<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 1, 1997
------------------------------------------------
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
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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
- --------------------------------------------------------------------------------
(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 47,700 Shares as of March 1, 1997
Class B Shares 364,624 Shares as of March 1, 1997
Class C Shares 15 Shares as of March 1, 1997
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)
<TABLE>
<CAPTION>
March 1, August 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current:
Cash and cash equivalents $8,447 $6,451
Accounts and notes receivable 94,352 98,424
Inventories 142,728 136,303
Prepaid expenses 4,771 4,625
Deferred taxes 5,356 5,356
------------ ------------
Total current assets 255,654 251,159
Properties, at cost 161,613 155,699
Less, accumulated depreciation (87,296) (82,128)
------------ ------------
74,317 73,571
Investments 29,222 27,541
Notes receivable 10,831 8,309
Other assets 17,340 14,157
------------ ------------
TOTAL ASSETS $387,364 $374,737
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current:
Accounts payable $75,087 $98,468
Accrued liabilities 57,830 59,235
Notes payable 11,515 11,440
Patrons' excess deposits and estimated patronage dividends 17,099 15,157
------------ ------------
Total current liabilities 161,531 184,300
Notes payable, due after one year 114,829 75,617
Long-term liabilities 17,883 20,041
Patrons' deposits and certificates:
Patrons' required deposits 16,014 15,524
Subordinated patronage dividend certificates 6,525 6,549
Shareholders' equity:
Class A Shares 5,240 5,305
Class B Shares 53,605 56,504
Retained earnings 12,128 11,436
Net unrealized loss on depreciation of investments (136) (284)
Minimum pension liability adjustment (255) (255)
------------ ------------
Total shareholders' equity 70,582 72,706
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $387,364 $374,737
------------ ------------
------------ ------------
</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 1, March 2, March 1, March 2,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $472,620 $478,954 $973,448 $971,981
-------- -------- -------- --------
Costs and expenses:
Cost of sales 430,741 435,251 889,601 886,117
Distribution, selling and administrative 33,495 34,524 67,782 68,266
-------- -------- -------- --------
Operating income 8,384 9,179 16,065 17,598
Interest expense (3,328) (3,953) (6,213) (7,780)
-------- -------- -------- --------
Earnings before estimated patronage dividends
and provision for income taxes 5,056 5,226 9,852 9,818
Estimated patronage dividends (4,119) (3,156) (8,049) (6,556)
-------- -------- -------- --------
Earnings before income tax provision 937 2,070 1,803 3,262
Provision for income taxes 304 742 617 1,160
-------- -------- -------- --------
Net earnings $ 633 $1,328 $1,186 $2,102
-------- -------- -------- --------
-------- -------- -------- --------
</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 1, 1997 AND MARCH 2, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
March 1, March 2,
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $1,186 $2,102
-------- --------
Adjustments to reconcile net earnings to net
cash (utilized) provided by operating activities:
Depreciation and amortization 5,944 4,981
Loss (gain) on disposal of properties 49 (106)
Accrued benefit costs 41 1,383
Accrued sublease liability (179) (106)
Decrease (increase) in assets:
Accounts and notes receivable 4,048 (16,219)
Inventories (6,425) 11,300
Prepaid expenses (146) (407)
Notes receivable (5,935) (1,038)
Increase (decrease) in liabilities:
Accounts payable (23,381) (708)
Accrued liabilities (1,398) 2,213
Patrons' excess deposits and estimated
patronage dividends 1,942 3,053
Long-term liabilities, other (2,027) (27)
-------- --------
Net cash (utilized) provided by operating activities (26,281) 6,421
-------- --------
Cash flows from investing activities:
Purchase of properties (6,764) (4,283)
Proceeds from sales of properties 638 117
Increase in other assets (3,796) (2,147)
Investment in securities, net (1,533) (4,388)
Proceeds from sale of notes receivable 3,413
-------- --------
Net cash utilized by investing activities (8,042) (10,701)
-------- --------
Cash flows from financing activities:
Additions to long-term notes payable 40,530 9,800
Reduction of short-term notes payable (1,243) (1,173)
Increase in members' required deposits 490 107
Repurchase of shares from members (3,660) (3,689)
Issuance of shares to members 202 432
-------- --------
Net cash provided by financing activities 36,319 5,477
-------- --------
Net increase in cash and cash equivalents 1,996 1,197
Cash and cash equivalents at beginning of year 6,451 7,329
-------- --------
Cash and cash equivalents at end of period $8,447 $8,526
-------- --------
-------- --------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $6,527 $7,826
Income taxes 2,453 320
-------- --------
$8,980 $8,146
-------- --------
-------- --------
</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 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 $1,318,000 from long-term to short-term debt (a
noncash financing activity) for the twenty-six weeks ended March 1, 1997, 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 March 1, 1997, 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
<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 utilized by operating activities totaled
$26.3 million for the first twenty-six weeks of fiscal 1997 (the "1997 period"),
as compared to $6.4 million provided by operations for the first twenty-six
weeks of fiscal 1996 (the "1996 period"). Net cash utilized for the 1997 period
is primarily due to increased inventories and decreased accounts payable in the
distribution operations. 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 March 1, 1997, working capital was $94.1 million, as compared to
$66.9 million at August 31, 1996, and the Company's current ratio was 1.6 to 1
at March 1, 1997 and 1.4 to 1 at fiscal 1996 year end. Working capital varies
primarily as a result of seasonal inventory requirements.
