AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 16, 1995
REGISTRATION NO. 33-51457
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 2
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)
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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)
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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)
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Copy to:
Neil F. Yeager, Esq.
Burke, Williams & Sorensen
611 W. Sixth Street
25th Floor
Los Angeles, California 90017
(213) 236-0600
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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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CROSS-REFERENCE SHEET
Cross-reference between items of Part I of Post-Effective Amendment No. 2 to
Form S-2 and Prospectus filed by Certified Grocers of California, Ltd., as part
of Registration Statement covering Partially Subordinated Patrons' Deposit
Accounts.
ITEM NUMBER AND CAPTION LOCATION OR CAPTION IN PROSPECTUS
------------------------------------ ------------------------------------
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)
PROSPECTUS
CERTIFIED GROCERS OF CALIFORNIA, LTD.
$22,698,248 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 9% 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."
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SEE "RISK FACTORS"
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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.
UNDERWRITING PROCEEDS
PRICE DISCOUNTS AND TO THE
TO PUBLIC COMMISSIONS COMPANY (1)(2)
$22,698,248 Partially Subordinated
Patrons' Deposit Accounts................ $22,698,248 none $22,698,248
<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.
THIS OFFER IS NOT UNDERWRITTEN.
THE DATE OF THIS PROSPECTUS IS FEBRUARY __, 1995
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 documents filed with the Commission are incorporated by
reference into this Prospectus: (1) Annual Report on Form 10-K for the fiscal
year ended September 3, 1994; (2) Amendment No. 1 to Annual Report on Form
10-K/A for the fiscal year ended September 3, 1994; and (3) Quarterly Report on
Form 10-Q for the quarter ended December 3, 1994.
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 Reports incorporated
by reference herein, other than exhibits to such Reports. 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
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
$192,670,000 as of February 10, 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
$188,460,000 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
Since fiscal 1991, reductions in consolidated sales volume totalling
approximately $900 million have been experienced. 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
$131 million over fiscal 1993. This decline was primarily due to sales volume
lost as a result of the decision of certain large patrons (Hughes Markets,
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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.
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
THIRTEEN
WEEKS
ENDED FISCAL YEAR
DECEMBER 3, ------------------------------------
1994 1994 1993 1992 1991 1990
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Ratio of earnings to fixed charges(1)............. 1.54x 1.63x 1.78x 1.44x 1.57x 2.72x
<FN>
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(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.
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 3, 1994, declared patronage
dividends totalled $10,837,000.
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 to 400 dry grocery
cases weekly and have combined average weekly purchases of less than $5,000. At
September 3, 1994, the Company had 491 member-patrons operating a total of 2,372
retail food stores and 285 associate patrons operating a total of 635 retail
food stores.
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
4
(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, 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 directly from suppliers), for the fiscal year ended September 3, 1994, are
as follows (dollar amounts in thousands):
Dry Grocery......................................................... $1,035,213
General Merchandise................................................. 222,574
Delicatessen........................................................ 180,159
Frozen Food......................................................... 142,852
Meat................................................................ 138,082
Dairy............................................................... 71,024
Other............................................................... 30,108
Ice Cream........................................................... 22,071
Bakery.............................................................. 13,037
Drop Shipment....................................................... 12,447
Beans and Rice...................................................... 6,305
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Total........................................................... $1,873,872
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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 and one warehouse in Fresno, California.
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.
CERTAIN DEVELOPMENTS
On December 6, 1994, the Company completed a sale leaseback transaction with
Trinet Corporate Realty Trust, Inc. ("Trinet"), an unaffiliated third party,
wherein it sold approximately 5.5 acres of real property in the City of
Commerce, together with all buildings, structures and improvements located on
such real property, including an office building containing approximately
100,000 square feet and a cafeteria building containing approximately 8,000
square feet. The total sales price for the property was $11,500,000 in cash.
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.
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,
5
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 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 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 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.
For fiscal year 1994, the portion of the patronage dividend retained and
evidenced by the issuance of Patronage Certificates was 20% of the dividend for
dairy products and 40% of the dividend for non-dairy products. Patronage
Certificates issued for fiscal year 1994 have a seven year term, maturing on
December 15, 2001, and carry an 8% annual interest rate, payable in cash.
The Company expects to continue to distribute patronage dividends in the
future, although there can be no assurance of the amounts of such dividends.
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, four
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
6
purchases or one and one-half of the patron's average purchases, whichever is
greater, and pay the balance of the deposit over a period of 26 weeks, at no
interest, by payments on its weekly statement from the Company.
Member-patrons holding Class B Shares are presently given credit against the
above described cash deposit requirement based upon the combined, respective
book values of such shares as of the respective fiscal years last ended prior to
their issuance. The Company pays no interest on the required deposits of
patrons. Interest is paid on the above described cash deposits which are in
excess of patrons' required deposits, 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 and delicatessen 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.
7
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, 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
8
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.
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 $192,670,000 as of February 10, 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 $188,460,000 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 9% 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
9
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
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."
10
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.
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
THIRTEEN WEEKS
ENDED FISCAL YEAR
DECEMBER 3, --------------------------------------------------------------------
1994 1994 1993 1992 1991 1990
-------------- ------------ ------------ ------------ ------------ ------------
(THOUSANDS OMITTED)
Net sales.................. $ 460,907 $ 1,873,872 $ 2,007,288 $ 2,377,740 $ 2,767,996 $ 2,696,233
Patronage dividends ....... 2,220 10,837 12,880 12,977 19,979 30,641
Net earnings (loss)........ 39 94 473 (3,648) (4,682) 2,332
Total assets............... 421,233 401,096 403,979 449,713 469,010 485,038
Long-term notes payable ... 164,342 149,673 158,585 178,702 159,898 152,424
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE FISCAL YEARS ENDED SEPTEMBER 3, 1994
OVERVIEW
Fiscal 1994 was characterized by significant restructuring of Certified's
leadership, business processes and operational cost structures. During fiscal
1994, Alfred Plamann was elected President and Chief Executive Officer of
Certified. Utilizing his perspective gained from experiences as the Company's
Chief Financial Officer, Mr. Plamann led the Company toward a significant
restructuring of Company operations and business processes to more precisely
meet the changing environment in which Certified operates and more closely align
the Company with its customers. As part of this restructuring, the Company
developed a new delivery system which relies on sophisticated computer assisted
routing of Company deliveries to maximize efficiencies and more precisely meet
customer demands. Similarly, the Company streamlined the operations of its
specialty products subsidiary, Grocers Specialty Company, by combining its
warehousing and distribution functions with the Company's highly efficient
grocery division.
During the year, the Company reduced other costs and eliminated unnecessary
business processes. Headcount decreased from approximately 2,900 to 2,600 or 10%
and formal programs reduced workplace accidents and helped hold down medical
costs. Net earnings in fiscal 1994 decreased primarily because of a $1.6 million
expense associated with the facility relocation discussed above, postretirement
expenses of $2.5 million, volume losses, and lease related charges, offset by
improved earnings in the insurance subsidiaries and the $2.5 million cumulative
effect of adopting Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109").
The management actions discussed above were taken in response to the
difficult business environment in California. The Company's customers,
independent grocery retailers, have been challenged by this environment as well
as increased competition from aggresive major chains. The overall reaction has
been a squeeze on prices necessary to attract customers at the retail level.
This reaction has been transferred to Certified in terms of its customers'
demands that products be delivered at very low cost.
More specifically, Certified has been adversely impacted by the volatile
nature of this grocery environment due to mergers of its customers into chain
businesses and other customers developing alternative distribution patterns to
attempt to obtain product at lower costs. While some of the sales losses are a
result of
11
the evolutionary development of a maturing customer base, Company management
believes the newly enacted cost controls will enable Certified to continue to be
the low cost provider of products and services required by the independent
grocer. Such cost structure should eliminate further erosion of the sales as
experienced over the past few years.
In fiscal 1991 and 1992, the Company experienced a number of factors which
negatively impacted volume and profitability. In 1991, the Company began to
experience a reduction in purchases by certain large retailers who commenced
self-distribution programs or were acquired by chains already engaged in self-
distribution. In addition, in both 1991 and 1992, a deterioration in economic
conditions and changing vendor promotional practices reduced opportunities to
profit from forward buying. The relocation in 1991 of Grocers General
Merchandise Company ("GM") to Fresno, California resulted in a $4.4 million net
loss to that subsidiary for that year, while increases in workers' compensation
insurance reserves were a major contributor to subsidiary losses in 1992.
While volume losses continued to impact the Company in fiscal 1993 and 1994,
management has taken a number of steps in fiscal 1994 designed to restructure
the Company's operations to reflect the changes in its business as discussed
above. In addition, fiscal 1993 included such changes as fee and price increases
in both Certified's cooperative business and in the businesses conducted by its
subsidiaries, disposition of certain unprofitable operations, and formation of a
joint venture to utilize excess warehouse capacity. As a result, fiscal 1993 net
earnings, as compared to fiscal 1992, increased $4.1 million on a sales decline
of $370.5 million.
In addition to improvements in its operations, the Company adopted during
fiscal 1993 a patronage dividend retention program to enable the Company to
strengthen its capitalization. Prior to fiscal 1993, the Company distributed to
its patrons, in cash, all of its net earnings from patronage sources after
patrons' required deposits and required stockholding. In fiscal 1993, the
Company's Board of Directors authorized a program to issue patronage dividend
certificates in lieu of a portion of cash distributions. The Company intends
this program to be long-term, with the amount and interest rate of such
certificates to be reviewed each year. Certificates for each year will be
unsecured general obligations of the Company and will be subordinated to certain
other indebtedness of the Company. The Board of Directors determined that, in
fiscal 1993, 20% of the fourth quarter patronage dividend from dairy products
and 40% of the fiscal year's patronage dividend from non-dairy products would be
distributed in seven-year patronage dividend certificates bearing interest at 7%
per annum. The Board of Directors approved the patronage dividend retention
program for fiscal year 1994. The retention will be 20% of the quarterly dairy
patronage dividends and 40% of the fiscal year's dividend for non-dairy products
and will have a maturity date of December 15, 2001 and carry an 8% annual
interest rate, payable in cash. The Company expects to continue to distribute
patronage dividends in the future, although there can be no assurance of the
amounts of such dividends.
