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 3, 1996
Commission file number 33-92700
DOMINICK'S FINER FOODS, INC.
(Exact name of registrant as specified in charter)
Delaware 36-3168270
(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 August 30, 1996, there were 1,000 shares of Common Stock
outstanding. As of such date, all of the outstanding shares of Common
Stock were held by DFF Supermarkets, Inc. and there was no public
market for the Common Stock.
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION<PAGE>
Item 1. Financial Statements
Consolidated Balance Sheets as of
August 3, 1996 (unaudited) and October 28, 1995 . . . . . . . . . 1
Consolidated Statements of Operations for the 16 weeks ended
August 3, 1996 (unaudited) and August 5, 1995 (unaudited). . . 2
Consolidated Statements of Operations for the 40 weeks ended
August 3, 1996 (unaudited), the 20 weeks ended August 5,
1995 (unaudited), and the 20 weeks ended March 21, 1995
("Predecessor") . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows for the 40 weeks ended
August 3, 1996 (unaudited), the 20 weeks ended August 5,
1995 (unaudited), and the 20 weeks ended March 21, 1995
("Predecessor") . . . . . . . . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 12
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DOMINICK'S FINER FOODS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
ASSETS
October 28, August 3,
1995 1996
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 55,551 $ 66,827
Receivables, net 25,314 11,787
Inventories 182,880 179,962
Prepaid expenses and other 10,573 14,166
Total current assets 274,318 272,742
Property and equipment, net 353,015 350,789
Other assets:
Deferred financing costs, net 22,567 20,667
Goodwill, net 419,298 422,707
Other 31,011 28,031
Total other assets 472,876 471,405
Total assets $ 1,100,209 $ 1,094,936
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 171,209 $ 141,062
Accrued payroll and related liabilities 31,579 29,668
Taxes payable 7,958 23,150
Other accrued liabilities 83,422 75,048
Current portion of long-term debt 9,771 2,108
Current portion of capital lease obligations 4,565 7,738
Total current liabilities 308,504 278,774
Long-term debt:
Term loans 281,109 273,789
Senior subordinated notes 200,000 200,000
Capital lease obligations 103,921 121,075
Deferred income taxes and other liabilities 66,976 78,291
Stockholder's equity:
Common stock - $.01 par value, 1,000 shares
authorized and issued - -
Additional paid-in capital 147,647 147,842
Accumulated deficit (7,948) (4,835)
Total stockholder's equity 139,699 143,007
Total liabilities and stockholder's equity $ 1,100,209 $ 1,094,936
The accompanying notes are an integral part of these consolidated
statements.
</TABLE>
<PAGE>
<TABLE>
DOMINICK'S FINER FOODS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
(unaudited)
16 Weeks 16 Weeks
Ended Ended
August 5, August 3,
1995 1996
<S> <C> <C>
Sales $ 739,037 $ 759,309
Cost of sales 570,925 583,234
Gross profit 168,112 176,075
Selling, general and administrative expenses 146,998 149,632
Operating income 21,114 26,443
Interest expense:
Interest expense, excluding amortization
of deferred financing costs 19,782 20,312
Amortization of deferred financing costs 930 766
20,712 21,078
Income before income taxes
and extraordinary loss 402 5,365
Income tax expense 1,483 3,648
Income (loss) before extraordinary loss (1,081) 1,717
Extraordinary loss on extinguishment of debt,
net of applicable tax benefit of $2,824 (4,585) -
Net income (loss) $ (5,666) $ 1,717
The accompanying notes are an integral part of these consolidated
statements.
</TABLE>
<PAGE>
<TABLE>
DOMINICK'S FINER FOODS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
Predecessor
Company Company
20 Weeks 20 Weeks 40 Weeks
Ended Ended Ended
March 21, August 5, August 3,
1995 1995 1996
(unaudited)
<S> <C> <C> <C>
Sales $ 958,742 $ 930,351 $1,900,550
Cost of sales 747,561 719,738 1,463,514
Gross profit 211,181 210,613 437,036
Selling, general and
administrative expenses 191,999 185,152 372,376
SAR's termination costs 26,152 - -
Operating income (loss) (6,970) 25,461 64,660
Interest expense:
Interest expense, excluding
amortization of deferred financing
costs 11,238 24,789 51,272
Amortization of deferred financing
costs 69 1,361 2,137
11,307 26,150 53,409
Income (loss) before income taxes
and extraordinary loss (18,277) (689) 11,251
Income tax expense (benefit) (7,135) 1,373 8,138
Income (loss) before extraordinary
loss (11,142) (2,062) 3,113
Extraordinary loss on
extinguishment of debt, net
of applicable tax benefit
of $2,824 - (4,585) -
Net income (loss) $ (11,142) $ (6,647) $ 3,113
The accompanying notes are an integral part of these consolidated
statements.
