SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-Q
QUARTERLY REPORT
UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
---------
FOR QUARTER ENDED COMMISSION FILE NUMBER
JANUARY 8, 1994 33-31152
FOOD 4 LESS SUPERMARKETS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4222386
(STATE OR OTHER JURISDICTION OF (I.R.S EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
777 SOUTH HARBOR BOULEVARD
LA HABRA, CALIFORNIA 90631
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(714) 738-2000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HWS FILED
ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR
FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE
SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS
FOR THE PAST 90 DAYS. YES X NO .
----- -----
AT FEBRUARY 21, 1994, THERE WERE 1,503,676 SHARES OF COMMON
STOCK OUTSTANDING. AS OF SUCH DATE, NONE OF THE OUTATANDING SHARES
OF COMMON STOCK WAS HELD BY PERSONS OTHER THAN AFFILIATES AND
EMPLOYEES OF THE REGISTRANT, AND THERE WAS NO PUBLIC MARKET FOR THE
COMMON STOCK.
FOOD 4 LESS SUPERMARKETS, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets as of
January 8, 1994 and June 26, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated statements of operations for
the 16 weeks ended January 8, 1994 and
January 9, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated statements of operations for
the 28 weeks ended January 8, 1994 and
January 9, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated statements of cash flows for
the 28 weeks ended January 8, 1994 and
January 9, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Consolidated statements of stockholder's
equity as of January 8, 1994 and
June 26, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Notes to consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
1
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
January 8, June 26,
ASSETS 1994 1993
--------- ---------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 29,792 $ 25,089
Trade receivables, less allowances of $887
and $1,919 at January 8, 1994 and
June 26, 1993, respectively 24,856 22,048
Notes and other receivables 5,734 1,278
Inventories 207,573 191,467
Patronage receivables from suppliers 4,984 2,680
Prepaid expenses and other 8,709 6,011
------- -------
Total current assets 281,648 248,573
INVESTMENTS IN AND NOTES RECEIVABLE FROM
SUPPLIER COOPERATIVES:
A. W. G. 6,693 6,693
Certified and Others 6,541 6,657
PROPERTY AND EQUIPMENT:
Land 23,488 23,912
Buildings 12,837 12,827
Leasehold improvements 86,691 81,049
Store equipment and fixtures 128,046 129,178
Transportation equipment 32,132 31,758
Construction in progress 3,373 757
Leased property under capital leases 75,715 77,553
Leasehold interests 93,613 93,863
------- -------
455,895 450,897
Less: Accumulated depreciation and amortization 114,908 96,948
------- -------
Net property and equipment 340,987 353,949
OTHER ASSETS:
Deferred financing costs, less accumulated
amortization of $14,559 and $11,611 at
January 8, 1994 and June 26, 1993,
respectively 31,041 33,778
Goodwill, less accumulated amortization
of $30,386 and $26,254 at
January 8, 1994 and June 26, 1993,
respectively 276,763 280,895
Other, net 25,903 27,295
-------- --------
$969,576 $957,840
======= =======
The accompanying notes are an integral part of these
consolidated balance sheets.
2
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
January 8, June 26,
LIABILITIES AND STOCKHOLDER'S EQUITY 1994 1993
-------- --------
(unaudited)
CURRENT LIABILITIES:
Accounts payable $165,822 $140,468
Accrued payroll and related liabilities 38,706 40,319
Accrued interest 6,754 5,293
Other accrued liabilities 39,674 40,467
Income taxes payable 2,691 2,053
Current portion of self-insurance liabilities 23,655 23,552
Current portion of long-term debt 16,398 12,778
Current portion of obligations under
capital leases 2,843 2,865
------- -------
Total current liabilities 296,543 267,795
LONG-TERM DEBT 316,689 335,576
OBLIGATIONS UNDER CAPITAL LEASES 40,321 41,864
SENIOR SUBORDINATED DEBT 145,000 145,000
DEFERRED INCOME TAXES 24,143 22,429
SELF-INSURANCE LIABILITIES AND OTHER 75,714 72,313
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDER'S EQUITY:
Cumulative convertible preferred stock,
$.01 par value, 200,000 shares authorized
and 50,000 shares outstanding at
January 8, 1994 and June 26, 1993
(aggregate liquidation value of $58.1
million and $53.8 million at
January 8, 1994 and June 26, 1993,
respectively) 54,951 50,230
Common stock, $.01 par value, 1,600,000 shares
authorized; 1,519,632 shares issued
at January 8, 1994 and June 26, 1993 15 15
Additional paid-in capital 107,650 107,650
Notes receivable from shareholders of parent (626) (714)
Retained deficit (88,861) (83,119)
------- -------
73,129 74,062
Treasury stock: 15,956 and 13,249 shares
of common stock at January 8, 1994 and
June 26, 1993, respectively 1,963 1,199
------- -------
Total stockholder's equity 71,166 72,863
------- -------
$969,576 $957,840
======= =======
The accompanying notes are an integral part of
these consolidated balance sheets.
