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 August 8, 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 September 17, 1998 there were 18,669,189 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
August 8, 1998 (unaudited) and November 1, 1997.................1
Consolidated Statements of Operations for the 16
weeks ended August 8, 1998 and August 9, 1997
(unaudited).....................................................2
Consolidated Statements of Operations for the 40 weeks ended
August 8, 1998 and August 9, 1997 (unaudited)...................3
Consolidated Statements of Cash Flows for the 40 weeks ended
August 8, 1998 and August 9, 1997 (unaudited)...................4
Notes to Consolidated Financial Statements........................5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .....................................6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................11
Item 2. Changes in Securities.............................................11
Item 3. Defaults Upon Senior Securities...................................11
Item 4. Submission of Matters to a Vote of Security Holders...............11
Item 5. Other Information.................................................11
Item 6. Exhibits and Reports on Form 8-K..................................11
Signatures.................................................................12
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
DOMINICK'S SUPERMARKETS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
August 8, 1998 November 1, 1997
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 22,746 $ 22,034
Receivables, net 13,593 18,241
Inventories 204,702 240,575
Prepaid expenses and other 41,325 39,656
Total current assets 282,366 320,506
Property and equipment, net 508,865 418,158
Other assets:
Deferred financing costs, net 3,500 3,694
Goodwill, net 367,590 375,312
Other 30,135 31,090
Total other assets 401,225 410,096
Total assets $1,192,456 $1,148,760
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 204,134 $ 228,969
Accrued payroll and related liabilities 32,865 35,906
Taxes payable 47,451 20,852
Other accrued liabilities 57,829 82,274
Current portion of long-term debt 345 377
Current portion of capital lease obligations 16,539 14,147
Total current liabilities 359,163 382,525
Long-term debt:
Bank credit facilities and other 461,991 446,777
Capital lease obligations 167,334 140,032
Deferred income taxes and other liabilities 68,003 62,795
Stockholders' equity:
Common Stock, $.01 par value 50,000,000
shares authorized, 18,669,189 issued and
outstanding at August 8, 1998 and
17,851,891 at November 1, 1997 186 178
Non-Voting Common Stock, $.01 par value,
10,000,000 shares authorized, 2,861,354
shares issued and outstanding at
August 8, 1998 and 3,515,168 at
November 1, 1997 29 35
Additional paid-in capital 205,989 205,464
Retained deficit (70,239) (89,046)
Total stockholders' equity 135,965 116,631
Total liabilities and stockholders' equity $1,192,456 $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)
16 Weeks 16 Weeks
Ended Ended
August 8, 1998 August 9, 1997
<S> <C> <C>
Sales $ 725,877 $ 813,690
Cost of sales 538,019 618,555
Gross profit 187,858 195,135
Selling, general and
administrative expenses 158,202 165,459
Operating income 29,656 29,676
Interest expense 17,401 18,515
Income before income taxes 12,255 11,161
Income tax expense 6,189 5,521
Net income $ 6,066 $ 5,640
Earnings Per Share
Basic earnings per share $ 0.28 $ 0.26
Diluted earnings per share $ 0.25 $ 0.25
<FN>
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
DOMINICK'S SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
40 Weeks 40 Weeks
Ended Ended
August 8, 1998 August 9, 1997
<S> <C> <C>
Sales $ 1,841,949 $ 2,000,068
Cost of sales 1,360,816 1,521,598
Gross profit 481,133 478,470
Selling, general and
administrative expenses 400,703 403,690
Operating income 80,430 74,780
