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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 21, 1998
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number 001-10811
SMART & FINAL INC.
(Exact name of registrant as specified in its charter)
Delaware No. 95-4079584
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4700 South Boyle Ave.
Los Angeles, California 90058
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (213) 589-1054
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No____.
The registrant had 22,487,879 shares of common stock outstanding as of July 31,
1998.
Number of Sequentially Numbered Pages: 15
Exhibit Index at Page: 15
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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 7
and Results of Operations
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
1
SMART & FINAL INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
JUNE 21, JANUARY 4,
1998 1998
------- ---------
(UNAUDITED)
ASSETS
- ------
Current assets:
Cash & cash equivalents $ 20,583 $ 22,891
Trade notes and accounts receivable, less
allowance for doubtful accounts of
$3,807 in 1998 and $5,518 in 1997 76,183 75,995
Inventories 144,449 129,761
Prepaid expenses 11,861 15,906
Deferred tax asset 9,600 9,600
-------- --------
Total current assets 262,676 254,153
Property, plant and equipment:
Land 35,491 35,631
Buildings and improvements 29,564 29,530
Leasehold improvements 73,616 67,821
Fixtures and equipment 148,923 139,316
-------- --------
287,594 272,298
Less - Accumulated depreciation and amortization 96,327 85,808
-------- --------
Net property, plant and equipment 191,267 186,490
Assets under capital leases, net 4,295 4,535
Goodwill 53,471 18,940
Deferred tax asset 3,148 3,148
Other assets 19,231 20,879
-------- --------
Total Assets $534,088 $488,145
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current maturities of long-term debt $ 6,088 $ 3,576
Current maturities of notes payable to affiliates 7,600 7,600
Bank line of credit 66,000 37,000
Accounts payable 79,240 77,116
Payable to Parent and affiliates 22,171 18,589
Accrued salaries and wages 12,041 9,528
Other accrued liabilities 27,306 32,262
-------- --------
Total current liabilities 220,446 185,671
Long-term liabilities:
Notes payable, net of current maturities 17,475 4,061
Notes payable to affiliates 22,800 22,800
Bank debt 45,000 45,000
Obligations under capital leases 7,854 8,163
Other long-term liabilities 2,982 2,937
Workers' compensation reserve, postretirement
and postemployment benefits 18,795 18,068
-------- --------
Total long-term liabilities 114,906 101,029
Minority interest - 1,116
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; 22,468,646 shares issued
and outstanding in 1998 and 22,386,181 in 1997) 225 224
Additional paid-in capital 144,222 142,865
Cumulative translation loss (835) (835)
Retained earnings 55,124 58,075
-------- --------
Total stockholders' equity 198,736 200,329
-------- --------
Total liabilities and stockholders' equity $534,088 $488,145
======== ========
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 21, June 15, June 21, June 15,
1998 1997 1998 1997
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
Sales............................................................ $ 380,577 $ 334,948 $ 714,855 $ 641,932
Cost of sales, buying and occupancy.............................. 332,697 285,250 627,235 547,647
----------- ----------- ----------- -----------
Gross margin..................................................... 47,880 49,698 87,620 94,285
Operating and administrative expenses............................ 43,458 37,177 82,876 72,004
----------- ----------- ----------- -----------
Income from operations....................................... 4,422 12,521 4,744 22,281
Interest expense, net............................................ 2,438 1,727 4,566 3,264
----------- ----------- ----------- -----------
Income before income taxes, minority share
of net income, and cumulative effect of accounting change.... 1,984 10,794 178 19,017
Income taxes..................................................... 753 4,043 (27) 7,278
Minority share of net income..................................... - 10 - 116
----------- ----------- ----------- -----------
Income from consolidated subsidiaries........................ 1,231 6,741 205 11,623
Equity earnings in unconsolidated subsidiary..................... 57 100 187 200
----------- ----------- ----------- -----------
Income before cumulative effect of accounting change......... 1,288 6,841 392 11,823
Cumulative effect of accounting change (start-up costs, net of
tax effect of $758).......................................... - - 1,090 -
