UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1994 (fifty-two weeks)
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)
Securities registered pursuant to Section 12(b) of the Act:
Class B Common Stock, $.01 par value New York Stock Exchange
(Title of each class) (Name of each exchange
on which registered)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
The aggregate market value of the voting stock held by non-affiliates of
the registrant, computed by reference to the last sale price of the Class B
Common Stock on February 28, 1995: $411,279,332
Number of shares outstanding of each class of common stock as of February
28, 1995:
Class A 12,008,270 Class B 13,021,425
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive Proxy Statement dated March 24,
1995 for the Annual Meeting of Stockholders to be held on April 25, 1995
are incorporated by reference into Part III of this Form 10-K.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K 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
Annual Report on Form 10-K or any amendment to this Annual Report on
Form 10-K. [ ]
TABLE OF CONTENTS
PART I 3
Item 1. Business 3
Item 2. Properties 5
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security
Holders 6
PART II........ 6
Item 5. Market for the Registrant's Common Equity and
Related
Stockholder Matters 6
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of
Financial
Condition and Results of Operations 7
Item 8. Financial Statements and Supplementary Data 7
Item 9. Changes in and Disagreements With Accountants
on
Accounting and Financial Disclosure 7
PART III 7
Item 10. Directors and Executive Officers of the
Registrant 7
Item 11. Executive Compensation 8
Item 12. Security Ownership of Certain Beneficial
Owners and
Management 8
Item 13. Certain Relationships and Related Transactions 8
PART IV 9
Item 14. Exhibits, Financial Statement Schedules, and
Reports
on Form 8-K 9
PART I
Item 1. Business
Smith's Food & Drug Centers, Inc. (the "Company") is a leading
regional supermarket and drug store chain operating in the
Intermountain, Southwestern, and Southern California regions of
the United States. As of December 31, 1994 the Company operated
137 stores in Arizona, California, Idaho, New Mexico, Nevada,
Texas, Utah and Wyoming. The Company was founded in 1948 and
reincorporated under Delaware law in 1989. The Company's Class B
Common Stock is traded on the New York Stock Exchange under the
symbol "SFD".
The Company develops and operates combination food and drug
centers which offer a full selection of supermarket food items, a
wide assortment of nonfood and drug items and a number of
specialty departments including a "Big-Deals" section which
offers many food and household items in larger "warehouse" pack
sizes at warehouse club prices. Primary food products sold in
the stores include groceries, meat, poultry, produce, dairy
products, delicatessen items, prepared foods, bakery products,
frozen foods, take-out foods, fresh juices, and specialty fish,
meat and cheese. Some or all of the following nonfood items are
available in the stores: full-line pharmacy and related over-the-
counter drug items, health and beauty aids, video rentals, in-
store banking services, housewares, toys, camera/photo department
items, one-hour photo processing, cosmetics and other general
merchandise.
The average size of the Company's food and drug centers opened
during fiscal 1994 was 72,700 square feet. The Company's food
and drug centers currently being opened range in size from
approximately 54,000 to 81,000 square feet per store, and future
stores are expected to range in size from 54,000 to 66,000 square
feet per store, depending on site constraints and the number and
size of competing stores in relation to the population of the
market area being served. In order to respond to changing
consumer needs, the Company continually refines its store
configurations and layouts. The Company's 137 stores at December
31, 1994 consisted of 123 large combination food and drug centers
averaging 69,600 square feet, 12 superstores averaging 40,500
square feet and two conventional stores averaging 26,000 square
feet.
The combination stores range in size from 45,000 to 84,000 square
feet and offer a complete line of supermarket, nonfood and drug
products. These stores feature modern, attractive layouts with
wide aisles and well-lighted spaces to facilitate convenient
shopping, a variety of specialty departments, and centralized,
highly automated checkout facilities. The superstores range in
size from 30,000 to 45,000 square feet and have the appearance of
a large supermarket augmented with a significant amount of
nonfood and drug merchandise. Generally the superstores have
fewer and more limited specialty departments than the combination
stores. The conventional stores have the appearance of
traditional supermarkets.
The Company's strategy is to offer customers a broad product
selection at everyday low prices combined with quality customer
service in large, modern, attractive food and drug centers with
ample parking. Customers are able to fill a substantial portion
of their daily and weekly shopping needs at one convenient
location. The Company promotes its reputation as a low price
competitor in its market areas through a policy of everyday low
pricing. Management attributes much of the Company's success to
combining broad product selection and everyday low prices with
quality customer service.
The Company's primary focus in existing markets has been on
increasing sales volume by offering customers low prices and
quality customer service combined with specifically designed
marketing programs. The Company also has focused on increasing
sales volume by opening new stores in existing and adjacent
markets. During 1994, the Company opened eight combination
stores in the following states: six in California, one in New
Mexico, and one in Nevada. The Company's expansion into Southern
California was intentionally slowed to fine-tune and improve the
operation of the 32 stores opened there during the past three
years. Emphasis of future expansion will be in other states
where the Company operates. The Company currently plans to open
14 to 16 new stores in 1995, five of which were opened during the
first two months of 1995. These new stores will primarily be
located in Arizona, Nevada, and New Mexico.
Operations
The Company operates two major regions. Region I consists of 105
stores in Arizona, Idaho, New Mexico, Nevada, Texas, Utah and
Wyoming. Region II consists of 32 stores in Southern California.
The regions are divided into nine geographic districts ranging
from 12 to 17 stores each. The regions and districts are staffed
with operational managers who are given as much autonomy as
possible while retaining the advantages of central control and
economies of scale over accounting, real estate, legal and data
processing functions. This operational autonomy enables
operating management to react quickly to local market
circumstances and gain competitive advantages as local conditions
change. District and store managers are responsible for most
aspects of store operations.
Competition
The retail food and drug industry is highly competitive. The
Company competes with other large regional and national food and
drug store chains, local food and drug stores, specialty food
stores, convenience stores, restaurants and fast food chains.
Principal competitive factors include store location, price,
service, convenience, cleanliness, product quality and variety.
Because the food and drug store business is characterized by
narrow profit margins, the Company's earnings depend primarily on
high sales volume and operating efficiency.
The Company engages in aggressive price competition in each
market that it serves and monitors its market share in those
markets through internal research which is updated on a regular
basis. As the Company continues to move into new market areas,
it anticipates significant competitive pressure on its operating
margins in those markets.
Purchasing, Distribution and Processing
The Company operates approximately 4.2 million square feet of
distribution and processing facilities. Central distribution
facilities in Salt Lake City and Layton, Utah; Tolleson, Arizona;
and Riverside, California supply products to all of the Company's
stores. The Company also operates produce warehouses located in
Albuquerque, New Mexico and Ontario, California. The Company's
processing facilities located in Layton, Utah produce a variety
of products under the Company's private labels for distribution
to Company stores. The Company's automated frozen dough plant
produces frozen bakery goods for final baking at in-store
bakeries. The Company's cultured dairy products plant produces
sour cream, yogurt, cottage cheese and chip dip products. The
Company's ice cream processing plant supplies all stores with
Smith's private label ice cream. The Company's dairy plants
located in Layton, Tolleson and Riverside process a variety of
milk, milk products and fruit beverages.
The Company purchases significant levels of selected products,
typically fast moving inventory items, on a forward purchase
basis in order to secure lower prices or to take advantage of
special buying opportunities. Forward purchasing exposes the
Company to risks of possible decreases in product pricing during
the time held in stock, changes in demand for such product and
increases in the costs of financing inventory.
The Company transports food and merchandise from its distribution
centers through a Company-owned fleet of tractors and trailers
which primarily serve nearby stores and through common carriers
for stores located at greater distances.
Employees
The Company has over 19,000 employees. Approximately half of the
Company's employees are nonunionized. Nearly all of the
Company's employees in California are unionized. The Company's
unionized employees work under 20 collective bargaining
agreements with local labor unions. Ten of these collective
bargaining agreements are currently subject to renegotiation or
will become subject to renegotiation during 1995. There can be
no assurance that such agreements will be renewed or that the
terms of any such renewal will be similar to the terms of
existing agreements. Management of the Company believes that it
will be able to renew such agreements on terms acceptable to the
Company. If it is unable to do so, there could be a material
adverse effect on the Company's operations.
Governmental Regulation
The Company is subject to regulation by a variety of governmental
authorities, including federal, state and local agencies which
regulate the distribution and sale of alcoholic beverages,
pharmaceuticals, milk and other agricultural products, as well as
various other food and drug items and also regulate trade
practices, building standards, labor, health, safety and
environmental matters. The Company from time to time receives
inquiries from state and federal regulatory authorities with
respect to its advertising practices, pricing policies and other
trade practices. None of these inquiries, individually or in the
aggregate, has resulted, or is expected by management to result,
in any order, judgment, fine or other action that has, or would
have, a material adverse effect on the business or financial
position of the Company.
Item 2. Properties
At December 31, 1994, the Company operated 137 stores located in
eight states. Of the 137 stores, the Company owned 100 with the
remainder leased from third parties. The following is an
analysis of the Company's store properties by state at December
31, 1994:
State Owned Leased Total
Utah 29 5 34
California 20 12 32
Arizona 21 3 24
Nevada 7 10 17
New Mexico 12 4 16
Idaho 4 1 5
Wyoming 3 2 5
Texas 4 0 4
Total 100 37 137
The Company leases or subleases 37 of its operating stores under
leases expiring between 1997 and 2024. Eleven of the Company-
owned stores are situated on property which is ground-leased, in
whole or in part, from third parties under leases expiring
between 2007 and 2040. In most cases, such building and ground
leases are subject to customary renewal options.
The Company owns 579,000 square feet of grocery warehousing
facilities and 326,000 square feet of processing plants in
Layton, Utah; a 226,000 square foot nonfood warehouse in Salt
Lake City, Utah; and a 1,089,000 square foot grocery and nonfood
warehouse and 91,000 square feet of processing plants in
Tolleson, Arizona. The Company leases a 40,000 square foot
produce and forward purchasing warehouse in Albuquerque, New
Mexico; a 190,000 square foot combination grocery and nonfood
warehouse and a 408,000 square foot grocery warehouse in Salt
Lake City, Utah; and a 204,000 square foot produce warehouse in
Ontario, California, under leases expiring in 1995, 1997, 1997
and 1999, respectively. The Company also leases a 114,000 square
foot processing plant and a 981,000 square foot grocery warehouse
in Riverside, California under leases expiring in 2018.
In addition, the Company's corporate offices, data processing and
records storage facilities are located in over 100,000 square
feet of office and storage space owned by the Company in Salt
Lake City, Utah.
Item 3. Legal Proceedings
The Company is a party to several actions arising in the ordinary
course of its business. Management believes that none of these
actions, individually or in the aggregate, will have a material
adverse effect on the Company's results of operations or
financial position.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders
during the fourth quarter of fiscal 1994.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The Company's Class B Common Stock is listed on the New York
Stock Exchange under the symbol "SFD". The following table shows
the high and low sales prices per share for all quarters of
fiscal 1993 and 1994:
High Low
Fiscal 1993
First Quarter $37 1/4 $31
Second Quarter 33 1/4 23 5/8
Third Quarter 26 1/2 20
Fourth Quarter 22 1/2 19
Fiscal 1994
First Quarter 24 1/8 20 1/8
Second Quarter 22 18 1/8
Third Quarter 24 3/4 18 1/2
Fourth Quarter 26 3/4 22 5/8
As of February 28, 1995 there were 271 Class A Common
Stockholders and 1,247 Class B Common Stockholders of record.
There are numerous stockholders who hold their Class B Common
Stock in the "street name" of their various stock brokerage
houses.
