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 January 2, 1998
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 [ ] No [X].
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 December 23, 1998
Common shares, $5 par value 586,834 shares
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<PAGE>
UNITED GROCERS, INC., AND SUBSIDIARIES
INDEX
PART I: Financial Information Pages
Item 1. Financial Statements
Condensed Consolidated Statements of Operations
for the quarters ended January 2, 1998 and
December 27, 1996 3
Condensed Consolidated Balance Sheets as of
January 2, 1998 and October 3, 1997 4-5
Condensed Consolidated Statements of Cash Flows
for the quarters ended January 2, 1998
and December 27, 1996 6
Notes to the Condensed Consolidated Financial
Statements 7-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9-11
PART II: Other Information
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
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<PAGE>
UNITED GROCERS, INC., AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Quarter ended Quarter ended
January 2, 1998 December 27, 1996
(as restated,
see Note 4)
------------ -----------
Net sales and operations $ 304,141,408 $ 326,035,617
------------ -----------
Costs and expenses:
Cost of sales 265,321,895 283,799,435
Operating expenses 27,040,527 35,613,394
Selling and administrative
expenses 6,738,043 4,448,227
Depreciation and amortization 2,504,020 1,694,959
------------ -----------
Total costs and expenses 301,604,485 325,556,015
------------ -----------
Other (income)/expense:
Interest expense 3,948,144 4,071,046
Interest income ( 253,205) ( 109,180)
------------ -----------
Total other (income)/expense 3,694,939 3,961,866
------------ -----------
Loss from continuing operations
before members' allowances
and income taxes ( 1,158,016) ( 3,482,264)
Members' allowances ( 2,273,164) ( 2,729,432)
------------ -----------
Loss from continuing operations
before income tax benefit ( 3,431,180) ( 6,211,696)
Benefit for income taxes 1,372,472 2,430,839
------------ -----------
Loss from continuing
operations ( 2,058,708) ( 3,780,857)
Discontinued operations (Note 3), less
applicable income taxes of $292,316
in 1998 and $239,627 in 1997 438,474 359,441
------------ -----------
Net loss $( 1,620,234) $( 3,421,416)
============ ===========
The accompanying notes are an integral part of these financial statements.
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<PAGE>
UNITED GROCERS, INC., AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (Audited)
ASSETS January 2, 1998 October 3, 1997
------------ ------------
Current assets:
Cash and cash equivalents $ 11,311,202 $ 10,223,434
Investments maintained for insurance
reserves 50,865,187 51,512,510
Accounts and notes receivable 74,795,438 78,537,140
Inventories 84,211,023 102,333,350
Other current assets 6,257,772 7,036,284
Deferred income taxes 9,328,401 8,147,000
------------ ------------
Total current assets 236,769,023 257,789,718
------------ ------------
Non-current assets:
Notes receivable 15,546,225 16,497,658
Investment in affiliated companies 6,971,378 6,971,378
Other receivables and investments 4,220,592 4,837,028
Deferred income taxes 553,000 553,000
Property, plant and equipment, net 57,867,752 61,443,261
Other non-current assets 16,859,965 17,334,943
------------ ------------
Total non-current assets 102,018,912 107,637,268
------------ ------------
TOTAL $338,787,935 $365,426,986
============ ============
The accompanying notes are an integral part of these financial statements.
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<PAGE>
UNITED GROCERS, INC., AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(CONTINUED)
(Unaudited) (Audited)
LIABILITIES AND MEMBERS' EQUITY January 2, 1998 October 3, 1997
------------ ------------
Current liabilities:
Notes payable - bank $ 54,219,258 $ 10,191,059
Accounts payable 78,066,116 97,586,711
Insurance reserves supported
by investments 27,490,573 26,356,436
Compensation and taxes payable 8,431,366 8,327,715
Other accrued expenses 7,135,868 6,310,410
Other current liabilities 1,804,946 1,804,946
------------ ------------
Total current liabilities 177,148,127 150,577,277
Notes payable, net of current portion 136,722,402 187,995,051
Other liabilities 10,766,660 11,083,678
------------ ------------
Total liabilities 324,637,189 349,656,006
------------ ------------
Redeemable members' equity 1,120,000 1,120,000
------------ ------------
Members' equity:
Common stock (authorized, 10,000,000
shares at $5.00 par value; issued
and outstanding, 586,834 shares at
January 2, 1998 and 586,834 shares
at October 3, 1997) 2,934,170 2,934,170
Additional paid-in capital 22,885,942 22,885,942
Accumulated deficit ( 13,051,489) ( 11,431,255)
Unrealized gain on investments 262,123 262,123
------------ ------------
Total members' equity 13,030,746 14,650,980
------------ ------------
TOTAL $338,787,935 $365,426,986
============ ============
The accompanying notes are an integral part of these financial statements.
