-----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, LO9My125OaDumm/UXFXgdnFFLqtcmVUE+GQSB07ixigoRBeT4Ndt3yyLQYfriRTZ 53q+1nHtagGzQPEQ3Sf+Mg== 0000950150-96-000505.txt : 19960530 0000950150-96-000505.hdr.sgml : 19960530 ACCESSION NUMBER: 0000950150-96-000505 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960421 FILED AS OF DATE: 19960529 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-46750 FILM NUMBER: 96573824 BUSINESS ADDRESS: STREET 1: 777 S HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 BUSINESS PHONE: 7147382000 MAIL ADDRESS: STREET 1: 777 SOUTH HARBOR BOULEVARD CITY: LAHABRA STATE: CA ZIP: 90631 FORMER COMPANY: FORMER CONFORMED NAME: FOOD 4 LESS SUPERMARKETS INC DATE OF NAME CHANGE: 19931027 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________ FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 _______________ For Quarter Ended Commission File Number April 21, 1996 33-88894 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 Compton, California 90220 (Address of principal executive offices) (Zip code) (310) 884-9000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____. ----- At May 29, 1996, there were 1,513,938 shares of Common Stock outstanding. As of such date, all of the outstanding shares of Common Stock were held by Food 4 Less Holdings, Inc., and there was no public market for the Common Stock. 2 RALPHS GROCERY COMPANY INDEX
Page ---- PART I. FINANCIAL INFORMATION Item 1 Financial Statements Consolidated balance sheets as of January 28, 1996 and April 21, 1996 . . . . . . . . . . . . . . . . 2 Consolidated statements of operations for the 12 weeks ended April 23, 1995 and April 21, 1996 . . . . . . . . . . . . . . . . . . 4 Consolidated statements of cash flows for the 12 weeks ended April 23, 1995 and April 21, 1996 . . . . . . . . . . . . . . . . . . 5 Consolidated statements of stockholder's equity as of January 28, 1996 and April 21, 1996 . . . . . . . . . . . . . . . . . 7 Notes to consolidated financial statements . . . . . . . . . . . . . . . . 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 11 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . 16 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS 1 4 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
January 28, April 21, ASSETS 1996 1996 ----------- --------- (unaudited) CURRENT ASSETS: Cash and cash equivalents $ 67,983 $ 58,542 Trade receivables, net 60,948 65,597 Notes and other receivables 6,452 4,689 Inventories 502,669 483,380 Patronage receivables from suppliers 4,557 1,535 Prepaid expenses and other 34,855 31,990 ----------- ---------- Total current assets 677,464 645,733 INVESTMENTS IN AND NOTES RECEIVABLE FROM SUPPLIER COOPERATIVES: Associated Wholesale Grocers 7,288 7,020 Certified Grocers of California and others 4,926 4,926 PROPERTY AND EQUIPMENT: Land 183,125 183,125 Buildings 196,551 196,691 Leasehold improvements 251,856 252,211 Fixtures and equipment 441,760 459,883 Construction in progress 61,296 57,204 Leased property under capital leases 189,061 189,702 Leasehold interests 114,475 109,992 ---------- ---------- 1,438,124 1,448,808 Less: Accumulated depreciation and amortization 226,451 242,198 ---------- ----------- Net property and equipment 1,211,673 1,206,610 OTHER ASSETS: Deferred financing costs, less accumulated amortization of $6,964 and $10,300 at January 28, 1996 and April 21, 1996, respectively 94,100 94,336 Goodwill, less accumulated amortization of $60,407 and $67,609 at January 28, 1996 and April 21, 1996, respectively 1,173,445 1,166,243 Other, net 19,233 19,907 ----------- ----------- $3,188,129 $3,144,775 =========== ===========
The accompanying notes are an integral part of these consolidated balance sheets. 2 5 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
