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 1, 1995 (thirteen weeks)
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-10252
SMITH'S FOOD & DRUG CENTERS, INC.
(Exact name of registrant as specified in its charter)
Delaware 87-0258768
(State of Incorporation) (I.R.S. Employer Identification No.)
1550 South Redwood Road, Salt Lake City, UT 84104
(Address of principal executive offices) (Zip Code)
(801) 974-1400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Number of shares outstanding of each class of common stock as of April 1, 1995:
Class A 11,977,194
Class B 13,089,927
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Consolidated Statements of Income for the
thirteen weeks ended April 1, 1995 and
April 2, 1994 3
Consolidated Balance Sheets as of
April 1, 1995 and December 31, 1994 4
Consolidated Statements of Cash Flows for
the thirteen weeks ended April 1, 1995 and
April 2, 1994 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
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 1, April 2,
1995 1994
Net sales $746,673 $753,780
Cost of goods sold 579,806 591,063
-------- --------
166,867 162,717
Expenses:
Operating, selling and
administrative 112,770 113,248
Depreciation and
amortization 23,241 20,712
Interest 15,077 13,203
-------- --------
151,088 147,163
-------- --------
INCOME BEFORE
INCOME TAXES 15,779 15,554
Income taxes 6,300 6,200
-------- --------
NET INCOME $ 9,479 $ 9,354
======== ========
Net income per share of
Common Stock $ .37 $ .31
======== ========
Dividends paid per share
of Common Stock $ .15 $ .13
======== ========
Average number of common
shares outstanding
(In thousands) 25,492 30,044
======== ========
See notes to consolidated financial statements
SMITHS' FOOD & DRUG CENTERS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollar amounts in thousands)
April 1, December 31,
1995 1994
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 12,694 $ 14,188
Rebates and accounts receivable 24,289 25,596
Inventories 375,515 389,564
Prepaid expenses and deposits 43,275 17,258
---------- ----------
TOTAL CURRENT ASSETS 455,773 446,606
PROPERTY AND EQUIPMENT
Land 305,275 303,701
Buildings 618,612 619,056
Leasehold improvements 51,548 42,369
Fixtures and equipment 582,957 589,480
---------- ----------
1,558,392 1,554,606
Less allowances for
depreciation and amortization 369,224 364,741
---------- ----------
1,189,168 1,189,865
OTHER ASSETS 16,904 16,996
---------- ----------
$1,661,845 $1,653,467
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 196,524 $ 235,843
Accrued sales and other taxes 48,748 44,379
Accrued payroll and related benefits 77,641 84,083
Current maturities of long-term debt 19,552 19,011
Current maturities of Redeemable
Preferred Stock 667 1,017
---------- ----------
TOTAL CURRENT LIABILITIES 343,132 384,333
LONG-TERM DEBT, less current maturities 745,461 699,882
DEFERRED INCOME TAXES 91,250 89,500
REDEEMABLE PREFERRED STOCK, less
current maturities 4,410 4,410
COMMON STOCKHOLDERS' EQUITY
Convertible Class A Common Stock, par value
$.01 per share: Authorized 20,000,000 shares;
issued and outstanding, 11,977,194 shares
in 1995 and 12,451,165 shares in 1994 120 121
Class B Common Stock, par value $.01 per share:
Authorized 100,000,000 shares; issued
17,984,817 shares in 1995 and 17,510,846
shares in 1994 179 178
Additional paid-in capital 285,681 285,592
Retained earnings 299,187 293,456
---------- ----------
585,167 579,347
Less Treasury Shares at cost (4,894,890 shares
in 1995 and 159,800 shares in 1994) 107,575 104,005
---------- ----------
477,592 475,342
---------- ----------
$1,661,845 $1,653,467
========== ==========
See notes to consolidated financial statements
SMITH'S FOOD & DRUG CENTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollar amounts in thousands)
Thirteen Thirteen
Weeks Ended Weeks Ended
April 1, April 2,
1995 1994
OPERATING ACTIVITIES:
Net income $ 9,479 $ 9,354
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) 24,696 22,175
Deferred income taxes 2,150 1,300
Other 196 117
Changes in operating assets and
liabilities:
Rebates and accounts receivable 1,307 5,431
Inventories 14,049 488
Prepaid expenses and deposits (26,417) (27,881)
Trade accounts payable (39,319) 20,781
Accrued sales and other taxes 4,369 5,421
Accrued payroll and related benefits (6,442) (9,461)
------- -------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (15,932) 27,725
INVESTING ACTIVITIES:
Additions to property and equipment (25,220) (40,576)
Proceeds from the sale of property and equipment 1,221
Other 92 (93)
------- -------
CASH USED IN INVESTING ACTIVITIES (23,907) (40,669)
FINANCING ACTIVITIES:
Additions to long-term debt 51,000 3,000
Payments on long-term debt (4,880) (11,172)
Purchases of Treasury Stock (350) (355)
Proceeds from sale of Treasury Stock (4,709) (3,280)
Redemptions of Preferred Stock 1,031 1,625
Payment of dividends (3,747) (3,883)
------- -------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 38,345 (14,065)
------- -------
NET DECREASE IN
CASH AND CASH EQUIVALENTS (1,494) (27,009)
Cash and cash equivalents at beginning of year 14,188 61,921
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $12,694 $34,912
======= =======
See notes to consolidated financial statements
SMITH'S FOOD & DRUG CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the thirteen weeks
ended April 1, 1995 are not necessarily indicative of the results that may be
expected for the year ending December 30, 1995. For further information, refer
to the consolidated financial statements and notes thereto incorporated by
reference in the Company's annual report on Form 10-K for the year ended
December 31, 1994.