----------- ----------- ----------- -----------
Net income (loss)............................................ $ 1,288 $ 6,841 $ (698) $ 11,823
=========== =========== =========== ===========
Earnings (loss) per common share:
Earnings per common share before cumulative effect of
accounting change.............................................. $ 0.06 $ 0.31 $ 0.02 $ 0.54
Cumulative effect of accounting change per common share......... - - (0.05) -
----------- ----------- ----------- -----------
Earnings (loss) per common share................................ $ 0.06 $ 0.31 $ (0.03) $ 0.54
=========== =========== =========== ===========
Weighted average common shares ................................... 22,446,511 22,054,168 22,421,082 22,024,727
=========== =========== =========== ===========
Earnings (loss) per common share, assuming dilution:
Earnings per common share, assuming dilution, before
cumulative effect of accounting change......................... $ 0.06 $ 0.30 $ 0.02 $ 0.52
Cumulative effect of accounting change per common share......... - - (0.05) -
----------- ----------- ----------- -----------
Earnings (loss) per common share, assuming dilution............. $ 0.06 $ 0.30 $ (0.03) $ 0.52
=========== =========== =========== ===========
Weighted average common shares
and common share equivalents..................................... 22,865,913 22,763,837 22,848,365 22,793,111
=========== =========== =========== ===========
Dividend per common share......................................... $ 0.05 $ 0.05 $ 0.10 $ 0.10
=========== =========== =========== ===========
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 21, June 15,
1998 1997
---------- ----------
Cash Flows From Operating Activities: (Unaudited)
Net income.............................................................. $ (698) $ 11,823
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization......................................... 13,008 11,400
Cumulative effect of accounting change, net of taxes.................. 1,090 -
Minority share of net income.......................................... - 116
Equity earnings in unconsolidated subsidiary.......................... (187) (200)
Decrease (increase) in:
Trade notes and accounts receivable................................. 2,806 1,357
Inventories......................................................... 7,583 1,877
Prepaid expenses and other.......................................... 4,699 (727)
Increase (decrease) in:
Accounts payable.................................................... (2,351) (9,768)
Accrued liabilities................................................. 2,513 (1,286)
Other liabilities................................................... (4,183) 951
-------- --------
Net cash provided by operating activities............................. 24,280 15,543
-------- --------
Cash Flows From Investing Activities:
Acquisition of property, plant and equipment............................ (12,579) (14,592)
Proceeds from disposal of property, plant and equipment................. 843 184
Acquisition of business................................................. (44,401) (5,000)
Other................................................................... (245) (1,216)
-------- --------
Net cash used in investing activities................................. (56,382) (20,624)
-------- --------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock.................................. 1,175 1,686
Borrowings on bank line of credit....................................... 65,000 6,000
Payments on bank line of credit......................................... (36,000) -
Payments on notes payable............................................... (1,883) (1,092)
Increase in payable to Parent and affiliates............................ 3,743 2,633
Quarterly dividend paid................................................. (2,241) (2,208)
-------- --------
Net cash provided by financing activities............................. 29,794 7,019
-------- --------
(Decrease) increase in cash and cash equivalents........................... (2,308) 1,938
Cash and cash equivalents at beginning of period........................... 22,891 16,795
-------- --------
Cash and cash equivalents at end of period................................. $ 20,583 $ 18,733
======== ========
Noncash Investing and Financing Activities:
Note issued in connection with acquisition of business.................. $ 17,500 $ 500
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
Smart & Final Inc. (the "Company") is a Delaware corporation and is a 55.3
percent owned subsidiary of Casino USA, Inc. (the "Parent"), and Casino Realty,
Inc., a wholly owned subsidiary of Casino USA.