January 28, April 21, LIABILITIES AND STOCKHOLDER'S EQUITY 1996 1996 ------------ -------------- (unaudited) CURRENT LIABILITIES: Accounts payable $ 385,500 $ 372,731 Accrued payroll and related liabilities 94,011 93,627 Accrued interest 23,870 56,022 Other accrued liabilities 276,162 268,664 Income taxes payable 596 596 Current portion of self-insurance liabilities 21,785 22,004 Current portion of senior debt 31,735 38,979 Current portion of obligations under capital leases 22,261 23,298 ---------- ----------- Total current liabilities 855,920 875,921 SENIOR DEBT, net of current portion 1,226,302 1,200,035 OBLIGATIONS UNDER CAPITAL LEASES 130,784 126,215 SENIOR SUBORDINATED DEBT 671,222 671,222 DEFERRED INCOME TAXES 17,988 17,988 SELF-INSURANCE LIABILITIES 127,200 129,856 LEASE VALUATION RESERVE 25,182 24,273 OTHER NON-CURRENT LIABILITIES 74,412 72,127 COMMITMENTS AND CONTINGENCIES -- -- STOCKHOLDER'S EQUITY: Common stock, $.01 par value, 5,000,000 shares authorized; 1,513,938 shares issued 15 15 Additional capital 466,783 466,783 Notes receivable from stockholders of parent (602) (602) Retained deficit (407,077) (439,058) ---------- ---------- Total stockholder's equity 59,119 27,138 ----------- ----------- $3,188,129 $3,144,775 =========== ===========
The accompanying notes are an integral part of these consolidated balance sheets. 3 6 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) (UNAUDITED)
12 Weeks 12 Weeks Ended Ended April 23, April 21, 1995 1996 ----------- ---------- SALES $ 623,598 $1,230,808 COST OF SALES 516,430 982,171 ---------- ---------- GROSS PROFIT 107,168 248,637 SELLING, GENERAL, ADMINISTRATIVE AND OTHER, NET 91,352 217,335 AMORTIZATION OF GOODWILL 1,829 7,202 ---------- ---------- OPERATING INCOME 13,987 24,100 INTEREST EXPENSE: Interest expense, excluding amortization of deferred financing costs 15,522 52,748 Amortization of deferred financing costs 1,394 3,336 ---------- ---------- 16,916 56,084 GAIN ON DISPOSAL OF ASSETS (417) (3) ---------- ---------- LOSS BEFORE PROVISION FOR INCOME TAXES (2,512) (31,981) PROVISION FOR INCOME TAXES 300 -- ---------- ---------- NET LOSS (2,812) (31,981) PREFERRED STOCK ACCRETION 2,376 -- ---------- ---------- LOSS APPLICABLE TO COMMON SHARES $ (5,188) $ (31,981) ========== ========== LOSS PER COMMON SHARE $ (3.44) $ (21.12) ========== ========== Average Number of Common Shares Outstanding 1,507,287 1,513,938 ========= =========
The accompanying notes are an integral part of these consolidated statements. 4 7 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
12 Weeks 12 Weeks Ended Ended April 23, April 21, 1995 1996 ---------- ---------- CASH PROVIDED BY OPERATING ACTIVITIES: Cash received from customers $ 623,598 $ 1,230,808 Cash paid to suppliers and employees (595,468) (1,156,304) Interest paid (18,031) (20,596) Income taxes refunded (paid) (5) -- Interest received 133 541 Other, net 299 3 ---------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 10,526 54,452 CASH USED BY INVESTING ACTIVITIES: Proceeds from sale of property and equipment 5,301 31 Payment for purchase of property and equipment (18,238) (34,222) Other, net (2,694) (973) --------- ----------- NET CASH USED BY INVESTING ACTIVITIES (15,631) (35,164) CASH PROVIDED (USED) BY FINANCING ACTIVITIES: Payments of long-term debt (4,623) (1,623) Payments of capital lease obligation (925) (6,134) Net increase (decrease) in revolving loan 8,000 (17,400) Deferred financing costs and other, net 17 (3,572) --------- ----------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 2,469 (28,729) --------- ----------- NET DECREASE IN CASH AND CASH EQUIVALENTS (2,636) (9,441) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 19,560 67,983 --------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 16,924 $ 58,542 ========= ===========
The accompanying notes are an integral part of these consolidated statements. 5 8 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
12 Weeks 12 Weeks Ended Ended April 23, April 21, 1995 1996 -------------- -------------- RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net loss $(2,812) $ (31,981) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Depreciation and amortization 16,083 40,018 Gain on sale of assets (417) (3) Change in assets and liabilities, net of effects from acquisition of business: Accounts and notes receivable 9,474 136 Inventories 15,838 19,289 Prepaid expenses and other 1,493 500 Accounts payable and accrued liabilities (27,775) 23,618 Self-insurance liabilities (1,653) 2,875 Income taxes payable 295 -- ---------- ------------- Total adjustments 13,338 86,433 -------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 10,526 $ 54,452 ======== ========= SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES: Accretion of preferred stock $ 2,376 $ -- ========= =========
