-----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, WEBn6IKlWdwjCx9VbG/h/K6p5XL186utrvxNa0EdbxbLlO2cfiRF/W7uB9tOTCeZ 8LFyKhP+WoS7TUvM9dS9pA== 0000898430-96-005077.txt : 19961106 0000898430-96-005077.hdr.sgml : 19961106 ACCESSION NUMBER: 0000898430-96-005077 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961006 FILED AS OF DATE: 19961104 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SMART & FINAL INC/DE CENTRAL INDEX KEY: 0000875751 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & RELATED PRODUCTS [5140] IRS NUMBER: 954079584 STATE OF INCORPORATION: DE FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10811 FILM NUMBER: 96653727 BUSINESS ADDRESS: STREET 1: 4700 S BOYLE AVE CITY: VERNON STATE: CA ZIP: 90058 BUSINESS PHONE: 2135849832 MAIL ADDRESS: STREET 1: 4700 S BOYLE AVE CITY: VERNON STATE: CA ZIP: 90058 FORMER COMPANY: FORMER CONFORMED NAME: SFI CORP /CA DATE OF NAME CHANGE: 19600201 10-Q 1 FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 _________ FORM 10-Q (Mark one) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) ----- OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 6, 1996 --------------- 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 001-10811 --------- SMART & FINAL INC. (Exact name of registrant as specified in its charter) Delaware No. 95-4079584 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 4700 South Boyle Ave. Los Angeles, California 90058 (Address of principal executive offices) (zip code) Registrant's telephone number, including area code: (213) 589-1054 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 . ----- ----- The registrant had 20,334,304 shares of common stock outstanding as of October 31, 1996. Number of Sequentially Numbered Pages: 13 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SMART & FINAL INC. INDEX PART I FINANCIAL INFORMATION Page Item 1. Financial Statements Unaudited Condensed Consolidated Balance Sheets 2 Unaudited Condensed Consolidated Statements of Income 3 Unaudited Condensed Consolidated Statements of Cash Flows 4 Notes to Unaudited Condensed Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition 7 and Results of Operations PART II OTHER INFORMATION Item 1. Legal Proceedings 12 Item 2. Changes in Securities 12 Item 3. Defaults upon Senior Securities 12 Item 4. Submission of Matters to a Vote of Security Holders 12 Item 5. Other Information 12 Item 6. Exhibits and Reports on Form 8-K 12 1 PART 1. FINANCIAL INFORMATION Item 1. Financial Statements SMART & FINAL INC. CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share amounts)
October 6, December 31, 1996 1995 ----------- ------------ ASSETS (Unaudited) - ------ Current assets: Cash and cash equivalents........................................................................ $ 17,636 $ 15,415 Trade notes and accounts receivable, less allowance for doubtful accounts of $2,056 in 1996 and $1,867 in 1995........................................................... 58,426 43,712 Inventories ..................................................................................... 122,583 117,129 Prepaid expenses................................................................................. 7,007 3,637 Deferred tax asset............................................................................... 7,385 7,385 ----------- ----------- Total current assets...................................................................... 213,037 187,278 Property, plant and equipment: Land............................................................................................. 1,262 1,262 Buildings and improvements....................................................................... 3,170 3,170 Leasehold improvements........................................................................... 52,234 45,765 Fixtures and equipment........................................................................... 129,425 111,564 ----------- ----------- 186,091 161,761 Less - Accumulated depreciation and amortization................................................................................. 72,904 60,114 ----------- ----------- Net property, plant and equipment......................................................... 113,187 101,647 Assets under capital leases, net....................................................................... 568 246 Goodwill............................................................................................... 9,131 8,136 Deferred tax asset..................................................................................... 3,118 3,118 Other assets........................................................................................... 17,146 14,231 ----------- ----------- Total assets.............................................................................. $ 356,187 $ 314,656 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Current maturities of long term debt............................................................. $ 136 $ 39 Bank line of credit.............................................................................. 