UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended April 2, 1994 (thirteen weeks)
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-10252
SMITH'S FOOD & DRUG CENTERS, INC.
(Exact name of registrant as specified in its charter)
Delaware 87-0258768
(State of Incorporation) (I.R.S. Employer Identification No.)
1550 South Redwood Road, Salt Lake City, UT 84104
(Address of principal executive offices) (Zip Code)
(801) 974-1400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Number of shares outstanding of each class of common stock as of April 2,
1994:
Class A 12,451,165
Class B 17,351,046
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Consolidated Statements of Income for the
thirteen weeks ended April 2, 1994 and
April 3, 1993 3
Consolidated Balance Sheets as of
April 2, 1994 and January 1, 1994 4
Consolidated Statements of Cash Flows for
the thirteen weeks ended April 2, 1994 and
April 3, 1993 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
<PAGE>
PART I. FINANCIAL INFORMATION
SMITH'S FOOD & DRUG CENTERS, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollar amounts in thousands, except per share data)
Thirteen Thirteen
Weeks Ended Weeks Ended
April 2, April 3,
1994 1993
-------- --------
Net sales $753,780 $688,239
Cost of goods sold 591,063 527,889
-------- --------
162,717 160,350
Expenses:
Operating, selling and
administrative 113,248 108,473
Depreciation and
amortization 20,712 18,025
Interest 13,203 10,745
-------- --------
147,163 137,243
-------- --------
INCOME BEFORE
INCOME TAXES 15,554 23,107
Income taxes 6,200 9,100
-------- --------
NET INCOME $ 9,354 $ 14,007
======== ========
Net income per share of
Common Stock $ .31 $ .46
======== ========
Dividends paid per share
of Common Stock $ .13 $ .13
======== ========
Average number of common
shares outstanding
(In thousands) 30,044 30,492
======== ========
See notes to consolidated financial statements
<PAGE>
SMITH'S FOOD & DRUG CENTERS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollar amounts in thousands)
April 2, January 1,
1994 1994
---------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 34,912 $ 61,921
Rebates and accounts receivable 15,407 20,838
Inventories 377,451 377,939
Prepaid expenses and deposits 47,415 19,634
---------- ----------
TOTAL CURRENT ASSETS 475,185 480,332
PROPERTY AND EQUIPMENT
Land 299,546 282,469
Buildings 593,592 582,775
Leasehold improvements 37,531 38,866
Fixtures and equipment 540,055 538,882
---------- ----------
1,470,724 1,442,992
Less allowances for depreciation
and amortization 293,694 284,363
---------- ----------
1,177,030 1,158,629
OTHER ASSETS 15,440 15,347
---------- ----------
$1,667,655 $1,654,308
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 206,006 $ 185,225
Accrued sales and other taxes 44,184 38,763
Accrued payroll and related benefits 64,006 73,467
Current maturities of long-term debt 19,991 21,473
Current maturities of Redeemable
Preferred Stock 691 1,046
---------- ----------
TOTAL CURRENT LIABILITIES 334,878 319,974
LONG-TERM DEBT, less current maturities 697,324 704,014
DEFERRED INCOME TAXES 83,900 82,700
REDEEMABLE PREFERRED STOCK, less
current maturities 5,423 5,423
COMMON STOCKHOLDERS' EQUITY
Convertible Class A Common Stock, par
value $.01 per share: Authorized
20,000,000 shares; issued and
outstanding, 12,451,165 shares in
1994 and 12,617,445 shares in 1993 124 126
Class B Common Stock, par value $.01 per
share: Authorized 100,000,000 shares;
issued 17,510,846 shares in 1994 and
17,344,566 shares in 1993 175 173
Additional paid-in capital 285,300 285,482
Retained earnings 264,870 259,399
---------- ----------
550,469 545,180
Less Treasury Shares at cost (159,800
shares in 1994 and 61,700 shares in
1993) 4,339 2,983
---------- ----------
546,130 542,197
---------- ----------
$1,667,655 $1,654,308
========== ==========
See notes to consolidated financial statements
<PAGE>
SMITH'S FOOD & DRUG CENTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollar amounts in thousands)
Thirteen Thirteen
Weeks Ended Weeks Ended
