<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 14, 1995
REGISTRATION NO. 33-51457
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 3
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933.
CERTIFIED GROCERS OF CALIFORNIA, LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 95-0615250
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
------------------------
2601 South Eastern Avenue
Los Angeles, California 90040
(213) 723-7476
(Address, including zip code and telephone number,
including area code, of registrant's principal executive offices)
------------------------------
Alfred A. Plamann, President
Certified Grocers of California, Ltd.
2601 South Eastern Avenue
Los Angeles, California 90040
(213) 723-7476
(Name, Address, Including Zip Code, and Telephone Number.
Including Area Code of Agent for Service)
------------------------------
Copy to:
Neil F. Yeager, Esq.
Burke, Williams & Sorensen
611 W. Sixth Street
25th Floor
Los Angeles, California 90017
(213) 236-0600
------------------------
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON
A DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF
1933 CHECK THE FOLLOWING BOX /X/
IF THE REGISTRANT ELECTS TO DELIVER ITS LATEST ANNUAL REPORT TO SECURITY
HOLDERS, OR A COMPLETE AND LEGIBLE FACSIMILE THEREOF, PURSUANT TO ITEM 11(A)(1)
OF THIS FORM, CHECK THE FOLLOWING BOX / /
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<PAGE>
CROSS-REFERENCE SHEET
Cross-reference between items of Part I of Post-Effective Amendment No. 3 to
Form S-2 and Prospectus filed by Certified Grocers of California, Ltd., as part
of Registration Statement covering Partially Subordinated Patrons' Deposit
Accounts.
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION LOCATION OR CAPTION IN PROSPECTUS
------------------------------------ ------------------------------------
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus................. Cover Page; Outside Front Cover Page
of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus................ Inside Front Cover Page of
Prospectus; Outside Back Cover Page
of Prospectus
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges............................ Outside Front Cover Page of
Prospectus; Risk Factors; Ratio of
Earnings to Fixed Charges
4. Use of Proceeds..................... Use of Proceeds
5. Determination of Offering Price..... (Not Applicable)
6. Dilution............................ (Not Applicable)
7. Selling Security Holders............ (Not Applicable)
8. Plan of Distribution................ Method of Offering
9. Description of Securities to Be
Registered......................... Description of Deposit Accounts
10. Interests of Named Experts and
Counsel............................ (Not Applicable)
11. Information with Respect to the
Registrant......................... Outside Front Cover Page of
Prospectus; The Company; Selected
Financial Data; Management's
Discussion and Analysis of
Financial Condition and Results of
Operations; Index to Financial
Statements
12. Incorporation of Certain Information
by Reference....................... Inside Front Cover Page of
Prospectus
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................ (Not Applicable)
</TABLE>
<PAGE>
PROSPECTUS
CERTIFIED GROCERS OF CALIFORNIA, LTD.
$16,544,090 PARTIALLY SUBORDINATED
PATRONS' DEPOSIT ACCOUNTS
This Prospectus relates to the Partially Subordinated Patrons' Deposit
Accounts (the "Deposit Accounts") maintained with Certified Grocers of
California, Ltd. ("Certified" or the "Company") by the member-patrons and
associate patrons of the Company and the Deposit Accounts to be maintained with
the Company by such persons or entities who from time to time become
member-patrons or associate patrons of the Company. (Member-patrons and
associate patrons are collectively referred to herein as "patrons".) Patrons are
generally required to maintain deposits with the Company in certain required
amounts and may also maintain deposits in excess of such required amounts. All
such deposits of a patron are maintained in the patron's Deposit Account.
Patrons are required to execute subordination agreements providing for the
pledging of their Deposit Accounts to the Company and the subordination of that
portion of their Deposit Accounts which consists of required deposits to Senior
Indebtedness (as defined) of the Company. THE SUBORDINATION AGREEMENTS EXECUTED
BY PATRONS ON AND AFTER JANUARY 14, 1994 DIFFER FROM THE SUBORDINATION
AGREEMENTS WHICH HAVE BEEN EXECUTED BY PATRONS BEFORE JANUARY 14, 1994. See,
"THE COMPANY -- Patron Deposits," and "DESCRIPTION OF DEPOSIT ACCOUNTS --
Subordination."
That portion of each Deposit Account consisting of required deposits does
not bear interest. Interest is paid with respect to that portion, if any, of a
Deposit Account which exceeds the required amounts. The rate is 8.75% per annum
at the date of this Prospectus. The Deposit Accounts are not secured by any lien
on any assets of the Company, are nontransferable without the consent of the
Company, which will normally be withheld, and are required to be pledged to the
Company as security for obligations to the Company and its subsidiaries. On
termination of membership of a member-patron or on an associate patron ceasing
to do business with the Company the patron will be entitled to the return of its
Deposit Account, less all amounts that may be owing by the patron to the Company
or any of its subsidiaries, provided, however, that return of that portion of
the Deposit Account which consists of required deposits will be governed by the
subordination provisions to which it is subject and will be returned only as and
to the extent permitted thereby. That portion of the Deposit Account which is in
excess of the required deposits will be paid to the patron on its request
provided the patron is not in default in any of its obligations to the Company
or any of its subsidiaries. (See "DESCRIPTION OF DEPOSIT ACCOUNTS".)
SINCE THE DEPOSIT ACCOUNTS ARE NOT SEGREGATED FROM THE COMPANY'S OTHER FUNDS
AND ARE UNSECURED OBLIGATIONS, AND SINCE THE COMPANY HAS NOT ESTABLISHED ANY
RESERVES FOR THEIR REPAYMENT, THERE CAN BE NO ASSURANCE THAT THE COMPANY WOULD
HAVE THE ABILITY TO REPAY THE DEPOSIT ACCOUNTS IN THE EVENT OF INSOLVENCY OR
OTHER FINANCIAL DIFFICULTY OR IN THE EVENT THE COMPANY WERE REQUIRED TO RETURN A
SUBSTANTIAL AMOUNT OF THE DEPOSIT ACCOUNTS AT ONE TIME OR OVER A BRIEF PERIOD OF
TIME. SEE, "DESCRIPTION OF DEPOSIT ACCOUNTS -- REPAYMENT."
---------------------
CAREFUL CONSIDERATION SHOULD BE GIVEN TO THE MATTERS DISCUSSED UNDER
"RISK FACTORS," BEGINNING ON PAGE 3 OF THIS PROSPECTUS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS
PRICE DISCOUNTS AND TO THE
TO PUBLIC COMMISSIONS COMPANY (1)(2)
<S> <C> <C> <C>
$16,544,090 Partially Subordinated
Patrons' Deposit Accounts................ $16,544,090 none $16,544,090
<FN>
(1) As of the date of registration, the expenses payable by the Company were
estimated at $44,345.
(2) Based on the assumption that this amount of Deposit Accounts will be
acquired by patrons. There is no assurance that this amount will be so
acquired.
</TABLE>
THIS OFFER IS NOT UNDERWRITTEN.
THE DATE OF THIS PROSPECTUS IS DECEMBER , 1995
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, and in accordance therewith, files reports, proxy
statements and other information with the Securities and Exchange Commission
("Commission"). Copies of such materials can be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549 at prescribed rates.
In addition, such material can be inspected and copied at the public reference
facilities maintained by the Commission and located at the Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7
World Trade Center, New York, New York 10048.
ADDITIONAL INFORMATION
As permitted by the rules and regulations of the Commission, this Prospectus
omits certain information and exhibits contained in a Registration Statement on
Form S-2 filed by the Company with the Commission. For further information,
reference is made to the Registration Statement including the exhibits filed as
a part thereof. Copies of the Registration Statement and exhibits may be
obtained from the principle office of the Commission in Washington, D.C. upon
payment of the fee prescribed by the rules and regulations of the Commission.
INCORPORATION BY REFERENCE
The following document filed with the Commission is incorporated by
reference into this Prospectus: Annual Report on Form 10-K for the fiscal year
ended September 2, 1995.
The Company will provide without charge to each person or patron of the
Company to whom a copy of this Prospectus is delivered, upon the written or oral
request of such person or patron, a copy of the foregoing Report incorporated by
reference herein, other than exhibits to such Report. Requests should be
directed to: Certified Grocers of California, Ltd., 2601 South Eastern Avenue,
Los Angeles, California 90040, Attention: Corporate Secretary, (213) 723-7476.
2
<PAGE>
RISK FACTORS
CAREFUL CONSIDERATION SHOULD BE GIVEN TO THE FOLLOWING FACTORS CONCERNING
THE COMPANY AND THE SECURITIES OFFERED IN THIS PROSPECTUS:
SUBORDINATION
The portion of the Deposit Accounts consisting of required deposits will be
subordinated to the prior payment in full of Senior Indebtedness (as defined) of
the Company. Patrons are required to execute subordination agreements with
respect to their Deposit Accounts. THE SUBORDINATION AGREEMENTS EXECUTED BY
PATRONS ON AND AFTER JANUARY 14, 1994 DIFFER FROM THE SUBORDINATION AGREEMENTS
WHICH HAVE BEEN EXECUTED BY PATRONS BEFORE JANUARY 14, 1994. The portion of the
Deposit Accounts consisting of required deposits cannot be repaid by the Company
in the event of an uncured default by the Company respecting Senior
Indebtedness, or in the event of dissolution, liquidation or insolvency
proceedings involving the Company, until all Senior Indebtedness has been paid
in full or provision made for such payment satisfactory to the holders of Senior
Indebtedness. With respect to patrons who execute subordination agreements on
and after January 14, 1994, the total amount of outstanding Senior Indebtedness
to which their required deposits are subordinated aggregated approximately
$179,400,000 as of December 11, 1995. With respect to patrons who have executed
subordination agreements before January 14, 1994, the total amount of Senior
Indebtedness to which their required deposits are subordinated was approximately
$175,400,000 on the same date. There is no limitation on the Company's creation
of additional Senior Indebtedness. See, "DESCRIPTION OF DEPOSIT ACCOUNTS --
Subordination."
UNSECURED OBLIGATIONS
The Deposit Accounts are not secured by any lien upon any assets of the
Company and are unsecured obligations of the Company.
NONTRANSFERABILITY
The Deposit Accounts are nontransferable without the consent of the Company,
which will normally be withheld. Patrons are required to pledge their Deposit
Accounts to the Company as security for their obligations to the Company and its
subsidiaries.
INTEREST
The portion of the Deposit Accounts consisting of required deposits does not
bear interest. See, "DESCRIPTION OF DEPOSIT ACCOUNTS -- Interest."
REPAYMENT
Amounts in a patron's Deposit Account in excess of the amount consisting of
required deposits are returnable upon request of the patron if the patron is not
in default of its obligations to the Company or any of its subsidiaries. Upon
termination of membership of a member-patron or on an associate patron ceasing
to do business with the Company, the patron is entitled to the return of its
Deposit Account, less all amounts owing to the Company and its subsidiaries. In
all cases, however, return of the portion of the Deposit Account consisting of
required deposits is governed by the subordination provisions to which it is
subject.
Since the Deposit Accounts are not segregated from the Company's other funds
and are unsecured obligations, and since the Company has not established any
reserves for their repayment, there can be no assurance that the Company would
have the ability to repay the Deposit Accounts in the event of insolvency or
other financial difficulty or in the event the Company were required to return a
substantial amount of the Deposit Accounts at one time or over a brief period of
time. See, "DESCRIPTION OF DEPOSIT ACCOUNTS -- Repayment."
VOLUME LOSSES IN RECENT PERIODS
The Company experienced reductions in sales volume from fiscal 1991 levels
totaling approximately $800 million over fiscal years 1992 and 1993. During this
period, certain of the Company's large member patrons either grew to the size
where they elected to establish self-distribution programs or were acquired by
chains that had existing self-distribution programs. Fiscal 1994 sales decreased
approximately $133 million over fiscal 1993. This decline was primarily due to
sales volume lost as a result of the decision of certain large
3
<PAGE>
patrons (Hughes Markets, Alpha Beta, Save Mart Supermarkets, Bel Air Mart, and
Raleys) to expand their own warehousing and distribution operations in fiscal
1994 and the decision of one patron (Nob Hill) to utilize another source of
supply. During fiscal year 1995, the Company added two significant customers
which contributed approximately $64 million in net sales, spread among most
sales categories. The Company estimates the new customers will increase net
sales by approximately $250 million on an annualized basis. The Company is
attempting to increase sales volume by adding new customers and expanding the
volume of sales to existing customers.
There can be no assurance that future sales volume reductions will not
occur, whether by merger or acquisition of patrons or election by patrons to
switch to self-distribution or other supply sources. However, except for patrons
already engaged in self-distribution, the Company is not aware of any
member-patron whose size is sufficient, in the Company's view, to justify the
establishment of a self-distribution program. At this time, including patrons
already engaged in self-distribution, there is no patron whose purchases
represent more than 10% of total sales volume. Also, excluding patrons already
engaged in self-distribution, there is no patron whose purchases represent
greater than 5% of total sales volume. See, "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges(1)............. 1.71x 1.63x 1.78x 1.44x 1.57x
<FN>
- ------------------------
(1) Earnings used in computing the ratio of earnings to fixed charges consist
of earnings before patronage dividends, provision (benefit) for income
taxes, and cumulative effect of change in accounting principle in 1994 of
$2.5 million, plus fixed charges. Fixed charges consist of interest expense
(including amortization of deferred financing costs) and the portion of
rental expense that is representative of the interest factor.
</TABLE>
THE COMPANY
GENERAL DESCRIPTION OF BUSINESS
The Company, a California corporation organized in 1925, is a wholesale
grocery distributor which does business primarily on a cooperative basis with
independent retail grocers who are shareholders of the Company and who are
referred to as "member-patrons." It also does some business on a cooperative
basis with independent retail grocers who are not shareholders and who are
referred to as "associate patrons." Pursuant to the Company's Bylaws, the net
earnings of the Company on business done on a cooperative basis are distributed
as patronage dividends to member-patrons and associate patrons based in amount
on the volume of such business transacted with the patron. The Bylaws provide
that patronage dividends may be paid in money or in any other form which
constitutes a written notice of allocation under Section 1388 of the Internal
Revenue Code. For the fiscal year ended September 2, 1995, declared patronage
dividends totalled $11,571,000.
The Company also does business on a nonpatronage basis (that is, no
patronage dividends are distributed) with other customers and in some instances
with member-patrons and associate patrons. The Company's subsidiaries do
business on a nonpatronage basis with member-patrons, associate patrons and
other customers.
Patrons engaged in the retail grocery business who purchase 350 or more dry
grocery cases weekly (approximately $5,000), or whose combined average weekly
purchases (excluding cigarettes) are $5,000 or more, are required to become
member-patrons. Associate patrons generally purchase 200 or more dry grocery
cases weekly and have combined average weekly purchases of less than $5,000. At
September 2, 1995, the Company had 503 member-patrons operating a total of 2,320
retail food stores and 304 associate patrons operating a total of 725 retail
food stores.
4
<PAGE>
The shares of the Company are owned entirely by its member-patrons. Each
member-patron is required to hold 100 Class A Shares, and no member-patron may
hold more than 100 Class A Shares. Member-patrons are also required to hold
Class B Shares in an amount, based on book values, equal to the lesser of (a)
the amount of the member-patron's required deposit, or (b) twice the
member-patron's average weekly purchases. Member-patrons and associate patrons
are required to maintain cash deposits with the Company. For a discussion of
these required deposits, see "THE COMPANY -- Patron Deposits."
The Company sells a full line of branded grocery and nonfood items supplied
by unrelated manufacturers and also sells merchandise under its own private
labels, including the Springfield, Gingham, Special Value, La Corona and Golden
Creme labels. Grocers Specialty Company, a subsidiary, carries a product line
consisting of specialty-type items, such as ethnic and fancy foods, and also
carries a general product line. General merchandise products are primarily sold
by another subsidiary, Grocers General Merchandise Company.
Consolidated sales by product line, including drop shipments (which are
sales delivered directly to customers from suppliers), for the fiscal year ended
September 2, 1995, are as follows (dollar amounts in thousands):
<TABLE>
<S> <C>
Dry Grocery......................................................... $1,030,024
General Merchandise................................................. 209,943
Delicatessen........................................................ 178,582
Meat................................................................ 145,997
Frozen Food......................................................... 113,208
Dairy............................................................... 66,399
Ice Cream........................................................... 20,879
Bakery.............................................................. 15,839
Drop Shipment....................................................... 12,662
Beans and Rice...................................................... 4,527
Other............................................................... 24,744
----------
Total........................................................... $1,822,804
----------
----------
</TABLE>
The majority of the Company's warehouse facilities, and its two
manufacturing plants (dairy and bakery), are located in the Los Angeles
metropolitan area. In addition, the Company has two warehouses in Stockton,
California, one warehouse in Fresno, California and one warehouse in Honolulu,
Hawaii.
In addition to supplying a wide variety of grocery and nonfood items, the
Company and its subsidiaries also provide patrons with a variety of other
support services, including advertising programs, insurance services, store site
selection and site evaluation services, store design and layout, front end
layout and support, store equipment and inventory financing, store remodeling
support services, data processing, and in-store counseling services.
