-----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, KAoUwfS/xdXtZaajx86g23bquWib1FpoqwDZ+XQMOx/+GRTKcDRC/1k265i9eAqg HrkXZ8GjavaE7rT2Zodk0g== 0000898430-01-501454.txt : 20010727 0000898430-01-501454.hdr.sgml : 20010727 ACCESSION NUMBER: 0000898430-01-501454 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010617 FILED AS OF DATE: 20010726 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: 0103 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10811 FILM NUMBER: 1689528 BUSINESS ADDRESS: STREET 1: 600 CITADEL DRIVE CITY: CITY OF COMMERCE STATE: CA ZIP: 90040 BUSINESS PHONE: 3238697500 MAIL ADDRESS: STREET 1: 600 CITADEL DRIVE CITY: CITY OF COMMERCE STATE: CA ZIP: 90040 FORMER COMPANY: FORMER CONFORMED NAME: SFI CORP /CA DATE OF NAME CHANGE: 19600201 10-Q 1 d10q.txt FORM 10-Q, FOR PERIOD ENDING 6/17/01 ================================================================================ 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 June 17, 2001 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) 600 Citadel Drive City of Commerce, California 90040 (Address of principal executive offices) (zip code) Registrant's telephone number, including area code: (323) 869-7500 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 29,386,585 shares of common stock outstanding as of July 25, 2001. ================================================================================ SMART & FINAL INC. Index Part I Financial Information Page Item 1. Financial Statements Unaudited Consolidated Balance Sheets 2 Unaudited Consolidated Statements of Income 3 Unaudited Consolidated Statements of Cash Flows 4 Notes to Unaudited Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition 11 and Results of Operations Item 3. Quantitative and Qualitative Disclosure about Market Risk 17 Part II Other Information Item 1. Legal Proceedings 19 Item 2. Changes in Securities and Use of Proceeds 19 Item 3. Defaults upon Senior Securities 19 Item 4. Submission of Matters to a Vote of Security Holders 19 Item 5. Other Information 20 Item 6. Exhibits and Reports on Form 8-K 20 1 SMART & FINAL INC. CONSOLIDATED BALANCE SHEETS (dollars in thousands)
June 17, December 31, ASSETS 2001 2000 - ------ ------- ------------ (Unaudited) Current assets: Cash & cash equivalents $ 24,991 $ 23,328 Trade notes and accounts receivable, less allowance for doubtful accounts of $3,478 in 2001 and $3,182 in 2000 72,840 68,776 Inventories 168,976 170,276 Prepaid expenses 6,793 6,426 Deferred tax asset 11,540 10,890 -------- ------- Total current assets 285,140 279,696 Property, plant and equipment: Land 36,669 36,338 Buildings and improvements 31,029 29,559 Leasehold improvements 108,206 104,646 Fixtures and equipment 191,531 182,678 -------- ------- 367,435 353,221 Less - Accumulated depreciation and amortization 157,913 146,904 -------- ------- Net property, plant and equipment 209,522 206,317 Assets under capital leases, net of accumulated amortization of $8,799 in 2001 and $8,098 in 2000 6,484 6,877 Goodwill, net of accumulated amortization of $5,857 in 2001 and $5,203 in 2000 52,870 53,524 Deferred tax asset 6,051 6,051 Other assets 27,239 29,876 -------- -------- Total assets $587,306 $582,341 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Current maturities of long-term debt $111,345 $ 91,209 Accounts payable 90,060 102,858 Accrued salaries and wages 11,892 15,538 Other accrued liabilities 38,201 39,688 -------- -------- Total current liabilities 251,498 249,293 Long-term liabilities: Notes payable, net of current maturities 5,069 10,117 Notes payable to Parent 15,965 15,965 Obligations under capital leases 8,763 9,390 Other long-term liabilities 14,557 12,632 Workers' compensation reserve, postretirement and postemployment benefits 20,966 20,079 -------- -------- Total long-term liabilities 65,320 68,183 Stockholders' equity: Preferred stock, $1 par value (authorized- 10,000,000 shares; no shares issued) - - Common stock, $0.01 par value (authorized-100,000,000 shares; 29,385,085 shares issued and outstanding in 2001 and 29,203,114 in 2000) 294 292 Additional paid-in capital 206,378 204,898 Notes receivable for stock (100) (100) Accumulated other comprehensive loss (2,105) (915) Retained earnings 66,021 60,690 -------- -------- Total stockholders' equity 270,488 264,865 -------- -------- Total liabilities and stockholders' equity $587,306 $582,341 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 2 SMART & FINAL INC. CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except per share amounts)
Twelve Weeks Ended Twenty-four Weeks Ended --------------------------- --------------------------- June 17, June 18, June 17, June 18, 2001 2000 2001 2000 ----------- ----------- ----------- ----------- (Unaudited) (Unaudited) Sales $ 463,594 $ 442,998 $ 887,762 $ 842,359 Cost of sales, buying and occupancy 397,329 382,842 763,444 727,980 ----------- ----------- ----------- ----------- Gross margin 66,265 60,156 124,318 114,379 Operating and administrative expenses 56,539 52,205 110,350 102,218 ----------- ----------- ----------- ----------- Income from operations 9,726 7,951 13,968 12,161 Interest expense, net 2,845 3,237 5,912 6,482 ----------- ----------- ----------- ----------- Income before provision for income taxes 6,881 4,714 8,056 5,679 Provision for income taxes 2,696 1,616 3,121 1,989 ----------- ----------- ----------- ----------- Income from consolidated subsidiaries 4,185 3,098 4,935 3,690 Equity earnings in unconsolidated subsidiary 276 94 396 138 ----------- ----------- ----------- ----------- Net income $ 4,461 $ 3,192 $ 5,331 $ 3,828 ========== ========== ========== ========== Earnings per common share $ 0.15 $ 0.11 $ 0.18 $ 0.13 ========== ========== ========== ========== Weighted average common shares 29,316,731 29,192,368 29,266,744 29,177,777 ========== ========== ========== ========== Earnings per common share, assuming dilution $ 0.15 $ 0.11 $ 0.18 $ 0.13 ========== ========== ========== ========== Weighted average common shares and common share equivalents 29,660,429 29,264,238 29,576,444 29,220,452 ========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 3 SMART & FINAL INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)
Twenty-four Weeks Ended ------------------------ June 17, June 18, 2001 2000 ------------------------ (Unaudited) Cash Flows From Operating Activities: Net income $ 5,331 $ 3,828 Adjustments to reconcile net income to net cash provided by operating activities: Gain on disposal of fixed assets (426) (61) Depreciation and amortization 15,663 15,474 Deferred tax provision (benefit) (650) - Amortization of deferred financing costs 781 873 Equity earnings in unconsolidated subsidiary (396) (138) Decrease (increase) in: Trade notes and accounts receivable (3,942) 1,008 Inventories 1,300 3,621 Prepaid expenses and other 173 411 Increase (decrease) in: Accounts payable (6,831) (6,115) Accrued liabilities (3,646) 3,159 Other liabilities 597 5,907 -------- -------- Net cash provided by operating activities 7,954 27,967 -------- -------- Cash Flows From Investing Activities: Acquisition of property, plant and equipment (21,996) (9,479) Proceeds from disposal of property, plant and equipment 944 77 Other (217) (1,286) -------- -------- Net cash used in investing activities (21,269) (10,688) -------- -------- Cash Flows From Financing Activities: Proceeds from issuance of common stock 821 - Payments on bank line of credit (5,000) (17,500) Borrowings on bank line of credit 22,500 - Payments on notes payable (3,343) (3,146) -------- -------- Net cash provided by (used in) financing activities 14,978 (20,646) -------- -------- Increase (decrease) in cash and cash equivalents 1,663 (3,367) Cash and cash equivalents at beginning of period 23,328 42,936 -------- -------- Cash and cash equivalents at