<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 December 3, 1994
-------------------------------------------------
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
incorporation or organization) Identification No.)
2601 S. Eastern Avenue, Los Angeles 90040
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(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 48,700 Shares as of December 3, 1994
Class B Shares 388,286 Shares as of December 3, 1994
Class C Shares 17 Shares as of December 3, 1994
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Thousands omitted)
<TABLE>
<CAPTION>
December 3, September 3,
1994 1994
------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Current:
Cash and cash equivalents $ 8,275 $ 7,702
Accounts and notes receivable 110,225 96,545
Inventories 152,431 146,869
Prepaid expenses 5,671 3,810
---------- ----------
Total current assets 276,602 254,926
Properties, at cost 160,260 158,324
Less, accumulated depreciation (73,834) (71,641)
---------- ----------
86,426 86,683
Investments 20,102 20,274
Notes receivable 22,531 23,335
Other assets 15,572 15,878
---------- ----------
TOTAL ASSETS $421,233 $401,096
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current:
Accounts payable $ 89,435 $ 82,137
Accrued liabilities 57,115 61,428
Notes payable 3,010 2,978
Patrons' excess deposits and estimated
patronage dividends 13,592 11,541
---------- ----------
Total current liabilities 163,152 158,084
Notes payable, due after one year 164,342 149,673
Commitments and contingencies
Patrons' required deposits 18,123 17,589
Subordinated patronage dividend certificates 4,444 4,444
Shareholders' equity
Class A Shares 4,717 4,704
Class B Shares 56,593 56,593
Retained earnings 10,274 10,313
Net unrealized loss on investments (412) (304)
---------- ----------
Total shareholders' equity 71,172 71,306
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $421,233 $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
-----------------------------
December 3, November 27,
1994 1993
----------- ------------
<S> <C> <C>
Net sales $460,907 $473,724
--------- ---------
Costs and expenses:
Cost of sales 420,301 431,523
Distribution, selling and administrative 34,605 34,397
--------- ---------
Operating income 6,001 7,804
Interest expense (3,713) (3,789)
--------- ---------
Earnings before estimated patronage
dividends, provision for income taxes and
cumulative effect of accounting change 2,288 4,015
Estimated patronage dividends (2,220) (3,905)
--------- ---------
Earnings before income tax provision and
cumulative effect of accounting change 68 110
Provision for income taxes 29 11
--------- ---------
Earnings before cumulative effect of
accounting change 39 99
Cumulative effect of accounting change 2,500
--------- ---------
Net earnings $ 39 $ 2,599
--------- ---------
--------- ---------
</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 THIRTEEN WEEKS ENDED DECEMBER 3, 1994 AND NOVEMBER 27, 1993
(Thousands omitted)
<TABLE>
<CAPTION>
December 3, November 27,
1994 1993
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 39 $ 2,599
-------- --------
Adjustments to reconcile net earnings to
net cash utilized by operating activities:
Cumulative effect of accounting change (2,500)
Depreciation and amortization 2,712 2,735
Gain on disposal of properties (30) (35)
Accrued postretirement benefit costs 749 575
Accrued postemployment benefit costs 373
Decrease (increase) in assets:
Accounts and notes receivable (13,680) (18,992)
Inventories (5,562) (15,197)
Prepaid expenses (1,861) (774)
Notes receivable 804 825
Increase (decrease) in liabilities:
Accounts payable 7,298 7,571
Accrued liabilities (5,435) 4,023
Patrons' excess deposits and estimated
patronage dividends 2,051 2,362
-------- --------
Total adjustments (12,581) (19,407)
-------- --------
Net cash utilized by operating activities (12,542) (16,808)
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Cash flows from investing activities:
Purchase of properties (3,869) (1,668)
Proceeds from sales of properties 1,510 252
Decrease in other assets 240 68
Investment in preferred stocks, net (108)
Investment in long-term bonds, net 172 (1,161)
-------- --------
Net cash utilized by investing activities (2,055) (2,509)
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Cash flows from financing activities:
Additions to long-term notes payable 15,653 18,043
Reduction of long-term notes payable (400) (1,000)
Reduction of short-term notes payable (552) (553)
Increase in members' required deposits 534 1,181
Repurchase of shares from members (179) (82)
Issuance of shares to members 114 16
-------- --------
Net cash provided by financing activities 15,170 17,605
-------- --------
Net increase (decrease) in cash and cash equivalents 573 (1,712)
Cash and cash equivalents at beginning of year 7,702 11,411
-------- --------
Cash and cash equivalents at end of period $ 8,275 $ 9,699
-------- --------
-------- --------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 4,622 $ 4,890
Income taxes 250 23
-------- --------
$ 4,872 $ 4,913
-------- --------
-------- --------
</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 adoption
of this new accounting method had a $373,000 impact on the first quarter 1995
Consolidated Condensed Statement of Earnings. Management estimates the effect
on its results of operations in fiscal 1995 will approximate $1.5 million.
