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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
January 28, 1996 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 _____.
At April 29, 1996, there were 1,513,938 shares of Common Stock
outstanding. As of such date, none of the outstanding shares of Common Stock
were held by persons other than affiliates and employees of the registrant, and
there was no public market for the Common Stock.
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PART I
ITEM 1. BUSINESS
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 retail supermarket company with a total
of 408 stores which are located in Southern California (345) , Northern
California (27) and certain areas of the Midwest (36). The Company is the
largest supermarket company in Southern California. The Company operates the
second largest conventional supermarket chain in the region under the "Ralphs"
name and the largest warehouse supermarket chain in the region under the "Food
4 Less" name. 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 June 14, 1995, Holdings 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).
F4L Supermarkets was organized by The Yucaipa Companies ("Yucaipa"), a
private investment group, in connection with the June 1989 acquisition of Breco
Holding Company, Inc. ("BHC"), which owned Boys, Viva, and Cala stores.
Concurrently with the acquisition of BHC (the "BHC Acquisition"), Food 4 Less,
Inc. ("FFL"), a corporation controlled by an affiliate of Yucaipa, contributed
to F4L Supermarkets all of the outstanding capital stock of Falley's, Inc.
("Falley's"), which owned F4L Supermarkets' Midwestern stores and its Food 4
Less Southern California stores. F4L Supermarkets added six stores to its
Northern California Division by acquiring Bell Markets, Inc. ("Bell") on June
30, 1989, and added seven stores to its Southern California Division by
acquiring certain operating assets of ABC Market Corp. ("ABC") on January 15,
1990. On June 17, 1991, F4L Supermarkets acquired all of the outstanding
capital stock of Alpha Beta Company ("Alpha Beta"), which operated 142 stores
in seven Southern California counties (the "Alpha Beta Acquisition"). On March
29, 1994, F4L Supermarkets added ten warehouse format stores (collectively the
"Food Barn Stores") to its Midwestern Division which it acquired from
Associated Wholesale Grocers, Inc.
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The Company operates both conventional and warehouse format stores
under various names. The following table sets forth by retail format the
number of stores operated by each of the Company's three divisions at January
28, 1996 (unless otherwise indicated, all references to numbers of stores and
other store data in this Annual Report on Form 10-K are as of January 28,
1996):
Southern Northern
California California Midwestern Total
---------- ---------- ---------- -----
Ralphs 277 - - 277
Cala - 9 - 9
Bell - 13 - 13
Falley's - - 5 5
------ ------ ----- -----
Total Conventional 277 22 5 304
Food 4 Less 68 - 31 99
FoodsCo - 5 - 5
------- ------ ------ ------
Total Warehouse 68 5 31 104
----- ------ ---- ----
Total Stores 345 27 36 408
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RECENT EVENTS
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. The sublease provides
for a subrental of approximately $8.8 million per annum. The aggregate
purchase price of operating assets and inventory acquired was approximately
$8.7 million (net of certain offsetting payments). In addition to the
acquisition of Smith's distribution and creamery facility, the Company also
acquired nine of Smith's Southern California stores which became available when
Smith's withdrew from the California market. The acquisition of the Smith's
distribution center will delay and modify the previously planned integration
for the existing Ralphs and Food 4 Less warehouse facilities; however, the
Company believes the transaction will result in increased operating
efficiencies, cost offsets and reduced capital expenditures.
During fiscal 1995, certain financial covenants and other terms of the
New Credit Facility were amended to, among other things, provide for the
acquisition of the Smith's Food and Drug Centers, Inc. ("Smith's") Riverside
distribution center 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.
SOUTHERN CALIFORNIA DIVISION
The Southern California Division operates 345 supermarkets in eight
counties under the names "Ralphs" and "Food 4 Less." The Company's Southern
California stores accounted for 87 percent of the Company's sales for the 52
weeks ended January 28, 1996.
The combination of Ralphs Grocery Company and Food 4 Less
Supermarkets, Inc. has created the largest food retailer in Southern
California. Since the Merger, the Company has consolidated all of its stores in
the region under its two leading complementary formats. The
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Company operates the second largest conventional supermarket chain in the
region under the "Ralphs" name and the largest price impact warehouse
supermarket chain under the "Food 4 Less" name. Management believes the
consolidation of its formats in Southern California has improved the Company's
ability to adapt its stores' merchandising strategy to the local markets in
which they operate while achieving cost savings and other efficiencies.
Ralphs Conventional Format. The Company operates 277 Ralphs stores in
Southern California. All of the Company's conventional stores in the region
use the "Ralphs" name and are operated under a single format. Each store is
merchandised to appeal to the local community it serve and offers competitive
pricing with emphasis on overall value. Ralphs' substantial supermarket
product selection is a significant aspect of its marketing efforts: Ralphs
stocks between 20,000 and 30,000 merchandise items in its stores, including
approximately 2,800 private label products. Ralphs stores offer name-brand
grocery products; quality and freshness in its produce, meat, seafood,
delicatessen and bakery products; and broad selection in all departments. Most
Ralphs stores offer service delicatessen departments, on-premises bakery
facilities and seafood departments. Ralphs emphasizes store ambiance and
cleanliness, fast and friendly service, the convenience of debit and credit
card payment (including many in-store branch banks) and 24-hour operations in
most stores.
Food 4 Less Warehouse Format. The Company operates 68 stores in
Southern California which target the price-conscious segment of the market in
both urban and suburban areas under the name "Food 4 Less." Food 4 Less is a
warehouse-style, price impact store which is positioned to offer the lowest
overall prices in its marketing areas by passing on to the consumer savings
achieved through labor efficiencies and lower overhead and advertising costs
associated with the warehouse format, while providing the product selection and
variety associated with a conventional format. In-store operations are
designed to allow customers to perform certain labor-intensive services usually
offered in conventional supermarkets; for example, merchandise is presented on
warehouse style racks in full cartons, reducing labor intensive unpacking, and
customers bag their own groceries. Labor costs are also reduced because the
stores generally do not have labor-intensive service departments such as
delicatessens, bakeries and fresh seafood departments, although they do offer a
complete line of fresh meat, fish, produce and baked goods.
The Food 4 Less format generally consists of large facilities
constructed with high ceilings to accommodate warehouse racking with overhead
pallet storage. Wide aisles accommodate forklifts and, compared to
conventional supermarkets, a higher percentage of total store space is devoted
to retail selling because the top of the warehouse-style grocery racks on the
sales floor are used to store inventory, which reduces the need for large
backroom storage. The Food 4 Less warehouse format supermarkets have brightly
painted walls and inexpensive signage in lieu of more expensive graphics. In
addition, a "Wall of Values" located at the entrance of each store presents the
customer with a selection of specially priced merchandise. Management believes
that there is a significant segment of the market, encompassing a wide range of
demographic groups, which prefers to shop in a warehouse format supermarket
because of its lowest overall pricing. The Company plans to continue its rapid
growth of the Food 4 Less format by opening 10 new warehouse format stores in
fiscal 1996, seven of which were acquired from Smith's.
Advertising and Promotion
As a result of the consolidation of conventional format stores in
Southern California under the "Ralphs" name, the Company eliminated most of the
separate advertising associated with Food 4 Less' existing Alpha Beta, Boys and
Viva formats. Because Ralphs' current advertising
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program now covers the Southern California region, the Company will be able to
expand the number of Ralphs stores without significantly increasing advertising
costs.
Ralphs' marketing strategy is to provide a combination of wide product
selection, quality and freshness of perishable products, competitive prices and
double coupons supporting Ralphs' advertising theme, "Everything You Need,
Every Time You Shop." The Ralphs Savings Plan, a marketing campaign designed
to enhance customer value, is comprised of six major components: Guaranteed
Low Prices ("GLPs"), Price Breakers, Big Buys, Multi-Buys, Ralphs Brand
Products and Double Coupons. GLPs guarantee low prices on certain high volume
items that are surveyed and updated every four weeks. Price Breakers are
weekly advertised items that offer significant savings. Big Buys are club size
items at prices competitive to club store prices and Multi-Buys offer Ralphs
shoppers the opportunity to purchase club store quantities of regular sized
items at prices competitive to club store prices. In conjunction with this
campaign, Ralphs' private label offering of approximately 2,800 products
provides value to the customer.
Ralphs stores promote sales through the use of product coupons,
consisting of manufacturers' coupons and Ralphs' own promotional coupons.
Ralphs offers a double coupon program in all stores with Ralphs matching the
price reduction offered by the manufacturer. Ralphs also generates store
traffic through weekly advertised specials, special sales promotions such as
discounts on recreational activities, seasonal and holiday promotions,
increased private label selection, club pack items and exclusive product
offerings.
The Food 4 Less warehouse stores utilize print and radio advertising
which emphasizes Food 4 Less' low-price leadership, rather than promoting
special prices on individual items. The Food 4 Less warehouse stores also
utilize weekly advertising circulars, customized to local communities, which
highlight the merchandise offered in each store.
Purchasing, Manufacturing and Distribution
In March 1996, the Company commenced operations in a state-of-the-art
distribution and creamery facility located in Riverside, California which was
acquired from Smith's. The technologically-advanced 90-acre complex is expected
to improve the quality, service and productivity of the Company's distribution
and manufacturing operations. The Riverside complex has more than one million
square feet of warehousing and manufacturing space consisting of a 675,000
square foot dry grocery service center, 270,000 square foot refrigerated and
frozen food facility and a 115,000 square foot creamery facility.
The acquisition of the Riverside complex allows the Company to
consolidate distribution into three modern, efficient facilities located in
Compton, Glendale and Riverside, California. This consolidation is being
accomplished by closing the Company's La Habra warehouse, Carson warehouse,
Long Beach Avenue warehouse and the Slauson frozen food warehouse, as well as
several other outside frozen food, deli and general merchandise facilities.
The benefits resulting from the reduction of distribution facilities include
(i) reductions in inventory levels, transportation between facilities and
management overhead, (ii) simplified coordination of inter-facility activities,
(iii) improved service levels for store orders, and (iv) the elimination of
outside storage costs. Other benefits include a reduction of future capital
expenditures requirements. The consolidation of the Company's distribution
facilities is expected to be completed by the third quarter of fiscal year
1996.
The Riverside complex also increases distribution capacity of the
Company by increasing storage capacity to 120,000 pallets and increasing the
assortment of items that are internally
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supported (increasing dry grocery from 10,000 to 14,000 SKUs and perishable
and frozen items by 1,500 SKUs).
The Riverside creamery is the production point for all fluid milk
products bound for sale in the Company's Food 4 Less warehouse stores. Bottled
water, fruit juice and ice for the entire Company will also be processed and
packaged at the Riverside creamery. Milk bound for the Company's Ralphs
conventional stores, as well as all ice cream and ice cream products, will
continue to be processed at the Company's existing creamery in Compton,
California.
The Company also operates a 17 million cubic foot high-rise automated
storage and retrieval system ("ASRS") warehouse for non- perishable items, in
Glendale, California. The automated warehouse has a ground floor area of
170,000 square feet and capacity of approximately 50,000 pallets. The ASRS
facility can hold substantially more inventory and requires fewer employees to
operate than a conventional warehouse of equal size.
The Company's third major Southern California distribution center is
its 5.4 million cubic foot facility in Compton, California designed to process
and store all perishable products (the "Perishables Service Center" or "PSC").
This facility was constructed in 1992 and has enabled the Company to have
the ability to deliver perishable products to its stores on a daily basis,
thereby improving the freshness and quality of these products.
In addition to the foregoing facilities, the Company will continue to
operate the 316,000 square foot bakery in La Habra, California to manufacture a
broad line of baked goods.
Combined shipments from the Company's Southern California warehouse
facilities accounted for approximately 75 percent of the Southern California
Division's total purchases during the 52 weeks ended January 28, 1996.
Additional purchases, consisting of mostly general merchandise, approximating 2
percent of the division's total during this same period, were made through
Certified Grocers of California, Ltd. ("Certified"), a food distribution
cooperative in which the Company is a member.
Store Operations and Retail Systems
The Southern California Division's store equipment and facilities are
generally in excellent condition. The Ralphs stores range in size from
approximately 15,600 square feet to 69,500 square feet and average
approximately 35,300 square feet. The Southern California Food 4 Less stores
are generally larger and range in size from approximately 27,400 square feet to
84,300 square feet, and average approximately 49,700 square feet. The Company
believes the Southern California Division's warehouse and distribution system
and the design of its stores permit the Company to decrease in-store stockroom
space and thereby increase available selling area.
The Southern California Division's management information systems and
optical scanning technology reduce the labor costs attributable to product
pricing and customer check-out, and provide the Company's management with
information that facilitates purchasing and receiving, inventory management,
warehouse reordering and management of accounts payable. All of the Company's
Southern California Division stores currently offer an electronic funds
transfer system which allows customers to make purchases, obtain cash or check
approvals in transactions linked to their bank accounts. In addition, the
Company's stores now offer customers the convenience of making purchases with
major credit cards.
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Expansion and Development
As a result of Ralphs' 123-year history and Alpha Beta's 92-year
history in Southern California, the Company has valuable and well- established
store locations, many of which are in densely populated metropolitan areas.
Additionally, the Company has a technologically advanced store base. During
fiscal 1995, the Company acquired 174 stores through the Merger, opened 6 new
Food 4 Less stores and 5 new Ralphs stores in Southern California, converted
124 stores from Alpha Beta, Boys and Viva formats to the Ralphs and Food 4
Less formats, closed 44 stores and remodeled 11 stores.
The Company plans to expand the Southern California Division by
opening new stores as well as replacing older and smaller stores. The Company
intends to continue to focus its new store construction and store conversion
efforts during fiscal 1996 and future years on the Food 4 Less format, which
has proven to have a strong appeal to value conscious consumers across a wide
range of demographic groups. To this end, the Company plans to continue its
store expansion program in Southern California by opening 25 new stores during
fiscal 1996 (including the nine stores acquired from Smith's, seven of which
will be Food 4 Less stores), and additional stores in subsequent years.
During fiscal year 1996, in Southern California, the Company plans to remodel
21 conventional format stores and 4 of the warehouse format stores. The
Company's merger, expansion, remodel and conversion efforts have required, and
will continue to require, the funding of significant capital expenditures. See
Item 7 -- "Management's Discussion and Analysis of Results of Operations and
Financial Condition -- Liquidity and Capital Resources."
Remodelings and openings, among other things, are subject to the
availability of developers' financing, agreements with developers and
landlords, local zoning regulations, construction schedules and other factors,
including costs, often beyond the Company's control. Accordingly, there can be
no assurance that the schedule will be met. Further, there is competition for
new store sites, and it is possible that this competition might adversely
affect the timing of its new store program. From time to time, the Company
also closes or sells marginal stores.
NORTHERN CALIFORNIA AND MIDWESTERN DIVISIONS
The Northern California Division of Food 4 Less operates 22
conventional supermarkets in the greater San Francisco Bay area under the
"Cala" and "Bell" names, and five warehouse format stores under the "FoodsCo"
name. Management believes that the Northern California Division has excellent
store locations in the city of San Francisco that would be very difficult to
replicate. The Midwestern Division of Food 4 Less operates 36 stores, of which
31, including ten former "Food Barn" stores which Food 4 Less acquired in March
1994, are warehouse format stores operated under the "Food 4 Less" name, and
five of which are conventional supermarkets operated under the "Falley's" name.
Of these 36 stores, 32 are located in Kansas and four are located in Missouri.
Management believes the Food 4 Less warehouse format stores are the low-price
leaders in each of the markets in which they compete. The Northern California
Division's conventional store strategy is to attract customers through its
convenient locations, broad product line and emphasis on quality and service,
and its advertising and promotion strategy highlights the reduced price
specials offered in its stores. In contrast, the Company's warehouse format
stores, operated under the Food 4 Less name in the Midwestern Division and the
FoodsCo name in the Northern California Division, emphasize lowest overall
prices rather than promoting special prices on individual items. The Northern
California Division's conventional stores range in size from approximately
8,500 square feet to 32,500 square feet, and average approximately 19,500
square feet. The Northern California Division's warehouse stores range in size
from approximately 30,000 square feet to 59,600 square
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feet, and average approximately 41,800 square feet. The Midwestern Division's
warehouse format stores range in size from approximately 8,800 square feet to
60,200 square feet and average approximately 37,900 square feet.
The Northern California Division purchases merchandise from a number
of suppliers; however, approximately 36 percent of its purchases are made
through Certified Grocers of California, Ltd. ("Certified"), a food
distribution cooperative, pursuant to supply contracts. The Northern
California Division does not operate its own warehouse facilities, relying
instead on direct delivery to its stores by Certified and other vendors. Food
4 Less' Southern California warehouse facilities supply a portion of the
merchandise sold in the Northern California Division stores.
The Midwestern Division's primary supplier is Associated Wholesale
Grocers ("AWG"), a member-owned wholesale grocery cooperative based in Kansas
City. The Midwestern Division does not operate a central warehouse, but
purchases approximately 70 percent of the merchandise sold in its stores from
AWG. Management believes that, as AWG's largest single customer, the
Midwestern Division has significant buying power, allowing it to provide a
broader product line more economically than it could if it maintained its own
full-line warehouse. The Midwestern Division produces approximately 50 percent
of all case-ready fresh meat items sold in its stores at its central meat plant
located in Topeka, Kansas.
Since the beginning of fiscal 1991, the Northern California Division
has remodeled 13 stores, opened six new stores and, in fiscal 1995, acquired
three stores from Roger Wilco, now operated as Bell stores. The Northern
California Division Food 4 Less warehouse stores were renamed as FoodsCo
warehouse stores in fiscal 1994 following the sale by the Company of the
exclusive rights to use the "Food 4 Less" name in Northern California to
Fleming Companies, Inc., which previously held a non-exclusive license. See
"Licensing Operations" for further discussion of the amendment to the Fleming
license.
The acquisition in March 1994 of ten warehouse stores formerly
operated as "Food Barn" stores increased the Midwestern Division's Food 4 Less
warehouse store count from 28 at June 26, 1993 to 38 at January 28, 1996.
During the last five fiscal years, the Midwestern Division has opened two new
stores, acquired ten stores, closed three stores and remodeled eight stores.
While the Company has no definitive plans to construct or acquire new stores in
the Midwestern Division in fiscal 1996, the Company intends to focus future
expansion there on its Food 4 Less operations.
COMPETITION
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 competitors' prices and adjusts
its prices and marketing strategy as management deems appropriate.
