-----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, AVHN3TipFIfHk+mHQRqmv3si+cj6phSltgIRqnTRRsYMCbeAoh0XR+TX74VX9obd uR3pA2ANw+NwsoEvg8RzTw== 0000945800-97-000003.txt : 19970312 0000945800-97-000003.hdr.sgml : 19970312 ACCESSION NUMBER: 0000945800-97-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970125 FILED AS OF DATE: 19970311 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: 97554482 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 January 25, 1997 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) (ZipCode) Registrant's telephone number, including area code: (708) 562-1000 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. YES [X] NO [ ]. At March 3, 1997, there were 1,000 shares of Common Stock outstanding. As of such date, all of the outstanding shares of Common Stock were held by Dominick's Supermarkets, Inc. and there was no public market for the Common Stock. TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets as of January 25, 1997 (unaudited) and November 2, 1996 1 Consolidated Statements of Operations for the 12 weeks ended January 25, 1997 and January 20, 1996 (unaudited) 2 Consolidated Statements of Cash Flows for the 12 weeks ended January 25, 1997 and January 20, 1996 (unaudited) 3 Notes to Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5 PART II. OTHER INFORMATION Item 1. Legal Proceedings 8 Item 2. Changes in Securities 8 Item 3. Defaults Upon Senior Securities 8 Item 4. Submission of Matters to a Vote of Security Holders 8 Item 5. Other Information 9 Item 6. Exhibits and Reports on Form 8-K 9 Signatures 10 PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements DOMINICK'S FINER FOODS,INC. CONSOLIDATED BALANCE SHEETS (in thousands) ASSETS January 25, 1997 November 2, 1996 (unaudited) Current assets: Cash and cash equivalents $ 21,191 $ 32,735 Receivables, net 20,694 16,723 Inventories 203,947 203,411 Prepaid expenses and other 24,059 21,860 Total current assets 269,891 274,729 Property and equipment, net 383,649 368,224 Other assets: Deferred financing costs, net 11,271 11,524 Goodwill, net 417,656 420,182 Other 27,215 27,546 Total other assets 456,142 459,252 Total assets $ 1,109,682 $ 1,102,205 LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable $ 158,309 $ 187,787 Accrued payroll and related liabilities 28,441 30,896 Taxes payable 25,899 18,234 Other accrued liabilities 67,127 61,465 Current portion of long-term debt 377 376 Current portion of capital lease obligations 11,337 9,676 Total current liabilities 291,490 308,434 Long-term debt: Term loans 215,578 200,644 Senior subordinated debt 200,000 200,000 Capital lease obligations 135,832 130,052 Deferred income taxes and other liabilities 82,786 84,004 Stockholder's equity: Common stock - - Additional paid-in capital 193,977 193,951 Accumulated deficit (9,981) (14,880) Total stockholder's equity 183,996 179,071 Total liabilities and stockholder's equity $ 1,109,682 $ 1,102,205 See accompanying notes.
DOMINICK'S FINER FOODS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands) (unaudited) 12 Weeks 12 Weeks Ended Ended January 25, 1997 January 20, 1996 Sales $ 602,923 $ 584,362 Cost of sales 460,616 452,410 Gross profit 142,307 131,952 Selling, general and administrative expenses 119,012 112,622 Operating income 23,295 19,330 Interest expense 13,377 16,514 Income before income taxes 9,918 2,816 Income tax expense 5,017 2,146 Net income $ 4,901 $ 670 See accompanying notes.
DOMINICK'S FINER FOODS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) 12 Weeks 12 Weeks Ended Ended January 25, 1997 January 20, 1996 Cash flows from operating activities: Net income $ 4,901 $ 670 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 12,021 10,164 Amortization of deferred financing costs 252 812 Gain on disposal of assets (44) - Changes in operating assets and liabilities: Receivables (3,972) 3,643 Inventories (536) 1,856 Prepaid expenses (3,064) (985) Accounts payable (29,478) (33,521) Accrued liabilities and taxes payable 9,401 (7,273) Total adjustments (15,420) (25,304) Net cash used in operating activities (10,519) (24,634) Cash flows from investing activities: Capital expenditures (21,108) (3,563) Proceeds from sale of assets 56 117 Net cash used in investing activities (21,052) (3,446) Cash flows from financing activities: Principal payments for long-term debt and capital lease obligations (4,013) (9,951) Proceeds from sale-leaseback of assets 8,848 16,911 Increase in revolving debt 15,000 - Deferred financing costs and other 192 (322) Net cash provided by financing activities 20,027 6,638 Net decrease in cash and cash equivalents (11,544) (21,442) Cash and cash equivalents at beginning of period 32,735 55,551 Cash and cash equivalents at end of period $ 21,191 $ 34,109 See accompanying notes.