As a result of differences arising in recording certain items for financial
statement and tax purposes on the Company's nonpatronage activities, the Company
has recognized net benefits related to these deferred tax assets of $5.6
million. Based on sufficient projected earnings and tax planning strategies, the
Company expects to realize tax benefits associated with these differences. The
Company has also established a valuation reserve of $1.4 million for the
likelihood that a portion of the tax assets will not be realized.
The Company, together with others, has been designated as a potentially
responsible party ("PRP") by the Environmental Protection Agency ("EPA") with
respect to the clean up of hazardous waste at Operating Industries, Inc.
Superfund Site ("OII Site") in Monterey Park, California. The Company has been
identified as disposing hazardous waste at the OII site during a period in the
1970's and early 1980's as was common and acceptable practice at that time. The
Company has not disposed of any materials at the site since, and believes its
current disposal policies to be in accordance with federal, state and local
government laws. Clean up of this site will occur in five phases and could
entail estimated total clean up costs of $650 million to $800 million. However,
the Company's share of clean up costs for the first three phases has been
established at approximately $380,000. While the Company's share of the cost for
the remaining two phases has not yet been established, based upon overall
estimates of the range of potential cost, the Company believes that its share
for those phases will not exceed approximately $1.1 million. An initial reserve
of $0.4 million was
12
established in fiscal 1993 and an additional reserve of $1.1 million added for
fiscal 1994, providing an accumulated reserve for environmental liabilities of
$1.5 million as of September 3, 1994. Because of the uncertainties associated
with environmental assessment and remediation activities, the Company's future
expenses to remediate the currently identified site could be higher than the
accrued liability. Although it is difficult to estimate the liability of the
Company related to these environmental matters, management believes that these
matters will not have a materially adverse effect on the Company's financial
position or consolidated statement of earnings.
The Company, subsequent to its year-end, completed a sale leaseback
transaction with Trinet Corporate Realty Trust, Inc. ("Trinet"), an unaffiliated
third party, wherein it sold approximately 5.5 acres of real property in the
City of Commerce, together with all buildings, structures and improvements
located on such real property, including an office building containing
approximately 100,000 square feet and a cafeteria building containing
approximately 8,000 square feet. The total sales price for the property was
$11,500,000 in cash. Concurrent with the sale of the real property, the Company
and Trinet entered into a twenty year lease of the property, with two ten year
extension options. The monthly rental is approximately $108,000 and is subject
to CPI adjustment commencing on the first day of the sixth, eleventh and
sixteenth years. However, such CPI adjustments shall not exceed four percent per
annum on a cumulative basis during each five year period.
In an effort to assist existing customers to better compete in the
marketplace and develop new formats that fit the ever changing retail
environment, the Company, where appropriate, takes an equity position rather
than debt with certain member-patrons. In September 1992, the Company invested
approximately $1.5 million in common and preferred stock of Major Market Inc.
("MMI"). The Company is finalizing a divestiture agreement with MMI whereby MMI
will repurchase the Company's stock for a consideration aggregating $2.7 million
and the Company will realize a $603,000 pre-tax gain. After completion of the
transaction, the Company will retain a minority ownership interest of 20%.
RESULTS OF OPERATIONS
The following table sets forth selected financial data of the Company
expressed as a percentage of net sales for the periods indicated below:
FISCAL YEAR ENDED
------------------------------------------
SEPTEMBER 3, AUGUST 28, AUGUST 29,
1994 1993 1992
-------------- ------------ ------------
Net sales................................................................... 100.0% 100.0% 100.0%
Cost of sales............................................................... 90.6 90.8 91.9
Distribution, selling and administrative.................................... 8.0 7.7 7.0
Operating income............................................................ 1.4 1.5 1.1
Interest expense............................................................ 0.8 0.8 0.7
Other expense, net.......................................................... 0.1 0.0 0.0
Earnings before patronage dividends and provision (benefit) for income
taxes...................................................................... 0.5 0.7 0.4
Patronage dividends......................................................... 0.6 0.7 0.6
Cumulative effect of accounting change...................................... 0.1 -- --
Net earnings (loss)......................................................... 0.0 0.0 (0.2)
FISCAL YEAR ENDED SEPTEMBER 3, 1994 ("FISCAL 1994") COMPARED TO FISCAL YEAR
ENDED AUGUST 28, 1993 ("FISCAL 1993")
NET SALES. Net sales decreased $133 million (6.6%) to slightly less than
$1.9 billion in fiscal 1994. This is a result of the previously noted decision
of certain large patrons to expand their own warehousing and distribution
operations. After adjusting for the anticipated patron self-distribution volume
loss, the Company obtained an additional $31 million of new business from new
members, and expanded its existing customers' sales volume.
13
COST OF SALES. Cost of sales decreased $124.7 million (6.8%) to $1.7
billion in fiscal 1994 as compared to fiscal 1993. The majority of this decrease
is in response to the lower sales volume as discussed above; however, additional
reduction in cost of sales is reflective of management's efforts to eliminate
unprofitable business and maximize vendor related deal programs.
DISTRIBUTION, SELLING AND ADMINISTRATIVE. Distribution, selling and
administrative expenses were $149.3 million or 8.0% of net sales in fiscal 1994,
as compared to $153.6 million or 7.7% of net sales in fiscal 1993. The decrease
in total expenses was primarily due to the reduction of payroll costs
(approximately $5.2 million offset by an incremental increase of $2.5 million in
accrued postretirement benefits for a net payroll decrease of $2.7 million) and
the implementation of other cost reduction efforts.
OPERATING INCOME. Operating income decreased to $25.6 million for fiscal
1994 as compared to $30 million for fiscal 1993. As a percentage of net sales,
operating income for fiscal 1994 was consistent with fiscal 1993 but lower in
total dollars as a result of lower sales volume discussed above.
INTEREST. Interest expense decreased by $0.4 million, to $15.4 million in
fiscal 1994 from $15.8 million in fiscal 1993, as a result of reduced working
capital requirements related to the volume changes.
OTHER EXPENSE, NET. During fiscal 1994, the Company adopted a formal plan
to relocate its Grocers Specialty Company ("GSC") warehouse operations in
Corona, California to the Company's corporate warehouse facilities in Los
Angeles, California. It is anticipated that the warehouse relocation will result
in more effective utilization of Company assets, transportation and warehousing
efficiencies, and enhanced service to GSC customers and members of the
cooperative. In connection with this consolidation plan, the Company recorded a
$1.6 million charge. The charge primarily consists of warehouse and inventory
relocation costs as well as reprogramming costs of certain financial and
operating systems. The warehouse relocation was completed during October 1994.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE. The Company adopted SFAS No. 109,
effective August 29, 1993. The adoption of this new accounting method resulted
in a positive $2.5 million impact for fiscal 1994.
NET EARNINGS. Net earnings in fiscal 1994 decreased primarily because of a
$1.6 million expense associated with the facility relocation discussed above,
postretirement expenses of $2.5 million, volume losses, and lease related
charges, offset by improved earnings in the insurance subsidiaries and the $2.5
million cumulative effect of adopting SFAS No. 109.
FISCAL YEAR ENDED AUGUST 28, 1993 ("FISCAL 1993") COMPARED TO FISCAL YEAR
ENDED AUGUST 29, 1992 ("FISCAL 1992")
NET SALES. Net sales decreased 15.6% to $2 billion in fiscal 1993 primarily
as a result of the loss of certain large member-patrons. Certain member-patrons
were acquired by other larger retailers operating their own distribution
facilities, while certain other large member-patrons either acquired or expanded
their own warehousing and distribution operations. In addition, the lingering
effects of the 1992 Los Angeles civil unrest and the stagnant California economy
contributed to lower sales. Although some further loss of sales volume from
these factors occurred in fiscal 1994, management is aggressively attempting to
replace lost sales volume by adding new customers and expanding the volume of
sales to existing customers.
COST OF SALES. Cost of sales as a percentage of sales decreased from 91.9%
in the 1992 period to 90.8% in the 1993 period. This decrease is primarily due
to fee and price increases for fiscal 1993 of lower volume discounts.
DISTRIBUTION, SELLING AND ADMINISTRATIVE. Distribution, selling and
administrative expenses were $153.7 million or 7.7% of net sales in fiscal 1993,
as compared to $166.7 million or 7.0% of net sales in fiscal 1992. While cost
reductions did not keep pace with volume reductions primarily because of the
relationship of fixed and semifixed costs on lower sales, the decrease in total
expense was primarily due to the reduction of payroll costs (approximately $14.2
million) and the implementation of cost reduction efforts, offset, in part, by
increased workers' compensation, property tax and insurance expenses.
14
OPERATING INCOME. Operating income increased to $30 million for fiscal
1993, compared to $26.4 million for fiscal 1992. The increase in operating
income was primarily the result of fee and price increases coupled with the cost
reduction program.
INTEREST. Interest expense decreased by $1.5 million, to $15.8 million in
fiscal 1993 from $17.3 million in fiscal 1992, as a result of reduced working
capital requirements related to the volume changes coupled with lower prevailing
interest rates.
NET EARNINGS. Net earnings for fiscal 1993 were $473,000 as compared to a
net loss of $3.6 million in fiscal 1992. Fee and price increases, significant
cost and expense reductions, and the absence in the 1993 period of start-up and
restructuring costs incurred in fiscal 1992 in the subsidiary operations were
the primary reasons for the earnings improvement.
LIQUIDITY AND CAPITAL RESOURCES
The Company relies upon cash flow from operations, patron deposits,
Patronage Certificates, shareholdings and borrowings under the Company's credit
lines, to finance operations. Net cash provided from operating activities
totalled $18.2 million for fiscal 1994 as compared to $38.2 million for fiscal
1993. The Company's cost and expense reductions, revised marketing programs, and
the dividend retention program provide adequate operating cash flow to conduct
the Company's business operations. At September 1994, working capital was $96.8
million and the current ratio was 1.6 to 1, down from 1.74 to 1 at the fiscal
1993 year end. Working capital varies throughout the year primarily as a result
of seasonal inventory requirements.
Capital expenditures totalled $5.9 million in fiscal 1994 and $8.9 million
in fiscal 1993.
