<PAGE>
UNITED GROCERS, INC., AND SUBSIDIARIES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarterly period ended June 28, 1996
Commission File Number 2-60487
United Grocers, Inc.
(Exact name of registrant as specified in its charter)
Oregon 93-0301970
(State or other jurisdiction of (IRS Employer identification No.)
incorporation or organization)
6433 S.E. Lake Road
Post Office Box 22187, Milwaukie, Oregon 97269
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (503) 833-1000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ].
Indicate the number of shares outstanding for each of the issuer's classes of
common stock, as of the latest practicable date. 612,580 shares of common
stock, $5 par value as of August 6, 1996.
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
The following unaudited consolidated financial statements of United
Grocers, Inc., and subsidiaries for the periods ended June 28, 1996 and June
30, 1995, include all adjustments which management considers necessary for a
fair presentation of the results for the interim periods. All adjustments to
prior period figures are for the purpose of making the results comparable and
are of a normal recurring nature. Any changes in accounting methods not of a
normal recurring nature are separately disclosed.
In 1993-94 the Company adopted FASB #113 (Accounting for Reinsurance
Contracts). Refer to Part I, Item 2, for a description of the effect of this
change on the balance sheet.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, Grocers Insurance Group, Inc., Grocers
Insurance Agency, Inc., UGIC, Ltd., Grocers Insurance Company (formerly United
Employers Insurance Co.), United Workplace Consultants, Inc., U.G. Resources,
Inc., United Resources, Inc., BAT Enterprises, Inc., Western Passage Express,
Inc., United Store Development, Ltd., Premier Consulting, Inc. (formerly
Employee Management Services, Inc.), Western Security Services, Inc.,
Affiliated General Agency, Inc., Rich & Rhine, Inc. and Northwest Process,
Inc. All intercompany balances and transactions have been eliminated upon
consolidation.
<PAGE>
UNITED GROCERS, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 28, 1996, and SEPTEMBER 29, 1995
<TABLE>
<CAPTION>
(Unaudited)
(Audited)
ASSETS 6/28/96 9/29/95
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 17,793,390 $ 13,045,456
Investments 48,546,857 40,809,762
Accounts and notes receivable 84,682,388 70,706,049
Inventories 96,553,503 81,477,754
Other current assets 3,727,417 3,870,703
Deferred income taxes 2,537,323 2,537,323
------------ ------------
Total current assets 253,840,878 212,447,047
------------ ------------
NON-CURRENT ASSETS:
Notes receivable 28,902,085 21,950,478
Investment in affiliated companies 7,797,582 8,392,281
Other receivables and investments 6,968,641 6,869,895
Other non-current assets 13,167,351 11,668,590
------------ ------------
Total non-current assets 56,835,659 48,881,244
------------ ------------
PROPERTY, PLANT AND EQUIPMENT -
(Net of accumulated depreciation) 62,999,186 61,127,772
------------ ------------
TOTAL $373,675,723 $322,456,063
============ ============
</TABLE>
<PAGE>
UNITED GROCERS, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 28, 1996, and SEPTEMBER 29, 1995
(continued)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
LIABILITIES AND MEMBERS' EQUITY 06/28/96 09/29/95
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable - bank $ 60,640,736 $ 48,515,543
Accounts payable 62,195,348 60,461,117
Insurance reserves 36,538,206 29,958,678
Compensation and taxes payable 4,329,153 3,118,827
Other accrued expenses 4,537,842 3,662,495
Members' patronage payable 1,950,000 6,646,867
Current installments on
long-term liabilities 6,230,641 7,573,215
------------ ------------
Total current liabilities 176,421,926 159,936,742
------------ ------------
LONG-TERM LIABILITIES 148,891,405 115,623,670
------------ ------------
