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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) (Mark One)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) /X/
FOR THE FISCAL YEAR ENDED SEPTEMBER 2, 1995
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) / /
FOR THE TRANSACTION PERIOD FROM TO
COMMISSION FILE NUMBER 0-10815
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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)
Registrant's telephone number, including area code: (213) 723-7476
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
CLASS A SHARES
(Title of Class)
CLASS B SHARES
(Title of Class)
--------------------------
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 ____.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, other average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of Filing.
(See definition of affiliate in Rule 405, 17 CFR 230.405).
The Company's shares are not publicly traded and therefore market value is
not readily ascertainable.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Class A 50,300 shares as of December 1, 1995
Class B 384,767 shares as of December 1, 1995
Class C 15 shares as of December 1, 1995
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the
part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980).
None.
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TABLE OF CONTENTS
PART I
ITEM PAGE
- --------------------------------------------------------- ----
1. Business.......................................... 3
2. Properties........................................ 13
3. Legal Proceedings................................. 13
4. Submission of Matters to a Vote of Security
Holders.......................................... 14
PART II
5. Market for Registrant's Common Equity and Related
Shareholder Matters.............................. 14
6. Selected Financial Data........................... 14
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 14
8. Financial Statements and Supplementary Data....... 19
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.............. 43
PART III
10. Directors and Executive Officers of the
Registrant....................................... 44
11. Executive Compensation............................ 45
12. Security Ownership of Certain Beneficial Owners
and Management................................... 50
13. Certain Relationships and Related Transactions.... 51
PART IV
14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.............................. 53
Signatures............................................... 59
2
PART I
Certified Grocers of California, Ltd. and its consolidated subsidiaries are
hereinafter referred to as "Certified" or the "Company."
ITEM 1. BUSINESS
GENERAL
Certified, a California corporation organized in 1925, is a wholesale
grocery distributor which does business primarily on a cooperative basis with
those patrons who qualify and have been accepted as "member-patrons." Certified
is owned by its member-patrons, which are primarily independent grocers, and is
operated and taxed on a cooperative basis. Certified also does some business on
a cooperative basis with some patrons who are not member-patrons and who are
referred to as "associate patrons." Pursuant to Certified's Bylaws, the net
earnings of Certified on business done on a cooperative basis are distributed as
patronage dividends to member-patrons and associate patrons based on the volume
of such business transacted with the patron. For the fiscal year ended September
2, 1995 declared patronage dividends totalled $11,571,000.
Certified also does business on a nonpatronage basis with other customers
and in some instances with member-patrons and associate patrons. Certified's
subsidiaries do business on a nonpatronage basis with member-patrons, associate
patrons and other customers.
Patrons engaged in the retail grocery business who purchase 350 or more dry
grocery cases weekly (approximately $5,000), or whose combined average weekly
purchases (excluding cigarettes) are $5,000 or more, are required to become
member-patrons. Associate patrons generally purchase 200 or more dry grocery
cases weekly and have combined average weekly purchases of less than $5,000. At
September 2, 1995, Certified had 503 member-patrons operating a total of 2,320
retail food stores and 304 associate patrons operating a total of 725 retail
food stores.
The following table shows the number of patrons and stores operated by such
patrons at the end of each of the respective fiscal years:
FISCAL YEAR
-------------------------------
1995 1994 1993
--------- --------- ---------
Number of patrons:
Member-patrons...................................................... 503 491 497
Associate patrons................................................... 304 285 380
--------- --------- ---------
807 776 877
--------- --------- ---------
--------- --------- ---------
Stores operated:
Member-patrons...................................................... 2,320 2,372 2,402
Associate patrons................................................... 725 635 886
--------- --------- ---------
3,045 3,007 3,288
--------- --------- ---------
--------- --------- ---------
STRATEGY
The recent wave of consolidations, mergers and new entrants into the grocery
business has made competition for market share in the California grocery
business more intense than ever before. Meanwhile, vendors are reducing their
costs by curtailing promotions and other allowances that wholesalers have long
relied upon to maintain their margins.
In the past, Certified has reacted to changing business and marketplace
conditions with a series of incremental changes, or small, corrective steps that
were designed to solve the problem at hand. While this type of problem-solution
management style served Certified well for a great many years, the business
climate of the 1990s has forced the Company to take a vastly different approach
to achieve success.
3
During fiscal 1995, Certified Grocers developed a strategic initiative
designed to "re-invent" the Company and fundamentally change the way it
conducted its business. This initiative is called "C3" -- Certified's Commitment
to Customers. At the heart of the C3 plan is a new corporate mission statement
that will serve as a guide for Certified's progress well into the next century:
TO BE THE MOST EFFECTIVE, QUALITY-DRIVEN COMPANY THAT PROVIDES
WORLD-CLASS SERVICES AND COMPLETE PRODUCT SELECTION BY CREATING A
PARTNERSHIP WITH RETAILERS AND STRATEGIC ALLIANCES WITH SUPPLIERS.
Fundamentally changing the way Certified conducts business, however, will
require much more than creating a mission statement and asking Company personnel
to come up with ways to achieve it. Realizing this, four strategic imperatives
have been developed to help the Company realize the full potential of its
overall mission -- growth, quality, efficiency and superior service.
GROWTH. During fiscal 1995 Certified was successful in adding several new
members/customers to its sales base. For example, Nob Hill Foods, Inc., a
25-store retail chain operating in Northern California, began purchasing several
lines of product which are estimated to increase Certified's annual sales by
over $100 million. Megafoods Stores, Inc., a 19-store chain operating in
Arizona, selected Certified as its primary supplier and its purchases are
estimated to increase Certified's annual sales by over $150 million.
Existing members and customers are being encouraged to buy as many products
and services from Certified as possible, and are given purchase incentives to do
so. This program, which arose from research conducted by one of the original C3
action teams, couples various pricing schedules with different customer segments
to produce significant buying efficiencies for the retailer, and distribution
efficiencies for Certified.
QUALITY. During fiscal 1995 Certified mailed a comprehensive customer
satisfaction survey to approximately 480 of its members. Among all survey
respondents, 60% indicated that they were either "extremely satisfied" or
"generally satisfied" with their relationship with Certified. Certified's
delivery, warehouse, retail pricing, and advertising services were all rated
very high in the survey.
On the other hand, the survey also revealed that the Company needs to
improve its performance in a number of other areas. For example, survey
respondents reported that Certified's sales and service representatives and
retail counselors contact or visit members too infrequently. Others reported
difficulty in making contact with the right person at Certified whenever
problems arise. To respond to these concerns, Certified launched two extensive
training programs, both in conjunction with the ongoing C3 project.
EFFICIENCY. In recent years, Certified has made a strong commitment toward
becoming the low cost provider of goods and services to its members and
customers. This is accomplished by closely examining the process by which work
is handled throughout the Company and then suggesting ways in which costs can be
removed from the overall system without sacrificing product or service quality.
In fiscal 1995, Certified was able to deliver on its cost efficiency promise
by DECREASING prices to customers. This became possible for two reasons:
continued movements by vendors toward every day low pricing, which enabled
Certified to maximize turns and minimize product investment, and a significant
change in the Company's delivery fee schedules, which resulted in DECREASED
transportation fees to the majority of members and customers.
Offering lower priced products and services to Certified's members and
customers, however, requires the Company to be more aggressive in attacking its
cost structure and vigilant in its efforts to control expenses. For example, the
product reclamation program implemented during 1995 ensures the safety and
quality of products sold at retail by providing a system for removing damaged or
unsalable products. The system allows Certified to obtain a credit from the
manufacturer for unused products and also recover costs via sales to salvage
operations.
Another method Certified is utilizing to keep costs low is by streamlining
existing operations and consolidating activities that make strategic and
economic sense. During fiscal 1995, Certified successfully
4
streamlined its dairy manufacturing operation and greatly increased its overall
efficiency. These changes enabled the dairy to increase the allowances to
customers purchasing dairy products while increasing the level of patronage
dividends on creamery profits.
Other areas in which the Company will be looking to reduce costs in the
future include a planned redesign of Certified's selling structure, the
elimination of non-performing services and assets, a continuing effort to
provide value to services offered by the Company and by forming strategic
alliances with vendors and other wholesalers that would be beneficial to
Certified's members and customers.
SUPERIOR SERVICE. Certified has made substantial progress in its efforts to
boost the variety and quality of services offered to its members and customers.
For example, Certified now offers a complete array of merchandising tools --
everything from retail shelf schematics to advertising groups -- to retailers
who are looking for effective ways to boost sales. Another example is in real
estate services where a newly reorganized department is now offering a host of
new programs and services to members who are looking to expand their operations.
In the area of technology, Certified is working to ensure that the Company
is serving the wide and varied needs of its diverse membership. For example, the
Company is working toward installing affordable retail scanning equipment
available to stores with a limited number of check-out lanes. A similar effort
aimed at electronically automating stores is also progressing by making it
affordable for small stores to participate in such programs as electronic funds
transfer, check authorization, coupon redemption and other similar services.
PRODUCT LINES
The Company's sales by product line, including drop shipments (which are
sales delivered directly to customers from suppliers) for each of the respective
three fiscal years follow:
FISCAL YEAR
----------------------------------------
1995 1994 1993
------------ ------------ ------------
(THOUSANDS OMITTED)
Dry Grocery............................................. $ 1,030,024 $ 1,035,213 $ 1,095,706
General Merchandise..................................... 209,943 222,574 204,400
Delicatessen............................................ 178,582 180,159 213,388
Meat.................................................... 145,997 138,082 151,643
Frozen Food............................................. 113,208 142,852 173,427
Dairy................................................... 66,399 71,024 68,414
Ice Cream............................................... 20,879 22,071 20,044
Bakery.................................................. 15,839 13,037 13,814
Drop Shipment........................................... 12,662 12,447 12,334
Beans and Rice.......................................... 4,527 6,305 5,721
Other................................................... 24,744 30,108 48,397
------------ ------------ ------------
Total............................................... $ 1,822,804 $ 1,873,872 $ 2,007,288
------------ ------------ ------------
------------ ------------ ------------
The Company, with headquarters in Los Angeles, distributes product from
facilities in Southern and Northern California as well as Hawaii. Certified
sells a full line of branded grocery and nonfood items supplied by unrelated
manufacturers and also sells merchandise under its own private labels, including
the Springfield, Gingham, Special Value, La Corona, and Golden Creme labels.
Certified also operates its own bakery and dairy facilities. Grocers Specialty
Company ("GSC"), a subsidiary, carries a product line consisting of
specialty-type items, such as ethnic and fancy foods, and also carries a general
product line. General merchandise products are primarily sold by another
subsidiary, Grocers General Merchandise Company ("GM").
5
WHOLESALE DISTRIBUTION
Certified's cooperative wholesale business represented approximately 77% of
fiscal 1995 sales. The wholesale business includes a broad range of branded and
private label products in dry grocery, frozen, delicatessen, boxed meat, service
deli, ice cream, bakery and dairy.
The Company also conducts certain food and related nonfood wholesale
operations through three subsidiary companies, GSC, Hawaiian Grocery Stores,
Ltd. ("HGS") and GM, which collectively accounted for approximately 21% of
fiscal 1995 sales. GSC is a wholesale distributor of specialty items such as
health, ethnic and fancy foods. GSC also supplies general grocery products to
retailers whose volume falls below the minimum required by the cooperative
business. HGS distributes a variety of grocery, frozen and delicatessen products
in the Hawaiian islands. GM distributes a wide variety of general merchandise
items including housewares, hardware and health and beauty care products. GM's
activities are conducted from a highly automated general merchandise facility
located in Fresno, California.
The Fresno facility is operated by a joint venture known as Golden Alliance
Distribution ("GAD"). Golden Alliance was formed in 1992 and is owned 50% by GM
and 50% by Food 4 Less GM, Inc. ("F4LGM"). Fixed costs of operating Golden
Alliance are shared equally by each partner, while variable costs are shared
based on a formula that takes into consideration each partner's volume. The
basic term of the joint venture expires in 2002, but may be terminated earlier
pursuant to other provisions outlined in the joint venture agreement.
During 1995, the parent of F4LGM merged with Ralphs Grocery Company
("Ralphs"). Since the completion of the merger in June 1995, Ralphs has reduced
its weekly purchases from the Fresno warehouse by approximately 50%. To date,
the impact to Certified resulting from this reduction in volume has been minimal
since Ralphs has continued to absorb 50% of the partnership's fixed costs.
Certified is currently in discussions with Ralphs regarding their long-term
plans for utilizing the Fresno facility.
The Company is not dependent upon any single source of supply in any of its
businesses. Management believes that alternative suppliers are available for
substantially all of its products and that the loss of any one supplier would
not have a material adverse effect on the Company's business.
MARKETING AND DISTRIBUTION OF PRODUCTS
The Company distributes its various product lines from four warehouse
complexes and two manufacturing plants (dairy and bakery) located in the Los
Angeles metropolitan area, two warehouses in Stockton, California, one warehouse
in Fresno, California, and one warehouse in Honolulu, Hawaii.
The Company prepares order books biweekly and price bulletins weekly. The
bulletin also shows promotional and advertising allowances available from the
various manufacturers. Most customers order for their stores on at least a
weekly basis and receive deliveries from one to five days a week.
Most customers order their requirements by means of an electronic system
which is rented from the Company. A store employee orders by recording the item
code from the shelf tag into the electronic device. The order is then
transmitted to the Company over regular telephone lines. Substantially all
member-patrons and associate patrons of the Company use this electronic ordering
method to submit their orders for dry grocery, general merchandise, frozen food
and delicatessen products.
Customers not utilizing the electronic ordering method complete the weekly
order book and mail or deliver it to the Company. The Company maintains separate
ordering departments for its bakery, meat, dairy, and ice cream product lines.
Orders for these items are generally placed by telephone.
General merchandise and specialty products are ordered on either a service
or nonservice program. Approximately 10% of general merchandise and
approximately 20% of specialty products are ordered under the service program.
The store is visited by a Company service representative who checks the stock
and determines the order requirement. The order is converted to an electronic
input device and transmitted to the Company. The service representative returns
to the store when the order is delivered and stocks the shelves. The Company
employs service representatives who provide the full service program to
customers who subscribe. There is an additional charge for this service.
6
The remaining 90% of general merchandise and 80% of specialty products are
ordered by the retailer under the nonservice program. The product is delivered
to the customer's store, and the customer is responsible for stocking shelves.
TRUCKING OPERATIONS
The Company's trucking fleet is used in the transportation of food and
related items from suppliers to the Company and in the delivery of such items to
its customers. These operations are conducted principally in California,
Arizona, Nevada, and Hawaii. The Company's vehicle fleet consists of
approximately 290 tractors, 740 trailers, and 15 pickup vans. Approximately 45%
of the fleet is owned by the Company; the balance is leased. Such leases
generally have initial terms of 8 to 10 years and provide for renewal or
purchase options at fair market value at expiration of the lease.
SUPPORT BUSINESSES
The Company's subsidiary retail support businesses collectively accounted
for approximately 2% of the Company's total sales in fiscal 1995, 1994, and
1993. Principal retail support operations include Grocers Capital Company
("GCC"), which provides financing for inventory purchases, equipment purchases,
store remodeling and new store acquisitions, and Grocers Equipment Company
("GEC"), which provides additional support in store planning and development
services, retail pricing comparisons, scanning support and also sells and leases
equipment to the Company's customers. The Company also provides insurance
brokerage services for retailers through Grocers and Merchants Insurance
Services, Inc. ("GMIS") and underwrites selected insurance risks through two
insurance subsidiaries.
CUSTOMERS
The Company's patrons consist primarily of independent retail grocery store
operators ranging in size from single store operators to multiple store and
chain store operators. The typical patron in Southern California serves a
high-density urban population and the Company's typical Northern California
patron serves a less densely populated area. A typical member-patron retail
grocery store consists of approximately 20,000 square feet.
The Company's ten largest customers accounted for approximately 33% of net
sales in fiscal 1995 and fiscal 1994 and 35% in fiscal 1993. Management believes
there is no single customer whose loss would have a material adverse effect on
the Company's business.
COMPETITION
The food industry is characterized by intense competition and low profit
margins. In order to compete effectively, the Company must provide its patrons
with the capability to meet rapidly fluctuating competitive market prices,
provide a wide range of perishable and nonperishable products, make prompt and
efficient deliveries, and provide the services which are required by modern
market operations. The Company competes with local, regional and national
grocery wholesalers and with a number of major manufacturers which market their
products directly to retailers. The Company's success is dependent upon its
ability to supply food and nonfood products and services to its patrons in a
cost-effective manner and upon the ability of its independent retail customers
to compete with the large chain store operations.
PATRONAGE DIVIDENDS
Certified distributes patronage dividends based upon its net earnings from
patronage business during the fiscal year. Certified's net earnings from
patronage business are distributed to each patron in proportion to the dollar
volume of purchases from each division of Certified by the patron. Patronage
dividends are distributed annually, usually in December, except for dividends on
dairy products which are distributed after the close of each fiscal quarter.
7
The following table shows the patronage dividend experience of the Company
during the past three fiscal years.
FISCAL YEAR
-------------------------------
1995 1994 1993
--------- --------- ---------
(THOUSANDS OMITTED)
Dairy......................................................... $ 7,701 $ 8,088 $ 7,746
Dry Grocery................................................... 2,610 1,554 3,107
Delicatessen.................................................. 480 500 726
Frozen Food................................................... 350 351 721
Beans and Rice................................................ 320 250 312
Ice Cream..................................................... 110 94 268
--------- --------- ---------
Total (1)............................................. $ 11,571 $ 10,837 $ 12,880
--------- --------- ---------
--------- --------- ---------
- ------------------------
(1) Certified expects to continue to distribute patronage dividends in the
future, although there can be no assurance of the amounts of such
dividends.
Certified's bylaws provide that patronage dividends may be distributed in
money or in any other form which constitutes a written notice of allocation
under Section 1388 of the Internal Revenue Code. Section 1388 defines the term
"written notice of allocation" to mean any capital stock, revolving fund
certificate, retain certificate, certificate of indebtedness, letter of advice,
or other written notice, which discloses to the recipient the stated dollar
amount allocated to the recipient by Certified and the portion thereof, if any,
which constitutes a patronage dividend.
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. In addition, under a patronage dividend retention program
authorized by Certified's Board of Directors, Certified retains a portion of the
patronage dividends to be distributed for a fiscal year and issues patronage
certificates ("Patronage Certificates") evidencing its indebtedness respecting
the retained amounts. The program provides for the issuance of Patronage
Certificates to patrons on an annual basis in a portion and at an interest rate
to be determined annually by the Board of Directors. However, as to any
particular patron, if the amount of the retention is less than a specified
minimum (presently $500), then no retention occurs and a Patronage Certificate
is not issued. Patronage Certificates for each year are unsecured general
obligations of Certified, are subordinated to certain other indebtedness of
Certified, and are nontransferable without the consent of Certified. The
Patronage Certificates are subject to redemption, at any time in whole and from
time to time in part, without premium, at the option of Certified, and are
subject to being set off, at the option of Certified, against all or any portion
of the amounts owing to the Company by the holder. Subject to the payment of at
least 20% of the patronage dividend in cash, the portion of the patronage
dividend retained is deducted from each patron's patronage dividend prior to the
issuance of Class B Shares as a portion of such dividend.
In fiscal years 1993 and 1994, the portion of the patronage dividend
retained and evidenced by the issuance of Patronage Certificates was 20% of the
fourth quarter dividend for dairy products in fiscal 1993, 20% of the quarterly
dairy patronage dividends for fiscal 1994 and 40% of the fiscal 1993 and 1994
dividends for non-dairy products. As to patronage dividends to be distributed
with respect to Certified's 1995 fiscal year, Patronage Certificates will be
issued evidencing the allocation of an amount of such dividends equal to 40% of
the patronage dividends of all divisions, except the dairy division, and 20% of
the first and second quarter dairy division patronage dividends. The Patronage
Certificates issued for fiscal 1995 have a seven year term, maturing on December
15, 2002, and will bear interest from the date of issuance at the rate of 7% per
annum, payable annually on December 15 in each year, commencing December 15,
1996.
8
The following table represents a summary of the Patronage Certificates
issued and their respective terms in fiscal 1993 and 1994, as well as the
intended issuance and its respective terms for fiscal 1995.
AGGREGATE ANNUAL
FISCAL PRINCIPAL INTEREST MATURITY
YEAR AMOUNT RATE DATE
- ------------------------------ ---------- --------- --------
1993.......................... $2,018,000 7% 12/15/00
1994.......................... $2,426,000 8% 12/15/01
1995.......................... $2,117,000 7% 12/15/02
In future years, Certified proposes to issue similar certificates in
connection with the distribution of patronage dividends. Certificates issued in
future years will evidence the indebtedness of Certified respecting the portion
of the patronage dividends for such years which have been allocated by Certified
on its books to the required patronage dividend deposit accounts of patrons. The
portion of the patronage dividends to be so allocated in future years will be
determined each year by Certified's Board of Directors. Patronage Certificates
issued in future years will bear interest at a rate determined by the Board of
Directors prior to their issuance, and will be subordinated to the same extent
as existing Patronage Certificates. Patronage Certificates issued in future
years will be unsecured general obligations of Certified and will be
nontransferable without the consent of Certified, which consent Certified will
be under no obligation to give.