The accompanying notes are an integral part of these consolidated statements. 6 9 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Preferred Stock Common Stock Treasury Stock --------------------- ------------------ -------------------- Number Number Number of of of Shares Amount Shares Amount Shares Amount ------- ------ ------ ------ ------ ------ BALANCES AT JANUARY 28, 1996 -- $ -- 1,513,938 $15 -- $ -- Net loss (unaudited) -- -- -- -- -- -- --------- -------- --------- ---- -------- -------- BALANCES AT APRIL 21, 1996 (unaudited) -- $ -- 1,513,938 $ 15 -- $ -- ========= ======== ========= === ======== ======== Total Stock- Stock- holders' Add'l Retained holder's Notes Capital Deficit Equity -------- ------- -------- -------- BALANCES AT JANUARY 28, 1996 $(602) $466,783 $(407,077) $59,119 Net loss (unaudited) -- -- (31,981) (31,981) ----- -------- -------- ------- BALANCES AT APRIL 21, 1996 (unaudited) $(602) $466,783 $(439,058) $27,138 ==== ======= ======== =======
The accompanying notes are an integral part of these consolidated statements. 7 10 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The consolidated balance sheet and statement of stockholder's equity of Ralphs Grocery Company (the "Company"), formerly known as Food 4 Less Supermarkets, Inc. ("F4L Supermarkets") as of April 21, 1996 and the consolidated statements of operations and cash flows for the interim periods ended April 23, 1995 and April 21, 1996 are unaudited, but include all adjustments (consisting of only normal recurring accruals) which the Company considers necessary for a fair presentation of its consolidated financial position, results of operations and cash flows for these periods. These interim financial statements do not include all disclosures required by generally accepted accounting principles, and, therefore, should be read in conjunction with the Company's financial statements and notes thereto included in the Company's latest annual report filed on Form 10-K for the fiscal year ended January 28, 1996. Results of operations for interim periods are not necessarily indicative of the results for a full fiscal year. 2. ORGANIZATION AND ACQUISITION The Company, a wholly-owned subsidiary of Food 4 Less Holdings, Inc. ("Holdings"), is a retail supermarket company with a total of 407 stores which are located in Southern California (345), Northern California (26) and certain areas of the Midwest (36). The Company is the second largest conventional supermarket chain in Southern California, operating 269 stores, under the "Ralphs" name and the largest warehouse supermarket chain in Southern California, operating 76 warehouse stores, 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 bakery and creamery operations, and full-line warehouse and distribution facilities servicing its Southern California operations. 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 So-Cal. Ralphs Merger On June 14, 1995, F4L Supermarkets acquired all of the common stock of Ralphs Supermarkets, Inc. ("RSI") in a transaction accounted for as a purchase by F4L Supermarkets. The consideration for the acquisition consisted of $388.1 million in cash, $131.5 million principal amount of 13-5/8% Senior Subordinated Pay-In-Kind Debentures due 2007 of Holdings (the "Seller Debentures") and $18.5 million initial accreted value of 13-5/8% Senior Discount Debentures due 2005 of Holdings (the "New Discount Debentures"). F4L Supermarkets, RSI and RSI's wholly owned subsidiary Ralphs Grocery Company ("RGC") combined through mergers (the "Merger") in which RSI remained as the surviving entity and changed its name to Ralphs Grocery Company (referred to as the "Company" herein). The financial statements reflect management's preliminary estimates of the purchase price allocation at April 21, 1996. The actual purchase accounting adjustments will be determined within one year following the Merger and may vary from the preliminary estimates at April 21, 1996. 8 11 The following unaudited pro forma information presents the results of the Company's operations, adjusted to reflect interest expense and depreciation and amortization, as though the Merger had been consummated at the beginning of fiscal 1995.
