<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 2, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-10815
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Certified Grocers of California, Ltd.
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(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) 726-2601
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Registrant's telephone number, including area code
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(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
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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
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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 50,300 Shares as of December 2, 1995
Class B Shares 384,767 Shares as of December 2, 1995
Class C Shares 15 Shares as of December 2, 1995
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(dollars in thousands)
DECEMBER 2, SEPTEMBER 2,
1995 1995
----------- ------------
ASSETS
Current:
Cash and cash equivalents $ 8,639 $ 7,329
Accounts and notes receivable 125,390 104,249
Inventories 148,910 149,432
Prepaid expenses 5,627 4,789
Deferred taxes 2,850 2,850
----------- ------------
Total current assets 291,416 268,649
Properties, at cost 149,674 148,285
Less, accumulated depreciation (78,298) (76,469)
----------- ------------
71,376 71,816
Investments 22,863 22,051
Notes receivable 29,928 25,622
Other assets 10,907 10,465
----------- ------------
TOTAL ASSETS $426,490 $398,603
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current:
Accounts payable $ 79,955 $ 86,159
Accrued liabilities 54,475 51,018
Notes payable 11,608 11,573
Patrons' excess deposits and estimated
patronage dividends 15,211 12,214
----------- ------------
Total current liabilities 161,249 160,964
Notes payable, due after one year 155,488 129,686
Long-term liabilities 12,888 12,210
Commitments and contingencies
Patrons' deposits and certificates:
Patrons' required deposits 17,243 17,022
Subordinated patronage dividend
certificates 6,561 6,561
Shareholders' equity:
Class A Shares 5,308 5,292
Class B Shares 56,266 56,266
Retained earnings 11,245 10,488
Net unrealized gain on appreciation of
investments 242 114
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Total shareholders' equity 73,061 72,160
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $426,490 $398,603
=========== ============
The accompanying notes are an integral part of these statements.
2
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CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)
(dollars in thousands)
13 WEEKS ENDED
-------------------------------
DECEMBER 2, DECEMBER 3,
1995 1994
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Net sales $493,027 $460,907
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Costs and expenses:
Cost of sales 450,866 420,301
Distribution, selling and administrative 33,742 34,605
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Operating income 8,419 6,001
Interest expense (3,827) (3,713)
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Earnings before estimated patronage
dividends and provision for income taxes 4,592 2,288
Estimated patronage dividends (3,400) (2,220)
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Earnings before income tax provision 1,192 68
Provision for income taxes 418 29
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Net earnings $ 774 $ 39
=========== ===========
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 2, 1995 AND DECEMBER 3, 1994
(dollars in thousands)
DECEMBER 2, DECEMBER 3,
1995 1994
----------- -----------
Cash flows from operating activities:
Net earnings $ 774 $ 39
----------- -----------
Adjustments to reconcile net earnings to
net cash utilized by operating activities:
Depreciation and amortization 2,453 2,837
Gain on disposal of properties (30) (30)
Accrued postretirement benefit costs 595 749
Accrued postemployment benefit costs 30 373
Accrued supplemental retirement
benefit costs 141 3
Accrued sub-lease liability (52) (84)
Decrease (increase) in assets:
Accounts and notes receivable (21,141) (13,680)
Inventories 522 (5,562)
Prepaid expenses (838) (1,861)
Notes receivable (4,306) 804
Increase (decrease) in liabilities:
Accounts payable (6,204) 7,298
Accrued liabilities 3,421 (5,354)
Patrons' excess deposits and
estimated patronage dividends 2,997 2,051
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Total adjustments (22,412) (12,456)
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Net cash utilized by operating activities (21,638) (12,417)
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Cash flows from investing activities:
Purchase of properties (1,864) (3,869)
Proceeds from sales of properties 40 1,510
(Increase) decrease in other assets (601) 115
Investment in preferred stocks, net (45) (108)
Investment in long-term bonds, net (639) 172
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Net cash utilized by investing activities (3,109) (2,180)
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Cash flows from financing activities:
Additions to long-term notes payable 26,419 15,653
Reduction of long-term notes payable (400)
Reduction of short-term notes payable (582) (552)
Increase in members' required deposits 221 534
Repurchase of shares from members (100) (179)
Issuance of shares to members 99 114
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Net cash provided by financing activities 26,057 15,170
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Net increase in cash and cash equivalents 1,310 573
Cash and cash equivalents at beginning of year 7,329 7,702
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Cash and cash equivalents at end of period $ 8,639 $ 8,275
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 4,820 $ 4,622
Income taxes 250
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$ 4,820 $ 4,872
=========== ===========
The accompanying notes are an integral part of these statements.
