<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 4, 1995
--------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------------------- --------------------
Commission file number 0-10815
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Certified Grocers of California, Ltd.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-0615250
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2601 S. Eastern Avenue, Los Angeles 90040
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(213) 723-7476
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Registrant's telephone number, including area code
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class A Shares 49,300 Shares as of March 4, 1995
Class B Shares 368,872 Shares as of March 4, 1995
Class C Shares 17 Shares as of March 4, 1995
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(Thousands omitted)
<TABLE>
<CAPTION>
March 4, September 3,
1995 1994
-------------------- -------------
ASSETS
<S> <C> <C>
Current:
Cash and cash equivalents $9,842 $7,702
Accounts and notes receivable 103,916 96,545
Inventories 143,944 146,869
Prepaid expenses 5,948 3,810
--------- ---------
Total current assets 263,650 254,926
Properties, at cost 147,254 158,324
Less, accumulated depreciation (73,303) (71,641)
--------- ---------
73,951 86,683
Investments 21,712 20,274
Notes receivable 25,848 23,335
Other assets 14,310 15,878
--------- ---------
TOTAL ASSETS $399,471 $401,096
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current:
Accounts payable $84,131 $82,137
Accrued liabilities 67,019 61,428
Notes payable 3,033 2,978
Patrons' excess deposits and estimated patronage dividends 12,950 11,541
--------- ---------
Total current liabilities 167,133 158,084
Notes payable, due after one year 140,643 149,673
Commitments and contingencies
Patrons' required deposits 18,715 17,589
Subordinated patronage dividend certificates 4,444 4,444
Shareholders' equity:
Class A Shares 4,971 4,704
Class B Shares 53,629 56,593
Retained earnings 10,206 10,313
Net unrealized loss on investments (270) (304)
--------- ---------
Total shareholders' equity 68,536 71,306
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $399,471 $401,096
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)
(Thousands omitted)
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
------------------------ --------------------------
March 4, February 26, March 4, February 26,
1995 1994 1995 1994
--------- -------------- ---------- ------------
<S> <C> <C> <C> <C>
Net sales $426,280 $461,143 $887,187 $934,867
--------- -------------- ---------- -----------
Costs and expenses:
Cost of sales 390,505 419,085 810,806 850,608
Distribution, selling and administrative 29,874 35,059 64,479 69,456
--------- -------------- ---------- -----------
Operating income 5,901 6,999 11,902 14,803
Interest expense (3,862) (3,720) (7,575) (7,509)
Other income, net 671 671
--------- -------------- ---------- -----------
Earnings before estimated patronage
dividends, provision for income taxes and
cumulative effect of accounting change 2,710 3,279 4,998 7,294
Estimated patronage dividends (2,234) (3,070) (4,454) (6,975)
--------- -------------- ---------- -----------
Earnings before income tax provision and
cumulative effect of accounting change 476 209 544 319
Provision for income taxes 186 91 215 102
--------- -------------- ---------- -----------
Earnings before cumulative effect of
accounting change 290 118 329 217
--------- -------------- ---------- -----------
Cumulative effect of accounting change 2,500
--------- -------------- ---------- -----------
Net earnings $290 $118 $329 $2,717
--------- -------------- ---------- -----------
--------- -------------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE TWENTY-SIX WEEKS ENDED MARCH 4, 1995 AND FEBRUARY 26, 1994
(Thousands omitted)
<TABLE>
<CAPTION>
March 4, February 26,
1995 1994
--------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $329 $2,717
--------- ------------
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Cumulative effect of accounting change (2,500)
Depreciation and amortization 5,068 5,366
Gain on disposal of properties (60) (180)
Accrued postretirement benefit costs 1,492 1,156
Accrued postemployment benefit costs 746
Decrease (increase) in assets:
Accounts and notes receivable (7,371) (9,353)
Inventories 2,925 (11,986)
Prepaid expenses (2,138) (2,186)
Notes receivable (2,513) 3,714
Increase (decrease) in liabilities:
Accounts payable 1,994 7,490
Accrued liabilities 3,353 5,323
Patrons' excess deposits and estimated
patronage dividends 1,409 1,296
--------- ------------
Total adjustments 4,905 (1,860)
--------- ------------
Net cash provided by operating activities 5,234 857
--------- ------------
Cash flows from investing activities:
Purchase of properties (5,355) (3,573)
