<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
(Amendment No. 1)
<TABLE>
<S> <C>
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 3, 1994
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
</TABLE>
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CERTIFIED GROCERS OF CALIFORNIA, LTD.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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)
</TABLE>
Registrant's telephone number, including area code: (213) 723-7476
------------------------------
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. / /
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, or the 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 issued only to, and may be held only by, its member-patrons, and such shares
are subject to repurchase or redemption by the Company upon termination of
membership of a member-patron. Thus, there is no market nor market value for the
Company's shares. The Company's voting stock is issued at a price which is equal
to the book value per share of outstanding shares at the close of the fiscal
year last ended prior to sale. As of the close of business on December 2, 1994,
the aggregate value of the Company's voting stock held by nonaffiliates
(member-patrons) was $71,241,828 based upon the book value of such stock as of
the close of the fiscal year ended September 3, 1994.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes ____. No ____.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
<TABLE>
<S> <C>
Class A 48,700 shares as of December 2, 1994
Class B 388,286 shares as of December 2, 1994
Class C 17 shares as of December 2, 1994
</TABLE>
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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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Fiscal 1994 was characterized by significant restructuring of Certified's
leadership, business processes and operational cost structures. During fiscal
1994, Alfred Plamann was elected President and Chief Executive Officer of
Certified. Utilizing his perspective gained from experiences as the Company's
Chief Financial Officer, Mr. Plamann led the Company toward a significant
restructuring of Company operations and business processes to more precisely
meet the changing environment in which Certified operates and more closely align
the Company with its customers. As part of this restructuring, the Company
developed a new delivery system which relies on sophisticated computer assisted
routing of Company deliveries to maximize efficiencies and more precisely meet
customer demands. Similarly, the Company streamlined the operations of its
specialty products subsidiary, Grocers Specialty Company, by combining its
warehousing and distribution functions with the Company's highly efficient
grocery division.
During the year, the Company reduced other costs and eliminated unnecessary
business processes. Headcount decreased from approximately 2,900 to 2,600 or 10%
and formal programs reduced workplace accidents and helped hold down medical
costs. 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.
<PAGE>
The management reactions discussed above were enacted in response to the
difficult business environment in California. The Company's customers,
independent grocery retailers, have been challenged by this environment as well
as increased competition from aggresive major chains. The overall reaction has
been a squeeze on prices necessary to attract customers at retail level. This
reaction has been transferred to Certified in terms of its customers' demands
that products be delivered at very low cost.
More specifically, Certified has been adversely impacted by the volatile
nature of this grocery environment due to mergers of its customers into chain
businesses and other customers developing alternative distribution patterns to
attempt to obtain product at lower costs. While some of the sales losses are a
product of the evolutionary development of a maturing customer base, Company
management believes the newly enacted cost controls will enable Certified to
continue to be the low cost provider of products and services required by the
independent grocer. Such cost structure should eliminate further erosion of the
sales as experienced over the past few years.
In fiscal 1991 and 1992, the Company experienced a number of factors which
negatively impacted volume and profitability. In 1991, the Company began to
experience a reduction in purchases by certain large retailers who commenced
self-distribution programs or were acquired by chains already engaged in self-
distribution. In addition, in both 1991 and 1992, a deterioration in economic
conditions and changing vendor promotional practices reduced opportunities to
profit from forward buying. The relocation in 1991 of GM to Fresno, California
resulted in a $4.4 million net loss to that subsidiary for that year, while
increases in workers' compensation insurance reserves were a major contributor
to subsidiary losses in 1992.
While volume losses continued to impact the Company in fiscal 1993 and 1994,
management has taken a number of steps in fiscal 1994 designed to restructure
the Company's operations to reflect the changes in its business as discussed
above. In addition, fiscal 1993 included such changes as fee and price increases
in both Certified's cooperative business and in the businesses conducted by its
subsidiaries, disposition of certain unprofitable operations, and formation of a
joint venture to utilize excess warehouse capacity. As a result, fiscal 1993 net
earnings, as compared to fiscal 1992, increased $4.1 million on a sales decline
of $370.5 million.
In addition to improvements in its operations, the Company adopted during
fiscal 1993 a patronage dividend retention program to enable the Company to
strengthen its capitalization. Prior to fiscal 1993, the Company distributed to
its patrons, in cash, all of its net earnings from patronage sources after
patrons' required deposits and required stockholding. In fiscal 1993, the
Company's Board of Directors authorized a program to issue patronage dividend
certificates in lieu of a portion of cash distributions. The Company intends
this program to be long-term, with the amount and interest rate of such
certificates to be reviewed each year. Certificates for each year will be
unsecured general obligations of the Company and will be subordinated to certain
other indebtedness of the Company. The Board of Directors determined that, in
fiscal 1993, 20% of the fourth quarter patronage dividend from dairy products
and 40% of the fiscal year's patronage dividend from non-dairy products would be
distributed in seven-year patronage dividend certificates bearing interest at 7%
per annum. The Board of Directors approved the patronage dividend retention
program for fiscal year 1994. The retention will be 20% of the quarterly dairy
patronage dividends and 40% of the fiscal year's dividend for non-dairy products
and will have a maturity date of December 15, 2001 and carry an 8% annual
interest rate, payable in cash. The Company expects to continue to distribute
patronage dividends in the future, although there can be no assurance of the
amounts of such dividends.
As a result of differences arising in recording certain items for financial
statement and tax purposes on the Company's nonpatronage activities, the Company
has recognized net benefits related to these deferred tax assets of $5.6
million. Based on sufficient projected earnings and tax planning strategies, the
Company expects to realize tax benefits associated with these differences. The
Company has also established a valuation reserve of $1.4 million for the
likelihood that a portion of the tax assets will not be realized.
The Company, together with others, has been designated as a potentially
responsible party ("PRP") by the Environmental Protection Agency ("EPA") with
respect to the clean up of hazardous waste at Operating Industries, Inc.
Superfund Site ("OII Site") in Monterey Park, California. The Company has been
identified as disposing hazardous waste at the OII site during a period in the
1970's and early 1980's as was common
<PAGE>
and acceptable practice at that time. 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 government laws. Clean up of this site
will occur in five phases and could entail estimated total clean up costs of
$650 million to $800 million. However, the Company's share of clean up costs for
the first three phases has been established at approximately $380,000. While the
Company's share of the cost for the remaining two phases has not yet been
established, based upon overall estimates of the range of potential cost, the
Company believes that its share for those phases will not exceed approximately
$1.1 million. An initial reserve of $0.4 million was established in fiscal 1993
and an additional reserve of $1.1 million added for fiscal 1994, providing an
accumulated reserve for environmental liabilities of $1.5 million as of
September 3, 1994. Because of the uncertainties associated with environmental
assessment and remediation activities, the Company's 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.
