<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 May 30,1998
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
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(State or other jurisdiction of (I.R.S. employer Identification No.)
incorporation or organization)
5200 Sheila Street, Los Angeles 90040
- --------------------------------------------------------------------------------
(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 46,200 Shares as of May 30, 1998
Class B Shares 366,573 Shares as of May 30, 1998
Class C Shares 15 Shares as of May 30, 1998
<PAGE>
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)
May 30, August 30,
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Current:
Cash and cash equivalents $ 7,256 $ 7,900
Accounts and notes receivable 86,131 94,493
Inventories 126,247 135,272
Prepaid expenses 4,756 4,907
Deferred taxes 3,427 3,427
------------ -------------
Total current assets 227,817 245,999
Property, plant and equipment at cost 168,013 165,443
Less, accumulated depreciation (88,282) (89,308)
------------ -------------
79,731 76,135
Investments 40,369 36,714
Notes receivable 20,693 19,515
Other assets 16,610 15,639
------------ -------------
TOTAL ASSETS $385,220 $394,002
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current:
Accounts payable $ 60,754 $104,498
Accrued liabilities 55,957 54,320
Notes payable 730 11,329
Patrons' excess deposits and estimated patronage dividends 15,902 16,826
------------ -------------
Total current liabilities 133,343 186,973
Notes payable, due after one year 136,321 92,217
Long-term liabilities 19,815 18,151
Patrons' deposits and certificates:
Patrons' required deposits 14,116 14,358
Subordinated patronage dividend certificates 6,162 6,276
Shareholders' equity:
Class A Shares 5,270 5,361
Class B Shares 54,502 57,349
Retained earnings 15,427 13,162
Net unrealized gain on appreciation of investments 347 238
Minimum pension liability adjustment (83) (83)
------------ -------------
Total shareholders' equity 75,463 76,027
------------ -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $385,220 $394,002
============ =============
</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 39 Weeks Ended
-------------------------- -------------------------------
May 30, May 31, May 30, May 31,
1998 1997 1998 1997
----------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Net sales $452,259 $472,049 $1,401,219 $1,445,497
----------- ------------ -------------- -------------
Costs and expenses:
Cost of sales 411,395 430,239 1,276,960 1,319,840
Distribution, selling and administrative 35,982 33,261 103,697 101,043
----------- ------------ -------------- -------------
Operating income 4,882 8,549 20,562 24,614
Interest expense (2,937) (3,569) (9,444) (9,782)
Other income (expense) 3,347 (1,042) 3,347 (1,042)
----------- ------------ -------------- -------------
Earnings before estimated patronage dividends,
provision for income taxes and extraordinary item 5,292 3,938 14,465 13,790
Estimated patronage dividends (576) (2,621) (7,986) (10,670)
----------- ------------ -------------- -------------
Earnings before provision for income taxes and
extraordinary item 4,716 1,317 6,479 3,120
Provision for income taxes 1,789 478 2,373 1,095
----------- ------------ -------------- -------------
Earnings before extraordinary item 2,927 839 4,106 2,025
Extraordinary item (net of applicable income
taxes of $714) 1,079 - 1,079 -
----------- ------------ -------------- -------------
Net earnings $ 1,848 $ 839 $ 3,027 $ 2,025
=========== ============ ============== =============
</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 THIRTY-NINE WEEKS ENDED MAY 30, 1998 AND MAY 31, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
May 30, May 31,
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 3,027 $ 2,025
----------- -----------
Adjustments to reconcile net earnings to net
cash utilized by operating activities:
Depreciation and amortization 11,163 9,013
Gain on sale of investment in affiliate - (458)
Reduction in fair value of investment - 1,500
(Gain) loss on disposal of property, plant and equipment (3,078) 80
Decrease (increase) in assets:
Accounts and notes receivable 8,248 5,724
Inventories 9,025 (405)
Prepaid expenses 151 (513)
Notes receivable (3,958) (8,126)
Increase (decrease) in liabilities:
Accounts payable (43,744) (19,466)
Accrued liabilities (2,878) (5,349)
Patrons' excess deposits and estimated patronage dividends (924) 1,931
Long-term liabilities, other 1,664 (2,343)
----------- -----------
Net cash utilized by operating activities (21,304) (16,387)
----------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment (17,596) (11,332)
Proceeds from sales of property, plant and equipment 11,914 607
Increase in other assets (2,455) (4,066)
Investment in securities, net (3,546) (1,128)
Proceeds from sale of notes receivable 2,780 3,413
Sale of investment in affiliate, net of cash disposed - 458
----------- -----------
Net cash utilized by investing activities (8,903) (12,048)
----------- -----------
Cash flows from financing activities:
Additions to long-term notes payable 135,000 43,722
Reduction of long-term notes payable (90,344) (8,750)
Reduction of short-term notes payable (11,151) (1,878)
(Decrease) increase in members' required deposits (242) 2,416
Repurchase of shares from members (4,100) (3,878)
Issuance of shares to members 400 403
----------- -----------
Net cash provided by financing activities 29,563 32,035
----------- -----------
Net (decrease) increase in cash and cash equivalents (644) 3,600
Cash and cash equivalents at beginning of year 7,900 6,451
----------- -----------
Cash and cash equivalents at end of period $ 7,256 $ 10,051
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $10,210 $10,952
Income taxes $ 1,497 $ 2,603
</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,
management 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 financial
statements to present them on a basis comparable with the current period's
presentation.
