SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended January 24, 1998
Commission file number 1-12353
DOMINICK'S SUPERMARKETS, INC.
(Exact name of registrant as specified in charter)
Delaware 94-3220603
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
505 Railroad Avenue
Northlake, Illinois 60164
Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (708) 562-1000
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 at least the
past 90 days. YES [X] NO [ ].
At March 6, 1998 there were 18,554,767 shares of Common Stock
outstanding and 2,861,354 shares of Non-Voting Common Stock
outstanding.
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of
January 24, 1998 (unaudited) and November 1, 1997.........1
Consolidated Statements of Operations for the 12
weeks ended January 24, 1998 and January 25, 1997
(unaudited)...............................................2
Consolidated Statements of Cash Flows for the 12 weeks ended
January 24, 1998 and January 25, 1997 (unaudited).........3
Notes to Consolidated Financial Statements ..................4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................5
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................8
Item 2. Changes in Securities........................................9
Item 3. Defaults Upon Senior Securities..............................9
Item 4. Submission of Matters to a Vote of
Security Holders.............................................9
Item 5. Other Information............................................9
Item 6. Exhibits and Reports on Form 8-K.............................9
Signatures...........................................................10
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
DOMINICK'S SUPERMARKETS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<CAPTION>
January 24, 1998 November 1, 1997
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 29,514 $ 22,034
Receivables, net 24,995 18,241
Inventories 219,658 240,575
Prepaid expenses and other 37,999 39,656
Total current assets 312,166 320,506
Property and equipment, net 423,446 418,158
Other assets:
Deferred financing costs, net 3,596 3,694
Goodwill, net 372,995 375,312
Other 30,009 31,090
Total other assets 406,600 410,096
Total assets $ 1,142,212 $ 1,148,760
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 194,018 $ 228,969
Accrued payroll and related liabilities 24,655 35,906
Taxes payable 30,016 20,852
Other accrued liabilities 71,174 82,274
Current portion of long-term debt 364 377
Current portion of capital lease
obligations 14,804 14,147
Total current liabilities 335,031 382,525
Long-term debt:
Bank credit facilities and other 466,207 446,777
Capital lease obligations 149,531 140,032
Deferred income taxes and other
liabilities 65,723 62,795
Stockholders' equity:
Common Stock, $.01 par value 50,000,000
shares authorized, 18,483,007 issued and
outstanding at January 24, 1998 and
17,851,891 at November 1, 1997 185 178
Non-Voting Common Stock, $.01 par value,
10,000,000 shares authorized, 2,884,326
shares issued and outstanding at
January 24, 1998 and 3,515,168
at November 1, 1997 28 35
Additional paid-in capital 205,473 205,464
Retained deficit (79,966) (89,046)
Total stockholders' equity 125,720 116,631
Total liabilities and stockholders'
equity $ 1,142,212 $ 1,148,760
<FN>
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
DOMINICK'S SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<CAPTION>
12 Weeks 12 Weeks
Ended Ended
January 24, 1998 January 25, 1997
<S> <C> <C>
Sales $ 588,442 $ 602,923
Cost of sales 433,945 460,616
Gross profit 154,497 142,307
Selling, general and
administrative expenses 124,464 119,012
Operating income 30,033 23,295
Interest expense 13,325 12,911
Income before income taxes 16,708 10,384
Income tax expense 7,628 5,199
Net income $ 9,080 $ 5,185
Earnings Per Share
Basic earnings per share $ 0.42 $ 0.24
Diluted earnings per share $ 0.38 $ 0.23
<FN>
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
DOMINICK'S SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<CAPTION>
12 Weeks 12 Weeks
Ended Ended
January 24, 1998 January 25, 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 9,080 $ 5,185
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 13,966 12,021
Amortization of deferred financing
costs 164 252
Gain on disposal of assets -- (44)
Changes in operating assets
and liabilities:
Receivables (6,754) (3,972)
Inventories 21,149 (536)
Prepaid expenses and other 858 (3,064)
Accounts payable (34,951) (29,478)
Accrued liabilities and taxes payable (10,258) 9,117
Total adjustments (15,826) (15,704)
Net cash used in operating activities (6,746) (10,519)
Cash flows from investing activities:
Capital expenditures (15,280) (21,108)
Proceeds from sale of assets -- 56
Net cash used in investing activities (15,280) (21,052)
Cash flows from financing activities:
Principal payments for long-term debt
and capital lease obligations (3,144) (4,013)
Proceeds from sale-leaseback of assets 13,217 8,848
Increase in revolving debt 19,500 15,000
Redemption of preferred stock -- (50,780)
Deferred financing costs and other (67) 192
Net cash provided by (used in)
financing activities 29,506 (30,753)
Net increase in cash and cash equivalents 7,480 (62,324)
Cash and cash equivalents at beginning of
period 22,034 83,515
Cash and cash equivalents at end
of period $ 29,514 $ 21,191
<FN>
See accompanying notes.