NOTE B -- SIGNIFICANT ACCOUNTING POLICIES
Net Income per Share of Common Stock: Net income per share of Common Stock is
computed by dividing net income by the weighted average number of shares of
Common Stock outstanding. The weighted average number of common shares
includes Common Stock equivalents in the form of stock options.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Net sales decreased 0.9% in the first quarter of 1995 to $746.7 million
compared to $753.8 million for the same period last year. Same store sales
decreased 5.5% compared with the prior year's first quarter. However, the
first quarter in 1994 included pre-Easter sales. This year the pre-Easter
sales fell in the second quarter. Adjusting for Easter, the decrease in
comparable store sales was estimated at 4%. The decrease in sales was mainly
caused by a significant number of competitive store openings in most marketing
areas, and aggressive price competition in the Company's new marketing area in
recession-plagued Southern California. To the extent these conditions persist,
the weakness in sales may continue.
During the first quarter of fiscal 1995, the Company opened six large
combination food and drug centers in Mesa and Phoenix, Arizona; Vista
California; Gallup and Hobbs, New Mexico; and Gardnerville, Nevada. One
smaller store was closed in Las Vegas, Nevada. At April 1, 1995, the Company
operated 142 stores totaling 9.4 million square feet compared to 133 stores
totaling 8.8 million square feet at the end of the prior year's first quarter.
During the remainder of fiscal 1995, the Company currently expects to open 6 to
8 additional stores including four stores in Arizona averaging approximately
54,000 square feet. The Company anticipates that future stores will range in
size from 54,000 to 66,000 square feet compared to approximately 75,000 square
feet for new stores opened in recent years. These new combination food & drug
centers will have many of the same attributes and product selections as the
larger stores.
The Company also announced plans to open four new retail warehouse-format
stores in Las Vegas during fiscal 1995. These new "price-impact" stores are to
be called PriceRite Grocery Warehouse. These four are in addition to the 12 to
14 new combination food and drug centers anticipated to be added in 1995.
Gross margins as a percentage of net sales increased to 22.3% during the first
quarter of 1995 from 21.6% during the same period last year. This increase is
due primarily to reduced charges for inventory shrinkage and improved prices in
certain merchandise items.. The Company anticipates that new stores recently
opened and planned to open, as in the past, will apply pressure on its gross
margins until the stores become established in their respective markets. The
pretax LIFO charge was $1.0 million for the first quarter of 1995 compared to
$1.5 million for the same period last year.
Operating, selling and administrative expenses as a percentage of net sales
increased to 15.1% during the first quarter of 1995 from 15.0% during the first
quarter of 1994. This increase was caused mainly by the store opening costs
related to the six stores opened during the quarter and decreases in comparable
store sales.
Depreciation and amortization expenses increased 12.2% for the first quarter
compared to the same period last year due to the increase in the number of new
combination stores.
Interest expense increased 14.2% in the first quarter compared to the same
period last year. The increase was due to the increase in debt incurred
primarily to finance new stores.
Liquidity and Capital Resources
Cash and cash equivalents decreased $1.5 million during the first quarter of
1994. Working capital was $112.6 million at April 1, 1995, a decrease of $27.7
million compared to December 31, 1994.
During the first quarter of 1995, cash provided by operating activities was
affected by a prepayment of health and medical expenses and a decrease in
accounts payable, resulting in net cash used in operations of $15.9 million.
Cash used by investing activities was $23.9 million for the first quarter of
1995 reflecting the Company's ongoing expansion program. The Company
anticipates investing approximately $100 million during the remainder of 1995
for the development and construction of new food and drug centers, remodeling
of existing stores and replacing equipment. However, the actual timing and
amount of capital expenditures may vary depending upon a number of factors.
Cash provided by financing activities totaled $38.3 million for the first
quarter of 1995 as a result of increasing long-term debt.
Management believes that the financial resources available to it, including
proceeds from sale/leaseback transactions, amounts available under existing and
future bank lines of credit, additional long-term financings, and internally
generated funds, will be sufficient to meet planned capital expansion and
working capital requirements for the foreseeable future, including debt and
lease servicing requirements. The Company may, however, use additional sources
of funds for such purposes, including the issuance of debt or equity securities
and leasing rather than owning buildings and equipment.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibit listed in the accompanying index to exhibits is filed as part
of the Form 10-Q.
(b) There were no reports on Form 8-K filed during the third quarter.
INDEX TO EXHIBITS
Exhibit
Number Document
10.20 Committed Credit Line Agreement,
dated as of March 31, 1995, between the Company and
Wachovia Bank of Georgia, N.A.
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: 5/11/95 /s/ Matthew G. Tezak
Matthew G. Tezak, Senior Vice
President and Chief Financial
Officer (Principal Accounting
Officer)
EXHIBIT 10.20
COMMITTED CREDIT LINE AGREEMENT
This Committed Credit Line Agreement (the "Agreement") is entered into as of
March 31, 1995 by and between Wachovia Bank of Georgia, N.A., a national
banking association with its principal office in Atlanta, Georgia (the "Bank")
and Smith's Food & Drug Centers, Inc. a corporation organized under the laws of
Delaware (the "Borrower"), and establishes a revolving credit line with a
maximum aggregate outstanding principal amount of Ten Million United States
Dollars (U.S. $10,000,000.00), (the "Commitment Amount").
Section 1. Commitment. The Bank agrees that the line of credit set forth
above may be utilized by the Borrower from time to time as set out more fully
herein up to the maximum aggregate principal amount at any one time outstanding
as stated above, (the "Commitment").