ALLOWANCES
The Company provides allowances to patrons based on the quantity and manner
in which goods are ordered. In addition, the Company makes available to patrons
advertising and promotional allowances of suppliers and manufacturers.
PROMOTIONS AND REBATES. The Company's weekly purchasing guide sets forth
advertising allowances and conditions of performance made available by various
suppliers and manufacturers. The allowances are either funded during the
promotional period as a reduction in price or after the promotion. The patron is
required to submit proof of performance based on the specific conditions of each
allowance program.
REFLECTED ALLOWANCES. Manufacturer and supplier allowances which do not
require specific performance are passed to patrons in the form of a reduction in
product price.
ANNUAL VOLUME DISCOUNT. Annual volume discounts are given to accounts who
meet certain purchasing levels.
PALLET INCENTIVE. The Company has a pallet incentive program in the dry
grocery, frozen food and delicatessen divisions. This program is designed to
recognize distribution efficiencies for the Company in selecting full pallet
quantities of product.
TERMS OF SALE
The Company renders to its cooperative members weekly statements of account.
Statements include deliveries through and including the date of the statement.
Members have seven days from date of the statement to pay, and those not paid
within seven days are considered delinquent. Since members have seven days in
which to mail payment, and since additional deliveries occur during this time
which are billed on a subsequent statement, the Company may have receivables
outstanding at any given time which average up to two weeks' sales.
ADDITIONAL CHARGES
The Company currently makes several charges in addition to the listed prices
for merchandise.
SERVICE FEES. In the dry grocery, frozen food, and delicatessen divisions,
as well as GM, service fees are applied to purchases based on dollar amount and
order frequency.
TRANSPORTATION CHARGES. The Company charges its customers for product
delivery based on published schedules. Such schedules charge delivery fees on a
variable basis depending primarily upon the distance
9
from the Company's supplying warehouse and the amount of cube of the order
relative to a truck load cube quantity. The Company also charges a "dead pile"
charge when a customer does not have power unloading capabilities.
SERVICES AVAILABLE TO PATRONS
The Company provides a variety of services to its patrons to help them
maintain a competitive position within the retail grocery industry. The
Company's services to patrons include:
PRICING SERVICES. Subscribing patrons provide the Company with either the
retail price or the percentage profit margin they wish to maintain on each item,
and such figures are shown on each invoice and on each case of goods delivered.
The patron may update this pricing structure weekly in accordance with changes
in wholesale costs and competitive activity in its particular market area.
ORDERING ASSISTANCE. The Company provides various programs to increase the
speed and efficiency of the order transmittal process. It offers electronic
units which retailers can use to transmit orders electronically by telephone.
POINT OF SALE COMPUTER SERVICES. The Company provides retailers with
assistance and computer services in connection with the use of scanners at the
checkout counter.
VELOCITY REPORTS. The Company provides detailed summaries of all items
ordered by the retailer from the Company, together with historical pricing and
profit margin data.
STORE DEVELOPMENT. GEC assists patrons in equipment procurement, store
engineering and site development activities. For a fee, it provides plot plans,
floor plans, and other drawings for new or remodeled stores, construction cost
estimates and design consultation. In addition, many types of store fixtures and
equipment can be obtained at a price reflecting volume purchase discounts earned
by the Company.
FINANCE PROGRAMS. The Company assists qualified patrons in remodeling and
expanding existing retail locations and developing new retail outlets, as well
as assisting in the financing of inventory and equipment needs. This assistance
is provided primarily through GCC and GEC. GCC provides financing for inventory
and equipment purchases and for store remodeling, expansion, and new store
acquisitions, while GEC sells equipment but does not provide financing.
RETAIL COUNSELING. The Company provides patrons with experienced retail
counselors, knowledgeable in all phases of retail grocery operations to assist
patrons in planning their sales and profit growth. The counselors work closely
with owner/managers to solve problems and identify opportunities for improving
operations. They also advise patrons of current trends and developments in the
retail grocery industry.
RETAIL ADVERTISING. The Company assists in the formation of Retail Ad
Groups consisting of several patrons within a given area. Each group is provided
with an ad group coordinator. The coordinator assists in preparing advertising
layouts, assures that advertising dollars are identified and collected, and
serves as liaison between the ad group and suppliers.
INSURANCE SERVICES. The Company's insurance programs are serviced by GMIS.
GMIS, which is licensed as an insurance agency, acts as agent or broker for
unrelated underwriters, which are the issuers of the insurance policies. Certain
of the insurance companies reinsure limited portions of insured risks pursuant
to reinsurance contracts with Springfield Insurance Company, Limited
("Springfield-Bermuda"), which is incorporated and licensed in Bermuda, or
Springfield Insurance Company, Inc. ("Springfield-California"), which is
incorporated and licensed in California. Both insurance companies are wholly
owned subsidiaries of the Company. GMIS provides an insurance program for
patrons, employees of patrons, and employees of the Company. Under the
commercial store package, coverage includes fire, store liability, automobile,
fidelity, theft, bonds, workers' compensation and business interruption.
Insurance offered by the life and health department includes individual and
group health plans, life insurance, mutual funds, disability income and estate
planning. The personal insurance department offers homeowners, automobile,
motorcycle, motorhome, boat and aircraft coverages.
10
SITE IDENTIFICATION AND ANALYSIS. The Company assists its retailers who are
growth oriented in identifying potential new store locations. Once the Company
or a retailer has identified a particular site as having potential for new store
development, the Company can commission an independent site feasibility analysis
of the location, which includes a study of the demographics of the general area,
the market competitors located in the primary and secondary trading areas, and
what volume a new store should expect in the location being considered.
DATA PROCESSING. The Company provides data processing services and
customized software programs for its customers using a direct computer link to
many of its customers' stores. The Company can provide a retailer with a product
and price file for virtually every product, with pricing by the appropriate zone
in which a retailer is located. Retailers can also order all inventory directly
from the Company using their store-to-warehouse computer link and an order entry
system.
PATRON DEPOSITS
It is the general policy of the Company to require that its cooperative
patrons maintain a subordinated cash deposit equal to twice the amount of each
patron's average weekly purchases or twice the amount of the patron's average
purchases, whichever is greater. Required deposits are determined twice a year,
at the end of the Company's second and fourth fiscal quarters, based upon a
review of the patron's purchases from certain of the cooperative divisions
during the preceding two quarters.
Member-patrons meeting certain qualifications established by the Board of
Directors may elect to maintain a reduced required deposit of $500,000 or one
and one-quarter weeks' average purchases, whichever is greater. Presently, three
of the Company's largest member-patrons have elected to maintain such reduced
deposits. With the consent of the Company, which may be granted or withheld in
the Company's sole discretion, a qualified member-patron who has elected to
maintain this reduced deposit may later have its deposit increased up to an
amount equal to twice the amount of its average weekly purchases. Following such
increase, the member-patron will not be permitted to reduce its deposit (even
though otherwise eligible to maintain a reduced deposit) for a period of two
years without the Company's consent. Further, in all cases, reduction of the
deposit will be governed by the subordination provisions to which it is subject.
The Company charges interest to those member-patrons who maintain a reduced
deposit. Interest is presently charged at the prime rate established by Bankers
Trust Company, subject to periodic review and change by the Board of Directors.
Interest is charged on the difference between the balance that would have been
maintained based on two weeks' purchases and the balance actually maintained.
Under the Company's Deposit Fund Loan Program, member-patrons whose credit
has been approved by the Company's Loan Committee may finance all or a portion
of their deposit requirement. Payments under this program are billed to the
member-patron on its weekly statement from the Company. Subject to credit
approval, patrons may also deposit an amount equal to one and one-half of the
patron's average weekly purchases or one and one-half of the patron's average
purchases, whichever is greater, and pay the balance of the deposit over a
period of 26 weeks, at no interest, by payments on its weekly statement from the
Company.
Member-patrons holding Class B Shares are presently given credit against the
above described cash deposit requirement based upon the combined, respective
book values of such shares as of the respective fiscal years last ended prior to
their issuance. The Company pays no interest on the required deposits of
patrons. Interest is paid on the above described cash deposits which are in
excess of patrons' required deposits.
In addition, patrons who participate in the Company's price reservation
program are required to maintain a noninterest bearing deposit based upon the
value of the inventory participation in this program. Under the Company's price
reservation program, patrons are permitted to submit price reservations in
advance for their dry grocery, frozen, delicatessen and general merchandise
purchases. For the patron to get the benefit of the price reservation, an actual
order must be placed. The price which the patron will be charged is the price in
effect at the time of the reservation.
11
The required deposits of patrons are contractually subordinated and subject
to the prior payment in full of certain senior indebtedness of the Company. As a
condition of becoming a patron, each patron is required to execute a
subordination agreement providing for the subordination of the patron's required
deposits. Generally, the subordination is such that no payment can be made by
the Company with respect to the required deposits in the event of an uncured
default by the Company with respect to senior indebtedness, or in the event of
dissolution, liquidation, insolvency or other similar proceedings, until all
senior indebtedness has been paid in full.
Upon request, the Company will return to patrons the amount of cash deposits
which are in excess of the required deposits, provided the patron is not in
default of its obligations to the Company. On termination of membership, patrons
are entitled to a return of deposits, less all amounts that may be owing by the
patron to the Company. In all cases, however, return of that portion of the
patron's cash deposits which consists of required deposits will be governed by
the applicable subordination provisions.
TAX MATTERS
The Company is a corporation operating primarily on a cooperative basis. The
Company is subject to federal and state income and franchise taxes and must pay
other taxes applicable to corporations, such as sales, excise, real and personal
property taxes.
As a corporation operating on a cooperative basis, the Company is subject to
Subchapter T of the Internal Revenue Code ("Subchapter T"). Under Subchapter T,
the Company pays patronage dividends to patrons pertaining to its fiscal year
within 8 1/2 months of the close of such fiscal year. To qualify as patronage
dividends, payments are made on the basis of the value of the business done with
or for patrons, under a pre-existing obligation to make such payment, and with
reference to the net earnings from business done with or for the cooperative's
patrons. Patronage dividends are paid in cash or written notices of allocation.
A written notice of allocation is distributed to the patron and provides notice
of the amount allocated to the patron by the Company and the portion thereof
which constitutes a patronage dividend.
Under Subchapter T, the Company may deduct, in the fiscal year for which
they are paid, the amount of patronage dividends paid in cash and qualified
notices of allocation. A written notice of allocation will be qualified, if the
Company pays at least 20% of the patronage dividend in money, and the patron
consents to take the stated dollar amount of the written notice into income in
the year in which it is received. The Company deducts for tax purposes the
entire amount of its patronage dividends by paying at least 20% in cash and
issuing qualified notices of allocation for the remainder.
The Company intends to make patronage distributions to member-patrons
comprised of money and qualified notices of allocation including its Class B
Shares and Patronage Certificates. At least 20% of patronage dividends will be
paid in cash. The Company will notify patrons of the stated dollar amount
allocated to them and the portion thereof which is a patronage dividend. Patrons
are required to consent to include in their gross income, in the year received,
all cash as well as the stated dollar amount of all qualified notices of
allocation including the Patronage Certificates and the book value of the Class
B Shares distributed to them as patronage dividends.
Patronage Certificates and Class B Shares distributed as part of the
patronage dividend are also subject to state income and corporation franchise
taxes in California and may be subject to such taxes in other states.
The Company is subject to federal income tax and California franchise tax on
net earnings of business with or for patrons which is not distributed as
deductible patronage dividends and on net earnings derived from nonpatronage
business. The Company files consolidated returns with its subsidiaries, none of
which is a cooperative and each of which is therefore subject to tax.
To the extent that Class B Shares are received by the patron as patronage
dividends under Subchapter T, the Internal Revenue Service ("IRS") has held that
if such Class B Shares are redeemed in full or in part or are otherwise disposed
of, there will be included in the computation of the gross income of the patron,
as ordinary income, in the year of redemption or other disposition, the excess
of the amount realized on the redemption or other disposition over the amount
previously included in the computation of gross income.
12
However, since it is proposed to issue Class B Shares other than as a part of
patronage dividends, it is possible that the IRS could take the position that
the proceeds from a partial redemption of Class B Shares should be taxed as a
dividend. PATRONS ARE STRONGLY URGED TO CONSULT WITH THEIR TAX ADVISORS FOR
FURTHER CLARIFICATION OF THIS ISSUE AND FOR THE IMPACT THE POSITION OF THE IRS
MAY HAVE ON THEIR OWN FEDERAL AND STATE TAX RETURNS.
The Company's subsidiaries do not pay patronage dividends and are not taxed
in accordance with Subchapter T.
EMPLOYEES
The Company employs approximately 2,470 employees, of whom approximately
1,460 are members of one of several unions, the largest being the International
Brotherhood of Teamsters. The contracts with the Teamsters, which cover
approximately 1,380 employees, have various expiration dates. The Stockton and
Southern California warehouse workers' and truck drivers' contract, which covers
approximately 1,150 employees, expires on September 13, 1998. The contract which
covers approximately 180 Fresno warehouse workers and truck drivers expires on
February 2, 1996. The contract which covers approximately 40 mechanical
maintenance workers expires on March 30, 1996. The Company believes its labor
relations to be good.
ENERGY MATTERS
The Company's operations are dependent upon the continued availability of
electric power, diesel fuel, and gasoline. The Company's trucking operations are
extensive. Diesel fuel storage capacity represents approximately two weeks
average usage. A shortage of diesel fuel and gasoline could materially affect
deliveries of merchandise and the activities of the Company's service
representatives and, thus, adversely affect the Company's sales.
ITEM 2. PROPERTIES
FACILITIES
The Company's corporate offices, warehouses (including railroad and truck
docks), retail stores, and manufacturing facilities as of September 2, 1995 are
summarized as follows:
APPROXIMATE
SQUARE FOOTAGE
---------------------
DESCRIPTION OWNED LEASED
- ------------------------------------------------------------------- ---------- ---------
Corporate offices.................................................. 145,000 123,000
Dry grocery........................................................ 1,731,000 940,000
General merchandise................................................ 312,000
Frozen foods, delicatessen and meat................................ 477,000
Bakery............................................................. 91,000
Dairy and ice cream................................................ 115,000
Retail stores...................................................... 35,000
The majority of the Company's dry grocery, frozen foods and delicatessen
warehouse facilities are located in Southern California. The Company owns a
643,000 square foot dry grocery warehouse and a 149,000 square foot refrigerated
warehouse in Stockton, California and leases 312,000 square feet of warehouse
space in Fresno, California.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in a number of cases currently in litigation or
potential claims encountered in the normal course of business which are being
vigorously defended. In the opinion of management, the resolutions of these
matters will not have a material adverse effect on the Company's financial
position or results of operations.
The United States Environmental Protection Agency ("EPA") notified the
Company in 1993 that, together with others, it was a potentially responsible
party ("PRP") for the disposal of hazardous substances at a landfill site
located in Monterey Park, California. Cleanup of this site consists of five
phases: site control and monitoring; management and leachate treatment; landfill
gas control and landfill cover; final remedy and ground water treatment; and,
thirty-year post cleanup site control and monitoring. As of August 1995,
13
the Company's share of cleanup costs for the first three phases is approximately
$380,000 as previously established in July 1994. Payment of this sum will be
demanded by the EPA in the near future. While the Company's share of the cost
for the last two phases of cleanup has not yet been established, based upon
overall estimates of the range of potential cost, the Company believes that its
share of the total cost for all five phases of cleanup will not exceed the
amounts which the Company has reserved. As of September 2, 1995, the total
reserve established with respect to environmental liabilities is $1.6 million.
The Company is pursuing recovery of a portion of its reserve from its insurance
carriers.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
There is no market for the Company's Class A Shares, Class B Shares, or
Class C Shares. As of December 1, 1995, the Company's Class A Shares were held
of record by 503 shareholders, Class B Shares were held of record by 551
shareholders, and the Company's Class C Shares were held of record, one share
each, by the 15 directors of the Company. In the past, the Company has not paid
cash dividends on its stock, and it has no intention to do so in the future.
ITEM 6. SELECTED FINANCIAL DATA
FISCAL YEAR
--------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
(52 WEEKS) (53 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS)
(THOUSANDS OMITTED)
Net sales.................................. $ 1,822,804 $ 1,873,872 $ 2,007,288 $ 2,377,740 $ 2,767,996
Declared patronage dividends............... 11,571 10,837 12,880 12,977 19,979
Net earnings (loss)........................ 769 94 473 (3,648) (4,682)
Total assets............................... 398,603 398,569 403,979 449,713 469,010
Long-term notes payable.................... 129,686 149,673 158,585 178,702 159,898
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the Financial Statements and notes
thereto included under Item 8 in this Form 10-K.
RESULTS OF OPERATIONS
The following table sets forth selected financial data of the Company
expressed as a percentage of net sales for the periods indicated below:
FISCAL YEAR ENDED
------------------------------------
SEPTEMBER SEPTEMBER
2, 3, AUGUST 28,
1995 1994 1993
---------- ---------- ----------
Net sales.............................................. 100.0% 100.0% 100.0%
Cost of sales.......................................... 90.7 90.6 90.8
Distribution, selling and administrative............... 7.8 8.0 7.7
Operating income....................................... 1.5 1.4 1.5
Interest expense....................................... 0.8 0.8 0.8
Other income (expense), net............................ 0.0 (0.1) 0.0
Earnings before patronage dividends, provision for
income taxes and cumulative effect of accounting
change................................................ 0.7 0.5 0.7
Patronage dividends.................................... 0.7 0.6 0.7
Cumulative effect of accounting change................. 0.1
Net earnings........................................... 0.0 0.0 0.0
14
FISCAL YEAR ENDED SEPTEMBER 2, 1995 ("FISCAL 1995") COMPARED TO FISCAL YEAR
ENDED SEPTEMBER 3, 1994 ("FISCAL 1994")
NET SALES. Fiscal 1994 included 53 weeks of sales while fiscal 1995
included 52 weeks of sales. Taking this difference into consideration, net sales
during fiscal 1995 remained relatively consistent with net sales during fiscal
1994. During 1995, the Company added two significant customers which contributed
approximately $64 million in net sales, spread among most sales categories. The
Company estimates these new customers will increase net sales by approximately
$250 million on an annualized basis. These sales gains were offset by the loss
of a significant frozen food customer during 1994 and a reduction in
transportation service fees.
COST OF SALES. Cost of sales decreased $45 million (2.7%) to $1.7 billion
in fiscal 1995 as compared to fiscal 1994. Cost of sales, as a percentage of
sales, has remained consistent with fiscal 1994. The decrease in cost of sales
results primarily from the decreased sales discussed above.
DISTRIBUTION, SELLING AND ADMINISTRATIVE. Distribution, selling and
administrative expenses were $141.9 million or 7.8% of net sales in fiscal 1995,
as compared to $149.3 million or 8.0% of net sales in fiscal 1994. The decrease
in total expense was primarily due to the reduction of payroll costs and the
implementation of other programs in the Company's distribution and manufacturing
facilities to increase efficiency. Partially offsetting the benefits of these
cost reduction programs was a one time charge of $1.6 million resulting from the
adoption of Statement of Financial Accounting Standards No. 112 "Employers'
Accounting for Postemployment Benefits" ("SFAS No. 112").
OPERATING INCOME. Operating income increased 6.1% in fiscal 1995, totalling
$27.2 million. This compares to $25.6 million for fiscal 1994. This increase is
a direct result of the reduction in distribution and manufacturing costs
described above.
OTHER INCOME (EXPENSE), NET. In fiscal year 1993, GCC acquired an 81%
investment in Major Market, Inc. ("MMI") for $1.6 million. The investment was
previously consolidated in the Company's financial statements. In fiscal 1995,
GCC sold its preferred stock and 282,600 shares of common stock to MMI. GCC
received proceeds of $120,000 and a note receivable for approximately $2.6
million. GCC now holds approximately 20% of MMI's outstanding common shares and
accounts for the investment using the cost method. GCC recorded a pretax gain of
$511,000 on the sale of this investment.
INTEREST. Interest expense of $15.3 million in fiscal 1995 has remained
relatively consistent with fiscal 1994.
NET EARNINGS. Net earnings increased to $769,000 in fiscal 1995,
representing a 718% increase from fiscal 1994 net earnings of $94,000. Excluding
the impact of adopting SFAS No. 109 in the 1994 period, and SFAS No. 112 in the
1995 period, the Company experienced an improvement in after-tax earnings of
approximately $4.8 million for fiscal 1995 as compared to fiscal 1994.
FISCAL YEAR ENDED SEPTEMBER 3, 1994 ("FISCAL 1994") COMPARED TO FISCAL YEAR
ENDED AUGUST 28, 1993 ("FISCAL 1993")
NET SALES. Net sales decreased $133 million (6.6%) to slightly less than
$1.9 billion in fiscal 1994. This is a result of certain large patrons expanding
their own warehousing and distribution operations. After adjusting for the
anticipated patron self-distribution volume loss, the Company obtained an
additional $31 million of new business from new members, and expanded its
existing customers' sales volume.
