<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 February 28,1998
_________________________________________________
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 47,100 Shares as of February 28, 1998
Class B Shares 366,573 Shares as of February 28, 1998
Class C Shares 15 Shares as of February 28, 1998
1
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
(Unaudited)
February 28, August 30,
1998 1997
--------------------- -------------------
<S> <C> <C>
ASSETS
Current:
Cash and cash equivalents $ 8,709 $ 7,900
Accounts and notes receivable 90,861 94,493
Inventories 126,033 135,272
Prepaid expenses 5,378 4,907
Deferred taxes 3,427 3,427
-------- --------
Total current assets 234,408 245,999
Properties, at cost 173,172 165,443
Less, accumulated depreciation (95,109) (89,308)
-------- --------
78,063 76,135
Investments 38,295 36,714
Notes receivable 22,199 19,515
Other assets 17,107 15,639
-------- --------
TOTAL ASSETS $390,072 $394,002
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current:
Accounts payable $ 77,255 $104,498
Accrued liabilities 52,218 54,320
Notes payable 11,293 11,329
Patrons' excess deposits and estimated patronage dividends 18,537 16,826
-------- --------
Total current liabilities 159,303 186,973
Notes payable, due after one year 117,484 92,217
Long-term liabilities 18,883 18,151
Patrons' deposits and certificates:
Patrons' required deposits 14,345 14,358
Subordinated patronage dividend certificates 6,239 6,276
Shareholders' equity:
Class A Shares 5,384 5,361
Class B Shares 54,502 57,349
Retained earnings 13,623 13,162
Net unrealized gain on appreciation of investments 392 238
Minimum pension liability adjustment (83) (83)
-------- --------
Total shareholders' equity 73,818 76,027
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $390,072 $394,002
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
<TABLE>
<CAPTION>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)
(dollars in thousands)
13 Weeks Ended 26 Weeks Ended
---------------------------- ----------------------------
February 28, March 1, February 28, March 1,
1998 1997 1998 1997
------------- --------- ------------- ---------
<S> <C> <C> <C> <C>
Net sales $462,007 $472,620 $948,960 $973,448
-------- -------- -------- --------
Costs and expenses:
Cost of sales 420,345 430,741 865,565 889,601
Distribution, selling and administrative 33,821 33,495 67,715 67,782
-------- -------- -------- --------
Operating income 7,841 8,384 15,680 16,065
Interest expense (3,292) (3,328) (6,507) (6,213)
-------- -------- -------- --------
Earnings before estimated patronage dividends
and provision for income taxes 4,549 5,056 9,173 9,852
Estimated patronage dividends (3,618) (4,119) (7,410) (8,049)
-------- -------- -------- --------
Earnings before income tax provision 931 937 1,763 1,803
Provision for income taxes 299 304 584 617
-------- -------- -------- --------
Net earnings $ 632 $ 633 $ 1,179 $ 1,186
======== ======== ======== ========
</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 TWENTY-SIX WEEKS ENDED FEBRUARY 28, 1998 AND MARCH 1, 1997
(dollars in thousands)
February 28, March 1,
1998 1997
------------------ --------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,179 $ 1,186
-------- --------
Adjustments to reconcile net earnings to net
cash utilized by operating activities:
Depreciation and amortization 7,253 5,944
Loss on disposal of properties 171 49
Decrease (increase) in assets:
Accounts and notes receivable 3,595 4,048
Inventories 9,239 (6,425)
Prepaid expenses (471) (146)
Notes receivable (2,684) (5,935)
Increase (decrease) in liabilities:
Accounts payable (27,243) (23,381)
Accrued liabilities (2,102) (1,405)
Patrons' excess deposits and estimated patronage dividends 1,711 1,942
Long-term liabilities, other 732 (2,158)
-------- --------
Net cash utilized by operating activities (8,620) (26,281)
-------- --------
Cash flows from investing activities:
Purchase of properties (9,629) (6,764)
Proceeds from sales of properties 1,181 638
Increase in other assets (2,372) (3,796)
Investment in securities, net (1,427) (1,533)
Proceeds from sale of notes receivable 3,413
-------- --------
Net cash utilized by investing activities (12,247) (8,042)
-------- --------
Cash flows from financing activities:
Additions to long-term notes payable 26,548 40,530
Reduction of short-term notes payable (1,317) (1,243)
(Decrease) increase in members' required deposits (13) 490
Repurchase of shares from members (3,802) (3,660)
Issuance of shares to members 260 202
-------- --------
Net cash provided by financing activities 21,676 36,319
-------- --------
Net increase in cash and cash equivalents 809 1,996
Cash and cash equivalents at beginning of year 7,900 6,451
-------- --------
Cash and cash equivalents at end of period $ 8,709 $ 8,447
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $6,632 $6,527
Income taxes $ 700 $2,453
</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 $1,281,000 from long-term to short-term debt (a
noncash financing activity) for the twenty-six weeks ended February 28, 1998, in
its Consolidated Condensed Statements of Cash Flows.