DEFERRED INCOME TAXES 3,651,247 3,651,247
------------ ------------
DEFERRED INCOME 886,917 886,917
------------ ------------
MEMBERS' EQUITY:
Common stock (Authorized, 10,000,000
shares at $5.00 par value;issued
and outstanding, 614,464 shares at
June 28, 1996 and 655,663 shares
at September 29, 1995) 3,224,250 3,278,315
Additional paid-in capital 25,266,582 23,956,797
Retained earnings 15,133,719 14,923,491
Unrealized gain on investments 199,677 198,884
------------ ------------
Total members' equity 43,824,228 42,357,487
------------ ------------
TOTAL $373,675,723 $322,456,063
============ ============
</TABLE>
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
6/28/96 6/30/95 6/28/96 6/30/95
-------- -------- -------- --------
<C> <C> <C> <C>
Net sales and operations 332,521,681 263,212,128 932,026,087 754,640,069
------------ ------------ ------------ ------------
Costs and expenses:
Cost of sales 286,034,521 223,060,063 801,257,674 642,161,619
Operating expenses 33,776,176 26,514,176 95,105,831 76,725,754
Selling and
administrative
expenses 3,001,019 3,186,285 8,025,042 8,005,753
Depreciation 1,611,370 1,497,860 4,595,146 4,401,302
Interest:
Interest expense 3,891,871 3,528,202 10,909,042 9,471,106
Interest income ( 1,099,342) ( 961,271) ( 3,825,903) ( 3,215,907)
------------ ------------ ------------ ------------
Interest expense,
net 2,792,529 2,566,931 7,083,139 6,255,199
------------ ------------ ------------ ------------
Total cost and
expenses 327,215,615 256,825,315 916,066,832 737,549,627
------------ ------------ ------------ ------------
Income before members'
allowances, patronage
dividends and
income taxes 5,306,066 6,386,813 15,959,255 17,090,442
Members' allowances ( 3,716,231) ( 3,730,293) ( 11,149,347) ( 11,160,586)
Members' patronage
dividends ( 1,200,000) ( 1,350,000) ( 3,000,000) ( 3,250,000)
------------ ------------ ------------ ------------
Income before income taxes 389,835 1,306,520 1,809,908 2,679,856
Provision for income taxes ( 52,270) ( 522,609) ( 543,285) ( 1,071,943)
------------ ------------ ------------ ------------
Net Income $337,565 $ 783,911 $ 1,266,263 1,607,913
============ ============ ============ ============
</TABLE>
<PAGE>
UNITED GROCERS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------- ----------------
JUNE 28 JUNE 30
CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995
------------ ------------
<S> <C> <C>
Net income $ 1,266,623 $ 1,607,913
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation 4,595,146 4,401,302
Provision for doubtful accounts
and notes 1,573,161 1,518,696
Patronage dividends payable in
common stock 1,736,214 1,205,978
(Gain)loss on sale of assets 40,595 517,565
Deferred income taxes -0- 145,413
Decrease (increase) in non-cash
current assets:
Accounts and notes receivable ( 13,976,339) ( 11,451,070)
Inventories ( 15,075,749) ( 5,525,300)
Other current assets 3,291,590 2,193,753
Increase (decrease) in non-cash
current liabilities:
Accounts payable and insurance
reserves 8,908,458 ( 2,476,310)
Compensation and taxes payable 1,210,326 432,565
Other accrued expenses 875,347 2,909,752
Members' patronage and other
refunds ( 4,696,867) ( 4,330,736)
Decrease (increase) in non-current
other assets ( 1,597,507) ( 5,591,246)
------------ ------------
Net cash provided by (used in)
operating activities ( 11,849,002) ( 14,441,725)
-------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans to members( 14,091,810) ( 13,453,504)
Collections on loans to members 1,331,675 7,355,868
Proceeds from sale (buyback) of
member loans 4,235,367 8,075,821
Sale of investments -0- 1,898,972
Redemption of investments 1,175,240 4,708,311
Purchase of investments ( 12,060,639) ( 9,269,370)
Sale of property/plant/equipment 6,423,546 169,546
Purchase-property/plant/equipment ( 12,930,702) ( 13,597,458)
------------ ------------
Net cash provided by (used in)
investing activities ( 25,917,323) ( 14,111,814)