Interest expense 43,662 45,191
Income before income taxes 36,768 29,589
Income tax expense 17,961 14,882
Net income $ 18,807 $ 14,707
Earnings Per Share
Basic earnings per share $ 0.88 $ 0.69
Diluted earnings per share $ 0.78 $ 0.66
<FN>
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
DOMINICK'S SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
40 Weeks 40 Weeks
Ended Ended
August 8, 1998 August 9, 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 18,807 $ 14,707
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 50,937 44,642
Amortization of deferred financing costs 548 877
Gain on disposal of assets (186) (137)
Changes in operating assets
and liabilities:
Receivables 4,648 (15,249)
Inventories 35,873 (10,516)
Prepaid expenses and other (9,502) (2,675)
Accounts payable (24,835) 6,657
Accrued liabilities and taxes payable 4,683 19,812
Total adjustments 62,166 43,411
Net cash provided by operating activities 80,973 58,118
Cash flows from investing activities:
Capital expenditures (122,859) (66,598)
Proceeds from sale of assets and other 933 272
Net cash used in investing activities (121,926) (66,326)
Cash flows from financing activities:
Principal payments for long-term debt and
capital lease obligations (12,639) (10,550)
Proceeds from sale-leaseback of assets 38,632 15,142
Increase in revolving debt 15,500 19,000
Proceeds from issuance of capital stock 526 --
Redemption of preferred stock -- (50,780)
Other (354) (559)
Net cash provided by (used in)
financing activities 41,665 (27,747)
Net increase/(decrease)in cash and
cash equivalents 712 (35,955)
Cash and cash equivalents (including $50.8
million of cash reserved for preferred stock
redemption in 1997) at beginning of period 22,034 83,515
Cash and cash equivalents at end of period $ 22,746 $ 47,560
<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 August 8, 1998,
and the consolidated statements of operations and cash flows for the
16 week and 40 week periods ended August 8, 1998 and August 9, 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
$4,625,000 and $3,855,000 at August 8, 1998 and November 1, 1997,
respectively, and gross profit and operating income would have been
greater by $770,000 and $308,000, and $1,764,000 and $556,000 for the
40 weeks and 16 weeks ended August 8, 1998 and August 9, 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 (amounts in thousands, except per-share data):
<TABLE>
16 Weeks 40 Weeks 16 Weeks 40 Weeks
Ended Ended Ended Ended
August 8, 1998 August 9,1997
<S> <C> <C> <C> <C>
Net Income $ 6,066 $ 18,807 $ 5,640 $ 14,707
Weighted average common
shares outstanding
(share base for basic
earnings per share 21,497 21,435 21,364 21,361
Effect of potentially
dilutive securities 2,818 2,827 1,521 1,064
Share base for diluted
earnings per share 24,315 24,262 22,885 22,425
Basic earnings per share $ .28 $ .88 $ .26 $ .69
Diluted earnings per share $ .25 $ .78 $ .25 $ .66
</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 16 weeks ended August 8, 1998, the 16 weeks ended
August 9, 1997, the 40 weeks ended August 8, 1998 and the 40 weeks
ended August 9, 1997, expressed in millions of dollars and as a
percentage of sales.
<TABLE>
16 Weeks Ended 40 Weeks Ended
August 8, 1998 August 9, 1997 August 8, 1998 August 9, 1997
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $725.9 100.0% $813.7 100.0% $1,841.9 100.0% $2,000.1 100.0%
Gross profit 187.9 25.9% 195.1 24.0% 481.1 26.1% 478.5 23.9%
Selling, general
and administrative
expenses 158.2 21.8% 165.5 20.3% 400.7 21.8% 403.7 20.2%
Operating income 29.7 4.1% 29.6 3.7% 80.4 4.3% 74.8 3.7%
Interest expense 17.4 2.4% 18.5 2.3% 43.7 2.4% 45.2 2.3%
Income tax expense 6.2 0.9% 5.5 0.7% 17.9 1.0% 14.9 0.7%
Net income 6.1 0.8% 5.6 0.7% 18.8 0.9% 14.7 0.7%
</TABLE>
Comparison of Results of Operations for the 16 Weeks Ended August 8,
1998 with the 16 Weeks Ended August 9, 1997.