</TABLE>
<PAGE>
DOMINICK'S SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated balance sheet of Dominick's Supermarkets Inc. (together
with its subsidiaries, the "Company") as of January 24, 1998, and the
consolidated statements of operations and cash flows for the 12-week
period ended January 24, 1998, and January 25, 1997, are unaudited, but
include all adjustments which the Company considers necessary for a fair
presentation of its consolidated financial position, results of operations
and cash flows for these periods. These interim financial statements do
not include all disclosures required by generally accepted accounting
principles and, therefore, should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended November 1, 1997. Results
of operations for interim periods are not necessarily indicative of the
results for a full fiscal year.
The Company uses a 52-53 week fiscal year ending on the Saturday closest
to October 31. The Company operates supermarkets in Chicago, Illinois, and
its suburbs. The consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. The Company has no
operations other than those of its subsidiaries.
Inventories
Inventories are stated at the lower of cost, primarily using the last-in,
first-out (LIFO) method, or market. If inventories had been valued using
replacement cost, inventories would have been higher by $4,086,000 and
$3,855,000 at January 24, 1998 and November 1, 1997, respectively, and
gross profit and operating income would have been greater by $231,000 and
$605,000 for the 12 weeks ended January 24, 1998 and January 25, 1997,
respectively.
<PAGE>
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which requires the presentation of
both basic and diluted earnings per share. Under Statement 128, the
dilutive effect of stock options and warrants are excluded from the
calculation of basic earnings per share but continue to be included in the
calculation of diluted earnings per share. The following table sets forth
the computation of basic and diluted earnings per share (dollars and share
information in thousands):
<TABLE>
<CAPTION>
12 Weeks 12 Weeks
Ended Ended
January 24, 1998 January 25, 1997
<S> <C> <C>
Net Income $ 9,080 $ 5,185
Weighted average common shares outstanding
(share base for basic earnings per share) 21,367 21,359
Effect of potentially dilutive securities 2,715 759
Share base for diluted earnings per share 24,082 22,118
Basic earnings per share $ .42 $ .24
Diluted earnings per share $ .38 $ .23
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The following table sets forth the historical results of the Company for
the 12 weeks ended January 24, 1998 and for the 12 weeks ended January 25,
1997, expressed in millions of dollars and as a percentage of sales.
<TABLE>
<CAPTION>
12 Weeks Ended
January 24, 1998 January 25,1997
(unaudited)
<S> <C> <C> <C> <C>
Sales ......................... $ 588.4 100.0 % $602.9 100.0 %
Gross profit .................. 154.5 26.3 % 142.3 23.6 %
Selling, general and
administrative expenses ..... 124.5 21.2 % 119.0 19.7 %
Operating income .............. 30.0 5.1 % 23.3 3.9 %
Interest expense .............. 13.3 2.3 % 12.9 2.1 %
Income tax expense ............ 7.6 1.3 % 5.2 0.9 %
Net income .................... 9.1 1.5 % 5.2 0.9 %
</TABLE>
Comparison of Results of Operations for the 12 Weeks Ended January 24, 1998
with the 12 Weeks Ended January 25, 1997
Sales: Sales decreased $14.5 million, or 2.4%, from $602.9 million in the
12 weeks ended January 25, 1997 to $588.4 million in the 12 weeks ended
January 24, 1998. The $14.5 million decrease resulted from lower sales of
the Company's former Omni stores, offset somewhat by incremental sales of
the 12 new Dominick's Fresh Stores opened in the second half of fiscal
1997. The sales decline of the former Omni stores resulted from their
October 1997 conversion from a high volume, price impact format to the
full-service Dominick's format. Remodels of the majority of the 17 former
Omni stores to Dominick's Fresh Stores are currently underway and are
expected to be completed by mid-calendar 1998. Comparable store sales,
which exclude the former Omni stores, increased 2.6 percent in the quarter.