3
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
16 Weeks 16 Weeks
Ended Ended
January 8, January 9,
1994 1993
--------- ---------
SALES $ 799,597 $ 845,339
COST OF SALES (including purchases from
related parties for the 16 weeks ended
January 8, 1994 and January 9, 1993 of
$58,453 and $69,128, respectively) 586,296 624,676
------- -------
GROSS PROFIT 213,301 220,663
SELLING, GENERAL, ADMINISTRATIVE AND OTHER, NET
excluding depreciation and amortization 176,216 193,538
DEPRECIATION AND AMORTIZATION OF PROPERTY
AND EQUIPMENT 12,781 11,982
AMORTIZATION OF GOODWILL AND OTHER ASSETS 4,567 6,208
------- -------
OPERATING INCOME 19,737 8,935
INTEREST EXPENSE:
Interest expense, excluding amortization
of deferred financing costs 17,537 17,834
Amortization of deferred financing costs 1,709 1,441
------- -------
19,246 19,275
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 491 (10,340)
PROVISION FOR INCOME TAXES 400 92
------- -------
NET INCOME (LOSS) $ 91 $ (10,432)
======= =======
LOSS APPLICABLE TO COMMON SHARES $ (2,607) $ (10,622)
======= =======
LOSS PER COMMON SHARE $ (1.73) $ (7.54)
======= =======
Average Number of Common Shares Outstanding 1,503,676 1,408,247
========= =========
The accompanying notes are an integral part of these consolidated statements.
4
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
28 Weeks 28 Weeks
Ended Ended
January 8, January 9,
1994 1993
--------- ---------
SALES $1,416,213 $1,498,970
COST OF SALES (including purchases from
related parties for the 28 weeks ended
January 8, 1994 and January 9, 1993 of
$106,060 and $118,932, respectively) 1,039,655 1,111,060
--------- ---------
GROSS PROFIT 376,558 387,910
SELLING, GENERAL, ADMINISTRATIVE AND OTHER, NET
excluding depreciation and amortization 312,920 342,009
DEPRECIATION AND AMORTIZATION OF PROPERTY
AND EQUIPMENT 21,832 20,298
AMORTIZATION OF GOODWILL AND OTHER ASSETS 8,540 10,237
--------- ---------
OPERATING INCOME 33,266 15,366
INTEREST EXPENSE:
Interest expense, excluding amortization
of deferred financing costs 30,639 31,624
Amortization of deferred financing costs 2,948 2,520
--------- ---------
33,587 34,144
--------- ---------
LOSS BEFORE PROVISION FOR INCOME TAXES (321) (18,778)
PROVISION FOR INCOME TAXES 700 368
--------- ---------
NET LOSS $ (1,021) $ (19,146)
========= ==========
LOSS APPLICABLE TO COMMON SHARES $ (5,742) $ (19,336)
========= ==========
LOSS PER COMMON SHARE $ (3.82) $ (13.77)
========= ==========
Average Number of Common Shares Outstanding 1,504,245 1,404,076
========= =========
The accompanying notes are an integral part of these consolidated statements.
