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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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FORM 10-K
(Mark one)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 29, 1996
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
---- OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
COMMISSION FILE NUMBER 001-10811
SMART & FINAL INC.
(Exact name of registrant specified in its charter)
Delaware 95-4079584
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4700 South Boyle Avenue
Los Angeles, California 90058
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (213) 589-1054
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE
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 No X .
----- -----
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, 1997, 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 $190,717,669.
As of MARCH 17, 1997, THE REGISTRANT HAD OUTSTANDING 22,027,573 SHARES OF COMMON
--------------
STOCK.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of this Company's Definitive Proxy Statement dated February 19, 1997
for its Special Meeting of Shareholders to be held March 19, 1997, as well as
portions of the Company's Definitive Proxy Statement for its Annual Meeting of
Shareholders to be held May 9, 1997 are incorporated by reference into Part III
of this Form 10-K.
1
SMART & FINAL INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 29, 1996
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CAPTION PAGE
- ------- ----
PART I
Item 1 Business........................................................ 3
Item 2 Properties...................................................... 11
Item 3 Legal Proceedings............................................... 13
Item 4 Submission of Matters to a Vote of Security Holders............. 13
PART II
Item 5 Market for the Registrant's Common Equity and
Related Stockholder Matters..................................... 13
Item 6 Selected Financial Data......................................... 14
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 15
Item 8 Financial Statements and Supplementary Data..................... 18
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure........................................ 40
PART III
Item 10 Directors and Executive Officers of the Registrant.............. 40
Item 11 Executive Compensation.......................................... 40
Item 12 Security Ownership of Certain Beneficial Owners and Management.. 40
Item 13 Certain Relationships and Related Transactions.................. 40
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on
Form 8-K........................................................ 40
2
PART I
ITEM 1. BUSINESS
GENERAL
Smart & Final Inc. (the "Company") operated 168 nonmembership warehouse
stores in California, Nevada, Arizona and Florida at fiscal year end 1996
through its principal subsidiary, Smart & Final Stores Corporation, a California
Corporation ("Smart & Final"). Smart & Final operates five stores in Mexico
through a joint venture with the operators of the Calimax store chain. The joint
venture operates as a Mexican domestic corporation under the name Smart & Final
del Noroeste, S.A. de C.V. (" Noroeste ") and is reported on the equity basis of
accounting.
Smart & Final stores offer a consistent selection of approximately
11,000 food items, supplies and equipment, primarily in institutional sizes and
quantities, targeted at small foodservice businesses and other customer groups.
The Company believes that Smart & Final is strategically positioned in a
substantial niche market between membership warehouse clubs and traditional
foodservice operators.
The Company also owns American Foodservice Distributors, a California
Corporation, which is a holding company for traditional, broadline foodservice
distributors. American Foodservice Distributors owns 100% of Port Stockton Food
Distributors, Inc. (" Port Stockton"), a California Corporation, an
institutional full-line food distributor in Northern California, and 90% of the
Henry Lee Company, a Florida Corporation (" Henry Lee "), the largest
independent full-line food distributor in Florida.
The Company is a Delaware corporation and was previously incorporated
in California under the name SFI Corporation. The Company is headquartered in
Los Angeles, and at fiscal year end 1996, had 4,577 employees. In fiscal 1996,
the Company had sales of $1,303 million.
SMART & FINAL STORES
Smart & Final specializes in providing merchandise and customer
services to meet the foodservice and related needs of restaurants, caterers,
clubs, organizations and small and mid-sized businesses. The stores also attract
value-oriented retail customers who, while not directly a target group, prefer
to purchase items in large sizes or quantities. Smart & Final stores carry a
broad selection of items in a hybrid, retail/wholesale format. With an average
size of 14,859 square feet, the stores' smaller footprint enables the Company to
locate a greater number of stores in urban and suburban neighborhoods than
warehouse club operators, which provides a faster, more convenient round trip
shopping experience for the customer.
Smart & Final has experienced significant sales growth despite the
expansion of the warehouse club industry in the Company's geographic markets.
The Company attributes its growth to its commitment to be the primary supplier
for the needs of small and mid-sized independent foodservice customers. Smart &
Final positions itself competitively by offering convenience, aggressive
pricing, a wide assortment including high quality corporate brand items, and a
high level of customer service. The Company's specific focus on foodservice
customers enables Smart & Final to react quickly to changing market requirements
and customer needs. Management believes these strategies, together with its
unique retail/wholesale concept, provides greater overall value than the
competition.
3
Over the past several years, the Company has focused on opening stores
in existing markets and expanding in Northern California. The Company plans to
continue expansion in its mature market areas through new store openings,
relocations and remodels. Since the West Coast markets are becoming well served,
Smart & Final stores has explored new geographic areas. The Company has
identified other non-contiguous markets in which it believes the Smart & Final
concept will succeed.
One of the markets which Smart & Final has identified is Florida. In
1996, the Company opened ten new stores. The Company believes Florida, with its
potential to become a vibrant economy, its significant Hispanic presence, and
its concentration of small independent restaurants and businesses, will
ultimately support dozens of Smart & Final stores.
The Company has also acquired two traditional foodservice distribution
companies in recent years (See American Foodservice Distributors). Product for
stores and foodservice customers are being handled from the same distribution
facility. Ownership of foodservice distributors facilitates store expansion in
new markets because it reduces product costs and distribution expenses inherent
in new markets.
Smart & Final plans to open 50-60 stores during the next three years;
15 are planned to open in 1997. In addition, the Company believes it can
continue to achieve balanced growth in sales and profits by scheduling
relocations and remodels in new and mature markets, maximizing distribution
economies, and keeping new store carrying costs in new markets at a manageable
level.
4
The following table shows certain information regarding Smart & Final
stores for the years indicated:
Fiscal Fiscal Fiscal Fiscal Fiscal
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
USA
Beginning store count 155 144 135 124 116
Stores opened:
New stores 13 11 10 10 9
Relocations 6 4 3 5 5
Stores relocated or closed (6) (4) (4) (4) (6)
------ ------ ------ ------ ------
Ending store count 168 155 144 135 124
====== ====== ====== ====== ======
MEXICO
Beginning store count 3 3 1 -- --
New stores opened 2 - 2 1 --
------ ------ ------ ------ ------
Ending store count 5 3 3 1 --
====== ====== ====== ====== ======
Total Ending Store Count 173 158 147 136 124
====== ====== ====== ====== ======
STATISTICAL DATA:
Average selling square feet per
store at end of period:
USA 14,859 14,431 14,239 13,973 13,704
MEXICO 16,946 16,473 16,473 16,600 -
New store data:
New markets stores (USA) 10 5 6 6 4
Average selling square feet
USA 16,788 14,698 15,820 15,380 15,750
MEXICO 17,656 16,473 16,473 16,600 -
Mexico operations are not consolidated and are reported on the equity
basis. There are two additional stores expected to open in 1997.
Developing new stores, from initiation of construction to store opening,
requires approximately nine months for new locations and four months for
retrofitting of existing buildings. The Company has leased all of its stores
from affiliates through the end of 1996. Equipment and inventory for each new
store averages $450,000, and $400,000 respectively. On average, each retrofitted
store costs approximately $350,000 in leasehold improvements and requires up to
$400,000 of equipment.
To date, new stores opened in existing markets generally have achieved
break-even (on a pre-tax profit basis after allocation of all corporate
expenses) within six to 18 months. Stores opened in new markets, which mature
more slowly, generally have achieved break-even within three years. However,
there can be no assurance that the Company will be able to open new stores in a
timely manner; to hire, train and integrate employees; to continue locating and
obtaining favorable store sites; and to adapt distribution, management
information and other operating systems sufficiently to grow in a successful and
profitable manner.
5
See The "Properties" section of this Form 10-K for a description of the
Casino Transaction.
MERCHANDISING
Customers. Smart & Final focuses on identifying, addressing and satisfying
the needs of small and mid-sized foodservice customers. Target customers include
independent restaurants, sandwich shops, bakeries, caterers and catering trucks,
mini-marts, and bars. Typical store customers are smaller in size, do not
require delivery and have consistent needs for institutional size food and
related supplies. Stores also attract value-oriented retail customers who, while
not directly a target group, prefer to purchase items in large sizes or
quantities. Customers with occasional foodservice needs such as clubs and
organizations find the Smart & Final Stores concept satisfactorily meet these
needs. In addition, large chain restaurants and other major foodservice
operators use Smart & Final as a fill-in or a backup supplier.
Product Assortment and Quality. Each Smart & Final store carries
approximately 11,000 assorted food and related items in bulk sizes and
quantities. The Company offers customers a wide product selection, including
frozen and refrigerated foods (a category that includes delicatessen products
and fresh produce), paper products, janitorial supplies, restaurant equipment,
tobacco, candy, snacks, beverages, and party supplies. Products regularly
undergo a formalized profitability review that identifies items that should be
added or removed. For example, Smart & Final recently expanded its produce and
party goods sections to add limited assortment of office supplies that meet
target customers' needs. The Company is also testing new product categories,
such as fresh meats, in certain stores. The Company believes the size,
consistency, and depth of its product assortment satisfies customers' needs.
Product quality is paramount in the Smart & Final product assortment. The
Company's quality assurance department insures that its high standards are
maintained for all corporate brands and products.
Corporate Brand Positioning. Smart & Final utilizes corporate brands within
most merchandise categories; providing an alternative to national brands and
other corporate and private label brands. Corporate brands are positioned to
create brand loyalty and establish an ongoing customer franchise. Furthermore,
management believes foodservice customers make purchases based on a
quality/value/price perception. Company corporate brands target leading
competitive brands with attention to quality and value. In addition, the profit
contribution from corporate brands is generally higher than the national brand
items.
