UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 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 July 1, 1995:
Class A 11,925,019
Class B 13,068,538
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Consolidated Statements of Income for the
thirteen weeks ended July 1, 1995 and
July 2, 1994 3
Consolidated Balance Sheets as of
July 1, 1995 and December 31, 1994 4
Consolidated Statements of Cash Flows for
the thirteen weeks ended July 1, 1995 and
July 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 4. Submission of Matters to a Vote of Securities
Holders 8
Item 6. Exhibits and Reports on Form 8-K 9
Item 1. Financial Statements (Unaudited)
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 Twenty-six Twenty-six
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
July 1, July 2, July 1, July 2,
1995 1994 1995 1994
Net sales $770,405 $748,328 $1,517,078 $1,502,108
Cost of goods sold 599,369 583,628 1,179,175 1,174,691
-------- -------- ---------- ----------
171,036 164,700 337,903 327,417
Expenses:
Operating, selling and
administrative 116,698 110,641 229,468 223,889
Depreciation and
amortization 24,226 21,745 47,467 42,457
Interest 15,280 12,727 30,357 25,930
-------- -------- ---------- ----------
156,204 145,113 307,292 292,276
INCOME BEFORE
INCOME TAXES 14,832 19,587 30,611 35,141
Income taxes 5,800 7,700 12,100 13,900
-------- -------- ---------- ----------
NET INCOME $ 9,032 $ 11,887 $ 18,511 $ 21,241
======== ======== ========== ==========
Net income per share of
Common Stock $ .36 $ .41 $ .73 $ .72
======== ======== ========== ==========
Dividends paid per share
of Common Stock $ .15 $ .13 $ .30 $ .26
======== ======== ========== ==========
Average number of common
shares outstanding
(In thousands) 25,139 28,650 25,314 29,271
======== ======== ========== ==========
See notes to consolidated financial statements
SMITH'S FOOD & DRUG CENTERS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollar amounts in thousands)
July 1, Dec. 31,
1995 1994
CURRENT ASSETS
Cash and cash equivalents $ 13,447 $ 14,188
Rebates and accounts receivable 23,119 25,596
Inventories 366,200 389,564
Prepaid expenses and deposits 35,085 17,258
---------- ----------
TOTAL CURRENT ASSETS 437,851 446,606
PROPERTY AND EQUIPMENT
Land 309,261 303,701
Buildings 631,350 619,056
Leasehold improvements 57,887 42,369
Fixtures and equipment 598,943 589,480
---------- ----------
1,597,441 1,554,606
Less allowances for depreciation
and amortization 394,936 364,741
---------- ----------
1,202,505 1,189,865
OTHER ASSETS 17,024 16,996
---------- ----------
$1,657,380 $1,653,467
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 207,734 $ 235,843
Accrued sales and other taxes 47,358 44,379
Accrued payroll and related benefits 86,297 84,083
Current maturities of long-term debt 20,000 19,011
Current maturities of
Redeemable Preferred Stock 634 1,017
---------- ----------
TOTAL CURRENT LIABILITIES 362,023 384,333
LONG-TERM DEBT, less current maturities 715,038 699,882
DEFERRED INCOME TAXES 94,000 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, 11,925,019 shares
in 1995 and 12,357,095 shares in 1994 119 121
Class B Common Stock, par value $.01 per share:
Authorized 100,000,000 shares; issued
18,036,992 shares in 1995 and 17,604,917
shares in 1994 180 178
Additional paid-in capital 285,609 285,592
Retained earnings 304,555 293,456
---------- ----------
590,463 579,347
Less Treasury Shares at cost (4,968,454 shares
in 1995 and 2,337,294 shares in 1994) 108,554 104,005
---------- ----------
481,909 475,342
---------- ----------
$1,657,380 $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)
Twenty-Six Twenty-Six
Weeks Ended Weeks Ended
July 1, July 2,
1995 1994
OPERATING ACTIVITIES:
Net income $18,511 $21,241
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization (including
amounts charged to cost of goods sold) 50,409 45,396
Deferred income taxes 5,600 4,300
Other 393 289
Changes in operating assets and
liabilities:
Rebates and accounts receivable 2,477 3,713
Inventories 23,364 12,627
Prepaid expenses and deposits (18,927) (15,832)
Trade accounts payable (28,109) 16,775
Accrued sales and other taxes 2,979 8,465
Accrued payroll and related benefits 2,214 (1,153)
------- -------
CASH PROVIDED BY OPERATING ACTIVITIES 58,911 95,821
INVESTING ACTIVITIES:
Additions to property and equipment (65,697) (77,206)
Sale/leaseback arrangements and other
property sales 2,648 20,507
Other (28) (3,027)
------- -------
CASH USED IN INVESTING ACTIVITIES (63,077) (59,726)
FINANCING ACTIVITIES:
Additions to long-term debt 25,000
Payments on long-term debt (8,855) (25,096)
Purchases of Treasury Stock (7,845) (46,058)
Proceeds from sale of Treasury Stock 2,920 3,535
Redemptions of Preferred Stock (383) (417)
Payment of dividends (7,412) (7,643)
------ -------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 3,425 (75,679)
NET DECREASE IN
CASH AND CASH EQUIVALENTS (741) (39,584)
Cash and cash equivalents at beginning of year 14,188 61,921
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $13,447 $22,337
======= =======
See notes to consolidated financial statements
SMITH'S FOOD & DRUG CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the thirteen and twenty-six week periods
ended July 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 increased 2.9% in the second quarter of 1995 to $770
million compared to $748 million for the same period last year.