5
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
28 Weeks 28 Weeks
Ended Ended
January 8, January 9,
1994 1993
--------- ---------
CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Cash received from customers $1,416,213 $1,498,970
Cash paid to suppliers and employees (1,361,103) (1,499,975)
Interest paid (29,178) (30,721)
Income taxes refunded 1,652 344
--------- ---------
Other, net 2,874 3,208
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 30,458 (28,174)
CASH PROVIDED (USED) BY INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 12,307 12,101
Payment for purchase of property and equipment (20,404) (38,913)
Other, net 61 (1,780)
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (8,036) (28,592)
CASH PROVIDED (USED) BY FINANCING ACTIVITIES:
Payments of long-term debt (10,395) (9,572)
Payments of capital lease obligation (1,565) (1,511)
Net change in Revolving Loan (4,900) 4,100
Proceeds from issuance of debt 28 26,231
Proceeds from sale of preferred stock - 46,348
Proceeds from sale of common stock - 3,652
Purchase of treasury stock, net (726) (276)
Other, net (161) (7,601)
--------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (17,719) 61,371
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,703 4,605
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 25,089 24,477
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 29,792 $ 29,082
========= =========
The accompanying notes are an integral part of these consolidated statements.
6
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
28 Weeks 28 Weeks
Ended Ended
January 8, January 9,
1994 1993
-------- --------
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED (USED) BY OPERATING ACTIVITIES:
Net loss $(1,021) $(19,146)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 33,320 33,055
Provision for self-insurance, net 3,301 (1,695)
Loss (gain) on sale of assets 87 (14)
Equity loss on investments in
supplier cooperative 294 -
Change in assets and liabilities:
Accounts and notes receivable (9,568) 9,970
Inventories (16,106) 28,757
Other assets (5,953) (7,328)
Accounts payable and accrued liabilities 23,752 (72,485)
Deferred income taxes 1,714 350
Income taxes payable 638 362
------ ------
Total adjustments 31,479 ( 9,028)
------ ------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $30,458 $(28,174)
====== ======
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Accretion of preferred stock $ 4,721 $ 190
====== =======
The accompanying notes are an integral part of these consolidated statements.
7
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Preferred Stock Common Stock Treasury Stock
------------------------ ---------------------- -----------------------
Number Number Number
of of of
Shares Amount Shares Amount Shares Amount
-------- -------- --------- ------- -------- -------
BALANCES AT JUNE 26, 1993 50,000 $50,230 1,519,632 $ 15 (13,249) $(1,199)
Payment of Shareholders' Notes - - - - - -
(unaudited)
Purchase of Treasury Stock
(unaudited) - - - - (2,707) (764)
Accretion of Preferred Stock
(unaudited) - 4,721 - - - -
Net loss
(unaudited) - - - - - -
------ ------ --------- --- ------ ---
BALANCES AT JANUARY 8, 1994
(unaudited) 50,000 $54,951 1,519,632 $ 15 (15,956) $(1,963)
====== ====== ========= === ====== =====
Share- Add'l Total
holders' Paid-In Retained Stockholder's
Notes Capital Deficit Equity
-------- -------- --------- ----------
BALANCES AT JUNE 26, 1993 $(714) $107,650 $(83,119) $72,863
Payment of Shareholders' Notes 50 - - 50
(unaudited)
Purchase of Treasury Stock
(unaudited) 38 - - (726)
Accretion of Preferred Stock
(unaudited) - - (4,721) -
Net loss
(unaudited) - - (1,021) (1,021)
--- -------- ------ ------
BALANCES AT JANUARY 8, 1994
(unaudited) $(626) $107,650 $(88,861) $71,166
=== ======= ====== ======
The accompanying notes are an integral part of these consolidated statements.
8
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated balance sheet of Food 4 Less
Supermarkets, Inc. (the "Company") as of January 8, 1994 and
the consolidated statements of operations and cash flows for
the interim periods ended January 8, 1994 and January 9,
1993 are unaudited, but include all adjustments (consisting
of only normal recurring accruals) which the Company
considers necessary for a fair presentation of its
consolidated financial position, results of operations and
cash flows for these periods. These interim financial
statements do not include all disclosures required by
generally accepted accounting principles, and, therefore,
should be read in conjunction with the Company's financial
statements and notes thereto included in the Company's
latest annual report filed on Form 10-K. Results of
operations for interim periods are not necessarily
indicative of the results for a full fiscal year.
