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TABLE OF CONTENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

As filed with the Securities and Exchange Commission on April 13, 2015

Registration No. 333-203088


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



Smart & Final Stores, Inc.
(Exact name of registrant as specified in its charter)



Delaware
(State or other jurisdiction of
incorporation or organization)
  5411
(Primary Standard Industrial
Classification Code Number)
  80-0862253
(I.R.S. Employer
Identification Number)

600 Citadel Dr.
Commerce, CA 90040
(323) 869-7500

(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)



David G. Hirz
President and Chief Executive Officer
Smart & Final Stores, Inc.
600 Citadel Dr.
Commerce, CA 90040
(323) 869-7500

(Name, address, including zip code, and telephone number, including area code, of agent for service)



Copies to:

Philippa M. Bond
Proskauer Rose LLP
2049 Century Park East, Suite 3200
Los Angeles, CA 90067
(310) 557-2900
(310) 557-2193 (facsimile)

 

Kirk A. Davenport II
Nathan Ajiashvili
Latham & Watkins LLP
885 Third Avenue
New York, NY 10022
(212) 906-1200
(212) 751-4864 (facsimile)



Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.

          If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o

          If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

          If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

          If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o   Accelerated filer o   Non-accelerated filer ý
(Do not check if a
smaller reporting company)
  Smaller reporting company o



CALCULATION OF REGISTRATION FEE

               
 
Title of Each Class of Securities
to be Registered

  Amount to be
Registered(1)

  Proposed Maximum
Offering Price per
Share(2)

  Proposed Maximum
Aggregate Offering
Price(1)(2)

  Amount of
Registration Fee(3)

 

common stock, $0.001 par value per share

  11,500,000   $18.25   $209,875,000   $24,387.48

 

(1)
Includes 1,500,000 shares of common stock that the underwriters have the option to purchase.

(2)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under the Securities Act of 1933, as amended, and is based upon the average of the high and low sales prices of the registrant's common stock as reported on the New York Stock Exchange on April 6, 2015.

(3)
Includes $11,620 previously paid.



          The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

   


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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED April 13, 2015

10,000,000 Shares

LOGO

Smart & Final Stores, Inc.

Common Stock



        The selling stockholders named in this prospectus, all of whom are our affiliates, are offering 10,000,000 shares of our common stock. We will not receive any proceeds from the sale of the shares of our common stock sold in this offering.

        Our common stock is listed on the New York Stock Exchange (the "NYSE") under the symbol "SFS." On April 10, 2015, the last reported sale price of our common stock on the NYSE was $18.90 per share.

        Investing in our common stock involves risks. See "Risk Factors" on page 15.

        The underwriters have an option to purchase up to an additional 1,500,000 shares of common stock from the selling stockholders at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus. We will not receive any proceeds from the exercise of the underwriters' option to purchase additional shares.

 
  Public
offering price
  Underwriting
discount
  Proceeds, before
expenses, to the
selling
stockholders(1)
 
Per Share   $     $     $    
Total   $     $     $    

(1)
The underwriters will receive compensation in addition to the underwriting discount. See "Underwriting."

        Delivery of the shares of common stock will be made on or about                  , 2015.

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Credit Suisse   Morgan Stanley   Deutsche Bank Securities

Barclays   Citigroup   Piper Jaffray   Guggenheim Securities

   

The date of this prospectus is                  , 2015


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  Page  

PROSPECTUS SUMMARY

    1  

RISK FACTORS

    15  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

    39  

USE OF PROCEEDS

    40  

DIVIDEND POLICY

    41  

PRICE RANGE OF OUR COMMON STOCK

    42  

SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA

    43  

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    46  

BUSINESS

    73  

MANAGEMENT

    92  

EXECUTIVE AND DIRECTOR COMPENSATION

    100  

COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS

    110  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

    121  

PRINCIPAL AND SELLING STOCKHOLDERS

    124  

DESCRIPTION OF CERTAIN INDEBTEDNESS

    127  

DESCRIPTION OF CAPITAL STOCK

    131  

SHARES ELIGIBLE FOR FUTURE SALE

    136  

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF COMMON STOCK

    139  

UNDERWRITING

    143  

LEGAL MATTERS

    148  

EXPERTS

    148  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

    148  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

    F-1  

        Neither we nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares of common stock offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

        Persons who come into possession of this prospectus and any such free writing prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus and any such free writing prospectus applicable to that jurisdiction.

        Through and including                        , 2015 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

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BASIS OF PRESENTATION

        Our fiscal year is the 52- or 53-week period ending on the Sunday closest to December 31. Each of our 52-week 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. Our last three completed fiscal years were 52 weeks and ended on December 28, 2014, December 29, 2013 and December 30, 2012, respectively. Our fiscal year 2012 is divided into two separate periods: the period January 2, 2012 through November 14, 2012, representing the period prior to the Ares Acquisition (as defined below), and the period November 15, 2012 through December 30, 2012, representing the period after the Ares Acquisition.

        All of the earnings per share data, share numbers, share prices and exercise prices in this prospectus have been adjusted on a retroactive basis for all periods to reflect the 190-for-one stock split effected on September 19, 2014.

        Smart & Final Stores, Inc. (f/k/a SF CC Holdings, Inc. and Smart & Final Holdings, Inc.) (the "Company"), was incorporated in October 2012 and became the ultimate parent company of our business in November 2012. All of the financial information in this prospectus prior to that time represents the results of operations of our prior parent company, Smart & Final Holdings Corp.


TRADEMARKS AND TRADE NAMES

        This prospectus includes our trademarks and service marks, including Smart & Final®, Smart & Final Extra!®, Cash & Carry Smart Foodservice®, First Street®, Ambiance®, Cattleman's Finest®, Iris®, La Romanella®, Montecito®, Simply Value®, Sun Harvest® and Tradewinds®, which are protected under applicable intellectual property laws and are the property of Smart & Final Stores LLC or Cash & Carry Stores LLC, as applicable. This prospectus also contains trademarks, service marks, trade names and copyrights of other companies, which are the property of their respective owners. Solely for convenience, trademarks, service marks and trade names referred to in this prospectus may appear without the ® or TM symbols. We do not intend our use or display of other parties' trademarks, service marks or trade names to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.


MARKET, INDUSTRY AND OTHER DATA

        Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate is based on information from independent industry and research organizations, other industry publications, surveys and forecasts and management estimates. Management estimates are derived from publicly available information released by independent industry analysts and research organizations, such as Intalytics, a national customer analytics research company, and other third party sources, as well as data from our internal research, and are based on assumptions made by us upon reviewing such data and our knowledge of our industry and markets, which we believe to be reasonable. In addition, projections, assumptions and estimates of the future performance of our industry and our future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in "Risk Factors." These and other factors could cause our results to differ materially from those expressed in the estimates made by the independent industry analysts and other third party sources and by us.


COMPARABLE STORE SALES

        With respect to any period, comparable store sales for such period, at both the Company and segment levels, reflect the definition we utilized during such period and include sales for stores operating both during such period and in the same period of the previous year. Sales from a store are also included in the calculation of comparable store sales for the Company or segment, as applicable, after the 60th full week of operations, and sales from a store are also included in the calculation of

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comparable store sales if (i) the store has been physically relocated, (ii) the selling square footage has been increased or decreased or (iii) the store has been converted to a new format within a segment (e.g., from legacy Smart & Final to Smart & Final Extra!). However, sales from an existing store are not included in the calculation of comparable store sales for the Company or segment, as applicable, if the store has been converted to a different segment (e.g., from Smart & Final to Cash & Carry).

        For fiscal years prior to 2008, sales from a store were included in the calculation of comparable store sales after the 52nd full week of operations. Comparable store sales for fiscal years 1989 through 2006, as presented herein, have been derived from the financial statements of our predecessor companies which are not included in this prospectus. For fiscal years 1996 through 1998, comparable store sales, as presented herein, include sales from comparable stores that were subsequently classified as discontinued operations.

        Comparable store sales growth represents the year-over-year sales comparisons for comparable stores.


NON-GAAP FINANCIAL MEASURES

        To supplement our financial information presented in accordance with U.S. generally accepted accounting principles ("GAAP"), we use Adjusted EBITDA to clarify and enhance understanding of our past performance. We define Adjusted EBITDA as earnings (income or loss) before income taxes, interest expense (net), depreciation and amortization, further adjusted to eliminate the effects of items management does not consider in assessing our ongoing performance.

        This non-GAAP measure is intended to provide additional information only, and does not have any standard meaning prescribed by GAAP. Use of Adjusted EBITDA may differ from similar measures reported by other companies. Because of its limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to use to reinvest in the growth of our business, or as a measure of cash that will be available to meet our obligations. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.

        For a reconciliation of Adjusted EBITDA to net income (loss), a GAAP measure, see "Prospectus Summary—Summary Historical and Consolidated Financial and Other Data."

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PROSPECTUS SUMMARY

        This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should read this entire prospectus carefully, including the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes. Some of the statements in this summary constitute forward-looking statements. See "Special Note Regarding Forward-Looking Statements."

        As used in this prospectus, unless the context otherwise requires, references to the "Company," "we," "us" and "our" refer to Smart & Final Stores, Inc. (the "Issuer") and, where appropriate, its consolidated subsidiaries.

Who We Are

        We are a high-growth, value-oriented food retailer serving a diverse demographic of household and business customers through two complementary and highly productive store banners. Our Smart & Final ("Smart & Final") stores focus on both household and business customers, and our Cash & Carry ("Cash & Carry") stores focus primarily on business customers. We operate 258 convenient, non-membership, smaller-box, warehouse-style stores throughout the Western United States, with an additional 15 stores in Northwestern Mexico in a joint venture. We have a differentiated merchandising strategy that emphasizes high quality perishables, a wide selection of private label products, products tailored to business and foodservice customers and products offered in a broad range of sizes, all at "everyday low prices." We believe our compelling value proposition has enabled us to achieve comparable store sales growth in 25 of our past 26 fiscal years.

        Named after two of our founders, J.S. Smart and H.D. Final, Smart & Final represents one of the longest continuously operated food retailers in the United States and has become an iconic brand in the markets we serve. We operate 205 Smart & Final stores in California, Arizona and Nevada, which offer extensive selections of fresh perishables and everyday grocery items, together with a targeted selection of foodservice, packaging and janitorial products, under both national and private label brands. Customers can choose from a broad range of product sizes, including an assortment of standard-sized products typically found at conventional grocers, and a large selection of bulk-size offerings (including uniquely sized national brand products) more typical of larger-box warehouse clubs. Pricing in our Smart & Final stores is targeted to be substantially lower than that of conventional grocers and competitive with that of large discounters and warehouse clubs. We believe we offer higher quality produce at lower prices than large discounters. We also believe our Smart & Final stores provide a better everyday value to household and business customers than typical warehouse clubs by offering greater product selection at competitive prices, and with no membership fee requirement, in a convenient easy-to-shop format.

        Six years ago, we launched a transformational initiative to convert our larger legacy Smart & Final stores to a format called Smart & Final Extra! ("Extra!"). With a larger store footprint, our Extra! format offers a one-stop shopping experience with a more expansive selection of items than our legacy Smart & Final stores and an emphasis on perishables and household items. This initiative was facilitated, in part, by our acquisition of a dedicated perishables warehouse, and has been further supported by our continued investments in distribution capabilities and in-store merchandising. Today we operate 104 Extra! stores, of which 75 represent conversions or relocations of legacy Smart & Final stores and 29 represent new store openings. Our store conversions and relocations to the Extra! format have typically resulted in significant increases in comparable store sales and gross margin. The continued development of our Extra! store format, through additional new store openings and conversions and relocations of legacy Smart & Final stores, is the cornerstone of our growth strategy.

 

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        We also operate 53 Cash & Carry stores focused primarily on restaurants, caterers and a wide range of other foodservice businesses such as food trucks and coffee houses. We offer customers the opportunity to shop for their everyday foodservice needs in a convenient, no-frills warehouse shopping environment. These stores are located in Washington, Oregon, Northern California, Idaho and Nevada. Pricing in our Cash & Carry stores is targeted to be substantially lower than that of our foodservice delivery competitors, with greater price transparency to customers and no minimum order size. Pricing is also competitive with typical warehouse clubs, with no membership fee requirement.

        We believe that our stores are highly productive based on sales per square foot data, and that our "everyday low prices," differentiated merchandising strategy and convenient locations enable us to offer a highly differentiated food shopping experience with broad appeal to a diverse customer demographic. These attributes have enabled us to deliver strong financial results, as evidenced by the following key highlights:

    Comparable store sales growth in 25 of our past 26 fiscal years.

    Strong recent comparable store sales growth of 6.3%, 4.0% and 6.7% for fiscal years 2014, 2013 and 2012, respectively.

    Fiscal year 2014 sales of $3.5 billion, a 10.1% increase compared to fiscal year 2013.

    Fiscal year 2014 sales per square foot of $692, a 3.9% increase compared to fiscal year 2013.

    Fiscal year 2014 Adjusted EBITDA of $176.1 million, a 7.2% increase compared to fiscal year 2013.

    Fiscal year 2014 net income of $33.1 million, a $24.9 million increase compared to fiscal year 2013.

What Makes Us Different

        We believe that the following competitive strengths position us for accelerated growth as food shoppers increasingly focus on value and convenience:

        Unique platform that appeals to household and business customers.    We serve a diverse demographic of customers including households, businesses and community groups through our complementary Smart & Final and Cash & Carry banners. We offer a differentiated, highly convenient shopping experience with an emphasis on quality and value. We provide an easy-to-shop, no-frills, in-store environment in a smaller physical footprint compared to typical warehouse clubs, but with a greater stock keeping unit ("SKU") selection, which both simplifies and expedites our customers' shopping experience.

        Sales at our Smart & Final stores benefit from a large base of diverse business customers. Our internal surveys indicate that our business customers typically shop Smart & Final for both their household and business needs and account for approximately one-third of our Smart & Final banner sales. On average, these business customers spend approximately twice as much per visit (including purchases of household items) as our typical household customers. We believe our household customers enjoy "shopping with the pros" because it reinforces the perception of value, quality and selection. At Cash & Carry, we believe our business customers appreciate our accessible locations and consistent shopping experience, where they shop for both everyday and supplemental business needs.

        Distinctive and value-focused merchandise offering.    Our Smart & Final stores feature a comprehensive grocery offering at "everyday low prices," including high quality perishables, extensive selections of private label and national brand products and a large selection of club-pack sizes (over 2,500 SKUs). With approximately 14,500 SKUs in our Extra! stores and approximately 10,000 SKUs in our legacy Smart & Final stores, each of our Smart & Final store formats offers a wider variety of

 

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products than typical warehouse clubs. In fiscal year 2014, sales of private label items were approximately 29% of Smart & Final banner sales, and based on internal surveys commissioned by us, we estimate that approximately 44% of Smart & Final banner sales were from products or sizes (including both national brand and private label products) that are not typically found at conventional grocers.

        Our Cash & Carry stores offer customers a wide variety of approximately 9,000 key SKUs targeted to core foodservice needs, including an extensive selection of high quality perishables (approximately 46% of Cash & Carry banner sales in fiscal year 2014), national brand and private label grocery products, and related foodservice equipment and supplies. We believe Cash & Carry customers value our low prices, extensive selection, price transparency and the ability to hand-select perishable products.

        Two highly productive store banners.    We believe that our stores are highly productive based on sales per square foot data. Since 2008, we have invested more than $420 million in our operations, establishing a highly productive store base and a low cost, efficient operating structure.

    Smart & Final stores: We operate 104 Extra! stores, which average approximately 26,000 square feet. In fiscal year 2014, our Extra! stores generated average sales per square foot of $620. Our typical new Extra! store requires a cash investment of approximately $3.2 million, including store buildout (net of landlord contributions), inventory and cash pre-opening expenses. Based on historical performance, we target pre-tax cash-on-cash returns of 25% in the third year after opening.

      Our recent Extra! store conversions generally required a cash investment of approximately $2.0 million and, based on historical performance, we target pre-tax cash-on-cash returns of at least 25% in the third year after conversion. Since 2008, we have successfully converted 53 stores to our Extra! format, generating an average sales increase of approximately 30% in the first twelve months following conversion.

      We operate 101 legacy Smart & Final stores, which average approximately 17,000 square feet. In fiscal year 2014, our legacy Smart & Final stores generated average sales per square foot of $699.

    Cash & Carry stores: We operate 53 Cash & Carry stores, which average approximately 20,000 square feet. In fiscal year 2014, our Cash & Carry stores generated average sales per square foot of $828. Our typical new Cash & Carry store requires a low initial cash investment of approximately $1.5 million, including store buildout (net of landlord contributions), inventory and cash pre-opening expenses. Based on historical performance, we target pre-tax cash-on-cash returns of 25% in the fourth year after opening.

        Well-positioned store base and flexible real estate strategy.    We operate 258 stores across six contiguous states in the Western U.S., including 198 stores in the large and growing California market. Our long operating history has enabled us to establish a store footprint that would be difficult to replicate, and has provided us with deep institutional knowledge of the local real estate markets in which we operate.

        We have a flexible real estate strategy, which we believe enables our stores to achieve strong performance in a range of locations. Our store model is adaptable to a wide variety of potential sites, including new developments, "second use" spaces previously occupied by other retailers and conversions of non-retail sites to retail use. In addition, our stores appeal to a broad spectrum of customers in the markets we serve, which are generally characterized by ethnically and socio-economically diverse populations. This broad appeal enables us to perform profitably in a range of urban and suburban locations, however we typically target trade areas with higher concentrations of businesses.

 

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        Passionate and experienced management team.    We are led by a passionate executive team with extensive food retail experience and a long history of operational excellence. All of our senior executives have made equity investments in the Company. Our senior executives average over 30 years of experience in the grocery, foodservice and retail industries. We believe our management's experience at all organizational levels will enable us to continue to grow our store base while improving operations and driving efficiencies through a strong focus on selling high quality products at "everyday low prices."

Our Growth Strategy

        We are pursuing three primary growth strategies:

        Increase our store footprint in existing and new markets.    We plan to expand our store footprint, primarily through opening new Extra! stores in existing and adjacent markets, and by entering new markets. Since the beginning of fiscal year 2011, we have opened 25 new Extra! stores, including five in 2013, 13 in 2014 and four in 2015 to date. We currently plan to open an additional 16 new Extra! stores by the end of fiscal year 2015.

        We believe that our existing and adjacent markets can support more than 180 new Extra! stores, including up to 100 new stores in our key California market. We also estimate that the broader U.S. market, beyond our existing and adjacent markets, has the potential to support more than 1,250 additional Extra! stores.

        We also plan to opportunistically grow our Cash & Carry store base. We currently plan to open two new Cash & Carry stores by the end of fiscal year 2015, and to continue opening additional new stores for the foreseeable future.

        We also believe that favorable macroeconomic trends in Mexico, combined with the demonstrated appeal of the Smart & Final offering in our existing Northwestern Mexico joint venture stores, represent an attractive long-term growth opportunity.

        Continue store conversions to the Extra! format and store remodels.    Extra! stores offer customers a one-stop shopping experience in a larger store footprint than our legacy Smart & Final stores to accommodate our expanded SKU selection. Since 2008, we have completed 53 Extra! store conversions and relocated 22 legacy Smart & Final stores as Extra! stores. We plan to continue converting our larger legacy Smart & Final stores to our Extra! format, including six planned in 2015, one of which has already been completed. In addition, we plan to continue remodeling and relocating selected legacy Smart & Final stores that are not candidates for conversion to the Extra! format.

        Drive comparable store sales and enhance gross margins.    We have achieved comparable store sales growth in 25 of our past 26 fiscal years, including growth of 6.3%, 4.0% and 6.7% for fiscal years 2014, 2013 and 2012, respectively.

 

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Comparable Store Sales Growth(1)

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(1)
For more information on our calculation of comparable store sales growth, see "Comparable Store Sales" on page ii of this prospectus.

        We plan to leverage our significant investments in management, information technology systems, infrastructure and marketing to grow our comparable store sales and enhance our gross margins through execution of the following key initiatives:

    Continue to expand our offering of high quality perishables in our Smart & Final stores, driven by conversions of legacy Smart & Final stores to the Extra! store format and major remodels of legacy Smart & Final stores to accommodate additional perishables offerings.

    Grow private label sales through introduction of new SKUs.

    Improve merchandising mix with introduction of higher margin bulk foods, enhanced selection of natural and organic products and increased ready-to-eat offerings in our Smart & Final stores.

    Continue to drive growth among business customers through direct marketing activities and volume-based merchandising initiatives.

    Expand customer reach through increased brand awareness, enhanced in-store experience and marketing channel optimization.

Recent Developments—Preliminary Unaudited Selected Financial Data

        We are currently in the process of finalizing our financial results for our first quarter ended March 22, 2015. Based on preliminary unaudited information, we expect that for our first quarter ended March 22, 2015:

    net sales will be approximately $822 million, an increase of approximately 11.9% as compared to $735.0 million in the same period of 2014, driven by comparable store sales growth of approximately 6.1% and from the net sales contribution of new stores opened during fiscal year 2014 and fiscal year 2015 to date. Comparable store sales for the first quarter of fiscal year 2014 increased 4.2% as compared to the first quarter of fiscal year 2013;

    net sales for Smart & Final banner stores will be approximately $629 million, an increase of approximately 11.9% as compared to $561.9 million in the same period of 2014, driven by comparable store sales growth of approximately 4.9% and from the net sales contribution of new stores opened during fiscal year 2014 and fiscal year 2015 to date. The increase in comparable store sales is primarily due to expected increases in both comparable transaction counts and comparable average transaction size;

 

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    net sales for Cash & Carry banner stores will be approximately $193 million, an increase of approximately 11.7% as compared to $173.1 million in the same period of 2014, driven by comparable store sales growth of approximately 10.2% and from the net sales contribution of a new store opened during fiscal year 2014. The increase in comparable store sales is primarily due to expected increases in both comparable transaction counts and comparable average transaction size;

    gross margin will be in the range of $120 million to $122 million, as compared to $104.6 million in the same period of 2014, which estimated increase is primarily due to the increase in sales and an increase in gross margin rate as a percentage of sales;

    gross margin as a percentage of sales will be in the range of 14.6% to 14.9%, as compared to 14.2% in the same period of 2014, which estimated increase is primarily due to higher merchandise product margin rates and lower warehouse, transportation and store occupancy costs as a percentage of sales; and

    Adjusted EBITDA will be in the range of $34 million to $35 million, as compared to $30.2 million in the same period of 2014, which estimated increase is primarily due to the increase in sales and an increase in gross margin as a percentage of sales.

        In calculating estimated Adjusted EBITDA for our first quarter ended March 22, 2015, we adjusted net income (loss) to exclude income taxes, interest expense (net), depreciation and amortization, share-based compensation expense, pre-opening costs, as well as other items noted in the calculation of Adjusted EBITDA for prior periods that is presented in note 4 to the table under "—Summary Historical and Consolidated Financial and Other Data." A range of net income (loss) and a reconciliation of Adjusted EBITDA to net income (loss) cannot be provided at this time because the line items in our statement of operations have not been finalized with sufficient certainty.

        Our preliminary results remain subject to the completion of normal quarter-end accounting procedures and adjustments and are subject to change. The preliminary financial data included above has not been audited or reviewed in accordance with the standards of the Public Company Accounting Oversight Board. We currently expect that our final results will be consistent with the estimates and ranges described above. However, the estimates described above are preliminary and based on the most current information available to management. Our actual results may differ materially from these estimates due to the completion of our final closing procedures, final adjustments and other developments that may arise between now and the time our results for the quarter ended March 22, 2015 are finalized.

        The foregoing preliminary financial results constitute forward looking statements. Actual results may vary materially from the information contained in these forward-looking statements based on a number of important factors. Please refer to the section entitled "Special Note Regarding Forward-Looking Statements" in this prospectus for additional information.

The Ares Acquisition

        We were formed by funds affiliated with Ares Management, L.P. ("Ares Management") in connection with the Purchase and Sale Agreement, dated October 9, 2012, pursuant to which we acquired all of the outstanding stock of Smart & Final Holdings Corp., the former ultimate parent company of all of our operating subsidiaries (the "Ares Acquisition"). The Ares Acquisition was consummated on November 15, 2012. In connection with the Ares Acquisition, each of Ares Corporate Opportunities Fund III, L.P. and Ares Corporate Opportunities Fund IV, L.P. (together, "Ares") made an equity contribution to us in exchange for all of the shares of our common stock it currently owns. See "Principal and Selling Stockholders."