Proceeds from sales of properties 13,183 518
Decrease in other assets 1,464 171
Investment in long-term bonds, net (1,262) (849)
Investment in preferred stocks, net (100) (2,500)
Investment in common stocks, net (42) (2,320)
--------- ------------
Net cash provided (utilized) by investing activities 7,888 (8,553)
--------- ------------
Cash flows from financing activities:
Additions to long-term notes payable 12,978
Reduction of long-term notes payable (7,856) (1,500)
Reduction of short-term notes payable (1,119) (1,101)
Increase in members' required deposits 1,126 701
Decrease in subordinated patronage dividend certificates (4)
Repurchase of shares from members (3,703) (3,780)
Issuance of shares to members 570 376
--------- ------------
Net cash (utilized) provided by financing activities (10,982) 7,670
--------- ------------
Net increase (decrease) in cash and cash equivalents 2,140 (26)
Cash and cash equivalents at beginning of year 7,702 11,411
--------- ------------
Cash and cash equivalents at end of period $9,842 $11,385
--------- ------------
--------- ------------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $7,518 $7,521
Income taxes 1,958 23
--------- ------------
$9,476 $7,544
--------- ------------
--------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD., AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The accompanying consolidated condensed financial statements reflect
all adjustments which are, in the opinion of management, both of a normal
recurring nature and necessary to a fair statement of the results of the interim
periods presented. Certain reclassifications have been made to prior period's
financial statements to present them on a basis comparable with the current
period's presentation.
2. The consolidated condensed financial statements include the accounts
of Certified Grocers of California, Ltd. and all of its subsidiaries (the
"Company"). Intercompany transactions and accounts with subsidiaries have been
eliminated.
3. The Company adopted Statement of Financial Accounting Standards No.
112, "Employers' Accounting for Postemployment Benefits" ("SFAS No. 112"), in
the first quarter of fiscal 1995. The new accounting standard requires an
accrual rather than a pay-as-you-go basis of recognizing expenses for
postemployment benefits provided by an employer to former or inactive employees
after termination of employment but before retirement. The effect on the
Company's 1995 Consolidated Condensed Statement of Earnings for the twenty-six
weeks ended March 4, 1995 was $746,000. This amount is included in the
Company's 1995 Consolidated Condensed Statement of Cash Flows as a non-cash
expense. Management estimates the effect on its results of operations in fiscal
1995 will approximate $1.5 million.
4. The Company reclassified $1,174,000 from long-term to short-term debt
(a noncash financing activity) for the twenty-six weeks ended March 4, 1995, in
its Consolidated Condensed Statements of Cash Flows.
5. In second quarter 1995, the Company sold a majority investment of
Major Market Inc. ("MMI"). MMI was previously consolidated in the Company's
financial statements. The Company now has a minority interest in MMI and
accounts for the investment using the cost method. In the Company's
Consolidated Condensed Statements of Cash Flows for the twenty-six weeks ended
March 4, 1995, a $2.5 million noncash investing activity is reflected for the
issuance of a note receivable related to the sale of the investment.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company relies primarily upon cash flow from operations, patron
deposits, Patronage Certificates, shareholdings and borrowings under the
Company's credit lines, to finance operations. Net cash provided by operating
activities totalled $5.2 million for the first twenty-six weeks of fiscal 1995
(the "1995 period"), as compared to $0.9 million for the first twenty-six weeks
of fiscal 1994 (the "1994 period"). Net cash provided for the 1995 period and
the 1994 period is due primarily to increased accounts and notes receivable in
the cooperative and insurance operations. This reflects seasonal member volume
increases in the cooperative as well as increased premium receivables in the
insurance operations due to annual workers' compensation and general liability
policy renewals. In addition to the items indicated above, the Company's cost
and expense reductions, revised marketing programs, and the dividend retention
program provide adequate operating cash flow to conduct the Company's business
operations. At March 4, 1995, working capital was $96.5 million, as compared to
$96.8 million at September 3, 1994, and the Company's current ratio was 1.6 to 1
at the end of the 1995 period and at fiscal 1994 year end. Working capital
varies throughout the year primarily as a result of seasonal inventory
requirements.