------------ ------------
<PAGE>
UNITED GROCERS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(Unaudited)
<CAPTION>
NINE MONTHS ENDED
---------------- ----------------
JUNE 28 JUNE 30
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock 378,123 71,400
Repurchase of common stock ( 1,914,219) ( 1,214,115)
Proceeds of long-term liabilities:
Revolving bank lines of credit 841,500,000 526,700,000
Mortgages and notes 3,253,037 3,749,547
Redeemable notes and certificates 14,489,000 10,842,698
Repayment of long-term liabilities:
Revolving bank lines of credit (797,863,923) (499,945,645)
Mortgages and notes ( 3,188,159) ( 1,869,013)
Redeemable notes and certificates ( 14,139,600) ( 11,301,565)
------------ ------------
Net cash provided by (used in)
financing activities 42,514,259 27,033,307
------------ ------------
Net increase (decrease) in cash and
cash equivalents 4,747,934 ( 1,520,232)
Cash and cash equivalents, beginning of year 13,045,456 12,984,028
------------ ------------
Cash and cash equivalents, end of quarter $ 17,793,390 $ 11,463,796
============ ============
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Nine months ended June 28, 1996 ("1996") compared to nine months ended
June 30, 1995 ("1995").
RESULTS OF OPERATIONS
OVERVIEW
In 1996, net sales and operations increased 23.5% to 932.0 million. This
compares to a 8.1% increase in 1995 to $754.6 million. Net income before
member allowances, patronage dividends, and income taxes decreased to $16.0
million in 1996 compared to $17.1 million in 1995, (1.7% of sales in 1996,
2.3% of sales in 1995).
During 1996, the increase in net sales and operations was due primarily
to sales volume through new distribution facilities in California acquired in
December 1995 and higher unit volume in the Cash & Carry distribution segment.
This increase in sales volume was offset by decreased written premiums in the
insurance segment and lower sales volume from the retail store operations, due
to a reduction in the number of retail stores owned by the Company.
Profitability declined due to lower gross margins in the Cash & Carry
distribution business, increased operating expenses in the wholesale business
resulting from integration efforts relating to the newly acquired California
operation and increased interest expense associated with the California
acquisition. The decline in profitability was partially offset by increased
profits at certain subsidiary operations within the distribution segment and
lower retail store losses.
NET SALES AND OPERATIONS
Warehouse and Cash & Carry distribution segment sales increased 4.3% in
1996 to $713.9 million. Warehouse sales increased 2.1 % primarily reflecting
inflation, and increased sales in the Company's direct shipment and cross-dock
operations. Cash & Carry sales increased 12.5%, due to higher unit volumes
(10.2%) and sales at new units (2.3%).
Insurance segment's net premiums, commissions and fees decreased 5.2% in
1996 to $16.2 million, primarily due to a reduction in premiums written, which
was partially offset by decreases in unearned premium reserves.
COSTS AND EXPENSES
In 1996, total costs and expenses increased $178.5 million to 916.1
million (98.3% of sales). This compares to $737.5 million (97.7% of sales) in
1995. The components of costs and expenses are outlined below:
Costs and Expenses as a Percent of Net Sales and Operations:
For the Nine months ended:
6/28/96 6/30/95
-------- --------
Cost of Sales 86.0 85.1
Operating expenses 10.2 10.1
Selling and administrative
expenses 0.9 1.1
Depreciation and amortization 0.5 0.6
Interest expense, net 0.7 0.8
Total 98.3 97.7
<PAGE>
Cost of sales as a percent of net sales and operations increased to 86.0%
in 1996 from 85.1% in 1995 primarily due to lower gross margins earned in the
Cash & Carry distribution business, and a shift in the distribution segment
sales mix from retail store operations to wholesale operations.