12 Weeks Ended April 23, 1995 ------------------------ (dollars in thousands, except share amounts) Sales $1,261,101 Restructuring charge (75,187) Loss before extraordinary charge (119,642) Net loss (142,770) Loss per share: Loss before extraordinary charge (79.03) Net loss (94.30)
The unaudited pro forma results of operations are not necessarily indicative of the actual results of operations that would have occurred had the purchase actually been made at the beginning of fiscal 1995, or of the results which may occur in the future. 3. SIGNIFICANT ACCOUNTING POLICIES Inventories Inventories, which consist primarily of grocery products, are stated at the lower of cost or market. Cost has been principally determined using the last-in, first-out ("LIFO") method. If inventories had been valued using the first-in, first-out ("FIFO") method, inventories would have been higher by $18.7 million and $20.0 million at January 28, 1996 and April 21, 1996, respectively, and gross profit and operating income would have been greater by $1.0 million and $1.3 million for the 12 weeks ended April 23, 1995 and April 21, 1996, respectively. Reclassifications Certain prior period amounts in the consolidated financial statements have been reclassified to conform to the April 21, 1996 presentation. Recent Accounting Pronouncements In the first quarter of 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 Disposed of" (SFAS 121). The adoption of SFAS 121 had no impact on the Company's financial position or on its results of operations. 4. 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 Merger or due to under-performance. Three RGC stores were also required to be sold to comply with the settlement agreement. The $75.2 million restructuring charge consisted of write-downs of property and equipment ($52.2 9 12 million) less estimated proceeds ($16.0 million); reserve for closed stores and warehouse facility ($16.1 million); write-off of the Alpha Beta trademark ($8.3 million); write-off of other assets ($8.0 million); lease termination expenses ($4.0 million); and miscellaneous expenses ($2.6 million). 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 the 12 weeks ended April 21, 1996, the Company utilized $5.5 million of the reserve for restructuring costs. The charges consisted of write-downs of property and equipment ($4.8 million) and expenditures associated with the closed stores and the warehouse facility ($0.7 million). On December 29, 1995, the Company consummated an agreement with Smith's Food & Drug Centers, Inc. ("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 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, consisting of write-downs of property and equipment ($16.1 million), closure costs ($2.2 million), and lease termination expenses ($29.6 million). During the 12 weeks ended April 21, 1996, the Company utilized $9.9 million of the reserve for restructuring costs. The charges consisted of write-downs of property and equipment ($6.8 million), closure costs ($2.1 million), and lease termination expenditures ($1.0 million). 10 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW On June 14, 1995, Food 4 Less Supermarkets, Inc. ("F4L Supermarkets") completed its acquisition of Ralphs Supermarkets, Inc. ("RSI") and its wholly owned subsidiary, Ralphs Grocery Company ("RGC"). The acquisition was effected through the merger of F4L Supermarkets with and into RSI (the "RSI Merger"), followed by the merger of RGC with and into RSI (the "RGC Merger" and, together with the RSI Merger, the "Merger"). The surviving corporation in the Merger was renamed Ralphs Grocery Company (the "Company"). Concurrently with the consummation of the Merger, the Company received a significant equity investment from its parent, Food 4 Less Holdings, Inc. ("Holdings") and refinanced a substantial portion of the existing indebtedness of F4L Supermarkets and RGC. The Company's results of operations for the 12 weeks ended April 21, 1996 reflect operations for the combined Company, while the results of operations for the 12 weeks ended April 23, 1995 reflect only the operations of F4L Supermarkets prior to the Merger. Management believes that the Company's results of operations for periods ending after the consummation of the 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 Merger is attributable to several factors, including the size of the combined Company (the Merger approximately doubled F4L Supermarkets' annual sales), the addition of 174 conventional stores to the Company's overall store mix and the material changes in the Company's capital structure. The Merger is being accounted for as a purchase of RGC by F4L Supermarkets. As a result, all financial statements for periods subsequent to June 14, 1995, the date the Merger was consummated, reflect RGC's net assets at their estimated fair market values as of June 14, 1995. The purchase price in excess