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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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FORM 10-K/A
(Mark one)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 3, 1999
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
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SMART & FINAL INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4079584
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
600 Citadel Drive, City of Commerce, California 90040
(Address of principal executive offices) (Zip Code)
(323) 869-7500
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Stock, par value $.01 per share New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
----------------
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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [_]
As of March 17, 1999, the aggregate market value of Common Stock held by
nonaffiliates of the registrant based on the closing price of the Common Stock
on the New York Stock Exchange composite tape was $81,022,137 ("nonaffiliates"
excludes for this purpose executive officers, directors and the registrant's
majority shareholder).
As of March 17, 1999, the registrant had outstanding 22,527,179 shares of
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive Proxy Statement for its Annual Meeting
of Shareholders to be held May 11, 1999 are incorporated by reference into
Part III of this Form 10-K.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following information is included in this section:
Page
----
Report of Independent Public Accountants................................... 3
Consolidated Balance Sheets................................................ 4
Consolidated Statements of Operations...................................... 5
Consolidated Statements of Stockholders' Equity............................ 6
Consolidated Statements of Cash Flows...................................... 7
Notes to Consolidated Financial Statements................................. 8
Supplementary Data--Summary of Quarterly Results of Operations............. 25
2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Smart & Final Inc.:
We have audited the accompanying consolidated balance sheets of Smart &
Final Inc. (a Delaware corporation and a 55.1 percent owned subsidiary of
Casino USA, Inc.) and subsidiaries as of January 3, 1999 and January 4, 1998,
and the related consolidated statements of operations, stockholders' equity
and cash flows for each of the three fiscal years in the period ended January
3, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Smart & Final Inc. and
subsidiaries as of January 3, 1999 and January 4, 1998, and the results of
their operations and their cash flows for each of the three fiscal years in
the period ended January 3, 1999, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Los Angeles, California
March 12, 1999
3
SMART & FINAL INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share amounts)
January January
3, 1999 4, 1998
-------- --------
ASSETS
------
Current assets:
Cash & cash equivalents.................................. $ 20,887 $ 22,891
Trade notes and accounts receivable, less allowance for
doubtful accounts of $3,660 in 1998 and $5,518 in 1997.. 70,155 75,995
Inventories.............................................. 157,678 129,761
Prepaid expenses......................................... 22,341 15,906
Deferred tax asset....................................... 11,511 9,600
-------- --------
Total current assets................................... 282,572 254,153
Property, plant and equipment:
Land..................................................... 36,387 35,631
Buildings and improvements............................... 29,625 29,530
Leasehold improvements................................... 85,501 67,821
Fixtures and equipment................................... 162,148 139,316
-------- --------
313,661 272,298
Less--Accumulated depreciation and amortization.......... 108,588 85,808
-------- --------
Net property, plant and equipment...................... 205,073 186,490
Assets under capital leases, net of accumulated
amortization of $6,669 in 1998 and $6,150 in 1997......... 4,016 4,535
Goodwill, net of accumulated amortization of $2,060 in 1998
and $903 in 1997.......................................... 56,667 18,940
Deferred tax asset......................................... 3,730 3,148
Other assets............................................... 30,206 20,879
-------- --------
Total Assets........................................... $582,264 $488,145
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term debt..................... $139,680 $ 3,576
Current maturities of notes payable to affiliates........ -- 7,600
Bank line of credit...................................... -- 37,000
Accounts payable......................................... 97,568 77,116
Payable to Parent and affiliates......................... 1,681 18,589
Accrued salaries and wages............................... 13,951 9,528
Other accrued liabilities................................ 40,789 32,262
-------- --------
Total current liabilities.............................. 293,669 185,671
Long-term liabilities:
Notes payable, net of current maturities................. 15,839 4,061
Notes payable to affiliates.............................. 55,388 22,800
Bank debt................................................ -- 45,000
Obligations under capital leases......................... 7,485 8,163
Other long-term liabilities.............................. 3,033 2,937
Workers' compensation reserve, postretirement and
postemployment benefits................................. 17,564 18,068
-------- --------
Total long-term liabilities............................ 99,309 101,029
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; 22,527,179 shares issued and outstanding in 1998
and 22,386,181 in 1997)................................. 225 224
Additional paid-in capital............................... 144,987 142,865
Cumulative translation loss.............................. (835) (835)
Retained earnings........................................ 44,909 58,075
-------- --------
Total stockholders' equity............................. 189,286 200,329
-------- --------
Total liabilities and stockholders' equity............. $582,264 $488,145
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4
SMART & FINAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
Fiscal Year
----------------------------------
1998 1997 1996
---------- ---------- ----------
Sales....................................... $1,661,629 $1,453,020 $1,302,561
Cost of sales, buying and occupancy......... 1,455,941 1,258,357 1,112,166
---------- ---------- ----------
Gross margin................................ 205,688 194,663 190,395
Operating and administrative expenses....... 204,537 169,849 147,807
Special charges............................. -- 8,884 --
---------- ---------- ----------
Income from operations.................. 1,151 15,930 42,588
Interest expense, net....................... 13,304 8,117 3,373
---------- ---------- ----------
Income (loss) before income taxes, minority
share of net income (loss), and cumulative
effect of accounting change................ (12,153) 7,813 39,215
Income taxes................................ (4,397) 1,940 14,858
Minority share of net income (loss)......... -- (563) 244
---------- ---------- ----------
Income (loss) from consolidated
subsidiaries........................... (7,756) 6,436 24,113
Equity earnings in unconsolidated
subsidiary................................. 187 200 221
---------- ---------- ----------
Income (loss) before cumulative effect
of accounting change................... (7,569) 6,636 24,334
Cumulative effect of accounting change
(start-up costs, net of tax effect of
$758)...................................... 1,090 -- --
---------- ---------- ----------
Net income (loss)....................... $ (8,659) $ 6,636 $ 24,334
========== ========== ==========
Earnings (loss) per common share:
Earnings (loss) per common share before
cumulative effect of accounting change... $ (0.34) $ 0.30 $ 1.20
Cumulative effect of accounting change per
common share............................. (0.05) -- --
---------- ---------- ----------
Earnings (loss) per common share.......... $ (0.39) $ 0.30 $ 1.20
========== ========== ==========
Weighted average common shares.............. 22,474,048 22,158,673 20,309,555
========== ========== ==========
Earnings (loss) per common share, assuming
dilution:
Earnings (loss) per common share, assuming
dilution, before cumulative effect of
accounting change........................ $ (0.33) $ 0.29 $ 1.15
Cumulative effect of accounting change per
common share............................. (0.05) -- --
---------- ---------- ----------
Earnings (loss) per common share, assuming
dilution................................. $ (0.38) $ 0.29 $ 1.15
========== ========== ==========
Weighted average common shares and common
share equivalents.......................... 22,595,705 22,753,333 21,206,126
========== ========== ==========
Dividend per common share................... $ 0.20 $ 0.20 $ 0.20
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
5
SMART & FINAL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the fiscal years 1998, 1997 and 1996
(dollars in thousands, except per share amounts)
Common Stock
----------------- Additional Cumulative Total
Number of Paid-In Retained Translation Stockholders'
Shares Amount Capital Earnings (Loss)/gain Equity
---------- ------ ---------- -------- ----------- -------------
Balance, fiscal year-end
1995................... 20,262,727 $ 203 $ 105,149 $ 35,628 $ (928) $ 140,052
Issuance of common
stock.................. 1,713,679 17 34,564 -- -- 34,581
Tax benefit associated
with stock options
exercised.............. -- -- 658 -- -- 658
Dividend ($0.20 per
share)................. -- -- -- (4,063) -- (4,063)
Translation gain........ -- -- -- -- 93 93
Net income.............. -- -- -- 24,334 -- 24,334
---------- ----- --------- -------- ------ ---------
Balance, fiscal year-end
1996................... 21,976,406 220 140,371 55,899 (835) 195,655
Issuance of common
stock.................. 409,775 4 5,706 -- -- 5,710
Restricted stock
accrual................ -- -- 208 -- -- 208
Tax benefit associated
with stock options
exercised.............. -- -- 1,776 -- -- 1,776
Capital lease and
deferred rent
transfer............... -- -- (5,196) -- -- (5,196)
Dividend ($0.20 per
share)................. -- -- -- (4,460) -- (4,460)
Net income.............. -- -- -- 6,636 -- 6,636
---------- ----- --------- -------- ------ ---------
Balance, fiscal year-end
1997................... 22,386,181 224 142,865 58,075 (835) 200,329
Issuance of common
stock.................. 140,998 1 1,772 -- -- 1,773
Restricted stock
accrual................ -- -- 167 -- -- 167
Tax benefit associated
with stock options
exercised.............. -- -- 183 -- -- 183
Dividend ($0.20 per
share)................. -- -- -- (4,507) -- (4,507)
Net income (loss)....... -- -- -- (8,659) -- (8,659)
---------- ----- --------- -------- ------ ---------
Balance, fiscal year-end
1998................... 22,527,179 $ 225 $ 144,987 $ 44,909 $ (835) $ 189,286
========== ===== ========= ======== ====== =========
The accompanying notes are an integral part of these consolidated financial
statements.