The Company, subsequent to its year-end, completed a sale leaseback
transaction with Trinet Corporate Realty Trust, Inc. ("Trinet"), an unaffiliated
third party, wherein it sold approximately 5.5 acres of real property in the
City of Commerce, together with all buildings, structures and improvements
located on such real property, including an office building containing
approximately 100,000 square feet and a cafeteria building containing
approximately 8,000 square feet. 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.
In an effort to assist existing customers to better compete in the
marketplace and develop new formats that fit the ever changing retail
environment, the Company, where appropriate, takes an equity position rather
than debt with certain member-patrons. In September 1992, the Company invested
approximately $1.5 million in common and preferred stock of Major Market Inc.
("MMI"). The Company is finalizing a divestiture agreement with MMI whereby MMI
will repurchase the Company's stock for a consideration aggregating $2.7 million
and the Company will realize a $603,000 pre-tax gain. After completion of the
transaction, the Company will retain a minority ownership interest of 20%.
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:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------
SEPTEMBER 3, AUGUST 28, AUGUST 29,
1994 1993 1992
-------------- ------------ ------------
<S> <C> <C> <C>
Net sales................................................................... 100.0% 100.0 % 100.0 %
Cost of sales............................................................... 90.6 90.8 91.9
Distribution, selling and administrative.................................... 8.0 7.7 7.0
Operating income............................................................ 1.4 1.5 1.1
Interest expense............................................................ 0.8 0.8 0.7
Other expense, net.......................................................... 0.1 0.0 0.0
Earnings before patronage dividends and provision (benefit) for income
taxes...................................................................... 0.5 0.7 0.4
Patronage dividends......................................................... 0.6 0.7 0.6
Cumulative effect of accounting change...................................... 0.1 -- --
Net earnings (loss)......................................................... 0.0 0.0 (0.2 )
</TABLE>
<PAGE>
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 the previously noted decision
of certain large patrons to expand 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 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.
FISCAL YEAR ENDED AUGUST 28, 1993 ("FISCAL 1993") COMPARED TO FISCAL YEAR ENDED
AUGUST 29, 1992 ("FISCAL 1992")
NET SALES. Net sales decreased 15.6% to $2 billion in fiscal 1993 primarily
as a result of the loss of certain large member-patrons. Certain member-patrons
were acquired by other larger retailers operating their own distribution
facilities, while certain other large member-patrons either acquired or expanded
their own warehousing and distribution operations. In addition, the lingering
effects of the 1992 Los Angeles civil unrest and the stagnant California economy
contributed to lower sales. Although some further loss of sales volume from
these factors occurred in fiscal 1994, management is aggressively attempting to
replace lost sales volume by adding new customers and expanding the volume of
sales to existing customers.
<PAGE>
COST OF SALES. Cost of sales as a percentage of sales decreased from 91.9%
in the 1992 period to 90.8% in the 1993 period. This decrease is primarily due
to fee and price increases for fiscal 1993 of lower volume discounts.
DISTRIBUTION, SELLING AND ADMINISTRATIVE. Distribution, selling and
administrative expenses were $153.7 million or 7.7% of net sales in fiscal 1993,
as compared to $166.7 million or 7.0% of net sales in fiscal 1992. While cost
reductions did not keep pace with volume reductions primarily because of the
relationship of fixed and semifixed costs on lower sales, the decrease in total
expense was primarily due to the reduction of payroll costs (approximately $14.2
million) and the implementation of cost reduction efforts, offset, in part, by
increased workers' compensation, property tax and insurance expenses.
OPERATING INCOME. Operating income increased to $30 million for fiscal
1993, compared to $26.4 million for fiscal 1992. The increase in operating
income was primarily the result of fee and price increases coupled with the cost
reduction program.
INTEREST. Interest expense decreased by $1.5 million, to $15.8 million in
fiscal 1993 from $17.3 million in fiscal 1992, as a result of reduced working
capital requirements related to the volume changes coupled with lower prevailing
interest rates.
NET EARNINGS. Net earnings for fiscal 1993 were $473,000 as compared to a
net loss of $3.6 million in fiscal 1992. Fee and price increases, significant
cost and expense reductions, and the absence in the 1993 period of start-up and
restructuring costs incurred in fiscal 1992 in the subsidiary operations were
the primary reasons for the earnings improvement.
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 $18.2 million for fiscal 1994 as compared to $38.2 million for fiscal
1993. 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 1994, working capital was $96.8
million and the current ratio was 1.6 to 1, down from 1.74 to 1 at the fiscal
1993 year end. Working capital varies throughout the year primarily as a result
of seasonal inventory requirements.
Capital expenditures totalled $5.9 million in fiscal 1994 and $8.9 million
in fiscal 1993.
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 1994, the
Company had $160 million in committed lines of credit, of which $82.6 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 Grocers Capital Company ("GCC"). The agreement
provides for Eurodollar basis or prime basis borrowings at the Company's option.
As of September 3, 1994, the Company's outstanding borrowings, including
obligations under capital leases of approximately $7.8 million, amounted to
$152.6 million, of which $149.7 million was classified as noncurrent.
Certified distributes at least 20% of the patronage dividends in cash and
distributes Class B Shares as a portion of the patronage dividends distributed
to its member-patrons. 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
<PAGE>
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.
For fiscal 1993, 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 and 40% of the fiscal year's dividend for
non-dairy products. However, as to any particular patron, if such amount was
less than $500, then no retention occurred and a Patronage Certificate was not
issued. Patronage Certificates issued for fiscal year 1993 have a seven year
term, maturing on December 15, 2000, and carry a 7% annual interest rate,
payable in cash. The Board of Directors approved the patronage dividend
retention program for fiscal year 1994. The retention will be 20% of the
quarterly dairy patronage dividends and 40% of the fiscal year's dividend for
non-dairy products and will have a maturity date of December 15, 2001 and carry
an 8% annual interest rate, payable in cash. 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
year to 5% of the number of Class B Shares deemed outstanding at the end of the
preceding fiscal year. In fiscal 1994, this limitation restricted the Company's
redemption of shares to 19,716 shares for $3,223,960. In fiscal 1995, the 5%
limitation will restrict the Company's redemption of shares to 19,414 shares for
$3,165,064. Due to the loss of a number of significant member-patrons, the
number of shares tendered for redemption at September 3, 1994 totalled 90,815
(or approximately $14.8 million, using fiscal 1994 year end book values), which
exceeds the amount that can be redeemed in fiscal 1995. Consequently, the
Company will be required to make redemptions in fiscal 1996, 1997 and 1998, with
such redemptions approximating $9.2 million to $9.5 million based on 1994 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.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
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 will
conform 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). Management
estimates the effect on its results of operations in fiscal 1995 will
approximate $1.5 million which it will accrue in that year as a non-cash
expense.
