UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended April 1, 1995 (thirteen weeks)
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-10252
SMITH'S FOOD & DRUG CENTERS, INC.
(Exact name of registrant as specified in its charter)
Delaware 87-0258768
(State of Incorporation) (I.R.S. Employer Identification No.)
1550 South Redwood Road, Salt Lake City, UT 84104
(Address of principal executive offices) (Zip Code)
(801) 974-1400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Number of shares outstanding of each class of common stock as of April 1, 1995:
Class A 11,977,194
Class B 13,089,927
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Consolidated Statements of Income for the
thirteen weeks ended April 1, 1995 and
April 2, 1994 3
Consolidated Balance Sheets as of
April 1, 1995 and December 31, 1994 4
Consolidated Statements of Cash Flows for
the thirteen weeks ended April 1, 1995 and
April 2, 1994 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
PART I. FINANCIAL INFORMATION
SMITH'S FOOD & DRUG CENTERS, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollar amounts in thousands, except per share data)
Thirteen Thirteen
Weeks Ended Weeks Ended
April 1, April 2,
1995 1994
Net sales $746,673 $753,780
Cost of goods sold 579,806 591,063
-------- --------
166,867 162,717
Expenses:
Operating, selling and
administrative 112,770 113,248
Depreciation and
amortization 23,241 20,712
Interest 15,077 13,203
-------- --------
151,088 147,163
-------- --------
INCOME BEFORE
INCOME TAXES 15,779 15,554
Income taxes 6,300 6,200
-------- --------
NET INCOME $ 9,479 $ 9,354
======== ========
Net income per share of
Common Stock $ .37 $ .31
======== ========
Dividends paid per share
of Common Stock $ .15 $ .13
======== ========
Average number of common
shares outstanding
(In thousands) 25,492 30,044
======== ========
See notes to consolidated financial statements
SMITHS' FOOD & DRUG CENTERS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollar amounts in thousands)
April 1, December 31,
1995 1994
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 12,694 $ 14,188
Rebates and accounts receivable 24,289 25,596
Inventories 375,515 389,564
Prepaid expenses and deposits 43,275 17,258
---------- ----------
TOTAL CURRENT ASSETS 455,773 446,606
PROPERTY AND EQUIPMENT
Land 305,275 303,701
Buildings 618,612 619,056
Leasehold improvements 51,548 42,369
Fixtures and equipment 582,957 589,480
---------- ----------
1,558,392 1,554,606
Less allowances for
depreciation and amortization 369,224 364,741
---------- ----------
1,189,168 1,189,865
OTHER ASSETS 16,904 16,996
---------- ----------
$1,661,845 $1,653,467
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 196,524 $ 235,843
Accrued sales and other taxes 48,748 44,379
Accrued payroll and related benefits 77,641 84,083
Current maturities of long-term debt 19,552 19,011
Current maturities of Redeemable
Preferred Stock 667 1,017
---------- ----------
TOTAL CURRENT LIABILITIES 343,132 384,333
LONG-TERM DEBT, less current maturities 745,461 699,882
DEFERRED INCOME TAXES 91,250 89,500
REDEEMABLE PREFERRED STOCK, less
current maturities 4,410 4,410
COMMON STOCKHOLDERS' EQUITY
Convertible Class A Common Stock, par value
$.01 per share: Authorized 20,000,000 shares;
issued and outstanding, 11,977,194 shares
in 1995 and 12,451,165 shares in 1994 120 121
Class B Common Stock, par value $.01 per share:
Authorized 100,000,000 shares; issued
17,984,817 shares in 1995 and 17,510,846
shares in 1994 179 178
Additional paid-in capital 285,681 285,592
Retained earnings 299,187 293,456
---------- ----------
585,167 579,347
Less Treasury Shares at cost (4,894,890 shares
in 1995 and 159,800 shares in 1994) 107,575 104,005
---------- ----------
477,592 475,342
---------- ----------
$1,661,845 $1,653,467
========== ==========
See notes to consolidated financial statements
SMITH'S FOOD & DRUG CENTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollar amounts in thousands)
Thirteen Thirteen
Weeks Ended Weeks Ended
April 1, April 2,
1995 1994
OPERATING ACTIVITIES:
Net income $ 9,479 $ 9,354
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization (including
amounts charged to cost of goods sold) 24,696 22,175
Deferred income taxes 2,150 1,300
Other 196 117
Changes in operating assets and
liabilities:
Rebates and accounts receivable 1,307 5,431
Inventories 14,049 488
Prepaid expenses and deposits (26,417) (27,881)
Trade accounts payable (39,319) 20,781
Accrued sales and other taxes 4,369 5,421
Accrued payroll and related benefits (6,442) (9,461)
------- -------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (15,932) 27,725
INVESTING ACTIVITIES:
Additions to property and equipment (25,220) (40,576)
Proceeds from the sale of property and equipment 1,221
Other 92 (93)
------- -------
CASH USED IN INVESTING ACTIVITIES (23,907) (40,669)
FINANCING ACTIVITIES:
Additions to long-term debt 51,000 3,000
Payments on long-term debt (4,880) (11,172)
Purchases of Treasury Stock (350) (355)
Proceeds from sale of Treasury Stock (4,709) (3,280)
Redemptions of Preferred Stock 1,031 1,625
Payment of dividends (3,747) (3,883)
------- -------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 38,345 (14,065)
------- -------
NET DECREASE IN
CASH AND CASH EQUIVALENTS (1,494) (27,009)
Cash and cash equivalents at beginning of year 14,188 61,921
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $12,694 $34,912
======= =======
See notes to consolidated financial statements
SMITH'S FOOD & DRUG CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the thirteen weeks
ended April 1, 1995 are not necessarily indicative of the results that may be
expected for the year ending December 30, 1995. For further information, refer
to the consolidated financial statements and notes thereto incorporated by
reference in the Company's annual report on Form 10-K for the year ended
December 31, 1994.