21,000 2,675 Accounts payable................................................................................. 67,547 68,471 Payable to Parent and affiliates................................................................. 7,058 1,992 Accrued salaries and wages....................................................................... 9,582 7,853 Other accrued liabilities........................................................................ 23,923 23,955 Workers' compensation reserve.................................................................... 2,800 2,800 ----------- ------------ Total current liabilities................................................................. 132,046 107,785 Long term liabilities: Notes payable, net of current maturities......................................................... 9,152 8,176 Bank debt........................................................................................ 35,000 35,000 Obligations under capital leases................................................................. 743 410 Postretirement and postemployment benefits ...................................................... 21,187 21,798 ----------- ------------ Total long term liabilities............................................................... 66,082 65,384 Minority interest...................................................................................... 1,601 1,435 Stockholders' equity: Preferred stock, $1 par value (authorized- 10,000,000 shares; no shares issued) - - Common stock, $ .01 par value (authorized- 100,000,000 shares; 20,329,417 shares issued and outstanding in 1996 and 20,262,727 in 1995)................................................. 203 203 Additional paid-in capital....................................................................... 106,042 105,149 Cumulative translation loss ..................................................................... (928) (928) Retained earnings................................................................................ 51,141 35,628 ----------- ----------- Total stockholders' equity................................................................ 156,458 140,052 ----------- ----------- Total liabilities and stockholders' equity................................................ $ 356,187 $ 314,656 =========== =========== The accompanying notes are an integral part of these consolidated balance sheets.
2 SMART & FINAL INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except per share amounts )
Sixteen Weeks Ended Forty Weeks Ended ------------------------------- ------------------------------ October 6, October 8, October 6, October 8, 1996 1995 1996 1995 ----------- ----------- ----------- ----------- (Unaudited) (Unaudited) Sales........................................... $ 406,448 $ 365,276 $ 996,190 $ 890,853 Cost of sales, buying and occupancy............. 342,347 307,390 836,968 747,797 Lease expense to affiliates..................... 5,548 5,426 13,557 13,284 ----------- ----------- ----------- ----------- Gross margin.................................... 58,553 52,460 145,665 129,772 Operating and administrative expenses........... 44,328 40,450 112,945 102,243 Warehouse start up costs........................ - 750 - 4,250 ----------- ----------- ----------- ----------- Income from operations................... 14,225 11,260 32,720 23,279 ----------- ----------- ----------- ----------- Interest income and (expense): Interest income.......................... 133 139 363 342 Interest expense......................... (1,246) (743) (2,796) (1,723) ----------- ----------- ----------- ----------- (1,113) (604) (2,433) (1,381) Income before provision for income taxes and minority share of net income ............ 13,112 10,656 30,287 21,898 Provision for income taxes...................... 5,054 4,046 11,720 8,423 ----------- ----------- ----------- ----------- 8,058 6,610 18,567 13,475 Minority share of net income.................... 11 21 166 159 ----------- ----------- ----------- ----------- Income from consolidated subsidiaries..... 8,047 6,589 18,401 13,316 Equity earnings in unconsolidated subsidiary ... 50 - 159 (100) ----------- ----------- ----------- ----------- Net income ...................................... $ 8,097 $ 6,589 $ 18,560 $ 13,216 =========== =========== =========== =========== Earnings per common share ...................... $ 0.38 $ 0.32 $ 0.88 $ 0.64 =========== =========== =========== =========== Dividend per common share........................ $ 0.05 $ 0.05 $ 0.15 $ 0.15 =========== =========== =========== =========== Weighted average common shares and common share equivalents................... 21,279,572 20,789,047 21,205,782 20,685,316 =========== =========== =========== =========== The accompanying notes are an integral part of these condensed consolidated financial statements.