PATRONAGE DIVIDENDS
As required by its Bylaws, the Company distributes patronage dividends based
upon its net earnings from patronage business during the fiscal year. Such
earnings are distributed to each patron in proportion to the dollar volume of
purchases from each division of the Company by the patron. The Company's Bylaws
provide that patronage dividends may be distributed in money or in any other
form which constitutes a written notice of allocation under Section 1388 of the
Internal Revenue Code. Said section defines the term "written notice of
allocation" to mean any capital stock, revolving fund certificate, retain
certificate, certificate of indebtedness, letter of advice, or other written
notice, which discloses to the recipient the stated dollar amount allocated to
him by the Company and the portion thereof, if any, which constitutes a
patronage dividend. Patronage dividends are distributed annually, usually in
December, except for dividends on dairy products which are distributed after the
close of each fiscal quarter.
The Company 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
5
<PAGE>
dividend retention program authorized by the Company's Board of Directors, the
Company retains a portion of the patronage dividends distributed for a fiscal
year and issues patronage certificates ("Patronage Certificates") evidencing its
indebtedness respecting the retained amounts. However, as to any particular
patron, if such retained amount would be less than a specified minimum
(presently $500), then no retention occurs and a Patronage Certificate is not
issued. The program provides for the issuance of Patronage Certificates to
patrons annually in December 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 the Company, are subordinated to
certain other indebtedness of the Company, and are nontransferable without the
consent of the Company. 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 the Company, and are subject to being set off, at the option of the Company,
against all or any portion of the amounts owing to the Company and its
subsidiaries by the holder. Interest on the Patronage Certificates is payable
annually. Subject to the payment of at least 20% of the patronage dividend in
cash, the portion of the patronage dividend retained is deducted from each
patron's patronage dividend prior to the issuance of Class B Shares as a portion
of such dividend.
The following table presents certain information respecting the Patronage
Certificates presently outstanding:
<TABLE>
<CAPTION>
AGGREGATE ANNUAL
FISCAL PRINCIPAL INTEREST MATURITY
YEAR AMOUNT RATE DATE
------ ------------ ----------- ---------
<S> <C> <C> <C>
1993....................................................... $ 2,018,000 7% 12/15/00
1994....................................................... $ 2,426,000 8% 12/15/01
1995....................................................... $ 2,117,000 7% 12/15/02
</TABLE>
The Company expects to continue to distribute patronage dividends in the
future, although there can be no assurance of the amounts of such dividends.
PATRON DEPOSITS
It is the general policy of the Company to require that its cooperative
patrons maintain a subordinated cash deposit equal to twice the amount of each
patron's average weekly purchases or twice the amount of the patron's average
purchases, whichever is greater. Required deposits are determined twice a year,
at the end of the Company's second and fourth fiscal quarters, based upon a
review of the patron's purchases from certain of the cooperative divisions
during the preceding two quarters.
Member-patrons meeting certain qualifications established by the Board of
Directors may elect to maintain a reduced required deposit of $500,000 or one
and one-quarter weeks' average purchases, whichever is greater. Presently, three
of the Company's largest member-patrons have elected to maintain such reduced
deposits. With the consent of the Company, which may be granted or withheld in
the Company's sole discretion, a qualified member-patron who has elected to
maintain this reduced deposit may later have its deposit increased up to an
amount equal to twice the amount of its average weekly purchases. Following such
increase, the member-patron will not be permitted to reduce its deposit (even
though otherwise eligible to maintain a reduced deposit) for a period of two
years without the Company's consent. Further, in all cases, reduction of the
deposit will be governed by the subordination provisions to which it is subject.
The Company charges interest to those member-patrons who maintain a reduced
deposit. Interest is presently charged at the prime rate established by Bankers
Trust Company, subject to periodic review and change by the Board of Directors.
Interest is charged on the difference between the balance that would have been
maintained based on two weeks' purchases and the balance actually maintained.
Under the Company's Deposit Fund Loan Program, member-patrons whose credit
has been approved by the Company's Loan Committee may finance all or a portion
of their deposit requirement. Payments under this program are billed to the
member-patron on its weekly statement from the Company. Subject to credit
approval, patrons may also deposit an amount equal to one and one-half of the
patron's average weekly purchases or one and one-half of the patron's average
purchases, whichever is greater, and pay the balance of the deposit over a
period of 26 weeks, at no interest, by payments on its weekly statement from the
Company.
6
<PAGE>
Member-patrons holding Class B Shares are presently given credit against the
above described cash deposit requirement based upon the combined, respective
book values of such shares as of the respective fiscal years last ended prior to
their issuance. The Company pays no interest on the required deposits of
patrons. Interest is paid on the above described cash deposits which are in
excess of patrons' required deposits, see "DESCRIPTION OF DEPOSIT ACCOUNTS --
Interest."
In addition, patrons who participate in the Company's price reservation
program are required to maintain a noninterest bearing deposit based upon the
value of the inventory participation in this program. Under the Company's price
reservation program, patrons are permitted to submit price reservations in
advance for their dry grocery, frozen, delicatessen and general merchandise
purchases. For the patron to get the benefit of the price reservation, an actual
order must be placed. The price which the patron will be charged is the price in
effect at the time of the reservation.
The Company's policies regarding deposits, issuance of Class B Shares and
credits against deposits as a result of issuance of Class B Shares are subject
to change by the Board of Directors which may, in its discretion, add to,
increase, decrease, limit, eliminate or otherwise change such policies.
DESCRIPTION OF DEPOSIT ACCOUNTS
GENERAL
As described under the caption "THE COMPANY -- Patron Deposits," patrons are
generally required to maintain deposits with the Company in certain required
amounts and may also maintain deposits with the Company in excess of such
required amounts. All such deposits of a patron are maintained in the patron's
Deposit Account. Patrons are required to execute subordination agreements
providing for the pledging of their Deposit Accounts to the Company and the
subordination of that portion of their Deposit Accounts which consists of
required deposits to Senior Indebtedness (as defined) of the Company. As
described below under the caption "Subordination," the subordination agreements
executed by patrons on and after January 14, 1994, differ from the subordination
agreements which have been executed by patrons before January 14, 1994. Thus,
persons or entities who become member-patrons or associate patrons on or after
January 14, 1994 are required to execute the new subordination agreements. In
addition, patrons who executed subordination agreements before January 14, 1994
may be required to execute the new subordination agreements if there is a change
in the patron's business form. For example, in the event of a change in a patron
which is a proprietorship or partnership, or a change in the stock ownership of
a patron which is a corporation, the Company may require the execution of a new
subordination agreement.
Amounts in the Deposit Accounts are not segregated from other funds of the
Company. The Deposit Accounts are recorded in the Company's records by means of
book entries, and no note, certificate or other instrument is issued as evidence
of the Deposit Accounts. After the close of each fiscal year, the Company
provides each patron with a statement showing patronage dividends allocated to
the patron's Deposit Account. In addition, written inquiry concerning the
Deposit Accounts and other additions to the account, as well as withdrawals and
charges and the account balance, may be made at any time, and telephone inquiry
may be made at any time during normal business hours. The Company's policies
regarding deposits are subject to change by the Board of Directors which may, in
its discretion, add to, increase, decrease, limit, eliminate or otherwise change
such policies.
SUBORDINATION
As described below in this section, the subordination of that portion of the
Deposit Accounts which consists of required deposits will differ depending upon
whether a patron executes a subordination agreement on or after January 14, 1994
or has executed a subordination agreement before that date.
1. SUBORDINATION AGREEMENTS EXECUTED ON OR AFTER JANUARY 14, 1994.
With respect to patrons who execute subordination agreements on or after
January 14, 1994, that portion of the Deposit Account of each such patron which
consists of required deposits will, under the terms of such agreements, be
subordinated and subject in right of payment to all Senior Indebtedness. As to
such patrons, the term "Senior Indebtedness" means all indebtedness, liabilities
or obligations of the Company,
7
<PAGE>
contingent or otherwise, whether existing on the date of execution of the
subordination agreement or thereafter incurred, (A) in respect of borrowed
money; (B) evidenced by bonds, notes, debentures or other instruments of
indebtedness; (C) evidenced by letters of credit, bankers' acceptances or
similar credit instruments; (D) in respect of Capitalized Lease Obligations; (E)
in respect of the deferred purchase price of property or assets (whether real,
personal, tangible or intangible) or in respect of any mortgage, security
agreement, title retention agreement or conditional sale contract; (F) in
respect of any interest rate swap agreement, interest rate collar agreement or
other similar agreement or arrangement designed to provide interest rate
protection; (G) in respect of all indebtedness, liabilities or obligations of
others of any of the types referred to in clauses (A) through (F) for which the
Company is responsible or liable as obligor, guarantor or otherwise or in
respect of which recourse may be had against any of the property or assets
(whether real, personal, tangible or intangible) of the Company; and (H) in
respect of all modifications, renewals, extensions, replacements and refundings
of any indebtedness, liabilities or obligations of any of the types described in
clauses (A) through (G); provided, however, that the term "Senior Indebtedness"
shall not mean any indebtedness, liabilities or obligations of the Company,
contingent or otherwise, whether existing on the date of execution of the
subordination agreement or thereafter incurred, (i) to trade creditors arising
or incurred in the ordinary course of the Company's business, (ii) in respect of
any redemption, repurchase or other payments on capital stock, (iii) in respect
of Patron's Deposits or (iv) in respect of Patronage Dividend Certificates.
For purposes of the foregoing definition, "Capitalized Lease Obligations"
means the discounted present value of the rental obligations of any person or
entity under any lease of any property which, in accordance with generally
accepted accounting principles, has been recorded on the balance sheet of such
person or entity as a capitalized lease; "Patrons' Deposits" means the deposits
from time to time required to be made or maintained with the Company by its
patrons or customers in accordance with the Bylaws of the Company as in effect
from time to time or in accordance with the policies for the servicing of
accounts of patrons or customers established from time to time by the Company,
and any deposits from time to time made or maintained with the Company by its
patrons or customers in excess of such required deposits; and "Patronage
Dividend Certificates" means any notes, revolving fund certificates, retain
certificates, certificate of indebtedness, patronage dividend certificates or
any other written evidences of indebtedness of the Company at any time
outstanding which evidence the indebtedness of the Company respecting the
distribution by the Company of patronage dividends.
The subordination is such that in the event of any insolvency or bankruptcy
proceedings relative to the Company or its property, any receivership,
liquidation, reorganization, arrangement or other similar proceedings in
connection therewith, or in the event of any proceedings for voluntary
liquidation, dissolution or other winding up of the Company, the holders of
Senior Indebtedness shall be entitled to receive payment in full of all Senior
Indebtedness (whether accrued prior or subsequent to the commencement of such
proceedings) before any payment is made with respect to that portion of the
Deposit Accounts which consists of required deposits. By reason of such
subordination, in the event of insolvency, creditors of the Company who are
holders of Senior Indebtedness may recover more ratably than holders of the
Deposit Accounts. In addition, (i) no payment shall be made with respect to that
portion of the Deposit Accounts which consists of required deposits in the event
and during the continuation of any default in the payment of any Senior
Indebtedness and (ii) in the event any default (other than those referred to in
clause (i)), shall occur and be continuing with respect to any Senior
Indebtedness permitting the holders of such Senior Indebtedness to accelerate
the maturity thereof, no payment shall be made with respect to that portion of
the Deposit Accounts which consists of required deposits during any period (a)
of 180 days after the giving of written notice of such default by the holders of
such Senior Indebtedness to the Company, or (b) in which judicial proceedings
shall be pending in respect of such default, a notice of acceleration of the
maturity of such Senior Indebtedness shall have been transmitted to the Company
in respect of such default and such judicial proceedings shall be diligently
pursued in good faith. With respect to clause (ii)(a) above, only one such
notice shall be given in any twelve consecutive months.
8
<PAGE>
2. SUBORDINATION AGREEMENTS EXECUTED PRIOR TO JANUARY 14, 1994.
With respect to patrons who executed subordination agreements prior to
January 14, 1994 and who do not execute new subordination agreements after that
date, that portion of the Deposit Account of each such patron which consists of
required deposits is, under the terms of such agreements, subordinated and
subject in right of payment to the prior payment in full of the principal of
(and premium, if any) and interest upon all Senior Indebtedness. As to such
patrons, the term "Senior Indebtedness" means, (A) any and all indebtedness of
the Company which may from time to time be outstanding as shall be payable with
respect to short term notes and other commercial paper issued by the Company and
which are rated by a nationally recognized securities rating agency, (B) any and
all indebtedness, whether contingent or otherwise, of the Company which may from
time to time be outstanding and be payable to any bank, insurance company, or
other financial institution, and (C) any and all indebtedness of others which
may from time to time be guaranteed by the Company and is payable to any bank,
insurance company or other financial institution.
The subordination is such that upon any distribution of the assets of the
Company upon any voluntary or involuntary dissolution, winding up or
liquidation, reorganization, readjustment, arrangement, or similar proceedings,
relating to the Company or its property, whether or not the Company is a party
thereto, and whether in bankruptcy, insolvency or receivership proceedings or
otherwise, or on any assignment by the Company for the benefit of creditors, or
upon any other marshaling of the assets and liabilities of the Company, all
Senior Indebtedness shall be paid in full, or provision made for such payment
satisfactory to the holders of such Senior Indebtedness, before any payment is
made on account of the principal of or interest, if any, on that portion of the
Deposit Accounts which consists of required deposits. By reason of such
subordination, in the event of insolvency, creditors of the Company who are
holders of Senior Indebtedness may recover more ratably than holders of the
Deposit Accounts. In addition, no payment shall be made on account of the
principal of or interest, if any, on that portion of any Deposit Account which
consists of required deposits, if (i) there shall have occurred a default in
payment in the principal of (or premium, if any) or interest on any Senior
Indebtedness, or (ii) there shall have occurred any other event of default with
respect to any Senior Indebtedness, permitting the holders thereof to accelerate
the maturity thereof and if written notice of election so to accelerate shall
have been given to the Company by the holder or holders of such Senior
Indebtedness or their representative or representatives, or (iii) payment on
account of principal of or interest, if any, on that portion of any Deposit
Account which consists of required deposits would itself constitute an event of
default with respect to any Senior Indebtedness, unless or until such event of
default described in clauses (i), (ii) or (iii) shall have been cured or waived
or shall have ceased to exist.
3. NO LIMIT ON SENIOR INDEBTEDNESS.
There is no limitation on the creation of additional Senior Indebtedness by
the Company. Outstanding Senior Indebtedness to which the required deposits of
patrons who execute subordination agreements on or after January 14, 1994 is
subordinated aggregated approximately $179,400,000 as of December 11, 1995, and
outstanding Senior Indebtedness to which the required deposits of patrons who
executed subordination agreements prior to January 14, 1994 is subordinated
aggregated approximately $175,400,000 as of the same date.
INTEREST
That portion of the Deposit Accounts which consists of required deposits is
non-interest bearing. While the Board of Directors of the Company could, in its
sole discretion, authorize the payment of interest on such portion, it has no
present plans to do so.
Except for deposits under the Company's price reservation program, the
Company currently pays interest on amounts in the Deposit Accounts which are in
excess of required deposits. The rate of interest is 8.75% per annum at the date
of this Prospectus. The rate of interest during each fiscal month of the Company
will be the prime rate established by Bankers Trust Company and as in effect on
the 25th day of the preceding calendar month, or, if not then available for any
reason, on the next succeeding day when such rate is available. However, if such
rate is not available for any reason prior to the beginning of the applicable
fiscal month, the rate used for the previous fiscal month will continue to be
used. Interest for a fiscal month
9
<PAGE>
will be paid only on those amounts which do not consist of required deposit and
which are in the Deposit Accounts during the entire fiscal month. Such interest
will not be compounded. Such interest will be paid to the patron semi-annually
by the Company in March and September of each year. However, upon request of the
patron, such interest will be paid by credit to the patron's Deposit Account.
The payment of interest on that portion of the Deposit Accounts which does
not consist of required deposits may be changed or eliminated at any time in the
discretion of the Board of Directors.
REPAYMENT
Upon request, the Company will return to patrons the amount of their Deposit
Accounts which is in excess of the portion thereof which consists of required
deposits, provided that the patron is not in default in its obligations to the
Company or any of its subsidiaries.
On termination of membership of a member-patron or on an associate patron
ceasing to do business with the Company, the Company will return the Deposit
Account, less all amounts that may be owing to the Company and any of its
subsidiaries. In all cases, however, return of that portion of the Deposit
Account which consists of required deposits will be governed by the
subordination provisions to which it is subject and will be returned only as and
to the extent permitted thereby.