Gross Profit: Gross profit increased $12.2 million, or 8.6%, from $142.3
million in the 12 weeks ended January 25, 1997 to $154.5 million in the 12
weeks ended January 24, 1998. Gross profit as a percentage of sales
increased from 23.6% in the 12 weeks ended January 25, 1997 to 26.3% in the
12 weeks ended January 24, 1998, due primarily to the positive impact of
converting the former Omni stores to the full-service Dominick's format, as
well as increased gross profit margins in the grocery and drug departments.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses ("SG&A") increased $5.5 million, or 4.6%, from
$119.0 million in the 12 weeks ended January 25, 1997 to $124.5 million in
the 12 weeks ended January 24, 1998. SG&A increased from 19.7% of sales in
the 12 weeks ended January 25, 1997 to 21.2% of sales in the 12 weeks ended
January 24, 1998. The increase in SG&A as a percentage of sales reflects
the effect of the conversion of the former Omni stores to full-service
Dominick's stores, as well as planned increases in rent and occupancy
costs associated with the 12 new Dominick's Fresh Stores opened in the
second half of fiscal 1997.
<PAGE>
Operating Income: Operating income for the 12 weeks ended January 24,
1998 increased $6.7 million to $30.0 million, or 28.8%, from $23.3 million
in the 12 weeks ended January 25, 1997 as a result of the factors discussed
above.
Interest Expense: Interest expense increased from $12.9 million in the 12
weeks ended January 25, 1997 to $13.3 million in the 12 weeks ended January
24, 1998. The increase in interest expense was due to increased borrowing
levels offset by lower interest rates resulting primarily from the
retirement of the Company's Senior Subordinated Notes.
Net Income: Net income increased from $5.2 million in the 12 weeks ended
January 25, 1997 to $9.1 million in the 12 weeks ended January 24, 1998 as
a result of the factors discussed above.
Liquidity and Capital Resources
The Company's principal sources of liquidity are cash flow from
operations, borrowings under its 1997 Credit Facility (defined below) and
capital and operating leases. The Company's principal uses of liquidity
are to provide working capital, finance capital expenditures and meet debt
service requirements.
On October 28, 1997, the Company entered into a revolving credit facility
with a syndicate of financial institutions (the "1997 Credit Facility")
which provides borrowing availability of $575 million for general corporate
and working capital purposes including up to $50 million for letters of
credit. The Company uses letters of credit to cover workers' compensation
self-insurance liabilities and for other general purposes. The 1997 Credit
Facility matures on April 28, 2004. The Company is required to make
prepayments or reduce availability under the 1997 Credit Facility, subject
to certain exceptions, with the proceeds from certain asset sales,
issuances of debt securities and any pension plan reversions.
The Company used approximately $6.7 million of cash for operating
activities during the 12 weeks ended January 24, 1998 compared to $10.5
million during the 12 weeks ended January 25, 1997. The reduction in cash
used for operating activities during the 12 weeks ended January 24, 1998 is
primarily attributable to an increase in operating income. One of the
principal uses of cash in the Company's operating activities is inventory
purchases. However, supermarket operators typically require small amounts
of working capital since inventory is generally sold prior to the time
that payments to suppliers are due. This reduces the need for short-term
borrowings and allows cash from operations to be used for non-current
purposes such as financing capital expenditures and other investing
activities. Consistent with this pattern, the Company had a working
capital deficit of $22.9 million at January 24, 1998.
<PAGE>
The Company used $15.3 million in investing activities for the 12 weeks
ended January 24, 1998, which consisted of capital expenditures. Capital
expenditures were made for store remodels, new store openings and, to a
lesser extent, expenditures for warehousing, distribution, and
manufacturing facilities and equipment, including data processing and
computer systems. The Company financed a portion of its capital
expenditures through capital leases of certain equipment purchases which
amounted to $13.2 million during the quarter.