The Southern California Division competes with several large national
and regional chains, principally Albertsons, Hughes, Lucky, Stater Bros., and
Vons, and with smaller independent supermarkets and grocery stores as well as
warehouse clubs and other "alternative format" food stores. The Northern
California Division competes with large national and regional chains,
principally
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Lucky and Safeway, and with independent supermarket and grocery store operators
and other retailers, including "alternative format" stores. The Midwestern
Division's supermarkets compete with several national and regional supermarket
chains, principally Albertson's and Dillons, as well as independent grocery and
"alternative format" stores such as Hypermarket USA. The Company positions its
warehouse format supermarkets as the overall low-price leaders in each
marketing area in which they operate.
EMPLOYEES
The Company believes that its relationship with its employees is
excellent. At January 28, 1996, the Company had a total of 30,101 employees,
as shown in the table below.
Southern Northern
California California Midwestern Total
---------- ---------- ---------- ---------
Administrative 1,573 64 41 1,678
Warehouse, manufacturing and
transportation 3,318 - 61 3,379
Stores 21,540 2,123 1,381 25,044
------ ----- ----- ------
Total 26,431 2,187 1,483 30,101
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Of the Company's 30,101 total employees at January 28, 1996, there
were 26,369 employees covered by union contracts, principally with the United
Food and Commercial Workers Union (the "UFCW"). The table below sets forth
information regarding the Company's union contracts which cover more than 100
employees.
UNION NUMBER OF EMPLOYEES COVERED DATE(S) OF EXPIRATION
----- --------------------------- ----------------------
UFCW 15,737 Southern California October 3, 1999
Division clerks and
meatcutters
Hospital and Service Employees 606 Southern California January 19, 1997
Division store porters
International Brotherhood of Teamsters 2,802 Southern California September 13, 1998
Division drivers
and warehousemen
UFCW 2,034 Northern California March 7, 1998
Division clerks and
meatcutters
UFCW 3,708 Southern California February 26, 2000
Division clerks and
meatcutters
Bakery and Confectionery Workers 219 Southern California February 9, 1997
Division bakers
LICENSING OPERATIONS
The Company owns the "Food 4 Less" trademark and service mark and
licenses the "Food 4 Less" name for use by others. In fiscal 1995, earnings
from licensing operations were approximately $328,000. An exclusive license
with the right to sublicense the "Food 4 Less" name in all areas of the United
States except Arkansas, Iowa, Illinois, Minnesota, Nebraska, North Dakota,
South Dakota, Wisconsin, the upper peninsula of Michigan, certain portions of
Kansas, Missouri, and
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Tennessee has been granted to Fleming Companies, Inc. ("Fleming"), a major food
wholesaler and retailer. In August of 1993, the Company amended its licensing
agreement with Fleming to give Fleming exclusive use of the Food 4 Less name in
Northern California and the Company exclusive use in Southern California (the
"Amendment"). With the exception of Northern California, and subject to the
Amendment and certain proximity restrictions, the Company retains the right to
open and operate its own "Food 4 Less" warehouse supermarkets throughout the
United States. As of January 28, 1996, there were 174 Food 4 Less warehouse
supermarkets in 15 states, including the 99 stores owned or leased and operated
by the Company. Of the remaining 75 stores, Fleming operates 15 under license,
15 are operated under sublicenses from Fleming and 45 are operated by other
licensees.
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ITEM 2. PROPERTIES
At January 28, 1996 the Company operated 408 supermarkets, as set
forth in the table below:
Number of Average
Supermarkets Total Square Feet/
------------
Division Owned Leased Square Feet Facility
-------- ----- ------ ----------- ------------
Southern California 60(a) 285 13,151,000 38,100
Northern California - 27 637,000 23,600
Midwestern 2(b) 34 1,299,000 36,100
----------------------
(a) Includes fifteen stores located on real property subject to
ground leases.
(b) Includes one store that is partially owned and partially leased.
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 distribution complex 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 170,000
square foot high-rise automated storage and retrieval system Glendale warehouse
("ASRS") located in the Atwater district of Los Angeles, opened in 1987,
handles non-perishable items is ten stories high and has a capacity of
approximately 50,000 pallets. The Perishable Service Center ("PSC") in Compton,
opened in 1992, 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 salad
preparations. The bakery operation is located at the La Habra complex and
measures 316,000 square feet.
Due to the increase in warehouse space, the La Habra distribution
center and a number of smaller warehouses used by the Company have become
obsolete and it is expected that by the third quarter of fiscal year 1996, the
Company will have consolidated its warehousing operations into the three main
centers described above.
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ITEM 3. 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.
To date, the Court has yet to certify any of these classes, while a demurrer to
the complaints was denied. The Company is continuing to actively defend itself
in these class action suits.
Ralphs and Food 4 Less are subject to regulation by a variety of
governmental agencies, including, but not limited to, the California Department
of Alcoholic Beverage Control, the California Department of Agriculture, the
U.S. Food and Drug Administration, the U.S. Department of Agriculture and state
and local health departments.
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
In January 1991, the California Regional Water Quality Control Board
for the Los Angeles Region (the "Regional Board") requested that RGC conduct a
subsurface characterization of its Glendale warehouse property located in the
Atwater district of Los Angeles. This request was part of an ongoing effort by
the Regional Board, in connection with the U.S. Environmental Protection Agency
(the "EPA"), to identify contributors to groundwater contamination in the San
Fernando Valley. Significant parts of the San Fernando Valley, including the
area where RGC's grocery warehouse is located, have been designated federal
Superfund sites requiring response actions under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, because of
regional groundwater contamination. On June 18, 1991, the EPA made its own
request for information concerning RGC's grocery warehouse. Since that time,
the Regional Board has requested further investigation by RGC. RGC conducted
the requested investigations and reported the results to the Regional Board.
Approximately 25 companies have entered into a Consent Order (EPA Docket No.
94-11) with the EPA to investigate and design a remediation system for
contaminated groundwater beneath an area which includes RGC's grocery warehouse.
RGC is not a party to the Consent Order, but is cooperating with requests of
the subject companies to allow installation of monitoring or recovery wells on
RGC's property. On or about October 12, 1995, the EPA mailed a Special Notice
Letter to 44 parties, including Ralphs as owner and operator of the Glendale
property, naming them as potentially responsible parties ("PRPs"). Ralphs and
other PRPs have agreed to enter into negotiations over a consent decree with the
EPA to implement a remedial design and reimburse oversight costs. The PRPs have
also agreed to an Alternative Dispute Resolution Process to allocate the costs
among themselves. Based upon available information, management does not believe
this matter will have a material adverse effect on the Company's financial
condition or results of operations.
RGC removed underground storage tanks and remediated soil
contamination at the grocery warehouse property. In some instances, the
removals and the contamination were associated with grocery business
operations; in others, they were associated with prior property users.
Although the
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possibility of other contamination from prior operations or adjacent properties
exists at the grocery warehouse property, management does not believe that the
costs of remediating such contamination will be material to the Company.
Apart from the grocery warehouse property, 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.
At the time that Food 4 Less acquired Alpha Beta in 1991, it learned
that certain underground storage tanks located on the site of the La Habra
facility may have previously released hydrocarbons. In connection with the
acquisition of Alpha Beta, the seller (who is also the lessor of the La Habra
facility) agreed to retain responsibility, subject to certain limitations, for
remediation of the release.
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.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
There is no public trading market for the Company's common stock, $.01
par value per share (the "Common Stock"). As of April 29, 1996, 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 the
Company's bank credit facility also restricts such payments.
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ITEM 6. SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
THE COMPANY
The following table sets forth certain selected consolidated
historical financial data of Ralphs Grocery Company (formerly Food 4 Less
Supermarkets, Inc.). The operating results of the Company for the 52 weeks
ended June 29, 1991 include the results of Alpha Beta from June 17, 1991, the
date of its acquisition by the Company. The operating and balance sheet data
of the Company set forth in the table below as of and for the 52 weeks ended
January 28, 1996, the 31 weeks ended January 29, 1995, the 52 weeks ended June
25, 1994, June 26, 1993, June 27, 1992, and June 29, 1991 have been derived
from the financial statements of the Company which have been audited by Arthur
Andersen LLP, independent public accountants. The following information should
be read in conjunction with the historical financial statements of the Company
and related notes and "Item 7 -- Management's Discussion and Analysis of
Results of Operations and Financial Condition" included elsewhere herein.
52 Weeks 52 Weeks 52 Weeks 52 Weeks 31 Weeks 52 Weeks
Ended Ended Ended Ended Ended Ended
June 29, June 27, June 26, June 25, January 29, January 28,
1991(a) 1992 1993 1994(b) 1995(c) 1996(d)
-------- -------- -------- --------- ---------- ------------
(dollars in thousands, except store data)
Operating Data:
Sales $1,606,559 $2,913,493 $2,742,027 $2,585,160 $1,556,522 $4,335,109
Cost of sales (e) 1,340,841 2,392,655 2,257,835 2,115,842 1,294,147 3,485,993
--------- --------- --------- --------- --------- ---------
Gross profit (e) 265,718 520,838 484,192 469,318 262,375 849,116
Selling, general, administrative
and other, net 213,083 469,751 434,908 388,836 222,359 785,576
Amortization of goodwill 5,315 7,795 7,571 7,691 4,615 21,847
Restructuring charge - - - - 5,134(f) 123,083(g)
----------- ------- ---------- ----------- --------- ---------
Operating income (loss) (e) 47,320 43,292 41,713 72,791 30,267 (81,390)
Interest expense 50,084 70,211 69,732 68,250 42,222 178,774
Loss (gain) on disposal of assets 623 (1,364) (2,083) 37 (455) (547)
Provision for earthquake losses - - - 4,504(h) - -
Provision for income taxes 2,505 3,441 1,427 2,700 - 500
--------- ------- --------- --------- --------- ----------
Loss before
extraordinary charges (5,892) (28,996) (27,363) (2,700) (11,500) (260,117)
Extraordinary charges 3,757(i) 4,818(j) - - - 23,128(k)
--------- ------- ---------- ----------- --------- ----------
Net loss(l) $ (9,649) $ (33,814) $ (27,363) $ (2,700) $ (11,500) $ (283,245)
========= ========= ========= ========= ========= ==========
Non-Cash Charges:
Depreciation and amortization
of property and equipment $ 20,399 $ 37,898 $ 37,426 $ 41,380 $ 25,966 $ 92,282
Amortization of goodwill and
other assets 11,453 16,979 20,214 15,703 10,657 33,047
Amortization of deferred
financing costs 5,177 6,304 4,901 5,472 3,413 8,193
Store Data:
Stores at end of period 259 249 248 258 267 408
Annual sales per
selling square foot $ 584 $ 538 $ 533 $ 487 $ 452(m) $ 477
Balance Sheet Data
(end of period)(n):
Working capital (deficit) $ 13,741 $ (66,254) $ (19,222) $ (54,882) $ 74,776) $ (178,456)
Total assets 979,958 998,451 957,840 980,080 1,000,695 3,188,129
Total long-term debt 540,759 509,829 522,440 495,942 506,576 2,028,308
Redeemable stock - - - - - -
Stockholder's equity 84,557 50,771 72,863 69,021 57,803 59,119
(See footnotes on following page)
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(a) Operating data for the 52 weeks ended June 29, 1991 include the
results of Alpha Beta from June 17, 1991, the date of its acquisition
only. Alpha Beta's sales for the two weeks ended June 29, 1991 were
$59.2 million.
(b) Operating data for the 52 weeks ended June 25, 1994 include the
results of the Food Barn Stores, which were not material, from March
29, 1994, the date of the acquisition of 10 Food Barn Stores.
(c) F4L Supermarkets changed its fiscal year end from the 52 or 53-week
period which ends on the last Saturday in June to the 52 or 53-week
period which ends on the Sunday closest to January 31, resulting in a
31-week transition period.
(d) Operating data for the 52 weeks ended January 28, 1996 reflect the
acquisition of RSI on June 14, 1995.
(e) Cost of sales has been principally determined using the last-in,
first-out ("LIFO") method of valuing inventory. If cost of goods sold
had been determined using the first-in, first-out ("FIFO") method,
gross profit and operating income would have been greater by
$2,118,000, $3,554,000, $4,441,000, $699,000, $2,729,000 and
$2,214,000 for the 52 weeks ended June 29, 1991, June 27, 1992, June
26, 1993, and June 25, 1994, the 31 weeks ended January 29, 1995 and
the 52 weeks ended January 28, 1996, respectively.
(f) The Company converted 11 of its conventional supermarkets to
warehouse stores. During the 31 weeks ended January 29, 1995, the
Company recorded a non-cash restructuring charge for the write-off of
property and equipment at the 11 stores of $5.1 million.
(g) The Company recorded a $75.2 million restructuring charge associated
with the closing of 58 stores and one warehouse facility in the 52
weeks ended January 28, 1996. Pursuant to the settlement agreement
with the State of California, 24 Food 4 Less stores (as well as 3
Ralphs stores) were required to be divested and an additional 34
under-performing stores were closed. The Company also recorded a
$47.9 million restructuring charge associated with the closing of 9
stores and one warehouse facility in the 52 weeks ended January 28,
1996, in conjunction with the agreement with Smith's to lease the
Riverside warehouse facility and 9 stores.
(h) On January 17, 1994, Southern California was struck by a major
earthquake which resulted in the temporary closing of 31 of the
Company's stores. The closures were caused primarily by loss of
electricity, water, inventory, or damage to the affected stores. All
but one of the closed stores reopened within a week of the earthquake.
The final closed store reopened on March 24, 1994. The Company is
insured, subject to deductibles, against earthquake losses (including
business interruption). The pre-tax charge to earnings, net of
insurance recoveries, was approximately $4.5 million.
(i) Represents an extraordinary charge of $3.8 million (net of related
income tax benefit of $2.5 million) relating to the refinancing of the
Company's former bank credit facility (the "Old Credit Agreement") and
the Company's Senior Subordinated Increasing Rate Notes due 1996 (the
"IRNs") in connection with the Alpha Beta Acquisition and the
write-off of related debt issuance costs.
(j) Represents an extraordinary net charge of $4.8 million reflecting the
write-off of $6.7 million (net of related income tax benefit of $2.5
million) of deferred financing costs as a result of
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the early redemption of a portion of the Company's bank term loan,
partially offset by a $1.9 million extraordinary gain (net of a
related income tax expense of $0.7 million) on the replacement of
partially depreciated assets following the civil unrest in Los
Angeles.
(k) Represents an extraordinary charge of $23.1 million 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")
and Holdings' 15.25% Senior Discount Notes due 2004 in connection with
the Merger and the write-off of their related debt issuance costs.
(l) Net loss includes a pre-tax provision for self insurance, which is
classified in cost of sales, selling, general and administrative
expenses, and interest expense, of $15.1 million, $51.1 million,
$43.9 million, $25.7 million, $9.8 million and $32.6 million for the
52 weeks ended June 29, 1991, June 27, 1992, June 26, 1993, and June
25, 1994, the 31 weeks ended January 29, 1995 and the 52 weeks ended
January 28, 1996, respectively. Included in the 52 weeks ended June
25, 1994, the 31 weeks ended January 29, 1995 and the 52 weeks ended
January 28, 1996 are reduced employer contributions of $8.1 million,
$14.3 million and $26.1 million, respectively, related to union health
and welfare benefit plans.
(m) Amount represents the Company's sales for the 1995 transition period
divided by total selling square feet prorated for the 31 weeks ended
January 29, 1995.
(n) Balance sheet data as of June 29, 1991 reflect the Alpha Beta
Acquisition and the financings and refinancings associated therewith.
Balance sheet data as of June 25, 1994 reflect the acquisition of 10
Food Barn Stores. Balance sheet data as of January 28, 1996 reflect
the Merger and the financings and refinancings associated therewith.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
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. See "Liquidity and Capital Resources."
The Company's results of operations for the 52 weeks ended January 28,
1996 include 20 weeks of the operations of F4L Supermarkets prior to the
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 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 (since the 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 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 balance sheet at January 28, 1996 is
based on management's preliminary estimates. The actual purchase accounting
adjustments, including adjustments to loss contingency accruals, will be
determined within one year following the Merger and may vary from the
preliminary estimates at January 28, 1996.
At January 28, 1996, the Company operated 277 conventional
supermarkets and 68 Food 4 Less warehouse stores in Southern California. It
also operated 63 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 January 28, 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 June 1996. The previously planned
integration and consolidation of the Company's warehousing and distribution
facilities into three primary facilities will be delayed and modified as a
result of the agreement with Smith's Food and Drug Centers, Inc. ("Smith's")
to lease its Riverside, California distribution and creamery facility. See
"Southern California Division-Purchasing, Manufacturing and Distribution."
Following the consummation of the Merger, sales in the Company's
Southern California Division fell short of anticipated levels for the second
half of fiscal 1995. This shortfall was caused
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primarily by smaller than anticipated benefits from the Company's advertising
program and greater than expected competitive pressures. 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 and the Ralphs
stores being converted to the warehouse format were also affected. The
Company's operating margins following the consummation of the Merger were
further adversely affected by delays in the implementation of certain
promotional buying and other programs, excessive price markdowns in stores
undergoing conversion and a less advantageous than expected product mix in
certain stores. Greater than anticipated transition expenses were also
experienced in integrating store operation and inventory distribution functions.
As a result of these various factors, in February 1996, the Company further
amended its Credit Agreement to conform the financial covenants contained in the
agreement to the Company's actual post-Merger results. Following the adoption
of these amendments, the Company believes that the covenant levels contained in
the agreement are consistent with anticipated operating results for fiscal 1996.
F4L Supermarkets changed its fiscal year end from the 52 or 53-week
period which ends on the last Saturday in June to the 52 or 53-week period
which ends on the Sunday closest to January 31, resulting in a 31-week
transition period ended January 29, 1995. References to fiscal year 1993,
fiscal year 1994, the 1995 transition period and fiscal year 1995 are to the
52-week period ended June 26, 1993, the 52-week period ended June 25, 1994,
the 31-week period ended January 29, 1995, and the 52-week period ending
January 28, 1996, respectively. The operating results for the 1995 transition
period are not directly comparable to those of fiscal 1993, fiscal 1994 or
fiscal 1995, as these periods include 52 weeks of operations.