Cash dividends of $.13 per share of Class A Common Stock and
Class B Common Stock were paid in each of the four quarters of
fiscal 1994, totaling $.52 per common share for fiscal 1994.
Cash dividends of $.13 per share of Class A Common Stock and
Class B Common Stock were paid in each of the four quarters of
fiscal 1993, totaling $.52 per common share for fiscal 1993. The
Board of Directors has approved a quarterly cash dividend of $.15
per common share commencing in the first quarter of fiscal 1995,
which, if continued, would total $.60 per common share for fiscal
1995.
Item 6. Selected Financial Data
The information required for this item is included in the
Annual Report to Stockholders for the fiscal year ended
December 31, 1994 on the schedule entitled "Five Year Summary
of Selected Financial and Operating Data" which information is
attached as part of Exhibit 13.1 hereto and incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The information required for this item is included in the
Annual Report to Stockholders for the fiscal year ended
December 31, 1994 in the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" which information is attached as part of Exhibit
13.1 hereto and incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements of the Company included in
the Annual Report to Stockholders for the fiscal year ended
December 31, 1994 are attached as part of Exhibit 13.1 hereto and
incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information concerning directors and certain executive officers
of the Company is included in the Company's Proxy Statement dated
March 24, 1995 under the caption "Election of Directors," and
"Other Matters -- Compliance with Section 16(a) of the Exchange
Act," which information is incorporated herein by reference. The
following sets forth certain information with regard to other
executive officers of the Company:
J. Craig Gilbert, age 47, has served as Senior Vice President,
Regional Manager, Region I since 1993. From 1992 to 1993 he
served as Senior Vice President, Regional Manager, Southwest
Region. From 1991 to 1992 he was Vice President, Regional
Manager, Southwest Region and from 1985 to1991 he served as Vice
President, Sales and Merchandising, Intermountain Region.
James W. Hallsey, age 52, rejoined Smith's in 1994 as Senior Vice
President, Special Projects after serving much of 1994 as Senior
Vice President at McKesson Drug Company, a pharmacy company. In
1993, he retired as a director (a capacity in which he served
since 1985) and Senior Vice President, Corporate Nonfoods
Director (a capacity in which he served since 1992). From 1980
to 1992, he served as Vice President, Corporate Nonfoods Director
of the Company.
Matthew G. Tezak, age 39, became Senior Vice President and Chief
Financial Officer in 1993. He served as Senior Vice President,
Finance and Treasurer from 1992 to 1993 and Vice President,
Finance and Treasurer from 1987 to 1992. Mr. Tezak, a certified
public accountant, joined the Company in 1979 as Assistant
Controller.
Larry R. McNeill, age 53, has served as Senior Vice President,
Corporate Development since 1992. Mr. McNeill joined the Company
in 1979 as Vice President, Corporate Development.
Richard C. Bylski, age 55, has served as Senior Vice President,
Human Resources since 1992. He served as Vice President, Human
Resources of the Company since 1979.
Michael C. Frei, age 48, joined the Company in March 1990 as
Senior Vice President, General Counsel and Corporate Secretary.
Prior to that time, Mr. Frei served as Vice President and General
Counsel of Price Development Company, a commercial real estate
developer, since 1981.
Fred F. Urbanek, age 59, has served as Senior Vice President,
Facility Engineering since 1992. He served as Vice President,
Facility Engineering of the Company since 1985.
The Company's executive officers are appointed to serve, at the
discretion of the Board of Directors, until their successors are
appointed.
Item 11. Executive Compensation
Information concerning Executive Compensation is included in the
Company's Proxy Statement dated March 24, 1995 under the caption
"Executive Compensation" which information is incorporated herein
by reference (other than information under the sub captions
"Report of the Compensation Committee on Executive Compensation"
and "Performance Graph", which shall not be deemed to be
incorporated by reference herein.).
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Information concerning Security Ownership of Certain Beneficial
Owners and Management is included in the Company's Proxy
Statement dated March 24, 1995 under the caption "Security
Ownership of Certain Beneficial Owners and Management" which
information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information concerning Certain Relationships and Related
Transactions is included in the Company's Proxy Statement dated
March 24, 1995 under the caption "Certain Transactions" which
information is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K
(a) Documents filed as part of this report:
1. Financial Statements:
The following consolidated financial statements of
the Company and its subsidiaries and the Report of Ernst
& Young LLP, Independent Auditors, included in the
Company's Annual Report to Stockholders for the fiscal
year ended December 31, 1994 are incorporated herein by
reference:
Consolidated Statements of Income--fiscal years ended
December 31, 1994, January 1, 1994, and January 2, 1993
Consolidated Balance Sheets--December 31, 1994 and
January 1, 1994
Consolidated Statements of Common Stockholders' Equity--
fiscal years ended December 31, 1994, January 1, 1994,
and January 2, 1993
Consolidated Statements of Cash Flows--fiscal years ended
December 31, 1994, January 1, 1994, and January 2, 1993
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
2. Financial Statement Schedules:
None
3. Exhibits:
The exhibits listed in the accompanying index to exhibits
are filed or incorporated by reference as part of the
Form 10-K.
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K during the fourth
quarter of fiscal 1994.
INDEX TO EXHIBITS
(Item 14(a))
Exhibit
Number Document
3(i) Restated Certificate of Incorporation
of the Company (incorporated by reference
to Exhibit 3.1 in the Company's
Registration Statement on Form S-1
(Commission File No. 33-28698) which became
effective on June 21, 1989).
3(ii) By-laws of the Company (incorporated
by reference to Exhibit 3.2 in the
Company's Registration Statement on Form S-
1 (Commission File No. 33-28698) which
became effective on June 21, 1989).
4.1 Article IV of Restated Certificate of
Incorporation of the Company (see Exhibit
3(i)).
4.2 Certain instruments which define the
rights of holders of long-term debt of the
Company and its subsidiaries are not being
filed because the total amount of
securities authorized under each such
instrument does not exceed 10% of the total
consolidated assets of the Company and its
subsidiaries. The Company hereby agrees to
furnish a copy of each such instrument to
the Commission upon request.
4.3 Form of Pass Through Trust Agreement
between the Company and the Pass Through
Trustee Company (incorporated by reference
to Exhibit 4.1 in the Company's
Registration Statement on Form S-3
(Commission File No. 33-51097) which became
effective on January 26, 1994).
4.4 Form of Pass Through Certificate
(included in Exhibit 4.3).
*10.1 Amended and Restated 1989 Stock Option Plan
(incorported by reference to Exhibit 10.1 of
the Company's Annual Report on Form 10-K for
the fiscal year ended December 28, 1991).
*10.2 First Amendment to the Amended and Restated
1989 Stock Option Plan (Exhibit 10.1) dated
as of February 7, 1995.
*10.3 1993 Employee Stock Purchase Plan (incorporated
by reference to Exhibit 10.2 of the Company's
Annual Report on Form 10-K for the fiscal year
ended January 2, 1993).
*10.4 First Amendment to the 1993 Employee Stock
Purchase Plan (Exhibit 10.3) dated as of
August 2, 1993 (incorported by reference
to Exhibit 10.3 of the Company's Annual
Report on Form 10-K for the fiscal year
ended January 1, 1994).
*10.5 Employees' Profit Sharing Plan and Trust,
as amended and restated as of July 27, 1982
(incorporated by reference to Exhibit 10.4
of the Company's Registration Statement on
Form S-1 (Commission File No. 33-28698)
which became effective June 21, 1989).
*10.6 Pension Plan of Employees, as amended and
restated as of July 27, 1982 (incorporated
by reference to Exhibit 10.5 of the Company's
Registration Statement on Form S-1
(Commission File No. 33-28698) which became
effective on June 21, 1989).
10.7 Employee Profit Sharing Plan dated as of
January 3, 1993, First Amendment dated
as of August 2, 1993 and Second Amendment
dated as of January 27, 1994 (incorported
by reference to Exhibit 10.6 of the
Company's Annual Report on Form 10-K for
the fiscal year ended January 1, 1994).
10.8 Third Amendment to the Employee Profit
Sharing Plan (Exhibit 10.7) dated as of
November 1, 1994.
*10.9 Forms of Supplemental Compensation
Agreements dated as of January 2, 1985,
and amended as of March 14, 1985, between
the Company and certain executive officers
(incorporated by reference to Exhibit 10.6
of the Company's Registration Statement on
Form S-1 (Commission File No.33-28698)
which became effective on June 21, 1989).
10.10 Revolving Credit Agreement, dated as of
January 31, 1995, between the Company
and Banco di Roma.
10.11 Revolving Credit Agreement, dated as of
October 15, 1993, between the Company
and Credit Suisse (incorported by reference
to Exhibit 10.9 of the Company's Annual
Report on Form 10-K for the fiscal year
ended January 1, 1994).
10.12 Amendment 1, dated as of September 2, 1994,
to Revolving Credit Agreement, dated as of
October 15, 1993, between the Company and
Credit Suisse (incorporated by reference
to Exhibit 10.18 of the Company's Form
10-Q for the third quarter ended
October 1, 1994).
10.13 Loan Agreement Between the Company and a
consortium of lenders dated May 1, 1992
(incorporated by reference to Exhibit
10.11 of the Company's Annual Report on
Form 10-K for the fiscal year ended
January 2, 1993).
10.14 Loan Agreement between the Company and a
consortium of lenders dated December 15,
1992 (incorporated by reference to Exhibit
10.12 of the Company's Annual Report on
Form 10-K for the fiscal year ended
January 2, 1993).
*10.15 Form of Additional Retirement Benefit
Agreement between the Company and certain
of its executive officers (incorporated
by reference to Exhibit 10.13 of the
Company's Annual Report on Form 10-K for
the fiscal year ended January 2, 1993).
*10.16 Form of Indemnification Agreement between
the Company and its directors and officers
(incorporated by reference to Exhibit 10.14
of the Company's Annual Report on Form 10-K
for the fiscal year ended January 2, 1993).
10.17 Revolving Credit Agreement, dated as of
June 28, 1993, between the Company and
Bank of America (incorporated by reference
to Exhibit 10.15 of the Company's Form 10-Q
for the second quarter ended July 3, 1993).
10.18 Amendment 1, dated as of September 16, 1994,
to Revolving Credit Agreement, dated as of
June 28, 1993, between the Company and Bank
of America (incorporated by reference to
Exhibit 10.19 of the Company's Form 10-Q
for the third quarter ended October 1, 1994).
10.19 Loan Agreement between the Company and a
consortium of lenders dated November 1,
1993 (incorporated by reference to Exhibit
10.17 of the Company's Annual Report on
Form 10-K for the fiscal year ended
January 1, 1994).
13.1 Company's Annual Report to Stockholders for
the fiscal year ended December 31, 1994
(selected pages only).
22.1 Subsidiaries of the Company (incorported by
reference to Exhibit 22.1 of the Company's
Annual Report on Form 10-K for the fiscal
year ended January 1, 1994).
23.1 Consent of Ernst & Young LLP,
Independent Auditors.
27 Financial Data Schedule
* Indicates management contract or compensatory plan or
arrangement.
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.
SMITH'S FOOD & DRUG CENTERS, INC.