6
SMART & FINAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Fiscal Year
-------------------------
1998 1997 1996
------- ------- -------
Cash Flows From Operating Activities:
Net income (loss)................................. $(8,659) $ 6,636 $24,334
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Gain on disposal of fixed assets................. (3,126) (843) (187)
Asset valuation adjustments...................... 1,175 -- --
Depreciation and amortization.................... 29,353 25,761 19,882
Deferred tax provision (benefit)................. (2,493) (800) 1,320
Cumulative effect of accounting change, net of
taxes........................................... 1,090 -- --
Minority share of net income..................... -- (563) 244
Equity earnings in unconsolidated subsidiary..... (187) (200) (221)
Decrease (increase), net of business
acquisition, in:
Trade notes and accounts receivable............ 8,634 (3,771) (22,132)
Inventories.................................... (6,646) (2,504) (7,426)
Prepaid expenses and other..................... (4,828) (11,546) (709)
Increase (decrease), net of business
acquisition, in:
Accounts payable............................... 14,224 4,601 2,028
Accrued liabilities............................ 4,423 (412) 2,087
Other liabilities.............................. 6,319 4,210 (5,158)
------- ------- -------
Net cash provided by operating activities.... 39,279 20,569 14,062
------- ------- -------
Cash Flows From Investing Activities:
Acquisition of property, plant and equipment...... (39,622) (29,427) (33,172)
Proceeds from disposal of property, plant and
equipment........................................ 3,658 10,471 252
Acquisition of business........................... (44,401) (11,300) (1,391)
Acquisition of municipal bonds.................... -- -- (540)
Proceeds from redemption of municipal bonds....... -- -- 440
Other............................................. (7,557) (3,573) (4,590)
------- ------- -------
Net cash used in investing activities........ (87,922) (33,829) (39,001)
------- ------- -------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock............ 1,737 5,135 1,059
Borrowings on bank line of credit................. -- 20,000 16,000
Payments on bank line of credit................... (82,000) -- --
Payments on notes payable......................... (3,796) (11,161) (3,089)
Increase in payable to Parent and affiliates...... 7,288 9,830 6,409
Quarterly dividend paid........................... (4,492) (4,448) (4,060)
Borrowings of short-term debt..................... 133,500 -- 10,000
Fees paid in connection with debt restructure..... (5,598) -- --
------- ------- -------
Net cash provided by financing activities.... 46,639 19,356 26,319
------- ------- -------
Increase (decrease) in cash and cash equivalents.... (2,004) 6,096 1,380
Cash and cash equivalents at beginning of year...... 22,891 16,795 15,415
------- ------- -------
Cash and cash equivalents at end of year............ $20,887 $22,891 $16,795
======= ======= =======
Noncash Investing and Financing Activities:
Notes payable and common stock issued for
properties acquired from affiliates.............. $ -- $ -- $71,440
Fees in connection with note restructure ......... (953)
Note issued in connection with note restructure
................................................. 55,388 -- --
Note retired in connection with note restructure
................................................. (30,400) -- --
Payable to affiliates retired in connection with
note restructure ................................ (24,035) -- --
Note issued in connection with acquisition of
business ........................................ 17,500 1,000 300
Construction in progress costs incurred but not
paid............................................. 2,320 763 552
------- ------- -------
Total noncash transactions................... $19,820 $ 1,763 $72,292
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
7
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Lines of business
Smart & Final Inc. (the "Company") is a Delaware corporation and at fiscal
year end 1998 was a 55.1 percent owned subsidiary of Casino USA, Inc. (the
"Parent" or "Casino USA"), a California corporation. Prior to November 1998,
Casino Realty, Inc. ("Casino Realty"), a wholly owned subsidiary of Casino
USA, owned 7.2 of the 55.1 percent now owned by the Parent. On November 2,
1998, Casino Realty, Inc. was dissolved and its remaining assets were
transferred to the Parent. The Company owns American Foodservice Distributors
("AFD"), a holding company, which owns 100% of Port Stockton Food
Distributors, Inc., and 100% of Henry Lee Company ("Henry Lee"). In late 1997,
AFD acquired the assets of Orlando Foodservice, Inc. and Capricorn Foods of
Central Florida, Inc. (collectively "Orlando Foodservice") and the assets of
Southern Foods. The Company is engaged in the business of distributing food
and related non-food items through wholesale outlets under the trade name
"Smart & Final" and by delivery, under the trade names "Smart & Final
Foodservice Distributors", formerly "Port Stockton", and "Henry Lee."
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and all its majority owned subsidiaries. The Company's 50 percent owned
subsidiary in Mexico, Smart & Final Del Noroeste S.A. de C.V., which commenced
store operations in December 1993, is accounted for by the equity method of
accounting. The foreign currency translation loss resulted from the
translation of the foreign affiliate's functional currency balance sheet into
U.S. dollars for all periods prior to January 1997 and is reflected in
stockholders' equity. Since January 1997, in accordance with generally
accepted accounting principles, the functional currency has been the U.S.
dollar. As such, changes in foreign currency exchange rates are included in
results of operations.
All significant intercompany accounts and transactions have been eliminated
in consolidation. Certain prior years' amounts have been reclassified to
conform to the fiscal year 1998 presentation.
Fiscal years
The Company's fiscal year ends on the Sunday closest to December 31. Fiscal
year 1998 included 52 weeks, fiscal year 1997 included 53 weeks and fiscal
year 1996 included 52 weeks. Fiscal years 1998, 1997 and 1996 ended on January
3, 1999, January 4, 1998 and December 29, 1996, respectively. 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. The fourth quarter of a 53 week year consists of thirteen weeks.
Cash and cash equivalents
The Company considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents. The carrying
amount of cash equivalents is approximately the same as their fair value
because of the short maturity of these instruments.
Credit Risk
The Company is exposed to credit risk on accounts receivable. The Company
provides credit to customers in the ordinary 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.
Inventories
The majority of the Company's inventories consist of merchandise purchased
for resale which are stated at the lower of FIFO (first-in, first-out) cost or
market.
8
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Property, plant and equipment
Property, plant and equipment are stated at cost and are depreciated or
amortized using the straight-line method. The estimated useful lives are as
follows:
Buildings and
improvements........... 5-25 years
Fixtures and equipment.. 3-10 years
Leasehold improvements.. Lesser of lease term or useful life of improvement
Costs of normal maintenance and repairs and minor replacements are charged
to expense when incurred. Major replacements or betterments of properties are
capitalized. When assets are sold or otherwise disposed of, the costs and
related accumulated depreciation and amortization are removed from the
accounts, and any resulting gain or loss is included in the income statement.
Long-lived assets and certain identifiable intangibles to be held and used
by the Company are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.
Also included in property, plant and equipment are costs associated with
selection and procurement of real estate sites of $939,000 and $1,015,000 as
of fiscal year end 1998 and 1997, respectively. These costs are amortized over
the remaining lease term of the site with which they are associated.
Other assets
Other assets include municipal bonds aggregating $5,430,000 at each fiscal
year end 1998 and 1997 which secure the Company's workers' compensation
reserves. The fair value of the municipal bonds, estimated based on quoted
market prices for similar investments, approximate their carrying amounts.
These municipal bonds have varying maturity dates ranging from 2006 through
2019.
At year end 1998, other assets included debt issuance costs of $6,238,000
relating to fees paid in connection with the debt restructuring. These costs
are being amortized over the term of the related debt.
Capitalized software costs, net of amortization, of $6,452,000 and
$7,743,000 are included in other assets at fiscal year end 1998 and 1997,
respectively. These costs include third party purchased software costs, direct
labor associated with internally developed software, and installation costs.
Amortization is being recognized over a three to five year period using the
straight-line method, and reflects the period over which the benefits of the
software are fully realizable and enhance the operations of the business.
Goodwill
Goodwill is amortized on a straight-line basis over a period not exceeding
40 years. The Company assesses the recoverability of goodwill based on
forecasted operating income.
Stock options
In 1996, the Company adopted Statement of Financial Accounting Standards No.
123 "Accounting for Stock-Based Compensation" ("SFAS No. 123"), which
encourages, but does not require, the recognition of compensation expense for
employee stock-based compensation arrangements using the fair value method of
accounting. The Company has elected the disclosure only alternative, and has
disclosed the proforma net income per share amounts in the notes to the
consolidated financial statements using the fair-value method.
9
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Significant accounting estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of liabilities at the date of
the financial statements and expenses during the reporting period. Management
has made significant estimates in the determination of the reserve for
workers' compensation expense. These reserves totaled $5,779,000 and
$5,727,000 at fiscal year end 1998 and 1997, respectively. The estimate is
sensitive to change based upon certain factors including healthcare costs, the
Company's experience rate and severity of claims filed. The Company maintains
a stop-loss limit of $300,000 per claim.
Income taxes
The Company recognizes deferred tax assets and liabilities based on the
liability method, which requires an adjustment to the deferred tax asset or
liability to reflect income tax rates currently in effect. When income tax
rates increase or decrease, a corresponding adjustment to income tax expense
is recorded by applying the rate change to the cumulative temporary
differences.
Accounting pronouncements
The Company adopted Statements of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
No. 131") and No. 132 "Employers' Disclosures about Pensions and Other
Postretirement Benefits" ("SFAS No. 132") in the Company's 1998 year-end
disclosure. As a result of SFAS No. 131, the Company reported information
about its two reportable segments: Stores and Foodservice for 1998, 1997 and
1996. The Company also revised its disclosures about pension and other
postretirement benefit plans according to SFAS No. 132. SFAS No. 132 does not
change the measurement or recognition of these plans.
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 material 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 material difference between comprehensive
income and net income for the periods presented.
In 1997, the Company adopted Statements of Financial Accounting Standards
No. 128 "Earnings per Share" ("SFAS No. 128") and No. 129 "Disclosure of
Information About Capital Structure" ("SFAS No. 129"). As a result of SFAS No.
128, the Company has presented earnings per share in accordance with SFAS No.
128 for all fiscal years.
10
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Acquisition of Real Property
Effective December 29, 1996, the Company acquired 91 properties and
leasehold interests with a net book value of $71,440,000 from Casino USA and
Casino Realty, which were being operated as Smart & Final stores, offices or
warehouse facilities, for consideration of $76,000,000, consisting of
1,625,000 shares of the Company's common stock, valued at $23.375 per share,
and a total of $38 million in two five-year unsecured promissory notes. Of the
91 properties acquired, 86 were stores and the remaining five were the Vernon
distribution facility and several non-store locations.
Since this transaction was between entities under common control, the
properties have been recorded at the historical carrying cost of Casino USA
and Casino Realty. The difference between the historical carrying cost of the
assets acquired and the consideration issued has been recorded as additional
paid-in capital.
As part of the transaction, the Company was required to assist Casino USA
and Casino Realty with the sale of certain properties, on or before December
31, 1998 that are not being operated as stores for aggregate sales proceeds of
$5.7 million. As of October 1998, the Company had sold ten of the 12 such
properties for $3.9 million. During 1998, the Company fulfilled its remaining
obligation to Casino USA and Casino Realty and purchased the remaining two
properties.
The historical carrying cost of the assets acquired and the value of the
consideration issued is as follows (dollars in thousands):
Assets acquired
Land............................................................. $37,817
Building......................................................... 31,194
Leasehold interests.............................................. 2,429
-------
Total assets acquired.......................................... $71,440
=======
Purchase consideration:
Notes payable issued............................................. $38,000
Common stock issued.............................................. 37,984
-------
Total consideration............................................ $75,984
=======
3. Acquisition of Businesses
On May 15, 1998, the Company acquired the Cash & Carry operating business of
United Grocers, Inc. which included 39 stores operating primarily 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 store
operations for fiscal year 1998 include the results of operations of the
acquired Cash & Carry stores since 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 $38.2 million, has been reflected in the balance
sheet as "goodwill" and will be amortized over forty years.
