<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 November 30, 1996
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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 Identification No.)
incorporation or organization)
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 47,900 Shares as of November 30, 1996
Class B Shares 383,815 Shares as of November 30, 1996
Class C Shares 15 Shares as of November 30, 1996
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(dollars in thousands)
November 30, August 31,
1996 1996
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ASSETS
Current:
Cash and cash equivalents $7,448 $6,451
Accounts and notes receivable 107,100 98,424
Inventories 148,653 136,303
Prepaid expenses 5,062 4,625
Deferred taxes 5,356 5,356
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Total current assets 273,619 251,159
Properties, at cost 161,093 155,699
Less, accumulated depreciation (84,634) (82,128)
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76,459 73,571
Investments 28,571 27,541
Notes receivable 13,374 8,309
Other assets 16,842 14,157
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TOTAL ASSETS $408,865 $374,737
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current:
Accounts payable $84,192 $98,468
Accrued liabilities 61,501 59,235
Notes payable 11,477 11,440
Patrons' excess deposits and estimated
patronage dividends 16,850 15,157
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Total current liabilities 174,020 184,300
Notes payable, due after one year 117,309 75,617
Long-term liabilities 20,720 20,041
Patrons' deposits and certificates:
Patrons' required deposits 16,830 15,524
Subordinated patronage dividend certificates 6,549 6,549
Shareholders' equity:
Class A Shares 5,213 5,305
Class B Shares 56,504 56,504
Retained earnings 11,880 11,436
Net unrealized gain (loss) on appreciation
(depreciation) of investments 95 (284)
Minimum pension liability adjustment (255) (255)
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Total shareholders' equity 73,437 72,706
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $408,865 $374,737
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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
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November 30, December 2,
1996 1995
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Net sales $500,828 $493,027
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Costs and expenses:
Cost of sales 458,860 450,866
Distribution, selling and administrative 34,287 33,742
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Operating income 7,681 8,419
Interest expense (2,885) (3,827)
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Earnings before estimated patronage dividends
and provision for income taxes 4,796 4,592
Estimated patronage dividends (3,930) (3,400)
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Earnings before income tax provision 866 1,192
Provision for income taxes 313 418
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Net earnings $ 553 $ 774
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The accompanying notes are an integral part of these statements.
3
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CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 30, 1996 AND DECEMBER 2, 1995
(dollars in thousands)
November 30, December 2,
1996 1995
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Cash flows from operating activities:
Net earnings $553 $774
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Adjustments to reconcile net earnings to net
cash utilized by operating activities:
Depreciation and amortization 2,895 2,453
Gain on disposal of properties (17) (30)
Accrued benefit costs 913 878
Accrued sublease liability (88) (52)
Decrease (increase) in assets:
Accounts and notes receivable (8,676) (21,141)
Inventories (12,350) 522
Prepaid expenses (437) (838)
Notes receivable (5,065) (4,306)
Increase (decrease) in liabilities:
Accounts payable (14,276) (6,204)
Accrued liabilities 2,269 3,995
Patrons' excess deposits and estimated
patronage dividends 1,693 2,997
Long-term liabilities, other (149) (14)
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Net cash utilized by operating activities (32,735) (20,966)
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Cash flows from investing activities:
Purchase of properties (5,528) (1,864)
Proceeds from sales of properties 18 40
Increase in other assets (2,941) (1,273)
Investment in securities, net (651) (684)
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Net cash utilized by investing activities (9,102) (3,781)
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Cash flows from financing activities:
Additions to long-term notes payable 42,346 26,419
Reduction of short-term notes payable (617) (582)
Increase in members' required deposits 1,306 221
Repurchase of shares from members (302) (100)
Issuance of shares to members 101 99
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Net cash provided by financing activities 42,834 26,057
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Net increase in cash and cash equivalents 997 1,310
Cash and cash equivalents at beginning of year 6,451 7,329
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Cash and cash equivalents at end of period $7,448 $8,639
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Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest $3,680 $4,820
Income taxes 2,203
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$5,883 $4,820
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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 $654,000 from long-term to short-term debt (a
noncash financing activity) for the thirteen weeks ended November 30, 1996,
in its Consolidated Condensed Statements of Cash Flows.
4. The Company has an investment in the Preferred Stock and Common Stock of
Sav Max Foods, Inc. ("Sav Max"), a customer whose principal offices are
located in Modesto, California. At November 30, 1996, Sav Max was in default
under the terms of the Preferred Stock Agreement. The Company and Sav Max
are in negotiations regarding the default. In the opinion of management,
there has been no significant dilution in the value of the Company's
investment.
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 $32.7 million for the first thirteen weeks of fiscal 1997
(the "1997 period"), as compared to $20.9 million for the first thirteen
weeks of fiscal 1996 (the "1996 period"). Net cash utilized for the 1997
period and 1996 period is due primarily to increased accounts and notes
receivable in the cooperative, general merchandise, and insurance operations,
and increased inventories and accounts payable in the distribution
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 improvements in its
distribution and manufacturing operations, revised marketing programs, and
loan sale proceeds provide adequate operating cash flow to conduct the
Company's business operations. At November 30, 1996, working capital was
$99.6 million, as compared to $66.9 million at August 31, 1996, and the
Company's current ratio was 1.6 to 1 at the end of the 1997 period and 1.4 to
1 at fiscal 1996 year end. Working capital varies primarily as a result of
seasonal inventory requirements.