Date: March 24, 1995 By /s/ Jeffrey P. Smith
Jeffrey P. Smith
Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Capacity Date
/s/ Jeffrey P. Smith Chairman of the Board of March 24, 1995
Jeffrey P. Smith Directors and Chief
Executive Officer
(Principal Executive
Officer)
/s/ Richard D. Smith Director March 24, 1995
Richard D. Smith
/s/ Robert D. Bolinder Executive Vice President, March 24, 1995
Robert D. Bolinder Corporate Planning and
Development; Director
/s/ Matthew G. Tezak Senior Vice President and March 24, 1995
Matthew G. Tezak Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Kenneth A. White Senior Vice President and March 24, 1995
Kenneth A. White Regional Manager,
Region II; Director
/s/ DeLonne Anderson Director March 24, 1995
DeLonne Anderson
/s/ Rodney H. Brady Director March 24, 1995
Rodney H. Brady
/s/ Alan R. Hoefer Director March 24, 1995
Alan R. Hoefer
/s/ Allen P. Martindale Director March 24, 1995
Allen P. Martindale
Director March 24, 1995
Nicole Miller
/s/ Duane Peters Director March 24, 1995
Duane Peters
/s/ Ray V. Rose Director March 24, 1995
Ray V. Rose
Director March 24, 1995
Stuart A. Rosenthal
/s/ Fred L. Smith Director March 24, 1995
Fred L. Smith
/s/ Sean D. Smith Director March 24, 1995
Sean D. Smith
/s/ Douglas John Tigert Director March 24, 1995
Douglas John Tigert
INDEX TO EXHIBITS
(Item 14(a))
Exhibit
Number Document
3(i) Restated Certificate of Incorporation
of the Company (incorporated by reference
to Exhibit 3.1 in the Company's
Registration Statement on Form S-1
(Commission File No. 33-28698) which became
effective on June 21, 1989).
3(ii) By-laws of the Company (incorporated
by reference to Exhibit 3.2 in the
Company's Registration Statement on Form S-
1 (Commission File No. 33-28698) which
became effective on June 21, 1989).
4.1 Article IV of Restated Certificate of
Incorporation of the Company (see Exhibit
3(i)).
4.2 Certain instruments which define the
rights of holders of long-term debt of the
Company and its subsidiaries are not being
filed because the total amount of
securities authorized under each such
instrument does not exceed 10% of the total
consolidated assets of the Company and its
subsidiaries. The Company hereby agrees to
furnish a copy of each such instrument to
the Commission upon request.
4.3 Form of Pass Through Trust Agreement
between the Company and the Pass Through
Trustee Company (incorporated by reference
to Exhibit 4.1 in the Company's
Registration Statement on Form S-3
(Commission File No. 33-51097) which became
effective on January 26, 1994).
4.4 Form of Pass Through Certificate
(included in Exhibit 4.3).
*10.1 Amended and Restated 1989 Stock Option Plan
(incorported by reference to Exhibit 10.1 of
the Company's Annual Report on Form 10-K for
the fiscal year ended December 28, 1991).
*10.2 First Amendment to the Amended and Restated
1989 Stock Option Plan (Exhibit 10.1) dated
as of February 7, 1995.
*10.3 1993 Employee Stock Purchase Plan (incorporated
by reference to Exhibit 10.2 of the Company's
Annual Report on Form 10-K for the fiscal year
ended January 2, 1993).
*10.4 First Amendment to the 1993 Employee Stock
Purchase Plan (Exhibit 10.3) dated as of
August 2, 1993 (incorported by reference
to Exhibit 10.3 of the Company's Annual
Report on Form 10-K for the fiscal year
ended January 1, 1994).
*10.5 Employees' Profit Sharing Plan and Trust,
as amended and restated as of July 27, 1982
(incorporated by reference to Exhibit 10.4
of the Company's Registration Statement on
Form S-1 (Commission File No. 33-28698)
which became effective June 21, 1989).
*10.6 Pension Plan of Employees, as amended and
restated as of July 27, 1982 (incorporated
by reference to Exhibit 10.5 of the Company's
Registration Statement on Form S-1
(Commission File No. 33-28698) which became
effective on June 21, 1989).
10.7 Employee Profit Sharing Plan dated as of
January 3, 1993, First Amendment dated
as of August 2, 1993 and Second Amendment
dated as of January 27, 1994 (incorported
by reference to Exhibit 10.6 of the
Company's Annual Report on Form 10-K for
the fiscal year ended January 1, 1994).
10.8 Third Amendment to the Employee Profit
Sharing Plan (Exhibit 10.7) dated as of
November 1, 1994.
*10.9 Forms of Supplemental Compensation
Agreements dated as of January 2, 1985,
and amended as of March 14, 1985, between
the Company and certain executive officers
(incorporated by reference to Exhibit 10.6
of the Company's Registration Statement on
Form S-1 (Commission File No.33-28698)
which became effective on June 21, 1989).
10.10 Revolving Credit Agreement, dated as of
January 31, 1995, between the Company
and Banco di Roma.
10.11 Revolving Credit Agreement, dated as of
October 15, 1993, between the Company
and Credit Suisse (incorported by reference
to Exhibit 10.9 of the Company's Annual
Report on Form 10-K for the fiscal year
ended January 1, 1994).
10.12 Amendment 1, dated as of September 2, 1994,
to Revolving Credit Agreement, dated as of
October 15, 1993, between the Company and
Credit Suisse (incorporated by reference
to Exhibit 10.18 of the Company's Form
10-Q for the third quarter ended
October 1, 1994).
10.13 Loan Agreement Between the Company and a
consortium of lenders dated May 1, 1992
(incorporated by reference to Exhibit
10.11 of the Company's Annual Report on
Form 10-K for the fiscal year ended
January 2, 1993).
10.14 Loan Agreement between the Company and a
consortium of lenders dated December 15,
1992 (incorporated by reference to Exhibit
10.12 of the Company's Annual Report on
Form 10-K for the fiscal year ended
January 2, 1993).
*10.15 Form of Additional Retirement Benefit
Agreement between the Company and certain
of its executive officers (incorporated
by reference to Exhibit 10.13 of the
Company's Annual Report on Form 10-K for
the fiscal year ended January 2, 1993).
*10.16 Form of Indemnification Agreement between
the Company and its directors and officers
(incorporated by reference to Exhibit 10.14
of the Company's Annual Report on Form 10-K
for the fiscal year ended January 2, 1993).
10.17 Revolving Credit Agreement, dated as of
June 28, 1993, between the Company and
Bank of America (incorporated by reference
to Exhibit 10.15 of the Company's Form 10-Q
for the second quarter ended July 3, 1993).
10.18 Amendment 1, dated as of September 16, 1994,
to Revolving Credit Agreement, dated as of
June 28, 1993, between the Company and Bank
of America (incorporated by reference to
Exhibit 10.19 of the Company's Form 10-Q
for the third quarter ended October 1, 1994).
10.19 Loan Agreement between the Company and a
consortium of lenders dated November 1,
1993 (incorporated by reference to Exhibit
10.17 of the Company's Annual Report on
Form 10-K for the fiscal year ended
January 1, 1994).
13.1 Company's Annual Report to Stockholders for
the fiscal year ended December 31, 1994
(selected pages only).
22.1 Subsidiaries of the Company (incorported by
reference to Exhibit 22.1 of the Company's
Annual Report on Form 10-K for the fiscal
year ended January 1, 1994).
23.1 Consent of Ernst & Young LLP,
Independent Auditors.
27 Financial Data Schedule
* Indicates management contract or compensatory plan or
arrangement.
<PAGE>
Exhibit 10.2
FIRST AMENDMENT TO
SMITH'S FOOD & DRUG CENTERS, INC.
AMENDED AND RESTATED
1989 STOCK OPTION PLAN
WHEREAS, Smith's Food & Drug Centers, Inc. and its
subsidiaries (together the "Corporation") adopted that certain
1989 Amended Stock Option Plan on January 20, 1989; and
WHEREAS, the 1989 Amended Stock Option Plan was further
amended by that certain Amended and Restated 1989 Stock Option
Plan (the "Plan") duly adopted by an action of the Board of
Directors taken on January 30, 1992, which action was ratified by
the Shareholders of the Corporation at a regularly schedued
meeting thereof held on April 29, 1992;
NOW, THEREFORE, pursuant to an action of the Board of
Directors taken January 26, 1995 at a regularly scheduled Board
of Directors meeting at which a quorum was present and duly
functioning, Section 6 of the Plan was further amended as set
forth below:
1. The following paragraph shall be added to the end of
Section 6 of the Plan:
"Subject to appropriate adjustment for stock
splits, stock dividends and similar events, as
provided in this Plan, the maximum number of
Shares which may be granted under options to any
Participant under this Plan for any fiscal year of
the Company shall be 500,000."
The Plan remains in full force and effect and remains
unmodified except to the extent specifically amended herein.
IN WITNESS WHEREOF, the Corporation has caused this First
Amendment to be executed by its duly authorized officers this 7th
day of February, 1995.
SMITH'S FOOD & DRUG CENTERS, INC.
By: /S/ Michael C. Frei
Its: SR. V.P.
ATTEST:
/S/ Peter H Barth
<PAGE>
EXHIBIT 10.8
THIRD AMENDMENT
TO THE
SMITH'S FOOD & DRUG CENTERS, INC.
EMPLOYEE PROFIT SHARING PLAN
WHEREAS, Smith's Food & Drug Centers, Inc. (the "Company")
has received a favorable determination letter from the Internal
Revenue Service as to the form of the Smith's Food & Drug
Centers, Inc. Employee Profit Sharing Plan, established January
3, 1993 (the "Plan"), under Section 401(a) of the Internal
Revenue Code (the "Code");
WHEREAS, in order to maintain the qualified status of the
Plan, the Internal Revenue Service has required in Revenue
Procedure 94-13 that the Plan be amended to comply with Section
401(a)(17) of the Code;
WHEREAS, in Revenue Procedure 93-47, the Internal Revenue
Service has allowed qualified plans to be amended to permit
participants to waive the 30-day notice requirement in connection
with certain distributions from such plans.
WHEREAS, the Company has established other retirement plans
for the benefit of its non-union employees, including the Smith's
Food & Drug Center, Inc. Defined Benefit (Flat Unit Benefit) Non-
Union Pension Plan and the Smith's Food & Drug Centers, Inc.
401(K) Savings Plan, and the Company contributes to various
multiemployer pension plans pursuant to collective bargaining
agreements;
WHEREAS, those retirement plans invest in a diversified
group of assets;
WHEREAS, the Company established the Plan for the purpose of
making its employees beneficial owners of stock in the Company
for the sole purpose of aligning the interests of employees with
the interests of the shareholders of the Company and thus
providing employees with greater incentives to strive for the
success of the operations of the Company; but for said purpose,
the Company would not have established the Plan;
WHEREAS, the Company desires to clarify its intent that the
Trustees of the Plan invest Plan assets exclusively in Company
common stock which is readily tradable on an established
securities market, except to the extent cash or marketable
securities are necessary to meet the liquidity needs of the Plan
or the value of Company common stock falls below a specified
level;
NOW, THEREFORE, the following amendments to the Plan are
hereby adopted:
1. Effective January 3, 1993, Section 7.5 of the Plan is
amended to add the following new paragraph at the end thereof:
If a distribution is one to which Sections 401(a)(11)
and 417 of the Code do not apply, such distribution may
commence less than 30 days after the notice required
under section 1.411(a)-11(c) of the Income Tax
Regulations is given, provided that:
7.5.1 the Committee clearly informs the Participant
that the Participant has a right to a period of at last
30 days after receiving the notice to consider the
decision of whether or not to elect a distribution
(and, if applicable, a particular distribution option),
and
7.5.2 the Participant, after receiving the notice,
affirmatively elects in writing to receive a
distribution.
