<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 10-Q
------------------------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JANUARY 9, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO __________
Commission File number 333-35457.
-----------------------------------------------------------------
RANDALL'S FOOD MARKETS, INC.
(Exact name of registrant as specified in its charter)
-----------------------------------------------------------------
Texas 74-2134840
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3663 Briarpark, Houston, Texas 77042
-----------------------------------------------------------
Address of principal executive offices (including zip code)
(713) 268-3500
-----------------------------------------------------------
Registrant's telephone number, including area code
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes (X) No ( )
The number of shares outstanding of the registrant's common stock, par value
$0.25 per share, as of February 2, 1999 was 30,038,192 shares
<PAGE>
RANDALL'S FOOD MARKETS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Independent Certified Public Accountants' Report on Review of
Interim Financial Information 2
Condensed Consolidated Balance Sheets at January 9, 1999
and June 27, 1998 3
Condensed Consolidated Statements of Income for the
Twenty-eight and Twelve Week Periods Ended January 9, 1999
and January 10, 1998 4
Condensed Consolidated Statements of Cash Flows for the
Twenty-eight Week Periods Ended January 9, 1999 and
January 10, 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1.
Independent Certified Public Accountants' Report on Review of Interim Financial
Information
To the Board of Directors and Stockholders of
Randall's Food Markets, Inc.
Houston, Texas
We have reviewed the accompanying condensed consolidated balance sheet of
Randall's Food Markets, Inc. and subsidiaries as of January 9, 1999, and the
related condensed consolidated statement of income for the twelve-week period
then ended. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and of making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Randall's Food Markets, Inc. and
subsidiaries as of June 27, 1998, and the related consolidated statements of
income, stockholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated August 14, 1998, we expressed an
unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of June 27, 1998 is fairly stated, in all material respects,
in relation to the consolidated balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Houston, Texas
February 10, 1999
2
<PAGE>
RANDALL'S FOOD MARKETS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JANUARY 9, 1999 AND JUNE 27, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNAUDITED AUDITED
JANUARY 9, 1999 JUNE 27, 1998
--------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 18,252 $ 36,243
Receivables, net 54,324 44,187
Merchandise inventories, net 189,864 166,332
Prepaid expenses and other 6,601 5,986
Deferred tax assets 8,987 11,792
---------- ----------
Total current assets 278,028 264,540
---------- ----------
Property and equipment, net 432,054 365,853
Goodwill, net 214,531 217,968
Other assets, net 37,000 35,386
---------- ----------
Total $ 961,613 $ 883,747
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and
obligations under capital leases $ 4,553 $ 4,544
Accounts payable 134,847 135,834
Accrued expenses and other 134,815 136,477
Accrued income taxes 5,831 ---
---------- ----------
Total current liabilities 280,046 276,855
Long-term debt, net of current maturities 335,725 276,447
Obligations under capital leases, net of current maturities 59,303 61,515
Other liabilities 30,899 32,485
---------- ----------
Total liabilities 705,973 647,302
---------- ----------
COMMITMENTS & CONTINGENCIES (See Note 3)
REDEEMABLE COMMON STOCK, $15.44 and $13.30 redemption value
per share, 387,651 shares issued and outstanding at January 9,
1999 and June 27, 1998 5,986 5,155
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, $0.25 par value 75,000,000 shares authorized;
29,637,521 shares issued and 29,619,139 shares outstanding at
January 9, 1999 and 29,697,979 shares issued
and 29,679,597 shares outstanding at June 27, 1998 7,335 7,425
Additional paid-in capital 173,802 174,337
Stockholders' notes receivable (6,095) (6,213)
Retained earnings 75,139 56,506
Restricted common stock (309) (547)
Treasury stock, 18,382 shares at cost (218) (218)
---------- ----------
Total stockholders' equity 249,654 231,290
---------- ----------
Total $ 961,613 $ 883,747
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
3
<PAGE>
RANDALL'S FOOD MARKETS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE TWENTY-EIGHT AND TWELVE WEEK PERIODS ENDED
JANUARY 9, 1999 AND JANUARY 10, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
28 WEEKS ENDED 12 WEEKS ENDED
---------------------------------- ----------------------------------
JANUARY 9, 1999 JANUARY 10, 1998 JANUARY 9, 1999 JANUARY 10, 1998
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
NET SALES $ 1,394,324 $ 1,299,293 $ 627,583 $ 579,916
COSTS OF SALES 1,006,031 945,645 453,150 422,706
----------- ----------- ----------- -----------
GROSS PROFIT 388,293 353,648 174,433 157,210
OPERATING EXPENSES:
Selling, general and
administrative expenses 304,414 287,938 132,601 124,663
Depreciation and amortization 31,201 26,309 14,028 11,192
----------- ----------- ----------- -----------
Total operating expenses 335,615 314,247 146,629 135,855
----------- ----------- ----------- -----------
OPERATING INCOME 52,678 39,401 27,804 21,355
INTEREST EXPENSE, net 18,260 18,013 8,208 7,491
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 34,418 21,388 19,596 13,864
PROVISION FOR INCOME TAXES 14,953 9,799 8,316 6,019
----------- ----------- ----------- -----------
NET INCOME $ 19,465 $ 11,589 $ 11,280 $ 7,845
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
4
<PAGE>
RANDALL'S FOOD MARKETS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-EIGHT WEEK PERIODS ENDED
JANUARY 9, 1999 AND JANUARY 10, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 9, 1999 JANUARY 10, 1998
--------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 19,465 $ 11,589
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 31,201 26,309
Other 2,854 3,318
Change in assets and liabilities, net (28,443) 1,728
----------- ----------
Net cash provided by operating activities 25,077 42,944
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (130,902) (36,921)
Proceeds from sale of assets 29,852 23,130
Other 211 627
----------- ----------
Net cash used in investing activities (100,839) (13,164)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowing under credit agreement 180,000 ---
Repayments of debt (120,724) (3,199)
Reduction in obligations under capital leases (1,999) (2,111)
Other 494 200
----------- ----------
Net cash provided by (used in) financing activities 57,771 (5,110)
----------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (17,991) 24,670
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 36,243 23,115
----------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 18,252 $ 47,785
----------- ----------
----------- ----------
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
5
<PAGE>
RANDALL'S FOOD MARKETS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE TWENTY-EIGHT AND TWELVE WEEK PERIODS ENDED
JANUARY 9, 1999 AND JANUARY 10, 1998 (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated balance sheet of Randall's
Food Markets, Inc. and subsidiaries (the "Company") at June 27, 1998 has been
derived from the Company's audited financial statements at that date. The
condensed consolidated balance sheet at January 9, 1999, the condensed
consolidated statements of income for the twenty-eight and twelve week
periods ended January 9, 1999 and January 10, 1998 and the condensed
consolidated statements of cash flows for the twenty-eight week periods ended
January 9, 1999 and January 10, 1998 are unaudited. In the opinion of
management, such condensed consolidated financial statements contain all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the consolidated financial position and results of
operations of the Company for the interim periods. Operating results for the
twenty-eight and twelve week periods ended January 9, 1999 are not
necessarily indicative of the operating results that may be expected for a
full fiscal year.