In January 1998, AFD purchased the remaining 10% of the stock of Henry Lee
for $1.9 million. On September 26, 1997, AFD acquired the net assets of two
Florida foodservice distributors, Orlando Foodservice Inc. and Capricorn Foods
of Central Florida, Inc. for a total purchase price of $1.3 million cash and a
$0.5 million note. On September 29, 1997, AFD acquired the net assets of
Southern Foods, a foodservice distributor, for
11
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
$5.0 million in cash. On May 30, 1997, Smart & Final Foodservice purchased the
assets of the Davis Lay, a produce distributor, for $5.0 million cash and a
$0.5 million note.
The Company recorded these acquisitions using the purchase method of
accounting. The total assets acquired from these acquisitions and the results
of operations since the dates of the asset acquisitions are immaterial
relative to the Company's consolidated financial statements.
4. Long-Term Debt
Casino Loan
Effective November 13, 1998, the Company entered into a $55.4 million Loan
Agreement ("Casino Loan") with Casino USA, Inc. The Casino Loan replaced the
Company's two unsecured promissory notes that were issued in conjunction with
the 1996 acquisition of real property from Casino USA, Inc. and Casino Realty,
affiliated parties, that had an outstanding balance of $30.4 million. It also
replaced all then outstanding advances made to the Company from Casino USA,
Inc. and Casino Realty. Interest for this loan is at LIBOR plus 4.50%. The
Casino Loan matures on February 15, 2002. As of January 3, 1999, the LIBOR
rate was 5.08%. The Casino Loan requires that the Company maintain certain
financial ratios. The Company was not in compliance with these covenants at
year end 1998. Casino USA, Inc. has waived the non-compliance until the
Company reports its second quarter 1999 earnings or until August 31, 1999,
whichever occurs first. In conjunction with the completion of the Rights
Offering described below, management will seek to amend the loan agreement.
On December 7, 1998, the Company announced an offering to shareholders of
rights to purchase additional shares of the Company's common stock ("Rights
Offering"). The size of the Rights Offering is planned to be $60 million. Net
proceeds of the offering will be used to reduce outstanding debt of the
Company. Consideration for shares acquired by Casino USA under the offering
will be the exchange of all or a portion of the $55.4 million Casino Loan.
Revolving Loan
Effective November 13, 1998, the Company entered into Senior Secured Credit
Facilities totaling $240 million with a group of banks. The Senior Secured
Credit Facilities include a $150 million Revolving Credit Facility ("Revolving
Loan") and a $90 million Secured Lease Facility ("Secured Lease Facility").
These facilities expire on November 13, 2001. At the Company's option, the
Revolving Loan can be used to support up to $10 million of commercial letters
of credit. The Revolving Loan replaced the Company's $65 million Bridge Loan,
its $50 million unsecured long-term revolving line of credit, and its $50
million short-term unsecured line of credit. The Secured Lease Facility
replaced the Company's three $30 million lease facilities. Borrowings under
the Senior Secured Credit Facilities are collateralized by a security interest
in the Company's receivables, inventory and fixed assets. Interest for these
facilities is at LIBOR, or the Administrative Agent's reference rate, plus
designated amounts. Borrowings of $133.5 million were outstanding under the
Revolving Loan as of January 3, 1999. These facilities require the Company to
maintain certain financial ratios. The Company was not in compliance with
these covenants at year-end 1998. As such, the borrowings under the Revolving
Loan have been reclassified to current liabilities.
As of March 12, 1999, the Company has received a waiver of default of
certain financial covenants under the Senior Secured Credit Facilities, for a
period extending until June 30, 1999. Continuation of the waiver until such
date requires the performance by the Company of certain operating earnings and
financial reporting requirements. The waiver also requires that the Company
file its registration statement for the Rights Offering by April 6, 1999 and
consummate the offering prior to June 30, 1999. Upon completion of the Rights
Offering,
12
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the Company's overall debt will be reduced, which is expected to help the
Company continue to meet certain financial ratios under the Senior Secured
Credit Facilities. If the Company is not successful in complying with existing
financial covenants, it may be required to renegotiate the terms of its loan
documents or seek another waiver of certain financial requirements.
Other Long-Term Debt
The Company has guaranteed $945,000 of Smart & Final Del Noroeste S.A. de
C.V. debt under a Standby Letter of Credit. The Company has a $120,000 letter
of credit outstanding as of January 3, 1999 relating to self-insurance.
In connection with the acquisition of the Cash & Carry operating business of
United Grocers, Inc. the Company issued a $17.5 million five-year unsecured
note. This note is payable in five annual installments of $2.5 million in each
of 1999, 2000 and 2001 followed by installments of $5.0 million in 2002 and
2003. This note bears interest at 6.5%. Accrued interest is payable quarterly.
Other unsecured notes payable of $3,834,000 and $6,982,000 at fiscal year end
1998 and 1997, respectively bear interest at various rates ranging from 6.5%
to 8.0%. Of these notes payable, $2.9 million is at an interest rate of 7.5%
and is unsecured.
Interest
Interest paid on these notes and bank lines of credit aggregated
$10,042,000, $7,416,000, and $3,627,000 for the fiscal years ended 1998, 1997
and 1996, respectively. The weighted average interest rate for the Company's
variable rate debt for 1998 was 7.81%.
Aggregate future principal payments are as follows:
Fiscal Year:
1999........................................................ $138,995,000
2000........................................................ 3,128,000
2001........................................................ 2,673,000
2002........................................................ 60,423,000
2003........................................................ 5,003,000
Subsequent to 2003.......................................... --
------------
$210,222,000
============
The fair value of the Company's long-term debt, estimated based upon current
interest rates offered for debt instruments of the same remaining maturities,
approximates the carrying amount.
The Company's involvement with derivative financial instruments has been
limited to interest rate collar agreements to limit the impact of interest
rate fluctuations on revolving debt. The Company has entered into interest
rate collar agreements with various banks to hedge principal amounts of up to
$100 million. The agreements limit LIBOR fluctuations to interest rate ranges
from 4.7% to 8.0% and extend to September 2004.
5. Lease Obligations
As of fiscal year end 1998, the Company leased 127 properties directly from
third party lessors, with an average remaining lease term of ten years. The
Company leased 14 store properties, at year-end, under its Secured Lease
Facility. In addition, the Company has eight stores on real property that is
ground leased from third party lessors.
13
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During fiscal year 1996 and prior, most of the Company's Smart & Final store
facilities were leased under operating leases from either Casino USA or Casino
Realty. Fifty-one properties were leased directly from third party lessors. As
mentioned in Acquisition of Real Property, these properties were acquired by
the Company on December 29, 1996. Late in 1997, the Company sold its owned
combination distribution and office facility and entered into a leaseback with
the purchaser for approximately one year.
On November 13, 1998, the Company entered into a Secured Lease Facility as
mentioned in Long-Term Debt. The Secured Lease Facility provided for the lease
of a distribution center for Smart & Final Foodservice and for store expansion
and distribution facilities in California and Florida. During fiscal years
1998 and 1997, the Company leased assets valued at approximately $71.2 million
and $43.5 million, respectively, under this facility. The related minimum
lease obligation is included in the table below, in accordance with its
original expiration date. Since the Secured Lease Facility is part of the
Senior Secured Financing Facility, and the Company is not in compliance with
certain financial ratios, this obligation may mature in 1999. The Company has
negotiated waivers of non-compliance (See Note 4 "Long-Term Debt--Revolving
Loan") and will seek to amend the Secured Lease Facility to avoid maturity of
the agreement in 1999.
AFD's Miami dry goods warehouse is leased from the former owners of Henry
Lee. The leases contain terms and rates considered to be equivalent to those
available from unrelated third party lessors. The Company guarantees
$1,743,000 of obligations of the former owners of Henry Lee. These obligations
are related to properties leased by Henry Lee.
Lease expense for operating leases included in the accompanying financial
statements is as follows:
Property Leased From
Casino USA or Casino Realty
---------------------------
Subleased Owned Third Party
--------------------------- -----------
1996............................... $ 7,334,000 $ 9,212,000 $13,954,000
1997............................... -- -- 23,819,000
1998............................... -- -- 32,248,000
Aggregate minimum future lease payments for real property, as well as
equipment and other property at fiscal year end 1998 are as follows:
Operating Leases Capital Leases
---------------- --------------
Fiscal Year:
1999..................................... $ 32,518,000 $ 1,442,000
2000..................................... 31,141,000 1,400,000
2001..................................... 99,695,000 1,445,000
2002..................................... 21,221,000 1,468,000
2003..................................... 20,263,000 1,444,000
Subsequent to 2003....................... 159,529,000 5,694,000
------------ -----------
Future minimum lease payments.............. $364,367,000 12,893,000
============
Less amount representing interest........................... 4,723,000
-----------
Present value of future lease payments...................... $ 8,170,000
===========
Capital lease obligations vary in amount with interest rates ranging from
7.50% to 12.00%. Interest paid relating to capital leases aggregated $882,000
and $763,000 for fiscal years ended 1998 and 1997, respectively.
14
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Retirement Plans
Defined benefit plans
Smart & Final has a noncontributory pension plan covering substantially all
full time employees, except for those employees of AFD. The Company funds this
plan with annual contributions as required by the Employee Retirement Income
Security Act of 1974 (ERISA). Plan assets are held by the Trustee, and consist
of a diversified portfolio of fixed-income investments and equity securities,
including U.S. Government instruments, corporate bonds, money market funds and
common stock.
Effective January 1, 1998 the Company adopted a noncontributory supplemental
executive retirement plan ("SERP") which provides supplemental income payments
for certain Company officers in retirement. The Company has invested in
corporate owned life insurance policies to provide these benefits.