COST OF SALES. Cost of sales decreased $124.7 million (6.8%) to $1.7
billion in fiscal 1994 as compared to fiscal 1993. The majority of this decrease
is in response to the lower sales volume as discussed above; however, additional
reduction in cost of sales is reflective of management's efforts to eliminate
unprofitable business and maximize vendor related deal programs.
DISTRIBUTION, SELLING AND ADMINISTRATIVE. Distribution, selling and
administrative expenses were $149.3 million or 8.0% of net sales in fiscal 1994,
as compared to $153.6 million or 7.7% of net sales in fiscal
15
1993. The decrease in total expenses was primarily due to the reduction of
payroll costs (approximately $5.2 million offset by an incremental increase of
$2.5 million in accrued postretirement benefits for a net payroll decrease of
$2.7 million) and the implementation of other cost reduction efforts.
OPERATING INCOME. Operating income decreased to $25.6 million for fiscal
1994 as compared to $30 million for fiscal 1993. As a percentage of net sales,
operating income for fiscal 1994 was consistent with fiscal 1993 but lower in
total dollars as a result of lower sales volume discussed above.
INTEREST. Interest expense decreased by $0.4 million, to $15.4 million in
fiscal 1994 from $15.8 million in fiscal 1993, as a result of reduced working
capital requirements related to the volume changes.
OTHER EXPENSE, NET. During fiscal 1994, the Company adopted a formal plan
to relocate its Grocers Specialty Company ("GSC") warehouse operations in
Corona, California to the Company's corporate warehouse facilities in Los
Angeles, California. It is anticipated that the warehouse relocation will result
in more effective utilization of Company assets, transportation and warehousing
efficiencies, and enhanced service to GSC customers and members of the
cooperative. In connection with this consolidation plan, the Company recorded a
$1.6 million charge. The charge primarily consists of warehouse and inventory
relocation costs as well as reprogramming costs of certain financial and
operating systems. The warehouse relocation was completed during October 1994.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE. The Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"), effective August 29, 1993. The adoption of this new accounting method
resulted in a positive $2.5 million impact for fiscal 1994.
NET EARNINGS. Net earnings in fiscal 1994 decreased primarily because of a
$1.6 million expense associated with the facility relocation discussed above,
postretirement expenses of $2.5 million, volume losses, and lease related
charges, offset by improved earnings in the insurance subsidiaries and the $2.5
million cumulative effect of adopting SFAS No. 109.
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 provided from operating activities
totalled $9.1 million for fiscal 1995 as compared to $18.2 million for fiscal
1994. The Company's cost and expense reductions, revised marketing programs, and
the dividend retention program provide adequate operating cash flow to conduct
the Company's business operations. At September 2, 1995, working capital was
$107.7 million and the current ratio was 1.7 to 1, at the fiscal 1995 and 1994
year end. Working capital varies throughout the year primarily as a result of
seasonal inventory requirements.
Capital expenditures totalled $9.4 million in fiscal 1995 and $5.9 million
in fiscal 1994.
The Company has 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. At the end of fiscal 1995, the
Company had $160 million in committed lines of credit, of which $91.1 million
was not utilized. In March 1994, the Company refinanced its existing $125
million credit line with a new $135 million secured, committed line of credit.
The new credit agreement, which matures March 17, 1997, 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. In April 1994, GCC refinanced its $25
million credit line with a new $25 million credit line. The new credit
agreement, which matures March 17, 1997, is collateralized primarily by GCC's
loan portfolio. The agreements provide for Eurodollar basis or prime basis
borrowings at the Company's option. As of September 2, 1995, the Company's
outstanding borrowings, including obligations under capital leases of
approximately $6.4 million, amounted to $141.2 million, of which $129.7 million
was classified as noncurrent.
In fiscal 1995, the Company completed a sale leasback transaction involving
an office building used to house the Company's support personnel. Proceeds from
the transaction were $11.5 million. Concurrent with the sale of the real
property, the Company entered into a twenty year lease of the property, with two
ten year extension options.
16
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. In addition, under a patronage dividend retention program
authorized by Certified's Board of Directors, Certified retains a portion of the
patronage dividends to be distributed for a fiscal year and issues patronage
certificates ("Patronage Certificates") evidencing its indebtedness respecting
the retained amounts. The program provides for the issuance of Patronage
Certificates to patrons on an annual basis in a portion and at an interest rate
to be determined annually by the Board of Directors. Patronage Certificates for
each year are unsecured general obligations of Certified, are subordinated to
certain other indebtedness of Certified, and are nontransferable without the
consent of Certified. The Patronage Certificates are subject to redemption, at
any time in whole and from time to time in part, without premium, at the option
of Certified, and are subject to being set off, at the option of Certified,
against all or any portion of the amounts owing to the Company by the holder.
Subject to the payment of at least 20% of the patronage dividend in cash, the
portion of the patronage dividend retained is deducted from each patron's
patronage dividend prior to the issuance of Class B Shares as a portion of such
dividend.
The Board of Directors determined that in fiscal years 1993 and 1994, the
portion of the patronage dividend retained and evidenced by the issuance of
Patronage Certificates was 20% of the fourth quarter dividend for dairy products
in fiscal 1993, 20% of the quarterly dairy patronage dividends for fiscal 1994
and 40% of the fiscal 1993 and 1994 dividends for non-dairy products. As to
patronage dividends to be distributed with respect to Certified's 1995 fiscal
year, the Board of Directors approved the issuance of Patronage Certificates
evidencing the allocation of an amount of such dividends equal to 40% of the
patronage dividends of all divisions, except the dairy division, and 20% of the
first and second quarter dairy division patronage dividends. The Patronage
Certificates have a seven year term, maturing on December 15, 2002, and will
bear interest from the date of issuance at the rate of 7% per annum, payable
annually on December 15 in each year, commencing December 15, 1996.
The following table represents a summary of the Patronage Certificates
issued and their respective terms in fiscal 1993 and 1994, as well as the
intended issuance and its respective terms for fiscal 1995.
AGGREGATE ANNUAL
FISCAL PRINCIPAL INTEREST MATURITY
YEAR AMOUNT RATE DATE
- ------------------------------ ---------- --------- --------
1993.......................... $2,018,000 7% 12/15/00
1994.......................... $2,426,000 8% 12/15/01
1995.......................... $2,117,000 7% 12/15/02
The Company expects to continue to distribute patronage dividends in the future,
although there can be no assurance of the amounts of such dividends.
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
fiscal year to 5% of the number of Class B Shares deemed outstanding at the end
of the preceding fiscal year. In fiscal 1995, this limitation restricted the
Company's redemption of shares to 19,414 shares for $3,165,064. In fiscal 1996,
the 5% limitation will restrict the Company's redemption of shares to 19,238
shares for $3,190,815. Due to the loss of a number of significant
member-patrons, the number of shares tendered for redemption at September 2,
1995 totalled 87,300 (or approximately $14.5 million, using fiscal 1995 year end
book values), which exceeds the amount that can be redeemed in fiscal 1996.
Consequently, the Company will be required to make redemptions in fiscal 1997,
1998 and 1999, with such redemptions approximating $9.4 million to $9.6 million
based on 1995 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, Patronage Certificates, current
shareholdings and borrowings under the Company's credit lines.
17
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
IMPAIRMENT OF LONG-LIVED ASSETS
The FASB issued Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", which is effective for fiscal years beginning after December
15, 1995. Accordingly, the Company will conform to the new requirements in
fiscal 1997. The Statement establishes guidelines to be used when evaluating
long-lived assets, identifiable intangibles, and related goodwill that an entity
plans to continue to use in operations for impairment and prescribes the
accounting when such assets are determined to be impaired. The Statement also
provides guidance on the accounting for similar assets that a company plans to
dispose of, except for those assets of a discontinued operation. Impairment
losses recorded on assets to be held and used resulting from the initial
application of the Statement are to be reported in operating income in the
period in which the recognition criteria are met, while impairment losses
recorded on assets to be disposed of resulting from the initial application of
the Statement are to be reported as the cumulative effect of a change in
accounting principles. Management estimates that the adoption of this
pronouncement will not have a material effect on the Company's consolidated
financial position and results of operations.
POSTEMPLOYMENT BENEFITS
The FASB issued Statement of Financial Accounting Standards No. 112
"Employers' Accounting for Postemployment Benefits", which is effective for
fiscal years beginning after December 15, 1993. Accordingly, the Company has
conformed to the new requirements in fiscal 1995. The new accounting standard
requires an accrual rather than a pay-as-you-go basis of recognizing expenses
for postemployment benefits (provided by an employer to former or inactive
employees after termination of employment but before retirement). The effect on
its results of operations in fiscal 1995 approximated $1.6 million which it has
accrued as a non-cash expense.
18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Certified Grocers of California, Ltd.
We have audited the consolidated balance sheets of Certified Grocers of
California, Ltd. and subsidiaries as of September 2, 1995 and September 3, 1994,
and the related consolidated statements of earnings, shareholders' equity, and
cash flows for each of the three fiscal years in the period ended September 2,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Certified Grocers of California, Ltd. and subsidiaries as of September 2, 1995
and September 3, 1994, and the results of their operations and their cash flows
for each of the three fiscal years in the period ended September 2, 1995, in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for income taxes and postretirement benefits
other than pensions in 1994 and postemployment benefits in 1995.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
November 27, 1995
19
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
SEPTEMBER 2, 1995 AND SEPTEMBER 3, 1994
ASSETS
1995 1994
---------- ----------
Current:
Cash and cash equivalents............................................................ $ 7,329 $ 7,702
Accounts and notes receivable........................................................ 104,249 96,545
Inventories.......................................................................... 149,432 146,869
Prepaid expenses..................................................................... 4,789 3,810
Deferred taxes....................................................................... 2,850 1,204
---------- ----------
Total current assets........................................................... 268,649 256,130
Properties............................................................................. 71,816 86,683
Investments............................................................................ 22,051 20,274
Notes receivable....................................................................... 25,622 23,335
Other assets........................................................................... 10,465 12,147
---------- ----------
TOTAL ASSETS................................................................. $ 398,603 $ 398,569
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current:
Accounts payable..................................................................... $ 86,159 $ 82,137
Accrued liabilities.................................................................. 51,018 52,335
Notes payable........................................................................ 11,573 2,978
Patrons' excess deposits and declared patronage dividends............................ 12,214 11,541
---------- ----------
Total current liabilities...................................................... 160,964 148,991
Notes payable, due after one year...................................................... 129,686 149,673
Long-term liabilities.................................................................. 12,210 6,566
Commitments and contingencies -- See Notes 11 and 14
Patrons' deposits and certificates:
Patrons' required deposits........................................................... 17,022 17,589
Subordinated patronage dividend certificates......................................... 6,561 4,444
Shareholders' equity
Class A Shares....................................................................... 5,292 4,704
Class B Shares ...................................................................... 56,266 56,593
Retained earnings ................................................................... 10,488 10,313
Net unrealized gain (loss) on appreciation (depreciation) of investments............. 114 (304)
---------- ----------
Total shareholders' equity..................................................... 72,160 71,306
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................... $ 398,603 $ 398,569
---------- ----------
---------- ----------
The accompanying notes are an integral part of these statements.
20
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS)
FOR FISCAL YEARS ENDED SEPTEMBER 2, 1995, SEPTEMBER 3, 1994, AND AUGUST 28, 1993
1995 1994 1993
------------ ------------ ------------
Net sales......................................................... $ 1,822,804 $ 1,873,872 $ 2,007,288
Costs and expenses:
Cost of sales................................................... 1,653,660 1,698,930 1,823,592
Distribution, selling and administrative........................ 141,947 149,303 153,656
------------ ------------ ------------
Operating income.................................................. 27,197 25,639 30,040
Interest expense.................................................. (15,260) (15,405) (15,784)
Other income (expense), net....................................... 509 (1,600) (373)
------------ ------------ ------------
Earnings before patronage dividends, provision for income taxes
and cumulative effect of accounting change...................... 12,446 8,634 13,883
Declared patronage dividends...................................... (11,571) (10,837) (12,880)
------------ ------------ ------------
Earnings (loss) before income tax provision and cumulative effect
of accounting change............................................ 875 (2,203) 1,003
Provision for income taxes........................................ 106 203 530
------------ ------------ ------------
Earnings (loss) before cumulative effect of accounting change..... 769 (2,406) 473
Cumulative effect of accounting change............................ 2,500
------------ ------------ ------------
Net earnings...................................................... $ 769 $ 94 $ 473
------------ ------------ ------------
------------ ------------ ------------
The accompanying notes are an integral part of these statements.
21
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
FOR FISCAL YEARS ENDED SEPTEMBER 2, 1995, SEPTEMBER 3, 1994, AND AUGUST 28, 1993
NET UNREALIZED
GAIN (LOSS) ON
CLASS A CLASS B APPRECIATION
-------------------- -------------------- RETAINED (DEPRECIATION) OF
SHARES AMOUNT SHARES AMOUNT EARNINGS INVESTMENTS
--------- --------- --------- --------- --------- -----------------
Balance, August 29, 1992...................... 53,700 $ 4,511 400,713 $ 57,809 $ 11,487
Class A Shares issued....................... 1,900 309
Class A Shares redeemed..................... (5,900) (535) (424)
Class B Shares issued....................... 13,649 2,232
Class B Shares redeemed..................... (20,036) (2,803) (451)
Net earnings................................ 473
--------- --------- --------- --------- ---------
Balance, August 28, 1993...................... 49,700 4,285 394,326 57,238 11,085
Class A Shares issued....................... 6,000 981
Class A Shares redeemed..................... (6,600) (562) (517)
Class B Shares issued....................... 13,676 2,230
Class B Shares redeemed..................... (19,716) (2,875) (349)
Net earnings................................ 94
Net unrealized loss on depreciation of
investments (net of deferred tax of
$157)...................................... $ (304)
--------- --------- --------- --------- --------- -----
Balance, September 3, 1994.................... 49,100 4,704 388,286 56,593 10,313 (304)
Class A Shares issued....................... 7,800 1,271
Class A Shares redeemed..................... (6,600) (683) (393)
Class B Shares issued....................... 15,895 2,637
Class B Shares redeemed..................... (19,414) (2,964) (201)
Net earnings................................ 769
Net unrealized gain on appreciation of
investments (net of deferred tax of
$216)...................................... 418
--------- --------- --------- --------- --------- -----
Balance, September 2, 1995.................... 50,300 $ 5,292 384,767 $ 56,266 $ 10,488 $ 114
--------- --------- --------- --------- --------- -----
--------- --------- --------- --------- --------- -----
The accompanying notes are an integral part of these statements.
22
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FOR FISCAL YEARS ENDED SEPTEMBER 2, 1995, SEPTEMBER 3, 1994, AND AUGUST 28, 1993
1995 1994 1993
----------- ----------- -----------
(52 WEEKS) (53 WEEKS) (52 WEEKS)
Cash flows from operating activities:
Net earnings............................................................ $ 769 $ 94 $ 473
----------- ----------- -----------
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Gain on sale of investment in affiliate............................. (511)
Cumulative effect of accounting change.............................. (2,500)
Depreciation and amortization....................................... 9,982 10,680 11,890
Loss (gain) on disposal of properties............................... 366 (445) 3
Accrued postretirement benefit costs................................ 2,965 2,509
Accrued postemployment benefit costs................................ 1,648
Accrued supplemental retirement benefit costs....................... 1,003 431 853
Accrued environmental liabilities................................... 110 1,100 400
Accrued sublease liability.......................................... (230) 1,228
Facility relocation................................................. 520
Decrease (increase) in assets:
Accounts and notes receivable..................................... (7,757) 3,428 26,454
Inventories....................................................... (3,976) 1,611 20,480
Prepaid expenses.................................................. (1,041) 170 180
Deferred taxes.................................................... (273)
Notes receivable.................................................. 293 2,720 (1,277)
Increase (decrease) in liabilities:
Accounts payable.................................................. 4,825 (2,741) (13,940)
Accrued liabilities............................................... 218 2,584 (7,311)
Patrons' excess deposits and declared patronage dividends......... 673 (3,205)
----------- ----------- -----------
Total adjustments .................................................... 8,295 18,090 37,732
----------- ----------- -----------
Net cash provided by operating activities............................... 9,064 18,184 38,205
----------- ----------- -----------
Cash flows from investing activities:
Purchase of properties................................................ (9,363) (5,921) (8,858)
Proceeds from sales of properties..................................... 12,489 1,295 1,836
(Increase) decrease in other assets................................... (1,793) (244) 43
Investment in preferred stocks, net................................... (163) (2,552)
Investment in long-term bonds, net.................................... (973) (3,102) (2,312)
Investment in common stock............................................ (180) (2,320)
Purchase of intangible assets......................................... (1,540)
Sale of investment in affiliate, net of cash disposed*................ (479)
----------- ----------- -----------
Net cash utilized by investing activities............................... (462) (12,844) (10,831)
----------- ----------- -----------
Cash flows from financing activities:
Additions to long-term notes payable.................................. 331
Reduction of long-term notes payable.................................. (7,534) (5,934) (17,360)
Additions to short-term notes payable................................. 38
Reduction of short-term notes payable................................. (2,658) (3,132) (3,905)
Decrease in members' required deposits................................ (567) (1,312) (5,664)
Issuance of subordinated patronage dividend certificates.............. 2,117 2,421 2,023
Repurchase of shares from members..................................... (4,224) (4,303) (4,213)
Issuance of shares to members......................................... 3,891 3,211 2,541
----------- ----------- -----------
Net cash utilized by financing activities............................... (8,975) (9,049) (26,209)
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents.................... (373) (3,709) 1,165
Cash and cash equivalents at beginning of year ......................... 7,702 11,411 10,246
----------- ----------- -----------
Cash and cash equivalents at end of year................................ $ 7,329 $ 7,702 $ 11,411
----------- ----------- -----------
----------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest.............................................................. $ 15,006 $ 15,232 $ 15,499
Income taxes ......................................................... 2,388 70 1,155
----------- ----------- -----------
$ 17,394 $ 15,302 $ 16,654
----------- ----------- -----------
----------- ----------- -----------
*Sale of investment in affiliate, net of cash disposed:
Working capital, other than cash...................................... $ (980)
Property, plant and equipment......................................... 1,596
Note receivable....................................................... (2,580)
Other assets.......................................................... 1,857
Proceeds in excess of net assets of affiliate sold, net............... 511
Long-term debt........................................................ (883)
-----------
Net cash effect from sale of investment in affiliate................ $ (479)
-----------
-----------
The accompanying notes are an integral part of these statements.
23
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Certified
Grocers of California, Ltd. and all of its subsidiaries ("Certified" or the
"Company"). Intercompany transactions and accounts with subsidiaries have been
eliminated.
NATURE OF BUSINESS:
The Company is a cooperative organization engaged primarily in the
distribution of food products and related nonfood items to retail establishments
owned by shareholders of the Company. All establishments with which directors
are affiliated, as members of the Company, purchase groceries, related products
and store equipment from the Company in the ordinary course of business at
prices and on terms available to members generally.
The Company's fiscal year ends on the Saturday nearest to August 31. Fiscal
years 1995 and 1993 included 52 weeks, while fiscal 1994 included 53 weeks.
RECLASSIFICATIONS:
Certain reclassifications have been made to prior years' financial
statements to present them on a basis comparable with the current year's
presentation.
CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES:
Inventories are valued at the lower of cost (first-in, first-out) or market.
DEPRECIATION:
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which approximate 40 years for buildings and 10 years
for equipment. Expenditures for replacements or major improvements are
capitalized; expenditures for normal maintenance and repairs are charged to
operations as incurred. Upon sale or retirement of properties, the cost and
accumulated depreciation are removed from the accounts, and any gain or loss is
included in operations.
POSTRETIREMENT BENEFITS:
Effective August 29, 1993, the Company implemented Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" ("SFAS No. 106"). This statement requires that the cost of
these benefits, which are primarily for health care and life insurance, be
recognized in the financial statements throughout the employees' active working
careers. The Company's previous practice was to expense these costs on a cash
basis, principally after retirement. The transition obligation is being
amortized on a straight-line basis over twenty years as allowed under SFAS No.
106. The incremental effect on the Company's results of operations for fiscal
1995 and 1994 is approximately $3.0 million and $2.5 million, respectively,
which has been accrued as a non-cash expense.
POSTEMPLOYMENT BENEFITS:
The FASB issued Statement No. 112 "Employers Accounting for Postemployment
Benefits", which is effective for fiscal years beginning after December 15,
1993. Accordingly, the Company conformed to the new requirements in fiscal 1995.
The new accounting standard requires an accrual rather than a pay-as-you-go
basis of recognizing expenses for postemployment benefits (provided by an
employer to former or inactive employees after termination of employment but
before retirement). The effect on the Company's results of operations in fiscal
1995 was $1.6 million which has been accrued as a noncash expense.
24
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ENVIRONMENTAL COSTS:
The Company expenses, on a current basis, certain recurring costs incurred
in complying with environmental regulations and remediating environmental
pollution. The Company also reserves for certain non-recurring future costs
required to remediate environmental pollution for which the Company is liable
whenever, by diligent legal and technical investigation, the scope or extent of
pollution has been determined, the Company's contribution to the pollution has
been ascertained, remedial measures have been specifically identified as
practical and viable, and the cost of remediation and the Company's
proportionate share can be reasonably estimated.
