<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 29, 1997
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
---- -----
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 47,200 Shares as of November 29, 1997
Class B Shares 385,990 Shares as of November 29, 1997
Class C Shares 15 Shares as of November 29, 1997
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<TABLE>
<CAPTION>
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 29, August 30,
1997 1997
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<S> <C> <C>
ASSETS
Current:
Cash and cash equivalents $ 10,118 $ 7,900
Accounts and notes receivable 98,866 94,493
Inventories 130,974 135,272
Prepaid expenses 4,309 4,907
Deferred taxes 3,427 3,427
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Total current assets 247,694 245,999
Properties, at cost 168,482 165,443
Less, accumulated depreciation (92,123) (89,308)
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76,359 76,135
Investments 38,298 36,714
Notes receivable 20,038 19,515
Other assets 16,470 15,639
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TOTAL ASSETS $398,859 $394,002
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current:
Accounts payable $ 72,431 $104,498
Accrued liabilities 60,153 54,320
Notes payable 11,311 11,329
Patrons' excess deposits and
estimated patronage dividends 19,576 16,826
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Total current liabilities 163,471 186,973
Notes payable, due after one year 119,375 92,217
Long-term liabilities 18,989 18,151
Patrons' deposits and certificates:
Patrons' required deposits 14,093 14,358
Subordinated patronage dividend
certificates 6,258 6,276
Shareholders' equity:
Class A Shares 5,322 5,361
Class B Shares 57,349 57,349
Retained earnings 13,626 13,162
Net unrealized gain on
appreciation of investments 459 238
Minimum pension liability adjustment (83) (83)
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Total shareholders' equity 76,673 76,027
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $398,859 $394,002
======== ========
</TABLE>
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)
<TABLE>
<CAPTION>
13 Weeks Ended
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November 29, November 30,
1997 1996
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<S> <C> <C>
Net sales $486,953 $500,828
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Costs and expenses:
Cost of sales 445,220 458,410
Distribution, selling and administrative 33,894 34,737
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Operating income 7,839 7,681
Interest expense (3,215) (2,885)
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Earnings before estimated patronage
dividends and provision for income taxes 4,624 4,796
Estimated patronage dividends (3,792) (3,930)
-------- --------
Earnings before income tax provision 832 866
Provision for income taxes 285 313
-------- --------
Net earnings $ 547 $ 553
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
<TABLE>
<CAPTION>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 29, 1997 AND NOVEMBER 30, 1996
(dollars in thousands)
November 29, NOVEMBER 30,
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 547 $ 553
Adjustments to reconcile net
earnings to net cash utilized by operating
activities:
Depreciation and amortization 3,262 2,895
Loss (gain) on disposal of properties 66 (17)
Decrease (increase) in assets:
Accounts and notes receivable (4,391) (8,676)
Inventories 4,298 (12,350)
Prepaid expenses 598 (437)
Notes receivable (523) (5,065)
Increase (decrease) in liabilities:
Accounts payable (32,067) (14,276)
Accrued liabilities 5,833 2,266
Patrons' excess deposits and
estimated patronage dividends 2,750 1,693
Long-term liabilities, other 838 679
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Net cash utilized by operating activities (18,789) (32,735)
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Cash flows from investing activities:
Purchase of properties (4,350) (5,528)
Proceeds from sales of properties 984 18
Increase in other assets (1,017) (2,941)
Investment in securities, net (1,363) (651)
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Net cash utilized by investing activities (5,746) (9,102)
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Cash flows from financing activities:
Additions to long-term notes payable 27,793 42,346
Reduction of short-term notes payable (653) (617)
(Decrease) increase in members'
required deposits (265) 1,306
Repurchase of shares from members (210) (302)
Issuance of shares to members 88 101
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Net cash provided by financing activities 26,753 42,834
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Net increase in cash and cash equivalents 2,218 997
Cash and cash equivalents at beginning
of year 7,900 6,451
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Cash and cash equivalents at end of period $10,118 $ 7,448
======= =======
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest $ 3,617 $ 3,680
Income taxes $ 2,203
</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 $635,000 from long-term to short-term debt (a
noncash financing activity) for the thirteen weeks ended November 29, 1997,
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
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of Operations
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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
$18.8 million for the first thirteen weeks of fiscal 1998 (the "1998 period"),
as compared to $32.7 million provided by operations for the first thirteen weeks
of fiscal 1997 (the "1997 period"). Net cash utilized for the 1998 period is
primarily due to 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 November 29, 1997, working
capital was $84.2 million, as compared to $59.0 million at August 30, 1997,
and the Company's current ratio was 1.56 to 1 at November 29, 1997 and 1.3 to 1
at fiscal 1997 year end. Working capital varies primarily as a result of
seasonal inventory requirements.