3
SMART & FINAL INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) Forty Weeks Ended ------------------------------- October 6, October 8, 1996 1995 -------------- -------------- (Unaudited) Cash Flows From Operating Activities: Net income ................................................ $ 18,560 $ 13,216 Adjustments to reconcile net income to net cash provided by operating activities: (Gain) loss on disposal of fixed assets.............. (144) (102) Depreciation and amortization....................... 14,978 12,082 Minority share of net income........................ 166 159 Equity (earnings) loss in unconsolidated subsidiary. (159) 100 (Increase) decrease in : Trade notes and accounts receivable................. (13,666) (1,509) Inventories......................................... (5,048) (4,654) Prepaid expenses and other.......................... (3,370) (842) Increase (decrease) in : Accounts payable.................................... 81 (406) Payable to Parent and affiliates.................... 5,066 (657) Accrued liabilities................................. 1,729 (1,262) Other liabilities................................... (574) 6,327 ---------- ---------- Net cash provided by operating activities............ 17,619 22,452 ---------- ---------- Cash Flows From Investing Activities: Acquisition of property, plant and equipment .............. (26,581) (23,704) Proceeds from disposal of property, plant and equipment.... 391 123 Acquisition of business.................................... (1,468) - Investment in and advance to unconsolidated subsidiary..... - (350) Redemption of municipal bonds.............................. 225 825 Acquisition of municipal bonds............................. (325) (1,075) Other...................................................... (4,028) (4,568) ---------- ---------- Net cash used in investing activities................ (31,786) (28,749) ---------- ---------- Cash Flows From Financing Activities: Proceeds from issuance of common stock..................... 820 376 Bank credit line........................................... 18,325 16,000 Borrowings (payments) on notes payable..................... 286 (1,248) Payments on long term debt................................. - (1,610) Quarterly dividend paid.................................... (3,043) (3,033) ---------- ---------- Net cash provided by financing activities........... 16,388 10,485 ---------- ---------- Increase in cash and cash equivalents.............................. 2,221 4,188 Cash and cash equivalents at beginning of period.................... 15,415 10,494 ---------- ---------- Cash and cash equivalents at end of period.......................... $ 17,636 $ 14,682 ========== ========== The accompanying notes are an integral part of these condensed consolidated financial statements.
4 SMART & FINAL INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (1) Basis of Presentation Smart & Final Inc. (the "Company") is a Delaware corporation and is a 53.08 percent owned subsidiary of Casino USA, Inc. (the "Parent"). The condensed consolidated balance sheet as of October 6, 1996, the condensed consolidated statements of income for the sixteen and forty weeks ended October 6, 1996 and October 8, 1995, and the condensed consolidated statements of cash flows for the forty weeks ended October 6, 1996 and October 8, 1995 are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of these financial statements have been included. Such adjustments consisted only of normal recurring items. Interim results are not necessarily indicative of results for a full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Form 10-K statement for the year ended December 31, 1995. (2) Earnings per common share Earnings per common share is based on weighted average outstanding common shares which include the common stock equivalents related to employee stock options and a stock purchase agreement. (3) Fiscal years The Company's fiscal year ends on the Sunday closest to December 31. Each fiscal year consists of twelve week periods in the first, second and fourth quarters and a sixteen week period in the third quarter. (4) Dividend On September 13, 1996 the Company declared a dividend of $0.05 per share to stockholders of record at October 16, 1996. The dividend was paid on October 25, 1996. 