RESULTS OF OPERATIONS OF THE COMPANY
The following table sets forth the historical operating results of the
Company for the 52 weeks ended June 26, 1993 and June 25, 1994, the 31 weeks
ended January 29, 1995 and the 52 weeks ended January 28, 1996:
Fiscal Year Fiscal Year 1995 Fiscal Year
1993 1994 Transition Period 1995
------------------------ ---------------- ----------------- --------------------
(dollars in millions)
Sales $2,742.0 100 .0% $2,585.2 100.0% $1,556 .5 100.0% $4,335.1 100.0%
Gross profit 484.2 17.7 469.3 18.1 262 .4 16.9 849.1 19.6
Selling, general,
administrative and
other, net 434.9 15.9 388.8 15.0 222 .4 14.3 785.6 18.1
Amortization of goodwill 7.6 0 .3 7.7 0.3 4 .6 0.3 21.8 0.5
Restructuring charge 0.0 0 .0 0.0 0.0 5 .1 0.3 123.1 2.8
Operating income (loss) 41.7 1 .5 72.8 2.8 30.3 1.9 (81.4) (1.9)
Interest expense 69.8 2 .5 68.3 2.6 42.2 2.7 178.8 4.1
Loss (gain) on disposal
of assets (2.1) (0 .1) 0.0 0.0 (0.5) (0.0) (0.5) (0.0)
Provision for earthquake
losses 0.0 0 .0 4.5 0.2 0 .0 0.0 0.0 0.0
Provision for income taxes 1.4 0 .1 2.7 0.1 0 .0 0.0 0.5 0.0
Loss before extraordinary
charge (27.4) (1.0) (2.7) (0.1) (11.5) (0.7) (260.1) (6.0)
Extraordinary charge 0.0 0 .0 0.0 0.0 0 .0 0.0 23.1 0.5
Net loss (27.4) (1.0) (2.7) (0.1) (11.5) (0.7) (283.2) (6.5)
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COMPARISON OF THE COMPANY'S RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED
JANUARY 28, 1996 WITH THE COMPANY'S RESULTS OF OPERATIONS FOR THE 31 WEEKS
ENDED JANUARY 29, 1995.
Sales. Sales per week increased $33.2 million, or 66.1 percent, from
$50.2 million in the 31 weeks ended January 29, 1995 to $83.4 million in the 52
weeks ended January 28, 1996. The increase in sales was primarily
attributable to the addition of 174 conventional supermarkets acquired through
the Merger. The sales increase was partially offset by a pro-forma comparable
store sales (includes the combined sales of F4L Supermarkets and RGC for the
period prior to the Merger) decline of 1.9 percent for the 52 weeks ended
January 28, 1996 as compared to the 52 weeks ended January 28, 1995.
Excluding stores scheduled for divestiture or closing, pro-forma comparable
store sales decreased 1.2 percent. Management believes the decline in
comparable store sales was primarily attributable to additional competitive
store openings and remodels in Southern California, as well as the Company's
own new store openings and conversions.
Gross Profit. Gross profit increased as a percentage of sales from
16.9 percent in the 31 weeks ended January 29, 1995 to 19.6 percent in the 52
weeks ended January 28, 1996. The increase in gross profit margin was
primarily attributable to the addition of 174 conventional supermarkets which
diluted 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 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 $222.4 million and $785.6
million for the 31 weeks ended January 29, 1995 and the 52 weeks ended January
28, 1996, respectively. SG&A increased as a percentage of sales from 14.3
percent to 18.1 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 diluted 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. 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 1993, 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 1995 was $26.1 million, which partially offset
the increase in SG&A. SG&A was also impacted by certain one-time costs
associated with the integration of the Company's operations. See "Operating
Income (Loss)."
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. Twenty-four of
these stores were required to be closed pursuant to a settlement agreement with
the State of California in connection with the Merger. Three RGC stores were
also required to be sold. Thirty- four of the closed stores were
under-performing former F4L Supermarkets stores. The $75.2 million
restructuring charge consisted of write- downs of property and equipment ($52.2
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). The charges consisted of write-downs of
property and equipment ($33.2 million); write-off of the Alpha Beta trademark
($8.3 million); and expenditures associated with the closed stores and the
warehouse facility, write-off of other assets, lease termination expenditures
and miscellaneous expenditures ($8.5 million). Future lease payments of
approximately $19.1 million will be offset
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against the remaining reserve. Management believes that the remaining reserve
is adequate to complete the planned restructuring.
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 stores which were near the acquired former Smith's stores. 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).
Operating Income (Loss). In addition to the factors discussed above,
operating income includes charges of approximately $75 million for costs
associated with the conversion of stores and integration of the Company's
operations. These costs related primarily to (i) markdowns on clearance
inventory at F4L Supermarkets' Alpha Beta, Boys and Viva stores converted to
the Ralphs format, (ii) an advertising campaign announcing the Merger, and
(iii) incremental labor cost associated with the training of Company personnel
following store conversions. In addition, the Company has experienced higher
than anticipated warehousing and distribution costs since the Merger, primarily
due to the delay in the planned consolidation of the Company's distribution
facilities resulting from the acquisition of the Smith's Riverside distribution
center. The Company has taken steps to reduce these increased costs in future
periods.
Interest Expense. Interest expense (including amortization of
deferred financing costs) was $42.2 million for the 31 weeks ended January 29,
1995 and $178.8 million for the 52 weeks ended January 28, 1996. The increase
in interest expense was primarily due to the increased indebtedness incurred in
conjunction with the Merger. See "Liquidity and Capital Resources."
Loss Before Extraordinary Charge. Primarily as a result of the
factors discussed above, the Company's loss before extraordinary charge
increased from $11.5 million for the 1995 transition period to $260.1 million
for fiscal year 1995.
Extraordinary Charge. An extraordinary charge of $23.1 million was
recorded during fiscal year 1995 relating to retirement of indebtedness of F4L
Supermarkets in connection with the Merger and the write-off of the related
deferred financing costs.
COMPARISON OF THE COMPANY'S RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JUNE
25, 1994 WITH THE COMPANY'S RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JUNE
26, 1993.
Sales. Sales decreased $156.8 million or 5.7 percent from $2,742.0
million in the 52 weeks ended June 26, 1993 to $2,585.2 million in the 52 weeks
ended June 25, 1994. The decrease in sales resulted primarily from a 6.9
percent decline in comparable store sales. The decline in comparable store
sales primarily reflected (i) the weak economy in Southern California, (ii)
lower levels of price inflation in certain key food product categories, and
(iii) competitive factors, including new stores, remodeling and promotional
activity. This decrease in sales was partially offset by sales from new and
remodeled stores opened or acquired during fiscal 1994.
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Gross Profit. Gross profit increased as a percent of sales from 17.7
percent in the 52 weeks ended June 26, 1993 to 18.1 percent in the 52 weeks
ended June 25, 1994. The increase in gross profit margin was attributable to
improvements in product procurement and an increase in vendors' participation
in the Company's promotional costs. These improvements were partially offset
by an increase in the number of warehouse format stores (which have lower gross
margins) from 45 at June 26, 1993 to 66 at June 25, 1994, and the effect of the
fixed cost component of gross profit as compared to a lower sales base.
Selling, General, Administrative and Other, Net. SG&A expenses were
$434.9 million and $388.8 million for fiscal year 1993 and fiscal year 1994,
respectively. SG&A decreased as a percent of sales from 15.9 percent to 15.0
percent for the same periods. The Company experienced a reduction of workers'
compensation and general liability self-insurance costs of $18.2 million due
primarily to cost control programs implemented by the Company, including awards
for stores with the best loss experience, specific achievable goals for each
store, and increased monitoring of third-party administrators, and, to a lesser
extent, a lower sales base which reduced the Company's exposure. In addition,
the Company maintained tight control of administrative expenses and store level
expenses, including payroll (due primarily to increased productivity),
advertising, and other controllable store expenses. Because the Company's
warehouse stores have lower SG&A than conventional stores, the increase in the
number of warehouse stores, from 45 at June 26, 1993 to 66 at June 25, 1994,
also contributed to decreased SG&A.
The Company recognized $8.1 million in fiscal 1994 for its share of
the excess UFCW health and welfare plan reserves. Offsetting the reduction in
employer contributions was a $5.5 million contract ratification bonus and
contractual wage increases.
The reduction in SG&A as a percentage of sales was partially offset by
the effect of the fixed cost component of SG&A as compared to a lower sales
base.
Interest Expense. Interest expense (including amortization of
deferred financing costs) decreased $1.5 million from $69.8 million to $68.3
million for the 52 weeks ended June 26, 1993 and June 25, 1994, respectively.
The decrease in interest expense was due primarily to reduced borrowings under
the Old Revolving Credit Facility and the Old Term Loan.
Provision for Earthquake Losses. On January 17, 1994, Southern
California was struck by a major earthquake which resulted in the temporary
closure of 31 of F4L Supermarkets' stores. The closures were caused primarily
by loss of electricity, water, inventory, or structural damage. All but one of
the closed stores reopened within a week of the earthquake. The final closed
store reopened on March 24, 1994. The Company is insured against earthquake
losses (including business interruption), subject to certain deductibles. The
pre-tax loss, net of insurance recoveries, was approximately $4.5 million.
Net Loss. Primarily as a result of the factors discussed above, the
Company's net loss decreased from $27.4 million in fiscal 1993 to $2.7 million
in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company and Holdings utilized new financing proceeds of
approximately $525 million, which were paid to the former RSI stockholders, to
consummate the Merger. The new financing proceeds included the issuance of
preferred stock by Holdings to a group of investors for cash proceeds of
approximately $140 million (the "New Equity Investment"). In addition, the
Company
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entered into a new credit facility (the "New Credit Facility") pursuant to
which, upon the closing of the Merger, it incurred $600 million under the term
loan portion of the New Credit Facility (the "New Term Loans") and
approximately $91.6 million of standby letters of credit under the $325
million revolving credit facility (the "New Revolving Facility"). The Company
also issued $350 million aggregate principal amount of new 10.45% Senior Notes
due 2004 (the "New F4L Senior Notes") and $100 million aggregate principal
amount of new 11% Senior Subordinated Notes due 2005 (the "New RGC Notes")
pursuant to public offerings (the "Public Offerings").
The proceeds from the New Credit Facility, Public Offerings and the
New Equity Investment and the issuance by Holdings of $59.0 million initial
accreted value of 13-5/8% Senior Discount Debentures due 2005 (the "New
Discount Debentures") for cash, $41.0 million in initial accreted value of
additional New Discount Debentures as consideration for the Merger and for
associated fees and $131.5 million aggregate principal amount of 13-5/8% Senior
Subordinated Pay-In-Kind Debentures due 2007 (the "Seller Debentures"),
provided the sources of financing required to consummate the Merger and to
repay outstanding bank debt of approximately $176.5 million at F4L
Supermarkets and $228.9 million at RGC, existing mortgage debt of $174.0
million (excluding prepayment fees) at RGC and $84.4 million to the holders of
the Senior Discount Notes due 2004 of Holdings (the "Discount Notes")
(excluding related fees). Proceeds from the New Credit Facility and the Public
Offerings also were used (i) to pay the cash portions of F4L Supermarkets'
exchange offers and consent solicitations with respect to the 10.25% Senior
Subordinated Notes due 2002 of RGC (the "Old RGC 10.25% Notes"), the 9% Senior
Subordinated Notes due 2003 of RGC (the "Old RGC 9% Notes," and together with
the old RGC 10.25% Notes, the "Old RGC Notes") (collectively, the "RGC Exchange
Offers"), the 10.45% Senior Notes due 2000 of F4L Supermarkets (the "Old F4L
Senior Notes") and the 13.75% Senior Subordinated Notes due 2001 of F4L
Supermarkets (the "Old F4L Senior Subordinated Notes") (collectively, the "F4L
Exchange Offers," and together with the RGC Exchange Offers, the "Exchange
Offers"), as well as the Change of Control Offer (as defined below) and accrued
interest on all exchanged debt securities in the amount of $27.8 million, (ii)
to pay $17.8 million to the holders of the RGC Equity Appreciation Rights,
(iii) to loan $5.0 million to an affiliate for the benefit of such holders,
(iv) to pay approximately $93.3 million of fees and expenses of the Merger and
the related financing, and (v) to pay $3.5 million to purchase shares of
common stock of Holdings from certain dissenting shareholders. In addition,
Holdings issued $22.5 million of its New Discount Debentures in consideration
for certain Merger-related services. The Company assumed certain existing
indebtedness of F4L Supermarkets and RGC in connection with the Exchange
Offers, pursuant to which (i) holders of the Old RGC Notes exchanged
approximately $424.0 million aggregate principal amount of Old RGC Notes for an
equal principal amount of New RGC Notes, (ii) holders of the Old F4L Senior
Notes exchanged approximately $170.3 million aggregate principal amount of Old
F4L Senior Notes for an equal principal amount of New F4L Senior Notes, and
(iii) holders of the Old F4L Senior Subordinated Notes exchanged approximately
$140.2 million aggregate principal amount of Old F4L Senior Subordinated Notes
for an equal principal amount of new 13.75% Senior Subordinated Notes due 2005.
In addition, pursuant to the terms of the indentures governing the Old RGC
Notes, the consummation of the Merger required the Company to make an offer to
purchase all of the outstanding Old RGC Notes that were not exchanged in the
RGC Offers (the "Change of Control Offer"). The Change of Control Offer
resulted in the purchase of an additional $1.1 million of outstanding Old RGC
Notes.
At January 28, 1996, there were borrowings of $127.4 million under
the New Revolving Facility and $92.7 million of standby letters of credit
had been issued. Under the terms of the New Credit Facility, the Company was
required to repay $1.6 million of the New Term Loans in fiscal 1995. The New
Term Loans require quarterly amortization payments aggregating $19.3 million in
fiscal year 1996, $46.0 million in fiscal year 1997 and increasing thereafter.
The level of borrowings under the Company's New Revolving Facility is
dependent upon cash flows from operations, the
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timing of disbursements, seasonal requirements and capital expenditure
activity. The Company is required to reduce loans outstanding under the
New Revolving Facility to $150.0 million for a period of not less than 30
consecutive days during the period between the first day of the fourth fiscal
quarter of 1996 and the last day of the first fiscal quarter of 1997. At
April 19, 1996, the Company had $110.7 million available for borrowing under
the New Revolving Facility.
On October 11, 1995, the Company entered into an interest rate collar
which effectively set interest rate limits on $300 million of the Company's
bank term debt. This interest rate collar, which was effective as of October
19, 1995, limits the interest rate payable on $300 million of outstanding debt
under the New Credit Facility to a range of 4.5 percent to 8.0 percent for
two years, thus satisfying the interest rate protection requirements under the
New Credit Facility.
Cash flow from operations, amounts available under the New 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 during fiscal 1996.
During fiscal year 1995, cash used by operating activities was
approximately $16.8 million as compared to cash provided by operating
activities of approximately $17.6 million for the 1995 transition period. The
decrease in cash from operating activities is due to changes in operating
assets and liabilities in fiscal year 1995 and a decrease in operating income
due primarily to 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 January 28, 1996, this resulted in a working capital deficit of
$178.5 million.
Cash used for investing activities was $405.4 million for fiscal year
1995. Investing activities consisted primarily of $303.3 million of
acquisition costs associated with the Merger and capital expenditures of $122.4
million, partially offset by $4.1 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 were made to (i) build 20 new
stores (11 of which have been completed), (ii) remodel 11 stores, (iii) convert
111 conventional format stores to the Ralphs banner in conjunction with the
Merger, and (iv) convert 13 Ralphs stores to the Food 4 Less warehouse format.
The Company also acquired three stores in Northern California during fiscal
1995. The Company currently anticipates that its aggregate capital
expenditures for fiscal 1996 will be approximately $105.0 million (or $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 April 26, 1996, the Company had approximately $18.0
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 if the Company
were to substantially reduce or postpone these programs, there would be no
substantial impact on short-term operating profitability. However, management
also believes that the construction of new stores is an important component of
its future operating strategy.
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26
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 provided by financing activities was $470.7 million for fiscal
year 1995. Financing activities consisted primarily of the following; (i)
proceeds from issuance of new debt in the amount of $950.0 million including
proceeds of $600 million under the New Credit Facility, $350 million from the
issuance of New F4L Senior Notes and $100 million from the issuance of New RGC
Notes, net of issuance costs of $100.0 million and (ii) proceeds from cash
capital contributions by Holdings of $12.1 million. These sources were
partially offset by principal payments on long-term debt of $576.7 million
including: $125.7 million to retire borrowings under the old credit agreement,
$228.9 million to extinguish the old RGC term loan; and $174.0 million to
repay certain real estate loans.
The Company is a wholly-owned subsidiary of Holdings. Holdings has
outstanding $100 million initial accreted value of New Discount Debentures and
$131.5 million 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
pay other dividends to Holdings in connection with certain employee stock
repurchases and for routine administrative expenses.
RSI and FFL had significant net operating loss carryforwards for
regular federal income tax purposes. As a result of the Merger, the Company's
ability to utilize such loss carryforwards in future periods is limited to
approximately $15.6 million per year with respect to FFL net operating loss
carryforwards and approximately $15.0 million per year with respect to RSI's
net operating loss carryforwards. 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. See "Certain Relationships and Related Transactions." The Company will
continue to be a party to an indemnification agreement with Federated
Department Stores Inc. and certain other parties. Pursuant to the terms of
such agreement, the Company made an annual tax payment of $1.0 million in 1995
and will make an annual tax payment of $1.0 million in 1996, with the final
tax payment of $5.0 million in 1997.
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27
The Company is highly leveraged. At January 28, 1996, the Company's
total long-term indebtedness (including current maturities) and stockholder's
equity were $2.1 billion and $59.1 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 New 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. There can be no assurance, however, that the Company's
business will continue to generate cash flow at or above current levels or that
future cost savings and growth can be achieved.
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 competitors' prices and adjusts
its prices and marketing strategy as management deems appropriate.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued 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) and
Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). The Company will be required to adopt SFAS 121 and
SFAS 123 in fiscal year 1996. The Company does not expect that the adoption of
SFAS 121 or SFAS 123 will have a material effect on its financial position or
its results of operations in fiscal year 1996.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements and Schedules on
page 45.
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29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the
executive officers and directors of the Company as of April 29, 1996.
Directors serve until the election and qualification of their successors.