The Company has agreements with certain banks that provide for committed
lines of credit. These credit lines are available for general working capital,
acquisitions, and maturing long-term debt. At the end of fiscal 1994, the
Company had $160 million in committed lines of credit, of which $82.6 million
was not utilized. In March 1994, the Company refinanced its existing $125
million credit line with a new $135 million secured, committed line of credit.
The new credit agreement, which matures March 17, 1997, is collateralized by
accounts receivable, inventory, and certain other assets of Certified Grocers of
California, Ltd. and two of its principal subsidiaries, excluding equipment,
real property and the assets of Grocers Capital Company ("GCC"). The agreement
provides for Eurodollar basis or prime basis borrowings at the Company's option.
As of September 3, 1994, the Company's outstanding borrowings, including
obligations under capital leases of approximately $7.8 million, amounted to
$152.6 million, of which $149.7 million was classified as noncurrent.
Certified distributes at least 20% of the patronage dividends in cash and
distributes Class B Shares as a portion of the patronage dividends distributed
to its member-patrons. In addition, under a patronage dividend retention program
authorized by Certified's Board of Directors, Certified retains a portion of the
patronage dividends to be distributed for a fiscal year and issues patronage
certificates ("Patronage Certificates") evidencing its indebtedness respecting
the retained amounts. The program provides for the issuance of Patronage
Certificates to patrons on an annual basis in a portion and at an interest rate
to be determined annually by the Board of Directors. Patronage Certificates for
each year are unsecured general obligations of Certified, are subordinated to
certain other indebtedness of Certified, and are nontransferable without the
consent of Certified. The Patronage Certificates are subject to redemption, at
any time in whole and from time to time in part, without premium, at the option
of Certified, and are subject to being set off, at the option of Certified,
against all or any portion of the amounts owing to the Company by the holder.
Subject to the payment of at least 20% of the patronage dividend in cash, the
portion of the patronage dividend retained is deducted from each patron's
patronage dividend prior to the issuance of Class B Shares as a portion of such
dividend.
For fiscal 1993, the portion of the patronage dividend retained and
evidenced by the issuance of Patronage Certificates was 20% of the fourth
quarter dividend for dairy products and 40% of the fiscal year's dividend for
non-dairy products. However, as to any particular patron, if such amount was
less than $500, then no retention occurred and a Patronage Certificate was not
issued. Patronage Certificates issued for
15
fiscal year 1993 have a seven year term, maturing on December 15, 2000, and
carry a 7% annual interest rate, payable in cash. The Board of Directors
approved the patronage dividend retention program for fiscal year 1994. The
retention will be 20% of the quarterly dairy patronage dividends and 40% of the
fiscal year's dividend for non-dairy products and will have a maturity date of
December 15, 2001 and carry an 8% annual interest rate, payable in cash. The
Company expects to continue to distribute patronage dividends in the future,
although there can be no assurance of the amounts of such dividends.
Patrons are generally required to maintain subordinated deposits with the
Company and member-patrons purchase shares of stock of the Company. Upon
termination of patron status, the withdrawing patron will be entitled to recover
deposits in excess of its obligations to the Company if permitted by the
applicable subordination provisions, and a member-patron also will be entitled
to have its shares redeemed, subject to applicable legal requirements, Company
policies and credit agreement limitations. The Company's current redemption
policy limits the Class B Shares that the Company is obligated to redeem in any
year to 5% of the number of Class B Shares deemed outstanding at the end of the
preceding fiscal year. In fiscal 1994, this limitation restricted the Company's
redemption of shares to 19,716 shares for $3,223,960. In fiscal 1995, the 5%
limitation will restrict the Company's redemption of shares to 19,414 shares for
$3,165,064. Due to the loss of a number of significant member-patrons, the
number of shares tendered for redemption at September 3, 1994 totalled 90,815
(or approximately $14.8 million, using fiscal 1994 year end book values), which
exceeds the amount that can be redeemed in fiscal 1995. Consequently, the
Company will be required to make redemptions in fiscal 1996, 1997 and 1998, with
such redemptions approximating $9.2 million to $9.5 million based on 1994 year
end book values and estimated share issuances for those years. The redemption
price for shares is based upon their book value as of the end of the year
preceding redemption. Cash flow to fund redemption of shares is provided from
operations, patron deposits, Patronage Certificates, current shareholdings and
borrowings under the Company's credit lines.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
POSTEMPLOYMENT BENEFITS
The FASB issued Statement of Financial Accounting Standards No. 112
"Employers' Accounting for Postemployment Benefits", which is effective for
fiscal years beginning after December 15, 1993. Accordingly, the Company will
conform to the new requirements in fiscal 1995. The new accounting standard
requires an accrual rather than a pay-as-you-go basis of recognizing expenses
for postemployment benefits (provided by an employer to former or inactive
employees after termination of employment but before retirement). Management
estimates the effect on its results of operations in fiscal 1995 will
approximate $1.5 million which it will accrue in that year as a non-cash
expense.
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AS OF DECEMBER 3, 1994, AND FOR THE THIRTEEN WEEKS
THEN ENDED AND THE COMPARABLE THIRTEEN WEEKS OF 1993
RESULTS OF OPERATIONS
The following table sets forth selected financial data of the Company
expressed as a percentage of sales for the periods indicated below:
FOR THE 13 WEEKS ENDED
--------------------------
DECEMBER 3, NOVEMBER 27,
1994 1993
----------- ------------
Net sales............................................................. 100% 100%
Cost of sales......................................................... 91.2 91.1
Distribution, selling and administrative.............................. 7.5 7.3
Operating income...................................................... 1.3 1.6
Interest expense...................................................... 0.8 0.8
Estimated patronage dividends......................................... 0.5 0.8
Earnings after dividend and before income taxes....................... 0.0 0.0
Cumulative effect of accounting change................................ 0.5
Net earnings.......................................................... 0.0 0.5
NET SALES. Net sales decreased 2.7% to $460.9 million in the 1995 period as
compared to the 1994 period. This decrease was due to the effects of the loss of
certain customers and member-patrons. In addition, certain other large
member-patrons either acquired or expanded their own warehousing and
distribution operations. However, the decrease in sales as a result of these
occurrences was partially offset by improved sales growth in the Northern and
Southern California grocery divisions. The Company is attempting to increase
sales volume by adding new customers and expanding the volume of sales to
existing customers.
COST OF SALES. Cost of sales as a percentage of sales has remained
consistent with the comparable prior thirteen-week period (91.1% in the 1994
period and 91.2% in the 1995 period).
DISTRIBUTION, SELLING AND ADMINISTRATIVE. Distribution, selling and
administrative expenses were $34.6 million or 7.5% of net sales in the 1995
period, compared to $34.4 million or 7.3% of net sales in the 1994 period. The
increase in these expenses as a percentage to sales was primarily the result of
lower sales volume as discussed above.
OPERATING INCOME. Operating income totalled $6 million for the 1995 period,
compared to $7.8 million for the 1994 period. The decrease in operating income
was primarily the result of lower sales volume as discussed above.
INTEREST. Interest expense in the 1995 period has remained consistent in
dollars and as a percentage of sales with the comparable 1994 period.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE. In the first quarter of fiscal
1994, the Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"). The adoption of this new
accounting method resulted in a positive $2.5 million impact on net earnings in
the 1994 period.
NET EARNINGS (LOSS). Net earnings for the 1995 period were $39,000 compared
to net earnings of $2.6 million for the 1994 period. The adoption of SFAS No.
112 had a $373,000 impact on net earnings in the 1995 period; however, the
decrease in net earnings was primarily due to the cumulative effect of adopting
SFAS No. 109 in the 1994 period. In addition, Grocers Specialty Company
experienced lower earnings compared to the 1994 period due to the loss of a
significant customer. Other subsidiaries had improved earnings in the first
quarter of fiscal 1995.
17
LIQUIDITY AND CAPITAL RESOURCES
The Company relies primarily upon cash flow from operations, patron
deposits, Patronage Certificates, shareholdings and borrowings under the
Company's credit lines, to finance operations. Net cash utilized by operating
activities totalled $12.5 million for the first 13 weeks of fiscal 1995 (the
"1995 period"), as compared to $16.8 million for the first 13 weeks of fiscal
1994 (the "1994 period"). Net cash utilized for the 1995 period and the 1994
period is due primarily to increased accounts and notes receivable in the
cooperative and insurance operations. This reflects seasonal member volume
increases in the cooperative as well as increased premium receivables in the
insurance operations due to annual workers' compensation and general liability
policy renewals. 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 December 3, 1994, working
capital was $113.5 million, as compared to $96.8 million at September 3, 1994,
and the Company's current ratio was 1.7 to 1, up from 1.6 to 1 at the fiscal
1994 year end. Working capital varies throughout the year primarily as a result
of seasonal inventory requirements.
Capital expenditures totalled $3.9 million in the first 13 weeks of fiscal
1995. The 1995 expenditures include purchases of warehouse, maintenance, and
computer equipment.
On December 6, 1994, the Company completed a sale leaseback transaction with
Trinet Corporate Realty Trust, Inc. ("Trinet"), an unaffiliated third party,
wherein it sold approximately 5.5 acres of real property in the City of Commerce
together with all buildings, structures and improvements located on such real
property, including an office building containing approximately 100,000 square
feet and a cafeteria building containing approximately 8,000 square feet. The
total sales price for the property was $11.5 million. 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 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 the first quarter of
fiscal 1995, the Company had $160 million in committed lines of credit, of which
$67.4 million was not utilized. A $135 million committed line of credit with a
maturity date of March 17, 1997, is collateralized by accounts receivable,
inventory, and certain other assets of Certified Grocers of California, Ltd.,
and two of its principal subsidiaries, excluding equipment, real property and
the assets of Grocers Capital Company ("GCC"). The agreement provides for
Eurodollar basis or prime basis borrowings at the Company's option. As of
December 3, 1994, the Company's outstanding borrowings, including obligations
under capital leases of approximately $7.7 million, amounted to $167.4 million,
of which $164.3 million was classified as noncurrent.
Certified distributes at least 20% of the patronage dividends in cash and
distributes Class B Shares as a portion of the patronage dividends distributed
to its member-patrons. 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 evidencing its indebtedness respecting the retained amounts. The
program provides for the issuance of Patronage Certificates to patrons on an
annual basis in a portion and at an interest rate to be determined annually by
the Board of Directors. Patronage Certificates for each year are unsecured
general obligations of Certified, are subordinated to certain other indebtedness
of Certified, and are nontransferable without the consent of Certified. The
Patronage Certificates are subject to redemption, at any time in whole and from
time to time in part, without premium, at the option of Certified, and are
subject to being set off, at the option of Certified, against all or any portion
of the amounts owing to the Company by the holder.