Sales: Sales decreased $87.8 million, or 10.8%, from $813.7
million in the 16 weeks ended August 9, 1997 to $725.9 million in the
16 weeks ended August 8, 1998. The lower sales levels were primarily
attributable to the former Omni stores, which were changed in October
1997 from a high volume, price impact format to the Dominick's format
in name only and without any significant remodel. On June 9, 1998,
grand re-openings were held for 15 of these stores, and, as a result,
third-quarter 1998 results included the negative impact of
approximately eight weeks of substantial construction activity.
Comparable store sales decreased 1.9% for the 16 weeks ended August
8, 1998.
Gross Profit: Gross profit decreased $7.2 million, or 3.7%, from
$195.1 million in the 16 weeks ended August 9, 1997 to $187.9 million
in the 16 weeks ended August 8, 1998. Gross profit as a percentage
of sales increased from 24.0% in the 16 weeks ended August 9, 1997 to
25.9% in the 16 weeks ended August 8, 1998, due primarily to the
positive impact of converting the former Omni stores to the full-
service Dominick's format, the Company's ongoing initiatives to lower
its cost of goods, and the maturing and expansion of its base of
Fresh Stores.
<PAGE>
Selling, General and Administrative Expenses: SG&A decreased
$7.3 million, or 4.4%, from $165.5 million in the 16 weeks ended
August 9, 1997 to $158.2 million in the 16 weeks ended August 8,
1998. SG&A increased from 20.3% of sales in the 16 weeks ended
August 9, 1997 to 21.8% of sales in the 16 weeks ended August 8,
1998. SG&A expenses as a percentage of sales increased primarily as
a result of the lower level of sales related to the conversion of the
high volume Omni format to the Dominick's format as well as planned
increases in occupancy costs and depreciation expense associated with
the Company's new store and remodel program.
Operating Income: Operating income for the 16 weeks ended August
8, 1998 increased $0.1 million, or 0.3%, from $29.6 million in the 16
weeks ended August 9, 1997 to $29.7 million as a result of the
factors discussed above.
Interest Expense: Interest expense decreased from $18.5 million in
the 16 weeks ended August 9, 1997 to $17.4 million in the 16 weeks
ended August 8, 1998. The decrease in interest expense was due to lower
interest rates following the Company's retirement of its senior
subordinated notes in October 1997.
Net Income: Net income increased $0.5 million from $5.6 million in
the 16 weeks ended August 9, 1997 to $6.1 million in the 16 weeks
ended August 8, 1998 as a result of the factors discussed above.
Comparison of Results of Operations for the 40 Weeks Ended August 8,
1998 with the 40 Weeks Ended August 9, 1997
Sales: Sales decreased $158.2 million, or 7.9%, from $2,000.1
million in the 40 weeks ended August 9, 1997 to $1,841.9 million in
the 40 weeks ended August 8, 1998. The lower sales levels were
primarily attributable to the former Omni stores, which were changed
in October 1997 from a high volume, price impact format to the
Dominick's format in name only and without any significant remodel.
On June 9, 1998, grand re-openings were held for 15 of these stores,
and hence, third-quarter 1998 results included the negative impact of
approximately eight weeks of substantial construction activity.
Comparable store sales decreased 0.5% for the 40 weeks ended August
8, 1998.
Gross Profit: Gross profit increased $2.6 million, or 0.5%, from
$478.5 million in the 40 weeks ended August 9, 1997 to $481.1 million
in the 40 weeks ended August 8, 1998. Gross profit as a percentage
of sales increased from 23.9% in the 40 weeks ended August 9, 1997 to
26.1% in the 40 weeks ended August 8, 1998, due primarily to the
positive impact of converting the former Omni stores to the full-
service Dominick's format, the Company's ongoing initiatives to lower
its cost of goods, and the maturing and expansion of its base of
Fresh Stores.
