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 March 28, 1997
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 (Milwaukie, Oregon)
P.O. Box 22187
Portland, Oregon 97222
(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 of 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.
Class Outstanding at May 12, 1997
Common shares, $5 par value 605,748 shares
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<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
INDEX
Pages
PART I: Financial Information
Item 1. Financial Statements
Consolidated Statements of Income for
the quarters and year-to-date periods
ended March 28, 1997 and March 29, 1996 3-4
Consolidated Balance Sheets as of
March 28, 1997 and September 27, 1996 5-6
Consolidated Statements of Cash Flows
for the year-to-date periods ended
March 28, 1997 and March 29, 1996 7-8
Notes to the Consolidated Financial
Statements 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10-12
PART II: Other Information
Item 3 12
Item 4 13
Item 5 13
Item 6 13
Signature 13
Financial Data Schedule 14
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<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Quarter
ended ended
March 28, 1997 March 29, 1996
---------------- ---------------
<S> <C> <C>
Net sales and operations $319,750,680 $318,112,753
------------ ------------
Costs and expenses:
Cost of sales 274,411,603 272,468,918
Operating expenses 32,377,438 35,728,916
Selling and administrative expenses 3,811,304 2,278,526
Depreciation 1,811,776 1,426,764
Interest:
Interest expense 4,351,752 3,723,645
Interest income (1,198,279) (1,369,891)
------------ ------------
Interest expense, net 3,153,473 2,353,754
------------ ------------
Total costs and expenses 315,565,594 314,256,878
------------ ------------
Income before members' allowances and
patronage dividends, and income taxes 4,185,086 3,855,875
Members' allowances (2,471,826) (2,888,674)
Members' patronage dividends -- (400,000)
------------ ------------
Income before income taxes 1,713,260 567,201
Provision for income taxes (599,800) (202,811)
------------ ------------
Net income $ 1,113,460 $ 364,390
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Year-to-date Year-to-date
period ended period ended
March 28, 1997 March 29, 1996
---------------- ---------------
<S> <C> <C>
Net sales and operations $651,591,556 $599,504,406
------------ ------------
Costs and expenses:
Cost of sales 562,197,292 516,833,035
Operating expenses 65,691,078 61,329,655
Selling and administrative expenses 8,065,752 5,024,023
Depreciation 3,578,986 2,983,776
Interest:
Interest expense 8,422,802 7,017,171
Interest income (2,198,776) (2,726,561)
------------ ------------
Interest expense, net 6,224,026 4,290,610
------------ ------------
Total costs and expenses 645,757,134 590,461,099
------------ ------------
Income before members' allowances and
patronage dividends, and income taxes 5,834,422 9,043,307
Members' allowances (5,201,258) (5,823,234)
Members' patronage dividends -- (1,800,000)
------------ ------------
Income before income taxes 633,164 1,420,073
Provision for income taxes (221,600) (491,015)
------------ ------------
Net income $ 411,564 $ 929,058
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited) (Audited)
ASSETS: March 28, 1997 September 27, 1996
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 12,937,967 $ 16,509,866
Investments maintained for
insurance reserves 46,899,861 46,828,893
Accounts and notes receivable 78,635,681 78,571,016
Inventories 101,063,008 105,420,187
Other current assets 7,435,020 4,814,449
Deferred income taxes 2,317,772 2,317,772
------------ ------------
Total current assets 249,289,309 254,462,183
------------ ------------
Non-current assets:
Notes receivable 20,301,561 24,715,039
Investment in affiliated companies 12,477,107 12,477,107
Other receivables and investments 6,712,926 6,363,865
Other non-current assets 19,273,051 17,223,023
------------ ------------
Total non-current assets 58,764,645 60,779,034
------------ ------------
Property, plant and equipment -
(Net of accumulated depreciation) 72,749,836 68,902,737
------------ ------------
Total $380,803,790 $384,143,954
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
LIABILITIES AND MEMBERS' EQUITY March 28, 1997 September 27, 1996
<S> <C> <C>
Current liabilities:
Notes payable - bank $ 63,394,593 $ 61,173,867
Accounts payable 85,993,041 82,076,707
