<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
---------------------
FORM 10-Q
(Mark one)
X Quarterly Report Pursuant to Section 13 or 15(d)
-----
of the Securities Exchange Act of 1934
For the quarterly period ended March 26, 2000
or
____ Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ____ to ____
Commission File Number 001-10811
SMART & FINAL INC.
(Exact name of registrant as specified in its charter)
Delaware No. 95-4079584
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
600 Citadel Drive
City of Commerce, California 90040
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (323) 869-7500
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 registrant had 29,186,995 shares of common stock outstanding as of May 4,
2000.
================================================================================
<PAGE>
SMART & FINAL INC.
Index
Part I
Financial Information
<TABLE>
<CAPTION>
Page
<S> <C>
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets 2
Unaudited Consolidated Statements of Operations 3
Unaudited Consolidated Statements of Cash Flows 4
Notes to Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition 8
and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk 13
Part II
Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
</TABLE>
<PAGE>
SMART & FINAL INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
March 26, January 2,
ASSETS 2000 2000
- ------ --------- ----------
<S> <C> <C>
Current assets: (Unaudited)
Cash & cash equivalents $ 30,233 $ 42,936
Trade notes and accounts receivable, less
allowance for doubtful accounts of
$3,549 in 2000 and $4,687 in 1999 62,063 63,494
Inventories 151,186 154,550
Prepaid expenses 7,745 7,835
Deferred tax asset 10,834 10,834
--------- ---------
Total current assets 262,061 279,649
Property, plant and equipment:
Land 35,742 35,742
Buildings and improvements 29,116 29,116
Leasehold improvements 95,820 95,337
Fixtures and equipment 170,365 166,234
--------- ---------
331,043 326,429
Less - Accumulated depreciation and amortization 128,507 122,499
--------- ---------
Net property, plant and equipment 202,536 203,930
Assets under capital leases, net of accumulated
amortization of $6,965 in 2000 and $7,233 in 1999 8,009 8,343
Goodwill, net of accumulated amortization
of $4,007 in 2000 and $3,640 in 1999 54,720 55,087
Deferred tax asset 4,734 4,734
Other assets 30,252 30,856
--------- ---------
Total assets $ 562,312 $ 582,599
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current maturities of long-term debt $ 4,111 $ 3,928
Accounts payable 88,861 92,513
Accrued salaries and wages 19,577 18,360
Other accrued liabilities 33,298 34,150
--------- ---------
Total current liabilities 145,847 148,951
Long-term liabilities:
Notes payable, net of current maturities 12,790 12,865
Notes payable to Parent 15,965 15,965
Bank debt 100,000 117,500
Obligations under capital leases 10,637 11,140
Other long-term liabilities 3,807 3,946
Workers' compensation reserve, postretirement
and postemployment benefits 18,982 18,785
--------- ---------
Total long-term liabilities 162,181 180,201
Stockholders' equity:
Preferred stock, $1 par value (authorized-
10,000,000 shares; no shares issued) - -
Common stock, $0.01 par value (authorized-
100,000,000 shares; 29,186,995 shares issued
and outstanding in 2000 and 29,136,995 in 1999) 291 291
Additional paid-in capital 204,574 204,450
Notes receivable for stock (100) (100)
Accumulated other comprehensive loss (762) (835)
Retained earnings 50,281 49,641
--------- ---------
Total stockholders' equity 254,284 253,447
--------- ---------
Total liabilities and stockholders' equity $ 562,312 $ 582,599
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
SMART & FINAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Twelve Weeks Ended
---------------------------------
March 26, March 28,
2000 1999
--------- ---------
(Unaudited)
<S> <C> <C>
Sales $ 399,361 $ 398,337
Cost of sales, buying and occupancy 345,138 348,259
---------- ----------
Gross margin 54,223 50,078
Operating and administrative expenses 50,013 46,102
---------- ----------
Income from operations 4,210 3,976
Interest expense, net 3,245 5,081
---------- ----------
Income (loss) before income taxes 965 (1,105)
Income taxes 373 (419)
---------- ----------
Income (loss) from consolidated subsidiaries 592 (686)
Equity earnings in unconsolidated subsidiary 44 212
---------- ----------
Net income (loss) $ 636 $ (474)
========== ==========
Earnings (loss) per common share $ 0.02 $ (0.02)
========== ==========
Weighted average common shares 29,163,185 22,527,179
========== ==========
Earnings (loss) per common share, assuming dilution $ 0.02 $ (0.02)
========== ==========
Weighted average common shares
and common share equivalents 29,176,666 22,527,179
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
SMART & FINAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Twelve Weeks Ended
----------------------------
March 26, March 28,
2000 1999
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities: (Unaudited)
Net income (loss) $ 636 $(474)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Gain on disposal of fixed assets (39) (407)
Depreciation and amortization 7,701 6,898
Amortization of deferred financing costs 444 515
Equity earnings in unconsolidated subsidiary (44) (212)
Decrease in:
Trade notes and accounts receivable 1,431 7,214
Inventories 3,364 6,132
Prepaid expenses 90 4,994
Increase (decrease) in:
Accounts payable (3,255) (4,173)
Accrued liabilities 1,217 504
Other liabilities (600) (4,520)
------------------------
Net cash provided by operating activities 10,945 16,471
------------------------
Cash Flows From Investing Activities:
Acquisition of property, plant and equipment (5,467) (9,417)
Proceeds from disposal of property, plant and equipment 52 458
Other (338) (272)
------------------------
Net cash used in investing activities (5,753) (9,231)
------------------------
Cash Flows From Financing Activities:
Payments on bank line of credit (17,500) -
Borrowings on bank line of credit - 10,000
Payments on notes payable (395) (1,365)
Change in payable to Parent and affiliates - (1,681)
Quarterly dividend paid - (1,127)
------------------------
Net cash (used in) provided by financing activities (17,895) 5,827
------------------------
Increase (decrease) in cash and cash equivalents (12,703) 13,067
Cash and cash equivalents at beginning of period 42,936 20,887
------------------------
Cash and cash equivalents at end of period $30,233 $33,954
========================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
Smart & Final Inc. (the "Company") is a Delaware corporation and is a
57.2 percent owned subsidiary of Casino USA, Inc. (the "Parent").