Since the Deposit Accounts are not segregated from the Company's other
funds, the Company's liquidity might be adversely affected if the Company were
required to return a substantial amount of the Deposit Accounts at one time or
over a brief period of time. While the Company's liquidity has not been
adversely affected in the past as a result of the return of deposits to patrons,
there can be no assurance that the Company's liquidity would not be adversely
affected in the future as a result of the return to patrons of a substantial
amount of Deposit Accounts. In addition, the Company has not established any
reserves to provide for the repayment of Deposit Accounts, nor are the Deposit
Accounts secured obligations of the Company. Thus, in the event a substantial
amount of Deposit Accounts were required to be repaid by the Company at one time
or over a brief period of time, or in the event the Company were to experience
financial difficulties or to become insolvent, there can be no assurance
respecting the Company's ability to repay the Deposit Accounts and respecting
the ability of the Company's patrons to recover the amount of their Deposit
Accounts.
OTHER SIGNIFICANT ASPECTS
The Deposit Accounts are not secured by any lien upon any assets of the
Company. They are nontransferable without the consent of the Company, which will
normally be withheld. Patrons will be required to pledge their Deposit Accounts
to the Company as security for their obligations to the Company and its
subsidiaries.
METHOD OF OFFERING
As a condition of doing business with the Company, patrons are required to
have executed subordination agreements providing for the maintenance of Deposit
Accounts with the Company, the pledging of their Deposit Accounts to the Company
to secure their obligations to the Company and its subsidiaries, and the
subordination of that portion of their Deposit Accounts which consists of
required deposits.
Such persons or entities who from time to time may be accepted as new
patrons of the Company will be required, as a condition of such acceptance, to
execute subordination agreements, which subordination agreements will be
effective from and after their date of execution, providing for the maintenance
of Deposit Accounts with the Company, the pledging of their Deposit Accounts to
the Company to secure their obligations to the Company and its subsidiaries, and
the subordination of that portion of their Deposit Accounts which consists of
required deposits. The subordination agreements to be executed by patrons on and
after January 14, 1994 will differ from the subordination agreements which have
been executed by patrons before that date. See, "DESCRIPTION OF DEPOSIT ACCOUNTS
- -- Subordination."
The offering of the Deposit Accounts is made by the Company only through its
regular employees who will not receive any additional remuneration in connection
therewith.
10
<PAGE>
USE OF PROCEEDS
To the extent that Deposit Accounts of patrons increase in amount and to the
extent that Deposit Accounts are opened and maintained in connection with the
acceptance of new patrons, proceeds to the Company therefrom will be utilized as
working capital.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
(52 WEEKS) (53 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS)
<S> <C> <C> <C> <C> <C>
(THOUSANDS OMITTED)
Net sales.................................. $ 1,822,804 $ 1,873,872 $ 2,007,288 $ 2,377,740 $ 2,767,996
Declared patronage dividends............... 11,571 10,837 12,880 12,977 19,979
Net earnings (loss)........................ 769 94 473 (3,648) (4,682)
Total assets............................... 398,603 398,569 403,979 449,713 469,010
Long-term notes payable.................... 129,686 149,673 158,585 178,702 159,898
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE FISCAL YEARS ENDED SEPTEMBER 2, 1995
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the Financial Statements and notes
thereto.
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 SEPTEMBER
2, 3, AUGUST 28,
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Net sales.............................................. 100.0% 100.0% 100.0%
Cost of sales.......................................... 90.7 90.6 90.8
Distribution, selling and administrative............... 7.8 8.0 7.7
Operating income....................................... 1.5 1.4 1.5
Interest expense....................................... 0.8 0.8 0.8
Other income (expense), net............................ 0.0 (0.1) 0.0
Earnings before patronage dividends, provision for
income taxes and cumulative effect of accounting
change................................................ 0.7 0.5 0.7
Patronage dividends.................................... 0.7 0.6 0.7
Cumulative effect of accounting change................. 0.1
Net earnings........................................... 0.0 0.0 0.0
</TABLE>
FISCAL YEAR ENDED SEPTEMBER 2, 1995 ("FISCAL 1995") COMPARED TO FISCAL YEAR
ENDED SEPTEMBER 3, 1994 ("FISCAL 1994")
NET SALES. Fiscal 1994 included 53 weeks of sales while fiscal 1995
included 52 weeks of sales. Taking this difference into consideration, net sales
during fiscal 1995 remained relatively consistent with net sales during fiscal
1994. During 1995, the Company added two significant customers which contributed
approximately $64 million in net sales, spread among most sales categories. The
Company estimates these new customers will increase net sales by approximately
$250 million on an annualized basis. These sales gains were offset by the loss
of a significant frozen food customer during 1994 and a reduction in
transportation service fees.
11
<PAGE>
COST OF SALES. Cost of sales decreased $45 million (2.7%) to $1.7 billion
in fiscal 1995 as compared to fiscal 1994. Cost of sales, as a percentage of
sales, has remained consistent with fiscal 1994. The decrease in cost of sales
results primarily from the decreased sales discussed above.
DISTRIBUTION, SELLING AND ADMINISTRATIVE. Distribution, selling and
administrative expenses were $141.9 million or 7.8% of net sales in fiscal 1995,
as compared to $149.3 million or 8.0% of net sales in fiscal 1994. The decrease
in total expense was primarily due to the reduction of payroll costs and the
implementation of other programs in the Company's distribution and manufacturing
facilities to increase efficiency. Partially offsetting the benefits of these
cost reduction programs was a one time charge of $1.6 million resulting from the
adoption of Statement of Financial Accounting Standards No. 112 "Employers'
Accounting for Postemployment Benefits" ("SFAS No. 112").
OPERATING INCOME. Operating income increased 6.1% in fiscal 1995, totalling
$27.2 million. This compares to $25.6 million for fiscal 1994. This increase is
a direct result of the reduction in distribution and manufacturing costs
described above.
OTHER INCOME (EXPENSE), NET. In fiscal year 1993, GCC acquired an 81%
investment in Major Market, Inc. ("MMI") for $1.6 million. The investment was
previously consolidated in the Company's financial statements. In fiscal 1995,
GCC sold its preferred stock and 282,600 shares of common stock to MMI. GCC
received proceeds of $120,000 and a note receivable for approximately $2.6
million. GCC now holds approximately 20% of MMI's outstanding common shares and
accounts for the investment using the cost method. GCC recorded a pretax gain of
$511,000 on the sale of this investment.
INTEREST. Interest expense of $15.3 million in fiscal 1995 has remained
relatively consistent with fiscal 1994.
NET EARNINGS. Net earnings increased to $769,000 in fiscal 1995,
representing a 718% increase from fiscal 1994 net earnings of $94,000. Excluding
the impact of adopting SFAS No. 109 in the 1994 period, and SFAS No. 112 in the
1995 period, the Company experienced an improvement in after-tax earnings of
approximately $4.8 million for fiscal 1995 as compared to fiscal 1994.
FISCAL YEAR ENDED SEPTEMBER 3, 1994 ("FISCAL 1994") COMPARED TO FISCAL YEAR
ENDED AUGUST 28, 1993 ("FISCAL 1993")
NET SALES. Net sales decreased $133 million (6.6%) to slightly less than
$1.9 billion in fiscal 1994. This is a result of certain large patrons expanding
their own warehousing and distribution operations. After adjusting for the
anticipated patron self-distribution volume loss, the Company obtained an
additional $31 million of new business from new members, and expanded its
existing customers' sales volume.
COST OF SALES. Cost of sales decreased $124.7 million (6.8%) to $1.7
billion in fiscal 1994 as compared to fiscal 1993. The majority of this decrease
is in response to the lower sales volume as discussed above; however, additional
reduction in cost of sales is reflective of management's efforts to eliminate
unprofitable business and maximize vendor related deal programs.
DISTRIBUTION, SELLING AND ADMINISTRATIVE. Distribution, selling and
administrative expenses were $149.3 million or 8.0% of net sales in fiscal 1994,
as compared to $153.6 million or 7.7% of net sales in fiscal 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.
12
<PAGE>
OTHER EXPENSE, NET. During fiscal 1994, the Company adopted a formal plan
to relocate its Grocers Specialty Company ("GSC") warehouse operations in
Corona, California to the Company's corporate warehouse facilities in Los
Angeles, California. It is anticipated that the warehouse relocation will result
in more effective utilization of Company assets, transportation and warehousing
efficiencies, and enhanced service to GSC customers and members of the
cooperative. In connection with this consolidation plan, the Company recorded a
$1.6 million charge. The charge primarily consists of warehouse and inventory
relocation costs as well as reprogramming costs of certain financial and
operating systems. The warehouse relocation was completed during October 1994.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE. The Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"), effective August 29, 1993. The adoption of this new accounting method
resulted in a positive $2.5 million impact for fiscal 1994.
NET EARNINGS. Net earnings in fiscal 1994 decreased primarily because of a
$1.6 million expense associated with the facility relocation discussed above,
postretirement expenses of $2.5 million, volume losses, and lease related
charges, offset by improved earnings in the insurance subsidiaries and the $2.5
million cumulative effect of adopting SFAS No. 109.
LIQUIDITY AND CAPITAL RESOURCES
The Company relies upon cash flow from operations, patron deposits,
Patronage Certificates, shareholdings and borrowings under the Company's credit
lines, to finance operations. Net cash provided from operating activities
totalled $9.1 million for fiscal 1995 as compared to $18.2 million for fiscal
1994. The Company's cost and expense reductions, revised marketing programs, and
the dividend retention program provide adequate operating cash flow to conduct
the Company's business operations. At September 2, 1995, working capital was
$107.7 million and the current ratio was 1.7 to 1, at the fiscal 1995 and 1994
year end. Working capital varies throughout the year primarily as a result of
seasonal inventory requirements.
Capital expenditures totalled $9.4 million in fiscal 1995 and $5.9 million
in fiscal 1994.
The Company has agreements with certain banks that provide for committed
lines of credit. These credit lines are available for general working capital,
acquisitions, and maturing long-term debt. At the end of fiscal 1995, the
Company had $160 million in committed lines of credit, of which $91.1 million
was not utilized. In March 1994, the Company refinanced its existing $125
million credit line with a new $135 million secured, committed line of credit.
The new credit agreement, which matures March 17, 1997, is collateralized by
accounts receivable, inventory, and certain other assets of Certified Grocers of
California, Ltd. and two of its principal subsidiaries, excluding equipment,
real property and the assets of GCC. In April 1994, GCC refinanced its $25
million credit line with a new $25 million credit line. The new credit
agreement, which matures March 17, 1997, is collateralized primarily by GCC's
loan portfolio. The agreements provide for Eurodollar basis or prime basis
borrowings at the Company's option. As of September 2, 1995, the Company's
outstanding borrowings, including obligations under capital leases of
approximately $6.4 million, amounted to $141.2 million, of which $129.7 million
was classified as noncurrent.
In fiscal 1995, the Company completed a sale leasback transaction involving
an office building used to house the Company's support personnel. Proceeds from
the transaction were $11.5 million. Concurrent with the sale of the real
property, the Company entered into a twenty year lease of the property, with two
ten year extension options.
Certified distributes at least 20% of the patronage dividends in cash and
distributes Class B Shares as a portion of the patronage dividends distributed
to its member-patrons. In addition, under a patronage dividend retention program
authorized by Certified's Board of Directors, Certified retains a portion of the
patronage dividends to be distributed for a fiscal year and issues patronage
certificates ("Patronage Certificates") evidencing its indebtedness respecting
the retained amounts. The program provides for the issuance of Patronage
Certificates to patrons on an annual basis in a portion and at an interest rate
to be determined annually by the Board of Directors. Patronage Certificates for
each year are unsecured general obligations of Certified, are subordinated to
certain other indebtedness of Certified, and are nontransferable without the
consent of Certified. The Patronage Certificates are subject to redemption, at
any time in whole and from
13
<PAGE>
time to time in part, without premium, at the option of Certified, and are
subject to being set off, at the option of Certified, against all or any portion
of the amounts owing to the Company by the holder. Subject to the payment of at
least 20% of the patronage dividend in cash, the portion of the patronage
dividend retained is deducted from each patron's patronage dividend prior to the
issuance of Class B Shares as a portion of such dividend.
The Board of Directors determined that in fiscal years 1993 and 1994, the
portion of the patronage dividend retained and evidenced by the issuance of
Patronage Certificates was 20% of the fourth quarter dividend for dairy products
in fiscal 1993, 20% of the quarterly dairy patronage dividends for fiscal 1994
and 40% of the fiscal 1993 and 1994 dividends for non-dairy products. As to
patronage dividends to be distributed with respect to Certified's 1995 fiscal
year, the Board of Directors approved the issuance of Patronage Certificates
evidencing the allocation of an amount of such dividends equal to 40% of the
patronage dividends of all divisions, except the dairy division, and 20% of the
first and second quarter dairy division patronage dividends. The Patronage
Certificates have a seven year term, maturing on December 15, 2002, and will
bear interest from the date of issuance at the rate of 7% per annum, payable
annually on December 15 in each year, commencing December 15, 1996.
The following table represents a summary of the Patronage Certificates
issued and their respective terms in fiscal 1993 and 1994, as well as the
intended issuance and its respective terms for fiscal 1995.
<TABLE>
<CAPTION>
AGGREGATE ANNUAL
FISCAL PRINCIPAL INTEREST MATURITY
YEAR AMOUNT RATE DATE
- ------------------------------ ---------- --------- --------
<S> <C> <C> <C>
1993.......................... $2,018,000 7% 12/15/00
1994.......................... $2,426,000 8% 12/15/01
1995.......................... $2,117,000 7% 12/15/02
</TABLE>
The Company expects to continue to distribute patronage dividends in the future,
although there can be no assurance of the amounts of such dividends.
Patrons are generally required to maintain subordinated deposits with the
Company and member-patrons purchase shares of stock of the Company. Upon
termination of patron status, the withdrawing patron will be entitled to recover
deposits in excess of its obligations to the Company if permitted by the
applicable subordination provisions, and a member-patron also will be entitled
to have its shares redeemed, subject to applicable legal requirements, Company
policies and credit agreement limitations. The Company's current redemption
policy limits the Class B Shares that the Company is obligated to redeem in any
fiscal year to 5% of the number of Class B Shares deemed outstanding at the end
of the preceding fiscal year. In fiscal 1995, this limitation restricted the
Company's redemption of shares to 19,414 shares for $3,165,064. In fiscal 1996,
the 5% limitation will restrict the Company's redemption of shares to 19,238
shares for $3,190,815. Due to the loss of a number of significant
member-patrons, the number of shares tendered for redemption at September 2,
1995 totalled 87,300 (or approximately $14.5 million, using fiscal 1995 year end
book values), which exceeds the amount that can be redeemed in fiscal 1996.
Consequently, the Company will be required to make redemptions in fiscal 1997,
1998 and 1999, with such redemptions approximating $9.4 million to $9.6 million
based on 1995 year end book values and estimated share issuances for those
years. The redemption price for shares is based upon their book value as of the
end of the year preceding redemption. Cash flow to fund redemption of shares is
provided from operations, patron deposits, Patronage Certificates, current
shareholdings and borrowings under the Company's credit lines.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
IMPAIRMENT OF LONG-LIVED ASSETS
The FASB issued Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", which is effective for fiscal years beginning after December
15, 1995. Accordingly, the Company will conform to the new requirements in
fiscal 1997. The Statement establishes guidelines to be used when evaluating
long-lived assets, identifiable intangibles, and related goodwill that an entity
plans to continue to use in operations for impairment and prescribes the
accounting when such assets are determined to be impaired. The Statement also
provides
14
<PAGE>
guidance on the accounting for similar assets that a company plans to dispose
of, except for those assets of a discontinued operation. Impairment losses
recorded on assets to be held and used resulting from the initial application of
the Statement are to be reported in operating income in the period in which the
recognition criteria are met, while impairment losses recorded on assets to be
disposed of resulting from the initial application of the Statement are to be
reported as the cumulative effect of a change in accounting principles.
Management estimates that the adoption of this pronouncement will not have a
material effect on the Company's consolidated financial position and results of
operations.
POSTEMPLOYMENT BENEFITS
The FASB issued Statement of Financial Accounting Standards No. 112
"Employers' Accounting for Postemployment Benefits", which is effective for
fiscal years beginning after December 15, 1993. Accordingly, the Company has
conformed to the new requirements in fiscal 1995. The new accounting standard
requires an accrual rather than a pay-as-you-go basis of recognizing expenses
for postemployment benefits (provided by an employer to former or inactive
employees after termination of employment but before retirement). The effect on
its results of operations in fiscal 1995 approximated $1.6 million which it has
accrued as a non-cash expense.
LEGAL MATTERS
The validity of the Deposit Accounts has been passed upon for the Company by
Burke, Williams & Sorensen, Los Angeles, California.