During 1996, the Company substantially completed a change in corporate brand
names and packaging. New Corporate brands consist of a core program and an
ethnic specialty program. The new core program consists of three quality
choices. The SmartBuy(R) Brand is a standard grade, quality controlled label
positioned as "the price leader". The SmartBuy(R) Brand will replace the Table
Queen Brand. Smart & Final(R), the Company's national brand equivalent, is a
consistent, quality-driven, competitively priced brand and replaces the Iris
Brand. Smart & Final Premium Brand(R) represents the highest quality within the
product line. There are approximately 1,150 Stock Keeping Units (SKU's)
represented by these brands.
The Montecito(R) and La Romanella(TM) corporate brands are designed to reach
niche ethnic markets while enhancing our core products. Our authentic Hispanic
brand, Montecito, represents over 90 SKUs. The La Romanella brand, a high
quality line of Italian products, consists of approximately 165 SKUs.
6
Management believes that variety, quality, and price points of the Company's
new corporate brands are an important element in Smart & Final's market
positioning. The new Smart & Final Brands more closely link the stores private
label products.
Pricing. Smart & Final attempts to identify and establish competitive pricing
on key items in local markets including competitive pricing against warehouse
clubs. The Company's pricing strategy is carefully coordinated with its overall
assortment strategy and with other marketing programs. Incentives encourage
customers to purchase the largest sizes and case quantities, thereby maximizing
operating efficiencies within the distribution system. In addition, Smart &
Final corporate brands items offer distinct price and value advantages over
comparable national brands.
Customer Service. Smart & Final focuses on customer service and convenience
to encourage more frequent store visits and greater average purchase size. For
example, stores offer convenient locations, operating hours and front door
parking lots, along with logical layouts and highly readable signage. Smart &
Final also maintains a high in-stock service rate, averaging 98%; high product
quality; clean stores; friendly, responsible and knowledgeable personnel; and
specialized point-of-sale support.
Smart & Final utilizes customer service centers and representatives, provides
informative customer materials, and emphasizes associate training that builds
customer loyalty. The Company also has an associate training program designed to
increase store associates' retailing expertise and product knowledge. Smart
University(R), the Company's in-house training center, provides all associates
with the opportunity to build their knowledge and acquire additional skills. The
training center also trains third parties on a fee for service basis.
In addition, stores take customers' special orders for a wide variety of
products not carried regularly in it's assortment. The Company also provides
customers with telephone and fax order service, enhancing its in-store
capability.
Marketing. Smart & Final utilizes a niche marketing strategy that targets
small and mid-sized foodservice customers, reflects differences in rural and
urban markets, and addresses the differing needs of individual stores. Marketing
efforts generally consist of monthly circular distribution via newspaper
insertion or direct mail, selective use of mass media, promotional direct mail,
and cooperative newspaper advertisements. Cooperative advertisements are placed
in conjunction with suppliers, reducing Smart & Final's cost for those vehicles.
Smart & Final bases its marketing on comprehensive research, combining
periodic attitude awareness and usage studies with focused research to address
specific objectives. All studies are custom designed and conducted by leading
independent research firms specializing in the food industry.
Store Design and Size. Smart & Final stores are designed as convenient
warehouse stores dedicated to easing the shopping experience, improving
operational productivity, and stimulating impulse sales through sophisticated
mass merchandising. Management enhances selling space by storing inventory
overhead.
Smart & Final stores are organized into dry grocery, beverages, frozen foods,
janitorial, candy, snacks, party supplies and other departments. In addition,
prototype designs are improved continually to enhance traffic flow, space
utilization, departmentalization, adjacencies of merchandise and overall visual
appeal without diluting the convenient warehouse image. Each Smart & Final store
normally has four to six checkout counters and is
7
staffed by approximately 15 employees. For the last five years, new stores have
ranged between 11,000 and 25,000 square feet.
Website. In May 1996, the Company launched a site on the World Wide Web at
http://www.smartnfinal.com. The Company's site features a variety of information
for various audiences, presented in an engaging format. The site provides
valuable ideas and information to our core customers, primarily independent
restaurants, caterers, clubs, and small businesses. Customers can locate their
nearest stores or take a virtual tour of a typical store. The store tour
includes interior photos, and highlights the wide and consistent foodservice
product assortment, special customer services and payment options. Other
features of Smart & Final's site include a complete history of the 125 year-old
chain, financial information and job opportunities. Smart & Final's site is
updated on a regular basis. The site also links to other web sites that may be
of interest to the company's core customers.
OPERATIONS
Procurement. The Company believes Smart & Final's purchasing policies and
procedures result in costs that are comparable to other companies purchasing
similar quantities and types of merchandise. Service level goals and investment
buying strategies are integral to the purchasing program. In addition, Smart &
Final continually utilizes the efficiencies provided by cooperative buying
organizations to facilitate low cost purchasing. Smart & Final and Henry Lee are
members of All Kitchens, while Port Stockton is a member of Nugget (see
"American Food Service Distributors"). These buying alliances supplement the
normal buying activities of each distribution center. Smart & Final also strives
to maintain close working relationships with its major suppliers to reduce its
product or distribution costs.
Smart & Final buys its products from approximately 1,800 different suppliers.
The Company has not had any difficulty in the past, and does not expect any
difficulties in the future, in obtaining products from suppliers.
Distribution. Smart & Final supports the largest percentage of its Western
store network from the Los Angeles area. In Los Angeles Smart & Final operates
three distribution centers: a 446,000 square foot dry goods warehouse adjacent
to the corporate office complex, a 149,000 square foot satellite warehouse, and
a 95,000 square foot perishable warehouse. When necessary, Smart & Final
contracts for outside storage space for investment buy inventory.
In Northern California, under the Port Stockton name, the Company operates a
300,000 square foot distribution center which serves 4,400 foodservice customers
and 40 Northern California stores.
In Florida, the Henry Lee Company serves its foodservice customers and the
Smart & Final stores from a 230,000 square foot distribution center. Henry Lee
also operates an additional 30,000 square foot off-site facility.
Smart & Final utilizes computerized inventory management systems, radio
frequency technology, and integrated labor management systems in its warehouses.
Smart & Final operates a fleet of 190 tractors and 298 trailers that are
either owned or leased. Smart & Final increases efficiencies of its fleet by
filling outbound trucks to capacity and utilizing a backhaul program for
8
inbound deliveries. Approximately 40% of Smart & Final's warehouse merchandise
is delivered to the warehouse by its own trucks.
Management Information Systems. Smart & Final Inc. is committed to state-of-
the-art information technology. The Company has invested over $10 million in new
systems during the past two years, and expects to continue to make substantial
investments over the near term.
The Company's purchasing system enables buyers to manage turnover and
investment buy inventory effectively, achieve targeted gross margin objectives,
track rebates and allowances by vendor, and maintain target service levels. The
merchandising system enables each store assortment to be customized to the needs
and characteristics of its individual market area, maximize gross margin return
on investment by item and product category, and increase store inventory
turnover. The distribution system tracks all warehouse inventory, manages store
order selection, and measures labor productivity in the Los Angeles warehouse
and satellite warehouse facility.
Systems are being implemented throughout the Company's stores, warehouses and
corporate offices, which are expected to enable the Company to operate more
efficiently and to utilize sales data for valuable customer information.
AMERICAN FOODSERVICE DISTRIBUTORS
American Foodservice Distributors is a holding company for institutional
full-line foodservice distributors and owns 100% of Port Stockton in Northern
California, and 90% of Henry Lee, in Miami, Florida. Port Stockton was acquired
in 1990, and Henry Lee was aquired in November 1994. Port Stockton's 1996 sales
were $112 million. Henry Lee's sales were $198 million in 1996. In addition to a
broadline assortment, Port Stockton and Henry Lee provide their customers
primary services including product delivery and extension of credit, and
ancillary services such as restaurant equipment and supplies. The full-line
assortment for these distributors features dry grocery, frozen foods, deli
products, produce, tobacco, health and beauty aids, paper and packaging,
janitorial supplies, and restaurant equipment and supplies.
Port Stockton is headquartered in Stockton, California and serves Northern
California markets from the Bay Area on the west to the Sierra on the east,
Eureka on the North and San Jose on the south. Port Stockton is a member of the
Nugget Distributor buying group which has annual member sales of over $4
billion. Port Stockton is the fifth largest member of the Nugget group. About
30% of Port Stockton sales are corporate brands.
Since April 1995, Port Stockton has supported its customers from a 300,000
square foot distribution facility located in Stockton. This distribution
facility services 4,400 foodservice customers such as restaurants, coffee shops
and institutions along with 40 Smart & Final stores. Port Stockton was founded
in 1962 and employs 582 associates.
Henry Lee is headquartered in Miami, Florida, and serves primarily the state
of Florida and certain markets in the Caribbean, South and Central America.
Henry Lee serves a significant hotel clientele, institutions, restaurants and
coffee shops. Henry Lee is a member of the All Kitchens buying group, which has
annual member sales of $5.2 billion. Henry Lee serves its 3,700 foodservice
operator customers from a 230,000 square
9
foot distribution facility located in Miami. Henry Lee also operates an
additional 30,000 square foot off-site facility in Miami. Henry Lee's
distribution center provides the infrastructure to service initial Smart & Final
stores in Florida. Founded in 1946, Henry Lee has 503 associates. The 10% of
Henry Lee not owned by American Foodservice Distributors is owned by one of the
founders of Henry Lee and his family.
COMPETITION
The Company participates in the highly competitive $129 billion annual sales
domestic food distribution industry. Its competitors include membership and
nonmembership warehouse stores, wholesale distributors, supermarkets, and other
retailers. Many of the Company's competitors have greater financial,
distribution and marketing resources, as well as greater name recognition than
the company.
The membership warehouse club segment of the industry has been characterized
by intense competition and rapid store growth over the past decade. The
warehouse club concept has been one of the fastest growing retailing concepts in
the United States, particularly in the West. The Company's two major warehouse
club competitors are Price/Costco and Sam's Club.
Historically, the opening of a warehouse club in a general market area has
caused a temporary sales decrease at nearby Smart & Final stores. Sales tend to
return to prior levels within two years. However, the Company believe it
competes effectively with membership clubs by offering a broader and more
consistent foodservice assortment, more convenient shopping facilities and
locations, a high level of customer service and competitive pricing.