2. Effective January 1, 1994, the definition of
Compensation in Article I of the Plan is amended to add the
following new paragraphs at the end thereof:
In addition to other applicable limitations set
forth in the Plan, and notwithstanding any other
provisions of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual
Compensation of each Employee taken into account under
the Plan shall not exceed the OBRA '93 annual
Compensation limit. the OBRA '93 annual Compensation
limit is $150,000, as adjusted by the Commissioner for
increases in the cost of living in accordance with
Section 401(a)(17)(B) of the Code. The cost-of-living
adjustment in effect for a calendar year applies to any
period, not exceeding 12 months, over which
Compensation is determined (determination period)
beginning in such calendar year. If a determination
period consists of fewer than 12 months, the OBRA '93
annual Compensation limit will be multiplied by a
fraction, the numerator of which is the number of
months in the determination period, and the denominator
of which is 12.
For Plan Years beginning on or after January 1,
1994, any reference in the Plan to the limitation under
Section 401(a)(17) of the Code shall mean the OBRA '93
annual Compensation limit set forth in this provision.
If Compensation for any prior determination period
is taken into account in determining an Employee's
benefits accruing in the current Plan Year, the
Compensation for that prior determination period is
subject to the OBRA '93 annual Compensation limit in
effect for that prior determination period. For this
purpose, for determination periods beginning before the
first day of the first Plan Year beginning on or after
January 1, 1994, the OBRA '93 annual Compensation limit
is $150,000.
3. Effective January 1, 1994, the definition of "Plan
Year" in Article I of the Plan is amended and restated to read,
in its entirety, as follows:
"Plan Year" means the fiscal year of the Plan and shall
be the 52- or 53-week period (depending on the ending
date of previous Plan Year) ending on the Saturday
preceding the last Friday of December of each year.
4. Effective January 1, 1994, Section 2.1 of the Plan is
amended and restated to read, in its entirety, as follows:
2.1 Years of Services. Years of Service shall
include each Plan Year during which an Employee has
completed at least 1,000 Hours of Service with the
Company.
2.1.1 Years of Service shall not include Plan
Years beginning prior to the effective date of the
Plan.
2.1.2 If a Participant who incurred a Break in
Service is reemployed by the Company, Years of Service
before such Break shall be disregarded until the
Participant has completed a Year of Service after such
Break; provided that the Participant satisfies the
conditions of 2.1.3; in which event Years of Service
before such Break shall be reinstated.
2.1.3 Subject to 2.1.2, if a Participant who
incurred a Break in Service is reemployed by the
Company, his Years of Service shall include Years of
Service to his credit at the beginning of such Break in
Service, unless (a) the Participant did not have a
vested and nonforfeitable right to any portion of his
Participant Account prior to such Break in Service, and
(b) the number of consecutive one-year Breaks in
Service equals or exceeds five.
5. Effective January 1, 1994, Section 10.3 of the Plan is
amended and restated to read, in its entirety, as follows:
10.3 Trust Fund Investments. The Trustees are
directed to invest the Trust Fund exclusively in shares
of Common Stock of the Company, except to the extent
cash or marketable securities are necessary to meet the
liquidity needs of the Plan. Notwithstanding the
foregoing, if the value of shares of Common Stock falls
below $5.00 per share, the Trustees shall be authorized
to liquidate a portion of the shares of Common Stock
held in the Trust Fund and invest in other assets to
the extent the Trustees deem appropriate for
diversification purposes. In the event that the shares
of Common Stock should, as a result of a stock split or
stock dividend or combination of shares or any other
change, or exchange for other securities, by
reclassification, reorganization, redesignation,
merger, consolidation, recapitalization or otherwise,
be increased or decreased or changed into or exchanged
for a different number or kind of shares of stock or
other securities of the Company or another company, the
foregoing dollar amount shall be appropriately adjusted
to reflect such action. The Trustees may purchase or
sell Common Stock from or to the Company (provided, the
requirements of Section 408(e) of ERISA are satisfied)
or from or to any other source, and such Common Stock
may be outstanding, newly issued or treasury
securities. The Trustees shall not borrow funds from
the Company for the purpose of purchasing Common Stock.
IN WITNESS WHEREOF, Smith's Food & Drug Centers, Inc. has
caused this instrument to be executed by its duly authorized
officer this 1st day of November, 1994.
SMITH'S FOOD & DRUG CENTERS, INC.
By: /s/ Matthew G. Tezak
Its Sr. V.P.
ATTEST:
/s/ Michael C. Frei
<PAGE>
Exhibit 10.10
[LOGO]
San Francisco, 31 January 1995
Smith's Food & Drug Centers, Inc.
Attn: Mr. Paul Tezak
Vice President -Finance & Treasurer
1550 South Redwood Road
P.O. Box 30550
Salt Lake City, Utah 84130
Dear Sirs:
We are pleased to confirm the continued availability of our committed
credit facility for Smith's Food & Drug Centers, Inc. (the "Company")
under the following terms and conditions:
1. The Facility.
A. Amount of Facility. Banca di Roma (the "Bank") agrees to
make loans and other advances (hereinafter called
individually a "Loan" and collectively, "the Loans") to the
Company in an aggregate principal amount at any one time
outstanding up to but not exceeding Fifteen Million United
States Dollars ($15,000,000.00). Within such limit the
Company may borrow, repay and reborrow at any time or from
time to time until the revocation of this facility by the
Bank as further discussed below.
B. Purpose of the Facility. This facility may be used for the
general corporate purposes of the Company.
C. Interest. Interest shall be computed in respect of the
amounts drawn under this facility at rates quoted by the Bank
and accepted by the Customer at the time of utilization. In
any event the rate quoted by the Bank shall not exceed the
London Interbank Offered Rate plus 0.50 percent per annum.
Interest shall be computed on the actual number of days
elapsed and on the basis of a 360 day year. Interest is
payable on the maturity date of each Loan.
D. Commitment Fee. The Company agrees to pay the Bank a
commitment fee of 0.25 percent per annum on the unutilized
portion of the facility. The commitment fee shall be
computed on the actual number of days elapsed and on the
basis of a 360 day year. The commitment fee is payable
calendar quarterly in arrears as billed by the Bank.
E. Payments under the Facility. Payments in respect to Loans
and the commitment fee are to be made in the legal currency
of the United States of America.
F. Expiry of the Facility. The facility is committed for a
period of eighteen months plus one day to include an
"evergreen" clause for the automatic renewal of same each six
months, barring notice of cancellation of the evergreen
facility by the Customer or the Bank. (For example, using
the new trigger dates, the Bank's commitment currently
will expire on 31 July 1996, but on 31 July 1995, the
expiration will extend automatically to 31 January 1997.
Thereafter, on 31 January 1996, the expiry automatically
extends to 31 July 1997, and so on, so that at no time will
there be less than one year and one day of availability,
barring notice of cancellation of the evergreen facility by
the Customer or the Bank).
2. Conditions of Lending. The commitment of the Bank to make
each Loan to be made by it hereunder is subject to the following
conditions precedent:
(1) No event of default specified in Section 5 hereof,
and no event which with notice or lapse of time or
both would become such an event of default, shall
have occurred and be continuing; the representations
of the Company in Section 4 hereof shall be true on
and as of the date of the making of such Loan with
the same force and effect as if made on and as of
such date.
(2) The Company shall from time to time promptly execute
and deliver all further instruments and documents,
and take all further action that may be reasonably
necessary or desirable or that the Bank may
reasonably request in order to carry out the
purposes of this facility agreement, to evidence its
signing authority and to enable the Bank to enforce
its rights and remedies hereunder.
(3) All legal matters incident to the transactions
hereby contemplated shall be satisfactory to the
Bank.
3. Covenants. So long as the availability of this facility
shall be outstanding and until the payment in full of all
Loans outstanding hereunder and the performance of all other
obligations of the Company hereunder, the Company agrees
that, unless the Bank shall otherwise consent in writing, it
will:
A. Furnish Financial Statements. The Company will
furnish the Bank:
(1) within one hundred twenty (120) days after the end
of each fiscal year of the Company, copies of the
balance sheets of the Company, including any
consolidated subsidiaries, as at the close of such
fiscal year and statements of income and retained
earnings of the Company and its consolidated
subsidiaries for such year, certified by independent
public accountants selected by the Company and
satisfactory to the Bank;
(2) within ninety (90) days after the end of the first
three quarters of each fiscal year of the Company,
copies of balance sheets of the Company and its
consolidated subsidiaries as at the end of such
quarters and statements of income and retained
earnings of the company and its consolidated
subsidiaries for the period from the beginning of
the fiscal year to the end of such quarter.
(3) from time to time, such further information
regarding the business, affairs, and financial
condition of the Company and its consolidated
subsidiaries as the Bank may reasonably request.
All financial statements delivered hereunder shall be
prepared on the basis of generally accepted accounting
principals and practices applied on a basis consistent
with those used in the preparation of the audited
financial statements of the Company.
B. Remain in compliance with Laws, etc. The Company
will, and will cause each of its consolidated subsidiaries
to, comply in all material respects with all applicable
laws, rules, regulations and orders of all governmental
bodies and officers having power to regulate or supervise
its business activities provided, however, that neither
the Company nor any of its consolidated subsidiaries shall
be required to comply with any such laws, rules or
regulations and orders so long as the validity thereof
shall be contested in good faith by appropriate
proceedings and adequate book reserve shall have been set
aside with respect thereto in accordance with generally
accepted accounting principles.
C. Maintain a consolidated tangible net worth of not less
than $350,000,000.
"Consolidated Tangible Net Worth" shall mean all assets
appearing on a balance sheet of the Company and its
Consolidated subsidiaries determined on a consolidated
basis in accordance with GAAP less (without limitation
and without duplication of deductions) the sum of (a)
consolidated Indebtedness to include preferred stock
and all short and long term debt obligations (other
than liabilities subordinated to the satisfaction of
Bank to the Obligations incurred hereunder), (b) and
reserves established by Company or any Consolidated
subsidiary for anticipated losses and expenses
including deferred taxes payable, (c) the amount, if
any, of such intangible items as goodwill (including
any amounts, however designated on the balance sheet,
investments in excess of underlying tangible assets),
trademarks, trademark rights, trade name rights,
copyrights, patents, patent rights, licenses,
unamortized debt discount, marketing expenses and
deferred research and development costs.
4. Representations.
The Company hereby represents and warrants to the Bank
that:
A. Corporate Existence and Power. The Company is a
corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware
and is duly qualified to transact business or own real
property in each state or other jurisdiction in which
its principal real properties are located or in which
it conducts any important or material part of its
business; and the Company has corporate power to enter
into and abide by the terms of this facility agreement
and to borrow hereunder.
B. Corporate Authority. The making and performance by
the Company of this facility agreement and the Loans
hereunder have been duly authorized by all necessary
corporate action and will not violate any provision of
law or of its charter or bylaws, or result in the
breach of or constitute a default or require consent
under, or result in the creation of any lien, charge,
or encumbrance upon any property or assets of the
Company pursuant to any indenture or other agreement
or instrument to which the Company is a party or by
which the Company or its property may be bound or
affected, other than as specifically provided herein.
C. Financial Condition. The balance sheets and
statements of income and retained earnings of the
Company and its consolidated subsidiaries, heretofore
furnished to the Bank, are complete and correct and
fairly represent the financial condition of the
Company and its consolidated subsidiaries as at the
dates of said financial statements and the results of
their operations for the periods ending on said dates.
Neither the Company nor any of its consolidated
subsidiaries has any material contingent obligations,
liabilities for taxes, long-term leases or forward or
long-term commitments not disclosed by, or reserved
against in, said balance sheets or the notes thereto,
and at the present time there are no material
unrealized or anticipated losses from any unfavorable
commitments of the Company or any consolidated
subsidiary. Since the date of the latest of such
statements there has been no material adverse change
in the financial condition of the Company and its
consolidated subsidiaries from that set forth in said
balance sheets as at that date.