end of period $ 24,991 $ 39,569 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 4 SMART & FINAL INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation Smart & Final Inc. (the "Company") is a Delaware corporation and is a 56.8 percent owned subsidiary of Casino USA, Inc. (the "Parent"). Casino Guichard- Perrachon, S.A. ("Casino France"), a publicly traded French joint stock limited liability company, is the principal shareholder of the Parent. Collectively, Casino France and its subsidiaries currently own approximately 59.8 percent of the Company's common stock. The consolidated balance sheet as of June 17, 2001 and the consolidated statements of income and cash flows for the twelve and twenty-four weeks ended June 17, 2001 and June 18, 2000 are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of these financial statements in conformity with accounting principles generally accepted in the United States have been included. Such adjustments consisted of normal recurring items as well as the accounting change to adopt Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities". Interim results are not necessarily indicative of results for a full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Form 10-K for the year ended December 31, 2000. 2. 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. 3. Accounting Change Effective January 1, 2001, the Company adopted SFAS No. 133, as amended by SFAS No. 138, which established accounting and reporting standards for derivative instruments and hedging activities. All derivative instruments are required to be measured at fair values and recognized on the balance sheet. Changes in fair values of derivative instruments designated as fair value hedges are recognized in current earnings. The effective portions of changes in fair values of derivative instruments designated as cash flow hedges are recorded as other comprehensive income ("OCI") and are reported on the statement of income when the hedged forecasted transaction affects earnings or the hedged item becomes ineffective. The ineffective portions of cash flow hedges are recognized in current earnings. 5 SMART & FINAL INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) The Company uses interest rate collar agreements to minimize the negative impact of interest rate fluctuations on the Company's cash flows. These agreements are designated as cash flow hedges and are considered fully effective. The adoption of SFAS No. 133 on January 1, 2001 resulted in a cumulative pretax reduction of $480,000 recorded to OCI, representing cumulative losses since inception on the fair values of these derivative instruments as of January 1, 2001. 4. Derivatives As of June 17, 2001, the Company had interest rate collar agreements with various banks to limit the impact of interest rate fluctuations on revolving debt. These agreements hedge principal amounts of up to an aggregate of $100 million. The agreements limit LIBOR fluctuations to interest rate ranges from 4.70% to 8.00% and expire during various periods from October 2002 to September 2004. For the first two quarters of 2001, a pretax reduction of $1,263,000 was recorded to OCI as a result of changes in the fair values of these agreements. The decrease in fair values of these cash flow hedges during the current reporting period is attributable to the declining market interest rates. For the twelve-week and twenty-four-week periods ended June 17, 2001, net derivative losses reclassified into earnings were $47,000. The Company estimates that $1.1 million of net derivative losses included in OCI will be reclassified into earnings within the next twelve months. 5. Stockholders' Equity In the fourth quarter of 2000, the Company's board of directors approved a program for the voluntary exchange (the "Exchange Program") of certain outstanding options having an exercise price of $14.00 or higher per share for shares of common stock issued as "Restricted Stock" under the terms of the Company's Long-Term Equity Compensation Plan. All options surrendered as a result of an election under the Exchange Program were canceled and returned to the respective plan under which the canceled options were first granted. The Exchange Program expired on March 9, 2001. A total of 178,510 shares of Restricted Stock were issued. The related compensation expense to be recognized over the vesting periods of one year or three years is $1.6 million. 6 SMART & FINAL INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 6. Comprehensive Income (Loss) Comprehensive income (loss) was computed as follows, amounts in thousands:
Twenty-four Twelve Weeks Ended Weeks Ended ------------------- ------------------- June 17, June 18, June 17, June 18, 2001 2000 2001 2000 ------ ------ ------- ------ Net income $4,461 3,192 5,331 3,828 Other comprehensive income (loss): Cumulative effect of accounting change, net of tax - - (305) - Net gain (loss) on derivative instruments, net of tax (203) - (788) - Foreign currency translation adjustments 31 146 (97) 219 ------ ------ ------- ------ Total other comprehensive income (loss) (172) 146 (1,190) 219 ------ ------ ------- ------ Total comprehensive income $4,289 $3,338 $ 4,141 $4,047 ====== ====== ======= ======
See Note 3 regarding cumulative effect of accounting change resulting from adoption of SFAS 133 and Note 4 for change in OCI during the reporting period due to changes in fair values of derivative instruments designated as cash flow hedges. In accordance with generally accepted accounting principles, the functional currency for the Company's Mexico operations has been the Mexican Peso. As such, foreign currency translation gains and losses are included in OCI. 7. Interest Expense Interest expense was incurred primarily on borrowings under the Company's revolving credit facilities and a loan from its Parent. The Company paid $5.2 million and $4.7 million in interest in the twenty-four weeks ended June 17, 2001 and June 18, 2000, respectively. 8. Income Taxes The Company and the Parent are parties to a tax sharing arrangement covering income tax obligations in the state of California. Under this arrangement, based upon pre-tax income, the Company made tax sharing payments of $1,246,000 and $235,000 to the Parent in the twenty-four weeks ended June 17, 2001 and June 18, 2000, respectively. The Company paid $10,000 and $40,000 of state income taxes for states other than California in the twenty-four weeks ended June 17, 2001 and June 18, 2000, respectively. The Company paid $2,150,000 and $1,185,000 of federal income taxes in the twenty-four weeks ended June 17, 2001 and June 18, 2000, respectively. 7 SMART & FINAL INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 9. Earnings per Common Share Earnings per common share is based on the weighted average number of common shares outstanding. Earnings per common share, assuming dilution includes the weighted average number of common stock equivalents outstanding related to employee stock options and other stock agreements. 10. Segment Reporting The Company has two reportable segments: Stores and Foodservice. The stores segment provides food and related items in bulk sizes and quantities through non-membership grocery warehouse stores. The foodservice distribution segment provides delivery of food, restaurant equipment and supplies to mainly restaurant customers and Smart & Final stores. Corporate Expense is comprised primarily of the Company's corporate expenses incidental to the activities of the reportable segments and rental income from Smart & Final stores. The Company's reportable segments are strategic business units that offer different products and services. They are managed separately because each segment requires different technology and marketing strategies. The Company does not allocate interest, income taxes or nonrecurring gains and losses to the reportable segments. These costs are included in Corporate Expense below. The Company evaluates performance based on profit or loss from operations before income taxes not including nonrecurring gains and losses. The revenues, profit or loss and other information of each segment are as follows, amounts in thousands: For the twelve weeks ended June 17, 2001: Corporate Stores Foodservice Expense Total -------- ------------ ---------- -------- Revenues from external customers $365,891 $97,703 $ - $463,594 Intercompany real estate charge (income) 3,644 119 (3,763) - Interest income - - 142 142 Interest expense - - 2,987 2,987 Pre-tax income (loss) 10,325 (597) (2,847) 6,881 8 SMART & FINAL INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the twelve weeks ended June 18, 2000:
Corporate Stores Foodservice Expense Total -------- ------------ ---------- -------- Revenues from external customers $348,069 $ 94,929 $ - $442,998 Intercompany real estate charge (income) 3,180 - (3,180) - Interest income - - 301 301 Interest expense - - 3,538 3,538 Pre-tax income (loss) 8,210 (907) (2,589) 4,714 For the twenty-four weeks ended June 17, 2001: Corporate Stores Foodservice Expense Total -------- ----------- --------- -------- Revenues from external customers $690,464 $197,298 $ - $887,762 Intercompany real estate charge (income) 6,855 119 (6,974) - Interest income - - 267 267 Interest expense - - 6,179 6,179 Pre-tax income (loss) 17,263 (2,927) (6,280) 8,056 For the twenty-four weeks ended June 18, 2000: Corporate Stores Foodservice Expense Total -------- ----------- --------- -------- Revenues from external customers $651,539 $190,820 $ - $842,359 Intercompany real estate charge (income) 6,347 - (6,347) - Interest income - - 694 694 Interest expense - - 7,176 7,176 Pre-tax income (loss) 14,018 (699) (7,640) 5,679
The basis for allocating distribution expense to stores was changed in 2001, reducing Foodservice pre-tax income and increasing Stores pre-tax income by $300,000 and $600,000 for the twelve weeks and twenty-four weeks ended June 17, 2001, respectively. 9 SMART & FINAL INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 11. Legal Actions The Company has been named as a 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. 12. Recent Accounting Pronouncements In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that all business combinations be accounted for under the purchase method. The statement further requires separate recognition of intangible assets that meet one of two criteria. The statement applies to all business combinations initiated after June 30, 2001. SFAS No. 142 requires that an intangible asset that is acquired shall be initially recognized and measured based on its fair value. The statement also provides that goodwill should not be amortized, but shall be tested for impairment annually, or more frequently if circumstances indicate potential impairment, through a comparison of fair value to its carrying amount. Existing goodwill will continue to be amortized through the remainder of fiscal 2001 at which time amortization will cease and the Company will perform a transitional goodwill impairment test. SFAS No. 142 is effective for fiscal periods beginning after December 15, 2001. The Company is currently evaluating the impact of the new accounting standards on existing goodwill and other intangible assets. While the ultimate impact of the new accounting standards has yet to be determined, goodwill amortization expense for the twenty-four weeks ended June 17, 2001 was $0.7 million. 10 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 for the year ended December 31, 2000. Summary Smart & Final Inc. (the "Company") reported net income of $4.5 million, or $0.15 per diluted share, for the twelve weeks ended June 17, 2001, compared to net income of $3.2 million, or $0.11 per diluted share, for the twelve weeks ended June 18, 2000. For the twenty-four weeks ended June 17, 2001, the Company reported net income of $5.3 million, or $0.18 per diluted share, compared to net income of $3.8 million, or $0.13 per diluted share, in the twenty-four weeks ended June 18, 2000. Operating earnings increased 22.3%, or $1.8 million, from last year's same quarter to $9.7 million in the twelve weeks ended June 17, 2001. Stores reported an increase in its operating earnings and Foodservice reported a decrease in its operating loss for the quarter as compared to last year's same quarter. Operating earnings increased 14.9%, or $1.8 million, to $14.0 million in the twenty-four weeks ended June 17, 2001. When compared to the same period of last year, for the first half of 2001, store operating results increased $3.3 million despite a $2.6 million year-to-year increase in marketing expense and foodservice operating results declined $2.2 million primarily due to restructuring costs in the northern California unit. Interest expense, net decreased $0.6 million in the first half of 2001 compared to the first half of 2000 as a result of lower average outstanding debt and rate reductions caused by the Company's improved financial ratios and declining market rates. 11 Results of Operations The following table shows, for the periods indicated, certain condensed consolidated income statement data, expressed as a percentage of sales. Totals may not aggregate due to rounding.
Twelve Weeks Ended Twenty-four Weeks Ended -------------------- ------------------------- June 17, June 18, June 17, June 18, 2001 2000 2001 2000 ----- ----- ----- ----- Sales: Store 78.9% 78.6% 77.8% 77.3% Foodservice distribution sales 21.1 21.4 22.2 22.7 ----- ----- ----- ----- Sales, consolidated total 100.0 100.0 100.0 100.0 Cost of sales, buying and occupancy 85.7 86.4 86.0 86.4 ----- ----- ----- ----- Gross margin 14.3 13.6 14.0 13.6 Operating and administrative expenses 12.2 11.8 12.4 12.1 ----- ----- ----- ----- Income from operations 2.1 1.8 1.6 1.4 Interest expense, net 0.6 0.7 0.7 0.8 ----- ----- ----- ----- Income before provision for income taxes 1.5 1.1 0.9 0.7 Provision for income taxes 0.6 0.4 0.4 0.2 ----- ----- ----- ----- Income from consolidated subsidiaries 0.9 0.7 0.6 0.4 Equity earnings in unconsolidated subsidiary 0.1 - - - ----- ----- ----- ----- Net income 1.0% 0.7% 0.6% 0.5% ===== ===== ===== =====
The following table sets forth pre-tax profit or loss, in millions, for each of the Company's various reportable segments:
Twelve Weeks Ended Twenty-four Weeks Ended -------------------- ------------------------- June 17, June 18, June 17, June 18, 2001 2000 2001 2000 ----- ----- ----- ----- Stores $10.4 $ 8.2 $17.3 $14.0 Foodservice (0.6) (0.9) (2.9) (0.7) ----- ----- ----- ----- Segment totals 9.8 7.3 14.4 13.3 Interest and other corporate expenses 2.9 2.6 6.3 7.6 ----- ----- ----- ----- Consolidated pre-tax income $ 6.9 $ 4.7 $ 8.1 $ 5.7 ===== ===== ===== =====
The basis for allocating distribution expense to stores was changed in 2001, reducing Foodservice pre-tax income and increasing Stores pre-tax income by $0.3 million and $0.6 million for the twelve-week and twenty-four-week periods ended June 17, 2001, respectively. Stores segment improved as a result of strong sales and margin rates. Foodservice segment reported a loss due to costs related to restructuring northern California distribution operations; however, despite the restructuring costs, the loss decreased by $0.3 million in the second quarter from prior year's same quarter. The year-to-year improvement in the second quarter at the Foodservice segment is the result of sales increases and continued effort in cost reductions. 12 Background During the first half of 2001, the Company opened five new stores and relocated one store. Additional new store growth is planned for the remainder of fiscal 2001.