The following tables set forth the changes in benefit obligation and plan
assets of these plans for 1998 and 1997:
1998 1997
----------- -----------
Change in Benefit Obligation
Benefit obligation at beginning of year........ $37,079,000 $30,794,000
Obligation under new plan...................... -- 2,062,000
Service cost................................... 1,829,000 1,285,000
Interest cost.................................. 2,759,000 2,362,000
Actuarial loss................................. 3,132,000 1,600,000
Benefits paid.................................. (1,970,000) (1,024,000)
----------- -----------
Benefit obligation at end of year.............. 42,829,000 37,079,000
----------- -----------
Change in Plan Assets
Fair value of plan assets at beginning of
year.......................................... 29,299,000 23,989,000
Actual return on plan assets................... 5,160,000 4,656,000
Employer contribution.......................... 2,684,000 1,678,000
Benefits paid.................................. (1,970,000) (1,024,000)
----------- -----------
Fair value of plan assets at end of year....... 35,173,000 29,299,000
----------- -----------
Funded Status.................................. (7,656,000) (7,780,000)
Unrecognized prior service cost................ 3,509,000 3,844,000
Unrecognized net transition obligation......... 489,000 588,000
Unrecognized actuarial loss.................... 1,874,000 1,215,000
----------- -----------
Accrued benefit cost......................... $(1,784,000) $(2,133,000)
=========== ===========
The weighted average assumptions used in accounting for these plans at year
end 1998 and 1997 were as follows:
1998 1997
---- ----
Discount rate.................................................. 6.75% 7.25%
Rate of increase in compensation levels........................ 4.00% 4.00%
Expected long-term rate of return on plan assets............... 9.00% 9.00%
15
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The net periodic benefit cost for fiscal years 1998, 1997, and 1996 includes
the following components:
1998 1997 1996
----------- ----------- -----------
Service cost component.............. $ 1,829,000 $ 1,285,000 $ 1,196,000
Interest cost component............. 2,759,000 2,362,000 2,169,000
Expected return on plan assets...... (2,685,000) (2,163,000) (1,913,000)
Amortization of prior service cost.. 335,000 214,000 214,000
Amortization of transition
obligation......................... 98,000 98,000 98,000
----------- ----------- -----------
Net expense....................... $ 2,336,000 $ 1,796,000 $ 1,764,000
=========== =========== ===========
The Company contributes to a multi-employer pension plan administered by a
trustee on behalf of its 100 union employees. Contributions to this plan are
based upon negotiated labor contracts. Information relating to benefit
obligations and fund assets as they may be allocable to the Company at January
3, 1999 is not available. Pension expense for this plan was $330,000 for 1998.
Defined contribution plans
Smart & Final offers all full time employees participation in defined
contribution plans ("the 401(k) Savings Plans") which are qualified under the
requirements of Section 401(k) of the Internal Revenue Code of 1986, as
amended. The 401(k) Savings Plans allow participants to contribute for fiscal
year 1998 up to 15% of their compensation or $10,000, whichever is lower.
Smart & Final will automatically match 25% of each dollar contributed up to 6%
of the participant's compensation. Additionally, Smart & Final may at its
discretion match up to an additional 75% of each dollar contributed up to 6%
of the participants' compensation if Smart & Final exceeds certain financial
and profitability goals. Smart & Final provided an additional 25%
discretionary match in fiscal year 1996 and provided no additional match in
1997 or 1998. Smart & Final has provided $708,000, $713,000, and $1,231,000
for contributions to the 401(k) Savings Plans for fiscal years 1998, 1997, and
1996, respectively.
The Company also maintains similar plans for its Smart & Final Foodservice
and Henry Lee subsidiaries, and for its Cash & Carry division.
Deferred compensation plan
Effective January 1, 1995, the Company adopted a nonqualified deferred
compensation program which permits key employees and directors to annually
elect individually to defer up to 100% of their current year compensation
until retirement. The retirement benefit to be provided is a function of the
amount of compensation deferred. The Company has invested in corporate owned
life insurance policies with death benefits aggregating to $21,015,000, and
$14,483,000 as of fiscal year end 1998 and 1997, respectively. The cash
surrender value of these policies amount to $3,160,000 and $1,778,000 as of
fiscal year end 1998 and 1997, respectively. The Company anticipates that this
plan will have no material financial impact to the consolidated financial
statements.
7. Postretirement and Postemployment Benefit Obligations
Smart & Final provides certain health care benefits for retired employees.
Substantially all of Smart & Final's full time employees may become eligible
for those benefits if they reach retirement age while still working for the
Company. Benefits are limited to the lesser of actual cost for the medical
coverage selected or a defined dollar benefit based on years of service. In
addition, on a postemployment basis, the Company provides certain disability-
related benefits to its employees.
16
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
All plans are defined benefit plans and the reconciliation of benefit
obligation and plan assets for 1998 and 1997 are aggregated as follows:
1998 1997
------------ ------------
Change in Benefit Obligation
Benefit obligation at beginning of year....... $ 10,365,000 $ 9,758,000
Service cost.................................. 236,000 234,000
Interest cost................................. 705,000 685,000
Actuarial loss................................ 286,000 208,000
Benefits paid................................. (550,000) (520,000)
------------ ------------
Benefit obligation at end of year........... 11,042,000 10,365,000
------------ ------------
Funded Status................................. (11,042,000) (10,365,000)
Unrecognized actuarial loss................... (4,142,000) (4,972,000)
------------ ------------
Accrued benefit cost........................ $(15,184,000) $(15,337,000)
============ ============
The weighted average discount rate used in accounting for these plans at
year end 1998 and 1997 was 6.75% and 7.25%, respectively.
The accumulated postretirement benefit obligation is reflected on the fiscal
year end 1998 balance sheet as a current liability of $1.0 million and a long
term portion of $14.2 million. For measurement purposes, a 10.5% and 11.0%
annual rate of increase in the per capita cost of covered claims was assumed
for 1998 and 1997, respectively; the rate is assumed to decrease by 0.5% per
year for nine years until an ultimate rate of 6% is reached and remains at
that level thereafter.
The expense for postretirement benefits for fiscal years 1998, 1997 and 1996
includes the following components:
1998 1997 1996
--------- --------- ---------
Service cost component.................... $ 236,000 $ 234,000 $ 222,000
Interest cost component................... 705,000 685,000 689,000
Amortization of loss...................... (266,000) (282,000) (270,000)
--------- --------- ---------
Net postretirement benefit expense...... $ 675,000 $ 637,000 $ 641,000
========= ========= =========
The Company offers a defined dollar benefit plan providing a maximum fixed
dollar amount of coverage which does not increase with medical inflation. A
one-percentage-point change in assumed health care cost trend rates would have
the following effects:
1-Percentage- 1-Percentage-
Point Increase Point Decrease
-------------- --------------
Effect on total of service and interest
cost components of net periodic expense.. $ 34,000 $ (37,000)
Effect on accumulated postretirement
benefit obligation....................... 405,000 (430,000)
17
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Income Taxes
A reconciliation between the federal statutory income tax rate and the
Company's effective tax rate consists of the following:
1998 1997 1996
----------- ---------- -----------
Income tax at federal statutory
rate.............................. $(4,132,000) $2,735,000 $13,725,000
State income taxes, net of federal
tax benefit....................... (709,000) 448,000 2,373,000
Revitalization zone credit......... -- (884,000) (960,000)
Other.............................. 444,000 (359,000) (280,000)
----------- ---------- -----------
Income taxes....................... $(4,397,000) $1,940,000 $14,858,000
=========== ========== ===========
The Company's provision for income taxes consists of the following:
1998 1997 1996
----------- ---------- -----------
Current
Federal............................. $(1,535,000) $3,520,000 $11,632,000
State............................... (369,000) (780,000) 1,906,000
----------- ---------- -----------
(1,904,000) 2,740,000 13,538,000
Deferred
Federal............................. (2,493,000) (800,000) 1,320,000
----------- ---------- -----------
Income taxes........................ $(4,397,000) $1,940,000 $14,858,000
=========== ========== ===========
A deferred tax liability or asset is recognized for the tax consequences of
temporary differences in the timing of the recognition of revenues and
expenses for financial and tax reporting purposes. The components of the net
deferred income tax asset consist of the following:
1998 1997
------------ -----------
Property, plant and equipment depreciation
differences.................................... $ (5,716,000) $(5,989,000)
Employee benefits including postretirement and
postemployment reserves........................ 10,360,000 9,871,000
Operating reserves and accruals................. 10,597,000 8,807,000
Other........................................... -- 59,000
------------ -----------
Net deferred tax asset........................ $ 15,241,000 $12,748,000
============ ===========
The deferred tax asset is reflected on the fiscal year end 1998 balance
sheet as a current asset of $11.5 million and a long-term portion of $3.7
million.
A tax benefit of $183,000 and $1,776,000 associated with the Company's stock
option plan has been credited to additional paid-in capital in 1998 and 1997,
respectively.
The Company and Casino USA are parties to a tax sharing arrangement covering
income tax obligations in the state of California. Under this arrangement, the
Company has made tax sharing payments to, or received benefits from, Casino
USA, based upon pre-tax income for financial reporting purposes adjusted for
certain agreed upon items. Tax sharing benefits received by the Company from
Casino USA were $705,000 in 1998 and tax sharing and termination payments made
by the Company to Casino USA were $2,353,000 and $2,560,000 in 1997 and 1996,
respectively. Federal income taxes paid during 1998, 1997, and 1996 were
$250,000, $11,575,000, and $11,155,000, respectively.
18
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Related Party Transactions
Intercompany services
The Company performs various services for Casino USA and Casino Realty.
These services include various administrative functions including accounting,
human resources, and systems development work, the cost of which has been
charged to the benefited affiliated company. These charges amounted to
$285,000, $300,000, and $402,000 for the fiscal years 1998, 1997, and 1996,
respectively. It is anticipated that the Company will continue to provide
these administrative services to its affiliates at its estimated cost.
Charges among affiliates result from an undertaking to provide the
respective service in the most cost-effective manner, taking advantage of each
entity's internal administrative structure. Management believes that the
allocation method is reasonable. Intercompany charges for each period are
settled in the following period.
Intercompany interest charges
Intercompany interest charges from affiliates were $1,064,000, $563,000 and
$161,000 during 1998, 1997, and 1996, respectively. These charges relate to
intercompany advances from affiliates. In November 1998, the Casino Loan
replaced the outstanding advances with affiliates of $23,734,000. The
outstanding advances as of fiscal year end 1997 and 1996 were $21,001,000 and
$5,960,000, respectively.
Other related party transactions
During 1997, the Company's former President and Chief Executive Officer
borrowed $29,965 from the Company by a note dated October 22, 1997. The note is
secured by his deferred compensation account. The note bears interest at 8 1/2%
per year and the entire balance and accrued interest on the note is due on
October 21, 2002.