Capital expenditures totalled $5.4 million in the first twenty-six weeks of
fiscal 1995. The 1995 expenditures include purchases of warehouse, maintenance,
and computer equipment.
On December 6, 1994, the Company completed a sale leaseback transaction
with Trinet Corporate Realty Trust, Inc. ("Trinet"), an unaffiliated third
party, wherein it sold approximately 5.5 acres of real property in the City of
Commerce together with all buildings, structures and improvements located on
such real property, including an office building containing approximately
100,000 square feet and a cafeteria building containing approximately 8,000
square feet. The total sales price for the property was $11.5 million.
Concurrent with the sale of the real property, the Company and Trinet entered
into a twenty year lease of the property, with two ten year extension options.
The monthly rental is approximately $108,000 and is subject to CPI adjustment
commencing on the first day of the sixth, eleventh and sixteenth years.
However, such CPI adjustments shall not exceed four percent per annum on a
cumulative basis during each five year period. The $1.2 million gain realized
on the sale has been deferred and is being amortized in proportion to rental
payments over the period of the lease term.
In fiscal year 1993, Grocers Capital Company ("GCC") acquired an 81%
investment in Major Market Inc. ("MMI") for $1.6 million. The investment was
previously consolidated in the Company's financial statements. In second
quarter 1995, GCC sold its preferred stock and 282,600 shares of common stock to
MMI. GCC received proceeds of $120,000 and a note receivable for approximately
$2.6 million. GCC now has a minority interest in MMI and accounts for the
investment using the cost method. GCC recorded a pretax gain of $511,000 on the
sale of its investment.
The Company has agreements with certain banks that provide for committed
lines of credit. These credit lines are available for general working capital,
acquisitions, and maturing long-term debt. At the end of the second quarter of
fiscal 1995, the Company had $160 million in committed lines of credit, of which
$90.5 million was not utilized. A $135 million committed line of credit with a
maturity date of March 17, 1997, is collateralized by accounts receivable,
inventory, and certain other assets of Certified Grocers of California, Ltd.,
and two of its principal subsidiaries, excluding equipment, real property and
the assets of GCC. The agreement provides for Eurodollar basis or prime basis
borrowings at the Company's option. As of March 4, 1995, the Company's
outstanding borrowings, including obligations under capital leases of
approximately $7.5 million, amounted to $143.7 million, of which $140.6 million
was classified as noncurrent.
6
<PAGE>
Certified distributes at least 20% of the patronage dividends in cash and
distributes Class B Shares as a portion of the patronage dividends distributed
to its member-patrons. In addition, under a patronage dividend retention
program authorized by Certified's Board of Directors, Certified retains a
portion of the patronage dividends to be distributed for a fiscal year and
issues Patronage Certificates evidencing its indebtedness respecting the
retained amounts. The program provides for the issuance of Patronage
Certificates to patrons on an annual basis in a portion and at an interest rate
to be determined annually by the Board of Directors. However, as to any
particular patron, if the amount of the retention is less than $500, then no
retention occurs and a Patronage Certificate is not issued. Patronage
Certificates for each year are unsecured general obligations of Certified, are
subordinated to certain other indebtedness of Certified, and are nontransferable
without the consent of Certified. The Patronage Certificates are subject to
redemption, at any time in whole and from time to time in part, without premium,
at the option of Certified, and are subject to being set off, at the option of
Certified, against all or any portion of the amounts owing to the Company by the
holder. Subject to the payment of at least 20% of the patronage dividend in
cash, the portion of the patronage dividend retained is deducted from each
patron's patronage dividend prior to the issuance of Class B Shares as a portion
of such dividend.