of the fair market value of RGC's net assets was recorded as goodwill and is being amortized over a 40-year period. The purchase price allocation reflected in the Company's unaudited balance sheet at April 21, 1996 is based on management's preliminary estimates. The actual purchase accounting adjustments will be determined within one year following the Merger and may vary from the preliminary estimates at April 21, 1996. At April 21, 1996, the Company operated 270 conventional supermarkets and 76 Food 4 Less warehouse stores in Southern California. It also operated 62 additional stores in Northern California and certain areas of the Midwest. Following the Merger, the Company converted F4L Supermarkets' Alpha Beta, Boys and Viva stores to the Ralphs format and converted selected Ralphs stores to the Food 4 Less warehouse format. As of April 21, 1996, the Company's bakery, creamery and deli manufacturing operations and the management of major corporate departments had been consolidated. The full integration of the Company's administrative departments is expected to be completed by the end of June 1996. The previously planned integration and consolidation of the Company's warehousing and distribution facilities into three primary facilities has been modified and will now be completed by the end of the fiscal year. This delay was a result of the acquisition of the Smith's Riverside, California distribution and creamery facility. 11 14 RESULTS OF OPERATIONS (UNAUDITED) The following table sets forth the selected unaudited operating results of the Company for the 12 weeks ended April 23, 1995 and April 21, 1996:
12 WEEKS ENDED --------------------------------------------- APRIL 23, 1995 APRIL 21, 1996 -------------- -------------- (DOLLARS IN MILLIONS) (UNAUDITED) Sales $623.6 100.0% $1,230.8 100.0% Gross profit 107.2 17.2 248.6 20.2 Selling, general, administrative and other, net 91.4 14.7 217.3 17.7 Amortization of goodwill 1.8 0.3 7.2 0.6 Operating income 14.0 2.2 24.1 2.0 Interest expense 16.9 2.7 56.1 4.6 Loss (gain) on disposal of assets (0.4) (0.1) (0.0) (0.0) Provision for income taxes 0.3 0.0 -- -- Net loss (2.8) (0.4) (32.0) (2.6)
Sales. Sales per week increased $50.6 million, or 97.3 percent, from $52.0 million in the 12 weeks ended April 23, 1995 to $102.6 million in the 12 weeks ended April 21, 1996. The increase in sales for the 12 weeks ended April 21, 1996, was primarily attributable to the addition of 174 conventional supermarkets acquired through the Merger. The sales increase was partially offset by a comparable store sales decline of 0.7 percent for the 12 weeks ended April 21, 1996. Excluding stores being divested or closed in connection with the Merger, and excluding the impact from last year's Northern California labor dispute, comparable store sales decreased 0.2 percent for the 12 weeks ended April 21, 1996. Management believes that the decline in comparable store sales is partially attributable to additional competitive store openings and remodels in Southern California, as well as the Company's own new store openings and conversions. Management believes that, following the consummation of the Merger, the decline in comparable store sales was also attributable to smaller than anticipated benefits from the Company's advertising program. Though the largest impact was experienced by the Company's Alpha Beta, Boys and Viva stores which were converted to the Ralphs format, the base Ralphs stores were also affected. Gross Profit. Gross profit increased as a percentage of sales from 17.2 percent in the 12 weeks ended April 23, 1995 to 20.2 percent in the 12 weeks ended April 21, 1996. The increase in gross profit margin was primarily attributable to the addition of 174 conventional supermarkets which offset the effect of the Company's warehouse stores (which have lower gross margins than the Company's conventional supermarkets) on its overall gross margin for the period. Gross profit during the 12 weeks ended April 21, 1996 was also impacted by certain one-time costs associated with the integration of the Company's operations. See "Operating Income (Loss)." Selling, General, Administrative and Other, Net. Selling, general, administrative and other expenses ("SG&A") were $91.4 million and $217.3 million for the 12 weeks ended April 23, 1995 and April 21, 1996, respectively. SG&A increased as a percentage of sales from 14.7 percent to 17.7 percent for the same periods. The increase in SG&A as a percentage of sales was due primarily to the addition of 174 conventional supermarkets acquired through the Merger. The additional conventional supermarkets offset the effect of the Company's warehouse stores (which have lower SG&A than the Company's conventional supermarkets) on its SG&A margin for the period. SG&A during the 12 weeks ended April 21, 1996 was also impacted by certain one-time costs associated with the integration of the Company's operations. See "Operating Income (Loss)." 