10. Employment/Consulting Agreements
On December 1, 1998, the Company announced the retirement in January, 1999
of its Chairman and Chief Executive Officer and the appointment of his
replacement. Throughout 1998 and until his retirement, the Chairman and CEO
was compensated pursuant to an employment agreement which terminates upon his
retirement. The Company also has a consulting arrangement with its now former
Chairman which provides for his services for a 10 year period expiring in
2004. Two other employment agreements were also in effect during 1998 with
principal executive officers. These agreements contain provisions for base
salary and bonuses, and expire during fiscal year 2000. Annual payments under
these agreements were approximately $1,641,000 in 1998 and will total
approximately $1,213,000 in fiscal 1999.
Since 1994, the Company has had a consulting agreement with an affiliate of
the former minority shareholder of Henry Lee which expired during fiscal year
1998. In early 1998 the Company entered into a Consulting Agreement with
Edward I. Sternlieb, former President of Henry Lee, which expires at the end
of 1999. Annual payments under these agreements were approximately $100,000 in
1998 and will total approximately $50,000 in fiscal 1999.
In early 1998, the Company entered into a Separation Agreement effective May
1, 1998 with its former President and Chief Executive Officer, Roger M.
Laverty, III. The Separation Agreement provides for cash payments and
continuation of certain Company benefits including health insurance and stock
options for a period of 36 months. Annual cash payments under the Separation
Agreement were approximately $489,000 in fiscal 1998 and will total
approximately $733,000 in fiscal 1999.
19
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. Common Stock
Pursuant to an agreement dated March 7, 1989, ("Agreement"), the Company's
former Chairman is obligated to purchase 100,000 common shares by 1999. The
purchase price was equal to the Company's book value per share, as of the end
of the fiscal year immediately preceding the fiscal year of purchase. This
agreement has been accounted for as a variable plan. Compensation expense is
computed based on the changes in the market value of the Company's common
stock during the fiscal year over the changes in the stock purchase price.
Compensation expense associated with this agreement aggregated $36,000 for
fiscal year 1996. At December 29, 1996 the agreement was amended to establish
a fixed purchase price of $8.90 per share.
During 1997, the Company adopted a Long-Term Equity Compensation Plan, under
which 1,270,000 shares of common stock are available for award as stock
options, stock appreciation rights, restricted stock awards, performance units
or performance shares. During fiscal year 1998 and 1997, the Company issued
4,600 shares and 86,100 shares, respectively of restricted stock under this
plan. Compensation expense is computed based on the market price on the grant
date. Compensation expense associated with the restricted stock was $167,000
and $208,000 in fiscal years 1998 and 1997, respectively.
On December 7, 1998, the Company announced an offering to shareholders of
rights to purchase additional shares of the Company's common stock. The size
of the offering is planned to be $60 million. Net proceeds of the offering
will be used to reduce outstanding debt of the Company. Consideration for
shares acquired by Casino USA under the offering will be the exchange of all
or a portion of the $55.4 million Casino Loan.
12. Stock Options
In addition to options available under the Long-Term Equity Compensation
Plan, the Company has a Stock Incentive Plan. During 1997, the Stock Incentive
Plan was amended to increase the maximum amount of shares for which options
may be granted to 2,450,000 shares from 2,250,000 shares of the Company's
common stock. Option prices under both plans may be established by the
compensation committee of the Board of Directors at no less than 85% of the
fair market value of the common stock at the time the option is granted.
Options for officers and directors granted at the time of the Company's
initial public offering were granted at 85% of fair market value. Options for
directors elected subsequent to the Company's initial public offering and
options granted to officers and management have been granted at fair market
value at the time of grant. Options currently granted under these plans will
vest over a 4-year period and may be exercised for up to 10 years from the
date of grant.
A summary of changes in the shares under option follows:
Weighted
Shares Average Price
--------- -------------
Shares under option at fiscal year end 1995...... 2,015,250 $13.56
--------- ------
Fiscal year 1996:
Options granted.................................. 126,400 $22.07
Options exercised................................ (84,728) 12.50
Options canceled................................. (59,695) 11.92
--------- ------
Shares under option at fiscal year end 1996...... 1,997,227 14.19
--------- ------
Shares exercisable at fiscal year end 1996....... 945,629 12.34
20
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Weighted
Shares Average Price
--------- -------------
Fiscal year 1997:
Options granted................................... 499,057 $21.33
Options exercised................................. (405,131) 12.68
Options canceled.................................. (54,309) 16.79
--------- ------
Shares under option at fiscal year end 1997....... 2,036,844 16.17
--------- ------
Shares exercisable at fiscal year end 1997........ 964,616 13.33
Fiscal year 1998:
Options granted................................... 809,750 $15.69
Options exercised................................. (92,967) 13.60
Options canceled.................................. (280,200) 18.06
--------- ------
Shares under option at fiscal year end 1998....... 2,473,427 15.90
--------- ------
Shares exercisable at fiscal year end 1998........ 1,292,017 14.07
Stock options outstanding at January 3, 1999 are as follows:
Number
Outstanding Weighted Average
as of Remaining Weighted Average
Range of Exercise Prices 1/3/99 Contractual Life Exercise Price
------------------------ ----------- ---------------- ----------------
$10.1880-$10.4380.......... 205,000 9.71 $10.2111
$10.7700................... 351,750 2.45 10.7700
$13.0000-$13.8750.......... 24,997 5.11 13.1050
$14.0000................... 503,262 5.12 14.0000
$14.5000-$16.7500.......... 249,766 5.95 15.7446
$17.5000................... 46,267 6.71 17.5000
$17.6250................... 451,400 9.12 17.6250
$17.8750-$20.7500.......... 266,500 7.93 18.6160
$21.1250-$23.0000.......... 349,301 8.33 22.3676
$23.6250................... 25,184 7.69 23.6250
--------- ---- --------
$10.1880-$23.6250.......... 2,473,427 6.75 $15.8978
Stock options exercisable as of January 3, 1999 are as follows:
Weighted
Number Average
Range of Exercise Prices Exercisable Exercise Price
------------------------ ----------- --------------
$10.1880-$10.4380............................. -- --
$10.7700...................................... 351,750 $10.7700
$13.0000-$13.8750............................. 24,997 13.1050
$14.0000...................................... 503,262 14.0000
$14.5000-$16.7500............................. 199,575 15.6032
$17.5000...................................... 30,406 17.5000
$17.6250...................................... 100,000 17.6250
$17.8750-$20.7500............................. 64,781 18.6730
$21.1250-$23.0000............................. 8,624 22.1904
$23.6250...................................... 8,622 23.6250
--------- --------
$10.1880-$23.6250............................. 1,292,017 $14.0671
21
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Common stock shares available for future grant under the Stock Incentive
Plan at fiscal year end 1998, 1997 and 1996 were 118,398, 86,904 and 27,295,
respectively. Shares of common stock available for future award under the
Long-Term Equity Compensation Plan at fiscal year end 1998 and 1997 were
308,700 and 879,543, respectively.
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions:
1998 1997 1996
---------- ---------- ----------
Dividend yield....................... 1.1% 1.0% 1.0%
Expected volatility.................. 32% 24% 22%
Risk-free interest rates............. 4.7% 5.7% 6.6%
Weighted average expected lives
Executives......................... 4.96 years 5.06 years 3.75 years
Non executives..................... 4.55 years 4.53 years 4.16 years
Weighted-average fair value of
options granted..................... $ 4.79 $ 6.04 $ 5.89
The Company accounts for options under these plans under Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees."
Compensation expense related to options issued has been fully amortized at
fiscal year end 1995. Had compensation costs for these plans been determined
under SFAS No. 123, "Accounting For Stock-Based Compensation," proforma net
income (loss) and earnings (loss) per share would have been $(9,905,000) and
$(0.44), respectively for fiscal year 1998; $6,016,000 and $0.26, respectively
for fiscal year 1997; and $24,017,000 and $1.13, respectively for fiscal year
1996. The impact of applying SFAS No. 123 in this proforma disclosure is not
necessarily indicative of the effect on income in the future. SFAS No. 123
does not apply to awards granted prior to 1995. The Company anticipates making
additional stock-based compensation awards in the future.
13. Earnings per Common Share
Earnings per common share is computed on the basis of the weighted average
number of shares of common stock outstanding each year. Common stock
equivalents relate to the employee stock options and a stock purchase
agreement.
Earnings per common share computation:
1998 1997 1996
----------- ---------- -----------
Numerator:
Net Income (Loss).................. $(8,659,000) $6,636,000 $24,334,000
=========== ========== ===========
Denominator:
Weighted average common shares
outstanding....................... 22,474,048 22,158,673 20,309,555
=========== ========== ===========
Earnings (loss) per common share..... $ (0.39) $ 0.30 $ 1.20
=========== ========== ===========
22
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Earning per common share, assuming dilution computation:
1998 1997 1996
----------- ---------- -----------
Numerator:
Net Income (Loss).................... $(8,659,000) $6,636,000 $24,334,000
=========== ========== ===========
Denominator:
Weighted average common shares
outstanding......................... 22,474,048 22,158,673 20,309,555
Dilutive effect of stock options
outstanding......................... 121,657 594,660 896,571
----------- ---------- -----------
Weighted average common shares,
assuming dilution................... 22,595,705 22,753,333 21,206,126
=========== ========== ===========
Earnings (loss) per common share,
assuming dilution..................... $ (0.38) $ 0.29 $ 1.15
=========== ========== ===========
14. 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
of primarily 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 accounting policies of the segments are the same as those described in
the summary of significant accounting policies. 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:
Corporate
Stores Foodservice Expense Total
---------- ----------- --------- ----------
For fiscal year 1998:
Revenues from external
customers...................... $1,205,618 $456,011 $ -- $1,661,629
Intercompany real estate charge
(income)....................... 13,801 -- (13,801) --
Interest income................. -- -- 448 448
Interest expense................ -- -- 13,752 13,752
Depreciation and amortization... 20,353 6,044 2,956 29,353
Equity in net income of
unconsolidated subsidiaries.... -- -- 187 187
Pre-tax income (loss)........... 23,148 (18,057) (17,244) (12,153)
Income taxes (benefit).......... -- -- (4,397) (4,397)
Accounting change............... -- -- 1,090 1,090
For fiscal year 1997:
Revenues from external
customers...................... 1,048,966 404,054 -- 1,453,020
Intercompany real estate charge
(income)....................... 13,976 -- (13,976) --
Interest income................. -- -- 715 715
Interest expense................ -- -- 8,832 8,832
Depreciation and amortization... 17,911 4,442 3,408 25,761
Equity in net income of
unconsolidated subsidiaries.... -- -- 200 200
Pre-tax income (loss)........... 21,880 (8,596) (5,471) 7,813
Income taxes.................... -- -- 1,940 1,940
23
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Corporate
Stores Foodservice Expense Total
-------- ----------- --------- ----------
For fiscal year 1996
Revenues from external customers... $992,470 $310,091 $ -- $1,302,561
Interest income.................... -- -- 501 501
Interest expense................... -- -- 3,874 3,874
Depreciation and amortization...... 16,373 3,300 209 19,882
Equity in net income of
unconsolidated subsidiaries....... -- -- 221 221
Pre-tax income (loss).............. 39,979 6,764 (7,528) 39,215
Income taxes....................... -- -- 14,858 14,858
The only foreign operation is the joint venture in Mexico which is reported
on the equity basis of accounting.