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<PAGE>
UNITED GROCERS, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Quarter ended Quarter ended
January 2, 1998 December 27, 1996
(as restated,
see Note 4)
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $( 1,620,234) $( 3,421,416)
Adjustments to reconcile net loss
to net cash provided by
operating activities 6,378,612 ( 2,858,459)
------------ ------------
Net cash provided by (used in)
operating activities 4,758,378 ( 6,279,875)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans to members ( 1,094,453) ( 3,317,063)
Collections on loans to members 1,761,717 2,347,083
Proceeds from sale of member loans 284,169 5,292,825
Redemption of investments 3,813,940 2,760,000
Purchase of investments ( 3,166,617) ( 2,726,534)
Sale of property, plant and equipment 2,582,744 647,611
Purchase of property, plant
and equipment ( 607,660) ( 4,576,355)
------------ ------------
Net cash provided by investing
activities 3,573,840 427,567
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock -0- 44,803
Repurchase of common stock -0- ( 316,479)
Proceeds from (repayment of)
long-term liabilities:
Revolving bank lines of credit ( 5,281,433) ( 1,260,693)
Mortgages and notes ( 1,192,717) 4,800,843
Redeemable notes and certificates ( 770,300) ( 1,023,500)
------------ ------------
Net cash provided by (used in)
financing activities ( 7,244,450) 2,244,974
------------ ------------
Net increase (decrease) in cash and
cash equivalents 1,087,768 ( 3,607,334)
Cash and cash equivalents, beginning
of year 10,223,434 16,509,866
------------ ------------
Cash and cash equivalents, end
of period $ 11,311,202 $ 12,902,532
============ ============
The accompanying notes are an integral part of these financial statements.
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<PAGE>
UNITED GROCERS, INC., AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. MANAGEMENT'S STATEMENT
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments necessary to present fairly the financial position of
United Grocers, Inc. and subsidiaries (the Company) at January 2, 1998 and the
results of operations for the quarterly periods ended January 2, 1998 and
December 27, 1996 and cash flows for the quarterly periods ended January 2, 1998
and December 27, 1996. The Notes to the Condensed Consolidated Financial
Statements which are contained in the 1997 Annual Report to Shareholders should
be read in conjunction with these Condensed Consolidated Financial Statements.
Operating results for the period ended January 2, 1998 are not necessarily
indicative of the results that may be expected for the entire fiscal year ending
October 2, 1998, or any other period.
Note 2. ACCOUNTING PRONOUNCEMENTS
During the first quarter of 1998, the Company adopted Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), which establishes requirements
for disclosure of comprehensive income. The objective of SFAS 130 is to report a
measure of all changes in equity that result from transactions and economic
events other than transactions with owners. Comprehensive income is the total of
net income and all other non-owner changes in equity. Comprehensive income did
not differ significantly from reported net income in the periods presented.
In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). This statement will change the
way public companies report information about segments of their business in
their annual financial statements and requires them to report selected segment
information in their quarterly reports issued to shareholders. It also requires
entity-wide disclosures about the products and services an entity provides, the
material countries in which it holds assets and earns revenues and its major
customers. The statement is effective for fiscal years beginning after December
15, 1997, but is not required to be presented in interim financial information
in the year of adoption.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" ("SFAS 132"). This statement revises
employers' disclosures about pension and other postretirement benefit plans. It
does not change the measurement or recognition of those plans. The statement
suggests combined formats for presentation of pension and other postretirement
benefit disclosures. The statement is effective for fiscal years beginning after
December 15, 1997, but is not required to be presented in interim financial
information in the year of adoption.
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<PAGE>
In June 1998, The FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities"("SFAS 133"). SFAS 133 establishes accounting
and reporting standards requiring that every derivative instrument be recorded
in the balance sheet as either an asset or liability measured at its fair value.
SFAS 133 also requires that changes in the derivative instrument's fair value be
recognized currently in results of operations unless specific hedge accounting
criteria are met. SFAS 133 is effective for fiscal years beginning after June
15, 1999.