</TABLE>
<PAGE>
<TABLE>
DOMINICK'S FINER FOODS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Predecessor
Company Company
20 Weeks 20 Weeks 40 Weeks
Ended Ended Ended
March 21, August 5, August 3,
1995 1995 1996
(unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (11,142) $ (6,647) $ 3,113
Adjustments to reconcile net income
(loss) to net cash (used in)
provided by operating activities:
Extraordinary loss on debt
extinguishment - 7,409 -
Depreciation and amortization 20,499 17,740 34,722
Amortization of deferred financing
costs 69 1,361 2,137
SAR's termination costs 26,825 - -
Deferred income taxes (3,890) - -
Loss on disposal of assets 1,149 - 5
Changes in operating assets and
liabilities, net of acquisition:
Receivables 2,546 (775) 13,427
Inventories 7,209 21,493 2,918
Prepaid expenses (1,890) 279 (2,063)
Accounts payable (10,217) (7,698) (30,148)
Accrued liabilities and
taxes payable (11,147) 7,799 8,324
Total adjustments 31,153 47,608 29,322
Net cash provided by operating
activities 20,011 40,961 32,435
Cash flows from investing activities:
Proceeds from sale of assets 380 - 293
Capital expenditures (22,423) (9,479) (25,264)
Proceeds from sale of investments 7,300 - -
Business acquisition cost,
net of cash required - (442,777) -
Other - net 116 34 -
Net cash used in investing activities (14,627) (452,222) (24,971)
Cash flows from financing activities:
Principal payments for long-term debt
and capital lease obligations (5,363) (129,300) (20,052)
Proceeds from sale-leaseback of assets - - 24,702
Proceeds from debt issuances - 480,000 -
Proceeds from issuance of
capital stock - 100,000 -
Debt issuance costs and other (791) (7,905) (838)
Net cash provided by (used in)
financing activities (6,154) 442,795 3,812
Net increase (decrease) in cash and
cash equivalents (770) 31,534 11,276
Cash and cash equivalents at
beginning of period 18,094 17,324 55,551
Cash and cash equivalents at end
of period $ 17,324 $ 48,858 $ 66,827
<PAGE>
Supplemental schedule of non-cash
investing and financing activities
Acquisition of business:
Fair value of assets acquired,
net of cash acquired $1,056,627
Net cash paid in acquisition (442,777)
Exchange of capital stock (40,000)
Management equity investment (5,000)
Liabilities assumed $ 568,850
Contribution of capital in exchange
for debt financing fees $ 2,647
The accompanying notes are an integral part of these consolidated
statements.
</TABLE>
<PAGE>
DOMINICK'S FINER FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated balance sheet of Dominick's Finer Foods, Inc.
("Company") as of August 3, 1996, and the consolidated statements of
operations and cash flows for the 16 week and 40 week period ended
August 3, 1996, the 16 week and the 20 week period ended August 5, 1995
are unaudited, but include all adjustments (consisting of only normal
recurring accruals) which the Company considers necessary for a fair
presentation of its consolidated financial position, results of
operations, and cash flows for these periods. These interim financial
statements do not include all disclosures required by generally
accepted accounting principles, and, therefore, should be read in
conjunction with the Company's financial statements and notes thereto
included in the Company's Form 10-K. Results of operations for interim
periods are not necessarily indicative of the results for a full fiscal
year.
The Company was acquired by Dominick's Supermarkets, Inc.
("Supermarkets") on March 22, 1995 for total consideration of
approximately $693 million (excluding acquisition costs) in a
transaction accounted for as a purchase (the "Acquisition").
Supermarkets effected the Acquisition by acquiring 100% of the capital
stock of the Company's parent for $346.6 million in cash and $40
million of Supermarkets' 15% Redeemable Exchangeable Cumulative
Preferred Stock ("Parent Preferred Stock").