Section 2. Borrowings. When the Borrower desires to utilize such credit
line, a duly authorized representative of the Borrower (as identified or
defined in the resolution of the Borrower's board of directors authorizing the
execution, delivery and performance of this Agreement and the borrowings
hereunder, a copy of which resolution, certified by a secretary or assistant
secretary of Borrower, shall be furnished to the Bank simultaneously with the
execution of this Agreement) shall notify the Bank in writing or by telephone,
and the Bank may conclusively rely on any such notification which the Bank
reasonably believes to have been made by a duly authorized representative of
Borrower. In such case the Bank is authorized to credit to the account of the
Borrower at the Bank the amount of the loan as specified by the Borrower in
such notice (subject to the limitation of the aggregate principal amount as
above stated) or, at the option and request of Borrower as stated in such
notice, to transfer sum(s) in Federal Funds to a designated bank for credit to
the account of the Borrower at such bank. During the term of this Agreement
and subject to its terms and conditions the Borrower may borrow, repay, and
reborrow under the line of credit provided herein. All borrowings and
repayments shall be made upon a day on which the Bank is open for business at
its offices in Atlanta (a "Business Day"). All notifications hereunder to
either the Bank or the Borrower shall be given to the address(es) set forth
under the signatures of the parties hereto.
Section 3. Interest and Interest Periods. All such borrowings under this
Agreement, which the Borrower may initiate at its option, will have the
following borrowing interest rate and maturity date options (subject to the
other provisions hereof) at the Borrower's option and request as stated in the
notice to the Bank of each such borrowing:
(a) Base Rate. Borrowings bearing interest at the Base Rate (as
hereinafter defined) may be made upon notification received by the
Bank by 2:00 p.m. Atlanta time on the date of borrowing. The
aggregate outstanding principal balance of all borrowings hereunder
bearing interest at the Base Rate will be due and payable in Federal
Funds at the final maturity hereof. Interest on such borrowings
shall accrue at the Base Rate in effect from time to time, which rate
shall change as and when the Base Rate changes pursuant to the terms
hereof. Accrued, unpaid interest on such borrowings will be due and
payable in arrears on the first day of each calendar quarter during
the term of this Agreement commencing on March 3 1 , 1 995, through
and including the final maturity hereof.
For purposes of the Agreement, "Base Rate" means for any Base Rate
loan for any day, the rate per annum equal to the higher as of such
day of (i) the Bank's Prime Rate, and (ii) one-half of one percent
above the Federal Funds Rate. "Prime Rate" refers to that interest
rate so denominated and set by the Bank from time to time as an
interest rate basis for borrowings. The Prime Rate is but one of
several interest rate bases used by the Bank. The Bank lends at
interest rates above and below the Prime Rate. "Federal Funds Rate"
means, for any day, the rate per annum (rounded upward, if necessary,
to the next higher 1/l00th of 1%) equal to the weighted average of
the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day,
as published by the Federal Reserve Bank of New York on the Business
Day next succeeding such day, provided that if the day for which such
rate is to be determined is not a Business Day, the Federal Funds
Rate for such day shall be such rate on such transactions on the next
preceding Business Day as so published on the next succeeding
Business Day. Interest on Base Rate Loans shall be computed on the
basis of a year of 360 days, and paid for the actual number of days
elapsed.
(b) LIBOR Rate. Borrowings bearing interest at the LIBOR Rate may
be made upon notification received by the Bank by 2:00 p.m. Atlanta
time two Business Days prior to the date of borrowing for an interest
period (an "Interest Period") of one, two, three or six ( 1 , 2, 3,
or 6) months provided that no borrowing shall extend beyond the then
final maturity hereof. The outstanding principal balance of each
such borrowing will be due and payable at the maturity of such
borrowing, which maturity shall occur upon the expiration of the
Interest Period applicable thereto. All accrued, unpaid interest on
each such borrowing will be due and payable for each Interest Period
on the last day thereof, or, if such Interest Period is longer than
three months, at intervals of three months after the first day
thereof, and shall be calculated on the basis of the actual number of
calendar days elapsed in a 360-day year. For purposes of this
Agreement, the "LIBOR Rate" for any borrowing hereunder shall mean
the rate per annum equal to the sum of (x) the per annum interest
rate determined on the basis of the offered rate for deposits in
dollars of amounts equal or comparable to the principal amount of
such borrowing offered for a term comparable to such Interest Period,
which rates appear on the Reuters Screen LIBO Page as of 11:00 a.m.
London time, two (2) Business Days prior to the first day of such
Interest Period, provided that (i) if more than one such offered rate
appears on the Reuters Screen LIBO Page, the "London Interbank
Offered Rate" will be the arithmetic average (rounded upward, if
necessary, to the next higher 1/100th of l%) of rates quoted by not
less than two major banks in New York City, selected by the Bank, at
approximately 1 0:00 a.m., New York City time, two (2) Business Days
prior to the first day of such Interest Period, for deposits in
dollars offered to leading European banks for a period comparable to
such Interest Period in an amount comparable to the principal amount
of such borrowing plus (y) a margin of zero point four percent
(0.40"/0) per annum
(c) Money Market Rate. Borrowings bearing interest at the Money
Market Rate (as hereinafter defined) may be made upon notification
received by the Bank by 2:00 p.m. Atlanta time on the date of
borrowing for an interest period (an "Interest Period") of overnight
to 1 85 days, provided that no borrowing shall extend beyond the then
final maturity hereof. At the time of each Money Market Rate advance,
the Borrower and the Bank shall agree on the maturity date for the
payment of the principal amount of such advance, the interest rate (
the "Money Market Rate") for such advance and the dates interest on
such advance shall be payable. The outstanding principal balance of
each such borrowing will be due and payable at the maturity of such
borrowing, which maturity shall occur upon the expiration of the
Interest Period applicable thereto. All accrued, unpaid interest on
each such borrowing will be due and payable for each Interest Period
on the last day thereof, or, if such interest period is longer than
90 days, at intervals of 90 days after the first day thereof, and
shall be calculated on the basis of the actual number of calendar
days elapsed in a 360 day year.