<PAGE>
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 3, 1994 and August 28, 1993,
and the related consolidated statements of earnings, shareholders' equity, and
cash flows for each of the three fiscal years in the period ended September 3,
1994. 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 3, 1994
and August 28, 1993, and the results of their operations and their cash flows
for each of the three fiscal years in the period ended September 3, 1994, in
conformity with generally accepted accounting principles.
As discussed in Note 7 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1994. In addition, as
discussed in Note 11 to the financial statements, the Company changed its method
of accounting for postretirement benefits other than pensions.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
November 30, 1994
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OMITTED)
SEPTEMBER 3, 1994 AND AUGUST 28, 1993
ASSETS
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Current
Cash and cash equivalents............................................................ $ 7,702 $ 11,411
Accounts and notes receivable........................................................ 96,545 99,973
Inventories.......................................................................... 146,869 148,480
Prepaid expenses..................................................................... 3,810 3,980
---------- ----------
Total current assets........................................................... 254,926 263,844
Properties............................................................................. 86,683 91,884
Investments............................................................................ 20,274 12,604
Notes receivable....................................................................... 23,335 26,055
Other assets........................................................................... 15,878 9,592
---------- ----------
TOTAL ASSETS................................................................. $ 401,096 $ 403,979
---------- ----------
---------- ----------
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current
Accounts payable..................................................................... $ 82,137 $ 84,878
Accrued liabilities.................................................................. 61,428 49,106
Notes payable........................................................................ 2,978 3,132
Patrons' excess deposits and declared patronage dividends............................ 11,541 14,746
---------- ----------
Total current liabilities...................................................... 158,084 151,862
Notes payable, due after one year...................................................... 149,673 158,585
Commitments and contingencies
Patrons' deposits and certificates:
Patrons' required deposits........................................................... 17,589 18,901
Subordinated patronage dividend certificates......................................... 4,444 2,023
Shareholders' equity
Class A Shares....................................................................... 4,704 4,285
Class B Shares ...................................................................... 56,593 57,238
Retained earnings ................................................................... 10,313 11,085
Net unrealized loss on investments................................................... (304)
---------- ----------
Total shareholders' equity..................................................... 71,306 72,608
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................... $ 401,096 $ 403,979
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(THOUSANDS OMITTED)
FOR FISCAL YEARS ENDED SEPTEMBER 3, 1994, AUGUST 28, 1993, AND AUGUST 29, 1992
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
(53 WEEKS) (52 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
Net sales......................................................... $ 1,873,872 $ 2,007,288 $ 2,377,740
Costs and expenses
Cost of sales................................................... 1,698,930 1,823,592 2,184,700
Distribution, selling and administrative........................ 149,303 153,656 166,657
------------ ------------ ------------
Operating income.................................................. 25,639 30,040 26,383
Interest expense.................................................. (15,405) (15,784) (17,253)
Other expense, net................................................ (1,600) (373) (595)
------------ ------------ ------------
Earnings before patronage dividends, provision (benefit) for
income taxes and cumulative effect of accounting change......... 8,634 13,883 8,535
Declared patronage dividends...................................... (10,837) (12,880) (12,977)
------------ ------------ ------------
Earnings (loss) before income tax provision (benefit) and
cumulative effect of accounting change.......................... (2,203) 1,003 (4,442)
Provision (benefit) for income taxes.............................. 203 530 (794)
------------ ------------ ------------
Earnings (loss) before cumulative effect of accounting change..... (2,406) 473 (3,648)
Cumulative effect of accounting change............................ 2,500
------------ ------------ ------------
Net earnings (loss)............................................... $ 94 $ 473 $ (3,648)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
FOR FISCAL YEARS ENDED SEPTEMBER 3, 1994, AUGUST 28, 1993, AND AUGUST 29, 1992
<TABLE>
<CAPTION>
NET
CLASS A CLASS B UNREALIZED
-------------------- -------------------- RETAINED LOSS ON
SHARES AMOUNT SHARES AMOUNT EARNINGS INVESTMENTS
--------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 31, 1991...................... 59,700 $ 5,096 400,764 $ 57,304 $ 16,249 $
Class A Shares issued....................... 200 34
Class A Shares redeemed..................... (6,200) (619) (440)
Class B Shares issued....................... 19,987 3,253
Class B Shares redeemed..................... (20,038) (2,748) (674)
Net loss.................................... (3,648)
--------- --------- --------- --------- ---------
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 investments.......... (304)
--------- --------- --------- --------- --------- -------------
Balance, September 3, 1994.................... 49,100 $ 4,704 388,286 $ 56,593 $ 10,313 $ (304)
--------- --------- --------- --------- --------- -------------
--------- --------- --------- --------- --------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OMITTED)
FOR FISCAL YEARS ENDED SEPTEMBER 3, 1994, AUGUST 28, 1993, AND AUGUST 29, 1992
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
(53 WEEKS) (52 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)..................................................... $ 94 $ 473 $ (3,648)
----------- ----------- -----------
Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities:
Cumulative effect of accounting change.............................. (2,500)
Facility relocation................................................. 520
Depreciation and amortization....................................... 10,680 11,890 11,581
(Gain) loss on disposal of properties............................... (445) 3 51
Accrued postretirement benefit costs................................ 2,509
Accrued environmental liabilities................................... 1,100 400
Accrued sublease liability.......................................... 1,228
Decrease (increase) in assets:
Accounts and notes receivable..................................... 3,428 26,454 (2,611)
Inventories....................................................... 1,611 20,480 23,065
Prepaid expenses.................................................. 170 180 1,386
Notes receivable.................................................. 2,720 (1,277) (2,488)
Increase (decrease) in liabilities:
Accounts payable.................................................. (2,741) (13,940) (19,531)
Accrued liabilities............................................... 3,015 (6,458) 8,265
Patrons' excess deposits and declared patronage dividends......... (3,205) (9,040)
----------- ----------- -----------
Total adjustments .................................................... 18,090 37,732 10,678
----------- ----------- -----------
Net cash provided by operating activities............................... 18,184 38,205 7,030
----------- ----------- -----------
Cash flows from investing activities:
Purchase of properties................................................ (5,921) (8,858) (9,369)
Proceeds from sales of properties..................................... 1,295 1,836 1,408
(Increase) decrease in other assets................................... (244) 43 (99)
Investment in preferred stocks, net................................... (2,552) (4,000)
Investment in long-term bonds, net.................................... (3,102) (2,312) (1,730)
Investment in common stocks........................................... (2,320)
Purchase of intangible assets......................................... (1,540)
----------- ----------- -----------
Net cash utilized by investing activities............................... (12,844) (10,831) (13,790)
----------- ----------- -----------
Cash flows from financing activities:
Additions to long-term notes payable.................................. 331 83,364
Reduction of long-term notes payable.................................. (5,934) (17,360) (61,445)
Additions to short-term notes payable................................. 38
Reduction of short-term notes payable................................. (3,132) (3,905) (15,846)
Decrease in members' required deposits................................ (1,312) (5,664) (222)
Issuance of subordinated patronage dividend certificates.............. 2,421 2,023
Repurchase of shares from members..................................... (4,303) (4,213) (4,481)
Issuance of shares to members......................................... 3,211 2,541 3,287
----------- ----------- -----------
Net cash (utilized) provided by financing activities.................... (9,049) (26,209) 4,657
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents.................... (3,709) 1,165 (2,103)
Cash and cash equivalents at beginning of year ......................... 11,411 10,246 12,349
----------- ----------- -----------
Cash and cash equivalents at end of year................................ $ 7,702 $ 11,411 $ 10,246
----------- ----------- -----------
----------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest.............................................................. $ 15,232 $ 15,499 $ 17,722
Income taxes ......................................................... 70 1,155 129
----------- ----------- -----------
$ 15,302 $ 16,654 $ 17,851
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
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. In accordance with the
Company's various member services, certain directors (or their firms) receive
benefits for which all members are eligible.
