SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
____________________
FORM 10-K
(Mark one)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
- For the fiscal year ended December 31, 2000
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OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number 001-10811
SMART & FINAL INC.
(Exact name of registrant as specified in its charter)
Delaware 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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___.
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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 Form 10-K or any amendment to this
Form 10-K. [_]
As of February 28, 2001, the aggregate market value of Common Stock held
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by nonaffiliates of the registrant based on the closing price of the Common
Stock on the New York Stock Exchange composite tape was $121,746,058
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("nonaffiliates" excludes for this purpose executive officers, directors and the
registrant's majority shareholder).
As of March 13, 2001, the registrant had outstanding 29,284,964 shares of
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Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive Proxy Statement for its Annual Meeting of
Shareholders to be held May 23, 2001 are incorporated by reference into Part III
of this Form 10-K.
SMART & FINAL INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 31, 2000
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Caption Page
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PART I
Item 1 Business....................................................................................................... 3
Item 2 Properties .................................................................................................... 11
Item 3 Legal Proceedings.............................................................................................. 12
Item 4 Submission of Matters to a Vote of Security Holders............................................................ 12
PART II
Item 5 Market for the Registrant's Common Equity and Related Stockholder Matters...................................... 13
Item 6 Selected Financial Data........................................................................................ 14
Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................................................... 15
Item 7A Quantitative and Qualitative Disclosures about Market Risk..................................................... 20
Item 8 Financial Statements and Supplementary Data.................................................................... 22
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure..................................................................................................... 52
PART III
Item 10 Directors and Executive Officers of the Registrant............................................................. 52
Item 11 Executive Compensation......................................................................................... 52
Item 12 Security Ownership of Certain Beneficial Owners and Management................................................. 52
Item 13 Certain Relationships and Related Transactions................................................................. 52
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K................................................. 52
2
PART I
Item 1. Business
General
Smart & Final Inc. (the "Company") operated 214 non-membership warehouse
grocery stores in Arizona, California, Florida, Idaho, Nevada, Oregon, and
Washington at fiscal year end 2000 through its principal subsidiary, Smart &
Final Stores Corporation, a California corporation and related entities
(collectively "Smart & Final"). These stores operate under the trade names
"Smart & Final" and "United Grocers Cash & Carry" ("Cash & Carry"). The
Company's subsidiary, Smart & Final de Mexico S.A. de C.V. ("Smart & Final
Mexico"), operates seven stores in Mexico through a joint venture with the
operators of the Calimax store chain. The joint venture operates as a Mexican
domestic corporation under the name Smart & Final del Noroeste, S.A. de C.V. and
is reported on the equity basis of accounting.
Smart & Final stores offer a consistent selection of approximately 10,000
food items, supplies and equipment, primarily in institutional sizes and
quantities, targeted at small foodservice businesses and other customer groups.
The Company believes that Smart & Final is strategically positioned in a
substantial niche market between membership warehouse clubs and traditional
foodservice operators.
The Company also owns American Foodservice Distributors, a California
corporation ("AFD"), which is a holding company for traditional broadline
foodservice distributors. At year end, AFD owned 100% of Port Stockton Food
Distributors, Inc., a California corporation doing business under the name Smart
& Final Foodservice Distributors ("Smart & Final Foodservice"). Smart & Final
Foodservice is an institutional full-line food distributor that also operates
its own produce and meat processing units in northern California. At year end,
AFD also owned 100% of Henry Lee Company, a Florida corporation, and Southern
Foods and Orlando Foodservice divisions, meat processing and distribution
divisions operating in Florida. All Florida foodservice operations are
collectively referred to as "Florida Foodservice".
The Company is a Delaware corporation headquartered in Los Angeles, and at
fiscal year end 2000, had approximately 5,640 associates. In fiscal 2000, the
Company had sales of $1,864 million.
Financial information about the Company's segments is incorporated herein
by reference from Note 14 to the Consolidated Financial Statements included in
this report.
Smart & Final Stores
Smart & Final stores specialize in providing merchandise and customer
services to meet the foodservice and related needs of restaurants, caterers,
clubs, organizations and small and mid-sized businesses. Most stores also
attract value-oriented retail customers who prefer to purchase items in large
sizes or quantities. Smart & Final stores carry a broad selection of items in a
hybrid, retail/wholesale format. With an average size of 16,851 square feet, the
stores' smaller footprint enables the Company to locate a greater number of
stores in urban and suburban
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neighborhoods than warehouse club operators, which in turn provides a faster,
more convenient shopping experience for the customer.
Smart & Final has experienced significant sales growth despite the
expansion of the warehouse club industry in the Company's geographic markets.
The Company attributes its store growth to its commitment to be a primary
supplier for the needs of small and mid-sized independent foodservice operators.
Smart & Final positions itself competitively by offering convenience, attractive
pricing, a wide and consistent assortment including high quality corporate brand
items, and a high level of customer service. The Company's specific focus on
foodservice operators enables Smart & Final to react quickly to changing market
requirements and customer needs. Management believes these strategies, together
with its unique retail/wholesale concept, provides greater overall value than
the competition.
In recent years, Smart & Final has begun operating stores in new
geographic areas. In May 1998, the Company acquired 39 Cash & Carry stores,
operating mainly in the Pacific Northwest. Smart & Final opened stores in
Florida in 1996 and currently operates ten stores in Southern Florida. Although
its operations in Florida are not yet profitable, the Company believes the
state, with its vibrant economy, its significant Hispanic population, and its
concentration of small independent restaurants and businesses, is an attractive
growth market for its store concept.
During the early to mid 1990's, the Company focused on opening stores in
its existing markets and expanding in northern California. The Company plans to
continue expansion in its mature market areas through relocations and remodels
of existing stores and new store openings. In 1999 and 2000, Smart & Final
concentrated on assimilating the Cash & Carry stores and also opened six new and
relocated stores.
During the 1990's, the Company acquired several traditional foodservice
distribution companies (See American Foodservice Distributors). Product for
stores and foodservice customers is being handled from the same distribution
facilities. Management believes that ownership of foodservice distributors
facilitates store expansion in new markets because it reduces product costs and
distribution expenses inherent in new markets.
4
The following table shows certain information regarding the Company's
stores for the years indicated:
Fiscal Fiscal Fiscal Fiscal Fiscal
2000 1999 1998 1997 1996
-------- --------- -------- -------- ---------
USA
Beginning store count 212 209 167 168 155
Stores opened:
New stores 2 3 5 4 13
Relocations 1 - 3 7 6
Acquired - - 39 - -
Stores relocated or closed (1) - (5) (12) (6)
-------- --------- -------- --------- ---------
Ending store count 214 212 209 167 168
-------- --------- -------- -------- ---------
MEXICO
Beginning store count 6 6 5 5 3
New stores opened 1 - 1 - 2
-------- --------- -------- -------- ---------
Ending store count 7 6 6 5 5
-------- --------- -------- -------- ---------
Total Ending Store Count 221 218 215 172 173
======== ========= ======== ======== =========
STATISTICAL DATA:
Average selling square feet
per store at end of period:
USA 16,851 16,736 16,662 15,448 14,859
MEXICO 17,681 17,350 17,350 16,946 16,946
New store data:
New markets stores (USA) - 1 1 1 10
Average selling square feet:
USA 18,453 20,900 21,079 21,462 16,788
MEXICO 19,667 - 19,368 - 17,656
Mexico operations are not consolidated and are reported on the equity
basis of accounting.
Developing new stores, from initiation of construction to store opening,
requires approximately nine months for new locations and four months for
retrofitting of existing buildings. Equipment and inventory for each new store
averages $450,000 and $390,000, respectively. On average, each retrofitted store
costs approximately $340,000 in leasehold improvements and requires up to
$600,000 of equipment.
Management continually assesses each store's profitability on a pre-tax
profit basis after allocation of all corporate 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 months of
operations. However, there can be no assurance that the Company will be able to
open new stores in a timely manner; to hire, train and integrate employees; to
continue locating
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and obtaining favorable store sites; and to adapt distribution, management
information and other operating systems sufficiently to grow in a successful and
profitable manner.
Merchandising
Customers. Smart & Final stores service two primary customer bases:
businesses and household consumers. Business customers include independent
restaurants, caterers, mini-marts and other small businesses that do not receive
regular delivery. In addition, large chain restaurants and other major
foodservice operators use Smart & Final as a fill-in or backup supplier.
Household consumers with large families, or those planning a party or stocking
their pantry appreciate Smart & Final's convenient locations, high-quality
products in large sizes and value. Clubs and organizations also find Smart &
Final stores well suited to meet their foodservice needs.
Product Assortment and Quality. Each Smart & Final store carries
approximately 10,000 assorted food and related items in bulk sizes and
quantities. The Company offers customers a wide product selection, including
frozen and refrigerated foods, delicatessen products, fresh produce, paper
products, janitorial supplies, restaurant equipment, tobacco, candy, snacks,
beverages, and party supplies. Products regularly undergo a formalized
profitability review that identifies items that should be added or removed. The
Company is continuing the expansion of its fresh assortment by adding items to
the selection of meat and produce. The Company believes the size, consistency,
and depth of its product assortment satisfies customers' needs.
Product quality is paramount in the Smart & Final product assortment. The
Company's quality assurance department insures that its high standards are
maintained for all corporate brands and products.
Corporate Brand Positioning. Smart & Final utilizes its own corporate
brands within most merchandise categories, providing an alternative to national
brands and other corporate and private label brands. Corporate brands are
positioned to create brand loyalty and establish an ongoing customer franchise.
Furthermore, management believes foodservice customers make purchases based on a
quality/value/price perception. Smart & Final corporate brands target leading
competitive brands with attention to quality and value. In addition, the profit
contribution from corporate brands is generally higher than the comparable
national brand product.
During 2000, the Company continued to grow the sales and gross profit
contribution of the corporate brands program. Each operating company actively
markets the program. The core program consists of a three-quality-tiered
structure, analogous to competitive programs. The SmartBuy(R) Brand is a
standard grade, quality controlled brand positioned as "the price leader"; Smart
& Final(R), the Company's national brand equivalent, is a consistent,
quality-driven, competitively priced brand; and Smart & Final Premium Brand(R)
represents the highest quality within the product line. There are approximately
2,200 stock keeping units (SKUs) represented by these brands.
In addition to the core corporate brand program, the Montecito(R) and La
Romanella(R) corporate brands are designed to reach niche ethnic markets while
enhancing our core products.
6
The Company's authentic Hispanic-style brand, Montecito, represents over 100
SKUs. The La Romanella brand, a high quality line of Italian-style products,
consists of approximately 175 SKUs.
The Company introduced its new Snack'rs(R) brand in 2000. This rapidly
expanding brand, now comprising 35 SKUs, is designed to significantly enhance
sales and gross margins in the snack food category. In addition, a new brand of
spices, Tradewinds(TM) was introduced during the year. The Tradewinds brand
replaces the Company's original brand spices and will be sold in all Smart &
Final divisions. The Company is developing additional brands for introduction in
2001.
Management believes that the assortment and value of the Company's
corporate brands are an important element in Smart & Final's market positioning.
Pricing. Smart & Final attempts to identify and establish competitive
pricing on key items in local markets including competitive pricing against
warehouse clubs. The Company's pricing strategy is carefully coordinated with
its overall assortment strategy and with other marketing programs. Incentives
encourage customers to purchase the largest sizes and case quantities, thereby
maximizing operating efficiencies within the distribution system. In addition,
Smart & Final corporate brand items offer distinct price and value advantages
over comparable national brands.
Customer Service. Smart & Final focuses on customer service and
convenience to encourage more frequent store visits and greater average purchase
size. For example, stores offer convenient locations, operating hours and front
door parking lots, along with logical layouts and highly readable signage. Smart
& Final also maintains a high in-stock service rate, averaging 97%; high product
quality; clean stores; friendly, responsible and knowledgeable personnel; and
specialized point-of-sale support.
Smart & Final utilizes customer service centers and representatives,
provides informative customer materials, and emphasizes associate training that
builds customer loyalty. In addition, stores take customers' special orders for
a wide variety of products not carried regularly in its assortment. The Company
also provides customers with telephone and fax order service, enhancing its
in-store capability. The Company also has an associate training program designed
to increase store associates' retailing expertise and product knowledge. Smart
University, the Company's in-house training center, provides all associates with
the opportunity to build their knowledge and acquire additional skills.
Marketing. Smart & Final's marketing efforts are focused on building brand
awareness and enhancing customer relationships. Brand awareness is built with
broad-reach advertising, public relations efforts and strong market entry
programs. Customer relationships are enhanced with loyalty card programs,
targeted marketing and local store events. Suppliers participate in the
Company's marketing programs, thereby reducing Smart & Final's marketing costs.
Store Design and Size. Smart & Final stores are designed as convenient
warehouse stores dedicated to easing the shopping experience. For the last three
years, new and relocated stores have ranged between 12,000 and 34,000 square
feet. Smart & Final stores are organized into dry
7
grocery, beverages, frozen foods, janitorial, equipment and supplies, candy,
snacks, party supplies and other departments. In addition, prototype designs are
improved continually to enhance traffic flow, space utilization,
departmentalization, adjacencies of merchandise, and overall visual appeal
without diluting the convenient warehouse image. Each Smart & Final store
normally has three to six checkout counters and is staffed by an average of 17
associates.
Website. The Company has a site on the World Wide Web at
http://www.smartandfinal.com. The Company's site features a catalog of 5,000
professional-quality kitchen equipment and supply items for sale online.
Customers can also locate their nearest store or view current product specials
on the site. New products and categories, new stores services and menus and
recipes for entertaining are featured regularly. Other features of the site
include a complete history of the Company, financial information and job
opportunities. The Company's website is updated on a regular basis.
Operations
Procurement. The Company believes Smart & Final's purchasing policies and
procedures result in costs that are comparable to other companies purchasing
similar quantities and types of merchandise. Service level goals and investment
buying strategies are integral to the purchasing program. In addition, Smart &
Final continually utilizes the efficiencies provided by cooperative buying
organizations to facilitate low cost purchasing. These buying alliances
supplement the normal buying activities of each distribution center. Smart &
Final also strives to maintain close working relationships with its major
suppliers to reduce its product and distribution costs. The Company is
continuing the process of consolidating procurement of national brand products
for all operating units. In 2000, several national procurement agreements were
negotiated with suppliers, which reduced costs and contributed to increased
gross profits.
Smart & Final buys its products from approximately 1,800 different
suppliers. The Company has not had any difficulty in the past, and does not
expect any difficulties in the future, in obtaining products from suppliers.
Distribution. Smart & Final supports the largest percentage of its western
U.S. store network from a 445,000 square foot distribution center in Commerce,
California that began operations in February 1999. This new facility replaced
the older primary and satellite warehouses and, because of its higher ceiling
height, has approximately double the aggregate storage capacity of the older
facilities.