Capital expenditures totaled $6.8 million in the first twenty-six weeks of
fiscal 1997. The 1997 expenditures include purchases of computer equipment,
leasehold improvements, 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 second quarter of fiscal
1997, the Company had $145 million in committed lines of credit, of which $77
million was not utilized. As of March 1, 1997, the Company's outstanding
borrowings, including obligations under capital leases of approximately $3.3
million, amounted to $126.3 million, of which $114.8 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, and as of March 1, 1997, that number of shares has been
redeemed. The number of shares tendered for redemption at March 1, 1997,
totaled 61,899 (or approximately $10.4 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
<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 Twenty-Six Weeks Ended
------------------------------
March 1, 1997 March 2, 1996
------------- -------------
Net sales 100% 100%
Cost of sales 91.4 91.2
Distribution, selling and administrative 7.0 7.0
Operating income 1.6 1.8
Interest expense 0.6 0.8
Estimated patronage dividends 0.8 0.7
Earnings after dividend and before income taxes 0.2 0.3
Provision for income taxes 0.1 0.1
Net earnings 0.1 0.2
NET SALES
Net sales totaled $973.4 million for the 1997 period as compared to $972.0
million in the 1996 period. The sales increase of $1.4 million represents a
0.15% 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"), reduced sales to
Megafood Stores ("Megafood"), and the sale of the Company's Hawaiian subsidiary,
Hawaiian Grocery Stores, Ltd. ("HGS") in May 1996. Effective December 1996, the
Arizona stores previously owned by Megafood were sold to Basha's Inc.
("Basha's"). Basha's self-distributes most of the product previously supplied
to Megafood by the Company. Accordingly, the Company's sales to Megafood have
been significantly impacted by this transaction. During the first 26 weeks of
fiscal 1997, sales relating to F4LGM, Megafood, and HGS were approximately $64
million below the same period in fiscal 1996.
COST OF SALES
Cost of sales totaled $889.6 million, or 91.4% 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 $67.8 million (or
7.0%) of net sales in the 1997 period, as compared to $68.3 million (or 7.0%) of
net sales in the 1996 period. The level of expense for the 1997 period is
consistent with the 1996 period.
OPERATING INCOME
Operating income totaled $16.1 million for the 1997 period, as compared to
$17.6 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 and $3.4
million of finance receivables in August 1996 and January 1997, respectively.
7
<PAGE>
INTEREST
Interest expense in the 1997 period decreased from $7.8 million (0.8% of
sales) in the 1996 period to $6.2 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 and January 1997.
ESTIMATED PATRONAGE DIVIDENDS
Estimated patronage dividends totaled $8.1 million for the 1997 period as
compared to $6.6 million for the 1996 period. The $1.5 million (22.8%) 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 $1,186,000 compared to net earnings
of $2,102,000 for the 1996 period. The decrease is primarily due to the lower
volume in the Company's general merchandise subsidiary.
8
<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 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.
9
<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 14, 1997 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
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-30-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> MAR-01-1997
<CASH> 8,447
<SECURITIES> 29,222
<RECEIVABLES> 105,098
<ALLOWANCES> (10,746)
<INVENTORY> 142,728
<CURRENT-ASSETS> 255,654
<PP&E> 161,613
<DEPRECIATION> (87,296)
<TOTAL-ASSETS> 387,364
<CURRENT-LIABILITIES> 161,531
<BONDS> 114,829
0
0
<COMMON> 58,845
<OTHER-SE> 11,737
<TOTAL-LIABILITY-AND-EQUITY> 387,364
<SALES> 973,448
<TOTAL-REVENUES> 973,448
<CGS> 889,601
<TOTAL-COSTS> 957,383
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,213
<INCOME-PRETAX> 1,803
<INCOME-TAX> 617
<INCOME-CONTINUING> 1,186
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,186
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