 

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Ares Management

        Ares Management is a leading global alternative asset manager with approximately $86 billion of assets under management (pro forma for the acquisition of Energy Investors Funds, which closed on January 1, 2015) and approximately 800 employees in over 15 offices in the United States, Europe and Asia as of December 31, 2014. Since its inception in 1997, Ares Management has adhered to a disciplined investment philosophy that focuses on delivering strong risk-adjusted investment returns throughout market cycles. Ares Management believes each of its four distinct but complementary investment groups in Tradable Credit, Direct Lending, Private Equity and Real Estate is a market leader based on assets under management and investment performance. Ares Management was built upon the fundamental principle that each group benefits from being part of the greater whole.

        The Private Equity Group has approximately $10 billion of assets under management as of December 31, 2014, targeting investments in high quality franchises across multiple industries. In the consumer / retail sector, selected current investments include 99 Cents Only Stores LLC, Floor and Decor Outlets of America, Inc., Guitar Center Holdings, Inc., The Neiman Marcus Group LLC and the parent company of Serta International and Simmons Bedding Company. Selected prior investments include GNC Holdings, Inc., House of Blues Entertainment, LLC, Maidenform Brands, Inc. and Samsonite Corporation.

        Upon the closing of this offering, Ares will beneficially own, in the aggregate, approximately 61% of our outstanding common stock, or approximately 59% if the underwriters' option to purchase additional shares from the selling stockholders is fully exercised. As a result, Ares acting alone will be able to exercise significant influence over all matters requiring stockholder approval, including the election of directors. Also, Ares may acquire or hold interests in businesses that compete directly with us, or may pursue acquisition opportunities that are complementary to our business, making such acquisitions unavailable to us. See "Risk Factors—Risks Related to this Offering and Ownership of Our Common Stock—Our principal stockholder will continue to have substantial control over us after this offering, will be able to influence corporate matters and may take actions that conflict with your interest and have the effect of delaying or preventing changes of control or changes in management, or limiting the ability of other stockholders to approve transactions they deem to be in their best interest."

Risks Related to Our Business and Strategy

        Investing in our common stock involves a high degree of risk. You should carefully consider the risks highlighted in the section entitled "Risk Factors" following this prospectus summary before making an investment decision. These risks include, among others, the following:

    competition in our industry is intense and our failure to compete successfully may adversely affect our sales, financial condition and operating results;

    our continued growth depends on new store openings and our failure to successfully open new stores could adversely affect our business and stock price;

    real or perceived quality or food safety concerns could adversely affect our business, operating results and reputation;

    we may be unable to maintain or increase comparable store sales, which could adversely affect our business and stock price;

    the current geographic concentration of our stores and our net sales creates an exposure to local or regional downturns or catastrophic occurrences;

    disruption of significant supplier relationships could adversely affect our business;

 

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    any significant interruption in the operations of our distribution centers or common carriers could disrupt our ability to deliver our products in a timely manner;

    our failure to comply with laws, rules and regulations affecting us and our industry could adversely affect our financial condition and operating results;

    disruptions to or security breaches involving our information technology systems could harm our ability to run our business;

    we have significant debt service obligations and may incur additional indebtedness in the future, which could adversely affect our financial condition and operating results and our ability to react to changes to our business; and

    covenants in our debt agreements restrict our operational flexibility.

Corporate Information

        We are a Delaware corporation, were incorporated on October 5, 2012 under the name SF CC Holdings, Inc. and became the ultimate parent company of our operating subsidiaries in November 2012. We changed our name to Smart & Final Holdings, Inc. on December 3, 2012 and to Smart & Final Stores, Inc. on June 16, 2014. See "Business—Corporate History and Structure" for more information regarding our organizational structure. Our principal executive offices are located at 600 Citadel Dr., Commerce, California 90040, and our telephone number is (323) 869-7500. Our website address is smartandfinal.com. The information contained on our website is not incorporated by reference into this prospectus, and you should not consider any information contained on, or that can be accessed through, our website as part of this prospectus or in deciding whether to purchase our common stock.

 

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The Offering

Common stock offered by the selling stockholders, all of whom are our affiliates   10,000,000 shares

Common stock to be outstanding immediately after this offering

 

73,771,652 shares

Underwriters' option to purchase additional shares from the selling stockholders

 

The underwriters have the option for 30 days following the date of this prospectus to purchase up to 1,500,000 additional shares from the selling stockholders, at the public offering price, less the underwriting discount.

Voting rights

 

One vote per share.

 

 

Ares, which immediately after this offering will control approximately 61% of the voting power of our outstanding common stock, or approximately 59% if the underwriters' option to purchase additional shares from the selling stockholders is fully exercised, will, acting alone, be able to exercise significant influence over all matters submitted to our stockholders for approval, including the election of our directors. See "Risk Factors—Risks Related to this Offering and Ownership of our Common Stock."

Use of proceeds

 

We will not receive any proceeds from this offering. See "Use of Proceeds" for additional information.

Dividend policy

 

We do not anticipate declaring or paying in the foreseeable future any cash dividends on our capital stock. Any future determination as to the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then existing conditions, including our operating results, financial condition, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant. Our first lien term loan facility (the "Term Loan Facility") and our asset-based lending facility (the "Revolving Credit Facility" and together with our Term Loan Facility, the "Credit Facilities") contain covenants that would restrict our ability to pay cash dividends.

Risk factors

 

See "Risk Factors" beginning on page 15 and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.

New York Stock Exchange trading symbol

 

"SFS."

        Unless otherwise indicated, all information in this prospectus reflects and assumes no exercise of the underwriters' option to purchase up to 1,500,000 additional shares of common stock from the selling stockholders in this offering.

 

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        The number of shares of our common stock to be outstanding immediately after this offering is based on 73,771,652 shares of our common stock outstanding immediately prior to the closing of this offering, and excludes the following:

    8,014,390 shares of common stock issuable upon the exercise of stock options granted under the SF CC Holdings, Inc. 2012 Stock Incentive Plan (the "2012 Incentive Plan") and outstanding immediately prior to the closing of this offering, at a weighted average exercise price of $5.13 per share; and

    2,793,727 shares of common stock reserved for future issuance under our new Smart & Final Stores, Inc. 2014 Stock Incentive Plan (the "2014 Incentive Plan" and, together with the 2012 Incentive Plan, the "Incentive Plans"), including approximately 2,131,468 shares of common stock issuable upon the exercise of stock options.

 

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Summary Historical and Consolidated Financial and Other Data

        The following table sets forth our summary historical consolidated financial information for the periods and dates indicated, and should be read together with "Risk Factors," "Selected Historical Consolidated Financial Information and Other Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included elsewhere in this prospectus. Our historical results are not necessarily indicative of our financial condition or operating results to be expected in the future.

        The consolidated statements of operations data for the years ended December 28, 2014 and December 29, 2013, the period January 2, 2012 through November 14, 2012 and the period November 15, 2012 through December 30, 2012, and the consolidated balance sheet data as of December 28, 2014 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated statement of operations data for the year ended January 1, 2012 has been derived from our audited consolidated financial statements not included in this prospectus.

        In connection with the Ares Acquisition, as a result of the application of purchase accounting, the assets and liabilities of the Company were adjusted to their estimated fair values as of the closing date of the Ares Acquisition. We refer to the Company prior to the Ares Acquisition as the "Predecessor," and to the Company after the Ares Acquisition as the "Successor." The periods prior to the Ares Acquisition are referred to as the "Predecessor periods" and the periods following the Ares Acquisition are referred to as the "Successor periods." Our fiscal year 2012 is therefore divided into a Predecessor period January 2, 2012 through November 14, 2012 and a Successor period November 15, 2012 through December 30, 2012. Accordingly, in this prospectus, financial information is presented separately for Predecessor and Successor periods, which relate to the accounting periods preceding and succeeding the closing of the Ares Acquisition. See "Selected Historical Consolidated Financial Information and Other Data" and our financial statements and related notes thereto included elsewhere in this prospectus.

 

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  Successor(1)    
  Predecessor    
   
   
 
 
   
   
  Period From
November 15,
2012 Through
December 30,
2012
   
  Period From
January 2,
2012 Through
November 14,
2012
   
   
  Pro Forma(7)  
 
  Fiscal Year
2014
  Fiscal Year
2013
   
  Fiscal Year
2011
   
  Fiscal Year
2012
  Fiscal Year
2011
 
 
  (Dollars in thousands, except per share data)
 

Consolidated Statement of Operations Data:

                                                   

Net sales

  $ 3,534,244   $ 3,210,293   $ 378,550       $ 2,664,162   $ 2,840,336       $ 3,042,712   $ 2,840,336  

Cost of sales, buying and occupancy

    3,006,955     2,736,357     333,787         2,265,154     2,412,180         2,596,847     2,413,545  

Gross margin

    527,289     473,936     44,763         399,008     428,156         445,865     426,791  

Operating and administrative expenses

    438,528     387,133     51,727         355,681     379,371         366,585     371,189  

(Income) loss on property sales

            (5 )       8,818     1,952         8,813     1,952  

Income (loss) from operations

    88,761     86,803     (6,959 )       34,509     46,833         70,467     53,650  

Interest expense, net

    37,602     50,365     7,133         20,761     31,395         55,831     60,190  

Loss on early extinguishment of debt(2)

    (2,224 )   (24,487 )               (4,209 )           (4,209 )

Equity in earnings of joint venture

    1,037     1,649             820     785         820     785  

Income (loss) from continuing operations before income taxes

    49,972     13,600     (14,092 )       14,568     12,014         15,456     (9,964 )

Income tax (provision) benefit

    (16,854 )   (5,429 )   4,804         (244 )   (4,795 )       (1,283 )   3,996  

Income (loss) from continuing operations

    33,118     8,171     (9,288 )       14,324     7,219         14,173     (5,968 )

Income from discontinued operations, net of income taxes(3)

                        3,260             3,260  

Net income (loss)

  $ 33,118   $ 8,171   $ (9,288 )     $ 14,324   $ 10,479       $ 14,173   $ (2,708 )

Per Share Data:

                                                   

Basic earnings (loss) per share:

                                                   

Income (loss) per share from continuing operations

  $ 0.54   $ 0.14   $ (0.16 )     $ 1.07   $ 0.54                  

Income (loss) per share from discontinued operations, net of income taxes

                        0.24                  

Basic earnings (loss) per share

  $ 0.54   $ 0.14   $ (0.16 )     $ 1.07   $ 0.78                  

Diluted earnings (loss) per share:

                                                   

Income (loss) per share from continuing operations

  $ 0.52   $ 0.14   $ (0.16 )     $ 1.03   $ 0.54                  

Income (loss) per share from discontinued operations, net of income taxes

                        0.24                  

Diluted earnings (loss) per share

  $ 0.52   $ 0.14   $ (0.16 )     $ 1.03   $ 0.78                  

Weighted average shares outstanding—basic

    61,455,584     57,030,099     56,848,190         13,363,635     13,362,665                  

Weighted average shares outstanding—diluted

    63,841,118     59,387,487     56,848,190         13,927,566     13,425,470                  

Selected Operating Data:

                                                   

Adjusted EBITDA(4)

  $ 176,110   $ 164,261                             $ 138,696   $ 125,027  

Capital expenditures

    117,399     55,093                               50,205     56,275  

Comparable store sales growth(5)

   
6.3

%
 
4.0

%
                           
6.7

%
 
9.5

%

Smart & Final banner

    5.0 %   3.4 %                             7.1 %   9.4 %

Cash & Carry banner

    10.0 %   6.1 %                             5.4 %   9.7 %

Stores at end of period

   
254
   
240
                             
235
   
234
 

Smart & Final banner

    201     188                               183     182  

Extra! format

    98     69                               56     46  

Cash & Carry banner

    53     52                               52     52  

Square feet at end of period

   
5,342,915
   
4,899,403
                             
4,756,165
   
4,697,834
 

Average store size at end of period(6)

    21,035     20,414                               20,239     20,076  

 

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  As of December 28, 2014(1)  
 
  Actual  
 
  (Dollars in thousands)
 

Consolidated Balance Sheet Data:

       

Cash and cash equivalents

  $ 106,847  

Total assets

    1,729,292  

Long-term debt (including current portion and debt discount)

    588,117  

Total stockholders' equity

    517,208  

(1)
All of the earnings per share data, share numbers, share prices and exercise prices have been adjusted on a retroactive basis for the Successor periods and the pro forma balance sheet to reflect the 190-for-one stock split effected on September 19, 2014. See Note 17, Stockholders' Equity, to the audited consolidated financial statements included elsewhere in this prospectus.

(2)
In the third quarter of 2014, we recognized a loss on early extinguishment of debt of $2.2 million in connection with the use of the net proceeds of the IPO to repay a portion of our outstanding debt. In the second and fourth quarters of 2013, we recognized a loss on early extinguishment of debt of $24.5 million in the aggregate in connection with a repricing amendment to our Term Loan Facility and repayment of the Second Lien Term Loan Facility. In the second quarter of 2011, we recognized a loss on early extinguishment of debt of $4.2 million in connection with an amendment to our prior term loan facility to permit the sale of Henry's Holdings, LLC ("Henry's"). See Note 5, Debt, to the audited consolidated financial statements included elsewhere in this prospectus.

(3)
In the second quarter of 2011, we sold our wholly owned subsidiary, Henry's, to Sprouts Farmers Markets, LLC ("Sprouts"). In the fourth quarter of 2010, we closed five stores in Colorado. Accordingly, the consolidated statements of operations data for our fiscal year 2011 reflects the results of operations of Henry's and the five stores separately as discontinued operations. The results of operations of Henry's and the five stores are immaterial for fiscal years 2014, 2013 and 2012 and are not presented separately as discontinued operations.

(4)
To supplement our financial information presented in accordance with GAAP, we use Adjusted EBITDA to clarify and enhance understanding of our past performance. We define Adjusted EBITDA as earnings (net income or loss) before income taxes, interest expense (net), depreciation and amortization, as adjusted for the items set forth in the table below.

    This non-GAAP measure is intended to provide additional information only, and does not have any standard meaning prescribed by GAAP. Use of Adjusted EBITDA may differ from similar measures reported by other companies. Because of its limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to use to reinvest in the growth of our business, or as a measure of cash that will be available to meet our obligations. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.

    To properly and prudently evaluate our business, we encourage you to review our consolidated financial statements included elsewhere in this prospectus and the reconciliation to Adjusted EBITDA from net income (loss), the most directly comparable financial measure presented in accordance with GAAP, set forth in the table below. All of the items included in the reconciliation from net income to Adjusted EBITDA are either (a) non-cash items or (b) items that management does not consider in assessing our on-going operating performance. In the case of the non-cash items, management believes that investors may find it useful to assess our comparative operating performance because the measures without such items are less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of other factors that affect operating performance. In the case of the other items that management does not consider in assessing our on-going operating performance, management believes that investors may find it useful to assess our operating performance if the measures are presented without these items because their financial impact may not reflect on-going operating performance.

 

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    The following table reconciles Adjusted EBITDA to net income (loss), the most comparable measure calculated in accordance with GAAP:

 
  Successor    
  Predecessor    
   
   
 
 
   
   
  Period from
November 15,
2012 through
December 30,
2012
   
  Period from
January 2,
2012 through
November 14,
2012
   
   
  Pro Forma  
(Dollars in thousands)
  Fiscal Year
2014
  Fiscal Year
2013
   
  Fiscal Year
2011
   
  Fiscal Year
2012
  Fiscal Year
2011
 

Net income (loss)

    33,118   $ 8,171   $ (9,288 )     $ 14,324   $ 10,479       $ 14,173   $ (2,708 )

Income tax provision (benefit)

    16,854     5,429     (4,804 )       244     4,795         1,283     (3,996 )

Interest expense, net

    37,602     50,365     7,133         20,761     31,395         55,831     60,190  

Depreciation and amortization

    64,194     60,759     7,353         44,045     53,643         53,831     50,968  

EBITDA

    151,768     124,724     394         79,374     100,312         125,118     104,454  

Transaction costs(a)

   
1,539
   
220
   
5,300
       
23,833
   
5,719
       
83
   
5,719
 

Purchase accounting inventory adjustment(b)

            8,600                          

Net (income) loss from closed stores and discontinued operations(c)

    2,030     3,592     407         1,549     (1,825 )       1,956     (1,825 )

Loss (gain) from asset dispositions

    851     974     (8 )       9,417     6,014         9,409     6,014  

Share-based compensation expense

    11,329                 7,483     2,455              

Non-cash rent

    4,797     3,985     449         (339 )   1,679         3,265     2,645  

Pre-opening costs(d)

    3,971     1,432             375     935         375     935  

Loss on early extinguishment of debt

    2,224     24,487                 4,209             4,209  

Management fees(e)

                    1,363     1,495              

Non-recurring charges(f)

    (2,399 )   4,847     71         (1,581 )   2,876         (1,510 )   2,876  

Adjusted EBITDA

  $ 176,110   $ 164,261   $ 15,213       $ 121,474   $ 123,869       $ 138,696 (g) $ 125,027 (g)

(a)
Represents costs associated with the Company's initial public offering that were charged to expense during fiscal year 2014, the Ares Acquisition during fiscal year 2012 and sale of Henry's during fiscal year 2011.

(b)
Represents a purchase accounting inventory valuation adjustment in connection with the Ares Acquisition, which was fully amortized to cost of sales.

(c)
Represents (i) costs related primarily to store closures for the Successor periods and the 2012 Predecessor periods and (ii) costs related primarily to discontinued operations for fiscal year 2011.

(d)
Represents costs of opening new and relocated stores including rent, utilities, distribution, store labor and advertising.

(e)
Represents annual fees paid by the Predecessor to Apollo (as defined below) under a management services agreement.

(f)
Represents (i) reversal of a reserve related to executive compensation and death benefit income from a company-owned life insurance policy for fiscal year 2014, (ii) consulting expenses related to strategic growth initiatives for fiscal years 2014 and 2013 and (iii) costs related to a settlement related to our Mexico joint venture and severance costs, partially offset by recovery on company-owned life insurance policy death benefits for the 2012 Predecessor period.

(g)
The difference in Adjusted EBITDA for pro forma fiscal year 2012 as compared to Adjusted EBITDA for actual fiscal year 2012 reflects a purchase accounting adjustment to unamortized pension liability and a resulting decrease in pension expense.
(5)
For more information regarding our calculation of comparable store sales growth, see "Comparable Store Sales" on page ii of this prospectus.

(6)
Average store size is calculated as the gross square feet divided by the stores open at the end of the period presented.

(7)
The unaudited pro forma condensed consolidated statements of operations for fiscal year 2012 and fiscal year 2011 give effect to the Ares Acquisition as if it had occurred on January 3, 2011. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Unaudited Pro Forma Condensed Consolidated Financial Information."

 

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RISK FACTORS

        Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, including our consolidated financial statements and related notes, before deciding whether to purchase shares of our common stock. Any of the following risks could adversely affect our business, financial condition, operating results or prospects and cause the value of our common stock to decline, which could cause you to lose all or part of your investment.

Risks Related to Our Business and Industry

Competition in our industry is intense and our failure to compete successfully may adversely affect our sales, financial condition and operating results.

        We operate in the highly competitive food retail and foodservice industries. We compete on a combination of factors, including price, product selection, product quality, convenience, customer service, store format and location.

        Price is a significant driver of consumer choice in our industry. We expect our competitors to continue to apply pricing pressures, which may have an adverse effect on our ability to maintain profit margins and sales levels. We establish our consumer prices based on a number of factors, including surveys of prices of certain of our competitors. If our competitors change their cost structures such that we are unable to effectively compete on the basis of price, our financial condition and operating results could be adversely affected. Consumer choice is also driven by product selection and quality, and our success depends, in part, on our ability to identify market trends and offer products that appeal to our customers' preferences. Failure to identify such trends, offer such products or to accurately forecast changing customer preferences could lead to a decrease in the number of customer transactions at our stores and a decrease in the amount customers spend when they visit our stores.

        We attempt to create a convenient and appealing shopping experience for our customers in terms of customer service, store format and location. If we are unable to provide a convenient and appealing shopping experience, our sales, profit margins and market share may decrease, resulting in an adverse effect on our financial condition and operating results. Some of our competitors are aggressively expanding their number of stores within our primary market areas. As our competitors open stores within close proximity to our stores, our financial condition and operating results may be adversely affected through a loss of sales, decrease in market share or greater operating costs.

        Our principal competitors include conventional grocers such as Albertsons, Kroger and Safeway, discounters and warehouse clubs such as Costco, mass merchandisers such as Walmart and Target, foodservice delivery companies such as Sysco and US Foods, as well as online retailers and other specialty stores. Some of our competitors may have greater financial or marketing resources than we do and may be able to devote greater resources to sourcing, promoting and selling their products. Also, some of our competitors do not have unionized work forces, which may result in lower labor and benefit costs. These competitors could use these advantages to take certain measures, including reducing prices, that could adversely affect our competitive position, business, financial condition and operating results.

        Some of our competitors have attempted to increase market share by expanding their footprints in our marketing areas. This competitor expansion creates a more difficult competitive environment for us. In addition, other established food retailers could enter our markets, increasing competition for market share.

        Further, over the last several decades, the retail supermarket and foodservice industries have undergone significant changes. Companies such as Walmart (particularly through its Sam's Club, Walmart Neighborhood Market and Walmart Express formats) and Costco have developed a lower cost

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structure to provide their customers with an "everyday low price" offering. In addition, wholesale outlets such as Restaurant Depot offer an additional low-cost option in the markets they serve. To the extent more of our competitors adopt an "everyday low price" strategy, we could be pressured to lower our prices, which would require us to achieve additional cost savings to offset these reductions. We may be unable to change our cost structure and pricing practices rapidly enough to successfully compete in that environment.

Our continued growth depends on new store openings and our failure to successfully open new stores or successfully manage the potential difficulties associated with store growth could adversely affect our business and stock price.

        Our continued growth depends, in part, on our ability to open new stores and to operate those stores successfully. Successful execution of our growth strategy depends upon a number of factors, many of which are beyond our control, including our ability to effectively find suitable sites for new stores, negotiate and execute leases on acceptable terms, secure and manage the inventory necessary for the launch and operation of our new stores, hire, train and retain skilled store personnel, promote and market new stores and address competitive merchandising, distribution and other challenges encountered in connection with expansion into new geographic areas and markets. Delays or failures in opening new stores, or achieving lower than expected sales in new stores, could adversely affect our growth.

        Although we believe that the U.S. market can support additional Extra! and Cash & Carry stores, we cannot assure you when or whether we will open any new stores. We may not have the level of cash flow or financing necessary to execute our growth strategy. If and when such store openings occur, we cannot assure you that these new stores will be successful or result in greater sales and profitability.

        Additionally, our growth will place increased demands on our operational, managerial and administrative resources. These increased demands could cause us to operate our existing business less effectively, which in turn could adversely affect the financial condition and operating results of our existing stores. Also, new store openings in markets where we have existing stores may result in reduced sales volumes at those existing stores. We may also be unable to successfully manage the potential difficulties associated with store growth, including capturing efficiencies of scale, improving our systems, continuing cost discipline and maintaining appropriate store labor levels and disciplined product and real estate selection, which may result in stagnation or decline in our operating margins. If we experience such a decline in financial condition and operating results as a result of such difficulties, we may slow or discontinue store openings or we may close stores that we are unable to operate profitably.

        Some of our new stores may be located in areas where we have little experience or a lack of brand recognition. Those markets may have different competitive conditions, market conditions, consumer tastes and discretionary spending patterns than our existing markets, which may cause these new stores to be less successful than stores in our existing markets. If we fail to successfully execute our growth strategy, including by opening new stores, our financial condition and operating results may be adversely affected.

        Our continued growth also depends, in part, on our ability to successfully convert certain of our Smart & Final stores to our Extra! format, and to relocate certain of our Smart & Final stores to new locations as Extra! stores. If we fail to successfully identify the Smart & Final stores suitable for conversion or relocation, or fail to manage such conversions and relocations in a cost-effective manner, our financial condition and operating results may be adversely affected.

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Our new stores may adversely affect our operating results in the short term and may not achieve sales and operating levels consistent with our more mature stores on a timely basis or at all.