NAME AGE POSITION
---- --- --------
Byron E. Allumbaugh . . . . . . 64 Chairman and Director
George G. Golleher . . . . . . . 48 Chief Executive Officer and Director
Alfred A. Marasca . . . . . . . 54 President, Chief Operating Officer and Director
Joe S. Burkle . . . . . . . . . 73 Chief Executive Officer - Falley's and Director
Greg Mays . . . . . . . . . . . 49 Executive Vice President - Finance & Administration and
Chief Financial Officer
Harley DeLano . . . . . . . . . 58 President - Cala Foods
Tony Schnug . . . . . . . . . . 51 Group Senior Vice President - Support Operations
Jan Charles Gray . . . . . . . . 48 Senior Vice President, General Counsel and Secretary
Robert Beyer . . . . . . . . . . 36 Director
Ronald W. Burkle . . . . . . . . 43 Director
Peter Copses . . . . . . . . . . 37 Director
Patrick L. Graham . . . . . . . 46 Director
John Kissick . . . . . . . . . . 54 Director
Mark A. Resnik . . . . . . . . . 48 Director
Byron E. Allumbaugh has been Chairman of the Board since January 1996
and a Director since June 1995. He was Chief Executive Officer from June 1995
to January 1996. He was Chairman of the Board and Chief Executive Officer of
RGC from 1976 until the Merger. He also is a Director of the Ahmanson Company,
El Paso Natural Gas Company, Automobile Club of Southern California and
Ultramar, Inc.
George G. Golleher has been Chief Executive Officer since January 1996
and a Director since June 1995. He was Vice Chairman from June 1995 to January
1996. He was a Director of F4L Supermarkets from its inception in 1989 and
was the President and Chief Operating Officer of F4L Supermarkets from January
1990 until the Merger. From 1986 through 1989, Mr. Golleher served as Senior
Vice President - Finance and Administration of The Boys Markets, Inc. Prior to
joining The Boys Markets, Inc. in 1984, Mr. Golleher served as Vice President
and Chief Financial
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Officer of Mayfair Markets, Inc. from 1983 to 1984. Mr. Golleher has served as
a Director of Dominick's Finer Foods Inc., an affiliate of The Yucaipa
Companies, since March 1995.
Alfred A. Marasca has been President, Chief Operating Officer and a
Director since June 1995. He was President and Chief Operating Officer of RGC
from February 1994 until the Merger. He was President of RGC from 1993 to
1994, Executive Vice President - Retail from 1991 to 1993, and Executive Vice
President - Marketing from 1985 to 1991.
Joe S. Burkle has been a Director since June 1995 and Chief Executive
Officer of Falley's, Inc. since 1987. He was a Director and Executive Vice
President of F4L Supermarkets from its inception in 1989 until the Merger.
Mr. Burkle began his career in the supermarket industry in 1946, and served as
President and Chief Executive Officer of Stater Bros. Markets, a Southern
California supermarket chain. Prior to 1987, Mr. Burkle was a private investor
in Southern California. Mr. Burkle is the father of Ronald W. Burkle.
Greg Mays has been Executive Vice President - Finance & Administration
and Chief Financial Officer since September 1995. He was Executive Vice
President - Finance & Administration from June 1995 to September 1995. He was
Executive Vice President - Finance & Administration and Chief Financial Officer
of F4L Supermarkets and of Holdings from December 1992 until the Merger. From
1989 to 1991, Mr. Mays was Chief Financial Officer of Almac's, Inc. and, from
1991 to December 1992, he was President and Chief Financial Officer of Almac's.
From April 1988 to June 1989, Mr. Mays was Chief Financial Officer of Food 4
Less of Modesto, Inc. and Cala Foods, Inc.
Harley DeLano has been President of Cala Foods, Inc. since 1990. Mr.
DeLano was General Manager of ABC from 1980 to 1990. He serves as a Director
of Certified Grocers.
Tony Schnug has been Group Senior Vice President - Support Operations
since January 1996. He was Senior Vice President of Manufacturing and
Construction from June 1995 to January 1996. He was Senior Vice President -
Corporate Operations of F4L Supermarkets from 1990 until the Merger. Before
joining F4L Supermarkets, he was Managing Director of SAGE, a wholly-owned
subsidiary of Ogilvy & Mather, and Vice President - Management Information
Systems of The Vons Company.
Jan Charles Gray has been Senior Vice President, General Counsel and
Secretary since June 1995. He was Senior Vice President, General Counsel and
Secretary of RGC from 1988 until the Merger. He was Senior Vice President and
General Counsel of RGC from 1985 to 1988 and Vice President and General
Counsel from 1978 to 1985.
Robert Beyer has been a Director since June 1995. He has been a Group
Managing Director of Trust Company of the West ("TCW") since 1995. Mr. Beyer
was Co-Chief Executive Officer of Crescent Capital Corporation, a registered
investment advisor, from 1991 until its acquisition by TCW in 1995. From 1986
to 1991, Mr. Beyer was a member of the investment banking department of Drexel
Burnham Lambert, Incorporated. From 1983 to 1986, Mr. Beyer was a member of
the investment banking department of Bear, Stearns & Co., Inc.
Ronald W. Burkle has been a Director since June 1995. He was Chairman
of the Board from June 1995 to January 1996. Mr. Burkle was a Director,
Chairman of the Board and Chief Executive Officer of F4L Supermarkets from its
inception in 1989 until the Merger. Mr. Burkle co- founded The Yucaipa
Companies, Inc. in 1986 and served as Director, Chairman of the Board,
President and Chief Executive Officer of FFL from 1987 and of Holdings from
1992 until the Merger, respectively.
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Mr. Burkle has been Chairman of the Board of Dominick's Finer Foods, Inc.
since March 1995 and served as Chief Executive Officer from March 1995 until
January 1996. Mr. Burkle has also served as Chairman of the Board of Smitty's
Supermarkets, Inc. since June 1994 and as a Director of Kaufman & Broad Home
Corporation, Inc. since March 1995. Mr. Burkle is the son of Joe S. Burkle.
Peter Copses has been a Director since June 1995. He has been a
Principal since 1990 of Apollo Advisors, L.P. which, together with an
affiliate, acts as managing general partner of Apollo Investment Fund, L.P.,
AIF II, L.P. and Apollo Investment Fund III, L.P., private securities
investment funds, and of Lion Advisors, L.P., which acts as financial advisor
to and representative for certain institutional investors with respect to
securities investments. Mr. Copses is a Director of Dominicks Finer Foods,
Inc., Family Restaurants, Inc., Forum Group, Inc. and Zale Corporation.
Patrick L. Graham has been a Director since June 1995. He joined The
Yucaipa Companies as a general partner in January 1993. Prior to that time, he
was a Managing Director in the Corporate Finance Department of Libra
Investments, Inc. from 1992 to 1993 and Paine Webber, Inc. from 1990 to 1992.
From 1982 to 1990, he was a Managing Director of the Corporate Finance
Department of Drexel Burnham Lambert, Inc. and an Associate Director of the
Corporate Finance Department of Bear Stearns & Co., Inc. Mr. Graham has served
as a Director of Smitty's Supermarkets, Inc. since June 1994 and of Dominick's
Finer Foods, Inc. since March 1995.
John Kissick has been a Director since June 1995. He is a principal
of Apollo Advisors, L.P. which, together with an affiliate, acts as managing
general partner of Apollo Investment Fund, L.P., AIF II, L.P. and Apollo
Investment Fund III, L.P., private securities investment funds, and of Lion
Advisors, L.P., which acts as financial advisor to and representative for
certain institutional investors with respect to securities investments. From
1990 to 1991, Mr. Kissick was a consultant with Kissick & Associates, a private
investment advisory firm. He serves as Director of Continental Graphics
Holdings, Inc., Converse, Inc., The Florsheim Shoe Company, Inc. and Furniture
Brands International, Inc.
Mark A. Resnik has been a Director since June 1995. He was a
Director, Vice President and Secretary of F4L Supermarkets from its inception
in 1989 until the Merger. He co-founded The Yucaipa Companies, Inc. in 1986
and served as a Director, Vice President and Secretary of FFL from 1987 until
the Merger. Mr. Resnik has served as a Director of Smitty's Supermarkets, Inc.
since June 1994 and of Dominick's Finer Foods, Inc. since March 1995.
The Company does not currently pay any fees or remuneration to its
directors for service on the board or any board committee, but will reimburse
directors for their ordinary out-of-pocket expenses.
Messrs. R. Burkle, Allumbaugh, Golleher, J. Burkle, Beyer, Copses,
Graham, Kissick and Resnik are directors of Holdings.
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ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
of the Chief Executive Officer and the other four most highly compensated
executive officers of the Company (the "Named Executive Officers"), whose total
salary and bonus for the 52 weeks ended January 28, 1996 exceeded $100,000 for
services rendered in all capacities to the Company and its subsidiaries for the
same time period.
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------
Transition No. of Shares
Period/Fiscal Underlying All Other
Name and Principal Position Year Ended Salary Bonus Options(6) Compensation(7)
- --------------------------- ------------- ------ ----- ------- ------------
Byron E. Allumbaugh(1) January 28, 1996 $883,333 $ 547,692 820,227 $1,848
Chairman January 29, 1995(8) $ - $ - - $ -
June 25, 1994 $ - $ - - $ -
June 26, 1993 $ - $ - - $ -
George G. Golleher(2) January 28, 1996 $503,205 $1,950,000(9) 200,000 $1,783
Chief Executive Officer January 29, 1995(8) $298,100 $ 300,000 - $3,329
June 25, 1994 $500,000 $ 500,000 - $3,937
June 26, 1993 $500,000 $ 500,000 - -
Alfred A. Marasca(3) January 28, 1996 $466,667 $ 333,846 300,000 $3,000
President and January 29, 1995(8) $ - $ - - $ -
Chief Operating Officer June 25, 1994 $ - $ - - $ -
June 26, 1993 $ - $ - - $ -
Greg Mays(4) January 28, 1996 $286,378 $ 355,000(9) - $1,783
Executive Vice President - January 29, 1995(8) $154,300 $ 85,000 - $2,687
Finance / Administration and June 25, 1994 $250,000 $ 150,000 - -
Chief Financial Officer June 26, 1993 $108,000 $ 75,000 - -
Jan Charles Gray(5) January 28, 1996 $221,667 $ 147,901 204,940 $1,198
Senior Vice President, January 29, 1995(8) $ - $ - - $ -
General June 25, 1994 $ - $ - - $ -
Counsel and Secretary June 26, 1993 $ - $ - - $ -
- --------------------------
(1) During fiscal 1995, Byron E. Allumbaugh became Chairman.
(2) During fiscal 1995, George G. Golleher became Chief Executive Officer.
(3) During fiscal 1995, Alfred A. Marasca became President and Chief
Operating Officer.
(4) During fiscal 1995, Greg Mays became Executive Vice President -
Finance & Administration and Chief Financial Officer.
(5) During fiscal 1995, Jan Charles Gray became Senior Vice President,
General Counsel and Secretary.
(6) All options shown were granted in connection with the Ralphs Merger.
Of such options, 220,227, 100,000 and 174,940 were granted to
Messrs. Allumbaugh, Marasca and Gray, respectively, in exchange for
the cancellation of certain payments to such individuals under RGC
equity appreciation rights.
(7) The amounts shown in this column represent annual payments by the
Company to the Employee Profit Sharing and Retirement Program of the
Company.
(8) F4L Supermarkets changed its fiscal year from the 52 or 53-week period
which ends on the last Saturday in June to the 52 to 53-week period
which ends on the Sunday closest to January 31, resulting in a 31-week
transition period.
(9) Includes payment of a special bonus upon change of control, in
connection with the Ralphs Merger, for George Golleher and Greg Mays
in the amount of $1,750,000 and $150,000, respectively.
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34
The following table sets forth information concerning options granted
in fiscal 1995 to each of the Named Executive Officers pursuant to Holdings'
1995 Stock Option Plan. All options are exercisable for shares of Holdings'
Common Stock.
OPTION GRANTS IN FISCAL 1995
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
----------------------------------------------------------- ---------------------------
No. of % of Total Options Exercise or
Options Granted to Employees Base Price Expiration
Granted(1)(2) in Fiscal Year ($/Sh) Date 5% ($) 10%($)
------------- -------------- ------ ---- ------ ------
Byron E. Allumbaugh 820,227 34.1% 7.32 6/14/05 7,356,572 15,270,514
George G. Golleher 200,000 8.3% 10.00 6/14/05 1,257,789 3,187,484
Alfred A. Marasca 300,000 12.5% 6.67 6/14/05 2,885,684 5,780,227
Greg Mays - - - - - -
Jan Charles Gray 189,940 7.9% 0.79 6/14/05 2,943,870 4,776,502
15,000 0.6% 10.00 6/14/05 94,334 239,061
________________________
(1) All options shown were granted in connection with the Ralphs Merger. Of
such options, 220,227, 100,000 and 174,940 were granted to Messrs.
Allumbaugh, Marasca and Gray, respectively, in exchange for the
cancellation of certain payments of such individuals under RGC equity
appreciation rights.
(2) All options are immediately exercisable except for 15,000 options held by
Mr. Gray, which vest over a five-year period commencing June 14, 1996.
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35
The following tables sets forth for each of the Named Executive Officers,
as to outstanding options at January 28, 1996, the number of unexercised
options and the aggregate unrealized appreciation on "in-the-money" unexercised
options held at such date. No options were exercised by any of the Named
Executive Officers during fiscal 1995.
1995 FISCAL YEAR END OPTION VALUES
Number of
Shares Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Fiscal Year End Fiscal Year End
Exercisable / Exercisable /
Name Unexercisable (#) Unexercisable ($)
- ------------------- ----------------- -----------------
Byron E. Allumbaugh 820,227 / 0 2,198,208 / 0
George G. Golleher 200,000 / 0 0 / 0
Alfred A. Marasca 300,000 / 0 999,000 / 0
Greg Mays - -
Jan Charles Gray 189,940 / 15,000 1,749,347 / 0
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CONSULTING AND EMPLOYMENT AGREEMENTS
The employment agreement between the Company and Byron Allumbaugh
provides for a salary of $1 million for the first year following the Merger and
$1.25 million for subsequent years. Mr. Allumbaugh is entitled to a bonus
equal to his salary in each year if certain prescribed earnings targets (the
"Earnings Targets") for the year are reached.
In connection with the consummation of the Merger, F4L Supermarkets'
board of directors authorized the payment of a special bonus to George Golleher
in a lump sum amount equal to the base salary due him under the remaining term
of his then existing employment agreement. As a condition of the payment of
such bonus, Mr. Golleher's existing employment agreement was cancelled, and he
entered into a new agreement which provides for an annual salary of $500,000
plus a bonus equal to his salary in each year if the Earnings Targets are
reached. Mr. Golleher's new employment agreement continues in effect certain
additional rights, including the right to be elected to the Company's board of
directors and the right to require the Company to repurchase certain of his
shares of New Holdings stock upon his death, disability or termination without
cause.
The employment agreement between the Company and Alfred Marasca
provides for a salary of $500,000 per annum and an annual bonus equal to his
salary if the Earnings Targets for the year are reached.
The employment agreement between the Company and Greg Mays provides
for a salary of $250,000 per annum and an annual bonus equal to 50 percent of
his salary if the Earnings Targets for the year are reached. Mr. Mays also
received a special bonus of $150,000 in fiscal 1995 upon the change of control
in connection with the Merger.
The employment agreement between the Company and Jan Charles Gray
provides for a salary of $225,000 per annum and an annual bonus equal to 50
percent of his salary if the Earnings Targets for the year are reached.
The new employment agreements described above are for a term of three
years and provide generally that the Company may terminate the agreement for
cause or upon the failure of the employee to render services to the Company for
a specified period and the employee may terminate the agreement because of
the employee's disability. In addition, the employee's services may be
suspended upon notice by the Company and in such event the employee will
continue to be compensated by the Company during the remainder of the term of
the agreement, subject to certain offsets if the employee becomes engaged in
another business.
The Company's consulting agreement with Mr. Joe Burkle provides for
compensation of $3,000 per week. Mr. Burkle provides the management and
consulting services of an executive vice president under the consulting
agreement. The agreement has a five-year term, which is automatically renewed
on January 1 of each year for a five-year term unless sixty days' notice is
given by either party; provided that if the Company terminates for reasons
other than for good cause, the payments due under the agreement continue for
the balance of the term.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not have a board committee performing the functions
of a compensation committee. Byron E. Allumbaugh, Chairman, and George G.
Golleher, Chief Executive Officer of the Company, together with Al Marasca,
President, and Greg Mays, Executive
35
37
Vice President, made decisions with regard to the Company's executive officer
compensation for fiscal 1995.
RETIREMENT PLANS
Retirement Plan. The Ralphs Grocery Company Retirement Plan (the
"Retirement Plan") is a defined benefit pension plan for salaried and hourly
nonunion employees with at least one year of credited service (1,000 hours).
the Company makes annual contributions to the Retirement Plan in such amounts
as are actuarially required to fund the benefits payable to participants in
accordance with the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
Non-Qualified Retirement Plans. To allow the Company's retirement
program to provide benefits based upon a participant's total compensation and
without regard to other ERISA or tax code pension plan limitations, eligible
executive employees of the Company participate in the Ralphs Grocery Company
Supplemental Executive Retirement Plan (the "SERP") and the Ralphs Grocery
Company Retirement Supplement Plan (the "Supplement Plan"). The SERP and
the Supplement Plan also modify the benefit formula under the Retirement Plan in
other respects. The Company has purchased split dollar life insurance policies
for participants under the SERP. Under certain circumstances, the cash
surrender value of certain split dollar life insurance policies will offset the
Company's obligations under the SERP.
The following table sets forth the combined estimated annual benefits
payable in the form of a (single) life annuity under the Retirement Plan, the
SERP and the Supplement Plan (unreduced by the cash surrender value
of any life insurance policies) to a participant in the above plans who is
retiring at a normal retirement date on January 1, 1996 for the specified final
average salaries and years of credited service.
Final Years of Credited Service
Average ----------------------------------------------------------
Salary 15 20 25 30 35
--------- -- -- -- -- --
$ 100,000 $ 19,348 $ 25,798 $ 32,347 $ 38,697 $ 45,146
200,000 41,848 55,798 69,747 83,697 97,646
300,000 90,000 120,000 150,000 180,000 180,000
400,000 120,000 160,000 200,000 240,000 240,000
600,000 180,000 240,000 300,000 360,000 360,000
800,000 240,000 320,000 400,000 480,000 480,000
1,000,000 300,000 400,000 500,000 600,000 600,000
1,040,000 312,000 416,000 520,000 624,000 624,000
Messrs. Allumbaugh, Golleher, Marasca, Mays and Gray have completed 37,
10, 7 and 32 years of credited service respectively. Compensation covered by
the SERP and Retirement Supplement Plan includes both salary and bonus. The
calculation of retirement benefits generally is based on average compensation
for the highest three years of the ten years preceding retirement. The benefits
earned by a participant under the SERP and Supplement Plan are reduced by any
benefits which the participant has earned under the Retirement Plan and may be
offset under certain circumstances by the cash surrender value of life insurance
policies maintained by the Company pursuant to the insurance agreements entered
into by the Company and the executive. Benefits are not subject to any
deduction for social security offset.