Section 4. Prepayment. Borrowings hereunder which bear interest at the
Base Rate may be prepaid at any time, in whole or in part, without premium or
penalty, upon not less than one Business Day prior notice to the Bank
specifying the date of such prepayment and the principal amount to be prepaid.
Borrowings hereunder which bear interest at the LIBOR or Money Market Rates may
not be prepaid prior to the end of the then applicable Interest Period without
penalty (which penalty shall be reasonably determined by the Bank taking into
consideration its funding loss and any other cost, loss, expense or liability
(including loss of the margin specified in clause (i) of Section j(b) hereof)
occasioned by such prepayment). Any prepayment hereunder must be accompanied by
payment of all accrued, unpaid interest on the amount prepaid and by any other
sums then due to the Bank for any penalty with respect thereto.
Section 5. Reductions of Commitment Amount. The Borrower shall have the
right to reduce the Commitment Amount in whole or in part from time to time on
not less than three Business Days prior written notice to the Bank by an amount
of at least One Million United States Dollars (U.S. $1,000,000). Any reductions
in the Commitment Amount shall be permanent.
Section 6. Commitment-Fee. The Borrower shall pay to the Bank a fee (the
"Commitment Fee") at the rate of zero point one five percent (0.15%) per annum
(based upon a 360 day year) times the average daily Unused Commitment from day
to day during the period commencing on the effective date of the Agreement and
ending on the final maturity hereof. The Commitment Fee shall be payable
quarterly in arrears, and shall be due and payable ten business days following
the last day of each fiscal quarter during the term of this Agreement. Unused
Commitment means at any date, an amount equal to the Commitment Amount less the
aggregate outstanding principal of all borrowings under the Commitment.
Section 7. Repayment. The Borrower promises to repay the indebtedness
hereunder which will be evidenced by this Agreement and by a Promissory Note in
the form of Exhibit A hereto (a "Promissory Note", which Promissory Note shall
be executed by the Borrower and delivered to the Bank simultaneously with the
execution of this Agreement), at the stated maturity of each borrowing upon the
expiration of the Interest Period applicable thereto (if such borrowing bears
interest at the LIBOR or Money Market Rate) and in no event later than the
final maturity hereof. All payments hereunder shall be made in lawful money of
the United States of America in Federal Funds to the Bank at its offices in
Atlanta as herein stated. Any such payment not received by the Bank by 2:00
p.m. Atlanta time and on a Business Day shall be deemed to be made on the
following Business Day; provided, however, that if any amount hereunder shall
first become due and payable on a day which is not a Business Day, then the
time for payment of such amount shall be the first Business Day thereafter.
Exhibit A is attached hereto and incorporated herein for all purposes.
Notwithstanding any other provision of this Agreement, if any payment of
principal of or interest on any borrowings under this Agreement, or any other
sum payable under this Agreement, is not paid on the date when the same first
becomes due and payable, the amount of such overdue principal, interest or
other sum shall accrue interest, payable on demand, from such date until such
principal, interest or other sum is paid, at a rate per annum equal to the sum
of (x) the Base Rate plus (y) one percent (1.0%).
Section 8. Representations and Warranties. The Borrower represents and
warrants to the Bank at signing of this Agreement, at the commencement of each
Interest Period and on the date of each borrowing hereunder, that:
(a) It is a corporation existing and in good standing under the laws
of the state of Delaware, and has the requisite corporate power and
authority to 01\n its property and to carry on its business as now
being conducted;
(b) It is qualified, in good standing, and authorized to do business
in each jurisdiction wherein the character of the properties owned or
leased by it, makes such qualification necessary, except where the
failure to be so qualified, in good standing or authorized would not
have a material adverse effect on the Borrower;
(c) The Borrower has the requisite corporate power and authority to
enter into and perform its obligations under and in connection with
this Agreement and the Promissory Note;
(d) The Borrower has taken all necessary corporate action to
authorize the execution, delivery and performance of this Agreement
and the Promissory Note;
(e) The Borrower has duly executed and delivered this Agreement and
the Promissory Note, and this Agreement and the Promissory Note
constitute legal, valid and binding obligations of the Borrower which
are enforceable against the Borrower in accordance with their
respective terms, except to the extent that such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization or other
similar laws affecting creditors' rights generally and by general
principals of equity (regardless of whether enforcement is sought in
equity or at law);
(f) Neither the execution, delivery or performance by the Borrower
of this Agreement and the Promissory Note, nor compliance by the
Borrower with the terms and provisions hereof and thereof, (i) will
contravene any applicable provision of any law, statute, rule,
regulation, order, writ, injunction or decree of any court or
governmental instrumentality, (ii) will conflict or be inconsistent
with, or result in any breach of, any of the terms, covenants,
conditions or provisions of, or constitute a default under, or result
in the creation or imposition of (or the obligation to create or
impose) any lien, security interest or other charge or encumbrance
upon any of the property of the Borrower pursuant to the terms of,
any material indenture, mortgage, deed of trust, agreement or other
instrument to which the Borrower is a party or by which its property
is bound or to which it may be subject, or (iii) will violate any
provision of the certificate of incorporation or bylaws of the
Borrower;
(g) No order, consent, approval, license, authorization, or
validation of, or filing, recording or registration with, or
exemption by, any governmental or public body or authority, or any
subdivision thereof, is required to authorize, or is required in
connection with, (i) the execution, delivery and performance of this
Agreement or (ii) the legality, validity, binding effect or
enforceability of this Agreement;
(h) No material litigation or administrative proceeding of or before
any court, tribunal or other governmental authority is currently
pending nor, to the knowledge of the Borrower, is any such material
litigation or administrative proceeding currently threatened, against
the Borrower or any of its property which is likely to have a
material adverse effect on the Borrower;
(i) Each of the Borrower's Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of
its jurisdiction of incorporation, and has ail corporate powers and
all governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted, except where the
failure to possess such licenses, authorizations, consents or
approvals could not reasonably be expected to have or cause a
material adverse effect;
(j) The financial statements of the Borrower dated December 31 ,
1994 furnished to the Bank fairly present the Borrower's financial
position as of the date of such statements and the results of its
operations and the changes in such financial position for the period
then ended in accordance with generally accepted accounting
principles consistently applied. As of the date of this Agreement,
the Borrower represents that no material adverse change has occurred
since December 31, 1994 with respect to the ability of the Borrower
to perform under this facility.