        We are actively pursuing new store growth and plan to continue doing so in the future. We cannot assure you that our new store openings will be successful or reach the sales and profitability levels of our existing stores. New store openings may adversely affect our financial condition and operating results in the short term due to the effect of opening costs and lower sales and contribution to overall profitability during the initial period following opening. New stores build their sales volume and their customer base over time and, as a result, generally have lower margins and higher operating expenses, as a percentage of net sales, than our more mature stores. New stores may not achieve sustained sales and operating levels consistent with our more mature store base on a timely basis or at all, which may adversely affect our long-term financial condition and operating results.

        In addition, we may not be able to successfully integrate new stores into our existing store base and those new stores may not be as profitable as our existing stores. Further, we have historically experienced, and expect to experience in the future, some sales volume transfer from our existing stores to our new stores as some of our existing customers switch to new, closer locations. If our new stores are less profitable than our existing stores, or if we experience sales volume transfer from our existing stores, our financial condition and operating results may be adversely affected.

We may be unable to maintain or increase comparable store sales, which could adversely affect our business and stock price.

        We may not be able to maintain or improve the levels of comparable store sales that we have experienced in the past. Our comparable store sales growth could be lower than our historical average for many reasons, including:

        These factors may cause our comparable store sales results to be materially lower than in recent periods, which could harm our business and result in a decline in the price of our common stock.

Our plans to remodel or convert certain of our existing stores and build new stores in our current markets could require us to spend capital, which must be allocated among various projects. Failure to use our capital efficiently could adversely affect our financial condition and operating results.

        Since August 2008, we have converted 75 Smart & Final stores to our Extra! format through a combination of store conversions and relocations. Our recent conversions and relocations have been completed for a net cash investment ranging from $2.0 million to $3.5 million. We intend to convert

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additional locations over the next several years. However, we cannot assure you that our future conversions will require similar levels of investment, reach the sales and profitability levels of our Smart & Final or Extra! stores or be completed at all. If any of these initiatives prove to be unsuccessful, we may experience reduced profitability and could be required to delay, significantly curtail or eliminate planned store openings, remodels or conversions.

Perishable products make up a significant portion of our sales, and ordering errors or product supply disruptions may adversely affect our financial condition and operating results.

        We could suffer significant inventory losses in the event of the loss of a major supplier, disruption of our supply chain, extended power outages, natural disasters or other catastrophic occurrences. We have a significant focus on perishable products, sales of which accounted for approximately 34% of our net sales for our fiscal year 2013 and 36% of our fiscal year 2014, and rely on various suppliers to provide and deliver our perishable product inventory on a continuous basis. Adverse weather conditions and natural disasters can lower crop yields and reduce crop size and quality, which in turn could reduce the available supply or increase the price of fresh produce.

        While we have implemented certain systems to ensure our ordering is in line with demand, we cannot assure you that our ordering systems will always work efficiently, in particular in connection with the opening of new stores, which have limited or no ordering history. If we over-order, we may suffer inventory losses, which would adversely affect our financial condition and operating results.

Our private label products expose us to various risks.

        We expect to continue to grow our exclusive private label products within many product categories. We have invested in our development and procurement resources and marketing efforts relating to these private label products. If we cannot anticipate, identify and react to changing consumer preferences relating to our private label products in a timely manner, or if our profit margins or sales levels from such products decline, then our financial condition and operating results may be adversely affected.

        Our private label products also subject us to certain specific risks in addition to those discussed elsewhere in this section, such as:

        An increase in sales of our private label products may also adversely affect sales of our suppliers' products, which may, in turn, adversely affect our relationship with our suppliers. Our failure to adequately address some or all of these risks could have a material adverse effect on our business, financial condition and operating results.

Real or perceived quality or food safety concerns could adversely affect our business, operating results and reputation.

        Brand value is based in large part on perceptions of subjective qualities, and even isolated incidents can erode trust and confidence, particularly if they result in governmental investigations, litigation or adverse publicity, especially in social media outlets, all of which can adversely affect these

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perceptions and lead to adverse effects on our business, operating results and reputation. We believe our customers hold us to a high food safety standard. Real or perceived concerns regarding the safety of our food products or the safety and quality of our food supply chain, whether or not ultimately based on fact and whether or not involving products sold at our stores, could cause consumers to avoid shopping with us, and could adversely affect our financial condition and operating results, even if the basis for the concern is outside of our control. Any lost confidence on the part of consumers would be difficult and costly to reestablish.

Products we sell could cause unexpected side effects, illness, injury or death that could result in the discontinuance of such products or expose us to litigation, either of which could result in unexpected costs and damage to our reputation.

        There is increasing governmental scrutiny and public awareness of food safety. Unexpected side effects, illness, injury or death caused by products we sell could result in the discontinuance of sales of these products or prevent us from achieving market acceptance of the affected products. Such side effects, illnesses, injuries and deaths could also expose us to product liability or negligence lawsuits. Any claims brought against us may exceed our existing or future insurance policy coverage or limits. Any judgment against us that is in excess of our policy limits would have to be paid from our cash reserves, which would reduce our capital resources. Also, we may not have sufficient capital resources to pay a judgment, in which case our creditors could levy against our assets. The real or perceived sale of contaminated or harmful products would cause negative publicity regarding our company, brand or products, which could in turn harm our reputation and net sales and adversely affect our business, financial condition and operating results.

If we fail to maintain our reputation and the value of our brand, our sales may decline.

        We believe our continued success depends on our ability to maintain and grow the value of our Smart & Final, Extra! and Cash & Carry brands. Maintaining, promoting and positioning our brands and reputation will depend largely on the success of our marketing and merchandising efforts and our ability to provide a consistent, high quality customer experience. Brand value is based in large part on perceptions of subjective qualities, and even isolated incidents can erode trust and confidence, particularly if they result in governmental investigations, litigation or adverse publicity. Our brands could be adversely affected if we fail to achieve these objectives or if our public image or reputation were to be tarnished by negative publicity.

The current geographic concentration of our stores and our net sales creates an exposure to local or regional downturns or catastrophic occurrences.

        As of December 28, 2014, we operated 184 Smart & Final stores in California, representing 92% of our total Smart & Final stores and accounting for 95% of Smart & Final banner sales in fiscal year 2014. Also, as of December 28, 2014, we operated 41 Cash & Carry stores in the Pacific Northwest (Washington, Oregon and Idaho), representing 77% of our total Cash & Carry stores and accounting for 77% of Cash & Carry banner sales in fiscal year 2014. In addition, we source a significant portion of our produce from California.

        As a result, our business is currently more susceptible to regional conditions than the operations of our more geographically diversified competitors and we are vulnerable to economic downturns in those regions. Any unforeseen events or circumstances that adversely affect the areas in which we have stores or from which we obtain products, particularly in California and the Pacific Northwest, could adversely affect our financial condition and operating results. These factors include, among other things, changes in demographics, population, employee bases and economic conditions, wage increases, severe weather conditions, power outages and other catastrophic occurrences. Such conditions may result in reduced customer traffic and spending in our stores, physical damage to our stores, loss of inventory, closure of

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one or more of our stores, inadequate work force in our markets, temporary disruption in the supply of products, delays in the delivery of goods to our stores and a reduction in the availability of products in our stores. Any of these factors may disrupt our business and adversely affect our financial condition and operating results.

Disruption of supplier relationships could adversely affect our business.

        We source our products from over 1,350 vendors and suppliers. The cancellation of our distribution arrangement with or the disruption, delay or inability of any of these vendors or suppliers to deliver products to our stores could cause operational disruptions or delays or increased or unexpected costs including, among others, costs associated with finding alternative vendors or suppliers and obtaining inventory that meets our and our customers' standards.

        As an example, Unified Grocers, Inc. ("Unified Grocers") is the primary supplier of dry grocery and perishable products to our Cash & Carry stores, accounting for approximately 82% of our product requirements (measured at cost) for our Cash & Carry stores for each of our fiscal years 2013 and 2014 and 22% of our total Company product requirements (measured at cost) for each of our fiscal years 2013 and 2014. Based on Unified Grocers' disclosure in its public filings, we accounted for 15% of Unified Grocers' total net sales for its thirty-nine week period ended June 28, 2014. Our current contractual relationship with Unified Grocers continues through December 5, 2015. If our distribution arrangement with Unified Grocers was cancelled or Unified Grocers was unwilling or unable to supply our stores with dry grocery or perishable products, we could experience disruptions to our operations and incur unexpected expenses associated with finding one or more alternative suppliers or utilizing our own infrastructure to replace the products provided to and services performed for us by Unified Grocers.

Changes in commodity prices and availability may affect our financial condition and operating results.

        Many products we sell include ingredients such as wheat, corn, oils, milk, sugar, cocoa and other commodities. Commodity prices worldwide have been increasing. Any increase in commodity prices may cause our suppliers to seek price increases from us. We cannot assure you that we will be able to mitigate supplier efforts to increase our costs, either in whole or in part. In the event we are unable to continue mitigating potential supplier price increases, we may consider raising our prices and our customers may be deterred by any such price increases. Our financial condition and operating results may be adversely affected through increased costs to us, which may affect gross margins, or through reduced sales as a result of a decline in the number and average size of customer transactions.

        While management believes that these commodities are not currently in short supply and all are readily available from our current independent suppliers, an interruption in the supply chains of or volatility in the markets for any of these commodities could have an adverse effect on their overall supply and impede our ability or that of our suppliers to obtain products containing these commodities. Such a decrease in their availability to us or our suppliers, whether as a result of increased prices or otherwise, could adversely affect our financial condition and operating results.

Any significant interruption in the operations of our distribution centers or common carriers could disrupt our ability to deliver our products in a timely manner.

        We distribute our products through six distribution centers in California, two of which serve our stores in Northern California and four of which serve our stores in Southern California, Arizona and Nevada. The operations of four of our distribution centers are outsourced to third parties. See "Business—Properties." We also maintain relationships with numerous common carriers. Any significant interruption in the operation of our distribution center infrastructure, such as disruptions due to fire, severe weather or other catastrophic events, power outages, labor disagreements or

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shipping problems, or any disruption or cancellation of our contractual relationships with the third party operators of our distribution centers, could adversely affect our ability to distribute products to our stores. Such interruptions could result in lost sales and a loss of customer loyalty to our brands. While we maintain business interruption and property insurance, if the operation of our distribution centers were interrupted for any reason causing delays in shipment of products to our stores, our insurance may not be sufficient to cover losses we experience, which could adversely affect our business, financial condition and operating results.

        We rely on common carriers, including rail and trucking, to transport products from our suppliers to our central distribution centers and from these centers to our stores. A disruption in the services of common carriers due to weather, employee strikes, increases in fuel costs or other unforeseen events, or any disruption or cancellation of our contractual relationships with our common carriers, could affect our ability to maintain sufficient quantities of inventory in our stores.

Our failure to comply with laws, rules and regulations affecting us and our industry could adversely affect our financial condition and operating results.

        We are subject to numerous federal, state and local laws, rules and regulations that affect our business, such as those affecting food manufacturing, food and drug distribution, retailing, labor and employment and environmental practices, accounting standards and taxation requirements. We must also comply with numerous provisions regulating, among other things, health and sanitation standards, food labeling and safety, equal employment opportunity, minimum wages and licensing for the sale of food, drugs and alcoholic beverages. Our ongoing efforts related to compliance with such laws, rules and regulations, including with respect to implementation of immigration legislation, recently enacted food safety and health care reform legislation, new mandates, fees and taxes and stricter regulatory oversight, create uncertainty about the probability and effect of future regulatory changes and can significantly affect our operations and compliance costs. We cannot predict future laws, rules and regulations or the effect they will have on our financial condition and operating results, but in any event, additional record keeping, increased costs of recruiting, training and retaining employees, expanded documentation of the properties of certain products, and expanded or different labeling required by such laws, rules and regulations, could significantly increase our costs of doing business could adversely affect our business, financial condition and operating results.

        As is common in our industry, we rely on our suppliers, including suppliers of our private label products, to ensure that the products they sell to us comply with all applicable regulatory and legislative requirements. In general, we seek certifications of compliance, representations and warranties, indemnification and/or insurance from our suppliers. However, even with adequate insurance and indemnification, any claims of non-compliance could significantly damage our reputation and consumer confidence in our products. In order to comply with applicable statutes and regulations, our suppliers have from time to time recalled, reformulated, eliminated or relabeled certain of their products.

        In addition, many of our customers rely on food stamps and other governmental assistance programs to supplement their grocery-shopping budgets. As a result, any change in the ability of our customers to obtain food stamps and other governmental assistance could adversely affect our business, financial condition and operating results.

General economic conditions that affect consumer spending could adversely affect our business, financial condition and operating results.

        The food retail and foodservice industries are sensitive to changes in general economic conditions. Recessionary economic cycles, increases in interest rates, higher prices for commodities, fuel and other energy, inflation, high levels of unemployment and consumer debt, depressed home values, high tax rates and other economic factors that affect consumer spending and confidence or buying habits may

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adversely affect the demand for products we sell in our stores. In recent years, the U.S. economy has experienced volatility due to uncertainties related to energy prices, credit availability, difficulties in the banking and financial services sectors, decreases in home values and retirement accounts, high unemployment and falling consumer confidence. As a result, consumers are more cautious and could shift their spending to lower-priced competition, such as warehouse membership clubs, dollar stores or extreme value formats. In addition, inflation or deflation could affect our business. Food deflation could reduce sales growth and profit margins, while food inflation, combined with reduced consumer spending, could reduce gross profit margins. As a result of any of these factors, our business, financial condition and operating results could be adversely affected.

A widespread health epidemic could adversely affect our business.

        Our business could be severely affected by a widespread regional, national or global health epidemic. A widespread health epidemic may cause customers to avoid public gathering places such as our stores or otherwise change their shopping behaviors. Additionally, a widespread health epidemic could adversely affect our business by disrupting production and delivery of products to our stores and by affecting our ability to appropriately staff our stores.

If we are unable to attract, train and retain, or maintain satisfactory relations with, our employees we may not be able to grow or successfully operate our business.

        The food retail and foodservice industries are labor intensive. Our continued success is dependent in part upon our ability to attract, train and retain qualified employees who understand and appreciate our culture and can represent our brands effectively and establish credibility with our business partners and customers. We face intense competition for qualified employees, many of whom are subject to offers from competing employers. Our ability to meet our labor needs, while controlling wage and labor-related costs, is subject to numerous external factors, including the availability of a sufficient number of qualified persons in the work force in the markets in which we operate, unemployment levels within those markets, unionization of the available work force, prevailing wage rates, changing demographics, health and other insurance costs and changes in employment legislation. If we fail to maintain competitive wages, the quality of our workforce could decline and cause our customer service to suffer. However, increasing our wages could cause our profit margins to decrease. If we are unable to hire and retain employees capable of meeting our business needs and expectations, our business and brand images may be impaired. Any failure to meet our staffing needs or any material increase in turnover rates of our employees or employee wages may adversely affect our business, financial condition and operating results.

        As of December 28, 2014, we had 9,370 employees. 172 of our employees, all of whom work at our Cash & Carry stores, are members of the International Brotherhood of Teamsters (the "Union") and are covered by a collective bargaining agreement. We may experience pressure from labor unions or become the target of campaigns similar to those faced by our competitors. The unionization of a more significant portion of our workforce, particularly at our Company-operated distribution centers and Smart & Final stores, could increase the overall costs at the affected locations and adversely affect our flexibility to run our business competitively and otherwise adversely affect our business, financial condition and operating results.

        Labor relations issues arise from time to time, including issues in connection with Union efforts to represent employees at our stores and distribution centers, and with the negotiation of new collective bargaining agreements. If we fail to maintain satisfactory relations with our employees or with the Union, we may experience labor strikes, work stoppages or other labor disputes. Negotiation of collective bargaining agreements also could result in higher ongoing labor costs. Also, our recruiting and retention efforts and efforts to increase productivity may not be successful and there may be a shortage of qualified employees in future periods. Any such shortage would decrease our ability to effectively serve our customers. Such a shortage would also likely lead to higher wages for employees and a corresponding reduction in our operating results.

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We have obligations under our defined benefit employee pension plans and may be required to make plan contributions in excess of our current estimates.

        We sponsor one single-employer qualified defined benefit pension plan (the "Single-Employer Plan"), which, with limited exceptions, is frozen with respect to new participants. In addition, we participate through our Cash & Carry operations in one multiemployer qualified defined benefit pension plan, the Western Conference of Teamsters Pension Plan (the "Multiemployer Plan"), on behalf of our union-affiliated employees, and we are required to make contributions to this plan under our collective bargaining agreement. Neither the Single-Employer Plan nor the Multiemployer Plan are fully funded based on standards provided by the Pension Benefit Guaranty Corporation (the "PBGC"), in part due to increases in the costs of benefits provided or paid under the plans as well as lower returns on plan assets. Our funding requirements vary based upon plan asset performance, interest rates and actuarial assumptions. Poorer than assumed asset performance and continuing low interest rates may result in increased future funding contributions by us and, with respect to the Multiemployer Plan, other participating employers.

        Going forward, our required contributions to the Multiemployer Plan could also increase as a result of many factors, including the outcome of collective bargaining with the Union, actions taken by the trustee that manages the plan, government regulations, the actual return on assets held in the plan and the payment of a withdrawal liability if we choose to exit the plan. Our risk of future increased payments may be greater if other participating employers withdraw from the Multiemployer Plan and are not able to pay the total liability assessed as a result of such withdrawal or if the pension plan adopts surcharges and/or increased pension contributions as part of a rehabilitation plan.

        Pursuant to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), the PBGC has the right, subject to satisfaction of certain statutory requirements, to involuntarily terminate the pension plans described above (thus accelerating funding obligations) or enter into an alternative arrangement with us to prevent such termination. We expect to fund certain excess contributions to the Single-Employer Plan through plan year 2018 under the terms of an agreement with the PBGC that we entered into in connection with the Ares Acquisition. The amounts and timing of the remaining contributions we expect to make to the pension plans described above reflect a number of actuarial and other estimates and assumptions with respect to our expected plan funding obligations. The actual amounts and timing of these contributions will depend upon a number of factors and the actual amounts and timing of our future plan funding contributions may differ materially from those presented in this prospectus.

The minimum wage and cost of providing employee benefits continues to increase and is subject to factors outside of our control.

        A considerable number of our employees are paid at rates related to the federal minimum wage. Many of our stores are located in states, including California, where the minimum wage is greater than the federal minimum wage and receive compensation equal to the state's minimum wage. The current California minimum wage was recently increased to $9.00 per hour, and will increase to $10.00 per hour effective January 1, 2016. Moreover, municipalities may set minimum wages above the applicable state standards. Any further increases in the federal minimum wage or the enactment of additional state or local minimum wage increases could increase our labor costs.

        We provide health benefits to substantially all of our full-time employees and to certain part-time employees depending on average hours worked. Though employees generally pay a portion of the cost of such benefits, our cost of providing these benefits has increased steadily over the last several years. We anticipate future increases in the cost of health benefits, partly, but not entirely, as a result of the implementation of the Patient Protection and Affordable Care Act enacted in 2010, as well as other healthcare reform legislation being considered by Congress and state legislatures. We continue to

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evaluate the potential effects of the Patient Protection and Affordable Care Act on our business. Due to provisions requiring phasing-in over time, changes to our healthcare costs structure could have a significant, negative impact on our future business. If we are unable to control healthcare and pension costs, we may experience increased operating costs, which may adversely affect our financial condition and operating results.

The loss of any of our executive officers could adversely affect our business.

        We are dependent upon each of our executive officers listed under "Management—Executive Officers." Losing the services of any or a significant number of such individuals could adversely affect our business, as we may not be able to find suitable individuals to replace them on a timely basis, if at all. In addition, any such departure could be viewed negatively by investors and analysts, which may cause our stock price to decline. We do not maintain key person insurance on any employee, though we are the beneficiary of life insurance policies on certain members of management for the purpose of funding our obligations under our non-qualified defined benefit plan.

Energy costs are an increasingly significant component of our operating expenses and increasing energy costs, unless offset by more efficient usage or other operational responses, may affect our financial condition and operating results.

        We use natural gas, water, sewer and electricity in our stores and gasoline and diesel in trucks that deliver products to our stores. We may also be required to pay certain adjustments or other amounts pursuant to our supply and delivery contracts in connection with increases in fuel prices. Increases in energy costs, whether driven by increased demand, decreased or disrupted supply or an anticipation of any such events will increase the costs of operating our stores. We may not be able to recover these increased costs by raising prices charged to our customers. Any such increased prices may also exacerbate the risk of customers choosing lower-cost alternatives. In addition, if we are unsuccessful in attempts to protect against these increases in energy costs through long-term energy contracts, improved energy procurement, improved efficiency and other operational improvements, the overall costs of operating our stores will increase, which could adversely affect our financial condition and operating results.

Disruptions to or security breaches involving our information technology systems could harm our ability to run our business.

        In connection with payment card sales and other transactions, including bank cards, debit cards, credit cards and other merchant cards, we process and transmit confidential banking and payment card information. Additionally, as part of our normal business activities, we collect and store sensitive personal information, related to our employees, customers, vendors and other parties. Despite our security measures, our information technology and infrastructure may be vulnerable to criminal cyber-attacks or security incidents due to employee error, malfeasance or other vulnerabilities. Any such incident could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Third parties may have the technology and know-how to breach the security of this information, and our security measures and those of our banks, merchant card processing and other technology vendors may not effectively prohibit others from obtaining improper access to this information. The techniques used by criminals to obtain unauthorized access to sensitive data change frequently and often are not recognized until launched against a target; accordingly, we may be unable to anticipate these techniques or implement adequate preventative measures. Any security breach could expose us to risks of data loss or impairment, regulatory and law enforcement investigations, litigation and liability and could seriously disrupt our operations and any resulting negative publicity could significantly harm our reputation and relationships with our customers and adversely affect our business, financial condition and operating results.

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        Furthermore, our systems and operations, and those of our third party Internet and other systems service providers, are vulnerable to damage or interruption from natural disasters and other catastrophic events, power outages, server failures, telecommunications and Internet service failures, computer viruses and denial-of-service attacks, physical or electronic breaches, sabotage, human errors and similar events. Any of these events could lead to system interruptions, processing, distribution, communication and order fulfillment delays and loss of critical data for us or our Internet and other systems service providers or suppliers, and could have an adverse effect on our business, financial condition and operating results. Because we are dependent on third-party service providers for the implementation and maintenance of certain aspects of our systems and operations and because some of the causes of system interruptions may be outside of our control, we may not be able to remedy such interruptions in a timely manner, if at all, and any system disruptions could adversely affect our business, financial condition and operating results.

We need to comply with credit and debit card security regulations.

        As a merchant that processes credit and debit card payments from customers, we are required to comply with the Payment Card Industry Data Security Standards and other requirements imposed on us for the protection and security of our customers' credit and debit card information. If we are unable to remain compliant with these standards and requirements, our business and operations could be adversely affected because we could incur significant fines or penalties from payment card companies or be prevented in the future from accepting customer payments by means of a credit or debit card. We also may need to expend significant management and financial resources to become or remain compliant with these requirements, which could divert these resources from other initiatives and adversely affect our business, financial condition and operating results.

Legal proceedings could adversely affect our business, financial condition and operating results.

        Our operations, which are characterized by a high volume of customer traffic and by transactions involving a wide variety of product selections, carry a higher exposure to consumer litigation risk when compared to the operations of companies operating in some other industries. Consequently, we may be a party to individual personal injury, product liability, intellectual property, employment-related and other legal actions in the ordinary course of our business, including litigation arising from food-related illness. The outcome of litigation, particularly class action lawsuits, is difficult to assess or quantify. Plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time. While we maintain insurance, insurance coverage may not be adequate and the cost to defend against future litigation may be significant. There may also be adverse publicity associated with litigation that may decrease consumer confidence in our business, regardless of whether the allegations are valid or whether we are ultimately found liable. As a result, litigation may adversely affect our business, financial condition and operating results.

        In addition, we believe there is a growing number of employment (including "wage-and-hour"), health, environmental and other lawsuits against companies in our industry, especially in California. State, federal and local laws and regulations regarding employment (including minimum wage requirements), health and the environment change frequently and the ultimate cost of compliance cannot be precisely estimated. Any changes in laws or regulations, or the imposition or enforcement of new laws or regulations, including legislation that impacts employment, health, the environment, labor or trade, could adversely affect our business, financial condition and operating results.

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We may be unable to adequately protect our intellectual property rights, which could harm our business, financial condition and operating results.