36
38
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the ownership of Common Stock and
Series A Preferred Stock and Series B Preferred Stock of Holdings by each
person who, to the knowledge of Holdings, owns 5 percent or more of Holdings'
outstanding voting stock, by each person who is a director or Named Executive
Officer of the Company, and by all executive officers and directors of the
Company as a group.
Common Series A Series B
Stock (1) (2) Preferred Stock(1) Preferred Stock(1)
---------------- ------------------ ------------------
Percentage Percentage
Number Number Number of Total of all
of of of Voting Outstanding
Beneficial Owner (3) Shares % Shares % Shares % Power Stock
-------------------- ------ ------- ------ ------- ------ ------- ----- -----
Yucaipa and affiliates:
The Yucaipa Companies (4)(5) 17,795,939 63.1% - - - - 39.6% 37.1%
Ronald W. Burkle (4)(6) 2,046,392 10.1% - - - - 5.5% 5.1%
George G. Golleher (2)(6) 462,525 2.3% - - - - 1.3% 1.2%
10000 Santa Monica Blvd.
Los Angeles, CA 90067
---------- ----- ---------- ----- --------- ------ ----- -----
Total 20,304,856 72.0% - - - - 45.2% 42.3%
Byron E. Allumbaugh (2)(7) 600,000 3.0% - - - - 1.6% 1.5%
Alfred A. Marasca (2)(7) 200,000 1.0% - - - - 0.5% 0.5%
Greg Mays (8) - - - - - - - -
Jan Charles Gray (7) - - - - - - - -
Apollo Advisors, L.P.
Apollo Advisors II, L.P. (9)
2 Manhattanville Road
Purchase, NY 10577 1,285,165 6.4% 10,733,244 64.3% - - 32.7% 30.2%
BT Investment Partners, Inc.(10)
130 Liberty Street
New York, NY 10006 509,812 2.5% 900,000 5.4% 3,100,000 100.0% 3.8% 11.3%
Other 1995 equity investors
as a group (11) 40,172 0.2% 5,000,000 30.0% - - 13.7% 12.6%
All directors and executive
officers as a group
(14 persons) (2)(4)(5)(6)(7) 21,104,856 74.8% - - - - 47.0% 44.0%
_____________________________
(1) Gives effect to the assumed exercise of outstanding warrants, held by
certain institutional investors, to acquire 2,008,874 shares of
Holdings common stock.
(2) Gives effect to the exercise of options held by Byron E. Allumbaugh,
George G. Golleher and Alfred A. Marasca under a management stock
option plan, covering 600,000, 200,000 and 200,000 shares,
respectively. Does not give effect to the exercise of additional
options to purchase up to 2,000,00 shares of Holdings common stock
which have been or may be granted under such stock option plan.
(3) Except as otherwise indicated, each beneficial owner has the sole
power to vote, as applicable, and to dispose of all shares of Common
Stock or Series A Preferred Stock or Series B Preferred Stock owned by
such beneficial owner.
(4) Represents shares owned by The Yucaipa Companies, F4L Equity Partners,
L.P., FFL Partners, Yucaipa Capital Fund, Yucaipa F4L, LLC and
Yucaipa/F4L Partners. These entities are affiliated partnerships
which are controlled, directly or indirectly, by Ronald W. Burkle.
The foregoing entities are parties to a stockholders agreement with
other Holdings investors which gives to Yucaipa the right to elect a
majority of the directors of Holdings.
(5) Share amount and percentages shown for Yucaipa include a warrant to
purchase 8,000,000 shares of Holdings Common Stock held by Yucaipa.
Such warrant will become exercisable only upon the occurrence of an
initial public offering or certain sale transactions involving
Holdings.
(6) Certain management stockholders who own in the aggregate 431,096
shares of Common Stock have entered into a Stockholder Voting
Agreement and Proxy pursuant to which Ronald W. Burkle, George G.
Golleher and Yucaipa Capital Advisors, Inc. have
37
39
sole voting control over the shares currently owned by such management
stockholders until June 14, 2005. The 431,096 shares have been
included, solely for purposes of the above table, in the share amounts
shown for Mr. Burkle but not for Mr. Golleher. Neither Messrs. Burkle
and Golleher nor Yucaipa Capital Advisors, Inc. have the power to
dispose of, or any other form of investment power with respect to such
shares. Messrs. Burkle and Golleher have sole voting and investment
power with respect to 1,194,066 and 462,525 shares of Common Stock
they respectively own (including in the case of Mr. Golleher, 200,000
shares issuable upon the exercise of options).
(7) Does not include additional options to purchase 220,227 shares,
100,000 shares and 174,940 shares of Holdings Common Stock held by
Messrs. Allumbaugh, Marasca and Gray, respectively, which options
were issued at the time of the Ralphs Merger in exchange for the
cancellation of certain payments due to such individuals under RGC
equity appreciation rights.
(8) Mr. Mays owns 8,890 of the 431,096 shares of Common Stock which are
subject to the Stockholder Voting Agreement and Proxy described in
note (6) above.
(9) Represents shares owned by one or more entities managed by or
affiliated with Apollo Advisors, L.P. or Apollo Advisors II, L.P.
(collectively, "Apollo"), together with certain affiliates or
designees of Apollo.
(10) Represents shares owned by BT Investment Partners, Inc. ("BTIP"),
Bankers Trust New York Corporation and BT Securities Corporation.
Bankers Trust New York Corporation and BT Securities Corporation are
affiliated with BTIP. BTIP expressly disclaims beneficial ownership
of all shares owned by Bankers Trust New York Corporation and BT
Securities Corporation.
(11) Includes certain institutional investors, other than Apollo and BTIP,
which purchased Series A Preferred Stock of Holdings in connection
with the Ralphs Merger. Pursuant to the 1995 Stockholders Agreement,
certain corporate actions by Holdings and its subsidiaries require the
consent of the directors whom the 1995 equity investors, including
Apollo and BTIP, are entitled to elect to the Holdings Board of
Directors. Such investors do not affirm the existence of a "group"
within the meaning of Rule 13d-5 under the Exchange Act, and expressly
disclaim beneficial ownership of all Holdings shares except for those
shares held of record by each such investor or its nominees.
38
40
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is a party to a consulting agreement with Yucaipa which
provides for certain management and financial services to be performed by
Yucaipa for the benefit of the Company and its subsidiaries. The services of
Messrs. R. Burkle, Graham and Resnik, acting in their capacities as directors,
and the services of other Yucaipa personnel are provided to the Company
pursuant to this agreement. See "Item 10 -- Directors and Executive Officers
of the Registrant." Messrs. R. Burkle, Graham and Resnik are partners of
Yucaipa. The consulting agreement provides for an annual management fee
payable by the Company to Yucaipa in the amount of $4 million. In addition,
the Company may retain Yucaipa in an advisory capacity in connection with
acquisition or sale transactions, in which case the Company will pay Yucaipa an
advisory fee, except that the retention of Yucaipa in connection with a sale of
the entire Company would require approval by a majority of the disinterested
directors. The agreement has a five-year term, which is automatically renewed
on each anniversary of the Merger for a five- year term unless ninety days'
notice is given by either party. The agreement may be terminated at any time
by the Company, provided that Yucaipa will be entitled to full monthly payments
under the agreement for the remaining term thereof, unless the Company
terminates for cause pursuant to the terms of the agreement. Yucaipa may
terminate the agreement if the Company fails to make a payment due thereunder,
or if there occurs a change of control (as defined in the agreement) of the
Company, and upon any such termination Yucaipa will be entitled to full monthly
payments for the remaining term of the agreement. Pursuant to the agreement,
Yucaipa earned a total of $3.6 million in management fees for fiscal 1995.
Pursuant to the Yucaipa consulting agreement, upon closing of the RSI
Merger, Yucaipa received an advisory fee from Ralphs in the amount of $21.5
million, which was paid in cash and New Discount Debentures, plus
reimbursement of expenses in connection with the RSI Merger and the related
transactions. Upon closing of the RSI Merger, Yucaipa paid a cash fee of
approximately $3.5 million to Soros Fund Management in consideration for
advisory services which Soros Fund Management has rendered since 1991.
Additionally, upon closing of the RSI Merger, Yucaipa received a warrant to
purchase 8,000,000 shares of Holdings common stock exercisable under certain
conditions. In consideration for its commitment to purchase preferred stock as
part of the New Equity Investment, Apollo received a fee of $5 million from
Holdings upon closing of the RSI Merger, which fee was paid in cash and notes.
In connection with the execution of the definitive Agreement and Plan
of Merger ("the Merger Agreement") between F4L Supermarkets, Holdings, FFL and
RSI, Yucaipa entered into the Put Agreement with the majority stockholder of
RSI, pursuant to which such RSI stockholder was entitled to put up to $10
million aggregate principal amount of 13-5/8% Senior Subordinated Pay-in-Kind
Debentures due 2007 (the "Seller Debentures"), issued as part of the
consideration for the RSI Merger, to Yucaipa on the closing date of the Merger.
The Yucaipa consulting agreement provided that the Company reimburse
Yucaipa for any loss and expenses incurred by Yucaipa upon the resale of such
Seller Debentures to any unaffiliated third party. Pursuant to such agreement,
the Company reimbursed an affiliate of Yucaipa the amount of $3.5 million upon
the closing of the Merger.
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
39
41
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.
As part of the financing for the RSI Merger, New Holdings issued
$100 million initial accreted value of 13-5/8% Senior Discount Debentures due
2005 (the "New Discount Debentures"), which was acquired by a partnership
comprised of an affiliate of Yucaipa and certain other investors. The $17.5
million initial accreted value of New Discount Debentures contributed to the
partnership by the Yucaipa affiliate consists of New Discount Debentures
issued in partial payment of the Yucaipa consulting fee due upon closing of the
RSI Merger, as described above. New Holdings granted to the partnership
certain registration rights with respect to the New Discount Debentures, and
paid substantially all expenses of the partnership in connection with the
resale of the New Discount Debentures, including underwriting discounts and
brokers' commissions (subject to certain limitations).
On October 20, 1995, the holder of the New Senior Discount Debentures
sold all of such New Discount Debentures at a price equal to 77 percent of the
accreted value thereof. The sale of the New Discount Debentures was effected
by BT Securities Corporation ("BT Securities"). BT Securities received a fee
in the amount of 2 percent ($2.1 million) of the aggregate accreted value of
the New Discount Debentures. Holdings reimbursed the selling holder for such
fee and other expenses of the sale as contemplated by a registration rights
agreement executed concurrently with the consummation of the Merger.
A contribution of $5 million was made to the partnership that
purchased and subsequently sold the New Discount Debentures, by an affiliate
of the Company. This affiliate borrowed the $5 million from the Company to
fund its contribution to the partnership. Holders of RGC equity appreciation
rights ("EARs"), including Messrs. Allumbaugh, Marasca and Gray, agreed to
defer the receipt of $5 million cash otherwise payable by RGC upon settlement
of the EARs at the time of the Merger, pending repayment of the $5 million loan
made by the Company as described above. When the New Discount Debentures were
resold by the partnership, and the proceeds from such resale distributed to the
partners, all of the approximately $2.1 million in total proceeds received by
the affiliate were applied to repayment of the loan, and the portion of the loan
not repaid was forgiven by the Company and the EAR holders.
Management believes that the terms of the transactions described above
are or were fair to the Company and are or were on terms at least as favorable
to the Company as those which could be obtained from unaffiliated parties
(assuming that such transactions could be effected with such parties).
40
42
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 45 hereof.
(b) Reports on Form 8-K
None.
(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.
41
43
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/ Jan Charles Gray
Jan Charles Gray
Senior Vice President, General Counsel
and Secretary
Date: April 29, 1996
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/ Byron E. Allumbaugh Chairman and Director April 29, 1996
---------------------------------
Byron E. Allumbaugh
/s/ George G. Golleher Chief Executive Officer and Director April 29, 1996
---------------------------------
George G. Golleher
/s/ Alfred A. Marasca President, Chief Operating Officer and Director April 29, 1996
---------------------------------
Alfred A. Marasca
Chief Executive Officer - Falley's and Director April 29, 1996
---------------------------------
Joe S. Burkle
/s/ Greg Mays Executive Vice President - Finance and April 29, 1996
--------------------------------- Administration and Chief Financial Officer
Greg Mays
/s/ Jan Charles Gray Senior Vice President, General Counsel and April 29, 1996
--------------------------------- Secretary
Jan Charles Gray
/s/ Robert Beyer Director April 29, 1996
---------------------------------
Robert Beyer
/s/ Ronald W. Burkle Director April 29, 1996
---------------------------------
Ronald W. Burkle
42
44
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Peter Copses Director April 29, 1996
---------------------------------
Peter Copses
/s/ Patrick Graham Director April 29, 1996
---------------------------------
Patrick Graham
/s/ John Kissick Director April 29, 1996
---------------------------------
John Kissick
/s/ Mark A. Resnik Director April 29, 1996
---------------------------------
Mark A. Resnik
43
45
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.
44
46
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULES
Page
----
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Consolidated balance sheets as of June 25, 1994, January 29, 1995 and January 28, 1996 . . .
47
Consolidated statements of operations for the 52 weeks ended June 26, 1993 and June 25,
1994, the 31 weeks ended January 29, 1995 and the 52 weeks ended January 28, 1996 . . . . .
49
Consolidated statements of cash flows for the 52 weeks ended June 26, 1993 and June 25,
1994, the 31 weeks ended January 29, 1995 and the 52 weeks ended January 28, 1996. . . . . .
50
Consolidated statements of stockholder's equity for the 52 weeks ended
June 26, 1993 and June 25, 1994, the 31 weeks ended January 29, 1995,
and the 52 weeks ended January 28, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Notes to consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . . 53
Financial Statement Schedule
- ----------------------------
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . 77
II Valuation and qualifying accounts . . . . . . . . . . . . . . . . . . . . . . . . . 78
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.
45
47
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 June 25, 1994, January 29,
1995 and January 28, 1996, and the related consolidated statements of
operations, stockholder's equity and cash flows for the 52 weeks ended June
26, 1993 and June 25, 1994, the 31 weeks ended January 29, 1995, 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Ralphs Grocery Company and subsidiaries as of June 25, 1994, January 29, 1995
and January 28, 1996, and the results of their operations and their cash flows
for the 52 weeks ended June 26, 1993 and June 25, 1994, the 31 weeks ended
January 29, 1995, and the 52 weeks ended January 28, 1996 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
April 19, 1996
46
48
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
As of
----------------------------------------------
June 25, January 29, January 28,
1994 1995 1996
------------ ---------- ------------
CURRENT ASSETS:
Cash and cash equivalents $ 32,996 $ 19,560 $ 67,983
Trade receivables, less allowances of $1,386,
$1,192 and $1,954 at June 25, 1994, January 29, 1995
and January 28, 1996, respectively 25,039 23,377 60,948
Notes and other receivables 1,312 3,985 6,452
Inventories 212,892 224,686 502,669
Patronage receivables from suppliers 2,875 5,173 4,557
Prepaid expenses and other 6,323 13,051 34,855
--------- ---------- ----------
Total current assets 281,437 289,832 677,464
INVESTMENTS IN AND NOTES RECEIVABLE
FROM SUPPLIER COOPERATIVES:
Associated Wholesale Grocers 6,718 6,718 7,288
Certified Grocers of California & Other 5,984 5,686 4,926
PROPERTY AND EQUIPMENT:
Land 23,488 23,488 183,125
Buildings 12,827 24,172 196,551
Leasehold improvements 97,673 110,020 251,856
Equipment and fixtures 180,508 190,016 441,760
Construction in progress 12,641 8,042 61,296
Leased property under capital leases 78,222 82,526 189,061
Leasehold interests 93,464 96,556 114,475
--------- ---------- ---------
498,823 534,820 1,438,124
Less: Accumulated depreciation and amortization 134,089 154,382 226,451
-------- --------- ----------
Net property and equipment 364,734 380,438 1,211,673
OTHER ASSETS:
Deferred financing costs, less accumulated amortization of
$17,083, $20,496 and $6,964 at June 25, 1994,
January 29, 1995 and January 28, 1996, respectively 28,536 25,469 94,100
Goodwill, less accumulated amortization of $33,945,
$38,560 and $60,407 at June 25, 1994, January 29, 1995
and January 28, 1996, respectively 267,884 263,112 1,173,445
Other, net 24,787 29,440 19,233
--------- ---------- ----------
$ 980,080 $1,000,695 $3,188,129
========= ========== ==========
The accompanying notes are an integral part of these consolidated balance
sheets.
47
49
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
LIABILITIES AND STOCKHOLDER'S EQUITY
As of
--------------------------------------------
June 25, January 29, January 28,
1994 1995 1996
---------- -------- ----------
CURRENT LIABILITIES:
Accounts payable $180,708 $ 190,455 $ 385,500
Accrued payroll and related liabilities 42,805 42,007 94,011
Accrued interest 5,474 10,730 23,870
Other accrued liabilities 53,910 65,279 276,162
Income taxes payable 2,000 293 596
Current portion of self-insurance liabilities 29,492 28,616 21,785
Current portion of senior debt 18,314 22,263 31,735
Current portion of obligations under capital leases 3,616 4,965 22,261
--------- ---------- -----------
Total current liabilities 336,319 364,608 855,920
SENIOR DEBT, net of current portion 310,944 320,901 1,226,302
OBLIGATIONS UNDER CAPITAL LEASES 39,998 40,675 130,784
SENIOR SUBORDINATED DEBT 145,000 145,000 671,222
DEFERRED INCOME TAXES 14,740 17,534 17,988
SELF-INSURANCE LIABILITIES 52,212 44,123 127,200
LEASE VALUATION RESERVE - - 25,182
OTHER NON-CURRENT LIABILITIES 11,846 10,051 74,412
COMMITMENTS AND CONTINGENCIES - - -
STOCKHOLDER'S EQUITY:
Cumulative convertible preferred stock, $.01 par value,
200,000 shares authorized and 50,000 shares issued
at June 25, 1994 and January 29, 1995 (aggregate liquidation
value of $62.2 million and $67.9 million at June 25, 1994 and
January 29, 1995) and no shares authorized or issued at January 28, 1996 58,997 65,136 -
Common stock, $.01 par value, 5,000,000 shares authorized:
1,519,632 shares, 1,519,632 shares and 1,513,938 shares issued at
June 25, 1994, January 29, 1995 and January 28, 1996, respectively 15 15 15
Additional capital 107,650 107,650 466,783
Notes receivable from stockholders of parent (586) (702) (602)
Retained deficit (94,586) (112,225) (407,077)
-------- ---------- ----------
71,490 59,874 59,119
Treasury stock: 16,732 shares, 12,345 shares, and no shares
of common stock at June 25, 1994, January 29, 1995 and
January 28, 1996, respectively (2,469) (2,071) -
-------- ---------- ----------
Total stockholder's equity 69,021 57,803 59,119
-------- ---------- ----------
$980,080 $1,000,695 $3,188,129
======== ========== ==========
The accompanying notes are an integral part of these consolidated balance
sheets.