The Company is a vertically integrated supermarket
company with 249 stores located in Southern California,
Northern California and certain areas of the midwest. The
Company's Southern California division includes a
manufacturing facility, with bakery and creamery operations,
and a full-line warehouse and distribution facility.
2. SIGNIFICANT ACCOUNTING POLICIES
Inventories
Inventories, which consist of grocery products, are
stated at the lower of cost or market. Cost has been
principally determined using the last-in, first-out ("LIFO")
method. If inventories had been valued using the first-in,
first-out ("FIFO") method, inventories would have been higher
by $15,323,000 and $13,103,000 at January 8, 1994 and June
26, 1993, respectively, and gross profit and operating
income would have been greater by $1,209,000 and $1,381,000 for
the 16 weeks ended January 8, 1994 and January 9, 1993,
respectively, and by $2,220,000 and $2,381,000 for the 28 weeks
ended January 8, 1994 and January 9, 1993, respectively.
Income Taxes
The Company implemented SFAS No. 109, Accounting for
Income Taxes, effective June 27, 1993. Income taxes for the
28 weeks ended January 9, 1993 have not been restated for
this change. Under SFAS No. 109 deferred tax assets and
liabilities (and related income tax expense) are determined
based on differences between the financial reporting and tax
basis of assets and liabilities. The measurement of
deferred income tax assets is adjusted by a valuation
reserve, if necessary, so that the net tax benefits are
recognized only to the extent that they will be realized.
9
The implementation of SFAS No. 109 did not have a
material effect on the accompanying unaudited consolidated
financial statements.
Reclassifications
Certain prior-period amounts in the consolidated
financial statements have been reclassified to conform to
the January 8, 1994 presentation.
3. SUBSEQUENT EVENT
On January 17, 1994, Southern California was struck by
a major earthquake which resulted in the closure of 31 of the
Company's stores. All but one of the closed stores reopened
within a week of the earthquake, and the remaining closed store is
scheduled to open during the Company's third quarter. The Company
believes that all but $3.0 to $5.0 million of its losses (including
those resulting from business interruption) will be covered by
insurance and will be reflected in the Company's third quarter
results.
4. SUBSIDIARY REGISTRANTS
Separate financial statements of the Company's
subsidiaries (collectively, the "Subsidiary Guarantors")
neither are included herein nor otherwise filed on Form 10-Q
because such Subsidiary Guarantors are jointly and severally
liable as guarantors of the Company's 10.45% Senior Notes
due 2000 and 13-3/4% Senior Subordinated Notes due 2001, and
the aggregate assets, earnings and equity of the Subsidiary
Guarantors are substantially equivalent to the assets,
earnings and equity of the Company on a consolidated basis.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth the selected unaudited
operating results of the Company for the 16 and 28 weeks ended
January 8, 1994 and January 9, 1993:
16 Weeks Ended 28 Weeks Ended
----------------------------------- -----------------------------------
January 8, 1994 January 9, 1993 January 8, 1994 January 9, 1993
--------------- --------------- --------------- ---------------
(dollars in millions)
(unaudited)
Sales $799.6 100.0% $845.3 100.0 % $1,416.2 100.0 % $1,499.0 100.0 %
Gross profit 213.2 26.7% 220.6 26.1 % 376.6 26.6 % 387.9 25.9 %
Selling, general, administrative
and other expenses 176.2 22.0% 193.5 22.9 % 312.9 22.1 % 342.0 22.9 %
Depreciation and amortization 17.3 2.2% 18.2 2.1 % 30.4 2.1 % 30.5 2.0 %
Operating income 19.7 2.5% 8.9 1.1 % 33.3 2.4 % 15.4 1.0 %
Interest expense 19.2 2.4% 19.2 2.3 % 33.6 2.4 % 34.1 2.3 %
Income tax expense 0.4 0.1% 0.1 0.0 % 0.7 0.1 % 0.4 0.0 %
Net income (loss) 0.1 0.0% (10.4) (1.2)% (1.0) (0.1)% (19.1) (1.3)%
Sales. Sales per week decreased $2.8 million, or 5.4%, from
$52.8 million in the 16 weeks ended January 9, 1993 to $50.0
million in the 16 weeks ended January 8, 1994 and decreased $2.9
million, or 5.5%, from $53.5 million in the 28 weeks ended
January 9, 1993 to $50.6 million in the 28 weeks ended January 8,
1994. The decline in sales primarily resulted from a 6.5% and a
7.1% decline in same store sales for the 16 and 28 weeks
ended January 8, 1994, respectively, partially offset by
sales from new stores opened during fiscal 1993 and the 28
weeks ended January 8, 1994. Management believes that the
decline in same store sales is attributable to the weak
economy in Southern California and, to a lesser extent, in
the Company's other operating areas, and increased competitive
store openings in Southern California.