<PAGE>
Selling, General and Administrative Expenses: SG&A decreased
$3.0 million, or 0.7%, from $403.7 million in the 40 weeks ended
August 9, 1997 to $400.7 million in the 40 weeks ended August 8,
1998. SG&A increased from 20.2% of sales in the 40 weeks ended
August 9, 1997 to 21.8% of sales in the 40 weeks ended August 8,
1998. SG&A expenses as a percentage of sales increased primarily as
a result of the lower level of sales related to the conversion of
stores from the Omni format to the Dominick's format as well as
planned increases in occupancy costs and depreciation expense
associated with the Company's new store and remodel program.
Operating Income: Operating income for the 40 weeks ended August
8, 1998 increased $5.6 million, or 7.5%, from $74.8 million in the 40
weeks ended August 9, 1997 to $80.4 million as a result of the
factors discussed above.
Interest Expense: Interest expense decreased from $45.2 million in
the 40 weeks ended August 9, 1997 to $43.7 million in the 40 weeks
ended August 8, 1998. The decrease in interest expense was due to
lower interest rates following the Company's retirement of its senior
subordinated notes in October 1997.
Net Income: Net income increased $4.1 million from $14.7 million
in the 40 weeks ended August 9, 1997 to $18.8 million in the 40 weeks
ended August 8, 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), capital and operating leases, and the Company's $75.0 million
real property lease financing facility. The Company's principal uses
of liquidity are to provide working capital and finance capital
expenditures.
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.
<PAGE>
The Company generated approximately $81.0 million of cash from
operating activities during the 40 weeks ended August 8, 1998
compared to $58.1 million in the same period last year. The increase
in cash generated from operating activities during the 40 weeks ended
August 8, 1998 was attributable to an increase in net income; an
increase in depreciation and amortization; and a reduction in working
capital attributed in part to the conversion of the former Omni
stores to the Dominick's format. One of the Company's principal uses
of cash in its 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 $76.8 million at August 8, 1998.
The Company used $121.9 million in investing activities for the
40 weeks ended August 8, 1998, which consisted principally 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 information technology systems. The Company
financed a portion of its capital expenditures through capital leases
of certain equipment, which amounted to $38.6 million during the 40
week period.
The Company plans to make gross capital expenditures of
approximately $142 million (or $77 million net of expected capital
leases) in fiscal 1998. Such expenditures are expected to consist of
approximately $67 million for the conversion of the Company's 17 Omni
stores to the Dominick's format, $59 million related to other
remodels and new stores, and $16 million for other purposes. Management
expects that these capital expenditures will be financed primarily through
cash flow from operations and capital leases. Certain environmental
remediation costs (approximately $4 million to $6 million) are expected
to be incurred over the next several years.
The capital expenditure plans discussed above do not include
potential acquisitions which the Company might make to expand within
its existing market or contiguous markets. Any such future
acquisitions might require the Company to seek additional debt or
equity financing. On August 19, 1998, the Company announced that it
had retained an investment banking firm to assist the Company in the
evaluation of various strategic alternatives, including acquisitions,
mergers or other business combinations or other transactions that
would enhance shareholder value. This evaluation process is ongoing
at the date of this report.
On April 27, 1998, the Company's Board of Directors authorized
the repurchase of up to one million shares of its common stock. Any
such repurchases will be made on the open market from time to time at
prevailing market prices. No repurchases were made during the
quarter ended August 8, 1998.
<PAGE>
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 distributing cash to the Company,
other than for certain limited purposes, including payments for
taxes and for general administrative items (subject to limitations).
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. In fiscal 1997, the plaintiffs'
motion for class certification was granted by the court for the
female subclass, but was denied for the national origin subclass.
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 concluded
that it was 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.
While no assurances can be given, the Company's current assessment of
the underlying facts and circumstances and the other information
available, is that the resolution of this litigation will not 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."
The Company is highly leveraged. Based upon current levels of
profitability and anticipated cost savings and future growth, the
Company believes that its cash flow from operations, 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>
Year 2000 Matters
Certain of the Company's computer programs were written using
two digits to define the applicable year, and certain of the
Company's computer hardware was designed with similar constraints.