D. Litigation. There are no material suits or material
proceedings pending, or to the knowledge of the
Company threatened against or affecting the Company or
any of its consolidated subsidiaries which, if
adversely determined, would have a material adverse
effect on the financial condition or business of the
Company and its consolidated subsidiaries and there
are no material proceedings by or before any
governmental commission, board, bureau, or other
administrative agency pending, or to the knowledge of
the Company, threatened, against the Company or any of
its consolidated subsidiaries.
5. Defaults.
If any of the following events of default shall occur and
shall not have been remedied:
A. Any representation or warranty made by the Company in
this facility agreement or in any request or
certificate of the Company furnished to the Bank shall
prove to have been incorrect in any material respect
when made or at any time while this facility agreement
is in effect; or
B. The Company shall default in the payment, when due,
of any principal of or interest on the Loans or any
other sum payable by the Company under this facility
agreement; or
C. The Company shall default in the performance of any
other obligation to be performed by it contained
herein and such default shall continue for thirty (30)
days after the Bank has given the Company written
notice of such default; or
D. The Company shall default in the payment of any of its
indebtedness in an aggregate amount of at least
$20,000,000 or in the performance of any covenants
with respect to such indebtedness and such
indebtedness shall have been accelerated by the holder
or holders thereof prior to its stated maturity or
maturities and such default shall continue unremedied
for a period of 30 calendar days; or
E. The Company or any of its consolidated subsidiaries
shall (1) apply for or consent to the appointment of a
receiver, trustee, or liquidator of itself, or of all
or a substantial part of its assets, (2) be unable, or
admit in writing its inability to pay its debts as
they fall due, (3) make a general assignment for the
benefit of its creditors, (4) be adjudicated a
bankrupt or insolvent, or (5) file a voluntary
petition in bankruptcy or a petition or an answer
seeking reorganization or an arrangement with
creditors or to take advantage of any insolvency law
or an answer admitting the material allegations of a
petition filed against it in any bankruptcy,
reorganization, or insolvency proceeding, or any
corporate action shall be taken by it for the purpose
of effecting any of the foregoing; or
F. An order, judgment, or decree shall be entered,
without the application, approval, or consent of the
Company or any of its consolidated subsidiaries by any
court of competent jurisdiction, approving a petition
seeking reorganization of the Company or any such
consolidated subsidiary or appointing a receiver,
trustee, or liquidator of the Company or any such
consolidated subsidiary or of all or a substantial
part of any of their respective assets and such order,
judgment or decree shall continue unstayed and in
effect for any period of more than thirty (30)
consecutive days;
then, and in any such case, the Bank may by written
notice to the Company (i) immediately terminate the
facility hereunder and/or (ii) declare the principal
of and interest accrued to be forthwith due and
payable, whereupon the same shall become forthwith due
and payable.
6. Notices.
All notices, requests, and demands shall be in writing and
shall be personally delivered or sent by mail or by telex,
and shall be deemed to have been duly given when delivered
by hand, or, if mailed, when deposited in the United
States mail, certified and return receipt requested,
postage and charges prepaid, or, in the case of any telex,
when sent, answerback received, and, regardless of method,
addressed to such party at its address set forth as
follows or such other address as such party may hereafter
designate by written notice to the other:
The Company: Smith's Food & Drug Centers, Inc.
1550 South Redwood Road Salt
Lake City, Utah 84104
The Bank: Banca di Roma
Attn: Credit Department
One Montgomery Street
Telesis Tower - Suite 2200
San Francisco, CA 94104
7. Miscellaneous.
A. As used in this facility agreement, "Taxes" shall mean
taxes, levies, imposts, duties, withholdings or other
charges of whatsoever nature levied, imposed,
collected, withheld or assessed by any government or
any political subdivision or taxing authority thereof,
other than any such charges on or measured by the net
income, net worth or shareholders' capital of the
Bank.
B. Neither failure nor delay on the part of the Bank to
exercise 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 further
exercise thereof or the exercise of any other right,
power, or privilege.
C. This facility agreement and each Loan shall be deemed
to be contracts made under the laws of the State of
California and for all purposes shall be governed by
the laws of California, without regard to the conflict
of laws statutes of such state. The Company hereby
irrevocably agrees that any legal action or
proceedings against the Company with respect to the
facility agreement may be brought in the courts of the
State of California, in any United States District
Court located in California and, by execution and
delivery of this facility agreement, the Company
hereby irrevocably submits to each such jurisdiction
and hereby irrevocably waives any and all objections
which the Company may have as to venue in any of the
above courts.
D. The Company will pay costs of collection (including
reasonable counsel fees) in case default is made in
the payment of any Loan made under this agreement.
E. Each payment or prepayment of principal, interest
or other amount payable by the Company under this
facility agreement and any other document required
hereunder shall, to the extent permitted by applicable
law, be made without set-off or counterclaim and free
and clear of, and exempt from, and without deduction
or withholding for or on account of, any present or
future Taxes levied, imposed, collected, withheld or
assessed by any governmental entity or any political
subdivision or taxing authority thereof. For the
purposes here, "Taxes" shall exclude (i) any taxes,
levies, impost, duties, withholdings or other charges
of whatsoever nature levied, imposed, collected,
withheld or assessed by any government or any
political subdivision or taxing authority thereof
which are measured by net income, net worth, or
shareholders' capital; (ii) any such taxes or
withholdings imposed on interest income under Sections
871 or 881 of the Internal Revenue Code or any
corresponding provisions of succeeding laws and (iii)
any amounts required to be withheld under Sections
1441 or 1442 of the Internal Revenue Code. The Bank
hereby represents that it is currently engaged in the
active conduct of the banking business in the United
States and the interest payable in connection with the
Loans is effectively connected with the conduct of
such business within the meaning of Section 864 of the
Internal Revenue Code and the regulations promulgated
thereunder as such may be amended from time to time.
So long as the Bank is engaged in the active conduct
of the banking business in the United States, the Bank
will deliver to the Company, as and when required by
the Company, a properly executed Form W-9 (or any
successor form or statement) setting forth its
taxpayer identification number and a properly executed
Form 4224 (or any successor form or statement)
claiming exemption from withholding of tax on income
effectively connected with its conduct of a trade or
business in the United States. If any Taxes are
levied, imposed, collected, subject to withholding or
assessed on any such payment or prepayment, the
Company shall make any withholding required for the
account of the Bank and make timely payment thereof to
the appropriate governmental authority, and shall, in
any event, forthwith pay to the Bank such additional
amounts as may be necessary so that the net amount
actually received by the Bank in respect of each such
payment or prepayment, after withholding, deduction or
payment for or on account of such Taxes, and after
payment by the Bank of any taxes due by reason of the
payment of such additional amounts will not be less
than the amount the Bank is entitled to receive
hereunder had no such Taxes been deducted, withheld
from or paid in respect of such payment. The Company
shall, promptly upon receipt, furnish to the Bank all
official receipts evidencing payment of any such Taxes
(which shall be either originals, duplicate originals,
or copies duly certified or authenticated). The Bank
may, but is not required to, pay at any time and from
time to time any amount in respect of such Taxes or
penalties therefore or interest thereon, in which
event the Company shall, in each instance, reimburse
the Bank on demand therefor and pay to the Bank the
additional amounts specified above.
F. If, after the date of this facility agreement, the
adoption or enactment of any applicable law or
governmental rule, requirement, guideline, order,
regulation, or any change therein, or change in the
interpretation or administration thereof by any
judicial or governmental authority, central bank,
comparable agency or other person charged with the
interpretation or administration thereof, or
compliance by the Bank with any request or directive
(whether or not having the force of law) of any such
authority (a "Change of Law") shall make it unlawful
or impossible for the Bank to make or maintain any of
the Loans, the Bank shall immediately notify the
Company of such Change of Law. Thereafter, the
Company's right to request the making of or
continuation of, and the Bank's obligation to make or
continue, a Loan shall be terminated. The Company
shall repay the Loan in full, (a) at the specified
maturity if the Bank may lawfully continue to maintain
the Loan to such day, or (b) immediately if the Bank
may not lawfully continue to fund or maintain the Loan
and the Bank so notifies the Company (which notice
shall be conclusive and binding upon the Company for
all purposes in the absence of error); provided,
however, that the Company and the Bank will, if
possible, take all reasonable and feasible steps to
mitigate the effect of any such Change in Law.
G. If, after the date of this facility agreement, the
Bank shall reasonably demonstrate that, because of any
Change of Law which shall have general applicability
to the Bank and to other lending institutions
similarly situated, (including, without limitation,
those affecting Taxes or reserve or special deposit or
similar requirements), the direct cost to the Bank of
making, renewing or maintaining any of the Loans has
been increased, or an additional direct cost imposed,
or any sum received or receivable by the Bank
hereunder has been reduced, in any of the foregoing
cases by an amount deemed by the Bank to be material
(including, without limitation, reductions resulting
from any material difference between the Federal
Reserve System reserve requirement imposed on the Bank
after the date of this facility agreement and the
reserve requirement for which the Bank is compensated
as of the date hereof in determining the interest
rate), the Company shall from time to time, upon
demand by the Bank, pay to the Bank such additional
amount or amounts as will compensate the Bank for such
increased or additional cost or such reduction. Any
such demand shall be accompanied by a statement of the
Bank setting forth the basis of the Bank's
determination of the amount necessary to compensate
the Bank, which statement as to the Bank's direct cost
shall, in the absence of error, be conclusive and
binding on the Company for all purposes.
H. In the Event of Default by the Company on loans made
by Bank under this agreement, the Company shall
compensate the Bank, within ten (10) days after
written notice by the Bank, for all reasonable losses,
costs and expenses in respect of any interest paid or
premium or penalty incurred by the Bank to lenders or
otherwise in respect of funds borrowed by or deposited
with it to make or maintain any of the Loans which the
Bank may sustain as a consequence of any Event of
Default by the Company.
We are pleased that you have provided us with the opportunity to
continue to assist in your banking needs and look forward to
strengthening our relationship with you in the future.
Sincerely yours,
BANCA DI ROMA - SAN FRANCISCO
/s/ Richard G. Dietz /s/Thomas C. Woodruff
We confirm our agreement with the above
and agree to abide by its terms.
Smith's Food & Drug Centers, Inc.
By: /s/ Paul Tezak
Title: V.P. Finance and Treasurer Date: February 8, 1995
<PAGE>
EXHIBIT 13.1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Sales
Net sales increased 6.2% in 1994, 5.9% in 1993, and
19.5% in 1992 compared with the respective prior years.
Since 1992 included 53 weeks compared to 52 weeks in 1993
and 1991, the increase in net sales would have been 8% in
1993 and 18% in 1992 after adjusting for the extra week.
New stores increased net sales by 8.5% in 1994, 6.6% in
1993, and 18.8% in 1992. The fluctuation in sales
increases from new stores resulted primarily from the
timing of store openings within the respective years.
Same store sales decreased 2.3% in 1994, 0.7% in 1993, and
increased 0.7% in 1992 compared with the respective prior
years. The decreases in same store sales in 1994 and 1993
were caused primarily by the continuing recession in
Southern California and new stores opened by competitors
in this and other markets. Same store sales in 1993 also
were negatively affected by heavy price competition in
Utah resulting from the Company's aggressive pricing
program. To the extent these conditions persist, the
decreases in same store sales may continue.