In northern California, the Company operates a 270,000 square foot
distribution facility, a 33,000 square foot freezer facility, an additional
100,000 square foot dry grocery warehouse, and two smaller facilities for fresh
meat distribution and auxiliary storage. These facilities serve approximately
4,000 foodservice customers and 38 northern California Smart & Final stores. In
Florida, the Company serves approximately 3,200 foodservice customers and ten
Smart & Final stores from a 230,000 square foot dry and refrigerated grocery
distribution center and a 99,000 square foot frozen food facility in Miami,
Florida. The Cash & Carry stores are served through a service agreement with
Unified Western Grocers, Inc., a grocery cooperative distributor.
8
Smart & Final utilizes computerized inventory management systems, radio
frequency technology, and integrated labor management systems in its warehouses.
The Company operates a fleet of 224 tractors and 351 trailers that are
either owned or leased. When possible, the Company increases the efficiency of
its fleet by filling outbound trucks to capacity and utilizing a backhaul
program for inbound deliveries.
Management Information Systems. The Company has made substantial
investments in new systems during the past several years, and expects to
continue to invest in business technology as a means to enhance its competitive
position.
The Company's investments included more than $6 million to replace and
upgrade the Point of Sale and Marketing Customer Relationship Management
systems. These new systems are designed to enhance the customer shopping
experience, help to better understand the Company's customers and to focus on
the most important customers' needs while enabling the Company to benefit from
electronic commerce.
The Company's purchasing system enables buyers to manage turnover, buy
inventory efficiently, achieve targeted gross margin objectives, track rebates
and allowances by vendor, and maintain targeted service levels. The
merchandising system enables store assortment to be customized to the needs and
characteristics of individual market areas, maximize gross margin return on
investment by item and product category, and increase inventory turn. The
distribution system manages warehouse inventories, store order selection, and
measures enterprise labor productivity.
American Foodservice Distributors
American Foodservice Distributors ("AFD") is a holding company for the
Company's two institutional broadline foodservice distributors, Smart & Final
Foodservice and Henry Lee Company, and for its Southern Foods and Orlando
Foodservice divisions operating in Florida. Smart & Final Foodservice also owns
Davis Lay and Craig and Hamilton branded operations that operate produce and
meat processing facilities, respectively. AFD's 2000 sales were $400.2 million.
In addition to a broadline assortment, AFD provides its customers primary
services including product delivery, extension of credit and ancillary services
such as restaurant equipment and supplies. The full-line assortment for these
distributors features dry grocery, frozen foods, fresh meat, deli products,
produce, tobacco, health and beauty aids, paper and packaging, janitorial
supplies, and restaurant equipment and supplies.
AFD has distribution facilities and offices in Stockton, California and
serves northern California markets from the Bay Area on the west to the Sierra
on the East, Eureka on the North and Fresno on the South. AFD's northern
California operations also serve 38 northern California Smart & Final stores.
During 2000, approximately 14% of AFD's northern California sales were Smart &
Final corporate brand products.
AFD, through its Henry Lee and Smart & Final Foodservice subsidiaries, is
a large member of UniPro Foodservice, Inc., a buying group with annual member
sales of over $12 billion. AFD is also a member of the DMA Major Account sales
group.
9
AFD's Florida operations are headquartered in Miami, Florida and serves
foodservice operator customers primarily located in the State of Florida and
certain markets in the Caribbean, and southern and central America. AFD's
distribution center in Miami provides the infrastructure to also service Smart &
Final stores in Florida. During 2000, approximately 10% of AFD's Florida sales
were Smart & Final corporate brand products. AFD serves approximately 7,200
foodservice customers such as restaurants, coffee shops, hotels, cruise ships,
and institutions. At year end AFD employed approximately 1,240 associates.
Smart & Final Mexico
The Company's 100%-owned subsidiary, Smart & Final Mexico, is a Mexican
holding company that owns 50% of a joint venture which operates seven stores in
Mexico. Operating results from the joint venture are reported on the equity
basis of accounting.
Competition
The Company participates in the highly competitive $154 billion annual
sales domestic food distribution industry. Its competitors include membership
and non-membership warehouse stores, wholesale distributors, supermarkets, and
other retailers. Many of the Company's competitors have greater financial,
distribution and marketing resources, as well as greater name recognition than
the Company.
The warehouse club industry generated sales of $61 billion in 1999,
approximately 60% of which were in food and related products. The Company's
three major warehouse club competitors are Costco Wholesale Corporation, BJ's
Wholesale Club and the SAM's Club division of Wal-Mart Stores. The industry has
experienced intense price competition, product innovation and rapid store growth
over the past several years. The Company competes effectively with membership
clubs by offering a broader and more consistent foodservice assortment, more
convenient shopping facilities and locations, a high level of customer service
and competitive pricing.
The traditional foodservice distribution market, in which AFD operates and
in which Smart & Final competes to a lesser extent, is very competitive and
highly fragmented. Major competition consists of national operators such as
Sysco Corporation, Alliant Foodservice, the U.S. Foodservice division of Ahold
USA and many smaller, regional distributors. The top 50 broad-line distributors
are believed to represent approximately 30% of the total foodservice market.
Competition from supermarket chains continues to increase as such chains
emphasize price and service, while widening their assortment of goods and
lowering certain prices to more effectively compete with warehouse clubs.
Human Resources
The Company strongly emphasizes the career development and retention of
its associates. The Company strives to maintain the culture of a highly focused,
innovative organization that maximizes associate productivity and contributions.
The Company actively recruits and offers
10
training opportunities to associates in order to develop qualified candidates
for managerial positions as vacancies occur.
Associate training and development programs through the Company's own
Smart University encompass all levels of store operations, from entry through
management, and emphasize merchandising techniques and customer service goals to
ensure top associate quality and productivity. Company mechanisms, such as
incentive pay and stock option programs, reward superior performance and
motivate associates. In addition, approximately 8.2% of each Smart & Final
store's pre-tax profit, after allocation of corporate costs, is paid out as
monthly bonuses to the store's full-time associates and selected part-time
associates. Cash & Carry store managers and associates receive annual bonuses
based on the achievement of specific operating goals.
At fiscal year end, the Company and its subsidiaries employed
approximately 5,640 persons, including 4,400 at Smart & Final, 690 at Smart &
Final Foodservice, and 550 at Florida Foodservice.
Hourly associates employed by 17 Cash and Carry stores are party to a
labor contract previously negotiated between the United Brotherhood of Teamsters
("Teamsters") and United Grocers, Inc. The Cash and Carry Stores were acquired
from United Grocers, Inc. in 1998 and Smart & Final assumed the Teamsters
Contract. Approximately 100 associates are covered by this contract, which
expires April 1, 2001. The Company intends to negotiate a new agreement with the
Teamsters. Smart & Final Foodservice is a party to an agreement with its Food
Distribution Associates Association, representing approximately 400 associates,
which contains certain procedures and policies with respect to management and
associate relations. The Company considers relations with its associates to be
good.
Item 2. Properties
As of fiscal year end 2000, the Company leased 132 store properties
directly from third party lessors, with an average remaining lease term of ten
years. The Company leased 15 store properties, at year end, under its secured
lease facility described below. In addition, the Company has eight stores on
real property that is ground leased from third party lessors. The remaining 59
store properties are owned.
The Company occupies a 445,000 square foot distribution facility in
Commerce, California that is leased under the secured lease facility described
below. The Company maintains its headquarters in an 81,000 square foot leased
facility in Commerce, California.
AFD supports its northern California customers from an owned 33,000 square
foot freezer facility and a 270,000 square foot distribution facility leased
under the secured lease facility described below. Additionally, the Company has
one and a half years remaining under a three-year lease for 100,000 square feet
of additional dry grocery warehouse space and leases two smaller facilities for
fresh meat distribution and auxiliary storage. These facilities are located in
Stockton, California.
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In Florida, AFD operates a 230,000 square foot warehouse in Miami,
Florida, including 22,000 square feet of office space. AFD also occupies 7,600
square feet of space used as a maintenance facility for its fleet. Both of these
facilities are leased from the former owners of Henry Lee. These leases expire
in August 2005. The leases contain terms and rates that are considered
equivalent to those available from unrelated third party lessors. AFD also
operates a 99,000 square foot frozen food facility in Miami, Florida that is
leased under the secured lease facility described below.
The Company plans to continue to lease properties, but also may elect to
own some of its new stores on an interim or permanent basis. The Company has a
$90 million secured lease facility, which provides for the lease of the
distribution center in Stockton, California and for store expansion and
distribution facilities in California and Florida. As of December 31, 2000,
$84.6 million had been utilized under this facility for various store and
distribution facilities.
Item 3. Legal Proceedings
The Company is from time to time involved in litigation incidental to the
conduct of its business. While the outcome of lawsuits and other proceedings
against the Company cannot be predicted with certainty, in the opinion of
management, none of the litigation in which the Company is currently involved,
individually or in the aggregate, is expected to result in a material effect on
the Company's financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to the security holders of the Company for
a vote during the quarter ended December 31, 2000.
12
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The Company's common stock is listed on the New York Stock Exchange
("NYSE") under the symbol SMF. As of March 13, 2001 there were approximately
208 registered holders of the common stock and the closing price per share of
the common stock as listed on the NYSE composite tape was $10.75. The
following table sets forth the high and low sales prices of the common stock as
reported on the NYSE composite tape for the periods indicated. There were no
cash dividends declared during the Company's two most recent fiscal years.
High Low
------------------------------------------------------------
First Quarter of 1999 10 1/8 8
Second Quarter of 1999 12 9/16 8 3/4
Third Quarter of 1999 10 15/16 9 1/8
Fourth Quarter of 1999 9 7/8 6
First Quarter of 2000 8 1/8 5 1/2
Second Quarter of 2000 8 11/16 6 11/16
Third Quarter of 2000 8 1/8 6 3/16
Fourth Quarter of 2000 8 13/16 6 3/8
The declaration and payment of dividends is subject to the discretion of
the Company's Board of Directors, and there can be no assurance whether or when
dividends will be paid in the future. The Company announced in a press release
dated February 17, 1999, that, as part of a program to reduce debt levels and
interest expense, dividends on its common stock have been suspended
indefinitely. The suspension of dividends was effective following the payment of
the fourth quarter 1998 dividend paid on January 29, 1999. Information
concerning certain dividend restrictions under the Company's Senior Secured
Credit Facility is included under "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
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Item 6. Selected Financial Data
SELECTED FINANCIAL DATA
(in thousands, except per share and statistical data)
Fiscal Year (A)
------------------------------------------------------------------
2000 1999 1998 (D) 1997 (C) 1996
---------- ---------- ---------- ---------- ----------
Income Statement Data:
Sales $1,863,895 $1,793,142 $1,661,629 $1,453,020 $1,302,561
Gross margin 258,083 234,360 205,688 194,663 190,395
Income from operations 29,974 24,620 1,151 15,930 42,588
Interest expense, net 13,368 17,997 13,304 8,117 3,373
Income (loss) before provision for income taxes,
minority share of net income, extraordinary item
and cumulative effect of accounting change 16,606 6,623 (12,153) 7,813 39,215
Net income (loss) 11,044 4,726 (8,659) 6,636 24,334
Earnings (loss) per common share, assuming dilution 0.38 0.18 (0.38) 0.29 1.15
Dividend per share (E) $ - $ - $ 0.20 $ 0.20 $ 0.20
Weighted average diluted common shares outstanding 29,244 26,321(F) 22,596 22,753 21,206
Financial Data (at fiscal year end):
Cash and cash equivalents $ 23,328 $ 42,936 $ 20,887 $ 22,891 $ 16,795
Working capital (deficit) 30,403 135,931 (12,385) 68,482 79,245
Total assets 582,341 582,599 582,264 488,145 441,424
Long-term debt and capital leases, excluding
current maturities 35,472 157,470 78,712 80,024 82,644
Stockholders' equity 264,865 253,447(F) 189,286 200,329 195,655(B)
Other Statistical Data:
Comparable store sales growth 5.5% 5.3% (0.2)% 2.0% 2.7%
Stores at year end (including Mexico) 221 218 215 172 173
Total retail square footage at year end (thousands) 3,730 3,652 3,586 2,610 2,496
Sales per selling square foot $ 410 $ 391 $ 396 $ 389 $ 406
Store customer transactions (thousands) 38,493 37,289 33,048 33,538 31,132
Employees at year end 5,640 5,308 5,447 5,205 4,577
__________________
(A) For all years, 52 weeks except fiscal year 1997, which had 53
weeks.
(B) 1,625,000 of common shares were issued on December 29, 1996 to affiliated
companies for $38 million in connection with acquisition of 91 properties
and leasehold interests.
(C) Amounts include results of Davis Lay division from May 1997 and results of
Orlando Foodservice Inc., Capricorn Foods of Central Florida, Inc. and
Southern Foods since their dates of asset acquisitions in September 1997.
(D) Amounts include results of United Grocers Cash & Carry store operations
from the date of its acquisition in May 1998.
(E) Dividends on common stock have been suspended indefinitely by the
Company's Board of Directors effective following the payment of the fourth
quarter 1998 dividend paid on January 29, 1999.
(F) 6,496,000 of common shares were issued during the equity offering in June
1999 and increased stockholders' equity by $57.9 million.
14
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the "Selected
Financial Data" and the financial statements and related notes thereto included
elsewhere in this Form 10-K. The following table sets forth the consolidated
statements of operations data. Percentages do not aggregate due to rounding.