The Company's fiscal year ends on the Saturday nearest to August 31.
RECLASSIFICATIONS:
Certain reclassifications have been made to prior years' financial
statements to present them on a basis comparable with the current period'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.
CONCENTRATION OF CREDIT RISK:
The Company is required by Statement of Financial Accounting Standards No.
105, "Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk" ("SFAS No. 105"), to disclose significant concentrations of credit risk.
Financial instruments which potentially expose the Company to concentrations of
credit risk, as defined by SFAS No. 105, 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.
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.
<PAGE>
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 3, 1994 and August 28, 1993, of the Company's financial
instruments reportable pursuant to SFAS No. 107:
<TABLE>
<CAPTION>
1994 1993
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
ESTIMATED ESTIMATED
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
-------------- -------------- -------------- --------------
Assets:
Cash and cash equivalents.......... $ 7,702,000 $ 7,702,000 $ 11,411,000 $ 11,411,000
Investments........................ 20,274,000 20,274,000 12,604,000 12,903,000
Notes receivable................... 23,335,000 23,335,000 26,055,000 26,055,000
Liabilities:
Notes payable and Notes payable,
due after one year................ $ 152,651,000 $ 148,637,000 $ 161,717,000 $ 155,628,000
Patrons' excess deposits and
declared patronage dividends...... 11,541,000 11,541,000 14,746,000 14,746,000
Patrons' required deposits......... 17,589,000 17,589,000 18,901,000 18,901,000
Subordinated patronage dividend
certificates...................... 4,444,000 4,444,000 2,023,000 2,023,000
</TABLE>
The methods and assumptions used to estimate the fair values of the
Company's financial instruments at September 3, 1994 and August 28, 1993 were
based on estimates of market conditions and risks existing at that time. These
values merely 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.
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.
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
1994 is approximately $2.5 million which has been accrued as a non-cash expense.
Management is considering benefit plan changes that will reduce the impact of
SFAS No. 106. Alternatives under consideration include plan redesign for such
items as cost sharing, modification of eligibility requirements, and limitation
of benefit payouts.
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 will conform 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). Management estimates the effect on its results of operations
in fiscal 1995 will approximate $1.5 million which it will accrue in that year
as a noncash expense.
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; prior periods have not been restated. The cumulative effect of this
change in accounting principle increased the Company's 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"); prior periods have not been restated. The
cumulative effect of such adoption amounted to an unrealized loss of $304,000,
net of deferred tax, and has been 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. Investment income is recorded when earned. The market value
of investments was supplied by Bank of America. These market values are
considered fair value.
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.
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The cost of securities sold is determined by the "identified certificate"
method.
2. PROPERTIES:
Properties at September 3, 1994, and August 28, 1993 stated at cost, are
comprised of:
<TABLE>
<CAPTION>
1994 1993
-------------- --------------
<S> <C> <C>
Land................................................................ $ 11,488,000 $ 11,488,000
Buildings and leasehold improvements................................ 71,854,000 70,928,000
Equipment........................................................... 64,637,000 63,388,000
Equipment under capital leases...................................... 10,345,000 11,547,000
-------------- --------------
158,324,000 157,351,000
Less, accumulated depreciation and
amortization...................................................... 71,641,000 65,467,000
-------------- --------------
$ 86,683,000 $ 91,884,000
-------------- --------------
-------------- --------------
</TABLE>
3. INVESTMENTS:
The amortized cost and fair values of investments available-for-sale were as
follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
SEPTEMBER 3, 1994 COSTS GAINS LOSSES VALUE
- ------------------------------------------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Fixed Maturities:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies..... $ 10,102,000 $ 10,000 $ 415,000 $ 9,697,000
Corporate securities........................... 306,000 8,000 298,000
Mortgage backed securities..................... 1,455,000 1,000 49,000 1,407,000
------------- ----------- ----------- -------------
Sub-total.................................... 11,863,000 11,000 472,000 11,402,000
Redeemable preferred stock....................... 6,552,000 6,552,000
Equity securities................................ 2,320,000 2,320,000
------------- ----------- ----------- -------------
$ 20,735,000 $ 11,000 $ 472,000 $ 20,274,000
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
AUGUST 28, 1993 COST GAINS LOSSES VALUE
- ------------------------------------------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Fixed Maturities:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies..... $ 7,530,000 $ 251,000 $ 7,781,000
Corporate securities........................... 597,000 14,000 611,000
Mortgage backed securities..................... 477,000 34,000 511,000
------------- ----------- ----------- -------------
Sub-total.................................... 8,604,000 299,000 8,903,000
Redeemable preferred stock....................... 4,000,000 4,000,000
------------- ----------- ----------- -------------
$ 12,604,000 $ 299,000 $ $ 12,903,000
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fixed maturity investments as of September 3, 1994 are due as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
SEPTEMBER 3, 1994 COST VALUE
- ----------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Fixed Maturities Available for Sale:
Due in one year or less.......................................................... $ 852,000 $ 828,000
Due after one year through five years............................................ 7,292,000 7,042,000
Due after five years through ten years........................................... 2,790,000 2,632,000
Due after ten years.............................................................. 929,000 900,000
------------- -------------
$ 11,863,000 $ 11,402,000
------------- -------------
------------- -------------
</TABLE>
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:
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Fixed Maturities........................................................ $ 1,094,000 $ 1,267,000 $ 1,406,000
Preferred Stock......................................................... 461,000 311,000
Cash and cash equivalents............................................... 95,000 122,000 59,000
------------ ------------ ------------
1,630,000 1,700,000 1,465,000
Less: investment expenses............................................... (110,000) (64,000) (69,000)
------------ ------------ ------------
Net investment income............................................... $ 1,520,000 $ 1,636,000 $ 1,396,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Investments carried at $20,150,000 and $17,940,000 at September 3, 1994 and
August 28, 1993, respectively, (market value $20,150,000 and $18,592,000
respectively) are on deposit with regulatory authorities in compliance with
insurance company regulations.