The consolidated balance sheet as of June 21, 1998, the consolidated
statements of income for the twelve and twenty-four weeks ended June 21, 1998
and June 15, 1997, and cash flows for the twenty-four weeks ended June 21, 1998
and June 15, 1997 are unaudited. In the opinion of management, all adjustments
necessary for a fair presentation of these financial statements have been
included. Such adjustments consisted only of normal recurring items. Interim
results are not necessarily indicative of results for a full year.
These consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Form 10-K statement for the year ended January 4, 1998.
(2) EARNINGS PER COMMON SHARE
Earnings per common share is based on the weighted average number of shares
of common stock outstanding. Earnings per common share, assuming dilution,
includes the weighted average number of common stock equivalents outstanding
related to employee stock options and a stock purchase agreement.
(3) FISCAL YEARS
The Company's fiscal year ends on the Sunday closest to December 31. Each
fiscal year consists of twelve-week periods in the first, second and fourth
quarters and a sixteen-week period in the third quarter.
(4) DIVIDEND
On June 22, 1998, the Company declared a dividend of $0.05 per share to
stockholders of record at July 3, 1998. The dividend was paid on July 31, 1998.
(5) INCOME TAXES
Tax sharing payments for state income taxes made by the Company to the
Parent were $1,328,000 in the twenty-four weeks ended June 15, 1997. In the
twenty-four weeks ended June 21, 1998, the Company received a refund of
$1,846,000 from the Parent for state income taxes overpaid, due to the loss for
1997 and the first half of 1998. The Company paid $1,375,000 in federal income
taxes in the twenty-four week period ended June 15, 1997 and did not pay any in
the twenty-four week period ended June 21, 1998 due to losses in first half of
1998.
5
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(6) LEGAL ACTIONS
The Company has been named as defendant in various legal actions arising in
the normal conduct of its business. In the opinion of management, after
consultation with counsel, none of these actions are expected to result in
significant liability to the Company.
(7) ACCOUNTING STANDARDS
During the first quarter of 1998, the Company adopted the provisions of the
American Institute of Certified Public Accountants ("AICPA") Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities". This statement
requires that costs of start-up activities and organization costs be expensed as
incurred. Adoption of this statement resulted in a cumulative effect of
accounting change, net of tax, charge of $1.1 million, or $0.05 per diluted
share.
The Company adopted the provisions of AICPA Statement of Position 98-1,
"Accounting for the costs of Computer Software Developed or Obtained for
Internal Use" during the first quarter of 1998. This statement provides guidance
on accounting for the costs of computer software developed or obtained for
internal use. Adoption of this statement had no impact on the Company's
consolidated financial statements.
During the first quarter of 1998, the Company adopted the provisions of
Statement of Financial Accounting Standard No. 130 "Reporting Comprehensive
Income". This statement establishes standards for reporting and display of
comprehensive income. There was no difference between comprehensive income and
net income for the periods presented.
(8) ACQUISITION OF BUSINESS
On May 15, 1998, the Company acquired the Cash & Carry operating business
of United Grocers, Inc. which included 39 stores operating in the Pacific
Northwest. The purchase price consisted of $42.5 million in cash, plus a $17.5
million five-year unsecured note. The cash payment was financed by a bridge
loan from the Company's major commercial bank. The results of operations for
the twelve and twenty-four weeks ended June 21, 1998 include the results of
operations of the acquired Cash & Carry stores from May 15, 1998. The
acquisition has been accounted for using the purchase method of accounting. The
purchase price has been allocated to assets acquired based on preliminary
estimates subject to change when additional information and studies are
completed. The excess of the aggregate purchase price over the fair market
values of the net assets acquired, of approximately $34 million, has been
reflected in the balance sheet as "goodwill".
(9) BRIDGE LOAN
Effective April 30, 1998, the Company entered into a Credit Agreement
("Bridge Loan") with Credit Lyonnais Los Angeles Branch for $65 million. The
Bridge Loan has an interest rate structure similar to the Company's $50 million
long-term revolving unsecured line of credit. Proceeds from the Bridge loan were
used to fund the cash payment associated with the United Grocers Cash & Carry
store operations acquisition and to reduce other outstanding debt. The Bridge
loan matures on April 29, 1999.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis should be read in conjunction with the
accompanying consolidated financial statements and notes thereto and the
Company's annual report on Form 10-K for the year ended January 4, 1998.