52 Weeks 52 Weeks 52 Weeks
(Dollars in millions, except per share amounts) 2000 1999 1998
===========================================================================================================================
Sales:
Stores $ 1,463.7 78.5% $ 1,382.0 77.1% $ 1,205.6 72.6%
Foodservice 400.2 21.5 411.1 22.9 456.0 27.4
Sales, consolidated total 1,863.9 100.0 1,793.1 100.0 1,661.6 100.0
-----------------------------------------------------------------------------------------------------------------------------
Cost of sales, buying and occupancy:
Stores 1,240.5 84.8 1,183.3 85.6 1,027.4 85.2
Foodservice 365.3 91.3 375.5 91.3 428.5 94.0
Total cost of sales, buying and occupancy 1,605.8 86.2 1,558.8 86.9 1,455.9 87.6
=============================================================================================================================
Gross margin 258.1 13.8 234.3 13.1 205.7 12.4
-----------------------------------------------------------------------------------------------------------------------------
Operating and administrative expenses 228.1 12.2 209.7 11.7 204.5 12.3
-----------------------------------------------------------------------------------------------------------------------------
Income from operations 30.0 1.6 24.6 1.4 1.2 0.1
-----------------------------------------------------------------------------------------------------------------------------
Interest expense, net 13.4 0.7 18.0 1.0 13.3 0.8
-----------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes,
extraordinary item and cumulative
effect of accounting change 16.6 0.9 6.6 0.4 (12.1) (0.7)
-----------------------------------------------------------------------------------------------------------------------------
Income taxes 6.4 0.3 2.5 0.1 (4.3) (0.3)
-----------------------------------------------------------------------------------------------------------------------------
Income (loss) from consolidated subsidiaries 10.2 0.5 4.1 0.2 (7.8) (0.5)
-----------------------------------------------------------------------------------------------------------------------------
Equity earnings in unconsolidated subsidiary 0.8 - 0.7 - 0.2 -
-----------------------------------------------------------------------------------------------------------------------------
Extraordinary loss on extinguishment of debt - - 0.1 - - -
-----------------------------------------------------------------------------------------------------------------------------
Cumulative effect of accounting change - - - - 1.1 0.1
=============================================================================================================================
Net income (loss) $ 11.0 0.6% $ 4.7 0.3% $ (8.7) (0.5)%
=============================================================================================================================
Earnings (loss) per common share $ 0.38 $ 0.18 $ (0.39)
=============================================================================================================================
Earnings (loss) per common share,
assuming dilution $ 0.38 $ 0.18 $ (0.38)
=============================================================================================================================
15
================================================================================
Results of operations
The Company's net income was $11.0 million, or $0.38 per diluted share, in
2000, compared with net income of $4.7 million, or $0.18 per diluted share, in
1999, and net loss of $8.7 million, or $(0.38) per diluted share, in 1998. The
following table sets forth pre-tax income or loss, in millions, for each of the
Company's various reportable segments:
2000 1999 1998
------------- ------------- --------------
Stores $ 36.9 $ 31.9 $ 23.1
Foodservice (5.3) (7.5) (18.0)
------------- ------------- --------------
Segment totals 31.6 24.4 5.1
Interest and other corporate expenses (15.0) (17.8) (17.2)
------------- ---------------- ------------
Consolidated pre-tax income (loss) $ 16.6 $ 6.6 $ (12.1)
============= ============= =============
Cost allocation for servicing stores was revised in 2000. If the new
allocation method had been used, Foodservice pre-tax loss would have been
approximately $0.7 million greater in 1999 and $0.6 million lower in 1998,
respectively and Stores pre-tax income would have been approximately $0.7
million higher in 1999 and $0.6 million lower in 1998, respectively.
Change in management
In November 1998 the Company announced that Robert J. Emmons would retire
from his position as Chief Executive Officer and would resign from the Company's
Board of Directors effective January 4, 1999. The Board requested one of its
members, Ross Roeder, to assume the position of Chairman of the Board and Chief
Executive Officer, replacing Emmons. Roeder immediately proceeded with an
assessment of the overall business and developed a plan to redirect the
Company's business and improve operating efficiency. As a result, a number of
specific actions were taken late in 1998 that reduced earnings for the 1998
fourth quarter and year and contributed to the earnings improvement in
subsequent years.
A number of factors impacted the results of operations in 2000 and 1999:
Factors affecting 2000 results:
. Improved margins as a result of the national procurement program,
expanded corporate brands, store assortment mix changes and reduced
distribution costs.
. Expanded marketing programs and related strong same store sales
growth.
. Increased incentive compensation based on the Company's better
performance.
. Decreased interest expense primarily due to the $60 million common
stock offering completed in June 1999 and $35 million of additional
debt reduction from cash flows in 2000.
Factors affecting 1999 results:
. Significantly higher interest expense primarily due to higher
interest rates as a result of the Company's debt restructuring in
late 1998. The increased interest expense moderated in the second
half of 1999 due to the debt reduction resulting from the $60 million
common stock offering in June 1999.
. Outside consulting fees of $1.5 million were incurred in the third
and fourth quarters of 1999. These fees mainly related to improving
procurement programs.
16
During 2000, sales increased only moderately in the first quarter because
customer Year 2000 stockpiling late in 1999 and heavy rainfall in the Company's
primary markets during the first quarter of 2000 significantly reduced sales.
Earnings improved consistently in all quarters of 2000 due to better gross
margins at both stores and foodservice, reduced interest expense and, in the
last three quarters, strong stores sales growth.
The improvement in 1999 earnings was attributable to higher sales,
primarily from the acquisition of the Cash & Carry stores in May 1998, improved
gross margins, and reduced operating expenses.
Quarterly earnings per common share, assuming dilution:
First Second Third Fourth Year
--------- ---------- -------- -------- -------
2000 $ 0.02 $ 0.11 $ 0.14 $ 0.11 $ 0.38
1999 (0.02) 0.06 0.08 0.06 0.18
Sales. Sales were $1,863.9 million in 2000, $1,793.1 million in 1999, and
$1,661.6 million in 1998. Sales include those of the Cash & Carry store
operations following its acquisition in May 1998. Cash & Carry sales were $294.5
million in 2000, $253.7 million in 1999 and $164.5 million in 1998 following the
acquisition. Total sales increased 3.9% in 2000, 7.9% in 1999 and 14.4% in 1998.
Store sales, including Cash & Carry, increased 5.9% in 2000, 14.6% in 1999
and 14.9% in 1998. Same store sales increased 5.5% in 2000, compared to a 5.3%
increase in 1999 and a 0.2% decline in 1998. Fourteen new and relocated stores,
three in 2000, three in 1999 and eight in 1998, respectively, were opened during
the three-year period. Additionally, 39 stores were acquired from United
Grocers, Inc. in 1998. Foodservice sales decreased 2.7% in 2000 and 9.8% in 1999
and increased 12.9% in 1998, respectively. Foodservice sales declined in part
due to adoption of tighter credit policies in late 1998 and elimination of
unprofitable sales but the rate of decline has stabilized and foodservice sales
have increased in recent periods.
Gross margin. As a percentage of sales, gross margin was 13.8% in 2000, 13.1% in
1999, and 12.4% in 1998. Gross margin improved in 2000 due to the national
procurement program, expanded corporate brands, store assortment mix changes and
improved distribution efficiency. The increase in gross margin in 1999 was due
to a number of factors: higher foodservice margins achieved by a focus on
improved credit quality and profitability and a lower overall mix of foodservice
sales which carry lower margins than store sales. These increases were partially
offset by start-up inefficiencies at the Commerce warehouse that began
operations in February 1999 and increased store occupancy costs due to new and
remodeled stores and new technology.
Operating and administrative expenses. Operating and administrative expenses
were 12.2% of sales in 2000, 11.7% in 1999, and 12.3% in 1998. The expense
increase in 2000 is attributable to several targeted programs including
increased marketing expense that was a factor in the strong sales increases,
higher provision for performance-based incentive compensation and increased
store labor to provide increased store service levels, despite continuing rigid
expense controls. For 1999, expenses as a percentage of sales decreased due to
the inclusion of Cash & Carry operations, which operate at lower expense levels,
and the intensive corporate-wide expense-
17
reduction program implemented early in 1999. The major factors of the higher
expenses as a percentage of sales in 1998 were the charges incurred in
connection with the program to redirect the Company's business and improve
operating efficiency.
Interest expense, net. Interest expense, net decreased in 2000 to $13.4 million,
compared to $18.0 million in 1999 and $13.3 million in 1998. The decrease in
2000 was primarily due to the debt reduction as a result of the $60 million
common stock offering completed in June 1999 and an additional $35 million debt
reduction from cash flows in 2000. The increase in 1999 was primarily the result
of higher interest rates as a result of the Company's debt restructuring in late
1998.
Equity earnings in unconsolidated subsidiary
The Company has a 50% interest in a Mexico joint venture that operates
seven stores in Mexico and produced $0.8 million in equity earnings in 2000,
$0.7 million in 1999 and $0.2 million in 1998. Two new stores were opened
between 2000 and 1998.
Liquidity and capital resources
Historically, the Company's primary source of liquidity has been cash
flows from operations and retained earnings. In addition, the Company has
availability under bank facilities. In 2000, net cash provided by operating
activities was $43.2 million as compared to $54.4 million in 1999. The decrease
in cash provided by operating activities generally reflects the timing of
receipts and disbursements. The aggregate amount that will be required for the
Company's expansion program and other capital expenditures in 2001 is estimated
to be approximately $40.0 million.
The Company has Senior Secured Credit Facilities ("Credit Facilities")
with a group of banks totaling $240 million, including a $150 million Revolving
Credit Facility ("Revolving Loan") and a $90 million Secured Lease Facility.
These facilities expire on November 13, 2001. At the Company's option, the
Revolving Loan can be used to support up to $10 million of commercial letters of
credit. Interest for these facilities is at LIBOR, or the Administrative Agent's
reference rate, plus designated amounts. No principal repayments are due prior
to the final maturity. However, under certain conditions, pay-downs toward the
facilities are treated as permanent reductions to the amount available. As of
December 31, 2000, the total amount committed under these facilities was $219
million reflecting $21 million of permanent pay-downs during 1999. At fiscal
year end 2000, $87.0 million was outstanding under the Revolving Loan and $84.6
million was utilized under the Secured Lease Facility. The Senior Secured Credit
Facilities contain restrictions on cash dividends declared or paid and capital
expenditures and require the Company to maintain certain fixed charge coverage
ratios and other financial ratios.
At fiscal year end 2000, the Company's Loan Agreement ("Casino Loan") with
Casino USA, Inc. had an outstanding balance of $16.0 million. The Casino Loan
matures on February 15, 2002. No principal repayments are due prior to the final
maturity. Interest for this loan is the sum of the rate under Revolving Loan
plus 25 basis points. The Casino Loan agreement contains covenants requiring the
Company to maintain certain financial ratios.
18
At fiscal year end 2000, the Company was in compliance with financial
covenants contained in the Senior Secured Credit Facilities and Casino Loan, as
amended.
The Credit Facilities expire in November of 2001. The Company plans to
restructure and extend these facilities during 2001. Given the Company's
significantly improved financial position and excellent relationship with its
lending group, the Company expects a successful restructuring process.
The Company had cash and cash equivalents of $23.3 million,
stockholders' equity of $264.9 million and debt, excluding capital leases, of
$115.7 million at the end of fiscal year 2000. The debt consists of $87.0
million outstanding on the revolving credit line, the $16.0 million Casino Loan,
a $12.5 million five-year unsecured note issued to United Grocers, Inc. as a
result of acquisition of its Cash & Carry stores and $0.2 million other notes
payable. The weighted average interest rate, including all associated fees, on
the Company's variable rate debt for 2000 was 11.04%.
The Company expects to be able to fund future acquisitions and other cash
requirements by a combination of available cash, cash from operations, lease
financings 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
Full compliance of the Company's Year 2000 program was completed before
the end of 1999. Subsequent to the end of 1999 and throughout 2000, the Company
did not experience any significant issues related to the Year 2000 or receive
any reports from third parties indicating any material Year 2000 incidents. All
end-of-period reporting programs have been exercised and audited with no
material errors discovered. 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 sales decreases in the first few weeks of
fiscal 2000.
Seasonality
Historically, the Company's sales have followed a seasonal pattern in
which first quarter sales tend to be the weakest. Third quarter sales are high
because the third quarter includes four four-week periods, whereas the other
quarters include three four-week periods. Sales distribution by quarter in 2000
was 21% in the first quarter, 24% in the second, 32% in the third, and 23% in
the fourth.
Inflation
The Company's primary costs, merchandise and labor, as well as utility
costs are affected by a number of factors that are beyond the Company's control.
These factors include the price of merchandise, the competitive climate, and the
general and regional economic conditions. As is typical in the food industry,
the Company has generally been able to maintain margins by
19
adjusting its selling prices. But competitive conditions may, from time to time,
render it unable to do so while maintaining or increasing its market share.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
The Company is exposed to market risks relating to fluctuations in
interest rates and the exchange rate between the U.S. dollar and Mexican Peso.
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.
The Company's exposure to foreign exchange rates is limited. The Company does
not hold or issue financial instruments for trading purposes, nor engage in
other speculative or leveraged transactions.
Interest rate risk is managed through the use of interest rate collar
agreements to hedge principal amounts of up to an aggregate of $100 million.
These agreements are entered into with major financial institutions thereby
minimizing risk of credit loss. See Note 4 to the consolidated financial
statements for a more complete description of the Company's interest rate
collars.
Interest Rate Sensitivity Analysis
The following analysis presents the sensitivity to the earnings of the
Company if these changes occurred at December 31, 2000. The range of changes
chosen for this analysis reflects the Company's view of changes that are
reasonably possible over a one-year period. These forward-looking disclosures
are selective in nature and only address the potential impacts from financial
instruments. They do not include other potential effects that could impact the
Company's business as a result of these changes in interest.
At December 31, 2000, the Company had debt, excluding capital leases,
totaling $115.7 million and interest rate collar agreements with a notional
value of $100 million. The interest rate collar agreements limit LIBOR
fluctuations to interest rate ranges from 4.70% to 8.00% and expire during
various periods from October 2002 to September 2004. As of December 31, 2000,
the six-month LIBOR rate was 6.20%.
At December 31, 2000, the Company had $103.0 million of variable rate debt
and $12.7 million of fixed rate debt. Holding other variables constant (such as
debt levels), the earnings and cash flows impact of a one-percentage point
change in interest rates would be approximately $0.7 million.
Foreign Currency Risk
The Company's exposure to foreign currency risk is limited to the
Company's operations under Smart & Final Mexico and the equity earnings in its
Mexico joint venture. The Company's other transactions are conducted in U.S.
dollars and are not exposed to fluctuation in foreign currency. The Company does
not hedge on foreign currency and therefore is not exposed to such hedging risk.
20
Credit Risk
The Company is exposed to credit risk on accounts receivable. The Company
provides credit primarily to foodservice distribution 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
When used in this report, the words "believe," "expect," "anticipate" and
similar expressions, together with other discussion of future trends or results,
are intended to identify forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Such statements are subject to certain risks and uncertainties, including
those discussed below, that could cause actual results to differ materially from
those projected. These forward-looking statements speak only as of the date
hereof. All of these forward-looking statements are based on estimates and
assumptions made by management of the Company which, although believed to be
reasonable, are inherently uncertain and difficult to predict; therefore, undue
reliance should not be placed upon such statements. The following important
factors, among others, could cause the Company's results of operations to be
adversely affected in future periods: (i) increased competitive pressures from
existing competitors and new entrants, including price-cutting strategies, store
openings and remodels; (ii) increases in interest rates or the Company's cost of
borrowing or a default under any material debt agreements; (iii) deterioration
in general or regional economic conditions; (iv) adverse state or federal
legislation or regulation that increases the costs of compliance, or adverse
findings by a regulator with respect to existing operations; (v) loss of
customers or sales weakness; (vi) inability to achieve future sales levels or
other operating results; (vii) the unavailability of funds for capital
expenditures; and (viii) operational inefficiencies in distribution or other
Company systems. Many of such factors are beyond the control of the Company.
There can be no assurance that the Company will not incur new or additional
unforeseen costs in connection with the ongoing conduct of its business.
Accordingly, any forward-looking statements included herein do not purport to be
predictions of future events or circumstances and may not be realized. In
addition, assumptions relating to budgeting, marketing, advertising, litigation
and other management decisions are subjective in many respects and thus
susceptible to interpretations and periodic revisions based on actual experience
and business developments, the impact of which may cause the Company to alter
its marketing, capital expenditure or other budgets, which may in turn affect
the Company's financial positions and results of operations.