Subject to the payment of at least 20% of the patronage dividend in cash,
the portion of the patronage dividend retained is deducted from each patron's
patronage dividend prior to the issuance of Class B Shares as a portion of such
dividend.
18
For fiscal year 1993, the portion of the patronage dividend retained and
evidenced by the issuance of Patronage Certificates was 20% of the fourth
quarter dividend for dairy products and 40% of the fiscal year's dividend for
non- dairy products. However, as to any particular patron, if such amount was
less than $500, then no retention occurred and a Patronage Certificate was not
issued. Patronage Certificates issued for fiscal year 1993 have a seven year
term, maturing on December 15, 2000, and carry a 7% annual interest rate,
payable in cash. The Board of Directors approved the patronage dividend
retention program for fiscal year 1994. The retention for 1994 was 20% of the
quarterly dairy patronage dividends and 40% of the fiscal year's dividend for
non-dairy products and will have a maturity date of December 15, 2001 and carry
an 8% annual interest rate, payable in cash. The Company expects to continue to
distribute patronage dividends in the future, although there can be no assurance
of the amounts of such dividends.
Patrons are generally required to maintain subordinated deposits with the
Company and member-patrons purchase shares of stock of the Company. Upon
termination of patron status, the withdrawing patron will be entitled to recover
deposits in excess of its obligations to the Company if permitted by the
applicable subordination provisions, and a member-patron also will be entitled
to have its shares redeemed, subject to applicable legal requirements, Company
policies and credit agreement limitations. The Company's current redemption
policy limits the Class B Shares that the Company is obligated to redeem in any
year to 5% of the number of Class B Shares deemed outstanding at the end of the
preceding fiscal year. In fiscal 1995, this limitation restricts the Company's
redemption of shares to 19,414 shares for $3,165,064. Due to the loss of a
number of significant member-patrons in past fiscal years, the number of shares
tendered for redemption at January 23, 1995, totalled 72,259 (or approximately
$11.8 million using fiscal 1994 year end book values), which exceeds the amount
that can be redeemed in fiscal 1995. Consequently, the Company will be required
to make redemptions in fiscal 1996, 1997, and 1998, with such redemptions
approximating $9.2 million to $9.5 million based on 1994 year end book values
and estimated share issuances for those years. Shares are redeemed at 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.
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 3, 1994 and August 28, 1993, and the related consolidated statements
of earnings, shareholders' equity, and cash flows for each of the three fiscal
years in the period ended September 3, 1994, included in this Prospectus, and
included in the Annual Report on Form 10-K of the Company and Amendment No. 1
thereto on Form 10-K/A, 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.
19
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
---------
Consolidated Financial Statements:
Report of Independent Accountants........................................................................ 21
Consolidated Balance Sheets as of September 3, 1994 and August 28, 1993.................................. 22
Consolidated Statements of Earnings for Fiscal Years Ended September 3, 1994, August 28, 1993, and August
29, 1992................................................................................................ 23
Consolidated Statements of Shareholders' Equity for Fiscal Years Ended September 3, 1994, August 28,
1993, and August 29, 1992............................................................................... 24
Consolidated Statements of Cash Flows for Fiscal Years Ended September 3, 1994, August 28, 1993, and
August 29, 1992......................................................................................... 25
Notes to Consolidated Financial Statements............................................................... 26
Unaudited Consolidated Condensed Financial Statements:
Consolidated Condensed Balance Sheet as of December 3, 1994.............................................. 42
Consolidated Condensed Statements of Earnings for the Thirteen Weeks Ended
December 3, 1994 and November 27, 1993................................................................. 43
Consolidated Condensed Statements of Cash Flows for the Thirteen Weeks Ended December 3, 1994 and
November 27, 1993...................................................................................... 44
Notes to Unaudited Consolidated Condensed Financial Statements........................................... 45
20
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Certified Grocers of California, Ltd.
We have audited the consolidated balance sheets of Certified Grocers of
California, Ltd. and subsidiaries as of September 3, 1994 and August 28, 1993,
and the related consolidated statements of earnings, shareholders' equity, and
cash flows for each of the three fiscal years in the period ended September 3,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Certified Grocers of California, Ltd. and subsidiaries as of September 3, 1994
and August 28, 1993, and the results of their operations and their cash flows
for each of the three fiscal years in the period ended September 3, 1994, in
conformity with generally accepted accounting principles.
As discussed in Note 7 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1994. In addition, as
discussed in Note 11 to the financial statements, the Company changed its method
of accounting for postretirement benefits other than pensions.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
November 30, 1994
21
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OMITTED)
SEPTEMBER 3, 1994 AND AUGUST 28, 1993
ASSETS
1994 1993
---------- ----------
Current
Cash and cash equivalents............................................................ $ 7,702 $ 11,411
Accounts and notes receivable........................................................ 96,545 99,973
Inventories.......................................................................... 146,869 148,480
Prepaid expenses..................................................................... 3,810 3,980
---------- ----------
Total current assets........................................................... 254,926 263,844
Properties............................................................................. 86,683 91,884
Investments............................................................................ 20,274 12,604
Notes receivable....................................................................... 23,335 26,055
Other assets........................................................................... 15,878 9,592
---------- ----------
TOTAL ASSETS................................................................. $ 401,096 $ 403,979
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable..................................................................... $ 82,137 $ 84,878
Accrued liabilities.................................................................. 61,428 49,106
Notes payable........................................................................ 2,978 3,132
Patrons' excess deposits and declared patronage dividends............................ 11,541 14,746
---------- ----------
Total current liabilities...................................................... 158,084 151,862
Notes payable, due after one year...................................................... 149,673 158,585
Commitments and contingencies
Patrons' deposits and certificates:
Patrons' required deposits........................................................... 17,589 18,901
Subordinated patronage dividend certificates......................................... 4,444 2,023
Shareholders' equity
Class A Shares....................................................................... 4,704 4,285
Class B Shares ...................................................................... 56,593 57,238
Retained earnings ................................................................... 10,313 11,085
Net unrealized loss on investments................................................... (304)
---------- ----------
Total shareholders' equity..................................................... 71,306 72,608
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................... $ 401,096 $ 403,979
---------- ----------
---------- ----------
The accompanying notes are an integral part of these statements.
22
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(THOUSANDS OMITTED)
FOR FISCAL YEARS ENDED SEPTEMBER 3, 1994, AUGUST 28, 1993, AND AUGUST 29, 1992
1994 1993 1992
------------ ------------ ------------
(53 WEEKS) (52 WEEKS) (52 WEEKS)
Net sales......................................................... $ 1,873,872 $ 2,007,288 $ 2,377,740
Costs and expenses
Cost of sales................................................... 1,698,930 1,823,592 2,184,700
Distribution, selling and administrative........................ 149,303 153,656 166,657
------------ ------------ ------------
Operating income.................................................. 25,639 30,040 26,383
Interest expense.................................................. (15,405) (15,784) (17,253)
Other expense, net................................................ (1,600) (373) (595)
------------ ------------ ------------
Earnings before patronage dividends, provision (benefit) for
income taxes and cumulative effect of accounting change......... 8,634 13,883 8,535
Declared patronage dividends...................................... (10,837) (12,880) (12,977)
------------ ------------ ------------
Earnings (loss) before income tax provision (benefit) and
cumulative effect of accounting change.......................... (2,203) 1,003 (4,442)
Provision (benefit) for income taxes.............................. 203 530 (794)
------------ ------------ ------------
Earnings (loss) before cumulative effect of accounting change..... (2,406) 473 (3,648)
Cumulative effect of accounting change............................ 2,500
------------ ------------ ------------
Net earnings (loss)............................................... $ 94 $ 473 $ (3,648)
------------ ------------ ------------
------------ ------------ ------------
The accompanying notes are an integral part of these statements.
23
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
FOR FISCAL YEARS ENDED SEPTEMBER 3, 1994, AUGUST 28, 1993, AND AUGUST 29, 1992
CLASS A CLASS B NET UNREALIZED
-------------------- -------------------- RETAINED LOSS ON
SHARES AMOUNT SHARES AMOUNT EARNINGS INVESTMENTS
--------- --------- --------- --------- --------- ---------------
Balance, August 31, 1991...................... 59,700 $ 5,096 400,764 $ 57,304 $ 16,249 $
Class A Shares issued....................... 200 34
Class A Shares redeemed..................... (6,200) (619) (440)
Class B Shares issued....................... 19,987 3,253
Class B Shares redeemed..................... (20,038) (2,748) (674)
Net loss.................................... (3,648)
--------- --------- --------- --------- ---------
Balance, August 29, 1992...................... 53,700 4,511 400,713 57,809 11,487
Class A Shares issued....................... 1,900 309
Class A Shares redeemed..................... (5,900) (535) (424)
Class B Shares issued....................... 13,649 2,232
Class B Shares redeemed..................... (20,036) (2,803) (451)
Net earnings................................ 473
--------- --------- --------- --------- ---------
Balance, August 28, 1993...................... 49,700 4,285 394,326 57,238 11,085
Class A Shares issued....................... 6,000 981
Class A Shares redeemed..................... (6,600) (562) (517)
Class B Shares issued....................... 13,676 2,230
Class B Shares redeemed..................... (19,716) (2,875) (349)
Net earnings................................ 94
Net unrealized loss on investments.......... (304)
--------- --------- --------- --------- --------- -----
Balance, September 3, 1994.................... 49,100 $ 4,704 388,286 $ 56,593 $ 10,313 $ (304)
--------- --------- --------- --------- --------- -----
--------- --------- --------- --------- --------- -----
The accompanying notes are an integral part of these statements.
