01/98 ---------------- -------- -------- -------- -------- Net Sales $1,276,222 $1,271,726 $1,230,522 $1,708,999 Gross Profit 262,953 261,126 253,860 361,981 Net Loss (59,978) (5,429) (8,692) (9,303)
49 51 14. SUBSEQUENT EVENT (UNAUDITED) On March 10, 1998, Food 4 Less Holdings, Inc. ("Holdings"), which is the parent of Ralphs Grocery Company (the "Company"), Fred Meyer, Inc., a Delaware corporation ("Fred Meyer"), and FFL Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of Fred Meyer ("Acquisition"), merged pursuant to an Agreement and Plan of Merger (the "Fred Meyer Merger Agreement") entered into on November 6, 1997 and amended on January 20, 1998. Pursuant to the terms of the Fred Meyer Merger Agreement, Acquisition merged with and into Holdings (the "Fred Meyer Merger"), subject to certain conditions being satisfied or waived. Pursuant to the Fred Meyer Merger Agreement, the stockholders of Holdings received an aggregate of 21,670,503 shares of Fred Meyer Common Stock. In addition, Fred Meyer refinanced the debt of Holdings and the Company. Conditions to the consummation of the Fred Meyer Merger included the receipt of regulatory approvals and approval by the stockholders of Fred Meyer and Holdings. Certain shareholders of Holdings holding approximately 66.0% of the aggregate voting power of Holdings entered into agreements to vote their Holdings shares in favor of the Fred Meyer Merger. Concurrently with the execution of the Fred Meyer Merger Agreement, Fred Meyer executed an agreement and plan of merger with Quality Food Centers, Inc. ("QFC") pursuant to which QFC became a wholly-owned subsidiary of Fred Meyer (the "QFC Merger"). QFC operates retail supermarkets in the State of Washington and in Southern California. The Fred Meyer Merger was an independent transaction and was not conditioned on the consummation of Fred Meyer's merger with QFC. On March 11, 1998, Fred Meyer purchased tendered offers from note holders for the following issues: (i) Food 4 Less Holdings 13-5/8% Senior Discount Debentures due 2005, (ii) Food 4 Less Holdings 13-5/8% Senior Subordinated Pay-In-Kind Debentures due 2007, (iii) Ralphs Grocery Company 10.45% Senior Notes due 2004 (issued 6/95), (iv) Ralphs Grocery Company 10.45% Senior Notes due 2004 (issued 6/96), (v) Ralphs Grocery Company 11% Senior Subordinated Notes due 2005 (issued 6/95) and (vi) Ralphs Grocery Company 11% Senior Subordinated Notes due 2005 (issued 3/97). Payment to the note holders included tendered amounts, interest and consent fees, which were $1,612.7 million, $37.7 million and $209.9 million, respectively. The Ralphs Grocery Company 10.45% Senior Notes due 2004 (issued in June 1995) and the Ralphs Grocery Company 11% Senior Subordinated Notes due 2005 (issued in June 1995) were not fully tendered and $20,344,000 and $42,565,000 principal amount of each issue are still outstanding, respectively. In addition to the above issues, as part of the Fred Meyer Merger financing, the New Credit Facility was replaced by New Senior Credit Facilities in aggregate principal amount not to exceed $3.5 billion, consisting of a $1.875 billion five-year revolving credit facility and a $1.625 billion five-year term loan facility (the "Term Loan Facility") entered into by Fred Meyer. Fred Meyer also entered into a $500 million lease facility (the "New Lease Facility") that will be used to refinance a portion of Fred Meyer's existing lease facilities. The New Senior Credit Facilities and the New Lease Facility will be unconditionally guaranteed, on a joint and several basis by, and will be secured by a pledge of the outstanding capital stock of, all of Fred Meyer's direct and indirect subsidiaries (except for certain inactive or immaterial subsidiaries), including Holdings and the Company. In conjunction with the Fred Meyer Merger, Fred Meyer also issued (i) $250.0 million aggregate principal amount of 7.15% Notes due 2003, (ii) $750.0 million aggregate principal amount of $7.375% Notes due 2005 and (iii) $750.0 million aggregate principal amount of 7.45% Notes due 2008. 