Competition from supermarket chains continues to increase as such chains
emphasize price and service, while widening their assortment of goods to more
effectively compete with warehouse clubs.
The traditional foodservice distribution market, in which American
Foodservice Distributors operates and in which Smart & Final competes to a
lesser extent, is very competitive and highly fragmented. Major competition
consists of national operators such as Sysco Corp., Alliant, U.S. Foodservice
and many smaller, regional distributors. National distributors, which tend to
focus on large chain operators, have instituted minimum order size increases in
recent years, creating opportunities for regional distributors that require
lower or no minimum order. Port Stockton and Henry Lee can handle smaller
orders.
HUMAN RESOURCES
The Company strongly emphasizes the career development and retention of its
employees. Despite its strong growth in recent years, the Company strives to
maintain the culture of a highly focused, innovative organization that maximizes
employee productivity and contributions. The Company actively recruits and
offers training opportunities to employees to develop qualified candidates for
managerial positions as vacancies occur.
Employee training and development programs encompass all levels of store
operations, from entry through management, and emphasize merchandising
techniques and customer service goals to ensure top employee quality and
productivity. Company mechanisms, such as incentive pay programs, reward
superior performance and motivate associates. In addition, approximately 9% of
each Smart & Final store's pre-tax profit, after allocation of corporate costs,
is paid out as monthly bonuses to the store's full-time employees.
10
At fiscal year end, the Company and its subsidiaries employed 4,577 persons,
including 3,492 at Smart & Final, 582 at Port Stockton and 503 at Henry Lee.
No employee groups are currently represented by third party unions. The
Company considers relations with its employees to be good.
ITEM 2. PROPERTIES
Effective December 29, 1996 (as approved by the shareholders of the Company
at a Special Meeting of Shareholders held on March 19, 1997), 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 and warehouse facilities for a purchase price of
$75,984,000, consisting of 1,625,000 shares of the Company's common stock
(valued at $38 million) and a total of $38,000,000 in two five-year unsecured
promissory notes (the "Casino Transaction").
As part of the Casino Transaction, the Company is required to assist Casino
USA and Casino Realty with the sale of certain properties, on or before December
31, 1998, for an aggregate gross sale price ("sales price") of at least
$5,700,000. In the event that the properties are sold for a sales price of less
than $5,700,000, the Company must pay the difference to Casino USA and Casino
Realty. In the event that the sales price of such properties exceeds $5,700,000,
Casino USA and Casino Realty would be required to pay the Company all of the
excess sales price up to $500,000 and one-third of any remaining excess sales
price.
Of the 91 properties acquired, 86 were stores, and the remaining five were
the Vernon, California distribution facility and several non-store locations.
As of fiscal year end 1996, the Company leases 59 properties directly from
third party lessors, with an average remaining lease term of 14 years. In
addition, the Company has 10 stores on real property that are ground leased from
third party lessors and 33 stores in which Casino USA or Casino Realty has a
leasehold interest and which Casino USA or Casino Realty sublease to the
Company. The remaining lease term on the 33 stores subleased from Casino USA or
Casino Realty averages approximately 10.1 years with various renewal options at
then prevailing market rates.
During fiscal year 1996, and prior to the Casino Transaction, 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. Of the 117 stores leased from Casino USA or Casino
Realty, 51 were stores in which Casino USA or Casino Realty held a leasehold
interest and which Casino USA or Casino Realty subleased to the Company on
substantially the terms and conditions as contained in Casino USA's or Casino
Realty's leases from third party lessors. Nine of the 51 stores were on real
property that was ground leased by Casino USA or Casino Realty and subleased to
the Company; lease terms were set at rates and terms considered to be equivalent
to those available from unrelated third party lessors. Generally, annual lease
rates on stores owned by Casino USA or Casino Realty were set at 9-10% of the
completed cost of the store at the time it was built or acquired. In addition,
the Company also leased 595,000 square feet of warehouse space and 60,795 square
feet of office space in Los Angeles, California from Casino Realty.
11
Since April 1995, Port Stockton has supported its customers from a 300,000
square foot distribution facility located in Stockton.
Henry Lee occupies 230,000 square feet of warehouse space in Miami,
Florida, including 22,000 square feet of office space. Henry Lee's warehouse is
leased from affiliates of the minority shareholder of Henry Lee. The remaining
term of this lease is 9 years. Henry Lee also occupies 7,600 square feet of
space used as a maintenance facility for its fleet. In addition, Henry Lee
operates a 30,000 square feet off-site facility. This space is leased from the
President of Henry Lee. The remaining term of this lease is 9 years. The leases
contain terms and rates considered to be equivalent to those available from
unrelated third party lessors.
The Company plans to continue to lease properties, but also may elect to
own some of its new stores on an interim or permanent basis. The Company has a
$30 million master lease facility which provided for the lease of the
distribution center in Stockton and for store expansion in California and
Florida. As of December 29, 1996, $25.7 million had been utilized under this
facility. The Company is negotiating an additional $30.0 million lease facility
which is expected to provide for certain 1997-8 property additions.
12
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time involved in litigation incidental to the
conduct of its business. While the outcome of lawsuits and other proceedings
against the Company cannot be predicted with certainty in the opinion of
management, none of the litigation which the Company is currently involved in,
individually or in the aggregate, is expected to result in a material effect on
the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 19, 1997, the Company filed its Definitive Proxy Statement in
connection with a Special Meeting of shareholders which was held on March 19,
1997 ("Special Meeting"). The purpose of the Special Meeting was to consider and
vote upon the Casino Transaction. The shareholders of the Company approved the
Casino Transaction as follows:
Number of votes cast for: 18,315,315
Number of votes cast against: 41,046
Number of abstentions: 29,117
Number of broker non-votes: 1,967,612
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is listed on the New York Stock Exchange ("NYSE")
under the symbol SMF. As of March 17, 1997 there were 245 registered holders of
the common stock and the closing price per share of the common stock as listed
on the NYSE composite tape was $21.875. The following table sets forth the high
and low sales prices of the common stock as reported on the NYSE composite tape,
together with the amount of cash dividends declared per share for each quarter
of the Company's two most recent fiscal years.
Cash
Dividend
High Low Declared
- ---------------------------------------------------------
First Quarter of 1995 15-5/8 13-7/8 $0.05
Second Quarter of 1995 17-1/8 14-7/8 $0.05
Third Quarter of 1995 19-3/8 16-1/4 $0.05
Fourth Quarter of 1995 21-1/4 18-3/8 $0.05
First Quarter of 1996 22-5/8 19-3/4 $0.05
Second Quarter of 1996 24-3/4 22-1/4 $0.05
Third Quarter of 1996 26 20-7/8 $0.05
Fourth Quarter of 1996 24-1/8 21-3/8 $0.05
The declaration and payment of dividends is subject to the discretion of the
Company's Board of Directors, and there can be no assurance that dividends will
continue to be paid in the future. In determining whether to pay dividends (as
well as the amount and timing thereof), the Board of Directors considers a
number of factors, including the Company's results of operations, financial
condition and capital and surplus requirements.
13
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
FISCAL YEAR (A) (B)
---------------------------------------------------------------------------
1996 1995 1994 (D) 1993 1992
---------- ------------ ----------- ----------- -----------
INCOME STATEMENT DATA:
Sales.................................. $1,302,561 $1,173,325 $952,477 $837,178 $765,071
Gross margin........................... 190,395 171,732 144,396 125,185 114,712
Income from operations................. 42,588 32,465 28,511 24,188 23,274
Interest income (expense), net......... (3,373) (2,028) 521 843 1,100
Income before provision for
income taxes, minority
share of net income and
cumulative effect of
accounting changes.................. 39,215 30,437 29,032 25,031 24,374
Net income............................. 24,334 18,296 17,470 1,962 (C) 14,434
Earnings per common share.............. 1.15 0.88 0.85 0.10 (C) 0.71
Dividend per share..................... $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.12
Weighted average common
shares outstanding.................. 21,206 20,751 20,520 20,494 20,373
FINANCIAL DATA (AT FISCAL YEAR-END):
Cash and cash equivalents.............. $ 16,795 $ 15,415 $ 10,494 $ 31,314 $ 42,035
Working capital........................ 79,245 79,493 62,501 56,006 61,239
Total assets........................... 441,424 314,656 267,813 208,587 184,120
Long-term debt, excluding
current maturities.................. 82,644 43,586 21,124 1,882 2,401
Stockholders' equity................... 195,655 (E) 140,052 125,330 112,108 112,929
OTHER STATISTICAL DATA:
Comparable store sales growth.......... 2.7% 5.0% 5.5% 4.7% 10.4%
Stores at year end (including Mexico).. 173 158 147 136 124
Total retail square footage at year end
(thousands)......................... 2,496 2,237 2,050 1,886 1,699
Sales per selling square foot.......... $ 406 $ 441 $ 428 $ 425 $ 442
Store customer transactions (thousands) 31,132 29,097 26,688 24,075 21,673
Employees at year end.................. 4,577 4,341 3,718 2,903 2,646
(A) For all years, 52 weeks except fiscal year 1992, which had 53 weeks.
(B) All common share data have been adjusted to reflect the three-for-two stock
split effective February 5, 1993.
(C) Includes the impact of the adoption of SFAS Nos. 106 and 112, which
resulted in a net of tax, non-cash charge of $12.9 million ($0.63 per
share).
(D) Amounts include results of Henry Lee from the date of its acquisition in
November 1994.
(E) 1,625,000 of common shares were issued on December 29, 1996 to affiliated
companies for $38 million, see "Casino Transaction".
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Financial Data" and the financial statements and related notes thereto included
elsewhere in this Form 10-K. The following table sets forth the consolidated
statements of operations data. (Percentages do not aggregate due to rounding.)