For the first twenty-six weeks of 1995, net sales increased to
$1.52 billion from $1.50 billion for the first half of last
year, an increase of 1.0%. Same store sales decreased 4.4% in
the first half of 1995 compared with the prior year. The
weakness in net sales, despite new store openings, was mainly
caused by a significant number of competitive store openings in
most marketing areas. Aggressive price competition in the
Company's marketing area in recession-plagued Southern
California also contributed to the weakness. To the extent
these conditions persist, the weakness in sales and same store
sales may continue.
During the first half of fiscal 1995, the Company opened seven
large combination food and drug centers in Mesa and Phoenix,
Arizona; Vista, California; Gallup and Hobbs, New Mexico; and
Gardnerville and Elko, Nevada. One smaller store was closed in
Las Vegas, Nevada. At July 1, 1995, the Company operated 145
stores totaling 9.6 million square feet compared to 134 stores
totaling 8.9 million square feet at the end of the prior year's
second quarter. During the remainder of fiscal 1995, the
Company currently expects to open 5 to 7 additional stores
including three to 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 72,700 square feet for new
stores opened in recent years. These new combination food &
drug centers will have substantially the same attributes and
product selections as the larger stores.
The Company opened two new retail warehouse format stores in
Las Vegas, Nevada during the second quarter of 1995. These new
"price-impact" stores are called PriceRite Grocery Warehouse.
In July, the Company also opened two additional retail
warehouse format stores in Las Vegas, including one conversion
of a smaller store. These two stores are in addition to the 5
to 7 new combination food and drug centers anticipated to be
added during the remainder of 1995.
Gross margins as a percentage of net sales increased to 22.2%
during the second quarter of 1995 from 22.0% during the same
period last year. For the first twenty-six weeks of 1995 gross
margins increased to 22.3% from 21.8% for the same period last
year. This increase is due primarily to reduced charges for
inventory shrinkage and improved prices on 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 second quarter of 1995 compared to $1.5 million
for the same period last year and $2.0 million for the first
half of 1995 compared to $3.0 million for the same period last
year.
Operating, selling and administrative expenses as a percentage
of net sales increased to 15.1% during the second quarter of
1995 from 14.8% during the second quarter of 1994. For the
first half of the year compared to last year, operating,
selling and administrative expenses increased to 15.1% from
14.9%. This increase was caused mainly by the store opening
costs related to the nine stores opened during the first half
of the year. The decrease in same store sales also contributed
to the increase of operating, selling and administrative
expenses as a percentage of net sales.
Depreciation and amortization expenses increased 11.4% for the
second quarter and 11.8% for the first half of 1995 compared to
the same respective periods last year due to the increase in
the number of new combination stores.
Interest expense increased 20.1% for the second quarter and
17.1% for the first half of 1995 compared to the same
respective periods 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 $741,000 during the first
half of 1995. Working capital was $75.8 million at July 1,
1995, a increase of $13.5 million compared to December 31,
1994.
During the first half of 1995, cash provided by operating
activities was $58.9 million reflecting a prepayment of health
and medical expenses and a decrease in accounts payable which
were partially offset by a decrease in inventories.
Cash used in investing activities was $63.1 million for the
first half of 1995 reflecting the Company's ongoing expansion
program. The Company anticipates investing approximately $60
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 $3.4 million for
the first half 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 4. Submission of Matters to a Vote of Securities Holders
At the Company's Annual Meeting of Stockholders held on April
25, 1995, the stockholders elected as directors the following:
VOTES VOTES BROKER
NAME FOR WITHHELD NON-VOTES
Jeffrey P. Smith 267,387,735 89,125 -0-
Richard D. Smith 267,387,735 89,125 -0-
Stuart Rosenthal 267,387,735 89,125 -0-
Robert D. Bolinder 267,387,735 89,125 -0-
Kenneth A. White 267,387,735 89,125 -0-
DeLonne Anderson 267,387,735 89,125 -0-
Rodney H. Brady 267,387,735 89,125 -0-
Alan R. Hoefer 267,387,735 89,125 -0-
Allen P. Martindale 267,387,735 89,125 -0-
Nicole Miller 267,387,735 89,125 -0-
Duane V. Peters 267,387,735 89,125 -0-
Ray V. Rose 267,387,735 89,125 -0-
Fred L. Smith 267,387,735 89,125 -0-
Sean D. Smith 267,387,735 89,125 -0-
Douglas J. Tigert 267,387,735 89,125 -0-
In addition, the stockholders approved an amendment to the
Corporation's 1989 Stock Option Plan to ensure that the
Corporation will be permitted to deduct the compensation
expense it may recognize for federal income tax purposes upon
the exercise of nonstatuatory options granted to covered
employees (with 262,026,715 affirmative votes, 420,567
negative votes, 5,029,578 abstentions and zero broker non-
votes). The amendment provides that no employee may be
granted options for more than 500,000 shares during any fiscal
year of the Corporation.
The stockholders also, ratified the appointment of Ernst &
Young LLP as the Corporation's independent auditors for 1995
(with 262,446,032 affirmative votes, 10,568 negative votes,
5,020,260 abstentions and zero broker non-votes).
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits listed in the accompanying index to exhibits
are filed as part of the Form 10-Q.
(b) There were no reports on Form 8-K filed during the second
quarter.
INDEX TO EXHIBITS
Exhibit
Number Document
10.21 Committed Credit Line Agreement, dated May
31, 1995, between Company and Banque National
de Paris.
10.22 Amendment 2, dated as of May 9, 1995, to
Revolving Credit Agreement, dated as of June
28, 1993, between Company and Bank of
America.
27 Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
SMITH'S FOOD & DRUG CENTERS, INC.
(Registrant)
Date: 8/11/95 /s/ Matthew G. Tezak
Matthew G. Tezak, Senior Vice
President and Chief
Financial Officer
(Principal Accounting
Officer)