50 52 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholder of Ralphs Grocery Company: We have audited, in accordance with generally accepted auditing standards, the consolidated balance sheets of Ralphs Grocery Company (formerly Food 4 Less Supermarkets, Inc. -- See Note 1 in the accompanying Notes to Consolidated Financial Statements) and subsidiaries as of February 1, 1998 and February 2, 1997 and the related consolidated statements of operations, stockholder's equity (deficit) and cash flows for the 52 weeks ended February 1, 1998, the 53 weeks ended February 2, 1997 and the 52 weeks ended January 28, 1996 and have issued our report thereon dated March 9, 1998. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule on page 52 is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Los Angeles, California March 9, 1998 51 53 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS 52 WEEKS ENDED FEBRUARY 1, 1998, 53 WEEKS ENDED FEBRUARY 2, 1997, AND 52 WEEKS ENDED JANUARY 28, 1996 (IN THOUSANDS)
Provisions Charged Balance at charged to Balance beginning to interest Other at end of period expense expense(a) Payments changes(b) of period --------- ------- ---------- -------- ---------- --------- Self-insurance liabilities 52 weeks ended February 1, 1998 $139,583 $ 39,021 $ 10,324 $ 50,352 $ -- $138,576 ======== ======== ======== ======== ======== ======== 53 weeks ended February 2, 1997 $148,985 $ 29,184 $ 10,818 $ 49,404 $ -- $139,583 ======== ======== ======== ======== ======== ======== 52 weeks ended January 28, 1996 $ 72,739 $ 32,603 $ 10,287 $ 42,153 $ 75,509 $148,985 ======== ======== ======== ======== ======== ========
- ---------- (a) Amortization of discount on self-insurance reserves charged to interest expense. (b) Reflects self-insurance reserve of Ralphs Grocery Company which was acquired on June 14, 1995. 52 54 INDEX TO EXHIBITS
Exhibit Number Description - ------ ----------- 3.1 Restated Certificate of Incorporation, as amended, of Ralphs Grocery Company. 3.2 Restated bylaws of Ralphs Grocery Company. 4.2.1 Indenture for the 10.45% Senior Notes due 2004, dated as of June 1, 1995, by and among Food 4 Less Supermarkets, Inc., the subsidiary guarantors identified therein and Norwest Bank Minnesota, National Association, as trustee (incorporated herein by reference to Exhibit 4.4.1 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995). 4.2.2 First Supplemental Indenture for the 10.45% Senior Notes due 2004, dated as of June 14, 1995, by and among Ralphs Grocery Company (as successor by merger to Food 4 Less Supermarkets, Inc.), the subsidiary guarantors identified therein, Crawford Stores, Inc. and Norwest Bank Minnesota, National Association, as trustee (incorporated herein by reference to Exhibit 4.4.2 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995). 4.3.1 Indenture for the 11% Senior Subordinated Notes due 2005, dated as of June 1, 1995, by and among Food 4 Less Supermarkets, Inc., the subsidiary guarantors identified therein and United States Trust Company of New York, as trustee (incorporated herein by reference to Exhibit 4.6.1 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995). 4.3.2 First Supplemental Indenture for the 11% Senior Subordinated Notes due 2005, dated as of June 14, 1995, by and among Ralphs Grocery Company (as successor by merger to Food 4 Less Supermarkets, Inc.), the subsidiary guarantors identified therein, Crawford Stores, Inc. and United States Trust Company of New York, as trustee (incorporated herein by reference to Exhibit 4.6.2 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995). 4.4.1 Guarantee, dated as of March 11, 1998, made by the Guarantors referred to therein (including the Company) in favor of Bankers Trust Company, as Administrative Agent and Collateral Agent, The Chase Manhattan Bank, as Syndication Agent, The Various Financial Institutions Identified as Lenders in the Participation Agreement, as Lenders, and The Various Financial Institutions Identified as Investors in the Participation Agreement, as Investors (incorporated herein by reference to Exhibit 4B-1 of Fred Meyer Inc.'s Annual Report on Form 10-K for the fiscal year ended January 31, 1998).