Capital expenditures totaled $4.3 million in the first thirteen weeks of
fiscal 1998. The 1998 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 first quarter of fiscal
1998, the Company had $145 million in committed lines of credit, of which $61.6
million was not utilized. As of November 29, 1997, the Company's outstanding
borrowings, including obligations under capital leases of approximately $2.5
million, amounted to $130.7 million, of which $119.4 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 1997, this limitation restricted the
Company's redemption of shares to 19,191 shares for $3,222,937. In fiscal 1998,
the 5% limitation will restrict the Company's redemption of shares to 19,300
shares for $3,381,746. The number of shares tendered for redemption at November
29, 1997, totaled 70,290 (or approximately $12.3 million using fiscal 1997 year
end book value), which exceeds the amount that can be redeemed in fiscal 1998.
Consequently, the Company will be required to make redemptions in fiscal 1998,
1999, 2000, and 2001, with such redemptions approximating $12.3 million based on
1997 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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The Company has been notified that its third and fourth largest customers,
Nob Hill General Store, Inc. ("Nob Hill") and Hughes Markets, Inc. ("Hughes"),
respectively, have entered into agreements to be acquired by entities that have
self-distribution programs. These acquisitions are both expected to be
completed in the first quarter of 1998. The Company's sales to Nob Hill and
Hughes totaled approximately $150 million in fiscal 1997. The financial impact
of these transactions on Certified is unknown at this time.
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
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<S> <C> <C>
November 29, 1997 November 30, 1996
----------------- -----------------
Net sales 100% 100%
Cost of sales 91.4 91.5
Distribution, selling and administrative 7.0 6.9
Operating income 1.6 1.6
Interest expense 0.7 0.6
Estimated patronage dividends 0.7 0.8
Earnings after dividend and before income taxes 0.2 0.2
Provision for income taxes 0.1 0.1
Net earnings 0.1 0.1
</TABLE>
NET SALES
Net sales totaled $487.0 million for the 1998 period as compared to $500.8
million in the 1997 period. The sales decrease of $13.9 million represents a
2.8% decrease over the 1997 period. The reduction in sales is the result of
reduced sales to Megafood Stores ("Megafood"), and reduced frozen food sales to
Hughes. 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. The Company believes the reduced sales to Hughes are directly
related to events associated with the pending transaction described in
"Liquidity and Capital Resources".
COST OF SALES
Cost of sales were 91.4% of sales in fiscal 1998 compared to 91.5% in
fiscal 1997. The slight decrease was due to slightly higher margins in the
stores operated by the Company in Northern California. The Northern California
stores were sold to a third party in November 1997.
DISTRIBUTION, SELLING AND ADMINISTRATIVE
Distribution, selling and administrative expenses were $33.9 million (or
7.0% of net sales) in the 1998 period, as compared to $34.7 million (or 6.9% of
net sales) in the 1997 period. The level of expense as a percentage of sales
for the 1998 period is consistent with the 1997 period.
OPERATING INCOME
Operating income totaled $7.8 million for the 1998 period, as compared to
$7.7 million for the 1997 period.
INTEREST
Interest expense in the 1998 period increased from $2.9 million (0.6% of
net sales) in the 1997 period to $3.2 million (0.7% of net sales) in the 1998
period. The increase is due to slightly higher average borrowing requirements
in fiscal 1998.
7
<PAGE>
ESTIMATED PATRONAGE DIVIDENDS
Estimated patronage dividends totaled $3.8 million for the 1998 period as
compared to $3.9 million for the 1997 period. The reduction is due to lower
sales through the cooperative divisions. However, estimated patronage
dividends have remained constant at .91% of sales through the Cooperative.
NET EARNINGS
Net earnings for the 1998 period were $547,000 compared to net earnings of
$553,000 for the 1997 period.
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 30, 1997, 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 the
undersigned, thereunto duly authorized.
Certified Grocers of California, Ltd.
-------------------------------------
(Registrant)
Dated: January 13, 1998 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> 3-MOS
<FISCAL-YEAR-END> AUG-29-1998
<PERIOD-START> AUG-31-1997
<PERIOD-END> NOV-29-1997
<CASH> 10,118
<SECURITIES> 38,298
<RECEIVABLES> 104,160
<ALLOWANCES> (5,294)
<INVENTORY> 130,974
<CURRENT-ASSETS> 247,694
<PP&E> 168,482
<DEPRECIATION> (92,123)
<TOTAL-ASSETS> 398,859
<CURRENT-LIABILITIES> 163,471
<BONDS> 119,375
0
0
<COMMON> 62,671
<OTHER-SE> 13,626
<TOTAL-LIABILITY-AND-EQUITY> 398,859
<SALES> 486,953
<TOTAL-REVENUES> 486,953
<CGS> 445,220
<TOTAL-COSTS> 479,114
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,215
<INCOME-PRETAX> 832
<INCOME-TAX> 285
<INCOME-CONTINUING> 547
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 547
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