5 (5) Income taxes Tax sharing payments for state income taxes made by the Company to the Parent were $1,535,000 and $1,176,000 in the forty weeks ended October 6, 1996 and October 8, 1995 respectively. The Company paid $8,555,000 and $5,800,000 in federal income taxes in the forty week period ended October 6, 1996 and October 8, 1995, respectively. (6) Stock Options Compensation expenses, associated with employee stock option grants was $152,128 for the forty weeks ended October 8, 1995. These expenses were based upon the discounted option price at the date the options were granted. These compensation expenses were fully amortized at fiscal year end 1995. (7) Warehouse Start Up Costs In 1995, in anticipation of the commencement of operations of the Company's new distribution center in Northern California, the Company increased its staffing levels and incurred certain other costs totaling approximately $4.3 million. Significant delays in commencement of operations resulted in labor inefficiencies, travel and move costs and significantly increased promotion allowances and product discounts in order to maintain customer relationships during the period of delay. These costs have been classified as warehouse start- up costs in the accompanying income statement for the sixteen and forty weeks ended October 8, 1995. (8) Legal Actions The Company has been named as defendant in various legal actions arising in the normal conduct of its business. In the opinion of management, after consultation with counsel, none of these actions are expected to result in significant liability to the Company. 6 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and notes thereto and the Company's Form 10-K statement for the year ended December 31, 1995. Summary. Smart & Final Inc. (the "Company") reported net income of $8.1 million for the sixteen weeks ended October 6, 1996, compared to $6.6 million for the sixteen weeks ended October 8, 1995. For the forty weeks ended October 6, 1996, the Company reported net income of $18.6 million compared to a net income of $13.2 million for the forty weeks ended October 8, 1995. The increase in earnings for the first three quarters of 1996 compared to the prior year results was due to inclusion in the 1995 results of start up costs of the new Northern California distribution center which opened in Stockton, in April, 1995, along with strong operating results in the first three quarters of the current year. Results of Operations. The following table shows for the periods indicated, certain condensed consolidated income statement data, expressed as a percentage of total sales.
SIXTEEN WEEKS ENDED FORTY WEEKS ENDED ---------------------- ---------------------- OCTOBER 6, OCTOBER 8, OCTOBER 6, OCTOBER 8, 1996 1995 1996 1995 ---------- ---------- ---------- ---------- Sales: Stores sales............................... 76.1% 80.4% 76.3% 78.8% Foodservice distribution sales............. 23.9 19.6 23.7 21.2 ----- ----- ----- ----- Total sales.................................. 100.0% 100.0% 100.0% 100.0% Cost of sales, buying and occupancy.......... 84.2 84.2 84.0 83.9 Lease expense to affiliates.................. 1.4 1.5 1.4 1.5 ----- ----- ----- ----- Gross margin................................. 14.4 14.4 14.6 14.6 Operating and administrative expenses........ 10.9 11.1 11.3 11.5 Warehouse start up costs..................... - 0.2 - 0.5 ----- ----- ----- ----- Income from operations..................... 3.5 3.1 3.3 2.6 ----- ----- ----- ----- Other income and (expense): Interest income............................ - - - - Interest expense........................... (0.3) (0.2) (0.3) (0.2) ----- ----- ----- ----- (0.3) (0.2) (0.2) (0.2) Income before provision for income taxes and minority share of net income............... 3.2 2.9 3.0 2.5 Provision for income taxes................... 1.2 1.1 1.2 0.9 ----- ----- ----- ----- 2.0 1.8 1.9 1.5 Minority share of net income................. - - - - ----- ----- ----- ----- Income from consolidated subsidiaries...... 2.0 1.8 1.8 1.5 Equity earnings in unconsolidated subsidiary. - - - - ----- ----- ----- ----- Net income................................. 2.0% 1.8% 1.9% 1.5% ----- ----- ----- ----- * Totals do not aggregate due to rounding
7 Background. The Company continued its expansion program in 1995 and 1996 as shown in the following table:
Three Year Quarter Ended Quarters Ended Ended ------------- -------------- ------- Oct. 6 Oct. 8 Oct. 6 Oct. 8 Dec. 31 1996 1995 1996 1995 1995 ------ ------ ------ ------ ------- USA Beginning number 162 147 155 144 144 Stores opened: In new markets 1 - 8 3 3 In mature markets 1 3 1 3 8 ----- ----- ----- ----- ----- Total 2 3 9 6 11 Relocations 2 1 4 3 4 Stores Relocated (2) (1) (4) (3) (4) ----- ----- ----- ----- ----- Ending number 164 150 164 150 155 MEXICO Store Count 3 3 3 3 3 ----- ----- ----- ----- ----- Grand Total 167 153 167 153 158 ===== ===== ===== ===== =====