Insurance reserves supported
by investments 29,266,751 29,561,657
Compensation and taxes payable 5,784,282 5,021,977
Other accrued expenses 4,940,494 5,130,182
Members' patronage payable -- 3,200,110
Current installments on long-term
liabilities 9,075,759 9,073,983
------------ ------------
Total current liabilities 198,454,920 195,238,483
Long-term liabilities 137,758,035 143,134,105
Deferred income taxes 3,312,267 3,312,267
Deferred income 923,547 1,000,026
------------ ------------
Total liabilities 340,448,769 342,684,881
------------ ------------
Members' equity:
Common stock (authorized 10,000,000
shares at $5.00 par value; issued
and outstanding, 614,984 shares at
March 28, 1997 and 638,451 shares
at September 27, 1996) 3,074,920 3,192,255
Additional paid-in capital 23,426,868 24,224,262
Retained earnings 13,720,577 13,842,966
Unrealized gain on investments 132,656 199,590
------------ ------------
Total members' equity 40,355,021 41,459,073
------------ ------------
Total $380,803,790 $384,143,954
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Year-to-date period ended
March 28, 1997 March 29, 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 411,564 $ 929,058
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 3,578,986 2,983,776
Provision for doubtful accounts
and notes 1,187,718 1,145,268
Gain on sale of assets (1,849) (113,418)
Decrease (increase) in non-cash
current assets:
Accounts and notes receivable (2,481,773) 12,275,307
Inventories 4,357,179 1,975,899
Other current assets (2,620,571) (1,779,274)
Increase (decrease) in non-cash current liabilities:
Accounts payable and insurance
reserves 3,621,430 (13,813,381)
Compensation and taxes payable 762,305 466,020
Other accrued expenses (189,688) (1,565,593)
Members' patronage payable (3,200,110) (4,357,818)
Decrease (increase) in other
non-current assets (2,399,089) (2,828,278)
------------ ------------
Net cash provided by (used in)
operating activities 3,026,102 (4,682,434)
------------ ------------
Cash flows from investing activities:
Loans to members (6,012,848) (9,975,193)
Collections on loans to members 3,373,030 427,975
Proceeds from sale of member loans 8,282,686 2,898,369
Redemption of investments 4,004,570 1,175,240
Purchase of investments (4,142,472) (5,532,396)
Sale of property/plant/equipment 4,188,606 6,423,546
Purchase-property/plant/equipment (11,689,321) (7,731,233)
Purchase of business combination -- (23,251,791)
------------ ------------
Net cash provided by (used in)
investing activities (1,995,749) (35,565,483)
------------ ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-7-
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
Year-to-date period ended
March 28, 1997 March 29, 1996
<S> <C> <C>
Cash flows from financing activities:
Sale of common stock $ 44,803 $ 306,962
Repurchase of common stock (1,493,487) (908,889)
Proceeds of long-term liabilities:
Revolving bank lines of credit 675,800,000 499,400,000
Mortgages and notes 8,400,000 2,018,592
Redeemable notes and certificates 9,281,700 10,214,200
Repayment of long-term liabilities:
Revolving bank lines of credit (673,579,274) (460,945,661)
Mortgages and notes (5,661,297) (2,358,261)
Redeemable notes and certificates (17,394,697) (9,177,200)
------------ ------------
Net cash provided by (used in)
financing activities (4,602,252) 38,549,743
------------ ------------
Net increase (decrease) in cash
and cash equivalents (3,571,899) (1,698,174)
Cash and cash equivalents, beginning
of year 16,509,866 13,045,456
------------ ------------
Cash and cash equivalents, end of
period-to-date $ 12,937,967 $ 11,347,282
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. MANAGEMENT'S STATEMENT
In the opinion of management the accompanying unaudited financial statements
contain all adjustments (all of which are normal and recurring in nature)
necessary to present fairly the financial position of United Grocers, Inc.
and Subsidiaries (the Company) at March 28, 1997 and the results of
operations for the quarterly and year-to-date periods ended March 28, 1997
and March 29, 1996 and cash flows for the year-to-date periods ended March
28, 1997 and March 29, 1996. The Notes to the Consolidated Financial
Statements which are contained in the 1996 Annual Report to Shareholders and
incorporated by reference into the 1996 Form 10-K should be read in
conjunction with these Consolidated Financial Statements.
