-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SduVdrhix6sz9noB3q8T8Wfhw8O8C8Y9oqZ08R/TDHxLEoFWOpWaS2RekZdC0b/s GQZSWhydHLn2z6qpu8J11g== 0000945800-96-000008.txt : 19960906 0000945800-96-000008.hdr.sgml : 19960906 ACCESSION NUMBER: 0000945800-96-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960803 FILED AS OF DATE: 19960904 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DOMINICKS FINER FOODS INC /DE/ CENTRAL INDEX KEY: 0000945800 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 363168270 STATE OF INCORPORATION: DE FISCAL YEAR END: 1029 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-92700 FILM NUMBER: 96625587 BUSINESS ADDRESS: STREET 1: 505 RAILROAD AVE CITY: NORTHLAKE STATE: IL ZIP: 60164 BUSINESS PHONE: 7085621000 MAIL ADDRESS: STREET 1: 505 RAILROAD AVE CITY: NORTHLAKE STATE: IL ZIP: 60164 10-Q 1 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. TABLE OF CONTENTS PART I. FINANCIAL INFORMATION 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 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) 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.
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 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.
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) 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.
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) 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 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.
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. 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. 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.
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) 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 %
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. 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. 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. 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. 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 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. 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 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) EX-27 2
5 1,000 9-MOS NOV-02-1996 AUG-03-1996 66,827 0 11,787 0 179,962 14,166 391,592 40,803 1,094,936 278,774 0 0 0 0 143,007 1,094,936 1,900,550 1,900,550 1,463,514 1,463,514 0 0 53,409 11,251 8,138 3,113 0 0 0 3,113 3,113 3,113
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