Mexico operations are not consolidated and are reported on the equity basis. There are currently two additional stores in Mexico expected to open in the fourth quarter. The initial six stores in Florida commenced operations in Florida in the first half of 1996, and four more are under construction and are expected to open in the fourth quarter. Although new stores are important to the Company's continued growth and profitability, each new store opening initially penalizes earnings because stores are not immediately profitable. In recent years new stores opened in existing market areas generally have achieved break even (after full allocation of all corporate expenses) within the first six to eighteen months and new stores opened in new market areas, which mature more slowly, generally have achieved break even in approximately three years. The Company plans to open approximately 20 new U.S. stores including Florida in the next twelve months including at least 6 relocations. The Company intends to finance its expansion through capital resources available under lines of credit, cash flow provided through operations and operating leases. Management anticipates that its planned expansion will not have a significant impact upon its liquidity or results of operations within the next twelve months. Each of the Company's fiscal years consists of twelve week periods in the first, second and fourth quarters of the fiscal year and a sixteen week period in the third quarter. 8 Comparison of Sixteen Weeks ended October 6, 1996 with Sixteen Weeks Ended October 8, 1995. Sales. Third quarter 1996 sales were $406.4 million, up 11.3% from the comparable 1995 period. Smart & Final Stores Corporation ("Smart & Final") store sales increased 5.3%. Store sales increased as a result of the new store openings and relocations in the United States which numbered fifteen in 1995 and thirteen in the first three quarters of 1996. Comparable store sales for the third quarter of 1996 increased 0.5% over the prior year period. Same store sales weakened from the prior year quarter because of unusually competitive pricing on tobacco products which weakened comparable sales by 1.5% and by higher new store cannibalization of existing stores. Cannibalization reduced same store sales by 1.5% in the third quarter of 1996 and 0.6% in the third quarter of 1995. Comparable customer transactions for the third quarter decreased 0.4% from the third quarter of 1995. Average comparable transaction size increased by 0.9%, to $32.17. Port Stockton Foods ("Port Stockton") reported sales of $42.0 million, up 93.9% from $21.6 million in the prior year quarter, while Henry Lee Company ("Henry Lee") contributed $54.7 million of sales, an increase of 12.8%. Cost of Sales, Buying and Occupancy. These costs totaled $342.3 million in the third quarter of 1996, up 11.4% from the third quarter of 1995. As a percentage of sales, these costs were flat at 84.2% in the third quarter of each year. Lease Expense to Affiliates. Lease expense to affiliates increased by 2.2% from $5.4 million in the third quarter of 1995 to $5.5 million in the third quarter of 1996. Of the twenty eight stores opened in 1995 and the first three quarters of 1996 (eight of which were relocations), none were leased from affiliates. This expense is declining because the Company's affiliates ceased acquiring new properties at the end of fiscal 1993. As a percentage of sales this expense declined from 1.5% of sales in the third quarter of 1995 to 1.4% in the current year quarter. Gross Margin. As a result of the stability in the cost of sales, buying and occupancy and the slight increase in Lease expense to affiliates, gross margin increased at approximately the same rate as sales, rising 11.6% from $52.5 million to $58.6 million. As a percentage of sales, gross margin was flat, at 14.4% in each of the third quarters. Operating and Administrative Expenses. Operating and administrative expenses for the third quarter of 1996 were $44.3 million, up $3.9 million or 9.6% from the third quarter of 1995. Direct store expenses and general and administrative expenses declined, as a percentage of sales, from the prior year third quarter. As a percentage of sales, total operating and