24
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OMITTED)
FOR FISCAL YEARS ENDED SEPTEMBER 3, 1994, AUGUST 28, 1993, AND AUGUST 29, 1992
1994 1993 1992
----------- ----------- -----------
(53 WEEKS) (52 WEEKS) (52 WEEKS)
Cash flows from operating activities:
Net earnings (loss)........................................................ $ 94 $ 473 $ (3,648)
----------- ----------- -----------
Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities:
Cumulative effect of accounting change................................. (2,500)
Facility relocation.................................................... 520
Depreciation and amortization.......................................... 10,680 11,890 11,581
(Gain) loss on disposal of properties.................................. (445) 3 51
Accrued postretirement benefit costs................................... 2,509
Accrued environmental liabilities...................................... 1,100 400
Accrued sublease liability............................................. 1,228
Decrease (increase) in assets:
Accounts and notes receivable........................................ 3,428 26,454 (2,611)
Inventories.......................................................... 1,611 20,480 23,065
Prepaid expenses..................................................... 170 180 1,386
Notes receivable..................................................... 2,720 (1,277) (2,488)
Increase (decrease) in liabilities:
Accounts payable..................................................... (2,741) (13,940) (19,531)
Accrued liabilities.................................................. 3,015 (6,458) 8,265
Patrons' excess deposits and declared patronage dividends............ (3,205) (9,040)
----------- ----------- -----------
Total adjustments ....................................................... 18,090 37,732 10,678
----------- ----------- -----------
Net cash provided by operating activities.................................. 18,184 38,205 7,030
----------- ----------- -----------
Cash flows from investing activities:
Purchase of properties................................................... (5,921) (8,858) (9,369)
Proceeds from sales of properties........................................ 1,295 1,836 1,408
(Increase) decrease in other assets...................................... (244) 43 (99)
Investment in preferred stocks, net...................................... (2,552) (4,000)
Investment in long-term bonds, net....................................... (3,102) (2,312) (1,730)
Investment in common stocks.............................................. (2,320)
Purchase of intangible assets............................................ (1,540)
----------- ----------- -----------
Net cash utilized by investing activities.................................. (12,844) (10,831) (13,790)
----------- ----------- -----------
Cash flows from financing activities:
Additions to long-term notes payable..................................... 331 83,364
Reduction of long-term notes payable..................................... (5,934) (17,360) (61,445)
Additions to short-term notes payable.................................... 38
Reduction of short-term notes payable.................................... (3,132) (3,905) (15,846)
Decrease in members' required deposits................................... (1,312) (5,664) (222)
Issuance of subordinated patronage dividend certificates................. 2,421 2,023
Repurchase of shares from members........................................ (4,303) (4,213) (4,481)
Issuance of shares to members............................................ 3,211 2,541 3,287
----------- ----------- -----------
Net cash (utilized) provided by financing activities....................... (9,049) (26,209) 4,657
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents....................... (3,709) 1,165 (2,103)
Cash and cash equivalents at beginning of year ............................ 11,411 10,246 12,349
----------- ----------- -----------
Cash and cash equivalents at end of year................................... $ 7,702 $ 11,411 $ 10,246
----------- ----------- -----------
----------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest................................................................. $ 15,232 $ 15,499 $ 17,722
Income taxes ............................................................ 70 1,155 129
----------- ----------- -----------
$ 15,302 $ 16,654 $ 17,851
----------- ----------- -----------
----------- ----------- -----------
The accompanying notes are an integral part of these statements.
25
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Certified
Grocers of California, Ltd. and all of its subsidiaries ("Certified" or the
"Company"). Intercompany transactions and accounts with subsidiaries have been
eliminated.
NATURE OF BUSINESS:
The Company is a cooperative organization engaged primarily in the
distribution of food products and related nonfood items to retail establishments
owned by shareholders of the Company. All establishments with which directors
are affiliated, as members of the Company, purchase groceries, related products
and store equipment from the Company in the ordinary course of business at
prices and on terms available to members generally. In accordance with the
Company's various member services, certain directors (or their firms) receive
benefits for which all members are eligible.
The Company's fiscal year ends on the Saturday nearest to August 31.
RECLASSIFICATIONS:
Certain reclassifications have been made to prior years' financial
statements to present them on a basis comparable with the current period's
presentation.
CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
CONCENTRATION OF CREDIT RISK:
The Company is required by Statement of Financial Accounting Standards No.
105, "Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk" ("SFAS No. 105"), to disclose significant concentrations of credit risk.
Financial instruments which potentially expose the Company to concentrations of
credit risk, as defined by SFAS No. 105, consist primarily of trade receivables
and lease guarantees for certain member-patrons. These concentrations of credit
risk may be affected by changes in economic or other conditions affecting the
Western United States, particularly California. However, management believes
that receivables are well diversified and the allowances for doubtful accounts
are sufficient to absorb estimated losses. Obligations of member-patrons to the
Company, including lease guarantees, are generally supported by the Company's
right of offset, upon default, against the member-patrons' cash deposits,
shareholdings and Patronage Certificates, as well as personal guarantees and
reimbursement and indemnification agreements.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments ("SFAS No. 107"), requires disclosure of fair
value information about most financial instruments, both on and off the balance
sheet, if it is practicable to estimate. SFAS No. 107 excludes certain financial
instruments, such as certain insurance contracts, and all non-financial
instruments from its disclosure requirements. A financial instrument is defined
as a contractual obligation that ultimately ends with the delivery of cash or an
ownership interest in an entity. Disclosures regarding the fair value of
financial instruments have been derived using external market sources, estimates
using present value or other valuation techniques.
26
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table presents the carrying values and the estimated fair
values as of September 3, 1994 and August 28, 1993, of the Company's financial
instruments reportable pursuant to SFAS No. 107:
1994 1993
------------------------------ ------------------------------
ESTIMATED ESTIMATED
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
-------------- -------------- -------------- --------------
Assets:
Cash and cash equivalents.......... $ 7,702,000 $ 7,702,000 $ 11,411,000 $ 11,411,000
Investments........................ 20,274,000 20,274,000 12,604,000 12,903,000
Notes receivable................... 23,335,000 23,335,000 26,055,000 26,055,000
Liabilities:
Notes payable and Notes payable,
due after one year................ $ 152,651,000 $ 148,637,000 $ 161,717,000 $ 155,628,000
Patrons' excess deposits and
declared patronage dividends...... 11,541,000 11,541,000 14,746,000 14,746,000
Patrons' required deposits......... 17,589,000 17,589,000 18,901,000 18,901,000
Subordinated patronage dividend
certificates...................... 4,444,000 4,444,000 2,023,000 2,023,000
The methods and assumptions used to estimate the fair values of the
Company's financial instruments at September 3, 1994 and August 28, 1993 were
based on estimates of market conditions and risks existing at that time. These
values merely represent an approximation of possible value and may never
actually be realized.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value due to the short
maturity of these instruments.
INVESTMENTS AND NOTES RECEIVABLE
The fair values for Investments and Notes receivable are based
primarily on quoted market prices for those or similar instruments.
NOTES PAYABLE AND NOTES PAYABLE DUE AFTER ONE YEAR
The fair values for Notes payable and Notes payable, due after one
year are based primarily on rates currently available to the Company for
debt with similar terms and remaining maturities.
PATRONS' EXCESS DEPOSITS AND DECLARED PATRONAGE DIVIDENDS, PATRONS' REQUIRED
DEPOSITS, AND SUBORDINATED PATRONAGE DIVIDEND CERTIFICATES
The carrying amount approximates fair value due primarily to the
limitations imposed on deposit fund redemptions as provided in the
subordinating provisions to which they are subject.
INVENTORIES:
Inventories are valued at the lower of cost (first-in, first-out) or market.
DEPRECIATION:
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which approximate 40 years for buildings and 10 years
for equipment. Expenditures for replacements or major improvements are
capitalized; expenditures for normal maintenance and repairs are charged to
operations as incurred. Upon sale or retirement of properties, the cost and
accumulated depreciation are removed from the accounts, and any gain or loss is
included in operations.
27
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
POSTRETIREMENT BENEFITS:
Effective August 29, 1993, the Company implemented Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" ("SFAS No. 106"). This statement requires that the cost of
these benefits, which are primarily for health care and life insurance, be
recognized in the financial statements throughout the employees' active working
careers. The Company's previous practice was to expense these costs on a cash
basis, principally after retirement. The transition obligation is being
amortized on a straight-line basis over twenty years as allowed under SFAS No.
106. The incremental effect on the Company's results of operations for fiscal
1994 is approximately $2.5 million which has been accrued as a non-cash expense.
Management is considering benefit plan changes that will reduce the impact of
SFAS No. 106. Alternatives under consideration include plan redesign for such
items as cost sharing, modification of eligibility requirements, and limitation
of benefit payouts.
POSTEMPLOYMENT BENEFITS:
The FASB issued Statement No. 112 "Employers' Accounting for Postemployment
Benefits", which is effective for fiscal years beginning after December 15,
1993. Accordingly, the Company will conform to the new requirements in fiscal
1995. The new accounting standard requires an accrual rather than a pay-as-you-
go basis of recognizing expenses for postemployment benefits (provided by an
employer to former or inactive employees after termination of employment but
before retirement). Management estimates the effect on its results of operations
in fiscal 1995 will approximate $1.5 million which it will accrue in that year
as a noncash expense.
ENVIRONMENTAL COSTS:
The Company expenses, on a current basis, certain recurring costs incurred
in complying with environmental regulations and remediating environmental
pollution. The Company also reserves for certain non-recurring future costs
required to remediate environmental pollution for which the Company is liable
whenever, by diligent legal and technical investigation, the scope or extent of
pollution has been determined, the Company's contribution to the pollution has
been ascertained, remedial measures have been specifically identified as
practical and viable, and the cost of remediation and the Company's
proportionate share can be reasonably estimated.
INCOME TAXES:
Effective August 29, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"),
which requires the use of the liability method of accounting for deferred income
taxes; prior periods have not been restated. The cumulative effect of this
change in accounting principle increased the Company's net earnings by $2.5
million.
INVESTMENTS:
Effective September 3, 1994 the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS No. 115"); prior periods have not been restated. The
cumulative effect of such adoption amounted to an unrealized loss of $304,000,
net of deferred tax, and has been reported separately in the Consolidated
Statements of Shareholders' Equity. There was no effect on the Consolidated
Statements of Earnings. The gross amount of $461,000 reflects a non-cash
investing activity. Investment income is recorded when earned. The market value
of investments was supplied by Bank of America. These market values are
considered fair value.