Twenty-four Twelve Weeks Ended Weeks Ended Year Ended ------------------ ------------------ ------------- June 17, June 18, June 17, June 18, December 31, 2001 2000 2001 2000 2000 -------- -------- -------- ------- ------------ USA: Beginning store count 218 212 214 212 212 Stores opened: New stores 1 1 5 1 2 Relocations - - 1 1 1 Stores relocated or closed - - (1) (1) (1) ---- ---- ---- ---- --- Ending store count 219 213 219 213 214 ---- ---- ---- ---- --- MEXICO: Beginning store count 7 6 7 6 6 New stores opened - - - - 1 ---- ---- ---- ---- --- Ending store count 7 6 7 6 7 ---- ---- ---- ---- --- Grand Total 226 219 226 219 221 ==== ==== ==== ==== ===
Mexico operations are not consolidated and are reported on the equity basis of accounting. Management continually assesses each store's profitability on a pre-tax profit basis after allocation of all corporate expenses. Stores not meeting strategic management objectives for profitability, market penetration, and/or other measures are evaluated for closure or relocation. Generally, stores opened in mature markets are expected to achieve profitability within 18 months of operations. However, there can be no assurance that the Company will be able to open new stores in a timely manner; hire, train and integrate employees; continue locating and obtaining favorable store sites; or adapt distribution, management information and other operating systems sufficiently to grow in a successful and profitable manner. 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. 13 Comparison of Twelve Weeks Ended June 17, 2001 with Twelve Weeks Ended June 18, 2000. Sales. Second quarter 2001 sales were $463.6 million, up 4.6% from $443.0 million in the second quarter of 2000. Store sales increased 5.1%, from $348.1 million in second quarter 2000 to $365.9 million in second quarter 2001. Comparable store sales for the second quarter of 2001 increased 4.0% over the prior year's same quarter. Average comparable transaction size also increased, by 1.1%, to $38.64 in the second quarter of 2001. Foodservice distribution sales increased 2.9%, from $94.9 million in the second quarter of 2000 to $97.7 million in the current year's second quarter. Florida foodservice sales increased 15.7% while northern California foodservice sales declined 10.3% in part as a result of the restructuring program now in progress. Gross Margin. Gross margin improved 10.2%, from $60.2 million in the second quarter of 2000 to $66.3 million in the current year quarter. As a percentage of sales, gross margin improved from 13.6% in the prior year's second quarter to 14.3% in second quarter 2001. The primary factors of the increase in gross margin rates were lower purchase costs due to the continuing effort in national procurement and corporate brand expansion programs, better store assortment mix and reduced distribution costs resulting from improved efficiency at the Commerce distribution center and cost reductions at Florida foodservice. These improvements were partially offset by a change in sales mix at Florida foodservice that generated lower margins and by costs incurred at northern California foodservice related to re-racking the facility and restructuring the operation. Operating and Administrative Expenses. Operating and administrative expenses for the second quarter of 2001 were $56.5 million, up $4.3 million, or 8.3%, over the second quarter of 2000. These expenses, as a percentage of sales, increased from 11.8% in the second quarter of 2000 to 12.2% in the second quarter of 2001. Expenses increased due to restructuring costs incurred in northern California foodservice operations, increased utility costs and marketing expense increases. These increases were partially offset by a $1.0 million retroactive medical insurance and other benefit charge recorded in the prior year's second quarter. Interest expense, net. Interest expense, net decreased from $3.2 million recorded in second quarter 2000 to $2.8 million in the second quarter of 2001 due to rate reductions as a result of the Company's improved financial ratios and declining market rates. Comparison of Twenty-Four Weeks Ended June 17, 2001 with Twenty-Four Weeks Ended June 18, 2000. Sales. Sales in the first half of 2001 were $887.8 million, up 5.4% from the comparable 2000 period. 14 Store sales increased 6.0%, from $651.5 million to $690.5 million in the first half of 2001. Comparable store sales increased 5.1% in the first half of 2001 over the prior year period. Average comparable transaction size also increased 2.1% to $38.33 in the first half of 2001. Foodservice distribution sales increased 3.4%, from $190.8 in the first half of 2000 to $197.3 million in the first half of 2001. Florida foodservice sales increased 15.6% but northern California foodservice sales declined 10.1% in part as a result of the restructuring program now in progress. Gross Margin. Gross margin improved 8.7% from $114.4 million in the first half of 2000 to $124.3 million in the 2001 twenty-four-week period. As a percentage of sales, gross margin increased from 13.6% of sales for the first half of 2000 to 14.0% in the comparable 2001 period. The primary factors in the improvement of gross margin rates were lower purchase costs due to the new national procurement program and expanded corporate brands, better store assortment mix and reduced distribution costs due to the improved efficiency at the new Commerce distribution center and cost reductions at Florida foodservice. These improvements were partially offset by costs incurred at northern California foodservice related to the restructuring. Operating and Administrative Expenses. Operating and administrative expenses for the first half of 2001 were $110.4 million, or 12.4% of sales, compared with $102.2 million, or 12.1% of sales, in the first half of 2000. The expense increase was primarily driven by increased store marketing expense, increased utility costs and northern California foodservice operation restructuring costs. The increase was partially offset by the $2.2 million consulting fees incurred related to improving procurement programs and $1.0 million of retroactive medical insurance and other benefit charges recorded in the first half of 2000. No similar consulting fees or retroactive medical insurance and other benefit charges were recorded in the first half of 2001. Interest Expense, net. Interest expense, net decreased from $6.5 million, or 0.8% of sales, in the first half of 2000 to $5.9 million, or 0.7% of sales, in the comparable 2001 period. This decrease was primarily a result of lower interest rates and lower average debt outstanding. Financial Condition Cash and cash equivalents were $25.0 million at June 17, 2001, compared to $23.3 million at December 31, 2000. Operating activities provided cash of $8.0 million for the twenty-four weeks ended June 17, 2001. For the first half of 2001, net proceeds from financing activities were $15.0 million and investments in fixed asset and other additions were $21.3 million. During the twenty-four weeks ended June 17, 2001, inventories decreased by $1.3 million and the related accounts payable decreased by $6.8 million. Trade notes and accounts receivable increased $3.9 million primarily due to the increased sales at Florida foodservice operation. Other changes in operating assets and liabilities generally reflect the timing of receipts and disbursements. Stockholders' equity increased by $5.6 million to $270.5 million at June 17, 2001 as a result of the $5.3 million net income for the first half of 2001 plus $1.5 million of stock options 15 exercised, issuance of restricted stock and other stock agreements and $1.2 million decrease in accumulated OCI. The decrease in accumulated OCI includes $0.3 million, net of tax cumulative effect of accounting change as a result of adoption of SFAS 133, $0.8 million, net of tax reduction in fair values of interest rate collar agreements for the first half of 2001 and $0.1 million translation adjustment. Liquidity and Capital Resources Historically, the Company's primary source of liquidity has been cash flows from operations. In addition, the Company has availability under bank facilities. Net cash provided by operating activities