-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Sn6Oclz4DKRts+baFhsalxzdjh3YTRpeSrNCbWvcpmzJV2wTWoBuCkQgHJlJWobJ f0gpwg7/7+jkw/wwP1T8ig== 0000850309-94-000008.txt : 19940809 0000850309-94-000008.hdr.sgml : 19940809 ACCESSION NUMBER: 0000850309-94-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940702 FILED AS OF DATE: 19940804 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SMITHS FOOD & DRUG CENTERS INC CENTRAL INDEX KEY: 0000850309 STANDARD INDUSTRIAL CLASSIFICATION: 5411 IRS NUMBER: 870258768 STATE OF INCORPORATION: DE FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10252 FILM NUMBER: 94541692 BUSINESS ADDRESS: STREET 1: 1550 S REDWOOD RD CITY: SALT LAKE CITY STATE: UT ZIP: 84104 BUSINESS PHONE: 8019741400 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________________ FORM 10-Q [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 2, 1994 (thirteen weeks) or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-10252 SMITH'S FOOD & DRUG CENTERS, INC. (Exact name of registrant as specified in its charter) Delaware 87-0258768 (State of Incorporation) (I.R.S. Employer Identification No.) 1550 South Redwood Road, Salt Lake City, UT 84104 (Address of principal executive offices) (Zip Code) (801) 974-1400 (Registrant's telephone number, including area code) 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 the past 90 days. Yes X No Number of shares outstanding of each class of common stock as of July 2, 1994: Class A 12,357,094 Class B 15,267,623 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited): Consolidated Statements of Income for the thirteen weeks ended July 2, 1994 and July 3, 1993 and the twenty-six weeks ended July 2, 1994 and July 3, 1993 3 Consolidated Balance Sheets as of July 2, 1994 and January 1, 1994 4 Consolidated Statements of Cash Flows for the twenty-six weeks ended July 2, 1994 and July 3, 1993 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Securities Holders 9 Item 6. Exhibits and Reports on Form 8K 9 PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) SMITH'S FOOD & DRUG CENTERS, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (Dollar amounts in thousands, except per share data) Thirteen Thirteen Twenty-Six Twenty-Six Weeks Ended Weeks Ended Weeks Ended Weeks Ended July 2, July 3, July 2, July 3, 1994 1993 1994 1993 Net sales $748,328 $705,520 $1,502,108 $1,393,759 Cost of goods sold 583,628 542,982 1,174,691 1,070,871 -------- -------- ---------- ---------- 164,700 162,538 327,417 322,888 Expenses: Operating, selling and administrative 110,641 109,740 223,889 218,213 Depreciation and amortization 21,745 18,962 42,457 36,987 Interest 12,727 10,837 25,930 21,582 -------- -------- ---------- ---------- 145,113 139,539 292,276 276,782 INCOME BEFORE INCOME TAXES 19,587 22,999 35,141 46,106 -------- -------- ---------- ---------- Income taxes 7,700 9,000 13,900 18,100 -------- -------- ---------- ---------- NET INCOME $ 11,887 $ 13,999 $ 21,241 $ 28,006 ======== ======== ========== ========== Net income per share of Common Stock $ .41 $ .46 $ .72 $ .92 ======== ======== ========== ========== Dividends paid per share of Common Stock $ .13 $ .13 $ .26 $ .26 ======== ======== ========== ========== Average number of common shares outstanding (In thousands) 28,650 30,318 29,271 30,379 ======== ======== ========== ========== See notes to consolidated financial statements SMITH'S FOOD & DRUG CENTERS, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollar amounts in thousands) July 2, January 1, 1994 1994 ASSETS CURRENT ASSETS Cash and cash equivalents $ 22,337 $ 61,921 Rebates and accounts receivable 17,125 20,838 Inventories 365,312 377,939 Prepaid expenses and deposits 35,266 19,634 ----------- ----------- TOTAL CURRENT ASSETS 440,040 480,332 PROPERTY AND EQUIPMENT Land 303,749 282,469 Buildings 590,416 582,775 Leasehold improvements 37,552 38,866 Fixtures and equipment 553,836 538,882 ----------- ----------- 1,485,553 1,442,992 Less allowances for depreciation and amortization 315,621 284,363 ----------- ----------- 1,169,932 1,158,629 OTHER ASSETS 18,374 15,347 ----------- ----------- $1,628,346 $1,654,308 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable $ 202,000 $ 185,225 Accrued sales and other taxes 47,228 38,763 Accrued payroll and related benefits 72,314 73,467 Current maturities of long-term debt 18,215 21,473 Current maturities of Redeemable Preferred Stock 629 1,046 ----------- ----------- TOTAL CURRENT LIABILITIES 340,386 319,974 LONG-TERM DEBT, less current maturities 682,176 704,014 DEFERRED INCOME TAXES 86,800 82,700 REDEEMABLE PREFERRED STOCK, less current maturities 5,423 5,423 COMMON STOCKHOLDERS' EQUITY Convertible Class A Common Stock, par value $.01 per share: Authorized 20,000,000 shares; issued and outstanding, 12,357,094 shares in 1994 and 12,617,445 shares in 1993 123 126 Class B Common Stock, par value $.01 per share: Authorized 100,000,000 shares; issued 17,604,917 shares in 1994 and 17,344,566 shares in 1993 176 173 Additional paid-in capital 285,210 285,482 Retained earnings 272,997 259,399 ----------- ----------- 558,506 545,180 Less Treasury Shares at cost (2,337,294 shares in 1994 and 95,718 shares in 1993) 44,945 2,983 ----------- ----------- 513,561 542,197 ----------- ----------- $1,628,346 $1,654,308 =========== =========== See notes to consolidated financial statements SMITH'S FOOD & DRUG CENTERS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollar amounts in thousands) Twenty-Six Twenty-Six Weeks Ended Weeks Ended July 2, July 3, 1994 1993 OPERATING ACTIVITIES: Net income $21,241 $ 28,006 