52 Weeks 52 Weeks 52 Weeks
(Dollars in millions, except per 1996 1995 1994
share amounts)
==============================================================================================
Sales $ 1,302.6 100% $ 1,173.3 100.0% $ 952.5 100.0%
- ----------------------------------------------------------------------------------------------
Cost of sales, buying and
occupancy 1,095.0 84.1 984.5 83.9 791.9 83.1
- ----------------------------------------------------------------------------------------------
Lease expense to affiliates 17.2 1.3 17.1 1.5 16.2 1.7
==============================================================================================
Gross margin 190.4 14.6 171.7 14.6 144.4 15.2
- ----------------------------------------------------------------------------------------------
Operating and administrative
expenses 147.8 11.3 135.0 11.5 115.9 12.2
- ----------------------------------------------------------------------------------------------
Warehouse start up costs -- -- 4.3 0.4 -- --
==============================================================================================
Income from operations 42.6 3.3 32.4 2.8 28.5 3.0
- ----------------------------------------------------------------------------------------------
Interest income (expense), net (3.4) (0.3) (2.0) (0.2) 0.5 0.1
==============================================================================================
Income before provision for
income taxes and minority
share of net income 39.2 3.0 30.4 2.6 29.0 3.0
- ----------------------------------------------------------------------------------------------
Provision for income taxes 14.9 1.1 12.0 1.0 11.5 1.2
- ----------------------------------------------------------------------------------------------
Minority share of net income 0.2 -- 0.2 -- 0.1 --
==============================================================================================
Income from consolidated
subsidiaries 24.1 1.9 18.2 1.5 17.4 1.8
- ----------------------------------------------------------------------------------------------
Equity earnings in
unconsolidated subsidiary 0.2 -- 0.1 -- 0.1 --
==============================================================================================
Net income $ 24.3 1.9% $ 18.3 1.6% $ 17.5 1.8%
==============================================================================================
Earnings per common share $ 1.15 $ 0.88 $ 0.85
==============================================================================================
15
RESULTS OF OPERATIONS
The Company's net income was $24.3 million ($1.15 per share) in 1996,
$18.3 million ($0.88 per share) in 1995, and $17.5 million ($0.85 per share) in
1994.
SEVERAL FACTORS AFFECTED INCOME OVER THE THREE YEAR PERIOD:
. Henry Lee, acquired in November, 1994, contributed $2.4 million
($.12 per share) and $2.5 million ($.12 per share) to 1996 and 1995
net income respectively, and $0.4 million ($0.02 per share) to 1994
net income.
. Start-up costs of the new Northern California distribution center
reduced 1995 net income by $2.6 million ($0.13 per share).
. The January, 1994 Los Angeles earthquake reduced 1994 net income by
$0.4 million ($0.02 per share)
SALES. Sales were $1,302.6 million in 1996, $1,173.3 million in 1995, and $952.5
million in 1994. The economy remained weak in the Company's major market,
California, in 1994-5 and stabilized in 1996. Despite the weak economy, same
store sales growth was achieved in each of the years, with comparable sales
increasing 2.7% in 1996, 5.0% in 1995, and 5.5% in 1994. Total sales increased
11.0% in 1996, 23.2% in 1995, and 13.8% in 1994 as a result of an aggressive new
store opening program and the acquisition of Henry Lee in late 1994. Fifty-one
new stores, including relocations and five in Mexico, were opened during the
three years, twenty-one in 1996, fifteen in 1995, and fifteen in 1994.
GROSS PROFIT. As a percentage of sales, gross profit was 14.6% in 1996 and 1995,
15.2% in 1994. The reduction in gross profit in 1995 was caused by the inclusion
of Henry Lee, acquired in November, 1994, which operates at much lower gross
margins and lower operating expenses than Smart & Final Stores. Distribution
cost improvements achieved by the Company during the three year period have not
had a significant effect on gross margin because savings have been passed on to
customers in order to remain highly competitive.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative expenses
were 11.3% of sales in 1996, compared to 11.5% in 1995, and 12.2% in 1994. The
reduction in 1995 expenses was due to the inclusion of Henry Lee which operates
at lower operating expenses than Smart & Final Stores.
INTEREST INCOME AND EXPENSE, NET. Interest income and expense, net declined from
income of $0.5 million in 1994, to an expense of $2.0 million in 1995 and $3.4
million in 1996 because of interest costs related to available cash used and
debt incurred to fund capital spending required for the operating facilities
expansion program, and in 1994, the acquisition of Henry Lee.
EQUITY EARNINGS IN UNCONSOLIDATED SUBSIDIARY. The Company's 50% interest in the
Mexico joint venture operates five stores in Mexico and produced $0.2 million in
equity in earnings in 1996 and $0.1 million in 1995 and 1994. The devaluation of
the peso in the latter part of 1994 and mid 1995 resulted in a $0.8 million and
$0.1 million charge to stockholders' equity in 1994 and 1995 and a credit of
$0.1 million in 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary source of liquidity has been cash
flow from operations and retained earnings. In addition, the Company has
availability under committed bank facilities. In 1996 net cash provided by
operating activities was $20.5 million despite a $22.1 million increase in
accounts receivable. The accounts receivable increase reflects the strong 24%
growth in sales at the Company's foodservice distribution units. The Company has
a $50.0 million five year revolving credit line with a group of banks, under
which $45.0 million was outstanding at fiscal year end 1996. The Company also
has a $35.0 million short term bank line of credit under which $17.0 million was
outstanding at fiscal year end 1996.
16
The Company had cash and cash equivalents of $16.8 million,
stockholder's equity of $195.7 million and long term debt of $82.1 million at
the end of fiscal year 1996. The long term debt consists of the $38 million
notes issued for the Casino Transaction (less the current portion of $7.6
million or $30.4 million), the $45 million outstanding on the revolving credit
line, $8.0 million from the acquisition of Henry Lee Company in 1994 (less
current of $2.5 million or $5.5 million), and other smaller notes from Port
Stockton.
Management believes that these sources of funds are adequate to
provide for its working capital, capital expenditure, acquisition, and debt
service requirements for the foreseeable future. The aggregate amount required
for the expansion program and other capital expenditures in 1997 is expected to
be approximately $30.0 million.
Since 1994, the Company has leased its real property additions from
third parties. The Company utilized a committed $30.0 million operating lease
facility to finance many of its facility additions through 1996. Another $30.0
million facility is under negotiation and is expected to provide for certain
1997-8 property additions.
SEASONALITY
Historically, the Company's sales have followed a seasonal pattern.
Generally, third and fourth quarter sales are greater than those of the first
and second quarter, due to strong demand from foodservice customers in the
summer and winter holiday periods. Third quarter sales are also high because the
third quarter includes four four-week periods, whereas the other quarters
include three four-week periods. Sales distribution by quarter in 1996 was 22%
in the first quarter, 24% in the second, 31% in the third, and 23% in the
fourth.
INFLATION
The Company's primary costs, merchandise and labor are affected by a
number of factors that are beyond the Company's control. These factors include
the price of merchandise, the competitive climate, and the general and regional
economic conditions. As is typical in the food industry, the Company has
generally been able to maintain margins by adjusting its selling prices. But
competitive conditions may, from time to time, render it unable to do so while
maintaining or increasing its market share.
FORWARD-LOOKING STATEMENTS
From time to time Smart & Final may publish forward- looking
statements about anticipated results. The Private Securities Litigation Reform
Act of 1995 provides a safe harbor for forward-looking statements. In order to
comply with the terms of the safe harbor, the Company notes that such
forward-looking statements are based upon internal estimates which are subject
to change because they reflect preliminary information and management
assumptions, and that a variety of factors could cause the Company's actual
results and experience to differ materially from the anticipated results or
other expectations expressed in the Company's forward-looking statements. The
factors which could cause actual results or outcomes to differ from such
expectation include the extent of the company's success in (i) changing market
conditions (ii) unforeseen costs and expenses (iii) ability to attract new
customers and retain existing customers (iv) gain or losses from sales along
with the uncertainties and other factors, including unusually adverse weather
conditions, described from time to time in the company's SEC filing and reports.
This report includes " forward-looking statements" including, without
limitation, statements as to the Company's liquidity and availability of capital
resources.
17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
THE FOLLOWING INFORMATION IS INCLUDED IN THIS SECTION:
PAGE
----
Report of Independent Public Accountants 19
Consolidated Balance Sheets 20
Consolidated Statements of Income 21
Consolidated Statements of Stockholders' Equity 22
Consolidated Statements of Cash Flows 23
Notes to Consolidated Financial Statements 24
Supplementary Data -- Summary of Quarterly
Results of Operations 38
18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Smart & Final Inc.:
We have audited the accompanying consolidated balance sheets of Smart
& Final Inc. (a Delaware corporation and a 56.5 percent owned subsidiary of
Casino USA, Inc.) and subsidiaries as of December 29, 1996 and December 31,
1995, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three fiscal years in the period ended December
29, 1996. 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 December 29, 1996 and December 31, 1995, and the results
of their operations and their cash flows for each of the three fiscal years in
the period ended December 29, 1996, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
February 10, 1997
19
SMART & FINAL INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL FISCAL
YEAR END YEAR END
1996 1995
-------- --------
ASSETS
- ------
Current assets:
Cash and cash equivalents............................... $ 16,795 $ 15,415
Trade notes and accounts receivable, less
allowance for doubtful accounts of
$2,568 in 1996 and $1,867 in 1995..................... 67,695 43,712
Inventories............................................. 125,721 117,129
Prepaid expenses........................................ 4,346 3,637
Deferred tax asset...................................... 6,134 7,385
-------- --------
Total current assets................................ 220,691 187,278
Property, plant and equipment:
Land.................................................... 39,079 1,262
Buildings and improvements.............................. 34,364 3,170
Leasehold improvements and interest..................... 60,943 45,765
Fixtures and equipment.................................. 129,953 111,564
-------- --------
264,339 161,761
Less - Accumulated depreciation and
amortization.......................................... 77,156 60,114
-------- --------
Net property, plant and equipment................... 187,183 101,647
Assets under capital leases, net......................... 671 246
Goodwill................................................. 10,162 8,136
Deferred tax asset....................................... 4,157 3,118
Other assets............................................. 18,560 14,231
-------- --------
Total assets............................ $441,424 $314,656
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current maturities of long term debt.................... $ 10,356 $ 39
Bank line of credit..................................... 17,000 2,675
Accounts payable........................................ 70,936 68,471
Payable to Parent and affiliates........................ 8,759 1,992
Accrued salaries and wages.............................. 9,940 7,853
Workers' compensation reserve........................... 2,600 2,800
Other accrued liabilities............................... 21,855 23,955
-------- --------
Total current liabilities........................... 141,446 107,785
Long term liabilities:
Notes payable, net of current maturities................ 37,063 8,176
Bank debt............................................... 45,000 35,000
Obligations under capital leases........................ 581 410
Workers' compensation reserve, postretirement
and postemployment benefits.......................... 20,000 21,798
-------- --------
Total long term liabilities......................... 102,644 65,384
Minority interest........................................ 1,679 1,435
Stockholders' equity:
Preferred stock, $1 par value (authorized--
10,000,000 shares; no shares issued)................... - -
Common stock, $ .01 par value (authorized--
100,000,000 shares; 21,976,406 shares issued
and outstanding in 1996 and 20,262,727 in 1995)........ 220 203
Additional paid-in capital.............................. 140,371 105,149
Cumulative translation loss............................. (835) (928)
Retained earnings....................................... 55,899 35,628
-------- --------
Total stockholders' equity.......................... 195,655 140,052
-------- --------
Total liabilities and stockholders' equity..... $441,424 $314,656
======== ========
The accompanying notes are an integral part of these consolidated balance
sheets.