4. On April 14, 1998, the Company issued $80,000,000 in Senior Notes (the
"Senior Notes") to life insurance companies and pension funds. The proceeds of
the Senior Notes were utilized to pay off all existing senior, subordinated and
secured long-term notes payable and a portion of amounts due under the Company's
revolving credit agreement with banks. The Senior Notes are unsecured, due in
April 2008 and bear interest at 7.22% per annum. On the same date, the Company
entered into a new $100,000,000 revolving credit facility with a group of banks
(the "Revolving Credit"). The Revolving Credit is unsecured, expires in April
2003 and bears interest at the bank's base rate or at an adjusted LIBOR rate
plus a margin ranging from 0.375% to 0.90% depending on the Company's leverage
ratio from time to time. Both the Senior Notes and the Revolving Credit (the
"Credit Agreements") limit the incurrence of additional funded debt, restrict
the issuance of secured indebtedness and prohibit the payment of dividends
(other than patronage dividends). The Credit Agreements contain various
financial covenants pertaining to working capital, adjusted tangible net worth,
funded debt to EBITDA, funded debt to total capitalization, fixed charge
coverage and similar provisions. Obligations under the Credit Agreements are
senior to the rights of member patrons with respect to deposits and patronage
dividend certificates. Grocers Capital Company's ("GCC") existing $10,000,000
credit agreement will remain in place.
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
$8.6 million for the first twenty-six weeks of fiscal 1998 (the "1998 period"),
as compared to $26.3 million utilized by operations for the first twenty-six
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 February 28, 1998,
working capital was $75.1 million, as compared to $59.0 million at August 30,
1997, and the Company's current ratio was 1.47 to 1 at February 28, 1998 and
1.32 to 1 at fiscal 1997 year end. Working capital varies primarily as a result
of seasonal inventory requirements.
Capital expenditures totaled $9.6 million in the first twenty-six weeks of
fiscal 1998. The 1998 expenditures include purchases of computer equipment,
leasehold improvements, and warehouse equipment.
The Company and one of its subsidiaries, GCC, have had agreements with
certain banks that provided for committed revolving lines of credit. These
credit lines were available for general working capital, acquisitions, and
maturing long-term debt. One credit agreement was 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 was and is
collateralized by its loan portfolio. The Company's agreement provided, and
GCC's agreement provides for Eurodollar basis or prime basis borrowings at the
Company's option. At the end of the second quarter of fiscal 1998, the Company
had $145 million in committed lines of credit, of which $62.8 million was not
utilized. As of February 28, 1998, the Company's outstanding borrowings,
including obligations under capital leases of approximately $2.2 million,
amounted to $128.8 million, of which $117.5 million was classified as
noncurrent.
On April 14, 1998, the Company issued $80,000,000 in Senior Notes (the
"Senior Notes") to life insurance companies and pension funds. The proceeds of
the Senior Notes were utilized to pay off all existing senior, subordinated and
secured long-term notes payable and a portion of amounts due under the Company's
revolving credit agreement with banks. The Senior Notes are unsecured, due in
April 2008 and bear interest at 7.22% per annum. On the same date, the Company
entered into a new $100,000,000 revolving credit facility with a group of banks
(the "Revolving Credit"). The Revolving Credit is unsecured, expires in April
2003 and bears interest at the bank's base rate or at an adjusted LIBOR rate
plus a margin ranging from 0.375% to 0.90% depending on the Company's leverage
ratio from time to time. Both the Senior Notes and the Revolving Credit (the
"Credit Agreements") limit the incurrence of additional funded debt, restrict
the issuance of secured indebtedness and prohibit the payment of dividends
(other than patronage dividends). The Credit Agreements contain various
financial covenants pertaining to working capital, adjusted tangible net worth,
funded debt to EBITDA, funded debt to total capitalization, fixed charge
coverage and similar provisions. Obligations under the Credit Agreements are
senior to the rights of member patrons with respect to deposits and patronage
dividend certificates. GCC's existing $10,000,000 credit agreement will remain
in place.
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
6
<PAGE>
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 restricted the Company's
redemption of shares to 19,300 shares for $3,381,746. The number of shares
tendered for redemption at February 28, 1998, totaled 56,848 (or approximately
$10.0 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 $10.0 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 Agreements.