administrative expenses decreased from 11.1% in the third quarter of 1995 to 10.9% in the current year quarter. Warehouse Start Up Costs. A new distribution facility located in Stockton, California commenced operations in April, 1995. The new facility now serves the 5,000 foodservice operator customers of Port Stockton Foods and 40 Northern California Smart & Final stores. Start up costs of the new facility amounting to $0.8 million were included in the third quarter 1995 results. Income from Operations. Income from operations was $14.2 million for the third quarter of 1996, up 26.3% from $11.3 million in the third quarter of 1995. As a percentage of sales income from operations increased from 3.1% of sales to 3.5%. Other Income and (Expense). Other income and expense increased from $0.6 million of expense in the third quarter of 1995 to $1.1 million of expense in the third quarter of 1996. The increase is due to interest costs incurred on debt arising from capital expenditures and working capital increases related to the Company's growth program. 9 Comparison of Forty Weeks Ended October 6, 1996 with Forty Weeks Ended October 8, 1995. Sales. For the first three quarters of 1996 sales were $996.2 million, up 11.8% from the comparable 1995 period. Smart & Final store sales increased 8.3%. Store sales increased as a result of the twenty eight new stores opened and relocated since the beginning of 1995. Comparable store sales increased 3.3% in the first three quarters. Same store sales were not as strong in the current year as in 1995 due to unusually competitive retailing of tobacco products and due to higher new store cannibalization of existing stores. Comparable customer transactions were up 1.9% over the prior year. Average transaction size increased by 1.4% to $32.21 in the first three quarters of 1996. Port Stockton reported sales of $82.0 million, up 56.5% from $52.4 million in the first three quarters of 1995. Henry Lee sales were $152.9 million, up 14.9% from the prior year period. Cost of Sales, Buying, and Occupancy. These costs totaled $837.0 million in the first three quarters of 1996, up 11.9% from the first three quarters of 1995, on the 11.8% increase in sales. As a percentage of sales, these costs increased, from 83.9% in the first three quarters of 1995 to 84.0% in the first three quarters of 1996 Lease Expense to Affiliates. Lease expense to affiliates increased by 2.1% from $13.3 million in the first three quarters of 1996 to $13.6 million in the first three quarters of 1995. None of the stores opened in 1995 or 1996 were leased from affiliated companies because the affiliates ceased acquiring new properties after 1993. As a percentage of sales these costs declined from 1.5% of sales to 1.4% of sales Gross Margin. Gross margin for the first three quarters of 1996 was $145.7 million, up 12.2% from the 1995 period. As a percentage of sales, gross margin remained constant, at 14.6% of sales. Operating and Administrative Expenses. Operating and administrative expenses for the first three quarters of 1996 were $112.9 million, up 10.5% from $102.2 million in the first three quarters of 1995. These costs, as a percentage of sales, declined from 11.5% of sales in the first three quarters of 1995 to 11.3% for the first three quarters of the current year. Direct store costs and general and administrative expenses declined, as a percentage of sales, from prior year levels. Warehouse Start Up Costs. A new distribution facility located in Stockton, California commenced operations in April, 1995. Start up costs of the new facility amounted to $4.3 million in the first three quarters of 1995. The new facility now serves the 5,000 foodservice operator customers of Port Stockton Foods and 40 Northern California Smart & Final stores. Income from Operations. Income from operations was $32.7 million for the first three quarters of 1996, up 40.6% from $23.3 million reported in the first three quarters of 1995. The improvement is the result of strong operating results in the current year and the fact that 1995 results included the new distribution center start up costs. As a percentage of sales income from operations increased from 2.6% of sales in the first three quarters of 1995 to 3.3% in the current year. Other Income and (Expense). Other income and expense increased from $1.4 of expense in the first three quarters of 1995 to $2.4 million of expense in the first three quarters of 1996. The increase is due to costs of higher borrowings related to the Company's expansion program. 