Certain information and footnote disclosures normally included in
annual financial statements presented in accordance with generally accepted
accounting principles have been omitted. The accompanying condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended June 27, 1998.
Certain reclassifications have been made to the prior period's
financial statements to conform to the current period presentation.
2. STORE CLOSING COSTS
During the fiscal year ended June 28, 1997 ("Fiscal Year 1997"), the
Company recorded a charge of approximately $32.8 million in connection with
the planned closure, replacement or sale of certain of its stores. Such
charge included $3.7 million relating to stores that were closed or sold
prior to the fourth quarter of Fiscal Year 1997 and $29.1 million relating to
20 stores that the Company planned to close, replace or sell at various dates
from June 1997 to June 1999. The $32.8 million charge included estimated
inventory losses of approximately $3.0 million (included in cost of sales
during Fiscal Year 1997), estimated lease termination costs of approximately
$11.7 million and asset write-offs of approximately $18.1 million (both of
which were included in operating expenses during Fiscal Year 1997). The
Company is proceeding as planned with the closure, replacement or sale of the
designated stores and has not recorded any changes in estimate to the
reserve. As of January 9, 1999, the Company has closed, replaced or sold 15
of the 20 stores included in the Fiscal Year 1997 reserve and during the 28
weeks ended January 9, 1999 charged $13.1 million of related costs against
such reserve. The remaining five stores are expected to be closed during the
remainder of the fiscal year ending June 26, 1999 ("Fiscal Year 1999"). The
Company does not anticipate a material impact on its future revenues and
operating results as a result of activities from such stores that will not be
continued. The aggregate revenue and operating loss for the 12 weeks ended
January 9, 1999 from the one store to be closed for which the Company does
not plan a replacement store were $3.1 million and $0.1 million,
respectively, and the revenue and operating loss from such store for the 28
weeks ended January 9, 1999 were $6.9 million and $0.4 million, respectively.
At January 9, 1999, the aggregate carrying value, net of the closed store
reserve, of the fixed assets of stores closed and remaining to be closed under
the plan was $3.2 million, or less than 0.4% of the Company's total assets.
6
<PAGE>
The number of stores closed, replaced or sold in connection with the plan
during each fiscal period since the plan's inception is as follows:
<TABLE>
<S> <C>
Stores to be closed per original plan 20
----
Closures during the fourth quarter of Fiscal Year 1997 (2)
Closures during Fiscal Year 1998 (10)
Closures during Fiscal Quarter Ended October 18, 1998 (3)
Closures during Fiscal Quarter Ended January 9, 1999 -
----
Total closures through January 9, 1999 (15)
----
Stores remaining to be closed at January 9, 1999 5
----
----
</TABLE>
Activity in the reserve since June 28, 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
LEASE ASSET
INVENTORY TERMINATION WRITE OFFS TOTAL
-------------- ------------------ --------------- -----------
<S> <C> <C> <C> <C>
Reserve/expense recorded in FY 1997 $3,000 $11,745 $18,047 $32,792
Charges to the reserve during FY 1998 (1,407) (1,600) (3,483) (6,490)
-------------- ------------------ --------------- -----------
Remaining Reserve at June 27, 1998 1,593 10,145 14,564 26,302
Charges to the reserve during the 16 weeks
ended October 17, 1998 (449) (1,824) (4,642) (6,915)
Charges to the reserve during the 12 weeks
ended January 9, 1999 (27) (3,423) (2,685) (6,135)
-------------- ------------------ --------------- ------------
Remaining reserve at January 9, 1999 $1,117 $4,898 $7,237 $13,252
-------------- ------------------ --------------- ------------
-------------- ------------------ --------------- ------------
</TABLE>
3. CONTINGENCIES
MSP LITIGATION - Following the Company's acquisition of Cullum
Companies, Inc. in August 1992, the Company terminated the Cullum's
Management Security Plan for Cullum Companies, Inc. ("the MSP"). In respect
of such termination, the Company paid MSP participants the greater of (i) the
amount of such participant's deferral or (ii) the net present value of the
participant's accrued benefit, based upon the participant's current salary,
age and years of service. Thirty-five of the former MSP participants have
instituted a claim against the Company on behalf of all persons who were
participants in the MSP on its date of termination (which is alleged by
plaintiffs to be approximately 250 persons). On May 7, 1997, the plaintiffs
filed an amended complaint for the Court to recognize their action as a class
action, to recover additional
7
<PAGE>
amounts under the MSP, for a declaration of rights under an employee pension
benefit plan and for breach of fiduciary duty. The plaintiffs assert that the
yearly plan agreement executed by each participant in the MSP was a contract
for a specified retirement and death benefit set forth in such plan
agreements and that such benefits were vested and nonforfeitable. A pre-trial
order in the MSP litigation, which was submitted to the Court on October 22,
1997, states that an expert for the plaintiffs, assuming class certification,
may testify that the damages allegedly sustained by the plaintiff class may
range from approximately $18.0 million to $37.2 million and, assuming that a
court were to award additional damages based on a rate of return achieved by
an equity index over the relevant period, such damages may range from
approximately $37.4 million to $70.6 million. On December 30, 1997, the Court
issued an order denying the plaintiffs' summary judgment motion on the
plaintiffs' claim that the MSP was not an exempt "top hat plan" (a plan which
is unfunded and maintained by an employer primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees). The order also granted the Company's summary judgment
motions on two of the plaintiffs' ancillary claims, but did not address the
plaintiffs' request for certification as a class action. On June 5, 1998, the
Court ruled that the plan was "unfunded", meaning that the trial of the
limited class action issue will deal only with the question of whether the
MSP was "maintained primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated
employees." On June 16, 1998, the Court certified the case as a class action
for the limited issue of determining if the MSP was an exempt "top hat plan".