12 15 Operating Income. In addition to the factors discussed above, operating income for the 12 weeks ended April 21, 1996 was impacted by approximately $7.6 million for costs associated with the consolidation of warehousing and distribution and other continuing integration of the Company's operations. Management anticipates these integration costs to continue during the second quarter of 1996 until the consolidation plans are completed. Interest Expense. Interest expense (including amortization of deferred financing costs) was $16.9 million and $56.1 million for the 12 weeks ended April 23, 1995 and April 21, 1996, respectively. The increase in interest expense was primarily due to the increased indebtedness incurred in conjunction with the Merger. See "Liquidity and Capital Resources." Net Loss. Primarily as a result of the factors discussed above, the Company's net loss increased from $2.8 million in the 12 weeks ended April 23, 1995 to $32.0 million in the 12 weeks ended April 21, 1996. LIQUIDITY AND CAPITAL RESOURCES Cash flow from operations, amounts available under the $325.0 million revolving credit facility (the "Revolving Facility") and lease financing are the Company's principal sources of liquidity. The Company believes that these sources will be adequate to meet its anticipated capital expenditure, working capital and debt service requirements for the remainder of fiscal 1996. However, there can be no assurance that the Company will continue to generate cash flow from operations at historical levels or that it will be able to make future borrowings under the Revolving Facility. During the 12 week period ending April 21, 1996, cash provided by operating activities was approximately $54.5 million compared to $10.5 million for the 12 weeks ending April 23, 1995. The increase in cash from operating activities is due primarily to changes in operating assets and liabilities for the 12 weeks ending April 21, 1996, partially offset by the impact of certain costs associated with the integration of the Company's operations subsequent to the Merger. The Company's principal use of cash in its operating activities is inventory purchases. The Company's high inventory turnover allows it to finance a substantial portion of its inventory through trade payables, thereby reducing its short-term borrowing needs. At April 21, 1996, this resulted in a working capital deficit of $230.2 million. Cash used for investing activities was $35.2 million for the 12 weeks ended April 21, 1996. Investing activities consisted primarily of capital expenditures of $34.2 million, partially offset by $2.2 million of sale/leaseback transactions. The capital expenditures, net of the proceeds from sale/leaseback transactions, were financed primarily from cash provided by operating and financing activities. The capital expenditures discussed above relate to 28 new stores (14 of which had been completed at April 21, 1996) and the remodeling of 7 stores (all of which had been completed at April 21, 1996). The Company currently anticipates that its aggregate capital expenditures for fiscal 1996 will be approximately $105.0 million ($95.0 million, net of expected capital leases), of which approximately $96.0 million relate to ongoing expenditures for new stores, equipment and maintenance and approximately $9.0 million relate to Merger-related and other non- recurring items. Consistent with past practices, the Company intends to finance these capital expenditures primarily with cash provided by operations and through leasing transactions. At May 28, 1996, the Company had approximately $5.2 million of unused equipment leasing facilities. No assurance can be given that sources of financing for capital expenditures will be available or sufficient to finance its anticipated capital expenditure requirements; however, management believes the capital expenditure program has substantial flexibility and is subject to revision based on various factors, including changes in business conditions and cash flow requirements. Management believes that 13 16 if the Company were to substantially reduce or postpone these programs, there would be no substantial impact on short-term operating profitability. However, management also believes that the construction of new stores is an important component of its operating strategy. Consequently, management believes if these programs were substantially reduced, future operating results, and ultimately its cash flow, would be adversely affected. The capital expenditures discussed above do not include potential acquisitions which the Company could make to expand within its existing markets or to enter other markets. The Company has grown through acquisitions in the past and from time to time engages in discussions with potential sellers of individual stores, groups of stores or other retail