The Company plans to make gross capital expenditures of approximately
$140 million (or $80 million net of expected capital leases) in fiscal
1998. Such expenditures consist of approximately $55 million for the
conversion of the Company's 17 Omni stores to the Dominick's format,
$65 million related to other remodels and new stores, as well as ongoing
store expenditures for equipment and maintenance, and approximately
$20 million related to warehousing, distribution and manufacturing
facilities and equipment, including data processing and computer equipment.
Management expects that these capital expenditures will be financed
primarily through cash flow from operations, capital leases and the
Company's $75.0 million real property lease financing facility. The
capital expenditure budget for fiscal 1998 does not include certain
environmental remediation costs which are expected to be incurred over the
next several years in the range of approximately $4 million to $6 million.
The capital expenditure plans discussed above do not include potential
acquisitions which the Company could make to expand within its existing
market or contiguous markets. The Company may consider such acquisition
opportunities from time to time. Any such future acquisition may require
the Company to seek additional debt or equity financing.
The Company is a holding company that has no material operations other
than its ownership of the capital stock of Dominick's Finer Foods, Inc.
("Dominick's"). As a result, the Company is dependent upon distributions
or advances from Dominick's to obtain cash to pay dividends or for other
corporate purposes. The Company's and its subsidiaries' principal debt
instruments generally restrict Dominick's from paying dividends or
otherwise distributing cash to the Company, except under certain limited
circumstances, including for the payment of taxes and, subject to
limitations, for general administrative purposes.
<PAGE>
The Company, in the ordinary course of its business, is party to various
legal actions. One case currently pending alleges gender discrimination by
Dominick's and seeks compensatory and punitive damages in an unspecified
amount. The plaintiffs' motion for class certification was granted by the
Court as to the female subclass but was denied as to the national origin
subclass in fiscal 1997. Due to the numerous legal and factual issues
which must be resolved during the course of this litigation, the Company is
unable to predict the ultimate outcome of this lawsuit. If Dominick's were
held liable for the alleged discrimination (or otherwise concludes that it
is in the Company's best interest to settle the matter), it could be
required to pay monetary damages (or settlement payments) which, depending
on the theory of recovery or the resolution of the plaintiffs' claims for
compensatory and punitive damages, could be substantial and could have a
material adverse effect on the Company. Based upon the current state of the
proceedings, the Company's assessment to date of the underlying facts and
circumstances and the other information currently available, and although
no assurances can be given, the Company does not believe that the
resolution of this litigation will have a material adverse effect on the
Company's overall liquidity. As additional information is gathered and the
litigation proceeds, the Company will continue to assess its potential
impact. See "Legal Proceedings."
Certain of the Company's computer programs were written using two digits
to define the applicable year. Consequently, such programs may recognize a
date using "00" as the year 1900 rather than the year 2000 (the "Year 2000
Issue"). The Company's management has made an assessment of the Year 2000
Issue and its overall information system requirements and has commenced an
action plan which includes program and system conversions as well as
modifications of existing programs. The Company has been replacing a
substantial number of its computer systems and related programs over the
past several years. Accordingly, the Company's management estimates that
the costs associated with correcting the Year 2000 Issue will not be
material and that the Year 2000 Issue will not pose significant operational
problems for its computer systems.
The Company is highly leveraged. 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
1997 Credit Facility and its other sources of liquidity (including leases)
will be adequate to meet its anticipated requirements for working capital,
debt service and capital expenditures over the next few years.
<PAGE>
Effects of Inflation
The Company's primary costs, inventory and labor, are affected by a number
of factors that are beyond its control, including the 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 its retail prices, but competitive conditions may from time to
time render it unable to do so while maintaining its market share.