        Our trademarks, service marks, copyrights, patents, trade secrets, domain names and other intellectual property are valuable assets that are critical to our success. The unauthorized reproduction or other misappropriation of our intellectual property could diminish the value of our brands or goodwill and cause a decline in our net sales. Any infringement or other intellectual property claim made against us, whether or not it has merit, could be time-consuming, result in costly litigation, cause product delays or require us to enter into royalty or licensing agreements. As a result, any such claim could have a material adverse effect on our business, financial condition and operating results.

Claims under our insurance plans and policies may differ from our estimates, which could adversely affect our operating results.

        We use a combination of insurance and self-insurance plans to provide for the potential liabilities for workers' compensation, general liability (including, in connection with legal proceedings described above under "—Risks Related to Our Business and Industry—Legal proceedings could adversely affect our business, financial condition and operating results"), property insurance, director and officers' liability insurance, vehicle liability and employee health-care benefits. Liabilities associated with the risks that are retained by us are estimated, in part, by considering historical claims experience, demographic factors, severity factors and other actuarial assumptions. Our results could be adversely affected by claims and other expenses related to such plans and policies if future occurrences and claims differ from these assumptions and historical trends.

Changes in accounting standards may adversely affect reporting of our financial condition and operating results.

        New accounting rules or regulations and varying interpretations of existing accounting rules or regulations have occurred and may occur in the future. A change in accounting rules or regulations may even affect our reporting of transactions completed before the change is effective, and future changes to accounting rules or regulations or the questioning of current accounting practices may adversely affect our results of operations. The Financial Accounting Standards Board ("FASB") is focusing on several broad-based convergence projects, including accounting standards for financial instruments and leases. In August 2010, the FASB issued an exposure draft outlining proposed changes to current lease accounting under GAAP in FASB Accounting Standards Codification 840, Leases. In July 2011, the FASB made the decision to issue a revised exposure draft, which was issued in May 2013. Currently, substantially all of our leased properties are accounted for as operating leases with limited related assets and liabilities recorded on our balance sheet. The proposed new accounting standard, if ultimately adopted in its proposed form, would treat each lease as creating an asset and a liability and require the capitalization of such leases on the balance sheet. While this change would not impact the cash flow related to our store leases, we would expect our assets and liabilities to increase relative to the current presentation, which may impact our ability to raise additional financing from banks or other sources in the future. The guidance as proposed may also affect the future reporting of our results from operations as both income and expense on leases previously accounted for as operating leases would be front-end loaded as compared to the existing accounting requirements. However, even if the new guidance is adopted as proposed, certain incurrence ratios and other provisions under the credit agreements governing the Credit Facilities permit us to account for leases in accordance with the existing accounting requirements. As a result, our ability to incur additional debt or otherwise comply with such covenants may not directly correlate to our financial condition or results from operations as each would be reported under GAAP as so amended.

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Our high level of fixed lease obligations could adversely affect our financial condition and operating results.

        Our high level of fixed lease obligations will require us to use a significant portion of cash generated by our operations to satisfy these obligations and could adversely affect our ability to obtain future financing to support our growth or other operational investments. We will require substantial cash flows from operations to make our payments under our operating leases, which in some cases provide for periodic adjustments in our rent rates. If we are not able to make the required payments under the leases, the lenders to or owners of the relevant stores, distribution centers or administrative offices may, among other things, repossess those assets, which could adversely affect our ability to conduct our operations. In addition, our failure to make payments under our operating leases could trigger defaults under other leases or under agreements governing our indebtedness, which could cause the counterparties under those agreements to accelerate the obligations due thereunder.

Our lease obligations may require us to continue paying rent for store locations that we no longer operate.

        We are subject to risks associated with our current and future store, distribution center and administrative office real estate leases. We generally cannot cancel our leases, so if we decide to close or relocate a location, we may nonetheless be committed to perform our obligations under the applicable lease, including paying the base rent for the remaining lease term. In addition, as our leases expire, we may fail to negotiate renewals, either on commercially acceptable terms or at all, which could adversely affect our business, financial condition and operating results.

The joint venture in Northwestern Mexico subject us to risks associated with the legislative, judicial, accounting, regulatory, political, economic and other risks and conditions specific to that country, which could adversely affect our business, financial condition and operating results.

        We are currently engaged, through one of our wholly owned subsidiaries, in the operation of 15 Smart & Final stores in Northwestern Mexico through a joint venture. For our fiscal years 2013 and 2014, our Mexican operations generated approximately 12% and 2%, respectively, of our income from continuing operations. As a result of our expansion activities into Northwestern Mexico, we expect that our international operations could account for a larger portion of our net income in future years. Our future operating results in Mexico could be adversely affected by a variety of factors, most of which are beyond our control. These factors include political conditions and instability, economic conditions, legal and regulatory constraints, anti-money laundering laws and regulations, trade policies, currency regulations and other matters in this region, now or in the future. Foreign currency exchange rates and fluctuations may have an effect on our future costs or on future cash flows from our Mexican operations and could adversely affect our financial condition and operating results. Moreover, the economy in Mexico has in the past suffered from high rates of inflation and currency devaluations, which, if they occur again, could adversely affect our financial condition and operating results. Other factors that may affect, and additional risks inherent in, our Mexican operations include:

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        The various risks inherent in doing business in the U.S. generally also exist when doing business outside of the United States and may be exaggerated by the difficulty of doing business in numerous sovereign jurisdictions due to differences in culture, laws and regulations.

        In Mexico, our associates, contractors or agents could, in contravention of our policies, engage in business practices prohibited by U.S. laws and regulations applicable to us, such as the Foreign Corrupt Practices Act, and we are subject to the risk that one or more of our associates, contractors or agents, including those based in or from countries where practices that violate such U.S. laws and regulations or the laws and regulations of other countries may be customary, will engage in business practices that are prohibited by our policies, circumvent our compliance programs and, by doing so, violate such laws and regulations. Any such violations, even if prohibited by our internal policies, could adversely affect our business, financial condition and operating results.

        We also license certain of our trademarks to our Mexico joint venture for use in connection with operating the Smart & Final brand in Mexico. If the licensee fails to maintain the quality of the goods and services used in connection with these trademarks, our rights to and the value of this and similar trademarks could potentially be harmed. Also, negative publicity relating to the licensee could also be incorrectly associated with us, which could harm our business.

We have significant debt service obligations and may incur additional indebtedness in the future, which could adversely affect our financial condition and operating results and our ability to react to changes to our business.

        As of December 28, 2014, we had outstanding indebtedness of approximately $588.1 million (including debt discount) under our Term Loan Facility. We may incur additional indebtedness in the future, including borrowings under our Revolving Credit Facility. Our existing indebtedness and any additional indebtedness we may incur could require us to divert funds identified for other purposes for debt service and impair our liquidity position. If we cannot generate sufficient cash flow from operations to service our debt, we may need to refinance our debt, dispose of assets or issue equity to obtain necessary funds. We do not know whether we will be able to take any of such actions on a timely basis, on terms satisfactory to us or at all.

        The fact that a substantial portion of our cash flow from operations could be needed to make payments on our indebtedness could have important consequences, including the following:

        Our ability to obtain necessary funds through borrowing will depend on our ability to generate cash flow from operations. Our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. If our business does

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not generate sufficient cash flow from operations or if future borrowings are not available to us under our Credit Facilities or otherwise in amounts sufficient to enable us to fund our liquidity needs, our financial condition and operating results may be adversely affected. Our inability to make scheduled payments on our debt obligations in the future would require us to refinance all or a portion of our indebtedness on or before maturity, sell assets, delay capital expenditures or seek additional equity investment.

Covenants in our debt agreements restrict our operational flexibility.

        The agreements governing our Credit Facilities contain usual and customary restrictive covenants relating to our management and the operation of our business, including restrictions on the ability of certain of our domestic direct and indirect subsidiaries to:

        In addition, the Credit Facilities place certain restrictions on SF CC Intermediate Holdings, Inc., a direct wholly owned subsidiary of Smart & Final Stores, Inc. ("Intermediate Holdings") with respect to the incurrence or creation of additional liens on the equity interests of certain subsidiaries, the preservation of its corporate existence and the maintenance of its passive holding company status.

        The Revolving Credit Facility includes a "springing" financial maintenance covenant, applicable when availability under the Revolving Credit Facility has fallen below a threshold level and for a specified period of time thereafter. At any time when the financial maintenance covenant is applicable, Smart & Final Stores LLC is required to maintain a fixed charge coverage ratio of not less than 1.0 to 1.0. Our ability to satisfy the financial maintenance covenant under the Revolving Credit Facility, if applicable, could be affected by events beyond our control. Failure to comply with any of the covenants under either of our Credit Facilities could result in a default under the same and a cross-default from one Credit Facility to the other, which could cause our lenders to accelerate the timing of payments and exercise their lien on substantially all of our assets, which would adversely affect our business, financial condition and operating results.

Variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

        Our borrowings under our Credit Facilities bear interest at variable rates and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remains the same and our net income would decrease. A hypothetical 0.50% increase in LIBOR rates applicable to borrowings under the Term Loan Facility would not increase interest expense related to such debt, and a hypothetical 0.50% increase in LIBOR rates applicable to borrowings under the Revolving Credit Facility would increase interest expense related to such debt by approximately $0.6 million per year, assuming the Revolving Credit Facility is fully borrowed.

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Our ability to raise capital in the future may be limited.

        Our business and operations may consume resources faster than we anticipate. To support our growth strategy, we must have sufficient capital to continue to make significant investments in our new and existing stores and advertising. We cannot assure you that cash generated by our operations will be sufficient to allow us to fund such expansion. In the future, we may need to raise additional funds through credit, the issuance of new equity or debt securities or a combination of both. Additional financing may not be available on favorable terms or at all. If adequate funds are not available on acceptable terms, we may be unable to fund our capital requirements. If we obtain credit or issue new debt securities, the debt holders would have rights senior to holders of our common stock to make claims on our assets and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. If we issue additional equity securities, existing stockholders will experience dilution and the new equity securities could have rights senior to those of our common stock. Because our decision to obtain credit or issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of such transactions. Thus, you bear the risk of our future indebtedness or securities offerings reducing the market price of our common stock and/or diluting your interest.

        In addition, the credit and securities markets and the financial services industry in the past decade have experienced disruption characterized by the bankruptcy, failure, collapse or sale of various financial institutions, increased volatility in securities prices, diminished liquidity and credit availability and intervention from the U.S. and other governments. The cost and availability of credit has been and may continue to be adversely affected by these conditions. We cannot be certain that funding for our capital needs will be available from our existing financial institutions and the credit and securities markets if needed, and if available, to the extent required, and on acceptable terms.

        The Term Loan Facility matures on November 15, 2019, and the Revolving Credit Facility matures on November 15, 2017. If we cannot renew or refinance our Credit Facilities upon their respective maturities or, more generally, obtain funding when needed, in each case on acceptable terms, we may be unable to continue our current rate of growth and store expansion, which may have an adverse effect on our sales and operating results.

If our goodwill becomes impaired, we may be required to record a significant charge to earnings.

        We have a significant amount of goodwill. As of December 28, 2014, we had goodwill of approximately $611.2 million, which represented approximately 35.3% of our total assets as of such date. Goodwill is reviewed for impairment on an annual basis in the fourth fiscal quarter or whenever events occur or circumstances change that would more likely than not reduce the fair value of our reporting unit below its carrying amount. Fair value is determined based on the discounted cash flows and comparable market values of our two reporting units (our Smart & Final stores and our Cash & Carry stores). If the fair value of the reporting unit is less than its carrying value, the fair value of the implied goodwill is calculated as the difference between the fair value of our reporting unit and the fair value of the underlying assets and liabilities, excluding goodwill. In the event an impairment to goodwill is identified, an immediate non-cash charge to earnings in an amount equal to the excess of the carrying value over the implied fair value would be recorded, which would adversely affect our operating results. See "Management's Discussion and Analysis of Financial Condition and Operating Results—Critical Accounting Estimates—Goodwill and Intangible Assets."

        Determining market values using a discounted cash flow method requires that we make significant estimates and assumptions, including long-term projections of cash flows, market conditions and appropriate market rates. Our judgments are based on historical experience, current market trends and other information. In estimating future cash flows, we rely on internally generated forecasts for operating profits and cash flows, including capital expenditures. Based on our annual impairment test

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during fiscal years 2014, 2013 and 2012, no goodwill impairment charge was required to be recorded. Changes in estimates of future cash flows caused by items such as unforeseen events or changes in market conditions could adversely affect our reporting units' respective fair values and result in an impairment charge. Factors that could cause us to change our estimates of future cash flows include a prolonged economic crisis, successful efforts by our competitors to gain market share in our core markets, our inability to compete effectively with other retailers or our inability to maintain price competitiveness. An impairment of a significant portion of our goodwill could adversely affect our financial condition and operating results.

Risks Related to this Offering and Ownership of Our Common Stock

You may not be able to resell your shares at or above the offering price or at all, and our stock price may be volatile, which could result in a significant loss or impairment of your investment.

        If you purchase shares of our common stock in this offering, you will pay a price that was not established in a competitive market. Rather, you will pay the price that we negotiated with the representatives of the underwriters, which may not be indicative of prices that will prevail in the trading market.

        The trading price of our common stock may be volatile and subject to wide price fluctuations in response to various factors, many of which are beyond our control, including those described above in "—Risks Related to Our Business and Industry" and the following:

        Furthermore, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations sometimes have been unrelated or disproportionate to the operating performance of those

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companies. These and other factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise adversely affect the price or liquidity of our common stock.

        In addition, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the stock. If any of our stockholders were to bring a lawsuit against us, we could incur substantial costs defending it or paying for settlements or damages. Such a lawsuit could also divert the time and attention of our management from our operating business. As a result, such litigation may adversely affect our business, financial condition and operating results.

Our principal stockholder will continue to have substantial control over us after this offering, will be able to influence corporate matters and may take actions that conflict with your interests and have the effect of delaying or preventing changes of control or changes in management, or limiting the ability of other stockholders to approve transactions they deem to be in their best interest.

        Upon the closing of this offering, our directors, executive officers and holders of more than 5% of our common stock, together with their affiliates, will beneficially own, in the aggregate, approximately 65% of our outstanding common stock or approximately 63% if the underwriters' option to purchase additional shares from the selling stockholders is exercised in full. Ares will beneficially own, in the aggregate, approximately 61% of our outstanding common stock, or approximately 59% if the underwriters exercise in full the option to purchase additional shares from the selling stockholders. As a result, these stockholders acting together, or Ares acting alone, will be able to exercise significant influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of us or all or substantially all of our assets. The interests of these stockholders or Ares, as applicable, could conflict in material respects with yours, and this concentration of ownership could limit your ability to influence corporate matters and may have the effect of delaying or preventing a third party from acquiring control over us.

The large number of shares eligible for public sale in the future, or the perception of the public that these sales may occur, could depress the market price of our common stock.

        The market price of our common stock could decline as a result of (i) sales of a large number of shares of our common stock in the market after this offering, particularly sales by our directors, employees (including our executive officers) and significant stockholders, and (ii) a large number of shares of our common stock being registered or offered for sale. These sales, or the perception that these sales could occur, may depress the market price of our common stock. We will have 73,771,652 shares of common stock outstanding after this offering. All shares of common stock sold in this offering will be freely tradable, except for any shares purchased by our "affiliates" as defined in Rule 144 ("Rule 144") promulgated under the Securities Act of 1933, as amended (the "Securities Act").

        Additionally, approximately 10,145,858 shares of our common stock will be issuable upon exercise of stock options that vest and are exercisable at various dates through September 5, 2024, with an average weighted exercise price of $6.57 per share and we have issued 679,761 shares of restricted stock with restrictions that lapse at various dates through May 30, 2019. Of such options, 4,862,515 are currently exercisable. On September 23, 2014, we filed a registration statement on Form S-8 under the Securities Act to register shares of our common stock issued or reserved for issuance under the Incentive Plans. Accordingly, shares covered by that registration statement are eligible for sale in the public markets, subject to vesting restrictions, the lock-up agreements described below and Rule 144 limitations applicable to affiliates.

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        Our executive officers, directors and principal stockholders have entered into lock-up agreements, pursuant to which neither we nor they will sell any shares without the prior consent of the representatives of the underwriters for 90 days after the date of this prospectus, subject to certain exceptions and extensions under certain circumstances. Following the expiration of the applicable lock-up period, all these shares of our common stock will be eligible for future sale, subject to the applicable volume, manner of sale, holding period and other limitations of Rule 144. In addition, Ares has certain demand registration rights, and all of our pre-initial public offering stockholders have piggyback registration rights with respect to the common stock that they retained following the initial public offering (the "IPO"), subject to certain conditions and exceptions contained in the Registration Rights Agreement. See "Shares Eligible for Future Sale" for a discussion of the shares of common stock that may be sold into the public market in the future, including common stock held by Ares.

        Sales of common stock as restrictions end may make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

In the future, we expect to issue options, restricted stock and/or other forms of share-based compensation, which have the potential to dilute stockholders, value and cause the price of our common stock to decline.

        We expect to offer stock options, restricted stock and/or other forms of share-based compensation to our directors and employees in the future. If any options that we issue are exercised or any restrictions on restricted stock that we issue lapse, and those shares are sold into the public market, the market price of our common stock may decline. In addition, the availability of shares of common stock for award under the Incentive Plans or the grant of stock options, restricted stock or other forms of share-based compensation may adversely affect the market price of our common stock.

Our future operating results may fluctuate significantly and our current operating results may not be a good indication of our future performance. Fluctuations in our quarterly or annual operating results could affect our stock price in the future.

        Our operating results have historically varied from period to period and we expect that they will continue to do so as a result of a number of factors, many of which are outside of our control. If our quarterly or annual operating results or our forecasts of future operating results fail to meet the expectations of securities analysts and investors, our common stock price could be adversely affected. Any volatility in our quarterly or annual financial results may make it more difficult for us to raise capital in the future or pursue acquisitions that involve issuances of our stock. Our operating results for prior periods may not be effective predictors of our future performance.

        Factors associated with our industry, the operation of our business and the markets for our products may cause our quarterly and annual operating results to fluctuate, including those factors discussed elsewhere in this prospectus.

Although we do not expect to rely on the "controlled company" exemption, since we will qualify as a "controlled company" within the meaning of the New York Stock Exchange upon completion of this offering, we will qualify for exemptions from certain corporate governance requirements.

        Under the rules of the New York Stock Exchange (the "NYSE"), a company of which more than 50% of the voting power is held by another person or group of persons acting together is a "controlled company" and may elect not to comply with certain rules of the NYSE regarding corporate governance, including:

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        These requirements will not apply to us as long as we remain a "controlled company." Although we will continue to qualify as a "controlled company" upon completion of this offering, we do not expect to rely on this exemption, and we intend to fully comply with all corporate governance requirements under the rules of the NYSE. However, if we were to utilize some or all of these exemptions, you may not have the same protections afforded to stockholders of companies that are subject to all of the rules of the NYSE regarding corporate governance.

Conflicts of interest may arise because some of our directors are representatives of our principal stockholder.

        Funds affiliated with Ares Management may hold equity interests in entities that directly or indirectly compete with us, and companies in which they currently invest may begin competing with us. In addition, Norman H. Axelrod provides consulting services to Ares Management and Ares, and Dennis T. Gies, David B. Kaplan and Adam L. Stein are partners or employees of Ares Management or its affiliates. As a result of these relationships, when conflicts arise between the interests of Ares and its affiliates, on the one hand, and the interests of the Company and our other stockholders, on the other hand, these directors may not be disinterested. Although our directors and officers have a duty of loyalty to the Company, under Delaware law, transactions that we enter into in which a director or officer has a financial interest are not void or voidable solely as a result of such interest so long as (i) the material facts relating to the director's or officer's relationship or interest and as to the transaction are disclosed or are known to our board of directors and a majority of our disinterested directors, or a committee consisting solely of disinterested directors approves the transaction, (ii) the material facts relating to the director's or officer's relationship or interest and as to the transaction are disclosed or are known to our stockholders and a majority of our disinterested stockholders specifically approves the transaction or (iii) the transaction is otherwise fair to us. Under our second amended and restated certificate of incorporation (our "certificate of incorporation"), representatives of Ares are not required to offer to us any business opportunity of which they become aware and could take any such opportunity for themselves or offer it to other companies in which they have an investment, unless such opportunity is offered to them in writing solely in their capacity as an officer or director of us.

Anti-takeover provisions could impair a takeover attempt and adversely affect existing stockholders and the market value of our common stock.

        Certain provisions of our certificate of incorporation and our second amended and restated bylaws (our "bylaws") and applicable provisions of Delaware law may have the effect of rendering more difficult, delaying or preventing an acquisition of our company, even when such an acquisition would be in the best interest of our stockholders. These provisions include:

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        Our issuance of shares of preferred stock could delay, defer or prevent a change of control of the Company without further action by our stockholders, even where stockholders are offered a premium for their shares. Our board of directors has the authority to cause us to issue, without any further vote or action by our stockholders, up to 10,000,000 shares of preferred stock, par value $0.001 per share, in one or more series, to designate the number of shares constituting any series and to fix the rights, preferences, privileges of such series and qualifications, limitations and restrictions thereof, including, without limitation, dividend rights, voting rights, conversion rights, rights and terms of redemption, redemption price or prices and liquidation preferences of such series.

        In addition, the issuance of shares of preferred stock with voting rights may adversely affect the voting power of the holders of our other classes of voting stock either by diluting the voting power of our other classes of voting stock if they vote together as a single class, or by giving the holders of any such preferred stock the right to block an action on which they have a separate class vote even if the action were approved by the holders of our other classes of voting stock. We currently do not anticipate issuing any shares of preferred stock in the foreseeable future.

        These provisions could delay or prevent hostile takeovers and changes in control or changes in our management. Also, the issuance of shares of preferred stock with dividend or conversion rights, liquidation preferences or other economic terms favorable to the holders of preferred stock could adversely affect the market price for our common stock by making an investment in our common stock less attractive. For example, a conversion feature could cause the trading price of our common stock to decline to the conversion price of the preferred stock. Any provision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control or otherwise makes an investment in our common stock less attractive could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock. See "Description of Capital Stock."

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The provision of our certificate of incorporation requiring exclusive venue in the Court of Chancery in the State of Delaware for certain types of lawsuits may have the effect of discouraging lawsuits against our directors and officers.

        Our certificate of incorporation requires, to the fullest extent permitted by law, unless otherwise consented to by us, that (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the General Corporation Law of the State of Delaware (the "DGCL") or our certificate of incorporation or the bylaws or (iv) any action asserting a claim governed by the internal affairs doctrine will have to be brought only in the Court of Chancery in the State of Delaware. Although we believe this provision benefits us by providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies and by avoiding the time and expense of multi-forum litigation, the provision may have the effect of discouraging lawsuits against our directors and officers.

Under our certificate of incorporation, stockholders that initiate certain proceedings may be obligated to reimburse us for all fees, costs and expenses incurred by us in connection with such proceedings if the claim proves unsuccessful.

        Our certificate of incorporation provides, to the fullest extent permitted by law, in the event that any current or former stockholder or anyone on their behalf, which we collectively refer to as claiming parties, (x) initiates, asserts or joins, offers substantial assistance to, or has a direct financial interest in any action, suit or proceeding, whether civil, criminal, administrative or investigative or asserts any claim or counterclaim against us and/or any of our directors, officers, employees or affiliates and (y) does not thereby obtain a judgment on the merits that substantially achieves, in substance and amount, the full remedy or relief sought in the claim, then such claiming party may be obligated to reimburse us and/or our directors, officers, employees or affiliates, as applicable, for all fees, costs and expenses (including reasonable attorneys' fees and other litigation expenses) incurred in defending such claim.

Since we do not expect to pay any cash dividends for the foreseeable future, investors in this offering may be forced to sell their stock in order to obtain a return on their investment.

        We do not anticipate declaring or paying in the foreseeable future any cash dividends on our capital stock. Instead, we plan to retain any earnings to finance our operations and growth plans discussed elsewhere in this prospectus. In addition, our Credit Facilities contain covenants that would restrict the ability of our operating subsidiaries to pay cash dividends to us. See "Dividend Policy" for more information. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any return on their investment. As a result, investors seeking cash dividends should not purchase our common stock.

As a result of our recent initial public offering, our costs have increased significantly, our management is required to devote substantial time to complying with public company regulations and our current resources may not be sufficient to fulfill our public company obligations .