Prior to the implementation of SFAS No. 115, investments in fixed maturities
which might, under certain circumstances, be sold prior to their dates of
maturity were classified as investments "held for sale" and such portfolio was
recorded at the lower of cost or market value. Unrealized losses, net of
deferred taxes, on such investments, if any, were recorded as a charge directly
to shareholders' equity. In addition, the
28
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 "identified certificate"
method.
2. PROPERTIES:
Properties at September 3, 1994, and August 28, 1993 stated at cost, are
comprised of:
1994 1993
-------------- --------------
Land................................................................ $ 11,488,000 $ 11,488,000
Buildings and leasehold improvements................................ 71,854,000 70,928,000
Equipment........................................................... 64,637,000 63,388,000
Equipment under capital leases...................................... 10,345,000 11,547,000
-------------- --------------
158,324,000 157,351,000
Less, accumulated depreciation and
amortization...................................................... 71,641,000 65,467,000
-------------- --------------
$ 86,683,000 $ 91,884,000
-------------- --------------
-------------- --------------
3. INVESTMENTS:
The amortized cost and fair values of investments available-for-sale were as
follows:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
SEPTEMBER 3, 1994 COSTS GAINS LOSSES VALUE
- ------------------------------------------------- ------------- ----------- ----------- -------------
Fixed Maturities:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies..... $ 10,102,000 $ 10,000 $ 415,000 $ 9,697,000
Corporate securities........................... 306,000 8,000 298,000
Mortgage backed securities..................... 1,455,000 1,000 49,000 1,407,000
------------- ----------- ----------- -------------
Sub-total.................................... 11,863,000 11,000 472,000 11,402,000
Redeemable preferred stock....................... 6,552,000 6,552,000
Equity securities................................ 2,320,000 2,320,000
------------- ----------- ----------- -------------
$ 20,735,000 $ 11,000 $ 472,000 $ 20,274,000
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
AUGUST 28, 1993 COST GAINS LOSSES VALUE
- ------------------------------------------------- ------------- ----------- ----------- -------------
Fixed Maturities:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies..... $ 7,530,000 $ 251,000 $ 7,781,000
Corporate securities........................... 597,000 14,000 611,000
Mortgage backed securities..................... 477,000 34,000 511,000
------------- ----------- ----------- -------------
Sub-total.................................... 8,604,000 299,000 8,903,000
Redeemable preferred stock....................... 4,000,000 4,000,000
------------- ----------- ----------- -------------
$ 12,604,000 $ 299,000 $ $ 12,903,000
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
29
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fixed maturity investments as of September 3, 1994 are due as follows:
AMORTIZED FAIR
SEPTEMBER 3, 1994 COST VALUE
- ----------------------------------------------------------------------------------- ------------- -------------
Fixed Maturities Available for Sale:
Due in one year or less.......................................................... $ 852,000 $ 828,000
Due after one year through five years............................................ 7,292,000 7,042,000
Due after five years through ten years........................................... 2,790,000 2,632,000
Due after ten years.............................................................. 929,000 900,000
------------- -------------
$ 11,863,000 $ 11,402,000
------------- -------------
------------- -------------
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:
1994 1993 1992
------------ ------------ ------------
Fixed Maturities........................................................ $ 1,094,000 $ 1,267,000 $ 1,406,000
Preferred Stock......................................................... 461,000 311,000
Cash and cash equivalents............................................... 95,000 122,000 59,000
------------ ------------ ------------
1,630,000 1,700,000 1,465,000
Less: investment expenses............................................... (110,000) (64,000) (69,000)
------------ ------------ ------------
Net investment income............................................... $ 1,520,000 $ 1,636,000 $ 1,396,000
------------ ------------ ------------
------------ ------------ ------------
Investments carried at $20,150,000 and $17,940,000 at September 3, 1994 and
August 28, 1993, respectively, (market value $20,150,000 and $18,592,000
respectively) are on deposit with regulatory authorities in compliance with
insurance company regulations.
4. NOTES PAYABLE:
Notes payable at September 3, 1994 and August 28, 1993 are summarized as
follows:
1994 1993
-------------- --------------
Notes payable to banks under revolving credit agreements, expiring
March 17, 1997, interest rate at prime (7.75% and 6.0% at
September 3, 1994 and August 28, 1993, respectively) plus 1/2% or
Eurodollar (4.81% and 3.37% at September 3, 1994 and August 28,
1993, respectively) plus 1 1/2%................................... $ 59,352,000 $ 64,022,000
Note payable to banks under revolving credit agreements, expiring
March 17, 1997, interest rate at prime (7.75% at September 3,
1994) plus 1/2% or Eurodollar (4.81% at September 3, 1994) plus
1 1/2%............................................................ 18,000,000
Subordinated note payable to a life insurance company, due April 1,
1999, interest rate of 10.8%, $8,750,000 due April 1 each year
beginning in 1996................................................. 35,000,000 35,000,000
30
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1994 1993
-------------- --------------
Senior note payable to a life insurance company, unsecured, due
January 15, 2005, interest rate of 9.55%, $62,500 due monthly each
year beginning in 1992 through 2000 and then $220,833 monthly
until maturity.................................................... 17,250,000 18,000,000
Note payable to bank under revolving credit agreement, refinanced on
April 25, 1994 interest rate at prime (6% at August 28, 1993) plus
1/2% or LIBOR (3.37% at August 28, 1993) plus 1 1/2%.............. 19,000,000
Notes payable, collateralized by land and warehouses, payable
monthly, approximately $60,000 plus interest at 9.88%, due
February 1, 2006.................................................. 15,211,000 15,889,000
Obligations under capital leases.................................... 7,838,000 9,806,000
-------------- --------------
152,651,000 161,717,000
Less, portion due within one year................................... (2,978,000) (3,132,000)
-------------- --------------
$ 149,673,000 $ 158,585,000
-------------- --------------
-------------- --------------
Maturities of long-term debt as of September 3, 1994 are:
1995................................................................. $ 2,978,000
1996................................................................. 29,577,000
1997................................................................. 70,811,000
1998................................................................. 11,337,000
1999................................................................. 11,353,000
Beyond 1999.......................................................... 26,595,000
------------
$152,651,000
------------
------------
Weighted average interest rates on short-term borrowings for fiscal year
ends 1994, 1993, and 1992 approximated 9.71%, 9.14%, and 7.29%, respectively.
Weighted average interest rates during each fiscal year, calculated on a
quarterly basis, approximated respective year end average rates. The average
amounts of short-term borrowings outstanding during fiscal years 1994, 1993, and
1992 were $3,147,000, $3,206,000, and $42,192,000, respectively. Short-term
borrowings amounted to as much as $3,158,000 in 1994, $3,616,000 in 1993, and
$118,141,000 in 1992.
The Company has credit agreements with certain banks that provide for
committed lines of credit. These credit lines are available for general working
capital, acquisitions, and maturing long-term debt. At the end of fiscal year
1994, the Company had $160 million in committed lines of credit, of which $82.6
million was not utilized. The unused portion of these credit lines are subject
to annual commitment fees of 0.375%.
Overall borrowings are limited by various financial covenants pertaining to
working capital, debt-to-equity relationships, tangible net worth, earnings, and
similar provisions. In addition, on the required portion of member deposits, no
payment may be made if there exists a default with respect to any senior
indebtedness, as defined, until such default has been cured or waived or until
such senior indebtedness has been paid in full.
A credit agreement of $135 million is collateralized by accounts receivable,
inventory and certain other assets, excluding equipment and real property. The
maturity date is March 17, 1997, but is subject to extension by the mutual
consent of the Company and the banks. The agreement provides for Eurodollar
basis or prime basis borrowings at the Company's option.
31
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A credit agreement for $25 million is collateralized by Grocers Capital
Company's ("GCC") eligible receivables. The maturity date is March 17, 1997, but
is subject to extension by the mutual consent of the Company and the banks. The
agreement provides for prime basis or Eurodollar basis borrowings at the
Company's option.
As a result of maturing long-term debt (a non-cash financing activity), the
Company reclassified from long to short-term debt $2,978,000, $3,088,000 and
$3,115,000 in fiscal 1994, 1993 and 1992, respectively.
The fair values of the Company's notes payable, excluding obligations under
capital leases, approximated $141 million at September 3, 1994. Rates currently
available to the Company for debt with similar terms and remaining maturities
are used to estimate the fair values of notes payable.
5. LEASES:
The Company has entered into both operating and capital leases for certain
warehouse, transportation and data processing computer equipment. The Company
has also entered into operating leases for approximately 33 retail supermarkets.
The majority of these locations are subleased to various member-patrons of the
Company. The operating leases and subleases are noncancellable, renewable,
include purchase options in certain instances, and require payment of taxes,
insurance and maintenance. In addition, the Company is contingently liable with
respect to lease guarantees for certain member-patrons. The total commitment for
such lease guarantees approximates $30.9 million to $32.9 million. The Company's
security respecting these lease guarantees is discussed in Note 1 under
"Concentration of Credit Risk."
Total rent expense was $22,707,000, $23,326,000, and $22,082,000 in 1994,
1993, and 1992 respectively. Sublease rental income was $4,713,000, $4,657,000,
and $2,554,000 in 1994, 1993, and 1992 respectively.
Minimum rentals (exclusive of real estate taxes, insurance, and other
expenses payable under the terms of the leases) as of September 3, 1994, are
summarized as follows:
CAPITAL
LEASES OPERATING LEASES
------------- ----------------
1995............................................................... $ 2,062,000 $ 18,636,000
1996............................................................... 1,772,000 16,510,000
1997............................................................... 1,119,000 13,679,000
1998............................................................... 982,000 9,168,000
1999............................................................... 852,000 6,289,000
Beyond 1999........................................................ 1,192,000 22,226,000
------------- ----------------
Total minimum lease payments..................................... 7,979,000 $ 86,508,000
----------------
----------------
Less, amount representing interest................................. (141,000)
-------------
Present value of net minimum lease payments........................ 7,838,000
Less, current portion.............................................. (1,479,000)
-------------
Total long-term portion.......................................... $ 6,359,000
-------------
-------------
32
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Minimum sublease rentals (exclusive of real estate taxes, insurance and
other expenses payable under the terms of the leases) as of September 3, 1994,
are summarized as follows:
OPERATING
LEASES
-------------
1995..................................................................................... $ 4,645,000
1996..................................................................................... 4,548,000
1997..................................................................................... 4,439,000
1998..................................................................................... 2,309,000
1999..................................................................................... 1,719,000
Beyond 1999.............................................................................. 11,474,000
-------------
$ 29,134,000
-------------
-------------
6. ACCRUED LIABILITIES:
The Company's insurance subsidiary maintains restricted certificates of
deposit and marketable securities from which the ceding companies can draw to
settle claims or certain other balances due ($9,827,000 and $8,732,000 at
September 3, 1994 and August 28, 1993, respectively). Accordingly, the loss
reserves and balances payable to the ceding companies which pertain to the
restricted certificates of deposit, marketable investments, and related
reinsurance balances receivable from the ceding companies have been offset in
the Company's consolidated balance sheets.