The Acquisition was accounted for as a purchase of the Company by
Supermarkets. As a result, all financial statements for periods
subsequent to March 22, 1995, the date the Acquisition was consummated,
reflect the Company's assets and liabilities at their estimated fair
market values as of March 22, 1995. The purchase price in excess of
the fair market value of the Company's assets was recorded as goodwill
and is being amortized over a 40-year period. For purposes of the
financial statement presentation set forth herein, the Predecessor
Company refers to the Company prior to the consummation of the
Acquisition.
The Parent Preferred Stock has been pushed down for accounting
purposes to the Company with such amount included in the Company's
additional paid-in capital. Dividends on the Parent Preferred Stock
accrue cumulatively at a rate of 15% per annum and are payable by
Supermarkets when and if declared by the Board of Directors of
Supermarkets. The Company's principal debt instruments permit the
Company to distribute cash to Supermarkets, following the sixth
anniversary of the Acquisition, for the purpose of permitting
Supermarkets to pay cash dividends on the Parent Preferred Stock if
certain financial requirements are satisfied.
<PAGE>
The Company, an indirect wholly-owned subsidiary of Supermarkets,
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.
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
$3,437,000 and $1,937,000 at August 3, 1996 and October 28, 1995,
respectively, and gross profit and operating income would have been
greater by $1,500,000, $600,000, $600,000, and $750,000 for the 40
weeks and 16 weeks ended August 3, 1996, the 16 weeks ended August 5,
1995, and the 20 weeks ended March 21, 1995, and August 5, 1995,
respectively.
Reclassifications
Certain prior period amounts in the consolidated financial statements
have been reclassified to conform to the August 3, 1996 presentation.
2. Subsequent Events
On August 30, 1996, Supermarkets filed a Registration Statement on
Form S-1 with the Securities and Exchange Commission relating to an
initial public offering of its common stock (The "Offering"). In
connection with the offering, Supermarkets anticipates it will record a
pre-tax charge of approximately $10.5 million related to the planned
termination of the consulting agreement with The Yucaipa Companies and
an extraordinary loss of approximately $6.4 million (net of applicable
income tax benefit of $4.2 million ) related to the write-off of
deferred financing costs in connection with the planned extinguishment
of debt.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Company was acquired by Supermarkets on March 22, 1995, for total
consideration of approximately $693 million (excluding acquisition
costs). The Acquisition was accounted for as a purchase of the Company
by Supermarkets. The Company's final purchase price allocation
resulted in a reduction in the fair market value of its fixed assets of
approximately $83 million. Additionally, the Company recorded goodwill
of approximately $438 million. The Company's total debt also increased
from approximately $250 million at March 21, 1995 to $600 million on
the date of the Acquisition. As a result of these changes, the Company
anticipates that its results of operations will reflect reduced levels
of depreciation and increased levels of amortization of intangibles and
interest expense as compared to pre-Acquisition periods.
The following table sets forth the historical results of operations
for the 16 weeks ended August 5, 1995, the 16 weeks ended August 3,
1996, the pro forma operating results for the 40 weeks ended August 5,
1995 giving effect to the Acquisition and certain related transactions
as if they occurred at October 29, 1994, and the historical operating
results of the Company for the 40 weeks ended August 3, 1996.
<PAGE>
<TABLE>
<CAPTION>
Pro Forma
16 Weeks Ended 40 Weeks Ended 40 Weeks Ended
August 5, 1995 August 3, 1996 August 5, 1995 August 3, 1996
(dollars in millions)
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $739.0 100.0 % $759.3 100.0 % $1,889.1 100.0 % $1,900.6 100.0 %
Gross profit 168.1 22.7 % 176.1 23.2 % 423.7 22.4 % 437.0 23.0 %
Selling, general and
administrative expenses 147.0 19.9 % 149.6 19.7 % 374.9 19.8 % 372.4 19.6 %
Operating income 21.1 2.8 % 26.5 3.5 % 48.8 2.6 % 64.6 3.4 %
Interest expense 20.7 2.8 % 21.1 2.8 % 56.1 3.0 % 53.4 2.8 %
Income tax expense 1.5 0.2 % 3.7 0.5 % 0.7 - 8.1 0.4 %
Extraordinary loss on
extinguishment of debt 4.6 0.6 % - - 4.6 0.2 % - -
Net income (loss) (5.7) (0.8)% 1.7 0.2 % (12.6) (0.6)% 3.1 0.2 %
</TABLE>
Comparison of Results of Operations for the 16 Weeks Ended August 3,
1996 with the 16 Weeks Ended August 5, 1995
Sales: Sales increased $20.3 million, or 2.7%, from $739.0 million
in the 16 weeks ended August 5, 1995, to $759.3 million in the 16 weeks
ended August 3, 1996. The increase in sales in the fiscal 1996 period
was primarily attributable to a comparable store sales increase of 2.7%
which includes the week following Easter (a historically soft sales
week for the Company) in the fiscal 1995 period and excludes such week
in the fiscal 1996 period. Excluding the impact of the post Easter
week, comparable store sales increased 2.0%. The computation of
"comparable store" sales growth excludes the sales of a store for any
period if such store or a comparable store was not open during the
entire preceding fiscal year. Replacement stores and stores expanded
through remodeling are considered comparable stores.