4
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CERTIFIED GROCERS OF CALIFORNIA, LTD., AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. 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. The interim financial statements included herein have been
prepared by the Company without audit, pursuant to the rules and regulations
promulgated by the Securities and Exchange Commission (the "Commission").
Certain information and footnote disclosures, normally included in the
financial statements prepared in accordance with generally accepted
accounting principles, have been omitted pursuant to Commission rules and
regulations; nevertheless, the Company believes that the disclosures are
adequate to make the information presented not misleading. These condensed
financial statements should be read in conjunction with the audited financial
statements and notes thereto included in the Company's latest annual report
filed on Form 10-K. The results of operations for the interim periods are not
necessarily indicative of the results for the full year.
2. 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.
3. The Company reclassified $617,000 from long-term to short-term debt (a
noncash financing activity) for the thirteen weeks ended December 2, 1995, 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 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 totaled $21.6 million for the first thirteen weeks of fiscal 1996
(the "1996 period"), as compared to $12.4 million for the first thirteen
weeks of fiscal 1995 (the "1995 period"). Net cash utilized for the 1996
period and 1995 period is due primarily to increased accounts and notes
receivable in the cooperative, general merchandise, and insurance operations.
This reflects seasonal member volume increases in the cooperative and
general merchandise operations 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 2, 1995, working capital was $130.2 million, as compared to
$107.7 million at September 2, 1995, and the Company's current ratio was 1.8
to 1 at the end of the 1996 period and 1.7 to 1 at fiscal 1995 year end.
Working capital varies primarily as a result of seasonal inventory
requirements.
Capital expenditures totaled $1.9 million in the first thirteen weeks of
fiscal 1996. The 1996 expenditures include purchases of warehouse and
computer equipment.
The Company and one of its subsidiaries, Grocers Capital Company ("GCC")
have 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. One credit agreement 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. GCC's credit
agreement is collateralized primarily by its loan portfolio. The agreements
provide for Eurodollar basis or prime basis borrowings at the Company's
option. At the end of the first quarter of fiscal 1996, the Company had $160
million in committed lines of credit, of which $64.6 million was not
utilized. As of December 2, 1995, the Company's outstanding borrowings,
including obligations under capital leases of approximately $6.2 million,
amounted to $167.1 million, of which $155.5 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. 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.
6
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The Board of Directors determined that in fiscal years 1993 and 1994,
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 in fiscal 1993, 20% of the quarterly dairy patronage dividends for
fiscal 1994 and 40% of the fiscal 1993 and 1994 dividends for non-dairy
products. As to patronage dividends distributed with respect to Certified's
1995 fiscal year, the Board of Directors approved the issuance of Patronage
Certificates evidencing the allocation of an amount of such dividends equal
to 40% of the patronage dividends of all divisions, except the dairy
division, and 20% of the first and second quarter dairy division patronage
dividends. The fiscal 1995 Patronage Certificates have a seven year term,
maturing on December 15, 2002, and will bear interest from the date of
issuance at the rate of 7% per annum, payable annually on December 15 in each
year, commencing December 15, 1996.
The following table represents a summary of the Patronage Certificates
issued and their respective terms in fiscal 1993, 1994, and 1995.
AGGREGATE ANNUAL
FISCAL PRINCIPAL INTEREST MATURITY
YEAR AMOUNT RATE DATE
------ ---------- -------- --------
1993 $2,018,000 7% 12/15/00
1994 $2,426,000 8% 12/15/01
1995 $2,117,000 7% 12/15/02
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. In fiscal 1996, the 5% limitation will restrict
the Company's redemption of shares to 19,238 shares for $3,190,815. Due to
the loss of a number of significant member-patrons in past fiscal years, the
number of shares tendered for redemption at December 2, 1995, totaled 87,300
(or approximately $14.5 million using fiscal 1995 year end book values),
which exceeds the amount that can be redeemed in fiscal 1996. Consequently,
the Company will be required to make redemptions in fiscal 1997, 1998, and
1999, with such redemptions approximating $9.4 million to $9.6 million based
on 1995 year end book values and estimated share issuances for those years.