The consolidated balance sheet as of March 26, 2000, and the
consolidated statements of operations and cash flows for the twelve weeks ended
March 26, 2000 and March 28, 1999 are unaudited. In the opinion of management,
all adjustments necessary for a fair presentation of these financial statements
have been included. Such adjustments consisted only of normal recurring items.
Interim results are not necessarily indicative of results for a full year.
These consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's Form 10-K for the year ended January 2, 2000.
2. Fiscal years
The Company's fiscal year ends on the Sunday closest to December 31.
Each fiscal year consists of twelve-week periods in the first, second and fourth
quarters and a sixteen-week period in the third quarter.
3. Comprehensive income (loss)
Comprehensive income (loss) was computed as follows, amounts in
thousands:
Twelve Weeks Ended
---------------------
March 26, March 28,
2000 1999
---- ----
Net income (loss) $ 636 (474)
Other comprehensive income:
Foreign currency translation adjustments 73 -
----- -----
Total comprehensive income (loss) $ 709 $(474)
===== =====
Beginning in January 2000, in accordance with generally accepted accounting
principles, the functional currency for the Company's Mexico operations has been
the Mexican Peso. As such, foreign currency translation gains and losses are
included in other comprehensive income (loss) and reflected in Accumulated other
comprehensive loss under Stockholders' equity. During fiscal years 1997, 1998
and 1999, in accordance with generally accepted accounting principles, the
functional currency had been the U.S. dollar and as such, foreign currency
translation gains and losses were included in results of operations for those
fiscal years.
5
<PAGE>
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(continued)
4. Interest expense
Interest expense was incurred primarily on borrowings under the
Company's revolving credit facilities and a loan from its Parent. The Company
paid $3.5 million and $6.6 million in interest in the twelve-week periods ended
March 26, 2000 and March 28, 1999, respectively.
5. Income taxes
The Company and the Parent are parties to a tax sharing arrangement
covering income tax obligations in the state of California. Under this
arrangement, based upon pre-tax income or loss, the Company has made tax sharing
payments of $133,000 to the Parent in the twelve weeks ended March 26, 2000 and
received tax sharing benefits of $1,369,000 in the twelve weeks ended March 28,
1999 from the Parent. The Company did not pay state income taxes for states
other than California in the twelve weeks ended March 26, 2000 and paid $8,000
for states other than California in the twelve weeks ended March 28, 1999. The
Company did not pay any federal income taxes in the twelve weeks ended March 26,
2000 and March 28, 1999, due to taxable losses in the first quarter of each
year.
6. Earnings per common share
Earnings per common share is based on the weighted average number of
common shares outstanding. Earnings per common share, assuming dilution includes
the weighted average number of common stock equivalents outstanding related to
employee stock options and a stock purchase agreement.
7. Segment Reporting
The Company has two reportable segments: Stores and Foodservice. The
stores segment provides food and related items in bulk sizes and quantities
through non-membership grocery warehouse stores. The foodservice distribution
segment provides delivery of food, restaurant equipment and supplies to mainly
restaurant customers and Smart & Final stores. Corporate Expense is comprised
primarily of the Company's corporate expenses incidental to the activities of
the reportable segments and rental income from Smart & Final Stores. The
Company's reportable segments are strategic business units that offer different
products and services. They are managed separately because each segment requires
different technology and marketing strategies.
The Company does not allocate interest, income taxes or nonrecurring
gains and losses to the reportable segments. These costs are included in
Corporate Expense below. The Company evaluates performance based on profit or
loss from operations before income taxes not including nonrecurring gains and
losses.
6
<PAGE>
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(continued)
The revenues, profit or loss and other information of each segment are
as follows, amounts in thousands:
For the twelve weeks ended March 26, 2000:
<TABLE>
<CAPTION>
Corporate
Stores Foodservice Expense Total
------ ----------- --------- -----
<S> <C> <C> <C> <C>
Revenues from external
customers $303,470 $ 95,891 $ - $399,361
Intercompany real estate
charge (income) 3,167 - (3,167) -
Interest income - - 393 393
Interest expense - - 3,638 3,638
Pre-tax income (loss) 5,808 208 (5,051) 965
For the twelve weeks ended March 28, 1999:
Corporate
Stores Foodservice Expense Total
------ ----------- --------- -----
Revenues from external
customers $294,466 $103,871 $ - $398,337
Intercompany real estate
charge (income) 3,194 - (3,194) -
Interest income - - 199 199
Interest expense - - 5,280 5,280
Pre-tax income (loss) 3,473 470 (5,048) (1,105)
</TABLE>
Costs for servicing stores was revised in 2000. Using the new allocation
method, Foodservice pre-tax income would have been approximately $400,000 lower
for the first quarter of 1999 and Stores pre-tax income would have been
approximately $400,000 higher.