EXPERTS
The consolidated balance sheets of the Company and subsidiaries as of
September 2, 1995 and September 3, 1994, and the related consolidated statements
of earnings, shareholders' equity, and cash flows for each of the three fiscal
years in the period ended September 2, 1995, included in this Prospectus, and
included in the Annual Report on Form 10-K of the Company, incorporated by
reference into this Prospectus, have been included herein in reliance on the
report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
15
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Consolidated Financial Statements:
Report of Independent Accountants........................................................................ 17
Consolidated Balance Sheets as of September 2, 1995 and September 3, 1994................................ 18
Consolidated Statements of Earnings for Fiscal Years Ended September 2, 1995, September 3, 1994, and
August 28, 1993......................................................................................... 19
Consolidated Statements of Shareholders' Equity for Fiscal Years Ended September 2, 1995, September 3,
1994, and August 28, 1993............................................................................... 20
Consolidated Statements of Cash Flows for Fiscal Years Ended September 2, 1995, September 3, 1994, and
August 28, 1993......................................................................................... 21
Notes to Consolidated Financial Statements............................................................... 22
</TABLE>
16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Certified Grocers of California, Ltd.
We have audited the consolidated balance sheets of Certified Grocers of
California, Ltd. and subsidiaries as of September 2, 1995 and September 3, 1994,
and the related consolidated statements of earnings, shareholders' equity, and
cash flows for each of the three fiscal years in the period ended September 2,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Certified Grocers of California, Ltd. and subsidiaries as of September 2, 1995
and September 3, 1994, and the results of their operations and their cash flows
for each of the three fiscal years in the period ended September 2, 1995, in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for income taxes and postretirement benefits
other than pensions in 1994 and postemployment benefits in 1995.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
November 27, 1995
17
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
SEPTEMBER 2, 1995 AND SEPTEMBER 3, 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Current:
Cash and cash equivalents............................................................ $ 7,329 $ 7,702
Accounts and notes receivable........................................................ 104,249 96,545
Inventories.......................................................................... 149,432 146,869
Prepaid expenses..................................................................... 4,789 3,810
Deferred taxes....................................................................... 2,850 1,204
---------- ----------
Total current assets........................................................... 268,649 256,130
Properties............................................................................. 71,816 86,683
Investments............................................................................ 22,051 20,274
Notes receivable....................................................................... 25,622 23,335
Other assets........................................................................... 10,465 12,147
---------- ----------
TOTAL ASSETS................................................................. $ 398,603 $ 398,569
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current:
Accounts payable..................................................................... $ 86,159 $ 82,137
Accrued liabilities.................................................................. 51,018 52,335
Notes payable........................................................................ 11,573 2,978
Patrons' excess deposits and declared patronage dividends............................ 12,214 11,541
---------- ----------
Total current liabilities...................................................... 160,964 148,991
Notes payable, due after one year...................................................... 129,686 149,673
Long-term liabilities.................................................................. 12,210 6,566
Commitments and contingencies -- See Notes 11 and 14
Patrons' deposits and certificates:
Patrons' required deposits........................................................... 17,022 17,589
Subordinated patronage dividend certificates......................................... 6,561 4,444
Shareholders' equity
Class A Shares....................................................................... 5,292 4,704
Class B Shares ...................................................................... 56,266 56,593
Retained earnings ................................................................... 10,488 10,313
Net unrealized gain (loss) on appreciation (depreciation) of investments............. 114 (304)
---------- ----------
Total shareholders' equity..................................................... 72,160 71,306
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................... $ 398,603 $ 398,569
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
18
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS)
FOR FISCAL YEARS ENDED SEPTEMBER 2, 1995, SEPTEMBER 3, 1994, AND AUGUST 28, 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Net sales......................................................... $ 1,822,804 $ 1,873,872 $ 2,007,288
Costs and expenses:
Cost of sales................................................... 1,653,660 1,698,930 1,823,592
Distribution, selling and administrative........................ 141,947 149,303 153,656
------------ ------------ ------------
Operating income.................................................. 27,197 25,639 30,040
Interest expense.................................................. (15,260) (15,405) (15,784)
Other income (expense), net....................................... 509 (1,600) (373)
------------ ------------ ------------
Earnings before patronage dividends, provision for income taxes
and cumulative effect of accounting change...................... 12,446 8,634 13,883
Declared patronage dividends...................................... (11,571) (10,837) (12,880)
------------ ------------ ------------
Earnings (loss) before income tax provision and cumulative effect
of accounting change............................................ 875 (2,203) 1,003
Provision for income taxes........................................ 106 203 530
------------ ------------ ------------
Earnings (loss) before cumulative effect of accounting change..... 769 (2,406) 473
Cumulative effect of accounting change............................ 2,500
------------ ------------ ------------
Net earnings...................................................... $ 769 $ 94 $ 473
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
19
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
FOR FISCAL YEARS ENDED SEPTEMBER 2, 1995, SEPTEMBER 3, 1994, AND AUGUST 28, 1993
<TABLE>
<CAPTION>
NET UNREALIZED
GAIN (LOSS) ON
CLASS A CLASS B APPRECIATION
-------------------- -------------------- RETAINED (DEPRECIATION) OF
SHARES AMOUNT SHARES AMOUNT EARNINGS INVESTMENTS
--------- --------- --------- --------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 29, 1992...................... 53,700 $ 4,511 400,713 $ 57,809 $ 11,487
Class A Shares issued....................... 1,900 309
Class A Shares redeemed..................... (5,900) (535) (424)
Class B Shares issued....................... 13,649 2,232
Class B Shares redeemed..................... (20,036) (2,803) (451)
Net earnings................................ 473
--------- --------- --------- --------- ---------
Balance, August 28, 1993...................... 49,700 4,285 394,326 57,238 11,085
Class A Shares issued....................... 6,000 981
Class A Shares redeemed..................... (6,600) (562) (517)
Class B Shares issued....................... 13,676 2,230
Class B Shares redeemed..................... (19,716) (2,875) (349)
Net earnings................................ 94
Net unrealized loss on depreciation of
investments (net of deferred tax of
$157)...................................... $ (304)
--------- --------- --------- --------- --------- -----
Balance, September 3, 1994.................... 49,100 4,704 388,286 56,593 10,313 (304)
Class A Shares issued....................... 7,800 1,271
Class A Shares redeemed..................... (6,600) (683) (393)
Class B Shares issued....................... 15,895 2,637
Class B Shares redeemed..................... (19,414) (2,964) (201)
Net earnings................................ 769
Net unrealized gain on appreciation of
investments (net of deferred tax of
$216)...................................... 418
--------- --------- --------- --------- --------- -----
Balance, September 2, 1995.................... 50,300 $ 5,292 384,767 $ 56,266 $ 10,488 $ 114
--------- --------- --------- --------- --------- -----
--------- --------- --------- --------- --------- -----
</TABLE>
The accompanying notes are an integral part of these statements.
20
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FOR FISCAL YEARS ENDED SEPTEMBER 2, 1995, SEPTEMBER 3, 1994, AND AUGUST 28, 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
(52 WEEKS) (53 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings............................................................ $ 769 $ 94 $ 473
----------- ----------- -----------
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Gain on sale of investment in affiliate............................. (511)
Cumulative effect of accounting change.............................. (2,500)
Depreciation and amortization....................................... 9,982 10,680 11,890
Loss (gain) on disposal of properties............................... 366 (445) 3
Accrued postretirement benefit costs................................ 2,965 2,509
Accrued postemployment benefit costs................................ 1,648
Accrued supplemental retirement benefit costs....................... 1,003 431 853
Accrued environmental liabilities................................... 110 1,100 400
Accrued sublease liability.......................................... (230) 1,228
Facility relocation................................................. 520
Decrease (increase) in assets:
Accounts and notes receivable..................................... (7,757) 3,428 26,454
Inventories....................................................... (3,976) 1,611 20,480
Prepaid expenses.................................................. (1,041) 170 180
Deferred taxes.................................................... (273)
Notes receivable.................................................. 293 2,720 (1,277)
Increase (decrease) in liabilities:
Accounts payable.................................................. 4,825 (2,741) (13,940)
Accrued liabilities............................................... 218 2,584 (7,311)
Patrons' excess deposits and declared patronage dividends......... 673 (3,205)
----------- ----------- -----------
Total adjustments .................................................... 8,295 18,090 37,732
----------- ----------- -----------
Net cash provided by operating activities............................... 9,064 18,184 38,205
----------- ----------- -----------
Cash flows from investing activities:
Purchase of properties................................................ (9,363) (5,921) (8,858)
Proceeds from sales of properties..................................... 12,489 1,295 1,836
(Increase) decrease in other assets................................... (1,793) (244) 43
Investment in preferred stocks, net................................... (163) (2,552)
Investment in long-term bonds, net.................................... (973) (3,102) (2,312)
Investment in common stock............................................ (180) (2,320)
Purchase of intangible assets......................................... (1,540)
Sale of investment in affiliate, net of cash disposed*................ (479)
----------- ----------- -----------
Net cash utilized by investing activities............................... (462) (12,844) (10,831)
----------- ----------- -----------
Cash flows from financing activities:
Additions to long-term notes payable.................................. 331
Reduction of long-term notes payable.................................. (7,534) (5,934) (17,360)
Additions to short-term notes payable................................. 38
Reduction of short-term notes payable................................. (2,658) (3,132) (3,905)
Decrease in members' required deposits................................ (567) (1,312) (5,664)
Issuance of subordinated patronage dividend certificates.............. 2,117 2,421 2,023
Repurchase of shares from members..................................... (4,224) (4,303) (4,213)
Issuance of shares to members......................................... 3,891 3,211 2,541
----------- ----------- -----------
Net cash utilized by financing activities............................... (8,975) (9,049) (26,209)
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents.................... (373) (3,709) 1,165
Cash and cash equivalents at beginning of year ......................... 7,702 11,411 10,246
----------- ----------- -----------
Cash and cash equivalents at end of year................................ $ 7,329 $ 7,702 $ 11,411
----------- ----------- -----------
----------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest.............................................................. $ 15,006 $ 15,232 $ 15,499
Income taxes ......................................................... 2,388 70 1,155
----------- ----------- -----------
$ 17,394 $ 15,302 $ 16,654
----------- ----------- -----------
----------- ----------- -----------
*Sale of investment in affiliate, net of cash disposed:
Working capital, other than cash...................................... $ (980)
Property, plant and equipment......................................... 1,596
Note receivable....................................................... (2,580)
Other assets.......................................................... 1,857
Proceeds in excess of net assets of affiliate sold, net............... 511
Long-term debt........................................................ (883)
-----------
Net cash effect from sale of investment in affiliate................ $ (479)
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these statements.
21
<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.
The Company's fiscal year ends on the Saturday nearest to August 31. Fiscal
years 1995 and 1993 included 52 weeks, while fiscal 1994 included 53 weeks.
RECLASSIFICATIONS:
Certain reclassifications have been made to prior years' financial
statements to present them on a basis comparable with the current year's
presentation.
CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES:
Inventories are valued at the lower of cost (first-in, first-out) or market.
DEPRECIATION:
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which approximate 40 years for buildings and 10 years
for equipment. Expenditures for replacements or major improvements are
capitalized; expenditures for normal maintenance and repairs are charged to
operations as incurred. Upon sale or retirement of properties, the cost and
accumulated depreciation are removed from the accounts, and any gain or loss is
included in operations.
POSTRETIREMENT BENEFITS:
Effective August 29, 1993, the Company implemented Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" ("SFAS No. 106"). This statement requires that the cost of
these benefits, which are primarily for health care and life insurance, be
recognized in the financial statements throughout the employees' active working
careers. The Company's previous practice was to expense these costs on a cash
basis, principally after retirement. The transition obligation is being
amortized on a straight-line basis over twenty years as allowed under SFAS No.
106. The incremental effect on the Company's results of operations for fiscal
1995 and 1994 is approximately $3.0 million and $2.5 million, respectively,
which has been accrued as a non-cash expense.
POSTEMPLOYMENT BENEFITS:
The FASB issued Statement No. 112 "Employers Accounting for Postemployment
Benefits", which is effective for fiscal years beginning after December 15,
1993. Accordingly, the Company conformed to the new requirements in fiscal 1995.
The new accounting standard requires an accrual rather than a pay-as-you-go
basis of recognizing expenses for postemployment benefits (provided by an
employer to former or inactive employees after termination of employment but
before retirement). The effect on the Company's results of operations in fiscal
1995 was $1.6 million which has been accrued as a noncash expense.
22
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ENVIRONMENTAL COSTS:
The Company expenses, on a current basis, certain recurring costs incurred
in complying with environmental regulations and remediating environmental
pollution. The Company also reserves for certain non-recurring future costs
required to remediate environmental pollution for which the Company is liable
whenever, by diligent legal and technical investigation, the scope or extent of
pollution has been determined, the Company's contribution to the pollution has
been ascertained, remedial measures have been specifically identified as
practical and viable, and the cost of remediation and the Company's
proportionate share can be reasonably estimated.
INCOME TAXES:
Effective August 29, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"),
which requires the use of the liability method of accounting for deferred income
taxes. The cumulative effect of this change in accounting principle increased
the Company's fiscal 1994 net earnings by $2.5 million.
INVESTMENTS:
Effective September 3, 1994 the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS No. 115"). The cumulative effect of such adoption
amounted to an unrealized loss of $304,000, net of deferred taxes of $157,000
and was reported separately in the Consolidated Statements of Shareholders'
Equity. There was no effect on the Consolidated Statements of Earnings. The
gross amount of $461,000 reflects a non-cash investing activity. At September 2,
1995, the Company had an unrealized gain of $114,000, net of deferred taxes of
$59,000 which was reported separately in the Consolidated Statements of
Shareholders' Equity. There was no effect on the Consolidated Statements of
Earnings. The gross amount of $173,000 reflects a non-cash investing activity.
Investment income is recorded in the Consolidated Statements of Earnings when
earned.
Prior to the implementation of SFAS No. 115, investments in fixed maturities
which might, under certain circumstances, be sold prior to their dates of
maturity were classified as investments "held for sale" and such portfolio was
recorded at the lower of cost or market value. Unrealized losses, net of
deferred taxes, on such investments, if any, were recorded as a charge directly
to shareholders' equity. In addition, the Company identified certain investments
in fixed maturities held for trading purposes. Such investments were recorded at
market value and unrealized gains or losses on such investments, net of deferred
taxes, were credited or charged directly to shareholders' equity.
The cost of securities sold is determined by the specific identification
method.
2. PROPERTIES:
Properties at September 2, 1995, and September 3, 1994 stated at cost, are
comprised of:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Land......................................................................... $ 8,856 $ 11,488
Buildings and leasehold improvements......................................... 64,321 71,854
Equipment.................................................................... 65,849 64,637
Equipment under capital leases............................................... 9,259 10,345
---------- ----------
148,285 158,324
Less, accumulated depreciation and
amortization............................................................... 76,469 71,641
---------- ----------
$ 71,816 $ 86,683
---------- ----------
---------- ----------
</TABLE>
23
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS:
The amortized cost and fair values of investments available-for-sale were as
follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
SEPTEMBER 2, 1995 COSTS GAINS LOSSES VALUE
- --------------------------------------------------------- ----------- ------------- ------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed Maturities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies.................. $ 9,941 $ 138 $ 83 $ 9,996
Corporate securities................................... 1,765 57 14 1,808
Mortgage backed securities............................. 933 19 1 951
----------- ----- --- ---------
Sub-total............................................ 12,639 214 98 12,755
Redeemable preferred stock............................... 6,696 58 1 6,753
Equity securities........................................ 2,543 2,543
----------- ----- --- ---------
$ 21,878 $ 272 $ 99 $ 22,051
----------- ----- --- ---------
----------- ----- --- ---------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
SEPTEMBER 3, 1994 COST GAINS LOSSES VALUE
- --------------------------------------------------------- ----------- ------------- ------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed Maturities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies.................. $ 10,102 $ 10 $ 415 $ 9,697
Corporate securities................................... 306 8 298
Mortgage backed securities............................. 1,455 1 49 1,407
----------- --- ----- ---------
Sub-total............................................ 11,863 11 472 11,402
Redeemable preferred stock............................... 6,552 6,552
Equity securities........................................ 2,320 2,320
----------- --- ----- ---------
$ 20,735 $ 11 $ 472 $ 20,274
----------- --- ----- ---------
----------- --- ----- ---------
</TABLE>
24
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fixed maturity investments are due as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
SEPTEMBER 2, 1995 COST VALUE
- -------------------------------------------------------------------------------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Fixed Maturities Available for Sale:
Due in one year or less....................................................... $ 300 $ 304
Due after one year through five years......................................... 4,420 4,438
Due after five years through ten years........................................ 4,475 4,481
Due after ten years........................................................... 3,444 3,532
----------- -----------
$ 12,639 $ 12,755
----------- -----------
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
AMORTIZED FAIR
SEPTEMBER 3, 1994 COST VALUE
- -------------------------------------------------------------------------------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Fixed Maturities Available for Sale:
Due in one year or less....................................................... $ 852 $ 828
Due after one year through five years......................................... 7,292 7,042
Due after five years through ten years........................................ 2,790 2,632
Due after ten years........................................................... 929 900
----------- -----------
$ 11,863 $ 11,402
----------- -----------
----------- -----------
</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>
1995 1994 1993
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Fixed Maturities................................................................ $ 1,469 $ 1,094 $ 1,267
Preferred Stock................................................................. 563 461 311
Cash and cash equivalents....................................................... 171 95 122
--------- --------- ---------
2,203 1,650 1,700
Less: investment expenses....................................................... (85) (110) (64)
--------- --------- ---------
Net investment income....................................................... $ 2,118 $ 1,540 $ 1,636
--------- --------- ---------
--------- --------- ---------
</TABLE>
Investments carried at fair values of $11,272,000 and $7,625,000 at
September 2, 1995 and September 3, 1994, respectively, are on deposit with
regulatory authorities in compliance with insurance company regulations.