Section 9. Covenants. The Borrower agrees that, so long as the Bank has a
commitment hereunder or any amount payable hereunder or under any Note remains
unpaid:
(a) The proceeds of the borrowings hereunder shall be used for the
general corporate purposes of the Borrower;
(b) The Borrower will, prior to the final maturity hereof and until
all indebtedness hereunder is fully repaid, provide to the Bank the
Borrower's unaudited quarterly consolidated financial statements
within 60 days following the end of each fiscal quarter of the
Borrower and the Borrower's audited annual consolidated financial
statements within 120 days following the end of each fiscal year of
the Borrower, promptly upon the filing thereof, copies of all
registration statements and reports on Forms 1 0-K, 1 0-Q, and 8-K
(or their equivalents), and all financial statements of the Borrower
delivered to the Bank under and in connection with this Agreement
shall be prepared in accordance with generally accepted accounting
principles, consistently applied; simultaneously, with the delivery
of each set of financial statements, a Compliance Certificate (i)
setting forth in reasonable detail the calculations required to
establish whether the Borrower was in compliance with the
requirements of Sections 8 (v) & 8 (w) on the date of such financial
statements and (ii) stating whether any Default exists on the date of
such certificate and, if any Default then exists, setting forth the
details thereof and the action which the Borrower is taking or
proposes to take with respect thereto; "Default" defined as any
condition or event which constitutes an Event of Default (as defined
in Section 11) or which with the giving of notice or lapse of time or
both would, unless cured or waived, become an Event of Default;
(c) The Borrower will observe and comply with all laws, statutes,
codes, acts, ordinances, rules, regulations and orders of any
governmental authority of the United States of America, any political
subdivision thereof, or any other jurisdiction to which the Borrower
or any of its property may be subject, a breach of which is likely to
have a material adverse effect on the Borrower. The Borrower will pay
and discharge, and will cause each Subsidiary to pay and discharge,
at or before maturity, all their respective material obligations and
liabilities (including, without limitation, tax liabilities and
claims of materialmen, warehousemen and the like which if unpaid
might by law give rise to a lien), except where the same may be the
subject of a good faith contest and against which the Borrower wilt
set up reserves in accordance with GAAP.
(d) Neither the Borrower nor any of its Consolidated Subsidiaries is
in default under or with respect to any agreement, instrument or
undertaking in an aggregate outstanding amount equal to or exceeding
$5,000,000-00 to which it is a party or by which it or any of its
property is bound. No Default or Event of Default has occurred and is
continuing. "Consolidated Subsidiaries" defined as at any date any
Subsidiary or other entity the accounts of which could be
consolidated with those of the Borrower in its consolidated financial
statements if such statements were prepared as of such date.
(e) In the ordinary course of its business, the Borrower conducts an
ongoing review of the effect of Environmental Laws on the business,
operations and properties of the Borrower and its Subsidiaries, in
the course of which it identifies and evaluates associated
liabilities and costs (including, without limitation, any capital or
operating expenditures required for clean-up or closure of properties
presently or previously owned, any capital or operating expenditures
required to achieve or maintain compliance with environmental
protection standards imposed by law or as a condition of any license,
permit or contract, any related constraints on operating activities,
including any periodic or permanent shutdown of any facility or
reduction in the level of or change in the nature of operations
conducted thereat, any costs or liabilities in connection with off-
site disposal of wastes or hazardous substances, and any actual or
potential liabilities to third parties, including employees, and any
related costs and expenses). On the basis of this review, the
Borrower has reasonably concluded that such associated liabilities
and costs, including the costs of compliance with Environmental Laws,
are unlikely to have a material adverse effect on the business,
financial condition, results of operations or prospects of the
Borrower and its Consolidated Subsidiaries, considered as a whole;
"Environmental Laws" defined as any and all applicable federal,
state, local and foreign statutes, laws, judicial decisions,
regulations, ordinances, rules, judgments, orders, decrees, plans,
injunctions, permits, concessions, grants, franchises, licenses,
agreements and other governmental restrictions relating to the
environment, the effect of the environment on human health or to
emissions, discharges or releases of pollutants, contaminants,
Hazardous Substances or wastes into the environment including,
without limitation, ambient air, surface water, ground water, or
land, or otherwise relating to the manufacture, processing,
distribution, use treatment, storage, disposal, transport or handling
of pollutants, contaminants, Hazardous Substances or wastes or the
clean-up or other remediation thereof; "Hazardous Substances" has the
meaning specified in the Comprehensive Environmental Response
Compensation and Liability Act of 1980, 42 U.S.C. Section 9601. et
sea., and shall also include petroleum, as defined in 42 U.S.C.
Section 6991;
(f) The Borrower will (i) keep, and cause each Subsidiary to keep,
books of record and account which, when consolidated, conform with
GAAP; and (ii) on reasonable notice to the Borrower, permit, and
cause each Subsidiary to permit, representatives of the Bank at the
Bank's expense prior to the occurrence of a Default and at the
Borrower's expense after the occurrence of a Default to visit and
inspect any of their respective properties, to examine and make
abstracts from any of their respective books and records and to
discuss their respective affairs, finances and accounts with their
respective officers, employees and independent public accountants.