48
50
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
For the
--------------------------------------------------------------
52 Weeks 52 Weeks 31 Weeks 52 Weeks
Ended Ended Ended Ended
June 26, June 25, January 29, January 28,
1993 1994 1995 1996
-------- -------- ---------- ------------
SALES $2,742,027 $2,585,160 $1,556,522 $4,335,109
COST OF SALES (including purchases from
related parties of $204,028, $175,929,
$104,407 and $141,432 for the 52 weeks ended
June 26, 1993 and June 25, 1994, the 31 weeks
ended January 29, 1995, and the 52 weeks ended
January 28, 1996, respectively) 2,257,835 2,115,842 1,294,147 3,485,993
---------- ---------- ---------- ----------
GROSS PROFIT 484,192 469,318 262,375 849,116
SELLING, GENERAL, ADMINISTRATIVE AND
OTHER, NET 434,908 388,836 222,359 785,576
AMORTIZATION OF GOODWILL 7,571 7,691 4,615 21,847
RESTRUCTURING CHARGE - - 5,134 123,083
---------- ---------- ---------- ----------
OPERATING INCOME (LOSS) 41,713 72,791 30,267 (81,390)
INTEREST EXPENSE:
Interest expense, excluding amortization of
deferred financing costs 64,831 62,778 38,809 170,581
Amortization of deferred financing costs 4,901 5,472 3,413 8,193
---------- ---------- ---------- ----------
69,732 68,250 42,222 178,774
LOSS (GAIN) ON DISPOSAL OF ASSETS (2,083) 37 (455) (547)
PROVISION FOR EARTHQUAKE LOSSES - 4,504 - -
---------- ---------- ---------- ----------
LOSS BEFORE PROVISION FOR
INCOME TAXES AND EXTRAORDINARY CHARGE (25,936) - (11,500) (259,617)
PROVISION FOR INCOME TAXES 1,427 2,700 - 500
---------- ---------- ---------- ----------
LOSS BEFORE EXTRAORDINARY CHARGE (27,363) (2,700) (11,500) (260,117)
EXTRAORDINARY CHARGE - - - 23,128
---------- ----------- ---------- ----------
NET LOSS $ (27,363) $ (2,700) $ (11,500) $ (283,245)
========== ========== ========== ==========
PREFERRED STOCK ACCRETION 3,882 8,767 6,139 3,960
LOSS APPLICABLE TO COMMON SHARES $ (31,245) $ (11,467) $ (17,639) $ (287,205)
========== ========== ========== ==========
LOSS PER COMMON SHARE:
Loss before extraordinary charge $ (21.52) $ (7.63) $ (11.72) $ (174.72)
Extraordinary charge - - - (15.30)
---------- ---------- ---------- ----------
Net loss $ (21.52) $ (7.63) $ (11.72) $ (190.02)
========== ========== ========== ==========
Average Number of Common Shares Outstanding 1,452,184 1,503,828 1,504,425 1,511,453
========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated statements.
49
51
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
For the
----------------------------------------------------------------
52 Weeks 52 Weeks 31 Weeks 52 Weeks
Ended Ended Ended Ended
June 26, June 25, January 29, January 28,
1993 1994 1995 1996
-------- -------- ---------- ----------
CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Cash received from customers $2,742,027 $2,585,160 $1,556,522 $4,335,109
Cash paid to suppliers and employees (2,711,779) (2,441,353) (1,507,523) (4,197,875)
Interest paid (58,807) (56,762) (33,553) (157,441)
Income taxes refunded (paid) 2,971 (247) 1,087 256
Interest received 993 903 867 2,562
Other, net 8,093 121 221 547
---------- ---------- ---------- ----------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (16,502) 87,822 17,621 (16,842)
CASH PROVIDED (USED) BY INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 15,685 11,953 7,199 21,373
Payment for purchase of property and equipment (53,467) (57,471) (49,023) (122,355)
Payment of acquisition costs, net of cash acquired - (11,050) - (303,301)
Other, net (18) 813 (797) (1,120)
----------- ---------- ---------- ----------
NET CASH USED BY INVESTING ACTIVITIES (37,800) (55,755) (42,621) (405,403)
CASH PROVIDED (USED) BY
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 26,557 28 - 1,050,000
Net increase (decrease) in revolving loan 4,900 (4,900) 27,300 100,100
Payments of long-term debt (14,319) (14,224) (13,394) (576,727)
Proceeds from issuance of preferred stock 46,348 - - -
Proceeds from issuance of common stock, net 3,652 - 269 -
Purchase of treasury stock, net (545) (1,192) (57) -
Payments of capital lease obligation (2,840) (3,693) (2,278) (15,314)
Capital contribution from parent - - - 12,108
Dividends - - - (7,647)
Deferred financing costs and other, net (8,839) (179) (276) (91,852)
---------- ---------- ---------- ----------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 54,914 (24,160) 11,564 470,668
---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 612 7,907 (13,436) 48,423
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 24,477 25,089 32,996 19,560
---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 25,089 $ 32,996 $ 19,560 $ 67,983
========== ========== ========== ==========
50
52
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
For the
-------------------------------------------------------------
52 Weeks 52 Weeks 31 Weeks 52 Weeks
Ended Ended Ended Ended
June 26, June 25, January 29, January 28,
1993 1994 1995 1996
-------- -------- ---------- ------------
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net loss $(27,363) $ (2,700) $(11,500) $ (283,245)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 62,541 62,555 40,036 133,522
Restructuring charge - - 5,134 123,083
Extraordinary charge - - - 23,128
Loss (gain) on sale of assets (4,613) 65 (455) (547)
Change in assets and liabilities,
net of effects from acquisition of businesses:
Accounts and notes receivable 17,145 (3,220) (3,398) (74)
Inventories 17,697 (17,125) (11,794) 762
Prepaid expenses and other (5,956) (5,717) (11,239) (18,291)
Accounts payable and accrued liabilities (83,286) 55,301 18,715 3,327
Self-insurance liabilities 2,935 (3,790) (8,965) 737
Deferred income taxes 4,004 2,506 2,794 454
Income taxes payable 394 (53) (1,707) 302
-------- -------- -------- ----------
Total adjustments 10,861 90,522 29,121 266,403
-------- -------- -------- ----------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES $(16,502) $ 87,822 $ 17,621 $ (16,842)
======== ======== ======== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Purchase of property and equipment
through issuance of capital lease obligation $ - $ 2,575 $ 4,304 $ 24,008
======== ======== ======== ==========
Reduction of goodwill and deferred income taxes $ - $ 9,896 $ - $ -
======== ======== ======== ==========
Acquisition of stores in fiscal year 1994 and
RSI in fiscal year 1995:
Fair value of assets acquired, including
goodwill, net of cash acquired of $32,595
in fiscal year 1995 $ - $ 11,241 $ - $2,098,220
Net cash paid in acquisition - (11,050) - (303,301)
Capital contribution from parent - - - (262,000)
-------- -------- -------- ----------
Liabilities assumed $ - $ 191 $ - $1,532,919
======== ======== ======== ==========
Accretion of preferred stock $ 3,882 $ 8,767 $ 6,139 $ 3,960
======== ======== ======== ==========
The accompanying notes are an integral part of these consolidated statements.
51
53
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 JUNE 27, 1992 - $ - 1,398,514 $ 14 (3,637) $ (429)
Net loss - - - - - -
Issuance of Common Stock - - 121,118 1 - -
Purchase of Treasury Stock - - - - (9,612) (770)
Issuance of Cumulative Convertible
Preferred Stock 50,000 46,348 - - - -
Accretion of Preferred Stock - 3,882 - - - -
-------- ------ --------- -------- --------- --------
BALANCES AT JUNE 26, 1993 50,000 50,230 1,519,632 15 (13,249) (1,199)
Net loss - - - - - -
Purchase of Treasury Stock - - - - (3,483) (1,270)
Payments of Stockholders' Notes - - - - - -
Accretion of Preferred Stock - 8,767 - - - -
-------- ------ --------- -------- -------- -------
BALANCES AT JUNE 25, 1994 50,000 58,997 1,519,632 15 (16,732) (2,469)
Net loss - - - - - -
Issuance of Treasury Stock - - - - 5,504 460
Purchase of Treasury Stock - - - - (1,117) (62)
Payments of Stockholders' Notes - - - - - -
Accretion of Preferred Stock - 6,139 - - - -
-------- ------ --------- -------- -------- -------
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 - $ -
========== ======= ========= ====== ========== =========
Stock- Add'l Stock-
holders' Paid-In Retained holders'
Notes Capital Deficit Equity
------- --------- --------- ---------
BALANCES AT JUNE 27, 1992 $ (939) $ 103,999 $ (51,874) $ 50,771
Net loss - - (27,363) (27,363)
Issuance of Common Stock - 3,651 - 3,652
Purchase of Treasury Stock 225 - - (545)
Issuance of Cumulative Convertible
Preferred Stock - - - 46,348
Accretion of Preferred Stock - - (3,882) -
------- --------- --------- ---------
BALANCES AT JUNE 26, 1993 (714) 107,650 (83,119) 72,863
Net loss - - (2,700) (2,700)
Purchase of Treasury Stock 78 - - (1,192)
Payments of Stockholders' Notes 50 - - 50
Accretion of Preferred Stock - - (8,767) -
------- --------- --------- ---------
BALANCES AT JUNE 25, 1994 (586) 107,650 (94,586) 69,021
Net loss - - (11,500) (11,500)
Issuance of Treasury Stock (191) - - 269
Purchase of Treasury Stock 5 - - (57)
Payments of Stockholders' Notes 70 - - 70
Accretion of Preferred Stock - - (6,139) -
------- --------- --------- ---------
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
======= ========= ========= =========
The accompanying notes are an integral part of these consolidated statements.
52
54
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.
Ralphs Merger
On June 14, 1995, F4L Supermarkets, Food 4 Less Holdings,
Inc., a California corporation ("Old Holdings"), and Food 4 Less, Inc.
("FFL") (which owned a majority of the stock of Old Holdings)
completed a definitive agreement and plan of merger (the "Merger
Agreement") with Ralphs Supermarkets, Inc. ("RSI") and the
stockholders of RSI. Pursuant to the terms of the Merger Agreement,
as amended, the Company was merged with and into RSI (the "RSI
Merger"). Immediately following the RSI Merger, pre-Merger Ralphs
Grocery Company ("RGC"), which was a wholly-owned subsidiary of RSI,
merged with and into RSI (the "RGC Merger," and together with the RSI
Merger, the "Merger"), and RSI changed its name to Ralphs Grocery
Company (the "Company"). Prior to the Merger, FFL merged with and
into Old Holdings, which was the surviving corporation (the "FFL
Merger"). Immediately following the FFL Merger, Old Holdings changed
its jurisdiction of incorporation by merging into a newly-formed,
wholly-owned subsidiary ("Holdings"), incorporated in Delaware (the
"Reincorporation Merger"). As a result of the Merger, the FFL Merger
and the Reincorporation Merger, the Company became a wholly-owned
subsidiary of Holdings.
The purchase price for the outstanding capital stock of RSI
was $538.1 million; the Company paid $288.1 million in cash, Holdings
paid $100.0 million in cash, and Holdings issued $131.5 million of its
Seller Debentures and $18.5 million of its New Discount Debentures as
consideration for the purchase. The Company also paid fees associated
with the acquisition of $47.8 million (including a prepayment premium
on outstanding mortgage debt of RGC of $19.7 million), which was
offset by RGC's cash on hand at the Merger date of $32.6 million.
The proceeds from the New Credit Facility, the New F4L Senior
Notes and the New RGC Notes (all as defined below) provided the
sources of financingrequired to pay the Company'sportion of the
purchase price andto repay outstanding bank debt of F4L Supermarkets
and RGC of $176.5 million and $228.9 million, respectively, and to
repay existing mortgage debt of $174.0 million of RGC. In addition,
the Company exchanged certain of its newly issued senior notes and
senior subordinated notes for outstanding indebtedness of RGC and F4L
Supermarkets. Proceeds from the New Credit Facility also were used to
pay certain exchange and consent solicitation fees associated with the
above
53
55
transactions, and to pay accrued interest on all exchanged debt
securities in the amount of $27.8 million, to pay $17.8 million to the
holders of the RGC Equity Appreciation Rights and to loan $5.0 million
to an affiliate for the benefit of such holders, to pay approximately
$93.3 million of fees and expenses of the Merger and the related
financing and to pay $3.5 million to purchase shares of common stock
of Old Holdings from certain dissenting shareholders. In addition,
Holdings issued $22.5 million of its New Discount Debentures in
consideration for certain Merger-related services.
In connection with the closure of two former RGC warehouse
facilities and nine former RGC stores (including three stores which
were part of an antitrust settlement agreement with the State of
California), the Company recorded a reserve of $24.9 million in the
purchase price allocation. This reserve includes lease termination
costs, write-off of the property and equipment at these locations and
closure costs. These closures are expected to be completed by June
1996. Also, a reserve of $12.0 million was recorded for
administrative cost reductions mainly associated with duplicative
personnel.
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 completed on January 31, 1994 (dollars in thousands, except per
share amounts):
For the
-------------------------------------------------
52 Weeks 52 Weeks
Ended Ended
January 29, January 28,
1995 1996
-------------- -------------
Sales $5,301,411 $5,360,800
Restructuring charge (128,217) -
Loss before extraordinary charge (228,624) (93,244)
Net loss (251,752) (93,244)
Loss per share:
Loss before extraordinary charge (151.01) (61.59)
Net loss (166.29) (61.59)
Incremental costs of $74.8 million associated with the
integration of RGC into the Company, including advertising the
conversion of F4L Supermarkets stores to the Ralphs format, combining
the F4L Supermarkets and RGC warehousing and distribution functions
and markdowns recorded at converted stores and stores closed, were
recorded in the actual statement of operations for fiscal year 1995
and are recorded in the pro-forma 52 weeks ended January 29, 1995
only. The unaudited pro forma results of operations are not
necessarily indicative of the actual results of operations that would
have occurred had the purchases actually been made on January 31,
1994, or of the results which may occur in the future.
The accompanying consolidated financial statements include the
preliminary allocation of the RGC purchase price. Certain appraisals
and other analyses needed to determine the fair market value of RGC's
net assets as of the Merger date are not yet completed. The final
purchase price allocation will be completed by June 1996.
On March 29, 1994, the Company purchased certain operating
assets formerly owned by Food Barn Stores, Inc. (the "Food Barn
Stores") from Associated Wholesale Grocers, Inc. ("AWG") (the "Food
Barn Acquisition") for $11.2 million. The effect of the
54
56
acquisition was not material to the Company's financial position and
results of operations. Falley's has agreed to purchase merchandise
(as defined) for the Food Barn Stores from AWG through March 24,
2001. Falley's has pledged its patronage dividends and notes
receivable from AWG as security under this supply agreement.
On June 17, 1991, the Company acquired all of the common stock
of Alpha Beta for $270.5 million in a transaction accounted for as a
purchase.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. The
results of operations of pre-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.
Fiscal Years
F4L Supermarkets, together with its subsidiaries, changed its
fiscal year end from the 52 or 53-week period which ends on the last
Saturday in June to the 52 or 53-week period which ends on the Sunday
closest to January 31, resulting in a 31-week transition period ended
January 29, 1995. As a result of the fiscal year end change, the
52-week period ended June 26, 1993 is referred to as fiscal year
1993, the 52-week period ended June 25, 1994 is referred to as fiscal
year 1994, the 31-week period ended January 29, 1995 is referred to
as the 1995 transition period and the 52-week period ended January
28, 1996 is referred to as fiscal year 1995. In addition,
information presented below concerning subsequent fiscal years starts
with fiscal year 1996, which will cover the 53 weeks ended February
2, 1997 and will proceed sequentially forward.
Cash and Cash Equivalents
For purposes of the statements of cash flows, 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 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 $13.8 million, $16.5 million
and $18.7 million at June 25, 1994, January 29, 1995 and January 28,
1996, respectively, and gross profit and operating income would have
been greater by $4.4 million, $0.7 million, $2.7 million and $2.2
million for fiscal year 1993, fiscal year 1994, the 1995 transition
period and fiscal year 1995, respectively.
55
57
Pre-opening Costs
The costs associated with opening new stores are deferred and
amortized over one year following the opening of each new store.
Closed Store Reserves
When a store is closed, the Company provides a reserve for the
net book value of its property and equipment, net of salvage value,
and the net present value of the remaining lease obligation, net of
sublease income. For fiscal year 1993, fiscal year 1994, the 1995
transition period and fiscal year 1995 (which includes activity due
to the Merger), utilization of this reserve was $2.4 million, $1.1
million, $0.6 million and $23.0 million, respectively.
Investments in Supplier Cooperatives
The investment in Certified is accounted for on the cost
method. There are certain restrictions on the sale of this
investment.
Property and Equipment
Property and equipment are stated at cost and are depreciated
principally 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 3-45 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.
Goodwill
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. Current and
undiscounted future operating cash flows are compared to current and
undiscounted future goodwill amortization to determine if an
impairment of goodwill has occurred and is continuing. As of January
28, 1996, no impairment existed.
Income Taxes
On June 27, 1993, the Company prospectively adopted Statement
of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for
Income Taxes". 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 enactments of changes in the tax law
or rates.
56
58
The implementation of SFAS 109 did not have a material effect
on the accompanying consolidated financial statements.
Notes Receivable from Stockholders of Parent
Notes receivable from stockholders of parent 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 a portion of its workers'
compensation, general liability and automobile 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 over the period earned.
Provision for Earthquake Losses
On January 17, 1994, Southern California was struck by a major
earthquake which resulted in the temporary closure of 31 of the
Company's stores. The closures were caused primarily by loss of
electricity, water, or inventory, or structural damage. All but one
of the closed stores reopened within a week of the earthquake. The
final closed store reopened on March 24, 1994. The Company is insured
against earthquake losses (including business interruption), subject
to certain deductibles. The pre-tax loss, net of insurance
recoveries, was approximately $4.5 million.