3. The Company reclassified $552,000 from long-term to short-term debt (a
noncash financing activity) for the thirty-nine weeks ended May 30, 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 certain 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. 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.
The prepayment premiums and the write-off of deferred financing costs of
$1,079,000 relating to the debt refinanced have been reported as an
extraordinary loss, net of the $714,000 tax benefit, in the thirteen and thirty-
nine week periods ended May 30, 1998.
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
$21.3 million for the first thirty-nine weeks of fiscal 1998 (the "1998
period"), as compared to $16.4 million utilized by operations for the first
thirty-nine 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. At May 30, 1998, working capital was $94.5 million, as compared to
$59.0 million at August 30, 1997, and the Company's current ratio was 1.71 to 1
at May 30, 1998 and 1.32 to 1 at fiscal 1997 year end. Working capital varied
primarily as a result of the refinancing described below.
Capital expenditures totaled $17.6 million in the first thirty-nine weeks
of fiscal 1998. The 1998 expenditures include purchases of computer equipment,
leasehold improvements and warehouse equipment.
On April 14, 1998, the Company issued $80,000,000 in Senior Notes (the
"Senior Notes") to certain 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. 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. At the end of the third quarter of fiscal 1998, the Company had $110
million in committed lines of credit, of which $55 million was not utilized. As
of May 30, 1998, the Company's outstanding borrowings, including obligations
under capital leases of approximately $2.1 million, amounted to $137.1 million,
of which $136.3 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 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 May 30, 1998,
totaled 58,756 (or approximately $10.3 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 $10.3 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 to fund redemption of shares is provided
6
<PAGE>
from operations, patron deposits, current shareholdings and borrowings under the
Company's Credit Agreements.
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 Thirty-Nine Weeks Ended
-------------------------------
May 30, 1998 May 31, 1997
------------- -------------
<S> <C> <C>
Net sales 100% 100%
Cost of sales 91.1 91.3
Distribution, selling and administrative 7.4 7.0
Operating income 1.5 1.7
Interest expense 0.7 0.7
Other income (expense) 0.2 (0.1)
Estimated patronage dividends 0.6 0.7
Earnings before income taxes,
and extraordinary item 0.5 0.2
Provision for income taxes 0.2 0.1
Extraordinary item 0.1
Net earnings 0.2 0.1
</TABLE>
NET SALES
Net sales totaled $1,401 million for the 1998 period as compared to
$1,445 million in the 1997 period. Sales decreased 3.1% from the 1997 period.
The reduction in sales is primarily the result of reduced sales to Megafoods
Stores ("Megafoods"), Nob Hill General Store, Inc. ("Nob Hill") and Hughes
Markets, Inc. ("Hughes"). Megafoods, Nob Hill and Hughes were all acquired by
entities that have self-distribution programs; accordingly, product supply to
their respective stores migrated into the corresponding self-distribution
facilities in the period between February 1997 through May 1998.
COST OF SALES
Cost of sales were 91.1% of sales in fiscal 1998 compared to 91.3% in
fiscal 1997. The decrease was due to a change in customer mix (most notably the
reduced sales to the significant customers discussed under "Net Sales") as well
as an increase in service fees in the Grocery, Frozen Food and Delicatessen
divisions effective March 1998.
DISTRIBUTION, SELLING AND ADMINISTRATIVE
Distribution, selling and administrative expenses were $103.7 million
(or 7.4% of net sales) in the 1998 period, as compared to $101.0 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 greater than the 1997 period primarily due to the
lower volume levels discussed under "Net Sales", nonrecurring charges relating
to litigation expenses and costs to update computer programs that will be
impacted by the year 2000. These increased costs were partially offset by
reduced costs resulting from the implementation of radio frequency and automated
routing programs in several of the Company's distribution facilities.
INTEREST
Interest expense in the 1998 period decreased from $9.8 million in the
1997 period, compared to $9.4 million in the 1998 period. The decrease is
primarily due to lower interest rates associated with the $180.0 million
refinancing completed in April 1998 and reduced average borrowing requirements
resulting from reductions in inventories and accounts receivable.
7
<PAGE>
OTHER INCOME (EXPENSE)
Other income in the 1998 period was $3.3 million compared to other
expense of $1.0 million in the 1997 period. In May 1998, the Company completed
the sale of approximately 24 acres of property located in Commerce, California.