The Company management has studied the implications of SFAS 131 and 132, and
based on the initial evaluation, expects the adoption to have no impact on the
Company's financial condition or results of operations, but will require revised
disclosures when the respective statements become effective. The Company's
management has studied the implications of SFAS 133 and based on the initial
evaluation, expects the adoption to have no impact on the Company's financial
condition or results of operations.
Note 3. DISCONTINUED OPERATIONS
In September 1997, the Company's management and Board of Directors approved a
plan whereby the insurance operations would be sold to an unrelated party.
Accordingly, the results of operations of the insurance segment for the quarter
and year-to-date periods have been presented as "discontinued operations" in the
accompanying condensed statements of operations.
The sale was completed on July 8, 1998. Net proceeds from the sale of the stock
of the Company's insurance subsidiary totaled approximately $36 million,
resulting in a pre-tax gain of approximately $5 million, which will be recorded
in the fourth quarter of fiscal 1998.
The following is a summary of the assets and liabilities of the insurance
segment as of January 2, 1998:
Assets:
Investments $ 50,865,187
Receivables and other current assets 21,502,082
Long-term assets 1,250,015
------------
73,617,284
Liabilities:
Insurance reserves supported by investments 27,490,573
Accounts payable and other current liabilities 16,384,746
------------
Net investment in insurance segment $ 29,741,965
============
Note 4. RESTATEMENT
In its 1997 Annual Report to Shareholders for the year ended October 3, 1997,
the Company presented a restatement of its members' equity as of September 27,
1996, due to adjustments to the financial statements for the years prior to
fiscal 1997. In addition, the Company recorded adjustments to its fiscal 1997
financial statements in the fourth quarter of 1997, a portion of which should
have been recorded in a previous quarter and year-to-date quarters. Accordingly,
the condensed consolidated financial statements for the quarter ended December
27, 1996 presented here have been restated to reflect the impact of the prior
period adjustments and adjustments recorded in the fourth quarter of fiscal
1997.
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<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Year-to-date period ended January 2, 1998 ("1998") compared to year-to-date
period ended December 27, 1996 ("1997").
RESULTS OF OPERATIONS
OVERVIEW
During the first quarter of fiscal 1998, the Company's financial condition and
results of operations were affected by implementation of the closure of the
Medford, Oregon distribution facility and the consolidation of certain
California operations with Oregon staff.
NET SALES AND OPERATIONS
Net sales and operations declined 6.7% from 1997 to $304.1 million for 1998. The
decline in sales is primarily due to the elimination of certain unprofitable
accounts.
COSTS AND EXPENSES
Total costs and expenses decreased $24.0 million from 1997 to $301.6 million for
1998 (99.1% of sales). This compares to $325.6 million (99.8% of sales) in 1997.
The components of costs and expenses are outlined below:
Costs and Expenses as a Percent of Net Sales and Operations:
Quarter ended Quarter ended
January 2, 1998 December 27, 1996
--------------- -----------------
Cost of Sales 87.2% 87.0%
Operating expenses 8.9 10.9
Selling and administrative
expenses 2.2 1.3
Depreciation and amortization 0.8 0.6
---- ----
Total 99.1% 99.8%
==== ====
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<PAGE>
Operating expenses as a percent of net sales and operations decreased from 10.9%
to 8.9% from 1997 to 1998. The decrease in operating expenses is primarily due
to internal cost efficiencies, including the consolidation of the procurement
and accounting staffs of the Company's California division with those of the
Oregon staff. These cost efficiencies were partially offset by costs incurred in
connection with the closure of the Company's Medford distribution facility.
MEMBER ALLOWANCES
In 1998, member allowances were $2.3 million (.75% of sales). This compares to
$2.7 million (.84% of sales) in 1997. The decrease is due to changes in the
Company's marketing plan.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATING ACTIVITIES
In 1998, the Company provided $4.8 million in cash from its operations, compared
to a use of $6.2 million in 1997. The increase of $11.0 million is due primarily
to reductions in accounts receivable and inventory, partially offset by
reductions in accounts payable.
CASH FLOWS FROM INVESTING ACTIVITIES
In 1998, the Company provided $3.6 million in cash from investing activities,
compared to the $.4 million in cash provided by investing activities in 1997.
Cash flows from investing activities increased primarily due to a reduction in
capital expenditures and an increase in the redemption of investments by the
Company's insurance subsidiary.
CASH FLOWS FROM FINANCING ACTIVITIES
In 1998, the Company's financing activities used $7.2 million in cash compared
to $2.2 million of cash provided in 1997. The increase in cash used for
financing is a result of debt reductions in 1998.