Extraordinary Items
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 Merger
and the write-off of their related debt issuance costs.
Loss Per Common Share
Loss per common share is computed based on the weighted
average number of shares outstanding during the applicable period.
Fully diluted loss per share has been omitted as it is anti-dilutive
for all periods presented.
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59
Use of Estimates in Preparation of Financial Statements
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.
Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued 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) and Statement of Financial Accounting Standard
No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). The
Company will be required to adopt SFAS 121 and SFAS 123 in fiscal year
1996. The Company does not expect that the adoption of SFAS 121 or
SFAS 123 will have a material effect on its financial position or its
results of operations in fiscal year 1996.
Reclassifications
Certain prior period amounts in the consolidated financial
statements have been reclassified to conform to the fiscal year 1995
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 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 Merger, the Preferred Stock was
cancelled. The accreted amount of the Preferred Stock at the date of
the Merger was contributed to the Company's capital and is reflected
in the accompanying 1995 Consolidated Statement of Stockholder's
Equity as a component of additional paid-in capital. Also, at the
time of the Merger, Holdings repaid its borrowings under the Holdings
Notes.
58
60
4. SENIOR DEBT AND SENIOR SUBORDINATED DEBT
The Company's senior debt is summarized as follows:
As of
----------------------------------------------
June 25, January 29, January 28,
1994 1995 1996
---------- ---------- ------------
New Term Loans $ - $ - $ 590,426,000
Old Term Loan 137,064,000 125,732,000 -
10.45% Senior Notes, principal due 2004 with
interest payable semi-annually in arrears - - 520,326,000
10.45% Senior Notes, principal due 2000 with
interest payable semi-annually in arrears 175,000,000 175,000,000 4,674,000
New Revolving Facility - - 127,400,000
Old Revolving Loan - 27,300,000 -
10.0% secured promissory note, collateralized
by the stock of Bell, due June 1996, interest
payable quarterly 8,000,000 8,000,000 8,000,000
Other senior debt 9,194,000 7,132,000 7,211,000
------------ ------------ --------------
329,258,000 343,164,000 1,258,037,000
Less--current portion 18,314,000 22,263,000 31,735,000
------------ ------------ --------------
$310,944,000 $320,901,000 $1,226,302,000
============ ============ ==============
Senior Debt
As part of the Merger financing, the Company entered into a
new bank credit agreement (the "New Credit Facility") comprised of a
$600.0 million term loan facility (the "New Term Loans") and a
revolving credit facility of $325.0 million (the "New Revolving
Facility") under which working capital loans may be made and
commercial or standby letters of credit in the maximum aggregate
amount of up to $150.0 million may be issued.
At January 28, 1996, $590.4 million was outstanding under the
New Term Loans, $127.4 million was outstanding under the New Revolving
Facility, and $92.7 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 New Revolving Facility; such commitment fees are due
quarterly in arrears. Interest on borrowings under the New Term Loans
is due quarterly in arrears and is at the bank's Base Rate (as
defined) plus a margin ranging from 1.50 percent to 2.75 percent or
the Adjusted Eurodollar Rate (as defined) plus a margin ranging from
2.75 percent to 4.00 percent. At January 28, 1996, the weighted
average interest rate on the New Term Loans was 9.19 percent.
Interest on borrowings under the New Revolving Facility is at
the bank's Base Rate (as defined) plus a margin of 1.50 percent or the
Adjusted Eurodollar Rate (as defined) plus a margin of 2.75 percent;
at January 28, 1996, the interest rate on the New Revolving Facility
was 9.05 percent.
On October 11, 1995, the Company entered into an interest rate
collar agreement with the New Credit Facility Administrative Agent
which effectively set interest rate limits on $300.0 million of the
Company's New Term Loans. This interest rate collar, which was
effective as of October 19, 1995, limits the interest rate fluctuation
of the Adjusted Eurodollar Rate (as defined) to a range between 4.5
percent and 8.0 percent for two years. This agreement satisfies the
interest rate protection requirements under the New Credit Facility.
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Quarterly principal installments on the New Term Loans continue
to December 2003, with amounts payable in each year as follows: $19.3
million in fiscal 1996, $46.0 million in fiscal 1997, $58.5 million in
fiscal 1998, $62.0 million in fiscal 1999, $65.6 million in fiscal
2000, and $339.0 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 New
Revolving Facility are not paid earlier, they are due in December 2003.
The common stock of the Company and certain of its direct and indirect
subsidiaries has been pledged as security under the New Credit
Facility.
The Company issued $350.0 million of 10.45% Senior Notes due
2004 (the "New F4L Senior Notes") and exchanged $170.3 million
principal amount of New F4L Senior Notes for an equal amount of the
10.45% F4L Senior Notes due 2000 (the "Old F4L Senior Notes")
(together with the New F4L 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
New Credit Facility. Interest on the New F4L 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.
The New F4L Senior 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 2000, at a redemption price of 105.225 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 F4L Senior Notes originally issued, at a redemption
price equal to 110.450 percent, 108.957 percent, and 107.464 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 104.48 percent, declining ratably to
100 percent in fiscal year 1999.
Scheduled maturities of principal of senior debt at January
28, 1996 are as follows:
Fiscal Year
-----------
1996 $ 31,735,000
1997 46,246,000
1998 58,739,000
1999 62,280,000
2000 65,805,000
Later years 993,232,000
--------------
$1,258,037,000
=============
Senior Subordinated Debt
Concurrent with the Merger, the Company issued $100.0 million
of 11% Senior Subordinated Notes due 2005 (the "New RGC 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
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RGC Notes") for an equal amount of New RGC Notes, (ii) purchased $7.5
million principal amount of Old RGC 9% Notes and $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
New RGC 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 Senior Notes. Interest on the New RGC Notes is
payable semiannually in arrears on each June 15 and December 15.
The New RGC 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 New RGC Notes originally issued, at a
redemption price equal to 111 percent, 109.429 percent, and 107.857
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 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,
the Senior Notes and the New RGC Notes. Interest on the 13.75% Senior
Subordinated Notes is payable semiannually in arrears on each June 15
and December 15 commencing on December 15, 1995. The New F4L Senior
Subordinated Notes may be redeemed beginning in fiscal year 1996 at a
redemption price of 106.111 percent. The redemption price declines
ratably to 100 percent in fiscal year 2000.
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, to maintain a hedge agreement to
provide interest rate protection, and to comply with certain ratios
related to fixed charges and indebtedness. During fiscal 1995,
certain financial covenants and other terms of the New 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 F4L Notes, the New RGC
Notes and the New F4L 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
January 28, 1996, the Company was in compliance with the financial
covenants
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of its debt agreements. At January 28, 1996, dividends and certain
other payments are restricted based on terms in the debt agreements.
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:
For the
---------------------------------------------------------------
52 Weeks 52 Weeks 31 Weeks 52 Weeks
Ended Ended Ended Ended
June 26, June 25, January 29, January 28,
1993 1994 1995 1996
-------- -------- ---------- ----------
Minimum rents $44,504,000 $49,788,000 $33,458,000 $97,752,000
Rents based on sales 5,917,000 3,806,000 1,999,000 3,439,000
Following is a summary of future minimum lease payments under
operating leases at January 28, 1996:
Fiscal Year
-----------
1996 $ 123,705,000
1997 116,285,000
1998 105,502,000
1999 102,714,000
2000 98,506,000
Later years 772,372,000
--------------
$1,319,084,000
==============
The Company has entered into lease agreements for new
supermarket sites and one warehouse facility which were not in
operation at January 28, 1996. Future minimum lease payments under
such operating leases generally begin when such facilities open and at
January 28, 1996 are: 1996 - $19.8 million; 1997 - $35.2 million;
1998 - $35.2 million; 1999 - $35.3 million; 2000 - $35.3 million;
later years - $561.0 million.
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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
January 28, 1996 are as follows:
Fiscal Year
-----------
1996 $ 37,373,000
1997 34,820,000
1998 28,818,000
1999 22,644,000
2000 17,353,000
Later years 123,686,000
------------
Total minimum lease payments 264,694,000
Less: amounts representing interest 111,649,000
------------
Present value of minimum lease payments 153,045,000
Less: current portion 22,261,000
------------
$130,784,000
============
Accumulated depreciation related to assets financed under
capital leases was $24.0 million, $27.6 million and $42.7 million at
June 25, 1994, January 29, 1995 and January 28, 1996, respectively.
The Company is leasing a distribution facility and four store
locations from the previous owner of Alpha Beta. The agreement
contains a purchase option for the land, buildings and improvements
and equipment at a price that equals or exceeds the estimated fair
market value throughout the term of the lease.
6. INVESTMENT IN A.W.G.
The investment in Associated Wholesale Grocers ("A.W.G.")
consists principally of the cooperative's six percent interest-
bearing seven and eight-year patronage certificates received in
payment of certain rebates. Following is a summary of future
maturities based upon current redemption terms:
Fiscal Year
-----------
1996 $ -
1997 1,060,000
1998 1,520,000
1999 1,504,000
2000 1,478,000
Later years 1,726,000
----------
$7,288,000
==========
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7. INCOME TAXES
The provision (benefit) for income taxes consists of the
following:
52 Weeks 52 Weeks 31 Weeks 52 Weeks
Ended Ended Ended Ended
June 26, June 25, January 29, January 28,
1993 1994 1995 1996
-------- -------- ---------- -----------
Current:
Federal $ - $ 3,251,000 $(2,894,000) $ -
State and other 82,000 712,000 100,000 46,000
---------- ----------- ----------- --------
82,000 3,963,000 (2,794,000) 46,000
---------- ----------- ----------- --------
Deferred:
Federal 1,345,000 (70,000) 2,794,000 -
State and other - (1,193,000) - 454,000
---------- ----------- ----------- --------
1,345,000 (1,263,000) 2,794,000 454,000
---------- ----------- ----------- --------
$1,427,000 $ 2,700,000 $ - $500,000
========== =========== =========== ========
A reconciliation of the provision (benefit) for income taxes
to amounts computed at the federal statutory rates of 34 percent for
fiscal 1993 and 35 percent for fiscal 1994, the 1995 transition
period and fiscal 1995 is as follows:
52 Weeks 52 Weeks 31 Weeks 52 Weeks
Ended Ended Ended Ended
June 26, June 25, January 29, January 28,
1993 1994 1995 1996
-------- -------- ---------- ------------
Federal income taxes at statutory
rate on loss before provision
for income taxes and
extraordinary charges $(8,818,000) $ - $(4,025,000) $ (98,959,000)
State and other taxes,
net of federal tax benefit 82,000 (1,000) 65,000 (16,794,000)
Alternative minimum tax - - - -
Effect of permanent differences
resulting primarily from
amortization of goodwill and
debt costs 2,850,000 2,820,000 1,701,000 (1,665,000)
Tax credits and other - - - 3,769,000
Accounting limitation (recognition)
of deferred tax benefit 7,313,000 (119,000) 2,259,000 114,149,000
----------- ---------- ----------- -------------
$ 1,427,000 $2,700,000 $ - $ 500,000
=========== ========== ============ =============
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The provision (benefit) for deferred taxes consists of the following:
52 Weeks 52 Weeks 31 Weeks 52 Weeks
Ended Ended Ended Ended
June 26, June 25, January 29, January 28,
1993 1994 1995 1996
-------- -------- ---------- ----------
Depreciation $7,756,000 $2,536,000 $(1,513,000) $ (461,000)
Difference between book
and tax basis of assets sold 3,198,000 (4,223,000) 2,505,000 -
Deferred revenues and
allowances 40,000 (2,349,000) 707,000 -
Inventory - - - (8,479,000)
Pre-opening costs (512,000) 174,000 784,000 -
Accounts receivable reserves (270,000) 249,000 80,000 -
Unicap (5,000) (536,000) (755,000) -
Capital lease obligation (1,385,000) 2,792,000 527,000 (502,000)
Self-insurance reserves (4,082,000) (535,000) 5,523,000 2,104,000
Inventory shrink reserve 777,000 (869,000) (569,000) -
LIFO (554,000) (1,010,000) (1,303,000) -
Closed store reserve 1,092,000 440,000 176,000 -
Accrued expense - (582,000) 350,000 (26,304,000)
Accrued payroll and related
liabilities 193,000 1,721,000 (3,879,000) (6,206,000)
Acquisition costs 2,626,000 1,397,000 (5,444,000) -
Tax intangibles - - - 6,234,000
Sales tax reserves (715,000) (418,000) 433,000 -
State taxes - - - (20,639,000)
Deferred rent subsidy (483,000) (624,000) (29,000) -
Net operating losses - - - (61,219,000)
Net operating loss usage - 5,782,000 (6,963,000) -
Tax credits - - - 3,601,000
Tax credits benefited (1,392,000) (4,477,000) 1,711,000 -
Accounting limitation (recognition)
of deferred tax benefit (4,591,000) (1,085,000) 10,494,000 114,149,000
Other, net (348,000) 354,000 (41,000) (1,824,000)
---------- ----------- ----------- ------------
$1,345,000 $(1,263,000) $ 2,794,000 $ 454,000
========== =========== =========== ============
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The significant components of the Company's deferred tax
assets (liabilities) are as follows:
June 25, January 29, January 28,
1994 1995 1996
------------ -------- ----------
Deferred tax assets:
Accrued payroll and related liabilities $ 2,448,000 $ 6,248,000 $ 27,579,000
Other accrued liabilities 13,953,000 12,080,000 71,954,000
Obligations under capital leases - - 37,584,000
Property and equipment 2,997,000 - -
Self-insurance liabilities 27,744,000 25,204,000 49,773,000
Loss carryforwards 20,675,000 27,638,000 154,202,000
Tax credit carryforwards 5,869,000 4,157,000 913,000
State taxes - - 30,210,000
Other 580,000 570,000 18,026,000
------------ ------------ -------------
Gross deferred tax assets 74,266,000 75,897,000 390,241,000
Valuation allowance (31,149,000) (41,643,000) (285,506,000)
------------ ------------ -------------
Net deferred tax assets $ 43,117,000 $ 34,254,000 $ 104,735,000
------------ ------------ -------------
Deferred tax liabilities:
Inventories $(16,738,000) $(11,690,000) $ (9,762,000)
Property and equipment (30,516,000) (28,527,000) (106,116,000)
Obligations under capital leases (8,733,000) (9,261,000) -
Tax intangibles - - (6,234,000)
Other (1,870,000) (2,310,000) (611,000)
------------ ------------ -------------
Gross deferred tax liability (57,857,000) (51,788,000) (122,723,000)
------------ ------------ -------------
Net deferred tax liability $(14,740,000) $(17,534,000) $ (17,988,000)
============ ============ =============
The Company recorded a valuation allowance to reserve a
portion of its gross deferred tax assets at January 28, 1996 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.
At January 28, 1996, approximately $139.0 million of the
valuation allowance for deferred tax assets will reduce goodwill when
the allowance is no longer required.
At January 28, 1996, the Company has net operating loss
carryforwards for federal income tax purposes of $440.6 million,
which expire from 2007 through 2011. The Company has federal
Alternative Minimum Tax ("AMT") credit carryforwards of approximately
$0.9 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 merger,
the ownership of F4L Supermarkets and 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-Merger RSI net operating losses and a portion of the
Company's Ralphs post-Merger losses will reduce goodwill when utilized
in future federal income tax returns.
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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 an Internal Revenue Service
examination in process covering the years 1990 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 ninety
(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 $2.0 million during
fiscal year 1993, $2.3 million during fiscal year 1994, $1.2 million
during the 1995 transition period and $3.6 million during fiscal year
1995. Advisory fees were $1.8 million during fiscal year 1993, $0.2
million during fiscal year 1994 and $21.5 million during fiscal year
1995. There were no such advisory fees for the 1995 transition
period. 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
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$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 Merger, the $5 million payment and the
potential $10 million payment will be paid in cash.
The Company is a partner in a supplier partnership, in which
it is contingently liable for the partnership's long-term debt. The
Company's portion of such debt is approximately $1,505,000.
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 January 28, 1996, the Company had
capitalized construction costs of $20.4 million on total commitments
of $24.0 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
and to fix the 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. To date, the Court has yet to
certify any of these classes, while a demurrer to the complaints was
denied. The Company will vigorously defend itself in these class
action suits.
In addition, the Company or its subsidiaries are defendants in
a number of other cases currently in litigation or 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 and general
liability. For fiscal year 1993, fiscal year 1994, the 1995
transition period and fiscal year 1995, the self-insurance loss
provisions were $38.0 million, $19.9 million, $6.3 million and $32.6
million, respectively. During fiscal year 1993 and fiscal year 1994,
the Company discounted its self-insurance liability using a 7.0
percent discount rate. In the 1995 transition period, the Company
changed the discount rate to 7.5 percent. In fiscal 1995, the Company
changed the discount rate to 7.0 percent. 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 three most recent fiscal years and the 1995 transition period
is as follows:
As of
-------------------------------------------------------------
June 26, June 25, January 29, January 28,
1993 1994 1995 1996
-------- -------- ---------- ------------
Self-insurance liability $100,773,000 $90,898,000 $ 84,286,000 $161,391,000
Less: Discount (15,279,000) (9,194,000) (11,547,000) (12,406,000)
------------ ----------- ------------ ------------
Net self-insurance liability $ 85,494,000 $81,704,000 $ 72,739,000 $148,985,000
============ =========== ============ ============
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The Company expects that cash payments for claims will
aggregate approximately $21.8 million, $35.4 million, $31.6 million,
$21.5 million and $13.1 million for the fiscal year 1996, the fiscal
year 1997, the fiscal year 1998, the fiscal year 1999 and the fiscal
year 2000, respectively.
Environmental Matters
In January 1991, the California Regional Water Quality Control
Board for the Los Angeles Region (the "Regional Board") requested that
RGC conduct a subsurface characterization of its Glendale warehouse
property located in the Atwater district of Los Angeles. This request
was part of an ongoing effort by the Regional Board, in connection with
the U.S. Environmental Protection Agency (the "EPA"), to identify
contributors to groundwater contamination in the San Fernando Valley.
Significant parts of the San Fernando Valley, including the area where
RGC's grocery warehouse is located, have been designated federal
Superfund sites requiring response actions under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended, because of regional groundwater contamination. On June 18,
1991, the EPA made its own request for information concerning RGC's
grocery warehouse. Since that time, the Regional Board has requested
further investigation by RGC. RGC conducted the requested
investigations and reported the results to the Regional Board.