The Borrower agrees to cooperate and assist in such visits and
inspection, in each case at such reasonable times and as often as may
reasonably be desired;
(g) The Borrower shall maintain its corporate existence and carry on
its business in substantially the same manner and substantially the
same fields as such business is now carried on and maintained.
(h) The Borrower will maintain, with financially sound and reputable
insurance companies, insurance on all its property in at least such
amounts with such retentions and against at least such risks as are
usually insured against ill the same general area by companies of
established repute engaged in the same or similar business.
(i) The Borrower will keep, and will cause each of its Subsidiaries
to keep, all property useful and necessary in its business in good
working order and condition, ordinary wear and tear excepted.
(j ) The Borrower will at all times keep and maintain Consolidated
Tangible Net Worth at an amount not less than the sum of (a)
$350,000,000 plus (b) 20% of cumulative net income reported after the
closing date (excluding losses) and (c) 66 2/3% of future equity
offerings or conversions. "Consolidated Tangible Net Worth" means the
consolidated gross book value of the assets of the Borrower and
Subsidiaries (exclusive of goodwill, patents, trademarks, trade
names, organization expense, treasury stock, unamortized debt
discount and expense, deferred charges and other like intangibles)
less (a) reserves applicable thereto and (b) all liabilities
including accrued and deferred income taxes; total liabilities and
the components of Tangible Net Worth shall be determined in
accordance with Generally Accepted Accounting Principles consistently
applied.
(k) Maintain a Fixed Charge Coverage ratio of not less than I.5 to
1, measured at the end of each fiscal quarter. "Fixed Charge
Coverage" means the sum of net income plus income taxes plus Fixed
Charges (interest plus net rents) divided by Fixed Charges.
(l) Neither the Borrower nor any of its Subsidiaries with assets
greater than or equal to $10,000,000.00 shall suffer or permit
dissolution or liquidation either in whole or in part.
(m) All information heretofore furnished by the Borrower to the Bank
for purposes of or in connection with this Agreement or any
transaction contemplated hereby, is, and all such information
hereafter furnished by the Borrower to the Bank will be, true,
accurate and complete in every material respect or based on
reasonable estimates on the date as of which such information is
stated or certified.
Section 10. Increased Costs. If, after the date hereof, the introduction
of, change in, or change in the interpretation or application of, any law,
regulation, rule, directive or request from any governmental or regulatory
authority (whether or not having the force of law) imposes, deems applicable or
modifies any requirement applicable to the Bank or any of its property or
operations (including, without limitation, a requirement to make any deduction
or withholding from any sum paid or payable by the Borrower hereunder or which
affects the Bank's capital adequacy or the allocation of capital resources to
its obligations) and, as a result, the cost to the Bank of making or
maintaining amounts available under this Agreement is increased, or the Bank's
return under this Agreement or on all or any of its capital is reduced, or the
Bank is, in its sole opinion, unable to obtain the rate of return on all or any
of its capital that it would have been able to achieve but for its obligations
hereunder and/or their performance, or any sum received or receivable by the
Bank under this Agreement is directly or indirectly reduced, or the Bank
directly or indirectly makes any payment or forgoes any interest or other
return on or calculated by reference to the amount of any sum received or
receivable by it under this Agreement, then the Borrower shall pay to the Bank
on demand such additional amounts which will, in the sole opinion of the Bank,
compensate the Bank for the effects of any such introduction or change
(provided that the foregoing shall not include the effects of any tax on the
net income of the Bank). The Bank will, to the extent reasonable under the
circumstances, endeavor to mitigate the effects of any event covered by this
Section 9. A certificate of the Bank specifying the amount of compensation
payable by the Borrower pursuant to this Section 9 shall, in the absence of
manifest error, be conclusive.
Section 11. Maturity. This Agreement is effective as of March 31, 1995. If
the Borrower does not receive a Notice of Non-Extension from the Bank at least
thirteen months prior to the Initial Termination Date, the Termination Date
will be automatically extended for successive additional periods of six
calendar months each (each a Successive Extension Period) until the earlier of
(i) the day which is thirteen months following receipt by the Borrower of a
Notice of Non-Extension from the Bank, or (ii) the Final Termination Date. The
Bank may determine to extend the Termination Date in its sole discretion and no
course of dealing or other circumstance shall require the Bank to extend the
Termination Date. As used herein the following terms will have the following
meanings: (l)"Final Termination Date" means March 31, 2000; (2) "Initial
Termination Date" means September 30, 1996; (3) "Notice of Non-Extension" means
a written notice delivered by the Bank to the Borrower to the effect that the
Termination Date will not be extended for a Successive Extension Period; and
(4) "Termination Date" means the Initial Termination Date or, if the
Termination Date is extended as contemplated by this paragraph, the last day of
each Successive Extension Period.