20
SMART & FINAL INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS )
FISCAL YEAR
---------------------------------------------------------------
1996 1995 1994
----------- ------------ ----------
Sales.................................. $ 1,302,561 $ 1,173,325 $ 952,477
Cost of sales, buying and occupancy.... 1,094,933 984,486 791,920
Lease expense to affiliates............ 17,233 17,107 16,161
----------- ----------- -----------
Gross margin........................... 190,395 171,732 144,396
Operating and administrative expenses.. 147,807 135,017 115,885
Warehouse start up costs............... - 4,250 -
----------- ----------- -----------
Income from operations............. 42,588 32,465 28,511
----------- ----------- -----------
Interest income and expense:
Interest income.................... 501 472 891
Interest expense................... (3,874) (2,500) (370)
----------- ----------- -----------
(3,373) (2,028) 521
Income before provision for income
taxes and minority share of net income 39,215 30,437 29,032
Provision for income taxes............. 14,858 12,043 11,516
Minority share of net income........... 244 248 146
----------- ----------- -----------
Income from consolidated subsidiaries 24,113 18,146 17,370
Equity earnings in unconsolidated subsidiary 221 150 100
----------- ----------- -----------
Net income.......................... $ 24,334 $ 18,296 $ 17,470
=========== =========== ===========
Earnings per common share.............. $ 1.15 $ 0.88 $ 0.85
=========== =========== ===========
Weighted average common shares and
common share equivalents.............. 21,206,126 20,750,818 20,520,022
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
21
SMART & FINAL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
FOR THE FISCAL YEARS ENDED 1996, 1995 AND 1994
COMMON STOCK
------------------- ADDITIONAL TOTAL
NUMBER OF PAID-IN RETAINED TRANSLATION STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS (LOSS)/GAIN EQUITY
------------------- ---------- ----------- ------------- -------------
Balance, fiscal year-end 1993........ 20,168,727 202 103,957 7,949 - 112,108
Issuance of common stock............. 47,000 - 595 - - 595
Dividend ($0.20 per share)........... - - - (4,039) - (4,039)
Translation loss..................... - - - - (804) (804)
Net income........................... - - - 17,470 - 17,470
---------- ------ ---------- ----------- ---------- ---------
Balance, fiscal year-end 1994........ 20,215,727 202 104,552 21,380 (804) 125,330
Issuance of common stock............. 47,000 1 597 - - 598
Dividend ($0.20 per share)........... - - - (4,048) - (4,048)
Translation loss..................... - - - - (124) (124)
Net income........................... - - - 18,296 - 18,296
---------- ------ ---------- ----------- ---------- ---------
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
========== ====== ========== =========== ========== =========
The accompanying notes are an integral part of these consolidated financial
statements.
22
SMART & FINAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FISCAL YEAR
--------------------------------------
1996 1995 1994
-------- -------- --------
Cash Flows From Operating Activities:
Net income.................................................... $ 24,334 $ 18,296 $ 17,470
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on disposal of fixed assets.......................... (187) (122) (98)
Depreciation and amortization............................. 19,882 16,388 12,760
Deferred tax provision (benefit).......................... 1,320 (1,090) (956)
Minority share of net income.............................. 244 248 146
Equity earnings in unconsolidated subsidiary.............. (221) (150) (100)
Decrease (increase) in:
Trade notes and accounts receivable....................... (22,132) (5,465) (4,890)
Inventories............................................... (7,426) (14,586) (17,013)
Prepaid expenses and other................................ (709) (11) (296)
Increase (decrease) in:
Accounts payable.......................................... 2,028 (382) 12,444
Payable to Parent and affiliates.......................... 6,409 576 972
Accrued liabilities....................................... 2,087 (394) (354)
Other liabilities......................................... (5,158) 6,862 2,645
-------- -------- --------
Net cash provided by operating activities............ 20,471 20,170 22,730
-------- -------- --------
Cash Flows From Investing Activities:
Acquisition of property, plant and equipment.................. (33,172) (31,525) (27,091)
Proceeds from disposal of property, plant and equipment....... 252 296 387
Acquisition of Henry Lee Company (net of acquired cash)....... - - (9,042)
Investment in and advance to unconsolidated subsidiary........ - - (2,488)
Acquisition of Port Stockton minority interest................ - - (1,457)
Acquisition of business (net of acquired cash)................ (1,391) - -
Acquisition of municipal bonds................................ (540) (1,300) (1,785)
Proceeds from redemption of municipal bonds................... 440 825 1,015
Other......................................................... (4,590) (3,630) (1,368)
-------- -------- --------
Net cash used in investing activities................ (39,001) (35,334) (41,829)
-------- -------- --------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock........................ 1,059 509 506
Bank line of credit........................................... 16,000 1,000 -
Payments on notes payable and bank line of credit............. (3,089) (12,378) (576)
Quarterly dividend paid....................................... (4,060) (4,046) (4,037)
Borrowings of long term debt.................................. 10,000 35,000 2,386
-------- -------- --------
Net cash provided by (used in) financing activities.. 19,910 20,085 (1,721)
-------- -------- --------
Increase(Decrease) in cash and cash equivalents.................... 1,380 4,921 (20,820)
Cash and cash equivalents at beginning of year..................... 15,415 10,494 31,314
-------- -------- --------
Cash and cash equivalents at end of year........................... $ 16,795 $ 15,415 $ 10,494
======== ======== ========
Noncash transactions:
Notes payable and common stock issued for
properties acquired from affiliates........................... $ 71,440 $ - $ -
Note issued in connection with purchase of Henry Lee........... - - 8,000
Note issued in connection with acquisition of business......... 300 - -
Capital contribution to unconsolidated subsidiary.............. - 350 -
Construction in progress costs incurred but not paid........... 552 2,129 453
-------- -------- --------
Total noncash transactions........................... $ 72,292 $ 2,479 $ 8,453
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
23
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 1996 was a 56.5 percent owned subsidiary of Casino USA, Inc.
(the "Parent" or "Casino USA"), a California corporation, and Casino Realty,
Inc. ("Casino Realty"), a wholly-owned subsidiary of Casino USA. 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 "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
and is reflected in stockholders' equity. The functional currency is the local
currency of Mexico.
All significant intercompany accounts and transactions have been
eliminated in consolidation. Certain prior years' amounts have been reclassified
to conform to the fiscal year 1996 presentation.
Fiscal years
The Company's fiscal year ends on the Sunday closest to December 31.
Fiscal years 1996, 1995 and 1994 include 52 weeks. Fiscal years 1996, 1995 and
1994 ended on December 29, 1996, December 31, 1995 and January 1, 1995,
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.
Statements of cash flows
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.
Inventories
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.
24
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.
In 1995, the Company adopted Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("SFAS No. 121"). SFAS No. 121 requires
that long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The implementation of SFAS No. 121 did not have an effect on the
Company's financial position or its results of operations.
Also included in property, plant and equipment are costs associated
with selection and procurement of real estate sites of $1,163,000 and $1,071,000
as of fiscal year end 1996 and 1995, respectively. These costs are amortized
over the remaining lease term of the site they are associated with.
Other assets
Other assets include municipal bonds aggregating $5,430,000 and
$5,330,000 at fiscal year end 1996 and 1995, respectively. The fair value of the
municipal bonds, estimated based on quoted market prices for similar
investments, approximate their carrying amounts.
Capitalized software costs, net of amortization, of $6,548,000 and
$5,304,000, are included in other assets at fiscal year end 1996 and 1995,
respectively. These costs include third party purchased software costs, direct
labor associated with internally developed software, and installation costs. The
Company has capitalized these costs in accordance with Financial Accounting
Standards Board Interpretation No. 6, "Applicability of Statement of Financial
Accounting Standards No. 2--Accounting for Research and Development Costs to
Computer Software". 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.
Also included in other assets are preopening costs of $1,329,000 and
$250,000 at fiscal year end 1996 and 1995, respectively. These costs represent
costs incurred between the date the site is leased or construction is completed
and the date the site is open for business. Amortization is being recognized
using the straight-line method over a period of three years.
25
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 pro forma net income per share amounts in the notes to the
consolidated financial statements using the fair-value method. The adoption of
SFAS No. 123 will have no cash flow impact to the Company.
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 $6,298,000 and $8,368,000 at fiscal
year end 1996 and 1995, 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.