The Court defined the class as all persons who, on the date of the
termination of the MSP, were participants in the MSP and were employed by
Randall's Food Markets, Inc. On September 8, 1998, a pre-trial conference was
held to discuss burden of proof, expert testimony and meaning of "select
group" and the evidence to be considered at the trial. The trial of the
limited class action issue was conducted before the Court, sitting without a
jury, on October 26, 1998. Upon order of the Court, both parties submitted
post-trial briefs on November 6, 1998. The Court has yet to rule on the
limited class action issue. Once the initial class issue is resolved, the
Court will make an evaluation as to whether any other issues should be dealt
with in a class action context. Based upon current facts, the Company is
unable to estimate any meaningful range of possible loss that could result
from an unfavorable outcome of the MSP litigation. It is possible that the
Company's results of operations or cash flows in a particular quarterly or
annual period or its financial position could be materially affected by an
ultimate unfavorable outcome of the MSP litigation. However, the Company
intends to vigorously contest the MSP claim and, although there can be no
assurance, management currently does not anticipate an unfavorable outcome
based on management's independent analysis of the facts relating to such
litigation.
FLEMING DISPUTE - On July 30, 1997, the Company initiated an
arbitration proceeding before the American Arbitration Association against
Fleming Companies, Inc. ("Fleming"), one of its long-time suppliers,
alleging, among other things, that Fleming violated the terms of a supply
agreement signed in 1993. On July 7, 1998, the arbitration panel unanimously
found that Fleming materially breached the supply agreement and the contract
was terminated as of July 7, 1998 without payment of any termination fee. The
Company and Fleming entered into a transition agreement, effective September
25, 1998, which provides for a continued supply of products from Fleming
while the Company moves to self-distribution.
JOHN PAUL MITCHELL LAWSUIT - On August 26, 1998, a jury in the 126th
District Court, Travis County, Texas, returned a verdict against the Company
and a co-defendant, Jade Drug Company, Inc. ("Jade"), finding both parties
intentionally conspired with each other to interfere with contracts between
John Paul Mitchell Systems ("Mitchell") and one or more of its distributors
and/or salons. The jury found the Company guilty of having in its possession,
selling or offering for sale Mitchell products that it knew, or that a
reasonable person in the position of the Company would know, had serial
numbers or other permanent identification markings removed, altered or
obliterated. The jury found that the company unfairly competed with Mitchell
by purchasing and distributing the products and infringed on Mitchell's
trademark. The jury also found that the harm caused Mitchell resulted from
malice.
8
<PAGE>
The jury awarded Mitchell and its co-plaintiff, Ultimate Salon Services
Inc., (together, the "Plaintiffs") $3.25 million in joint and several damages
from the Company and Jade, $4.5 million in exemplary damages from the Company
and $3.0 million in actual damages and $4.5 million in exemplary damages from
Jade.
The Company and Jade filed motions with the trial court judge to
disregard the jury's verdict. On November 19, 1998, the trial court judge
threw out the jury's verdict, entered judgement in favor of the Company and
Jade, ordered that the Plaintiffs recover nothing and ordered that the
Plaintiffs pay the Company and Jade all of their court costs. On December 18,
1998, the Plaintiffs filed a motion for a new trial. On February 2, 1999, the
trial court judge denied such motion by operation of law. On February 16,
1999, the Plaintiffs filed their notice of appeal with the court. Although
the outcome of this matter cannot be predicted with certainty, management
believes an unfavorable outcome will not have a material adverse effect on
the Company, its operations, its financial condition or its cash flows.
Other than the foregoing matters, the Company believes it is not a
party to any pending legal proceedings, including ordinary litigation
incidental to the conduct of its business and the ownership of its property,
the adverse determination of which would have a material adverse effect on
the Company, its operations, its financial condition or its cash flows.
4. RECENT PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "REPORTING ON THE COSTS OF START-UP
ACTIVITIES", ("SOP 98-5") which requires that costs incurred for start-up
activities should be charged to operations as incurred. Although the Company
has not fully assessed the impact of adopting SOP 98-5, the Company does not
believe that such adoption will have a material impact on its financial
statements. The Company is required to adopt SOP 98-5 in its fiscal year
ending June 24, 2000. Initial application of SOP 98-5 will be reported as a
cumulative effect of an accounting change.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company operates a chain of 117 supermarkets primarily under the
RANDALLS and TOM THUMB banners in the Houston, Dallas/Fort Worth and Austin
metropolitan areas. The Company operates on a 52 or 53 week fiscal year
ending on the last Saturday of each June. Same-store sales is defined as net
sales for stores in full operation in each of the current fiscal periods and
the comparable periods of the prior fiscal year. Replacement stores are
included in the same-store sales calculation. A replacement store is defined
as a store that is opened to replace a store that is closed nearby.
Identical-store sales is defined as net sales for stores in full operation in
each of the current fiscal periods and the comparable periods of the prior
fiscal year, excluding expansion and replacement stores.