8. Legal Actions
The Company has been named as defendant in various legal actions
arising in the normal conduct of its business. In the opinion of management,
after consultation with counsel, none of these actions are expected to result in
significant liability to the Company.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis should be read in conjunction with
the accompanying consolidated financial statements and notes thereto and the
Company's Form 10-K for the year ended January 2, 2000.
Summary
Smart & Final Inc. (the "Company") reported net income of $0.6 million,
or $0.02 per diluted share, for the twelve weeks ended March 26, 2000, compared
to a net loss of $0.5 million, or $0.02 per diluted share, in the twelve weeks
ended March 28, 1999.
Operating earnings increased from the prior year first quarter of $4.0
million to $4.2 million in the current year quarter. Improvements attributed to
increased sales and improved gross margin rates were partially offset by
increased operating and administrative expenses.
Interest expense, net decreased $1.8 million as a result of debt
reduction from the proceeds of a $60 million common stock offering completed in
June 1999. The stock offering increased outstanding shares by 6.5 million
shares, or 28.8%.
Results of Operations
The following table shows, for the periods indicated, certain condensed
consolidated income statement data, expressed as a percentage of sales.
<TABLE>
<CAPTION>
Twelve Weeks Ended
-----------------------
March 26, March 28,
2000 1999
----- -----
<S> <C> <C>
Sales:
Stores 76.0% 73.9%
Foodservice 24.0 26.1
----- -----
Sales, consolidated total 100.0 100.0
Cost of sales, buying and occupancy 86.4 87.4
----- -----
Gross margin 13.6 12.6
Operating and administrative expenses 12.5 11.6
----- -----
Income from operations 1.1 1.0
Interest expense, net 0.8 1.3
----- -----
Income (loss) before income taxes 0.2 (0.3)
Income taxes 0.1 (0.1)
----- -----
Income (loss) from consolidated subsidiaries 0.1 (0.2)
Equity earnings in unconsolidated subsidiaries - 0.1
----- -----
Net income (loss) 0.2% (0.1)%
===== =====
</TABLE>
*Totals do not aggregate due to rounding.
8
<PAGE>
The following table sets forth pre-tax profit or loss, in millions, for
each of the Company's various reportable segments:
<TABLE>
<CAPTION>
Twelve Weeks Ended
-----------------------
March 26, March 28,
<S> <C> <C>
2000 1999
----- -----
Stores $ 5.8 $ 3.5
Foodservice 0.2 0.5
----- -----
Segment totals 6.0 4.0
Interest and other corporate expenses (5.0) (5.1)
----- -----
Consolidated pre-tax income (loss) $ 1.0 $(1.1)
===== =====
</TABLE>
Costs for servicing stores was revised in 2000. Using the new
allocation method, Foodservice pre-tax income would have been approximately $0.4
million lower for the first quarter of 1999 and Stores pre-tax income would have
been approximately $0.4 million higher.
Background
The Company plans to continue its store expansion program in fiscal
2000. In fiscal 1999, the Company's primary emphasis was on assimilating the 39
stores in the Pacific Northwest acquired in 1998:
<TABLE>
<CAPTION>
Quarter Ended Year Ended
-------------- ----------
March 26, March 28, January 2,
<S> <C> <C> <C>
2000 1999 2000
---- ---- ----
USA:
Beginning store count 212 209 209
Stores opened:
New stores - 1 3
Relocations 1 - -
Acquired - - -
Stores relocated or closed (1) - -
---- ---- ----
Ending store count 212 210 212
---- ---- ----
MEXICO:
Beginning store count 6 6 6
New stores opened - - -
---- ---- ----
Ending store count 6 6 6
---- ---- ----
Grand Total 218 216 218
==== ==== ====
</TABLE>
Mexico operations are not consolidated and are reported on the equity
basis.
Management continually assesses each store's profitability on a pre-tax
profit basis after allocation of administrative expenses. Stores not meeting
strategic management objectives for profitability, market penetration, and/or
other measures are evaluated for closure or relocation. Generally, stores
opened in mature markets are expected to achieve profitability within 18
9
<PAGE>
months of operations. However, there can be no assurance that the Company will
be able to open new stores in a timely manner; hire, train and integrate
employees; continue locating and obtaining favorable store sites; or adapt
distribution, management information and other operating systems sufficiently to
grow in a successful and profitable manner.
Each of the Company's fiscal years consists of twelve-week periods in the
first, second and fourth quarters of the fiscal year and a sixteen-week period
in the third quarter.
Comparison of Twelve Weeks Ended March 26, 2000 with Twelve Weeks Ended March
28, 1999.
Sales. First quarter 2000 sales were $399.4 million, up 0.3% over the
comparable 1999 period.
Store sales increased 3.1%, from $294.5 million in first quarter 1999 to
$303.5 million in first quarter 2000. Comparable store sales for the first
quarter of 2000 increased 2.2% over the prior year period. Average comparable
transaction size also increased, by 1.5%, to $36.80 in the first quarter of
2000. Sales early in the quarter were soft due to customer Y2K stockpiling late
in 1999 and heavy rainfall also impacted sales for the quarter.
Foodservice distribution sales decreased 7.7% from $103.9 million in the
first quarter of 1999 to $95.9 million in the current year first quarter. This
decrease in part reflects a continuing focus on improved credit quality and
profitability of the foodservice distribution.