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. (together with its subsidiaries, the "Company") as of January 25, 1997, and the consolidated statements of operations and cash flows for the 12 week period ended January 25, 1997, and January 20, 1996, 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 2, 1996. Results of operations for interim periods are not necessarily indicative of the results for a full fiscal year. The Company is a wholly owned subsidiary of Dominick's Supermarkets, Inc. ("Supermarkets"). On November 1, 1996, $35.9 million of the proceeds of Supermarkets' initial public offering, together with $45.0 million of available cash and $193.6 million of proceeds under the New Credit Facility was used to repay all of the outstanding borrowings under the Company's then existing credit facility. The remaining proceeds were used to terminate a consulting agreement. 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. 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 $3,960,000 and $3,355,000 at January 25, 1997 and November 2, 1996, respectively, and gross profit and operating income would have been greater by $605,000 and $450,000 for the 12 weeks ended January 25, 1997 and January 20, 1996, respectively. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations The following table sets forth the historical results of the Company for the 12 weeks ended January 25, 1997, and for the 12 weeks ended January 20, 1996, expresses in millions of dollars and as a percentage of sales. 12 Weeks Ended January 25, 1997 January 20,1996 (unaudited) Sales $602.9 100.0 % $584.4 100.0 % Gross profit 142.3 23.6 % 132.0 22.6 % Selling, general and administrative expenses 119.0 19.7 % 112.6 19.3 % Operating income 23.3 3.9 % 19.3 3.3 % Interest expense 13.4 2.2 % 16.5 2.8 % Income tax expense 5.0 0.8 % 2.1 0.4 % Net income 4.9 0.9 % 0.7 0.1 %
Comparison of Results of Operations for the 12 Weeks Ended January 25, 1997 with the 12 Weeks Ended January 20, 1996 Sales: Sales increased $18.5 million, or 3.2%, from $584.4 million in the 12 weeks ended January 20, 1996 to $602.9 million in the 12 weeks ended January 25, 1997. The increase in sales in the fiscal 1997 period was primarily attributable to the opening of four new Dominick's Fresh Stores in the fourth quarter of fiscal 1996, partially offset by a decrease in comparable store sales of 0.7%. The decrease in comparable store sales is due to greater remodel construction activity compared to the prior year period, which caused some disruption in 12 stores. Additionally, the shortened holiday season in the fiscal 1997 period also impacted sales. Gross Profit: Gross profit increased $10.3 million, or 7.8%, from $132.0 million in the 12 weeks ended January 20, 1996 to $142.3 million in the 12 weeks ended January 25, 1997. Gross profit as a percentage of sales increased from 22.6% in the 12 weeks ended January 20, 1996 to 23.6% in the 12 weeks ended January 25, 1997, due primarily to the Company's ongoing efforts to reduce its cost of goods through purchasing improvements and to increase sales and margins in its grocery and drug departments. Selling, General and Administrative Expenses: Selling, general and administrative expenses ("SG&A") increased $6.4 million, or 5.7%, from $112.6 million in the 12 weeks ended January 20, 1996 to $119.0 million in the 12 weeks ended January 25, 1997. SG&A increased from 19.3% of sales in the 12 weeks ended January 20, 1996 to 19.7% of sales in the 12 weeks ended January 25, 1997. The increase in SG&A as a percentage of sales reflects planned increases in rent and occupancy costs associated with new and replacement stores opening in the second half of fiscal 1996. Operating Income: Operating income for the 12 weeks ended January 25, 1997 increased $4.0 million, or 20.7%, from $19.3 million in the 12 weeks ended January 20, 1996 to $23.3 million as a result of the factors discussed above. Interest Expense: Interest expense decreased from $16.5 million in the 12 weeks ended January 20, 1996 to $13.4 million in the 12 weeks ended January 25, 1997. The decrease in interest expense was due to lower borrowings and interest rates following Supermarkets' initial public offering. Net Income: Net income increased from $0.7 million in the 12 weeks ended January 20, 1996 to $4.9 million in the 12 weeks ended January 25, 1997, 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 the New Revolving Facility (as defined below) and capital and operating leases. The Company's principal uses of liquidity are to provide working capital, finance capital expenditures and meet debt service requirements. On November 1, 1996, $35.9 million of the proceeds of Supermarkets' initial public offering, together with $45.0 million of available cash and $193.6 million of proceeds under the New Credit Facility (defined below) was used to repay all of the outstanding borrowings under the Company's then existing credit facility. The remaining proceeds were used to terminate a consulting agreement As a result of these changes, the Company's debt was reduced and it anticipates that its future results