21
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following information is included in this section:
Report of Independent Public Accountants 23
Consolidated Balance Sheets 24
Consolidated Statements of Operations 25
Consolidated Statements of Stockholders' Equity 26
Consolidated Statements of Cash Flows 27
Notes to Consolidated Financial Statements 28
Supplementary Data - Summary of Quarterly Results of Operations 50
22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Smart & Final Inc.:
We have audited the accompanying consolidated balance sheets of Smart & Final
Inc. (a Delaware corporation and a 57.1 percent owned subsidiary of Casino USA,
Inc.) and subsidiaries as of December 31, 2000 and January 2, 2000, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three fiscal years in the period ended December 31, 2000.
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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Smart & Final Inc. and
subsidiaries as of December 31, 2000 and January 2, 2000, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
February 16, 2001
23
SMART & FINAL INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and January 2, 2000
(dollars in thousands, except share amounts)
December 31, January 2,
ASSETS 2000 2000
------ ------------------ ----------------
Current assets:
Cash & cash equivalents $ 23,328 $ 42,936
Trade notes and accounts receivable, less allowance for
doubtful accounts of $3,182 in 2000 and $4,687 in 1999 68,776 63,494
Inventories 170,276 154,550
Prepaid expenses 6,426 7,835
Deferred tax asset 10,890 10,834
------------------ ----------------
Total current assets 279,696 279,649
Property, plant and equipment:
Land 36,338 35,742
Buildings and improvements 29,559 29,116
Leasehold improvements 104,646 95,337
Fixtures and equipment 182,678 166,234
------------------ ----------------
353,221 326,429
Less - Accumulated depreciation and amortization 146,904 122,499
------------------ ----------------
Net property, plant and equipment 206,317 203,930
Assets under capital leases, net of accumulated
amortization of $8,098 in 2000 and $7,233 in 1999 6,877 8,343
Goodwill, net of accumulated amortization of $5,203 in 2000 and $3,640 in 1999 53,524 55,087
Deferred tax asset 6,051 4,734
Other assets 29,876 30,856
------------------ ----------------
Total assets $ 582,341 $ 582,599
================== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term debt $ 91,209 $ 3,928
Accounts payable 102,858 92,513
Accrued salaries and wages 15,538 13,127
Other accrued liabilities 39,688 34,150
------------------ ----------------
Total current liabilities 249,293 143,718
Long-term liabilities:
Notes payable, net of current maturities 10,117 12,865
Notes payable to Parent 15,965 15,965
Bank debt - 117,500
Obligations under capital leases 9,390 11,140
Other long-term liabilities 12,632 9,179
Workers' compensation reserve, postretirement and postemployment benefits 20,079 18,785
------------------ ----------------
Total long-term liabilities 68,183 185,434
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;
29,203,114 shares issued and outstanding in 2000 and 29,136,995 in 1999) 292 291
Additional paid-in capital 204,898 204,450
Notes receivable for stock (100) (100)
Accumulated other comprehensive loss (915) (835)
Retained earnings 60,690 49,641
------------------ ----------------
Total stockholders' equity 264,865 253,447
------------------ ----------------
Total liabilities and stockholders' equity $ 582,341 $ 582,599
================== ================
The accompanying notes are an integral part of these consolidated financial
statements.
24
SMART & FINAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Fiscal Years Ended December 31, 2000, January 2, 2000
and January 3, 1999
(dollars in thousands, except per share amounts)
Fiscal Year
-----------------------------------------------------
2000 1999 1998
-----------------------------------------------------
Sales $ 1,863,895 $ 1,793,142 $ 1,661,629
Cost of sales, buying and occupancy 1,605,812 1,558,782 1,455,941
------------- ----------- ------------
Gross margin 258,083 234,360 205,688
Operating and administrative expenses 228,109 209,740 204,537
------------- ----------- ------------
Income from operations 29,974 24,620 1,151
Interest expense, net 13,368 17,997 13,304
------------- ----------- ------------
Income (loss) before income taxes, extraordinary item and
cumulative effect of accounting change 16,606 6,623 (12,153)
Income taxes 6,395 2,479 (4,397)
------------- ----------- ------------
Income (loss) from consolidated subsidiaries 10,211 4,144 (7,756)
Equity earnings in unconsolidated subsidiary 833 748 187
------------- ----------- ------------
Income (loss) before extraordinary item and
cumulative effect of accounting change 11,044 4,892 (7,569)
Extraordinary loss on extinguishment of debt, net of
tax effect of $147 - 166 -
Cumulative effect of accounting change (start-up costs, net of
tax effect of $758) - - 1,090
------------- ----------- ------------
Net income (loss) $ 11,044 $ 4,726 $ (8,659)
============= =========== ============
Earnings (loss) per common share:
Earnings (loss) per common share before extraordinary item and
cumulative effect of accounting change $ 0.38 $ 0.19 $ (0.34)
Extraordinary loss on extinguishment of debt per common share - (0.01) -
Cumulative effect of accounting change per common share - - (0.05)
------------- ----------- ------------
Earnings (loss) per common share $ 0.38 $ 0.18 $ (0.39)
============= =========== ============
Weighted average common shares 29,191,420 26,282,704 22,474,048
============= =========== ============
Earnings (loss) per common share, assuming dilution:
Earnings (loss) per common share, assuming dilution, before
extraordinary item and cumulative effect of accounting change $ 0.38 $ 0.19 $ (0.33)
Extraordinary loss on extinguishment of debt per common share - (0.01) -
Cumulative effect of accounting change per common share - - (0.05)
------------- ----------- -------------
Earnings (loss) per common share, assuming dilution $ 0.38 $ 0.18 $ (0.38)
============= =========== ============
Weighted average common shares and common share equivalents 29,244,451 26,321,476 22,595,705
============= =========== ============
Dividend per common share $ - $ - $ 0.20
============= =========== ============
The accompanying notes are an integral part of these consolidated
financial statements.
25
SMART & FINAL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Fiscal Years Ended December 31, 2000, January 2, 2000 and
January 3, 1999
(dollars in thousands, except share amounts)
Accumulated
Common Stock Additional Notes Other Total
-----------------------
Number of Paid-in Receivable Comprehensive Retained Stockholders'
Shares Amount Capital for Stock Loss Earnings Equity
----------- ---------- ---------- ----------- ------------- ---------- -------------
Balance, fiscal year end 1997 22,386,181 $ 224 $ 142,865 $ - $ (835) $ 58,075 $ 200,329
Issuance of common stock 140,998 1 1,772 - - - 1,773
Restricted stock accrual - - 167 - - - 167
Tax benefit associated with stock options
exercised - - 183 - - - 183
Dividend ($0.20 per share) - - - - - (4,507) (4,507)
Net income (loss) - - - - - (8,659) (8,659)
----------- ---------- ---------- ---------- ----------- --------- -----------
Balance, fiscal year end 1998 22,527,179 225 144,987 - (835) 44,909 189,286
Issuance of common stock 6,609,816 66 58,925 - - - 58,991
Notes receivable for stock subscription - - - (100) - - (100)
Restricted stock accrual - - 538 - - - 538
Dividend (for restricted stocks canceled) - - - - - 6 6
Net income - - - - - 4,726 4,726
----------- ---------- ---------- ---------- ----------- --------- -----------
Balance, fiscal year end 1999 29,136,995 291 204,450 (100) (835) 49,641 253,447
Issuance of common stock 66,119 1 75 - - - 76
Restricted stock accrual - - 373 - - - 373
Dividend (for restricted stocks canceled) - - - - - 5 5
Comprehensive income (loss):
Net income - - - - - 11,044 11,044
Other comprehensive income:
Foreign currency translation
gain (loss) - - - - (80) - (80)
----------- ---------- ---------- ---------- ----------- --------- -----------
Total comprehensive income (loss) - - - - (80) 11,044 10,964
----------- ---------- ---------- ---------- ----------- --------- -----------
Balance, fiscal year end 2000 29,203,114 $ 292 $ 204,898 $ (100) $ (915) $ 60,690 $ 264,865
=========== ========== ========== ========== =========== ========= ===========
The accompanying notes are an integral part of these consolidated financial
statements.
26
SMART & FINAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Fiscal Years Ended December 31, 2000,
January 2, 2000 and January 3, 1999
(dollars in thousands)
Fiscal Year
--------------------------------------------
2000 1999 1998
--------- --------- ---------
Cash Flows From Operating Activities:
Net income (loss) $ 11,044 $ 4,726 $ (8,659)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Gain on disposal of fixed assets (389) (608) (3,126)
Asset valuation adjustments - - 1,175
Depreciation and amortization 32,873 31,316 29,353
Deferred tax provision (benefit) (1,373) 961 (3,781)
Amortization of deferred financing costs 1,784 1,869 -
Extraordinary loss on extinguishment of debt, net of taxes - 166 -
Cumulative effect of accounting change, net of taxes - - 1,090
Equity earnings in unconsolidated subsidiary (833) (748) (187)
Decrease (increase), net of business acquisition, in:
Trade notes and accounts receivable (5,282) 6,779 8,634
Inventories (15,726) 3,128 (6,646)
Prepaid expenses and other 1,409 8,796 (3,540)
Increase (decrease), net of business acquisition, in:
Accounts payable 6,116 (4,749) 14,224
Accrued liabilities 2,411 2,547 2,921
Other liabilities 11,130 190 7,821
--------- --------- ---------
Net cash provided by operating activities 43,164 54,373 39,279
--------- --------- ---------
Cash Flows From Investing Activities:
Acquisition of property, plant and equipment (23,942) (26,169) (39,622)
Proceeds from disposal of property, plant and equipment 549 3,142 3,658
Acquisition of business - - (44,401)
Other (4,662) (4,190) (7,557)
--------- --------- ---------
Net cash used in investing activities (28,055) (27,217) (87,922)
--------- --------- ---------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock, net of costs - 20,163 1,737
Payments on bank line of credit (30,500) (36,000) (82,000)
Borrowings on bank line of credit - 20,000 133,500
Payments on notes payable (4,217) (6,462) (3,796)
Change in payable to Parent and affiliates - (1,681) 7,288
Quarterly dividend paid - (1,127) (4,492)
Fees paid in connection with debt restructure - - (5,598)
--------- --------- ---------
Net cash (used in) provided by financing activities (34,717) (5,107) 46,639
--------- --------- ---------
Increase (decrease) in cash and cash equivalents (19,608) 22,049 (2,004)
Cash and cash equivalents at beginning of year 42,936 20,887 22,891
--------- --------- ---------
Cash and cash equivalents at end of year $ 23,328 $ 42,936 $ 20,887
========= ========= =========
Noncash Investing and Financing Activities:
Fees in connection with note restructure $ - $ - $ (953)
Equipment acquired as capital lease - 4,891 -
Note issued in connection with note restructure - - 55,388
Note received in connection with fixed assets retired - 1,145 -
Note retired in connection with note restructure - - (30,400)
Payable to affiliates retired in connection with note restructure - - (24,035)
Note to affiliates extinguished for common stock issued - 39,423 -
Note issued in connection with acquisition of business - - 17,500
Construction in progress costs incurred but not paid 5,967 397 2,320
--------- --------- ---------
Total noncash transactions $ 5,967 $ 45,856 $ 19,820
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
27
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of presentation
Smart & Final Inc. (the "Company") is a Delaware corporation and at fiscal
year end 2000 was a 57.1 percent owned subsidiary of Casino USA, Inc. (the
"Parent" or "Casino USA"), a California corporation. Casino Guichard-Perrachon,
S.A. ("Casino France"), a publicly traded French joint stock limited liability
company, is the principal shareholder of the Parent. Collectively, Casino France
and its subsidiaries currently own approximately 60.2 percent of the Company's
common stock. The Company's principal subsidiary is Smart & Final Stores
Corporation, a California corporation, which operates a Cash & Carry division
(collectively, "Smart & Final"). The Company owns American Foodservice
Distributors ("AFD"), a holding company, which owns 100% of Port Stockton Food
Distributors, Inc. ("Port Stockton"), a California corporation, and 100% of
Henry Lee Company ("Henry Lee"), a Florida company, and two operating divisions
in Florida, Orlando Foodservice and Southern Foods. The Company is engaged in
the business of distributing food and related non-food items through wholesale
outlets under the trade names "Smart & Final" and "United Grocers Cash & Carry"
("Cash & Carry") and by delivery, under the trade names "Smart & Final
Foodservice Distributors", formerly "Port Stockton", and "Henry Lee." The
Company also owns 100% of Smart & Final de Mexico S.A. de C.V. ("Smart & Final
Mexico"), a Mexican holding company through which the Company owns 50% of a
joint venture, Smart & Final del Noroeste S.A. de C.V. ("SFDN"), in Mexico.
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries. The Company's 50%-owned joint venture in
Mexico, which commenced store operations in December 1993, is accounted for by
the equity method of accounting.
All significant intercompany accounts and transactions have been
eliminated in consolidation. Certain prior years' amounts have been reclassified
to conform to the fiscal year 2000 presentation.
Fiscal years
The Company's fiscal year ends on the Sunday closest to December 31.
Fiscal year 2000, 1999 and 1998 each included 52 weeks. Fiscal years 2000, 1999
and 1998 ended on December 31, 2000, January 2, 2000 and January 3, 1999,
respectively. Each of the Company's fiscal years consists of twelve-week periods
in the first, second, and fourth quarters of the fiscal year and a sixteen-week
period in the third quarter. The fourth quarter of a 53-week year consists of
thirteen weeks.
28
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Cash and cash equivalents
The Company considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents. The carrying
amount of cash equivalents is approximately the same as their fair value because
of the short maturity of these instruments.
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.
Inventories
The majority of the Company's inventories consist of merchandise purchased
for resale which are stated at the lower of FIFO (first-in, first-out) cost or
market.
Property, plant and equipment
Property, plant and equipment are stated at cost and are depreciated or
amortized using the straight-line method. The estimated useful lives are as
follows:
Buildings and improvements 5-25 years
Fixtures and equipment 3-10 years
Leasehold improvements Lesser of lease term or useful life of
improvement
Costs of normal maintenance and repairs and minor replacements are charged
to expense when incurred. Major replacements or betterments of properties are
capitalized. When assets are sold or otherwise disposed of, the costs and
related accumulated depreciation and amortization are removed from the accounts,
and any resulting gain or loss is included in the income statement.
Long-lived assets and certain identifiable intangibles to be held and used
by the Company are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.
Also included in property, plant and equipment are costs associated with
selection and procurement of real estate sites of $1,078,000 and $789,000 as of
fiscal year end 2000 and 1999, respectively. These costs are amortized over the
remaining lease term of the site with which they are associated.
29
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Other assets
Other assets include municipal bonds aggregating $5,430,000 at each fiscal
year end 2000 and 1999, which secure the Company's workers' compensation
reserves. The fair value of the municipal bonds, estimated based on quoted
market prices for similar investments, approximate their carrying amounts. These
municipal bonds have varying maturity dates ranging from 2006 through 2019.