This sale resulted in a gain (net of expenses related to the sale) of $3.2
million. Additionally, GCC periodically sells loans in its portfolio to a third
party. These loan sales resulted in a net gain of $147,000 in the 1998 period.
The $1.0 million loss in the 1997 period was due to a $1.5 million reduction in
the fair value of the Company's investment in SavMax, partially offset by a
$458,000 gain from the sale of the remainder of the Company's interest in Major
Markets, Inc.
ESTIMATED PATRONAGE DIVIDENDS
Estimated patronage dividends totaled $8.0 million for the 1998 period
as compared to $10.7 million for the 1997 period. The reduction is primarily
due to lower sales through the cooperative divisions, the refinancing charge and
the nonrecurring charges discussed previously; offset by reduced interest costs.
EXTRAORDINARY CHARGE
The extraordinary loss of $1.1 million, net of taxes, in the 1998
period is related to the early extinguishment of debt in connection with a
$180.0 million refinancing transaction. This charge covers prepayment premiums
paid and the write-off of financing costs relating to debt refinanced in the
transaction.
NET EARNINGS
Net earnings were $3,027,000 for the 1998 period as compared to
$2,025,000 for the 1997 period. The change in net earnings was due primarily to
the items discussed above.
8
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
A. Election of Directors
The Company's Annual Meeting of Shareholders was held on April 15, 1998, at
which time the fifteen members of the Company's Board of Directors were
elected. The following tables set forth the twelve individuals elected by
the holders of Class A Shares and the three individuals elected by the
holders of Class B Shares, as well as the number of votes cast for or
withheld respecting each individual.
Class A Shares
Votes
Name For Withheld
Louis A. Amen 26,900 1,200
John Berberian 26,700 1,400
Edmund K. Davis 26,600 1,500
John T. Fujieki 26,700 1,400
Mark Kidd 26,800 1,300
Willard R. MacAloney 26,800 1,300
Jay McCormack 26,800 1,300
Morrie Notrica 26,800 1,300
Michael A. Provenzano 26,600 1,500
Gail Gerrard Rice 26,800 1,300
James R. Stump 26,800 1,300
Kenneth Young 26,800 1,300
Class B Shares
Votes
Name For Withheld
Harley DeLano 245,143 3,318
Darioush Khaledi 244,849 3,612
Mimi R. Song 241,781 6,680
Item 6. Exhibits
Exhibit 4.16
Note Purchase Agreement dated as of March 15, 1998 among
Certified Grocers of California, Ltd. and the Purchasers named
therein relating to $80,000,000 7.22% Senior Notes due 2008
(incorporated by reference to Exhibit 4.16 to the Registration
Statement on Form S-2 (Reg. No. 333-51931) filed on May 6, 1998.)
Exhibit 4.17
$100,000,000 Revolving Credit Agreement dated as of April 10,
1998 among Certified Grocers of California, Ltd., the Lenders
named therein and Cooperative Centrale Raiffeisen-Boerenleenbank
B.A., "Rabobank Nederland," New York Branch, as agent
(incorporated by reference to Exhibit 4.17 to the Registration
Statement on Form S-2 (Reg. No. 333-51931) filed on May 6, 1998.)
Exhibit 27
Financial Data Schedule
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: July 14, 1998 By /s/ ALFRED A. PLAMANN
__________________________________
Alfred A. Plamann
President and
Chief Executive Officer
By /s/ RICHARD J. MARTIN
__________________________________
Richard J. Martin
Senior Vice President - Finance &
Administration and Chief Financial Officer
By /s/ RANDALL G. SCOVILLE
__________________________________
Randall G. Scoville
Vice President - Accounting
and Chief Accounting Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-29-1998
<PERIOD-START> AUG-31-1997
<PERIOD-END> MAY-30-1998
<CASH> 7,256
<SECURITIES> 40,369
<RECEIVABLES> 86,131
<ALLOWANCES> (5,142)
<INVENTORY> 126,247
<CURRENT-ASSETS> 227,817
<PP&E> 168,013
<DEPRECIATION> (88,282)
<TOTAL-ASSETS> 385,220
<CURRENT-LIABILITIES> 133,343
<BONDS> 136,321
0
0
<COMMON> 59,772
<OTHER-SE> 15,427
<TOTAL-LIABILITY-AND-EQUITY> 385,220
<SALES> 1,401,219
<TOTAL-REVENUES> 1,401,219
<CGS> 1,276,960
<TOTAL-COSTS> 1,380,657
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,444
<INCOME-PRETAX> 6,479
<INCOME-TAX> 2,373
<INCOME-CONTINUING> 4,106
<DISCONTINUED> 0
<EXTRAORDINARY> 1,079
<CHANGES> 0
<NET-INCOME> 3,027
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