Gross Profit. Gross profit increased as a percentage of
sales from 26.1% in the 16 weeks ended January 9, 1993 to 26.7%
in the 16 weeks ended January 8, 1994 and increased from 25.9% in
the 28 weeks ended January 9, 1993 to 26.6% in the 28 weeks ended
January 8, 1994. Increases in gross profit margin are primarily
attributable to improvements in product procurement, cost
savings and operating efficiencies associated with the
Company's manufacturing, warehousing and distribution facilities.
These increases are partially offset by an increase in the
number of warehouse format stores (which have lower gross margins
resulting from prices that are generally 5-12% below the prices
in the Company's conventional stores) from 40 at January 9, 1993
to 48 at January 8, 1994, and the fixed cost component of gross
profit being compared to a lower sales base.
Selling, General, Administrative and Other Expenses.
Selling, general, administrative and other expenses, excluding
depreciation and amortization ("SG&A") were $193.5 million and
11
$176.2 million for the 16 weeks and $342.0 million and $312.9
million for the 28 weeks ended January 9, 1993 and January 8,
1994, respectively. SG&A decreased as a percentage of sales from
22.9% to 22.0% and from 22.9% to 22.1% for the same periods as a
result of tight control of administrative and store level expenses,
primarily payroll costs, and increased labor productivity,
partially offset by the fixed cost component of
SG&A being compared to a lower sales base.
Depreciation and Amortization. Depreciation and
amortization decreased $0.9 million from $18.2 million to $17.3
million and decreased $0.1 million from $30.5 million to $30.4
million for the 16 weeks and the 28 weeks ended January 9, 1993
and January 8, 1994, respectively, primarily as a result of
a decrease in amortizable assets, partially offset by
an increase in depreciable assets resulting from new stores and
remodels completed during fiscal 1993 and the 28 weeks ended
January 8, 1994.
Interest Expense. Interest expense (including amortization
of deferred financing costs) was $19.2 million and $19.2 million
for the 16 weeks and $34.1 million and $33.6 million for the 28
weeks ended January 9, 1993 and January 8, 1994, respectively.
The decrease in interest expense for the 28 weeks ended January
8, 1994 is due to the reduction of indebtedness as a result of
reduced borrowings under the Revolving Credit Facility combined
with decreased interest rates on the Term Loan.
Net Income (Loss). Net income increased from a loss of
$(10.4) million in the 16 weeks ended January 9, 1993 to income
of $0.1 million in the 16 weeks ended January 8, 1994 and net
loss decreased from $(19.1) million in the 28 weeks ended
January 9, 1993 to $(1.0) million in the 28 weeks ended January 8,
1994 primarily as a result of the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations, amounts available under the
Revolving Credit Facility and leases are the Company's principal
sources of liquidity. The Company believes that these sources
will be adequate to meet its anticipated capital expenditures,
working capital needs and debt service requirements during fiscal
1994. There can be no assurance that the Company will continue
to generate cash flow from operations at current levels or that
it will be able to make future borrowings under the Revolving
Credit Facility.