Other assets include debt issuance costs of $1,460,000 and $3,486,000 at
year end 2000 and 1999, respectively relating to fees paid in connection with
the debt restructuring. These costs are being amortized over the term of the
related debt.
Capitalized software costs, net of amortization, of $4,654,000 and
$5,844,000 are included in other assets at fiscal year end 2000 and 1999,
respectively. These costs include third party purchased software costs, direct
labor associated with internally developed software, and installation costs.
Amortization is being recognized over a three to five year period using the
straight-line method, and reflects the period over which the benefits of the
software are fully realizable and enhance the operations of the business.
Goodwill
Goodwill is amortized on a straight-line basis over a period not exceeding
40 years. The Company assesses the recoverability of goodwill based on
forecasted operating income.
Stock options
In 1996, the Company adopted Statement of Financial Accounting Standards
No. 123 "Accounting for Stock-Based Compensation" ("SFAS No. 123"), which
encourages, but does not require, the recognition of compensation expense for
employee stock-based compensation arrangements using the fair value method of
accounting. The Company has elected the disclosure only alternative, and has
disclosed the pro forma net income per share amounts in the notes to the
consolidated financial statements using the fair-value method.
Significant accounting estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
certain estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and revenues and expenses
during the reporting period.
30
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Revenue recognition
Revenue is recognized at the point of sale for store sales and at the time
of shipment for foodservice sales.
Income taxes
The Company recognizes deferred tax assets and liabilities based on the
liability method, which requires an adjustment to the deferred tax asset or
liability to reflect income tax rates currently in effect. When income tax rates
increase or decrease, a corresponding adjustment to income tax expense is
recorded by applying the rate change to the cumulative temporary differences.
Foreign currency translations
Assets and liabilities recorded in foreign currencies, as well as the
Company's investment in the Mexico joint venture, are translated at the exchange
rate on the balance sheet date. Revenues and expenses of the Company's
consolidated foreign operations are translated at average rates of exchange
prevailing during the year. Beginning in January 2000, in accordance with
generally accepted accounting principles, the functional currency for the
Company's Mexico operations is 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 within Stockholders'
equity. During fiscal years 1998 and 1999, in accordance with generally accepted
accounting principles, the functional currency was the U.S. dollar and as such,
foreign currency translation gains and losses were included in results of
operations for those fiscal years.
Accounting pronouncements
During the first quarter of 1998, the Company adopted the provisions of
the American Institute of Certified Public Accountants ("AICPA") Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities". This statement
requires that costs of start-up activities and organization costs be expensed as
incurred. Adoption of this statement resulted in a cumulative effect of
accounting change, net of tax, charge of $1.1 million, or $0.05 per diluted
share.
In June 1998, Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which established accounting and reporting
standards for derivative instruments and for hedging activities. SFAS No. 133
was amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of SFAS No. 133," which deferred the
implementation of SFAS No. 133 until fiscal years beginning after June 15, 2000.
In June 2000, SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities" amended SFAS No. 133. Currently, the Company has
limited use of
31
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
derivative financial instruments and believes that adoption of SFAS No. 133, as
amended by SFAS No. 138, will not have a material impact on its results of
operations or financial position.
2. Investments in Subsidiaries
Investment in SFDN is accounted for using the equity method of
accounting. The Company's Retained earnings included undistributed earnings of
SFDN of $2,438,000 and $1,605,000 at year end 2000 and 1999, respectively. These
earnings are considered retained indefinitely for reinvestment and, accordingly,
no provision is provided for United States federal and state income taxes and
foreign income taxes.
3. Acquisition of Businesses
On May 15, 1998, the Company acquired the Cash & Carry operating business
of United Grocers, Inc. that included 39 stores operating primarily in the
Pacific Northwest. The purchase price consisted of $42.5 million in cash, plus a
$17.5 million five-year unsecured note. The results of store operations for
fiscal year 1998 include the results of operations of the acquired Cash & Carry
stores since May 15, 1998. The acquisition has been accounted for using the
purchase method of accounting. The excess of the aggregate purchase price over
the fair market values of the net assets acquired, of $38.2 million, has been
reflected in the balance sheet as Goodwill and is being amortized over forty
years.
In January 1998, AFD purchased the remaining 10% of the stock of Henry Lee
for $1.9 million. The Company recorded this acquisition using the purchase
method of accounting.
The total assets acquired from these acquisitions and the results of
operations at the dates of these asset acquisitions are immaterial relative to
the Company's consolidated financial statements.
4. Long-Term Debt
Revolving Loan
Effective November 13, 1998, the Company entered into Senior Secured
Credit Facilities totaling $240 million with a group of banks. The Senior
Secured Credit Facilities include a $150 million Revolving Credit Facility
("Revolving Loan") and a $90 million Secured Lease Facility ("Secured Lease
Facility"). At the Company's option, the Revolving Loan can be used to support
up to $10 million of commercial letters of credit. Borrowings under the Senior
Secured Credit Facilities are collateralized by a security interest in the
Company's receivables, inventory and fixed assets. Interest for these facilities
is at LIBOR, or the Administrative Agent's reference rate, plus designated
amounts. No principal repayments are due prior to the final maturity. However,
under certain conditions, pay-downs toward the facilities are required and
treated as
32
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
permanent reductions to the amount available. As of December 31, 2000, the total
amount available under the Revolving Loan was $129 million reflecting $21
million of permanent pay-downs, including $19.0 million of pay-down after the
completion of the Company's common stock offering during the second quarter of
1999. These facilities expire on November 13, 2001 and therefore, the borrowing
under the Revolving Loan as of December 31, 2000, $87.0 million, was classified
as a current liability. As of December 31, 2000, the LIBOR rate was 6.20%.
These facilities require the Company to maintain certain financial ratios.
As of December 31, 2000, the Company was in compliance with the covenants and
provisions of the Senior Secured Credit Facilities, as amended.
Casino Loan
On November 13, 1998, the Company entered into a $55.4 million Loan
Agreement ("Casino Loan") with Casino USA. Interest for this loan was at LIBOR
plus 4.50%. The Casino Loan matures on February 15, 2002.
During the second quarter of 1999, $39.4 million of the Casino Loan was
exchanged as consideration for shares subscribed by Casino USA in conjunction
with the Company's common stock offering. The Company subsequently issued an
addendum to the Casino Loan to reduce the loan principal from $55.4 million to
$16.0 million and the interest rate from LIBOR plus 4.50%, to the sum of the
rate under Revolving Loan plus 25 basis points. The Casino Loan requires that
the Company maintain certain financial ratios. As of the end of fiscal year
2000, the Company was in compliance with these covenants, as amended.
Other long-term debt
The Company has guaranteed $703,000 of SFDN debt under a Standby Letter
of Credit as of December 31, 2000.
In connection with the acquisition of the Cash & Carry operating business
of United Grocers, Inc., the Company issued a $17.5 million five-year unsecured
note. At December 31, 2000, the outstanding balance was $12.5 million. This note
is payable in three remaining annual installments of $2.5 million in 2001, $5.0
million in 2002 and 2003. This note bears interest at 6.50%. Accrued interest is
payable quarterly. Other unsecured notes payable of $249,000 and $520,000 at
fiscal year end 2000 and 1999, respectively, bear interest at various rates
ranging from 6.50% to 8.00%.
Interest
Interest paid on these notes and bank lines of credit aggregated
$13,829,000, $20,119,000, and $10,042,000 for the fiscal years ended 2000, 1999
and 1998, respectively. The effective interest rates on the Company's variable
rate debt at December 31, 2000 ranged between 9.03% and 10.75% and at January 2,
2000, between 8.95% and 10.50%.
33
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Aggregate future principal payments are as follows:
Fiscal Year:
2001................................................. $ 89,632,000
2002................................................. 21,078,000
2003................................................. 5,004,000
--------------
$ 115,714,000
==============
The fair value of the Company's long-term debt, estimated based upon
current interest rates offered for debt instruments of the same remaining
maturities, approximates the carrying amount.
The Company's involvement with derivative financial instruments has been
limited to interest rate collar agreements to limit the impact of interest rate
fluctuations on revolving debt. The Company has entered into interest rate
collar agreements with various banks to hedge principal amounts of up to an
aggregate of $100 million. These agreements limit LIBOR fluctuations to interest
rate ranges from 4.70% to 8.00% and expire during various periods from October
2002 to September 2004. As of December 31, 2000, the market rate applied to
these agreements did not have an impact on the Company's result of operations or
financial position.
5. Lease Obligations
As of fiscal year end 2000, the Company leased 132 store properties
directly from third party lessors, with an average remaining lease term of ten
years. The Company leased 15 store properties, at year end, under its Secured
Lease Facility. In addition, the Company has eight stores on real property that
is ground leased from third party lessors.
On November 13, 1998, the Company entered into a Secured Lease Facility as
mentioned in Long-Term Debt. The Secured Lease Facility provided for the lease
of a distribution center for Smart & Final Foodservice and for store expansion
and distribution facilities in California and Florida. During fiscal years 2000
and 1999, the Company leased assets valued at approximately $84.6 million and
$82.9 million, respectively, under this facility. The related minimum lease
obligation is included in the table below, in accordance with its original
expiration date.
AFD's Miami dry and refrigerated warehouse is leased from the former
owners of Henry Lee. The lease contains terms and rates considered equivalent to
those available from unrelated third party lessors. The Company guarantees
$1,038,000 of obligations of the former owners of Henry Lee. These obligations
are related to properties leased by Henry Lee.
Lease expense for operating leases included in the accompanying financial
statements were $39,208,000 for 2000, $34,104,000 for 1999 and $32,248,000 for
1998. All lease expenses were paid to the third party lessors.
34
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Aggregate minimum future lease payments for real property, as well as
equipment and other property at fiscal year end 2000 are as follows:
Fiscal Year: Operating Leases Capital Leases
---------------- -----------------
2001...................... $ 122,118,000 $ 2,560,000
2002...................... 27,616,000 2,638,000
2003...................... 25,758,000 2,430,000
2004...................... 24,011,000 2,204,000
2005...................... 21,385,000 2,032,000
Subsequent to 2005........ 143,606,000 2,929,000
---------------- ---------------
Future minimum lease payments $ 364,494,000 14,793,000
================
Less amount representing interest........................... 3,826,000
---------------
Present value of future lease payments...................... $ 10,967,000
===============
Capital lease obligations vary in amount with interest rates ranging from
5.74% to 19.91%. Interest paid in relation to capital leases aggregated
$1,166,000, $849,000 and $882,000 for fiscal years ended 2000, 1999 and 1998,
respectively.
35
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
6. Retirement Plans
Defined benefit plans
The Company has a noncontributory pension plan covering substantially all
full time employees, except for those employees of AFD. The Company funds this
plan with annual contributions as required by the Employee Retirement Income
Security Act of 1974 (ERISA). Plan assets are held by the trustee, and consist
of a diversified portfolio of fixed-income investments and equity securities,
including U.S. Government instruments, corporate bonds, money market funds and
common stock.
Effective January 1, 1998 the Company adopted a noncontributory
supplemental executive retirement plan ("SERP") which provides supplemental
income payments for certain Company officers in retirement. The Company has
invested in corporate owned life insurance policies as a portion of the funding
for these benefits. The cash surrender value of these policies amounted to
$4,286,000 and $3,248,000 at year end 2000 and 1999, respectively and are
included in Other assets in the accompanying consolidated balance sheets.
The following tables set forth the changes in benefit obligation and plan
assets of these plans for 2000 and 1999:
2000 1999
-------------- ---------------
Change in Benefit Obligation
Benefit obligation at beginning of year $ 37,921,000 $ 42,829,000
Service cost 1,833,000 2,227,000
Interest cost 3,153,000 2,921,000
Plan amendment 124,000 -
Actuarial (gain) loss 4,625,000 (6,803,000)
Benefits paid (1,551,000) (3,253,000)
--------------- ------------
Benefit obligation at end of year 46,105,000 37,921,000
--------------- ------------
Change in Plan Assets
Fair value of plan assets at
beginning of year 39,667,000 35,173,000
Actual return on plan assets (1,326,000) 6,483,000
Employer contribution 286,000 1,264,000
Benefits paid (1,551,000) (3,253,000)
--------------- ------------
Fair value of plan assets at end of year 37,076,000 39,667,000
--------------- ------------
Funded Status (9,029,000) 1,746,000
Unrecognized prior service cost 3,044,000 3,267,000
Unrecognized net transition obligation 293,000 392,000
Unrecognized actuarial (gain) loss 1,283,000 (8,441,000)
--------------- ----------------
Accrued benefit cost $ (4,409,000) $ (3,036,000)
=============== ===============
36
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Amounts recognized in the statement of financial position at year end 2000
and 1999 consist of:
2000 1999
----------------------- ----------------------
Accrued benefit cost $ (4,409,000) $ (3,036,000)
Additional minimum liability (1,711,000) (368,000)
Intangible asset 1,711,000 368,000
---------------------- ----------------------
Net amount recognized $ (4,409,000) $ (3,036,000)
====================== ======================
The weighted average assumptions used in accounting for these plans at
year end 2000 and 1999 were as follows:
2000 1999
-------- --------
Discount rate 7.50% 8.00%
Rate of increase in compensation levels 4.50% 4.50%
Expected long-term rate of return on plan assets 9.00% 9.00%
The net periodic benefit cost for fiscal years 2000, 1999, and 1998
includes the following components:
2000 1999 1998
----------------- ----------------- ----------------
Service cost component $ 1,833,000 $ 2,227,000 $ 1,829,000
Interest cost component 3,153,000 2,921,000 2,759,000
Expected return on plan assets (3,546,000) (3,173,000) (2,685,000)
Amortization of prior service cost 347,000 348,000 335,000
Amortization of transition obligation 99,000 97,000 98,000
Amortization of actuarial gain (439,000) - -
----------------- ----------------- ----------------
Net expense $ 1,447,000 $ 2,420,000 $ 2,336,000
================= ================= ================
The Company contributes to a multi-employer pension plan administered by a
trustee on behalf of its 100 union employees. Contributions to this plan are
based upon negotiated labor contracts. Information relating to benefit
obligations and fund assets as they may be allocable to the Company at December
31, 2000 is not available. Pension expense for this plan was $507,000 for 2000,
$400,000 for 1999 and $330,000 for 1998.
Defined contribution plans
The Company offers all qualified full time employees participation in
defined contribution plans ("the 401(k) Savings Plans") which are qualified
under the requirements of Section 401(k) of the Internal Revenue Code of 1986,
as amended. The Smart & Final 401(k) Savings Plan covers all employees of Smart
& Final Stores Corporation and related entities which includes the Cash & Carry
division employees. This 401(k) Savings Plan allows participants to contribute
for fiscal year 2000 up to 15% of their compensation or $10,500, whichever is
lower. The Company automatically matches 25% of each dollar contributed up to 6%
of the participant's eligible compensation. Additionally, the Company may at its
discretion
37
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
match up to an additional 75% of each dollar contributed up to 6% of
the participants' eligible compensation if the Company exceeds certain financial
and profitability goals. The Company provided $250,000 additional match in 2000
and no additional match in 1999 or 1998. The Company provided $1,051,000,
$785,000, and $708,000 for contributions to this 401(k) Savings Plan for fiscal
years 2000, 1999, and 1998, respectively.