April 2, April 3,
1994 1993
-------- --------
OPERATING ACTIVITIES:
Net income $ 9,354 $14,007
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization (including
amounts charged to cost of goods sold) 22,175 19,227
Deferred income taxes 1,300 2,750
Other 117 164
Changes in operating assets and
liabilities:
Rebates and accounts receivable 5,431 499
Inventories 488 5,709
Prepaid expenses and deposits (27,881) (32,353)
Trade accounts payable 20,781 (16,565)
Accrued sales and other taxes 5,421 2,491
Accrued payroll and related benefits (9,461) (9,156)
-------- --------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 27,725 (13,227)
INVESTING ACTIVITIES:
Additions to property and equipment (40,576) (63,136)
Proceeds from the sale of property and equipment 1,117
Other (93) 302
-------- --------
CASH USED IN INVESTING ACTIVITIES (40,669) (61,717)
FINANCING ACTIVITIES:
Additions to long-term debt 3,000 87,000
Payments on long-term debt (11,172) (8,747)
Purchases of Treasury Stock (355) (414)
Proceeds from sale of Treasury Stock (3,280) (1,212)
Redemptions of Preferred Stock 1,625 1,023
Payment of dividends (3,883) (3,895)
-------- --------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (14,065) 73,755
-------- --------
NET DECREASE IN
CASH AND CASH EQUIVALENTS (27,009) (1,189)
Cash and cash equivalents at beginning of year 61,921 15,526
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $34,912 $14,337
======== ========
See notes to consolidated financial statements
<PAGE>
SMITH'S FOOD & DRUG CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the
thirteen weeks ended April 2, 1994 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1994. For
further information, refer to the consolidated financial statements and
notes thereto incorporated by reference in the Company's annual report on
Form 10-K for the year ended January 1, 1994.
NOTE B -- SIGNIFICANT ACCOUNTING POLICIES
Net Income per Share of Common Stock: Net income per share of Common Stock
is computed by dividing net income by the weighted average number of shares
of Common Stock outstanding. The weighted average number of common shares
includes Common Stock equivalents in the form of stock options.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Net sales for the quarter ended April 2, 1994 increased 9.5% over a year
ago to $754 million compared to $688 million for the same period last year.
New stores increased net sales by 10.0%. Same store sales decreased 0.5%
compared with the prior year's first quarter. However, the first quarter
this year included pre-Easter sales. In 1993 Easter fell in April.
Adjusting for Easter, the decrease in comparable store sales was estimated
at 1.4%. The decrease in same store sales was mainly caused by weakened
sales in Southern California due to the continuing intense recession in
this new market and heavy price competition in Utah resulting from the
Company's aggressive pricing program. To the extent these conditions
persist, the weakness in same store sales may continue.
During the first thirteen weeks of 1994, the Company opened four large
combination food and drug centers in Palmdale, Paramount, Redondo Beach and
Santee, California. At April 2, 1994, the Company operated 133 stores
totaling 8.8 million square feet compared to 121 stores totaling 7.8
million square feet at the end of the first quarter a year ago. The
expansion plan for the remainder of 1994 currently is to open up to eight
additional stores totaling approximately 508,000 square feet including four
stores in California.
Gross margins decreased to 21.6% during the first quarter of 1994 from
23.3% during the same period last year. The decrease was caused primarily
by the Company's aggressive Utah pricing program, which commenced in July
1993. The Company anticipates that new stores recently opened and planned
to open, as in the past, will apply pressure on its gross margins until the
stores become established in their markets. The pretax LIFO charge for the
first quarter 1994 was $1.5 million compared to $750,000 last year.