7. INCOME TAXES:
The significant components of income tax expense (benefit) attributable to
continuing operations are summarized as follows:
1994 1993 1992
------------- ---------- -----------
Federal:
Current tax expense................................. $ 2,049,000 $ 396,000 $
Utilization of net operating loss
carryforwards...................................... (800,000)
Deferred tax (benefit) expense...................... (1,156,000) 58,000 (705,000)
------------- ---------- -----------
93,000 454,000 (705,000)
------------- ---------- -----------
State:
Current tax expense................................. 377,000 57,000
Deferred tax benefit................................ (267,000) 19,000 (89,000)
------------- ---------- -----------
110,000 76,000 (89,000)
------------- ---------- -----------
$ 203,000 $ 530,000 ($ 794,000)
------------- ---------- -----------
------------- ---------- -----------
The Company's income taxes currently payable in 1994 and 1993 are in part
due to alternative minimum tax.
Deferred income taxes for temporary differences associated with the
patronage earnings have not been recorded because the Company allocates its
patronage income on an annual basis to its members. Under federal and state
income tax regulations applicable to cooperative organizations, patronage
dividends are deductible in computing taxable income.
33
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The effects of nonpatronage temporary differences and other items that give
rise to deferred tax assets and deferred tax liabilities are presented below:
SEPTEMBER 3, AUGUST 29,
1994 1993
------------- -------------
Deferred tax assets:
Accounts receivable..................................................... $ 895,000 $ 794,000
Accrued vacation/incentives............................................. 299,000 275,000
Postretirement benefits other than pension.............................. 505,000
Insurance reserves...................................................... 1,789,000 1,606,000
Closed store reserves................................................... 632,000 515,000
Lease reserve........................................................... 528,000
Other................................................................... 638,000 134,000
Net operating loss carryforwards........................................ 571,000 973,000
Alternative minimum tax credits......................................... 1,948,000 1,342,000
Tax credits............................................................. 277,000 241,000
------------- -------------
Total gross deferred tax assets....................................... 8,082,000 5,880,000
Less valuation allowance................................................ (1,400,000) (1,000,000)
------------- -------------
Net deferred tax assets............................................... $ 6,682,000 $ 4,880,000
------------- -------------
------------- -------------
Deferred tax liabilities:
Property, plant and equipment........................................... $ 2,029,000 $ 1,787,000
Deferred state taxes.................................................... 273,000
Other................................................................... 195,000 320,000
------------- -------------
Total gross deferred tax liabilities.................................. $ 2,497,000 $ 2,107,000
------------- -------------
------------- -------------
Net deferred tax assets are included in Other assets and total gross deferred
tax liabilities are included in Accrued liabilities on the Company's
Consolidated Balance Sheet as of September 3, 1994. The net change in valuation
allowance for deferred tax assets was an increase of $400,000 due to the
uncertainty of the realization of the benefit of loss carryforwards and certain
tax credits.
The reconciliation of the statutory federal income tax rate and the
Company's effective tax rate is summarized as follows:
1994 1993 1992
--------- --------- ---------
Federal income tax (benefit) rate........................... (34.0)% 34.0% (34.0)%
State income taxes, net of federal income tax benefit....... 3.4 8.8 (2.0)
Loss on insurance subsidiary not recognized for federal
taxes...................................................... 6.7 16.1
Alternative minimum tax..................................... 17.5
Increase in valuation reserve............................... 17.8
Other, net.................................................. 4.9 3.3 2.0
--------- --------- ---------
Effective tax rate (benefit)................................ 9.6% 52.8% (17.9)%
--------- --------- ---------
--------- --------- ---------
At September 3, 1994, the Company has alternative minimum tax credit
carryforwards of approximately $1.9 million available to offset future regular
income taxes payable to the extent such regular taxes exceed alternative minimum
taxes payable.
8. SUBORDINATED PATRONAGE DIVIDEND CERTIFICATES:
In December 1992, the Company's Board of Directors (the "Board") authorized
a patronage dividend retention program to be effective commencing with the
dividends payable for fiscal 1993, whereby Certified
34
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
retains a portion of the patronage dividends and issues Patronage Certificates
(the "Certificates") evidencing its indebtedness respecting the retained
amounts. In addition, the program provides for the issuance of the Certificates
to patrons on an annual basis in a portion and at an interest rate to be
determined annually. Certificates for each year are unsecured general
obligations of Certified, are subordinated to certain other Certified
indebtedness, and are nontransferable without the consent of Certified. The
certificates are subject to redemption, at any time in whole and from time to
time in part, without premium, at the option of Certified.
For fiscal 1993, the portion of the patronage dividend retained and
evidenced by the issuance of patronage certificates was 20% of the fourth
quarter dividend for dairy products and 40% of the fiscal year's dividend for
non-dairy products. However, as to any particular patron, if such amount was
less than $500, then no retention occurred and a Patronage Certificate was not
issued. The initial series issued for fiscal 1993 was for a seven year term,
maturing on December 15, 2000, and carried a 7% annual interest rate, payable in
cash. The Board of Directors approved the patronage dividend program for fiscal
year 1994. The retention will be 20% of the quarterly dairy patronage dividends
and 40% of the fiscal year's dividend for non-dairy products and will have a
maturity date of December 15, 2001 and carry an 8% annual interest rate, payable
in cash. The Company expects to continue to distribute patronage dividends in
the future, although there can be no assurance of the amounts of such dividends.
9. CAPITAL SHARES:
The Company requires that member-patrons hold Class B Shares in an amount
equal to the lesser of the amount of the member-patron's required deposit or
twice the member-patron's average weekly purchases (the "Class B Share
requirement"). Additionally, each Class B Share held by a member-patron is
valued at the book value of Certified's outstanding shares as of the close of
the fiscal year last ended prior to the issuance of such Class B Share.
After payment of at least 20% of the patronage dividend in cash and the
issuance of the Patronage Certificates, Class B Shares are issued as a portion
of each member-patron's patronage dividend and, to the extent necessary to
fulfill the member-patron's Class B Share requirement, by crediting the
member-patron's cash deposit account for the issuance values of such shares.
All shares of a terminated member will be redeemed by the Company (subject
to certain legal limitations, provisions of the Company's redemption policy, and
provisions of certain of the Company's committed lines of credit) at a price
equal to the greater of 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, or one cent per share. All shares are pledged to the
Company to secure the Company's redemption rights and as collateral for any debt
obligations to the Company.
The Company is not obligated in any fiscal year to redeem more than 5% of
the sum of the number of Class B Shares outstanding as of the close of the
preceding fiscal year and the number of Class B Shares issued as a part of the
patronage dividend for the preceding year (the "5% limit"). Thus, shares
tendered for redemption in a given fiscal year may not necessarily be redeemed
in that fiscal year. The 5% limit for fiscal year 1995 will allow for redemption
of 19,414 shares. Of the 20,942 shares tendered in fiscal year 1991, 48,644
shares tendered in fiscal year 1992, 36,998 shares tendered in fiscal year 1993,
40,824 shares tendered in fiscal year 1994 and 3,197 tendered in fiscal year
1995 and presently approved for redemption, 20,038 shares were redeemed in
fiscal year 1992, 20,036 shares were redeemed in fiscal year 1993, 19,716 shares
were redeemed in fiscal year 1994 and 19,414 shares will be redeemed in fiscal
year 1995 due to the 5% limit having been reached. Because the 5% limit for
fiscal year 1995 has been met, the remaining 71,401 shares (or approximately
$11.6 million, using fiscal 1994 year end book values) not redeemed in fiscal
year 1995 as well as the redemption of any additional Class B Shares tendered
during fiscal 1995 will require the prior approval of the Company's Board of
Directors. At present, such approval is not expected to be given. Accordingly,
since
35
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the Company's fiscal 1995 5% share redemption limitation has been met, future
redemptions for the 1995 fiscal year will be postponed. The total of Class B
Shares tendered and awaiting redemption has caused the 5% limit for fiscal 1995,
and will cause the limits for fiscal 1996 through 1998 to be met, thereby
delaying the redemption of Class B Shares in excess of such limit. The
redemptions required for fiscal years 1996 through 1998 approximate $9.2 million
to $9.5 million based on 1994 year end book values and estimated share issuances
for those years. Cash flow to fund redemption of shares is provided from
operations, patron deposits, Patronage Certificates, current shareholdings and
borrowings under the Company's credit lines. Any additional large tenderings of
Class B Shares could also potentially cause future year 5% limitations to be
exceeded. Therefore, the Company's ability to redeem additional shares in excess
of the 5% limit without prior approval of the Board may also be limited.
There are 500,000 authorized Class A Shares, of which 49,100 and 49,700 were
outstanding at September 3, 1994 and August 28, 1993, respectively. There are
2,000,000 authorized Class B Shares, of which 388,286 and 394,326 were
outstanding at September 3, 1994 and August 28, 1993, respectively. Once
redeemed, such shares are not available for reissuance to member-patrons.
Each member-patron of the Company is required to hold one hundred Class A
Shares. No member-patron may hold more than one hundred Class A Shares. However,
it is possible that a member may have an interest in another member, or that a
person may have an interest in more than one member, and thus have an interest
in more than one hundred Class A Shares. The Board of Directors is authorized to
accept member-patrons without the issuance of Class A Shares when the Board of
Directors determines that such action is justified by reason of the fact that
the ownership of the patron is the same, or sufficiently the same, as that of
another member-patron holding one hundred Class A Shares. The price for such
shares will be the book value per share of outstanding shares at the close of
the fiscal year last ended.
There are also 19 authorized Class C Shares of which 17 are outstanding.