The Company also maintains 401(k) Savings Plans for its Smart & Final
Foodservice and Henry Lee subsidiaries. For 2000, these plans allowed
participants to contribute up to 15% of their compensation or $10,500, whichever
was lower. Under these plans, the Company automatically matches from 50% to 75%
of each dollar contributed up to 6% of the participant's eligible compensation,
depending on the plan. The amounts contributed to these plans were $788,000,
$752,000 and $549,000 for 2000, 1999 and 1998, respectively.
Deferred compensation plan
Effective January 1, 1995, the Company adopted a nonqualified deferred
compensation program, which permits key employees and members of the Board of
Directors to annually elect individually to defer up to 100% of their current
year compensation until retirement. The retirement benefit to be provided is a
function of the amount of compensation deferred. The Company has invested in
corporate owned life insurance policies with death benefits aggregating to
$30,031,000, and $28,143,000 as of fiscal year end 2000 and 1999, respectively.
The cash surrender value of these policies amounted to $4,338,000 and $4,266,000
as of fiscal year end 2000 and 1999, respectively and is included in Other
assets in the accompanying consolidated balance sheets. The Company anticipates
that this plan will have no material financial impact to the consolidated
financial statements.
7. Postretirement and Postemployment Benefit Obligations
The Company provides certain health care benefits for retired employees.
Substantially all of the Company's full time employees may become eligible for
those benefits if they reach retirement age while still working for the Company.
Benefits are limited to the lesser of actual cost for the medical coverage
selected or a defined dollar benefit based on years of service. In addition, on
a postemployment basis, the Company provides certain disability-related benefits
to its employees.
38
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
All plans are defined benefit plans and the reconciliation of benefit
obligation and plan assets for 2000 and 1999 are aggregated as follows:
2000 1999
---------------- ----------------
Change in Benefit Obligation
Benefit obligation at beginning of year $ 9,905,000 $ 11,042,000
Service cost 252,000 262,000
Interest cost 750,000 703,000
Actuarial gain (41,000) (1,693,000)
Benefits paid (419,000) (409,000)
---------------- ----------------
Benefit obligation at end of year 10,447,000 9,905,000
---------------- ----------------
Funded Status (10,447,000) (9,905,000)
Unrecognized actuarial gain (5,010,000) (5,524,000)
---------------- ----------------
Accrued benefit cost $ (15,457,000) $ (15,429,000)
================ ================
The weighted average discount rate used in accounting for these plans at
fiscal year end 2000 and 1999 was 7.50% and 8.00%, respectively.
The accumulated postretirement benefit obligation is reflected on the
fiscal year end 2000 balance sheet as a current liability of $0.5 million and a
long-term portion of $15.0 million. For measurement purposes, a 9.5% and 10.0%
annual rate of increase in the per capita cost of covered claims was assumed for
2000 and 1999, respectively. The rate is assumed to decrease by 0.5% per year
until an ultimate rate of 6% is reached and remains at that level thereafter.
The expense for postretirement benefits for fiscal years 2000, 1999 and
1998 includes the following components:
2000 1999 1998
-------------- ------------ -----------
Service cost component $ 252,000 $ 262,000 $ 236,000
Interest cost component 750,000 703,000 705,000
Amortization of gain (308,000) (241,000) (266,000)
------------- ------------ ------------
Net postretirement benefit expense $ 694,000 $ 724,000 $ 675,000
============= ============ ===========
39
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The Company offers a defined dollar benefit plan providing a maximum
fixed dollar amount of coverage which does not increase with medical inflation.
A one-percentage-point change in assumed health care cost trend rates would have
the following effects:
1-Percentage- 1-Percentage-
Point Increase Point Decrease
-------------- --------------
Effect on total of service and interest cost
components of net periodic expense $ 21,000 $ (23,000)
Effect on accumulated postretirement benefit
obligation 206,000 (229,000)
8. Income Taxes
The effective tax rate for 2000, 1999 and 1998 was 38.5%, 37.4% and
36.2%, respectively. Reconciliation between the federal statutory income tax
rate of 35.0% for 2000 and 34.0% for 1999 and 1998 with the effective tax rate
is as follows :
2000 1999 1998
------------------ ------------------ -----------------
Income tax at federal statutory rate $ 5,812,000 $ 2,252,000 $ (4,132,000)
State income taxes, net of federal
tax benefit 534,000 386,000 (709,000)
Other 49,000 (159,000) 444,000
------------------ ------------------ -----------------
Income taxes $ 6,395,000 $ 2,479,000 $ (4,397,000)
================== ================== =================
The Company's provision for income taxes consists of the following:
2000 1999 1998
------------------ ------------------ -----------------
Current
Federal $ 6,338,000 $ 1,256,000 $ (1,535,000)
State 1,430,000 262,000 919,000
------------------ ------------------ -----------------
7,768,000 1,518,000 (616,000)
Deferred
Federal (1,373,000) 961,000 (3,781,000)
------------------ ------------------ -----------------
Income taxes $ 6,395,000 $ 2,479,000 $ (4,397,000)
================== ================== =================
40
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
A deferred tax liability or asset is recognized for the tax consequences
of temporary differences in the timing of the recognition of revenues and
expenses for financial and tax reporting purposes. The components of the net
deferred income tax asset consist of the following:
2000 1999
------------- --------------
Property, plant and equipment depreciation
differences $ (6,371,000) $ (6,290,000)
Employee benefits including postretirement
and postemployment reserves 13,535,000 11,508,000
Operating reserves and accruals 9,395,000 10,194,000
Other 382,000 156,000
------------- --------------
Net deferred tax asset $ 16,941,000 $ 15,568,000
============= ==============
The deferred tax asset is reflected on the fiscal year end 2000 balance
sheet as a current asset of $10.9 million and a long-term portion of $6.0
million.
As of December 31, 2000, the Company had approximately $46 million of
state net operating loss carryforwards which expire through 2021.
The Company and Casino USA are parties to a tax sharing arrangement
covering income tax obligations in the state of California. Under this
arrangement, the Company has made tax sharing payments to, or received benefits
from, Casino USA, based upon pre-tax income for financial reporting purposes
adjusted for certain agreed upon items. Tax sharing payments made by the Company
to Casino USA were $739,000 in 2000. Tax sharing benefits received by the
Company from Casino USA were $598,000 and $742,000 in 1999 and 1998,
respectively. Taxes paid for states other than California were $80,000, $65,000
and $37,000 in 2000, 1999 and 1998, respectively. Federal income taxes paid
during 2000, 1999 and 1998 were $6,085,000, $400,000, and $250,000,
respectively. Foreign income taxes paid were immaterial during 2000, 1999 and
1998.
9. Related Party Transactions
Intercompany services
The Company performs various services for Casino USA. Prior to its
dissolution in 1998, the Company also provided services to Casino Realty, a
wholly owned subsidiary of Casino USA. These services include various
administrative functions including accounting, human resources, and systems
development work, the cost of which has been charged to the benefited affiliated
company. These charges amounted to $274,000, $261,000, and $285,000 for the
fiscal years 2000, 1999 and 1998, respectively. It is anticipated that the
Company will continue to provide these administrative services to its affiliates
at its estimated cost.
41
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Charges among affiliates result from an undertaking to provide the
respective service in the most cost-effective manner, taking advantage of each
entity's internal administrative structure. Management believes that the
allocation method is reasonable. Intercompany charges for each period are
settled in the following period.
Intercompany interest charges
Intercompany interest charges from affiliates were $7,000, $4,000 and
$1,064,000 during 2000, 1999 and 1998, respectively. These charges relate to
intercompany advances from affiliates. In November 1998, the Casino Loan
replaced the outstanding advances with affiliates of $23,734,000; therefore,
only minimal intercompany interest was charged from affiliates during 2000 and
1999.
Interest expense incurred on loans from Casino USA (see Note 4) was
$1,530,000, $3,397,000 and $2,697,000 in 2000, 1999 and 1998, respectively.
Other related party transactions
Pursuant to a contractual employment agreement, the Company's Chief
Executive Officer borrowed $273,149 from the Company by a note dated July 23,
1999, bearing interest at 4.84% per year, and $61,951 by a note dated March 27,
2000, bearing interest at 6.35% per year. Interest is payable annually each July
31. These unsecured notes are due December 31, 2001.
10. Employment/Consulting Agreements
In January 1999, the Company's former Chairman and Chief Executive Officer
retired. The Company has a consulting arrangement with its former Chairman that
provides for his services for a period expiring in 2004. Other employment
agreements were also in effect during 2000. These agreements contain provisions
for base salary and bonuses, and expire during fiscal years 2001, 2002 and 2003.
Annual payments under these agreements were approximately $2,448,000 and
$2,213,000 in fiscal 2000 and 1999, respectively and will total approximately
$1,786,000 in fiscal 2001.
Most employment agreements contain provisions in the event of a change in
control whereby the employees are entitled to lump sum cash payments and bonuses
and certain other benefits.
The Company has severance agreements with certain former employees. These
severance agreements provide for cash payments and continuation of certain
Company benefits, which may include health insurance and stock options. Annual
cash payments under these agreements were approximately $1,792,000 and
$1,527,000 in fiscal 2000 and 1999, respectively and will total approximately
$1,153,000 in fiscal 2001.
42
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
11. Common Stock
During the second quarter of 1999, the Company issued 6,486,406 shares
of common stock at a fixed subscription price of $9.25 per share. In addition,
10,000 shares were issued to the Company's Parent as a fee for acting as a
standby purchaser. The offering increased Stockholders' equity approximately
$57.9 million after expenses of the offering.
The Company's Parent exercised all of its subscription rights and acted as
a standby purchaser of shares not subscribed for by other stockholders. As a
result, the Parent increased its ownership by 4,271,935 shares. Consideration
for shares subscribed by the Parent was the exchange of $39.4 million of its
$55.4 million loan to the Company.
Pursuant to an agreement dated March 7, 1989, ("Agreement"), the Company's
former Chairman was obligated to purchase 100,000 common shares by 1999. The
agreement, as amended at December 29, 1996, included a fixed purchase price of
$8.90 per share. On April 22, 1999, the Company's former Chairman fulfilled his
obligation by purchasing the 100,000 common shares.
During 1997, the Company adopted and thereafter amended in 1999, a
Long-Term Equity Compensation Plan, under which 2,470,000 shares of common stock
are available for award as stock options, stock appreciation rights, restricted
stock awards, performance units or performance shares. During fiscal year 2000
and 1999, the Company granted 81,850 shares and 50,000 shares, respectively of
restricted stock under this plan. Compensation expense is computed based on the
market price on the grant date. Compensation expense associated with the
restricted stock was $373,000, $538,000 and $167,000 in fiscal 2000, 1999 and
1998, respectively. Vesting periods under this plan range from one to five years
or until specified performance objectives are satisfied.
12. Stock Options
In addition to options available under the Long-Term Equity Compensation
Plan, the Company has a Stock Incentive Plan. The Stock Incentive Plan, as
amended, allows the maximum amount of shares for which options may be granted to
be 2,450,000 shares of the Company's common stock. Option prices under both
plans may be established by the compensation committee of the Board of Directors
at no less than 85% of the fair market value of the common stock at the time the
option is granted. Options for officers and directors granted at the time of the
Company's initial public offering were granted at 85% of fair market value.
Options for directors elected subsequent to the Company's initial public
offering and options granted to officers and management have been granted at
fair market value at the time of grant. Options granted prior to 1999 under
these plans vest over a four-year period. Options granted in 1999 and
thereafter, generally vest over a five-year period for management and a three-
year period for directors. All options may be exercised for up to ten years from
the date of grant.
43
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
A summary of changes in the shares under option follows:
Weighted
Shares Average Price
------------------ ------------------
Shares under option at fiscal year end 1997 2,036,844 $ 16.17
------------------ ------------------
Fiscal year 1998:
Options granted 809,750 15.69
Options exercised (92,967) 13.60
Options canceled (280,200) 18.06
------------------
Shares under option at fiscal year end 1998 2,473,427 15.90
------------------ ------------------
Shares exercisable at fiscal year end 1998 1,292,017 14.07
Fiscal year 1999:
Options granted 1,258,905 9.27
Options exercised - -
Options canceled (430,642) 15.50
------------------
Shares under option at fiscal year end 1999 3,301,690 13.42
------------------ ------------------
Shares exercisable at fiscal year end 1999 1,546,978 14.79
Fiscal year 2000:
Options granted 1,263,175 10.83
Options exercised - -
Options canceled (1,208,295) 13.51
------------------
Shares under option at fiscal year end 2000 3,356,570 12.42
------------------ ------------------
Shares exercisable at fiscal year end 2000 1,785,323 $ 14.41
Stock options outstanding at December 31, 2000 are as follows:
Number Weighted Average Weighted
Range of Outstanding Remaining Average
Exercise Prices as of 12/31/00 Contractual Life Exercise Price
----------------------------------------- -------------------- -------------------
$6.3750 - $6.8750 364,200 9.09 $ 6.7905
$7.6880 - $8.8750 230,250 9.67 7.9180
$9.2500 805,108 8.34 9.2500
$9.3750 - $10.7700 464,284 5.40 10.4992
$12.1250 - $13.8800 84,598 8.30 12.3682
$14.0000 432,896 6.62 14.0000
$14.5000 - $17.5000 204,666 8.17 16.2649
$17.6250 376,400 7.13 17.6250
$17.8750 - $22.1250 353,134 6.17 19.9389
$22.6250 - $23.6250 41,034 6.08 23.2449
----------------------------------------- -------------------- -------------------
$ 6.3750 - $23.6250 3,356,570 7.48 $ 12.4183
44
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Stock options exercisable as of December 31, 2000 are as follows:
Range of Number Weighted Average
Exercise Prices Exercisable Exercise Price
-------------------------------------------- ---------------------------
$9.2500 270,773 $ 9.2500
$9.3750 - $10.7700 336,193 10.7278
$12.1250 - $13.8800 20,498 13.1288
$14.0000 431,896 14.0000
$14.5000 - $17.5000 204,666 16.2649
$17.6250 259,140 17.6250
$17.8750 - $22.1250 230,022 20.2033
$22.6250 - $23.6250 32,135 23.3614
-------------------------------------------- ---------------------------
$ 9.2500 - $23.6250 1,785,323 $14.4070
Common stock shares available for future grant under the Stock Incentive
Plan at fiscal year end 2000, 1999 and 1998 were 326,696, 279,129 and 118,398,
respectively. Shares of common stock available for future award under the
Long-Term Equity Compensation Plan at fiscal year end 2000 and 1999 were 400,408
and 529,705, respectively.