Gross Profit: Gross profit increased $8.0 million, or 4.8%, from
$168.1 million in the 16 weeks ended August 5, 1995, to $176.1 million
in the 16 weeks ended August 3, 1996. Gross profit as a percentage of
sales increased from 22.8% in the 16 weeks ended August 5, 1995, to
23.2% in the 16 weeks ended August 3, 1996, due primarily to the
reduction of product costs resulting from purchasing improvements and
improved perishable and drug department gross profit. The increase in
gross profit from perishables reflects the maturing of the converted
Fresh Stores.
Selling, General and Administrative Expense: Selling, general and
administrative expense ("SG&A") increased $2.6 million, or 1.8%, from
$147.0 million in the 16 weeks ended August 5, 1995 to $149.6 million
in the 16 weeks ended August 3, 1996. SG&A decreased from 19.9% of
sales in the 16 weeks ended August 5, 1995, to 19.7% of sales in the 16
weeks ended August 3, 1996. The decrease in SG&A as a percentage of
sales reflects improved labor productivity and reduced overhead costs.
<PAGE>
Operating Income: Operating income for the 16 weeks ended August 3,
1996 increased $5.4 million, or 25.6%, from $21.1 million in the 16
weeks ended August 5, 1995, to $26.5 million as a result of the factors
discussed above.
Interest Expense: Interest expense increased from $20.7 million in
the 16 weeks ended August 5, 1995 to $21.1 million in the 16 weeks
ended August 3, 1996 due to an increase in capital lease financing
offset by reduced borrowings and lower interest rates in the 1996
period.
Net Income (Loss): Net income increased $7.4 million from a net loss
of $5.7 million in the 16 weeks ended August 5, 1995 to net income of
$1.7 million in the 16 weeks ended August 3, 1996 as a result of the
factors discussed above. The net loss for the 16 weeks ended August 5,
1995 was adversely affected by an extraordinary loss of $4.6 million
(net of applicable tax benefit of $2.8 million) associated with the
early extinguishment of debt.
Comparison of Results of Operations for the 40 Weeks Ended August 3,
1996 (Historical) with the 40 Weeks Ended August 5, 1995 (Pro Forma)
Sales: Sales increased $11.5 million, or 0.6%, from $1,889.1 million
in the 40 weeks ended August 5, 1995, to $1,900.6 million in the 40
weeks ended August 3, 1996. The increase in sales in the fiscal 1996
period was primarily attributable to the 1.1% increase in comparable
store sales, partially offset by the impact of the closure of four
conventional stores during fiscal 1995.
Gross Profit: Gross profit increased $13.3 million, or 3.1%, from
$423.7 million in the 40 weeks ended August 5, 1995, to $437.0 million
in the 40 weeks ended August 3, 1996. Gross profit as a percentage of
sales increased from 22.4% in the 40 weeks ended August 5, 1995, to
23.0% in the 40 weeks ended August 3, 1996, due primarily to the
reduction of product costs resulting from purchasing improvements and
improved perishable and drug department gross profit. The increase in
gross profit from perishables reflects the maturing of the converted
Fresh Stores.
Selling, General and Administrative Expense: Selling, general and
administrative expense ("SG&A") decreased $2.5 million, or 0.7%, from
$374.9 million in the 40 weeks ended August 5, 1995 to $372.4 million
in the 40 weeks ended August 3, 1996. SG&A decreased from 19.8% of
sales in the 40 weeks ended August 5, 1995, to 19.6% of sales in the 40
weeks ended August 3, 1996. The decrease in SG&A reflects improved
labor productivity and reduced overhead costs.
Operating Income: Operating income for the 40 weeks ended August 3,
1996 increased $15.8 million, or 32.3%, from $48.8 million in the 40
weeks ended August 5, 1995, to $64.6 million as a result of the factors
discussed above.