Gross Margin. Gross margin improved 8.3% from $50.1 million in the first
quarter of 1999 to $54.2 million in the current year quarter. As a percentage
of sales, gross margin improved from 12.6% in the prior year quarter to 13.6% in
first quarter 2000. The increase in gross margin percentage was due to a number
of factors: lower purchase costs due to the national procurement and expanded
corporate brand programs; better store assortment mix; improved credit quality
and margins in foodservice distribution; and a higher proportion of store sales
as a percentage of overall sales mix. Store sales generate higher gross margins
and higher expenses than foodservice distribution sales.
Operating and Administrative Expenses. Operating and administrative
expenses for the first quarter of 2000 were $50.0 million, up $3.9 million, or
8.5%, over the first quarter of 1999. These expenses, as a percentage of sales,
increased from 11.6% in the first quarter of 1999 to 12.5% in the first quarter
of 2000. Expenses increased due to $1.5 million of consulting fees incurred in
part to improve buying procedures and $1.0 million of performance-based
incentive compensation recorded in the quarter. No similar consulting fees or
performance-based incentive compensation were recorded in the first quarter of
l999. Excluding these items, expenses increased 3.1% or, as a percentage of
sales, from 11.6% to 11.9%.
Interest expense, net. Interest expense, net decreased $1.8 million to
$3.2 million in the first quarter of 2000 as a result of debt reduction from the
net proceeds of a $60 million common stock offering completed in June 1999.
10
<PAGE>
Financial Condition
Cash and cash equivalents were $42.9 million on January 2, 2000, and $30.2
million at March 26, 2000. Operating activities provided cash of $10.9 million
for the twelve weeks ended March 26, 2000. For the quarter, payments on bank
and other debt were $17.9 million and investments in fixed asset and other
additions were $5.7 million.
During the twelve weeks ended March 26, 2000, inventories declined by $3.4
million. The related accounts payable decreased $3.3 million. Trade notes and
accounts receivable decreased $1.4 million. Other changes in operating assets
and liabilities generally reflect the timing of receipts and disbursements.
Stockholders' equity increased by $0.9 million to $254.3 million at March
26, 2000 as a result of the $0.6 million net income for the first quarter of
2000 plus $0.2 million due to the exercise of stock options and other stock
agreements and a $0.1 million translation adjustment.
Liquidity and Capital Resources
Historically, the Company's primary source of liquidity has been cash flow
from operations. Cash provided by operating activities was $10.9 million in the
first quarter of 2000. At March 26, 2000, the Company had cash of $30.2
million, compared to $42.9 million at January 2, 2000. The Company had $131.4
million of debt, excluding capital leases, and stockholders' equity of $254.3
million at March 26, 2000.
The Company had $219.0 million committed under its Senior Secured Credit
Facilities at March 26, 2000 and January 2, 2000. At March 26, 2000, the
Company's borrowings under these facilities totaled $182.9 million compared with
$200.4 million at January 2, 2000. At March 26, 2000, the Company had available
$36.1 million of unused credit under these facilities.
The Company expects to be able to fund future acquisitions and other cash
requirements by a combination of available cash, cash from operations, lease
financing and other borrowings and proceeds from the issuance of equity
securities. The Company believes that its sources of funds are adequate to
provide for working capital, other capital expenditures, and debt service
requirements for the foreseeable future.
Year 2000
The Company relies on a diverse assortment of computer hardware and
software, the integrated operation of which is essential to the successful
implementation of the Company's operations. In 1996, the Company began a
comprehensive review of its information technology systems and other systems and
equipment and developed a Year 2000 implementation program. Full compliance and
testing was completed before the end of 1999.
The entire implementation program was divided into three broad systems, the
corporate systems, the store systems and the foodservice systems and the program
had two phases, the impact analysis phase and the modification or replacement
phase. Additionally, the Company monitored all vendors for last-minute Year
2000 issues.
11
<PAGE>
Except for the cost of replacement systems, the Company expensed, as
incurred, the cost of the Year 2000 program. The Year 2000 program was funded
through operating cash flows. The Company incurred approximately $2.6 million
in costs with respect to the Year 2000 program.
Subsequent to the end of 1999, the Company believes that its operations are
fully functioning and have not experienced any significant issues related to the
Year 2000. While the Company is encouraged by the results of its Year 2000
compliance efforts, monitoring for any potential problems will continue
throughout 2000.
As part of the Year 2000 program, the Company identified relationships with
third parties, including vendors, suppliers and service providers that the
Company believes are critical to its business operations. The Company
communicated with these third parties through questionnaires, letters and
interviews in an effort to determine the extent to which they are addressing
their Year 2000 issues. Since the beginning of 2000, the Company has not
received any reports from third parties indicating any material Year 2000
incidents. The Company will continue to communicate with and assess and monitor
any potential Year 2000 issues of these third parties throughout 2000. The
Company cannot assure that there will not be an adverse impact on the Company if
third parties do not appropriately address their Year 2000 issues in a timely
manner.
Although the Company does not believe any continued exposure exists, the
Company has a contingency plan for possible Year 2000 issues and will continue
to update these plans based on assessments of any subsequent Year 2000 issues as
additional information becomes available.
The Company experienced sales increases in the final weeks of fiscal 1999,
which it believes were due to customers' stockpiling in preparation for possible
year end interruptions in product availability. Consequently, the Company
experienced minor sales decreases in the first few weeks of fiscal 2000.