        In September 2014, we completed our IPO. As a result, we incur additional legal, accounting and other expenses that we did not incur as a private company, including costs resulting from public company reporting obligations of the Securities and Exchange Commission (the "SEC") under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations regarding corporate governance practices, including those under the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"), the Dodd-Frank Act of 2010 and the listing requirements of the NYSE. These requirements, including record keeping, financial reporting and corporate governance rules and regulations, have increased our legal and financial compliance costs and will make some activities more

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time-consuming and costly. Any changes that we make to comply with these obligations may not be sufficient to allow us to satisfy our obligations as a public company on a timely basis or at all.

        Our management and other personnel have limited experience in managing a public company and must devote a substantial amount of time to ensure that we comply with all of these requirements. Our internal infrastructure may not have adequate resources to support the increased reporting obligations associated with being a public company and we may be unable to hire, train or retain necessary staff and may initially be reliant on engaging outside consultants or professionals to overcome our lack of experience. Our business could be adversely affected if our internal infrastructure is inadequate, we are unable to engage outside consultants or are otherwise unable to fulfill our public company obligations.

If we are unable to implement and maintain effective internal control over financial reporting, we may fail to prevent or detect material misstatements in our financial statements, in which case investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may decline.

        As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. In addition, we will be required to file a report by management on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act beginning with our 2015 annual report on Form 10-K to be filed in 2016. We are in the process of designing, implementing and testing the internal control over financial reporting required to comply with this future obligation, which is a time-consuming, costly and complicated process. In addition, beginning with our 2015 annual report on Form 10-K to be filed in 2016, our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting.

        If we identify any material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting when required, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be adversely affected. In addition, we could become subject to investigations by the NYSE, the SEC or other regulatory authorities, which could require additional financial and management resources.

Our holding company structure makes us dependent on our subsidiaries for our cash flow and subordinates your rights as a stockholder to the rights of creditors of our subsidiaries in the event of an insolvency or liquidation of any of our subsidiaries.

        We are a holding company and, accordingly, substantially all of our operations are conducted through our subsidiaries. Our subsidiaries are separate and distinct legal entities. As a result, our cash flow depends upon the earnings of our subsidiaries. In addition, we depend on the distribution of earnings, loans or other payments by our subsidiaries to us, which is restricted by the covenants in the agreements governing our Credit Facilities. Our subsidiaries have no obligation to provide us with funds for our payment obligations. If there is an insolvency, liquidation or other reorganization of any of our subsidiaries, you as a stockholder will have no right to proceed against their assets. Creditors of those subsidiaries will be entitled to payment in full from the sale or other disposal of the assets of those subsidiaries before we, as a stockholder, would be entitled to receive any distribution from that sale or disposal.

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If securities or industry analysts cease publishing research or reports about us, our business or our industry, or if they adversely change their recommendations regarding our stock, our stock price and trading volume could decline.

        The trading market for our common stock is influenced by the research and reports that industry or securities analysts may publish about us, our business, our industry or our competitors. If we do not establish and maintain adequate research coverage or if any of the analysts who cover us downgrade our stock, publish inaccurate or unfavorable research about our business or provide relatively more favorable recommendations about our competitors, our stock price could decline. If any analyst who covers us were to cease coverage of our company or fail to regularly publish reports about us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus, including the sections entitled "Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," contains forward-looking statements. All statements other than statements of historical fact contained in this prospectus, including statements regarding our future operating results and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. In many cases, you can identify forward-looking statements by terms such as "may," "should," "expects," "plans," "anticipates," "could," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other similar expressions.

        The forward-looking statements contained in this prospectus reflect our views as of the date of this prospectus about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause our actual results, performance or achievements to differ significantly from those expressed or implied in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements in this prospectus are reasonable, we cannot guarantee future events, results, performance or achievements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements in this prospectus, including, without limitation, those factors described in "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Some of the key factors that could cause actual results to differ from our expectations include the following:

        Readers are urged to consider these factors carefully in evaluating the forward-looking statements in this prospectus and are cautioned not to place undue reliance on these forward-looking statements. All of the forward-looking statements in this prospectus are based on information available to us on the date of this prospectus. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as otherwise required by law.

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USE OF PROCEEDS

        The selling stockholders are selling all of the shares of our common stock being sold in this offering, including any shares sold upon the exercise of the underwriters' option to purchase additional shares of our common stock. See "Principal and Selling Stockholders." Accordingly, we will not receive any proceeds from the sale of shares of our common stock by the selling stockholders in this offering.

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DIVIDEND POLICY

        We do not anticipate declaring or paying in the foreseeable future any cash dividends on our capital stock. Any future determination as to the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then existing conditions, including our operating results, financial condition, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant. Our Credit Facilities contain covenants that would restrict our ability to pay cash dividends. See "Risk Factors—Risks Related to Our Business and Industry—Covenants in our debt agreements restrict our operational flexibility."

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PRICE RANGE OF OUR COMMON STOCK

        Our common stock has been listed for trading on the NYSE under the symbol "SFS" since it began trading on September 24, 2014. The initial public offering was priced at $12.00 per share on September 23, 2014.

        The following table sets forth, for the periods indicated below, the high and low sales prices per share of our common stock as reported on the NYSE since September 24, 2014:

Year Ended December 28, 2014
  High   Low  

Quarter ending October 5 (beginning September 24)

  $ 14.99   $ 11.97  

Quarter ending December 28

  $ 16.55   $ 12.23  

 

Year Ended January 3, 2016
  High   Low  

Quarter ending March 22

  $ 18.73   $ 14.54  

Quarter ending June 14 (through April 10)

  $ 19.35   $ 17.47  

        On April 10, 2015 the last reported sale price of our common stock on the NYSE was $18.90. As of April 9, 2015 there were 462 stockholders of record of our common stock.

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA

        The following table sets forth our selected historical consolidated financial information and other data for the periods and dates indicated, and should be read together with "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our audited consolidated financial statements and related notes included elsewhere in this prospectus. Our historical results are not necessarily indicative of our financial condition or operating results to be expected in the future.

        The consolidated statements of operations data for the years ended December 28, 2014 and December 29, 2013, the period January 2, 2012 through November 14, 2012 and the period November 15, 2012 through December 30, 2012, and the consolidated balance sheet data as of December 28, 2014 and December 29, 2013 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated statements of operations data for the years ended January 1, 2012 and January 2, 2011 and the consolidated balance sheet data as of December 30, 2012, January 1, 2012 and January 2, 2011 have been derived from our audited consolidated financial statements not included in this prospectus.

        In connection with the Ares Acquisition, as a result of the application of business combination accounting, the assets and liabilities of the Company were adjusted to their estimated fair values as of the closing date of the Ares Acquisition. We refer to the Company prior to the Ares Acquisition as the "Predecessor." The periods prior to the Ares Acquisition are referred to as the "Predecessor periods" and the periods following the Ares Acquisition are referred to as the "Successor periods." Our fiscal year 2012 is therefore divided into a Predecessor period January 2, 2012 through November 14, 2012 and a Successor period November 15, 2012 through December 30, 2012. Accordingly, in this prospectus, financial information is presented separately for Predecessor and Successor periods, which relate to the accounting periods preceding and succeeding the closing of the Ares Acquisition.

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  Successor(5)    
  Predecessor  
 
  Fiscal Year
2014
  Fiscal Year
2013
  Period From
November 15,
2012 Through
December 30,
2012
   
  Period From
January 2, 2012
Through
November 14,
2012
  Fiscal Year
2011
  Fiscal Year
2010
 
 
  (Dollars in thousands, except per share)
 

Consolidated Statement of Operations Data:

                                         

Net sales

  $ 3,534,244   $ 3,210,293   $ 378,550       $ 2,664,162   $ 2,840,336   $ 2,591,116  

Cost of sales, buying and occupancy

    3,006,955     2,736,357     333,787         2,265,154     2,412,180     2,218,618  

Gross margin

    527,289     473,936     44,763         399,008     428,156     372,498  

Operating and administrative expenses

    438,528     387,133     51,727         355,681     379,371     341,921  

(Income) loss on property sales

            (5 )       8,818     1,952      

Income (loss) from operations

    88,761     86,803     (6,959 )       34,509     46,833     30,577  

Interest expense, net

    37,602     50,365     7,133         20,761     31,395     33,330  

Loss on early extinguishment of debt(1)

    (2,224 )   (24,487 )               (4,209 )    

Equity in earnings of joint venture

    1,037     1,649             820     785     1,772  

Income (loss) from continuing operations before income taxes

    49,972     13,600     (14,092 )       14,568     12,014     (981 )

Income tax (provision) benefit

    (16,854 )   (5,429 )   4,804         (244 )   (4,795 )   920  

Income (loss) from continuing operations

    33,118     8,171     (9,288 )       14,324     7,219     (61 )

Income (loss) from discontinued operations, net of income taxes(2)

   
   
   
       
   
3,260
   
(12,870

)

Net income (loss)

  $ 33,118   $ 8,171   $ (9,288 )     $ 14,324   $ 10,479   $ (12,931 )

Per Share Data:

                                         

Basic earnings (loss) per share:

                                         

Income (loss) per share from continuing operations

  $ 0.54   $ 0.14   $ (0.16 )     $ 1.07   $ 0.54   $ (0.00 )

Income (loss) per share from discontinued operations, net of income taxes

                        0.24     (0.96 )

Basic earnings (loss) per share

  $ 0.54   $ 0.14   $ (0.16 )     $ 1.07   $ 0.78   $ (0.97 )

Diluted earnings (loss) per share:

                                         

Income (loss) per share from continuing operations

  $ 0.52   $ 0.14   $ (0.16 )     $ 1.03   $ 0.54   $ (0.00 )

Income (loss) per share from discontinued operations, net of income taxes

                        0.24     (0.96 )

Diluted earnings (loss) per share

  $ 0.52   $ 0.14   $ (0.16 )     $ 1.03   $ 0.78   $ (0.97 )

Weighted average shares outstanding—basic

    61,455,584     57,030,099     56,848,190         13,363,635     13,362,665     13,367,108  

Weighted average shares outstanding—diluted

    63,841,118     59,387,487     56,848,190         13,927,566     13,425,470     13,367,108  

Selected Operating Data:

                         
 
   
 
   
 
 

Comparable store sales growth(3)

    6.3 %   4.0 %   5.3 %       6.9 %   9.5 %   2.9 %

Smart & Final banner

    5.0 %   3.4 %   5.2 %       7.3 %   9.4 %   2.8 %

Cash & Carry banner

    10.0 %   6.1 %   5.5 %       5.4 %   9.7 %   3.3 %

Stores at end of period

   
254
   
240
   
235
       
236
   
234
   
234
 

Smart & Final banner

    201     188     183         184     182     182  

Extra! Format

    98     69     56         56     46     35  

Cash & Carry banner

    53     52     52         52     52     52  

Square feet at end of period

   
5,342,915
   
4,899,403
   
4,756,165
       
4,774,486
   
4,697,834
   
4,665,795
 

Average store size at end of period(4)

    21,035     20,414     20,239         20,231     20,076     19,939  

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  Successor(5)    
  Predecessor  
 
  Fiscal Year
2014
  Fiscal Year
2013
  Period From
November 15,
2012 Through
December 30,
2012
   
  Period From
January 2, 2012
Through
November 14,
2012
  Fiscal Year
2011
  Fiscal Year
2010
 
 
  (Dollars in thousands, except per share)
 

Consolidated Balance Sheet Data:

                                         

Cash and cash equivalents

  $ 106,847   $ 53,699   $ 35,987       $ 92,676   $ 72,462   $ 32,092  

Total assets

    1,729,292     1,599,541     1,572,914         1,049,039     1,038,384     1,377,212  

Long-term debt (including current portion and debt discount)

    588,117     706,191     704,734         304,074     303,258     728,613  

Total stockholders' equity

    517,208     341,859     307,023         287,076     248,579     225,813  

(1)
In the third quarter of 2014, we recognized a loss on early extinguishment of debt of $2.2 million in connection with the use of the net proceeds of the IPO to repay a portion of our outstanding debt. In the second and fourth quarters of 2013, we recognized a loss on early extinguishment of debt of $24.5 million in the aggregate in connection with a repricing amendment to our Term Loan Facility and repayment of the Second Lien Term Loan Facility. In the second quarter of 2011, we recognized a loss on early extinguishment of debt of $4.2 million in connection with an amendment to our prior term loan facility to permit the sale of Henry's. See Note 5, Debt, to the audited consolidated financial statements included elsewhere in this prospectus.

(2)
In the second quarter of 2011, we sold Henry's to Sprouts. In the fourth quarter of 2010, we closed five stores in Colorado. Accordingly, the consolidated statements of operations data for our fiscal years 2011 and 2010 reflect the results of operations of Henry's and the five stores separately as discontinued operations. The results of operations of Henry's and the five stores are immaterial for fiscal years 2014, 2013 and 2012 and are not presented separately as discontinued operations.

(3)
For more information regarding our calculation of comparable store sales growth, see "Comparable Store Sales" on page ii of this prospectus.

(4)
Average store size is calculated as the gross square feet divided by the stores open at the end of the period presented.

(5)
All of the earnings per share data, share numbers, share prices and exercise prices have been adjusted on a retroactive basis for the Successor periods to reflect the 190-for-one stock split effected on September 19, 2014. See Note 17, Stockholders' Equity, to the audited consolidated financial statements included elsewhere in this prospectus.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

        You should read the following discussion and analysis of our financial condition and results of operations together with "Selected Historical Consolidated Financial Information and Other Data" and the consolidated financial statements and related notes that are included elsewhere in this prospectus. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" or in other parts of this prospectus. Please also see the section entitled "Special Note Regarding Forward-Looking Statements."

Business Overview

        We are a high-growth, value-oriented food retailer serving a diverse demographic of household and business customers through two complementary and highly productive store banners: Smart & Final and Cash & Carry. We operate 258 non-membership, warehouse-style stores throughout the Western United States, with an additional 15 stores in Northwestern Mexico in a joint venture. We have a differentiated merchandising strategy that emphasizes high quality perishables, a wide selection of private label products, products tailored to business and foodservice customers and products offered in a broad range of sizes.

        We consider each of our store banners to be an operating segment, and have concluded that presenting disaggregated information for our two operating segments provides meaningful information because of differences in their respective economic characteristics and customer bases. For the fifty-two weeks ended December 28, 2014, our Smart & Final and Cash & Carry segments represented approximately 75.5% and 24.5%, respectively, of our consolidated sales, compared to 75.6% and 24.4%, respectively, for the fifty-two weeks ended December 29, 2013.

        Our Smart & Final segment is based in Commerce, California and includes 101 legacy Smart & Final stores and 104 Extra! format stores, which focus on household and business customers and are located in California, Arizona and Nevada. Our Smart & Final stores offer extensive selections of fresh perishables and everyday grocery items, together with a targeted selection of foodservice, packaging and janitorial products, under both national and private label brands. Our Extra! store format offers a one-stop shopping experience with a more expansive selection of items than our legacy Smart & Final stores and an emphasis on perishables and household items. The continued development of our Extra! store format, through additional new store openings and conversions and relocations of legacy Smart & Final stores, is the cornerstone of our growth strategy.

        Our Cash & Carry segment is based in Portland, Oregon and includes 53 Cash & Carry stores, which focus primarily on business customers and are located in Washington, Oregon, Northern California, Idaho and Nevada. Our Cash & Carry stores offer a wide variety of SKUs tailored to the core needs of foodservice customers such as restaurants, caterers and a wide range of other foodservice businesses in a flexible mix of "case quantity" or single unit purchases.

Outlook

        We plan to expand our store footprint, primarily through opening new Extra! stores in existing and adjacent markets, and by entering new markets. We believe we have a scalable operating infrastructure to support our anticipated growth which, together with our flexible real estate strategy and advanced distribution capabilities, position us to capitalize on our growth opportunities. We plan to continue converting our larger legacy Smart & Final stores to our Extra! format and investing in our legacy Smart & Final stores that are not candidates for conversion to the Extra! format by completing major remodel projects and targeted relocations. We also plan to opportunistically grow our Cash & Carry store footprint.

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        In addition, we plan to leverage our significant investments in management, information technology systems, infrastructure and marketing to grow our comparable store sales and enhance our operating margins through execution of a number of key initiatives, including initiatives to increase net sales of perishable products in our Smart & Final stores, to increase net sales of private label products in our Smart & Final and Cash & Carry stores, and to expand our marketing programs in our Smart & Final and Cash & Carry stores. We expect each of these key initiatives, if successful, to generate increased comparable store sales and also expect our initiative to increase net sales of private label products to enhance our operating margins, as private label products have historically generated higher gross margins relative to national branded products.

Factors Affecting Our Results of Operations

Store Openings

        We expect that a primary driver of our growth in sales and gross margin will be the continued development of our Extra! format stores through new store openings, conversions and relocations. We also plan to opportunistically open new Cash & Carry stores, which will further amplify sales and gross margin. Our results of operations have been and will continue to be materially affected by the timing and number of new store openings, including conversions and relocations of legacy Smart & Final stores to the Extra! format, and the amount of associated costs. For example, we typically incur higher than normal employee costs at the time of a new store opening, conversion or relocation associated with set-up and other related costs. Also, our operating margins are typically negatively affected by promotional discounts and other marketing costs associated with new store openings, conversions and relocations, as well as higher inventory markdowns and costs related to hiring and training new employees in new stores. Additionally, promotional activities may result in higher than normalized sales in the first several weeks following a new store opening. Our new Extra! and Cash & Carry stores typically build a customer base over time and reach a mature sales growth rate in the third and fourth year after opening, respectively. As a result, our new stores generally have lower margins and higher operating expenses, as a percentage of sales, than our more mature stores.

        Based on our experience, we expect that certain of our new Extra! stores will impact sales at our existing stores in close proximity in the short term. However, we believe that over the longer term any such sales impact will be more than offset by future sales growth and expanded market share.

Developments in Competitive Landscape

        We operate in the highly competitive food retail and foodservices industries. We compete on a combination of factors, including price, product selection, product quality, convenience, customer service, store format and location. Our principal competitors include conventional grocers such as Albertsons, Kroger and Safeway, discounters and warehouse clubs such as Costco, mass merchandisers such as Walmart and Target, foodservice delivery companies such as Sysco and US Foods, as well as online retailers and other specialty stores. Some of our competitors may have greater financial or marketing resources than we do and may be able to devote greater resources to sourcing, promoting and selling their products. These competitors could use these advantages to take certain measures, including reducing prices that could adversely affect our competitive position, business, financial condition and operating results.

Pricing Strategy and Investments in "Everyday Low Prices"

        We have a commitment to "everyday low prices," which we believe positions both our Smart & Final and Cash & Carry stores as top of mind destinations for our target customers. Pricing in our Smart & Final stores is targeted to be substantially lower than that of conventional grocers and competitive with that of large discounters and warehouse clubs, with no membership fee requirement.

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Pricing in our Cash & Carry stores is targeted to be substantially lower than our foodservice delivery competitors, with no membership fee requirement and greater price transparency to customers and no minimum order size, and competitive with typical warehouse clubs.

        Our pricing strategy is geared toward optimizing the pricing and promotional activities across our mix of higher-margin perishable items and everyday value-oriented traditional grocery items. This strategy involves determining prices that will improve our operating margins based upon our analysis of how demand varies at different price levels as well as our costs and inventory levels.

Expanded Private Label Offerings

        Private label products are key components of our pricing and merchandising strategy, as we believe they build and deepen customer loyalty, enhance our value proposition, generate higher gross margins relative to national brands and improve the breadth and selection of our product offering. We believe that a strong private label offering has become an increasingly important competitive advantage in the food retail and foodservices industries.

        As of December 28, 2014, we had a portfolio of approximately 2,900 private label items, which represented 29% of our Smart & Final banner sales. Typically, our private label products generate a higher gross margin as a percentage of sales as compared to a comparable national brand product.

General Economic Conditions and Changes in Consumer Behavior

        The overall economic environment in the markets we serve, particularly California, and related changes in consumer behavior, have a significant impact on our business and results of operations. In general, positive conditions in the broader economy promote customer spending in our stores, while economic weakness results in reduced customer spending. Macroeconomic factors that can affect customer spending patterns, and thereby our results of operations, include employment rates, business conditions, changes in the housing market, the availability of consumer credit, interest rates, tax rates and fuel and energy costs.

Infrastructure Investment

        Our historical results of operations reflect the impact of our ongoing investments in infrastructure to support our growth. We have made significant investments in senior management, information technology systems, supply chain systems and marketing. These investments include significant additions to our personnel, including experienced industry executives and management and merchandising teams to support our long-term growth objectives. We plan on continuing to make targeted investments in our infrastructure as necessary to support our growth.

Inflation and Deflation Trends

        Inflation and deflation can impact our financial performance. During inflationary periods, our results of operations can be positively impacted in the short term, as we sell lower-priced inventory in a higher price environment. Over the longer term, the impact of inflation is largely dependent on our ability to pass through product cost increases to our customers, which is subject to competitive market conditions. In recent inflationary periods, we have generally been able to pass through most cost increases. We began to experience food inflation starting in early fiscal year 2012, particularly in some commodity driven categories, although we were generally able to pass through the effect of these higher prices. Food inflation moderated in early fiscal year 2013 and was essentially flat through the remainder of calendar year 2013. Food inflation rose sharply in the first half of 2014, but moderated in the second half of 2014.

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Components of Results of Operations

Net Sales

        We recognize revenue from the sale of products at the point of sale. Discounts provided to customers at the time of sale are recognized as a reduction in sales as the products are sold. Sales tax collections are presented in the statement of operations and comprehensive (loss) income on a net basis and, accordingly, are excluded from reported sales revenues. Proceeds from the sale of our Smart & Final gift cards are recorded as a liability at the time of sale, and recognized as sales when they are redeemed by the customer. Our Smart & Final gift cards do not have an expiration date. We have not recorded any unredeemed gift card revenue or breakage related to our gift card program.

        We regularly review and monitor comparable store sales growth to evaluate and identify trends in our sales performance. With respect to any fiscal period during any year, comparable store sales include sales for stores operating both during such fiscal period in such year and in the same fiscal period of the previous year. Sales from a store will be included in the calculation of comparable store sales after the 60th full week of operations, and sales from a store are also included in the calculation of comparable store sales if (i) the store has been physically relocated, (ii) the selling square footage has been increased or decreased or (iii) the store has been converted to a new format within a store banner (e.g., from a legacy Smart & Final store to the Extra! format). However, sales from an existing store will not be included in the calculation of comparable store sales if the store has been converted to a different store banner (e.g., from Smart & Final to Cash & Carry).

Cost of Sales, Buying and Occupancy and Gross Margin

        The major categories of costs included in cost of sales, buying and occupancy are cost of goods sold, distribution costs, costs of our buying department and store occupancy costs, net of earned vendor rebates and other allowances. Distribution costs consist of all warehouse receiving and inspection costs, warehousing costs, all transportation costs associated with shipping goods from our warehouses to our stores, and other costs of our distribution network. Store occupancy costs include store rental, common area maintenance, property taxes, property insurance, and depreciation.

        Gross margin represents sales less cost of sales, buying and occupancy. Our gross margin may not be comparable to other retailers, since not all retailers include all of the costs related to their distribution network in cost of sales like we do. Some retailers exclude a portion of these costs (e.g., store occupancy and buying department costs) from cost of sales and include them in selling, general and administrative expenses.

        Our cost of sales, buying and occupancy expense and gross margin are correlated to sales volumes. As sales increase, gross margin is affected by the relative mix of products sold, pricing strategies, inventory shrinkage and improved leverage of fixed costs.

Operating and Administrative Expenses

        Operating and administrative expenses include direct store-level expenses associated with displaying and selling our products at the store level, including salaries and benefits for our store work force, fringe benefits, store supplies, advertising and marketing and other store-specific costs. Operating and administrative expenses also consist of store overhead costs and corporate administrative costs including salaries and benefits costs, share-based compensation, corporate occupancy costs and amortization expense.

        We expect that our operating and administrative expenses will increase in future periods as a result of additional legal, accounting, insurance and other expenses associated with being a public company and increases resulting from our store development program, including the growth in the number of our stores. Additionally, share-based compensation expense will increase related to equity awards granted to our directors and eligible employees under the 2014 Incentive Plan both in connection with and following the IPO.