was $8.0 million in the first half of 2001. At June 17, 2001, the Company had cash of $25.0 million, compared to $23.3 million at December 31, 2000. The Company had $130.6 million of debt, excluding capital leases, at June 17, 2001, compared to $115.7 million at December 31, 2000, and stockholders' equity of $270.5 million at June 17, 2001. The Company had $219.0 million committed under its Senior Secured Credit Facilities ("Credit Facilities") at June 17, 2001 and December 31, 2000. At June 17, 2001, the Company's borrowings under these facilities totaled $189.1 million, compared with $171.6 million at December 31, 2000. At June 17, 2001, the Company had available $29.9 million of unused credit under these facilities. As of the end of second quarter 2001, the Company was in compliance with all financial covenants contained in its loan agreements, as amended. The Credit Facilities expire in November of 2001. The Company is currently restructuring and extending these facilities. Given the Company's significantly improved financial position and excellent relationship with its lending group, the Company expects a successful restructuring process. The Company expects to be able to fund future acquisitions and other cash requirements by a combination of available cash, cash from operations, lease financing and other borrowings and proceeds from the issuance of equity securities. The Company believes that its sources of funds are adequate to provide for working capital, other capital expenditures, and debt service requirements for the foreseeable future. 16 Item 3. Quantitative and Qualitative Disclosure About Market Risk The Company is exposed to market risks relating to fluctuations in interest rates and the exchange rate between the U.S. Dollar and Mexican Peso. The Company's objective of financial risk management is to minimize the negative impact of interest rate fluctuations on the Company's earnings and cash flows. The Company's exposure to foreign currency risk is limited. The Company does not hold or issue financial instruments for trading purposes, nor engage in other speculative or leveraged transactions. See Note 3 and Note 4 to the consolidated financial statements regarding the adoption of SFAS 133, as amended. Interest Rate Risk Interest rate risk is managed through the use of four interest rate collar agreements to hedge principal amounts of up to an aggregate of $100 million. These agreements limit LIBOR fluctuations to interest rate ranges from 4.7% to 8.0% and expire during various periods from October 2002 to September 2004. These agreements are entered into with major financial institutions thereby minimizing risk of credit loss. Foreign Currency Risk The Company's exposure to foreign currency risk is limited to the Company's operations under Smart & Final Mexico and the equity earnings in its Mexico joint venture. The Company's other transactions are conducted in U.S. dollars and are not exposed to fluctuations in foreign currency. The Company does not hedge foreign currency and therefore is not exposed to such hedging risk. Credit Risk The Company is exposed to credit risk on accounts receivable. The Company provides credit primarily to foodservice distribution customers in the ordinary course of business and performs ongoing credit evaluations. Concentrations of credit risk with respect to trade receivables are limited due to the number of customers comprising the Company's customer base. The Company currently believes its allowance for doubtful accounts is sufficient to cover customer credit risks. Forward-Looking Statements From time to time Smart & Final may publish forward-looking statements about anticipated results. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that such forward-looking statements are based upon internal estimates which are subject to change because they reflect preliminary information and management assumptions, and that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. The factors which could cause actual results or outcomes to differ from such expectation include the extent of the company's success in (i) changing market 17 conditions (ii) unforeseen costs and expenses (iii) ability to attract new customers and retain existing customers (iv) gain or losses from sales along with the uncertainties of achieving planned sales (v) increases in interest rates of the Company's cost of borrowing and other factors, including unusually adverse weather conditions, described from time to time in the company's SEC filing and reports. This report includes "forward-looking statements" including, without limitation, statements as to the Company's liquidity and availability of capital resources. 18 PART II - OTHER INFORMATION Item 1. Legal Proceedings Not applicable. Item 2. Changes in Securities and Use of Proceeds Not applicable. Item 3. Defaults upon Senior Securities Not applicable Item 4. Submission of Matters to a Vote of Security Holders The annual Meeting of Stockholders of the Company was held on May 23, 2001. At the meeting, stockholders (1) elected four directors of the Company; (2) approved an amendment to the Long-Term Equity Compensation Plan increasing by 1,130,000 the number of shares authorized for grant thereunder and extending the expiration date of that plan until December 31, 2010; and (3) ratified the selection of Arthur Andersen LLP, independent public accountants, as auditors for the Company for the year ending December 30, 2001. The four directors elected at the meeting were Pierre B. Bouchut, David J. McLaughlin, Thomas G. Plaskett, and Etienne Snollaerts. The directors whose term of office as a director continued after the meeting are Christian P. Couvreux, Timm F. Crull, James S. Gold, Antoine Guichard, Joel-Andre Ornstein and Ross E. Roeder. The votes cast for, against, or withheld, as well as the number of abstention and broker non-votes for each nominee for office as a director were as follows:
VOTES ----------------------------- Broker For Against Withheld Abstentions Non-Votes ---------- ------- -------- ----------- --------- Pierre B. Bouchut 27,009,921 - 994,730 - - David J. McLaughlin 27,009,932 - 994,719 - - Thomas G. Plaskett 27,009,572 - 995,079 - - Etienne Snollaerts 27,009,621 - 995,030 - -
The votes cast for, against, or withheld, as well as the number of abstentions and broker non-votes for approving the amendment to the Long-Term Equity Compensation Plan were as follows:
VOTES ----------------------------- Broker For Against Withheld Abstentions Non-Votes ---------- ------- -------- ----------- --------- Amendment to the 24,433,012 1,226,688 - 15,476 2,329,475 Long-Term Equity Compensation Plan
19 The votes cast for, against, or withheld, as well as the number of abstentions and broker non-votes for ratification of Arthur Andersen LLP, as auditors for the Company for the year ending December 30, 2001 were as follows:
VOTES ------------------------------- Broker For Against Withheld Abstentions Non-Votes ---------- ------- -------- ----------- --------- Ratification of 27,993,301 7,337 - 4,013 - Arthur Andersen LLP as auditors for the Company for the year ending December 30, 2001
Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit Number Description of Exhibit -------------- ---------------------- 10.53 Amendment dated May 11, 2001 to Employment Agreement between the Company and Ross E. Roeder dated May 11, 1999* 10.54 Amendment dated May 31, 2001 to Employment Agreement and Consulting Agreement between the Company and Martin A. Lynch dated April 1, 1997* *Management contracts and compensatory plans, contracts and arrangements of the Company. _________ (b) Reports on Form 8-K The Company filed a Current Report on Form 8-K, dated April 5, 2001, announcing the retirement of Martin A. Lynch, the Executive Vice President and Chief Financial Officer of the Company, effective at the end of May 2001 and the appointment of Richard N. Phegley as the new Chief Financial Officer. 20 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: July 26, 2001 /s/ RICHARD N. PHEGLEY ---------------------- Richard N. Phegley Senior Vice President, Chief Financial Officer, and Principal Accounting Officer of the Company 21 EX-10.53 2 dex1053.txt AMENDMENT TO EMPLOYMENT AGREEMENT-ROEDER EXHIBIT 10.53 [LOGO OF SMART & FINAL] Smart & Final Inc. 600 Citadel Drive Commerce, California 90040 (323) 869-7500 May 11, 2001 Mr. Ross E. Roeder Re: Agreements Regarding, and Amendments to, Employment Agreement Dear Ross: With respect to that certain letter agreement between you and Smart & Final, Inc., a Delaware corporation (the "Company"), dated as of January 1, 1999, a copy of which is attached hereto as Exhibit A (the "Agreement"), you and the Company agree that effective as of the date of this Letter, the Agreement shall be amended as follows: 1. Section 1 of the Agreement shall be amended by adding the following to the end of that Section: "Notwithstanding the foregoing, in the event that pursuant to Section 2 below, you are designated to serve as the Company's Chairman and Chief Executive Officer ("CEO") for calendar year 2004, you shall serve as the Company's non-executive Chairman during calendar year 2005. If you fail to receive timely written notification pursuant to Section 2 below of the Company's intent to have you serve as its Chairman and CEO for calendar year 2004, you shall serve as the Company's non-executive Chairman during such calendar year. As non-executive Chairman, you shall devote such time as you in good faith deem necessary to perform the duties of such position." 2. Section 2 of the Agreement shall be deleted in its entirety and replaced with the following: "Term. The term of your employment under this Agreement (the "Employment Term") shall commence as of January 1, 1999 and, unless terminated Mr. Ross E. Roeder May 11, 2001 Page 2 earlier as provided in Section 9 below, shall terminate on December 31, 2004; provided, that in the event the Company gives you written notification on or prior to June 30, 2003 of its intent to have you serve as its Chairman and CEO for the 2004 calendar year, the Employment Term shall be automatically extended until December 31, 2005. (The five-year period of calendar years 1999 through 2003 is hereinafter referred to as the "Initial Term.")" 3. Section 3 of the Agreement shall be amended by adding the following to the end of the last sentence thereof: ", except that during the calendar year you serve as non-executive Chairman of the Company you shall be paid an annual Base Salary at a rate equal to fifty percent (50%) of your annual Base Salary as of the December 31 immediately prior to such year." 4. Section 4 of the Agreement shall be amended by adding the following to the end of the first sentence of that Section: "except that during the calendar year you serve as non-executive Chairman of the Company you shall be paid an annual bonus in an amount not less than fifty percent (50%) of the highest target bonus for such year paid to any individual serving as the Company's CEO in that year (the "CEO Bonus"), or, in the event the lowest Company earnings target established for any individual serving as the Company's CEO in such year is achieved, you will instead be paid no less than one hundred percent (100%) of the CEO Bonus paid for such year. In the event that actual bonus payments to other Company executives under the Company bonus plan exceed target (as previously established by the Board) for calendar year 2004 (if you are serving as non-executive Chairman of the Company in 2004) or 2005, your bonus payout for the applicable year shall be increased accordingly." 5. The third sentence of Section 6.a. of the Agreement is deleted and replaced with the following: "Notwithstanding the foregoing, all of your shares of Restricted Stock shall vest upon the earlier of (i) a Change in Control (as defined in Exhibit A hereto) or (ii) the end or termination of the Employment Term other than as a result of a termination for Cause." Mr. Ross E. Roeder May 11, 2001 Page 3 6. The fourth sentence of Section 6.a. of the Agreement is amended by deleting all of the language in that sentence that precedes clause (i) and by replacing it with the following: "In addition, in the event of any transaction that constitutes a "Rule 13(e)-3 transaction" as that term is defined in Rule 13(e)-3 promulgated by the Securities Exchange Commission under the Securities Exchange Act of 1934 (a "Going Private Transaction")," 7. Section 6 shall be amended by adding a new Subsection c. at the end thereof to read as follows: "c. On each Restricted Share Award Date (as defined below) during calendar years 2001, 2002 and 2003, you will be awarded a number of restricted shares of Common Stock ("Restricted Shares") under the Equity Plan that is not less than (A) 1.5, multiplied by (B) (x) minus (y), where (x) equals the greatest number of Restricted Shares, on an aggregate basis, awarded to any Current Executive (as defined below) during the period commencing on January 1, 2001 and ending on the applicable Restricted Share Award Date (including awards made on that Restricted Share Award Date) for which the determination under this subsection is being made (the "Applicable Period"), and where (y) equals the aggregate number of Restricted Shares awarded to you during the Applicable Period. In the event you are designated to serve as the Company's Chairman and CEO for calendar year 2004, you will be awarded a number of Restricted Shares under the Equity Plan on each Restricted Share Award Date during calendar year 2004 that is not less than the greatest number of Restricted Shares, on an aggregate basis, awarded to any Future Executive (as defined below) during calendar year 2004 through the applicable determination date under this subsection. For purposes of this Agreement (i) "Current Executive" shall mean any executive employed by the Company as of the date of this Amendment, (ii) "Future Executive" shall mean any executive employed by the Company on the date on or before June 30, 2003, the Company notifies you of your role with the Company for calendar year 2004 pursuant to Section 2 hereof and (iii) "Restricted Share Award Date" shall mean any date on which the Company awards Restricted Shares to a Current Executive or Future Executive except that in the event a Current Executive is selected by the Company's Board of Directors during 2003 to serve as Chief Executive Officer commencing in 2004 or thereafter, the offer by the Company in 2003 (or the offer by the Company and acceptance by such Current Executive in 2003) of terms of employment as Chief Executive Officer to such Current Executive which include an award or grant of restricted shares, the Restricted Share Award Date for such shares shall not be deemed to have occurred prior to January 1, 2004 and shall be Mr. Ross E. Roeder May 11, 2001 Page 4 deemed to have occurred January 1, 2004. Any Restricted Share award under this Subsection (c) shall vest with respect to fifty percent (50%) of the shares subject thereto, on the first anniversary of the award date and with respect to the remaining shares subject thereto, on the second anniversary of the award date, and shall otherwise be subject to the vesting acceleration provisions of Subsection 6.a. hereof. In addition, the Company will provide you with a loan to pay any 83(b) Tax you incur with respect to any awards of Restricted Shares made pursuant to this subsection, on the same basis as the loan made to you under Sections 6.a and b. hereof (including, without limitation, the bonus and Tax Gross Up provisions), provided that a loan made to you in connection with any award under this subsection shall be due, and any related bonus shall be paid, two (2) years from the applicable award date, subject to earlier payment as provided under section 6.b. By way of clarification, nothing in this section or Section 7 hereof is intended to diminish or conflict with the right of the Compensation Committee to determine the timing, size or other terms of any grants under the Company's Equity Plan to any current or newly recruited executives, including the right to not make any awards under the Equity Plan during the Employment Term. 8. Section 7 shall be amended by designating the existing paragraph as "a." and by adding the following new Subsection b.: "b. On each Option Grant Date (as defined below) during calendar years 2001, 2002 and 2003, you shall