The Company opened 8 stores during 1994, 11 stores
during 1993, and 12 stores during 1992. Retail square
footage increased to 9,101,000 square feet at the end of
1994 (137 stores) from 8,501,000 square feet at the end of
1993 (129 stores) and 7,668,000 square feet at the end of
1992 (119 stores). An additional four stores were
completed during 1994. However, to avoid problems
associated with opening stores during the Christmas
season, the grand openings for these completed stores were
held in January. During 1995, the Company slowed its
expansion into Southern California in order to focus on
the operations of the 32 stores opened in that region
during the past three years. The Company plans to open
new stores in other states to offset the fewer California
openings. In 1995, the Company anticipates opening 14 to
16 stores including the four stores completed during 1994
and 10 to 12 stores in 1996. Future stores primarily will
range from 54,000 to 66,000 square feet, although a few
larger stores will be opened where appropriate.
Gross Margins
Gross margins during 1994, 1993, and 1992 were 22.2%,
22.5%, and 22.9%, respectively. The decreases in 1994 and
1993 were caused primarily by the Company's aggressive
Utah pricing program, which commenced in July 1993. To
reinforce the Company's everyday low price program, prices
in Utah stores were lowered on more than 10,000 grocery,
meat and produce items.
Gross margins also are affected by the Company's
expansion program. The stores in Southern California tend
to operate at higher gross margins to offset higher real
estate, operating and labor costs. The Company
anticipates that new stores recently opened and the
planned new stores will apply pressure on the Company's
gross margins until the stores become established in their
respective markets. Additionally, the new 1,000,000 square
foot distribution center in Riverside, California ,
including a dairy processing plant, is expected to lower
gross margins in the Southern California region until
backstage efficiencies and reduced shipping expenses can
be realized.
In 1992 the Company adopted the last-in, first-out
(LIFO) cost method for valuing inventories. The pretax
LIFO charge was $2.5 million in 1994 and $1.6 million in
1993. There were no LIFO charges or credits in 1992.
Operating, Selling and Administrative Expenses
Operating, selling and administrative expenses as a
percent of net sales were 14.8% in 1994, 15.3% in 1993,
and 15.8% in 1992. The decrease in 1994 and 1993,
resulting primarily from the Company's aggressive program
to reduce operating costs, was somewhat offset by the
higher operating costs associated with the expansion into
Southern California. The Company anticipates that the new
and planned stores will increase operating, selling and
administrative expenses as a percent of net sales until
anticipated economies of scale are realized.
Depreciation and Amortization Expenses
Depreciation and amortization expenses increased
14.9% in 1994, 22.0% in 1993, and 38.9% in 1992 over the
respective prior years due to the addition of new
combination centers and distribution and processing
facilities.
Interest Expense
Interest expense increased 20.4% in 1994, 23.5% in
1993, and 19.2% in 1992 compared with the respective prior
years as a result of net increases in the average long-
term debt amounts for each period.
Income Taxes
Income taxes as a percent of income before income
taxes were 39.1% in 1994, 42.8% in 1993, and 39.1% in
1992. The Omnibus Budget Reconciliation Act of 1993
increased the Company's Federal Tax rate from 34% to 35%.
As a result of the increased tax rate, net income for 1993
was reduced by $2.75 million or $.09 per common share.
This reduction consisted of $.80 million or $.03 per
common share for the rate increase on income earned in
1993 and $1.95 million or $.06 per common share for the
increase in recorded deferred taxes.
Net Income
Net income was $48.8 million for 1994 compared to
$45.8 million for 1993, an increase of 6%. However, as a
result of a reduction in the number of shares outstanding
through the Company's buy-back programs, net income per
common share increased 14% from $1.52 to $1.73. During
1994, the Company repurchased 4.9 million shares of common
stock in the open market. The weighted average number of
shares of Common Stock outstanding in 1994 was reduced by
approximately 1.9 million shares, which increased net
income per common share by $.11.
Liquidity and Capital Resources
Cash and cash equivalents decreased $47.7 million
during 1994 and increased $46.4 million during 1993. The
increase during 1993 primarily resulted from the receipt
of $152.7 million from a sale/leaseback transaction
completed at the end of 1993. The proceeds from the
sale/leaseback transaction were used to finance 1994 store
expansion, cash management efforts, and normal cash
activities. Working capital decreased to $62.3 million at
December 31, 1994 from $160.4 million at January 1, 1994,
a decrease of $98.1 million. The Company's current ratio
at the end of 1994 was 1.2:1 compared to 1.5:1 in 1993.
The working capital is supplemented by unused revolving
credit lines which aggregated $53 million at December 31,
1994.
Cash provided by operating activities amounted to
$203.6 million and $118.6 million for 1994 and 1993,
respectively. Cash provided by operating activities in
each of such years was partially offset by increases in
inventory balances. The Company maintains levels of
inventory necessary to support its high-volume, everyday
low price merchandising strategy. Inventories increased
$11.6 million and $36.5 million to $389.6 million and
$377.9 million at the end of 1994 and 1993, respectively.
These increases in inventories were caused mainly by
warehouse and store expansion. The increase in trade
accounts payable of $50.6 million in 1994 resulted
primarily from better year end cash management.
Cash used in investing activities totaled $127.4
million for 1994 and $164.4 million for 1993. Additions
to property and equipment totaled $146.7 million in 1994
and $322.3 million in 1993 reflecting the Company's
ongoing expansion program. In 1993 the Company completed
the sale and leaseback of several recently constructed
stores and its new Riverside distribution center totaling
$152.7 million. The Company anticipates investing
approximately $125 million during 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 used in financing
activities totaled $123.9 million for 1994.
Cash provided by financing activities totaled $92.3
million for 1993. During 1994, the Company repurchased
4.9 million shares totaling $109.2 million under its stock
repurchase plans. The treasury stock activities reduced
common stockholders' equity by $101.0 million. During
1993, the Company obtained $262.0 million in additional
unsecured long-term borrowings to finance additions to
property and equipment. Quarterly cash dividends have
been paid on the Company's Class A and Class B Common
Stock since 1989. In January 1995, the Board of Directors
increased the annual dividend rate from $.52 to $.60 per
common share.
At December 31, 1994 and January 1, 1994, the Company
had outstanding $669.9 million and $704.0 million,
respectively, of long-term debt, principally borrowed from
insurance companies and other institutional lenders. Of
these amounts, $257.7 million and $289.1 million were
secured by real estate assets at the end of each
respective year. The Company has not experienced
difficulty to date in obtaining financing at satisfactory
terms.
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 real estate and equipment.
Inflation
In recent years, the impact of inflation on the
Company's operating results has been moderate, reflecting
generally lower rates of inflation in the economy.
Management does not believe that the Company will be
adversely affected by any significant future inflation
because of the large number of Company-owned stores which
do not have contingent or volume-related rental
obligations. While inflation has not had, and the Company
does not expect it to have, a material impact upon
operating results, there is no assurance that the
Company's business will not be affected by inflation in
the future.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Dollar amounts in thousands,
except per share data
1994 1993 1992
Net sales $2,981,359 $2,807,165 $2,649,860
Cost of goods sold 2,318,127 2,175,061 2,042,800
----------- ----------- -----------
663,232 632,104 607,060
Expenses:
Operating selling and
administrative 440,844 430,258 419,664
Depreciation and
amortization 88,592 77,099 63,216
Interest 53,715 44,627 36,130
----------- ----------- -----------
583,151 551,984 519,010
Income before income
taxes 80,081 80,120 88,050
Income taxes 31,300 34,300 34,400
----------- ----------- -----------
Net income $48,781 $45,820 $53,650
=========== =========== ===========
Net income per share
of Common Stock $1.73 $1.52 $1.79
See Notes to consolidated financial statements
<PAGE>
CONSOLIDATED BALANCE SHEETS
Dollar amounts in thousands 1994 1993
ASSETS
Current Assets
Cash and cash equivalents $14,188 $61,921
Rebates and accounts receivable 25,596 20,838
Inventories 389,564 377,939
Prepaid expenses and deposits 17,258 19,634
Property and Equipment
Land 303,701 282,469
Buildings 619,056 582,775
Leasehold improvements 42,369 38,866
Fixtures and equipment 589,480 538,882
---------- ----------
1,554,606 1,442,992
Less allowances for
depreciation and amortization 364,741 284,363
---------- ----------
1,189,865 1,158,629
Other Assets 16,996 15,347
---------- ----------
$1,653,467 $1,654,308
========== ==========
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $235,843 $185,225
Accrued sales and other taxes 44,379 38,763
Accrued payroll and related
benefits 84,083 73,467
Current maturities of long-term
debt 19,011 21,473
Current maturities of
Redeemable Preferred Stock 1,017 1,046
---------- ----------
Total Current Liabilities 384,333 319,974
Long-Term Debt, less current
maturities 699,882 704,014
Deferred Income Taxes 89,500 82,700
Redeemable Preferred Stock, less
current maturities 4,410 5,423
Common Stockholders' Equity
Convertible Class A Common Stock
(shares issued and outstanding,
12,140,317 in 1994 and 12,617,445
in 1993) 121 126
Class B Common Stock (shares Issued,
17,821,694 in 1994 and 17,344,566 in
1993) 178 173
Additional paid-in capital 285,592 285,482
Retained earnings 293,456 259,400
---------- ----------
579,347 545,181
Less cost of Common Stock in
the treasury (4,772,822 shares in
1994 and 95,718 shares in 1993) 104,005 2,984
---------- ----------
475,342 542,197
---------- ----------
$1,653,467 $1,654,308
========== ==========
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
Class A Common Class B Common
Stock Stock Additional
Dollar amounts in thousands Number of Par Number of Par Paid-in Retained Treasury Total
except per share data Shares Value Shares Value Capital Earnings Stock
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 29,1991 14,160,430 $141 15,801,581 $158 $285,444 $188,643 $474,386
Net income for 1992 53,650 53,650
Conversion of shares from
Class A to Class B (757,298) (7) 757,298 7
Cash dividends $.44 per share (13,183) (13,183)
Other 536 536
---------- ---- ---------- ---- -------- -------- -------- --------
Balance at January 2, 1993 13,403,132 134 16,558,879 165 285,980 229,110 515,389
Net income for 1993 45,820 45,820
Conversion of shares from
Class A to Class B (785,687) (8) 785,687 8
Purchase of Class B Common
Stock for the treasury $(11,074) (11,074)
Shares sold to the Employee
Stock Profit Sharing Plan (212) 3,237 3,025
Shares sold under the
Employee Stock Purchase Plan (771) 4,853 4,082
Cash dividends $.52 per share (15,530) (15,530)
Other 485 485
---------- ---- ---------- ---- -------- -------- -------- --------
Balance at January 1, 1994 12,617,445 126 17,344,566 173 285,482 259,400 (2,984) 542,197
Net income for 1994 48,781 48,781
Conversion of shares from
Class A to Class B (477,128) (5) 477,128 5
Purchase of Class B Common
Stock for the treasury (109,239) (109,239)
Shares sold to the Employee
Stock Profit Sharing Plan 143 1,505 1,648
Shares sold under the
Employee Stock Purchase Plan (668) 6,713 6,045
Cash dividends $.52 per share (14,725) (14,725)
Other 635 635
---------- ---- ---------- ---- -------- -------- -------- --------
Balance at December 31, 1994 12,140,317 $121 17,821,694 $178 $285,592 $293,456 $(104,005) $475,342
========== ==== ========== ==== ======== ======== ========= ========
</TABLE>
See notes to consolidated financial statements
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollar amounts in thousands 1994 1993 1992
Operating Activities
Net income $48,781 $45,820 $53,650
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization (including
amounts charged to cost of goods sold) 94,491 82,173 67,781
Deferred income taxes 10,500 15,400 16,000
Other 635 485 536
Changes in operating assets and liabilities:
Rebates and accounts receivable (4,758) (4,038) (1,726)
Inventories (11,625) (36,523) (50,989)
Prepaid expenses and deposits (1,324) (518) (10,161)
Trade accounts payable 50,618 1,119 3,723
Accrued sales and other taxes 5,616 6,625 1,296
Accrued payroll and related benefits 10,616 8,007 4,478
-------- -------- --------
Cash provided by operating activities 203,550 118,550 84,588
Investing Activities
Additions to property and equipment (146,676) (322,301) (287,989)
Sale/leaseback arrangements and other
property and equipment sales 20,949 159,137 3,920
Other (1,649) (1,258) (2,500)
-------- -------- --------
Cash used in investing activities (127,376) (164,422) (286,569)
Financing Activities
Additions to long-term debt 27,000 262,000 252,748
Payments on long-term debt (33,594) (149,197) (35,513)
Redemptions of Redeemable
Preferred Stock (1,042) (1,039) (939)
Purchases of Treasury Stock (109,239) (11,074)
Proceeds from sales of Treasury Stock 7,693 7,107
Payment of dividends (14,725) (15,530) (13,183)
-------- -------- --------
Cash provided by (used in)
financing activities (123,907) 92,267 203,113
Net increase (decrease) in cash and cash
equivalents (47,733) 46,395 1,132
Cash and cash equivalents at
beginning of year 61,921 15,526 14,394
-------- -------- --------
Cash and cash equivalents at end of year $14,188 $61,921 $15,526
======== ======== =======
See notes to consolidated financial statements
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Smith's Food &
Drug Centers, Inc. and its wholly-owned subsidiaries (The Company), after
the elimination of significant intercompany transactions and accounts. The
Company operates a regional supermarket and drug store chain in the
Intermountain, Southwestern, and Southern California regions of the United
States.