NOTE B -- SIGNIFICANT ACCOUNTING POLICIES
Net Income per Share of Common Stock: Net income per share of Common Stock is
computed by dividing net income by the weighted average number of shares of
Common Stock outstanding. The weighted average number of common shares
includes Common Stock equivalents in the form of stock options.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Net sales decreased 0.9% in the first quarter of 1995 to $746.7 million
compared to $753.8 million for the same period last year. Same store sales
decreased 5.5% compared with the prior year's first quarter. However, the
first quarter in 1994 included pre-Easter sales. This year the pre-Easter
sales fell in the second quarter. Adjusting for Easter, the decrease in
comparable store sales was estimated at 4%. The decrease in sales was mainly
caused by a significant number of competitive store openings in most marketing
areas, and aggressive price competition in the Company's new marketing area in
recession-plagued Southern California. To the extent these conditions persist,
the weakness in sales may continue.
During the first quarter of fiscal 1995, the Company opened six large
combination food and drug centers in Mesa and Phoenix, Arizona; Vista
California; Gallup and Hobbs, New Mexico; and Gardnerville, Nevada. One
smaller store was closed in Las Vegas, Nevada. At April 1, 1995, the Company
operated 142 stores totaling 9.4 million square feet compared to 133 stores
totaling 8.8 million square feet at the end of the prior year's first quarter.
During the remainder of fiscal 1995, the Company currently expects to open 6 to
8 additional stores including four stores in Arizona averaging approximately
54,000 square feet. The Company anticipates that future stores will range in
size from 54,000 to 66,000 square feet compared to approximately 75,000 square
feet for new stores opened in recent years. These new combination food & drug
centers will have many of the same attributes and product selections as the
larger stores.
The Company also announced plans to open four new retail warehouse-format
stores in Las Vegas during fiscal 1995. These new "price-impact" stores are to
be called PriceRite Grocery Warehouse. These four are in addition to the 12 to
14 new combination food and drug centers anticipated to be added in 1995.
Gross margins as a percentage of net sales increased to 22.3% during the first
quarter of 1995 from 21.6% during the same period last year. This increase is
due primarily to reduced charges for inventory shrinkage and improved prices in
certain merchandise items.. The Company anticipates that new stores recently
opened and planned to open, as in the past, will apply pressure on its gross
margins until the stores become established in their respective markets. The
pretax LIFO charge was $1.0 million for the first quarter of 1995 compared to
$1.5 million for the same period last year.
Operating, selling and administrative expenses as a percentage of net sales
increased to 15.1% during the first quarter of 1995 from 15.0% during the first
quarter of 1994. This increase was caused mainly by the store opening costs
related to the six stores opened during the quarter and decreases in comparable
store sales.
Depreciation and amortization expenses increased 12.2% for the first quarter
compared to the same period last year due to the increase in the number of new
combination stores.
Interest expense increased 14.2% in the first quarter compared to the same
period last year. The increase was due to the increase in debt incurred
primarily to finance new stores.
Liquidity and Capital Resources
Cash and cash equivalents decreased $1.5 million during the first quarter of
1994. Working capital was $112.6 million at April 1, 1995, a decrease of $27.7
million compared to December 31, 1994.
During the first quarter of 1995, cash provided by operating activities was
affected by a prepayment of health and medical expenses and a decrease in
accounts payable, resulting in net cash used in operations of $15.9 million.
Cash used by investing activities was $23.9 million for the first quarter of
1995 reflecting the Company's ongoing expansion program. The Company
anticipates investing approximately $100 million during the remainder of 1995
for the development and construction of new food and drug centers, remodeling
of existing stores and replacing equipment. However, the actual timing and
amount of capital expenditures may vary depending upon a number of factors.
Cash provided by financing activities totaled $38.3 million for the first
quarter of 1995 as a result of increasing long-term debt.
Management believes that the financial resources available to it, including
proceeds from sale/leaseback transactions, amounts available under existing and
future bank lines of credit, additional long-term financings, and internally
generated funds, will be sufficient to meet planned capital expansion and
working capital requirements for the foreseeable future, including debt and
lease servicing requirements. The Company may, however, use additional sources
of funds for such purposes, including the issuance of debt or equity securities
and leasing rather than owning buildings and equipment.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibit listed in the accompanying index to exhibits is filed as part
of the Form 10-Q.
(b) There were no reports on Form 8-K filed during the third quarter.
INDEX TO EXHIBITS
Exhibit
Number Document
10.20 Committed Credit Line Agreement,
dated as of March 31, 1995, between the Company and
Wachovia Bank of Georgia, N.A.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SMITH'S FOOD & DRUG CENTERS, INC.
(Registrant)
Date: 5/11/95 /s/ Matthew G. Tezak
Matthew G. Tezak, Senior Vice
President and Chief Financial
Officer (Principal Accounting
Officer)