be granted stock options to purchase a number of shares of Common Stock under the Equity Plan that is not less than (A) 1.5 multiplied by (B) (x) minus (y), where (x) equals the greatest number of shares subject to options, on an aggregate basis, granted to a Current Executive during the period commencing on January 1, 2001 and ending on the applicable Option Grant Date (including grants made on that Option Grant Date) for which the determination under this subsection is being made (the "Applicable Grant Period"), and where (y) equals the aggregate number of shares of Common Stock subject to options granted to you during the Applicable Grant Period. If you are designated to serve as the Company's Chairman and CEO for calendar year 2004, you will be granted on each Option Grant Date during calendar year 2004 stock options to purchase a number of shares of Common Stock under the Equity Plan that is not less than the greatest number of shares subject to options, on an aggregate basis, granted to any Future Executive in calendar 2004 through and including the Option Grant Date for which the determination is being made. Any options granted pursuant to this subsection (i) shall vest with respect to one-third (1/3) of the shares of Common Stock subject thereto on the day immediately before each of the first three (3) anniversaries of the grant date, (ii) shall be granted on terms at least as favorable as the terms of any other grant made on the applicable Mr. Ross E. Roeder May 11, 2001 Page 5 Option Grant Date and (iii) shall otherwise be subject to the provisions that apply to your Options under Section 7.a. hereof (including, without limitation, the provisions relating to vesting acceleration). For purposes of this Agreement, "Option Grant Date" shall mean any date on which a grant of options to purchase Common Stock is made, except that in the event a Current Executive is selected by the Company's Board of Directors during 2003 to serve as Chief Executive Officer commencing in 2004 or thereafter, the offer by the Company in 2003 (or the offer by the Company and acceptance by such Current Executive in 2003) of terms of employment as Chief Executive Officer to such Current Executive which include a grant of options, the Option Award Date for such options shall not be deemed to have occurred prior to January 1, 2004 and shall be deemed to have occurred January 1, 2004." 9. Section 7.a. shall be amended by deleting the fourth sentence thereof and replacing it with the following: "Notwithstanding the foregoing, upon the earlier of (i) a Change in Control and (ii) the end or termination of the Employment Term other than as a result of your termination for Cause, all the outstanding Options shall immediately vest and shall remain exercisable for the two (2) year period following the end or termination of the Employment Term, as applicable, but in no event beyond the expiration of the Option's stated term." 10. Section 8.a. of the Agreement shall be amended by deleting the first sentence of that Section and by adding the following in its place: "Effective for the calendar years 1999 through 2005 your pre- retirement vesting percentage under the Company's Supplemental Executive Retirement Plan as the same exists on the date of this Letter (the "SERP") for each year of service will be five percent (5%) except that in the year in which you serve as non-executive Chairman of the Company your pre- retirement vesting percentage under the SERP will be two and one-half percent (2 1/2%). In addition, your "Final Average Compensation" for all purposes under the SERP shall be determined as provided in Section 1.15 thereof, except that for purposes of the calculation, the fifth calendar year preceding the year you serve as non-executive Chairman shall be substituted for the year you serve as non-executive Chairman unless the inclusion of the year you serve as non-executive chairman would increase your Final Average Compensation. 11. Section 8.e. of the Agreement shall be amended by adding the words "with an "own occupation" standard for disability" after the words "long term disability policy" on the second line of that Section. Mr. Ross E. Roeder May 11, 2001 Page 6 12. Section 10.a. shall be amended by adding the following to the end of that section: "In addition, the second sentence of Section 4 (as amended by this Letter) shall apply." 13. Section 10.b.i. of the Agreement shall be deleted and replaced by the following: "Continued payment on a monthly basis of your then current monthly Base Salary (without future increase) for twenty-four (24) months, except that if your employment or service is terminated during the 2004 or 2005 calendar year, the payment of your Base Salary shall continue for a period of twelve (12) months (the applicable period hereinafter referred to as the "Severance Period")." 14. Section 10.b.vii. of the Agreement shall be deleted and replaced with the following: "The disability policy (including Tax Gross Up) provided for in Section 8.e. above for the twenty-four (24) month period commencing on your termination date." 15. Section 10.c. shall be deleted in its entirety. 16. Section 10.e. shall be amended by deleting the word "or" where it appears prior to clause (v) of that section and by adding the words "or (vi) any Going Private Transaction." to the end of that section. 17. Section 11.b. of the Agreement shall be amended by deleting the word "or" where it appears immediately prior to clause (iii) of that section and by adding the following to the end of the section: "or (iv) by the Company due to your Disability as that term is defined in Section 9(e)." 18. Section 11 of the Agreement shall be amended by adding the following at the end thereof: "c. In the event you terminate your employment for any reason (or no reason) within the thirty (30) day period commencing upon a Change in Board Composition, then, in lieu of the benefits provided to you under Section 10 above, you shall be entitled to the payments and benefits described in clauses i., ii., iii., iv. and v. of Section 11.a. within (except as otherwise provided) ten (10) business days of your Mr. Ross E. Roeder May 11, 2001 Page 7 termination, except that the payments and periods described in clauses ii., iii., iv. and v. shall be determined by substituting the number two (2) for the number three (3) in each place the number three (3) is referred to in those clauses. For purposes of this subsection, a Change in Board Composition shall mean any cessation of service on the Board by a Board member where in the preceding six (6) months, four (4) or more members of the Board have ceased to be Board members. d. Notwithstanding anything in this Agreement to the contrary, in the event (i) you terminate your employment for any reason within the thirty (30) day period commencing upon a Change in Board Composition and (ii) such termination of employment is also a Qualifying Termination during the period commencing one-hundred eighty (180) days prior to the date of a Change in Control and ending on the second anniversary of the date of the Change in Control, then, you shall be entitled to the payments and benefits described in Section 11.a. (and not Section 11.c) hereof. 