15. Advertising Expense
The Company expenses the costs of advertising as incurred. Total advertising
expense was $15.4 million, $14.2 million and $13.6 million in 1998, 1997 and
1996, respectively.
16. Legal Actions
The Company has been named as defendant in various legal actions 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 a
material effect on the Company's financial position or results of operations.
17. Special Charge
During the fourth quarter of 1997, the Company decided to close two Florida
stores, replace certain distribution software systems, and reorganize the
Company. An $8.9 million provision was recorded to write down related store
assets and computer software to estimated realizable values and to accrue for
related lease and severance obligations. As of January 3, 1999, this reserve
had a balance of $3.6 million.
24
SMART & FINAL INC.
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS
(in thousands, except per share amounts)
Fiscal year 1998(A)
------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
12 Weeks 12 Weeks 16 Weeks 12 Weeks(C) 52 Weeks
----------- ----------- ----------- ----------- ----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Income Statement Data:
Sales.................... $ 334,278 $ 380,577 $ 546,434 $ 400,340 $1,661,629
Cost of sales, buying and
occupancy............... 294,538 332,697 473,566 355,140 1,455,941
---------- ---------- ---------- ---------- ----------
Gross margin............. 39,740 47,880 72,868 45,200 205,688
Operating and
administrative
expenses................ 39,418 43,458 59,619 62,042 204,537
---------- ---------- ---------- ---------- ----------
Income (loss) from
operations.............. 322 4,422 13,249 (16,842) 1,151
Interest expense, net.... 2,128 2,438 4,044 4,694 13,304
---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes and
cumulative effect of
accounting change....... (1,806) 1,984 9,205 (21,536) (12,153)
Income taxes............. (780) 753 3,573 (7,943) (4,397)
---------- ---------- ---------- ---------- ----------
Income (loss) from
consolidated
subsidiaries............ (1,026) 1,231 5,632 (13,593) (7,756)
Equity earnings in
unconsolidated
subsidiary.............. 130 57 3 (3) 187
---------- ---------- ---------- ---------- ----------
Income (loss) before
cumulative effect of
accounting change....... (896) 1,288 5,635 (13,596) (7,569)
Cumulative effect of
accounting change
(start-up costs, net of
tax effect of $758)..... 1,090 -- -- -- 1,090
---------- ---------- ---------- ---------- ----------
Net Income (loss)........ $ (1,986) $ 1,288 $ 5,635 $ (13,596) $ (8,659)
========== ========== ========== ========== ==========
Earnings (loss) per
common share:
Earnings (loss) per
common share before
cumulative effect of
accounting change..... $ (0.04) $ 0.06 $ 0.25 $ (0.60) $ (0.34)
Cumulative effect of
accounting change per
common share.......... (0.05) -- -- -- (0.05)
---------- ---------- ---------- ---------- ----------
Earnings (loss) per
common share............ $ (0.09) $ 0.06 $ 0.25 $ (0.60) $ (0.39)
========== ========== ========== ========== ==========
Weighted average common
shares.................. 22,395,653 22,446,511 22,513,649 22,527,179 22,474,048
========== ========== ========== ========== ==========
Earnings (loss) per
common share, assuming
dilution:
Earnings (loss) per
common share, assuming
dilution, before
cumulative effect of
accounting change..... $ (0.04) $ 0.06 $ 0.25 $ (0.60) $ (0.33)
Cumulative effect of
accounting change per
common share.......... (0.05) -- -- -- (0.05)
---------- ---------- ---------- ---------- ----------
Earnings (loss) per
common share, assuming
dilution................ $ (0.09) $ 0.06 $ 0.25 $ (0.60) $ (0.38)
========== ========== ========== ========== ==========
Weighted average common
shares and common
share equivalents(B).... 22,395,653 22,865,913 22,594,482 22,527,179 22,595,705
========== ========== ========== ========== ==========
- --------
(A) 1998 fiscal year consists of twelve week periods in the first, second and
fourth quarters, and one sixteen week period in the third quarter.
(B) The weighted average shares includes the common stock equivalents related
to employee stock options and a stock purchase agreement.
(C) Includes year end adjustments. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
25
SMART & FINAL INC.
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS--(Continued)
(in thousands, except per share amounts)
Fiscal year 1997(A)
-----------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
12 Weeks 12 Weeks 16 Weeks 13 Weeks(C) 53 Weeks
----------- ---------- ---------- ----------- ----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Income Statement Data:
Sales................... $ 306,984 $ 334,948 $ 442,522 $ 368,566 $1,453,020
Cost of sales, buying
and occupancy.......... 262,397 285,250 381,236 329,474 1,258,357
---------- ---------- ---------- ---------- ----------
Gross margin............ 44,587 49,698 61,286 39,092 194,663
Operating and
administrative
expenses............... 34,827 37,177 47,746 50,099 169,849
Special charges......... -- -- -- 8,884 8,884
---------- ---------- ---------- ---------- ----------
Income (loss) from
operations........... 9,760 12,521 13,540 (19,891) 15,930
Interest expense,
net.................. 1,537 1,727 2,613 2,240 8,117
---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes and
minority share of net
income (loss).......... 8,223 10,794 10,927 (22,131) 7,813
Income taxes............ 3,235 4,043 4,227 (9,565) 1,940
Minority share of net
income (loss).......... 106 10 (140) (539) (563)
---------- ---------- ---------- ---------- ----------
Income (loss) from
consolidated
subsidiaries........... 4,882 6,741 6,840 (12,027) 6,436
Equity earnings in
unconsolidated
subsidiary............. 100 100 -- -- 200
---------- ---------- ---------- ---------- ----------
Net income (loss)....... $ 4,982 $ 6,841 $ 6,840 $ (12,027) $ 6,636
========== ========== ========== ========== ==========
Earnings (loss) per
common share........... $ 0.22 $ 0.31 $ 0.31 $ (0.54) 0.30
========== ========== ========== ========== ==========
Weighted average common
shares................. 21,995,285 22,054,168 22,196,781 22,359,055 22,158,673
========== ========== ========== ========== ==========
Earnings (loss) per
common share, assuming
dilution............... $ 0.22 $ 0.30 $ 0.30 $ (0.54) $ 0.29
========== ========== ========== ========== ==========
Weighted average common
shares and common share
equivalents(B)......... 22,822,384 22,763,837 23,014,109 22,359,055 22,753,333
========== ========== ========== ========== ==========
- --------
(A) 1997 fiscal year consists of twelve week periods in the first and second
quarters, sixteen week period in the third quarter and thirteen week
period in the fourth quarter.
(B) The weighted average shares includes the common stock equivalents related
to employee stock options and a stock purchase agreement.
(C) Includes year end adjustments of $6.0 million related to reserves for
doubtful accounts and inventories review.
26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements:
Page
----
Report of Independent Public Accountants................................... 3
Consolidated Balance Sheets................................................ 4
Consolidated Statements of Operations...................................... 5
Consolidated Statements of Stockholders' Equity............................ 6
Consolidated Statements of Cash Flows...................................... 7
Notes to Consolidated Financial Statements................................. 8
Supplementary Data--Summary of Quarterly Results of Operations............. 25
(a)(2) Financial Statement Schedules:
Report of Independent Public Accountants....................................
II--Valuation and Qualifying Accounts.......................................
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements and notes thereto.
(a)(3) Exhibits
Exhibit
Number Description of Exhibit
------- ----------------------
3.1 Certificate of Incorporation of the Company, including all amendments
thereto(6)
3.2 Bylaws of the Company, including all amendments thereto(6)
10.1 [Intentionally Blank]
10.2 Loan Agreement, dated January 24, 1995, between First Interstate Bank
of California and the Company, as renewed(12)
10.3 Amended and Restated Employment Agreement, dated June 1, 1991, between
Mr. Emmons and the Company(1), as amended*(21)
10.4 [Intentionally Blank]
10.5 Agreement Terminating Partnership Equivalency Program for Robert
Emmons, dated June 1, 1991, by and among Mr. Emmons, Casino USA and
Casino France(1)
