<PAGE>
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 December 27, 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
P.O. 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 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 February 7, 1997
Common shares, $5 par value 626,645 shares
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UNITED GROCERS, INC. AND SUBSIDIARIES
INDEX
Pages
PART I: Financial Information
Item 1. Financial Statements
Consolidated Statements of Income
for the quarters ended December 27,
1996 and December 29, 1995 3
Consolidated Balance Sheets as of
December 27, 1996 and September 27, 1996 4-5
Consolidated Statement of Cash Flows
for the quarters ended December 27, 1996
and December 29, 1995 6-7
Notes to the Consolidated Financial
Statements 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9-11
PART II: Other Information
Item 3. Defaults Upon Senior Securities 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 12
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UNITED GROCERS, INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Quarter
ended ended
December 27, 1996 December 29, 1995
----------------- ------------------
<S> <C> <C>
Net sales and operations $331,840,876 $281,391,653
------------ ------------
Costs and expenses:
Cost of sales 287,785,689 243,513,761
Operating expenses 33,313,640 26,451,095
Selling and administrative expenses 4,254,448 2,745,497
Depreciation 1,767,210 1,557,012
Interest:
Interest expense 4,071,050 3,293,526
Interest income (1,000,497) (1,356,670)
------------ ------------
Interest expense, net 3,070,553 1,936,856
------------ ------------
Total costs and expenses 330,191,540 276,204,221
------------ ------------
Income before members' allowances and
patronage dividends, and income taxes 1,649,336 5,187,432
Members' allowances (2,729,432) (2,934,560)
Members' patronage dividends -- (1,400,000)
------------ ------------
(Loss) income before income taxes (1,080,096) 852,872
Benefit (provision) for income taxes 378,200 (288,204)
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Net (loss) income $ (701,896) $ 564,668
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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UNITED GROCERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited) (Audited)
ASSETS: December 27, 1996 September 27, 1996
----------------- ------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 12,902,532 $ 16,509,866
Investments maintained for
insurance reserves 46,857,941 46,828,893
Accounts and notes receivable 77,815,617 78,571,016
Inventories 102,294,073 105,420,187
Other current assets 6,455,889 4,814,449
Deferred income taxes 2,317,772 2,317,772
------------ ------------
Total current assets 248,643,824 254,462,183
------------ ------------
Non-current assets:
Notes receivable 24,041,812 24,715,039
Investment in affiliated companies 12,477,107 12,477,107
Other receivables and investments 6,738,684 6,363,865
Other non-current assets 18,121,457 17,223,023
------------ ------------
Total non-current assets 61,379,060 60,779,034
------------ ------------
Property, plant and equipment -
(Net of accumulated depreciation) 70,985,739 68,902,737
------------ ------------
Total $381,008,623 $384,143,954
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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UNITED GROCERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
LIABILITIES AND MEMBERS' EQUITY December 27, 1996 September 27, 1996
----------------- ------------------
<S> <C> <C>
Current liabilities:
Notes payable - bank $ 59,913,174 $ 61,173,867
Accounts payable 79,918,892 82,076,707
Insurance reserves supported
by investments 29,954,644 29,561,657
Compensation and taxes payable 5,753,646 5,021,977
Other accrued expenses 4,660,768 5,130,182
Members' patronage payable -- 3,200,110
Current installments on long-term
liabilities 9,066,919 9,073,983
------------ ------------
Total current liabilities 189,268,043 195,238,483
Long-term liabilities 146,918,512 143,134,105
Deferred income taxes 3,312,267 3,312,267
Deferred income 961,784 1,000,026
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Total liabilities 340,460,606 342,684,881
------------ ------------
Members' equity:
Common stock (authorized 10,000,000
shares at $5.00 par value; issued
and outstanding, 634,061 shares at
December 27, 1996 and 638,451 shares
at September 27, 1996) 3,170,305 3,192,255
Additional paid-in capital 24,057,395 24,224,262
Retained earnings 13,058,213 13,842,966
Unrealized gain on investments 262,104 199,590
------------ ------------
Total members' equity 40,548,017 41,459,073
------------ ------------
Total $381,008,623 $384,143,954
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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UNITED GROCERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter ended
December 27, 1996 December 29, 1995
----------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (701,896) $ 564,668
Adjustments to reconcile net (loss)
income to net cash provided by
(used in) operating activities:
Depreciation 1,767,210 1,557,012
Provision for doubtful accounts
and notes 601,211 504,657
Loss (gain) on sale of assets 40,291 (65,881)
Decrease (increase) in non-cash
current assets:
Accounts and notes receivable (3,495,429) 10,999,935
Inventories 3,126,114 314,482
Other current assets (1,641,441) (5,975,205)
Increase (decrease) in non-cash current liabilities:
Accounts payable and insurance
reserves (1,764,826) 7,386,451
Compensation and taxes payable 731,669 (1,762,985)
Other accrued expenses (469,414) (85,335)
Members' patronage payable (3,200,110) (5,090,342)
Decrease (increase) in other
non-current assets (1,273,254) (3,827,841)
------------ ------------
Net cash provided by (used in)
operating activities (6,279,875) 4,519,616
------------ ------------
Cash flows from investing activities:
Loans to members (3,317,063) (5,143,948)
Collections on loans to members 2,347,083 447,815
Proceeds from sale of member loans 5,292,825 3,441,566
Redemption of investments 2,760,000 1,175,240
Purchase of investments (2,726,534) (3,078,587)
Sale of property/plant/equipment 647,611 6,423,546
Purchase-property/plant/equipment (4,576,355) (6,184,123)
Purchase of business combination -- (23,251,791)
------------ ------------
Net cash provided by (used in)
investing activities 427,567 (26,170,282)
------------ ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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UNITED GROCERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter ended
December 27, 1996 December 29, 1995
----------------- -----------------
<S> <C> <C>
Cash flows from financing activities:
Sale of common stock $ 44,803 $ 119,000
Repurchase of common stock (316,479) (246,404)
Proceeds of long-term liabilities:
Revolving bank lines of credit 325,800,000 274,200,000
Mortgages and notes 8,400,000 3,231,073
Redeemable notes and certificates 1,115,700 3,608,000
Repayment of long-term liabilities:
Revolving bank lines of credit (327,060,693) (243,436,557)
Mortgages and notes (3,599,157) (2,856,758)
Redeemable notes and certificates (2,139,200) (4,532,400)
------------ ------------
Net cash provided by (used in)
financing activities 2,244,974 30,085,954
------------ ------------
Net increase (decrease) in cash
and cash equivalents (3,607,334) 8,435,288
Cash and cash equivalents, beginning
of year 16,509,866 13,045,456
------------ ------------
Cash and cash equivalents, end of
quarter $ 12,902,532 $ 21,480,744
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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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 December 27, 1996 and the results of
operations for the quarterly periods ended December 27, 1996 and December
29, 1995 and cash flows for the quarterly periods ended December 27, 1996
and December 29, 1995. 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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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Three months ended December 27, 1996 ("1997") compared to three months ended
December 29, 1995 ("1996").