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Income Tax Provision

        We are subject to federal income tax as well as state income tax in various jurisdictions of the United States in which we conduct business. Income taxes are accounted for under the asset and liability method.

Equity in Earnings of Mexico Joint Venture

        Our wholly owned subsidiary, Smart & Final de Mexico S.A. de C.V., is a Mexican holding company that owns a 50% interest in a joint venture. The remaining 50% of the joint venture is owned by Grupo Calimax S.A. de C.V., an entity comprising the investment interests of a family group who are also the owners of the Calimax grocery store chain in Mexico. This joint venture operates 15 Smart & Final stores in Northwestern Mexico, which are similar in concept to our legacy Smart & Final stores. This joint venture operates as a Mexican domestic corporation under the name Smart & Final del Noroeste, S.A. de C.V. Our interest in this joint venture is not consolidated and is reported using the equity method of accounting.

Factors Affecting Comparability of Results of Operations

Term Loan Facility

        Our interest expense in any particular period is impacted by our overall level of indebtedness during that period and by changes in the applicable interest rates on such indebtedness. In connection with the Ares Acquisition, we entered into the Term Loan Facility and a second lien term loan facility (the "Second Lien Term Loan Facility") consisting of $525.0 million and $195.0 million of term indebtedness, respectively, and our $150.0 million Revolving Credit Facility.

        During the second quarter of 2013, we amended the Term Loan Facility to reduce the applicable margin from 4.50% to 3.50% and reduce the Adjusted LIBOR floor rate from 1.25% to 1.00%. Additionally, we increased the size of the Term Loan Facility by $55.0 million through an incremental facility, and used the proceeds of this borrowing to reduce the borrowings outstanding under the Second Lien Term Loan Facility by $55.0 million. We recorded a $7.1 million loss on the early extinguishment of debt in the second quarter of 2013.

        During the fourth quarter of 2013, we amended the Term Loan Facility to increase the applicable margin from 3.50% to 3.75% and reduce the size of the incremental borrowing facilities that can be incurred without regard to leverage-based limitations from $125.0 million to $75.0 million. Additionally, we increased the size of the Term Loan Facility by $140.0 million through an incremental facility, and used the proceeds of this borrowing to repay all amounts outstanding under the Second Lien Term Loan Facility, which was then terminated. We recorded a $17.4 million loss on the early extinguishment of debt in the fourth quarter of 2013.

        On September 29, 2014, we used the net proceeds from the IPO to repay borrowings of approximately $115.5 million under the Term Loan Facility. Consequently, we recorded a loss on the early extinguishment of debt of $2.2 million related to the write-off of unamortized debt discount and deferred financing costs during the third quarter of 2014. Quarterly amortization of the principal amount is no longer required.

Initial Public Offering

        On September 29, 2014, we completed an initial public offering of our Common Stock, pursuant to which we sold an aggregate of 15,467,500 shares of Common Stock, after giving effect to the underwriters' exercise in full of their option to purchase additional shares, at a price of $12.00 per share. We received aggregate net proceeds of $167.7 million after deducting underwriting discounts and commissions and other offering expenses. We used the net proceeds to repay borrowings of

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$115.5 million under the Term Loan Facility and we expect to use the remainder to fund growth initiatives and for general corporate purposes.

Basis of Presentation

        Our fiscal year is the 52- or 53-week period ending on the Sunday closest to December 31. Each of our 52-week 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. Our last three completed fiscal years ended on December 28, 2014, December 29, 2013 and December 30, 2012 were all 52-week periods.

        All of the earnings per share data, share numbers, share prices, and exercise prices have been adjusted on a retroactive basis for all periods to reflect the 190-for-one stock split effected on September 19, 2014.

Results of Operations

        The following discussion of our financial performance includes supplemental unaudited pro forma condensed consolidated financial information for fiscal year 2012. Because the Ares Acquisition occurred during the fourth quarter of 2012, we believe this pro forma information aids in the comparison between historical periods presented. The pro forma information does not purport to represent what our results of operations would have been had the Ares Acquisition actually occurred at the beginning of fiscal year 2011, nor does it purport to project our results of operations or financial condition for any future period.

        The following table contains results of operations for fiscal years 2014 and 2013, results of operations for the period November 15, 2012 through December 30, 2012, and results of operations for the period January 2, 2012 through November 14, 2012.

 
  Successor    
  Predecessor  
 
  Fiscal Year
2014
  Fiscal Year
2013
  Period From
November 15,
2012 Through
December 30,
2012
   
  Period From
January 2,
2012 Through
November 14,
2012
 
 
  (Dollars in thousands, except per share)
 

Net sales

  $ 3,534,244   $ 3,210,293   $ 378,550       $ 2,664,162  

Cost of sales, buying and occupancy

    3,006,955     2,736,357     333,787         2,265,154  

Gross margin

    527,289     473,936     44,763         399,008  

Operating and administrative expenses

    438,528     387,133     51,727         355,681  

(Income) loss on property sales

            (5 )       8,818  

Income (loss) from operations

    88,761     86,803     (6,959 )       34,509  

Interest expense, net

    37,602     50,365     7,133         20,761  

Loss on early extinguishment of debt

    (2,224 )   (24,487 )            

Equity in earnings of joint venture

    1,037     1,649             820  

Income (loss) from operations before income taxes

    49,972     13,600     (14,092 )       14,568  

Income tax (provision) benefit

    (16,854 )   (5,429 )   4,804         (244 )

Net income (loss)

  $ 33,118   $ 8,171   $ (9,288 )     $ 14,324  

Earnings (loss) per share:

                             

Net income (loss) per share—Basic

  $ 0.54   $ 0.14   $ (0.16 )     $ 1.07  

Net income (loss) per share—Diluted

  $ 0.52   $ 0.14   $ (0.16 )     $ 1.03  

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        The table below sets forth the components of our consolidated statements of operations as a percentage of sales.

 
  Successor    
  Predecessor  
 
  Fiscal Year
2014
  Fiscal Year
2013
  Period From
November 15,
2012 Through
December 30,
2012
   
  Period From
January 2,
2012 Through
November 14,
2012
 

Net sales

    100.0 %   100.0 %   100.0 %       100.0 %

Cost of sales, buying and occupancy

    85.1 %   85.2 %   88.2 %       85.0 %

Gross margin

    14.9 %   14.8 %   11.8 %       15.0 %

Operating and administrative expenses

    12.4 %   12.1 %   13.7 %       13.4 %

(Income) loss on property sales

    0.0 %   0.0 %   0.0 %       0.3 %

Income (loss) from operations

    2.5 %   2.7 %   –1.8 %       1.3 %

Interest expense, net

    1.1 %   1.6 %   1.9 %       0.8 %

Loss on early extinguishment of debt

    –0.1 %   –0.8 %   0.0 %       0.0 %

Equity in earnings of joint venture

    0.0 %   0.1 %   0.0 %       0.0 %

Income (loss) from operations before income taxes

    1.4 %   0.4 %   –3.7 %       0.5 %

Income tax (provision) benefit

    –0.5 %   –0.2 %   1.3 %       0.0 %

Net income loss

    0.9 %   0.3 %   –2.5 %       0.5 %

Fiscal Year 2014 Compared to Fiscal Year 2013

Net Sales

        Net sales for fiscal year 2014 increased $323.9 million, or 10.1%, to $3,534.2 million as compared to $3,210.3 million for fiscal year 2013. This increase in net sales was attributable to comparable store sales growth of $200.4 million in our store banners, and net sales of $123.5 million primarily attributable to the opening of 13 new Extra! stores and one new Cash & Carry store in fiscal 2014 compared to five new Extra! stores in fiscal year 2013.

        Comparable store sales for fiscal year 2014 increased 6.3% as compared to fiscal year 2013. This increase in comparable store sales was attributable to an increase in comparable transaction counts of 4.1% and an increase of 2.1% in comparable average transaction size.

        Net sales for our Smart & Final segment increased $243.5 million, or 10.0%, to $2,668.9 million as compared to $2,425.4 million for fiscal year 2013. Comparable store sales for fiscal year 2014 for our Smart & Final segment increased 5.0% as compared to fiscal year 2013, driven by a 4.2% increase in comparable transaction counts and a 0.9% increase in comparable average transaction size.

        Net sales for our Cash & Carry segment increased $80.4 million, or 10.2%, to $865.3 million as compared to $784.9 million for fiscal year 2013. Comparable store sales for fiscal year 2014 for our Cash & Carry segment increased 10.0% as compared to fiscal year 2013, driven by a 3.3% increase in comparable transaction counts and a 6.5% increase in comparable average transaction size.

Gross Margin

        Gross margin for fiscal year 2014 increased $53.4 million, or 11.3%, to $527.3 million as compared to $473.9 million in fiscal year 2013. As a percentage of sales, gross margin for fiscal year 2014 was 14.9% as compared to 14.8% in fiscal 2013. The increase in gross margin attributable to increased sales was $47.8 million and the increase in gross margin attributable to increased gross margin rate was

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$5.6 million. Compared to fiscal year 2013, gross margin as a percentage of sales for fiscal year 2014 included lower warehouse and transportation costs as a percentage of sales (accounting for an 0.08% increase, including a 0.05% increase in our Smart & Final segment and a 0.03% increase in our Cash & Carry segment), lower store occupancy costs as a percentage of sales (accounting for a 0.09% increase, including a 0.06% increase in our Smart & Final segment and a 0.03% increase in our Cash & Carry segment) partially offset by lower merchandise product margin rates (including the effect of inventory losses) as a percentage of sales (accounting for a decrease of 0.04%, including a 0.03% decrease in our Smart & Final segment and a 0.01% decrease in our Cash & Carry segment).

Operating and Administrative Expenses

        Operating and administrative expenses for fiscal year 2014 were $438.5 million as compared to $387.1 million in fiscal year 2013. As a percentage of sales, operating and administrative expenses for fiscal year 2014 were 12.4% as compared to 12.1% in fiscal year 2013. The increase in operating and administrative expenses was primarily due to $29.8 million of increased wages, fringe benefits and incentive bonus costs, $4.4 million of increased marketing costs in support of our increased sales and other marketing initiatives, $12.1 million of increased other store direct expenses, $11.3 million of share-based compensation expense associated with our equity compensation program, $2.0 million of accounting, legal and other consulting costs associated with our IPO and our long-range store development planning (including remodels of our legacy Smart & Final stores and conversions to our Extra! format) and $1.2 million increased expense associated with decreased cash surrender values on company-owned life insurance policies and other expenses of our supplemental executive retirement plan. The increase in operating and administrative expenses for fiscal year 2014 was partially offset by a $3.3 million reversal of an executive compensation reserve that was no longer necessary and a $0.9 million gain associated with the death benefit on a company-owned life insurance policy that supports our deferred compensation program. As a percentage of sales, operating and administrative expenses for fiscal year 2014 increased 0.3% to 12.4% as compared to fiscal year 2013. Approximately 0.32% of the increase in operating and administrative expenses as a percentage of sales was due to share-based compensation expense, 0.05% of the increase was due to higher consulting costs primarily associated with our IPO and our long-range store development planning, 0.05% of the increase was due to higher marketing costs in on our Smart & Final segment, 0.15% of the increase was due to increased wages, benefits and incentive bonuses (including 0.09% increase in our Smart & Final segment partially offset by a 0.02% decrease in our Cash & Carry segment) and 0.10% of the increase was due to increased other store direct expenses in our Smart & Final segment. Additionally, during fiscal year 2013 we recorded $3.0 million in pre-tax charges related to two class action lawsuits.

Interest Expense, Net

        Interest expense for fiscal year 2014 was $37.6 million as compared to $50.4 million in fiscal year 2013. As a percentage of sales, interest expense for fiscal year 2014 was 1.1% as compared to 1.6% for fiscal year 2013. This decrease in interest expense was primarily due to a lower average interest rate under our Term Loan Facility as well as lower average debt outstanding.

Loss on Early Extinguishment of Debt

        We recorded a $2.2 million loss on the early extinguishment of debt in fiscal year 2014 and recorded $24.5 million loss in fiscal year 2013. The loss for fiscal year 2014 was the result of our use of the net proceeds from the IPO to repay borrowings of approximately $115.5 million under the Term Loan Facility. Consequently, we recorded a loss on the early extinguishment of debt of $2.2 million related to the write-off of unamortized debt discount and deferred financing costs during the third quarter of 2014. The loss for fiscal year 2013 was primarily the result of two amendments to our Term Loan Facility, which resulted in changes to the applicable margin and the incurrence of additional term

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loans under the Term Loan Facility, the proceeds of which were used to repay all amounts outstanding under the Second Lien Term Loan Facility. Costs associated with such loss were related to fees and the write-off of the unamortized debt discount and deferred financing costs. We incurred approximately $7.5 million of fees in connection with the first amendment to our Term Loan Facility, approximately $4.9 million of which were recorded as a debt discount and are amortized over the term of the Term Loan Facility. We incurred approximately $4.8 million of fees in connection with the second amendment to our Term Loan Facility, approximately $1.1 million of which were recorded as debt discount, and approximately $0.7 million of which were recorded as deferred financing cost, each of which are amortized over the term of the Term Loan Facility.

Income Tax (Provision) Benefit

        Our income tax provision for fiscal year 2014 was $16.9 million as compared to $5.4 million in fiscal year 2013. The effective income tax rate, excluding the equity in earnings of our joint venture, for fiscal year 2014 was 34.4% as compared to 45.4% in fiscal year 2013.

Equity in Earnings of Joint Venture

        Equity in earnings of our joint venture for fiscal year 2014 was $1.0 million as compared to $1.6 million in fiscal year 2013.

Fiscal Year 2013 (Successor) Compared to the Periods November 15-December 30, 2012 (Successor) and January 2-November 14, 2012 (Predecessor)

Net Sales

        Net sales for fiscal year 2013 increased $167.6 million, or 5.5%, to $3,210.3 million as compared to $3,042.7 million for fiscal year 2012, including $2,664.2 million in the 2012 Predecessor period and $378.5 million in the 2012 Successor period. This increase in net sales was attributable to comparable store sales growth of $122.5 million in our store banners, and net sales of $45.1 million primarily attributable to the opening of five new Extra! stores in fiscal 2013 and two new Extra! stores in fiscal year 2012.

        Comparable store sales for fiscal year 2013 increased 4.0% as compared to fiscal year 2012. This increase in comparable store sales was attributable to an increase in comparable transaction counts of 4.1% and a decrease of 0.1% in comparable average transaction size.

        Net sales for our Smart & Final segment increased $122.6 million, or 5.3%, to $2,425.4 million as compared to $2,302.7 million for fiscal year 2012, including $2,011.6 million in the 2012 Predecessor period and $291.1 million in the 2012 Successor period. Comparable store sales for fiscal year 2013 for our Smart & Final segment increased 3.4% as compared to fiscal year 2012, driven by a 4.2% increase in comparable transaction counts and a 0.8% decrease in comparable average transaction size.

        Net sales for our Cash & Carry segment increased $45.0 million, or 6.1%, to $784.9 million as compared to $740.0 million for fiscal year 2012, including $652.5 million in the 2012 Predecessor period and $87.4 million in the 2012 Successor period. Comparable store sales for fiscal year 2013 for our Cash & Carry segment increased 6.1% as compared to fiscal year 2012, driven by a 3.6% increase in comparable transaction counts and a 2.5% increase in comparable average transaction size.

Gross Margin

        Gross margin for fiscal year 2013 increased $30.2 million, or 6.8%, to $473.9 million as compared to $399.0 million in the 2012 Predecessor period and $44.8 million in the 2012 Successor period. As a percentage of sales, gross margin for fiscal year 2013 was 14.8% as compared to 15.0% in the 2012 Predecessor period and 11.8% in the 2012 Successor period.

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        Gross margin for fiscal year 2013 was impacted by adjustments to fair value made to our property, plant and equipment and lease related assets in connection with the Ares Acquisition. These adjustments resulted in a $6.9 million increase in depreciation and rent expense associated with store and distribution facilities (including a $6.8 million increase in our Smart & Final segment and a $0.1 million increase in our Cash & Carry segment). Gross margin for the 2012 Successor period was primarily impacted by adjustments to the fair value of inventory in connection with the Ares Acquisition, which resulted in an $8.6 million increase in merchandise product cost of sales (including a $6.9 million increase in our Smart & Final segment and a $1.7 million increase in our Cash & Carry segment). In turn, these adjustments also adversely impacted gross margin as a percentage of sales.

Operating and Administrative Expenses

        Operating and administrative expenses for fiscal year 2013 were $387.1 million as compared to $355.7 million in the 2012 Predecessor period and $51.7 million in the 2012 Successor period. As a percentage of sales, operating and administrative expenses for fiscal year 2013 were 12.1% as compared to 13.4% in the 2012 Predecessor period and 13.7% in the 2012 Successor period. Fiscal year 2013 was impacted by adjustments in connection with the Ares Acquisition related to a re-measurement of our pension plan and adjustments to fair value made to our property, plant and equipment and lease-related assets, which resulted in a $1.0 million decrease in our pension expense (including a $0.8 million decrease in our Smart & Final segment, a $0.1 million decrease in our Cash & Carry segment and a $0.1 million decrease in corporate overhead and administrative expenses incidental to activities of these segments) and a $2.0 million decrease in depreciation and rent expense associated with administrative assets for fiscal year 2013. Additionally, during fiscal year 2013 we recorded $3.0 million in pre-tax charges related to proposed settlements of two class action lawsuits and did not record any share-based compensation expense, as compared to $7.5 million in share-based compensation expense in the 2012 Predecessor period. During the 2012 Predecessor period we recognized $23.9 million in transaction-related costs, a $2.0 million gain as the result of a death benefit received on a company-owned life insurance policy in support of our nonqualified deferred compensation plan, as well as $1.4 million of management services fees expense paid to Apollo. During the 2012 Successor period we recognized $5.2 million in transaction-related costs, compared to $0 in fiscal year 2013.

(Income) Loss on Property Sales

        We incurred no loss or gain on property sales for fiscal year 2013, as compared to an $8.8 million loss in the 2012 Predecessor period and an immaterial gain in the 2012 Successor period. The loss during the 2012 Predecessor period was due to the sale of three of our operating store properties and seven of our former store properties. The sales transactions for our operating store properties occurred concurrently with our entrance into operating leases for each of such store properties. The sales transactions for our three operating store properties were accounted for as sale and leaseback transactions, resulting in the deferral of a $5.6 million gain which was being amortized to rent expense over the non-cancelable lease terms. The unamortized deferred gain was written off in connection with the Ares Acquisition.

Interest Expense, Net

        Interest expense for fiscal year 2013 was $50.4 million as compared to $20.8 million in the 2012 Predecessor period and $7.1 million in the 2012 Successor period. This change is primarily attributable to the financing structure of the Ares Acquisition, whereby the Company entered into the Term Loan Facility and the Second Lien Term Loan Facility, increasing total outstanding debt. As a percentage of sales, interest expense for fiscal year 2013 was 1.6% as compared to 0.8% in the 2012 Predecessor period and 1.9% in the 2012 Successor period.

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Loss on Early Extinguishment of Debt

        We recorded a $24.5 million loss on the early extinguishment of debt in fiscal year 2013 and recorded no such loss in either the 2012 Predecessor period or the 2012 Successor period. The loss for fiscal year 2013 was primarily the result of two amendments to our Term Loan Facility, which resulted in changes to the applicable margin and the incurrence of additional term loans under the Term Loan Facility, the proceeds of which were used to repay all amounts outstanding under the Second Lien Term Loan Facility. Costs associated with such loss were related to fees and the write-off of the unamortized debt discount and deferred financing costs. We incurred approximately $7.5 million of fees in connection with the first amendment to our Term Loan Facility, approximately $4.9 million of which were recorded as a debt discount and are amortized over the term of the Term Loan Facility. We incurred approximately $4.8 million of fees in connection with the second amendment to our Term Loan Facility, approximately $1.1 million of which were recorded as debt discount, and approximately $0.7 million of which were recorded as deferred financing cost, each of which are amortized over the term of the Term Loan Facility.

Income Tax (Provision) Benefit

        Our income tax provision for fiscal year 2013 was $5.4 million as compared to $0.2 million in the 2012 Predecessor period and a $4.8 million benefit in the 2012 Successor period. The effective income tax rate, excluding the equity in earnings of our joint venture, for fiscal year 2013 was 45.4% as compared to 1.8% in the 2012 Predecessor period and 34.1% in the 2012 Successor period.

Equity in Earnings of Joint Venture

        Equity in earnings of our joint venture for fiscal year 2013 was $1.6 million as compared to $0.8 million in the 2012 Predecessor period and $0 in the 2012 Successor period.

Unaudited Pro Forma Condensed Consolidated Financial Information

        The following supplemental unaudited pro forma condensed consolidated statement of operations was prepared by applying pro forma adjustments to our historical consolidated statements of operations. The Ares Acquisition was effective November 15, 2012. Accordingly, we applied purchase accounting standards, which required a new basis of accounting resulting in assets and liabilities being recorded at their respective fair values as of the date of the Ares Acquisition.

        The aggregate consideration for the Ares Acquisition was as follows (in thousands):

Purchase of Predecessor common shares

  $ 669,456  

Payment on Predecessor stock options (inclusive of employer payroll taxes)

    54,993  

Less cash acquired

    (92,676 )

Cash consideration

    631,773  

Working capital adjustment

    6,231  

Tax consideration

    19,291  

Value of management equity rollover

    11,091  

Total fair value of net assets acquired

  $ 668,386  

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        The following table below sets forth the fair values of the assets acquired and liabilities assumed in connection with the Ares Acquisition (in thousands):

Current assets, less cash acquired

  $ 279,624  

Property, plant, and equipment

    248,944  

Capitalized software

    15,766  

Finite-lived/amortizable intangible assets

    68,000  

Indefinite-lived trade names

    265,000  

Goodwill

    611,242  

Investment in Mexico joint venture

    9,400  

Other assets

    46,277  

Current liabilities

    (251,661 )

Debt

    (304,074 )

Deferred taxes

    (135,865 )

Other liabilities

    (184,267 )

Total assets acquired and liabilities assumed

  $ 668,386  

        Although our operations did not change as a result of the Ares Acquisition, the accompanying unaudited pro forma condensed consolidated financial information is presented for the Predecessor and Successor relating to the periods preceding and succeeding the Ares Acquisition, respectively. The unaudited pro forma condensed consolidated statements of operations for the year ended December 30, 2012 gives effect to the Ares Acquisition (as well as the 190-for-one stock split of our common stock effected on September 19, 2014) as if it had occurred on January 3, 2011. Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with this unaudited pro forma condensed consolidated financial information.

        The unaudited pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable. The unaudited pro forma condensed consolidated statements of operations are presented for supplemental information purposes only, we do not purport them to represent what our results of operations would have been had the Ares Acquisition actually occurred on January 3, 2011, and they do not project our results of operations or financial condition for any future period. The unaudited pro forma condensed consolidated statement of operations should be read in conjunction with other sections of the "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as "Selected Historical Consolidated Financial Information and Other Data" and our audited consolidated financial statements and related notes thereto appearing elsewhere in this prospectus. All pro forma adjustments and their underlying

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assumptions are described more fully in the notes to our unaudited pro forma condensed consolidated statements of operations.

 
  Predecessor   Successor    
   
 
 
  Period From
January 2,
2012
Through
November 14,
2012
  Period From
November 15,
2012
Through
December 30,
2012
   
   
 
 
   
  Pro Forma  
(Dollars in thousands, except per share data)
  Adjustment   Fiscal Year
2012
 

Net sales

  $ 2,664,162   $ 378,550   $   $ 3,042,712  

Cost of sales, buying and occupancy

    2,265,154     333,787     (2,094 )(1)   2,596,847  

Gross margin

    399,008     44,763     2,094     445,865  

Operating and administrative expense

    355,681     51,727     (40,823 )(2)   366,585  

Loss (income) on property sales

    8,818     (5 )       8,813  

Income from operations

    34,509     (6,959 )   42,917     70,467  

Interest expense, net

    20,761     7,133     27,937 (3)   55,831  

Equity in earnings of joint venture

    820             820  

Income (loss) from continuing operations before income taxes

    14,568     (14,092 )   14,980     15,456  

Income tax (provision) benefit

    (244 )   4,804     (5,843 )(4)   (1,283 )

Net income (loss)

  $ 14,324   $ (9,288 ) $ 9,137   $ 14,173  

Earnings (loss) per share:

                         

Net income (loss) per share—Basic

  $ 1.07   $ (0.16 )       $ 0.25  

Net income (loss) per share—Diluted

  $ 1.03   $ (0.16 )       $ 0.24  

(1)
Represents the estimated impact on cost of sales, buying and occupancy related to (a) an adjustment to fair value of inventory and a resulting $8.6 million decrease in cost of sales; (b) an adjustment to fair value of property, plant and equipment and the resulting $4.4 million increase in depreciation expense; (c) a $3.0 million increase in rent expense as a result of the new basis in leases as of the acquisition date; and (d) a purchase accounting adjustment to unamortized pension liability resulting in a $0.9 million decrease in pension expense related to our distribution operations.