INCOME TAXES:
Effective August 29, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"),
which requires the use of the liability method of accounting for deferred income
taxes. The cumulative effect of this change in accounting principle increased
the Company's fiscal 1994 net earnings by $2.5 million.
INVESTMENTS:
Effective September 3, 1994 the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS No. 115"). The cumulative effect of such adoption
amounted to an unrealized loss of $304,000, net of deferred taxes of $157,000
and was reported separately in the Consolidated Statements of Shareholders'
Equity. There was no effect on the Consolidated Statements of Earnings. The
gross amount of $461,000 reflects a non-cash investing activity. At September 2,
1995, the Company had an unrealized gain of $114,000, net of deferred taxes of
$59,000 which was reported separately in the Consolidated Statements of
Shareholders' Equity. There was no effect on the Consolidated Statements of
Earnings. The gross amount of $173,000 reflects a non-cash investing activity.
Investment income is recorded in the Consolidated Statements of Earnings when
earned.
Prior to the implementation of SFAS No. 115, investments in fixed maturities
which might, under certain circumstances, be sold prior to their dates of
maturity were classified as investments "held for sale" and such portfolio was
recorded at the lower of cost or market value. Unrealized losses, net of
deferred taxes, on such investments, if any, were recorded as a charge directly
to shareholders' equity. In addition, the Company identified certain investments
in fixed maturities held for trading purposes. Such investments were recorded at
market value and unrealized gains or losses on such investments, net of deferred
taxes, were credited or charged directly to shareholders' equity.
The cost of securities sold is determined by the specific identification
method.
2. PROPERTIES:
Properties at September 2, 1995, and September 3, 1994 stated at cost, are
comprised of:
1995 1994
---------- ----------
(DOLLARS IN THOUSANDS)
Land......................................................................... $ 8,856 $ 11,488
Buildings and leasehold improvements......................................... 64,321 71,854
Equipment.................................................................... 65,849 64,637
Equipment under capital leases............................................... 9,259 10,345
---------- ----------
148,285 158,324
Less, accumulated depreciation and
amortization............................................................... 76,469 71,641
---------- ----------
$ 71,816 $ 86,683
---------- ----------
---------- ----------
25
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS:
The amortized cost and fair values of investments available-for-sale were as
follows:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
SEPTEMBER 2, 1995 COSTS GAINS LOSSES VALUE
- --------------------------------------------------------- ----------- ------------- ------------- ---------
(DOLLARS IN THOUSANDS)
Fixed Maturities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies.................. $ 9,941 $ 138 $ 83 $ 9,996
Corporate securities................................... 1,765 57 14 1,808
Mortgage backed securities............................. 933 19 1 951
----------- ----- --- ---------
Sub-total............................................ 12,639 214 98 12,755
Redeemable preferred stock............................... 6,696 58 1 6,753
Equity securities........................................ 2,543 2,543
----------- ----- --- ---------
$ 21,878 $ 272 $ 99 $ 22,051
----------- ----- --- ---------
----------- ----- --- ---------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
SEPTEMBER 3, 1994 COST GAINS LOSSES VALUE
- --------------------------------------------------------- ----------- ------------- ------------- ---------
(DOLLARS IN THOUSANDS)
Fixed Maturities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies.................. $ 10,102 $ 10 $ 415 $ 9,697
Corporate securities................................... 306 8 298
Mortgage backed securities............................. 1,455 1 49 1,407
----------- --- ----- ---------
Sub-total............................................ 11,863 11 472 11,402
Redeemable preferred stock............................... 6,552 6,552
Equity securities........................................ 2,320 2,320
----------- --- ----- ---------
$ 20,735 $ 11 $ 472 $ 20,274
----------- --- ----- ---------
----------- --- ----- ---------
26
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fixed maturity investments are due as follows:
AMORTIZED FAIR
SEPTEMBER 2, 1995 COST VALUE
- -------------------------------------------------------------------------------- ----------- -----------
(DOLLARS IN THOUSANDS)
Fixed Maturities Available for Sale:
Due in one year or less....................................................... $ 300 $ 304
Due after one year through five years......................................... 4,420 4,438
Due after five years through ten years........................................ 4,475 4,481
Due after ten years........................................................... 3,444 3,532
----------- -----------
$ 12,639 $ 12,755
----------- -----------
----------- -----------
AMORTIZED FAIR
SEPTEMBER 3, 1994 COST VALUE
- -------------------------------------------------------------------------------- ----------- -----------
(DOLLARS IN THOUSANDS)
Fixed Maturities Available for Sale:
Due in one year or less....................................................... $ 852 $ 828
Due after one year through five years......................................... 7,292 7,042
Due after five years through ten years........................................ 2,790 2,632
Due after ten years........................................................... 929 900
----------- -----------
$ 11,863 $ 11,402
----------- -----------
----------- -----------
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties. Mortgage-backed securities are shown as being due at
their average expected maturity dates.
Investment income is summarized as follows:
1995 1994 1993
--------- --------- ---------
(DOLLARS IN THOUSANDS)
Fixed Maturities................................................................ $ 1,469 $ 1,094 $ 1,267
Preferred Stock................................................................. 563 461 311
Cash and cash equivalents....................................................... 171 95 122
--------- --------- ---------
2,203 1,650 1,700
Less: investment expenses....................................................... (85) (110) (64)
--------- --------- ---------
Net investment income....................................................... $ 2,118 $ 1,540 $ 1,636
--------- --------- ---------
--------- --------- ---------
Investments carried at fair values of $11,272,000 and $7,625,000 at
September 2, 1995 and September 3, 1994, respectively, are on deposit with
regulatory authorities in compliance with insurance company regulations.
27
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. NOTES PAYABLE:
Notes payable at September 2, 1995 and September 3, 1994 are summarized as
follows:
1995 1994
---------- ----------
(DOLLARS IN THOUSANDS)
Notes payable to banks under revolving credit agreements, expiring March 17,
1997, interest rate at prime (8.75% and 7.75% at September 2, 1995 and
September 3, 1994, respectively) plus 1/2% or Eurodollar (5.88% and 4.81%
at September 2, 1995 and September 3, 1994, respectively) plus 1 1/2%...... $ 53,439 $ 59,352
Note payable to banks under revolving credit agreements, expiring March 17,
1997, interest rate at prime (8.75% and 7.75% at September 2, 1995 and
September 3, 1994, respectively) plus 1/2% or Eurodollar (5.88% and 4.81%
at September 2, 1995 and September 3, 1994, respectively) plus 1 1/2%...... 15,500 18,000
Subordinated note payable to a life insurance company, due April 1, 1999,
interest rate of 10.8%, $8,750,000 due April 1 each year beginning in
1996....................................................................... 35,000 35,000
Senior note payable to a life insurance company, collateralized through an
inter-creditor agreement with banks under the revolving credit agreement of
$135 million, due January 15, 2005, interest rate of 9.55%, $62,500 due
monthly each year beginning in 1992 through 2000 and then $220,833 monthly
until maturity............................................................. 16,500 17,250
Notes payable, collateralized by land and warehouses, payable monthly,
approximately $60,000 plus interest at 9.88%, due February 1, 2006......... 14,462 15,211
Obligations under capital leases............................................. 6,358 7,838
---------- ----------
141,259 152,651
Less, portion due within one year............................................ (11,573) (2,978)
---------- ----------
$ 129,686 $ 149,673
---------- ----------
---------- ----------
Maturities of long-term debt as of September 2, 1995 are:
(DOLLARS IN
THOUSANDS)
1996................................................................. $ 11,573
1997................................................................. 80,397
1998................................................................. 11,337
1999................................................................. 11,353
2000................................................................. 4,039
Beyond 2000.......................................................... 22,560
------------
$141,259
------------
------------
Weighted average interest rates on short-term borrowings for fiscal year
ends 1995, 1994, and 1993 approximated 9.57%, 9.71%, and 9.14%, respectively.
Weighted average interest rates during each fiscal year, calculated on a
quarterly basis, approximated respective year end average rates. The average
amounts of short-term borrowings outstanding during fiscal years 1995, 1994, and
1993 were $5,170,000, $3,147,000, and $3,206,000 respectively. Short-term
borrowings amounted to as much as $11,573,000 in 1995, $3,158,000 in 1994 and
$3,616,000 in 1993.
28
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company has two credit 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. At the end of fiscal year
1995, the Company had $160 million in committed lines of credit, of which $91.1
million was not utilized. The unused portion of these credit lines are subject
to annual commitment fees of 0.375%.
The credit agreements contain various financial covenants pertaining to
working capital, debt-to-equity relationships, tangible net worth, earnings, and
similar provisions. In addition, on the required portion of member deposits and
redemption of Class A and Class B Shares, no payment may be made if there exists
a default with respect to any senior indebtedness, as defined, until such
default has been cured or waived or until such senior indebtedness has been paid
in full.
One credit agreement of $135 million is collateralized by accounts
receivable, inventory and certain other assets, excluding equipment and real
property. The maturity date is March 17, 1997, but is subject to extension by
the mutual consent of the Company and the banks. The agreement provides for
Eurodollar basis or prime basis borrowings at the Company's option.
The other credit agreement for $25 million is collateralized by Grocers
Capital Company's ("GCC") receivables. The maturity date is March 17, 1997, but
is subject to extension by the mutual consent of the Company and the banks. The
agreement provides for prime basis or Eurodollar basis borrowings at the
Company's option.
As a result of maturing long-term debt (a non-cash financing activity), the
Company reclassified from long to short-term debt $11,570,000, $2,978,000 and
$3,088,000 in fiscal 1995, 1994 and 1993, respectively.
The fair values of the Company's notes payable, excluding obligations under
capital leases, approximated $133 million at September 2, 1995. Rates currently
available to the Company for debt with similar terms and remaining maturities
are used to estimate the fair values of notes payable.
5. LEASES:
The Company has entered into both operating and capital leases for certain
warehouse, transportation and data processing computer equipment. The Company
has also entered into operating leases for approximately 36 retail supermarkets.
The majority of these locations are subleased to various member-patrons of the
Company. The operating leases and subleases are noncancellable, renewable,
include purchase options in certain instances, and require payment of taxes,
insurance and maintenance. In addition, the Company is contingently liable with
respect to lease guarantees for certain member-patrons. The total commitment for
such lease guarantees approximates $33.3 million to $37.2 million. The Company's
security respecting these lease guarantees is discussed in Note 12 under
"Concentration of Credit Risk."
Total rent expense was $21,051,000, $22,707,000, and $23,326,000 in 1995,
1994, and 1993 respectively. Sublease rental income was $5,308,000, $4,713,000,
and $4,657,000 in 1995, 1994, and 1993 respectively.
29
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Minimum rentals (exclusive of real estate taxes, insurance, and other
expenses payable under the terms of the leases) as of September 2, 1995, are
summarized as follows:
CAPITAL LEASES OPERATING LEASES
--------------- ----------------
(DOLLARS IN THOUSANDS)
1996............................................................... $ 2,351 $ 19,807
1997............................................................... 1,036 17,982
1998............................................................... 982 13,186
1999............................................................... 852 10,737
2000............................................................... 852 9,161
Beyond 2000........................................................ 340 54,675
------ --------
Total minimum lease payments..................................... 6,413 $ 125,548
--------
--------
Less, amount representing interest................................. 55
------
Present value of net minimum lease payments........................ 6,358
Less, current portion.............................................. 1,247
------
Total long-term portion.......................................... $ 5,111
------
------
Minimum sublease rentals (exclusive of real estate taxes, insurance and
other expenses payable under the terms of the leases) as of September 2, 1995,
are summarized as follows:
OPERATING LEASES
--------------------
(DOLLARS IN
THOUSANDS)
1996.............................................................................. $ 6,404
1997.............................................................................. 6,313
1998.............................................................................. 4,213
1999.............................................................................. 3,624
2000.............................................................................. 3,114
Beyond 2000....................................................................... 22,645
-------
$ 46,313
-------
-------
In fiscal 1995, the Company completed a sale leaseback transaction with
Trinet Corporate Realty Trust, Inc. ("Trinet"), an unaffiliated third party. The
total sales price for the property was $11,500,000. Concurrent with the sale of
the real property, the Company and Trinet entered into a twenty year lease of
the property, with two ten year extension options. The monthly rental is
approximately $108,000 and is subject to CPI adjustment commencing on the first
day of the sixth, eleventh and sixteenth years. However, such CPI adjustments
shall not exceed four percent per annum on a cumulative basis during each five
year period. The gain on this transaction was $1.2 million of which $41,000 of
the deferred gain was recognized during fiscal 1995 in accordance with SFAS 13.
30
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES:
The significant components of income tax expense (benefit) attributable to
continuing operations are summarized as follows:
1995 1994 1993
--------- --------- ---------
(DOLLARS IN THOUSANDS)
Federal:
Current tax expense........................................... $ 290 $ 2,049 $ 396
Utilization of net operating loss carryforwards............... (800)
Deferred tax (benefit) expense................................ (72) (1,156) 58
--------- --------- ---------
218 93 454
--------- --------- ---------
State:
Current tax expense........................................... 114 377 57
Deferred tax (benefit) expense................................ (226) (267) 19
--------- --------- ---------
(112) 110 76
--------- --------- ---------
$ 106 $ 203 $ 530
--------- --------- ---------
--------- --------- ---------
The Company's income taxes currently payable in 1995 and 1994 are in part
due to alternative minimum tax.
The effects of temporary differences and other items that give rise to
deferred tax assets and deferred tax liabilities are presented below:
SEPTEMBER 2, SEPTEMBER 3,
1995 1994
------------ ------------
(DOLLARS IN THOUSANDS)
Deferred tax assets:
Accounts receivable..................................................... $ 2,223 $ 895
Accrued vacation/incentives............................................. 808 299
Closed store reserves................................................... 562 632
Lease reserve........................................................... 483 528
Deferred income......................................................... 597
Insurance reserves...................................................... 1,736 1,789
Postretirement/Postemployment benefits other than pension............... 4,366 505
Alternative minimum tax credits......................................... 1,810 1,948
Tax credits............................................................. 110 277
Net operating loss carryforwards........................................ 93 571
Other................................................................... 1,362 638
------------ ------------
Total gross deferred tax assets....................................... 14,150 8,082
Less valuation allowance................................................ (1,400) (1,400)
------------ ------------
Deferred tax assets................................................... $ 12,750 $ 6,682
------------ ------------
------------ ------------
Deferred tax liabilities:
Property, plant and equipment........................................... $ 4,561 $ 2,029
Capitalized software.................................................... 1,380
Intangible asset........................................................ 1,878
Deferred state taxes.................................................... 349 273
Other................................................................... 341 195
------------ ------------
Total gross deferred tax liabilities.................................. $ 8,509 $ 2,497
------------ ------------
------------ ------------
Net deferred tax asset................................................ $ 4,241 $ 4,185
------------ ------------
------------ ------------
A valuation allowance is provided to reduce the deferred tax assets to a
level which, more likely than not, will be realized. The remaining balance of
the net deferred tax assets should be realized through future operating results,
and the reversal of taxable temporary differences, and tax planning strategies.
31
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The provision for income taxes at the Company's effective tax rate differed
from the provision for income taxes at the statutory rate as follows:
1995 1994 1993
----- ------- -----
(DOLLARS IN THOUSANDS)
Federal income tax expense (benefit) at the statutory
rate....................................................... $ 297 $ (749) $ 341
State income taxes, net of federal income tax benefit....... (75) 73 50
Loss on insurance subsidiary not recognized for federal
taxes...................................................... 67
Dividend received deduction................................. (128) (105) (74)
Permanent differences....................................... 68 96 68
Alternative minimum tax..................................... 385
Increase in valuation allowance............................. 392
Other, net.................................................. (56) 111 78
----- ------- -----
Provision for income taxes.................................. $ 106 $ 203 $ 530
----- ------- -----
----- ------- -----
At September 2, 1995, the Company has alternative minimum tax credit
carryforwards of approximately $1.8 million available to offset future regular
income taxes payable to the extent such regular taxes exceed alternative minimum
taxes payable.
7. SUBORDINATED PATRONAGE DIVIDEND CERTIFICATES:
In December 1992, the Company's Board of Directors (the "Board") authorized
a patronage dividend retention program to be effective commencing with the
dividends payable for fiscal 1993, whereby Certified retains a portion of the
patronage dividends and issues Patronage Certificates (the "Certificates")
evidencing its indebtedness respecting the retained amounts. In addition, the
program provides for the issuance of the Certificates to patrons on an annual
basis in a portion and at an interest rate to be determined annually by the
Board of Directors. However, as to any particular patron, if the amount of the
retention is less than a specified minimum (presently $500), then no retention
occurs and a Certificate is not issued. Certificates for each year are unsecured
general obligations of Certified, are subordinated to certain other Certified
indebtedness, and are nontransferable without the consent of Certified. The
certificates are subject to redemption, at any time in whole and from time to
time in part, without premium, at the option of Certified.
The Board of Directors determined that in fiscal years 1993 and 1994, the
portion of the patronage dividend retained and evidenced by the issuance of
Certificates was 20% of the fourth quarter dividend for dairy products in fiscal
1993, 20% of the quarterly dairy patronage dividends for fiscal 1994 and 40% of
the fiscal 1993 and 1994 dividends for non-dairy products. The Board of
Directors approved the patronage dividend retention program for fiscal year
1995. As to patronage dividends to be distributed with respect to Certified's
1995 fiscal year, Certificates will be issued evidencing the allocation of an
amount of such dividends equal to 40% of the patronage dividends of all
divisions, except the dairy division, and 20% of the first and second quarter
dairy division patronage dividends. The Certificates issued for fiscal 1995 have
a seven year term, maturing on December 15, 2002, and will bear interest from
the date of issuance at the rate of 7% per annum, payable annually on December
15 in each year, commencing December 15, 1996.
The following table represents a summary of the Certificates issued and
their respective terms in fiscal 1993 and 1994, as well as the intended issuance
and its respective terms for fiscal 1995.
AGGREGATE ANNUAL
FISCAL PRINCIPAL INTEREST MATURITY
YEAR AMOUNT RATE DATE
- ------------------------------ ---------- --------- --------
1993.......................... $2,018,000 7% 12/15/00
1994.......................... $2,426,000 8% 12/15/01
1995.......................... $2,117,000 7% 12/15/02
The Company expects to continue to distribute patronage dividends in the
future, although there can be no assurance of the amounts of such dividends.
32
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. CAPITAL SHARES:
The Company requires that each member-patron hold 100 Class A shares. Each
member-patron must also hold Class B Shares having combined issuance values
equal to the lesser of the amount of the member-patron's required deposit or
twice the member-patron's average weekly purchases (the "Class B Share
requirement"). For this purpose, each Class B Share held by a member-patron has
an issuance value equal to the book value of Certified's outstanding shares as
of the close of the fiscal year last ended prior to the issuance of such Class B
Share.
After payment of at least 20% of the patronage dividend in cash and the
issuance of the Patronage Certificates, Class B Shares are issued as a portion
of each member-patron's patronage dividend and, to the extent necessary to
fulfill the member-patron's Class B Share requirement, by crediting the
member-patron's cash deposit account for the issuance values of such shares.
All shares of a terminated member will be redeemed by the Company (subject
to certain legal limitations, provisions of the Company's redemption policy, and
provisions of certain of the Company's committed lines of credit) at a price
equal to the book value of the shares as of the close of the fiscal year ended
prior to the redemption, less all amounts that may be owing by the member to the
Company. All shares are pledged to the Company to secure the Company's
redemption rights and as collateral for all obligations to the Company. The
Company is not obligated in any fiscal year to redeem more than 5% of the sum of
the number of Class B Shares outstanding as of the close of the preceding fiscal
year and the number of Class B Shares issued as a part of the patronage dividend
for the preceding year (the "5% limit"). Thus, shares tendered for redemption in
a given fiscal year may not necessarily be redeemed in that fiscal year. The 5%
limit for fiscal year 1996 will allow for redemption of 19,238 shares. The
following table summarizes the Class B Shares tendered and presently approved
for redemption, shares redeemed, and the remaining number of shares pending
redemption:
FISCAL
YEAR TENDERED REDEEMED REMAINING
------ ----------- ----------- ----------- BOOK
VALUE
-----------
(DOLLARS IN
THOUSANDS)
1991........................................... 40,962 20,020 20,942 $ 3,577
1992........................................... 48,543 20,038 49,447 8,031
1993........................................... 29,019 20,036 58,430 9,555
1994........................................... 39,637 19,716 78,351 12,773
1995........................................... 25,511 19,414 84,448 14,007
1996 (through December 1995)................... 2,852 19,238 68,062 11,289
Because the 5% limit for fiscal year 1996 has been met, the remaining 68,062
shares (or approximately $11.3 million, using fiscal 1995 year end book values)
not redeemed in fiscal year 1996 as well as the redemption of any additional
Class B Shares tendered during fiscal 1996 will require the prior approval of
the Company's Board of Directors. At present, such approvals are not expected to
be given. Accordingly, since the Company's fiscal 1996 5% share redemption
limitation has been met, future redemptions for the 1996 fiscal year will be
postponed. The total of Class B Shares tendered and awaiting redemption has
caused the 5% limit for fiscal 1996, and will cause the limits for fiscal 1997
through 1999 to be met, thereby delaying the redemption of Class B Shares in
excess of such limit. The redemptions required for fiscal years 1997 through
1999 approximate $9.4 million to $9.6 million based on 1995 year end book values
and estimated share issuances for those years. Cash flow to fund redemption of
shares is provided from operations, patron deposits, Patronage Certificates,
current shareholdings and borrowings under the Company's credit lines. Any
additional large tenderings of Class B Shares could also potentially cause
future year 5% limitations to be exceeded. Therefore, the Company's ability to
redeem additional shares in excess of the 5% limit without prior approval of the
Board may also be limited.