Presented below is a table showing the percentage of net sales represented by
certain items in the Company's consolidated condensed statements of income
(dollars in thousands):
<TABLE>
<CAPTION>
28 WEEKS ENDED 12 WEEKS ENDED
--------------------------------------------- ------------------------------------------
JANUARY 9, 1999 JANUARY 10, 1998 JANUARY 9, 1999 JANUARY 10, 1998
---------------------- ---------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 1,394,324 100.0% $ 1,299,293 100.0% $ 627,583 100.0% $ 579,916 100.0%
Cost of sales 1,006,031 72.2% 945,645 72.8% 453,150 72.2% 422,706 72.9%
---------- ----- ----------- ----- --------- ----- --------- -----
Gross profit 388,293 27.8% 353,648 27.2% 174,433 27.8% 157,210 27.1%
Selling, general and administrative
expenses 304,414 21.8% 287,938 22.2% 132,601 21.1% 124,663 21.5%
Depreciation and amortization 31,201 2.2% 26,309 2.0% 14,028 2.2% 11,192 1.9%
---------- ----- ----------- ----- --------- ----- --------- -----
Operating income 52,678 3.8% 39,401 3.0% 27,804 4.4% 21,355 3.7%
Interest expense, net 18,260 1.3% 18,013 1.4% 8,208 1.3% 7,491 1.3%
---------- ----- ----------- ----- --------- ----- --------- -----
Income before income taxes 34,418 2.5% 21,388 1.6% 19,596 3.1% 13,864 2.4%
Provision for income taxes 14,953 1.1% 9,799 0.8% 8,316 1.3% 6,019 1.0%
---------- ----- ----------- ----- --------- ----- --------- -----
Net income $ 19,465 1.4% $ 11,589 0.9% $ 11,280 1.8% $ 7,845 1.4%
---------- ----- ----------- ----- --------- ----- --------- -----
---------- ----- ----------- ----- --------- ----- --------- -----
EBITDA $ 85,069 6.1% $ 66,900 5.1% $ 42,342 6.7% $ 33,057 5.7%
---------- ----- ----------- ----- --------- ----- --------- -----
---------- ----- ----------- ----- --------- ----- --------- -----
</TABLE>
NET SALES - Net sales for the twenty-eight weeks ended January 9, 1999
("Fiscal Year to Date 1999") increased by $95.0 million or 7.3% compared to
the twenty-eight weeks ended January 10, 1998 ("Fiscal Year to Date 1998").
Such increase is partially attributable to additional sales of $27.4 million
generated from the opening of three new stores (excluding three replacement
stores) during Fiscal Year to Date 1999 and the operation during such period
of two stores (excluding two replacement stores) opened during the fiscal
year ended June 27, 1998 ("Fiscal Year 1998") which were not in operation
during the entire comparable period of Fiscal Year to Date 1998. In addition,
the Company experienced an increase in same-store sales of approximately
$108.4 million in Fiscal Year to Date 1999 as compared to Fiscal Year to Date
1998. These increases were offset by a decline of approximately $40.3 million
generated from closed and temporarily closed stores that are excluded from
same-store sales.
Net sales during the 12 weeks ended January 9, 1999 ("Second Quarter
1999") increased by $47.7 million or 8.2% as compared to the 12 weeks ended
January 10, 1998 ("Second Quarter 1998"). Such increase is partially
attributable to additional sales of approximately $16.0 million generated
from the opening of three new stores (excluding three replacement stores)
during Fiscal Year to Date 1999 and the operation during Second Quarter 1999
of one store (excluding two replacement stores) opened during Fiscal Year
1998 which was not in operation during Second Quarter 1998. In addition, the
Company experienced an increase in same-store sales of approximately $40.9
million during Second Quarter 1999 as compared to Second Quarter 1998. These
increases were offset by a decline of $8.8 million generated from closed and
temporarily closed stores that are excluded from same-store sales.
10
<PAGE>
The Company's same-store sales during Fiscal Year to Date 1999 and
Second Quarter 1999 increased approximately 8.7% and 7.2%, respectively,
compared to increases of 1.9% and 2.2% for Fiscal Year to Date 1998 and
Second Quarter 1998, respectively. Such improvements are due primarily to the
store remodeling and expansion program, the contribution of replacement
stores, the success of merchandising, marketing and customer service
initiatives and favorable economic conditions. Identical-store sales
increased approximately 6.2% and 4.0% during Fiscal Year to Date 1999 and
Second Quarter 1999, respectively, compared to increases of 0.8% and 1.3% for
Fiscal Year to Date 1998 and Second Quarter 1998, respectively. The Company
anticipates that the rate of improvement in same-store sales and
identical-store sales will decline in future periods as such sales are
compared to stronger sales of comparable periods of the previous year.
GROSS PROFIT - Gross profit for Fiscal Year to Date 1999 and Second Quarter
1999 increased by $34.6 million or 9.8% and $17.2 million or 11.0%,
respectively, compared to the corresponding periods of the prior year. The
dollar increases in gross profit are primarily attributable to the increased
sales volume during the Fiscal Year 1999 periods. Gross profit as a
percentage of net sales increased to 27.8% for Fiscal Year to Date 1999 from
27.2% for Fiscal Year to Date 1998 and increased to 27.8% for Second Quarter
1999 from 27.1% for Second Quarter 1998. Such increases are primarily due to
more effective promotional efforts and higher gross margins at new and
replacement stores. Such higher gross margins at new and replacement stores
are due primarily to their more expansive specialty departments and broader
range of products and services offered by such stores.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative expenses increased $16.5 million or 5.7% during Fiscal Year to
Date 1999 and $7.9 million or 6.4% during Second Quarter 1999 compared to the
same periods of the prior year. Selling, general and administrative expenses
as a percentage of net sales decreased to 21.8% for Fiscal Year to Date 1999
from 22.2% for Fiscal Year to Date 1998 and decreased to 21.1% for Second
Quarter 1999 from 21.5% for Second Quarter 1998. These decreases, as a
percentage of net sales, were due primarily to the Company's focus on expense
management and the increase in net sales. The Company does not expect selling,
general and administrative expenses as a percentage of net sales to increase
compared to corresponding periods of the prior year; however, no assurance
can be given in this regard.