Capital expenditures totaled $5.5 million in the first thirteen weeks of
fiscal 1997. The 1997 expenditures include purchases of computer and
warehouse 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 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 1997, the
Company had $145 million in committed lines of credit, of which $75 million
was not utilized. As of November 30, 1996, the Company's outstanding
borrowings, including obligations under capital leases of approximately $3.5
million, amounted to $128.8 million, of which $117.3 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.
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
1996, this limitation restricted the Company's redemption of shares to
19,238 shares for $3,190,815. In fiscal 1997, the 5% limitation restricts
the Company's redemption of shares to 19,191 shares for $3,222,937. The
number of shares tendered for redemption at November 30, 1996, totaled 79,207
(or approximately $13.3 million using fiscal 1996 year end book values),
which exceeds the amount that can be redeemed in fiscal 1997. Consequently,
the Company will be required to make redemptions in fiscal 1998, 1999, and
2000, with such redemptions approximating $9.8 million based on 1996 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, current shareholdings and borrowings under
the Company's credit lines.
6
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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 THIRTEEN WEEKS ENDED
NOVEMBER 30, 1996 DECEMBER 2, 1995
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<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 91.6 91.4
Distribution, selling and administrative 6.8 6.8
Operating income 1.6 1.8
Interest expense 0.6 0.8
Estimated patronage dividends 0.8 0.7
Earnings after patronage dividends and before
income taxes 0.2 0.3
Provision for income taxes 0.1 0.1
Net earnings 0.1 0.2
</TABLE>
NET SALES
Net sales totaled $500.8 million for the 1997 period as
compared to $493.0 million in the 1996 period. The sales increase of $7.8
million represents a 1.6% increase over the 1996 period. The improvement in
sales is the result of the benefits of the Company's new impact-based
pricing, and additional sales in the northern California meat division.
These sales increases were partially offset by lower volume in the Company's
general merchandise subsidiary as a result of reduced purchases by Food 4
Less GM, Inc. ("F4LGM").
COST OF SALES
Cost of sales totaled $458.9 million, or 91.6% of net sales
for the 1997 period. In comparison to the 1996 period, cost of sales for
the 1997 period is slightly higher by approximately 0.2%. The increase is
primarily due to the Company's new customer-centered impact-based pricing
program. The new pricing program recognizes the benefits and efficiencies of
order size and calculates fees primarily at category level. The result in
comparison to the prior period is lower prices to the customer as a result of
improved efficiencies.
DISTRIBUTION, SELLING AND ADMINISTRATIVE
Distribution, selling and administrative expenses were $34.3 million
(or 6.8%) of net sales in the 1997 period, as compared to $33.7 million (or
6.8%) of net sales in the 1996 period. The level of expenses for the 1997
period is consistent with the 1996 period.
OPERATING INCOME
Operating income totaled $7.7 million for the 1997 period, as compared to
$8.4 million for the 1996 period. The lower operating income is primarily
due to a reduction in finance income pursuant to the sale of $27.9 million of
finance receivables in August 1996.
INTEREST
Interest expense in the 1997 period decreased from $3.8 million (0.8% of
sales) in the 1996 period to $2.9 million (0.6% of sales) in the 1997 period.
The decrease is due to lower borrowing requirements resulting from the sale
of finance receivables in August 1996.
ESTIMATED PATRONAGE DIVIDENDS
Estimated patronage dividends totaled $3.9 million for the 1997 period as
compared to $3.4 million for the 1996 period. The $530,000 (15.6%) increase
over the prior period is due to efficiency improvements made as a result of
the Company's new impact-based pricing in its cooperative divisions.
NET EARNINGS
Net earnings for the 1997 period were $553,000 compared to net earnings
of $774,000 for the 1996 period. The decrease is due to slightly lower
earnings over the prior year in the Company's general merchandise subsidiary
resulting from the reduced level of purchases by F4LGM.
7
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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 August 31, 1996, 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.
8
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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.
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(Registrant)
Dated: January 14, 1997 By ALFRED A. PLAMANN
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Alfred A. Plamann
President and
Chief Executive Officer
By DANIEL T. BANE
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Daniel T. Bane
Senior Vice President - Finance &
Administration and Chief Financial Officer
By RANDALL G. SCOVILLE
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Randall G. Scoville
Corporate Controller
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-30-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 7,448
<SECURITIES> 28,571
<RECEIVABLES> 117,475
<ALLOWANCES> (10,375)
<INVENTORY> 148,653
<CURRENT-ASSETS> 273,619
<PP&E> 161,093
<DEPRECIATION> (84,634)
<TOTAL-ASSETS> 408,865
<CURRENT-LIABILITIES> 174,020
<BONDS> 117,309
0
0
<COMMON> 61,717
<OTHER-SE> 11,720
<TOTAL-LIABILITY-AND-EQUITY> 408,865
<SALES> 500,828
<TOTAL-REVENUES> 500,828
<CGS> 458,860
<TOTAL-COSTS> 493,147
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,885
<INCOME-PRETAX> 866
<INCOME-TAX> 313
<INCOME-CONTINUING> 553
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 553
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