During the 28-week period ended January 8, 1994, the Company
generated approximately $30.5 million of cash from its operating
activities compared to $28.2 million used by operating activities
for the 28 weeks ended January 9, 1993. The improvement is due
primarily to changes in operating assets and liabilities and an
increase in operating income for the 28 weeks ended January 8, 1994
compared to the 28 weeks ended January 9, 1993. The Company's
principal use of cash in its operating activities
is inventory purchases. Its high inventory turnover allows it to
finance a substantial portion of its inventory through trade
payables, thereby reducing its short-term borrowing needs. At
12
January 8, 1994, this resulted in a working capital deficit of
$14.9 million.
The capital expenditures of the Company were $20.4 million,
partially funded by $9.7 million of sale/leaseback transactions
structured as operating leases, for the 28 weeks ended January 8,
1994. These expenditures were made to build seven new stores (two
of which have been completed) and remodel 15 stores (12 of which
have been completed). The Company currently anticipates that its
aggregate capital expenditures for fiscal 1994 will be
approximately $55.0 million. Consistent with its past practices,
the Company intends to finance these capital expenditures
primarily with cash provided by operations and through operating
leases. No assurance can be given that sources of financing
for capital expenditures will be available or sufficient.
However, the capital expenditure program has substantial
flexibility and is subject to revision based on
various factors, including business conditions, changing time
constraints and cash flow requirements. Management believes that
if the Company were to substantially reduce or postpone these
programs, there would be no substantial impact on short-term
operating profitability. However, management also believes that
the construction of warehouse format stores is an important
component of its operating strategy. In the long term, if these
programs were substantially reduced, management believes its
operating businesses, and ultimately its cash flow, would be
adversely affected. The capital expenditures discussed above do
not include potential acquisitions which the Company could make
to expand within its existing markets or to enter other markets.
The Company has grown through acquisitions in the past and from
time to time engages in discussions with potential sellers of
individual stores, groups of stores or other retail supermarket
chains.
Cash used by financing activities was $17.7 million for the
28 weeks ended January 8, 1994, which was primarily an $8.6
million repayment of the Term Loan and repayment of the $4.9
million of borrowings outstanding on the Revolving Credit
Facility at June 26, 1993. At January 8, 1994, there were no
borrowings outstanding on the $70 million Revolving Credit
Facility, and $48.9 million of standby letters of credit had been
issued under the $55 million Letter of Credit Facility.
The Company is highly leveraged. At January 8, 1994, the
Company's total long-term indebtedness (including current
maturities) and stockholder's equity were $521.3 million and
$71.2 million, respectively. For the 28 weeks ended January 8,
1994, earnings were inadequate to cover fixed charges by $0.3
million. However, the earnings for such period included non-cash
charges of $33.3 million, primarily consisting of depreciation
and amortization.
EFFECTS OF INFLATION AND COMPETITION
The Company's primary costs, inventory and labor, are
affected by a number of factors that are beyond its control,
13
including availability and price of merchandise, the competitive
climate and general and regional economic conditions. As is
typical of the supermarket industry, the Company has generally
been able to maintain margins by adjusting its retail prices, but
competitive conditions may from time to time render it unable to
do so while maintaining its market share.
SUBSIDIARY REGISTRANTS
Separate financial statements of the Company's subsidiaries
(collectively, the "Subsidiary Guarantors") are neither included
herein nor otherwise filed on Form 10-Q because such Subsidiary
Guarantors are jointly and severally liable as guarantors of the
Company's Senior Notes and Subordinated Notes, and the aggregate
assets, earnings and equity of the Subsidiary Guarantors are
substantially equivalent to the assets, earnings and equity of
the Company on a consolidated basis.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
None
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the Registrant has duly caused this Quarterly Report to
be signed on its behalf by the undersigned, thereunto duly
authorized, in the County of Orange, State of California.
Dated: February 21, 1994 FOOD 4 LESS SUPERMARKETS, INC.
/s/ Ronald W. Burkle
---------------------------------
Ronald W. Burkle
Chief Executive Officer
/s/ Greg Mays
---------------------------------
Greg Mays
Chief Financial Officer
16