EBITDA (EARNINGS BEFORE NET INTEREST EXPENSE, INCOME TAXES, DEPRECIATION,
AMORTIZATION AND LIFO PROVISION) AND OPERATING INCOME - EBITDA for Fiscal
Year to Date 1999 and Second Quarter 1999 increased by $18.2 million or 27.2%
and $9.3 million or 28.1%, respectively, compared to the same periods of the
prior year. EBITDA as a percentage of net sales increased to 6.1% for Fiscal
Year to Date 1999 from 5.1% for Fiscal Year to Date 1998 and increased to
6.7% for Second Fiscal Quarter 1999 from 5.7% for Second Fiscal Quarter 1998.
Operating income for Fiscal Year to Date 1999 and Second Quarter 1999
increased by $13.3 million or 33.7% and $6.4 million or 30.2%, respectively,
compared to the corresponding periods of the prior year. Such increases are
primarily attributable to the growth in sales, increases in gross profit and
reduction in the rate of selling, general and administrative expenses
described above.
DEPRECIATION AND AMORTIZATION - Depreciation and amortization expense for
Fiscal Year to Date 1999 and Second Quarter 1999 increased by $4.9 million or
18.6% and $2.8 million or 25.3%, respectively. Depreciation and amortization
expense, as a percentage of net sales, increased to 2.2% for Fiscal Year to
Date 1999 from 2.0% for Fiscal Year to Date 1998 and increased to 2.2% for
Second Quarter 1999 from 1.9% for Second Quarter 1998. Such increases are
primarily due to new store openings and the remodeling of certain existing
stores in connection with the Company's capital expenditure program that
began in Fiscal
11
<PAGE>
Year 1998. This trend is expected to continue as the Company continues its
capital expenditure program. See "Liquidity and Capital Resources".
INTEREST EXPENSE, NET - Net interest expense for Fiscal Year to Date 1999 and
Second Quarter 1999 increased by $0.2 million or 1.4% and $0.7 million or
9.6%, respectively, compared to the same periods of the prior year, due
primarily to the utilization of the Company's revolving credit facility
available under its bank credit agreement.
PROVISION FOR INCOME TAXES - The provision for income taxes for Fiscal Year
to Date 1999 and Second Quarter 1999 was $15.0 million and $8.3 million,
respectively, compared to $9.8 million and $6.0 million, respectively, for
the corresponding periods of the prior year. Such increases are primarily due
to the Company's increased pre-tax income.
NET INCOME - Net income for Fiscal Year to Date 1999 and Second Quarter 1999
increased $7.9 million or 68.0% and $3.4 million or 43.8%, respectively,
compared to the corresponding periods of the prior year due primarily to the
combined impact of the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES - The Company is a holding company, and as a
result, its operating cash flow and its ability to service its indebtedness,
including the Company's $150.0 million aggregate principal amount outstanding
of 9-3/8% Series B Senior Subordinated Notes due 2007, are dependent upon the
operating cash flow of its subsidiaries and the payment of funds by such
subsidiaries to the Company in the form of loans, dividends or otherwise.
The Company's principal sources of liquidity are expected to be cash
flow from operations, borrowings under the $225.0 million revolving credit
facility ("Revolver") available under the Company's current bank credit
agreement and proceeds from lease financing agreements. As of January 9,
1999, the Company had approximately $164.7 million available (net of
approximately $0.3 million of outstanding letters of credit) to be borrowed
under the Revolver. Management anticipates that the Company's principal uses
of liquidity will be to provide working capital, meet debt service
requirements and finance the Company's expansion and remodeling plans.
Management believes that cash flows generated from operations, borrowings
under the Revolver and proceeds from lease financing arrangements will
adequately provide for the Company's working capital and debt service needs
and will be sufficient to fund its expected capital expenditures.
During Fiscal Year to Date 1999 and Fiscal Year to Date 1998, operating
activities provided net cash of approximately $25.1 million and $42.9
million, respectively. Net cash provided by operations during Fiscal Year to
Date 1999 resulted primarily from net income during the period (adjusted for
the non-cash impact of depreciation and amortization) and increases in
accrued expenses, offset to some extent by increases in accounts receivable
and merchandise inventories. Net cash provided by operations during Fiscal
Year to Date 1998 resulted primarily from net income (adjusted for the
non-cash impact of depreciation and amortization), the collection of a $10.0
million federal income tax receivable, and increases in accounts payable and
accrued expenses, offset to some extent by increases in accounts receivable
and merchandise inventories. Financing activities provided approximately
$57.8 million during Fiscal Year to Date 1999, primarily from borrowings
under the credit agreement offset by a reduction of debt and capital lease
obligations. During Fiscal Year to Date 1998, financing activities utilized
approximately $5.1 million, primarily due to debt reduction.
Cash used in investing activities during Fiscal Year to Date 1999 and
Fiscal Year to Date 1998 consisted primarily of capital expenditures of
approximately $130.9 million and $36.9 million, respectively, offset to some
extent by proceeds from asset sales of approximately $29.9 million and $23.1
million during Fiscal Year to Date 1999 and Fiscal Year to Date 1998,
respectively. Capital expenditures primarily include
12
<PAGE>
expenditures related to the construction of new stores, the purchase of real
estate, the remodeling of existing stores, ongoing store expenditures for
equipment and capitalized maintenance, as well as expenditures relating to
the Company's warehousing and distribution network and computer equipment.
During Fiscal Year 1998, the Company embarked upon a program to
accelerate its store development and remodeling and to optimize its
distribution network. Such program has resulted in a level of capital
expenditures in excess of historical levels. During Fiscal Year to Date 1999,
the Company made capital expenditures of approximately $130.9 million
primarily for the construction of new stores, purchase of land, remodel or
renovation of existing stores, expansion of its distribution system, and
computer hardware and software expenditures. The Company currently expects to
make additional expenditures of approximately $122.0 million for such capital
assets for the remainder of the fiscal year ending June 26, 1999 ("Fiscal
Year 1999"). The Company anticipates funding its future capital expenditures
and expansion program with cash flow from operations, borrowings under the
Revolver and proceeds from lease financing arrangements, including a
five-year, $50.0 million synthetic lease arrangement that the Company entered
into on September 10, 1998.