19. It is agreed that the Company will pay your legal expenses in connection with the negotiation and preparation of this amendment, up to $50,000. If agreed to by you, the Agreement, as amended by this Letter Agreement, contain all of the terms of your employment with the Company and supersedes any prior understandings or agreements, whether oral or written, between you and the Company with regard to its subject matter. To the extent any provision of this amendment conflicts with or modifies any provision of the Agreement, the provisions of this amendment shall control. You may indicate your agreement with this amendment and accept its terms by signing and dating below. Very truly yours, SMART & FINAL, INC. By: /s/ Thomas G. Plaskett ---------------------- Thomas G. Plaskett Authorized Member of the Board of Directors Mr. Ross E. Roeder May 11, 2001 Page 8 AGREED AND ACCEPTED: /s/ Ross E. Roeder - ------------------------ ROSS E. ROEDER Dated: May 20, 2001 Attachment EX-10.54 3 dex1054.txt AMENDMENT TO EMPLOYMENT AGREEMENT-LYNCH EXHIBIT 10.54 [LOGO OF SMART & FINAL] MEMO DATE: May 31, 2001 TO: Marty Lynch Executive Vice President & Chief Financial Officer FROM: Ross Roeder Chairman & Chief Executive Officer SUBJECT: Succession Planning Terms and Consulting Agreement This purpose of this memorandum is to document the agreement between you and Smart & Final Inc. ("Company") regarding certain terms relating to your employment with the Company. You have communicated your desire to retire from your current position as Executive Vice President and Chief Financial Officer. You have also assisted in the search for and transition to a new Chief Financial Officer. The following terms have been mutually agreed upon as additions or amendments to your Employment Agreement dated April 1, 1997 and as amended ("Employment Agreement") with the Company: 1. Your service as Chief Financial Officer of the Company and your positions as corporate officer and/or director of Company subsidiaries terminated on May 23, 2001. 2. Your service as Executive Vice President of the Company will cease as of May 31, 2001. 3. In consideration of your services rendered during fiscal year 2000, you have received a performance-based bonus of $100,000.00, paid on March 15, 2001. It is understood that you will not thereafter be eligible for any additional payments under the Company's Annual Incentive (Bonus) Plan. 4. Your accrued but unpaid vacation time is agreed to be $62,965.95 as of May 31, 2001. As soon as practicable after May 31, 2001, this amount will be paid to you less standard payroll deductions, and you agree that irrespective of any future service to the Company, that no additional vacation time shall thereafter accrue. 5. In consideration of your Employment Agreement and in consideration of your future consulting service below, you will receive 24 months of severance payments commencing June 1, 2001, at your current annual rate of pay of $335,000, according to the Company's standard payroll practices. Payment of severance payments will continue in the event that you are incapacitated or die during the Consulting Term as defined below. 6. Commencing June 1, 2001 you have agreed to serve as a consultant to the Company for a period of 24 months (the "Consulting Term"). In such capacity you have agreed to hold yourself available to render consultation and advice to the Company in regard to all aspects of the business. In consideration of your availability for consulting during the Consulting Term, you will receive a consulting retainer of $13,500 per month (payable according to the Marty Lynch - Succession and Consulting May 31, 2000 Page 2 Company's standard payroll practices) in addition to the severance payments under Paragraph 5 above. Payment of retainer fees will continue in the event that you are incapacitated or die during the Consulting Term. 7. During the Consulting Term, it is understood that you will remain reasonably available for consultation at your residence by telephone and correspondence. It is expressly understood that you may be away from your residence for extended periods, but where it is practicable, you will endeavor to remain available by telephone. 8. During the Consulting Term, if your services are requested by the Company at the Company's offices or at such other location as may be designated by the Company and you agree, the Company agrees to pay you an additional consulting fee on an hourly or per diem basis, including necessary travel time, with such fee to be negotiated in advance between the parties. The Company agrees to provide you with reasonable notice of such requests and if such request cannot be accommodated by you, you may decline such request without prejudice to any right to payment for other sums due herein. Unless otherwise agreed by you, the maximum consulting services required in any one calendar month shall be ten hours. 9. All of your expenses reasonably incurred by you in the performance of your consulting duties for the Company during the Consulting Term, including but not limited to travel and lodging expenses, shall be promptly reimbursed by the Company. 10. During the Consulting Term, you will not, without prior consent of the Chief Executive Officer of the Company, directly or indirectly render any material services to any other person, business, or entity that is in a materially competitive position with the Company or the Company's businesses (as described in the Company's Report on Form 10-K for the fiscal year ended December 31, 2000). In the event that the Chief Executive Officer of the Company does not grant consent, you have the right to appeal such decision to the Compensation Committee of the Board of Directors, whose majority decision shall be binding upon all parties. This provision, in no way limits your rights to provide services for compensation or otherwise to persons or firms that do not compete with the Company. 11. In addition, throughout the term of the Consulting Agreement, you will continue to receive all other benefits under the Employment Agreement, and any and all plans, arrangements and agreements under which you are currently afforded benefits (collectively, the "Lynch Agreements"), except as provided in Paragraphs 3 and 4 above. The Lynch Agreements include, but are not limited to, your deferred compensation agreements dated April 15, 1992 and March 31, 1994, as amended, and the Supplemental Executive Retirement Plan ("SERP"). All consulting retainer payments and other consulting fees referred to herein, with the exception of reimbursement for expenses, will be treated as eligible compensation for purposes of determining benefits under the deferred compensation and SERP agreements. 12. It is expressly acknowledged that at retirement you will be fully vested in the SERP, with a retirement benefit commencing no later than June 1, 2003 and payable on a 75% joint-and-survivor annuity basis where the annual annuity payment shall not be less than $201,269. The Company agrees that this annual SERP benefit amount shall be increased in respect Marty Lynch - Succession and Consulting May 31, 2000 Page 3 of any additional consulting fees which may be paid under Paragraph 8 above, in an amount of additional SERP benefit to be agreed in advance between the parties. 13. If not sooner vested, the Company shall cause all of your stock options, restricted stock, and other equity benefits (collectively "Equity Benefits") to fully vest on June 1, 2003. Equity Benefits will remain exercisable for a three-year period thereafter. Until June 1, 2003 you will receive the benefit of any modifications or adjustments to any such Equity Benefits offered generally to other executive officers of the Company, but it is understood that you will not be eligible to participate in any new equity benefits which may be granted subsequent to May 31, 2001. 14. In all other respects, the Lynch Agreements shall remain unmodified and in full force and effect. 15. The consulting services listed hereunder in Paragraphs 6 through and including 10 may be assigned by you to a professional service organization in which you own a controlling interest, provided that the consulting services will be performed by you personally. Notwithstanding any such assignment, you agree that failure of a professional service organization to perform such services shall have the same legal effect as if you had failed to personally perform such service. Except as modified by this amendment, in all other respects the Employment Agreement and all other existing agreements dealing with employment matters between you and the Company will remain unmodified and in full force and effect. Marty, we are pleased with your assistance in the mutually agreeable transition to a new Chief Financial Officer. Your flexibility and cooperation are greatly appreciated. If you agree that the above represents our understanding, please indicate this by your signature below. For Smart & Final Inc: /s/ Ross E. Roeder - ------------------------------------ Ross E. Roeder Chairman and Chief Executive Officer Agreed and Accepted: /s/ Martin A. Lynch - ------------------------------------ Martin A. Lynch -----END PRIVACY-ENHANCED MESSAGE-----