Operating, selling and administrative expenses as a percentage of net sales
decreased to 15.0% during the first quarter of 1994 from 15.8% during the
first quarter of 1993. This decrease, resulting from the Company's
aggressive program to reduce operating costs, is somewhat offset by the
higher operating costs associated with continued expansion into Southern
California.
Depreciation and amortization expenses increased 14.9% for the first
quarter compared to the same period last year due to the increase in the
number of new and larger combination stores and the new distribution
center.
Interest expense increased 22.9% in the first quarter compared to the same
period last year due to the increase in debt incurred primarily to finance
new stores and the new distribution center.
The new tax law enacted during the third quarter of 1993 increased the
Company's Federal Tax rate. As a result of the increased tax rate, net
income for the quarter was reduced by $190,000 or $.01 per common share.
The effective tax rate, including state income taxes, for the remainder of
1994 is expected to approximate 40%.
Net income decreased in the first quarter of 1994 to $9.4 million or $.31
per common share compared to $14.0 million or $.46 per common share
reported for the same period last year. The reduction in net income can be
attributed primarily to continuing pressure from opening new stores in the
depressed Southern California market, the Company's very aggressive pricing
program in the Utah market and the effect of new store openings by
competitors. These pressures may continue to depress earnings in the
future. The Company currently operates 30 stores in Southern California
and anticipates that as greater mass is obtained in California and benefits
from lowering costs are realized, this key California market may increase
the Company's long-term earnings potential.
Net income may also be affected by the relatively higher real estate,
operating and selling expenses (including preopening, startup and
advertising expenses) typically associated with stores in the California
market. The resulting effect on net income, however, may be partially
offset, depending upon competitive conditions, by the generally higher
gross profit margins expected in that market as stores mature.
Liquidity and Capital Resources
Cash and cash equivalents decreased by $27.0 million during the first
quarter of 1994. Working capital was $140.3 million at April 2, 1994, a
decrease of $20.1 million compared to January 1, 1994.
During the quarter, cash provided by operating activities was affected by a
prepayment of health and medical expenses, a decrease in accrued payroll
and related benefits and an increase in accounts payable, resulting in net
cash provided by operations of $27.7 million.
Cash used in investing activities was $40.1 million for the first quarter
of 1994 reflecting the Company's ongoing expansion program. The Company
anticipates investing approximately $110 million during the remainder of
1994 for the development and construction of new food and drug centers,
remodeling of existing stores and replacing equipment. However, the actual
timing and amount of capital expenditures will depend upon a number of
factors.
Cash used in financing activities totaled $14.1 million for the first
quarter of 1994 as a result of payments on long-term debt. At the end of
1993, the Company completed a sale/leaseback transaction which increased
cash and cash equivalents at the end of the year. The proceeds from the
sale/leaseback will be used to finance 1994 store expansion, cash
management efforts, and normal cash activities.
Management believes that the financial resources available to it, including
proceeds from sale/leaseback transactions, amounts available under existing
and future bank lines of credit, additional long-term financings, and
internally generated funds, will be sufficient to meet planned capital
expansion and working capital requirements for the foreseeable future,
including debt and lease servicing requirements. The Company may, however,
use additional sources of funds for such purposes, including the issuance
of debt or equity securities and leasing rather than owning buildings and
equipment.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) A report on Form 8-K was filed with the Securities and Exchange
Commission on March 25, 1994 describing under Item 7, "Financial Statements
and Exhibits" the documents filed in connection with, and incorporated by
reference into the Registration Statement on Form S-3 (File No. 33-51097)
as declared effective on January 26, 1994, relating to Pass Through
Certificates.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SMITH'S FOOD & DRUG CENTERS, INC.
(Registrant)
Date: 5/6/94 /s/Matthew G. Tezak
Matthew G. Tezak, Senior Vice
President and Chief Financial
Officer (Principal Accounting
Officer)