4. The Company reclassified $584,000 from long-term to short-term debt (a
noncash financing activity) for the 13 weeks ended December 3, 1994, in its
Consolidated Condensed Statements of Cash Flows.
5
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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 utilized by operating
activities totalled $12.6 million for the first 13 weeks of fiscal 1995 (the
"1995 period"), as compared to $16.8 million for the first 13 weeks of fiscal
1994 (the "1994 period"). Net cash utilized 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. 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 December 3, 1994, working
capital was $113.5 million, as compared to $96.8 million at September 3, 1994,
and the Company's current ratio was 1.7 to 1, up from 1.6 to 1 at the fiscal
1994 year end. Working capital varies throughout the year primarily as a
result of seasonal inventory requirements.
Capital expenditures totalled $3.9 million in the first 13 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
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 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 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 first quarter of
fiscal 1995, the Company had $160 million in committed lines of credit, of which
$67.4 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 Grocers Capital Company ("GCC"). The agreement provides for
Eurodollar basis or prime basis borrowings at the Company's option. As of
December 3, 1994, the Company's outstanding borrowings, including obligations
under capital leases of approximately $7.7 million, amounted to $167.4 million,
of which $164.3 million was classified as noncurrent.
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. 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.
6
<PAGE>
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. However, as to any particular patron, if such amount was
less than $500, then no retention occurred and a Patronage Certificate was not
issued. 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 Board of Directors approved the patronage dividend
retention program for fiscal year 1994. 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 will 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
restricts the Company's redemption of shares to 19,414 shares for $3,165,064.
Due to the loss of a number of significant member-patrons in past fiscal years,
the number of shares tendered for redemption at December 3, 1994, totalled
72,259 (or approximately $11.8 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.
Shares are redeemed at their book value as of the end of the year preceding
redemption.
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 13 Weeks Ended
----------------------
December 3, November 27,
----------- ------------
1994 1993
---- ----
<S> <C> <C>
Net sales 100% 100%
Cost of sales 91.2 91.1
Distribution, selling and administrative 7.5 7.3
Operating income 1.3 1.6
Interest expense 0.8 0.8
Estimated patronage dividends 0.5 0.8
Earnings after dividend and before income taxes 0.0 0.0
Cumulative effect of accounting change 0.5
Net earnings 0.0 0.5
</TABLE>
7
<PAGE>
NET SALES
Net sales decreased 2.7% to $460.9 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 as a percentage of sales has remained consistent with the
comparable prior thirteen-week period (91.1% in the 1994 period and 91.2% in
the 1995 period).
DISTRIBUTION, SELLING AND ADMINISTRATIVE
Distribution, selling and administrative expenses were $34.6 million or
7.5% of net sales in the 1995 period, compared to $34.4 million or 7.3% of net
sales in the 1994 period. The increase in these expenses as a percentage to
sales was primarily the result of lower sales volume as discussed above.
OPERATING INCOME
Operating income totalled $6 million for the 1995 period, compared to $7.8
million for the 1994 period. The decrease in operating income was primarily the
result of lower sales volume as discussed above.
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 (LOSS)
Net earnings for the 1995 period were $39,000 compared to net earnings of
$2.6 million for the 1994 period. The adoption of SFAS No. 112 had a $373,000
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 first quarter of
fiscal 1995.
8
<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.
9
<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: January 23, 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
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-02-1995
<PERIOD-START> SEP-04-1994
<PERIOD-END> DEC-03-1994
<CASH> 8,275
<SECURITIES> 20,102
<RECEIVABLES> 114,224
<ALLOWANCES> (3,999)
<INVENTORY> 152,431
<CURRENT-ASSETS> 276,602
<PP&E> 160,260
<DEPRECIATION> 73,834
<TOTAL-ASSETS> 421,233
<CURRENT-LIABILITIES> 163,152
<BONDS> 164,342
<COMMON> 61,310
0
0
<OTHER-SE> 9,862
<TOTAL-LIABILITY-AND-EQUITY> 421,233
<SALES> 460,907
<TOTAL-REVENUES> 0
<CGS> 420,301
<TOTAL-COSTS> 454,906
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,713
<INCOME-PRETAX> 68
<INCOME-TAX> 29
<INCOME-CONTINUING> 39
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