4. NOTES PAYABLE:
Notes payable at September 3, 1994 and August 28, 1993 are summarized as
follows:
<TABLE>
<CAPTION>
1994 1993
-------------- --------------
<S> <C> <C>
Notes payable to banks under revolving credit agreements, expiring
March 17, 1997, interest rate at prime (7.75% and 6.0% at
September 3, 1994 and August 28, 1993, respectively) plus 1/2% or
Eurodollar (4.81% and 3.37% at September 3, 1994 and August 28,
1993, respectively) plus 1 1/2%................................... $ 59,352,000 $ 64,022,000
Note payable to banks under revolving credit agreements, expiring
March 17, 1997, interest rate at prime (7.75% at September 3,
1994) plus 1/2% or Eurodollar (4.81% at September 3, 1994) plus
1 1/2%............................................................ 18,000,000
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................................................. 35,000,000 35,000,000
</TABLE>
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1994 1993
-------------- --------------
<S> <C> <C>
Senior note payable to a life insurance company, unsecured, 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.................................................... 17,250,000 18,000,000
Note payable to bank under revolving credit agreement, refinanced on
April 25, 1994 interest rate at prime (6% at August 28, 1993) plus
1/2% or LIBOR (3.37% at August 28, 1993) plus 1 1/2%.............. 19,000,000
Notes payable, collateralized by land and warehouses, payable
monthly, approximately $60,000 plus interest at 9.88%, due
February 1, 2006.................................................. 15,211,000 15,889,000
Obligations under capital leases.................................... 7,838,000 9,806,000
-------------- --------------
152,651,000 161,717,000
Less, portion due within one year................................... (2,978,000) (3,132,000)
-------------- --------------
$ 149,673,000 $ 158,585,000
-------------- --------------
-------------- --------------
</TABLE>
Maturities of long-term debt as of September 3, 1994 are:
<TABLE>
<S> <C>
1995................................................................. $ 2,978,000
1996................................................................. 29,577,000
1997................................................................. 70,811,000
1998................................................................. 11,337,000
1999................................................................. 11,353,000
Beyond 1999.......................................................... 26,595,000
------------
$152,651,000
------------
------------
</TABLE>
Weighted average interest rates on short-term borrowings for fiscal year
ends 1994, 1993, and 1992 approximated 9.71%, 9.14%, and 7.29%, 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 1994, 1993, and
1992 were $3,147,000, $3,206,000, and $42,192,000, respectively. Short-term
borrowings amounted to as much as $3,158,000 in 1994, $3,616,000 in 1993, and
$118,141,000 in 1992.
The Company has 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
1994, the Company had $160 million in committed lines of credit, of which $82.6
million was not utilized. The unused portion of these credit lines are subject
to annual commitment fees of 0.375%.
Overall borrowings are limited by 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, 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.
A 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.
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A credit agreement for $25 million is collateralized by Grocers Capital
Company's ("GCC") eligible 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 $2,978,000, $3,088,000 and
$3,115,000 in fiscal 1994, 1993 and 1992, respectively.
The fair values of the Company's notes payable, excluding obligations under
capital leases, approximated $141 million at September 3, 1994. 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 33 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 $30.9 million to $32.9 million. The Company's
security respecting these lease guarantees is discussed in Note 1 under
"Concentration of Credit Risk."
Total rent expense was $22,707,000, $23,326,000, and $22,082,000 in 1994,
1993, and 1992 respectively. Sublease rental income was $4,713,000, $4,657,000,
and $2,554,000 in 1994, 1993, and 1992 respectively.
Minimum rentals (exclusive of real estate taxes, insurance, and other
expenses payable under the terms of the leases) as of September 3, 1994, are
summarized as follows:
<TABLE>
<CAPTION>
CAPITAL
LEASES OPERATING LEASES
------------- ----------------
<S> <C> <C>
1995............................................................... $ 2,062,000 $ 18,636,000
1996............................................................... 1,772,000 16,510,000
1997............................................................... 1,119,000 13,679,000
1998............................................................... 982,000 9,168,000
1999............................................................... 852,000 6,289,000
Beyond 1999........................................................ 1,192,000 22,226,000
------------- ----------------
Total minimum lease payments..................................... 7,979,000 $ 86,508,000
----------------
----------------
Less, amount representing interest................................. (141,000)
-------------
Present value of net minimum lease payments........................ 7,838,000
Less, current portion.............................................. (1,479,000)
-------------
Total long-term portion.......................................... $ 6,359,000
-------------
-------------
</TABLE>
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Minimum sublease rentals (exclusive of real estate taxes, insurance and
other expenses payable under the terms of the leases) as of September 3, 1994,
are summarized as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
-------------
<S> <C>
1995..................................................................................... $ 4,645,000
1996..................................................................................... 4,548,000
1997..................................................................................... 4,439,000
1998..................................................................................... 2,309,000
1999..................................................................................... 1,719,000
Beyond 1999.............................................................................. 11,474,000
-------------
$ 29,134,000
-------------
-------------
</TABLE>
6. ACCRUED LIABILITIES:
The Company's insurance subsidiary maintains restricted certificates of
deposit and marketable securities from which the ceding companies can draw to
settle claims or certain other balances due ($9,827,000 and $8,732,000 at
September 3, 1994 and August 28, 1993, respectively). Accordingly, the loss
reserves and balances payable to the ceding companies which pertain to the
restricted certificates of deposit, marketable investments, and related
reinsurance balances receivable from the ceding companies have been offset in
the Company's consolidated balance sheets.
7. INCOME TAXES:
The significant components of income tax expense (benefit) attributable to
continuing operations are summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------------- ----------- -----------
<S> <C> <C> <C>
Federal:
Current tax expense............................ $ 2,049,000 $ 396,000 $
Utilization of net operating loss
carryforwards................................. (800,000)
Deferred tax (benefit) expense................. (1,156,000) 58,000 (705,000)
-------------- ----------- -----------
93,000 454,000 (705,000)
-------------- ----------- -----------
State:
Current tax expense............................ 377,000 57,000
Deferred tax benefit........................... (267,000) 19,000 (89,000)
-------------- ----------- -----------
110,000 76,000 (89,000)
-------------- ----------- -----------
$ 203,000 $ 530,000 ($ 794,000)
-------------- ----------- -----------
-------------- ----------- -----------
</TABLE>
The Company's income taxes currently payable in 1994 and 1993 are in part
due to alternative minimum tax.