25
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. NOTES PAYABLE:
Notes payable at September 2, 1995 and September 3, 1994 are summarized as
follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Notes payable to banks under revolving credit agreements, expiring March 17,
1997, interest rate at prime (8.75% and 7.75% at September 2, 1995 and
September 3, 1994, respectively) plus 1/2% or Eurodollar (5.88% and 4.81%
at September 2, 1995 and September 3, 1994, respectively) plus 1 1/2%...... $ 53,439 $ 59,352
Note payable to banks under revolving credit agreements, expiring March 17,
1997, interest rate at prime (8.75% and 7.75% at September 2, 1995 and
September 3, 1994, respectively) plus 1/2% or Eurodollar (5.88% and 4.81%
at September 2, 1995 and September 3, 1994, respectively) plus 1 1/2%...... 15,500 18,000
Subordinated note payable to a life insurance company, due April 1, 1999,
interest rate of 10.8%, $8,750,000 due April 1 each year beginning in
1996....................................................................... 35,000 35,000
Senior note payable to a life insurance company, collateralized through an
inter-creditor agreement with banks under the revolving credit agreement of
$135 million, due January 15, 2005, interest rate of 9.55%, $62,500 due
monthly each year beginning in 1992 through 2000 and then $220,833 monthly
until maturity............................................................. 16,500 17,250
Notes payable, collateralized by land and warehouses, payable monthly,
approximately $60,000 plus interest at 9.88%, due February 1, 2006......... 14,462 15,211
Obligations under capital leases............................................. 6,358 7,838
---------- ----------
141,259 152,651
Less, portion due within one year............................................ (11,573) (2,978)
---------- ----------
$ 129,686 $ 149,673
---------- ----------
---------- ----------
</TABLE>
Maturities of long-term debt as of September 2, 1995 are:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C>
1996................................................................. $ 11,573
1997................................................................. 80,397
1998................................................................. 11,337
1999................................................................. 11,353
2000................................................................. 4,039
Beyond 2000.......................................................... 22,560
------------
$141,259
------------
------------
</TABLE>
Weighted average interest rates on short-term borrowings for fiscal year
ends 1995, 1994, and 1993 approximated 9.57%, 9.71%, and 9.14%, respectively.
Weighted average interest rates during each fiscal year, calculated on a
quarterly basis, approximated respective year end average rates. The average
amounts of short-term borrowings outstanding during fiscal years 1995, 1994, and
1993 were $5,170,000, $3,147,000, and $3,206,000 respectively. Short-term
borrowings amounted to as much as $11,573,000 in 1995, $3,158,000 in 1994 and
$3,616,000 in 1993.
26
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company has two credit agreements with certain banks that provide for
committed lines of credit. These credit lines are available for general working
capital, acquisitions, and maturing long-term debt. At the end of fiscal year
1995, the Company had $160 million in committed lines of credit, of which $91.1
million was not utilized. The unused portion of these credit lines are subject
to annual commitment fees of 0.375%.
The credit agreements contain various financial covenants pertaining to
working capital, debt-to-equity relationships, tangible net worth, earnings, and
similar provisions. In addition, on the required portion of member deposits and
redemption of Class A and Class B Shares, no payment may be made if there exists
a default with respect to any senior indebtedness, as defined, until such
default has been cured or waived or until such senior indebtedness has been paid
in full.
One credit agreement of $135 million is collateralized by accounts
receivable, inventory and certain other assets, excluding equipment and real
property. The maturity date is March 17, 1997, but is subject to extension by
the mutual consent of the Company and the banks. The agreement provides for
Eurodollar basis or prime basis borrowings at the Company's option.
The other credit agreement for $25 million is collateralized by Grocers
Capital Company's ("GCC") receivables. The maturity date is March 17, 1997, but
is subject to extension by the mutual consent of the Company and the banks. The
agreement provides for prime basis or Eurodollar basis borrowings at the
Company's option.
As a result of maturing long-term debt (a non-cash financing activity), the
Company reclassified from long to short-term debt $11,570,000, $2,978,000 and
$3,088,000 in fiscal 1995, 1994 and 1993, respectively.
The fair values of the Company's notes payable, excluding obligations under
capital leases, approximated $133 million at September 2, 1995. Rates currently
available to the Company for debt with similar terms and remaining maturities
are used to estimate the fair values of notes payable.
5. LEASES:
The Company has entered into both operating and capital leases for certain
warehouse, transportation and data processing computer equipment. The Company
has also entered into operating leases for approximately 36 retail supermarkets.
The majority of these locations are subleased to various member-patrons of the
Company. The operating leases and subleases are noncancellable, renewable,
include purchase options in certain instances, and require payment of taxes,
insurance and maintenance. In addition, the Company is contingently liable with
respect to lease guarantees for certain member-patrons. The total commitment for
such lease guarantees approximates $33.3 million to $37.2 million. The Company's
security respecting these lease guarantees is discussed in Note 12 under
"Concentration of Credit Risk."
Total rent expense was $21,051,000, $22,707,000, and $23,326,000 in 1995,
1994, and 1993 respectively. Sublease rental income was $5,308,000, $4,713,000,
and $4,657,000 in 1995, 1994, and 1993 respectively.
27
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Minimum rentals (exclusive of real estate taxes, insurance, and other
expenses payable under the terms of the leases) as of September 2, 1995, are
summarized as follows:
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES
--------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
1996............................................................... $ 2,351 $ 19,807
1997............................................................... 1,036 17,982
1998............................................................... 982 13,186
1999............................................................... 852 10,737
2000............................................................... 852 9,161
Beyond 2000........................................................ 340 54,675
------ --------
Total minimum lease payments..................................... 6,413 $ 125,548
--------
--------
Less, amount representing interest................................. 55
------
Present value of net minimum lease payments........................ 6,358
Less, current portion.............................................. 1,247
------
Total long-term portion.......................................... $ 5,111
------
------
</TABLE>
Minimum sublease rentals (exclusive of real estate taxes, insurance and
other expenses payable under the terms of the leases) as of September 2, 1995,
are summarized as follows:
<TABLE>
<CAPTION>
OPERATING LEASES
--------------------
(DOLLARS IN
THOUSANDS)
<S> <C>
1996.............................................................................. $ 6,404
1997.............................................................................. 6,313
1998.............................................................................. 4,213
1999.............................................................................. 3,624
2000.............................................................................. 3,114
Beyond 2000....................................................................... 22,645
-------
$ 46,313
-------
-------
</TABLE>
In fiscal 1995, the Company completed a sale leaseback transaction with
Trinet Corporate Realty Trust, Inc. ("Trinet"), an unaffiliated third party. The
total sales price for the property was $11,500,000. Concurrent with the sale of
the real property, the Company and Trinet entered into a twenty year lease of
the property, with two ten year extension options. The monthly rental is
approximately $108,000 and is subject to CPI adjustment commencing on the first
day of the sixth, eleventh and sixteenth years. However, such CPI adjustments
shall not exceed four percent per annum on a cumulative basis during each five
year period. The gain on this transaction was $1.2 million of which $41,000 of
the deferred gain was recognized during fiscal 1995 in accordance with SFAS 13.
28
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES:
The significant components of income tax expense (benefit) attributable to
continuing operations are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Federal:
Current tax expense........................................... $ 290 $ 2,049 $ 396
Utilization of net operating loss carryforwards............... (800)
Deferred tax (benefit) expense................................ (72) (1,156) 58
--------- --------- ---------
218 93 454
--------- --------- ---------
State:
Current tax expense........................................... 114 377 57
Deferred tax (benefit) expense................................ (226) (267) 19
--------- --------- ---------
(112) 110 76
--------- --------- ---------
$ 106 $ 203 $ 530
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company's income taxes currently payable in 1995 and 1994 are in part
due to alternative minimum tax.
The effects of temporary differences and other items that give rise to
deferred tax assets and deferred tax liabilities are presented below:
<TABLE>
<CAPTION>
SEPTEMBER 2, SEPTEMBER 3,
1995 1994
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accounts receivable..................................................... $ 2,223 $ 895
Accrued vacation/incentives............................................. 808 299
Closed store reserves................................................... 562 632
Lease reserve........................................................... 483 528
Deferred income......................................................... 597
Insurance reserves...................................................... 1,736 1,789
Postretirement/Postemployment benefits other than pension............... 4,366 505
Alternative minimum tax credits......................................... 1,810 1,948
Tax credits............................................................. 110 277
Net operating loss carryforwards........................................ 93 571
Other................................................................... 1,362 638
------------ ------------
Total gross deferred tax assets....................................... 14,150 8,082
Less valuation allowance................................................ (1,400) (1,400)
------------ ------------
Deferred tax assets................................................... $ 12,750 $ 6,682
------------ ------------
------------ ------------
Deferred tax liabilities:
Property, plant and equipment........................................... $ 4,561 $ 2,029
Capitalized software.................................................... 1,380
Intangible asset........................................................ 1,878
Deferred state taxes.................................................... 349 273
Other................................................................... 341 195
------------ ------------
Total gross deferred tax liabilities.................................. $ 8,509 $ 2,497
------------ ------------
------------ ------------
Net deferred tax asset................................................ $ 4,241 $ 4,185
------------ ------------
------------ ------------
</TABLE>
A valuation allowance is provided to reduce the deferred tax assets to a
level which, more likely than not, will be realized. The remaining balance of
the net deferred tax assets should be realized through future operating results,
and the reversal of taxable temporary differences, and tax planning strategies.
29
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The provision for income taxes at the Company's effective tax rate differed
from the provision for income taxes at the statutory rate as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Federal income tax expense (benefit) at the statutory
rate....................................................... $ 297 $ (749) $ 341
State income taxes, net of federal income tax benefit....... (75) 73 50
Loss on insurance subsidiary not recognized for federal
taxes...................................................... 67
Dividend received deduction................................. (128) (105) (74)
Permanent differences....................................... 68 96 68
Alternative minimum tax..................................... 385
Increase in valuation allowance............................. 392
Other, net.................................................. (56) 111 78
----- ------- -----
Provision for income taxes.................................. $ 106 $ 203 $ 530
----- ------- -----
----- ------- -----
</TABLE>
At September 2, 1995, the Company has alternative minimum tax credit
carryforwards of approximately $1.8 million available to offset future regular
income taxes payable to the extent such regular taxes exceed alternative minimum
taxes payable.
7. SUBORDINATED PATRONAGE DIVIDEND CERTIFICATES:
In December 1992, the Company's Board of Directors (the "Board") authorized
a patronage dividend retention program to be effective commencing with the
dividends payable for fiscal 1993, whereby Certified retains a portion of the
patronage dividends and issues Patronage Certificates (the "Certificates")
evidencing its indebtedness respecting the retained amounts. In addition, the
program provides for the issuance of the Certificates to patrons on an annual
basis in a portion and at an interest rate to be determined annually by the
Board of Directors. However, as to any particular patron, if the amount of the
retention is less than a specified minimum (presently $500), then no retention
occurs and a Certificate is not issued. Certificates for each year are unsecured
general obligations of Certified, are subordinated to certain other Certified
indebtedness, and are nontransferable without the consent of Certified. The
certificates are subject to redemption, at any time in whole and from time to
time in part, without premium, at the option of Certified.
The Board of Directors determined that in fiscal years 1993 and 1994, the
portion of the patronage dividend retained and evidenced by the issuance of
Certificates was 20% of the fourth quarter dividend for dairy products in fiscal
1993, 20% of the quarterly dairy patronage dividends for fiscal 1994 and 40% of
the fiscal 1993 and 1994 dividends for non-dairy products. The Board of
Directors approved the patronage dividend retention program for fiscal year
1995. As to patronage dividends to be distributed with respect to Certified's
1995 fiscal year, Certificates will be issued evidencing the allocation of an
amount of such dividends equal to 40% of the patronage dividends of all
divisions, except the dairy division, and 20% of the first and second quarter
dairy division patronage dividends. The Certificates issued for fiscal 1995 have
a seven year term, maturing on December 15, 2002, and will bear interest from
the date of issuance at the rate of 7% per annum, payable annually on December
15 in each year, commencing December 15, 1996.
The following table represents a summary of the Certificates issued and
their respective terms in fiscal 1993 and 1994, as well as the intended issuance
and its respective terms for fiscal 1995.
<TABLE>
<CAPTION>
AGGREGATE ANNUAL
FISCAL PRINCIPAL INTEREST MATURITY
YEAR AMOUNT RATE DATE
- ------------------------------ ---------- --------- --------
<S> <C> <C> <C>
1993.......................... $2,018,000 7% 12/15/00
1994.......................... $2,426,000 8% 12/15/01
1995.......................... $2,117,000 7% 12/15/02
</TABLE>
The Company expects to continue to distribute patronage dividends in the
future, although there can be no assurance of the amounts of such dividends.
30
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. CAPITAL SHARES:
The Company requires that each member-patron hold 100 Class A shares. Each
member-patron must also hold Class B Shares having combined issuance values
equal to the lesser of the amount of the member-patron's required deposit or
twice the member-patron's average weekly purchases (the "Class B Share
requirement"). For this purpose, each Class B Share held by a member-patron has
an issuance value equal to the book value of Certified's outstanding shares as
of the close of the fiscal year last ended prior to the issuance of such Class B
Share.
After payment of at least 20% of the patronage dividend in cash and the
issuance of the Patronage Certificates, Class B Shares are issued as a portion
of each member-patron's patronage dividend and, to the extent necessary to
fulfill the member-patron's Class B Share requirement, by crediting the
member-patron's cash deposit account for the issuance values of such shares.
All shares of a terminated member will be redeemed by the Company (subject
to certain legal limitations, provisions of the Company's redemption policy, and
provisions of certain of the Company's committed lines of credit) at a price
equal to the book value of the shares as of the close of the fiscal year ended
prior to the redemption, less all amounts that may be owing by the member to the
Company. All shares are pledged to the Company to secure the Company's
redemption rights and as collateral for all obligations to the Company. The
Company is not obligated in any fiscal year to redeem more than 5% of the sum of
the number of Class B Shares outstanding as of the close of the preceding fiscal
year and the number of Class B Shares issued as a part of the patronage dividend
for the preceding year (the "5% limit"). Thus, shares tendered for redemption in
a given fiscal year may not necessarily be redeemed in that fiscal year. The 5%
limit for fiscal year 1996 will allow for redemption of 19,238 shares. The
following table summarizes the Class B Shares tendered and presently approved
for redemption, shares redeemed, and the remaining number of shares pending
redemption:
<TABLE>
<CAPTION>
FISCAL
YEAR TENDERED REDEEMED REMAINING
------ ----------- ----------- ----------- BOOK
VALUE
-----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C> <C>
1991........................................... 40,962 20,020 20,942 $ 3,577
1992........................................... 48,543 20,038 49,447 8,031
1993........................................... 29,019 20,036 58,430 9,555
1994........................................... 39,637 19,716 78,351 12,773
1995........................................... 25,511 19,414 84,448 14,007
1996 (through December 1995)................... 2,852 19,238 68,062 11,289
</TABLE>
Because the 5% limit for fiscal year 1996 has been met, the remaining 68,062
shares (or approximately $11.3 million, using fiscal 1995 year end book values)
not redeemed in fiscal year 1996 as well as the redemption of any additional
Class B Shares tendered during fiscal 1996 will require the prior approval of
the Company's Board of Directors. At present, such approvals are not expected to
be given. Accordingly, since the Company's fiscal 1996 5% share redemption
limitation has been met, future redemptions for the 1996 fiscal year will be
postponed. The total of Class B Shares tendered and awaiting redemption has
caused the 5% limit for fiscal 1996, and will cause the limits for fiscal 1997
through 1999 to be met, thereby delaying the redemption of Class B Shares in
excess of such limit. The redemptions required for fiscal years 1997 through
1999 approximate $9.4 million to $9.6 million based on 1995 year end book values
and estimated share issuances for those years. Cash flow to fund redemption of
shares is provided from operations, patron deposits, Patronage Certificates,
current shareholdings and borrowings under the Company's credit lines. Any
additional large tenderings of Class B Shares could also potentially cause
future year 5% limitations to be exceeded. Therefore, the Company's ability to
redeem additional shares in excess of the 5% limit without prior approval of the
Board may also be limited.
31
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
There are 500,000 authorized Class A Shares, of which 50,300 and 49,100 were
outstanding at September 2, 1995 and September 3, 1994, respectively. There are
2,000,000 authorized Class B Shares, of which 384,767 and 388,286 were
outstanding at September 2, 1995 and September 3, 1994, respectively. Once
redeemed, such shares are not available for reissuance to member-patrons.