2. INCOME TAXES
A reconciliation between the federal statutory income tax rate and the
Company's effective tax rate consists of the following:
1996 1995 1994
----------- ----------- -----------
Income tax at federal statutory rate $13,725,000 $10,653,000 $10,161,000
State income taxes, net of federal tax benefit 2,373,000 1,918,000 1,829,000
Revitalization zone credit (960,000) (420,000) (450,000)
Other (280,000) (108,000) (24,000)
----------- ----------- -----------
Income tax provision $14,858,000 $12,043,000 $11,516,000
=========== =========== ===========
The Company's provision for income taxes consists of the following:
1996 1995 1994
----------- ----------- -----------
Current
Federal $11,632,000 $10,912,000 $10,328,000
State 1,906,000 2,221,000 2,144,000
----------- ----------- -----------
13,538,000 13,133,000 12,472,000
26
Deferred
Federal 1,320,000 (1,090,000) (956,000)
----------- ----------- -----------
Income tax provision $14,858,000 $12,043,000 $11,516,000
=========== =========== ===========
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:
1996 1995
----------- -----------
Property, plant and equipment depreciation
differences $(3,920,000) $(5,041,000)
Employee benefits including postretirement
and postemployment reserves 10,663,000 11,217,000
Operating reserves and accruals 3,419,000 4,243,000
Other 129,000 84,000
----------- -----------
Net deferred tax asset $10,291,000 $10,503,000
=========== ===========
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 Casino USA, based upon
pre-tax income for financial reporting purposes adjusted for certain agreed upon
items.
A tax benefit of $658,000 associated with the Company's stock option
plan has been credited to additional paid-in capital in 1996.
Tax sharing and termination payments made by the Company to Casino USA
were $2,560,000, $1,945,000 and $2,638,000 in 1996, 1995 and 1994, respectively.
Federal income taxes paid during 1996, 1995 and 1994 were $11,155,000,
$9,125,000 and $8,900,000, respectively.
3. 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 $38,000,000 in two five-year unsecured promissory notes.
As part of the transaction, the Company is required to assist Casino
USA and Casino Realty with the sale of certain properties, on or before December
31, 1998, for an aggregate gross sales price ("sales price") of at least
$5,700,000. In the event that the properties are sold for a sales price of less
than $5,700,000, the Company must pay the difference to Casino USA and Casino
Realty. In the event that the sales price of such properties exceeds $5,700,000,
Casino USA and Casino Realty are required to pay the Company all of the excess
up to $500,000 and one-third of any remaining excess sales price.
27
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 an adjustment to
additional paid-in capital.
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
----------
$71,440
Purchase consideration:
Notes payable issued $38,000
Common stock issued 37,984
----------
$75,984
4. LONG-TERM DEBT
On December 29, 1996, the Company issued a total of $38 million in two
five-year unsecured promissory notes to Casino USA and Casino Realty, affiliated
entities, in conjunction with the acquisition of real property from Casino USA
and Casino Realty. The notes bear interest at LIBOR plus 1/4%. As of December
29, 1996 the LIBOR rate was 5.813%. The notes will be payable in five annual
installments of $7,600,000, plus accrued interest, commencing in fiscal year
1997.
The Company has a long term revolving unsecured line of credit
available with banks in the amount of $50.0 million. Borrowings of $45.0 million
and $35.0 million were outstanding under this line as of fiscal year end 1996
and 1995, respectively. This line of credit bears interest at LIBOR plus 1/2%,
and matures in November, 2000. The terms of the loan agreement require the
Company to maintain certain financial ratios. The Company was in compliance with
these covenants during fiscal year 1996 and 1995.
The Company also has a short term unsecured line of credit available
with a bank in the amount of $35.0 million. The line of credit bears interest at
the bank's reference rate which was 5.813% as of December 29, 1996. Borrowings
of $17.0 million and $1.0 million were outstanding under this line as of the
fiscal year end 1996 and 1995, respectively.
The Company has guaranteed $650,000 of Smart & Final Del Noroeste S.A.
de C.V. debt under a Standby Letter of Credit.
Henry Lee Company ("Henry Lee") had a revolving line of credit
facility with a bank aggregating $15.8 million of which $1.7 million was
outstanding at fiscal year end 1995. This facility bore interest at 7.7% and was
repaid on January 3, 1996.
28
Other notes payable of $9,158,000 and $8,198,000 at fiscal year end
1996 and 1995, respectively bear interest at various rates ranging from 7.0% to
8.0%. Of these notes payable, $8.0 million is at an interest rate of 7.5% and is
unsecured. Interest paid on these notes and bank lines of credit aggregated
$3,627,000, $2,500,000, and $370,000 for the fiscal years ended 1996, 1995 and
1994, respectively.
Aggregate future principal payments are as follows:
Fiscal Year:
1997................. $ 27,094,000
1998................. 10,649,000
1999................. 10,681,000
2000................. 53,015,000
2001................. 7,673,000
Subsequent to 2001... 46,000
------------
$109,158,000
============
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.
5. LEASE OBLIGATIONS
As of fiscal year end 1996, the Company leases 59 properties directly from
third party lessors, with an average remaining lease term of 14 years. In
addition, the Company has 10 stores on real property that is ground leased from
third party lessors and 33 stores in which Casino USA or Casino Realty has a
leasehold interest and which Casino USA or Casino Realty subleases to the
Company. The remaining lease term on the 33 stores subleased from Casino USA or
Casino Realty averages approximately 10.1 years with various renewal options at
then prevailing market rates.
During fiscal year 1996, 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. Of
the 117 stores leased from Casino USA or Casino Realty, 51 were stores in which
Casino USA or Casino Realty held a leasehold interest and which Casino USA or
Casino Realty subleased to the Company on substantially the same terms and
conditions as contained in Casino USA's or Casino Realty's leases from third
party lessors. Nine of the 51 stores were on real property that was ground
leased by Casino USA or Casino Realty and subleased to the Company; lease terms
were set at rates and terms considered to be equivalent to those available from
unrelated third party lessors. Generally, annual lease rates on stores owned by
Casino Realty were set at 9-10% of the completed cost of the store at the time
it was built or acquired.
The Company also leased five additional properties during fiscal year 1996,
which included its Vernon, California distribution facility and several
non-store locations, from Casino Realty.
Henry Lee's warehouse is leased from affiliates of the minority
shareholder. The leases contain terms and rates considered to be equivalent to
those available from unrelated third party lessors.
29
In December 1994, the Company entered into a $30.0 million master lease
facility which has provided for the lease of a new distribution center for Port
Stockton and for new store sites. During fiscal years 1996 and 1995, the Company
leased assets valued at approximately $25.7 and $20.0 million, respectively,
under this facility. The related minimum lease obligation is included in the
table below.
The Company leases equipment and buildings from third parties under
operating leases that expire at various periods through 2056. Henry Lee
guarantees $2,800,000 of obligations of affiliates of its minority shareholder.
These obligations are related to properties leased by Henry Lee.
Lease expense for real property included in the accompanying financial
statements is as follows:
Property Leased From
--------------------
Casino USA or Casino Realty
---------------------------
Fiscal Year: Subleased Owned
------------ ------------
1994............................ $6,843,000 $8,503,000
1995............................ $7,179,000 $9,271,000
1996............................ $7,334,000 $9,212,000
Aggregate minimum future lease payments for real property, as well as
equipment and other property at fiscal year end 1996 are as follows:
Fiscal Year: Related Parties Third Parties
--------------- -------------
1997................. $ 6,397,000 $ 13,874,000
1998................. 5,896,000 13,593,000
1999................. 5,553,000 12,053,000
2000................. 5,268,000 11,556,000
2001................. 5,061,000 33,129,000
Subsequent to 2001 36,713,000 105,445,000
----------- ------------
$64,888,000 $189,650,000
=========== ============
6. 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
$402,000, $435,000, and $418,000 for the fiscal years 1996, 1995, and 1994,
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 and intercompany charges approximate the cost
that would be incurred from independent third parties, on a stand alone basis.
Intercompany charges for each period are settled in the following period.
30
Intercompany Interest Charges/Credits
Intercompany interest charges from affiliates was $161,000 for
advances of $5,960,000 made during 1996. There were no material advances in 1995
and 1994.
7. RETIREMENT PLANS
Defined benefit plans
Smart & Final has a noncontributory pension plan covering all full
time employees. 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. The net
pension expense includes the following components:
1996 1995 1994
----------- ----------- -----------
Service cost component $ 1,196,000 $ 920,000 $ 1,085,000
Interest cost component 2,169,000 1,995,000 1,845,000
Actual return on plan assets (2,323,000) (3,700,000) 521,000
Net amortization and deferral 722,000 2,494,000 (1,746,000)
----------- ----------- -----------
Net pension expense $ 1,764,000 $ 1,709,000 $ 1,705,000
=========== =========== ===========
In accordance with Statement of Financial Accounting Standards No. 87
"Employers' Accounting for Pensions" ("SFAS No. 87"), it is appropriate to base
the measurement of the net periodic pension cost on the discount rate in effect
at the end of the prior fiscal year. The assumptions used to develop the
components of the net pension expense were as follows:
1996 1995 1994
------- ------- -------
Discount rate 7.50% 8.50% 7.25%
Rate of increase in compensation levels 4.00% 5.00% 4.00%
Expected long-term rate of return on plan assets 9.00% 9.00% 9.00%
The funded status and accrued pension costs of the plans were as follows:
1996 1995
------------ ------------
Accumulated benefit obligation:
Vested $ 24,238,000 $ 21,871,000
Non-vested 1,019,000 1,041,000
------------ ------------
$ 25,257,000 $ 22,912,000
============ ============
Present value of projected benefit obligation $ 30,794,000 $ 27,987,000
Fair value of plan assets 23,903,000 21,078,000
------------ ------------
31
Present value of projected benefit obligation
in excess of plan assets 6,891,000 6,909,000
Remaining unrecognized net obligation (686,000) (784,000)
Unrecognized prior service cost (1,996,000) (2,210,000)
Unrecognized net loss (2,194,000) (2,073,000)
------------ ------------
Accrued pension costs in excess of cash
payments made by the Company $ 2,015,000 $ 1,842,000
============ ============
In accordance with SFAS No. 87, it is appropriate to base the
measurement of the present value of the projected benefit obligation on the
discount rates at which the benefits could be effectively settled as of the
balance sheet date. The assumptions used to develop the funded status and the
accrued pension costs were as follows:
1996 1995
---- ----
Discount rate 7.50% 7.50%
Rate of increase in compensation levels 4.00% 4.00%
Expected long-term rate of return on plan assets 9.00% 9.00%
During fiscal year 1996, the plan's accumulated benefit obligation and
projected benefit obligation increased $2,345,000 and $2,807,000, respectively,
primarily due to changes in certain actuarial assumptions indicated in the table
above.