ACCOUNTING PRONOUNCEMENTS
During the first quarter of 1998, the Company adopted Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), which establishes requirements
for disclosure of comprehensive income. The objective of SFAS 130 is to report a
measure of all changes in equity that result from transactions and economic
events other than transactions with owners. Comprehensive income is the total of
net income and all other non-owner changes in equity. Comprehensive income did
not differ significantly from reported net income in the periods presented.
In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). This statement will change the
way public companies report information about segments of their business in
their annual financial statements and requires them to report selected segment
information in their quarterly reports issued to shareholders. It also requires
entity-wide disclosures about the products and services an entity provides, the
material countries in which it holds assets and earns revenues and its major
customers. The statement is effective for fiscal years beginning after December
15, 1997, but is not required to be presented in interim financial information
in the year of adoption.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" ("SFAS 132"). This statement revises
employers' disclosures about pension and other postretirement benefit plans. It
does not change the measurement or recognition of those plans. The statement
suggests combined formats for presentation of pension and other postretirement
benefit disclosures. The statement is effective for fiscal years beginning after
December 15, 1997, but is not required to be presented in interim financial
information in the year of adoption.
-10-
<PAGE>
In June 1998, The FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities"("SFAS 133"). SFAS 133 establishes accounting
and reporting standards requiring that every derivative instrument be recorded
in the balance sheet as either an asset or liability measured at its fair value.
SFAS 133 also requires that changes in the derivative instrument's fair value be
recognized currently in results of operations unless specific hedge accounting
criteria are met. SFAS 133 is effective for fiscal years beginning after June
15, 1999.
The Company management has studied the implications of SFAS 131 and 132, and
based on the initial evaluation, expects the adoption to have no impact on the
Company's financial condition or results of operations, but will require revised
disclosures when the respective statements become effective. The Company's
management has studied the implications of SFAS 133 and based on the initial
evaluation, expects the adoption to have no impact on the Company's financial
condition or results of operations.
YEAR 2000
The Company is currently reviewing its internal systems and infrastructure in
order to identify and modify those systems that are not Year 2000 compliant. The
Company expects any required modification to be made on a timely basis and does
not believe that the cost of any such modification will have a material adverse
effect on the Company's operating results. There can be no assurance, however,
that there will not be a delay in, or increased costs associated with,
implementation of any such modifications, and the Company's inability to
implement such modifications could have an adverse effect on the Company's
future operating results.
FORWARD-LOOKING STATEMENTS
As with all forward-looking statements, the forward-looking statements made by
the Company herein (including, without limitation, forward-looking statements
relating to the effect of adoption of accounting pronouncements or the expected
gains from sales not yet recorded) are subject to uncertainties that could cause
actual results to differ materially from those projected, including without
limitation, uncertainties inherent in business plans and the changing of
business methods, uncertainties related to the response of customers and
suppliers to changing business strategies, and uncertainties concerning the
outcome of sales of subsidiaries or divisions.
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<PAGE>
Part II
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
The most recent report on Form 8-K was filed by the Company on December
22, 1997, reporting the determination by management that the previously
issued financial statements for the fiscal year ended September 27,
1996, and subsequent interim periods should be restated.
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<PAGE>
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: December 23, 1998 UNITED GROCERS, INC.
(Registrant)
By /s/ Mark Tweedie
Vice President
(Principal Accounting Officer)
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated financial statements of United Grocers, Inc., for
the applicable periods ended January 2, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-02-1998
<PERIOD-START> OCT-04-1997
<PERIOD-END> JAN-02-1998
<CASH> 11,311,202
<SECURITIES> 50,865,187
<RECEIVABLES> 74,795,438
<ALLOWANCES> 10,560,006
<INVENTORY> 84,211,023
<CURRENT-ASSETS> 236,769,023
<PP&E> 108,347,580
<DEPRECIATION> 50,479,828
<TOTAL-ASSETS> 338,787,935
<CURRENT-LIABILITIES> 177,148,127
<BONDS> 136,722,402
0
0
<COMMON> 2,934,170
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 338,787,935
<SALES> 304,141,408
<TOTAL-REVENUES> 304,141,408
<CGS> 265,321,895
<TOTAL-COSTS> 292,362,422
<OTHER-EXPENSES> 6,738,043
<LOSS-PROVISION> 452,631
<INTEREST-EXPENSE> 3,948,144
<INCOME-PRETAX> (3,431,180)
<INCOME-TAX> 1,372,472
<INCOME-CONTINUING> (2,058,708)
<DISCONTINUED> 438,474
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,620,234)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