No member-patron may hold more than one hundred Class A Shares. However, it
is possible that a member may have an interest in another member, or that a
person may have an interest in more than one member, and thus have an interest
in more than one hundred Class A Shares. The Board of Directors is authorized to
accept member-patrons without the issuance of Class A Shares when the Board of
Directors determines that such action is justified by reason of the fact that
the ownership of the patron is the same, or sufficiently the same, as that of
another member-patron holding one hundred Class A Shares. The price for such
shares will be the book value per share of outstanding shares at the close of
the fiscal year last ended.
There are also 15 authorized Class C Shares of which 15 are outstanding.
These shares are valued at $10 per share, and ownership is limited to members of
the Board of Directors with no rights as to dividends or other distributions.
9. BENEFIT PLANS:
The Company has a noncontributory, defined benefit pension plan covering
substantially all of its nonunion employees. The benefits under the plan
generally are based on the employee's years of service and average earnings for
the three highest consecutive calendar years of compensation during the ten
years immediately preceding retirement. The Company makes contributions to the
pension plan in amounts which are at least sufficient to meet the minimum
funding requirements of applicable laws and regulations but no more than amounts
deductible for federal income tax purposes. Benefits under the plan are included
in a trust providing benefits through annuity contracts, and part of the plan
assets are held by a trustee.
32
<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>
1995 1994 1993
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested
benefits..................................................................... $ 24,416 $ 24,519 $ 22,025
Effect of assumed future increase in compensation
levels....................................................................... 10,319 10,380 10,025
--------- --------- ---------
Projected benefit obligation for services rendered to
date......................................................................... 34,735 34,899 32,050
Plan assets at fair value........................................................ 32,593 31,538 31,185
--------- --------- ---------
Plan assets in deficiency of projected benefit obligations....................... 2,142 3,361 865
Unrecognized net gain............................................................ (6,094) (6,092) (3,544)
Unrecognized transition asset.................................................... 1,839 2,148 2,457
Unrecognized prior service cost.................................................. 342 381 (99)
--------- --------- ---------
Accrued (Prepaid) pension costs at June 1........................................ (1,771) (202) (321)
--------- --------- ---------
Fourth quarter contribution...................................................... -- (321) (382)
Fourth quarter net periodic pension cost......................................... 326 229 338
--------- --------- ---------
Accrued (Prepaid) pension cost at fiscal year end................................ $ (1,445) $ (294) $ (365)
--------- --------- ---------
Net pension cost for the fiscal year ending included the following components:
Service cost -- benefits earned during the period.............................. $ 1,398 $ 1,385 $ 1,447
Interest cost on projected benefit obligation.................................. 2,650 2,425 2,405
Actual return on plan assets................................................... (2,845) (2,628) (2,419)
Net amortization and deferral.................................................. 100 (266) (82)
--------- --------- ---------
Net periodic pension cost...................................................... $ 1,303 $ 916 $ 1,351
--------- --------- ---------
Major assumptions:
Assumed discount rate.......................................................... 7.50% 7.50% 7.50%
Assumed rate of future compensation increases.................................. 5.50% 5.50% 5.50%
Expected rate of return on plan assets......................................... 8.50% 8.50% 8.50%
</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 $24,007,000,
$24,029,000, and $21,442,000 in 1995, 1994, and 1993, respectively.
The Company also made contributions of $5,368,000, $4,820,000, and
$5,155,000 in 1995, 1994, and 1993, respectively to collectively bargained,
multiemployer defined benefit pension plans in accordance with the provisions of
negotiated labor contracts. Information from the plans' administrators is not
available to permit the Company to determine its proportionate share of
termination liability, if any.
The Company has an Employees' Sheltered Savings Plan ("SSP"), which is a
defined contribution plan, adopted pursuant to Section 401(k) of the Internal
Revenue Code for its nonunion employees. The Company matches each dollar
deferred up to 4% of compensation and, at its discretion, matches 40% of amounts
deferred between 4% and 8%. At the end of each fiscal year, the Company also
contributes an amount equal to 2% of the compensation of those participants
employed at that date. The Company contributed approximately $2,100,000,
$2,200,000, and $2,200,000 in 1995, 1994, and 1993 respectively.
Also, the Company has an Employee Savings Plan ("ESP"), which is a defined
contribution plan, subject to the provisions of the Employee Retirement Income
Security Act of 1974, for all union and
33
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
nonunion employees hired prior to March 1, 1983. Subsequent to March 1, 1983,
the Company's contribution to the ESP in any fiscal year is based on net
earnings as a percentage of total sales and is applicable to union employees
only. In the event net earnings are less than 1.5% of total sales, no
contribution is required. All corporate (nonunion) employees who had a previous
balance in the ESP Plan had their balances transferred to the SSP Plan effective
first quarter of fiscal 1992. No expense was incurred in fiscal years 1995, 1994
and 1993.
In September 1994, the Board of Directors authorized a new supplemental
executive pension plan (effective January 4, 1995) which provides retirement
income to certain officers based on each participant's final salary and years of
service with the Company. The plan, called the Company's Executive Salary
Protection Plan ("ESPP II"), provides additional post-termination retirement
income based on each participant's final salary and years of service with the
Company. The funding of this benefit will be facilitated through the purchase of
life insurance policies, the premiums of which will be paid by the Company and
participant contributions.
ESPP II supersedes and replaces the Executive Salary Protection Plan I
("ESPP I"). Under ESPP I, Certified purchased life insurance policies for
certain officers. Upon reaching age 65 (or upon termination, if earlier), the
employee was given the cash surrender value of the policy, plus any additional
income taxes incurred by the employee as a result of such distribution.
The plan is unfunded. The amounts recognized in the balance sheet are:
<TABLE>
<CAPTION>
1995
-----------
(DOLLARS IN
THOUSANDS)
<S> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested benefits................................ $ 3,026
Effect of assumed future increase in compensation levels.................................. 282
-----------
Projected benefit obligation for services rendered to date................................ 3,308
Plan assets at fair value................................................................... --
-----------
Plan assets in deficiency of projected benefit obligation................................... 3,308
Unrecognized net gain (loss)................................................................ (217)
Unrecognized transition asset...............................................................
Unrecognized prior service cost............................................................. (1,659)
-----------
Accrued (prepaid) pension cost as of June 1................................................. 1,432
-----------
Fourth quarter contributions................................................................ (20)
Fourth quarter net periodic pension cost.................................................... 130
Additional minimum liability................................................................ 1,484
-----------
Accrued (prepaid) pension cost at fiscal year end........................................... $ 3,026
-----------
</TABLE>
The additional minimum liability represents the excess of the unfunded
Accumulated Benefit Obligation over previously accrued pension costs. A
corresponding intangible asset was recorded as an offset to this additional
liability as prescribed.
34
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The net periodic pension cost for the fiscal year ending included the
following components:
<TABLE>
<CAPTION>
1995
---------
<S> <C>
Service cost -- benefits attributed to service during the period................................ $ 136
Interest cost on projected benefit obligation................................................... 168
Actual return on plan assets....................................................................
Net amortization and deferral................................................................... 85
---------
Net periodic pension cost....................................................................... $ 389
---------
Major Assumptions:
Assumed discount rate......................................................................... 7.50%
Assumed rate of future compensation increases................................................. 4.00%
Expected rate of return on plan assets........................................................ 8.50%
</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 $3,026,000 in
1995.
10. POSTRETIREMENT BENEFIT PLANS OTHER THAN PENSIONS:
The Company sponsors postretirement benefit plans that cover both nonunion
and union employees. Nonunion employees are eligible for a plan providing
medical benefits. A certain group of retired nonunion employees participate in a
plan providing life insurance benefits for which currently active nonunion
employees are no longer eligible. Most union and all nonunion employees have
separate plans providing a lump sum payout for unused days in the sick leave
bank. The postretirement health care plan is contributory for nonunion employees
retiring after January 1, 1990, with the retiree contributions adjusted
annually; the life insurance plan and the sick leave payout plans are
noncontributory.
35
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The plans are unfunded. The amounts recognized in the balance sheet are:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees...................................................................... $ 10,335 $ 11,496
Fully eligible active plan participants....................................... 3,783 4,622
Other active plan participants................................................ 8,927 9,117
---------- ----------
Accumulated postretirement benefit obligation................................... 23,045 25,235
Unrecognized transition obligation.............................................. (20,224) (21,348)
Unrecognized prior service cost.................................................
Unrecognized net gain (loss).................................................... 1,912 (2,013)
---------- ----------
Accrued postretirement benefit cost at June 1................................... 4,733 1,874
Fourth quarter contributions.................................................... (303) (294)
Fourth quarter net periodic postretirement benefit cost......................... 1,044 929
---------- ----------
Accrued postretirement benefit cost............................................. $ 5,474 $ 2,509
---------- ----------
---------- ----------
Net periodic postretirement benefit cost for the fiscal year ending included the
following components:
<CAPTION>
1995 1994
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Service cost -- benefits attributed to service during the period............... $ 867 $ 654
Interest cost on accumulated postretirement benefit obligation................ 2,052 1,915
Amortization of transition obligation over 20 years........................... 1,124 1,124
Net amortization and deferral................................................. 133 21
---------- ----------
Net periodic postretirement benefit cost...................................... $ 4,176 $ 3,714
---------- ----------
---------- ----------
</TABLE>
For measurement purposes, a 9.5 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for fiscal year 1996;
the rate was assumed to decrease gradually to 6 percent in fiscal 2002 and
remain at the level thereafter. The health care cost trend rate assumption has a
significant effect on the amounts reported. To illustrate, increasing the
assumed health care cost trend rates by 1 percentage point in each year would
increase the accumulated postretirement benefit obligation as of September 2,
1995 by $3,174,000 and the aggregate benefit cost for the year then ended by
$470,000.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 8 percent.
The Company's union employees participate in a multiemployer plan that
provides health care benefits. Amounts charged to postretirement benefit cost
and contributed to the plan totaled $1.3 million in fiscal year 1995 and 1994.
Prior to the adoption of SFAS No. 106, the Company recognized the cost of
providing those benefits under the insurance agreement by expensing the claims
and administrative fees when paid, which for active and retired employees
totalled $5,890,000 in 1993. The portion of the cost of providing those benefits
for 164 retirees in fiscal 1993 was approximately $1.2 million.
11. CONTINGENCIES:
LITIGATION. The Company is a defendant in a number of cases currently in
litigation or potential claims encountered in the normal course of business
which are being vigorously defended. In the opinion of management, the
resolutions of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
36
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ENVIRONMENTAL MATTERS. The Company, together with others, was notified by
the Environmental Protection Agency ("EPA") that it was a potentially
responsible party ("PRP") for the disposal of hazardous substances during the
1970s and early 1980s at Operating Industries, Inc. Superfund Site in Monterey
Park, California ("OII Site"). The Company has not disposed of any materials at
the site since and believes its current disposal policies to be in accordance
with federal, state and local governmental laws and regulations. Clean up of
this site will occur in five phases and could entail estimated total clean up
costs of $650 million to $800 million.
The Company appealed the initial findings of the EPA on August 16, 1993
concerning the quantity of disposed waste allocated to the Company. Management
recorded an initial liability of $400,000 for fiscal 1993 for the first three
phases of the five-phase cleanup. The initial liability was based on estimated
cleanup costs of $2 per gallon on approximately 200,000 gallons disposed at the
site. In August 1995, the EPA finalized the Company's allocated share of the
cleanup cost (approximately $380,000) for the first three phases of the cleanup.
The EPA also informed the Company of phases 4 and 5, which include final
remedy and ground water treatment, and a 30 year post-cleanup site control and
monitoring. The estimated costs of these two phases, together with the first
three phases, are reserved in the financial statements. As of September 2, 1995,
the total reserve established in respect to environmental liabilities is $1.6
million. The Company is pursuing recovery of a portion of this amount from its
insurance carriers.
Because of the uncertainties associated with environmental assessment and
remediation activities, future expenses to remediate the currently identified
site could be higher than the accrued liability. Although it is difficult to
estimate the liability of the Company related to these environmental matters,
management believes that these matters will not have a materially adverse effect
on the Company's financial position or consolidated statement of earnings.
12. CONCENTRATION OF CREDIT RISK:
Financial instruments which potentially expose the Company to concentrations
of credit risk consist primarily of trade receivables and lease guarantees for
certain member-patrons. These concentrations of credit risk may be affected by
changes in economic or other conditions affecting the Western United States,
particularly California. However, management believes that receivables are well
diversified and the allowances for doubtful accounts are sufficient to absorb
estimated losses. Obligations of member-patrons to the Company, including lease
guarantees, are generally supported by the Company's right of offset, upon
default, against the member-patrons' cash deposits, shareholdings and Patronage
Certificates, as well as personal guarantees and reimbursement and
indemnification agreements.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments ("SFAS No. 107"), requires disclosure of fair
value information about most financial instruments, both on and off the balance
sheet, if it is practicable to estimate. SFAS No. 107 excludes certain financial
instruments, such as certain insurance contracts, and all non-financial
instruments from its disclosure requirements. A financial instrument is defined
as a contractual obligation that ultimately ends with the delivery of cash or an
ownership interest in an entity. Disclosures regarding the fair value of
financial instruments have been derived using external market sources, estimates
using present value or other valuation techniques.
37
<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 2, 1995 and September 3, 1994, of the Company's financial
instruments reportable pursuant to SFAS No. 107:
<TABLE>
<CAPTION>
1995 1994
---------------------- ----------------------
<S> <C> <C> <C> <C>
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Assets:
Cash and cash equivalents............................ $ 7,329 $ 7,329 $ 7,702 $ 7,702
Investments.......................................... 22,051 22,051 20,274 20,274
Notes receivable..................................... 25,622 25,622 23,335 23,335
Liabilities:
Notes payable and Notes payable, due after one
year................................................ $ 141,259 $ 139,496 $ 152,651 $ 148,637
Patrons' excess deposits and declared patronage
dividends........................................... 12,214 12,214 11,541 11,541
Patrons' required deposits........................... 17,022 17,022 17,589 17,589
Subordinated patronage dividend certificates......... 6,561 6,561 4,444 4,444
</TABLE>
The methods and assumptions used to estimate the fair values of the
Company's financial instruments at September 2, 1995 and September 3, 1994 were
based on estimates of market conditions and risks existing at that time. These
values represent an approximation of possible value and may never actually be
realized.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value due to the short
maturity of these instruments.
INVESTMENTS AND NOTES RECEIVABLE
The fair values for Investments and Notes receivable are based
primarily on quoted market prices for those or similar instruments.
NOTES PAYABLE AND NOTES PAYABLE DUE AFTER ONE YEAR
The fair values for Notes payable and Notes payable, due after one
year are based primarily on rates currently available to the Company for
debt with similar terms and remaining maturities.
PATRONS' EXCESS DEPOSITS AND DECLARED PATRONAGE DIVIDENDS, PATRONS' REQUIRED
DEPOSITS, AND SUBORDINATED PATRONAGE DIVIDEND CERTIFICATES
The carrying amount approximates fair value due primarily to the
limitations imposed on deposit fund redemptions as provided in the
subordinating provisions to which they are subject.
14. RELATED PARTY TRANSACTIONS:
A number of companies with which directors are associated have received
loans from the Company through its regular member loan program and/or obtained
lease guarantees or subleases for certain store locations. In consideration of
lease guarantees and subleases, the Company receives a monthly fee equal to 5%
of the monthly rent under the leases and subleases. Obligations of
member-patrons to the Company, including lease guarantees, are generally
supported by the Company's right of offset, upon default, against the
member-patrons' cash deposits, shareholdings and Patronage Certificates, as well
as personal guarantees and reimbursement and indemnification agreements.
Management believes all such related party transactions are on terms no more
favorable than those which would be available to other similarly sized member-
patrons.
The Company leases certain market premises located in Sacramento and
Vallejo, California, and in turn subleases these premises to SavMax Foods, Inc.
("SavMax") of which director Michael A. Webb is the
38
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
President and a shareholder. The Sacramento sublease provides for a term of 20
years and the Vallejo sublease provides for a term of 10 years. Neither sublease
contains options to extend, although SavMax has the option under each sublease
to acquire the Company's interest under its lease on the condition that the
Company is released from all further liability thereunder. The term of the
Sacramento sublease commenced in September of 1994. The Sacramento premises
consist of approximately 50,000 square feet and annual base rent under the
sublease is at the following per square foot rates: $8.00 during years 1 and 2;
$8.40 during years 3 through 5; $8.82 during years 6 through 10; $9.26 during
years 11 through 15; and, $9.72 during years 16 through 20. The term of the
Vallejo sublease commenced in September of 1995 and annual base rent under the
sublease is $279,000. In addition, under each of these subleases, the Company
receives monthly an additional amount equal to 5% of the base monthly rent.
The Company guarantees certain obligations of SavMax under three leases of
market premises located in Sacramento, San Jose and San Leandro, California.
Each of these guarantees relates to the obligation of SavMax to pay base rent,
common area maintenance charges, real estate taxes and insurance during the
initial 20 year terms of these leases. However, the guarantees are such that the
Company's obligation under each of them is limited to an amount equal to sixty
monthly payments (which need not be consecutive) of the obligations guaranteed.