Definition of Accounting Period
The Company's fiscal year ends on the Saturday nearest to December 31.
Fiscal year operating results include 52 weeks for each year except 1992
which includes 53 weeks.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and short-term investments with
maturities less than three months. The amount reported in the balance sheet
for cash and cash equivalents approximates its fair value.
Inventories
Inventories are valued at the lower of cost or market. Approximately 95% of
inventories in 1994 and 1993 were valued using LIFO. Other inventories were
valued using the first-in, first-out method.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
are provided by the straight-line method based upon estimated useful lives.
Improvements to leased property are amortized over their estimated useful
lives or the remaining terms of the leases, whichever is shorter.
Pre-Operating and Closing Costs
Costs incurred in connection with the opening of new stores and distribution
facilities are expensed as incurred. The remaining net investment in stores
closed, less salvage value, is charged against earnings in the period of
closing and, for leased stores, a provision is made for the remaining lease
liability, net of expected sublease rental.
Interest Costs
Interest costs are expensed as incurred, except for interest costs which
have been capitalized as part of the cost of properties under development.
The Company's cash payments for interest (net of capitalized interest of
approximately $5.8 million in 1994, $14.5 million in 1993, and $8.8 million
in 1992) amounted to $54.0 million in 1994, $39.8 million in 1993, and $33.6
million in 1992.
Income Taxes
The Company determines its deferred tax assets and liabilities based on
differences between the financial reporting and tax basis of its assets and
liabilities using the tax rates that will be in effect when the differences
are expected to reverse. Deferred income taxes result primarily from
temporary differences arising from accrued insurance claims and using
different depreciation and amortization methods for book and tax purposes.
Net Income Per Share of Common Stock
Net income per share of Common Stock is computed by dividing the net income
by the weighted average number of shares of Common Stock outstanding of
28,176,907 in 1994, 30,238,811 in 1993, and 29,962,011 in 1992. In 1994 and
1993, the weighted average number of common shares includes common stock
equivalents in the form of stock options. In 1992, stock options were
excluded from the calculation. Stock options did not have a material
dilutive effect on the net income per share calculation in any period
reported.
Litigation
The Company is a party to certain legal actions arising out of the ordinary
course of its business. Management believes that none of these actions,
individually or in the aggregate, will have a material adverse effect on the
Company's results of operations or financial position.
Property and Equipment
The Company depreciates its buildings over 25 to 30 years and its fixtures
and equipment over a period of 2 to 9 years and amortizes its leasehold
improvements over their estimated useful lives or the life of the lease,
whichever is shorter. Property and equipment consists of the following:
Allowances for
Depreciation Net Current Year
Dollar amounts in and Book Depreciation
thousands Cost Amortization Value Amortization
1994
Land $303,701 $303,701
Buildings 619,056 $ 92,542 526,514 $18,334
Leasehold improvements 42,369 10,122 32,247 1,842
Fixtures and equipment 589,480 262,077 327,403 74,315
--------- --------- --------- ---------
$1,554,606 $364,741 $1,189,865 $94,491
========== ========= ========== ==========
1993
Land $282,469 $282,469
Buildings 582,775 $75,663 507,112 $17,902
Leasehold improvements 38,866 8,333 30,533 1,884
Fixtures and equipment 538,882 200,367 338,515 62,387
--------- -------- --------- ---------
$1,442,992 $284,363 $1,158,629 $82,173
========== ========= ========== ==========
NOTE C - Long-Term Debt
Long-term debt consists of the following:
Dollar amounts in thousands 1994 1993
Mortgage notes,collateralized by property and
equipment with a cost of $413.0 million in 1994
and $451.4 million in 1993,due through 2011 with
interest at an average rate of 9.73% in 1994 and
9.77% in 1993 $270,082 $301,740
Unsecured notes,due in 2002 through 2015 with
varying annual installments starting in 2000
which accrue interest at an average rate of
7.68% in 1994 and 1993 410,000 410,000
Revolving credit bank loans 27,000
Industrial revenue bonds,collateralized by property
and equipment with a cost of $11.6 million in 1994
and $21.0 million in 1993 due in 2000 through 2010
plus interest at an average rate of 7.47% in 1994
and 6.68% in 1993 6,597 8,847
Other 5,214 4,900
-------- --------
718,893 725,487
Less current maturities 19,011 21,473
-------- --------
$699,882 $704,014
======== ========
Interest rates on the revolving credit bank loans are generally lower than
the prime rate. The agreements are reviewed annually with the banks, at
which time the date each installment is due is generally extended one year.
At December 31, 1994, the Company had unused lines of credit related to
unsecured revolving credit bank loans of $53.0 million.
The Company's loan agreements contain provisions which require the Company
to maintain a specified level of consolidated net worth, fixed charge
coverage and ratio of debt to net worth.
Maturities of the Company's long-term debt for the five fiscal years
succeeding December 31, 1994 are approximately $19.0 million in 1995, $20.9
million in 1996, $22.1 million in 1997, $23.7 million in 1998 and $45.4
million in 1999.
The amounts classified as revolving credit bank loans approximate their fair
value. The fair value of the Company's long-term debt was estimated using
discounted cash flow analysis, based on the Company's current incremental
borrowing rates for similar types of debt arrangements.
NOTE D - Redeemable Preferred Stock
The Company has 85,000,000 shares of $.01 per share par value Preferred
Stock authorized. The Company has designated 34,524,579 of these shares as
Series I Preferred Stock, of which 16,281,777 shares and 19,406,694 shares
were issued and outstanding in 1994 and 1993, respectively. The Preferred
Stock has no dividend requirement.
All shares of the Company's Series I Preferred Stock are subject to
redemption at any time at the option of the Board of Directors, in such
numbers as the Board may determine, and at a redemption price of $.33 1/3
per share. The scheduled redemptions of the Company's Redeemable Preferred
Stock are approximately $1.0 million each year until all outstanding shares
are redeemed. Upon liquidation of the Company, each share of Series I
Preferred Stock is entitled to a liquidation preference of $.33 1/3, on a
pro rata basis with any other series of Preferred Stock, before any
distribution to the holders of Class A Common Stock or Class B Common Stock.
Each share of Series I Preferred Stock is entitled to ten votes. Redeemable
Series I Preferred Stock is stated at redemption value in the balance sheet.
The amount included in the balance sheet for Redeemable Preferred Stock
approximates its fair value.
NOTE E - Common Stockholders' Equity
The voting powers, preferences and relative rights of Class A Common Stock
and Class B Common Stock are identical in all respects, except that the
holders of Class A Common Stock have ten votes per share and the holders of
Class B Common Stock have one vote per share. Each share of Class A Common
Stock is convertible at any time at the option of the holder into one share
of Class B Common Stock. The Company's Certificate of Incorporation also
provides that each share of Class A Common Stock will be converted
automatically into one share of Class B Common Stock if at any time the
number of shares of Class A Common Stock issued and outstanding shall be
less than 2,910,885. Future sales or transfers of the Company's Class A
Common Stock are restricted to the Company or immediate family members of
the original Class A Common Stockholders unless first presented to the
Company for conversion into an equal number of Class B Common Stock shares.
The Class B Common Stock has no conversion rights. At December 31, 1994
there were 20,000,000 shares of $.01 per share par value Class A Common
Stock and 100,000,000 shares of $.01 per share par value Class B Common
Stock authorized.
NOTE F - Income Taxes
Income tax expense consists of the following:
Dollar amounts in thousands 1994 1993 1992
Current:
Federal $17,211 $15,715 $15,493
State 3,589 3,185 2,907
-------- -------- --------
20,800 18,900 18,400
Deferred:
Federal 9,247 13,012 13,819
State 1,253 2,388 2,181
-------- -------- --------
10,500 15,400 16,000
-------- -------- --------
$31,300 $34,300 $34,400
======== ======== ========
Income tax expense included a charge of $1.95 million in 1993 resulting from
applying the increased federal tax rate to deferred tax items. Cash
disbursements for income taxes were $21.7 million in 1994, $17.3 million in
1993, and $17.6 million in 1992.
The difference between income tax expense and the tax computed by applying
the statutory income tax rate to income before income taxes is as follows:
1994 1993 1992
Statutory federal income tax rate 35.0% 35.0% 34.0%
State income tax rate, net of
federal income tax effect 4.7 5.2 5.0
Effect of income tax rate
increase on deferred taxes 2.4
Other (.6) .2 .1
-------- -------- --------
39.1% 42.8% 39.1%
======== ======== ========
Deferred income taxes arise because of differences in the treatment of
income and expense items for financial reporting and income tax purposes.
The effect of temporary differences that give rise to deferred tax balances
are as follows:
Dollar amounts in thousands 1994 1993
Deferred tax liabilities:
Depreciation and amortization $98,186 $85,078
Other 11,935 7,203
-------- --------
110,121 92,281
Deferred tax assets:
Reserves (12,088) (11,243)
Rent (6,006)
Other (3,927) (3,495)
-------- --------
(22,021) (14,738)
-------- --------
88,100 77,543
Net current deferred tax assets 1,400 5,157
Net non-current deferred tax
liabilities $89,500 $82,700
======== ========
NOTE G - Fair Value of Financial Instruments
he carrying amounts and related fair values of the Company's financial
nstruments are as follows:
1994 1993
Dollar amounts in thousands Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and cash equivalents $14,188 $14,188 $61,921 $61,921
Long-term debt 718,893 680,460 725,487 784,627
Redeemable Preferred Stock 5,427 5,427 6,469 6,469
The methods of determining the fair value of the Company's financial
instruments are disclosed in the respective notes to the consolidated
financial statements.