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<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Six months ended March 28, 1997 ("1997") compared to six months ended March 29,
1996 ("1996").
RESULTS OF OPERATIONS
OVERVIEW
In 1997, net sales and operations increased 8.7% to 651.6 million. This compares
to a 22.0% increase in 1996 to $599.5 million. Net income before member
allowances, patronage dividends, and income taxes decreased $3.2 million to $5.8
million (0.9% of sales). This compares to a net income of $9.0 million (1.5% of
sales) in 1996.
During 1997, the increase in net sales and operations was due primarily to the
additional volume associated with the operations of the wholesale division of
Bay Area Foods, Inc., dba Market Wholesale Grocery ("Market Wholesale"), which
was acquired in fiscal year 1996. Without the volume from the new acquisition,
there was a slight decrease in volume. Other factors included increased written
premiums in the insurance segment, and lower sales volume from the retail store
operations.
Profitability decreased due to declining sales volume in the member distribution
segment, higher software amortization expense, higher net interest expense and
reserves for warehouse consolidation activities. The Company also realized
slightly higher retail store losses and increased expense ratios in the
insurance segment.
NET SALES AND OPERATIONS
Warehouse and Cash & Carry distribution segment sales increased 10.8% to $637.4
million, reflecting the addition of Market Wholesale volume. Apart from the
addition of Market Wholesale, 1997 warehouse sales to members decreased 4.4%
from 1996. Cash & Carry sales increased 6.5%, due to higher unit volumes (2.5%)
and sales at new units (4.0%).
Insurance segment's net premiums, commissions and fees increased 0.6% in 1997 to
$11.3 million, primarily due to increased market penetration.
COSTS AND EXPENSES
During 1996, the Registrant began to recognize the expenses of post-retirement
medical benefits for employees, as outlined in FASB 106. The impact on the
year-to-date results was an increase in expense of approximately $330,000.
In 1997, total costs and expenses increased $55.3 million to $645.8 million
(99.1% of sales). This compares to $590.5 million (98.5% of sales) in 1996. The
components of costs and expenses are outlined below:
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<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
For the six months ended
March 28, 1997 March 29, 1996
Costs and expenses as a percent of net
sales and operations:
<S> <C> <C>
Cost of sales 86.3% 86.2%
Operating expenses 10.1 10.2
Selling and administrative expenses 1.2 0.8
Depreciation and amortization 0.5 0.5
Interest expense, net 1.0 0.8
----- -----
Total 99.1 % 98.5 %
===== =====
</TABLE>
Cost of sales as a percent of net sales and operations increased to 86.3% in
1997 from 86.2% in 1996 primarily due to a reduction in retail store sales along
with increased loss ratios in the insurance segment.
Operating expenses as a percent of net sales and operations decreased 0.1% to
10.1% in 1997 due to decreased operating expenses in the distribution segment.
MEMBER ALLOWANCES AND PATRONAGE DIVIDENDS
In 1997, member allowances and patronage dividends were $5.2 million (0.8% of
sales). This compares to $7.6 million (1.3% of sales) in 1996. The decrease is
primarily due to lower income available for patronage distribution.
NET INCOME AND INCOME TAXES
Net income in 1997 after member allowances and patronage dividends, and before
taxes was $0.6 million (0.1% of sales). In 1996, income after member allowances,
patronage dividends, and before taxes was $1.4 million (0.2% of sales). Net
income after income tax expense was $0.4 million (0.6% of sales) in 1997,
compared to net income of $0.9 million (0.2% of sales) in 1996.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATING ACTIVITIES
In 1997, the Company was provided $3.0 million in cash from its operations,
compared to $4.7 million in cash used by operations in 1996. Merchandise
inventory decreases from warehouse consolidations were complemented by increases
in accounts payable and insurance reserves.