Base rent is $40,482 per month under the Sacramento lease and $56,756 per month
under the San Jose lease, in each case subject to a 7 1/2% increase at the end
of each five years. Base rent is $42,454 per month under the San Leandro lease,
subject to a 10% increase at the end of each five years. In consideration of
these guarantees, the Company receives a monthly fee from SavMax equal to 5% of
the base monthly rent under these leases. If SavMax were to default under the
leases, the Company's remaining liability under its guarantees would range from
$10.1 million to $11.9 million, assuming other support provided to the Company
by way of offset rights and the reimbursement and indemnification agreements
proved to be of no value to the Company.
The Company guarantees certain obligations of SavMax under two leases of
market premises located in Ceres and Vacaville, California. The leases have
initial terms expiring in January 2005 and April 2007, respectively. Base
monthly rent under the Ceres lease is presently $32,175, increasing to $34,425
in January of 2000. Base monthly rent under the Vacaville lease is presently
$29,167, increasing by $25,000 per year in April of 1997 and 2002. In
consideration of these guarantees, the Company will receive a monthly fee from
SavMax equal to 5% of the base monthly rent under these leases. If SavMax were
to default under the leases, the Company's contingent liability under its
guarantees would approximate $10.4 million, assuming other support provided to
the Company by way of offset rights and the reimbursement and indemnification
agreements proved to be of no value to the Company.
The Company is proposing to lease certain market premises to be constructed
and located in Los Banos, California, which it in turn will sublease to Maxco
Foods, Inc. ("Maxco"), a corporation of which SavMax is a shareholder. The
sublease to Maxco would provide for a term of 20 years, without options to
extend, although Maxco will have the option to acquire the Company's interest
under its lease on the condition that the Company is released from all further
liability thereunder. The premises will consist of approximately 50,000 square
feet and annual base rental under the sublease is as follows: $390,000 during
years 1 through 5; $424,125 during years 6 through 10; $461,236 during years 11
through 15; and, $501,594 during years 16 through 20. In addition, the Company
will receive monthly an additional amount equal to 5% of the base monthly rent.
In connection with this transaction, Maxco will enter into a seven year supply
agreement with the Company whereunder Maxco would be required to purchase a
substantial portion of its merchandise requirements from the Company. The supply
agreement will be subject to earlier termination in certain situations.
In fiscal 1994, Grocers Capital Company ("GCC"), a subsidiary, acquired an
additional 25,000 shares of preferred stock of SavMax. The purchase price was
$100 per share. At the time, GCC owned 40,000 shares of preferred stock of
SavMax which it acquired in fiscal 1992. As part of the new purchase of
preferred stock, the annual cumulative dividend on the 65,000 shares of
preferred stock owned by GCC was increased from $8.25 per share to $8.50 per
share, payable quarterly. Mandatory partial redemption of this stock at a price
of
39
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$100 per share began in 1994 and will continue annually thereafter for eight
years, at which time the stock is to be completely retired. GCC also purchased
from Mr. Webb and another member of his immediate family, 10% of the common
stock of SavMax for a price of $2.5 million. In connection with this purchase,
Mr. Webb, SavMax and GCC agreed that GCC will have certain preemptive rights to
acquire additional common shares, rights to have its common shares included
proportionately in any transfer of common shares by Mr. Webb, and rights to have
its common shares included in certain registered public offerings of common
stock which may be made by SavMax. In addition, GCC has certain rights, at its
option, to require that SavMax repurchase GCC's shares, and SavMax has certain
rights, at its option, to repurchase GCC's shares. In connection with these
transactions, SavMax entered into a seven year supply agreement with the Company
(to replace an existing supply agreement) whereunder SavMax is required to
purchase a substantial portion of its merchandise requirements from the Company.
The supply agreement is subject to earlier termination in certain situations.
GCC guarantees a portion of a loan made by National Consumer Cooperative
Bank ("NCCB") to K.V. Mart Co., of which director Darioush Khaledi is the
President and a shareholder, and KV Property Company, of which director Darioush
Khaledi is a general partner. The term of the loan is eight years, maturing
January 1, 2002, and the loan bears interest at a floating rate based on the
commercial loan base rate of NCCB. The loan is collateralized by certain real
and personal property. The guarantee by GCC is limited to 10% of the $2.1
million principal amount of the loan. In consideration of its guarantee, GCC
will receive an annual fee from K.V. Mart Co. equal to approximately 5% of the
guarantee amount.
GCC has guaranteed a portion of a $5,000,000 revolving loan made by NCCB to
K.V. Mart Co. in November 1995. The loan has an initial maturity of two years,
with the outstanding balance then converting to a five year term loan. The loan
bears interest at a floating rate based on the commercial loan rate of NCCB. The
loan is collateralized by certain real and personal property of K.V. Mart Co.
The guaranty of GCC is limited to 10% of the outstanding principal amount of the
loan. In consideration of its guaranty, GCC will receive an annual fee from K.V.
Mart Co. equal to 5% of the guaranty amount.
The Company is proposing to enter into a guaranty of rent and certain other
obligations of K.V. Mart Co. under a lease of store premises to be constructed
in Lynwood, California. The guaranty would be for a term of seven years. Annual
rent under the lease will be $408,000. In consideration of its guaranty, the
Company will receive an annual fee from K.V. Mart Co. equal to 5% of the annual
rent.
GCC is proposing to purchase 10% of the common stock of K.V. Mart Co. for a
purchase price of approximately $3,000,000. In connection with this purchase,
K.V. Mart Co., GCC, Mr. Khaledi and the other shareholders of K.V. Mart Co. will
agree that GCC will have certain preemptive rights to acquire additional common
shares, rights to have its common shares included proportionately in any
transfer of common shares by the other shareholders, and rights to have its
common shares included in certain registered public offerings of common stock
which may be made by K.V. Mart Co. In addition, GCC will have certain rights, at
its option, to require that K.V. Mart Co. repurchase GCC's shares, and K.V. Mart
Co. will have certain rights, at its option, to repurchase GCC's shares. In
connection with these transactions, K.V. Mart Co. will enter into a seven year
supply agreement with the Company whereunder K.V. Mart Co. will be required to
purchase a substantial portion of its merchandise requirements from the Company.
The supply agreement will be subject to earlier termination in certain
situations.
The Company has guaranteed the payment by Cala Co., a subsidiary of a
member-patron, of certain promissory notes related to an acquisition of Bell
Markets, Inc. The promissory notes mature in June 1996 and total $8 million;
however, the Company's guaranty obligation is limited to $4 million. In
addition, and in connection with the acquisition, the Company has guaranteed
certain lease obligations of Bell Markets, Inc. during a 20-year period under a
lease relating to two retail grocery stores. Annual rent under the lease is
$327,019. In the event the Company is called upon to perform on this guaranty,
the Company has the right to receive an assignment of the lease relating to the
locations. Accordingly, assuming the leased premises and other support provided
to the Company by way of offset rights and the reimbursement and indemnification
40
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
agreement proved to be of no value to the Company, the Company would be
contingently liable under its lease guarantee for approximately $4.7 million.
Concurrent with the foregoing transactions, Bell Markets, Inc. entered into a
5-year agreement to purchase a substantial portion of its merchandise
requirements from the Company.
The Company has guaranteed a lease for Mar-Val Food Stores, Inc. (whose
President, Mark Kidd, is a director of the Company) on store premises in Valley
Springs, California. The guarantee is for a period of fifteen years and is
limited to the lessee's obligation to pay base rent of $10,080 per month, common
area costs, real estate taxes and insurance. The Company's total obligation
under the guarantee is limited to $736,800. In consideration of the guarantee,
the Company receives a monthly fee from Mar-Val Food Store, Inc. equal to 5% of
the base monthly rent under the lease.
The Company guarantees annual rent and certain other obligations of Willard
R. MacAloney, the Chairman of the Company's Board of Directors, as lessee under
a lease of store premises located in La Puente, California. Annual rent under
the lease is $62,487, and the lease term expires in April 1997. The Company also
guarantees annual rent and certain other obligations of G & M Company, Inc., of
which Mr. MacAloney is a shareholder, under a lease of store premises located in
Santa Fe Springs, California. Annual rent under the lease is $82,544, and the
lease term expires in October 1997. In consideration of its guarantees, the
Company receives a monthly fee from G & M Company, Inc. equal to 5% of the base
monthly rent under each lease.
The Company guarantees certain obligations under a sublease of market
premises located in Pasadena, California, and under which Berberian Enterprises,
Inc., of which Director John Berberian is the President and a shareholder, is
the sublessor. The guaranty is of the obligations of the sublessee to pay
minimum rent, common area costs, real estate taxes and insurance during the
first seven years of the term of the sublease. Minimum rent under the sublease
is $10,000 per month. In consideration of its guaranty, the Company receives a
monthly fee from the sublessee equal to 5% of the monthly amounts guaranteed.
The Company has guarantees remaining on various member-patron leases during
the period of fiscal 1996 through fiscal 1998. In the event the support provided
to the Company by way of offset rights and the reimbursement and indemnification
agreements proved to be of no value, the Company would be contingently liable
under its guarantees for approximately $1.3 million.
In July 1993, the Company entered into an agreement to lease a warehouse to
Joe Notrica, Inc., of which director Morrie Notrica is the President and a
shareholder. The lease period is for five years, July 21, 1993 through July 31,
1998, at a monthly rent of $24,000. The lease has one five year option and makes
provision for inflation adjustments to monthly rent during the option term.
Grocers General Merchandise Company, ("GM"), a subsidiary of the Company,
and Food 4 Less GM, Inc. ("F4LGM"), an indirect subsidiary of Ralph's Grocery
Company, are partners to a joint venture partnership agreement. Under the
agreement, GM and F4LGM are partners operating as Golden Alliance Distribution
("GAD"). The partnership was formed for the purpose of providing for the shared
use of the Company's general merchandise warehouse located in Fresno, California
and each of the partners has entered into a supply agreement with GAD providing
for the purchase of general merchandise products from GAD.
One of the Company's largest customers, Ralphs Grocery Company together with
its affiliated companies, accounted for a combined total of approximately 9.5%
of fiscal 1995 sales. No other customer accounted for as much as 5% of fiscal
1995 sales.
41
<PAGE>
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES, OR ANY OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY
ANY SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF
SUCH INFORMATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.......................... 2
Additional Information......................... 2
Incorporation By Reference..................... 2
Risk Factors................................... 3
Ratio of Earnings to Fixed Charges............. 4
The Company.................................... 4
Description of Deposit Accounts................ 7
Method of Offering............................. 10
Use of Proceeds................................ 11
Selected Financial Data........................ 11
Management's Discussion and Analysis of
Financial Condition and Results of Operations
For the Three Fiscal Years Ended September 2,
1995.......................................... 11
Legal Matters.................................. 15
Experts........................................ 15
Index to Financial Statements.................. 16
Report of Independent Accountants.............. 17
Financial Statements........................... 18
</TABLE>
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Registration Fee Under Securities Act of 1933.............................. $ 10,345
Printing, Engraving and Reproduction....................................... 10,000
Expenses of Qualification Under State Blue Sky Laws........................ 4,000
Legal Fees and Expenses.................................................... 12,000
Accounting Fees and Expenses............................................... 5,000
Miscellaneous.............................................................. 3,000
---------
Total...................................................................... $ 44,345
---------
---------
</TABLE>
All of the expenses listed above will be borne by the Registrant and, except
for the Registration Fee Under Securities Act of 1933, are estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article V of the Company's Bylaws provides that the Company shall, to the
maximum extent permitted by law, have the power to indemnify its directors,
officers, employees and other agents. Section 317 of the California Corporations
Code provides that a corporation has the power to indemnify agents of the
corporation against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding arising by
reason of the fact that any such person is or was an agent of the corporation.
In addition, the Company and its subsidiaries maintain a policy of directors'
and officers' liability and company reimbursement insurance.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
S-1
<PAGE>
ITEM 16. EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit 4 Instruments defining the rights of security holders, including indentures.
4.1 Retail Grocer Application and Agreement For Continuing Service Affiliation
with Certified Grocers of California, Ltd. and Pledge Agreement
(incorporated by reference to Exhibit 4.7 to Amendment No. 2 to Form S-1
Registration Statement of the Registrant filed on December 31, 1981, File
No. 2-70069).
4.2 Retail Grocer Application and Agreement For Service Affiliation With And The
Purchase of Shares of Certified Grocers of California, Ltd. And Pledge
Agreement (incorporated by reference to Exhibit 4.2 to Post-Effective
Amendment No. 7 to Form S-2 Registration Statement of the Registrant filed
on December 13, 1989, File No. 33-19284).
4.3 Retail Grocer Application for Service Affiliation as Associate Patron with
Certified Grocers of California, Ltd. and Pledge Agreement (incorporated by
reference to Exhibit 4.3 to the Form S-2 Registration Statement of the
Registrant filed on December 28, 1987, File No. 33-19284).
4.4 Subordination Agreement (Existing Member-Patron) (incorporated by reference
to Exhibit 4.4 to Post-Effective Amendment No. 4 to Form S-2 Registration
Statement of the Registrant filed on July 15, 1988, File No. 33-19284).
4.5 Subordination Agreement (Existing Associate Patron) (incorporated by
reference to Exhibit 4.5 to Post-Effective Amendment No. 4 to Form S-2
Registration Statement of the Registrant filed on July 15, 1988, File No.
33-1 9284).
4.6 Subordination Agreement (New Member-Patron) (incorporated by reference to
Exhibit 4.6 to Post-Effective Amendment No. 4 to Form S-2 Registration
Statement of the Registrant filed on July 15, 1988, File No. 33-19284).
4.7 Subordination Agreement (New Associate Patron) (incorporated by reference to
Exhibit 4.7 to Post-Effective Amendment No. 4 to Form S-2 Registration
Statement of the Registrant filed on July 15, 1988, File No. 33-19284).
4.8 Member-Patron Subordination Agreement (incorporated by reference to Exhibit
4.8 to Form S-2 Registration Statement of the Registrant filed on December
15, 1993, File No. 33-51457).
4.9 Associate Patron Subordination Agreement (incorporated by reference to
Exhibit 4.9 to Form S-2 Registration Statement of the Registrant filed on
December 15, 1993, File No. 33-51457).
Exhibit 5 Opinion re legality.
5.1 Opinion of Counsel dated December 15, 1993 (incorporated by reference to
Exhibit 5.1 to Form S-2 Registration Statement of the Registrant filed on
December 15, 1993, File No. 33-51457).
Exhibit 10 Material Contracts.
10.1 Comprehensive Amendment to Retirement Plan for Employees of the Registrant
(incorporated by reference to Exhibit 10.1 to Form S-2 Registration
Statement of the Registrant filed on October 12, 1994, File No. 33-56005).
10.2 Incentive Compensation Plan (incorporated by reference to Exhibit 10.2 to
the Form S-2 Registration Statement of the Registrant filed on December 28,
1987, File No. 33-19284).
10.3 Comprehensive Amendment to Certified Grocers of California, Ltd. Employees'
Sheltered Savings Plan (incorporated by reference to Exhibit 10.3 to the
Form S-2 Registration Statement of the Registrant filed on September 2,
1993, File No. 33-68288).
</TABLE>
S-2
<PAGE>
<TABLE>
<S> <C> <C>
10.4 Certified Grocers of California, Ltd., Executive Salary Protection Plan II
("ESPP II"), Master Plan Document, effective January 4, 1995 (incorporated
by reference to Exhibit 10.4 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended September 2, 1995 filed on December 1, 1995, File
No. 0-10815).
10.5 Master Trust Agreement For Certified Grocers of California, Ltd. Executive
Salary Protection Plan II, dated as of April 28, 1995 (incorporated by
reference to Exhibit 10.5 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended September 2, 1995 filed on December 1, 1995, File No.
0-10815).
10.6 Certified Grocers of California, Ltd. Executive Insurance Plan Split-dollar
Agreement and Schedule of Executive Officers party thereto (incorporated by
reference to Exhibit 10.6 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended September 2, 1995 filed on December 1, 1995, File No.
0-10815).
10.7 Comprehensive Amendment to Certified Grocers of California, Ltd. Employees'
Excess Benefit Plan (incorporated by reference to Exhibit 10.6.1 to Form S-2
Registration Statement of the Registrant filed on October 12, 1994, File No.
33-56005).
10.8 Comprehensive Amendment to Certified Grocers of California, Ltd. Employees'
Supplemental Deferred Compensation Plan (incorporated by reference to
Exhibit 10.5.3 to Form S-2 Registration Statement of the Registrant filed on
December 10, 1990, File No. 33-38152).
10.9 Comprehensive Amendment to Certified Grocers of California, Ltd. Employee
Savings Plan (incorporated by reference to Exhibit 10.4 to Form S-2
Registration Statement of the Registrant filed on September 2, 1993, File
No. 33-68288).