of operations will reflect reduced levels of interest expense. On November 1, 1996, the Company entered into a credit facility with a syndicate of financial institutions (the "New Credit Facility"). The New Credit Facility provides for a $100 million amortizing term loan (the" New Term Loan"), a $105 million revolving term facility (the "New Revolving Term Facility") and a $120 million revolving facility (the "New Revolving Facility," and together with the New Revolving Term Facility, the "New Revolving Facilities"), each of which has a six and one-half year term. The New Revolving Facility is available for working capital and general corporate purposes, including up to $50 million to support letters of credit. Up to $20 million of the New Revolving Facility is available as a swingline facility (i.e.,a facility which permits same-day borrowings directly from the agent under the New Credit Facility). The Company is not required to reduce borrowings under the New Revolving Facilities by a specified amount each year. The New Term Loan requires quarterly amortization payments commencing in the second quarter of fiscal 1998 in amounts ranging from $2.5 million to $7.5 million per quarter. The Company will also be required to make prepayments under the New Credit Facility, subject to certain exceptions, with a percentage of its consolidated excess cash flow and with the proceeds from certain asset sales, issuance's of debt securities and any pension plan reversions. The Company used approximately $10.5 million of cash for operating activities during the 12 weeks ended January 25, 1997 compared to $24.6 million in the same period last year. The reduction in cash used for operating activities during the 12 weeks ended January 25, 1997 is attributable to lower interest expense and the timing of cash payments for interest. The Company anticipates that one of the principal uses of cash in its operating activities will be 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 $21.6 million at January 25, 1997. The Company's cash used in investing activities for the 12 weeks ended January 25, 1997 was $21.0 million, which consisted principally of capital expenditures related primarily to store remodels and, to a lesser extent, expenditures for warehousing, distribution and manufacturing facilities and equipment, including data processing and computer systems. The Company plans to make gross capital expenditures of approximately $84 million (or $55 million net of expected capital leases) in fiscal 1997. Such expenditures consist of approximately $60 million related to remodels and new stores, as well as ongoing store expenditures for equipment and maintenance and approximately $24 million related to warehousing, distribution and manufacturing facilities and equipment, including data processing and computer systems. Management expects that these capital expenditures will be financed primarily through cash flow from operations and lease financing. During the 12 weeks ended January 25, 1997, the Company sold and leased-back under capital leases approximately $9 million of certain existing owned equipment. 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 considers acquisition opportunities from time to time. In March 1997, the Company completed the purchase of Byerly's two Chicago area stores, which have been closed for remodeling to the "Fresh Store" format. The Company is also evaluating other acquisition opportunities in its market area, although no agreements have been reached. Any such future acquisition, depending on its size and the form of consideration, may require the Company to seek additional debt or equity financing. The Company is a wholly owned subsidiary of Supermarkets. The Company's principal debt instruments generally restrict the Company from paying dividends or otherwise distributing cash to Supermarkets, except under certain limited circumstances, including for the payment of taxes and, subject to limitations, for general administration purposes. The Company, in the ordinary course of its business, is party to various legal actions. One case currently pending alleges gender discrimination by the Company and seeks compensatory and punitive damages in an unspecified amount. The plaintiffs' motion for class certification is currently pending before the court. A federal magistrate has recommended that the female subclass be certified, see "Legal Proceedings." 