10.6 Stock Purchase Agreement, dated March 7, 1989, by and among Mr.
Emmons, Casino USA, Casino France and the Company(1), as amended
(16)(21)*
10.7 Stock Purchase Agreement, dated as of November 5, 1990, by and among
American Foodservice Distributors, Casino USA and Mr. Del Prete, et
al.(1)
10.8 [Intentionally Blank]
10.9 Lease, dated June 3, 1991, by and between Casino Realty and S&F
Stores(1)
10.10 Form of Master Lease with Casino Realty as lessor(1)
10.11 Form of Master Sublease with either Casino USA or Casino Realty as
sublessor(1)
10.12 Form of Lease between lessor and Port Stockton(1)
10.13 Lease by and between ADP Properties and Port Stockton, dated May 14,
1990(1)
27
Exhibit
Number Description of Exhibit
------- ----------------------
10.14 Amendment to Leases, dated November 5, 1990, by and between Mr. Del
Prete, Miner Avenue and Nancy L. Del Prete, and Port Stockton(1)
10.15 Description of Certain Management Compensatory Plans and Arrangements*
10.16 Amended and Restated Stock Incentive Plan of the Company*(21)
10.17 Smart & Final Pension Plan, as amended(12)*
10.18 Adoption Agreement #004, Nonstandardized Profit Sharing Plan for Port
Stockton, dated August 28, 1990(1)
10.19 Guaranty of Casino USA, dated as of June 7, 1991(1)
10.20 Smart & Final Amended and Restated 401(k) Savings Plan(12)*
10.21 Registration Rights Agreement, dated August 6, 1991, by and among the
Company, Casino USA and Mr. Emmons(3), as amended(16)*
10.22 Tax Termination Agreement, dated as of August 6, 1991, by and between
the Company and Casino USA, as amended (including as an exhibit
thereto the Tax Sharing Agreement, dated as of November 5, 1984, by
and between the Company and Casino USA, as amended)(6)
10.23 Adoption Agreement #008, Nonstandardized Code (S)401(k) Profit Sharing
Plan for Port Stockton, dated August 4, 1992(12)
10.24 Intercompany Agreement, dated August 6, 1991, by and between Casino
USA, Casino Realty, Inc. and the Company(3)
10.25 Truck Lease and Service Agreement, dated December 13, 1991, between
Smart & Final and Ryder Truck Rental, Inc.(2)
10.26 Agreement to Sell and Purchase Real Property and Escrow Instructions
By and Between Mr. Del Prete, individually and doing business as "ADP
Properties," and Mrs. Del Prete and Port Stockton Food Distributors,
Inc., dated August 25, 1992(4)
10.27 Agreement to Sell and Purchase Real Property and Escrow Instructions
By and Between Mr. Del Prete and Port Stockton Food Distributors,
Inc. dated August 25, 1992(4)
10.28 Employment Agreement between the Company and Mr. Laverty(16)*
10.29 Employment Agreement between the Company and Mr. Lynch(17)*
10.30 Severance Agreement between the Company and Mr. Alvarado(5)*
10.31 Severance Agreement between the Company and Mr. Chiavelli(5)*
10.32 [Intentionally Blank]
10.33 [Intentionally Blank]
10.34 Severance Agreement between the Company and Mr. Goneau(5)*
10.35 Severance Agreement between the Company and Mr. Griffin(5)*
10.36 Stock Purchase Agreement dated November 8, 1994, among the Company,
Sternlieb Family Investments, Ltd., and Edward I. Sternlieb, Henry
Sternlieb and Rose Sternlieb(8)
10.37 Severance Agreement between the Company and Mr. Magruder(5)*
10.38 Severance Agreement between the Company and Mr. Martin(5)*
10.39 Severance Agreement between the Company and Ms. Mullins(5)*
10.40 Severance Agreement between the Company and Mr. Shah(5)*
10.41 Severance Agreement between the Company and Mr. Taylor(5)*
10.42 Deferred Compensation Agreement between the Company and Mr.
Laverty(6)*
28
Exhibit
Number Description of Exhibit
------- ----------------------
10.43 Deferred Compensation Agreement between the Company and Mr. Lynch(6)*
10.44 Non-Negotiable Promissory Note dated November 8, 1994, of the Company
for the benefit of Sternlieb Family Investments, Ltd.(8)
10.45 Stockholders' Agreement dated as of November 8, 1994, among the
Company, Sternlieb Family Investments, Ltd. and Henry Lee(8)
10.46 Employment Agreement dated as of November 8, 1994, between Henry Lee
and Edward I. Sternlieb(8)*
10.47 Consulting Agreement dated as of November 8, 1994, between Henry Lee
and Sternlieb Consulting, Inc.(8), as amended(21)
10.48 Lease dated as of November 8, 1994, between Henry Sternlieb and Henry
Lee(8)
10.49 Lease dated as of July 2, 1985, as amended by First Amendment of
Lease, between Edward I. Sternlieb and Henry Lee(8)
10.50 Lease dated as of August 1, 1980, and related Agreement dated as of
November 8, 1994, between Henry and Rose Sternlieb and Henry Lee(8)
10.51 Purchase and Sale Agreement dated October 7, 1994, between Nestle Food
Company and Port Stockton(8)
10.52 Revolving Credit and Reimbursement Agreement dated November 21, 1991
between Henry Lee and NCNB National Bank of Florida, as amended(8)
10.53 Henry Lee Company Second Profit Sharing Plan and Trust, as amended(12)
10.54 Henry Lee Company Guaranty of Edward I. Sternlieb, dated October 1,
1993(12)
10.55 Henry Lee Company Guaranty of Henry and Rose Sternlieb, dated August
1, 1980(12)
10.56 Smart & Final Inc. Supplemental Deferred Compensation Plan(9), as
amended(16)*
10.57 Smart & Final Inc. Directors Deferred Compensation Plan(9), as
amended(16)*
10.58 Participation Agreement dated December 15, 1994, among the Company,
Smart & Final, Port Stockton, Shawmut Bank Connecticut, National
Association, Credit Lyonnais Cayman Island Branch and Credit Lyonnais
New York Branch; with the associated Loan Agreement among Shawmut
Bank Connecticut, National Association, Credit Lyonnais Cayman Island
Branch and Credit Lyonnais New York Branch, and Trust Agreement
between Shawmut Bank Connecticut, National Association and Credit
Lyonnais New York Branch(12), as amended(19)
10.59 Agency Agreement dated December 15, 1994, between Shawmut Bank
Connecticut, National Association and the Company(12), as amended(19)
10.60 Lease Agreement dated December 15, 1994, between Shawmut Bank
Connecticut, National Association and the Company(12), as amended(19)
10.61 Agreement between Port Stockton Food Distributors, Inc. and Food
Distribution Employees Association(9)
10.62 Vehicle Lease Service Agreement(9)
10.63 Consulting Agreement dated October 1, 1995 between Yves Guichard and
the Company(10)
10.64 Consulting Agreement dated October 1, 1995 between Gilles Pinoncely
and the Company(10)
10.65 Credit Agreement dated November 20, 1995 between Credit Lyonnais-Los
Angeles Branch and the Company(10)
10.66 Asset Purchase Agreement between Falcone & Italia Foods, Inc.,
Salvatore J. Falcone, Mark Gilden, and Henry Lee Company(13)
29
Exhibit
Number Description of Exhibit
------- ----------------------
10.67 Asset Purchase Agreement between Craig & Hamilton Meat Co., Inc.,
Patrick D. Craig and Port Stockton Food Distributors, Inc.(14)
10.68 Smart & Final Inc. Trust for Deferred Compensation Plans(16)*
10.69 Agreement for Conveyance of Real Property dated as of October 31, 1996
by and among the Company, Casino USA and Casino Realty, Inc. and the
First Amendment thereto dated December 19, 1996(15)
10.70 Letter Agreement dated as of December 10, 1996, among the Company and
Wells Fargo Bank, N.A.(16)
10.71 Participation Agreement dated as of April 16, 1997, among the Company,
Smart & Final Stores Corporation, Port Stockton Food Distributors,
Inc., Fleet National Bank, a national banking association, not in its
individual capacity but solely as the Owner Trustee under the Trust
Agreement, Credit Lyonnais New York Branch, Credit Lyonnais Leasing
Corp. and the Lenders named therein(18), as amended(20)
10.75 First Amendment and Restatement dated as of June 20, 1997, to
Participation Agreement dated December 15, 1994, among the Company,
Smart & Final Stores Corporation, Port Stockton Food Distributors
Inc., Fleet National Bank, a national banking association, not in its
individual capacity but solely as the Owner Trustee under the Trust
Agreement, Credit Lyonnais Los Angeles Branch, Bank Leumi Le-Israel
B.M, The Fuji Bank Limited, Los Angeles Agency, The Industrial Bank
of Japan, Limited, Los Angeles Agency, Via Banque, Credit Lyonnais
New York Branch and Credit Lyonnais Leasing Corp.(19), as amended(20)
10.76 First Amendment and Restatement dated as of June 20, 1997 to Agency
Agreement dated December 15, 1994(19)
10.77 First Amendment and Restatement dated as of June 20, 1997 to Loan
Agreement dated December 15, 1994(19)
10.78 First Amendment and Restatement dated as of June 20, 1997 to Lease
Agreement dated December 15, 1994(19)
10.79 Asset Purchase Agreement dated as of May 30, 1997, among American
Foodservice Distributors and Mallard's Food Products, Inc.(19)
10.80 1997 Executive Severance Agreement(20)*
10.81 Agreement to Sell and Purchase Real Property and Escrow Instructions
dated as of September 1, 1997, among the Company and Fred Kayne, as
amended(20)
10.82 Agreement to Sell and Purchase Real Property and Escrow Instructions
dated as of September 12, 1997, among Smart & Final Stores
Corporation and Certified Grocers of California, Ltd.(20), as
amended(22)(23)
10.83 Letter Agreement dated as of September 18, 1997 among the Company and
Wells Fargo Bank, N.A.(20)
10.84 Asset Purchase Agreement dated as of September 26, 1997 among American
Foodservice Distributors, Orlando Foodservice, Inc., Capricorn Foods
of Central Florida, Inc., Michael Altif and Frederick Coe(20)
10.85 Asset Purchase Agreement dated as of September 26, 1997, among
American Foodservice Distributors and Continental Grain Company(20)
10.86 Supplemental Executive Retirement Plan Master Plan Document(21)*
10.87 Stock Purchase Agreement dated as of January 5, 1998, among American
Foodservice Distributors and Sternlieb Family Investments, Ltd.(21)
30
Exhibit
Number Description of Exhibit
------- ----------------------
10.88 Consulting Agreement dated as of January 5, 1998, among Henry Lee
Company and Edward I. Sternlieb(21)
10.89 Long-Term Equity Compensation Plan of the Company(17)*
10.90 Separation Agreement and Mutual General Release among the Company and
Mr. Laverty(21)*
10.91 Agreement Between Smart & Final Foodservice Distributors and Food
Distributors Employee Association dated as of April 1, 1998(22)
10.92 Credit Agreement (Bridge Loan) dated as of April 30, 1998 by and among
the Company and Credit Lyonnais Los Angeles Branch(23)
10.93 Asset Purchase Agreement dated May 15, 1998 by and among the Company
and
United Grocers, Inc.(23)
10.94 Office Lease dated as of April, 1998 by and among the Commerce Citadel
Development Authority and Smart & Final Stores Corporation(23)
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)(23)
10.96 Trust Agreement dated as of May 13, 1998, by and among Credit Lyonnais
Leasing Corp. and Wilmington Trust Company(23)
10.97 Lease and Agreement dated as of May 20, 1998 by and among Smart &