12
<PAGE>
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Interest Rate Risk
The Company is exposed to market risks relating to fluctuations in interest
rates. The Company's objective of financial risk management is to minimize the
negative impact of interest rate fluctuations on the Company's earnings and cash
flows. Interest rate risk is managed through the use of interest rate collar
agreements to hedge principal amounts of up to $100 million. These agreements
limit LIBOR fluctuations to interest rate ranges from 4.7% to 8.0% and extend to
September 2004. These agreements are entered into with major financial
institutions thereby minimizing risk of credit loss.
Credit Risk
The Company is exposed to credit risk on accounts receivable. The Company
provides credit to customers in the ordinary course of business and performs
ongoing credit evaluations. Concentrations of credit risk with respect to trade
receivables are limited due to the number of customers comprising the Company's
customer base. The Company currently believes its allowance for doubtful
accounts is sufficient to cover customer credit risks.
Forward-Looking Statements
From time to time Smart & Final may publish forward-looking statements
about anticipated results. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. In order to comply with
the terms of the safe harbor, the Company notes that such forward-looking
statements are based upon internal estimates which are subject to change because
they reflect preliminary information and management assumptions, and that a
variety of factors could cause the Company's actual results and experience to
differ materially from the anticipated results or other expectations expressed
in the Company's forward-looking statements. The factors which could cause
actual results or outcomes to differ from such expectation include the extent of
the company's success in (i) changing market conditions (ii) unforeseen costs
and expenses (iii) ability to attract new customers and retain existing
customers (iv) gain or losses from sales along with the uncertainties (v)
increases in interest rates of the Company's cost of borrowing and other
factors, including unusually adverse weather conditions, described from time to
time in the company's SEC filing and reports. This report includes "forward-
looking statements" including, without limitation, statements as to the
Company's liquidity and availability of capital resources.
13
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number Description of Exhibit
-------------- ----------------------
10.125 Limited Waiver and Consent in connection with
Revolving Credit Agreement dated as of February 9,
2000
27 Financial Data Schedule
_________
(b) Reports on Form 8-K
None
14
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SMART & FINAL INC.
By:
Date: May 5, 2000 /s/ MARTIN A. LYNCH
---------------------------------------
Martin A. Lynch
Executive Vice President,
Chief Financial Officer, and
Principal Accounting Officer of the Company
15
<PAGE>
SMART & FINAL INC.
EXHIBIT INDEX
Exhibit Number Description of Exhibit
- -------------- ----------------------
10.125 Limited Waiver and Consent in connection with Revolving
Credit Agreement dated as of February 9, 2000
27 Financial Data Schedule
16
<PAGE> EXHIBIT 10.125
LIMITED WAIVER
Dated as of February 9, 2000
This LIMITED WAIVER (this "Waiver") is among SMART & FINAL, INC., a
------
Delaware corporation (the "Borrower"), the holders under the Trust Agreement
--------
referred to below (the "Holders"), the financial institutions and other entities
-------
party to the Revolving Credit Agreement and Synthetic Lease Credit Agreement
referred to below (the "Lenders"), and CREDIT LYONNAIS LOS ANGELES BRANCH, as
-------
administrative agent (the "Administrative Agent") for the Lenders and the
--------------------
Holders.
PRELIMINARY STATEMENTS:
1. Reference is made to (i) the Credit Agreement (as amended,
supplemented or otherwise modified from time to time, the "Revolving Credit
----------------
Agreement") dated as of November 13, 1998 among the Borrower, the financial
- ---------
institutions named therein, and Credit Lyonnais Los Angeles Branch, as
Administrative Agent for the Lenders, (ii) the Participation Agreement (as
amended, supplemented or otherwise modified from time to time, the
"Participation Agreement") dated as of November 13, 1998 among the Borrower, the
- ------------------------
Guarantors party thereto, First Security Bank, National Association, as owner
trustee under the S&F Trust 1998-1, the various banks and other institutions
party thereto as Holders and as Lenders, and Credit Lyonnais Los Angeles Branch,
as Administrative Agent for the Lenders and the Holders, (iii) the Credit
Agreement (as defined in the Participation Agreement) (as amended, supplemented
or otherwise modified from time to time, the "Synthetic Lease Credit
----------------------
Agreement"), and (iv) the Trust Agreement (as defined in the Participation
- ---------
Agreement) (as amended, supplemented or otherwise modified from time to time,
the "Trust Agreement").
---------------
2. The Borrower has requested that the Lenders and the Holders waive
certain provisions of the Revolving Credit Agreement and the Lenders have agreed
to grant such waiver, in each case as set forth herein.
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. Waiver. Effective as of the Waiver Effective Date (as
------
defined in Section 2), the Lenders, the Holders and the Administrative Agent
hereby waive any Default or Event of Default arising from the Borrower's failure
to comply with the provisions of Sections 6.02(a)(v) and 6.02(b)(iii)(A) of the
Revolving Credit Agreement as a result of entering into the Capitalized Leases
described on Schedule I hereto (the "Specified Leases"); provided, however, that
---------------- -------- -------
such waiver shall be effective only to the extent that (i) the aggregate
principal amount of all Capitalized Leases, other than the Specified Leases,
that are subject to Liens permitted by Section 6.02(a)(iv) of the Revolving
Credit Agreement does not exceed $7,500,000 at any time
<PAGE>
outstanding and (ii) the aggregate principal amount of the Specified Leases does
not exceed $5,000,000 at any time outstanding.