During Fiscal Year 1998, the Company commenced expansion of its
distribution system in a strategic shift toward self-distribution. The
transition to self-distribution is expected to increase the operational and
purchasing efficiencies of the Company's distribution network and lower the
Company's overall cost of sales, although no assurance can be given in this
regard. To date, the Company has completed the initial phases of the
expansion and is receiving and shipping product on a limited basis. The
related systems conversion and testing are substantially complete, and the
Company has not experienced any disruption to its supply of product as a result
of such progress. The transition to self-distribution is expected to be
substantially completed during Fiscal Year 1999. While the Company has
distributed products to its stores for many years, the anticipated expansion
and move to self-distribution present multiple risks that could potentially
have an adverse impact on the Company's financial results for a particular
quarter or annual reporting period. Such risks include, but are not limited to,
increased borrowings due to the build-up of excess inventory levels and lower
sales, gross margin and net income due to the potential disruptions of
product delivery and sourcing to the stores. Although there can be no
assurance, management believes that its extensive planning process, its
progress on the transition to date and its prior experience in distribution
reduce the risks of a significant disruption of supply for the duration of the
transition.
NEW ACCOUNTING STANDARDS - In April 1998, the American Institute of
Certified Public Accountants issued Statement of Position 98-5, "REPORTING ON
THE COSTS OF START-UP ACTIVITIES", ("SOP 98-5") which requires that costs
incurred for start-up activities should be charged to operations as incurred.
Although the Company has not fully assessed the impact of adopting SOP 98-5,
the Company does not believe that such adoption will have a material impact
on its financial statements. The Company is required to adopt SOP 98-5 in its
fiscal year ending June 24, 2000. Initial application of SOP 98-5 will be
reported as a cumulative effect of an accounting change.
EFFECTS OF INFLATION - 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 gross profit margins by
adjusting retail prices, but competitive conditions may from time to time
render the Company unable to do so while maintaining its market share.
YEAR 2000 COMPLIANCE - The year 2000 issue is the result of computer programs
being written using two digits rather than four to define the applicable
year, as well as hardware designed with similar constraints. Some of the
Company's computer programs and hardware that have date-sensitive functions
may recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in a system failure or
13
<PAGE>
miscalculations causing disruptions in operations including, among other
things, a temporary inability to process transactions, receive invoices, make
payments or engage in similar normal business activities.
In February 1997, the Company began a project, under the direction of
the Company's Chief Information Officer, to address the year 2000 issue. The
Company is utilizing both internal and external resources to identify,
upgrade and test the Company's hardware, software, systems and processes ("IT
systems") for year 2000 compliance. In July 1997, the Company completed the
identification phase of its project with a comprehensive inventory and impact
assessment of its IT systems. Such phase identified various IT systems
requiring upgrades in order to be year 2000 compliant. To complete the
upgrade and testing phases, the Company developed the Y2K Migration Plan (the
"Y2K Plan"). The Y2K Plan is currently underway and expected to be
substantially complete by the end of Fiscal Year 1999. Presently,
approximately 60% of the Company's IT systems that were determined to be
non-compliant have been upgraded and tested, and are now believed to be year
2000 compliant. Year 2000 upgrades have been prioritized to complete all
critical systems such as procurement in the early phases of conversion.
Currently, substantially all of the IT systems related to procurement have
been upgraded and have been found to be Year 2000 compliant.
The Company currently expects to expense approximately $2.0 million in
Fiscal Year 1999 for the cost of upgrading its IT systems under the Y2K Plan.
To date, the Company has expensed less than $1.0 million. In addition, the
Company currently expects to invest approximately $23.0 million for hardware
and software programs to replace systems that are inefficient and in need of
replacement regardless of their year 2000 compliance status. During the
twenty-eight weeks ended January 9, 1999, the Company invested approximately
$12.4 million for such hardware and software programs that are Year 2000
compliant. The Company currently expects to make additional such purchases of
approximately $10.6 million during the remainder of Fiscal Year 1999. The
Company expects to fund the Y2K Plan and hardware and software purchases with
cash flows generated from operations and borrowings under the Revolver.
The Company is also currently assessing the year 2000 readiness of its
non-information technology systems and equipment, such as refrigeration
units, ovens, scales, safes and other equipment ("non-IT systems") which may
include imbedded technology such as microcontrollers that are not year 2000
compliant. The Company currently intends to complete its plan to address such
non-IT systems issues by the end of Fiscal Year 1999 and expects that such
systems will be year 2000 compliant before calendar year 2000. The cost of
achieving such compliance is not currently expected to have a material impact
on the Company's financial position, results of operations or cash flows.
The Company has suppliers and other third parties that it relies on for
business operations and currently expects those suppliers and other third
parties are taking the appropriate action for year 2000 compliance. The
Company cannot provide assurance that failure of such suppliers and other
third parties to address the year 2000 issue will not have an adverse impact
on the Company. While the Company has limited ability to test and control its
suppliers' and other third parties' year 2000 readiness, the Company is
contacting major suppliers and critical other third parties and obtaining and
assessing whether they will be year 2000 compliant. Based on the responses,
the Company will develop contingency plans to reduce the impact of
transactions with non-compliant major suppliers and other critical parties.
Although there can be no assurance that multiple business disruptions caused
by technology failures can be adequately anticipated, the Company is
identifying second and third sources of supply for major suppliers to
minimize the risk of business interruptions.
