-----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, WkvOfBBWYJ5E4MjTcrO8ev1M4rxTQkVPKMmzm/t5hVOWw983QPXy9zYtCKh7Rn6J uZUR2FqgUJGYX39vDsZIaA== 0000850309-94-000010.txt : 19941116 0000850309-94-000010.hdr.sgml : 19941116 ACCESSION NUMBER: 0000850309-94-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19941001 FILED AS OF DATE: 19941107 SROS: NONE 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: 94557808 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 October 1, 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 October 1, 1994: Class A 12,330,964 Class B 14,361,297 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited): Consolidated Statements of Income for the thirteen weeks ended October 1, 1994 and October 2, 1993 and the thirty-nine weeks ended October 1, 1994 and October 2, 1993 3 Consolidated Balance Sheets as of October 1, 1994 and January 1, 1994 4 Consolidated Statements of Cash Flows for the thirty-nine weeks ended October 1, 1994 and October 2, 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 6. Exhibits and Reports on Form 8K 8 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 Thirty-Nine Thirty-Nine Weeks Ended Weeks Ended Weeks Ended Weeks Ended October 1, October 2, October 1, October 2, 1994 1993 1994 1993 Net sales $725,360 $686,747 $2,227,468 $2,080,506 Cost of goods sold 561,815 535,521 1,736,506 1,606,392 --------- --------- ----------- ----------- 163,545 151,226 490,962 474,114 Expenses: Operating, selling and administrative 105,174 103,474 329,063 321,687 Depreciation and amortization 22,750 19,850 65,207 56,837 Interest 13,480 10,591 39,410 32,173 --------- --------- ----------- ----------- 141,404 133,915 433,680 410,697 INCOME BEFORE INCOME TAXES 22,141 17,311 57,282 63,417 Income taxes 8,800 9,400 22,700 27,500 --------- --------- ----------- ----------- NET INCOME $ 13,341 $ 7,911 $ 34,582 $ 35,917 ========= ========= =========== =========== Net income per share of Common Stock $ .48 $ .26 $ 1.20 $ 1.19 Dividends paid per share of Common Stock $ .13 $ .13 $ .39 $ .39 Average number of common shares outstanding (In thousands) 27,583 30,086 28,761 30,297 See notes to consolidated financial statements SMITH'S FOOD & DRUG CENTERS, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollar amounts in thousands) October 1, January 1, 1994 1994 ASSETS CURRENT ASSETS Cash and cash equivalents $ 17,340 $ 61,921 Rebates and accounts receivable 19,509 20,838 Inventories 366,165 377,939 Prepaid expenses and deposits 21,085 19,634 ---------- ---------- TOTAL CURRENT ASSETS 424,099 480,332 PROPERTY AND EQUIPMENT Land 296,887 282,469 Buildings 604,317 582,775 Leasehold improvements 42,673 38,866 Fixtures and equipment 570,215 538,882 ---------- ---------- 1,514,092 1,442,992 Less allowances for depreciation and amortization 339,776 284,363 ---------- ---------- 1,174,316 1,158,629 ---------- ---------- OTHER ASSETS 22,360 15,347 ---------- ---------- $1,620,775 $1,654,308 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable $ 204,873 $ 185,225 Accrued sales and other taxes 47,319 38,763 Accrued payroll and related benefits 76,494 73,467 Current maturities of long-term debt 18,331 21,473 Current maturities of Redeemable Preferred Stock 629 1,046 ---------- ---------- TOTAL CURRENT LIABILITIES 347,646 319,974 LONG-TERM DEBT, less current maturities 676,847 704,014 DEFERRED INCOME TAXES 88,625 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, 12,330,964 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 17,631,047 shares in 1994 and 17,344,566 shares in 1993 176 173 Additional paid-in capital 285,268 285,482 Retained earnings 282,741 259,399 ---------- ---------- 568,308 545,180 Less Treasury Shares at cost (3,269,750 shares in 1994 and 95,718 shares in 1993) 66,074 2,983 ---------- ---------- 502,234 542,197 ---------- ---------- $1,620,775 $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) Thirty-Nine Thirty-Nine Weeks Ended Weeks Ended October 1, October 2, 1994 1993 OPERATING ACTIVITIES: Net income $ 34,582 $ 35,917 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization (including amounts charged to cost of goods sold) 69,566 60,490 Deferred income taxes 9,100 9,600 Other 460 364 Changes in operating assets and liabilities: Rebates and accounts receivable 1,329 (260) Inventories 11,774 (3,112) Prepaid expenses and deposits (4,626) (13,462) Trade accounts payable 19,648 (1,082) Accrued sales and other taxes 8,556 12,239 Accrued payroll and related benefits 3,027 1,612 -------- -------- CASH PROVIDED BY OPERATING ACTIVITIES 153,416 102,306 INVESTING ACTIVITIES: Additions to property and equipment (106,156) (230,993) Sale/leaseback arrangements and other property sales 20,903 2,103 Other (7,013) 589 -------- -------- CASH USED IN INVESTING ACTIVITIES (92,266) (228,301) FINANCING ACTIVITIES: Additions to long-term debt 155,000 Payments on long-term debt (30,309) (15,472) Redemptions of Preferred Stock (417) (414) Purchases of Treasury Stock (68,584) (9,556) Proceeds from sale of