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 the Company were held liable for the alleged discrimination (or otherwise concludes that it is in the Company's best interest to settle the matter), it could be required to pay monetary damages (or settlement payments) which, depending on the 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 and could have a material adverse effect on the Company. Based upon the current state of the proceedings, the Company's assessment to date of the underlying facts and circumstances and the other information currently available, and although no assurances can be given, the Company does not believe that the resolution of this litigation will have a material adverse effect on the Company's overall liquidity. As additional information is gathered and the litigation proceeds, the Company will continue to assess its potential impact. The Company 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 New Revolving 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 New Credit Facility. Effects of Inflation The Company's primary costs, inventory and labor, are affected by a number of factors that are beyond its control, including the availability and price of merchandise, the competitive climate and general and regional economic conditions. As is typical of the supermarket industry, the Company has generally been able to maintain gross profit margins by adjusting its retail prices, but competitive conditions may from time to time render it unable to do so while maintaining its market share. Cautionary Statement for Purposes of ``Safe Harbor Provisions '' of the Private Securities Litigation Reform Act of 1995 When used in this report, the words "estimate," "expect," "project" and similar expressions, together with other discussion of future trends or results, are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the ``Securities Act'') and Section 21E of the Securities Exchange Act of 1934, as amended (the ``Exchange Act''). Such statements are subject to certain risks and uncertainties, including those discussed below, that could cause actual results to differ materially from those projected. These forward-looking statements speak only as of the date hereof. All of these forward-looking statements are based on estimates and assumptions made by management of the Company, which although believed to be reasonable, are inherently uncertain and difficult to predict; therefore, undue reliance should not be placed upon such estimates. There can be no assurance that the savings or other benefits anticipated in these forward looking statements will be achieved. 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 Company's 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) increase in interest rates of 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 of regional economic conditions; (ix) adverse state or federal legislation or regulation that increases the cost of compliance, or adverse findings by a regulator with respect to existing operations; (x) loss of customers as result of the conversion of store formats; (xi) adverse determinations in connection with pending or future litigation or other material claims and judgments against the Company; (xii) inability to achieve future sales ; 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 On March 16, 1995, a lawsuit was filed in the United States District Court for the Northern District of Illinois against the Company by two employees of the Company. 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. The plaintiffs' motion for class certification is currently pending before the court. On February 21, 1997, the magistrate judge issued a report and recommendation in which he recommended that the subclass of female employees be certified and that the subclass of Hispanic employees not be certified. That report and recommendation is now before the district court judge. The Company will object to the report and recommendation of the magistrate judge concerning the female subclass, and the plaintiffs are expected to object to the recommendation concerning the Hispanic subclass. The parties are currently in the process of briefing those objections. The district court is obligated to conduct a de novo review of the certification issue. The Company plans to vigorously defend this lawsuit. Due to the numerous legal and factual issues which must be resolved during the course of this litigation, the Company is unable to predict the ultimate outcome of this lawsuit. If the Company was held liable for the alleged discrimination (or otherwise concludes that it is in the Company's best interest to settle the matter), it could be required to pay monetary damages (or settlement payments) which, depending on the 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 and could have a material adverse effect on the Company. Based upon the current state of the proceedings, the Company's assessment to date of the underlying facts and circumstances and the other information currently available, and although no assurances can be given, the Company does not believe that the resolution of this litigation will have a material adverse effect on the Company's overall liquidity. As additional information is gathered and the litigation proceeds, the Company will continue to assess its potential impact. 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 SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: March 10, 1997 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, Chief Financial Officer 12 EX-27 2
5 1,000 3-MOS NOV-01-1997 JAN-25-1997 21,191 0 20,694 0 203,947 269,891 440,819 57,170 1,109,682 291,490 0 0 0 1 183,996 1,109,682 602,923 602,923 460,616 460,616 0 0 13,377 9,918 5,017 4,901 0 0 0 4,901 4,901 4,901
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