Defined contribution plans
Smart & Final offers all full time employees participation in a
defined contribution plan ("the 401(k) Savings Plan") which qualified under the
requirements of Section 401(k) of the Internal Revenue Code of 1986, as amended.
The 401(k) Savings Plan allows participants to contribute for fiscal year 1996
up to 15% of their compensation or $9,500, 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 years 1996, 1995 and 1994. Smart & Final has provided
$1,231,000, $1,250,000, and $1,094,000, for contributions to the 401(k) Savings
Plan for fiscal years 1996, 1995 and 1994, respectively.
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 $9,446,000 and $8,344,000
as of fiscal year end 1996 and 1995, respectively. The cash surrender value of
these policies amount to $753,000 and $534,000 as of fiscal year end 1996 and
1995 respectively.
32
8. 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.
Effective at the beginning of fiscal year 1993, the Company adopted
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("SFAS 106") and Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" ("SFAS 112") which require the expected cost of the
benefits to be charged to expense during the years that the employees render
service. In connection with the adoption of these standards, the Company
incurred a one-time, non-cash, net of tax charge of $12.9 million for these
benefit obligations through fiscal year 1992. The expense for postretirement
benefits included the following components:
1996 1995 1994
---------- ---------- ----------
Service cost $ 222,000 $ 206,000 $ 277,000
Interest cost 689,000 820,000 1,020,000
Net amortization and deferral (270,000) (222,000) --
---------- ---------- ----------
Postretirement benefits expense $ 641,000 $ 804,000 $1,297,000
========== ========== ==========
The discount rates used for fiscal years 1996, 1995 and 1994, to
determine the postretirement expense were 7.50%, 8.50% and 7.25%, respectively.
The components of the accrued liability for the accumulated
postretirement benefit obligation as reflected on the balance sheet at fiscal
year end 1996 and 1995, are as follows:
1996 1995
----------- ------------
Retirees $ 9,984,000 $10,179,000
Fully eligible active plan participants 564,000 544,000
Other active plan participants 6,749,000 6,507,000
----------- ------------
Accumulated postretirement benefit obligation $17,297,000 $17,230,000
=========== ===========
The accumulated postretirement benefit obligation is reflected on the
fiscal year end 1996 balance sheet as a current liability of $1.0 million and a
long term portion of $16.3 million. For measurement purposes, a 11.5% and 12.0%
annual rate of increase in the per capita cost of covered claims was assumed for
1996 and 1995, respectively; the rate is assumed to decrease by 0.5% per year
for the first 11 years until an ultimate rate of 6% is reached and remains at
that level thereafter. The Company offers a defined dollar benefit plan
providing a fixed dollar amount of coverage which does not increase with medical
inflation. The discount rate used in determining the accumulated postretirement
benefit obligation at fiscal year ends 1996 and 1995 was 7.5%.
33
9. WAREHOUSE START UP COSTS
In anticipation of the commencement of operations of the Company's new
distribution center in Northern California, the Company increased its staffing
levels and incurred certain other costs totaling approximately $4.3 million.
Significant delays in commencement of operations resulted in labor
inefficiencies, travel and move costs and significantly increased promotion
allowances and product discounts in order to maintain customer relationships
during the period of delay. These costs have been classified as warehouse
start-up costs in the accompanying income statement for the fiscal year ended
1995.
10. 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.
11. COMMON STOCK
Pursuant to an agreement dated March 7, 1989, ("Agreement"), the
Company's Chairman is obligated to purchased 143,000 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,
$1,037,000 and $71,000 for the fiscal years 1996, 1995 and 1994, respectively.
At December 29, 1996 the agreement was amended to establish a fixed purchase
price of $8.90 per share.
12. 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, after giving
effect to the three-for-two stock split issued on February 5, 1993. Common stock
equivalents relate to the employee stock options and a stock purchase agreement.
13. STOCK OPTIONS
The Company has a Stock Incentive Plan. During 1994, the Plan was
amended to increase the maximum amount of shares for which options may be
granted to 2,250,000 shares from 1,125,000 shares of the Company's common stock.
Option prices 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 officers and directors elected in 1996, 1995 and 1994
were granted at fair market value at the time of grant. Options currently
granted under the plan 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:
34
Weighted
Shares Average Price
------ -------------
Shares under option at fiscal year end 1993 911,750 $11.66
----------- ------
Fiscal year 1994:
Options granted 1,071,900 $14.09
Options exercised (47,000) 10.77
Options canceled (115,700) 13.47
----------
Shares under option at fiscal year end 1994 1,820,950 13.00
----------- ------
Shares exercisable at fiscal year end 1994 491,250 10.96
Fiscal year 1995:
Options granted 284,850 $16.79
Options exercised (47,000) 10.87
Options canceled (43,550) 14.25
-----------
Shares under option at fiscal year end 1995 2,015,250 13.56
----------- ------
Shares exercisable at fiscal year end 1995 721,284 11.23
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
Stock options outstanding at December 29, 1996, are as follows:
Number Weighted Average Weighted
Range of Outstanding Remaining Average
Exercise Prices as of 12/29/96 Contractual Life Exercise Price
- ---------------------------------------------------------------------------------------------------------------------
$10.7700 578,300 4.47 $10.7700
$13.0000 - $13.8750 34,297 7.06 $13.2296
$14.0000 732,030 7.15 $14.0000
$14.5000 - $16.1700 208,950 7.50 $15.0678
$16.5000 - $17.5000 223,800 8.45 $16.7722
$18.1250 - $19.2500 95,150 6.91 $18.4381
$20.3750 36,500 9.15 $20.3750
$21.8750 37,300 9.93 $21.8750
$22.8750 10,050 9.36 $22.8750
$23.6250 40,850 9.70 $23.6250
- ---------------------------------------------------------------------------------------------------------------------
$10.7700 - $23.6250 1,997,227 6.69 $14.1904
35
Stock options exercisable as of December 29, 1996, are as follows:
Range of Number Weighted Average
Exercise Prices Exercisable Exercise Price
- ---------------------------------------------------------------------------------------------------------------------
$10.7700 578,300 $10.7700
$13.0000 - $13.8750 13,577 $13.3544
$14.0000 222,390 $14.0000
$14.5000 - $16.1700 85,695 $15.4156
$16.5000 - $17.5000 - -
$18.1250 - $19.2500 45,667 $18.1304
$20.3750 - -
$21.8750 - -
$22.8750 - -
$23.6250 - -
- ---------------------------------------------------------------------------------------------------------------------
$10.7700 - $23.6250 945,629 $12.3431
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 for grants in 1996 and 1995, respectively; dividend yield of 1.0%
and 1.2%, expected volatility of 22% for both years, risk-free interest rates of
6.6% and 6.4% and expected lives of 3.16 years for non-executive and 2.75 years
for executives for both years. The weighted-average fair value of options
granted during 1996 and 1995 was $5.89 and $4.46, respectively.
Common stock shares available for future grant at fiscal year end 1996
and fiscal year end 1995 were 27,295 and 94,000, respectively.
The Company accounts for the Stock Incentive Plan under Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees", and
accordingly, compensation expense associated with options aggregated $152,000
and $372,000 for fiscal years 1995 and 1994, respectively. Compensation expenses
related to options issued has been fully amortized at fiscal year end 1995. Had
compensation costs for the Stock Incentive Plan been determined under SFAS No.
123, "Accounting For Stock-Based Compensation," proforma net income and earnings
per share would have been $24,017,000 and $1.13, respectively, for fiscal year
1996 and $18,154,000 and $0.87, respectively for fiscal year 1995. The impact
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.
14. EMPLOYMENT/CONSULTING AGREEMENTS
The Company has a consulting arrangement with its Chairman which
provides for his services for a 10 year period expiring in 2004. Employment
agreements have also been entered into with several principal executive
officers. These agreements contain provisions for base salary and bonuses,
expiring during fiscal years 1997 and 1998. The Company has a consulting
agreement with an affiliate of the minority shareholder of Henry
36
Lee which expires during fiscal year 1998. Annual payments under these
agreements are approximately $1,963,000.
15. ACQUISITION OF HENRY LEE
On November 8, 1994, the Company acquired 90% of the outstanding common
stock of Henry Lee for a purchase price of $18,410,000, including transaction
costs. The acquisition was accounted for by the purchase method of accounting.
The goodwill of $8,345,000 related to the purchase is being amortized over 40
years. The results of Henry Lee's operations for fiscal years 1996 and 1995, and
two months during fiscal year 1994, are included in the consolidated statements
of income of the Company. Henry Lee is engaged in the traditional full-service
food distribution business. Henry Lee serves 3,700 institutional and foodservice
customers, including restaurants, hotels and cruise lines, primarily in the
state of Florida and certain markets in the Caribbean and South America.
37
SMART & FINAL INC.