SECTION 2. Conditions to Effectiveness. The amendments set forth
---------------------------
herein shall become effective on the date (the "Waiver Effective Date") on which
---------------------
the Administrative Agent shall have executed this Waiver and shall have received
counterparts of this Waiver executed by the Borrower, the Required Lenders under
the Revolving Credit Agreement and the Majority Secured Parties (as defined in
the Participation Agreement) and a counterpart of the Consent attached hereto
executed by each Guarantor.
SECTION 3. Representations and Warranties. The Borrower represents
------------------------------
and warrants as follows:
(a) Authority. The Borrower and each other Loan Party has the
---------
requisite corporate power and authority to execute and deliver this Waiver and
the Consent, as applicable, and to perform its obligations hereunder and under
the Loan Documents and the Operative Agreements (in each case as modified
hereby) to which it is a party. The execution, delivery and performance by the
Borrower of this Waiver and by each other Loan Party of the Consent, and the
performance by each Loan Party of each Loan Document and each Operative
Agreement (in each case as modified hereby) to which it is a party have been
duly approved by all necessary corporate action of such Loan Party and no other
corporate proceedings on the part of such Loan Party are necessary to consummate
such transactions.
(b) Enforceability. This Waiver has been duly executed and delivered
--------------
by the Borrower. The Consent has been duly executed and delivered by each
Guarantor and each Grantor. This Waiver and each Loan Document and each
Operative Agreement (in each case as modified hereby) is the legal, valid and
binding obligation of each Loan Party party hereto and thereto, enforceable
against such Loan Party in accordance with its terms, and is in full force and
effect.
(c) Representations and Warranties. The representations and
------------------------------
warranties contained in each Loan Document and each Operative Agreement (other
than any such representations and warranties that, by their terms, are
specifically made as of a date other than the date hereof) are true and correct
on and as of the date hereof as though made on and as of the date hereof and
will be true and correct on and as of the Waiver Effective Date as though made
on and as of such date.
(d) No Default. After giving effect to this Waiver, no event has
----------
occurred and is continuing that constitutes a Default or Event of Default under
any Loan Document or any Operative Agreement.
S-2
<PAGE>
SECTION 4. General Release of Claims.
-------------------------
(a) The Borrower represents and agrees that it has diligently and
thoroughly investigated the existence of any Claim (as defined below), and to
its knowledge and belief, no Claim exists and no facts exist that could give
rise to or support a Claim.
(b) As additional consideration for entering into this Waiver and for
the waivers set forth herein, the Borrower and each Guarantor and each of their
respective agents, employees, directors, officers, attorneys, affiliates,
subsidiaries, successors and assigns (individually a "Releasing Party," and
---------------
collectively the "Releasing Parties") hereby releases and forever discharges
-----------------
each of the Lessor, the Administrative Agent, the Syndication Agent, the Agent
and each Lender (under each of the Revolving Credit Agreement and the Synthetic
Lease Credit Agreement) and each Holder under the Trust Agreement and all of
their respective agents, direct and indirect shareholders, employees, directors,
officers, attorneys, branches, affiliates, subsidiaries, successors and assigns
(individually, a "Released Party," and collectively, the "Released Parties") of
-------------- ----------------
and from all damage, loss, claims, demands, liabilities, obligations (except for
any such obligations hereafter arising pursuant to the terms of the Loan
Documents or the Operative Agreements, as amended to date), actions and causes
of action whatsoever (collectively "Claims") that the Releasing Parties or any
------
of them may, as of the date hereof, have or claim to have against each or any of
the Released Parties, in each case whether presently known or unknown or with
respect to which the facts are known (or should have been known) that could give
rise to or support a Claim and of every nature and extent whatsoever on account
of or in any way relating to, arising out of or based upon the Loan Documents,
the Operative Agreements or this Waiver (including clause (a)) or the
negotiation or documentation hereof or the amendments under the Loan Documents
and Operative Agreements effected by this Waiver or the transactions
contemplated hereby, or any action or omission in connection with any of the
foregoing, including, without limitation, all such loss or damage of any kind
heretofore sustained, or that may arise as a consequence of the dealings between
the parties up to the date hereof in connection with or in any way related to
the Loan Documents, the Operative Agreements or this Waiver. Each Releasing
Party further covenants and agrees that it has not assigned heretofore, and will
not hereafter sue any Released Party upon, any Claim released or purported to be
released under this Section, and the Borrower will indemnify and hold harmless
said Released Parties against any loss or liability on account of any actions
brought by any Releasing Party or its assigns or prosecuted on behalf of any
Releasing Party and relating to any Claim released or purported to be released
under this Section. It is further understood and agreed that any and all rights
under the provisions of Section 1542 of the California Civil Code are expressly
waived by each of the Releasing Parties. Section 1542 provides as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR."
S-3
<PAGE>
SECTION 5. Reference to and Effect on the Loan Documents and the
-----------------------------------------------------
Credit Documents.