<PAGE>
Interest Expense: Interest expense decreased from $56.1 million in
the 40 weeks ended August 5, 1995 to $53.4 million in the 40 weeks
ended August 3, 1996 primarily due to slightly lower interest rates and
borrowing levels.
Net Income (Loss): Net income increased $15.7 million from a net
loss of $12.6 million in the 40 weeks ended August 5, 1995 to a net
income of $3.1 million in the 40 weeks ended August 3, 1996 as a result
of the factors discussed above. The net loss for the 40 weeks ended
August 5, 1995 was adversely affected by an extraordinary loss of $4.6
million (net of applicable tax benefit of $2.8 million) associated with
the early extinguishment of debt.
Liquidity and Capital Resources
The Company's principal sources of liquidity are cash flow from
operations, borrowings under the Revolving Credit Facility 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.
The Senior Credit Facilities consist of the $100 million six-year
Revolving Credit Facility and the $330 million Term Loan Facilities.
The Term Loan Facilities were initially comprised of the $140 million
six year amortizing Tranche A Loans, the $60 million seven-year
amortizing Tranche B Loans, the $65 million eight-year amortizing
Tranche C Loans and the $65 million nine-year amortizing Tranche D
Loans and have been subsequently reduced as a result of debt
repayments. The Revolving Credit Facility is available for ongoing
working capital needs and for up to $30 million of commercial or
standby letters of credit. The letters of credit are used to cover
workers' compensation contingencies and for other purposes permitted
under the Senior Credit Facilities. Letters of credit for
approximately $17.2 million were issued under the Revolving Credit
Facility at August 3, 1996, of which $13.5 were to support the
Company's workers' compensation self-insurance program.
The Company generated approximately $32.4 million of cash for
operating activities during the 40 weeks ended August 3, 1996 as
compared to $61.0 million during the 40 weeks ended August 5, 1995.
One of the principal uses of cash in the Company's operating activities
is inventory purchases. Typically, supermarket operators require small
amounts of working capital for inventory purchases 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 $6.0 million
at August 3, 1996.
<PAGE>
The Company's cash used in investing activities for the 40 weeks
ended August 3, 1996 was $25.0 million, consisting primarily of capital
expenditures. Capital expenditures related primarily to store
expenditures, and, to a lesser extent, expenditures for warehousing,
distribution and manufacturing facilities and equipment, including
computer systems.
The Company plans to make gross capital expenditures of approximately
$31 million during the last quarter of fiscal 1996, a portion of which
is expected to be funded with capital leases. Such expenditures
consist of approximately $26 million related to remodels and new
stores, as well as ongoing store expenditures for equipment and
maintenance and approximately $5 million related to warehousing,
distribution and manufacturing facilities and equipment, including
computer systems. Management expects that these capital expenditures
will be financed primarily through cash flow from operations and
capital leases. The capital expenditure budget for fiscal 1996 does
not include certain environmental remediation costs which have been
accrued for in the Company's financial statements and are expected to
be incurred over the next several years. During the 40 weeks ended
August 3, 1996, the Company has sold and leased back under capital
leases approximately $25 million of certain existing equipment.
The Company has historically utilized leasing facilities to finance
the cost of new store equipment and fixtures. At August 3, 1996, the
Company had an $18 million lease facility available which it
anticipates will be substantially utilized in connection with its new
store program in the fourth quarter of fiscal 1996 and the first
quarter of fiscal 1997. The Company will seek additional leasing
facilities as required to support its capital expenditure program.
The capital expenditure plans discussed above do not include
potential acquisitions which the Company could make to expand within
its existing market or to enter 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 wholly owned subsidiary of DFF Supermarkets, Inc.
("DFF") which is, in turn, a wholly owned subsidiary of Supermarkets.
The Company's principal debt instruments permit the Company to make
distributions to DFF and Supermarkets under certain circumstances,
including for the payment of taxes and, subject to limitations, for
general and administrative purposes. After the sixth anniversary of
the Acquisition, the Company's principal debt instruments permit the
Company, subject to certain financial tests, to make distributions to
permit Supermarkets to pay cash dividends on the Parent Preferred
Stock.