CASH FLOWS FROM INVESTING ACTIVITIES
In 1997, the Company used $2.0 million in cash from investing activities. This
compares to the $35.6 million in cash used by investing activities in 1996. The
main components of the shift in the cash flow from investing activities was the
$23.3 million business combination in 1996.
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<PAGE>
Part I
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CASH FLOWS FROM FINANCING ACTIVITIES
In 1997, the Company's financing activities used $4.6 million in cash compared
to being provided $38.5 million in 1996. Cash in 1996 was primarily provided
through the utilization of the Company's bank credit lines. In 1997, cash was
primarily provided through the utilization of additional notes payable.
FINANCIAL COVENANTS
The Company was out of compliance under its fixed charge financial covenant with
certain lenders as of March 28, 1997. Discussions are continuing with the
Company's lenders to amend its credit agreements with regards to the fixed
charge covenant ratio.
Part II
Item 3. DEFAULTS UPON SENIOR SECURITIES
The Company's loan agreements with banks and other lenders require that it
maintain certain financial ratios. The Company's ratio of earnings to fixed
charges has fallen below the level required by two senior note agreements with
insurance companies, which caused the Company to remain out of compliance on
these ratios. Knowledge by the Company's officers that the Company has failed to
maintain the required ratio constitutes an event of default under certain of the
agreements. Discussions to waive the ratio default and amend the existing
agreements are continuing. As of April 30, 1997, none of the lenders had
indicated that it would take any action on account of the Company's
noncompliance with the financial ratio covenant.
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<PAGE>
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
At the annual meeting of the shareholders on January 11, 1997, Gaylon Baese, Ken
Findley, and Jim Glassel were elected as directors. Dick Leonard, Dean Ryan,
Robert Lamb, Ron Mancasola, and H. Larry Montgomery will continue their terms of
office as directors. The number of votes cast for each nominee for director was
as follows: Gaylon Baese - 84; Ken Findley - 93; Jim Glassel - 113; Dennis
Blasingame - 68; Craig Danielson - 78; Jim Wiley - 56.
Item 5. Other Information
The Company has agreed to exchange certain business information with Associated
Grocers, Inc., for the purpose of evaluating the feasibility of a business
combination among both companies, including a potential merger.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27 - Financial Data Schedule
(b) None.
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 12, 1997 UNITED GROCERS, INC.
------------ --------------------
(Registrant)
By /s/ John W. White
John W. White
Vice-President
(Principal Accounting
Officer)
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary
financial information extracted from
the consolidated financial statements
of United Grocers, Inc., for the
year-to- date period ended March 28,
1997 and is qualified in its entirety
by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1
<PERIOD-START> SEP-28-1996
<PERIOD-END> MAR-28-1997
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-03-1997
<S> <C>
<CASH> $ 12,937,967
<SECURITIES> 46,899,861
<RECEIVABLES> 78,635,681
<ALLOWANCES> 2,851,912
<INVENTORY> 101,063,008
<CURRENT-ASSETS> 249,289,309
<PP&E> 120,434,324
<DEPRECIATION> 47,684,488
<TOTAL-ASSETS> 380,803,790
<CURRENT-LIABILITIES> 198,454,920
<BONDS> 137,758,035
0
0
<COMMON> 3,074,920
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 380,803,790
<SALES> 651,591,556
<TOTAL-REVENUES> 651,591,556
<CGS> 562,197,292
<TOTAL-COSTS> 645,757,134
<OTHER-EXPENSES> 8,065,752
<LOSS-PROVISION> 1,187,718
<INTEREST-EXPENSE> 8,422,802
<INCOME-PRETAX> 633,164
<INCOME-TAX> 221,600
<INCOME-CONTINUING> 411,564
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 411,564
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
