<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 2, 1996
-----------------------------------------------
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
- ------------------------------------------------------------------------------
Certified Grocers of California, Ltd.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-0615250
- ------------------------------------------------------------------------------
(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) 726-2601
- ------------------------------------------------------------------------------
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 49,900 Shares as of March 2, 1996
Class B Shares 365,529 Shares as of March 2, 1996
Class C Shares 15 Shares as of March 2, 1996
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(dollars in thousands)
<TABLE>
<CAPTION>
March 2, September 2,
1996 1995
-------- ------------
<S> <C> <C>
ASSETS
Current:
Cash and cash equivalents $8,526 $7,329
Accounts and notes receivable 120,460 104,249
Inventories 138,132 149,432
Prepaid expenses 5,196 4,789
Deferred taxes 2,850 2,850
-------- ------------
Total current assets 275,164 268,649
Properties, at cost 151,201 148,285
Less, accumulated depreciation (79,754) (76,469)
-------- ------------
71,447 71,816
Investments 26,359 22,051
Notes receivable 26,660 25,622
Other assets 11,657 10,465
-------- ------------
TOTAL ASSETS $411,287 $398,603
======== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current:
Accounts payable $85,451 $86,159
Accrued liabilities 52,742 51,018
Notes payable 11,642 11,573
Patrons' excess deposits and estimated patronage dividends 15,267 12,214
-------- ------------
Total current liabilities 165,102 160,964
Notes payable, due after one year 138,244 129,686
Long-term liabilities 13,334 12,210
Commitments and contingencies
Patrons' deposits and certificates:
Patrons' required deposits 17,129 17,022
Subordinated patronage dividend certificates 6,553 6,561
Shareholders' equity:
Class A Shares 5,350 5,292
Class B Shares 53,431 56,266
Retained earnings 12,110 10,488
Net unrealized gain on appreciation of investments 34 114
-------- ------------
Total shareholders' equity 70,925 72,160
-------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $411,287 $398,603
======== ============
</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)
(dollars in thousands)
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
--------------------- ---------------------
March 2, March 4, March 2, March 4,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $478,954 $426,280 $971,981 $887,187
-------- -------- -------- --------
Costs and expenses:
Cost of sales 435,251 390,505 886,117 810,806
Distribution, selling and administrative 34,524 29,874 68,266 64,479
-------- -------- -------- --------
Operating income 9,179 5,901 17,598 11,902
Interest expense (3,953) (3,862) (7,780) (7,575)
Other income, net 671 671
-------- -------- -------- --------
Earnings before estimated patronage dividends
and provision for income taxes 5,226 2,710 9,818 4,998
Estimated patronage dividends (3,156) (2,234) (6,556) (4,454)
-------- -------- -------- --------
Earnings before income tax provision 2,070 476 3,262 544
Provision for income taxes 742 186 1,160 215
-------- -------- -------- --------
Net earnings $1,328 $ 290 $2,102 $ 329
======== ======== ======== ========
</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 2, 1996 AND MARCH 4, 1995
(dollars in thousands)
<TABLE>
<CAPTION>
March 2, March 4,
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $2,102 $329
-------- --------
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 4,981 5,317
Gain on disposal of properties (106) (60)
Accrued postretirement benefit costs 1,165 1,492
Accrued postemployment benefit costs 21 746
Accrued supplemental retirement benefit costs 117 146
Accrued sub-lease liability (106) (168)
Decrease (increase) in assets:
Accounts and notes receivable (16,211) (7,371)
Inventories 11,300 2,925
Prepaid expenses (407) (2,138)
Notes receivable (1,038) (2,513)
Increase (decrease) in liabilities:
Accounts payable (708) 1,994
Accrued liabilities 1,678 3,375
Patrons' excess deposits and estimated
patronage dividends 3,053 1,409
-------- --------
Total adjustments 3,739 5,154
-------- --------
Net cash provided by operating activities 5,841 5,483
-------- --------
Cash flows from investing activities:
Purchase of properties (4,283) (5,355)
Proceeds from sales of properties 117 13,183