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions:
2000 1999 1998
---------------- ------------- -------------
Dividend yield 0.0% 0.0% 1.1%
Expected volatility 37% 35% 32%
Risk-free interest rates 4.7% 6.4% 4.7%
Weighted average expected lives
Executives 4.94 years 4.94 years 4.96 years
Non executives 4.54 years 4.55 years 4.55 years
Weighted-average fair value of
options granted $ 1.62 $ 3.60 $ 4.79
The Company accounts for options under these plans under Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees." Had
compensation costs for these plans been determined under SFAS No. 123,
"Accounting For Stock-Based Compensation," pro forma net income (loss) and
earnings (loss) per share would have been $9,674,000 and $0.33, respectively for
fiscal year 2000; $3,517,000 and $0.13, respectively for fiscal year 1999; and
$(9,905,000) and $(0.44), respectively for fiscal year 1998.
The impact of applying SFAS No. 123 in this pro forma disclosure is not
necessarily indicative of the effect on income in the future. SFAS No. 123 does
not apply to awards granted
45
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
prior to 1995. The Company anticipates making additional stock-based
compensation awards in the future.
On November 27, 2000, the Company's compensation committee adopted a
program for the voluntary exchange (the "Exchange Program") of certain
outstanding options having an exercise price of $14.00 or more per share that
were previously issued to certain directors and employees under the Company's
Stock Incentive Plan, Non-Employee Director Stock Plan, and Long-Term Equity
Compensation Plan (collectively, the "Plans"). In exchange, these option holders
received shares of common stock, which were issued as "Restricted Stock" under
the terms of the Long-Term Equity Compensation Plan. The number of restricted
shares the option holders received was based on a "fair value" exchange in which
the value of the Restricted Stock received was intended to approximately equal
the value of the surrendered options. The Exchange Program was reviewed by the
full board of directors and on December 7, 2000 the board ratified the prior
approval by the compensation committee and authorized the Company to implement
the Exchange Program with the eligible option holders. Also on December 7, 2000,
certain members of the board of directors and executive officers made
irrevocable decisions to surrender their eligible options pursuant to the
Exchange Program. The Restricted Stock issued under the Exchange Program were
issued pursuant to the terms of the Long-Term Equity Compensation Plan. All
options surrendered as a result of an election under the Exchange Program were
canceled and returned to the respective plan under which the canceled options
were first granted. The Exchange Program expired on March 9, 2001.
Based on the fair value exchange established under the Exchange Program,
the maximum number of Restricted Stock issued was 202,580.
46
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
13. Earnings per Common Share
Earnings per common share is computed on the basis of the weighted
average number of shares of common stock outstanding each year. Common stock
equivalents relate to the employee stock options and a stock purchase agreement.
Earnings per common share computation:
2000 1999 1998
------------ ------------ ------------
Numerator:
Net Income (Loss) $ 11,044,000 $ 4,726,000 $ (8,659,000)
============ ============ ============
Denominator:
Weighted average common shares
outstanding 29,191,420 26,282,704 22,474,048
============ ============ ============
Earnings (loss) per common share $ 0.38 $ 0.18 $ (0.39)
============= ============ ============
Earning per common share, assuming dilution computation:
2000 1999 1998
------------ ----------- ------------
Numerator:
Net Income (Loss) $ 11,044,000 $ 4,726,000 $ (8,659,000)
============ ============ ============
Denominator:
Weighted average common shares
outstanding 29,191,420 26,282,704 22,474,048
Dilutive effect of stock options
outstanding 53,031 38,772 121,657
------------ ------------ ------------
Weighted average common shares,
assuming dilution 29,244,451 26,321,476 22,595,705
============ ============ ============
Earnings (loss) per common share,
assuming dilution $ 0.38 $ 0.18 $ (0.38)
============ ============ ============
14. 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 of
primarily the Company's corporate expenses incidental to the activities of the
reportable segments and rental income from Smart & Final stores and Smart &
Final Mexico. The Company's 50%-owned joint venture in Mexico is reported on the
equity basis of accounting. The Company's reportable segments are strategic
business units that offer different
47
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
products and services. They are managed separately because each segment requires
different technology and marketing strategies.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on profit or loss from operations before income taxes not
including nonrecurring gains and losses.
The revenues, profit or loss and other information of each segment are as
follows, amounts in thousands:
For fiscal year 2000:
Corporate
Stores Foodservice Expense Total
------ ----------- ---------- -----
Revenues from external
customers $ 1,463,676 $ 400,219 $ - $ 1,863,895
Intercompany real estate
charge (income) 13,816 - (13,816) -
Interest income - - 1,406 1,406
Interest expense - - 14,774 14,774
Depreciation and
amortization 24,902 5,149 2,822 32,873
Pre-tax income (loss) 36,926 (5,270) (15,050) 16,606
Equity in net income of
unconsolidated subsidiaries - - 833 833
Income taxes - - 6,395 6,395
For fiscal year 1999:
Corporate
Stores Foodservice Expense Total
------ ----------- ---------- -----
Revenues from external
customers $ 1,381,989 $ 411,153 $ - $ 1,793,142
Intercompany real estate
charge (income) 13,745 - (13,745) -
Interest income - - 1,004 1,004
Interest expense - - 19,001 19,001
Depreciation and
amortization 22,745 5,323 3,248 31,316
Pre-tax income (loss) 31,882 (7,491) (17,768) 6,623
Equity in net income of
unconsolidated subsidiaries - - 748 748
Income taxes - - 2,479 2,479
Extraordinary items, net of taxes - - 166 166
48
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
For fiscal year 1998:
Corporate
Stores Foodservice Expense Total
------ ----------- ---------- -----
Revenues from external
customers $ 1,205,618 $ 456,011 $ - $ 1,661,629
Intercompany real estate
charge (income) 13,801 - (13,801) -
Interest income - - 448 448
Interest expense - - 13,752 13,752
Depreciation and
amortization 20,353 6,044 2,956 29,353
Pre-tax income (loss) 23,148 (18,057) (17,244) (12,153)
Equity in net income of
unconsolidated subsidiaries - - 187 187
Income taxes (benefit) - - (4,397) (4,397)
Accounting change, net of taxes - - 1,090 1,090
Cost allocation for servicing stores was revised in 2000. If the new
allocation method had been used, Foodservice pre-tax loss would have been
approximately $700,000 greater in 1999 and $600,000 lower in 1998, respectively
and Stores pre-tax income would have been approximately $700,000 higher in 1999
and $600,000 lower in 1998, respectively.
15. Advertising Expense
The Company expenses the costs of advertising as incurred. Total
advertising expense was $20.3 million, $15.4 million and $15.4 million in 2000,
1999 and 1998, respectively.
16. Legal Actions
The Company has been named as defendant in various legal actions in the
normal conduct of its business. In the opinion of management, after consultation
with counsel, none of these actions are expected to result in a material effect
on the Company's financial position or results of operations.
49
Smart & Final Inc.
Summary of Quarterly Results of Operations
(in thousands, except per share amounts)
Fiscal year 2000 (A)
----------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
12 12 16 12 52
Weeks Weeks Weeks Weeks Weeks
----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Income Statement Data:
Sales $ 399,361 $ 442,998 $ 587,313 $ 434,223 $ 1,863,895
Cost of sales, buying and occupancy 345,138 382,842 504,767 373,065 1,605,812
----------- ----------- ----------- ----------- -----------
Gross margin 54,223 60,156 82,546 61,158 258,083
Operating and administrative expenses 50,013 52,205 71,958 53,933 228,109
----------- ----------- ----------- ----------- -----------
Income from operations 4,210 7,951 10,588 7,225 29,974
Interest expense, net 3,245 3,237 4,170 2,716 13,368
----------- ----------- ----------- ----------- -----------
Income before income tax provision 965 4,714 6,418 4,509 16,606
Income tax provision 373 1,616 2,452 1,954 6,395
----------- ----------- ----------- ----------- -----------
Income from consolidated subsidiaries 592 3,098 3,966 2,555 10,211
Equity earnings in unconsolidated subsidiary 44 94 129 566 833
----------- ----------- ----------- ----------- -----------
Net Income $ 636 $ 3,192 $ 4,095 $ 3,121 $ 11,044
=========== =========== =========== =========== ===========
Earnings per common share $ 0.02 $ 0.11 $ 0.14 $ 0.11 $ 0.38
=========== =========== =========== =========== ===========
Weighted average common shares 29,163,185 29,192,368 29,203,114 29,203,114 29,191,420
=========== =========== =========== =========== ===========
Earnings per common share, assuming dilution $ 0.02 $ 0.11 $ 0.14 $ 0.11 $ 0.38
=========== =========== =========== =========== ===========
Weighted average common shares and
common share equivalents (B) 29,176,666 29,264,238 29,268,181 29,260,807 29,244,451
=========== =========== =========== =========== ===========
(A) Fiscal year 2000 consists of twelve-week periods in the first, second and
fourth quarters, and one sixteen-week period in the third quarter.
(B) The weighted average shares includes the common stock equivalents related to
employee stock options.
50
Smart & Final Inc.
Summary of Quarterly Results of Operations
(in thousands, except per share amounts)
Fiscal year 1999 (A)
------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
12 12 16 12 52
Weeks Weeks Weeks Weeks Weeks
----------- ----------- ---------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Income Statement Data:
Sales $ 398,337 $ 418,608 $ 555,890 $ 420,307 $ 1,793,142
Cost of sales, buying and occupancy 348,259 365,391 482,483 362,649 1,558,782
----------- ----------- ---------- ----------- -----------
Gross margin 50,078 53,217 73,407 57,658 234,360
Operating and administrative expenses 46,102 45,880 65,931 51,827 209,740
----------- ----------- ---------- ----------- -----------
Income from operations 3,976 7,337 7,476 5,831 24,620
Interest expense, net 5,081 5,027 4,510 3,379 17,997
----------- ----------- ---------- ----------- -----------
Income (loss) before income taxes and
extraordinary item (1,105) 2,310 2,966 2,452 6,623
Income taxes (419) 893 1,089 916 2,479
----------- ----------- ---------- ----------- -----------
Income (loss) from consolidated subsidiaries (686) 1,417 1,877 1,536 4,144
Equity earnings in unconsolidated subsidiary 212 71 343 122 748
----------- ----------- ---------- ----------- -----------
Income (loss) before extraordinary item (474) 1,488 2,220 1,658 4,892
Extraordinary loss on extinguishment of debt,
net of tax effect of $147 - 166 - - 166
----------- ----------- ---------- ----------- -----------
Net Income (loss) $ (474) $ 1,322 $ 2,220 $ 1,658 $ 4,726
=========== =========== ========== =========== ===========
Earnings (loss) per common share:
Earnings (loss) per common share before
extraordinary item $ (0.02) $ 0.06 $ 0.08 $ 0.06 $ 0.19
Extraordinary loss on extinguishment of debt per
common share - (0.01) - - (0.01)
----------- ----------- ---------- ----------- -----------
Earnings (loss) per common share $ (0.02) $ 0.06 $ 0.08 $ 0.06 $ 0.18
=========== =========== ========== =========== ===========
Weighted average common shares 22,527,179 23,378,215 29,136,995 29,136,995 26,282,704
=========== =========== ========== =========== ===========
Earnings (loss) per common share, assuming dilution:
Earnings (loss) per common share, assuming dilution,
before extraordinary item $ (0.02) $ 0.06 $ 0.08 $ 0.06 $ 0.19
Extraordinary loss on extinguishment of debt per
common share - (0.01) - - (0.01)
----------- ----------- ---------- ----------- -----------
Earnings (loss) per common share, assuming dilution $ (0.02) $ 0.06 $ 0.08 $ 0.06 $ 0.18
=========== =========== ========== =========== ===========
Weighted average common shares and
common share equivalents (B) 22,527,179 23,451,919 29,204,499 29,141,301 26,321,476
=========== =========== ========== =========== ===========
(A) Fiscal year 1999 consists of twelve-week periods in the first, second and
fourth quarters, and one sixteen-week period in the third quarter.
(B) The weighted average shares includes the common stock equivalents related to
employee stock options and a stock purchase agreement.
51
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
The information required by Part III of Form 10-K (items 10 through 13) is
incorporated by reference from the Company's definitive Proxy Statement to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A for
the Company's Annual Meeting of Stockholders to be held May 23, 2001, which
Proxy Statement involves the election of directors and the Company intends to
file not later than 120 days after the Company's last fiscal year end. If the
Proxy Statement is not filed with the Securities and Exchange Commission within
such 120-day period, the items comprising the Part III information will be filed
as an amendment to this Form 10-K not later than the end of the 120-day period.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements : Page
----
Report of Independent Public Accountants................................................................ 23
Consolidated Balance Sheets............................................................................. 24
Consolidated Statements of Operations................................................................... 25
Consolidated Statements of Stockholders' Equity......................................................... 26
Consolidated Statements of Cash Flows................................................................... 27
Notes to Consolidated Financial Statements.............................................................. 28
Supplementary Data - Summary of Quarterly Results of Operations......................................... 50
(a)(2) Financial Statement Schedules:
Report of Independent Public Accountants................................................................ 58
II - Valuation and Qualifying Accounts.................................................................. 59
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements and notes thereto.