(2)
Represents the estimated impact to operating and administrative expense related to (a) an adjustment to fair value of intangible assets and a resulting $1.6 million increase in amortization expense; (b) an adjustment to fair value of property, plant, and equipment and the resulting $3.6 million decrease in depreciation expense; (c) a change in the share-based compensation plan and a resulting $7.5 million elimination of share-based compensation expense; (d) a $1.4 million decrease of management fees associated with the former ownership of the Company; (e) a $29.0 million elimination of certain costs associated with the Ares Acquisition which are not ongoing costs of the business; and (f) a purchase accounting adjustment to unamortized pension liability and a resulting $1.0 million decrease in pension expense.

(3)
Represents the estimated increase in interest expense assuming the borrowings under the Term Loan Facility, the Second Lien Term Loan Facility (as defined below) and the Revolving Credit Facility outstanding as of the closing of the Ares Acquisition were outstanding as of January 3, 2011, including the amortization of original issue discount and deferred financing fees.

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(4)
Represents the tax effect of the above adjustments at a 39.0% effective tax rate.


 
  Successor   Pro Forma   2013 vs. 2012
Change
 
 
  Fiscal Year
2013
  Fiscal Year
2012
 
(Dollars in thousands, except per share data)
  $   %  

Net sales

  $ 3,210,293   $ 3,042,712     167,581     5.51 %

Cost of sales, buying and occupancy

    2,736,357     2,596,847     139,510     5.37 %

Gross margin

    473,936     445,865     28,071     6.30 %

Operating and administrative expense

    387,133     366,585     20,548     5.61 %

Loss on property sales

        8,813     (8,813 )   (100.00 )%

Income from operations

    86,803     70,467     16,336     23.18 %

Interest expense, net

    50,365     55,831     (5,466 )   (9.79 )%

Loss on early extinguishment of debt

    (24,487 )       (24,487 )   (100.00 )%

Equity in earnings of joint venture

    1,649     820     829     101.10 %

Income from continuing operations before income taxes

    13,600     15,456     (1,856 )   (12.01 )%

Income tax provision

    (5,429 )   (1,283 )   (4,146 )   323.15 %

Net income

  $ 8,171   $ 14,173     (6,002 )   (42.35 )%

Earnings per share:

                         

Net income per share—Basic

  $ 0.14   $ 0.25              

Net income per share—Diluted

  $ 0.14   $ 0.24              

Fiscal Year 2013 (Successor) Compared to Pro Forma Fiscal Year 2012

Gross Margin

        Gross margin for fiscal year 2013 increased $28.1 million, or 6.3%, to $473.9 million as compared to $445.9 million for pro forma fiscal year 2012. The increase in gross margin attributable to increased sales was $24.6 million and the increase in gross margin attributable to increased gross margin rate was $3.5 million. As a percentage of sales, gross margin for fiscal year 2013 increased 0.1% to 14.8% as compared to 14.7% for pro forma fiscal year 2012. The increase in gross margin as a percentage of sales was mainly due to a 0.12% increase in merchandise product margin rates as a percentage of sales (including a 0.05% increase in our Smart & Final segment and a 0.07% increase in our Cash & Carry segment) and a 0.05% increase in store occupancy costs primarily associated with fiscal years 2013 and 2012 Extra! store openings, partially offset by a 0.14% reduction in warehouse and transportation costs as a percentage of sales (including a 0.07% decrease in each of our Smart & Final and Cash & Carry segments).

Operating and Administrative Expenses

        Operating and administrative expenses for fiscal year 2013 increased $20.5 million, or 5.6%, to $387.1 million as compared to $366.6 million in pro forma fiscal year 2012. As a percentage of sales, operating and administrative expenses for fiscal year 2013 increased 0.1% to 12.1% as compared to 12.0% in pro forma fiscal year 2012. The increase in operating and administrative expenses was primarily due to $12.3 million of increased store labor and associated fringe benefit costs in support of increased sales (including a $10.3 million increase in our Smart & Final segment and a $2.0 million increase in our Cash & Carry segment), $1.0 million of increased store advertising expense, $4.0 million of increased other store direct expenses, and $3.0 million of higher litigation costs. The 0.1% increase in operating and administrative expenses as a percentage of sales was due to a 0.19% increase in asset impairment charges and adjustments to lease obligations associated with closed stores locations, expense accruals for sales tax audits and other corporate expenses, as well as a 0.02% increase in labor and associated fringe benefits, all of which were partially offset by a 0.17% decrease in administrative incentive bonus expense.

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Interest Expense, Net

        Interest expense for fiscal year 2013 decreased $5.4 million, or 9.8%, to $50.4 million as compared to $55.8 million in pro forma fiscal year 2012. As a percentage of sales, interest expense for fiscal year 2013 decreased 0.2% to 1.6% as compared to 1.8% in pro forma fiscal year 2012. This decrease in interest expense was primarily due to a lower average effective interest rate.

Income Tax (Provision) Benefit

        Our income tax provision for fiscal year 2013 increased $4.1 million to $5.4 million as compared to $1.3 million for pro forma fiscal year 2012. The effective income tax rate, excluding the equity in earnings of our joint venture, for fiscal year 2013 was 45.4% as compared to 8.8% for the pro forma fiscal year 2012.

Equity in Earnings of Joint Venture

        Equity in earnings of our joint venture for fiscal year 2013 increased $0.8 million to $1.6 million as compared to $0.8 million for pro forma fiscal year 2012.

Liquidity and Capital Resources

        Historically, our primary source of liquidity has been cash flows from operations. Additionally, we have the availability to make borrowings under our Credit Facilities. Our primary uses of cash are for purchases of inventory, operating expenses, capital expenditures primarily for opening, converting or remodeling stores and debt service. We believe that our existing cash and cash equivalents, and cash anticipated to be generated by operating activities will be sufficient to meet our anticipated cash needs for at least the next twelve months. As of December 28, 2014, we had no amounts drawn under our Revolving Credit Facility and $106.8 million of cash and cash equivalents.

        The following table sets forth the major sources and uses of cash for each of the periods set forth below, as well as our cash and cash equivalents at the end of each period.

 
  Successor   Successor   Successor    
  Predecessor  
 
  Fiscal Year
Ended
December 28,
2014
  Fiscal Year
Ended
December 29,
2013
  46 Days
Ended
December 30,
2012
   
  318 Days
Ended
November 14,
2012
 
 
   
 
 
   
 
(dollars in thousands)
   
 

Cash and cash equivalents at end of period

  $ 106,847   $ 53,699   $ 35,987       $ 92,676  

Cash provided by (used in) operating activities

    125,337     107,517     (9,772 )       16,612  

Cash used in investing activities

    (117,370 )   (55,319 )   (633,718 )       (17,489 )

Cash provided by (used in) financing activities

    45,181     (34,486 )   679,477         21,091  

Fiscal Year 2014 Compared to Fiscal Year 2013

Operating Activities

        Cash flows from operating activities consist of net income adjusted for non-cash items including depreciation and amortization, deferred taxes and the effect of working capital changes. The increase or decrease in cash provided by operating activities reflects our operating performance before non-cash expenses and charges and including the timing of receipts and disbursements.

        Cash provided by operating activities for fiscal year 2014 increased $17.8 million to $125.3 million as compared to $107.5 million for fiscal year 2013. This increase is primarily attributable to higher net income and improved working capital including lower cash interest payments partially offset by higher cash pension contributions. During fiscal year 2014, we made cash interest payments of $41.3 million and cash pension contributions of $10.8 million, as compared to cash interest payments of $45.5 million and cash pension contributions of $7.7 million during fiscal year 2013.

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Investing Activities

        Cash used in investing activities increased $62.1 million to $117.4 million for fiscal year 2014 as compared to $55.3 million in fiscal year 2013. This increase is primarily attributable to a $62.3 million increase in capital expenditures for property, plant and equipment, including capitalized software, largely as a result of increased investment in store construction and equipment under our plan to accelerate openings of new Extra! stores and conversions of legacy stores to the Extra! format.

Financing Activities

        Cash provided by financing activities increased $79.7 million to cash provided of $45.2 million for fiscal year 2014, as compared to cash used of $34.5 million for fiscal year 2013. This increase is primarily attributable to the $168.0 million net cash proceeds received from our IPO, partially offset by a $110.7 million increase in net payments on our Term Loan Facility. The increase in net payments on our Term Loan Facility was partially offset by cash used for employee withholding taxes related to the net settlement of an option exercise in fiscal year 2014.

        At December 28, 2014, we had cash and cash equivalents of $106.8 million, stockholders' equity of $517.2 million and debt, net of debt discount, of $588.1 million. At December 28, 2014 we had working capital of $116.7 million as compared to $69.0 million at December 29, 2013. This increase in working capital was primarily due to an increase in cash and cash equivalents as a result of our IPO.

Fiscal Year 2013 (Successor) Compared to the Periods November 15-December 30, 2012 (Successor) and January 2-November 14, 2012 (Predecessor)

Operating Activities

        Cash provided by operating activities from continuing operations for fiscal year 2013 was $107.5 million as compared to cash provided by operating activities of $16.6 million in the 2012 Predecessor period and cash used in operating activities of $9.8 million in the 2012 Successor period. The change in cash provided or used by operating activities is largely due to $7.7 million in pension contributions made in fiscal year 2013 as compared to $9.0 million in the 2012 Predecessor period and $0 million in the 2012 Successor period. In addition, we made $12.7 million in income tax payments during fiscal year 2013 as compared to $54.7 million in the 2012 Predecessor period and $0 million in the 2012 Successor period.

Investing Activities

        Cash used in investing activities from continuing operations was $55.3 million in fiscal year 2013 as compared to $17.5 million in the 2012 Predecessor period and $633.7 million in the 2012 Successor period. Cash of $55.1 million for capital expenditures, including capitalized software, was used in fiscal year 2013. Cash of $46.8 million for capital expenditures, including capitalized software, was used in the 2012 Predecessor period, and $27.2 million in cash proceeds was received on the sale of twelve of our store properties. Cash used for investing activities in the 2012 Successor period was primarily attributable to a $631.8 million cash payment made, net of cash acquired, in connection with the Ares Acquisition, as well as $3.4 million for capital expenditures, including capitalized software.

Financing Activities

        Cash used in financing activities was $34.5 million in fiscal year 2013 as compared to cash provided by financing activities of $21.1 million in the 2012 Predecessor period and $679.5 million in the 2012 Successor period. The cash used in financing activities in fiscal year 2013 was primarily a result of the amendments to our Term Loan Facility and our incurrence of additional debt issuance costs, as well as contingent consideration payments of $22.9 million related to the Ares Acquisition. Cash provided by

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financing activities in the 2012 Successor period included $687.3 million in net debt borrowings and $299.2 million received from issuances of our capital stock in connection with the Ares Acquisition, partially offset by the payment of $307.1 million in full satisfaction of Predecessor debt.

        At the end of fiscal year 2013, we had cash and cash equivalents of $53.7 million, stockholders' equity of $341.9 million and debt, net of debt discount, of $706.2 million. At the end of fiscal year 2013, we had working capital of $69.0 million as compared to $46.3 million at the end of fiscal year 2012. This increase in working capital is primarily due to our results of operations and the payment of $22.9 million of contingent consideration related to the Ares Acquisition.

Capital Expenditure and Other Capital Requirements

        Our primary uses of capital are to finance store development costs for buildings, leasehold improvements, equipment and initial set-up expenditures for new, relocated, conversion and remodeled stores, investment in our distribution network, investment in information systems hardware and capitalized software, as well as general working capital requirements.

        During fiscal year 2014, we opened 13 new Extra! stores, as well as one new Cash & Carry store. We opened five new Extra! stores during fiscal year 2013. We currently plan to open 20 new Extra! stores and two new Cash & Carry stores in fiscal year 2015, including four Extra! stores that have already opened. Additionally, in April 2015 we relocated one Cash & Carry store. We estimate that the capital expenditure requirement for improvements and equipment for a new Extra! store averages $2.8 million. We estimate that the average capital expenditure requirement for a typical new Cash & Carry store is $1.1 million.

        During fiscal year 2014, we converted 14 legacy Smart & Final stores to our Extra! format and relocated two legacy Smart & Final stores to new Extra! locations. We plan to continue converting legacy Smart & Final stores to our Extra! format, including through relocations. In fiscal year 2015, we plan to relocate three legacy Smart & Final stores to new Extra! locations, including one that has already been completed, and convert six legacy Smart & Final stores to the Extra! format, including one that has already been completed. We estimate that the average capital expenditure requirement for a typical Extra! conversion is $2.0 million.

        We also plan to continue investing in our legacy Smart & Final and older Extra! stores with store remodels. During fiscal year 2014, we remodeled four of our legacy Smart & Final stores. In fiscal year 2015, we plan to remodel two of our legacy Smart & Final stores. We estimate that the average capital expenditure requirement for a typical legacy Smart & Final format remodel is $0.8 million. During fiscal year 2014, we remodeled six of our older Extra! stores and plan to remodel seven older Extra! stores in fiscal year 2015, including two that have already been completed. We estimate that the average capital expenditure requirement for a typical Extra! format remodel is $0.9 million.

        For fiscal year 2014, total capital expenditures, including property, plant and equipment and capitalized software, were $117.4 million. We estimate total capital expenditures to be $123 million for fiscal year 2015, net of tenant improvement allowances. However, our capital program plans are subject to change upon our further review and we cannot assure you that these estimates will be realized.

        We typically enter into lease arrangements for our store properties. From time to time we may purchase a property for an additional capital investment, depending on the property location and market value. Working capital investment related to a new store is approximately $0.3 million and primarily relates to inventory net of trade vendor accounts payable.

        We have various retirement plans which subject us to certain funding obligations. Our noncontributory defined benefit retirement plan covered substantially all of our full time employees prior to June 1, 2008. We froze the accruing of future benefits under this plan effective June 1, 2008, with the exception of approximately 450 hourly paid employees in our distribution and transportation

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operations. Changes in the benefit plan assumptions as well as the funded status of the plan impact the funding and expense levels for future periods. We made cash contributions of $10.8 million in fiscal year 2014 and $7.7 million in fiscal year 2013. During fiscal year 2015, we plan to fund the total minimum required contribution of $7.3 million.

        We expect to fund our capital expenditures and other cash requirements with cash on hand, cash generated from operating activities and, if required, borrowings under our Revolving Credit Facility. We believe that our sources of funds are adequate to provide for our working capital, capital expenditures and debt service requirements for the foreseeable future, including investments made, and expenses incurred, in connection with opening new stores or converting or relocating existing stores in accordance with our growth strategy. Our ability to continue to fund these items may be affected by general economic, competitive and other factors, many of which are outside of our control. If our future cash flow from operations and other capital resources are insufficient to fund our liquidity needs, we may be forced to reduce or delay our expected new store openings or store conversions and relocations, sell assets, obtain additional debt or equity capital or refinance all or a portion of our outstanding debt. Alternatively, we may elect to pursue additional expansion opportunities that could require additional debt or equity financing. There can be no assurance that equity or debt financing would be available to us when we need it or, if available, that the terms will be satisfactory to us and not dilutive to our then-current stockholders.

Credit Facilities

        We have two arrangements governing our material outstanding indebtedness: our Term Loan Facility and our Revolving Credit Facility.

        As of December 28, 2014, the aggregate principal balance of amounts outstanding under our Term Loan Facility was $594.9 million. The term loans incurred under our Term Loan Facility have a maturity date of November 15, 2019. There is no required quarterly amortization of the principal amount. Smart & Final Stores may prepay the Term Loans, in whole or in part, at any time, but must pay a premium of 1.00% of the principal amount so prepaid, subject to certain conditions. Mandatory prepayments are required in the amount of (i) the net proceeds of a sale of assets, subject to the priority of the Revolving Credit Facility Collateral (as defined below), (ii) the net proceeds of the incurrence of indebtedness to the extent such indebtedness is not permitted under the terms of the Term Loan Facility and (iii) a percentage of annual "excess cash flow," as adjusted by voluntary prepayments.

        The Revolving Credit Facility provides for up to $150.0 million of borrowings (including up to $50.0 million for the issuance of letters of credit), subject to certain borrowing base limitations. Subject to certain conditions, we may increase the commitments under the Revolving Credit Facility by up to $100.0 million. The Revolving Credit Facility has a term of five years with a maturity date of November 15, 2017. As of December 28, 2014, we had no outstanding borrowings under the Revolving Credit Facility and outstanding letters of credit were $26.6 million. After giving effect to such letters of credit, we had $123.4 million of availability under the Revolving Credit Facility as of December 28, 2014.

        All obligations under the Term Loan Facility are guaranteed by Intermediate Holdings and certain of its current and future domestic direct and indirect subsidiaries. In addition, the obligations under the Term Loan Facility are secured by (x) a first-priority security interest in substantially all of the property and assets of, as well as the equity interests owned by, Smart & Final Stores LLC and Intermediate Holdings and the other guarantors (other than Revolving Credit Facility Collateral (as defined below)) and (y) a second-priority security interest in the Revolving Credit Facility Collateral.

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        All obligations under the Revolving Credit Facility are guaranteed by Intermediate Holdings and certain of Intermediate Holdings' current and future domestic direct and indirect subsidiaries. In addition, the obligations under the Revolving Credit Facility are secured by (i) a first-priority security interest in the accounts receivable, inventory, cash and cash equivalents, and related assets, of Smart & Final Stores LLC and Intermediate Holdings and the other guarantors (the "Revolving Credit Facility Collateral") and (ii) a second-priority security interest in substantially all of the other property and assets of, as well as the equity interests owned by, Smart & Final Stores LLC and Intermediate Holdings and the other guarantors.

        The Term Loan Facility has no financial maintenance covenants.

        The Revolving Credit Facility includes a "springing" financial maintenance covenant, applicable when a covenant trigger event has occurred and is continuing. If such a covenant trigger event has occurred and is continuing, Smart & Final Stores LLC is required to maintain a fixed charge coverage ratio of not less than 1.0 to 1.0. A covenant trigger event shall have occurred any time that availability under the Revolving Credit Facility is less than the greater of (i) $12.5 million and (ii) 10.0% of the line cap (the lesser of the aggregate commitments under the Revolving Credit Facility and the borrowing base then in effect) (the "Trigger Threshold"). Once commenced, a covenant trigger event shall be deemed to continue until such time as availability equals or exceeds the Trigger Threshold for 20 consecutive days. As of December 28, 2014, no trigger event has occurred.

Contractual Obligations

        The following table sets forth our future payments due by period of our contractual obligations as of December 28, 2014, in thousands:

 
  Total   Less than
one year
  1 - 3 Years   3 - 5 Years   Thereafter  

Long-term debt

  $ 594,907   $   $   $ 594,907   $  

Interest on long-term debt

    173,617     39,034     64,212     70,371      

Operating leases

    934,981     92,499     174,683     146,298     521,501  

Total contractual obligations

  $ 1,703,505   $ 131,533   $ 238,895   $ 811,576   $ 521,501  

        The primary changes in our contractual obligations as of December 28, 2014 as compared to our contractual obligations as of December 29, 2013 relate to (i) the repayment of borrowings of approximately $115.5 million under the Term Loan Facility, and (ii) additional operating leases entered into during fiscal year 2014 primarily related to our new store growth.

        The interest payments on our Term Loan Facility outstanding as of December 28, 2014 incorporate the effect of the interest rate swap, which effectively converts the variable rate of the Term Loan Facility to a fixed rate. The five-year interest rate swap fixed the LIBOR component of interest at 1.5995% on a variable notional amount through March 29, 2018. See Note 5, Debt, and Note 6, Derivative Financial Instruments, to our audited consolidated financial statements, for additional information on our interest requirements and interest rate swap contract.

        Purchase orders or contracts for the purchase of goods for resale in our stores and other goods and services are not included in the table above. We are not able to reasonably determine the aggregate amount of such purchase orders that may constitute established contractual obligations, as purchase orders may represent individual authorizations to purchase rather than binding agreements. Other than with respect to Unified Grocers (as described immediately below), we do not have

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significant agreements for the purchase of goods for resale in our stores or other goods and services that exceed our expected requirements or that are not cancelable on short notice.

        We have a contractual obligation under our supply agreement with Unified Grocers to purchase a minimum amount of food and related items during any twelve-month period covered by the agreement. This contractual obligation does not exceed our expected requirements over any twelve-month period covered by the agreement. This agreement, as amended, expires in December 2015. The related amounts are not included in the above table.

        The table above also excludes funding of pension and other postretirement benefit and postemployment obligations. See Note 9, Retirement Benefit Plans and Postretirement and Postemployment Benefit Obligations, to our audited consolidated financial statements for additional information on funding of our plans.

        We also have asset retirement obligations with respect to owned or leased properties. Due to the nature of our business, such asset retirement obligation is immaterial.

Off-Balance Sheet Arrangements

        As of December 28, 2014, we had no off-balance sheet arrangements.

Multi-employer Pension Plan

        The Company participates in and contributes to a multi-employer pension plan on behalf of union employees in our Cash & Carry operations. At the end of fiscal year 2014 and fiscal year 2013, there were approximately 172 and 165 union employees covered under this plan, respectively. Our employer contributions and corresponding pension expense for this plan was $1.3 million for fiscal year 2014 and $1.2 million for fiscal year 2013.

        We participate in this multi-employer pension plan pursuant to a collective bargaining agreement with the Western Conference of Teamsters (the "Teamsters Plan"). The Teamsters Plan provides and maintains retirement, death and termination benefits for employees in collective bargaining units represented by local unions affiliated with the Western Conference of Teamsters. The Teamsters Plan is subject to the provisions of ERISA, as amended.

        The Western Conference of Teamsters Pension Agreement and Declaration of Trust dated April 26, 1955, pursuant to which the Teamsters Plan was established, provides that the trustees of the Teamsters Plan shall establish and adjust the levels of prospective plan benefits so that employer contributions received by the Teamsters Plan will always meet the minimum funding standards of Section 302 of ERISA and Section 412 of the Internal Revenue Code of 1986, as amended (the "Code"). The trustees have established a funding policy that specifies funding targets that may result in more rapid funding than prescribed by the minimum funding standards and that provides for benefit adjustments based on specified funding targets. The Teamsters Plan's actuary has advised us that the minimum funding requirements of ERISA are being met as of January 1, 2014 (based on the most recent information available).

        As of January 1, 2014, the Teamsters Plan actuarial present value of accumulated plan benefits was $39,116.0 million and the actuarial value of assets for funding the standard account was $35,478.6 million, resulting in a funded percentage of 90.7%. The Teamsters Plan covered approximately 546,000 participants as of December 31, 2013. Approximately 1,520 employers participate in the Teamsters Plan and total employer contributions for the plan year ended December 31, 2013 totaled $1,431.1 million.

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Impact of Inflation

        Our primary costs, merchandise and labor, as well as utility and transportation costs are affected by a number of factors that are beyond our control, including inflation and deflation. Inflation and deflation in the price of merchandise we sell, as well as fuel and other commodities employed in the course of our business, may periodically affect our sales and gross margin. As is common practice within the food industry, we have generally been able to manage the short-term impact of inflation and deflation and maintain margins by adjusting selling prices and through procurement and supply chain efficiencies. Food inflation and deflation is affected by a variety of factors and our determination of whether to pass on the effects of inflation or deflation to our customers is made in conjunction with our overall pricing and marketing strategies. Although we may experience periodic effects on sales, operating margins and gross margin as a result of changing prices, we do not expect the effect of inflation or deflation to have a material impact on our ability to execute our long-term business strategy.

Critical Accounting Estimates

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported assets, liabilities, sales and expenses in the accompanying financial statements. Critical accounting estimates are those that require the most subjective and complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. These critical accounting estimates, under different conditions or using different assumptions or estimates, could show materially different results on our financial condition and results of operations. The following are considered our most critical accounting estimates that, under different conditions or using different assumptions or estimates, could show materially different results on our financial condition and results of operations.