Section 12. Default. Upon the occurrence of any of the following specified
events of default (each an "Event of Default"):
(a) Default in any payment of principal of or interest on any
borrowings under this Agreement, or any other sum payable under this
Agreement, three business days following the date when the same first
becomes due and payable;
(b) Default in the performance or observance of any provision or
covenant contained within any existing loan agreement in an aggregate
outstanding amount equal to or exceeding $5,000,000.00 other than
this Agreement which the Borrower or any Subsidiary may have in
effect with any other lender, other than to us, during the tenor of
this Agreement and such default shall continue unremedied for a
period of twenty days;
(c) Default in the observance or performance of any other
representations, warranties or covenants of the Borrower set forth
herein, other than those referred to in the immediately preceding
clauses (a) and (b), and continuance of any such default for twenty
days after notice thereof to the Borrower; or
(d) The Borrower shall generally not, or shall be generally unable
to, or shall admit in writing its inability generally to, pay its
debts as such debts become due or otherwise becomes insolvent or
bankrupt, or makes an assignment for the benefit of creditors, or a
trustee or receiver is appointed for the Borrower or for the greater
part of the properties of the Borrower with the consent of the
Borrower, or if appointed without the consent of the Borrower, such
trustee or receiver is not discharged or stayed within 45 days; or
bankruptcy, reorganization, liquidation or similar proceedings are
instituted by or against the Borrower, and if instituted against the
Borrower are consented to by it or remain undismissed or unstayed for
45 days; or a writ or warrant of attachment or similar process shall
be issued against a substantial part of the property of the Borrower
and shall not be released or bonded within 45 days after levy;
(e) The Borrower shall fail to meet any of its obligations under
ERISA or notice of a proceeding to terminate any "plan" under ERISA
or to appoint a trustee of a "plan" is not dismissed or stayed within
60 days of such notice. "ERISA" defined as the Employee Retirement
Income Security Act of 1974, as amended, or any successor statute;
then, at the option of the Bank (but automatically in the case of any
Event of Default specified in the immediately preceding clause (d)),
the Bank's commitment to make advances hereunder shall terminate and
this Agreement and the aggregate outstanding principal balance of,
and all accrued, unpaid interest on, all borrowings evidenced hereby
shall become forthwith due and payable in full, without protest,
presentment, notice or demand, all of which are expressly waived by
the Borrower.
Section 13. Remedies, Other Matters.
(a) No failure or delay on the part of the Bank in exercising any
right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power
or privilege hereunder preclude any other or future exercise thereof
or the exercise of any other right, power or privilege. The rights
and remedies herein expressly provided are cumulative and are not
inclusive of any rights or remedies which the Bank or any subsequent
holder(s) of the Promissory Note would otherwise have.
(b) Upon the occurrence of a default hereunder, the Bank is hereby
authorized at any time or from time to time, without notice to the
Borrower, any such notification being expressly waived, to set-off
and to appropriate and to apply any and all deposits (general or
special) and any other indebtedness at any time held or owing by the
Bank to or for the credit or the account of the Borrower against and
on account of any indebtedness of the Borrower to the Bank hereunder.
(c) The descriptive headings of the several sections and subsections
of the Agreement are inserted for convenience only and shall not be
deemed to affect the meaning or construction of any provisions
hereof.
(d) This Agreement or any provision hereof or document referred to
herein may be changed, waived, discharged or terminated only by an
instrument in writing signed by the party against whom enforcement of
the change, waiver, discharge or termination is sought.
(e) This Agreement will be binding upon and inure to the benefit of
and be enforceable by the parties hereto and their respective
successors and assigns, and, in particular, will inure to the benefit
of the holders from time to time of the Promissory Note; provided,
however, that the Borrower may not assign or transfer its rights or
obligations hereunder without the prior written consent of the Bank.
The Bank shall have the right to sell participation in its interest
hereunder or to assign its interest hereunder, provided that the Bank
shall not assign its rights hereunder except upon prior written
notice to the Borrower.
(f) This Agreement may be executed in any number of counterparts,
each of which when so executed and delivered shall be an original,
but all of which together constitute one and the same instrument.
(g) The Borrower agrees to indemnify, hold harmless and defend the
Bank against any claim, demand, action, suit, loss or liability
arising in any manner from any breach, inaction or omission of the
Borrower, or any of its officers, directors, employees, agents or
affiliates, relating to or otherwise in connection with this
Agreement or the Promissory Note.
(h) THIS AGREEMENT CONSTITUTES THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES.
(i) THIS AGREEMENT SHALL BE DELIVERED TO THE BANK IN ATLANTA,
GEORGIA (THE PLACE OF PERFORMANCE HEREUNDER), AND SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAW OF THE STATE OF
GEORGIA AND, TO THE EXTENT CONTROLLING, APPLICABLE FEDERAL LAW OF THE
UNITED STATES OF AMERICA. The Borrower hereby expressly and
irrevocably agrees to the exercise of personal jurisdiction over it
in any federal or state court of appropriate subject matter
jurisdiction in Atlanta, Georgia, in any suit or action to enforce
payment or performance or otherwise arising hereunder or under the
Promissory Note. The Borrower hereby irrevocably waives, to the
fullest extent that it may effectively do so, the defense of an
inconvenient form to the maintenance of such action or proceeding.
(j) Service of any and all Process that may be served on any Party
hereto in any suit, action or proceeding arising out of this
Agreement may be made to the address set forth below such party's
signature hereto and service properly made by first class mail,
return receipt requested, or delivered to such address shall be taken
and held to be valid personal service upon such party by any party
hereto on whose behalf such service is made.
BORROWER: SMITH'S FOOD & DRUG CENTERS, INC.
By: /s/ Paul D. Tezak
NAME: Paul D. Tezak
TITLE: Vice President - Finance
Address: 1550 South Redwood Road
Salt Lake City, Utah 84104
WACHOVIA BANK OF GEORGIA, N.A.
BY: /s/ William F. Hamlet
NAME: William F. Hamlet
TITLE: Senior Vice President
Address: 191 Peachtree St.
Atlanta, GA
Master Note
Date March 31, 1995 $10,000,000.00
For Value Received, the undersigned (hereinafter called the "Borrower"), hereby
promises to pay on demand but not later than the maturity date or dates
determined as herein set forth to the order of WACHOVIA BANK OF GEORGIA, N.A.
(hereinafter called the "Lender"), at its office where borrowed, the principal
sum of Ten Million dollars or the aggregate unpaid principal sum of all
advances which the Lender actually makes hereunder to the Borrower, whichever
amount is less, together with interest in arrears payable on each Interest Due
Date (as hereinafter defined) at a rate computed on the basis of a 360-day year
for the actual number of days in each interest period, determined as herein set
forth.