For fiscal year 1993, the portion of the patronage dividend retained and
evidenced by the issuance of Patronage Certificates was 20% of the fourth
quarter dividend for dairy products and 40% of the fiscal year's dividend for
non-dairy products. Patronage Certificates issued for fiscal year 1993 have a
seven year term, maturing on December 15, 2000, and carry a 7% annual interest
rate, payable in cash. The retention for 1994 was 20% of the quarterly dairy
patronage dividends and 40% of the fiscal year's dividend for non-dairy
products, and the Patronage Certificates have a maturity date of December 15,
2001, and carry an 8% annual interest rate, payable in cash. The Company
expects to continue to distribute patronage dividends in the future, although
there can be no assurance of the amounts of such dividends.
Patrons are generally required to maintain subordinated deposits with the
Company and member-patrons purchase shares of stock of the Company. Upon
termination of patron status, the withdrawing patron will be entitled to recover
deposits in excess of its obligations to the Company if permitted by the
applicable subordination provisions, and a member-patron also will be entitled
to have its shares redeemed, subject to applicable legal requirements, Company
policies and credit agreement limitations. The Company's current redemption
policy limits the Class B Shares that the Company is obligated to redeem in any
year to 5% of the number of Class B Shares deemed outstanding at the end of the
preceding fiscal year. In fiscal 1995, this limitation restricted the Company's
redemption of shares to 19,414 shares for $3,165,064, and as of March 4, 1995,
that number of shares has been redeemed. Due to the loss of a number of
significant member-patrons in past fiscal years, the number of shares tendered
for redemption at April 18, 1995, totalled 73,729 (or approximately $12 million
using fiscal 1994 year end book values), which exceeds the amount that can be
redeemed in fiscal 1995. Consequently, the Company will be required to make
redemptions in fiscal 1996, 1997, and 1998, with such redemptions approximating
$9.2 million to $9.5 million based on 1994 year end book values and estimated
share issuances for those years. Shares are redeemed at their book value as of
the end of the year preceding redemption. Cash flow to fund redemption of
shares is provided from operations, patron deposits, Patronage Certificates,
current shareholdings and borrowings under the Company's credit lines.
7
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth selected financial data of the Company
expressed as a percentage of sales for the periods indicated below:
<TABLE>
<CAPTION>
For the Twenty-six Weeks
------------------------
Ended
-----
March 4, February 26,
-------- ------------
1995 1994
---- ----
<S> <C> <C>
Net sales 100% 100%
Cost of sales 91.4 91.0
Distribution, selling and administrative 7.3 7.4
Operating income 1.3 1.6
Interest expense 0.9 0.8
Other income 0.1
Estimated patronage dividends 0.5 0.8
Earnings after dividend and before income taxes 0.0 0.0
Cumulative effect of accounting change 0.3
Net earnings 0.0 0.3
</TABLE>
NET SALES
Net sales decreased 5.1% to $887.2 million in the 1995 period as compared
to the 1994 period. This decrease was due to the effects of the loss of
certain customers and member-patrons. In addition, certain other large member-
patrons either acquired or expanded their own warehousing and distribution
operations. However, the decrease in sales as a result of these occurrences was
partially offset by improved sales growth in the Northern and Southern
California grocery divisions. The Company is attempting to increase sales
volume by adding new customers and expanding the volume of sales to existing
customers.