Share-Based Compensation

        We account for share-based compensation in accordance with Accounting Standards Codification ("ASC") 718, Compensation—Stock Compensation ("ASC 718"). ASC 718 requires all share-based payments to be recognized in the statements of operations and comprehensive (loss) income as compensation expense based on their fair values over the requisite service period of the award, taking into consideration estimated forfeiture rates.

        We use the Black-Scholes-Merton option-pricing model to estimate the fair value of the options on the date of each grant. The Black-Scholes-Merton option-pricing model utilizes highly subjective and complex assumptions to determine the fair value of share-based compensation, including the option's expected term and price volatility of the underlying stock.

        Given the absence of a public trading market for our Common Stock prior to the IPO, the fair value of the Common Stock underlying our share-based awards was determined by our board of directors, with input from management and, in some cases, a contemporaneous valuation report prepared by an unrelated nationally recognized third-party valuation specialist, in each case using the income and market valuation approach. We believe that our board of directors had the relevant experience and expertise to determine the fair value of our Common Stock. In accordance with the American Institute of Certified Public Accountants Accounting and Valuation Guide: Valuation of Privately-Held-Company Equity Securities Issued as Compensation, our board of directors exercised reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of the fair value of our Common Stock. These estimates are no longer necessary to determine the fair value of new awards now that the underlying shares are publicly traded.

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        In addition to assumptions used in the Black-Scholes-Merton option pricing model, we must also estimate a forfeiture rate to calculate the share-based compensation cost for our awards. Our forfeiture rate is based on an analysis of our actual historical forfeitures.

        The assumptions referred to above represent management's best estimates. These estimates involve inherent uncertainties and the application of management's judgment. If these assumptions change and different factors are used, our share-based compensation expense could be materially different in the future.

        We recognize compensation cost for graded vesting awards as if they were granted in multiple awards. We believe the use of this "multiple award" method is preferable because a stock option grant with graded vesting is effectively a series of individual grants that vests over various periods. Management also believes that this provides for better matching of compensation costs with the associated services rendered throughout the applicable vesting periods.

Inventories

        Inventories consist of merchandise purchased for resale which is stated at the lower of the weighted-average cost (which approximates FIFO) or market. We provide for estimated inventory losses between physical inventory counts at our stores based upon historical inventory losses as a percentage of sales. The provision is adjusted periodically to reflect updated trends of actual physical inventory count results.

        The proper valuation of inventory also requires us to estimate the net realizable value of our slow-moving inventory at the end of each period. We base net realizable values upon many factors, including historical recovery rates, the aging of inventories on hand, the inventory movement of specific products and the current economic conditions. When we have determined inventory to be slow-moving, the inventory is reduced to its net realizable value by recording an obsolescence valuation allowance.

        With regard to the proper valuation of inventories, we review our valuation methodologies on a recurring basis and make refinements where the facts and circumstances dictate.

Goodwill and Intangible Assets

        We account for goodwill and identified intangible assets in accordance with ASC 350, Intangibles—Goodwill and Other. Goodwill and identifiable intangible assets with indefinite lives are not amortized, but instead are evaluated on an annual basis for impairment, or more frequently if events or changes in circumstances indicate that the asset might be impaired.

        We evaluate goodwill for impairment by comparing the fair value of each reporting unit to its carrying value including the associated goodwill. We have designated our reporting units to be our Smart & Final banner and our Cash & Carry banner. We determine the fair value of the reporting units using the income approach methodology of valuation that includes the discounted cash flow method as well as other generally accepted valuation methodologies.

        Our detailed impairment analysis involves the use of discounted cash flow models. Significant management judgment is necessary to evaluate the impact of operating and macroeconomic changes on existing and forecasted results. Determining market values using a discounted cash flow method requires that we make significant estimates and assumptions, including long-term projections of cash flows, market conditions and appropriate market rates. Our judgments are based on historical experience, current market trends and other information. In estimating future cash flows, we rely on internally generated forecasts for operating profits and cash flows, including capital expenditures. Critical assumptions include projected comparable store sales growth, timing and number of new store openings, operating profit rates, general and administrative expenses, direct store expenses, capital expenditures, discount rates, royalty rates and terminal growth rates. We determine discount rates

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based on the weighted average cost of capital of a market participant. Such estimates are derived from our analysis of peer companies and consider the industry weighted average return on debt and equity from a market participant perspective. We also use comparable market earnings multiple data and our Company's market capitalization to corroborate our reporting unit valuation. Factors that could cause us to change our estimates of future cash flows include a prolonged economic crisis, successful efforts by our competitors to gain market share in our core markets, our inability to compete effectively with other retailers or our inability to maintain price competitiveness.

        If the fair value of the reporting unit exceeds the carrying value of the net assets, including goodwill assigned to that unit, goodwill is not impaired. If the carrying value of the reporting unit's net assets, including goodwill, exceeds the fair value of the reporting unit, we are required to perform a second step, as this is an indication that the reporting unit's goodwill may be impaired. In this step, we compare the implied fair value of the reporting unit's goodwill with the carrying amount of the reporting unit's goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit to all of the assets and liabilities of the reporting unit in a manner similar to a purchase price allocation. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill.

        If the carrying amount of a reporting unit's goodwill exceeds its implied value, then an impairment of goodwill has occurred and we would recognize an impairment charge for the difference between the carrying amount and the implied fair value of goodwill.

        We evaluate our indefinite-lived intangible assets associated with trade names using a two-step approach. The first step screens for potential impairment by comparing the fair value of each trade name with its carrying value. The second step measures the amount of impairment. We determine the fair value of the indefinite-lived trade names using a "relief from royalty payments" methodology. This methodology involves estimating reasonable royalty rates for each trade name and applying these royalty rates to a revenue stream and discounting the resulting cash flows to determine fair value. In the periods presented, we did not recognize any indefinite-lived trade name impairment loss as a result of such evaluation.

        Finite-lived intangible assets, like other long-lived assets as required by ASC 360 (as defined below), are subject to review for impairment whenever events or changes in circumstances indicate that the carrying amount of the finite-lived intangible asset may not be recoverable. Impairment is recognized to the extent the sum of the discounted estimated future cash flows from the use of the finite-lived intangible asset is less than the carrying value.

Impairments of Long-Lived Assets

        In accordance with ASC 360, Property, Plant, and Equipment, ("ASC 360"), we assess review our long-lived assets, including property, plant and equipment and assets under capital leases, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We believe that impairment assessment of long-lived assets is critical to the financial statements because the recoverability of the amounts, or lack thereof, could significantly affect our results of operations. Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, amount of such cash flows, and the asset's residual value, if any. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best information available. We use internal discounted cash flow estimates and independent appraisals as appropriate to determine fair value. We derive the required cash flow estimates from our historical experience and our internal business plans and apply an appropriate discount rate. We group and evaluate long-lived assets for impairment at the individual store level, which is the lowest level at which individual identifiable cash flows are available.

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We regularly review our stores' operating performance for indicators of impairment, which include a significant underperformance relative to expected historical or projected future results of operations or a significant negative industry or economic trend.

        Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its future undiscounted cash flows, an impairment charge is recognized equal to the excess of the carrying value over the estimated fair value of the asset. We measure the fair value of our long-lived assets on a nonrecurring basis using Level 3 inputs as defined in the fair value hierarchy.

        Capitalized software costs are subject to review for impairment whenever events or changes in circumstances indicate that the carrying amount of the capitalized software may not be recoverable, whether it is in use or under development. Impairment is recognized to the extent the sum of the future discounted cash flows from the use of the capitalized software is less than the carrying value.

Income Taxes

        Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities for a change in tax rates is recognized in income in the period that includes the enactment date. Under applicable accounting guidance, we are required to evaluate the realizability of our deferred tax assets. The realization of our deferred tax assets is dependent on future earnings. Applicable accounting guidance requires that we recognize a valuation allowance when it is more likely than not that all or a portion or all of a deferred tax asset will not be realized due to the inability to generate sufficient taxable income in future periods. Accordingly, significant accounting judgment is required in our assessment of deferred tax assets and valuation allowances and deferred liabilities, and determining the provision for income taxes and related accruals.

        In the ordinary course of business, there are transactions and calculations where the ultimate tax outcome is uncertain. In addition, we are subject to periodic audits and examinations by the Internal Revenue Service and other state and local taxing authorities. Although we believe that our estimates are reasonable, actual results could materially differ from these estimates.

Self-Insurance

        We purchase third-party insurance for risks related to workers' compensation and general liability costs that exceed certain limits for each respective insurance program.

        We are also responsible for the payment of claims less than the insured amount. We establish estimated accruals for our insurance programs based on certain factors, including available claims data, historical trends and experience, as well as projected ultimate costs of the claims. These accruals are based on estimates prepared with the assistance of outside actuaries, and the ultimate cost of these claims may vary from initial estimates and established accruals. We believe that the use of actuarial studies to determine self-insurance accruals represents a consistent method of measuring these subjective estimates. The actuaries periodically update their estimates and we record such adjustments in the period in which such determination is made. The inherent uncertainty of future loss projections could cause actual claims to differ from our estimates.

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Closed Store Reserve

        The Company maintains reserves for costs associated with closures of operating stores and other properties that are no longer being utilized in current operations. In the event a leased store is closed before the expiration of the associated lease, the discounted remaining lease obligation less estimated sublease rental income, asset impairment charges related to improvements and fixtures, inventory write-downs and other miscellaneous closing costs associated with the disposal activity are recognized when the store closes. Adjustments to closed store liabilities primarily relate to changes in subtenant income and actual exit costs differing from original estimates. Adjustments are made for changes in estimates in the period in which the change becomes known.

Retirement Benefit Plans and Postretirement Benefit Plans

        Certain of our employees are covered by a funded noncontributory qualified defined benefit pension plan. GAAP requires that we measure the benefit obligations and fair value of plan assets that determine our plans' funded status as of our fiscal year-end date.

        The determination of our obligation and expense for retirement benefit plans and postretirement benefit plans is dependent, in part, on our selection of certain assumptions used by us and our actuaries in calculating such amounts. Those assumptions are described in Note 9, Retirement Benefit Plans and Postretirement and Postemployment Benefit Obligations, in the accompanying notes to our audited consolidated financial statements. Pension assumptions are significant inputs to the actuarial models that measure pension benefit obligations and related effects on operations. Three assumptions, among others—discount rate, expected long-term return on plan assets and rate of compensation increases—are important elements of plan expense and asset/liability measurement. We evaluate these critical assumptions at least annually. We periodically evaluate other assumptions involving demographic factors, such as retirement age, mortality and turnover, and update them to reflect our experience and expectations for the future. Recently, the Society of Actuaries released revised mortality tables, which update life expectancy assumptions. In consideration of these tables, we modified the mortality assumptions used in determining our retirement benefit plans and postretirement benefit plans as of December 28, 2014. The impact of these new mortality assumptions has resulted in an increase to our pension, supplemental executive retirement plan ("SERP") and postretirement benefit plan obligations and an increase in future related expense. Actual results in any given year will often differ from actuarial assumptions because of economic and other factors.

        In accordance with GAAP, the amount by which actual results differ from the actuarial assumptions is accumulated and amortized over future periods and, therefore, affects recognized expense in such future periods. While we believe our assumptions are appropriate, significant differences in actual results or significant changes in our assumptions may materially affect our pension and other postretirement obligations and future expenses.

        We determine the discount rate using current investment yields on high quality fixed—income investments. The discount rate assumption used to determine the year-end projected benefit obligation is increased or decreased to be consistent with the change in yield rates for high quality fixed-income investments for the expected period to maturity of the pension benefits. A lower discount rate increases the present value of benefit obligations and increases pension expense.

Vendor Rebates and Other Allowances

        As a component of our consolidated procurement program and consistent with standard practices in the retail industry, we frequently enter into contracts with vendors that provide for payments of rebates or other allowances. These rebates and allowances are primarily comprised of volume or purchase-based incentives, advertising allowances and promotional discounts. The purpose of these

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incentives and allowances is generally to help defray the costs we incur for stocking, advertising, promoting and selling the vendor's products.

        As prescribed by GAAP, these vendor payments are reflected in the carrying value of the inventory when earned or as progress is made toward earning the rebate or allowance and as a component of cost of sales as the inventory is sold. Certain of these vendor contracts provide for rebates and other allowances that are contingent upon us meeting specified performance measures such as a cumulative level of purchases over a specified period of time. Such contingent rebates and other allowances are given accounting recognition at the point at which achievement of the specified performance measures are deemed to be probable and reasonably estimable.

        We review the relevant or significant factors affecting proper performance measures, rebates and other allowances on a recurring basis and make adjustments where the facts and circumstances dictate.

Recently Issued Accounting Pronouncements

        In April 2014, the FASB issued Accounting Standards Update ("ASU") 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in ASU 2014-08 change the criteria for reporting discontinued operations while enhancing disclosures in this area. They also address sources of confusion and inconsistent application related to financial reporting of discontinued operations guidance in GAAP. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the entity's operations and financial results. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The amendments in this ASU are effective for the first quarter of 2015 for public entities with calendar year ends. The Company does not expect that the adoption of ASU 2014-08 will have a material effect on the Company's consolidated financial statements.

        In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The new revenue model is designed to provide a more robust framework for addressing revenue issues and requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective for the fiscal years beginning after December 15, 2016, including interim periods within that reporting period, under either full or modified retrospective adoption. Early application is not permitted. The Company is currently evaluating the impact of the adoption of this standard on the Company's consolidated financial statements.

        In June 2014, the FASB issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The standard provides guidance that a performance target that affects vesting of a share-based payment and that could be achieved after the requisite service condition is a performance condition. As a result, the target is not reflected in the estimation of the award's grant date fair value. Share-based compensation cost for such award would be recognized over the required service period, if it is probable that the performance condition will be achieved. ASU 2014-12 is effective for annual reporting periods beginning after December 15, 2015. Early adoption is permitted. The guidance should be applied on a prospective basis to awards that are granted or modified on or after the effective date of the standard. Companies also have the option to apply the guidance on a modified retrospective basis for awards

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with performance targets outstanding on or after the beginning of the first annual period presented after the effective date of the standard. The Company does not expect the adoption of ASU 2014-12 will have a material effect on the consolidated financial statements.

        In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. The ASU provides guidance on determining when and how reporting entities must disclose going-concern uncertainties in their financial statements. The new standard requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date of issuance of the entity's financial statements (or within one year after the date on which the financial statements are available to be issued, when applicable). Further, an entity must provide certain disclosures if there is "substantial doubt about the entity's ability to continue as a going concern." The ASU is effective for annual periods ending after December 15, 2016, and interim periods thereafter and early adoption is permitted. The Company does not expect the adoption of ASU 2014-15 to have a material impact on its consolidated financial statements.

        In January 2015, the FASB issued ASU 2015-01, Income Statement-Extraordinary and Unusual Items (Subtopic 225-20), Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items, which eliminates the concept of extraordinary items. Under this new guidance, entities will no longer be required to separately classify, present and disclose extraordinary events and transactions. The amendments in this update are effective for annual and interim periods beginning after December 15, 2015. The Company does not expect the adoption of ASU 2015-01 will have a material effect on the consolidated financial statements.

Quantitative and Qualitative Disclosures about Market Risk

        Market risk represents the risk of changes in the value of market risk sensitive instruments caused by fluctuations in interest rates, foreign exchange rates and commodity prices. Changes in these factors could cause fluctuations in the results of our operations and cash flows. In the ordinary course of business, we are primarily exposed to foreign currency and interest rate risks. We do not use derivative financial instruments in connection with these commodity market risks.

Commodity Risk

        We are subject to volatility in food costs as a result of market risk associated with commodity prices. Although we typically are able to mitigate these cost increases, our ability to continue to do so, either in whole or in part, may be limited by the competitive environment we operate in.

Interest Rate Market Risk

        Based on our variable rate debt balance as of December 28, 2014, a 1% increase in interest rates would increase our annual interest cost by approximately $1.6 million. The $1.6 million impact reflects any offset from our current hedging activities. There would be no impact if the interest rate were to decrease 1% due to an interest rate floor that exists on the Term Loan Facility.

Foreign Currency Exchange Rate Market Risk

        We are exposed to market risks relating to fluctuations in foreign exchange rates between the U.S. dollar and other foreign currencies, primarily the Mexican Peso. Our exposure to foreign currency risk is limited to our operations in Mexico and the equity earnings of our joint venture. Such exposure is primarily related to our $11.9 million equity investment in the Mexico joint venture. The remainder of our business is conducted in U.S. dollars and thus is not exposed to fluctuation in foreign currency. We do not hedge our foreign currency exposure and therefore are not exposed to such hedging risk.

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BUSINESS

Who We Are

        We are a high-growth, value-oriented food retailer serving a diverse demographic of household and business customers through two complementary and highly productive store banners. Our Smart & Final stores focus on both household and business customers, and our Cash & Carry stores focus primarily on business customers. We operate 258 convenient, non-membership, smaller-box, warehouse-style stores throughout the Western United States, with an additional 15 stores in Northwestern Mexico in a joint venture. We have a differentiated merchandising strategy that emphasizes high quality perishables, a wide selection of private label products, products tailored to business and foodservice customers and products offered in a broad range of product sizes, all at "everyday low prices." We believe our compelling value proposition has enabled us to achieve comparable store sales growth in 25 of our past 26 fiscal years.

        We operate 205 Smart & Final stores in California, Arizona and Nevada, which offer extensive selections of fresh perishables and everyday grocery items, together with a targeted selection of foodservice, packaging and janitorial products, under both national and private label brands. Customers can choose from a broad range of product sizes, including an assortment of standard-sized products typically found at conventional grocers, and a large selection of bulk-size offerings (including uniquely sized national brand products) more typical of larger-box warehouse clubs. Pricing in our Smart & Final stores is targeted to be substantially lower than that of conventional grocers and competitive with that of large discount store operators and warehouse clubs. We believe we offer higher quality produce at lower prices than large discounters. We also believe our Smart & Final stores provide a better everyday value to household and business customers than typical warehouse clubs by offering greater product selection at competitive prices, and with no membership fee requirement, in a convenient easy-to-shop format.

        Six years ago, we launched a transformational initiative to convert our larger legacy Smart & Final stores to our Extra! format. With a larger store footprint and an expanded merchandise selection, our Extra! format offers a one-stop shopping experience with approximately 14,500 SKUs, including an expansive selection of approximately 4,500 more SKUs than our legacy Smart & Final stores, with an emphasis on perishables and household items. This initiative was facilitated, in part, by our acquisition of a dedicated perishables warehouse, and has been further supported by our continued investments in distribution capabilities and in-store merchandising. Today we operate 104 Extra! stores, of which 75 represent conversions or relocations of legacy Smart & Final stores and 29 represent new store openings. Our store conversions and relocations to the Extra! format have typically resulted in significant increases in comparable store sales and gross margin. The continued development of our Extra! store format, through additional new store openings and conversions and relocations of legacy Smart & Final stores, is the cornerstone of our growth strategy.

        We also operate 53 Cash & Carry stores focused primarily on restaurants, caterers and a wide range of other foodservice businesses such as food trucks and coffee houses. We offer customers the opportunity to shop for their everyday foodservice needs in a convenient, no-frills warehouse shopping environment. These stores are located in Washington, Oregon, Northern California, Idaho and Nevada. Pricing in our Cash & Carry stores is targeted to be substantially lower than that of our foodservice delivery competitors, with greater price transparency to customers and no minimum order size. Pricing is also competitive with typical warehouse clubs, with no membership fee requirement.

        We believe that our stores are highly productive based on sales per square foot data, and that our "everyday low prices," differentiated merchandising strategy and convenient locations enable us to offer a highly differentiated food shopping experience with broad appeal to a diverse customer demographic.

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These attributes have enabled us to deliver strong financial results, as evidenced by the following key highlights:

Corporate History and Structure

        Smart & Final is one of the longest continuously operated food retailers in the United States and has become an iconic brand name in the markets we serve. We were founded in Los Angeles in 1871 as Hellman-Haas Grocery Company, a wholesale grocery supplier to businesses. We changed our name to Smart & Final Wholesale Grocers in the early 1900s after a merger with Santa Ana Grocery Company, a wholesale grocery supplier founded by J.S. Smart and H.D. Final. In the years that followed, we expanded throughout California from our foundation in Southern California. We then expanded to Nevada in the late 1980s and to Arizona in 1990. In 1998, we acquired the Portland, Oregon-based Cash & Carry store chain. Since the Cash & Carry acquisition, we have operated as a multi-banner food retailer.

        We were formed as a Delaware corporation on October 5, 2012 under the name SF CC Holdings, Inc., and we changed our name to Smart & Final Stores, Inc. on June 16, 2014. We were formed by funds affiliated with Ares Management in connection with the Ares Acquisition, which was consummated on November 15, 2012. Pursuant to the Ares Acquisition, we acquired all of the outstanding stock of Smart & Final Holdings Corp., the former ultimate parent company of all of our operating subsidiaries, and Ares became our principal stockholder. See "Principal and Selling Stockholders".

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        We are a holding company and all of our operations are conducted through our operating subsidiaries, primarily Smart & Final Stores LLC and Cash & Carry Stores LLC (a direct wholly owned subsidiary of Smart & Final Stores LLC). The following diagram depicts our corporate structure:

GRAPHIC

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Our Industry

        Our Smart & Final stores operate in the U.S. food retail industry, which includes a variety of distribution channels, including conventional grocers, mass merchandisers, warehouse clubs, discounters, online retailers and other specialty stores. According to Chain Store Guide ("CSG"), the U.S. grocery industry was approximately $716.8 billion in 2013. We believe that customers are increasingly attracted to alternative formats, and that conventional grocers are losing market share as a result. According to Willard Bishop's June 2014 publication, The Future of Food Retailing, market share for conventional grocers is expected to decrease to 44.8% by 2018 from 46.0% in 2013, while share for alternative formats will increase to 40.1% from 39.0% over the same period.

        According to CSG, California, which is our primary market and the largest grocery retailing state in the United States, represented $87.2 billion of 2013 grocery sales and grew at a compounded annual growth rate ("CAGR") of 5.6% from 2008 to 2013. For all the states in which we operate Smart & Final stores, California, Arizona and Nevada, 2013 grocery sales were $113.8 billion, and have grown at a CAGR of 5.5% since 2008, faster than the national growth rate of 4.2% over the same period. Conventional grocers have a higher market share in the states in which we operate than the national average, representing a larger growth opportunity for alternative formats such as Smart & Final.

        Our Cash & Carry stores operate in the U.S. foodservice supply industry, which includes a variety of distribution channels, including warehouse clubs, foodservice delivery companies, online retailers and other specialty stores. According to the United States Department of Agriculture Economic Research Service, the U.S. foodservice supply industry was approximately $215.2 billion in 2013, and has grown at a CAGR of 3.9% since 2008.

        We believe our business is positively affected by the following key consumer preferences:

What Makes Us Different

        We believe that the following competitive strengths position us for accelerated growth as food shoppers increasingly focus on value and convenience:

        Unique platform that appeals to household and business customers.    We serve a diverse demographic of customers including households, businesses and community groups through our complementary Smart & Final and Cash & Carry banners. We offer a differentiated, highly convenient shopping experience with an emphasis on quality and value. We provide an easy-to-shop, no-frills, in-store environment in a smaller physical footprint compared to typical warehouse clubs, but with a greater SKU selection, which both simplifies and expedites our customers' shopping experience.

        Sales at our Smart & Final stores benefit from a large base of diverse business customers. Our internal surveys indicate that our business customers typically shop Smart & Final for both their household and business needs and account for approximately one-third of our Smart & Final sales. On average, these business customers spend approximately twice as much per visit (including purchases of household SKUs) as our typical household customers. We believe our household customers enjoy "shopping with the pros" because it reinforces the perception of value, quality and selection. At Cash & Carry, we believe our business customers appreciate our accessible locations and consistent shopping experience, where they shop for both everyday and supplemental business needs.

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        Distinctive and value-focused merchandise offering.    Our Smart & Final stores feature a comprehensive grocery offering at "everyday low prices," including high quality perishables, extensive selections of private label and national brand products and a large selection of club-pack sizes (over 2,500 SKUs). With approximately 14,500 SKUs in our Extra! stores and approximately 10,000 SKUs in our legacy Smart & Final stores, each of our Smart & Final store formats offers a wider variety of products than typical ware