The Company intends for its year 2000 date conversion project for both
its IT systems and non-IT systems to be completed on a timely basis so as to
not significantly impact business operations. However, if the Company or any
critical third parties do not complete necessary upgrades as planned, the
year 2000 issue may have a material impact on the Company, including, among
other things, a temporary inability to procure and
14
<PAGE>
distribute product, process transactions, receive invoices, make payments,
refrigerate perishable products or engage in similar normal business
activities. The Company is currently assessing the potential impact of such
year 2000-related issues and will develop contingency plans to mitigate the
risk of any scenario that may have a material impact on the Company. The
Company intends to formalize such contingency plans by the fourth quarter of
calendar year 1999.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. The factors discussed below,
among others, could cause actual results to differ materially from those
contained in forward-looking statements made in this report, including,
without limitation, in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," in the Company's related press release
and in oral statements made by authorized officers of the Company. When used
in this report, any press release or oral statements, the words "looking
forward", "estimate," "project," "anticipate," "expect," "intend," "believe"
and similar expressions are intended to identify forward-looking statements.
All of these forward-looking statements are based on estimates and
assumptions made by management of the Company, which, although believed to be
reasonable, are inherently uncertain. Therefore, undue reliance should not be
placed upon such estimates and statements. No assurance can be given that any
of such statements or estimates will be realized and actual results will
differ from those contemplated by such forward-looking statements.
Accordingly, the Company hereby identifies the following important factors
which could cause the Company's financial results to differ materially from
any such results which might be projected, forecast, estimated or budgeted by
the Company in forward-looking statements: heightened competition, including
specifically the intensification of price competition and the expansion,
renovation and opening of new stores by competitors; failure to obtain new
customers or retain existing customers; inability to carry out strategies to
accelerate new store development and remodeling programs, reduce operating
costs, differentiate products and services, leverage the frequent shopper
program and increase private label sales; insufficiency of financial
resources to renovate and expand the store base; increase in leverage and
interest expense due to the expansion and remodeling program; outcome of the
MSP Litigation and the John Paul Mitchell Litigation; issues arising in
connection with the Y2K Plan; prolonged dispute with labor; economic downturn
in the State of Texas; loss or retirement of key executives; higher selling,
general and administrative expenses occasioned by the need for additional
advertising, marketing, administrative or management information systems
expenditures; adverse publicity and news coverage.
The foregoing review of the factors pursuant to the Private Litigation
Securities Reform Act of 1995 should not be construed as exhaustive or as any
admission regarding the adequacy of disclosures made by the Company prior to
this filing.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the 16 weeks ended October 17, 1998, the Company entered into
two interest rate swap agreements to hedge interest rate costs and risks
associated with variable interest rates. Such agreements effectively convert
variable-rate debt, to the extent of the notional amount, to fixed-rate debt
with effective per annum interest rates of 5.493% and 5.295%, with respect to
the London Interbank Offered Rate portion of such borrowings. The aggregate
notional principal amount of such agreements is $100.0 million, $50.0 million
of which became effective August 25, 1998 and matures August 25, 2001, and
$50.0 million of which became effective September 2, 1998 and matures
September 2, 2001. The counterparty to such agreements can terminate either
agreement after two years, at its sole discretion. The counterparty to such
agreements is a major financial institution, and therefore, credit losses
from counterparty nonperformance are not anticipated.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
MSP LITIGATION - Following the Company's acquisition of Cullum
Companies, Inc. in August 1992, the Company terminated the Cullum's
Management Security Plan for Cullum Companies, Inc. ("the MSP"). In respect
of such termination, the Company paid MSP participants the greater of (i) the
amount of such participant's deferral or (ii) the net present value of the
participant's accrued benefit, based upon the participant's current salary,
age and years of service. Thirty-five of the former MSP participants have
instituted a claim against the Company on behalf of all persons who were
participants in the MSP on its date of termination (which is alleged by
plaintiffs to be approximately 250 persons). On May 7, 1997, the plaintiffs
filed an amended complaint for the Court to recognize their action as a class
action, to recover additional amounts under the MSP, for a declaration of
rights under an employee pension benefit plan and for breach of fiduciary
duty. The plaintiffs assert that the yearly plan agreement executed by each
participant in the MSP was a contract for a specified retirement and death
benefit set forth in such plan agreements and that such benefits were vested
and nonforfeitable. A pre-trial order in the MSP litigation, which was
submitted to the Court on October 22, 1997, states that an expert for the
plaintiffs, assuming class certification, may testify that the damages
allegedly sustained by the plaintiff class may range from approximately $18.0
million to $37.2 million and, assuming that a court were to award additional
damages based on a rate of return achieved by an equity index over the
relevant period, such damages may range from approximately $37.4 million to
$70.6 million. On December 30, 1997, the Court issued an order denying the
plaintiffs' summary judgment motion on the plaintiffs' claim that the MSP was
not an exempt "top hat plan" (a plan which is unfunded and maintained by an
employer primarily for the purpose of providing deferred compensation for a
select group of management or highly compensated employees). The order also
granted the Company's summary judgment motions on two of the plaintiffs'
ancillary claims, but did not address the plaintiffs' request for
certification as a class action. On June 5, 1998, the Court ruled that the
plan was "unfunded", meaning that the trial of the limited class action issue
will deal only with the question of whether the MSP was "maintained primarily
for the purpose of providing deferred compensation for a select group of
management or highly compensated employees." On June 16, 1998, the Court
certified the case as a class action for the limited issue of determining if
the MSP was an exempt "top hat plan". The Court defined the class as all
persons who, on the date of the termination of the MSP, were participants in
the MSP and were employed by Randall's Food Markets, Inc. On September 8,
1998, a pre-trial conference was held to discuss burden of proof, expert
testimony and meaning of "select group" and the evidence to be considered at
the trial. The trial of the limited class action issue was conducted before
the Court, sitting without a jury, on October 26, 1998. Upon order of the
Court, both parties submitted post-trial briefs on November 6, 1998. The
Court has yet to rule on the limited class action issue. Once the initial
class issue is resolved, the Court will make an evaluation as to whether any
other issues should be dealt with in a class action context. Based upon
current facts, the Company is unable to estimate any meaningful range of
possible loss that could result from an unfavorable outcome of the MSP
litigation. It is possible that the Company's results of operations or cash
flows in a particular quarterly or annual period or its financial position
could be materially affected by an ultimate unfavorable outcome of the MSP
litigation. However, the Company intends to vigorously contest the MSP claim
and, although there can be no assurance, management currently does not
anticipate an unfavorable outcome based on management's independent analysis
of the facts relating to such litigation.