10.9.1 First Amendment to Certified Grocers of California, Ltd. Employee Savings
Plan (incorporated by reference to Exhibit 10.4.1 to Form S-2 Registration
Statement of the Registrant filed on October 12, 1994, File No. 33-56005).
10.10 Joint Venture Agreement of Golden Alliance Distribution, dated as of April
8, 1992, between Food 4 Less GM, Inc. and Grocers General Merchandise
Company (incorporated by reference to Exhibit 10.7 to Form S-2 Registration
Statement of the Registrant filed on September 2, 1993. File No. 33-68288.
10.11 Lease, dated as of December 23, 1986, between Cercor Associates and Grocers
Specialty Company (incorporated by reference to Exhibit 10.8 to Form S-2
Registration Statement of the Registrant filed on September 2, 1993, File
No. 33-68288).
10.12 Expansion Agreement, dated as of May 1, 1991, and Industrial Lease, dated as
of May 1, 1991, between Dermody Properties and the Registrant (incorporated
by reference to Exhibit 10.9 to Form S-2 Registration Statement of the
Registrant filed on September 2, 1993, File No. 33-68288).
10.12.1 Lease Amendment, dated June 20, 1991, between Dermody Properties and the
Registrant (incorporated by reference to Exhibit 10.9.1 to Form S-2
Registration Statement of the Registrant filed on September 2, 1993, File
No. 33-68288).
10.12.2 Lease Amendment, dated October 18, 1991, between Dermody Properties and the
Registrant (incorporated by reference to Exhibit 10.9.2 to Form S-2
Registration Statement of the Registrant filed on September 2, 1993, File
No. 33-68288).
10.13 Preferred Stock Purchase Agreement by and between Food-4-Less of Modesto,
Inc. and Grocers Capital Company, dated as of July 1, 1992 (incorporated by
reference to Exhibit 10.10 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended August 28, 1993, filed on November 26, 1993, File
No. 0-10815).
</TABLE>
S-3
<PAGE>
<TABLE>
<S> <C> <C>
10.14 Preferred Stock Purchase Agreement by and between SavMax Foods, Inc. and
Grocers Capital Company, dated as of December 17, 1993 (incorporated by
reference to Exhibit 10.11 to Form S-2 Registration Statement of the
Registrant filed on December 15, 1994, File No. 33-38152).
10.15 Common Stock Purchase Agreement by and between Michael A. Webb and Grocers
Capital Company, dated as of December 17, 1993 (incorporated by reference to
Exhibit 10.12 to Form S-2 Registration Statement of the Registrant filed on
December 15, 1994, File No. 33-38152).
10.16 Agreement Regarding Common Stock by and between Michael A. Webb, SavMax
Foods, Inc. and Grocers Capital Company, dated December 17, 1993
(incorporated by reference to Exhibit 10.13 to Form S-2 Registration
Statement of the Registrant filed on December 15, 1994, File No. 33-38152).
10.17 Commercial Lease-Net dated December 6, 1994 between TriNet Essential
Facilities XII and the Registrant (incorporated by reference to Exhibit
10.17 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended September 2, 1995 filed on December 1, 1995, File No. 0-10815).
10.18 Purchase Agreement dated November 21, 1994 between the Registrant and TriNet
Corporate Realty Trust, Inc. (incorporated by reference to Exhibit 10.18 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
September 2, 1995 filed on December 1, 1995, File No. 0-10815).
Exhibit 12 Statement re Computation of ratios.
12.1 Computation of Ratio of Earnings to Fixed Charges.
Exhibit 24 Consents of experts and counsel.
24.1 Consent of Company Counsel -- see Page F-1.
24.2 Consent of Independent Accountants -- see Page F-2.
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement: (a) to include
any prospectus required by section 10(a)(3) of the Securities Act of 1933,
(b) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement, (c) to include any material information with respect
to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
S-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Commerce, State of California, on December 13, 1995.
CERTIFIED GROCERS OF CALIFORNIA, LTD.
By /s/ ALFRED A. PLAMANN
-------------------------------------
Alfred A. Plamann
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ----------------------------------- ----------------------
<C> <S> <C>
/s/ ALFRED A. PLAMANN President and Chief December 13, 1995
------------------------------------------- Executive Officer
Alfred A. Plamann
/s/ DANIEL T. BANE Senior Vice President, December 13, 1995
------------------------------------------- Chief Financial Officer and
Daniel T. Bane Chief Accounting Officer
/s/ RANDALL G. SCOVILLE Corporate Controller December 13, 1995
-------------------------------------------
Randall G. Scoville
/s/ WILLARD R. MACALONEY Director December 13, 1995
-------------------------------------------
Willard R. MacAloney
(Chairman of the Board)
/s/ LOUIS A. AMEN Director December 13, 1995
-------------------------------------------
Louis A. Amen
/s/ JOHN BERBERIAN Director December 13, 1995
-------------------------------------------
John Berberian
Director December , 1995
-------------------------------------------
Gene A. Fulton
/s/ LYLE A. HUGHES Director December 13, 1995
-------------------------------------------
Lyle A. Hughes
</TABLE>
S-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ----------------------------------- ----------------------
<C> <S> <C>
Director December , 1995
-------------------------------------------
Roger K. Hughes
/s/ DARIOUSH KHALEDI Director December 13, 1995
-------------------------------------------
Darioush Khaledi
/s/ MARK KIDD Director December 13, 1995
-------------------------------------------
Mark Kidd
/s/ JAY MCCORMACK Director December 13, 1995
-------------------------------------------
Jay McCormack
/s/ MORRIE NOTRICA Director December 13, 1995
-------------------------------------------
Morrie Notrica
Director December , 1995
-------------------------------------------
Michael A. Provenzano
Director December , 1995
-------------------------------------------
Allan Scharn
/s/ JAMES R. STUMP Director December 13, 1995
-------------------------------------------
James R. Stump
Director December , 1995
-------------------------------------------
Michael A. Webb
Director December , 1995
-------------------------------------------
Kenneth Young
</TABLE>
S-6
<PAGE>
CONSENT OF COMPANY COUNSEL
We hereby consent to the reference made to us, and to the use of our name,
in this Post-Effective Amendment No. 3 to the Registration Statement on Form
S-2, File No. 33-51457, including the Prospectus filed as a part thereof.
BURKE, WILLIAMS & SORENSEN
Los Angeles, California
December 13, 1995
F-1
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Post-Effective Amendment No. 3 to the
Registration Statement on Form S-2 (File No. 33-51457) of our report dated
November 27, 1995, and the incorporation by reference of said report appearing
on page 19 of the Annual Report on Form 10-K, on our audits of the consolidated
balance sheets of Certified Grocers of California, Ltd. and subsidiaries as of
September 2, 1995 and September 3, 1994 and the related consolidated statements
of earnings, shareholders' equity, and cash flows for each of the three fiscal
years in the period ended September 2, 1995. We also consent to the reference to
our Firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Los Angeles, California
December 13, 1995
F-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
NUMBERING
EXHIBITS PAGE NO.
- ----------------- ----------
<C> <S> <C>
Exhibit 4 Instruments defining the rights of security holders, including indentures.
4.1 Retail Grocer Application and Agreement For Continuing Service Affiliation with
Certified Grocers of California, Ltd. and Pledge Agreement (incorporated by
reference to Exhibit 4.7 to Amendment No. 2 to Form S-1 Registration Statement of
the Registrant filed on December 31, 1981, File No. 2-70069).
4.2 Retail Grocer Application and Agreement For Service Affiliation With And The
Purchase of Shares of Certified Grocers of California, Ltd. And Pledge Agreement
(incorporated by reference to Exhibit 4.2 to Post-Effective Amendment No. 7 to Form
S-2 Registration Statement of the Registrant filed on December 13, 1989, File No.
33-19284).
4.3 Retail Grocer Application for Service Affiliation as Associate Patron with
Certified Grocers of California, Ltd. and Pledge Agreement (incorporated by
reference to Exhibit 4.3 to the Form S-2 Registration Statement of the Registrant
filed on December 28, 1987, File No. 33-19284).
4.4 Subordination Agreement (Existing Member-Patron) (incorporated by reference to
Exhibit 4.4 to Post-Effective Amendment No. 4 to Form S-2 Registration Statement of
the Registrant filed on July 15, 1988, File No. 33-19284).
4.5 Subordination Agreement (Existing Associate Patron) (incorporated by reference to
Exhibit 4.5 to Post-Effective Amendment No. 4 to Form S-2 Registration Statement of
the Registrant filed on July 15, 1988, File No. 33-19284).
4.6 Subordination Agreement (New Member-Patron) (incorporated by reference to Exhibit
4.6 to Post-Effective Amendment No. 4 to Form S-2 Registration Statement of the
Registrant filed on July 15, 1988, File No. 33-19284).
4.7 Subordination Agreement (New Associate Patron) (incorporated by reference to
Exhibit 4.7 to Post-Effective Amendment No. 4 to Form S-2 Registration Statement of
the Registrant filed on July 15, 1988, File No. 33-19284).
4.8 Member-Patron Subordination Agreement (incorporated by reference to Exhibit 4.8 to
Form S-2 Registration Statement of the Registrant filed on December 15, 1993, File
No. 33-51457).
4.9 Associate Patron Subordination Agreement (incorporated by reference to Exhibit 4.9
to Form S-2 Registration Statement of the Registrant filed on December 15, 1993,
File No. 33-51457).
Exhibit 5 Opinion re legality.
5.1 Opinion of Counsel dated December 15, 1993 (incorporated by reference to Exhibit
5.1 to Form S-2 Registration Statement of the Registrant filed on December 15,
1993, File No. 33-51457).
Exhibit 10 Material Contracts.
10.1 Comprehensive Amendment to Retirement Plan for Employees of the Registrant
(incorporated by reference to Exhibit 10.1 to Form S-2 Registration Statement of
the Registrant filed on October 12, 1994, File No. 33-56005).
10.2 Incentive Compensation Plan (incorporated by reference to Exhibit 10.2 to the Form
S-2 Registration Statement of the Registrant filed on December 28, 1987, File No.
33-19284).
10.3 Comprehensive Amendment to Certified Grocers of California, Ltd. Employees'
Sheltered Savings Plan (incorporated by reference to Exhibit 10.3 to the Form S-2
Registration Statement of the Registrant filed on September 2, 1993, File No.
33-68288).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
NUMBERING
EXHIBITS PAGE NO.
- ----------------- ----------
<C> <S> <C>
10.4 Certified Grocers of California, Ltd., Executive Salary Protection Plan II ("ESPP
II"), Master Plan Document, effective January 4, 1995 (incorporated by reference to
Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended September 2, 1995 filed on December 1, 1995, File No. 0-10815).
10.5 Master Trust Agreement For Certified Grocers of California, Ltd. Executive Salary
Protection Plan II, dated as of April 28, 1995 (incorporated by reference to
Exhibit 10.5 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended September 2, 1995 filed on December 1, 1995, File No. 0-10815).
10.6 Certified Grocers of California, Ltd. Executive Insurance Plan Split-dollar
Agreement and Schedule of Executive Officers party thereto (incorporated by
reference to Exhibit 10.6 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended September 2, 1995 filed on December 1, 1995, File No. 0-10815).
10.7 Comprehensive Amendment to Certified Grocers of California, Ltd. Employees' Excess
Benefit Plan (incorporated by reference to Exhibit 10.6.1 to Form S-2 Registration
Statement of the Registrant filed on October 12, 1994, File No. 33-56005).
10.8 Comprehensive Amendment to Certified Grocers of California, Ltd. Employees'
Supplemental Deferred Compensation Plan (incorporated by reference to Exhibit
10.5.3 to Form S-2 Registration Statement of the Registrant filed on December 10,
1990, File No. 33-38152).
10.9 Comprehensive Amendment to Certified Grocers of California, Ltd. Employee Savings
Plan (incorporated by reference to Exhibit 10.4 to Form S-2 Registration Statement
of the Registrant filed on September 2, 1993, File No. 33-68288).
10.9.1 First Amendment to Certified Grocers of California, Ltd. Employee Savings Plan
(incorporated by reference to Exhibit 10.4.1 to Form S-2 Registration Statement of
the Registrant filed on October 12, 1994, File No. 33-56005).
10.10 Joint Venture Agreement of Golden Alliance Distribution, dated as of April 8, 1992,
between Food 4 Less GM, Inc. and Grocers General Merchandise Company (incorporated
by reference to Exhibit 10.7 to Form S-2 Registration Statement of the Registrant
filed on September 2, 1993. File No. 33-68288.
10.11 Lease, dated as of December 23, 1986, between Cercor Associates and Grocers
Specialty Company (incorporated by reference to Exhibit 10.8 to Form S-2
Registration Statement of the Registrant filed on September 2, 1993, File No.
33-68288).
10.12 Expansion Agreement, dated as of May 1, 1991, and Industrial Lease, dated as of May
1, 1991, between Dermody Properties and the Registrant (incorporated by reference
to Exhibit 10.9 to Form S-2 Registration Statement of the Registrant filed on
September 2, 1993, File No. 33-68288).
10.12.1 Lease Amendment, dated June 20, 1991, between Dermody Properties and the Registrant
(incorporated by reference to Exhibit 10.9.1 to Form S-2 Registration Statement of
the Registrant filed on September 2, 1993, File No. 33-68288).
10.12.2 Lease Amendment, dated October 18, 1991, between Dermody Properties and the
Registrant (incorporated by reference to Exhibit 10.9.2 to Form S-2 Registration
Statement of the Registrant filed on September 2, 1993, File No. 33-68288).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
NUMBERING
EXHIBITS PAGE NO.
- ----------------- ----------
<C> <S> <C>
10.13 Preferred Stock Purchase Agreement by and between Food-4-Less of Modesto, Inc. and
Grocers Capital Company, dated as of July 1, 1992 (incorporated by reference to
Exhibit 10.10 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended August 28, 1993, filed on November 26, 1993, File No. 0-10815).
10.14 Preferred Stock Purchase Agreement by and between SavMax Foods, Inc. and Grocers
Capital Company, dated as of December 17, 1993 (incorporated by reference to
Exhibit 10.11 to Form S-2 Registration Statement of the Registrant filed on
December 15, 1994, File No. 33-38152).
10.15 Common Stock Purchase Agreement by and between Michael A. Webb and Grocers Capital
Company, dated as of December 17, 1993 (incorporated by reference to Exhibit 10.12
to Form S-2 Registration Statement of the Registrant filed on December 15, 1994,
File No. 33-38152).
10.16 Agreement Regarding Common Stock by and between Michael A. Webb, SavMax Foods, Inc.
and Grocers Capital Company, dated December 17, 1993 (incorporated by reference to
Exhibit 10.13 to Form S-2 Registration Statement of the Registrant filed on
December 15, 1994, File No. 33-38152).
10.17 Commercial Lease-Net dated December 6, 1994 between TriNet Essential Facilities XII
and the Registrant (incorporated by reference to Exhibit 10.17 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended September 2, 1995 filed on
December 1, 1995, File No. 0-10815).
10.18 Purchase Agreement dated November 21, 1994 between the Registrant and TriNet
Corporate Realty Trust, Inc. (incorporated by reference to Exhibit 10.18 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended September 2, 1995
filed on December 1, 1995, File No. 0-10815).
Exhibit 12 Statement re Computation of ratios.
12.1 Computation of Ratio of Earnings to Fixed Charges.
Exhibit 24 Consents of experts and counsel.
24.1 Consent of Company Counsel -- see Page F-1.
24.2 Consent of Independent Accountants -- see Page F-2.
</TABLE>
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(THOUSANDS OMITTED EXCEPT FOR RATIOS)
<S> <C> <C> <C> <C> <C>
Adjusted net earnings:
Net earnings (loss)...................................... $ 769 $ 94 $ 473 $ (3,648) $ (4,682)
Income tax provision (benefit)........................... 106 203 530 (794) (2,842)
Interest expense......................................... 15,260 15,405 15,784 17,253 19,005
Estimated interest component of rental expense(c)........ 2,263 2,214 2,099 1,987 2,784
Patronage Dividends...................................... 11,571 10,837 12,880 12,977 19,979
--------- --------- --------- --------- ---------
Adjusted net earnings(a)............................... $ 29,969 $ 28,753 $ 31,766 $ 27,775 $ 34,244
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Fixed Charges:
Gross rental expense..................................... $ 21,051 $ 22,707 $ 23,326 $ 22,082 $ 23,198
Less, estimated rent component........................... 18,788 20,493 21,227 20,095 20,414
--------- --------- --------- --------- ---------
Estimated interest component of rental expense(c)........ 2,263 2,214 2,099 1,987 2,784
Interest incurred........................................ 15,260 15,405 15,784 17,253 19,005
--------- --------- --------- --------- ---------
Fixed charges(b)....................................... $ 17,523 $ 17,619 $ 17,883 $ 19,240 $ 21,789
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Ratio of Earnings to Fixed Charges(a)/(b).................. 1.71x 1.63x 1.78x 1.44x 1.57x
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(a)(b)(c) -- Cross-reference on page.
EXHIBIT 12.1