(Increase) decrease in other assets (1,559) 1,215
Investment in preferred stocks, net (133) (100)
Investment in long-term bonds, net (1,255) (1,262)
Investment in common stocks, net (3,000) (42)
-------- --------
Net cash (utilized) provided by investing activities (10,113) 7,639
-------- --------
Cash flows from financing activities:
Additions to long-term notes payable 9,800
Reduction of long-term notes payable (7,856)
Reduction of short-term notes payable (1,173) (1,119)
Increase in members' required deposits 107 1,126
Decrease in subordinated patronage dividend certificates (8)
Repurchase of shares from members (3,689) (3,703)
Issuance of shares to members 432 570
-------- --------
Net cash provided (utilized) by financing activities 5,469 (10,982)
-------- --------
Net increase in cash and cash equivalents 1,197 2,140
Cash and cash equivalents at beginning of year 7,329 7,702
-------- --------
Cash and cash equivalents at end of period $8,526 $9,842
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE TWENTY-SIX WEEKS ENDED MARCH 2, 1996 AND MARCH 4, 1995
(dollars in thousands)
<TABLE>
<CAPTION>
March 2, March 4,
1996 1995
---------- --------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $7,826 $7,518
Income taxes 320 1,958
-------- --------
$8,146 $9,476
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
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 $1,242,000 from long-term to short-term debt (a
noncash financing activity) for the twenty-six weeks ended March 2, 1996, in
its Consolidated Condensed Statements of Cash Flows.
6
<PAGE>
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 provided by operating
activities totaled $5.8 million for the first twenty-six weeks of fiscal 1996
(the "1996 period"), as compared to $5.5 million for the first twenty-six
weeks of fiscal 1995 (the "1995 period"). Net cash provided for the 1996
period is primarily a result of improved income from operations and
accompanying increased estimated patronage dividends, as well as reductions
in inventory levels following the peak holiday season. Net cash provided for
the 1995 period reflected reductions in inventory levels, the beginning of
the Company's improved operating income, and the effects of the Company's
cost reduction programs. Cash used by the Company in the 1996 period and
1995 period reflects higher accounts and notes receivable due to 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 March 2, 1996, working capital was $110.1
million, as compared to $107.7 million at September 2, 1995, and the
Company's current ratio was 1.7 to 1 at the end of the 1996 period and at
fiscal 1995 year end. Working capital varies primarily as a result of
seasonal inventory requirements.
Capital expenditures totaled $4.3 million in the first twenty-six weeks
of fiscal 1996. The 1996 expenditures include purchases of warehouse,
maintenance, 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 second quarter of fiscal 1996, the Company had
$160 million in committed lines of credit, of which $81.3 million was not
utilized. As of March 2, 1996, the Company's outstanding borrowings,
including obligations under capital leases of approximately $6.0 million,
amounted to $149.9 million, of which $138.2 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.
7
<PAGE>
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. Patronage Certificates are not expected
to be issued with respect to 1996 dairy patronage dividends.
The following table represents a summary of the Patronage Certificates
issued and their respective terms in fiscal 1993, 1994, and 1995.
<TABLE>
<CAPTION>
Aggregate Annual
Fiscal Principal Interest Maturity
Year Amount Rate Date
------ ---------- -------- ---------
<S> <C> <C> <C>
1993. . . . . . . . . . $2,018,000 7% 12/15/00
1994. . . . . . . . . . $2,426,000 8% 12/15/01
1995. . . . . . . . . . $2,117,000 7% 12/15/02
</TABLE>
During January 1996, the Company set off approximately $8,000 in Patronage
Certificates against a portion of amounts owed to the Company by the holder.
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 restricts
the Company's redemption of shares to 19,238 shares for $3,190,815, and as of
March 2, 1996, 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 March 2, 1996, totaled 72,107 (or
approximately $12 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, issuance of shares to member-patrons and borrowings under the
Company's credit lines.