The Company's third and fourth largest customers, Nob Hill General Store,
Inc. ("Nob Hill") and Hughes Markets, Inc. ("Hughes"), respectively, have been
acquired by entities that have self-distribution programs. These acquisitions
were both completed during the first quarter of 1998. The Company's sales to
Nob Hill and Hughes totaled approximately $150 million in fiscal 1997.
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
-------------------------------
February 28, 1998 March 1, 1997
------------------ --------------
<S> <C> <C>
Net sales 100% 100%
Cost of sales 91.2 91.4
Distribution, selling and administrative 7.1 7.0
Operating income 1.7 1.6
Interest expense 0.7 0.6
Estimated patronage dividends 0.8 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 $949.0 million for the 1998 period as compared to $973.4
million in the 1997 period. The sales decrease of $24.4 million represents a
2.5% decrease over the 1997 period. The reduction in sales is the result of
reduced sales to Megafoods Stores ("Megafoods"), and reduced sales to Hughes.
Effective December 1996, the Arizona stores previously owned by Megafoods were
sold to Basha's Inc. ("Basha's"). Basha's self-distributes most of the product
previously supplied to Megafoods by the Company. Accordingly, the Company's
sales to Megafoods have been significantly impacted by this transaction. The
Company believes the reduced sales to Hughes are directly related to the
transaction described in "Liquidity and Capital Resources".
7
<PAGE>
COST OF SALES
Cost of sales were 91.2% of sales in fiscal 1998 compared to 91.4% 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 $67.7 million
(or 7.1% of net sales) in the 1998 period, as compared to $67.8 million (or 7.0%
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 $15.7 million for the 1998 period, as
compared to $16.1 million for the 1997 period.
INTEREST
Interest expense in the 1998 period increased from $6.2 million (0.6%
of net sales) in the 1997 period to $6.5 million (0.7% of net sales) in the 1998
period. The increase is due to slightly higher average borrowing requirements
in fiscal 1998.
Estimated patronage dividends
Estimated patronage dividends totaled $7.4 million for the 1998 period
as compared to $8.1 million for the 1997 period. The reduction is due to lower
sales through the cooperative divisions. However, estimated patronage dividends
have remained constant at 0.91% of sales through the Cooperative.
NET EARNINGS
Net earnings for the 1998 period were $1,179,000 compared to net
earnings of $1,186,000 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
On April 14, 1998, the Company issued $80,000,000 in Senior Notes (the
"Senior Notes") to life insurance companies and pension funds. The
proceeds of the Senior Notes were utilized to pay off all existing
senior, subordinated and secured long-term notes payable and a portion
of amounts due under the Company's revolving credit agreement with
banks. The Senior Notes are unsecured, due in April 2008 and bear
interest at 7.22% per annum. On the same date, the Company entered
into a new $100,000,000 revolving credit facility with a group of
banks (the "Revolving Credit"). The Revolving Credit is unsecured,
expires in April 2003 and bears interest at the bank's base rate or at
an adjusted LIBOR rate plus a margin ranging from 0.375% to 0.90%
depending on the Company's leverage ratio from time to time. Both the
Senior Notes and the Revolving Credit (the "Credit Agreements") limit
the incurrence of additional funded debt, restrict the issuance of
secured indebtedness and prohibit the payment of dividends (other than
patronage dividends). The Credit Agreements contain various financial
covenants pertaining to working capital, adjusted tangible net worth,
funded debt to EBITDA, funded debt to total capitalization, fixed
charge coverage and similar provisions. Obligations under the Credit
Agreements are senior to the rights of member patrons with respect to
deposits and patronage dividend certificates. Grocers Capital
Company's existing $10,000,000 credit agreement will remain in place.
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: April 14, 1998 By ALFRED A. PLAMANN
-----------------------------
Alfred A. Plamann
President,
Chief Executive Officer
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-29-1998
<PERIOD-START> AUG-31-1997
<PERIOD-END> FEB-28-1998
<CASH> 8,709
<SECURITIES> 38,295
<RECEIVABLES> 95,688
<ALLOWANCES> (4,827)
<INVENTORY> 126,033
<CURRENT-ASSETS> 234,408
<PP&E> 173,172
<DEPRECIATION> (95,109)
<TOTAL-ASSETS> 390,072
<CURRENT-LIABILITIES> 159,303
<BONDS> 117,484
0
0
<COMMON> 59,886
<OTHER-SE> 13,623
<TOTAL-LIABILITY-AND-EQUITY> 390,072
<SALES> 948,960
<TOTAL-REVENUES> 948,960
<CGS> 865,565
<TOTAL-COSTS> 933,280
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,507
<INCOME-PRETAX> 1,763
<INCOME-TAX> 584
<INCOME-CONTINUING> 1,179
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,179
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