33
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
There are 500,000 authorized Class A Shares, of which 50,300 and 49,100 were
outstanding at September 2, 1995 and September 3, 1994, respectively. There are
2,000,000 authorized Class B Shares, of which 384,767 and 388,286 were
outstanding at September 2, 1995 and September 3, 1994, respectively. Once
redeemed, such shares are not available for reissuance to member-patrons.
No member-patron may hold more than one hundred Class A Shares. However, it
is possible that a member may have an interest in another member, or that a
person may have an interest in more than one member, and thus have an interest
in more than one hundred Class A Shares. The Board of Directors is authorized to
accept member-patrons without the issuance of Class A Shares when the Board of
Directors determines that such action is justified by reason of the fact that
the ownership of the patron is the same, or sufficiently the same, as that of
another member-patron holding one hundred Class A Shares. The price for such
shares will be the book value per share of outstanding shares at the close of
the fiscal year last ended.
There are also 15 authorized Class C Shares of which 15 are outstanding.
These shares are valued at $10 per share, and ownership is limited to members of
the Board of Directors with no rights as to dividends or other distributions.
9. BENEFIT PLANS:
The Company has a noncontributory, defined benefit pension plan covering
substantially all of its nonunion employees. The benefits under the plan
generally are based on the employee's years of service and average earnings for
the three highest consecutive calendar years of compensation during the ten
years immediately preceding retirement. The Company makes contributions to the
pension plan in amounts which are at least sufficient to meet the minimum
funding requirements of applicable laws and regulations but no more than amounts
deductible for federal income tax purposes. Benefits under the plan are included
in a trust providing benefits through annuity contracts, and part of the plan
assets are held by a trustee.
34
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The funded status of the plan and the amounts recognized in the balance
sheet are:
1995 1994 1993
--------- --------- ---------
(DOLLARS IN THOUSANDS)
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested
benefits..................................................................... $ 24,416 $ 24,519 $ 22,025
Effect of assumed future increase in compensation
levels....................................................................... 10,319 10,380 10,025
--------- --------- ---------
Projected benefit obligation for services rendered to
date......................................................................... 34,735 34,899 32,050
Plan assets at fair value........................................................ 32,593 31,538 31,185
--------- --------- ---------
Plan assets in deficiency of projected benefit obligations....................... 2,142 3,361 865
Unrecognized net gain............................................................ (6,094) (6,092) (3,544)
Unrecognized transition asset.................................................... 1,839 2,148 2,457
Unrecognized prior service cost.................................................. 342 381 (99)
--------- --------- ---------
Accrued (Prepaid) pension costs at June 1........................................ (1,771) (202) (321)
--------- --------- ---------
Fourth quarter contribution...................................................... -- (321) (382)
Fourth quarter net periodic pension cost......................................... 326 229 338
--------- --------- ---------
Accrued (Prepaid) pension cost at fiscal year end................................ $ (1,445) $ (294) $ (365)
--------- --------- ---------
Net pension cost for the fiscal year ending included the following components:
Service cost -- benefits earned during the period.............................. $ 1,398 $ 1,385 $ 1,447
Interest cost on projected benefit obligation.................................. 2,650 2,425 2,405
Actual return on plan assets................................................... (2,845) (2,628) (2,419)
Net amortization and deferral.................................................. 100 (266) (82)
--------- --------- ---------
Net periodic pension cost...................................................... $ 1,303 $ 916 $ 1,351
--------- --------- ---------
Major assumptions:
Assumed discount rate.......................................................... 7.50% 7.50% 7.50%
Assumed rate of future compensation increases.................................. 5.50% 5.50% 5.50%
Expected rate of return on plan assets......................................... 8.50% 8.50% 8.50%
The method used to compute the vested benefit obligation is the actuarial
present value of the vested benefits to which the employee is entitled if the
employee separates immediately. The vested benefit obligation was $24,007,000,
$24,029,000, and $21,442,000 in 1995, 1994, and 1993, respectively.
The Company also made contributions of $5,368,000, $4,820,000, and
$5,155,000 in 1995, 1994, and 1993, respectively to collectively bargained,
multiemployer defined benefit pension plans in accordance with the provisions of
negotiated labor contracts. Information from the plans' administrators is not
available to permit the Company to determine its proportionate share of
termination liability, if any.
The Company has an Employees' Sheltered Savings Plan ("SSP"), which is a
defined contribution plan, adopted pursuant to Section 401(k) of the Internal
Revenue Code for its nonunion employees. The Company matches each dollar
deferred up to 4% of compensation and, at its discretion, matches 40% of amounts
deferred between 4% and 8%. At the end of each fiscal year, the Company also
contributes an amount equal to 2% of the compensation of those participants
employed at that date. The Company contributed approximately $2,100,000,
$2,200,000, and $2,200,000 in 1995, 1994, and 1993 respectively.
Also, the Company has an Employee Savings Plan ("ESP"), which is a defined
contribution plan, subject to the provisions of the Employee Retirement Income
Security Act of 1974, for all union and
35
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
nonunion employees hired prior to March 1, 1983. Subsequent to March 1, 1983,
the Company's contribution to the ESP in any fiscal year is based on net
earnings as a percentage of total sales and is applicable to union employees
only. In the event net earnings are less than 1.5% of total sales, no
contribution is required. All corporate (nonunion) employees who had a previous
balance in the ESP Plan had their balances transferred to the SSP Plan effective
first quarter of fiscal 1992. No expense was incurred in fiscal years 1995, 1994
and 1993.
In September 1994, the Board of Directors authorized a new supplemental
executive pension plan (effective January 4, 1995) which provides retirement
income to certain officers based on each participant's final salary and years of
service with the Company. The plan, called the Company's Executive Salary
Protection Plan ("ESPP II"), provides additional post-termination retirement
income based on each participant's final salary and years of service with the
Company. The funding of this benefit will be facilitated through the purchase of
life insurance policies, the premiums of which will be paid by the Company and
participant contributions.
ESPP II supersedes and replaces the Executive Salary Protection Plan I
("ESPP I"). Under ESPP I, Certified purchased life insurance policies for
certain officers. Upon reaching age 65 (or upon termination, if earlier), the
employee was given the cash surrender value of the policy, plus any additional
income taxes incurred by the employee as a result of such distribution.
The plan is unfunded. The amounts recognized in the balance sheet are:
1995
-----------
(DOLLARS IN
THOUSANDS)
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested benefits................................ $ 3,026
Effect of assumed future increase in compensation levels.................................. 282
-----------
Projected benefit obligation for services rendered to date................................ 3,308
Plan assets at fair value................................................................... --
-----------
Plan assets in deficiency of projected benefit obligation................................... 3,308
Unrecognized net gain (loss)................................................................ (217)
Unrecognized transition asset...............................................................
Unrecognized prior service cost............................................................. (1,659)
-----------
Accrued (prepaid) pension cost as of June 1................................................. 1,432
-----------
Fourth quarter contributions................................................................ (20)
Fourth quarter net periodic pension cost.................................................... 130
Additional minimum liability................................................................ 1,484
-----------
Accrued (prepaid) pension cost at fiscal year end........................................... $ 3,026
-----------
The additional minimum liability represents the excess of the unfunded
Accumulated Benefit Obligation over previously accrued pension costs. A
corresponding intangible asset was recorded as an offset to this additional
liability as prescribed.
36
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The net periodic pension cost for the fiscal year ending included the
following components:
1995
---------
Service cost -- benefits attributed to service during the period................................ $ 136
Interest cost on projected benefit obligation................................................... 168
Actual return on plan assets....................................................................
Net amortization and deferral................................................................... 85
---------
Net periodic pension cost....................................................................... $ 389
---------
Major Assumptions:
Assumed discount rate......................................................................... 7.50%
Assumed rate of future compensation increases................................................. 4.00%
Expected rate of return on plan assets........................................................ 8.50%
The method used to compute the vested benefit obligation is the actuarial
present value of the vested benefits to which the employee is entitled if the
employee separates immediately. The vested benefit obligation was $3,026,000 in
1995.
10. POSTRETIREMENT BENEFIT PLANS OTHER THAN PENSIONS:
The Company sponsors postretirement benefit plans that cover both nonunion
and union employees. Nonunion employees are eligible for a plan providing
medical benefits. A certain group of retired nonunion employees participate in a
plan providing life insurance benefits for which currently active nonunion
employees are no longer eligible. Most union and all nonunion employees have
separate plans providing a lump sum payout for unused days in the sick leave
bank. The postretirement health care plan is contributory for nonunion employees
retiring after January 1, 1990, with the retiree contributions adjusted
annually; the life insurance plan and the sick leave payout plans are
noncontributory.
37
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The plans are unfunded. The amounts recognized in the balance sheet are:
1995 1994
---------- ----------
(DOLLARS IN THOUSANDS)
Accumulated postretirement benefit obligation:
Retirees...................................................................... $ 10,335 $ 11,496
Fully eligible active plan participants....................................... 3,783 4,622
Other active plan participants................................................ 8,927 9,117
---------- ----------
Accumulated postretirement benefit obligation................................... 23,045 25,235
Unrecognized transition obligation.............................................. (20,224) (21,348)
Unrecognized prior service cost.................................................
Unrecognized net gain (loss).................................................... 1,912 (2,013)
---------- ----------
Accrued postretirement benefit cost at June 1................................... 4,733 1,874
Fourth quarter contributions.................................................... (303) (294)
Fourth quarter net periodic postretirement benefit cost......................... 1,044 929
---------- ----------
Accrued postretirement benefit cost............................................. $ 5,474 $ 2,509
---------- ----------
---------- ----------
Net periodic postretirement benefit cost for the fiscal year ending included the
following components:
1995 1994
---------- ----------
(DOLLARS IN THOUSANDS)
Service cost -- benefits attributed to service during the period............... $ 867 $ 654
Interest cost on accumulated postretirement benefit obligation................ 2,052 1,915
Amortization of transition obligation over 20 years........................... 1,124 1,124
Net amortization and deferral................................................. 133 21
---------- ----------
Net periodic postretirement benefit cost...................................... $ 4,176 $ 3,714
---------- ----------
---------- ----------
For measurement purposes, a 9.5 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for fiscal year 1996;
the rate was assumed to decrease gradually to 6 percent in fiscal 2002 and
remain at the level thereafter. The health care cost trend rate assumption has a
significant effect on the amounts reported. To illustrate, increasing the
assumed health care cost trend rates by 1 percentage point in each year would
increase the accumulated postretirement benefit obligation as of September 2,
1995 by $3,174,000 and the aggregate benefit cost for the year then ended by
$470,000.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 8 percent.
The Company's union employees participate in a multiemployer plan that
provides health care benefits. Amounts charged to postretirement benefit cost
and contributed to the plan totaled $1.3 million in fiscal year 1995 and 1994.
Prior to the adoption of SFAS No. 106, the Company recognized the cost of
providing those benefits under the insurance agreement by expensing the claims
and administrative fees when paid, which for active and retired employees
totalled $5,890,000 in 1993. The portion of the cost of providing those benefits
for 164 retirees in fiscal 1993 was approximately $1.2 million.
11. CONTINGENCIES:
LITIGATION. The Company is a defendant in a number of cases currently in
litigation or potential claims encountered in the normal course of business
which are being vigorously defended. In the opinion of management, the
resolutions of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
38
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ENVIRONMENTAL MATTERS. The Company, together with others, was notified by
the Environmental Protection Agency ("EPA") that it was a potentially
responsible party ("PRP") for the disposal of hazardous substances during the
1970s and early 1980s at Operating Industries, Inc. Superfund Site in Monterey
Park, California ("OII Site"). The Company has not disposed of any materials at
the site since and believes its current disposal policies to be in accordance
with federal, state and local governmental laws and regulations. Clean up of
this site will occur in five phases and could entail estimated total clean up
costs of $650 million to $800 million.
The Company appealed the initial findings of the EPA on August 16, 1993
concerning the quantity of disposed waste allocated to the Company. Management
recorded an initial liability of $400,000 for fiscal 1993 for the first three
phases of the five-phase cleanup. The initial liability was based on estimated
cleanup costs of $2 per gallon on approximately 200,000 gallons disposed at the
site. In August 1995, the EPA finalized the Company's allocated share of the
cleanup cost (approximately $380,000) for the first three phases of the cleanup.
The EPA also informed the Company of phases 4 and 5, which include final
remedy and ground water treatment, and a 30 year post-cleanup site control and
monitoring. The estimated costs of these two phases, together with the first
three phases, are reserved in the financial statements. As of September 2, 1995,
the total reserve established in respect to environmental liabilities is $1.6
million. The Company is pursuing recovery of a portion of this amount from its
insurance carriers.
Because of the uncertainties associated with environmental assessment and
remediation activities, future expenses to remediate the currently identified
site could be higher than the accrued liability. Although it is difficult to
estimate the liability of the Company related to these environmental matters,
management believes that these matters will not have a materially adverse effect
on the Company's financial position or consolidated statement of earnings.
12. CONCENTRATION OF CREDIT RISK:
Financial instruments which potentially expose the Company to concentrations
of credit risk consist primarily of trade receivables and lease guarantees for
certain member-patrons. These concentrations of credit risk may be affected by
changes in economic or other conditions affecting the Western United States,
particularly California. However, management believes that receivables are well
diversified and the allowances for doubtful accounts are sufficient to absorb
estimated losses. Obligations of member-patrons to the Company, including lease
guarantees, are generally supported by the Company's right of offset, upon
default, against the member-patrons' cash deposits, shareholdings and Patronage
Certificates, as well as personal guarantees and reimbursement and
indemnification agreements.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments ("SFAS No. 107"), requires disclosure of fair
value information about most financial instruments, both on and off the balance
sheet, if it is practicable to estimate. SFAS No. 107 excludes certain financial
instruments, such as certain insurance contracts, and all non-financial
instruments from its disclosure requirements. A financial instrument is defined
as a contractual obligation that ultimately ends with the delivery of cash or an
ownership interest in an entity. Disclosures regarding the fair value of
financial instruments have been derived using external market sources, estimates
using present value or other valuation techniques.
39
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table presents the carrying values and the estimated fair
values as of September 2, 1995 and September 3, 1994, of the Company's financial
instruments reportable pursuant to SFAS No. 107:
1995 1994
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Assets:
Cash and cash equivalents............................ $ 7,329 $ 7,329 $ 7,702 $ 7,702
Investments.......................................... 22,051 22,051 20,274 20,274
Notes receivable..................................... 25,622 25,622 23,335 23,335
Liabilities:
Notes payable and Notes payable, due after one
year................................................ $ 141,259 $ 139,496 $ 152,651 $ 148,637
Patrons' excess deposits and declared patronage
dividends........................................... 12,214 12,214 11,541 11,541
Patrons' required deposits........................... 17,022 17,022 17,589 17,589
Subordinated patronage dividend certificates......... 6,561 6,561 4,444 4,444
The methods and assumptions used to estimate the fair values of the
Company's financial instruments at September 2, 1995 and September 3, 1994 were
based on estimates of market conditions and risks existing at that time. These
values represent an approximation of possible value and may never actually be
realized.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value due to the short
maturity of these instruments.
INVESTMENTS AND NOTES RECEIVABLE
The fair values for Investments and Notes receivable are based
primarily on quoted market prices for those or similar instruments.
NOTES PAYABLE AND NOTES PAYABLE DUE AFTER ONE YEAR
The fair values for Notes payable and Notes payable, due after one
year are based primarily on rates currently available to the Company for
debt with similar terms and remaining maturities.
PATRONS' EXCESS DEPOSITS AND DECLARED PATRONAGE DIVIDENDS, PATRONS' REQUIRED
DEPOSITS, AND SUBORDINATED PATRONAGE DIVIDEND CERTIFICATES
The carrying amount approximates fair value due primarily to the
limitations imposed on deposit fund redemptions as provided in the
subordinating provisions to which they are subject.
14. RELATED PARTY TRANSACTIONS:
A number of companies with which directors are associated have received
loans from the Company through its regular member loan program and/or obtained
lease guarantees or subleases for certain store locations. In consideration of
lease guarantees and subleases, the Company receives a monthly fee equal to 5%
of the monthly rent under the leases and subleases. Obligations of
member-patrons to the Company, including lease guarantees, are generally
supported by the Company's right of offset, upon default, against the
member-patrons' cash deposits, shareholdings and Patronage Certificates, as well
as personal guarantees and reimbursement and indemnification agreements.
Management believes all such related party transactions are on terms no more
favorable than those which would be available to other similarly sized member-
patrons.
The Company leases certain market premises located in Sacramento and
Vallejo, California, and in turn subleases these premises to SavMax Foods, Inc.
("SavMax") of which director Michael A. Webb is the
40
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
President and a shareholder. The Sacramento sublease provides for a term of 20
years and the Vallejo sublease provides for a term of 10 years. Neither sublease
contains options to extend, although SavMax has the option under each sublease
to acquire the Company's interest under its lease on the condition that the
Company is released from all further liability thereunder. The term of the
Sacramento sublease commenced in September of 1994. The Sacramento premises
consist of approximately 50,000 square feet and annual base rent under the
sublease is at the following per square foot rates: $8.00 during years 1 and 2;
$8.40 during years 3 through 5; $8.82 during years 6 through 10; $9.26 during
years 11 through 15; and, $9.72 during years 16 through 20. The term of the
Vallejo sublease commenced in September of 1995 and annual base rent under the
sublease is $279,000. In addition, under each of these subleases, the Company
receives monthly an additional amount equal to 5% of the base monthly rent.
The Company guarantees certain obligations of SavMax under three leases of
market premises located in Sacramento, San Jose and San Leandro, California.
Each of these guarantees relates to the obligation of SavMax to pay base rent,
common area maintenance charges, real estate taxes and insurance during the
initial 20 year terms of these leases. However, the guarantees are such that the
Company's obligation under each of them is limited to an amount equal to sixty
monthly payments (which need not be consecutive) of the obligations guaranteed.
Base rent is $40,482 per month under the Sacramento lease and $56,756 per month
under the San Jose lease, in each case subject to a 7 1/2% increase at the end
of each five years. Base rent is $42,454 per month under the San Leandro lease,
subject to a 10% increase at the end of each five years. In consideration of
these guarantees, the Company receives a monthly fee from SavMax equal to 5% of
the base monthly rent under these leases. If SavMax were to default under the
leases, the Company's remaining liability under its guarantees would range from
$10.1 million to $11.9 million, assuming other support provided to the Company
by way of offset rights and the reimbursement and indemnification agreements
proved to be of no value to the Company.
The Company guarantees certain obligations of SavMax under two leases of
market premises located in Ceres and Vacaville, California. The leases have
initial terms expiring in January 2005 and April 2007, respectively. Base
monthly rent under the Ceres lease is presently $32,175, increasing to $34,425
in January of 2000. Base monthly rent under the Vacaville lease is presently
$29,167, increasing by $25,000 per year in April of 1997 and 2002. In
consideration of these guarantees, the Company will receive a monthly fee from
SavMax equal to 5% of the base monthly rent under these leases. If SavMax were
to default under the leases, the Company's contingent liability under its
guarantees would approximate $10.4 million, assuming other support provided to
the Company by way of offset rights and the reimbursement and indemnification
agreements proved to be of no value to the Company.
The Company is proposing to lease certain market premises to be constructed
and located in Los Banos, California, which it in turn will sublease to Maxco
Foods, Inc. ("Maxco"), a corporation of which SavMax is a shareholder. The
sublease to Maxco would provide for a term of 20 years, without options to
extend, although Maxco will have the option to acquire the Company's interest
under its lease on the condition that the Company is released from all further
liability thereunder. The premises will consist of approximately 50,000 square
feet and annual base rental under the sublease is as follows: $390,000 during
years 1 through 5; $424,125 during years 6 through 10; $461,236 during years 11
through 15; and, $501,594 during years 16 through 20. In addition, the Company
will receive monthly an additional amount equal to 5% of the base monthly rent.
In connection with this transaction, Maxco will enter into a seven year supply
agreement with the Company whereunder Maxco would be required to purchase a
substantial portion of its merchandise requirements from the Company. The supply
agreement will be subject to earlier termination in certain situations.