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
FISCAL YEAR-ENDED 1996 (A)
----------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
12 12 16 12 52
WEEKS WEEKS WEEKS WEEKS WEEKS
------------ ------------ ------------ ------------ ------------
INCOME STATEMENT DATA:
Sales....................................... $ 282,334 $ 307,408 $ 406,448 $ 306,371 $ 1,302,561
Cost of sales, buying and occupancy......... 237,936 256,685 342,347 257,965 1,094,933
Lease expense to affiliates................. 3,968 4,041 5,548 3,676 17,233
------------ ------------ ------------ ------------ ------------
Gross margin................................ 40,430 46,682 58,553 44,730 190,395
Operating and administrative expenses....... 32,597 36,020 44,328 34,862 147,807
Warehouse start up costs.................... -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Income from operations................. 7,833 10,662 14,225 9,868 42,588
------------ ------------ ------------ ------------ ------------
Interest income and expense:
Interest income......................... 121 109 133 138 501
Interest expense........................ (723) (827) (1,246) (1,078) (3,874)
------------ ------------ ------------ ------------ ------------
(602) (718) (1,113) (940) (3,373)
Income before provision for income
taxes and minority share of net income..... 7,231 9,944 13,112 8,928 39,215
Provision for income taxes.................. 2,929 3,737 5,054 3,138 14,858
Minority share of net income................ 107 48 11 78 244
------------ ------------ ------------ ------------ ------------
Income from consolidated subsidiaries....... 4,195 6,159 8,047 5,712 24,113
Equity earnings in unconsolidated
subsidiary................................ -- 109 50 62 221
------------ ------------ ------------ ------------ ------------
Net income.................................. $ 4,195 $ 6,268 $ 8,097 $ 5,774 $ 24,334
============ ============ ============ ============ ============
Earnings per common share................... $ 0.20 $ 0.30 $ 0.38 $ 0.27 $ 1.15
============ ============ ============ ============ ============
Weighted average common shares and
common share equivalents (B).......... 21,068,317 21,244,861 21,279,572 21,207,270 21,206,126
============ ============ ============ ============ ============
(A) Each of the Company's fiscal years consists of twelve week periods in the
first, second and fourth quarters of the fiscal year 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.
38
SMART & FINAL INC.
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
FISCAL YEAR-ENDED 1995 (A)
-------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
12 12 16 12 52
WEEKS WEEKS WEEKS WEEKS WEEKS
------- ------- ------- ------- -----
INCOME STATEMENT DATA:
Sales.................................. $ 252,139 $ 273,438 $ 365,276 $ 282,472 $ 1,173,325
Cost of sales, buying and occupancy.... 212,026 228,381 307,390 236,689 984,486
Lease expense to affiliates............ 3,919 3,939 5,426 3,823 17,107
----------- ----------- ----------- ----------- -----------
Gross margin........................... 36,194 41,118 52,460 41,960 171,732
Operating and administrative expenses.. 29,652 32,141 40,450 32,774 135,017
Warehouse start up costs............... - 3,500 750 - 4,250
----------- ----------- ----------- ----------- -----------
Income from operations................. 6,542 5,477 11,260 9,186 32,465
----------- ----------- ----------- ----------- -----------
Interest income and expense:
Interest income....................... 91 112 139 130 472
Interest expense...................... (527) (453) (743) (777) (2,500)
----------- ----------- ----------- ----------- -----------
(436) (341) (604) (647) (2,028)
Income before provision for income
taxes and minority share of net
income................................ 6,106 5,136 10,656 8,539 30,437
Provision for income taxes............. 2,437 1,940 4,046 3,620 12,043
Minority share of net income........... 90 48 21 89 248
----------- ----------- ----------- ----------- -----------
Income from consolidated subsidiaries.. 3,579 3,148 6,589 4,830 18,146
Equity earnings in unconsolidated
subsidiary............................ (100) - - 250 150
----------- ----------- ----------- ----------- -----------
Net income............................. $ 3,479 $ 3,148 $ 6,589 $ 5,080 $ 18,296
=========== =========== =========== =========== ===========
Earnings per common share.............. $ 0.17 $ 0.15 $ 0.32 $ 0.24 $ 0.88
=========== =========== =========== =========== ===========
Weighted average common shares and
common share equivalents (B).......... 20,542,382 20,689,942 20,789,047 20,969,156 20,750,818
=========== =========== =========== =========== ===========
(A) Each of the Company's fiscal years consists of twelve week periods in the
first, second and fourth quarters of the fiscal year 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.
39
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
The information required by Part III of Form 10-K (Items 10-13) is set forth in
the Company's definitive Proxy Statement (the "Proxy Statement") for its Annual
Meeting of Stockholders to be held on May 9, 1997, which will be filed with the
Securities and Exchange Commission pursuant to Regulation 14A within 120 days of
the Company's last fiscal year end. For Item 10, Directors and Executive
Officers of the Registrant, the sections of the Proxy Statement entitled
"Nominees", "Continuing Directors", "Executive Officers" and "Compliance With
Section 16(a) of the Securities Exchange Act of 1934" are incorporated herein by
this reference. For Item 11, Executive Compensation, the sections of the Proxy
Statement entitled "Executive Compensation", "Compensation Committee Interlocks
and Insider Participation", and "Compensation of Directors" are incorporated
herein by this reference. For Item 12, Security Ownership of Certain Beneficial
Owners and Management, the section of the Proxy Statement entitled "Security
Ownership of Certain Beneficial Owners and Management" is incorporated herein by
this reference. For Item 13, Certain Relationships and Related Transactions, the
section of the Proxy Statement entitled "Certain Transactions and Relationships"
is incorporated herein by this reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
PAGE
----
(A-1) FINANCIAL STATEMENTS :
Report of Independent Public Accountants............................ 19
Consolidated Balance Sheets......................................... 20
Consolidated Statements of Income................................... 21
Consolidated Statements of Stockholders' Equity..................... 22
Consolidated Statements of Cash Flows............................... 23
Notes to Consolidated Financial Statements.......................... 24
Supplementary Data - Summary of Quarterly Results of Operations..... 38
(A-2) FINANCIAL STATEMENT SCHEDULES:
Report of Independent Public Accountants............................ 48
VIII - Valuation and Qualifying Accounts............................ 50
All other schedules are omitted since the required information is
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.
40
EXHIBIT INDEX
Exhibit Sequentially
Number Description of Exhibit Numbered Pages
- ------ ---------------------- --------------
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 Employment Agreement, dated June 1, 1991, between Mr. Emmons
and the Company (1)*
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*
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)
41
EXHIBIT INDEX
Exhibit Sequentially
Number Description of Exhibit Numbered Pages
- ------ ---------------------- --------------
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 1991 Stock Incentive Plan of the Company, as Amended (7)*
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
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)
42
EXHIBIT INDEX
Exhibit Sequentially
Number Description of Exhibit Numbered Pages
- ------ ---------------------- --------------
10.28 Employment Agreement between the Company and Mr. Laverty*
10.29 Employment Agreement between the Company and Mr. Lynch (5)*
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)*
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)
43
EXHIBIT INDEX
Exhibit Sequentially
Number Description of Exhibit Numbered Pages
- ------ ---------------------- --------------
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)
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*
10.57 Smart & Final Inc. Directors Deferred Compensation Plan (9),
as amended*
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
44
EXHIBIT INDEX
Exhibit Sequentially
Number Description of Exhibit Numbered Pages
- ------ ---------------------- --------------
10.59 Agency Agreement dated December 15, 1994, between Shawmut Bank
Connecticut, National Association and the Company (12)
10.60 Lease Agreement dated December 15, 1994, between Shawmut Bank
Connecticut, National Association and the Company (12)
10.61 Agreement between PortStockton 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 Ocrtober 1, 1995 between Gilles
Pinocely 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)
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*
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.
21 Subsidiaries
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule
45
- -----------------
(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.
(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.
46
(10) Incorporated herein by reference to the corresponding Exhibit number in the
Company`s 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 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.
* Management contracts and compensatory plans, contracts and arrangements of
the Company.
During the quarter ended December 29, 1996, the Company filed no reports on Form
8-K.
47
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Smart & Final Inc.:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements of Smart & Final Inc. and
subsidiaries included in this Form 10-K and have issued our report thereon dated
February 10, 1997. Our audits were made for the purpose of forming an opinion on
the basic consolidated financial statements taken as a whole. The schedules
listed in the index in Item 14 are the responsibility of the Company's
management and are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied in the
audits of the basic consolidated financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic consolidated financial statements taken
as a whole.
ARTHUR ANDERSEN LLP
Los Angeles, California
February 10, 1997
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Los
Angeles, State of California, on March 17, 1997.
Smart & Final Inc.
By: /s/ Martin A. Lynch
-----------------------------
Martin A. Lynch
Executive Vice President,
Chief Financial Officer and Principal
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities indicated on
March 17, 1997.
/s/Robert J. Emmons Chairman of the Board
-------------------------
Robert J. Emmons
/s/Roger M. Laverty III President and Chief Executive Officer
-------------------------
Roger M. Laverty III
/s/Martin A. Lynch Executive Vice President,
------------------------- Chief Financial Officer, and
Martin A. Lynch Principal Accounting Officer
/s/Pierre B. Bouchut Director
-------------------------
Pierre Bouchut
/s/Timm F. Crull Director
-------------------------
Timm F. Crull
/s/James S. Gold Director
-------------------------
James S. Gold
/s/Antoine Guichard Director
-------------------------
Antoine Guichard
/s/David J. McLaughlin Director
-------------------------
David J. McLaughlin
/s/Thomas G. Plaskett Director
-------------------------
Thomas G. Plaskett
/s/ Georges Plassat Director
-------------------------
Georges Plassat
/s/Ross E. Roeder Director
-------------------------
Ross E. Roeder
/s/Louis E. Scott Director
-------------------------
Louis E. Scott
49
SMART & FINAL INC.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEARS 1996, 1995 AND 1994
BALANCE AT ACQUISITION BALANCE AT
BEGINNING OF END OF
OF PERIOD BUSINESS ADDITIONS DEDUCTIONS PERIOD
------------ ------------ ------------ ------------ -----------
Allowance for doubtful accounts
Fiscal year 1996................. $1,867,000 $354,000 $1,256,000 $ 909,000 $2,568,000
========== ======== ========== ========== ==========
Allowance for doubtful accounts
Fiscal year 1995................. $1,596,000 - $1,405,000 $1,134,000 $1,867,000
========== ======== ========== ========== ==========
Allowance for doubtful accounts
Fiscal year 1994................. $ 936,000 $531,000 $ 391,000 $ 262,000 $1,596,000
========== ======== ========== ========== ==========
50