<PAGE>
The Company is highly leveraged. Based upon current levels of
operations and anticipated cost savings and future growth, the Company
believes that its cash flows from operations, together with available
borrowings under the Revolving Credit Facility and its other sources of
liquidity (including capital and operating leases) will be adequate to
meet its anticipated requirements for working capital, debt service and
capital expenditures over the next few years. However, there can be no
assurance that the Company will generate sufficient cash flow from
operations or that it will be able to make future borrowings under the
Revolving Credit Facility.
Initial Public Offering
On August 30, 1996, Supermarkets filed a Registration Statement on
Form S-1 with the Securities and Exchange Commission relating to an
initial public offering of its common stock (The "Offering"). In
connection with the Offering, the Company intends to enter into a new
credit facility with a syndicate of financial institutions. The new
credit facility will provide for a $100 million amortizing term loan
(the "New Term Loan") and a $225 million revolving credit facility
including a $105 million term loan subfacility (the "New Revolving
Facility"), each of which has a six and one-half year term. The New
Revolving Facility will be available for working capital and general
corporate purposes, including up to $50 million which may be used to
support letters of credit. Borrowings under (i) the New Revolving
Facility and the New Term Loan will bear interest at a rate equal to
the Base Rate (as defined in the Loan Agreement) plus 0.50% per annum
or the reserve adjusted Euro-Dollar Rate (as defined in the Loan
Agreement) plus a maximum 1.50% per annum (subject to reduction as
certain financial tests are satisfied).
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
<PAGE>
When used in this report, the words "estimate," "expect," "project"
and similar expressions, together with any 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. The following important factors, among others, 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: (i) continued or
increased competitive pressures from existing competitors and new
entrants, including price-cutting strategies; (ii) unanticipated costs
related to the growth and operating strategies; (iii) loss or
retirement of key members of management; (iv) inability to negotiate
more favorable terms with suppliers or to improve working capital
management; (v) increases in interest rates or the Company's cost of
borrowing or a default under any material debt agreements; (vi)
inability to develop new stores in advantageous locations or to
successfully convert existing stores; (vii) prolonged labor disruption;
(viii) deterioration in general or regional economic conditions; (ix)
adverse state or federal legislation or regulation that increases the
costs of compliance, or adverse findings by a regulator with respect to
existing operations; (x) loss of customers as a result of the
conversion of store formats; (xi) adverse determinations in connection
with pending or future litigation or other material claims and
judgements against the Company; (xii) inability to achieve future sales
levels or other operating results that support the cost savings and
(xiii) the unavailability of funds for capital expenditures. Many of
such factors are beyond the control of the Company. 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
Pending Litigation
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
former employees of Dominick's. The plaintiff's 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. A second amended complaint was filed on August
16, 1996 adding three additional plaintiffs. There are currently
several outstanding motions before the court, including the plaintiffs'
motion for class certification. The parties are conducting discovery
with respect to the pending motion for class certification. The
Company believes that there is no merit to the plaintiffs' allegations
and intends to vigorously defend this lawsuit. Due to the numerous
legal and factual issues which must be resolved during the course of
this litigation, however, the Company is unable to predict the ultimate
outcome of this lawsuit. If Dominick's were held liable for the
alleged discrimination, it could be required to pay monetary damages
which, depending on the outcome of the class certification motion (and
the size of any class certified), the theory of recovery or the
resolution of the plaintiffs' claims for compensatory and punitive
damages, could be substantial.
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 3, 1996 DOMINICK'S FINER FOODS, INC.
/s/ Robert A. Mariano
Robert A. Mariano
President and Chief Executive Officer
/s/ Darren W. Karst
Darren W. Karst
Executive Vice President and Chief Financial Officer
(Principal Accounting Officer)
<PAGE>
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-02-1996
<PERIOD-END> AUG-03-1996
<CASH> 66,827
<SECURITIES> 0
<RECEIVABLES> 11,787
<ALLOWANCES> 0
<INVENTORY> 179,962
<CURRENT-ASSETS> 14,166
<PP&E> 391,592
<DEPRECIATION> 40,803
<TOTAL-ASSETS> 1,094,936
<CURRENT-LIABILITIES> 278,774
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 143,007
<TOTAL-LIABILITY-AND-EQUITY> 1,094,936
<SALES> 1,900,550
<TOTAL-REVENUES> 1,900,550
<CGS> 1,463,514
<TOTAL-COSTS> 1,463,514
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 53,409
<INCOME-PRETAX> 11,251
<INCOME-TAX> 8,138
<INCOME-CONTINUING> 3,113
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,113
<EPS-PRIMARY> 3,113
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