- ----------------
(a) Upon and after the effectiveness of this Waiver, (i) each
reference in the Revolving Credit Agreement to "this Agreement", "hereunder",
"hereof" or words of like import referring to the Revolving Credit Agreement,
and each reference in the other Loan Documents or any Operative Agreement to
"the Credit Agreement", "the Lessee Credit Agreement", "thereunder", "thereof"
or words of like import referring to the Revolving Credit Agreement, shall mean
and be a reference to the Revolving Credit Agreement as modified hereby, and
(ii) each reference in the Participation Agreement or the Synthetic Lease Credit
Agreement to "this Agreement", "hereunder", "hereof" or words of like import
referring to the Participation Agreement or the Synthetic Lease Credit
Agreement, as the case may be, and each reference in the other Operative
Agreements or in the Loan Documents to "the Participation Agreement", "the
Credit Agreement", "the Synthetic Lease Credit Agreement", "thereunder",
"thereof" or words of like import referring to the Participation Agreement or
the Synthetic Lease Credit Agreement Credit Agreement, shall mean and be a
reference to the Participation Agreement or the Synthetic Lease Credit
Agreement, as the case may be, in each case as modified hereby.
(b) Except as specifically modified above, the Revolving Credit
Agreement, the Participation Agreement, the Synthetic Lease Credit Agreement and
the other Loan Documents and Operative Agreements are and shall continue to be
in full force and effect and are hereby in all respects ratified and confirmed.
Without limiting the generality of the foregoing, the Collateral Documents (as
defined in the Revolving Credit Agreement) and the Security Documents (as
defined in the Participation Agreement) and all of the Collateral described
therein do and shall, to the extent set forth therein, continue to secure the
payment of all obligations and liabilities of the Borrower and/or the Lessor (as
defined in the Participation Agreement), as applicable, under the Revolving
Credit Agreement and the Participation Agreement and/or any of the other Loan
Documents or Operative Agreements, in each case as amended hereby.
(c) The execution, delivery and effectiveness of this Waiver shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of the Administrative Agent, the Lenders, the Holders, or the
Lessor under any of the Loan Documents or the Operative Agreements, nor
constitute a waiver of any provision of any of the Loan Documents or the
Operative Agreements.
(d) Each of the parties hereto specifically acknowledges and agrees
that (i) none of the parties to the Revolving Credit Agreement, the
Participation Agreement, any other Loan Documents or any other Operative
Agreement have agreed to any other or future waiver of or amendment to any of
the Loan Documents or Operative Agreements, (ii) neither the granting of the
waiver described herein nor the granting of any prior waivers and amendments
under the Loan Documents and/or the Operative Agreements creates any obligation
whatsoever on the part of any of the parties to any of the Loan Documents and/or
the Operative Agreements to grant any other or future waiver under any of the
Loan Documents or the Operative Agreements, and (iii) except as specifically set
forth herein, each of the parties to any of the Loan Documents
S-4
<PAGE>
and/or the Operative agreements have reserved all rights and remedies under the
Loan Documents and/or the Operative Agreements, as applicable.
SECTION 6. Costs, Expenses and Taxes. The Borrower agrees to pay on
-------------------------
demand all reasonable costs and expenses of the Administrative Agent and the
Lenders in connection with the preparation, execution, delivery and
administration of this Waiver and the other instruments and documents, if any,
to be delivered hereunder, including, without limitation, the reasonable fees
and out of pocket expenses of counsel for the Administrative Agent and the
Lenders with respect thereto and with respect to advising each of such parties
as to its rights and responsibilities hereunder and thereunder. The Borrower
further agrees to pay on demand all costs and expenses, if any (including,
without limitation, reasonable counsel fees and expenses), in connection with
the enforcement (whether though negotiations, legal proceedings or otherwise) of
this Waiver and the other instruments and documents to be delivered hereunder,
including, without limitation, reasonable counsel fees and expenses in
connection with the enforcement of rights under this Section.
SECTION 7. Consent of Lenders and Holders Under Operative Agreements.
---------------------------------------------------------
By their execution hereof, the Lenders and Holders under the Operative
Agreements, hereby consent and agree to the terms of this Waiver and to the
amendments and modifications set forth herein for purposes of Section 28.1 of
the Lease (as defined in the Participation Agreement).
SECTION 8. Counterparts. This Waiver may be executed in any number
------------
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original and
all of which taken together shall constitute but one and the same agreement.
Delivery of an executed counterpart of a signature page to this Waiver by
telefacsimile shall be effective as delivery of a manually executed counterpart
of this Waiver.
SECTION 9. Governing Law. This Waiver shall be governed by, and
-------------
construed in accordance with, the laws of the State of California.
[Signature Pages Follow]
S-5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be
executed by their respective officers thereunto duly authorized, as of the date
first written above.