In fiscal 1994, Grocers Capital Company ("GCC"), a subsidiary, acquired an
additional 25,000 shares of preferred stock of SavMax. The purchase price was
$100 per share. At the time, GCC owned 40,000 shares of preferred stock of
SavMax which it acquired in fiscal 1992. As part of the new purchase of
preferred stock, the annual cumulative dividend on the 65,000 shares of
preferred stock owned by GCC was increased from $8.25 per share to $8.50 per
share, payable quarterly. Mandatory partial redemption of this stock at a price
of
41
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$100 per share began in 1994 and will continue annually thereafter for eight
years, at which time the stock is to be completely retired. GCC also purchased
from Mr. Webb and another member of his immediate family, 10% of the common
stock of SavMax for a price of $2.5 million. In connection with this purchase,
Mr. Webb, SavMax and GCC agreed that GCC will have certain preemptive rights to
acquire additional common shares, rights to have its common shares included
proportionately in any transfer of common shares by Mr. Webb, and rights to have
its common shares included in certain registered public offerings of common
stock which may be made by SavMax. In addition, GCC has certain rights, at its
option, to require that SavMax repurchase GCC's shares, and SavMax has certain
rights, at its option, to repurchase GCC's shares. In connection with these
transactions, SavMax entered into a seven year supply agreement with the Company
(to replace an existing supply agreement) whereunder SavMax is required to
purchase a substantial portion of its merchandise requirements from the Company.
The supply agreement is subject to earlier termination in certain situations.
GCC guarantees a portion of a loan made by National Consumer Cooperative
Bank ("NCCB") to K.V. Mart Co., of which director Darioush Khaledi is the
President and a shareholder, and KV Property Company, of which director Darioush
Khaledi is a general partner. The term of the loan is eight years, maturing
January 1, 2002, and the loan bears interest at a floating rate based on the
commercial loan base rate of NCCB. The loan is collateralized by certain real
and personal property. The guarantee by GCC is limited to 10% of the $2.1
million principal amount of the loan. In consideration of its guarantee, GCC
will receive an annual fee from K.V. Mart Co. equal to approximately 5% of the
guarantee amount.
GCC has guaranteed a portion of a $5,000,000 revolving loan made by NCCB to
K.V. Mart Co. in November 1995. The loan has an initial maturity of two years,
with the outstanding balance then converting to a five year term loan. The loan
bears interest at a floating rate based on the commercial loan rate of NCCB. The
loan is collateralized by certain real and personal property of K.V. Mart Co.
The guaranty of GCC is limited to 10% of the outstanding principal amount of the
loan. In consideration of its guaranty, GCC will receive an annual fee from K.V.
Mart Co. equal to 5% of the guaranty amount.
The Company is proposing to enter into a guaranty of rent and certain other
obligations of K.V. Mart Co. under a lease of store premises to be constructed
in Lynwood, California. The guaranty would be for a term of seven years. Annual
rent under the lease will be $408,000. In consideration of its guaranty, the
Company will receive an annual fee from K.V. Mart Co. equal to 5% of the annual
rent.
GCC is proposing to purchase 10% of the common stock of K.V. Mart Co. for a
purchase price of approximately $3,000,000. In connection with this purchase,
K.V. Mart Co., GCC, Mr. Khaledi and the other shareholders of K.V. Mart Co. will
agree that GCC will have certain preemptive rights to acquire additional common
shares, rights to have its common shares included proportionately in any
transfer of common shares by the other shareholders, and rights to have its
common shares included in certain registered public offerings of common stock
which may be made by K.V. Mart Co. In addition, GCC will have certain rights, at
its option, to require that K.V. Mart Co. repurchase GCC's shares, and K.V. Mart
Co. will have certain rights, at its option, to repurchase GCC's shares. In
connection with these transactions, K.V. Mart Co. will enter into a seven year
supply agreement with the Company whereunder K.V. Mart Co. will be required to
purchase a substantial portion of its merchandise requirements from the Company.
The supply agreement will be subject to earlier termination in certain
situations.
The Company has guaranteed the payment by Cala Co., a subsidiary of a
member-patron, of certain promissory notes related to an acquisition of Bell
Markets, Inc. The promissory notes mature in June 1996 and total $8 million;
however, the Company's guaranty obligation is limited to $4 million. In
addition, and in connection with the acquisition, the Company has guaranteed
certain lease obligations of Bell Markets, Inc. during a 20-year period under a
lease relating to two retail grocery stores. Annual rent under the lease is
$327,019. In the event the Company is called upon to perform on this guaranty,
the Company has the right to receive an assignment of the lease relating to the
locations. Accordingly, assuming the leased premises and other support provided
to the Company by way of offset rights and the reimbursement and indemnification
42
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
agreement proved to be of no value to the Company, the Company would be
contingently liable under its lease guarantee for approximately $4.7 million.
Concurrent with the foregoing transactions, Bell Markets, Inc. entered into a
5-year agreement to purchase a substantial portion of its merchandise
requirements from the Company.
The Company has guaranteed a lease for Mar-Val Food Stores, Inc. (whose
President, Mark Kidd, is a director of the Company) on store premises in Valley
Springs, California. The guarantee is for a period of fifteen years and is
limited to the lessee's obligation to pay base rent of $10,080 per month, common
area costs, real estate taxes and insurance. The Company's total obligation
under the guarantee is limited to $736,800. In consideration of the guarantee,
the Company receives a monthly fee from Mar-Val Food Store, Inc. equal to 5% of
the base monthly rent under the lease.
The Company guarantees annual rent and certain other obligations of Willard
R. MacAloney, the Chairman of the Company's Board of Directors, as lessee under
a lease of store premises located in La Puente, California. Annual rent under
the lease is $62,487, and the lease term expires in April 1997. The Company also
guarantees annual rent and certain other obligations of G & M Company, Inc., of
which Mr. MacAloney is a shareholder, under a lease of store premises located in
Santa Fe Springs, California. Annual rent under the lease is $82,544, and the
lease term expires in October 1997. In consideration of its guarantees, the
Company receives a monthly fee from G & M Company, Inc. equal to 5% of the base
monthly rent under each lease.
The Company guarantees certain obligations under a sublease of market
premises located in Pasadena, California, and under which Berberian Enterprises,
Inc., of which Director John Berberian is the President and a shareholder, is
the sublessor. The guaranty is of the obligations of the sublessee to pay
minimum rent, common area costs, real estate taxes and insurance during the
first seven years of the term of the sublease. Minimum rent under the sublease
is $10,000 per month. In consideration of its guaranty, the Company receives a
monthly fee from the sublessee equal to 5% of the monthly amounts guaranteed.
The Company has guarantees remaining on various member-patron leases during
the period of fiscal 1996 through fiscal 1998. In the event the support provided
to the Company by way of offset rights and the reimbursement and indemnification
agreements proved to be of no value, the Company would be contingently liable
under its guarantees for approximately $1.3 million.
In July 1993, the Company entered into an agreement to lease a warehouse to
Joe Notrica, Inc., of which director Morrie Notrica is the President and a
shareholder. The lease period is for five years, July 21, 1993 through July 31,
1998, at a monthly rent of $24,000. The lease has one five year option and makes
provision for inflation adjustments to monthly rent during the option term.
Grocers General Merchandise Company, ("GM"), a subsidiary of the Company,
and Food 4 Less GM, Inc. ("F4LGM"), an indirect subsidiary of Ralph's Grocery
Company, are partners to a joint venture partnership agreement. Under the
agreement, GM and F4LGM are partners operating as Golden Alliance Distribution
("GAD"). The partnership was formed for the purpose of providing for the shared
use of the Company's general merchandise warehouse located in Fresno, California
and each of the partners has entered into a supply agreement with GAD providing
for the purchase of general merchandise products from GAD.
One of the Company's largest customers, Ralphs Grocery Company together with
its affiliated companies, accounted for a combined total of approximately 9.5%
of fiscal 1995 sales. No other customer accounted for as much as 5% of fiscal
1995 sales.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
43
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
BOARD OF DIRECTORS
The Company's Board of Directors is elected annually at the Company's Annual
Meeting of Shareholders, presently held in March of each year. Each director
must be either an employee of the Company, a member-patron, or a member of a
partnership which is a shareholder, or an employee of a corporation which is a
shareholder. Currently, there are no Company employees on the Board of Directors
and all directors represent member-patrons. There is no arrangement or
understanding between any one of the directors and any other person or persons
pursuant to which such director was selected as a director.
The Bylaws provide that the Board of Directors will appoint annually a
committee consisting of three or more of its members to nominate the directors
to act for the ensuing year. The Company's President is an ex-officio member of
the nominating committee. The nominating committee submits its nominations to
the Board, and the nominees so selected are submitted by the Board to the
members to be voted upon at the Annual Meeting of the Company.
The names of the present directors of the Company, their principal
occupations, their ages as of December 31, 1995 and the year such director was
first elected to the Board are set forth in the following table.
YEAR
AGE AT FIRST
NAME OF DIRECTOR DECEMBER 31, 1995 ELECTED PRINCIPAL OCCUPATION
- ---------------------------- ----------------- --------- -----------------------------------------------------
Louis A. Amen 66 1974 President, Super A Foods, Inc.
John Berberian 44 1991 President, Berberian Enterprises, Inc.,
operating Jons Market
Gene A. Fulton 56 1994 President-Owner, Jensen's Complete Shopping, Inc.,
operating Jensen's Finest Foods
Lyle A. Hughes (1) 58 1987 General Manager, Yucaipa Trading Co., Inc.
Roger Hughes (1) 61 1985 Chairman and Chief Executive Officer, Hughes Markets,
Inc.
Darioush Khaledi 49 1993 Chairman of the Board and Chief Executive Officer,
K.V. Mart Co., dba Top Valu Markets and Valu Plus
Food Warehouse
Mark Kidd 45 1992 President, Mar-Val Food Stores, Inc.
Willard R. MacAloney 60 1981 President and Chief Executive Officer, Mac Ber, Inc.
(Chairman of the Board) operating Jax Market
Jay McCormack 45 1993 Owner-Operator, Alamo Market; Co-owner, Glen Avon
Market
Morrie Notrica 66 1988 President and Chief Operating Officer, Joe Notrica,
Inc., operating The Original 32nd Street Market
Michael A. Provenzano 53 1986 President, Pro & Son's, Inc., operating Southland
Market since 1993; formerly President, Carlton's
Market, Inc.
Allan Scharn 60 1988 President, Gelson's Markets
James R. Stump 57 1982 President, Stump's Market, Inc.
Michael A. Webb 38 1992 President and Chief Executive Officer,
SavMax Foods, Inc.
44
YEAR
AGE AT FIRST
NAME OF DIRECTOR DECEMBER 31, 1995 ELECTED PRINCIPAL OCCUPATION
- ---------------------------- ----------------- --------- -----------------------------------------------------
Kenneth Young 51 1994 Vice President, Jack Young's Supermarkets; Vice
President, Bakersfield Food City, Inc., dba Young's
Markets
- ------------------------
(1) Messrs. Lyle A. Hughes and Roger K. Hughes are unrelated.
OFFICERS
The Company has nine officers, each selected by and serving at the pleasure
of the Board of Directors. No officer owns either directly or indirectly any
shares of the Company's Class A or Class B Shares. There are no family
relationships between directors or officers, nor between any director and
officer. There is no arrangement or understanding between any one of the
officers and any other person pursuant to which such officer was selected as an
officer.
The following table sets forth certain information about officers of the
Company.
AGE AT DECEMBER 31, BUSINESS EXPERIENCE
OFFICER'S NAME 1995 DURING LAST FIVE YEARS
- ------------------------- ----------------------- -----------------------------------------------------------------
Alfred A. Plamann 53 Corporate President and Chief Executive Officer since February
1994; previously Senior Vice President-Finance and Chief
Financial Officer.
Daniel T. Bane 48 Senior Vice President and Chief Financial Officer since July
1994; Chief Operating Officer, Spensley Horn Jubas & Lubitz,
December 1993 to July 1994; previously Chief Financial Officer,
Standard Brands Paint Company.
Donald G. Grose 60 Senior Vice President-Human Resources and Labor Relations.
Don W. Hawks 44 Vice President-Marketing and Procurement since June 1995;
previously Vice President of Procurement and Marketing, Super
Store Industries.
Corwin J. Karaffa 41 Vice President-Distribution since January 1995; previously
Facilities Manager, Proctor and Gamble Distribution Co.
Jerald L. Lauer 59 Vice President-Information Services.
Charles J. Pilliter 47 Senior Vice President and President-Northern California since
January 1990; previously Executive Director of Sales and General
Manager of Produce.
Paul D. Rohde 50 Vice President-Human Resources since January 1990; previously
Executive Director-Human Resources.
David A. Woodward 53 Corporate Secretary/Treasurer.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1995, the Company's Executive Compensation Committee
consisted of director Darioush Khaledi, Committee Chairman, and directors Louis
A. Amen, Roger Hughes, James R. Stump, and Michael A. Webb, as well as
ex-officio member Willard R. MacAloney, Chairman of the Board.
Except for Mr. MacAloney, no member of the Personnel and Executive
Compensation Committee is, or has been at any time in the past, an officer or
employee of the Company or any of its subsidiaries. As Chairman of the Board,
Mr. MacAloney is an officer under the Bylaws of the Company, although he is not
an employee and does not receive any compensation or expense reimbursement
beyond that to which other directors are entitled.
45
The Company guarantees annual rent and certain other obligations of Mr.
MacAloney as lessee under a lease of store premises located in La Puente,
California. Annual rent under the lease is $62,487, and the lease term expires
in April 1997. The Company also guarantees annual rent and certain other
obligations of G & M Company, Inc., of which Mr. MacAloney is a shareholder,
under a lease of store premises located in Santa Fe Springs, California. Annual
rent under the lease is $82,544, and the lease term expires in October 1997. In
consideration of its guarantees, the Company receives a monthly fee from G & M
Company, Inc. equal to 5% of the base monthly rent under each lease.
GCC guarantees a portion of a loan made by National Consumer Cooperative
Bank ("NCCB") to K.V. Mart Co., of which director Darioush Khaledi is the
President and a shareholder, and KV Property Company, of which director Darioush
Khaledi is a general partner. The term of the loan is eight years, maturing
January 1, 2002, and the loan bears interest at a floating rate based on the
commercial loan base rate of NCCB. The loan is collateralized by certain real
and personal property. The guarantee by GCC is limited to 10% of the $2.1
million principal amount of the loan. In consideration of its guarantee, GCC
will receive an annual fee from K.V. Mart Co. equal to approximately 5% of the
guarantee amount.
GCC has guaranteed a portion of a $5,000,000 revolving loan made by NCCB to
K.V. Mart Co. in November 1995. The loan has an initial maturity of two years,
with the outstanding balance then converting to a five year term loan. The loan
bears interest at a floating rate based on the commercial loan rate of NCCB. The
loan is collateralized by certain real and personal property of K.V. Mart Co.
The guaranty of GCC is limited to 10% of the outstanding principal amount of the
loan. In consideration of its guaranty, GCC will receive an annual fee from K.V.
Mart Co. equal to 5% of the guaranty amount.
The Company is proposing to enter into a guaranty of rent and certain other
obligations of K.V. Mart Co. under a lease of store premises to be constructed
in Lynwood, California. The guaranty would be for a term of seven years. Annual
rent under the lease will be $408,000. In consideration of its guaranty, the
Company will receive an annual fee from K.V. Mart Co. equal to 5% of the annual
rent.
GCC is proposing to purchase 10% of the common stock of K.V. Mart Co. for a
purchase price of approximately $3,000,000. In connection with this purchase,
K.V. Mart Co., GCC, Mr. Khaledi and the other shareholders of K.V. Mart Co. will
agree that GCC will have certain preemptive rights to acquire additional common
shares, rights to have its common shares included proportionately in any
transfer of common shares by the other shareholders, and rights to have its
common shares included in certain registered public offerings of common stock
which may be made by K.V. Mart Co. In addition, GCC will have certain rights, at
its option, to require that K.V. Mart Co. repurchase GCC's shares, and K.V. Mart
Co. will have certain rights, at its option, to repurchase GCC's shares. In
connection with these transactions, K.V. Mart Co. will enter into a seven year
supply agreement with the Company whereunder K.V. Mart Co. will be required to
purchase a substantial portion of its merchandise requirements from the Company.
The supply agreement will be subject to earlier termination in certain
situations.
The Company guarantees annual rent and certain other obligations of Stump's
Market, Inc., of which director James R. Stump is the President and a
shareholder, as leasee under a lease of store premises located in San Diego,
California. Annual rent under the lease is $26,325, and the lease term expires
in May 1998. The Company also guaranteed annual rent and certain other
obligations of Stump's Market, Inc. as lessee under a lease of store premises at
a second location in San Diego, California. Annual rent under this lease was
$16,350, and the lease term expired in April 1995.
In fiscal 1994, Grocers Capital Company ("GCC"), a subsidiary, acquired
25,000 shares of preferred stock of SavMax Foods, Inc. ("SavMax"), of which
director Michael A. Webb is the President and a shareholder. The purchase price
was $100 per share. At the time, GCC owned 40,000 shares of preferred stock of
SavMax which it acquired in fiscal 1992. As part of the new purchase of
preferred stock, the annual cumulative dividend on the 65,000 shares of
preferred stock owned by GCC was increased from $8.25 per share to $8.50 per
share, payable quarterly. Mandatory partial redemption of this stock at a price
of $100 per share began in 1994 and will continue annually thereafter for eight
years, at which time the stock is to be completely retired. GCC also purchased
from Mr. Webb and another member of his immediate family, 10% of the common
stock of SavMax for a price of $2.5 million. In connection with this purchase,
Mr. Webb,
46
SavMax and GCC agreed that GCC will have certain preemptive rights to acquire
additional common shares, rights to have its common shares included
proportionately in any transfer of common shares by Mr. Webb, and rights to have
its common shares included in certain registered public offerings of common
stock which may be made by SavMax. In addition, GCC has certain rights, at its
option, to require that SavMax repurchase GCC's shares, and SavMax has certain
rights, at its option, to repurchase GCC's shares. In connection with these
transactions, SavMax entered into a seven year supply agreement with the Company
(to replace an existing supply agreement) whereunder SavMax is required to
purchase a substantial portion of its merchandise requirements from the Company.
The supply agreement is subject to earlier termination in certain situations.
The Company guarantees certain obligations of SavMax under three leases of
market premises located in Sacramento, San Jose and San Leandro, California.
Each of these guaranties relates to the obligation of SavMax to pay base rent,
common area maintenance charges, real estate taxes and insurance during the
initial 20 year terms of these leases. However, the guaranties are such that the
Company's obligation under each of them is limited to an amount equal to sixty
monthly payments (which need not be consecutive) of the obligations guaranteed.
Base rent is $40,482 per month under the Sacramento lease and $56,756 per month
under the San Jose lease, in each case subject to a 7 1/2% increase at the end
of each five years. Base rent is $42,454 per month under the San Leandro lease,
subject to a 10% increase at the end of each five years. In consideration of
these guaranties, the Company receives a monthly fee from SavMax equal to 5% of
the base monthly rent under these leases.
The Company guarantees certain obligations of SavMax under two leases of
market premises located in Ceres and Vacaville, California. The leases have
initial terms expiring in January 2005 and April 2007, respectively. Base
monthly rent under the Ceres lease is presently $32,175, increasing to $34,425
in January of 2000. Base monthly rent under the Vacaville lease is presently
$29,167, increasing by $25,000 per year in April of 1997 and 2002. In
consideration of these guaranties, the Company will receive a monthly fee from
SavMax equal to 5% of the base monthly rent under these leases.
The Company leases certain market premises located in Sacramento and
Vallejo, California, and in turn subleases these premises to SavMax. The
Sacramento sublease provides for a term of 20 years and the Vallejo sublease
provides for a term of 10 years. Neither sublease contains options to extend,
although SavMax has the option under each sublease to acquire the Company's
interest under its lease on the condition that the Company is released from all
further liability thereunder. The term of the Sacramento sublease commenced in
September of 1994. The Sacramento premises consist of approximately 50,000
square feet and annual base rent under the sublease is at the following per
square foot rates: $8.00 during years 1 and 2; $8.40 during years 3 through 5;
$8.82 during years 6 through 10; $9.26 during years 11 through 15; and, $9.72
during years 16 through 20. The term of the Vallejo sublease commenced in
September of 1995 and annual base rent under the sublease is $279,000. In
addition, under each of these subleases, the Company receives monthly an
additional amount equal to 5% of the base monthly rent.
The Company is proposing to lease certain market premises to be constructed
and located in Los Banos, California, which it in turn will sublease to Maxco
Foods, Inc. ("Maxco"), a corporation of which SavMax is a shareholder. The
sublease to Maxco would provide for a term of 20 years, without options to
extend, although Maxco will have the option to acquire the Company's interest
under its lease on the condition that the Company is released from all further
liability thereunder. The premises will consist of approximately 50,000 square
feet and annual base rental under the sublease is as follows: $390,000 during
years 1 through 5; $424,125 during years 6 through 10; $461,236 during years 11
through 15; and, $501,594 during years 16 through 20. In addition, the Company
will receive monthly an additional amount equal to 5% of the base monthly rent.
In connection with this transaction, Maxco will enter into a seven year supply
agreement with the Company whereunder Maxco would be required to purchase a
substantial portion of its merchandise requirements from the Company. The supply
agreement will be subject to earlier termination in certain situations.
With respect to the Los Banos sublease, GCC is proposing to make a seven
year equipment loan in the amount of $1,620,000, a five year inventory loan in
the amount of $675,000 and a five year deposit fund loan in the amount of
$350,000 to Maxco. The equipment and inventory loans will bear interest at prime
plus 3%,
47
and the deposit fund loan will bear interest at prime plus 2%. The loans will be
secured by a security interest in all of the equipment, fixtures and inventory
at the Los Banos store and by personal guarantees. In addition, in certain
events, SavMax is required to assume the obligations of Maxco under the loans,
the sublease of the Los Banos premises and the obligations of Maxco under its
supply agreement with the Company.