52
(a)(3) EXHIBITS
Exhibit
Number Description of Exhibit
------- ----------------------
3.1 Certificate of Incorporation of the Company, including all amendments
thereto (1)
3.2 Bylaws of the Company, including all amendments thereto (1)
10.1 Amended and Restated Employment Agreement, dated June 1, 1991,
between Mr. Emmons and the Company, as amended* (2)
10.2 Stock Purchase Agreement, dated March 7, 1989, by and among Mr.
Emmons, Casino USA,Casino France and the Company, as amended (3)
10.3 Lease by and between ADP Properties and Port Stockton, dated May 14,
1990 (4)
10.4 Amendment to Leases, dated November 5, 1990, by and between Mr. Del
Prete, Miner Avenue and Nancy L. Del Prete, and Port Stockton (4)
10.5 Amended and Restated Stock Incentive Plan of the Company* (5)
10.6 Smart & Final Pension Plan, as amended (6)*
10.7 Adoption Agreement #004, Nonstandardized Profit Sharing Plan for Port
Stockton, dated August 28, 1990 (7)
10.8 Guaranty of Casino USA, dated as of June 7, 1991(8)
10.9 Smart & Final Amended and Restated 401(k) Savings Plan (9)*
10.10 Tax Termination Agreement, dated as of August 6, 1991, by and between
the Company and Casino USA, as amended (including as an exhibit
thereto the Tax Sharing Agreement, dated as of November 5, 1984, by
and between the Company and Casino USA, as amended) (10)
10.11 Adoption Agreement #008, Nonstandardized Code s.401(k) Profit Sharing
Plan for Port Stockton, dated August 4, 1992 (11)
10.12 Intercompany Agreement, dated August 6, 1991, by and between Casino
USA, Casino Realty, Inc. and the Company (12)
10.13 Truck Lease and Service Agreement, dated December 13, 1991, between
Smart & Final and Ryder Truck Rental, Inc. (13)
10.14 Employment Agreement between the Company and Mr. Lynch, as extended
(14)*
10.15 Consulting Agreement dated as of November 8, 1994, between Henry Lee
and Sternlieb Consulting, Inc., as amended (15)
10.16 Lease dated as of November 8, 1994, between Henry Sternlieb and Henry
Lee (16)
10.17 Lease dated as of July 2, 1985, as amended by First Amendment of
Lease, between Edward I. Sternlieb and Henry Lee (16)
10.18 Lease dated as of August 1, 1980, and related Agreement dated as of
November 8, 1994, between Henry and Rose Sternlieb and Henry Lee (16)
10.19 Henry Lee Company Second Profit Sharing Plan and Trust, as amended
(17)
10.20 Henry Lee Company Guaranty of Edward I. Sternlieb, dated October 1,
1993 (17)
10.21 Henry Lee Company Guaranty of Henry and Rose Sternlieb, dated August
1, 1980 (17)
10.22 Smart & Final Inc. Supplemental Deferred Compensation Plan, as
amended (18)*
10.23 Smart & Final Inc. Directors Deferred Compensation Plan, as amended
(18)*S
10.24 Agreement between Port Stockton Food Distributors, Inc. and Food
Distribution Employees Association (19)
10.25 Vehicle Lease Service Agreement (19)
10.26 Smart & Final Inc. Trust for Deferred Compensation Plans (20)*
10.27 Asset Purchase Agreement dated as of September 26, 1997 among
American Foodservice Distributors, Orlando Foodservice, Inc.,
Capricorn Foods of Central Florida, Inc., Michael Altif and Frederick
Coe (21)
10.28 Supplemental Executive Retirement Plan Master Plan Document (22)*
10.29 Consulting Agreement dated as of January 5, 1998, among Henry Lee
Company and Edward I. Sternlieb (23)
10.30 Long-Term Equity Compensation Plan of the Company (24)*
10.31 Addendum to Long-Term Equity Compensation Plan of the Company*
10.32 Separation Agreement and Mutual General Release among the Company and
Mr. Laverty (25)*
10.33 Agreement Between Smart & Final Foodservice Distributors and Food
Distributors Employee Association dated as of April 1, 1998 (26)
53
10.34 Asset Purchase Agreement dated May 15, 1998 by and among the Company
and United Grocers, Inc. (27)
10.35 Loan Agreement dated as of November 13, 1998 by and among the Company
and Casino USA, Inc. (28)
10.36 Promissory Note dated as of November 13, 1998 (28)
10.37 Credit Agreement dated as of November 13, 1998 by and among the
Company, the financial institutions and other entities listed as
Lenders, Credit Lyonnais Los Angeles Branch, as Administrative Agent,
and as Co-Lead Arranger, Nationsbanc Montgomery Securities LLC, as
Syndication Agent and Credit Lyonnais New York Branch, as L/C Bank,
as amended (28)
10.38 Participation Agreement dated as of November 13, 1998 by and among
the Company as Lessee and Construction Agent, various parties from
time to time as Guarantors, First Security Bank, National
Association, various banks and other lending institutions as Holders
and Lenders, and Credit Lyonnais Los Angeles Branch as Administrative
Agent (28)
10.39 Stock Warrant Agreement dated as of February 17, 1998, by and among
the Company and Mr. Emmons, as amended(29)*
10.40 First Amendment to Revolving Credit Agreement and Synthetic Lease
Credit Agreement dated as of December 23, 1998(29)
10.41 First Waiver and Consent to Extension of Time in connection with
Revolving Credit Agreement and Synthetic Lease Credit Agreement dated
as of January 13, 1999(29)
10.42 Waiver to Loan Agreement dated as of February 17, 1999 between the
Company and Casino USA, Inc.(29)
10.43 Second Amendment and Conditional Waiver in connection with Revolving
Credit Agreement and Participation Agreement dated as of March 12,
1999(29)
10.44 Employment Agreement between the Company and Ross E. Roeder dated May
11, 1999(30)*
10.45 Smart & Final Non-Employee Director Stock Plan, as amended(30)
10.46 Standby Purchase Agreement between the Company and Casino USA, Inc.
dated as of May 10, 1999(30)
10.47 Third Amendment to Participation Agreement and Amendment to Revolving
Credit Agreement dated as of June 23, 1999(30)
10.48 Addendum to Promissory Note, dated June 11, 1999 by Smart & Final
Inc. on Behalf of Casino USA, Inc.(30)
10.49 Limited Waiver and Consent in connection with Revolving Credit
Agreement dated as of February 9, 2000(31)
10.50 Seventh Amendment to the Smart & Final Supplemental Deferred
Compensation Plan dated as of May 16, 2000(32)*
10.51 Third Amendment to Participation Agreement dated as of August 25,
2000(33)
10.52 First Amendment to Deferred Compensation Agreements dated as of
October 23, 2000(33)*
21 Subsidiaries
23 Consent of Arthur Andersen LLP
-----------------
(1) Incorporated by reference to the corresponding Exhibit number in the
Company's Annual Report for the fiscal year ended January 2, 1994 on
Form 10-K, filed on April 4, 1994.
(2) Incorporated by reference to Exhibit 10.3 in the Company's
Registration Statement on Form S-1 (Registration No. 33-41103)
effective on July 30, 1991; the amendment is incorporated by
reference to Exhibit 10.3 in the Company's Annual Report for the year
ended January 4, 1998 on Form 10-K filed on April 13, 1998.
(3) Incorporated by reference to Exhibit 10.6 in the Company's
Registration Statement on Form S-1 (Registration No. 33-41103)
effective on July 30, 1991; the amendments are filed to Exhibits 10.6
to the Company's Annual Report for the year ended December 29, 1996
on Form 10-K filed on March 25, 1997; and the Company's Annual Report
for the year ended January 4, 1998 on Form 10-K filed on April 13,
1998.
(4) Incorporated by reference to Exhibits 10.13 and 10.14 in the
Company's Registration Statement on Form S-1 (Registration No.
33-41103) effective on July 30, 1991.
(5) Incorporated by reference to Exhibit 10.16 in the Company's Annual
Report for the year ended
54
January 4, 1998 on Form 10-K filed on April 13, 1998.
(6) Incorporated by reference to Exhibit 10.17 in the Company's Annual
Report for the year ended December 31, 1995 on Form 10-K filed on
March 29, 1996.
(7) Incorporated by reference to Exhibit 10.18 in the Company's
Registration Statement on Form S-1 (Registration No. 33-41103)
effective on July 30, 1991.
(8) Incorporated by reference to Exhibit 10.19 in the Company's
Registration Statement on Form S-1 (Registration No. 33-41103)
effective on July 30, 1991.
(9) Incorporated by reference to Exhibit 10.20 in the Company's Annual
Report for the year ended December 31, 1995 on Form 10-K filed on
March 29, 1996.
(10) Incorporated by reference to Exhibit 10.22 in the Company's Annual
Report for the fiscal year ended January 2, 1994 on Form 10-K, filed
on April 4, 1994.
(11) Incorporated by reference to Exhibit 10.23 in the Company's Annual
Report for the year ended December 31, 1995 on Form 10-K filed on
March 29, 1996.
(12) Incorporated by reference to Exhibit 10.24 in the Company's Annual
Report for the fiscal year ended December 29, 1991 on Form 10-K,
filed on March 24, 1992.
(13) Incorporated by reference to Exhibit 10.25 in the Company's Form 8 -
Amendment No. 1 to its Annual Report for the fiscal year ended
December 29, 1991 on Form 10-K, filed on March 30, 1992.
(14) Incorporated by reference to Exhibit 10.29 in the Company's
Definitive Proxy Statement dated May 9, 1997, in connection with the
Annual Meeting of Shareholders of the Company held May 9, 1997, filed
on April 8, 1997; the extension is incorporated herein by reference
to Exhibit 10.124 in the Company's Annual Report for the year ended
January 2, 1999 on Form 10-K, filed on March 13, 2000.
(15) Incorporated by reference to Exhibit 10.47 in the Company's Quarterly
Report for the quarter ended October 9, 1994 on Form 10-Q, filed on
November 23, 1994; the amendment is also incorporated herein to
Exhibit 10.47 in the Company's Annual Report for the year ended
January 4, 1998 on Form 10-K, filed on April 13, 1998.
(16) Incorporated by reference to Exhibits 10.48, 10.49 and 10.50 in the
Company's Quarterly Report for the quarter ended October 9, 1994 on
Form 10-Q, filed on November 23, 1994.
(17) Incorporated by reference to Exhibits 10.53, 10.54 and 10.55 in the
Company's Annual Report for the year ended December 31, 1995 on Form
10-K, filed on March 29, 1996.
(18) Incorporated by reference to Exhibits 10.56 and 10.57 in the
Company's quarterly report for the quarter ended March 26, 1995 on
Form 10-Q, filed on May 4, 1995; amendments are incorporated by
reference to Exhibits 10.56 and 10.57 in the Company's Quarterly
Report for the quarter ended March 28, 1999 on Form 10-Q, filed on
May 3, 1999.
(19) Incorporated by reference to Exhibits 10.61 and 10.62 in the
Company's quarterly report for the quarter ended March 26, 1995 on
Form 10-Q, filed on May 4, 1995.
(20) Incorporated by reference to Exhibit 10.68 in the Company's Annual
Report for the year ended December 29, 1996 on Form 10-K, filed on
March 25, 1997.
(21) Incorporated by reference to Exhibit 10.84 in the Company's Quarterly
Report for the quarter ended October 5, 1997 on Form 10-Q, filed on
January 4, 1998.
(22) Incorporated by reference to Exhibit 10.86 in the Company's Annual
Report for the year ended January 4, 1998 on Form 10-K, filed on
April 13, 1998; amendments are incorporated by reference to Exhibit
10.86 in the Company's Quarterly Report for the quarter ended March
28, 1999 on Form 10-Q, filed on May 3, 1999.
(23) Incorporated by reference to Exhibit 10.88 in the Company's Annual
Report for the year ended January 4, 1998 on Form 10-K, filed on
April 13, 1998.
(24) Incorporated by reference to Exhibit 10.89 in the Company's Quarterly
Report for the quarter ended March 28, 1999 on Form 10-Q, filed on
May 3, 1999.
(25) Incorporated by reference to Exhibit 10.90 in the Company's Annual
Report for the year ended January 4, 1998 on Form 10-K, filed on
April 13, 1998.
(26) Incorporated by reference to Exhibit 10.91 in the Company's Quarterly
Report for the quarter ended March 29, 1998 on Form 10-Q, filed on
May 12, 1998.
(27) Incorporated by reference to Exhibit 10.93 in the Company's Quarterly
Report for the quarter ended June 21, 1998 on Form 10-Q, filed on
August 12, 1998.
(28) Incorporated by reference to Exhibits 10.110, 10.111, 10.112, and
10.113 in the Company's
55
Quarterly Report for the quarter ended October 11, 1998 on Form 10-Q,
filed on November 25, 1998.
(29) Incorporated by reference to Exhibits 10.114, 10.115, 10.116, 10.117,
and 10.118 in the Company's Annual Report for the year ended January
3, 1999 on Form 10-K, filed on March 24, 1999.
(30) Incorporated by reference to Exhibits 10.119, 10.120, 10.121, 10.122,
and 10.123 in the Company's Quarterly Report for the quarter
ended June 20, 1999 on Form 10-Q, filed on August 3, 1999.
(31) Incorporated by reference to Exhibit 10.125 in the Company's
Quarterly Report for the quarter ended March 26, 2000 on Form 10-Q,
filed on May 5, 2000.
(32) Incorporated reference to Exhibit 10.126 in the Company's Quarterly
Report for the quarter ended June 18, 2000 on Form 10-Q, filed on
July 28, 2000.
(33) Incorporated by reference to Exhibits 10.127 and 10.128 in the
Company's Quarterly Report for the quarter ended October 8, 2000 on
Form 10-Q, filed on November 11, 2000.
*Management contracts and compensatory plans, contracts and arrangements of the
Company.
(b) Reports on Form 8-K:
None
56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on March 13, 2001.
--------------
Smart & Final Inc.
By: /s/ Martin A. Lynch
----------------------
Martin A. Lynch
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities indicated on March
-----
13, 2001.
--------
/s/ Ross E. Roeder Chairman of the Board and Chief Executive Officer
_______________________________ (Principal Executive Officer)
Ross E. Roeder
/s/ Martin A. Lynch Executive Vice President and Chief Financial Officer
_______________________________
Martin A. Lynch (Principal Financial Officer and
Principal Accounting Officer)
_______________________________ Director
Pierre Bouchut
/s/ Christian Couvreux
_______________________________ Director
Christian Couvreux
/s/ Timm F. Crull
_______________________________ Director
Timm F. Crull
/s/ James S. Gold
_______________________________ Director
James S. Gold
/s/ Antoine Guichard
_______________________________ Director
Antoine Guichard
_______________________________ Director
David J. McLaughlin
_______________________________ Director
Joel-Andre Ornstein
/s/ Thomas G. Plaskett
_______________________________ Director
Thomas G. Plaskett
/s/ Etienne Snollaerts
_______________________________ Director
Etienne Snollaerts
57
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Smart & Final Inc.:
We have audited in accordance with generally accepted auditing standards in the
United States, the consolidated financial statements of Smart & Final Inc. and
subsidiaries included in this Form 10-K and have issued our report thereon dated
February 16, 2001. Our audits were made for the purpose of forming an opinion on
the basic consolidated financial statements taken as a whole. The schedule
listed in the index in Item 14 is the responsibility of the Company's management
and is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic consolidated financial statements and, in our opinion, fairly states
in all material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
February 16, 2001
58
SMART & FINAL INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Fiscal Years Ended December 31, 2000, January 2, 2000 and January 3,
1999
Balance at
Beginning of Acquisition of Balance at End
Period Business Additions Deductions of Period
----------- -------------- ----------- ------------ ------------
Fiscal year 2000:
Allowance for doubtful accounts $ 4,687,000 $ - $ 2,508,000 $ 4,013,000 $ 3,182,000
=========== ============== =========== =========== ===========
Inventory realizable value allowance $ 2,955,000 $ - $ 1,065,000 $ 929,000 $ 3,091,000
=========== ============== =========== =========== ===========
Fiscal year 1999:
Allowance for doubtful accounts $ 3,660,000 $ - $ 4,039,000 $ 3,012,000 $ 4,687,000
=========== ============== =========== =========== ===========
Inventory realizable value allowance $ 2,937,000 $ - $ 418,000 $ 400,000 $ 2,955,000
=========== ============== =========== =========== ===========
Fiscal year 1998:
Allowance for doubtful accounts $ 5,518,000 $ 334,000 $ 3,777,000 $ 5,969,000 $ 3,660,000
=========== ============== =========== =========== ===========
Inventory realizable value allowance $ 1,851,000 $ 1,000,000 $ 1,148,000 $ 1,062,000 $ 2,937,000
=========== ============== =========== =========== ===========
59