Final Realty Trust 1998 and Smart & Final Inc.(23)
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(23)
10.99 First Waiver (Credit Agreement) dated as of July 22, 1998 by and among
the Company and Credit Lyonnais Los Angeles Branch, as Agent(24)
10.100 First Waiver (Bridge Loan Credit Agreement) dated as of July 22, 1998
by and among the Company and Credit Lyonnais Los Angeles Branch, as
Agent(24)
10.101 First Waiver (1994 Participation Agreement) dated as of July 22, 1998
by and among the Company, Smart & Final Stores Corporation, Port
Stockton Food Distributors, Inc., State Street Bank and Trust Company
of California, N.A., Credit Lyonnais Leasing Corp., Credit Lyonnais
Los Angeles Branch, as Agent, and various lenders named therein(24)
10.102 First Waiver (1997 Participation Agreement) dated as of July 22, 1998
by and among the Company, Smart & Final Stores Corporation, Port
Stockton Food Distributors, Inc., State Street Bank and Trust Company
of California, N.A., Credit Lyonnais Leasing Corp., and Credit
Lyonnais Los Angeles Branch, as Agent(24)
10.103 First Waiver (1998 Participation Agreement) dated as of July 22, 1998
by and among the Company, Smart & Final Realty Trust 1998-1,
Wilmington Trust Company, Credit Lyonnais Leasing Corp., and Credit
Lyonnais Los Angeles Branch, as Agent(24)
10.104 Employment Agreement dated as of September 1, 1998 by and among Smart
& Final Inc. and Phillip E. Hawkins*(24)
10.105 Second Waiver (Credit Agreement) dated as of October 1, 1998 by and
among the Company and Credit Lyonnais Los Angeles Branch, as
Agent(24)
10.106 Second Waiver (Bridge Loan Credit Agreement) dated as of October 1,
1998 by and among the Company and Credit Lyonnais Los Angeles Branch,
as Agent(24)
31
Exhibit
Number Description of Exhibit
------- ----------------------
10.107 Second Waiver (1994 Participation Agreement) dated as of October 1,
1998 by and among the Company, Smart & Final Stores Corporation, Port
Stockton Food Distributors, Inc., State Street Bank and Trust Company
of California, N.A., Credit Lyonnais Leasing Corp., Credit Lyonnais
Los Angeles Branch, as Agent, and various lenders named therein(24)
10.108 Second Waiver (1997 Participation Agreement) dated as of October 1,
1998 by and among the Company, Smart & Final Stores Corporation, Port
Stockton Food Distributors, Inc., State Street Bank and Trust Company
of California, N.A., Credit Lyonnais Leasing Corp., and Credit
Lyonnais Los Angeles Branch, as Agent(24)
10.109 Second Waiver (1998 Participation Agreement) dated as of October 1,
1998 by and among the Company, Smart & Final Realty Trust 1998-1,
Wilmington Trust Company, Credit Lyonnais Leasing Corp., and Credit
Lyonnais Los Angeles Branch, as Agent(24)
10.110 Loan Agreement dated as of November 13, 1998 by and among the Company
and Casino USA, Inc.(24)
10.111 Promissory Note dated as of November 13, 1998(24)
10.112 Credit Agreement dated as of November 13, 1998 by and among the
Company, the financial institutions and other entities listed as
Lenders, Credit Lyonnais Los Angeles Branch, as Administrative Agent,
and as Co-Lead Arranger, Nationsbanc Montgomery Securities LLC, as
Syndication Agent and Credit Lyonnais New York Branch, as L/C
Bank(24), as amended
10.113 Participation Agreement dated as of November 13, 1998 by and among the
Company as Lessee and Construction Agent, various parties from time
to time as Guarantors, First Security Bank, National Association,
various banks and other lending institutions as Holders and Lenders,
and Credit Lyonnais Los Angeles Branch as Administrative Agent(24)
10.114 Stock Warrant Agreement dated as of February 17, 1998, by and among
the Company and Mr. Emmons, as amended*
10.115 First Amendment to Revolving Credit Agreement and Synthetic Lease
Credit Agreement dated as of December 23, 1998
10.116 First Waiver and Consent to Extension of Time in connection with
Revolving Credit Agreement and Synthetic Lease Credit Agreement dated
as of January 13, 1999
10.117 Waiver to Loan Agreement dated as of February 17, 1999 between the
Company and Casino USA, Inc.
10.118 Second Amendment and Conditional Waiver in connection with Revolving
Credit Agreement and Participation Agreement dated as of March 12,
1999
10.119 Non-Employee Director Stock Plan* (25)
21 Subsidiaries
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule
- --------
(1) Incorporated herein by reference to the corresponding Exhibit number in
the Company's Registration Statement on Form S-1 (Registration No. 33-
41103) which became effective on July 30, 1991.
(2) Incorporated herein by reference to the corresponding Exhibit number in
the Company's Form 8-Amendment No. 1 to its Annual Report for the fiscal
year ended December 29, 1991 on Form 10-K, which was filed on March 30,
1992.
(3) Incorporated herein by reference to the corresponding Exhibit number in
the Company's Annual Report for the fiscal year ended December 29, 1991
on Form 10-K, which was filed on March 24, 1992.
(4) Incorporated herein by reference to the corresponding Exhibit number in
the Company's Annual Report for the fiscal year ended January 3, 1993 on
Form 10-K, which was filed on March 30, 1993.
32
(5) Incorporated herein by reference to the corresponding Exhibit number in
the Company's Quarterly Report for the quarter ended October 10, 1993 on
Form 10-Q, which was filed on November 22, 1993.
(6) Incorporated herein by reference to the corresponding Exhibit number in
the Company's Annual Report for the fiscal year ended January 2, 1994 on
Form 10-K, which was filed on April 4, 1994.
(7) Incorporated herein by reference to the corresponding Exhibit number in
the Company's Quarterly Report for the quarter ended March 27, 1994 on
Form 10-Q, which was filed on May 5, 1994.
(8) Incorporated herein by reference to the corresponding Exhibit number
(except for Exhibit number 10.36 which was filed as Exhibit number 2) in
the Company's Quarterly Report for the quarter ended October 9, 1994 on
Form 10-Q, which was filed on November 23, 1994.
(9) Incorporated herein by reference to the corresponding Exhibit number in
the Company's quarterly report for the quarter ended March 26, 1995 on
Form 10-Q which was filed on May 4, 1995.
(10) Incorporated herein by reference to the corresponding Exhibit number in
the Companys Quarterly Report for the quarter ended October 8, 1995 on
Form 10-Q which was filed on November 22, 1995.
(11) Incorporated by reference to the corresponding Exhibit number in the
Company's Annual Report for the year ended January 1, 1995 on Form 10-K
which was filed on April 3, 1995.
(12) Incorporated by reference to the corresponding Exhibit number in the
Company's Annual Report for the year ended December 31, 1995 on Form 10-K
which was filed on March 29, 1996.
(13) Incorporated herein by reference to the corresponding Exhibit number in
the Company's quarterly report for the quarter ended March 24, 1996 on
Form 10-Q which was filed on May 1, 1996.
(14) Incorporated herein by reference to the corresponding Exhibit number in
the Company's quarterly report for the quarter ended June 16, 1996 on
Form 10-Q which was filed on July 31, 1996.
(15) Incorporated herein by reference to the corresponding Exhibit number in
the Company's Definitive Proxy Statement dated February 19, 1997 in
connection with a Special Meeting of Shareholders of the Company held
March 19, 1997, which was filed on February 19, 1997.
(16) Incorporated by reference to the corresponding Exhibit number in the
Company's Annual Report for the year ended December 29, 1996 on Form 10-K
which was filed on March 25, 1997.
(17) Incorporated herein by reference to the corresponding Exhibit number in
the Company's Definitive Proxy Statement dated May 9, 1997 in connection
with the Annual Meeting of Shareholders of the Company held May 9, 1997,
which was filed on April 8, 1997.
(18) Incorporated herein by reference to the corresponding Exhibit number in
the Company's Quarterly Report for the quarter ended March 23, 1997 on
Form 10-Q, which was filed on May 2, 1997.
(19) Incorporated herein by reference to the corresponding Exhibit number in
the Company's Quarterly Report for the quarter ended June 15, 1997 on
Form 10-Q, which was filed on July 29, 1997.
(20) Incorporated herein by reference to the corresponding Exhibit number in
the Company's Quarterly Report for the quarter ended October 5, 1997 on
Form 10-Q, which was filed on January 4, 1998.
(21) Incorporated by reference to the corresponding Exhibit number in the
Company's Annual Report for the year ended January 4, 1998 on Form 10-K
which was filed on April 13, 1998.
(22) Incorporated herein by reference to the corresponding Exhibit number in
the Company's Quarterly Report for the quarter ended March 29, 1998 on
Form 10-Q, which was filed on May 12, 1998.
(23) Incorporated herein by reference to the corresponding Exhibit number in
the Company's Quarterly Report for the quarter ended June 21, 1998 on
Form 10-Q, which was filed on August 12, 1998.
(24) Incorporated herein by reference to the corresponding Exhibit number in
the Company's Quarterly Report for the quarter ended October 11, 1998 on
Form 10-Q, which was filed on November 25, 1998.
(25) Incorporated herein by reference to Exhibit A to the Company's Definitive
Proxy Statement dated April 9, 1996 in connection with its annual
stockholders meeting which was filed on April 9, 1996.
* Management contracts and compensatory plans, contracts and arrangements of
the Company.
33
(b) Reports on Form 8-K:
1. The Company filed a Current Report on Form 8-K, dated December 3, 1998,
with the Securities and Exchange Commission reporting that the Company had
issued a press release announcing the retirement of its Chairman and Chief
Executive Officer, Robert J. Emmons and the appointment of Ross E. Roeder as
Chairman and Chief Executive Officer.
2. The Company filed a Current Report on Form 8-K, dated December 9, 1998,
with the Securities and Exchange Commission reporting that the Company had
issued a press release announcing that its Board of Directors had authorized
an offering to shareholders of rights to purchase $60 million of additional
shares of the Company's common stock.
3. The Company filed a Current Report on Form 8-K, dated March 4, 1999, with
the Securities and Exchange Commission reporting that the Company had
eliminated certain executive level positions within its principal operating
subsidiary, Smart & Final Stores Corporation.
34
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: April 1, 1999 /s/ MARTIN A. LYNCH
---------------------------------------------
Martin A. Lynch
Executive Vice President,
Principal Financial Officer, and
Principal Accounting Officer of the Company