Lender, at its sole discretion, is hereby authorized to make advances under
this Note upon telephonic or written communication of a borrowing request from
any Version representing himself or herself to be the Borrower or, in the event
Borrower is a partnership or corporation, a duly authorized officer or
representative of Borrower. At the time of each advance hereunder, the
Borrower and the Lender shall agree on the maturity date for the payment of the
principal amount of such advance (in the absence of earlier demand), the
interest rate for such advance and the dates interest on such advance shall be
payable (the "Interest Due Dates"). The Lender or other holder shall be and is
hereby authorized by the Borrower to set forth on the reverse side of this
Note, or on an attachment hereto: (1) the amount and date of each advance made
hereunder; (2) the maturity date of each such advance (absent earlier demand);
(3) the interest rate for each such advance; (4) the Interest Due Dates for
each such advance; and (5) each payment of principal received thereon and the
date of such payment; provided, however, any such notation or the failure to
make any such notation shall not limit or otherwise affect the obligation of
the Borrower with respect to the repayment of all advances actually made
hereunder. In the event of a good faith dispute among the parties to this Note
as to rate, the rate shall be the Prime Rate.
After this Note or any advance of the Note shall become due, whether on demand
or otherwise, the unpaid principal of this Note shall bear interest at a rate
per annum equal to the Prime Rate plus 1, not to exceed the maximum rate
permitted by applicable law. As used herein, "Prime Rate" refers to that
interest rate so denominated and set by the Lender from time to time as an
interest rate basis for borrowings. The Prime Rate is one of several interest
rate bases used by the Lender. The Lender lends at rates above and below the
Prime Rate. Changes in the Prime Rate shall be effective as of the day of each
such change.
Advances made hereunder shall not be used to purchase or carry margin stock,
such terms having the same meaning used in Regulation U of the Federal Reserve
Board.
All payments of any advance hereunder shall be applied first to accrued
interest and then to principal.
The Borrower may prepay any advance hereunder prior to the maturity date
specified for such advance only as outlined in that certain committed credit
line agreement dated as of March 31, 1995 between the Borrower and the Lender.
No waiver by the Lender of any provision of this Note shall be effective unless
in writing. To the extent not prohibited by law the Borrower hereby grants to
the Lender and to such Lender's Affiliates (as the case may be) a security
interest in and security title to and does hereby assign, pledge, transfer and
convey to Lender and to such Lender's Affiliates (as the case may be) (i) all
property of the Borrower of every kind or description now or hereafter in the
possession or control of the Lender or of any of Lender's Affiliates, exclusive
of any such property in the possession or control of the Lender or Lender's
Affiliates as a fiduciary other than as agent., for any reason including,
without limitation, all cash, stock or other dividends and all proceeds
thereof, and all rights to subscribe for securities incident thereto and any
substitutions or replacement for, or other rights in connection with, any of
such collateral and (ii) any balance or deposit accounts of the Borrower,
whether such accounts be general or special, or individual or multiple party,
and upon all drafts, notes, or other items deposited for collection or
presented for payment by the Borrower with the Lender or the Lender's
Affiliates (as the case may be), exclusive of any such property in the
possession or control of the Lender or Lender's Affiliates as a fiduciary other
than as agent, and the Lender and the Lender's Affiliates (as the case may be)
may at any time, without demand or notice, appropriate and apply any of such to
the payment of any indebtedness, obligations and liabilities of the Borrower to
the Lender or to any of Lender's Affiliates (as the case may be), now existing
or hereafter incurred or arising, whether or not due, with the exception of
indebtedness, obligations and liabilities owing to any of Lender's Affiliates
that constitute open-end credit under, or are subject to, the disclosure
requirements of the Truth-In-Lending Act and Federal Reserve Board Regulation Z
or any applicable state consumer protection laws. As used herein, "Lender's
Affiliates" means any entity or entities now or hereafter directly or
indirectly controlled by Wachovia Corporation or any successor thereto. All
parties to this Note, including makers, endorsers, sureties and guarantors,
whether bound by this or by separate instrument or agreement, shall be jointly
and severally liable for the indebtedness evidenced by this Note and hereby (1)
waive presentment for payment, demand, protest, notice of nonpayment or
dishonor and of protest and any and all other notices and demands whatsoever;
(2) consent that at any time, or from time to time, payment of any sum payable
under this Note may be extended without notice, whether for a definite or
indefinite time; and (3) agree to remain liable until the indebtedness
evidenced hereby is paid in full irrespective of any extension, modification or
renewal. No conduct of the holder shall be deemed a waiver or release of such
liability, unless the holder expressly releases such party in writing. In the
event the indebtedness evidenced hereby is collected by or through an attorney,
the holder shall be entitled to recover reasonable attorneys' fees and all
other costs and expenses of collection. Time is of the essence.
Notwithstanding the statement of any specific maturity date for any specific
advance and the requirement for the payment of interest from time to time, this
Note is a demand instrument and is due and payable at any time without cause or
reason and is not subject to the terms of Sections 1-203 or 1-208 of the
Uniform Commercial Code of Georgia, as the same may be amended from time to
time.
This Note shall evidence all advances and payments of principal made hereunder
until it is surrendered to the Borrower by the Lender, and it shall continue to
be used even though there maybe periods prior to such surrender when no amount
of principal or interest is owing hereunder.
This Note, and the rights and obligations of the parties hereunder, shall be
governed by and construed in accordance with the laws of the State of Georgia.
IN WITNESS WHEREOF, the Borrower has executed this Note under seal the day and
year set forth above.
Witness:
Borrower:
Attest: Smiths' Food & Drug Centers, Inc.
By /s/Paul Tezak
Title Title Vice President - Finance