SUMMARY
Smart & Final Inc. (the "Company") reported net income of $1.3 million, or
$0.06 per diluted share, for the twelve weeks ended June 21, 1998, compared to
net income of $6.8 million, or $0.30 per diluted share, in the twelve weeks
ended June 15, 1997.
For the twenty-four weeks ended June 21, 1998, the Company reported a net
loss of $0.7 million, or $0.03 per diluted share, compared to net income of
$11.8 million, or $0.52 per diluted share, for the twenty-four weeks ended June
15, 1997. The 1998 period includes a cumulative effect of accounting change,
net of tax, charge of $1.1 million, or $0.05 per diluted share, related to
adoption of the American Institute of Certified Public Accountants ("AICPA")
Statement of Position 98-5.
The decline in operating earnings for the second quarter and for the first
half of the year was attributed primarily to a decline in year to year earnings
from Florida foodservice operations and significant reductions in vendor rebate
and allowance income. Florida operations began encountering distribution
problems early in the third quarter of 1997. Distribution efficiencies have
improved in 1998, but comparative first half earnings are substantially lower
due to these problems. Vendor income is recognized as earned and, although down
sharply in the comparative results for the first half of the year, is expected
to rise considerably in the second half comparative results. Quarterly and
year-to-date results in 1998 were also affected by slow sales growth as a result
of record rainfall.
RESULTS OF OPERATIONS
The following table shows, for the periods indicated, certain condensed
consolidated income statement data, expressed as a percentage of total sales.
Twelve Weeks Ended Twenty-Four Weeks Ended
-------------------- -------------------------
June 21 June 15, June 21, June 15,
1998 1997 1998 1997
-------- --------- ----------- -----------
Sales:
Store sales........................................ 71.7% 74.5% 69.4% 73.7%
Foodservice distribution sales..................... 28.3 25.5 30.6 26.3
----- ----- ----- -----
Total Sales......................................... 100.0 100.0 100.0 100.0
Cost of sales, buying and occupancy................. 87.4 85.2 87.7 85.3
----- ----- ----- -----
Gross margin....................................... 12.6 14.8 12.3 14.7
Operating and administrative expenses............... 11.4 11.1 11.6 11.2
----- ----- ----- -----
Income from operations............................ 1.2 3.7 0.7 3.5
Interest expense, net............................... 0.6 0.5 0.6 0.5
----- ----- ----- -----
Income before income taxes, minority
share of net income, and cumulative
effect of accounting change....................... 0.5 3.2 -- 3.0
Income taxes........................................ 0.2 1.2 -- 1.1
Minority share of net income........................ -- -- -- --
----- ----- ----- -----
Income before cumulative effect of
accounting change................................. 0.3 2.0 0.1 1.8
Cumulative effect of accounting
change (start-up costs)........................... -- -- 0.2 --
----- ----- ----- -----
Net income (loss)................................... 0.3% 2.0% (0.1)% 1.8%
===== ===== ===== =====
* Totals do not aggregate due to rounding.
7
BACKGROUND
The Company continued its expansion program in 1998 and 1997 as shown in
the following table:
Two
Quarter Ended Quarters Ended Year Ended
--------------------- --------------------- -----------
June 21, June 15, June 21, June 15, January 4,
1998 1997 1998 1997 1998
--------- --------- --------- --------- -----------
USA
Store count beginning 169 167 167 168 168
Stores opened:
In new markets -- -- 1 -- 1
In mature markets -- 1 1 2 3
Stores acquired 39 -- 39 -- --
---- ---- ---- ---- ----
Total 39 1 41 2 4
Relocations 1 3 3 3 7
Stores relocated/(closed) (1) (3) (3) (5) (12)
---- ---- ---- ---- ----
Store count ending 208 168 208 168 167
MEXICO
Store count beginning 6 5 5 5 5
New stores opened -- -- 1 -- --
---- ---- ---- ---- ----
Store count ending 6 5 6 5 5
Grand Total 214 173 214 173 172
==== ==== ==== ==== ====
Mexico operations are not consolidated and are reported on the equity
basis.