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization (including amounts charged to cost of goods sold) 45,396 39,421 Deferred income taxes 4,300 6,300 Other 289 342 Changes in operating assets and liabilities: Rebates and accounts receivable 3,713 (868) Inventories 12,627 8,283 Prepaid expenses and deposits (15,832) (25,071) Trade accounts payable 16,775 (27,437) Accrued sales and other taxes 8,465 13,515 Accrued payroll and related benefits (1,153) (2,864) ------- -------- CASH PROVIDED BY OPERATING ACTIVITIES 95,821 39,627 INVESTING ACTIVITIES: Additions to property and equipment (77,206) (153,601) Sale/leaseback arrangements and other property sales 20,507 2,114 Other (3,027) 527 ------- -------- CASH USED IN INVESTING ACTIVITIES (59,726) (150,960) FINANCING ACTIVITIES: Additions to long-term debt 130,000 Payments on long-term debt (25,096) (9,473) Redemptions of Preferred Stock (417) (414) Purchases of Treasury Stock (46,058) (8,408) Proceeds from sale of Treasury Stock 3,535 4,843 Payment of dividends (7,643) (7,764) ------- -------- CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (75,679) 108,784 ------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS (39,584) (2,549) Cash and cash equivalents at beginning of year 61,921 15,526 ------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $22,337 $ 12,977 ======== ========= See notes to consolidated financial statements SMITH'S FOOD & DRUG CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE A -- BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the thirteen and twenty-six week periods ended July 2, 1994 are not necessarily indicative of the results that may be expected for the year ending December 31, 1994. For further information, refer to the consolidated financial statements and notes thereto incorporated by reference in the Company's annual report on Form 10-K for the year ended January 1, 1994. NOTE B -- SIGNIFICANT ACCOUNTING POLICIES Net Income per Share of Common Stock: Net income per share of Common Stock is computed by dividing net income by the weighted average number of shares of Common Stock outstanding. The weighted average number of common shares includes Common Stock equivalents in the form of stock options. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Net sales increased 6.1% in the second quarter of 1994 to $748 million compared to $706 million for the same period last year. For the first twenty-six weeks of 1994 net sales increased to $1.50 billion from $1.39 billion for the first half of last year, an increase of 7.8%. Same store sales decreased 3.1% compared with the prior year's second quarter. However, the second quarter of 1993 included Easter sales. In 1994 Easter fell in the first quarter. Adjusting for Easter, the decrease in same store sales was estimated at 1.9%. Same store sales decreased 1.8% compared to the first six months of the prior year. The decrease in same store sales was mainly caused by weakened sales in Southern California due to the continuing recession and intense price competition in this new market, new store openings by competitors in many of the Company's major markets and heavy price competition in Utah resulting from the Company's very aggressive pricing program. To the extent these conditions persist, the weakness in same store sales may continue. The Company opened four large combination food and drug centers in Palmdale, Paramount, Redondo Beach and Santee, California in the first quarter and one large combination food and drug center in Cerritos, California in the second quarter of 1994. At July 2, 1994, the Company operated 134 stores totaling 8.9 million square feet compared to 121 stores totaling 7.8 million square feet at the end of the prior year's second quarter. In the remainder of 1994, the Company currently expects to open up to seven stores in the fourth quarter totaling approximately 434,000 square feet, including three stores in Southern California and three stores in New Mexico. Gross margins decreased to 22.0% during the second quarter of 1994 from 23.0% during the same period last year. For the first twenty-six weeks of 1994 gross margins decreased to 21.8% compared to 23.2% for the same period last year. These decreases were caused primarily by the Company's aggressive Utah pricing program, which commenced in July 1993. The Company anticipates that new stores recently opened and planned to open, as in the past, will apply pressure on its gross margins until the stores become established in their respective markets. The pretax LIFO charge was $1.5 million for the second quarter of 1994 compared to $750,000 for the same period last year and $3.0 million for the first six months of 1994 compared to $1.5 million for the same period last year. Operating, selling and administrative expenses as a percentage of net sales decreased to 14.8% during the second quarter of 1994 from 15.6% during the second quarter of 1993. For the first half of the year compared to last year, operating, selling and administrative expenses decreased to 14.9% from 15.7%. These decreases, resulting primarily from the Company's program to reduce operating costs, are somewhat offset by the higher operating costs associated with continued expansion into Southern California. Depreciation and amortization expenses increased 14.7% for the second quarter and 14.8% for the first half of 1994 compared to the same respective period last year due to the increase in the number of new and larger combination stores and the new distribution center completed at the end of 1993, in Riverside, California. Interest expense