FLEMING DISPUTE - On July 30, 1997, the Company initiated an
arbitration proceeding before the American Arbitration Association against
Fleming Companies, Inc. ("Fleming"), one of its long-time suppliers,
alleging, among other things, that Fleming violated the terms of a supply
agreement signed in 1993. On July 7, 1998, the arbitration panel unanimously
found that Fleming materially breached the supply agreement and that the
contract was terminated as of July 7, 1998 without payment of any termination
fee. The Company and Fleming
16
<PAGE>
entered into a Transition Agreement, effective September 25, 1998, which
provides for a continued supply of products from Fleming while the Company
moves into self-distribution.
JOHN PAUL MITCHELL LAWSUIT - On August 26, 1998, a jury in the 126th
District Court, Travis County, Texas, returned a verdict against the Company
and a co-defendant, Jade Drug Company, Inc. ("Jade"), finding both parties
intentionally conspired with each other to interfere with contracts between
John Paul Mitchell Systems ("Mitchell") and one or more of its distributors
and/or salons. The jury found the Company guilty of having in its possession,
selling or offering for sale Mitchell products that it knew, or that a
reasonable person in the position of the Company would know, had serial
numbers or other permanent identification markings removed, altered or
obliterated. The jury found that the company unfairly competed with Mitchell
by purchasing and distributing the products and infringed on Mitchell's
trademark. The jury also found that the harm caused Mitchell resulted from
malice.
The jury awarded Mitchell and its co-plaintiff, Ultimate Salon Services
Inc., (together, the "Plaintiffs") $3.25 million in joint and several damages
from the Company and Jade, $4.5 million in exemplary damages from the Company
and $3.0 million in actual damages and $4.5 million in exemplary damages from
Jade.
The Company and Jade filed motions with the trial court judge to
disregard the jury's verdict. On November 19, 1998, the trial court judge
threw out the jury's verdict, entered judgement in favor of the Company and
Jade, ordered that the Plaintiffs recover nothing and ordered that the
Plaintiffs pay the Company and Jade all of their court costs. On December 18,
1998, the Plaintiffs filed a motion for a new trial. On February 2, 1999, the
trial court judge denied such motion by operation of law. On February 16,
1999, the Plaintiffs filed their notice of appeal with the court. Although
the outcome of this matter cannot be predicted with certainty, management
believes an unfavorable outcome will not have a material adverse effect on
the Company, its operations, its financial condition or its cash flows.
Other than the foregoing matters, the Company believes it is not a
party to any pending legal proceedings, including ordinary litigation
incidental to the conduct of its business and the ownership of its property,
the adverse determination of which would have a material adverse effect on
the Company, its operations, its financial condition or its cash flows.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on November 17,
1998, at which time the shareholders voted on the re-election of the
following to the Board of Directors to serve until the 1999 Annual Meeting of
Shareholders or until their respective successors are duly elected or
appointed and qualified:
17
<PAGE>
<TABLE>
<CAPTION>
For Against Abstain
--------------- ---------------- ----------------
<S> <C> <C> <C>
Robert R. Onstead 29,131,388 - -
R. Randall Onstead, Jr. 29,131,388 - -
Henry R. Kravis 29,131,388 - -
George R. Roberts 29,131,388 - -
Paul E. Raether 29,131,388 - -
James H. Greene, Jr. 29,131,388 - -
Nils P. Brous 29,131,388 - -
A. Benton Cocanougher 29,131,388 - -
</TABLE>
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<S> <C>
15.1 Letter in lieu of consent of Deloitte &
Touche LLP, independent accountants
27 Financial Data Schedule
</TABLE>
B. Reports on Form 8-K
None
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
RANDALL'S FOOD MARKETS, INC.
(Registrant)
Date: February 19, 1999 /s/ R. RANDALL ONSTEAD, JR.
--------------------------------------------
R. Randall Onstead, Jr.,
Chairman and Chief Executive Officer
Date: February 19, 1999 /s/ MICHAEL M. CALBERT
--------------------------------------------
Michael M. Calbert,
Senior Vice President and Chief
Financial Officer
19
<PAGE>
Exhibit 15.1
February 19, 1999
Randall's Food Markets, Inc.
3663 Briarpark
Houston, Texas
We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited interim
financial information of Randall's Food Markets, Inc. and subsidiaries for
the twelve-week period ended January 9, 1999, as indicated in our report
dated February 10, 1999; because we did not perform an audit, we expressed no
opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended January 9, 1999, is
incorporated by reference in Registration Statement No. 333-70771 on Form S-8.
We also are aware that the aforementioned report, pursuant to Rule 436(c)
under the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of the Act.
DELOITTE & TOUCHE LLP
Houston, Texas
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED BALANCE SHEETS, CONDENSED CONSOLIDATED STATEMENT OF INCOME, THE
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR RANDALL'S FOOD MARKETS, INC.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUN-26-1999
<PERIOD-START> JUN-28-1998
<PERIOD-END> JAN-09-1999
<CASH> 18,252
<SECURITIES> 0
<RECEIVABLES> 54,324
<ALLOWANCES> 0
<INVENTORY> 189,864
<CURRENT-ASSETS> 278,028
<PP&E> 432,054
<DEPRECIATION> 0
<TOTAL-ASSETS> 961,613
<CURRENT-LIABILITIES> 280,046
<BONDS> 395,028
0
0
<COMMON> 13,321
<OTHER-SE> 242,319
<TOTAL-LIABILITY-AND-EQUITY> 961,613
<SALES> 1,394,324
<TOTAL-REVENUES> 1,394,324
<CGS> 1,006,031
<TOTAL-COSTS> 335,615
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,260
<INCOME-PRETAX> 34,418
<INCOME-TAX> 14,953
<INCOME-CONTINUING> 19,465
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,465
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