RESULTS OF OPERATIONS
ACQUISITION
During the quarter ended December 29, 1995, the Registrant completed the
purchase of the wholesale operations of Bay Area Foods, Inc., doing business as
Market Wholesale Grocery ("Market Wholesale"). The purchase involved acquiring
inventory, equipment and other assets and assuming certain liabilities.
OVERVIEW
In 1997, net sales and operations increased 17.9% to $331.8 million. This
compares to a 15.7% increase in 1996 to $281.4 million. Net income before member
allowances, patronage dividends, and income taxes decreased $3.5 million to $1.6
million (0.5% of sales). This compares to a net income of $5.2 million (1.8% of
sales) in 1996.
During 1997, the increase in net sales and operations was due primarily to the
additional volume associated with Market Wholesale operations. 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
the increased expenses in the distribution segment, 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 32.0% to $310.3
million, reflecting the addition of Market Wholesale volume. Apart from the
addition of Market Wholesale, 1997 warehouse sales to members decreased 3.5%
from 1996. Cash & Carry sales increased 8.9%, due to higher unit volumes (3.8%)
and sales at new units (5.1%).
Insurance segment's net premiums, commissions and fees increased 3.0% in 1997 to
$5.8 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
quarterly results was an increase in expense of approximately $165,000.
In 1997, total costs and expenses increased $54.0 million to $330.2 million
(99.5% of sales). This compares to $276.2 million (98.2% of sales) in 1996. The
components of costs and expenses are outlined below:
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three months ended
12/27/96 12/29/95
Costs and expenses as a percent of
net sales and operations:
Cost of sales 86.7 % 86.5 %
Operating expenses 10.1 9.4
Selling and administrative expenses 1.3 1.0
Depreciation and amortization 0.5 0.6
Interest expense, net 0.9 0.7
----- -----
Total 99.5 % 98.2 %
===== =====
Cost of sales as a percent of net sales and operations increased to 86.7% in
1997 from 86.5% 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 increased 0.7% to
10.1% in 1997 due to increased operating expenses in the distribution segment.
MEMBER ALLOWANCES AND PATRONAGE DIVIDENDS
In 1997, member allowances and patronage dividends were $2.7 million (0.8% of
sales). This compares to $4.3 million (1.5% of sales) in 1996. The decrease is
primarily due to lower income available for patronage distribution.
NET INCOME AND INCOME TAXES
Net loss in 1997 after member allowances, patronage dividends, and before taxes
was $1.1 million (0.3% of sales). In 1996, net income after member allowances,
patronage dividends, and before taxes was $0.9 million (0.3% of sales). Net loss
after income tax benefit was $0.7 million (0.2% of sales) in 1997, compared to
net income of $0.6 million (0.2% of sales) in 1996.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATING ACTIVITIES
In 1997, the Company used $6.3 million in cash in its operations, compared to
$4.5 million in cash provided by operations in 1996. Merchandise inventory
decreases from warehouse consolidations were offset by increases in accounts
receivable and decreases in payables and insurance reserves.
CASH FLOWS FROM INVESTING ACTIVITIES
In 1997, the Company provided $0.4 million in cash from investing activities.
This compares to the $26.2 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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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 provided $2.2 million in cash
compared to $30.6 million in 1996. In 1997, cash was primarily provided through
utilization of additional notes payable. Cash, in 1996, was primarily provided
through the utilization of the Company's bank credit lines.
FINANCIAL COVENANTS
The Company was out of compliance with its fixed charge financial covenant with
certain lenders as of December 27, 1996. Discussions are occurring with the
Company's lenders to amend its credit agreements with regards to the fixed
charge covenant ratio.
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Part II. OTHER INFORMATION
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 the agreements, which constitutes
an event of default under certain of the agreements. The Company has notified
its lenders of the situation and met on February 6 to discuss a resolution. None
of the lenders had indicated that they will take any action on account of the
Company's noncompliance with the financial ratio covenant.
Item 6. Exhibits and Reports on Form 8-K.
(a) None.
(b) No Form 8-K was filed during the quarter for which this report is
filed.
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: February 7, 1997 UNITED GROCERS, INC.
---------------- --------------------
(Registrant)
By /s/ John W. White
John W. White
Vice-President
(Principal Accounting
Officer)
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