Although new stores are important to the Company's continued growth
and profitability, each new store opening initially penalizes earnings because
stores are not immediately profitable. In recent years new stores opened in
existing market areas generally have achieved break even (after full allocation
of all corporate expenses) within the first six to eighteen months and new
stores opened in new market areas, which mature more slowly, generally have
achieved break even in approximately three years.
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.
COMPARISON OF TWELVE WEEKS ENDED JUNE 21, 1998 WITH TWELVE WEEKS ENDED JUNE 15,
1997.
Sales. Second quarter 1998 sales were $380.6 million, up 13.6% from
the comparable 1997 period. Sales reflect the May 15, 1998 acquisition of the
United Grocers Cash & Carry ("Cash & Carry") store operations. Excluding Cash &
Carry, Smart & Final Stores Corporation
8
("Smart & Final") store sales decreased 1.3%. Comparable store sales for the
second quarter of 1998 declined 2.6% from the prior year period, due primarily
to the decision to eliminate high discount tobacco sales in the third quarter of
1997. The change in tobacco sales reduced year to year comparable sales by
approximately 3.0% in the second quarter of 1998. Average comparable
transaction size, also impacted by high discount tobacco transactions, declined
slightly, by 1.0% to $31.72 in the second quarter of 1998.
Foodservice distribution sales increased significantly from $85.4
million in the second quarter of 1997 to $107.6 million in the current year
second quarter. Growth was strong at both Smart & Final Foodservice, formerly
Port Stockton Food Distributors, Inc., where sales increased 36.5% over the
prior year quarter and in Florida foodservice operations, where sales increased
by 17.6% over the prior year quarter.
Gross Margin. Gross margin declined 3.7% from $49.7 million in the
second quarter of 1997 to $47.9 million in the current year quarter. As a
percentage of sales, gross margin declined from 14.8% to 12.6%. The decline was
primarily due to three factors: reduced vendor rebate and allowance income, a
higher mix of foodservice sales which generate lower gross margins and require
lower operating expenses than store sales, and lower foodservice gross margins
compared to 1997 caused by increased meat processing and chain account sales.
Operating and Administrative Expenses. Operating and administrative
expenses for the second quarter of 1998 were $43.5 million, up $6.3 million, or
16.9%, over the second quarter of 1997. These expenses, as a percentage of
sales, increased from 11.1% in the second quarter of 1997 to 11.4% in the second
quarter of 1998. The increased expense levels were the result of management
reorganization costs and increased direct expenses as a percentage of sales due
to a decline in sales. Additional current year marketing expenditures, in an
effort to promote sales growth, was also a factor in increased overall expenses.
Interest Expense, net. Interest expense, net increased from $1.7
million in the second quarter of 1997 to $2.4 million in the second quarter of
1998 primarily as the result of higher weighted average borrowings. Revolving
debt borrowings and notes payable increased primarily due to the Cash & Carry
acquisition.
COMPARISON OF TWENTY-FOUR WEEKS ENDED JUNE 21, 1998 WITH TWENTY-FOUR WEEKS ENDED
JUNE 15, 1997.
Sales. First half 1998 sales were $714.9 million, up 11.4% from the
comparable 1997 period. Smart & Final store sales decreased 0.7%. Comparable
store sales decreased 2.1% in the first half of 1998 primarily as a result of
the decision to eliminate high discount tobacco sales in the third quarter of
1997. This decision reduced comparative sales for the first half of 1998 by
approximately 3.0%. Record rainfall in the first half of 1998 also reduced
sales growth. Average comparable transaction size, also impacted by elimination
of high discount tobacco transactions, decreased 1.3% to $31.31 in the first
half of 1998.