COST OF SALES
Cost of sales was $810.8 million in the 1995 period as compared to $850.6
million in the 1994 period. Delivery fees, which are included in sales, have
been reduced over the prior period by $1.3 million which accounts for a portion
of the reduction. Product sold directly to the customer from the manufacturer
has increased from $8.5 million in the 1994 period to $11.3 million in the 1995
period. Direct sales from the manufacturer have a much lower mark-up which
tends to increase the percentage of cost of sales to sales. In addition, the
decrease in cost of sales was also due to the result of lower sales volume as
discussed above.
DISTRIBUTION, SELLING AND ADMINISTRATIVE
Distribution, selling and administrative expenses were $64.5 million or
7.3% of net sales in the 1995 period, compared to $69.5 million or 7.4% of net
sales in the 1994 period. The expenses as a percentage of sales have remained
consistent with the comparable prior twenty-six week period.
OPERATING INCOME
Operating income totalled $11.9 million for the 1995 period, compared to
$14.8 million for the 1994 period. The decrease in operating income was
primarily the result of lower sales volume as discussed above.
8
<PAGE>
OTHER INCOME, NET
In fiscal year 1993, GCC acquired an 81% investment in MMI for $1.6
million. The investment was previously consolidated in the Company's financial
statements. In second quarter 1995, GCC sold its preferred stock and 282,600
shares of common stock to MMI. GCC received proceeds of $120,000 and a note
receivable for approximately $2.6 million. GCC now has a minority interest in
MMI and accounts for the investment using the cost method. GCC recorded a
pretax gain of $511,000 on the sale of its investment and $162,000 in earnings
from MMI.
INTEREST
Interest expense in the 1995 period has remained consistent in dollars and
as a percentage of sales with the comparable 1994 period.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
In the first quarter of 1994, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109").
The adoption of this new accounting method resulted in a positive $2.5 million
impact on net earnings in the 1994 period.
NET EARNINGS
Net earnings for the 1995 period were $329,000 compared to net earnings of
$2.7 million for the 1994 period. The adoption of SFAS No. 112 had a $746,000
impact on net earnings in the 1995 period; however, the decrease in net earnings
was primarily due to the cumulative effect of adopting SFAS No. 109 in the 1994
period. In addition, Grocers Specialty Company experienced lower earnings
compared to the 1994 period due to the loss of a significant customer. Other
subsidiaries had improved earnings in the 1995 period.
9
<PAGE>
II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to the Company's Annual Report on Form 10-K for the
fiscal year ended September 3, 1994, for a description of the Company's
involvement with respect to the cleanup of hazardous waste at Operating
Industries, Inc. Superfund Site in Monterey Park, California.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27. Financial Data Schedule.
(b) Reports on Form 8-K
None.
10
<PAGE>
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf of the
undersigned thereunto duly authorized.
CERTIFIED GROCERS OF CALIFORNIA, LTD.
-------------------------------------
(Registrant)
Dated: April 18, 1995 By /s/ ALFRED A. PLAMANN
-------------------------------
Alfred A. Plamann
President and
Chief Executive Officer
By /s/ DANIEL T. BANE
------------------------------
Daniel T. Bane
Senior Vice President,
Chief Financial Officer
and Chief Accounting Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-02-1995
<PERIOD-START> SEP-04-1994
<PERIOD-END> MAR-04-1995
<CASH> 9,842
<SECURITIES> 21,712
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 143,944
<CURRENT-ASSETS> 263,650
<PP&E> 147,254
<DEPRECIATION> 73,303
<TOTAL-ASSETS> 399,471
<CURRENT-LIABILITIES> 167,133
<BONDS> 140,643
<COMMON> 58,600
0
0
<OTHER-SE> 9,936
<TOTAL-LIABILITY-AND-EQUITY> 399,471
<SALES> 887,187
<TOTAL-REVENUES> 0
<CGS> 810,806
<TOTAL-COSTS> 875,285
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,575
<INCOME-PRETAX> 544
<INCOME-TAX> 215
<INCOME-CONTINUING> 329
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 329
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