E-1 55
Exhibit Number Description - ------ ----------- 4.4.2 Participation Agreement among Fred Meyer, Inc., as Lessee and as Construction Agent, FMS Trust 1997-1, a Delaware business trust, as Lessor, Wilmington Trust Company, not in its individual capacity, except as expressly specified therein, but solely as Owner Trustee under the FMS Trust 1997-1, the Investors party to the Trust Agreement, Bankers Trust Company, as Administrative Agent, The Chase Manhattan Bank, as Syndication Agent, and the Lenders Parties thereto, dated as of March 11, 1998; Chase Securities, Inc. and BT Alex.Brown, as Arrangers (incorporated herein by reference to Exhibit 4B-2 of Fred Meyer Inc.'s Annual Report on Form 10-K for the fiscal year ended January 31, 1998). 4.4.3 Lease, Security Agreement and Financing Statement between Wilmington Trust Company, not in its individual capacity, but solely as Owner Trustee under the FMS Trust 1997-1, as Lessor, and Fred Meyer, Inc., dated as of March 11, 1998 (incorporated herein by reference to Exhibit 4B-3 of Fred Meyer Inc.'s Annual Report on Form 10-K for the fiscal year ended January 31, 1998). 4.4.4 Construction Agency Agreement, dated as of March 11, 1998, between FMS Trust 1997-1, a Delaware business trust, and Fred Meyer, Inc., a Delaware corporation (incorporated herein by reference to Exhibit 4B-4 of Fred Meyer Inc.'s Annual Report on Form 10-K for the fiscal year ended January 31, 1998). 4.4.5 Credit Agreement among FMS Trust 1997-1, as Borrower, The Several Lenders from Time to Time Parties Thereto, Bankers Trust Company, as Administrative Agent, and The Chase Manhattan Bank, as Syndication Agent dated as of March 11, 1998 (incorporated herein by reference to Exhibit 4B-5 of Fred Meyer Inc.'s Annual Report on Form 10-K for the fiscal year ended January 31, 1998). 4.4.6 Lessee Guarantee, dated as of March 11, 1998, made by Fred Meyer, Inc., as Lessee Guarantor in favor of FMS Trust 1997-1, as Lessor, Bankers Trust Company, as Administrative Agent, The Chase Manhattan Bank, as Syndication Agent, The Various Financial Institutions Identified as Lenders in the Participation Agreement, as Lenders, and the The Various Financial Institutions Identified as Investors in the Participation Agreement Therein, as Investors (incorporated herein by reference to Exhibit 4B-6 of Fred Meyer Inc.'s Annual Report on Form 10-K for the fiscal year ended January 31, 1998). 4.4.7 Pledge Agreement, dated as of March 11, 1998, entered into by Fred Meyer, Inc., a Delaware corporation, and each of the undersigned subsidiaries of Fred Meyer, Inc. (including the Company) in favor of Bankers Trust Company, as administrative agent and collateral agent, for the Beneficiaries (incorporated herein by reference to Exhibit 4B-7 of Fred Meyer Inc.'s Annual Report on Form 10-K for the fiscal year ended January 31, 1998). 4.4.8 Intercreditor and Collateral Agency Agreement, dated as of March 11, 1998, among Bankers Trust Company, as Administrative Agent under the Loan Agreement, as Administrative Agent under the Synthetic Lease Facility, and as Collateral Agent, Fred Meyer, Inc. and the Subsidiary Pledgors (incorporated herein by reference to Exhibit 4B-8 of Fred Meyer Inc.'s Annual Report on Form 10-K for the fiscal year ended January 31, 1998).