Deferred income taxes for temporary differences associated with the
patronage earnings have not been recorded because the Company allocates its
patronage income on an annual basis to its members. Under federal and state
income tax regulations applicable to cooperative organizations, patronage
dividends are deductible in computing taxable income.
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The effects of nonpatronage temporary differences and other items that give
rise to deferred tax assets and deferred tax liabilities are presented below:
<TABLE>
<CAPTION>
SEPTEMBER 3, AUGUST 29,
1994 1993
------------- -------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable................................................... $ 895,000 $ 794,000
Accrued vacation/incentives........................................... 299,000 275,000
Postretirement benefits other than pension............................ 505,000
Insurance reserves.................................................... 1,789,000 1,606,000
Closed store reserves................................................. 632,000 515,000
Lease reserve......................................................... 528,000
Other................................................................. 638,000 134,000
Net operating loss carryforwards...................................... 571,000 973,000
Alternative minimum tax credits....................................... 1,948,000 1,342,000
Tax credits........................................................... 277,000 241,000
------------- -------------
Total gross deferred tax assets..................................... 8,082,000 5,880,000
Less valuation allowance.............................................. (1,400,000) (1,000,000)
------------- -------------
Net deferred tax assets............................................. $ 6,682,000 $ 4,880,000
------------- -------------
------------- -------------
Deferred tax liabilities:
Property, plant and equipment......................................... $ 2,029,000 $ 1,787,000
Deferred state taxes.................................................. 273,000
Other................................................................. 195,000 320,000
------------- -------------
Total gross deferred tax liabilities................................ $ 2,497,000 $ 2,107,000
------------- -------------
------------- -------------
</TABLE>
Net deferred tax assets are included in Other assets and total gross deferred
tax liabilities are included in Accrued liabilities on the Company's
Consolidated Balance Sheet as of September 3, 1994. The net change in valuation
allowance for deferred tax assets was an increase of $400,000 due to the
uncertainty of the realization of the benefit of loss carryforwards and certain
tax credits.
The reconciliation of the statutory federal income tax rate and the
Company's effective tax rate is summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Federal income tax (benefit) rate........................... (34.0)% 34.0% (34.0)%
State income taxes, net of federal income tax benefit....... 3.4 8.8 (2.0)
Loss on insurance subsidiary not recognized for federal
taxes...................................................... 6.7 16.1
Alternative minimum tax..................................... 17.5
Increase in valuation reserve............................... 17.8
Other, net.................................................. 4.9 3.3 2.0
------ ------ ------
Effective tax rate (benefit)................................ 9.6% 52.8% (17.9)%
------ ------ ------
------ ------ ------
</TABLE>
At September 3, 1994, the Company has alternative minimum tax credit
carryforwards of approximately $1.9 million available to offset future regular
income taxes payable to the extent such regular taxes exceed alternative minimum
taxes payable.
8. 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
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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. 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.
For fiscal 1993, 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 and 40% of the fiscal year's dividend for
non-dairy products. However, as to any particular patron, if such amount was
less than $500, then no retention occurred and a Patronage Certificate was not
issued. The initial series issued for fiscal 1993 was for a seven year term,
maturing on December 15, 2000, and carried a 7% annual interest rate, payable in
cash. The Board of Directors approved the patronage dividend program for fiscal
year 1994. The retention will be 20% of the quarterly dairy patronage dividends
and 40% of the fiscal year's dividend for non-dairy products and will have a
maturity date of December 15, 2001 and carry an 8% annual interest rate, payable
in cash. The Company expects to continue to distribute patronage dividends in
the future, although there can be no assurance of the amounts of such dividends.
9. CAPITAL SHARES:
The Company requires that member-patrons hold Class B Shares in an amount
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"). Additionally, each Class B Share held by a member-patron is
valued at 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 any debt 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 1995 will allow for redemption
of 19,414 shares. Of the 20,942 shares tendered in fiscal year 1991, 48,644
shares tendered in fiscal year 1992, 36,998 shares tendered in fiscal year 1993,
40,824 shares tendered in fiscal year 1994 and 3,197 tendered in fiscal year
1995 and presently approved for redemption, 20,038 shares were redeemed in
fiscal year 1992, 20,036 shares were redeemed in fiscal year 1993, 19,716 shares
were redeemed in fiscal year 1994 and 19,414 shares will be redeemed in fiscal
year 1995 due to the 5% limit having been reached. Because the 5% limit for
fiscal year 1995 has been met, the remaining 71,401 shares (or approximately
$11.6 million, using fiscal 1994 year end book values) not redeemed in fiscal
year 1995 as well as the redemption of any additional Class B Shares tendered
during fiscal 1995 will require the prior approval of the Company's Board of
Directors. At present, such approvals are not expected to be given. Accordingly,
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
since the Company's fiscal 1995 5% share redemption limitation has been met,
future redemptions for the 1995 fiscal year will be postponed. The total of
Class B Shares tendered and awaiting redemption has caused the 5% limit for
fiscal 1995, and will cause the limits for fiscal 1996 through 1998 to be met,
thereby delaying the redemption of Class B Shares in excess of such limit. The
redemptions required for fiscal years 1996 through 1998 approximate $9.2 million
to $9.5 million based on 1994 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.
There are 500,000 authorized Class A Shares, of which 49,100 and 49,700 were
outstanding at September 3, 1994 and August 28, 1993, respectively. There are
2,000,000 authorized Class B Shares, of which 388,286 and 394,326 were
outstanding at September 3, 1994 and August 28, 1993, respectively. Once
redeemed, such shares are not available for reissuance to member-patrons.
Each member-patron of the Company is required to hold one hundred Class A
Shares. 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 19 authorized Class C Shares of which 17 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.
10. 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.
<PAGE>
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:
<TABLE>
<CAPTION>
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested
benefits........................................................ $ 24,518,828 $ 22,025,105 $ 21,322,403
Effect of assumed future increase in compensation
levels.......................................................... 10,380,043 10,025,238 10,327,360
------------- ------------- -------------
Projected benefit obligation for services rendered to
date............................................................ 34,898,871 32,050,343 31,649,763
------------- ------------- -------------
Plan assets at fair value........................................... 31,537,760 31,184,804 29,059,148
------------- ------------- -------------
Plan assets in deficiency of projected benefit obligations.......... 3,361,111 865,539 2,590,615
Unrecognized net gain............................................... (6,091,920) (3,544,459) (5,464,059)
Unrecognized transition asset....................................... 2,147,998 2,457,063 2,766,127
Unrecognized prior service cost..................................... 380,517 (99,259) (109,151)
------------- ------------- -------------
Prepaid pension costs at June 1..................................... (202,294) (321,116) (216,468)
------------- ------------- -------------
Fourth quarter contribution......................................... (320,645) (381,592) (236,516)
Fourth quarter net periodic pension cost............................ 228,948 337,730 263,455
------------- ------------- -------------
Prepaid pension cost at fiscal year end............................. $ (293,991) $ (364,978) $ (189,529)
------------- ------------- -------------
------------- ------------- -------------
Net pension cost included the following components:
Service cost -- benefits earned during the period................. $ 1,398,109 $ 1,384,636 $ 1,447,135
Interest cost on projected benefit obligation..................... 2,649,854 2,424,520 2,405,245
Actual return on plan assets...................................... (2,660,602) (2,627,861) (2,419,035)
Net amortization and deferral..................................... (83,873) (265,502) (82,426)
------------- ------------- -------------
Net periodic pension cost......................................... $ 1,303,488 $ 915,793 $ 1,350,919
------------- ------------- -------------
------------- ------------- -------------
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%
</TABLE>
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 $24,029,411,
$21,441,766, and $20,751,462 in 1994, 1993, and 1992, respectively.