Consequently, such programs and hardware may recognize a date using
"00" as the year 1900 rather than the year 2000. The programs and
hardware that are affected by these constraints include systems that
are critical to the Company's day-to-day operations such as its
warehouse operations, store delivery and sales reporting systems. If
not corrected, these conditions could result in a system failure or
miscalculations causing disruption to normal operations, including
the temporary inability to electronically process transactions,
receive invoices, make payments or engage in similar activities. In
addition, many of the Company's vendors and service providers are
also faced with technology and non-technology challenges related to
the year 2000. Collectively these matters are referred to as the
"Year 2000 Issue."
In connection with the Company's Year 2000 Issue, the Company's
management has assessed the Company's information systems, including
its hardware and software systems and embedded systems contained in
the Company's stores, distribution facilities and corporate
headquarters. Based on the findings of this assessment, the Company
has commenced an action plan (the "Action Plan") to upgrade or replace
the Company's year 2000 non-compliant hardware or software and to assess
the year 2000 readiness of the Company's vendors and service providers.
In addition, the Company's management is currently formulating contingency
plans (the "Contingency Plans"), which, in the event that the Company is
unable to fully implement the Action Plan in a timely manner, or any of the
Company's vendors or service providers fails to be year 2000 compliant,
may be implemented to minimize the risks of interruptions of the Company's
business.
Based on its assessment to date of the year 2000 readiness of
the Company's vendors, service providers and other third parties on
which the Company relies for business operations, the Company
believes that its principal vendors, service providers and other
third parties are taking action for year 2000 compliance.
However, the Company has limited ability to test and control such
third parties' year 2000 readiness, and the Company cannot provide
assurance that failure of such third parties to address the year 2000
issue will not cause an interruption of the Company's business.
<PAGE>
The Company has committed significant resources in connection
with resolving its Year 2000 Issue. In addition to its existing
internal information technology staff, certain third party
consultants have been retained to implement the Action Plan. As of
August 8, 1998, the Company believes that approximately 25% of its
information systems are year 2000 compliant, approximately 30% will
be replaced and approximately 45% will be upgraded pursuant to the
Action Plan. The Company estimates that the total costs associated
with implementing the Action Plan will be approximately $29.0 million,
consisting of $4.5 million of system upgrades ($1.1 million of which
has been incurred as of August 8, 1998) and system replacement costs of
$24.5 million ($6.7 million of which has been incurred as of
August 8,1998). The Company expenses the cost of system upgrades as
incurred, and capitalizes the costs of system replacements. The Company
anticipates that it will finance the cost of its Year 2000 Issue using
its existing sources of liquidity described above.
The Company expects the Action Plan to be fully implemented by
October 1999. However, the Company's ability to timely execute its
Action Plan may be adversely affected by a variety of factors, some
of which are beyond the Company's control including turnover of key
employees, availability and continuity of consultants and the
potential for unforeseen implementation problems. Any of (i) the
failure to implement the Action Plan in a timely manner, (ii) the
failure by the Company's vendors, service providers or other third
parties to be year 2000 compliant or (iii) the failure of the
Contingency Plans to minimize the risk of interruptions of the
Company's business could cause an interruption in the Company's
business. Based on currently available information, and although no
assurances can be given, the Company does not believe that any such
interruptions are likely to have a material adverse effect on the
Company's results of operation, liquidity or financial condition.
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.
<PAGE>
Forward Looking Statements
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 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.
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.
<PAGE>
Due to the numerous legal and factual issues that 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 concluded
that it was 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 of the underlying facts and circumstances and other
information currently available, is that the resolution of this
litigation will not have a material adverse effect on the Company's
overall liquidity. However, no assurances can be given in this
regard. 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.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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: September 22, 1998 DOMINICK'S SUPERMARKETS, INC.
/s/ Robert A. Mariano
Robert A. Mariano
President and Chief Executive Officer
/s/ Andrew A. Campbell
Andrew A. Campbell
Executive Vice President, Finance and
Administration, and
Chief Financial Officer
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