E-2 56
Exhibit Number Description - ------ ----------- 4.4.9 Subsidiary Guarantee, dated as of March 11, 1998, executed by each of the Guarantors listed on the signature page thereof (including the Company) for the benefit of Bankers Trust Company, as Administrative Agent under the Loan Agreement, and each Lender named therein (incorporated herein by reference to Exhibit 4B-9 of Fred Meyer Inc.'s Annual Report on Form 10-K for the fiscal year ended January 31, 1998). 4.4.10 $3,500,000,000 Loan Agreement, dated as of March 11, 1998, among Fred Meyer, Inc., as Borrower, and The Lenders Party Thereto; Bankers Trust Company, as Administrative Agent, and The Chase Manhattan Bank, as Syndication Agent; Chase Securities, Inc. and BT Alex.Brown, as Arrangers (incorporated herein by reference to Exhibit 4B-10 of Fred Meyer Inc.'s Annual Report on Form 10-K for the fiscal year ended January 31, 1998). 4.6.4 Third Supplemental Indenture for the 10.45% Senior Notes due 2000, dated as of June 14, 1995, by and among Ralphs Grocery Company (as successor by merger to Food 4 Less Supermarkets, Inc.), the subsidiary guarantors identified therein and Norwest Bank Minnesota, National Association, as trustee (incorporated herein by reference to Exhibit 4.9.4 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995). 10.4* Employment Agreement dated as of June 14, 1995 between Food 4 Less Holdings, Inc., Ralphs Grocery Company and George G. Golleher (incorporated herein by reference to Exhibit 10.11 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995). 10.5* Employment Agreement dated as of June 14, 1995 between Ralphs Grocery Company and Greg Mays (incorporated herein by reference to Exhibit 10.10 of Ralphs Grocery Company's Quarterly Report on Form 10-Q for the quarter ended July 16, 1995). 10.6* Employment Agreement, dated as of June 14, 1995, between Ralphs Grocery Company and Harley DeLano (incorporated herein by reference to Exhibit 10.8 of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996). 10.7* Employment Agreement, dated as of June 14, 1995, between Ralphs Grocery Company and Tony Schnug (incorporated herein by reference to Exhibit 10.10 of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996). 10.9* Consulting Agreement, dated as of June 27, 1988, by and between Falley's, Inc. and Joe S. Burkle (incorporated herein by reference to Exhibit 10.38 to Food 4 Less Supermarkets, Inc.'s Registration Statement on Form S-1, No. 33-31152). 10.10* Letter Agreement, dated as of December 10, 1990, amending the Consulting Agreement by and between Falley's, Inc. and Joe S. Burkle (incorporated herein by reference to Exhibit 10.17.1 to Food 4 Less Supermarkets, Inc.'s Annual Report on Form 10-K for the fiscal year ended June 29, 1991).
E-3 57
Exhibit Number Description - ------ ----------- 10.11 Distribution Center Transfer Agreement, dated as of November 1, 1995, by and between Smith's Food & Drug Centers, Inc., a Delaware corporation, and Ralphs Grocery Company relating to the Riverside, California property (incorporated herein by reference to Exhibit 10.1 to Ralphs Grocery Company's Quarterly Report on Form 10-Q for the quarter ended October 8, 1995). 10.12.1* Ralphs Grocery Company Retirement Supplement Plan, effective as of January 1, 1994 (incorporated herein by reference to Exhibit 10.15.1 of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996). 10.12.2* Amendment to the Retirement Supplement Plan, effective as of January 1, 1995 (incorporated herein by reference to Exhibit 10.15.2 of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996). 10.12.3* Second Amendment to the Retirement Supplement Plan, effective as of June 14, 1995, by and between Ralphs Grocery Company and Ralphs Grocery Company Retirement Supplement Plan (incorporated herein by reference to Exhibit 10.15.3 of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996). 10.13.1* Ralphs Grocery Company Supplemental Executive Retirement Plan, amended and restated as of April 9, 1994 (incorporated herein by reference to Exhibit 10.16.1 of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996). 10.13.2* Amendment to the Amended and Restated Supplemental Executive Retirement Plan, effective as of January 1, 1995 (incorporated herein by reference to Exhibit 10.16.2 of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996). 10.13.3* Second Amendment to the Supplemental Executive Retirement Plan, dated as of June 14, 1995, by and between Ralphs Grocery Company and Ralphs Grocery Company Supplemental Executive Retirement Plan (incorporated herein by reference to Exhibit 10.16.3 of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996). 10.13.4* Third Amendment to the Ralphs Grocery Company Supplemental Executive Plan, effective as of July 1, 1995 (incorporated herein by reference to Exhibit 10.16.4 of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996). 27# Financial Data Schedule
- ---------- # Filed herewith. * Management contract, or compensatory plan or arrangement. E-4 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED CONSOLIDATED BALANCE SHEETS AND AUDITED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 52 WEEKS ENDED FEBRUARY 1, 1998. 1,000 YEAR FEB-01-1998 FEB-03-1997 FEB-01-1998 75,601 0 40,652 (3,023) 514,387 652,139 1,465,018 (396,013) 3,076,073 801,064 2,117,007 0 0 15 (116,859) 3,076,073 5,487,469 5,487,469 4,347,549 4,347,549 935,319 0 236,695 (32,094) 0 (32,094) 0 47,983 3,325 (83,402) 0 0
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