The Company also made contributions of $4,820,000, $5,155,000, and
$5,433,000 in 1994, 1993, and 1992, 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 $2,200,000,
$2,200,000, and $2,300,000 in 1994, 1993, and 1992 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
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
nonunion employees hired prior 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. 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 1994, 1993
and 1992.
11. POSTRETIREMENT BENEFIT PLAN OTHER THAN PENSIONS:
The Company sponsors four postretirement benefit plans that cover both
nonunion and union employees. Nonunion employees are eligible for a plan
providing medical benefits and a plan providing life insurance benefits. Both
nonunion and union 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.
The plans are unfunded. The amounts recognized in the balance sheet are:
<TABLE>
<CAPTION>
1994
--------------
<S> <C>
Accumulated postretirement benefit obligation:
Retirees.............................................................................. $ 11,496,106
Fully eligible active plan participants............................................... 4,621,853
Other active plan participants........................................................ 9,116,878
--------------
Accumulated postretirement benefit obligation........................................... 25,234,837
Unrecognized transition obligation...................................................... (21,347,603)
Unrecognized prior service cost.........................................................
Unrecognized net loss................................................................... (2,013,501)
--------------
Accrued postretirement benefit cost at June 1........................................... 1,873,733
Fourth quarter contributions............................................................ (293,640)
Fourth quarter net periodic postretirement benefit cost................................. 928,508
--------------
Accrued postretirement benefit cost..................................................... $ 2,508,601
--------------
--------------
Net periodic postretirement benefit cost included the following components:
<CAPTION>
1994
--------------
<S> <C>
Service cost -- benefits attributed to service during the period....................... $ 653,927
Interest cost on accumulated postretirement benefit obligation........................ 1,915,446
Amortization of transition obligation over 20 years................................... 1,123,558
Net amortization and deferral......................................................... 21,097
--------------
Net periodic postretirement benefit cost.............................................. $ 3,714,028
--------------
--------------
</TABLE>
For measurement purposes, a 10 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for fiscal year 1995;
the rate was assumed to decrease gradually to 6 percent in fiscal 2003 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 3,
1994 by $3,522,273 and the aggregate benefit for the year then ended by
$464,431.
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 1994.
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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, and $6,660,000 in 1992. The portion of the cost of
providing those benefits for 164 retirees in fiscal 1993 and 166 retirees in
fiscal 1992 was approximately $1.2 million and $0.9 million in fiscal years 1993
and 1992, respectively.
12. CONTINGENCIES:
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. The initial liability
was based on estimated cleanup costs of $2 per gallon on approximately 200,000
gallons disposed at the site. In July 1994, the EPA reassessed the Company's
allocation as approximately $380,000, pertaining to its portion of the cost of
cleanup of the first three phases of the five-phase cleanup process.
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. These two phases, with estimated cost to the Company of
approximately $1.1 million, are fully reserved in the financial statements. As
of September 3, 1994, the total reserve established in respect to environmental
liabilities is $1.5 million. The Company is pursuing recovery of a portion of
this amount from its insurance carriers. However, due to the uncertainty of
success, no recovery amount has been recognized.
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.
13. 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.
During fiscal year 1993, the Company leased certain market premises located
in Sacramento, California, and in turn subleased the premises to SavMax Foods,
Inc. ("SavMax"), of which director Michael A. Webb is the President and a
Shareholder. The sublease to SavMax provides for a term of twenty years, without
options to extend, although SavMax has 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 consist of approximately 50,000
square feet and annual base rent under the sublease is at the following per
square foot
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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. In addition, the Company receives monthly an additional amount equal
to 5% of the base monthly rent. Upon default by SavMax, the Company has the
right to retake possession of the premises under the sublease. In the event of a
default by SavMax under the sublease, the Company's remaining liability under
its lease would approximate $10.0 million, assuming the leased premises and
other support provided to the Company by way of offset rights proved to be of no
value to the Company.
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
$10.0 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 $11.4 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 has guaranteed the payment by Cala Co. 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 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. Concurrently, a 5-year agreement
to purchase a substantial portion of merchandise requirements from the Company
was obtained from Bell Markets, Inc.
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.
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company has guarantees remaining on various member-patron leases during
the period of fiscal 1995 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 $1.9 million.
In July 1993, the Company entered into an agreement to lease the produce
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.
During fiscal year 1992, Grocers Capital Company ("GCC"), a subsidiary,
acquired 40,000 shares of preferred stock of SavMax. The purchase price was $100
per share. In fiscal 1994, GCC, acquired an additional 25,000 shares of
preferred stock of SavMax, at a price of $100 per share. 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 $2.3 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.
Grocers General Merchandise Company, ("GM"), a subsidiary of the Company,
and Food 4 Less GM, Inc. ("F4LGM"), a subsidiary of Food 4 Less Supermarkets,
Inc., 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, Alpha Beta (which is wholly-owned by
Food 4 Less Supermarkets, Inc.) together with its affiliated companies,
accounted for a combined total of approximately 9.7% of fiscal 1994 sales.
Another customer, Hughes Markets, Inc. (of which director Roger K. Hughes is
Chairman of the Board) accounted for approximately 3.8% of fiscal 1994 sales.
14. SUBSEQUENT EVENT
The Company, subsequent to its year-end, completed a sale leaseback
transaction with Trinet Corporate Realty Trust, Inc. ("Trinet"), an unaffiliated
third party, wherein it sold approximately 5.5 acres of real property in the
City of Commerce, together with all buildings, structures and improvements
located on such real property, including an office building containing
approximately 100,000 square feet and a cafeteria building containing
approximately 8,000 square feet. 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. Any gain or loss
recognized on the transaction is not expected to be material to the financial
statements and will be amortized over the life of the lease.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1994, the Company's Executive Compensation Committee
consisted of director Paul H. Gerrard, Committee Chairman, and directors Louis
A. Amen, George G. Golleher, Darioush Khaledi, Leonard R. Leum, 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.
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 $82,544, and the lease term expires in October 1997.