9
Foodservice distribution sales increased 29.5% to $218.4 million for
the first half of 1998. Significant sales growth was achieved at Smart & Final
Foodservice where sales increased 43.8% over the 1997 twenty-four week period.
The Florida foodservice operations experienced strong sales growth of 19.5% over
the first half of 1997.
Gross Margin. Gross margin declined 7.1% from $94.3 million in the
first half of 1997 to $87.6 million in the 1998 twenty-four week period. As a
percentage of sales, gross margin declined from 14.7% of sales for the first
half of 1997 to 12.3% in the comparable 1998 period. The major factors in the
lower gross margin percentage were the reduced vendor rebate and allowance
income, a higher mix of foodservice sales which generate lower gross margins,
and lower foodservice gross margins compared to 1997 caused by increased meat
processing and chain account sales.
Operating and Administrative Expenses. Operating and administrative
expenses for the first half of 1998 were $82.9 million, or 11.6% of sales,
compared with $72.0 million, or 11.2% of sales, in the first half of 1997. The
increased expenses were the result of management reorganization costs and
increased direct expenses as a percentage of sales as a result of the store
sales decline.
Interest Expense, net. Interest expense, net increased from $3.3
million, or 0.5% of sales, in the first half of 1997 to $4.6 million, or 0.6% of
sales, in the comparable 1998 period. This increase was a result of higher
weighted average borrowings in the first half of 1998 compared to the first half
of 1997.
FINANCIAL CONDITION
Cash and cash equivalents were $22.9 million at January 4, 1998, and
$20.6 million at June 21, 1998. Cash provided by operating activities for the
twenty-four weeks ended June 21, 1998 was $24.3 million and other changes in
financing activities provided $4.9 million of cash for the twenty-four week
period. The net increase in debt was $27.1 million for the first half of 1998.
The acquisition of the United Grocers Cash & Carry store operations and
investments in fixed assets and other additions during the first half of 1998
required cash of $56.4 million. During the first half of 1998, $2.2 million of
dividends were paid.
Excluding the impact of the acquisition of the United Grocers Cash &
Carry store operations, inventories declined by $7.6 million as a result of a
comprehensive turnover analysis at all operating levels to achieve lower
carrying costs. Other changes in operating assets and liabilities generally
reflect the timing of receipts and disbursements. Trade notes and accounts
receivable decreased $2.8 million, prepaid expenses decreased $4.7 million,
accrued liabilities increased $2.5 million, accounts payable decreased $2.4
million, and other liabilities decreased $4.2 million in the first half of 1998.
Stockholders' equity decreased by $1.6 million to $198.7 million at
June 21, 1998 as a result of the $0.7 million loss for the first half of 1998
and the quarterly cash dividend of $2.2 million less $1.3 million proceeds from
issuance of stock.
10
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity is cash flow from
operations. Cash provided by operating activities was $24.3 million in the
first half of 1998, up from $15.5 million in the comparable 1997 period. At
June 21, 1998, the Company had cash of $20.6 million, compared to $22.9 million
at January 4, 1998. The Company had $98.3 million of long-term debt and
stockholders' equity of $198.7 million at June 21, 1998.
As a result of the Cash & Carry acquisition and a temporary decline in
earnings, the Company has not complied with financial covenants in certain of
its loan agreements. Lending institutions have granted the Company a waiver
until September 30, 1998, during which time the Company expects to complete
restructuring of existing debt.
The Company expects to be able to fund future acquisitions and other
cash requirements by a combination of available cash, cash from operations,
lease financings and other borrowings and proceeds from the issuance of equity
securities. The Company is constructing a new distribution facility that will be
used to serve its Southern California operations. The facility and related
fixtures and equipment will cost approximately $37 million, most of which will
be financed by a committed lease facility. During the quarter, the Company
signed a lease for new office facilities for its corporate headquarters, which
it expects to move into in the third quarter of 1998. The amount budgeted for
other capital expenditures is approximately $40.0 million for fiscal 1998.