EXECUTIVE OFFICER COMPENSATION
The following table sets forth information respecting the compensation paid
during the Company's last three fiscal years to the President and Chief
Executive Officer (CEO) and to certain other executive officers of the Company.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
--------------------------------------------------
OTHER
FISCAL ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($) COMPENSATION($) COMPENSATION($)
- ------------------------------ ------ ------------ -------- --------------- ---------------
Alfred A. Plamann 1995 322,150 205 24,290(3)
President & CEO 1994 236,827 310 31,431
1993 164,800 25,419
Donald W. Dill(2) 1995 147,047 167 175,169(4)
Senior Vice President 1994 163,366 576 38,127
1993 153,346 1,016 37,392
Daniel T. Bane(2) 1995 200,000 195
Senior Vice President & CFO 1994 21,539
1993 1,231(5)
Charles J. Pilliter 1995 172,000 127 13,174(6)
Senior Vice President 1994 167,577 188 20,591
1993 151,924 18,241
Donald G. Grose 1995 147,000 357 11,232(7)
Senior Vice President 1994 143,760 438 31,700
1993 135,116 955 30,372
- ------------------------
(1) It should be noted that while the table presents salary information on a
fiscal year basis, salary is determined by the Company on a calendar year
basis. Thus, salary information with respect to any given fiscal year
reflects salary attributable to portions of two calendar year salary
periods of the Company.
(2) Mr. Dill retired July 27, 1995 and Mr. Bane joined the Company July 26,
1994.
(3) Consists of a $6,392 Company contribution to the Company's Employees'
Sheltered Savings Plan, and a $17,898 Company contribution to the Company's
Employees' Excess Benefit Plan and Supplemental Deferred Compensation Plan.
(4) Consists of $162,000 in severance benefits (representing 52 weeks of salary
paid in accordance with the Company's past practices), a $3,466 Company
contribution to the Company's Employees' Sheltered Savings Plan, and a
$9,703 Company contribution to the Company's Employees' Excess Benefit Plan
and Supplemental Deferred Compensation Plan.
(5) Consists of a $385 Company contribution to the Company's Employees'
Sheltered Savings Plan, and a $846 Company contribution to the Company's
Employees' Excess Benefit Plan and Supplemental Deferred Compensation Plan.
(6) Consists of a $3,467 Company contribution to the Company's Employees'
Sheltered Savings Plan, and a $9,707 Company contribution to the Company's
Employee Excess Benefit and Supplemental Deferred Compensation Plan.
48
(7) Consists of a $7,158 Company contribution to the Company's Employees'
Sheltered Savings Plan, and a $4,074 Company contribution to the Company's
Employees' Excess Benefit Plan and Supplemental Deferred Compensation Plan.
In September 1994, the Board of Directors authorized a new supplemental
executive pension plan (effective January 4, 1995) which provides retirement
income based on each participant's final salary and years of service with the
Company. The plan, called the Company's Executive Salary Protection Plan ("ESPP
II"), provides additional post-termination retirement income based on each
participant's final salary and years of service with the Company. The funding of
this benefit will be facilitated through the purchase of life insurance
policies, the premiums of which will be paid by the Company and participant
contributions. The Company also has a defined benefit pension plan covering its
non-union and executive employees. Benefits under the defined benefit plan are
equal to credited service times the sum of 95% of earnings up to the covered
compensation amount plus 1.45% of earnings in excess of the covered compensation
amount. The covered compensation is based on IRS Tables.
ESPP II supersedes and replaces the Executive Salary Protection Plan I
("ESPP I"). Under ESPP I, Certified purchased life insurance policies for
certain officers. Upon reaching age 65 (or upon termination, if earlier), the
employee was given the cash surrender value of the policy, plus any additional
income taxes incurred by the employee as a result of such distribution.
The following table sets forth the estimated annual benefits under the
defined benefit plan and the ESPP II plan which qualifying officers with
selected years of service would receive if they had retired on September 2, 1995
at the age of 65.
PENSION PLAN TABLE
YEARS OF SERVICE
----------------------------------------------------------------
REMUNERATION 5 YEARS 10 YEARS 15 YEARS 20 YEARS 25 YEARS 33 YEARS
- ------------------------------------------------ --------- --------- --------- --------- --------- ---------
$100,000...................................... $ 26,008 $ 52,016 $ 68,024 $ 69,032 $ 70,040 $ 71,653
125,000....................................... 32,530 65,060 85,090 86,370 87,650 89,697
150,000....................................... 39,052 78,104 89,455 91,007 92,559 95,042
175,000....................................... 45,302 87,904 89,455 91,007 92,559 95,042
200,000....................................... 51,552 87,904 89,455 91,007 92,559 95,042
225,000....................................... 57,802 87,904 89,455 91,007 92,559 95,042
250,000....................................... 64,052 87,904 89,455 91,007 92,559 95,042
300,000....................................... 76,552 87,904 89,455 91,007 92,559 95,042
350,000....................................... 86,352 87,904 89,455 91,007 92,559 95,042
400,000....................................... 86,352 87,904 89,455 91,007 92,559 95,042
450,000....................................... 86,352 87,904 89,455 91,007 92,559 95,042
The Company's ESPP II is designed to provide a retirement benefit up to 65%
of a participant's final compensation, based on a formula which considers an
executive's final compensation and years of service. Remuneration under ESPP II
is based upon an executive's highest annual base wage during the previous three
completed years, which includes his or her annual salary as determined by the
Board of Directors plus an automobile allowance with a 4% annual increase. The
benefit is subject to an offset of the annual benefit which would be received
from the defined benefit plan, calculated as a single life annuity at age
sixty-two (62). To qualify for participation in the benefit, the executive must
complete three years of service as an officer elected by the Board of Directors
of the Company. Executives will vest at a rate of 5% per year with all years of
continuous service credited. The ESPP II annual benefit upon retirement for
calendar 1995 shall not exceed $84,800 and will be paid over a 15-year certain
benefit. The benefit will increase annually thereafter at the rate of 6%. Lesser
amounts are payable if the executive retires before age sixty-five (65). The
maximum annual amount payable by years of service is reflected within the table
at the compensation level of $450,000. As of September 2, 1995, credited years
of service for named officers are: Mr. Plamann, 6 years; Mr. Bane, 1 year; Mr.
Dill, 37 years; Mr. Gross, 14 years; and Mr. Pilliter, 19 years.
49
DIRECTOR COMPENSATION
Each director receives a fee of $300 for each regular board meeting
attended, $100 for each committee meeting attended and $100 for attendance at
each board meeting of a subsidiary of the Company on which the director serves.
In addition, directors are reimbursed for Company related expenses.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
As of November 15, 1995, the only shareholders known by the Company to own
beneficially more than 5% of the outstanding Class B Shares of the Company were
The Boys Markets, Inc., Cala Co., Bay Area Warehouse Stores, Inc., Alpha Beta
Company and Ralphs Grocery Co., 777 South Harbor Boulevard, La Habra, California
90631 (33,554 Class B Shares or approximately 8.72% of the outstanding Class B
Shares; The Boys Markets, Inc., Cala Co., Alpha Beta Company and Bay Area
Warehouse Stores Inc. are wholly-owned by Ralphs Grocery Co. which is in turn
wholly-owned by The Yucaipa Companies, 10000 Santa Monica Boulevard, Los
Angeles, California 90067) and Hughes Markets, Inc., 14005 Live Oak Avenue,
Irwindale, California 91706 (30,346 Class B Shares or approximately 7.89% of the
outstanding Class B Shares).
The following table sets forth, as of November 15, 1995, the name of each
director of the Company, his position with and name of the member-patron, and
the amount of Class A Shares and Class B Shares of the Company owned by the
member-patron.
SHARES OWNED
--------------------------------------------------
CLASS A SHARES CLASS B SHARES
-------------------------- ----------------------
NAME OF DIRECTOR NO. % OF TOTAL NO. % OF TOTAL
AND MEMBER-PATRON SHARES OUTSTANDING SHARES OUTSTANDING
- ---------------------------------------------------------------------- ----------- ------------- --------- -----------
Louis A. Amen;
President, Super A Foods, Inc. ..................................... 100 0.20% 9,850 2.56%
John Berberian;
President, Berberian Enterprises, Inc. ............................. 100 0.20% 7,615 1.98%
Gene A. Fulton;
President-Owner, Jensen's Complete Shopping, Inc. .................. 100 0.20% 1,555 0.40%
Lyle A. Hughes;
General Manager, Yucaipa Trading Co., Inc.(1)....................... 100 0.20% 694 0.18%
Roger K. Hughes;
Chairman and Chief Executive Officer,
Hughes Markets, Inc.(1)............................................. 100 0.20% 30,346 7.89%
Darioush Khaledi;
Chairman of the Board and Chief Executive Officer,
K.V. Mart Co. ...................................................... 100 0.20% 13,796 3.59%
Mark Kidd;
President, Mar-Val Food Stores, Inc................................. 100 0.20% 1,787 0.46%
Willard R. MacAloney;
President and Chief Executive Officer, Mac Ber, Inc. ............... 100 0.20% 2,523 0.66%
Jay McCormack;
Owner-Operator, Alamo Market(2)..................................... 100 0.20% 732 0.19%
Morrie Notrica;
President and Chief Operating Officer, Joe Notrica, Inc............. 100 0.20% 8,148 2.12%
Michael A. Provenzano;
President, Pro & Sons, Inc. ........................................ 100 0.20% 672 0.17%
Allan Scharn;
President, Gelson's Markets(3)...................................... 100 0.20% 7,485 1.95%
50
SHARES OWNED
--------------------------------------------------
CLASS A SHARES CLASS B SHARES
-------------------------- ----------------------
NAME OF DIRECTOR NO. % OF TOTAL NO. % OF TOTAL
AND MEMBER-PATRON SHARES OUTSTANDING SHARES OUTSTANDING
- ---------------------------------------------------------------------- ----------- ------------- --------- -----------
James R. Stump;
President, Stump's Market, Inc...................................... 100 0.20% 1,866 0.48%
Michael A. Webb;
President and Chief Executive Officer, SavMax Foods, Inc............ 100 0.20% 8,410 2.19%
Kenneth Young;
Vice President, Jack Young's Supermarkets(4) ....................... 100 0.20% 2,660 0.69%
----- ------ --------- -----------
1,500 3.00% 98,139 25.51%
----- ------ --------- -----------
----- ------ --------- -----------
- ------------------------
(1) Messrs. Lyle A. Hughes and Roger K. Hughes are unrelated.
(2) Mr. McCormack also is affiliated with Glen Avon Food, Inc. which owns 100
Class A Shares (0.20% of the outstanding class of shares) and 336 Class B
Shares (0.01% of the outstanding class of shares) and Yucaipa Trading Co.,
Inc. which owns 100 Class A Shares (0.20% of the outstanding class of
shares) and 694 Class B Shares (0.18% of the outstanding class of shares).
(3) These shares are owned by Arden Mayfair, Inc., the parent company of
Gelson's Markets.
(4) Mr. Young also is affiliated with Bakersfield Food City Inc. dba Young's
Markets which owns 100 Class A Shares (0.20% of the outstanding class of
shares) and 355 Class B Shares (0.01% of the outstanding class of shares).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
All firms with which directors are affiliated, as members of the Company,
purchase groceries, related products and store equipment from the Company in the
ordinary course of business at prices and on terms available to members
generally. As members, firms with which directors are affiliated, may receive
benefits for which all members are eligible, including patronage dividends,
allowances and retail support services. See, "Item 1. BUSINESS" for a general
description of benefits and services available to patrons. One customer
accounted for in excess of 5% of the Company's consolidated sales during fiscal
1995. Ralphs Grocery Co. together with its affiliated companies, accounted for a
combined total of approximately 9.5%. No other director of the Company (nor the
firms with which such director is affiliated) accounted for in excess of 5% of
the Company's consolidated sales during fiscal 1995.
In September 1992, the Company guaranteed the obligations of Mar-Val Food
Stores, Inc., of which director Mark Kidd is the President and a shareholder,
under a lease of market premises located in Valley Springs, California. The
guarantee is of the obligations of Mar-Val Food Stores, Inc. to pay base rent,
common area costs, real estate taxes and insurance during the initial fifteen
year term of the lease. Base rent under the lease is $10,080 per month. The
Company's total obligation under the guarantee, however, is limited to the sum
of $736,800. In consideration of its guarantee, the Company receives a monthly
fee from Mar-Val Food Store, Inc. equal to 5% of the base monthly rent under the
lease.
The Company leases its produce warehouse to Joe Notrica, Inc., of which
director Morrie Notrica is the President and a shareholder. The lease is for a
term of five years expiring in November 1998 and contains an option to extend
for an additional five year period. Monthly rent during the initial term is
$24,000. If the option to extend is exercised, rent during the option period
will be the lesser of fair rental value or the monthly rent during the initial
term as adjusted to reflect the change in the Customer Price Index during the
initial term.
Cala Co. (a patron affiliated with Alpha Beta Company) acquired the stock of
Bell Markets, Inc. in June 1989. The Company guaranteed the payment by Cala Co.
of certain promissory notes in favor of the selling shareholders. The promissory
notes mature in June 1996 and total $8 million; however, the Company's guaranty
obligation is limited to $4 million. In addition, and in connection with the
acquisition, the Company guaranteed the lease obligations of Bell Markets, Inc.
during a 20-year period under a lease relating to two
51
retail grocery stores located in San Francisco, California. Annual rent under
the lease is $327,019. In the event the Company's guaranty is ever called upon,
the Company has the right to receive an assignment of the lease relating to the
locations. Concurrently with the foregoing transactions, Bell Markets, Inc.
entered into a 5-year agreement to purchase a substantial portion of its
merchandise requirements from the Company.
Grocers General Merchandise Company ("GM"), a subsidiary, and Food 4 Less
GM, Inc. ("F4LGM"), an indirect subsidiary of Food 4 Less Supermarkets, Inc.,
are parties to a joint venture agreement. Under the agreement, GM and F4LGM are
partners in a joint venture partnership known as Golden Alliance Distribution
("GAD"). The partnership was formed for the purpose of providing for the shared
use of the Company's general merchandise warehouse located in Fresno,
California, and each of the partners has entered into a supply agreement with
Golden Alliance Distribution providing for the purchase of general merchandise
products from Golden Alliance Distribution.
The Company guarantees certain obligations under a sublease of market
premises located in Pasadena, California, and under which Berberian Enterprises,
Inc., of which Director John Berberian is the President and a shareholder, is
the sublessor. The guaranty is of the obligations of the sublessee to pay
minimum rent, common area costs, real estate taxes and insurance during the
first seven years of the term of the sublease, which commenced in September
1995. Minimum rent under the sublease is $10,000 per month. In consideration of
its guaranty, the Company receives a monthly fee from the sublessee equal to 5%
of the monthly amounts guaranteed.
On February 1, 1995, GCC made a loan of $69,000 to Corwin J. Karaffa, the
Company's Vice President-Distribution. The loan was for the purpose of assisting
Mr. Karaffa in acquiring a home in connection with his becoming employed by the
Company. The loan bears interest at 8% per annum and is secured by a second deed
of trust on the home. The loan has a term of eight years, with interest only
payable during the first five years.
Certain other transactions involving other directors of the Company are
described in Item 11 under the caption "Compensation Committee Interlocks and
Insider Participation."
52
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Financial Statements
Report of Independent Accountants.
Consolidated Balance Sheets as of September 2, 1995 and September 3,
1994.
Consolidated Statements of Earnings for the Fiscal Years Ended September
2, 1995, September 3, 1994, and August 28, 1993.
Consolidated Statements of Shareholders' Equity for the Fiscal Years
Ended September 2, 1995, September 3, 1994, and August 28, 1993.
Consolidated Statements of Cash Flows for the Fiscal Years Ended
September 2, 1995, September 3, 1994, and August 28, 1993.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fiscal year ended September
2, 1995.
(c) Exhibits
3.1 Articles of Incorporation of the Registrant (as amended through June
21, 1994) (incorporated by reference to Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 3, 1994, File No. 0-10815).
3.2 Bylaws of the Registrant (as amended through June 21, 1994)
(incorporated by reference to Exhibit 4.2 to Post-Effective Amendment
No. 6 to Form S-2 Registration Statement of the Registrant filed on
December 15, 1994, File No. 33-38152).
4.1 Retail Grocer Application and Agreement for Continuing Service
Affiliation With Certified Grocers of California, LTD. And Pledge
Agreement (incorporated by reference to Exhibit 4.7 to Amendment No. 2
to Form S-1 Registration Statement of the Registrant filed on December
31, 1981, File No. 2-70069).
4.2 Retail Grocer Application And Agreement For Service Affiliation With
And The Purchase Of Shares Of Certified Grocers Of California, LTD.
And Pledge Agreement (incorporated by reference to Exhibit 4.2 to
Post-Effective Amendment No. 7 to Form S-2 Registration Statement of
the Registrant filed on December 13, 1989, File No. 33-19284).
4.3 Agreement respecting directors' shares (incorporated by reference to
Exhibit 4.9 to Amendment No. 2 to Form S-1 Registration Statement of
the Registrant filed on December 31, 1981, File No. 2-70069).
4.4 Subordination Agreement (Existing Member-Patron) (incorporated by
reference to Exhibit 4.4 to Post-Effective Amendment No. 4 to Form S-2
Registration Statement of the Registrant filed on July 15, 1988, File
No. 33-19284).
4.5 Subordination Agreement (Existing Associate Patron) (incorporated by
reference to Exhibit 4.5 to Post-Effective Amendment No. 4 to Form S-2
Registration Statement of the Registrant filed on July 15, 1988, File
No. 33-19284).
4.6 Subordination Agreement (New Member-Patron) (incorporated by reference
to Exhibit 4.6 to Post-Effective Amendment No. 4 to Form S-2
Registration Statement of the Registrant filed on July 15, 1988, File
No. 33-19284).
4.7 Subordination Agreement (New Associate Patron) (incorporated by
reference to Exhibit 4.7 to Post-Effective Amendment No. 4 to Form S-2
Registration Statement of the Registrant filed on July 15, 1988, File
No. 33-19284).
53
4.8 Form of Class A Share Certificate (incorporated by reference to
Exhibit 4.5 to Post-Effective Amendment No. 6 to Form S-2 Registration
Statement of the Registrant filed on December 15, 1994, File No.
33-38152).
4.9 Form of Class B Share Certificate (incorporated by reference to
Exhibit 4.6 to Post-Effective Amendment No. 6 to Form S-2 Registration
Statement of the Registrant filed on December 15, 1994, File No.
33-38152).
4.10.1 Articles FIFTH and SIXTH of the Registrant's Articles of Incorporation
(See Exhibit 3.1).
4.10.2 Article I, Section 5, and Article VII of the Registrant's Bylaws (See
Exhibit 3.2).
4.11 Indenture between the Registrant and First Interstate Bank of
California, as Trustee, relating to $3,000,000 Subordinated Patronage
Dividend Certificates Due December 15, 2000 (incorporated by reference
to Exhibit 4.3 to Amendment No. 1 to Form S-2 Registration Statement
of the Registrant filed on September 27, 1993, File No. 33-68288).
4.12 Indenture between the Registrant and First Interstate Bank of
California, as Trustee, relating to $5,000,000 Subordinated Patronage
Dividend Certificates due December 15, 2001 (incorporated by reference
to Exhibit 4.3 to Form S-2 Registration Statement of the Registrant
filed on October 12, 1994, File No. 33-56005).
4.13 Indenture between the Registrant and First Interstate Bank of
California, as Trustee, relating to $3,000,000 Subordinated Patronage
Dividend Certificates due December 15, 2002 (incorporated by reference
to Exhibit 4.3 to Form S-2 Registration Statement of the Registrant
filed on October 13, 1995, File No. 33-63383).
4.14 $135,000,000 Amended and Restated Loan and Security Agreement dated as
of March 17, 1994 between Certified Grocers of California, Ltd.,
Grocers General Merchandise Company, Grocers Specialty Company, and BT
Commercial Corporation, as agent, Union Bank, as co-agent, and First
National Bank of Boston as co-agent; and Amendment Number One dated as
of November 1, 1994 (incorporated by reference to Exhibit 4.13 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 3, 1994, File No. 0-10815).
4.14.1 Amendment Number Two to Amended and Restated Loan and Security
Agreement date as of December 3, 1994, between Certified Grocers of
California, Ltd., Grocers General Merchandise Company, Grocers
Specialty Company, and BT Commercial Corporation, as agent, Union
Bank, as co-agent, and First National Bank of Boston, as co-agent.
4.15 $25,000,000 Credit Agreement Dated as of April 25, 1994, between
Grocers Capital Company and BT Commercial Corporation and National
Cooperative Bank as co-agents; and Amendment Number One Dated as of
August 12, 1994 (incorporated by reference to Exhibit 4.14 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 3, 1994, File No. 0-10815).