NOTE H - Leases and Commitments
The Company leases property and equipment under terms which include, in some
cases, renewal options, escalation clauses or contingent rentals which are
based on sales. Total rental expense for such leases amounted to the
following:
Dollar amounts in thousands 1994 1993 1992
Minimum rentals $39,852 $19,539 $18,956
Contingent rentals 293 281 161
-------- -------- --------
40,145 19,820 19,117
Less sublease rental income 5,953 5,506 4,906
-------- -------- --------
$34,192 $14,314 $14,211
======== ======== ========
At December 31, 1994, future minimum rental payments and sublease rentals
for all noncancellable leases with initial or remaining terms of one year or
more consisted of the following:
Minimum Less
Rental Sublease
Dollar amounts in thousands Payments Rentals Total
1995 $32,389 $7,334 $25,055
1996 46,948 6,825 40,123
1997 38,737 6,375 32,362
1998 42,273 6,247 36,026
1999 44,052 5,681 38,371
Thereafter 712,673 26,946 685,727
-------- -------- --------
$917,072 $59,408 $857,664
======== ======== ========
At December 31, 1994 the Company had contract commitments of approximately
$11.6 million for future construction.
NOTE I - Employee Stock Plans
In 1993 the Company established a stock profit sharing plan under which year
end employees who are compensated for more than 1,000 hours during the year
are participants. Eligible employees are allocated shares of the Company's
Class B Common Stock based on hours of service up to 2,080 hours.
Contributions are made at the sole discretion of the Company based on its
profitablility. The contribution expense was $1.6 million in 1994 and $3.0
million in 1993.
In 1993 the Company established a stock purchase plan which permits
employees to purchase shares of the Company's Class B Common Stock through
payroll deductions at 85% of fair market value at the time of purchase.
Employees purchased 309,553 shares and 180,950 shares from the Treasury
during 1994 and 1993, respectively.
The Company has a Stock Option Plan which authorizes the Compensation
Committee of the Board of Directors to grant options to key employees for
the purchase of Class B Common Stock. The aggregate number of shares
available for grant under the plan is equal to 10% of the number of shares
of Class B Common Stock authorized. However, the number of outstanding and
unexercised options shall not exceed 10% of the number of shares of Class A
and Class B Common Stock outstanding. The number of unoptioned shares of
Class B Common Stock available for grant was 973,419 shares and 1,489,129
shares at the end of 1994 and 1993, respectively. The options may be either
incentive stock options or non-qualified stock options. Stock options
granted to key employees and options outstanding are as follows:
Option Price Number of
per Share Shares
Balance at December 28, 1991 $19.00 938,000
Granted 19.00 198,500
Forfeited 19.00 (29,000)
-------- ---------
Balance at January 2, 1993 19.00 1,107,500
Granted 19.00 622,000
Forfeited 19.00 (232,000)
-------- ---------
Balance at January 1, 1994 19.00 1,497,500
Granted 19.00 81,000
Forfeited 19.00 (33,000)
-------- ---------
Balance at December 31, 1994 $19.00 1,545,500
======== =========
The options are exercisable as follows:
Number of Shares
Options exercisable in the future
1997 25,000
1999 507,000
2000 100,000
2001 212,000
2002 69,500
2003 561,000
2004 11,000
---------
1,485,500
Options currently exercisable 60,000
---------
1,545,500
=========
Compensation expense for the difference between the market value of the
options on the grant date and the grant price is recognized on a
straight-line basis over the life of the options. The amount charged to
operations in 1994, 1993 and 1992 was immaterial.
NOTE J - Pension Plans
Employees whose terms of employment are determined by negotiations with
recognized collective bargaining units are covered by their respective
multi-employer defined benefit pension plans to which the Company
contributes. The costs charged to operations for these plans amounted to
approximately $4.2 million in 1994, $3.3 million in 1993, and $2.3 million
in 1992. Other information for these multi-employer plans is not available
to the Company.
The Company maintains a defined benefit pension plan for all other permanent
employees which provides for normal retirement at age 65. Employees are
eligible to join when they complete at least one year of service and have
reached age 21. The benefits are based on years of service and stated
amounts associated with those years of service. The Company's funding
policy is to contribute annually the maximum amount deductible for federal
income tax purposes. Net pension cost includes the following components:
Dollar amounts in thousands 1994 1993 1992
Service cost - present value of
benefits earned during the period $2,326 $1,869 $1,619
Interest cost on projected
benefit obligation 1,725 1,350 1,079
Actual return on plan assets 237 (1,053) (339)
Net amortization and deferral (1,615) (304) (628)
--------- --------- ---------
$2,673 $1,862 $1,731
========= ========= =========
The following table presents the plan's funded status and amounts recognized
in the Company's consolidated balance sheets:
Dollar amounts in thousands 1994 1993
Actuarial present value of accumulated benefits
based on service rendered to date:
Vested $16,965 $14,623
Non-vested 3,438 3,750
------- -------
20,403 18,373
Plan assets at fair value (primarily in equity
and fixed income funds and real estate) 20,993 17,188
Projected benefit obligation less than (in
excess of) fair value of plan assets 590 (1,185)
Unrecognized net loss from past experience
different from that assumed and effects of
changes in assumptions 5,737 5,616
Prior service cost not yet recognized in net
periodic pension cost 160 188
Unrecognized net asset (1,141) (1,304)
------- -------
Net prepaid pension cost $5,346 $3,315
======= =======
The weighted average discount rate used to determine the actuarial present
value of the projected benefit obligation was 8.5% in 1994 and 7.75% in
1993. The expected long-term rate of return on plan assets was 8.5% in
1994, and 9.5% in 1993 and 1992.
The Company provides a 401(k) plan for virtually all employees. The plan is
entirely funded by employee contributions which are based on employee
compensation not to exceed certain limits.
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Board of Directors and Stockholders
of Smith's Food & Drug Centers, Inc.
We have audited the accompanying consolidated balance sheets of
Smith's Food & Drug Centers, Inc. and subsidiaries as of December
31, 1994 and January 1, 1994, and the related consolidated
statements of income, common stockholders' equity, and cash flows
for each of the three fiscal years in the period ended December
31, 1994. 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 consolidated
financial position of Smith's Food & Drug Centers, Inc. and
subsidiaries at December 31, 1994 and January 1, 1994, and the
consolidated results of their operations and their cash flows for
each of the three fiscal years in the period ended December 31,
1994, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Salt Lake City, Utah
January 24, 1995
<PAGE>
Quarterly Financial Data
----------------------------------------------------------------------
Dollar amounts in thousands,
except per share data (unaudited)
----------------------------------------------------------------------
Fiscal 1994 First Second Third Fourth Year
Net sales $753,780 $748,328 $725,360 $753,891 $2,981,359
Gross profit 162,717 164,700 163,545 172,270 663,232
Net income 9,354 11,887 13,341 14,199 48,781
Net income per
common share .31 .41 .48 .53 1.73
NYSE price range
High 24 1/8 22 24 3/4 26 3/4
Low 20 1/8 18 1/8 18 1/2 22 5/8
Fiscal 1993
Net sales $688,239 $705,520 $686,747 $726,659 $2,807,165
Gross profit 160,350 162,538 151,226 157,990 632,104
Net income 14,007 13,999 7,911 9,903 45,820
Net income per
common share .46 .46 .26 .34 1.52
NYSE price range
High 37 1/4 33 1/4 26 1/2 22 1/2
Low 31 23 5/8 20 19
Fiscal 1992
Net sales $669,511 $640,096 $653,385 $686,868 $2,649,860
Gross profit 151,229 147,297 150,989 157,545 607,060
Net income 13,148 13,544 13,844 13,114 53,650
Net income per
common share 44 .45 .46 .44 1.79
NYSE price range
High 43 1/4 38 34 3/4 37 3/4
Low 33 3/8 27 7/8 25 3/4 32 3/4
The first quarter results of fiscal 1992 are for 14 weeks of operations
while all other quarters presented are for 13 weeks.
<PAGE>
<TABLE>
<CAPTION>
FIVE YEAR SUMMARY OF SELECTED FINANCIAL AND OPERATING DATA
Dollar amounts in thousands, 1994 1993 1992 1991 1990
except per share data 52 Weeks 52 Weeks 53 Weeks 52 Weeks 52 Weeks
<S> <C> <C> <C> <C> <C>
Income Statement Data
Net sales $2,981,359 $2,807,165 $2,649,860 $2,217,437 $2,031,373
Gross profit 663,232 632,104 607,060 493,589 442,318
Operating,, selling and
administrative expense 440,844 430,258 419,664 344,363 323,792
Depreciation and amortization
expense 88,592 77,099 63,216 45,510 38,217
Interest expense 53,715 44,627 36,130 30,319 25,595
Income before income taxes 80,081 80,120 88,050 73,397 54,714
Net income 48,781 45,820 53,650 45,097 34,314
Common Stock Data
Average number of common shares
outstanding 28,176,907 30,238,811 29,962,011 27,397,973 25,272,011
Net income per common share $ 1.73 $ 1.52 $ 1.79 $ 1.65 $ 1.36
Dividends per common share .52 .52 .44 .36 .28
Book value per common share 18.87 18.15 17.20 15.83 10.61
Balance Sheet Data
Net property and equipment $1,189,865 $1,158,629 $1,077,638 $ 861,350 $637,312
Total assets 1,653,467 1,654,308 1,486,085 1,196,689 891,716
Long-term debt, less current
maturities 699,882 704,014 592,311 375,632 326,190
Redeemable Preferred Stock, less
current maturities 4,410 5,423 6,462 7,401 8,448
Common stockholders' equity 475,342 542,197 515,389 474,386 268,158
Select Operating Data
Number of stores 137 129 119 109 95
Total store square footage 9,101,000 8,501,000 7,668,000 6,773,000 5,580,000
Number of employees 19,859 18,759 19,310 18,303 15,208
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-
K) of Smith's Food & Drug Centers, Inc. of our report dated January 24,
1995, included in the 1994 Annual Report to Stockholders of Smith's Food &
Drug Centers, Inc.
We consent to the incorporation by reference in the Registration Statements
(Forms S-8 No.33-48627 and No.33-56966 and Form S-3, No.33-51097)
pertaining to the Smith's Food & Drug Centers, Inc. Amended and Restated
1989 Stock Option Plan, the Smith's Food & Drug Centers, Inc. 1993 Employee
Stock Purchase Plan, and the Smith's Food & Drug Centers, Inc. Pass Through
Certificates of our report dated January 24, 1995, with respect to the
consolidated financial statements of Smith's Food & Drug Centers, Inc.
incorporated by reference, in this Annual Report (Form 10-K) for the fiscal
year ended December 31, 1994.
ERNST & YOUNG
Salt Lake City, Utah
March 27, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 14,188
<SECURITIES> 0
<RECEIVABLES> 25,596
<ALLOWANCES> 0
<INVENTORY> 389,564
<CURRENT-ASSETS> 446,606
<PP&E> 1,554,606
<DEPRECIATION> 364,741
<TOTAL-ASSETS> 1,653,467
<CURRENT-LIABILITIES> 384,333
<BONDS> 0
<COMMON> 299
4,410
0
<OTHER-SE> 475,043
<TOTAL-LIABILITY-AND-EQUITY> 1,653,467
<SALES> 2,981,359
<TOTAL-REVENUES> 2,981,359
<CGS> 2,318,127
<TOTAL-COSTS> 2,318,127
<OTHER-EXPENSES> 529,436
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53,715
<INCOME-PRETAX> 80,081
<INCOME-TAX> 31,300
<INCOME-CONTINUING> 48,781
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,781
<EPS-PRIMARY> 1.73
<EPS-DILUTED> 1.73
</TABLE>