Approximately 25 companies have entered into a Consent Order (EPA
Docket No. 94-11) with the EPA to investigate and design a remediation
system for contaminated groundwater beneath an area which includes
RGC's grocery warehouse. RGC is not a party to the Consent Order, but
is cooperating with requests of the subject companies to allow
installation of monitoring or recovery wells on RGC's property. On or
about October 12, 1995, the EPA mailed a Special Notice Letter to 44
parties, including Ralphs as owner and operator of the Glendale
property, naming them as potentially responsible parties ("PRPs").
Ralphs and other PRPs have agreed to enter into negotiations over a
consent decree with the EPA to implement a remedial design and
reimburse oversight costs. The PRPs have also agreed to an Alternative
Dispute Resolution Process to allocate the costs among themselves.
Based upon available information, management does not believe this
matter will have a material adverse effect on the Company's financial
condition or results of operations.
RGC removed underground storage tanks and remediated soil
contamination at the grocery warehouse property. In some instances,
the removals and the contamination were associated with grocery
business operations; in others, they were associated with prior
property users. Although the possibility of other contamination from
prior operations or adjacent properties exists at the grocery
warehouse property, management does not believe that the costs of
remediating such contamination will be material to the Company.
Apart from the grocery warehouse property, RGC 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.
At the time Food 4 Less acquired Alpha Beta in 1991, it
learned that certain underground storage tanks located on the site of
the La Habra facility may have previously released hydrocarbons. In
connection with the acquisition of Alpha Beta, the seller (who is
also the lessor of the La Habra facility) agreed to retain
responsibility, subject to certain limitations, for remediation of
the release.
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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 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 credited service (defined at 1,000 hours). 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
participants under this plan. Under certain circumstances, the cash
surrender value of certain 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 expense for the above plans for fiscal year 1995 (dollars
in thousands):
Service cost $2,841
Interest cost on projected benefit obligation 2,543
Actual return on assets (3,223)
Net amortization and deferral 1,365
-----
Net pension expense $3,526
=====
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72
The funded status of the Pension Plan (based on December 1995
asset values) is as follows:
As of
January 28,
1996
------------
(dollars in thousands)
Assets Exceed Accumulated Benefits:
Actuarial present value of benefit obligations:
Vested benefit obligation $42,446
Accumulated benefit obligation 43,256
Projected benefit obligation 63,913
Plan assets at fair value 44,552
------
Projected benefit obligation in excess of Plan Assets (19,361)
Unrecognized net loss 4,136
Unrecognized prior service cost 1,100
-------
Accrued pension cost $(14,125)
======
The funded status of the SERP and Retirement Supplement Plan
(based on December 1995 asset values) is as follows:
As of
January 28,
1996
------------
(dollars in thousands)
Accumulated Benefits Exceed Assets:
Actuarial present value of benefit obligations:
Vested benefit obligation $(4,863)
Accumulated benefit obligation (4,908)
Projected benefit obligation (11,778)
Plan assets at fair value -
----------
Projected benefit obligation in excess of Plan Assets (11,778)
Unrecognized net loss 544
Unrecognized prior service cost 1,846
-----
Accrued pension cost $ (9,388)
=======
The discount rate used for fiscal year 1995 was 7.5 percent.
A long-term rate of return on assets of 9.0 percent was also used in
the actuarial valuation.
The pension plan assets 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 implemented Statement of Position No. 93-6 (the
"SOP"), "Employer Accounting for Employee Stock Ownership Plans,"
effective June 26, 1994. The implementation of the SOP did not have a
material effect on the accompanying consolidated financial statements.
71
73
The Company and its subsidiaries sponsor several defined
contribution benefit plans. 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 sole election. During
fiscal year 1995, the Company did not purchase any of the Holdings
shares. As of November 3, 1995, the fair value of the shares
allocated which are subject to repurchase obligation by the
partnership referred to above was approximately $14.6 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 and the 1995 transition period, the
Company recorded a charge against operations of approximately $0.8
million and $0.3 million, respectively, for benefits under the Union
ESOPs. There were no shares issued to the Union ESOPs or to the
Company's profit sharing plan at January 28, 1996.
Defined Contribution Plan
The Company sponsors the Ralphs Grocery Company Savings Plan
Plus - Primary, the Ralphs Grocery Savings Plan Plus - Basic and the
Food 4 Less Supermarkets, Inc. Profit Sharing and Retirement Plan
(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 credited service (defined at 1,000
hours). 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 compensation. Expenses under the 401(k)
Plan for fiscal years 1993, 1994 and 1995 were $0.3 million, $0.7
million and $0.7 million, respectively.
Multi-Employer Benefit Plans
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74
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. Information related to accumulated plan
benefits and plan net assets as they may be allocated to the Company
at January 28, 1996 is not available. The Company contributed $69.4
million, $57.2 million, $21.6 million and $102.1 million to these
plans for fiscal year 1993, fiscal year 1994, the 1995 transition
period and fiscal year 1995, 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 $8.1 million, $14.3
million and $1.8 million was recognized in fiscal year 1994, the 1995
transition period, and fiscal year 1995, respectively. Offsetting the
reduction in employer contributions was a $5.5 million union contract
ratification bonus and contractual wage increases in the 1995
transition period.
Post-Retirement Medical Benefit Plan
The Company adopted a postretirement medical benefit plan
("Postretirement Medical Plan"), previously sponsored by RGC, which
covers substantially all employees who are not members of a
collective bargaining agreement and who retire under certain age and
service requirements. The Postretirement Medical Plan provides
outpatient, inpatient and various other covered services. Such
benefits are funded from the Company's general assets. The calendar
1995 year deductible is $1,000 per individual, indexed to the Medical
Consumer Price Index.
The net periodic cost of the Postretirement Medical Plan
include the following components for fiscal year 1995 (dollars in
thousands):
Service cost $468
Interest cost 561
Return on plan assets -
Net amortization and deferral (116)
---
Net postretirement benefit cost $913
===
73
75
The funded status of the postretirement benefit plan is as
follows (dollars in thousands):
Accumulated postretirement benefit obligation:
Retirees $ 2,208
Fully eligible plan participants 1,483
Other active plan participants 10,862
Plan assets at fair value -
--------
Accumulated postretirement obligations in excess
of plan assets (14,553)
Unrecognized loss 562
Unrecognized prior service cost (3,246)
--------
Accrued postretirement benefit obligation $(17,237)
========
Service cost was calculated using a medical cost trend of 10.5
percent and a decreasing medical cost trend rate of 14 percent and 8
percent for 1993 and 1994, respectively. A medical cost trend rate of
13 percent was used for fiscal year 1995, and a decreasing rate of 12
percent and 6 percent for future years. The discount rate was 7.5
percent for the Company expense for the fiscal year. The long-term
rate of return of plan assets is not applicable, as the plan is not
funded.
The effect of a one percent increase in the medical cost trend
would increase the fiscal 1995 service and interest cost to 26
percent. The accumulated postretirement benefit obligation at January
28, 1996 would also increase by 30 percent.
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
74
76
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 Senior Notes, the New RGC Notes and the
13.75% Senior Subordinated Notes is based on quoted market prices.
The New Term Loans and the New 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.
The estimated fair values of the Company's financial
instruments are as follows:
As of
January 28, 1996
---------------------------------
Carrying Fair
Amount Value
-------- -----
Cash and cash equivalents $ 67,983,000 $ 67,983,000
Short-term notes and other receivables 6,452,000 6,452,000
Investments in and notes receivable from
supplier cooperatives (not practicable) 12,214,000 -
Long-term debt for which it is:
o Practicable to estimate fair values 1,902,341,000 1,878,648,000
o Not practicable 26,918,000 -
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.
Twenty-four of these stores were required to be closed pursuant to a
settlement agreement with the State of California in connection with
the Merger. Three RGC stores were also required to be sold.
Thirty-four of the closed stores were under-performing former F4L
Supermarkets stores. The $75.2 million restructuring charge
consisted of write-downs of property and equipment ($52.2 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). The charges consisted of write-downs of property and
equipment ($33.2 million); write-off of the Alpha Beta trademark ($8.3
million); and expenditures associated with the closed stores and the
warehouse facility, write-off of other assets, lease termination
expenditures and miscellaneous expenditures ($8.5 million). Future
lease payments of approximately $19.1 million will be offset against
the remaining reserve. Management believes that the remaining reserve
is adequate to complete the planned restructuring.
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
75
77
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 stores which were near the acquired
former Smith's stores. 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).
76
78
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 June 25, 1994,
January 29, 1995 and January 28, 1996, and the related consolidated statements
of operations, stockholder's equity and cash flows for the 52 weeks ended June
26, 1993 and June 25, 1994, the 31 weeks ended January 29, 1995 and the 52
weeks ended January 28, 1996, and have issued our report thereon dated April
19, 1996. Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule on 78 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
April 19, 1996
77
79
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
52 WEEKS ENDED JANUARY 28, 1996, 31 WEEKS ENDED JANUARY 29, 1995,
52 WEEKS ENDED JUNE 25, 1994, AND 52 WEEKS ENDED JUNE 26, 1993
(DOLLARS 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 January 28, 1996 $72,739 $32,603 $10,287 $42,153 $75,509 $148,985
====== ====== ====== ====== ====== =======
31 weeks ended January 29, 1995 $81,704 $ 6,304 $ 3,453 $18,722 $ - $ 72,739
====== ======= ======= ====== ====== ========
52 weeks ended June 25, 1994 $85,494 $19,880 $ 5,836 $29,506 $ - $ 81,704
====== ====== ======= ====== ====== ========
52 weeks ended June 26, 1993 $82,559 $38,040 $ 5,865 $40,970 $ - $ 85,494
====== ====== ======= ====== ====== ========
_______________
(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.
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RALPHS GROCERY COMPANY
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
3.1 Restated Certificate of Incorporation, as amended, of Ralphs Grocery Company (incorporated herein by
reference to Exhibit 3.1 of Ralph's Grocery Company's Quarterly Report on Form 10-Q for the quarter ended
July 16, 1995).
4.1.1 Credit Agreement dated as of June 14, 1995 by and among Food 4 Less Holdings, Inc., Food 4 Less Supermarkets,
Inc., the Lenders, Co-Agents, and Co-Arrangers named therein and Bankers Trust Company (incorporated herein
by reference to Exhibit 4.1 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter
ended July 16, 1995).
4.1.2 First Amendment to Credit Agreement dated as of August 18, 1995 among Food 4 Less Holdings, Inc., Ralphs
Grocery Company and the financial institutions listed on the signature pages thereto.
4.1.3 Second Amendment to Credit Agreement dated as of December 11, 1995 among Food 4 Less Holdings, Inc., Ralphs
Grocery Company and the financial institutions listed on the signature pages thereto.
4.1.4 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.
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, 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 13.75% Senior Subordinated Notes due 2005, dated as of June 1, 1995, by and among Food 4
Less Supermarkets, Inc., the subsidiary guarantors identified herein and United States Trust Company of New
York, as trustee (incorporated herein by reference to Exhibit 4.5.1 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 13.75% 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
81
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
to Exhibit 4.5.2 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16,
1995).
4.4.1 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).
4.4.2 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).
4.5.1 Indenture for the 10 1/4% Senior Subordinated Notes due 2002, dated as of July 29, 1992, by and between
Ralphs Grocery Company and United States Trust Company of New York, as trustee (incorporated herein by
reference to Exhibit 4.3 of Ralphs Grocery Company's Quarterly Report on Form 10-Q for the quarter ended July
19, 1992).
4.5.2 First Supplemental Indenture for the 10 1/4% Senior Subordinated Notes due 2002, dated as of May 30, 1995, by
and between Ralphs Grocery Company and United States Trust Company of New York, as trustee (incorporated
herein by reference to Exhibit 4.1 of Ralphs Grocery Company's Quarterly Report on Form 10-Q for the quarter
ended April 23, 1995).
4.5.3 Second Supplemental Indenture for the 10-1/4 Senior Subordinated Notes due 2002, dated as of June 14, 1995,
by and between Ralphs Grocery Company (as successor) and United States Trust Company of New York, as Trustee
(incorporated herein by reference to Exhibit 4.7.3 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form
10-Q for the quarter ended July 16, 1995).
4.6.1 Indenture for the 9% Senior Subordinated Notes due 2003, dated as of March 30, 1993, by and between Ralphs
Grocery Company and United States Trust Company of New York, as trustee (incorporated herein by reference to
Exhibit 4.1 of Ralphs Grocery Company's Registration Statement on Form S-4, No. 33-61812).
4.6.2 First Supplemental Indenture for the 9% Senior Subordinated Notes due 2003, dated as of June 23, 1993, by and
between Ralphs Grocery Company and United States Trust Company of New York, as trustee (incorporated herein
by reference to Exhibit 4.2 of Ralphs Grocery Company's Registration Statement on Form S-4, No. 33-61812).
4.6.3 Second Supplemental Indenture for the 9% Senior Subordinated Notes due 2003, dated as of May 30, 1995, by and
between Ralphs Grocery Company and United States Trust Company of New York, as trustee (incorporated herein
by reference to Exhibit 4.2 of Ralphs Grocery Company's Quarterly Report on Form 10-Q, for the quarter ended
April 23, 1995).
4.6.3 Third Supplemental Indenture for the 9% Senior Subordinated Notes due 2003, dated as of
E-2
82
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
June 14, 1995, by and between Ralphs Grocery Company (as successor) and United States Trust Company of New
York, as trustee (incorporated herein by reference to Exhibit 4.8.4 of Food 4 Less Holdings, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended July 16, 1995).
4.7.1 Senior Note Indenture, dated as of April 15, 1992, 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 4.1 to Food 4 Less Supermarkets, Inc.'s Registration Statement
on Form S-1, No. 33-46750).
4.7.2 First Supplemental Indenture, dated as of July 24, 1992, 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 4.1.1 to Food 4 Less Supermarkets, Inc.'s Annual Report on Form
10-K for the fiscal year ended June 27, 1992).
4.7.3 Second Supplemental Indenture for the 10.45% Senior Notes due 2000, dated as of June 14, 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 4.9.3 of Food 4 Less Holdings,
Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995).
4.7.4 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 year
ended July 16, 1995).
4.8.1 Senior Subordinated Note Indenture dated as of June 15, 1991 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 4.1 to Food 4 Less Supermarkets, Inc.'s Annual Report on Form
10-K for the fiscal year ended June 29, 1991).
4.8.2 First Supplemental Indenture dated as of April 8, 1992 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 4.2.1 to Food 4 Less Supermarkets, Inc.'s Annual Report on Form
10-K for the fiscal year ended June 27, 1992).
4.8.3 Second Supplemental Indenture, dated as of May 18, 1992 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 4.2.2 to Food 4 Less Supermarkets, Inc.'s Annual Report on Form
10-K for the fiscal year ended June 27, 1992).
4.8.4 Third Supplemental Indenture, dated as of July 24, 1992 by and among Food 4 Less
E-3
83
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
Supermarkets, Inc., the subsidiary guarantors identified therein and United States Trust Company of New York,
as trustee (incorporated herein by reference to Exhibit 4.2.3 to Food 4 Less Supermarkets, Inc.'s Annual
Report on Form 10-K for the fiscal year ended June 27, 1992).
4.8.5 Fourth Supplemental Indenture for the 13.75% Senior Subordinated Notes due 2001, dated as of May 30, 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 4.10.5 of Food 4 Less
Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995).
4.8.6 Fifth Supplemental Indenture for the 13.75% Senior Subordinated Notes due 2001, 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 United States Trust Company of New York as trustee (incorporated herein by
reference to Exhibit 4.10.6 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter
ended July 16, 1995).
10.1 Second Amended and Restated Tax Sharing Agreement dated as of June 14, 1995 by and among Food 4 Less
Holdings, Inc., Ralphs Grocery Company and the subsidiaries of Ralphs Grocery Company (incorporated herein by
reference to Exhibit 10.1 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
July 16, 1995).
10.2 Stockholders Agreement of Food 4 Less Holdings, Inc. dated as of June 14, 1995 by and among Food 4 Less
Holdings, Inc., Ralphs Grocery Company and the investors listed on the signature pages thereto (incorporated
herein by reference to Exhibit 10.2 of Food for Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended July 16, 1995).
10.3 Consulting Agreement dated as of June 14, 1995 by and among The Yucaipa Companies, Food 4 Less Holdings, Inc.
and Ralphs Grocery Company (incorporated herein by reference to Exhibit 10.4 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 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 Byron E. Allumbaugh
(incorporated herein by reference to Exhibit 10.8 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 Alfred A. Marasca
(incorporated herein by reference to Exhibit 10.9 of Ralphs Grocery Company's Quarterly Report on Form 10-Q
for the quarter ended July 16, 1995).
10.7* 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
E-4
84
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
Quarterly Report on Form 10-Q for the quarter ended July 16, 1995).
10.8* Employment Agreement dated as of June 14, 1995 between Ralphs Grocery Company and Harley DeLano.
10.9* Employment Agreement dated as of June 14, 1995 between Ralphs Grocery Company and Jan Charles Gray
(incorporated herein by reference to Exhibit 10.12 of Ralphs Grocery Company's Quarterly Report on Form 10-Q
for the quarter ended July 16, 1995).
10.10* Employment Agreement dated as of June 14, 1995 between Ralphs Grocery Company and Tony Schnug.
10.11* Management Stockholders Agreement dated as of June 14, 1995 between Food 4 Less Holdings, Inc. and the
management employees listed on the signature pages thereto (incorporated herein by reference to Exhibit 10.12
of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995).
10.12* 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).
10.13* Letter Agreement dated as of December 10, 1990 amending 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).
10.14 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's Company's Quarterly Report on
Form 10-Q for the quarter ended October 8, 1995).
10.15.1* Ralphs Grocery Company Retirement Supplement Plan, effective as of January 1, 1994.
10.15.2* Amendment to the Retirement Supplement Plan, effective as of January 1, 1995.
10.15.3* 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.
10.16.1* Ralphs Grocery Company Supplemental Executive Retirement Plan, amended and restated as of April 9,1994.
10.16.2* Amendment to the Amended and Restated Supplemental Executive Retirement Plan, effective as of January 1,
1995.
10.16.3* 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
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85
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
Executive Retirement Plan.
10.16.4* Third Amendment to the Ralphs Grocery Company Supplemental Executive Plan, effective as of July 1, 1995.
21 Subsidiaries
27 Financial Data Schedule
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