8
<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 2, 1996 MARCH 4, 1995
------------- -------------
<S> <C> <C>
Net sales 100% 100%
Cost of sales 91.2 91.4
Distribution, selling and administrative 7.0 7.3
Operating income 1.8 1.3
Interest expense 0.8 0.9
Other income, net 0.0 0.1
Estimated patronage dividends 0.7 0.5
Earnings after dividend and before income taxes 0.3 0.0
Provision for income taxes 0.1 0.0
Net earnings 0.2 0.0
</TABLE>
NET SALES
Net sales increased 9.6% to $971.9 million in the 1996 period as
compared to the 1995 period. The 9.6% sales increase was achieved despite
the loss of $5.4 million in sales volume from Major Market Inc. ("MMI"), a
previously consolidated subsidiary, which was sold during the 1995 period,
and a $24.5 million reduction in general merchandise volume resulting from
the merger between Food 4 Less and Ralphs Grocery Company. During the third
quarter of fiscal 1995, the Company added two significant customers which
contributed approximately $90 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 remaining increase is
due to increased sales volume from new customers and expanded sales volume to
existing customers.
COST OF SALES
Cost of sales, as a percentage of sales, has decreased with the
comparable prior twenty-six week period (91.2% in the 1996 period and 91.4%
in the 1995 period). The slight percentage decrease in cost of sales for the
1996 period as compared to the 1995 period resulted from the loss of low
margin sales of general merchandise to Food 4 Less, offset by reductions in
transportation fees and increased dairy rebates.
DISTRIBUTION, SELLING AND ADMINISTRATIVE
Distribution, selling and administrative expenses, as a percentage of
sales, have decreased with the comparable prior period (7.0% in the 1996
period and 7.3% in the 1995 period). The decrease as a percent to sales was
primarily due to the Company's ability to efficiently spread fixed costs over
higher sales volume and the implementation of other programs in the Company's
distribution and manufacturing facilities to increase efficiency and reduce
overhead costs.
OPERATING INCOME
Operating income totaled $17.6 million for the 1996 period, as compared
to $11.9 million for the 1995 period. This increase is a result of the
increase in sales volume as well as the reduction in distribution,
manufacturing, and overhead costs described above.
INTEREST
Interest expense in the 1996 period decreased 0.1% as a percentage of
sales with the comparable 1995 period, primarily as a result of maintaining a
consistent level of expense over higher sales volume.
9
<PAGE>
OTHER INCOME, NET
The 1995 period reflects a $511,000 gain on the sale of the Company's
investment in preferred and common stock of MMI and $162,000 in earnings from
MMI.
NET EARNINGS
Net earnings for the 1996 period were $2,102,000 compared to net
earnings of $329,000 for the 1995 period. The increase is primarily due to
the increased volume and related efficiencies noted above, coupled with
decreased claim costs in the Company's insurance operations.
10
<PAGE>
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
Reference is made to the Company's report on Form 8-K which was
filed with the Securities and Exchange Commission on April 10, 1996
respecting the Company's change in certifying accountants.
11
<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
undersigned thereunto duly authorized.
CERTIFIED GROCERS OF CALIFORNIA, LTD.
-------------------------------------
(Registrant)
Dated: April 16, 1996 By ALFRED A. PLAMANN
-----------------------------------
Alfred A. Plamann
President and
Chief Executive Officer
By DANIEL T. BANE
-----------------------------------
Daniel T. Bane
Senior Vice President,
Finance and Administration
and Chief Financial Officer
By RANDALL G. SCOVILLE
-----------------------------------
Randall G. Scoville
Corporate Controller
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-03-1995
<PERIOD-END> MAR-02-1996
<CASH> 8,526
<SECURITIES> 26,359
<RECEIVABLES> 125,314
<ALLOWANCES> (4,854)
<INVENTORY> 138,132
<CURRENT-ASSETS> 275,164
<PP&E> 151,201
<DEPRECIATION> (79,754)
<TOTAL-ASSETS> 411,287
<CURRENT-LIABILITIES> 165,102
<BONDS> 138,244
0
0
<COMMON> 58,781
<OTHER-SE> 12,144
<TOTAL-LIABILITY-AND-EQUITY> 411,287
<SALES> 971,981
<TOTAL-REVENUES> 971,981
<CGS> 886,117
<TOTAL-COSTS> 954,383
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,780
<INCOME-PRETAX> 3,262
<INCOME-TAX> 1,160
<INCOME-CONTINUING> 2,102
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,102
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