SMART & FINAL INC.,
as Borrower
By: /s/ Richard N. Phegley
--------------------------
Richard N. Phegley
Vice President & Treasurer
S-1
<PAGE>
CREDIT LYONNAIS LOS ANGELES BRANCH,
as Administrative Agent
/s/ Dianne M. Scott
By: Dianne M. Scott
First Vice President and Branch Manager
S-2
<PAGE>
L/C Bank
--------
CREDIT LYONNAIS NEW YORK BRANCH
/s/ Robert J. Ivosevich
By: Robert J. Ivosevich
Senior Vice President
S-3
<PAGE>
Holders and Lenders:
-------------------
CREDIT LYONNAIS LOS ANGELES BRANCH, as a Lender
/s/ Dianne M. Scott
By: Dianne M. Scott
First Vice President and Branch Manager
S-4
<PAGE>
CREDIT LYONNAIS LEASING CORP., as a Holder
/s/ L. M. Wertheim
By: L. M. Wertheim
President
S-5
<PAGE>
BANK OF AMERICA, N.A., as a Lender and a Holder
/s/ James P. Johnson
By: James P. Johnson
Managing Director
S-6
<PAGE>
UNION BANK OF CALIFORNIA, N.A., as a Lender and
a Holder
/s/ Theresa L. Rocha
By: Theresa L. Rocha
Vice President
S-7
<PAGE>
WELLS FARGO BANK, N.A., as a Lender
By:___________________________________
Title:
S-8
<PAGE>
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK
N.A. "RABOBANK NEDERLAND", NEW YORK BRANCH, as
a Lender and a Holder
/s/ Edward Peyser
By: Edward Peyser
Vice President
/s/ Hans F. Breukhoven
By: Hans F. Breukhoven
Vice President
S-9
<PAGE>
NATEXIS BANQUE - BFCE, as a Lender and a Holder
/s/ Pieter J. van Tulder
By: Pieter J. van Tulder
Vice President and Manager
Multinational Group
/s/ Christine Dirringer
By: Christine Dirringer
Assistant Vice President
S-10
<PAGE>
HARRIS TRUST AND SAVINGS BANK, as a Lender and
a Holder
/s/ Julia B. Buthman
By: Julia B. Buthman
Managing Director
S-11
<PAGE>
CONSENT
Dated as of February 9, 2000
The undersigned, as Guarantors under the "Guaranty" and as Grantors under the
"Security Agreement" (as such terms are defined in and under the Revolving
Credit Agreement referred to in the foregoing Waiver) and as Guarantors under
the "Guaranty Agreement" (as defined in the Participation Agreement referred to
in the foregoing Waiver), each hereby consents and agrees to the foregoing
Waiver and hereby confirms and agrees that (i) the Guaranty, the Guaranty
Agreement and the Security Agreement and all other Loan Documents and Operative
Agreements are, and shall continue to be, in full force and effect and are
hereby ratified and confirmed in all respects except that, upon Waiver Effective
Date (as defined in the foregoing Waiver), each reference in the Guaranty, the
Guaranty Agreement, the Security Agreement and the other Loan Documents and
Operative Agreements to the "Credit Agreement", "Lessee Credit Agreement", "the
Participation Agreement," "the Synthetic Lease Credit Agreement", "thereunder",
"thereof" and words of like import referring to the Revolving Credit Agreement,
the Participation Agreement or the Synthetic Lease Credit Agreement, as the case
may be shall mean and be a reference to the Revolving Credit Agreement, the
Participation Agreement or the Synthetic Lease Credit Agreement, as the case may
be, as amended and modified by said Waiver, and (ii) the Security Agreement and
all of the Collateral described therein do, and shall continue to, secure the
payment of all of the Secured Obligations as defined in the Security Agreement.
AMERICAN FOODSERVICE DISTRIBUTORS
/s/ Richard N. Phegley
By: Richard N. Phegley
Vice President & Treasurer
SMART & FINAL STORES CORPORATION
/s/ Richard N. Phegley
By: Richard N. Phegley
Vice President & Treasurer
SMART & FINAL OREGON, INC.
/s/ Richard N. Phegley
By: Richard N. Phegley
Vice President & Treasurer
PORT STOCKTON FOOD DISTRIBUTORS, INC.
/s/ Richard N. Phegley
By: Richard N. Phegley
Vice President & Treasurer
HENRY LEE COMPANY
/s/ Richard N. Phegley
By: Richard N. Phegley
Vice President & Treasurer
AMERIFOODS TRADING COMPANY
/s/ Richard N. Phegley
By: Richard N. Phegley
Vice President & Treasurer
HL HOLDING CORPORATION
/s/ Richard N. Phegley
By: Richard N. Phegley
Vice President & Treasurer
<PAGE>
Schedule I
To Limited Waiver
Dated as of February 9, 2000
Lessee: Smart & Final Stores Corporation
600 Citadel Drive
Commerce, California 90040
Lessor: Heller Financial Leasing, Inc.
500 West Monroe Street
Chicago, Illinois 60661
As assignee of and successor in interest to:
Newcourt Communications Finance Corporation,
formerly known as AT&T Credit Corporation,
and also doing business as NCR Credit Corporation
2 Gatehall Drive
Parsippany, New Jersey 07954
As separately scheduled within the Master Lease Agreement:
"Specified Leases" Principal Amount Lease Expiration
-------------------------------------------------------
#00010 $2,295,724.00 12/31/2004
#00020 783,017.00 12/31/2004
#00030 1,128,797.05 12/31/2002
#00040 128,784.22 12/31/2004
#00050 382,038.05 12/31/2004
------------- ------------
Total $4,718,360.32
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-03-2000
<PERIOD-END> MAR-26-2000
<CASH> 30,233
<SECURITIES> 0
<RECEIVABLES> 65,612
<ALLOWANCES> 3,549
<INVENTORY> 151,186
<CURRENT-ASSETS> 262,061
<PP&E> 331,043
<DEPRECIATION> 128,507
<TOTAL-ASSETS> 562,312
<CURRENT-LIABILITIES> 145,847
<BONDS> 139,392
0
0
<COMMON> 291
<OTHER-SE> 253,993
<TOTAL-LIABILITY-AND-EQUITY> 562,312
<SALES> 399,361
<TOTAL-REVENUES> 399,361
<CGS> 345,138
<TOTAL-COSTS> 345,138
<OTHER-EXPENSES> 50,013
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,245
<INCOME-PRETAX> 965
<INCOME-TAX> 373
<INCOME-CONTINUING> 592
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 636
<EPS-BASIC> $0.02
<EPS-DILUTED> $0.02
</TABLE>