The redemption price for shares is based upon 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:
FOR THE THIRTEEN WEEKS ENDED
-----------------------------------
DECEMBER 2, 1995 DECEMBER 3, 1994
---------------- ----------------
Net sales 100.0% 100.0%
Cost of sales 91.4 91.2
Distribution, selling and administrative 6.8 7.5
Operating income 1.8 1.3
Interest expense 0.8 0.8
Estimated patronage dividends 0.7 0.5
Earnings after patronage dividends and before
income taxes 0.3 0.0
Provision for income taxes 0.1 0.0
Net earnings 0.2 0.0
NET SALES
Net sales increased to $493.0 million in the 1996 period as compared to
$460.9 million in the 1995 period, representing a 7% increase. During the
third quarter of fiscal 1995, the Company added two significant customers
which contributed approximately $43 million in net sales for the 1996 period.
The Company estimates these new customers will increase net sales by
approximately $175 million on an annualized basis. 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 increased 7.3% to $450.9 million in the 1996 period. This
increase is primarily due to increased sales volume in the 1996 period as
discussed above. The slight percentage increase in cost of sales for the
1996 period as compared to the 1995 period resulted from lower prices passed
to the Company's customers as the result of improvements in the Company's
distribution and manufacturing operations.
DISTRIBUTION, SELLING AND ADMINISTRATIVE
Distribution, selling and administrative expenses decreased from $34.6
million (7.5% of sales) in the 1995 period to $33.7 million (6.8% of sales)
in the 1996 period. The decrease in total expense was primarily due to the
reduction of payroll costs and the implementation of other programs in the
Company's distribution and manufacturing facilities to increase efficiency.
OPERATING INCOME
Operating income totaled $8.4 million for the 1996 period, as compared
to $6.0 million for the 1995 period. As a percentage of net sales, operating
income was higher than the same prior year period. This increase is a direct
result of the reduction in distribution and manufacturing costs described
above.
INTEREST
Interest expense in the 1996 period has remained consistent as a
percentage of sales with the comparable 1995 period.
NET EARNINGS
Net earnings for the 1996 period were $774,000 compared to net earnings
of $39,000 for the 1995 period. This increase is primarily due to the
increased volume and related efficiencies noted above, coupled with decreased
claim costs in the Company's insurance operations.
8
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PART 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 2, 1995, 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
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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
undersigned thereunto duly authorized.
Certified Grocers of California, Ltd.
-------------------------------------
(Registrant)
Dated: January 16, 1996 By ALFRED A. PLAMANN
-----------------------------------
Alfred A. Plamann
President and
Chief Executive Officer
By DANIEL T. BANE
-----------------------------------
Daniel T. Bane
Senior Vice President and
Chief Financial Officer
By RANDALL G. SCOVILLE
-----------------------------------
Randall G. Scoville
Corporate Controller
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-03-1995
<PERIOD-END> DEC-02-1995
<CASH> 8,639
<SECURITIES> 22,863
<RECEIVABLES> 129,683
<ALLOWANCES> (4,293)
<INVENTORY> 148,910
<CURRENT-ASSETS> 291,416
<PP&E> 149,674
<DEPRECIATION> (78,298)
<TOTAL-ASSETS> 426,490
<CURRENT-LIABILITIES> 161,249
<BONDS> 155,488
0
0
<COMMON> 61,574
<OTHER-SE> 11,487
<TOTAL-LIABILITY-AND-EQUITY> 426,490
<SALES> 493,027
<TOTAL-REVENUES> 493,027
<CGS> 450,866
<TOTAL-COSTS> 484,608
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,827
<INCOME-PRETAX> 1,192
<INCOME-TAX> 418
<INCOME-CONTINUING> 774
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 774
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