EXECUTIVE OFFICER COMPENSATION
The following table sets forth information respecting the compensation paid
during the Company's last three fiscal years to the President and Chief
Executive Officer (CEO) and to certain other executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------------
OTHER
FISCAL ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($) COMPENSATION($) COMPENSATION($)
- ------------------------------ ------ ------------ -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Everett W. Dingwell II (2) 1994 342,500 1,121 41,745(4)
Corporate Chairman 1993 311,539 1,411 39,424
1992 275,000 213 49,993
Alfred A. Plamann 1994 236,827 205 31,431(5)
President & CEO 1993 164,808 310 25,419
1992 157,500 212 22,508
Donald W. Dill 1994 163,366 576 38,127(6)
Senior Vice President 1993 153,346 1,016 37,392
1992 147,500 411 40,113
Gerald F. Friedler (3) 1994 209,471 260 28,927(7)
Senior Vice President 1993 200,000 787 37,809
1992 200,000 35 26,095
Charles J. Pilliter 1994 167,577 127 20,591(8)
Senior Vice President 1993 151,924 188 18,241
1992 142,524 16,854
Donald G. Grose 1994 143,760 438 31,700(9)
Senior Vice President 1993 135,116 955 30,372
1992 129,000 187 30,956
<FN>
- ------------------------
(1) It should be noted that while the table presents salary information on a
fiscal year basis, salary is paid 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.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(2) Everett W. Dingwell II held the position of President and CEO from January
1990 until January 31, 1994.
(3) Gerald F. Friedler resigned effective September 4, 1994.
(4) Consists of an $7,217 Company contribution to the Company's Employees'
Sheltered Savings Plan, a $20,206 Company contribution to the Company's
Employees' Excess Benefit Plan and Supplemental Deferred Compensation Plan,
and $14,322 of insurance premiums paid by the Company pursuant to an
Executive Salary Protection Plan Life Insurance Agreement with the officer.
(5) Consists of a $14,507 Company contribution to the Company's Employees'
Sheltered Savings Plan, and a $4,062 Company contribution to the Company's
Employees' Excess Benefit Plan and Supplemental Deferred Compensation Plan,
and $12,862 of insurance premiums paid by the Company pursuant to an
Executive Salary Protection Plan Life Insurance Agreement with the officer.
(6) Consists of a $9,810 Company contribution to the Company's Employees'
Sheltered Savings Plan, a $2,700 Company contribution to the Company's
Employees' Excess Benefit Plan and Supplemental Deferred Compensation Plan,
and $25,617 of insurance premiums paid by the Company pursuant to an
Executive Salary Protection Plan Life Insurance Agreement with the officer.
(7) Consists of a $14,520 Company contribution to the Company's Employees'
Sheltered Savings Plan, a $2,669 Company contribution to the Company's
Employees' Excess Benefit Plan and Supplemental Deferred Compensation Plan,
and $11,738 of insurance premiums paid by the Company pursuant to an
Executive Salary Protection Plan Life Insurance Agreement with the officer.
(8) Consists of a $11,531 Company contribution to the Company's Employees'
Sheltered Savings Plan, and $9,060 of insurance premiums paid by the
Company pursuant to an Executive Salary Protection Plan Life Insurance
Agreement with the officer.
(9) Consists of a $7,172 Company contribution to the Company's Employees'
Sheltered Savings Plan, a $3,754 Company contribution to the Company's
Employees' Excess Benefit Plan and Supplemental Deferred Compensation Plan,
$20,774 of insurance premiums paid by the Company pursuant to an Executive
Salary Protection Plan Life Insurance Agreement with the officer.
</TABLE>
The Company has a defined benefit pension plan covering its nonunion
employees. Remuneration is cash compensation, as reported on the employee's
federal income tax withholding statement (Form W-2), plus amounts deferred by
the employee under the Company's Employees' Sheltered Savings Plan. The
following table sets forth the estimated annual pensions which persons in
specified categories would receive if they had retired on September 3, 1994, at
the age of 65.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
AVERAGE ANNUAL ANNUAL PENSION AFTER SPECIFIED
COMPENSATION YEARS OF CREDITED SERVICE
DURING THREE -------------------------------
COMPLETED YEARS 15 YEARS 25 YEARS 33 YEARS
- --------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
$100,000.................................................... $ 19,926 $ 33,210 $ 43,838
125,000.................................................... 25,364 42,273 55,800
150,000.................................................... 30,801 51,335 67,763
175,000.................................................... 30,801 51,335 67,763
200,000.................................................... 30,801 51,335 67,763
225,000.................................................... 30,801 51,335 67,763
250,000.................................................... 30,801 51,335 67,763
275,000.................................................... 30,801 51,335 67,763
</TABLE>
Benefits under the 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 amount is
based on IRS tables and the annual amount for someone turning age 65 in 1993 was
<PAGE>
$24,312. Lesser amounts are payable if the employee retires before age 65. The
maximum annual amount payable is $30,801 at 15 years of credited service,
$51,335 at 25 years of credited service and $67,763 at 33 years of credited
service. Benefits are not subject to any deduction for Social Security or other
offset amounts. As of September 3, 1994, Mr. Dingwell had 26 years of credited
service in the pension plan; Mr. Plamann, 5 years; Mr. Dill, 36 years; Mr.
Friedler, 12 years; Mr. Pilliter, 18 years; and Mr. Grose, 13 years.
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 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
1994. Alpha Beta Company (which is wholly-owned by Food 4 Less Supermarkets,
Inc.) together with its affiliated companies, accounted for a combined total of
approximately 9.7%. 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 1994.
In fiscal 1994, Grocers Capital Company ("GCC"), a subsidiary, acquired an
additional 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 $2.3 million. In connection with this purchase,
Mr. Webb, SavMax and GCC agreed that GCC will have certain preemptive rights to
acquire additional common
<PAGE>
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.
During fiscal year 1993, the Company leased certain market premises located
in Sacramento, California, and in turn subleased the premises to SavMax. The
sublease to SavMax provides for a term of twenty years, without options to
extend, although SavMax has 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 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. In addition, the Company receives monthly an additional amount equal
to 5% of the base monthly rent.
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 $29,970, increasing to $32,175
and $34,425 in January of 1995 and 2000, respectively. 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.
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 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 guarantees 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 is
$16,350, and the lease term expires in April 1995.
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
<PAGE>
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 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.
In fiscal 1994, GCC guaranteed 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 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 $210,000 of the principal amount of the loan.
In consideration of its guarantee, GCC will receive an annual fee from K.V. Mart
Co. equal to 5% of the guarantee amount.
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.
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.
<PAGE>
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,
Chief Financial Officer
and Chief Accounting Officer
Date: February 15, 1995