Operating expenses as a percent of net sales and operations increased
slightly from 10.1% of sales to 10.2% of sales between 1995 and 1996. Other
expenses declined as a percentage of sales due to the increased sales volume
associated with the California acquisition.
MEMBER ALLOWANCES AND PATRONAGE DIVIDENDS
In 1996, member allowances and patronage dividends were $14.1 million
(1.5% of sales). This compares to $14.4 million (1.9% of sales) in 1995.
NET INCOME AND INCOME TAXES
Net income after member allowances, patronage dividends, and before taxes
was $1.8 million (0.2% of sales) in 1996 compared to $2.7 million (0.4% of
sales) in 1995. Net income after taxes was $1.3 million (0.1% of sales)
compared to $1.6 million (0.2% of sales) in 1995.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATING ACTIVITIES
In 1996, the Company used $11.8 million in cash in its operations, a
decrease of $2.6 million in cash used compared to 1995. Merchandise
inventories increased primarily due to the California wholesale acquisition.
At the beginning of the prior fiscal year, the Company adopted FASB #113
(Accounting for Reinsurance Contracts). The adoption of this change had the
effect of increasing accounts receivable by $2.4 million, other current assets
by $1.5 million and accounts payable by $3.9 million.
CASH FLOWS FROM INVESTING ACTIVITIES
In 1996, the Company used $25.9 million in cash in investing activities.
This compares to the $14.1 million in cash used by investing activities in
1995. The main influence on cash flow from investing activities was the
Company's member finance activities. In 1996, the Company's member finance
activities used $8.5 million in cash. In 1995, the Company's member finance
activities provided $2.0 million in cash.
CASH FLOWS FROM FINANCING ACTIVITIES
In 1996, the Company's financing activities provided $42.5 million in
cash compared to $27.0 million in 1995. Cash was primarily provided through
the utilization of the Company's bank credit lines.
Subsequent events
LABOR NEGOTIATIONS
The Company's labor agreements expired on April 1, 1996. Present
negotiations are proceeding with all the bargaining units. The Company's
labor relations continue to be satisfactory.
BANK AGREEMENT RENEWAL
The Company renewed it's bank credit agreements during the third quarter
under substantially the same terms and conditions as previously existed.
<PAGE>
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
None
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 12, 1996 UNITED GROCERS, INC.
(Registrant)
By John W. White
Vice President
(Principal Accounting Officer)
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information
extracted from the consolidated financial statements
of United Grocers, Inc., for the fiscal quarter ended
June 28, 1996 and is qualified in its entirety by
reference to such financial statements.
<MULTIPLIER> 1
<FISCAL-YEAR-END> SEP-27-1996
<PERIOD-START> SEP-30-1995
<PERIOD-END> JUN-28-1996
<PERIOD-TYPE> 9-MOS
<S> <C>
<CASH> 17,793,390
<SECURITIES> 48,546,857
<RECEIVABLES> 84,682,388
<ALLOWANCES> 1,746,789
<INVENTORY> 96,553,503
<CURRENT-ASSETS> 253,840,878
<PP&E> 105,643,679
<DEPRECIATION> 42,644,493
<TOTAL-ASSETS> 373,675,723
<CURRENT-LIABILITIES> 176,421,926
<BONDS> 148,891,405
0
0
<COMMON> 28,490,832
<OTHER-SE> 15,133,719
<TOTAL-LIABILITY-AND-EQUITY> 373,675,723
<SALES> 932,026,087
<TOTAL-REVENUES> 932,026,087
<CGS> 801,257,674
<TOTAL-COSTS> 95,105,831
<OTHER-EXPENSES> 8,025,042
<LOSS-PROVISION> 1,573,161
<INTEREST-EXPENSE> 10,909,042
<INCOME-PRETAX> 1,809,908
<INCOME-TAX> 543,285
<INCOME-CONTINUING> 1,266,263
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,266,263
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