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 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 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.
11
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Not applicable.
ITEM 2 CHANGES IN SECURITIES
Not applicable.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5 OTHER INFORMATION
Not applicable.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
Number Description of Exhibit
- ------ ----------------------
10.6 Second Amendment to Stock Purchase Agreement, dated March 7, 1989,
by and among Mr. Emmons, Casino USA, Casino France and the Company
10.82 Second Amendment to Agreement to Sell and Purchase Real Property and
Escrow Instructions dated as of May 15, 1998, by and among Smart
& Final Stores Corporation and Certified Grocers of California, Ltd.
10.92 Credit Agreement (Bridge Loan) dated as of April 30, 1998 by and
among the Company and Credit Lyonnais Los Angeles Branch
10.93 Asset Purchase Agreement dated May 15, 1998 by and among the
Company and United Grocers, Inc.
10.94 Office Lease dated as of April, 1998 by and among the Commerce
Citadel Development Authority and Smart & Final Stores Corporation
12
Exhibit
Number Description of Exhibit
- ------- ----------------------
10.95 Participation Agreement dated as of May 20, 1998 by and among the
Company, Smart & Final Realty Trust 1998, Credit Lyonnais Los
Angeles Branch, as Agent, and the Lenders named therein (Certified
Property)
10.96 Trust Agreement dated as of May 13, 1998, by and among Credit
Lyonnais Leasing Corp. and Wilmington Trust Company
10.97 Lease and Agreement dated as of May 20, 1998 by and among Smart &
Final Realty Trust 1998 and Smart & Final Inc.
10.98 Loan Agreement dated as of May 20, 1998 by and among Smart & Final
Realty Trust 1998, Credit Lyonnais Los Angeles Branch, as Agent,
and the Lenders named therein
27 Financial Data Schedule
(b) Reports on Form 8-K
None
13
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 31, 1998
/s/ MARTIN A. LYNCH
-----------------------------------------
Martin A. Lynch
Executive Vice President,
Principal Financial Officer, and
Principal Accounting Officer of the Company
14
SMART & FINAL INC.
EXHIBIT INDEX
Sequentially
Numbered
Exhibit Number Description of Exhibit Page
- -------------- ---------------------- ----
10.6 Second Amendment to Stock Purchase Agreement, dated March 7,
1989, by and among Mr. Emmons, Casino USA, Casino France and
the Company
10.82 Second Amendment to Agreement to Sell and Purchase Real
Property and Escrow Instructions dated as of May 15, 1998, by
and among Smart & Final Stores Corporation and Certified
Grocers of California, Ltd.
10.92 Credit Agreement (Bridge Loan) dated as of April 30, 1998 by
and among the Company and Credit Lyonnais Los Angeles Branch
10.93 Asset Purchase Agreement dated May 15, 1998 by and among the
Company and United Grocers, Inc.
10.94 Office Lease dated as of April, 1998 by and among the
Commerce Citadel Development Authority and Smart & Final
Stores Corporation
10.95 Participation Agreement dated as of May 20, 1998 by and among
the Company, Smart & Final Realty Trust 1998, Credit Lyonnais
Los Angeles Branch, as Agent, and the Lenders named therein
(Certified Property)
10.96 Trust Agreement dated as of May 13, 1998, by and among Credit
Lyonnais Leasing Corp. and Wilmington Trust Company
10.97 Lease and Agreement dated as of May 20, 1998 by and among
Smart & Final Realty Trust 1998 and Smart & Final Inc.
10.98 Loan Agreement dated as of May 20, 1998 by and among Smart &
Final Realty Trust 1998, Credit Lyonnais Los Angeles Branch,
as Agent, and the Lenders named therein
27 Financial Data Schedule
15