Cautionary Statement for Purposes of "Safe Harbor Provisions" of the
Private Securities Litigation Reform Act of 1995
When used in this report, the words "estimate," "expect," "project" and
similar expressions, together with other discussion of future trends or
results, are intended to identify forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). Such statements are subject to certain
risks and uncertainties, including those discussed below, that could cause
actual results to differ materially from those projected. These forward-
looking statements speak only as of the date hereof. 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 and difficult to predict; therefore, undue reliance
should not be placed upon such estimates. There can be no assurance that
the savings or other benefits anticipated in these forward looking
statements will be achieved. For discussion of certain factors which
could cause the Company not to achieve the cost savings or other
benefits contemplated herein or otherwise cause the Company's results of
operations to be adversely affected in future periods, see the section
entitled "Risk Factors" in the Company's Form 10K annual report for the
fiscal year ended November 1, 1997. In addition, there can be no
assurance that unforeseen costs and expenses or other factors will not
offset or adversely affect the projected cost savings or other benefits
in whole or in part.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On March 16, 1995, a lawsuit was filed in the United States District
Court for the Northern District of Illinois against Dominick's by two
employees of Dominick's. The plaintiffs' original complaint asserted
allegations of gender discrimination and sought compensatory and punitive
damages in an unspecified amount. The plaintiffs filed an amended
complaint on May 1, 1995. The amended complaint added four additional
plaintiffs and asserted allegations of gender and national origin
discrimination. The plaintiffs filed a second amended complaint on
August 16, 1996 adding three additional plaintiffs. On April 8, 1997, the
plaintiffs' motion for class certification was granted by the court as to
the female subclass but was denied as to the national origin subclass. The
Company plans to vigorously defend this lawsuit. Due to the numerous legal
and factual issues which must be resolved during the course of this
litigation, the Company is unable to predict the ultimate outcome of this
lawsuit. If Dominick's were held liable for the alleged discrimination (or
otherwise concludes that is in the Company's best interest to settle the
matter), it could be required to pay monetary damages (or settlement
payments) which, depending on the theory of recovery or the resolution of
the plaintiffs' claims for compensatory and punitive damages, could be
substantial and could have a material adverse effect on the Company. Based
upon the current state of the proceedings, the Company's assessment to date
of the underlying facts and circumstances and the other information
currently available, and although no assurances can be given, the Company
does not believe that the resolution of this litigation will have a
material adverse effect on the Company's overall liquidity. As additional
information is gathered and the litigation proceeds, the Company will
continue to assess its potential impact.
The Company, in its ordinary course of business, is party to various
other legal actions. Management believes these are routine in nature and
incidental to its operations. Management believes that the outcome of any
such other proceedings to which the Company currently is a party will not
have a material adverse effect upon its business, financial condition or
results of operations. However, adverse developments with respect to any
pending or future litigation could adversely affect the market price of the
Company's common stock.
<PAGE>
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 the Company's Stockholders was held March 3, 1998
at which time the shareholders voted on the following matters:
Election of Directors:
NOMINEE IN FAVOR WITHHELD
Grace Barry 16,268,352 1,094,051
Peter P. Copses 16,268,791 1,093,612
Robert A. Mariano 16,260,929 1,101,474
Ira L. Tochner 16,260,152 1,102,251
Ronald W. Burkle, Evan Bayh, Linda McLoughlin Figel, Patrick L. Graham,
David B. Kaplan, Darren W. Karst and Anthony P. Ressler also serve as
directors of the Company and their terms of office continued after the
annual meeting.
Approval of the Dominick's Supermarkets, Inc. 1997 Employee Stock
Purchase Plan:
FOR AGAINST ABSTAIN NON-VOTE
17,268,004 85,769 8,630 0
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 - Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: March 10, 1998 DOMINICK'S SUPERMARKETS, INC.
/s/Robert A. Mariano
Robert A. Mariano
President and Chief Executive Officer
/s/ Darren W. Karst
Darren W. Karst
Executive Vice President, Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> JAN-24-1998
<CASH> 29,514
<SECURITIES> 0
<RECEIVABLES> 24,995
<ALLOWANCES> 0
<INVENTORY> 219,658
<CURRENT-ASSETS> 312,166
<PP&E> 423,447
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,142,212
<CURRENT-LIABILITIES> 335,031
<BONDS> 0
0
0
<COMMON> 213
<OTHER-SE> 125,720
<TOTAL-LIABILITY-AND-EQUITY> 1,142,212
<SALES> 588,442
<TOTAL-REVENUES> 588,442
<CGS> 433,945
<TOTAL-COSTS> 433,945
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,325
<INCOME-PRETAX> 16,708
<INCOME-TAX> 7,628
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,080
<EPS-PRIMARY> .42
<EPS-DILUTED> .38
</TABLE>