10 Financial Condition. Cash and cash equivalents increased from $15.4 million at December 31, 1995, to $17.6 million at October 6, 1996. Cash provided by operating activities for the forty weeks ended October 6, 1996 was $17.6 million. Cash used for investing activities, primarily capital expenditures for property, plant, and equipment was $31.8 million. Cash provided by financing activities was $16.4 million including $18.3 million of borrowings under the Company's bank credit line. Accounts receivable increased $14.7 million to $122.6 million as a result of strong growth of the foodservice distribution business which sells on credit. Short term and long term debt increased by $19.7 million, or 42.6% to $66.0 million, due to borrowings to finance capital expenditures and working capital increases caused by the Company's growth. Shareholders' equity increased by $16.4 million from $140.1 million at December 31, 1995 to $156.5 million at October 6, 1996 as result of the $18.6 million net income for the first forty weeks of 1996, and the $0.8 proceeds from the issuance of common stock, net of the quarterly cash dividends of $3.0 million declared in the first three quarters of 1996. Liquidity and Capital Resources. The Company's primary source of liquidity is cash flow from operations and retained earnings. Cash provided by operating activities was $17.6 million in the first three quarters of 1996. At October 6, 1996 the Company had cash of $17.6 million, $156.5 million of stockholders' equity, and $66.0 million of debt. The Company has a long term line of credit available with banks in the amount of $50 million of which $35 million was outstanding as of October 6, 1996. The Company also has a short term line of credit available with a bank in the amount of $25 million of which $21 million was outstanding as of October 6, 1996. The Company expects to be able to fund future acquisitions and other cash requirements by a combination of available cash, cash from operations, borrowings and proceeds from the issuance of equity securities. On October 31, 1996, the Company entered into an Agreement for Conveyance of Real Property with Casino USA, Inc., its principal stockholder (and its wholly-owned subsidiary Casino Realty, Inc.), to purchase 91 improved real properties and leasehold interests (of which 86 are stores and the remainder are used for office and warehouse space), for a purchase price consisting of (i) 1,625,000 new shares of Company common stock and (ii) $38,000,000 in unsecured five-year promissory notes. The transaction when completed will result in a cessation of lease expense to affiliates related to these properties. Management believes that the addition of these properties strengthens the Company's asset base and gives the Company the ability to directly control the continued use and disposition of these properties. Management does not expect the issuance of the additional equity and debt to materially affect the Company's ability to fund its future operations. 11 PART II - OTHER INFORMATION Item 1 Legal proceedings Not applicable. Item 2 Changes in Securities Not applicable. Item 3 Defaults upon Senior Securities Not applicable Item 4 Submission of Matters to a Vote of Security Holders Not Applicable Item 5 Other Information Cautionary Statement for Purposes of "Safe Harbor Provisions" of the Private Securities Litigation Reform Act of 1995 Certain statements contained in this filing are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and are thus prospective. Such statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, competitive pressures, changing economic conditions and the other uncertainties detailed from time to time in the Company's Securities and Exchange Commission filings. Item 6 Exhibits and Reports on Form 8-k (a) Exhibits: 27 Financial Data Schedule (b) Report on Form 8-K None 12 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. SMART & FINAL INC. By: Date: October 31, 1996 /s/ MARTIN A. LYNCH __________________________________ Martin A. Lynch Executive Vice President, Principal Financial Officer, and Principal Accounting Officer of the Company 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-29-1996 JAN-01-1996 OCT-06-1996 17,636 0 60,482 2,056 122,583 213,037 186,091 72,904 356,187 132,046 44,895 0 0 203 156,255 356,187 996,190 996,190 836,968 850,525 112,945 0 2,433 30,280 11,720 18,560 0 0 0 18,560 $0.88 $0.88
-----END PRIVACY-ENHANCED MESSAGE-----