supermarket chains. Cash used by financing activities was $28.7 million for the 12 weeks ended April 21, 1996. Financing activities consisted primarily of a $17.4 million reduction of the amount outstanding under the Revolving Facility, principal payments on long-term debt and payments on capital leases of $7.8 million. At April 21, 1996, there was $110.0 million of borrowings under the Revolving Facility and $104.3 million of standby letters of credit had been issued. At May 28, 1996, the Company had $137.6 million available for borrowing under the Revolving Facility. The Company is a wholly-owned subsidiary of Holdings. Holdings has outstanding $100 million initial accreted value of the New Discount Debentures and $131.5 million initial principal amount of Seller Debentures outstanding. Holdings is a holding company which has no assets other than the capital stock of the Company. Holdings will be required to commence semi-annual cash payments of interest on the New Discount Debentures and the Seller Debentures commencing December 15, 2000 in the amount of approximately $61 million per annum. Subject to the limitations contained in its debt instruments, the Company intends to make dividend payments to Holdings in amounts which are sufficient to permit Holdings to service its cash interest requirements. The Company may make payments to Holdings in connection with certain employee stock repurchases and for routine administrative expenses. The Company is highly leveraged. At April 21, 1996, the Company's total long-term indebtedness (including current maturities) and stockholder's equity were $2.1 billion and $27.1 million, respectively. Based upon current levels of operations and anticipated cost savings and future growth, the Company believes that its cash flow from operations, together with available borrowings under the Revolving Facility and its other sources of liquidity (including lease financing), will be adequate to meet its anticipated requirements for working capital, capital expenditures, integration costs and debt service payments. However, there can be no assurance that the Company's business will continue to generate cash flow at or above current levels or that future cost savings and growth can be achieved. EFFECTS OF INFLATION AND COMPETITION The Company's primary costs, inventory and labor, are affected by a number of factors that are beyond its control, including availability and price of merchandise, the competitive climate and general and regional economic conditions. As is typical of the supermarket industry, the Company has generally been able to maintain margins by adjusting its retail prices, but competitive conditions may from time to time render it unable to do so while maintaining its market share. The supermarket industry is highly competitive and characterized by narrow profit margins. The Company's competitors in each of its operating divisions include national and regional supermarket chains, independent and specialty grocers, drug and convenience stores, and the newer "alternative format" food stores, including warehouse club stores, deep discount drug stores and "super centers". Supermarket chains generally compete on the basis of location, quality of products, service, price, product variety and store condition. The Company regularly monitors its 14 17 competitors' prices and adjusts its prices and marketing strategy as management deems appropriate. RECENT ACCOUNTING PRONOUNCEMENTS In the first quarter of 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 Disposed of" (SFAS 121). The adoption of SFAS 121 had no impact on the Company's financial position or on its results of operations. 15 18 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. 4.1. Third Amendment, Consent and Waiver to Credit Agreement dated as of March 8, 1996 among Food 4 Less Holdings, Inc., Ralphs Grocery Company and the financial institutions listed on the signature pages thereto (incorporated herein by reference to Exhibit 4.1.4. of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996). 27. Financial Data Schedule. (b) Reports on Form 8-K None. 16 19 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized, in the County of Los Angeles, State of California. Dated: May 29, 1996 RALPHS GROCERY COMPANY /s/ GREG MAYS -------------------------------- Greg Mays Executive Vice President Finance & Administration Chief Financial Officer 17 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED CONSOLIDATED BALANCE SHEETS AND UNAUDITED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 12 WEEKS ENDED APRIL 21, 1996. 1,000 3-MOS FEB-02-1997 JAN-29-1996 APR-21-1996 58,542 0 71,860 (1,574) 483,380 645,733 1,448,808 (242,198) 3,144,775 875,921 1,997,472 0 0 466,798 (439,660) 3,144,775 1,230,808 1,230,808 982,171 982,171 224,534 0 56,084 (31,981) 0 (31,981) 0 0 0 (31,981) (21.12) 0
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