increased 17.4% in the second quarter and 20.1% for the first half of 1994 compared to the same respective periods last year due to an increase in the average interest rate caused by the refinancing in 1993 of revolving credit indebtedness with long-term unsecured debt and a net increase in the weighted average borrowings for the period. The Omnibus Budget Reconciliation Act of 1993 enacted during the third quarter of 1993 increased the Company's Federal Tax rate. As a result of the increased tax rate, net income for the second quarter of 1994 was reduced by $220,000 or $.01 per common share and $410,000 or $.01 for the first six months of 1994. The effective tax rate, including state income taxes, for the remainder of 1994 is expected to approximate 40%. Net income decreased in the second quarter of 1994 to $11.9 million or $.41 per common share compared to $14.0 million or $.46 per common share reported for the same period last year. For the first half of 1994, net income decreased to $21.2 million or $.72 per common share compared to $28.0 million or $.92 for this same period last year. The reduction in net income can be attributed primarily to continuing pressure from opening new stores in the depressed and competitive Southern California market, the effect of new store openings by competitors and the Company's very aggressive pricing program in the Utah market. These pressures may continue to depress earnings in the future. The Company currently operates 31 large combination food & drug stores in Southern California. Net income may also be affected by the relatively higher real estate, operating and selling expenses (including preopening, startup and advertising expenses) typically associated with stores in the Southern California market. The resulting effect on net income, however, may be partially offset, depending upon competitive conditions, by the generally higher gross profit margins expected in that market as stores mature. Liquidity and Capital Resources Cash and cash equivalents decreased $39.6 million during the first half of 1994. Working capital was $99.7 million at July 2, 1994, a decrease of $60.7 million compared to January 1, 1994. During the first half of 1994, cash provided by operating activities was affected by a prepayment of health and medical expenses, a decrease in inventories and a decrease in accounts payable, resulting in net cash provided by operations of $95.8 million. Cash used by investing activities was $59.7 million for the first half of 1994 reflecting the Company's ongoing expansion program. The Company anticipates investing approximately $80 million during the remainder of 1994 for the development and construction of new food and drug centers, remodeling of existing stores and replacing equipment. However, the actual timing and amount of capital expenditures will depend upon a number of factors. Cash used in financing activities totaled $75.7 million for the first half of 1994 as a result of open market repurchases of the Company's Common Stock and payments on long-term debt . At the end of 1993, the Company completed a sale/leaseback transaction which increased cash and cash equivalents at the end of the year. The proceeds from the sale/leaseback will be used to finance 1994 store expansion and general working capital purposes. Management believes that the financial resources available to it, including proceeds from sale/leaseback transactions, amounts available under existing and future bank lines of credit, additional long-term financings, and internally generated funds, will be sufficient to meet planned capital expansion and working capital requirements for the foreseeable future, including debt and lease servicing requirements. The Company may, however, use additional sources of funds for such purposes, including the issuance of debt or equity securities and leasing rather than owning buildings and equipment. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Securities Holders At the Company's Annual Meeting of Stockholders held on April 26, 1994, the stockholders elected as directors the following: VOTES VOTES BROKER NAME FOR WITHHELD NON-VOTES Jeffrey P. Smith 309,280,097 39,855 -0- Richard D. Smith 309,280,097 39,855 -0- Robert D. Bolinder 309,280,397 39,555 -0- Kenneth A. White 309,280,397 39,555 -0- DeLonne Anderson 309,241,397 78,555 -0- Rodney H. Brady 309,280,397 39,555 -0- Alan R. Hoefer 309,280,297 39,655 -0- Allen P. Martindale 309,280,397 39,555 -0- Duane V. Peters 309,280,397 39,555 -0- Ray V. Rose 309,280,397 39,555 -0- Fred L. Smith 309,279,997 39,955 -0- Sean D. Smith 309,239,397 80,555 -0- Douglas J. Tigert 309,280,297 39,655 -0- In addition, the stockholders approved the Corporation's bonus program with respect to the Corporation's executive officers which provides for the payment of cash bonuses based upon certain financial performance measures (with 302,266,696 affirmative votes, 605,718 negative votes, 6,447,538 abstentions and zero broker non-votes). The stockholders also, ratified the appointment of Ernst & Young as the Corporation's independent auditors for 1994 (with 302,761,467 affirmative votes, 85,430 negative votes, 6,473,055 abstentions and zero broker non- votes). Item 6. Exhibits and Reports on Form 8-K (b) There were no reports on Form 8-K filed during the second quarter. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SMITH'S FOOD & DRUG CENTERS, INC. (Registrant) Date: 8/3/94 /s/Matthew G. Tezak Matthew G. Tezak, Senior Vice President and Chief Financial Officer (Principal Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----