Treasury Stock 4,820 5,824 Payment of dividends (11,241) (11,647) -------- -------- CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (105,731) 123,735 -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS (44,581) (2,260) Cash and cash equivalents at beginning of year 61,921 15,526 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 17,340 $ 13,266 ======== ======== 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 thirty-nine week periods ended October 1, 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 5.6% in the third quarter of 1994 to $725 million compared to $687 million for the same period last year. For the first nine months of 1994 net sales increased to $2.23 billion from $2.08 billion for the same period last year, an increase of 7.1%. Same store sales decreased 3.0% compared with the prior year's third quarter and decreased 2.2% compared to the first nine 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 market and new store openings by competitors in many of the Company's major markets. To the extent these conditions persist, the weakness in same store sales may continue. During the first thirty-nine weeks of fiscal 1994, the Company opened five large combination food and drug centers, all in Southern California. At October 1, 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 third quarter. During the quarter the Company determined to slow the rate of expansion into California to give operating management an opportunity to focus on the performance of the 31 stores currently operating there. In the fourth quarter of fiscal 1994, the Company currently expects to complete construction of seven additional stores including three stores in New Mexico, two stores in Nevada and two stores in Southern California, totaling approximately 433,000 square feet. To avoid problems associated with opening stores during the Christmas season, some of the grand openings for these completed stores may be held in January, 1995. During 1995, emphasis will be placed on opening new stores in markets including Arizona, New Mexico, Nevada and Utah. The Company also anticipates that future stores will range in size from 54,000 to 66,000 square feet compared to approximately 75,000 square feet for new stores opened in recent years. These new combination food & drug centers will have many of the same attributes and product selections as the larger stores. Gross margins as a percentage of net sales increased to 22.5% during the third quarter of 1994 from 22.0% during the same period last year. This increase is due primarily to a lessening of the pricing competition initiated by the aggressive Utah pricing program and reduced charges for inventory shrinkage.. For the first thirty-nine weeks of 1994, gross margins as a percentage of net sales decreased to 22.0% compared to 22.8% for the same period last year. This decrease is due primarily to 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 $750,000 for the third quarter of 1994, the same as the third quarter last year, and $3.75 million for the first nine months of 1994 compared to $2.25 million for the same period last year. Operating, selling and administrative expenses as a percentage of net sales decreased to 14.5% during the third quarter of 1994 from 15.1% during the third quarter of 1993. For the first nine months of the year compared to last year, operating, selling and administrative expenses as a percentage of net sales decreased to 14.8% from 15.5%. These decreases resulted primarily from the Company's program to reduce operating costs. Depreciation and amortization expenses increased 14.6% for the third quarter and 14.7% for the first nine months of 1994 compared to the same respective periods last year due to the increase in the number of new and larger combination stores and the new distribution center which was completed at the end of 1993. Interest expense increased 27.3% in the third quarter and 22.5% for the first nine months of 1994 compared to the same respective periods last year. These increases were due to a reduction in capitalized interest as a result of the slowed expansion in California and an increase in the average interest rate caused by the refinancing in 1993 of revolving credit indebtedness with long- term unsecured debt. Income tax expense in 1993 was affected by an increased tax rate in the third quarter of that year. As a result, net income for the third quarter of 1993 was reduced by $2,600,000 or $.09 per common share. The effective tax rate, including state income taxes, is expected to approximate 40% in 1994. Liquidity and Capital Resources Cash and cash equivalents decreased $44.6 million during the first thirty-nine weeks of 1994. Working capital was $76.5 million at October 1, 1994, a decrease of $83.9 million compared to January 1, 1994. During the first thirty-nine weeks of 1994, cash provided by operating activities was affected by a decrease in inventories and an increase in accounts payable, resulting in net cash provided by operations of $153.4 million. Cash used by investing activities was $92.3 million for the first thirty-nine weeks of 1994 reflecting the Company's ongoing expansion program. The Company anticipates investing approximately $40 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 $105.7 million for the first thirty- nine weeks 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 have been 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 6. Exhibits and Reports on Form 8-K (a) The exhibit listed in the accompanying index to exhibits is filed as part of the Form 10-Q. (b) There were no reports on Form 8-K filed during the third quarter. INDEX TO EXHIBITS Exhibit Number Document 10.18 Amendment 1, dated as of September 2, 1994, to Revolving Credit Agreement, dated as of October 15, 1993, between the Company and Credit Suisse (which was filed as exhibit 10.9 to the Company's report on Form 10-K for the year ended January 1, 1994). 10.19 Amendment 1, dated as of September 26, 1994, to Revolving Credit Agreement, dated as of June 28, 1993, between the Company and Bank of America (which was filed as exhibit 10.16 to the Company's report on Form 10-K for the year ended January 1, 1994). 27 Financial Data Schedule 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: 11/07/94 /s/Matthew G. Tezak Matthew G. Tezak, Senior Vice President and Chief Financial Officer (Principal Accounting Officer) EX-27 2
5 ARTICLE 5 FDS FOR 3RD QUARTER 10-Q 1,000 QTR-3 DEC-31-1994 OCT-01-1994 17,340 0 19,509 0 366,165 424,099 1,514,092 339,776 1,620,775 347,646 0 299 5,423 0 501,935 1,620,775 725,360 725,360 561,815 561,815 0 0 13,480 22,141 8,800 13,341 0 0 0 13,341 .48 .48
EX-10.18 3 [LOGO] CREDIT SUISSE FOUNDED 1856 SCHWEIZERISCHE KREDITANSTALT CREDITO SVIZZERO LOS ANGELES September 2, 1994 Telephone (213)955-8200 Cable Address Credswiss Telex 67227 Letters 633 West Fifth Street, 64th Floor Los Angeles, CA 90071 Smith's Food & Drug Centers, Inc. 1550 South Redwood Road Salt Lake City, Utah 84104 Attention: Casey Jones Director of Capital Development and Banking Gentlemen: This letter is to amend our Agreement dated as of October 15, 1993. Section 4.1(b) and 4.1(c) are hereby amended to read in their entirety: (b) Maintain a Tangible Net Worth of not less than the sum of $350 Million, plus 30% of net income after taxes on a quarterly basis, plus 100% of any increase in shareholder's equity other than the quarterly income increases, measured at the end of each fiscal quarter, commencing with the quarter ending September 30, 1994. (c) Maintain a Leverage Ratio not to exceed 2.5 to 1, measured at the end of each fiscal quarter, commencing with the quarter ending September 30, 1994. As used herein, "Leverage Ratio" means the ratio of total debt to tangible net worth. Total debt includes all borrowed money and lease obligations (including capital leases and operating leases, the latter to be calculated as six times the annual amount owed). All other terms and conditions of our Agreement remain unchanged. If the foregoing meets with your approval, please sign and return to us the enclosed copy of this amendment to signify your agreement. Very truly yours, /s/Marilou Palenzuela /s/Maria N. Gaspara Marilou Palenzuela Maria N. Gaspara Member of Senior Management Associate Read, Agreed & Accepted: Smith's Food & Drug Centers, Inc. By: /s/Matthew G. Tezak Name: Matthew G. Tezak Title: SR VP & CFO EX-10.19 4 [LOGO] BANK OF AMERICA Richard E. Bryson Vice President United States Division SF Credit Products Group #3838 September 26, 1994 Casey Jones Director of Capital Development and Banking Smith's Food & Drug Centers, Inc. 1550 South Redwood Road Salt Lake City, Utah 84104 Dear Casey: As we discussed, the existing three year facility will be immediately amended to change the covenants and pricing as follows: * Section 6.7(a) - Net worth revised downward from $450MM to $350MM, plus 50% of incremental net worth measured quarterly. * Section 6.8 - Revise upward from 2.0/1 to 2.1/1, measured quarterly. * Pricing - New pricing GRID added; GRID ONE: - If Smith's Pass Through Certificates are rated BBB- by S&P and at least Baa3 by Moodys. - 18.75 bp commitment fee and L + 60 bp spread. (L+60 drawn cost). GRID TWO: - If Smith's Pass Through Certificates are rated below BBB- by S&P or below Baa3 by Moodys or are unrated. - 25 bp commitment fee and L + 75 bp point spread. (L+75 drawn cost). The pricing grid two therefore becomes effective by either a one step S&P downgrade or a two step Moodys downgrade. Closing the amendment is subject to documentation acceptable to Bank of America and reimbursement of Bank of America legal expenses. If you agree to these terms and conditions, please sign both copies and return one to my attention. Sincerely, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION /s/Richard E. Bryson Richard E. Bryson Vice President AGREED AND ACCEPTED SMITH'S FOOD & DRUG CENTERS, INC. /s/Casey Jones Casey Jones Director of Capital Development & Banking -----END PRIVACY-ENHANCED MESSAGE-----