4.16 Subordinated Note Agreement dated March 27, 1989 between Certified
Grocers of California, Ltd. and Aetna Life Insurance Company regarding
$35,000,000 10.80% subordinated notes due April 1, 1999; and letter
amendment dated January 30, 1992 (incorporated by reference to Exhibit
4.15 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended August 28, 1993 filed on November 26, 1993, File No.
0-10815).
4.16.1 Amendment to Subordinated Note Agreement dated as of March 17, 1994
between Certified Grocers of California, Ltd. and Aetna Life Insurance
Company (incorporated by reference to Exhibit 4.15.1 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 3, 1994, File No. 0-10815).
4.17 Note Purchase Agreement dated January 15, 1990 between Certified
Grocers of California, Ltd. and Massachusetts Mutual Life Insurance
Company regarding $20,000,000 9.55% Senior Notes due January 15, 2005;
and Amendment Dated January 30, 1991, First Amendment
54
dated September 4, 1991, and Amendment No. 2 dated October 19, 1993
(incorporated by reference to Exhibit 4.16 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended August 28, 1993 filed on
November 26, 1993, File No. 0-10815).
4.17.1 Amendment No. 3 to Note Purchase Agreement dated as of March 17, 1994,
and Amendment No. 4 to Note Purchase Agreement dated as of September
29, 1994, each between Certified Grocers of California, Ltd. and
Massachusetts Mutual Life Insurance Company (incorporated by reference
to Exhibit 4.16.1 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended September 3, 1994, File No. 0-10815).
4.18 $18,700,000 Loan Agreement dated August 23, 1979 between Certified
Grocers of California, Ltd., First Interstate Bank of California, as
Trustee, and the other Lenders named therein; Secured Promissory Notes
dated August 23, 1979; Deed of Trust and Assignment of Rents dated
August 23, 1979; and, Assignment of Rents and Leases dated August 23,
1979 (incorporated by reference to Exhibit 4.17 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended August 28, 1993
filed on November 26, 1993, File No. 0-10815).
10.1 Comprehensive Amendment to Retirement Plan for Employees of Certified
Grocers of California, Ltd. (incorporated by reference to Exhibit 10.1
to Form S-2 Registration Statement of the Registrant filed on October
12, 1994, File No. 33-56005).
10.2 Incentive Compensation Plan (incorporated by reference to Exhibit 10.2
of the Form S-2 Registration Statement of the Registrant filed on
December 28, 1987, File No. 33-19284).
10.3 Comprehensive Amendment to Certified Grocers of California, Ltd.
Employees' Sheltered Savings Plan (incorporated by reference to
Exhibit 10.3 to the Form S-2 Registration Statement of the Registrant
filed on September 2, 1993, File No. 33-68288).
10.4 Certified Grocers of California, Ltd., Executive Salary Protection
Plan II ("ESPP II"), Master Plan Document, effective January 4, 1995.
10.5 Master Trust Agreement For Certified Grocers of California, Ltd.
Executive Salary Protection Plan II, dated as of April 28, 1995.
10.6 Certified Grocers of California, Ltd. Executive Insurance Plan
Split-dollar Agreement and Schedule of Executive Officers party
thereto.
10.7 Comprehensive Amendment to Certified Grocers of California, Ltd.
Employees' Excess Benefit Plan (incorporated by reference to Exhibit
10.6.1 to Form S-2 Registration Statement of the Registrant filed on
October 12, 1994, File No. 33-56005).
10.8 Comprehensive Amendment to Certified Grocers of California, Ltd.
Employees' Supplemental Deferred Compensation Plan (incorporated by
reference to Exhibit 10.5.3 to Form S-2 Registration Statement of the
Registrant filed on December 10, 1990, File No. 33-38152).
10.9 Comprehensive Amendment to Certified Grocers of California, Ltd.
Employee Savings Plan (incorporated by reference to Exhibit 10.4 to
Form S-2 Registration Statement of the Registrant filed on September
2, 1993, File No. 33-68288).
10.9.1 First Amendment to Certified Grocers of California, Ltd. Employee
Savings Plan (incorporated by reference to Exhibit 10.4.1 to Form S-2
Registration Statement of the Registrant filed on October 12, 1994,
File No 33-56005).
10.10 Joint Venture Agreement of Golden Alliance Distribution, dated as of
April 8, 1992, between Food 4 Less GM, Inc. and Grocers General
Merchandise Company (incorporated by reference to Exhibit 10.7 to Form
S-2 Registration Statement of the Registrant filed on September 2,
1993. File No. 33-68288.
10.11 Lease, dated as of December 23, 1986, between Cercor Associates and
Grocers Specialty Company (incorporated by reference to Exhibit 10.8
to Form S-2 Registration Statement of the Registrant filed on
September 2, 1993. File No. 33-68288).
55
10.12 Expansion Agreement, dated as of May 1, 1991, and Industrial Lease,
dated as of May 1, 1991, between Dermody Properties and the Registrant
(incorporated by reference to Exhibit 10.9 to Form S-2 Registration
Statement of the Registrant filed on September 2, 1993. File No.
33-68288).
10.12.1 Lease Amendment, dated June 20, 1991, between Dermody Properties and
the Registrant (incorporated by reference to Exhibit 10.9.1 to Form
S-2 Registration Statement of the Registrant filed on September 2,
1993. File No. 33-68288).
10.12.2 Lease Amendment, dated October 18, 1991, between Dermody Properties
and the Registrant (incorporated by reference to Exhibit 10.9.2 to
Form S-2 Registration Statement of the Registrant filed on September
2, 1993. File No. 33-68288).
10.13 Preferred Stock Purchase Agreement by and between Food-4-Less of
Modesto, Inc. and Grocers Capital Company, dated as of July 1, 1992
(incorporated by reference to Exhibit 10.10 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended August 28, 1993 filed on
November 26, 1993, File No. 0-10815).
10.14 Preferred Stock Purchase Agreement by and between SavMax Foods, Inc.
and Grocers Capital Company, dated as of December 17, 1993
(incorporated by reference to Exhibit 10.11 to Post-Effective
Amendment No. 6 to Form S-2 Registration Statement of the Registrant
filed on December 15, 1994, File No. 33-38152).
10.15 Common Stock Purchase Agreement by and between Michale A. Webb and
Grocers Capital Company, dated as of December 17, 1993 (incorporated
by reference to Exhibit 10.12 to Post-Effective Amendment No. 6 to
Form S-2 Registration Statement of the Registrant filed on December
15, 1994, File No. 33-38152).
10.16 Agreement Regarding Common Stock by and between Michale A. Webb,
SavMax Foods, Inc. and Grocers Capital Company, dated as of December
17, 1993 (incorporated by reference to Exhibit 10.13 to Post-Effective
Amendment No. 6 to Form S-2 Registration Statement of the Registrant
filed on December 15, 1994, File No. 33-38152).
10.17 Commercial Lease-Net dated December 6, 1994 between TriNet Essential
Facilities XII and the Registrant.
10.18 Purchase Agreement dated November 21, 1994 between the Registrant and
TriNet Corporate Realty Trust, Inc.
22.1 Subsidiaries of the Registrant.
27. Financial Data Schedule.
(d) Financial Statement Schedules
All required schedule information is presented in the financial
statements or notes thereto. Other schedule information is either not
applicable or not material.
56
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------- ----------------------
/s/ WILLARD R. MACALONEY
------------------------------------------- Director November 30, 1995
Willard R. MacAloney
(Chairman of the Board)
/s/ MICHAEL A. WEBB
------------------------------------------- Director November 30, 1995
Michael A. Webb
(1st Vice Chairman)
/s/ DARIOUSH KHALEDI
------------------------------------------- Director November 30, 1995
Darioush Khaledi
(2nd Vice Chairman)
/s/ LOUIS A. AMEN
------------------------------------------- Director November 30, 1995
Louis A. Amen
/s/ JOHN BERBERIAN
------------------------------------------- Director November 30, 1995
John Berberian
------------------------------------------- Director
Gene Fulton
/s/ LYLE A. HUGHES
------------------------------------------- Director November 30, 1995
Lyle A. Hughes
/s/ ROGER K. HUGHES
------------------------------------------- Director November 30, 1995
Roger K. Hughes
/s/ MARK KIDD
------------------------------------------- Director November 30, 1995
Mark Kidd
/s/ JAY MCCORMACK
------------------------------------------- Director November 30, 1995
Jay McCormack
------------------------------------------- Director
Morrie Notrica
------------------------------------------- Director
Michael A. Provenzano
/s/ ALLAN SCHARN
------------------------------------------- Director November 30, 1995
Allan Scharn
57
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------- ----------------------
/s/ JAMES R. STUMP
------------------------------------------- Director November 30, 1995
James R. Stump
------------------------------------------- Director
Kenneth Young
58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By /s/ ALFRED A. PLAMANN
------------------------------------
Alfred A. Plamann
President and
Chief Executive Officer
By /s/ DANIEL T. BANE
------------------------------------
Daniel T. Bane
Senior Vice President and
Chief Financial Officer
By /s/ RANDALL G. SCOVILLE
------------------------------------
Randall G. Scoville
Corporate Controller
Date: December 1, 1995
59
EXHIBIT INDEX
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------ ---------------------------------------------------------------------- ----------
3.1 Articles of Incorporation of the Registrant (as amended through June
21, 1994) (incorporated by reference to Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 3, 1994, File No. 0-10815).
3.2 Bylaws of the Registrant (as amended through June 21, 1994)
(incorporated by reference to Exhibit 4.2 to Post-Effective Amendment
No. 6 to Form S-2 Registration Statement of the Registrant filed on
December 15, 1994, File No. 33-38152).
4.1 Retail Grocer Application and Agreement for Continuing Service
Affiliation With Certified Grocers of California, LTD. And Pledge
Agreement (incorporated by reference to Exhibit 4.7 to Amendment No. 2
to Form S-1 Registration Statement of the Registrant filed on December
31, 1981, File No. 2-70069).
4.2 Retail Grocer Application And Agreement For Service Affiliation With
And The Purchase Of Shares Of Certified Grocers Of California, LTD.
And Pledge Agreement (incorporated by reference to Exhibit 4.2 to
Post-Effective Amendment No. 7 to Form S-2 Registration Statement of
the Registrant filed on December 13, 1989, File No. 33-19284).
4.3 Agreement respecting directors' shares (incorporated by reference to
Exhibit 4.9 to Amendment No. 2 to Form S-1 Registration Statement of
the Registrant filed on December 31, 1981, File No. 2-70069).
4.4 Subordination Agreement (Existing Member-Patron) (incorporated by
reference to Exhibit 4.4 to Post-Effective Amendment No. 4 to Form S-2
Registration Statement of the Registrant filed on July 15, 1988, File
No. 33-19284).
4.5 Subordination Agreement (Existing Associate Patron) (incorporated by
reference to Exhibit 4.5 to Post-Effective Amendment No. 4 to Form S-2
Registration Statement of the Registrant filed on July 15, 1988, File
No. 33-19284).
4.6 Subordination Agreement (New Member-Patron) (incorporated by reference
to Exhibit 4.6 to Post-Effective Amendment No. 4 to Form S-2
Registration Statement of the Registrant filed on July 15, 1988, File
No. 33-19284).
4.7 Subordination Agreement (New Associate Patron) (incorporated by
reference to Exhibit 4.7 to Post-Effective Amendment No. 4 to Form S-2
Registration Statement of the Registrant filed on July 15, 1988, File
No. 33-19284).
4.8 Form of Class A Share Certificate (incorporated by reference to
Exhibit 4.5 to Post-Effective Amendment No. 6 to Form S-2 Registration
Statement of the Registrant filed on December 15, 1994, File No.
33-38152).
4.9 Form of Class B Share Certificate (incorporated by reference to
Exhibit 4.6 to Post-Effective Amendment No. 6 to Form S-2 Registration
Statement of the Registrant filed on December 15, 1994, File No.
33-38152).
4.10.1 Articles FIFTH and SIXTH of the Registrant's Articles of Incorporation
(See Exhibit 3.1).
4.10.2 Article I, Section 5, and Article VII of the Registrant's Bylaws (See
Exhibit 3.2).
4.11 Indenture between the Registrant and First Interstate Bank of
California, as Trustee, relating to $3,000,000 Subordinated Patronage
Dividend Certificates Due December 15, 2000 (incorporated by reference
to Exhibit 4.3 to Amendment No. 1 to Form S-2 Registration Statement
of the Registrant filed on September 27, 1993, File No. 33-68288).
4.12 Indenture between the Registrant and First Interstate Bank of
California, as Trustee, relating to $5,000,000 Subordinated Patronage
Dividend Certificates due December 15, 2001 (incorporated by reference
to Exhibit 4.3 to Form S-2 Registration Statement of the Registrant
filed on October 12, 1994, File No. 33-56005).
EXHIBIT SEQUENTIAL
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4.13 Indenture between the Registrant and First Interstate Bank of
California, as Trustee, relating to $3,000,000 Subordinated Patronage
Dividend Certificates due December 15, 2002 (incorporated by reference
to Exhibit 4.3 to Form S-2 Registration Statement of the Registrant
filed on October 13, 1995, File No. 33-63383).
4.14 $135,000,000 Amended and Restated Loan and Security Agreement dated as
of March 17, 1994 between Certified Grocers of California, Ltd.,
Grocers General Merchandise Company, Grocers Specialty Company, and BT
Commercial Corporation, as agent, Union Bank, as co-agent, and First
National Bank of Boston as co-agent; and Amendment Number One dated as
of November 1, 1994 (incorporated by reference to Exhibit 4.13 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 3, 1994, File No. 0-10815).
4.14.1 Amendment Number Two to Amended and Restated Loan and Security Agree-
ment date as of December 3, 1994, between Certified Grocers of
California, Ltd., Grocers General Merchandise Company, Grocers
Specialty Company, and BT Commercial Corporation, as agent, Union
Bank, as co-agent, and First National Bank of Boston, as co-agent.
4.15 $25,000,000 Credit Agreement Dated as of April 25, 1994, between
Grocers Capital Company and BT Commercial Corporation and National
Cooperative Bank as co-agents; and Amendment Number One Dated as of
August 12, 1994 (incorporated by reference to Exhibit 4.14 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 3, 1994, File No. 0-10815).
4.16 Subordinated Note Agreement dated March 27, 1989 between Certified
Grocers of California, Ltd. and Aetna Life Insurance Company regarding
$35,000,000 10.80% subordinated notes due April 1, 1999; and letter
amendment dated January 30, 1992 (incorporated by reference to Exhibit
4.15 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended August 28, 1993 filed on November 26, 1993, File No.
0-10815).
4.16.1 Amendment to Subordinated Note Agreement dated as of March 17, 1994
between Certified Grocers of California, Ltd. and Aetna Life Insurance
Company (incorporated by reference to Exhibit 4.15.1 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 3, 1994, File No. 0-10815).
4.17 Note Purchase Agreement dated January 15, 1990 between Certified
Grocers of California, Ltd. and Massachusetts Mutual Life Insurance
Company regarding $20,000,000 9.55% Senior Notes due January 15, 2005;
and Amendment Dated January 30, 1991, First Amendment dated September
4, 1991, and Amendment No. 2 dated October 19, 1993 (incorporated by
reference to Exhibit 4.16 to the Registrant's Annual Report on Form
10-K for the fiscal year ended August 28, 1993 filed on November 26,
1993, File No. 0-10815).
4.17.1 Amendment No. 3 to Note Purchase Agreement dated as of March 17, 1994,
and Amendment No. 4 to Note Purchase Agreement dated as of September
29, 1994, each between Certified Grocers of California, Ltd. and
Massachusetts Mutual Life Insurance Company (incorporated by reference
to Exhibit 4.16.1 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended September 3, 1994, File No. 0-10815).
4.18 $18,700,000 Loan Agreement dated August 23, 1979 between Certified
Grocers of California, Ltd., First Interstate Bank of California, as
Trustee, and the other Lenders named therein; Secured Promissory Notes
dated August 23, 1979; Deed of Trust and Assignment of Rents dated
August 23, 1979; and, Assignment of Rents and Leases dated August 23,
1979 (incorporated by reference to Exhibit 4.17 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended August 28, 1993
filed on November 26, 1993, File No. 0-10815).
EXHIBIT SEQUENTIAL
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10.1 Comprehensive Amendment to Retirement Plan for Employees of Certified
Grocers of California, Ltd. (incorporated by reference to Exhibit 10.1
to Form S-2 Registration Statement of the Registrant filed on October
12, 1994, File No. 33-56005).
10.2 Incentive Compensation Plan (incorporated by reference to Exhibit 10.2
of the Form S-2 Registration Statement of the Registrant filed on
December 28, 1987, File No. 33-19284).
10.3 Comprehensive Amendment to Certified Grocers of California, Ltd.
Employees' Sheltered Savings Plan (incorporated by reference to
Exhibit 10.3 to the Form S-2 Registration Statement of the Registrant
filed on September 2, 1993, File No. 33-68288).
10.4 Certified Grocers of California, Ltd., Executive Salary Protection
Plan II ("ESPP II"), Master Plan Document, effective January 4, 1995.
10.5 Master Trust Agreement For Certified Grocers of California, Ltd.
Executive Salary Protection Plan II, dated as of April 28, 1995.
10.6 Certified Grocers of California, Ltd. Executive Insurance Plan
Split-dollar Agreement and Schedule of Executive Officers party
thereto.
10.7 Comprehensive Amendment to Certified Grocers of California, Ltd.
Employees' Excess Benefit Plan (incorporated by reference to Exhibit
10.6.1 to Form S-2 Registration Statement of the Registrant filed on
October 12, 1994, File No. 33-56005).
10.8 Comprehensive Amendment to Certified Grocers of California, Ltd.
Employees' Supplemental Deferred Compensation Plan (incorporated by
reference to Exhibit 10.5.3 to Form S-2 Registration Statement of the
Registrant filed on December 10, 1990, File No. 33-38152).
10.9 Comprehensive Amendment to Certified Grocers of California, Ltd.
Employee Savings Plan (incorporated by reference to Exhibit 10.4 to
Form S-2 Registration Statement of the Registrant filed on September
2, 1993, File No. 33-68288).
10.9.1 First Amendment to Certified Grocers of California, Ltd. Employee
Savings Plan (incorporated by reference to Exhibit 10.4.1 to Form S-2
Registration Statement of the Registrant filed on October 12, 1994,
File No 33-56005).
10.10 Joint Venture Agreement of Golden Alliance Distribution, dated as of
April 8, 1992, between Food 4 Less GM, Inc. and Grocers General
Merchandise Company (incorporated by reference to Exhibit 10.7 to Form
S-2 Registration Statement of the Registrant filed on September 2,
1993. File No. 33-68288.
10.11 Lease, dated as of December 23, 1986, between Cercor Associates and
Grocers Specialty Company (incorporated by reference to Exhibit 10.8
to Form S-2 Registration Statement of the Registrant filed on
September 2, 1993. File No. 33-68288).
10.12 Expansion Agreement, dated as of May 1, 1991, and Industrial Lease,
dated as of May 1, 1991, between Dermody Properties and the Registrant
(incorporated by reference to Exhibit 10.9 to Form S-2 Registration
Statement of the Registrant filed on September 2, 1993. File No.
33-68288).
10.12.1 Lease Amendment, dated June 20, 1991, between Dermody Properties and
the Registrant (incorporated by reference to Exhibit 10.9.1 to Form
S-2 Registration Statement of the Registrant filed on September 2,
1993. File No. 33-68288).
10.12.2 Lease Amendment, dated October 18, 1991, between Dermody Properties
and the Registrant (incorporated by reference to Exhibit 10.9.2 to
Form S-2 Registration Statement of the Registrant filed on September
2, 1993. File No. 33-68288).
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
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10.13 Preferred Stock Purchase Agreement by and between Food-4-Less of
Modesto, Inc. and Grocers Capital Company, dated as of July 1, 1992
(incorporated by reference to Exhibit 10.10 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended August 28, 1993 filed on
November 26, 1993, File No. 0-10815).
10.14 Preferred Stock Purchase Agreement by and between SavMax Foods, Inc.
and Grocers Capital Company, dated as of December 17, 1993
(incorporated by reference to Exhibit 10.11 to Post-Effective
Amendment No. 6 to Form S-2 Registration Statement of the Registrant
filed on December 15, 1994, File No. 33-38152).
10.15 Common Stock Purchase Agreement by and between Michale A. Webb and
Grocers Capital Company, dated as of December 17, 1993 (incorporated
by reference to Exhibit 10.12 to Post-Effective Amendment No. 6 to
Form S-2 Registration Statement of the Registrant filed on December
15, 1994, File No. 33-38152).
10.16 Agreement Regarding Common Stock by and between Michale A. Webb,
SavMax Foods, Inc. and Grocers Capital Company, dated as of December
17, 1993 (incorporated by reference to Exhibit 10.13 to Post-Effective
Amendment No. 6 to Form S-2 Registration Statement of the Registrant
filed on December 15, 1994, File No. 33-38152).
10.17 Commercial Lease-Net dated December 6, 1994 between TriNet Essential
Facilities XII and the Registrant.
10.18 Purchase Agreement dated November 21, 1994 between the Registrant and
TriNet Corporate Realty Trust, Inc.
22.1 Subsidiaries of the Registrant.
27. Financial Data Schedule.