These shares are valued at $10 per share, and ownership is limited to members of
the Board of Directors with no rights as to dividends or other distributions.
10. BENEFIT PLANS:
The Company has a noncontributory, defined benefit pension plan covering
substantially all of its nonunion employees. The benefits under the plan
generally are based on the employee's years of service and average earnings for
the three highest consecutive calendar years of compensation during the ten
years immediately preceding retirement. The Company makes contributions to the
pension plan in amounts which are at least sufficient to meet the minimum
funding requirements of applicable laws and regulations but no more than amounts
deductible for federal income tax purposes. Benefits under the plan are included
in a trust providing benefits through annuity contracts, and part of the plan
assets are held by a trustee.
36
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:
1994 1993 1992
------------- ------------- -------------
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested
benefits......................................................... $ 24,518,828 $ 22,025,105 $ 21,322,403
Effect of assumed future increase in compensation
levels........................................................... 10,380,043 10,025,238 10,327,360
------------- ------------- -------------
Projected benefit obligation for services rendered to
date............................................................. 34,898,871 32,050,343 31,649,763
------------- ------------- -------------
Plan assets at fair value........................................... 31,537,760 31,184,804 29,059,148
------------- ------------- -------------
Plan assets in deficiency of projected benefit obligations.......... 3,361,111 865,539 2,590,615
Unrecognized net gain............................................... (6,091,920) (3,544,459) (5,464,059)
Unrecognized transition asset....................................... 2,147,998 2,457,063 2,766,127
Unrecognized prior service cost..................................... 380,517 (99,259) (109,151)
------------- ------------- -------------
Prepaid pension costs at June 1..................................... (202,294) (321,116) (216,468)
------------- ------------- -------------
Fourth quarter contribution......................................... (320,645) (381,592) (236,516)
Fourth quarter net periodic pension cost............................ 228,948 337,730 263,455
------------- ------------- -------------
Prepaid pension cost at fiscal year end............................. $ (293,991) $ (364,978) $ (189,529)
------------- ------------- -------------
------------- ------------- -------------
Net pension cost included the following components:
Service cost -- benefits earned during the period................. $ 1,398,109 $ 1,384,636 $ 1,447,135
Interest cost on projected benefit obligation..................... 2,649,854 2,424,520 2,405,245
Actual return on plan assets...................................... (2,660,602) (2,627,861) (2,419,035)
Net amortization and deferral..................................... (83,873) (265,502) (82,426)
------------- ------------- -------------
Net periodic pension cost......................................... $ 1,303,488 $ 915,793 $ 1,350,919
------------- ------------- -------------
------------- ------------- -------------
Major assumptions:
Assumed discount rate............................................. 7.50% 7.50% 7.50%
Assumed rate of future compensation increases..................... 5.50% 5.50% 5.50%
Expected rate of return on plan assets............................ 8.50% 8.50% 8.50%
The method used to compute the vested benefit obligation is the actuarial
present value of the vested benefits to which the employee is entitled if the
employee separates immediately. The vested benefit obligation was $24,029,411,
$21,441,766, and $20,751,462 in 1994, 1993, and 1992, respectively.
The Company also made contributions of $4,820,000, $5,155,000, and
$5,433,000 in 1994, 1993, and 1992, respectively to collectively bargained,
multiemployer defined benefit pension plans in accordance with the provisions of
negotiated labor contracts. Information from the plans' administrators is not
available to permit the Company to determine its proportionate share of
termination liability, if any.
The Company has an Employees' Sheltered Savings Plan ("SSP"), which is a
defined contribution plan, adopted pursuant to Section 401(k) of the Internal
Revenue Code for its nonunion employees. The Company matches each dollar
deferred up to 4% of compensation and, at its discretion, matches 40% of amounts
deferred between 4% and 8%. At the end of each fiscal year, the Company also
contributes an amount equal to 2% of the compensation of those participants
employed at that date. The Company contributed approximately $2,200,000,
$2,200,000, and $2,300,000 in 1994, 1993, and 1992 respectively.
Also, the Company has an Employee Savings Plan ("ESP"), which is a defined
contribution plan, subject to the provisions of the Employee Retirement Income
Security Act of 1974, for all union and
37
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
nonunion employees hired prior to March 1, 1983. The Company's contribution to
the ESP in any fiscal year is based on net earnings as a percentage of total
sales. In the event net earnings are less than 1.5% of total sales, no
contribution is required. All corporate (nonunion) employees who had a previous
balance in the ESP Plan had their balances transferred to the SSP Plan effective
first quarter of fiscal 1992. No expense was incurred in fiscal years 1994, 1993
and 1992.
11. POSTRETIREMENT BENEFIT PLAN OTHER THAN PENSIONS:
The Company sponsors four postretirement benefit plans that cover both
nonunion and union employees. Nonunion employees are eligible for a plan
providing medical benefits and a plan providing life insurance benefits. Both
nonunion and union employees have separate plans providing a lump sum payout for
unused days in the sick leave bank. The postretirement health care plan is
contributory for nonunion employees retiring after January 1, 1990, with the
retiree contributions adjusted annually; the life insurance plan and the sick
leave payout plans are noncontributory.
The plans are unfunded. The amounts recognized in the balance sheet are:
1994
--------------
Accumulated postretirement benefit obligation:
Retirees.............................................................................. $ 11,496,106
Fully eligible active plan participants............................................... 4,621,853
Other active plan participants........................................................ 9,116,878
--------------
Accumulated postretirement benefit obligation........................................... 25,234,837
Unrecognized transition obligation...................................................... (21,347,603)
Unrecognized prior service cost.........................................................
Unrecognized net loss................................................................... (2,013,501)
--------------
Accrued postretirement benefit cost at June 1........................................... 1,873,733
Fourth quarter contributions............................................................ (293,640)
Fourth quarter net periodic postretirement benefit cost................................. 928,508
--------------
Accrued postretirement benefit cost..................................................... $ 2,508,601
--------------
--------------
Net periodic postretirement benefit cost included the following components:
1994
--------------
Service cost -- benefits attributed to service during the period....................... $ 653,927
Interest cost on accumulated postretirement benefit obligation........................ 1,915,446
Amortization of transition obligation over 20 years................................... 1,123,558
Net amortization and deferral......................................................... 21,097
--------------
Net periodic postretirement benefit cost.............................................. $ 3,714,028
--------------
--------------
For measurement purposes, a 10 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for fiscal year 1995;
the rate was assumed to decrease gradually to 6 percent in fiscal 2003 and
remain at the level thereafter. The health care cost trend rate assumption has a
significant effect on the amounts reported. To illustrate, increasing the
assumed health care cost trend rates by 1 percentage point in each year would
increase the accumulated postretirement benefit obligation as of September 3,
1994 by $3,522,273 and the aggregate benefit for the year then ended by
$464,431.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 8 percent.
The Company's union employees participate in a multiemployer plan that
provides health care benefits. Amounts charged to postretirement benefit cost
and contributed to the plan totaled $1.3 million in fiscal year 1994.
38
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Prior to the adoption of SFAS No. 106, the Company recognized the cost of
providing those benefits under the insurance agreement by expensing the claims
and administrative fees when paid, which for active and retired employees
totalled $5,890,000 in 1993, and $6,660,000 in 1992. The portion of the cost of
providing those benefits for 164 retirees in fiscal 1993 and 166 retirees in
fiscal 1992 was approximately $1.2 million and $0.9 million in fiscal years 1993
and 1992, respectively.
12. CONTINGENCIES:
ENVIRONMENTAL MATTERS. The Company, together with others, was notified by
the Environmental Protection Agency ("EPA") that it was a potentially
responsible party ("PRP") for the disposal of hazardous substances during the
1970s and early 1980s at Operating Industries, Inc. Superfund Site in Monterey
Park, California ("OII Site"). The Company has not disposed of any materials at
the site since and believes its current disposal policies to be in accordance
with federal, state and local governmental laws and regulations. Clean up of
this site will occur in five phases and could entail estimated total clean up
costs of $650 million to $800 million.
The Company appealed the initial findings of the EPA on August 16, 1993
concerning the quantity of disposed waste allocated to the Company. Management
recorded an initial liability of $400,000 for fiscal 1993. The initial liability
was based on estimated cleanup costs of $2 per gallon on approximately 200,000
gallons disposed at the site. In July 1994, the EPA reassessed the Company's
allocation as approximately $380,000, pertaining to its portion of the cost of
cleanup of the first three phases of the five-phase cleanup process.
The EPA also informed the Company of phases 4 and 5, which include final
remedy and ground water treatment, and a 30 year post-cleanup site control and
monitoring. These two phases, with estimated cost to the Company of
approximately $1.1 million, are fully reserved in the financial statements. As
of September 3, 1994, the total reserve established in respect to environmental
liabilities is $1.5 million. The Company is pursuing recovery of a portion of
this amount from its insurance carriers. However, due to the uncertainty of
success, no recovery amount has been recognized.
Because of the uncertainties associated with environmental assessment and
remediation activities, future expenses to remediate the currently identified
site could be higher than the accrued liability. Although it is difficult to
estimate the liability of the Company related to these environmental matters,
management believes that these matters will not have a materially adverse effect
on the Company's financial position or consolidated statement of earnings.
13. RELATED PARTY TRANSACTIONS:
A number of companies with which directors are associated have received
loans from the Company through its regular member loan program and/or obtained
lease guarantees or subleases for certain store locations. In consideration of
lease guarantees and subleases, the Company receives a monthly fee equal to 5%
of the monthly rent under the leases and subleases. Obligations of
member-patrons to the Company, including lease guarantees, are generally
supported by the Company's right of offset, upon default, against the
member-patrons' cash deposits, shareholdings and Patronage Certificates, as well
as personal guarantees and reimbursement and indemnification agreements.
Management believes all such related party transactions are on terms no more
favorable than those which would be available to other similarly sized member-
patrons.
During fiscal year 1993, the Company leased certain market premises located
in Sacramento, California, and in turn subleased the premises to SavMax Foods,
Inc. ("SavMax"), of which director Michael A. Webb is the President and a
Shareholder. The sublease to SavMax provides for a term of twenty years, without
options to extend, although SavMax has the option to acquire the Company's
interest under its lease on the condition that the Company is released from all
further liability thereunder. The premises consist of approximately 50,000
square feet and annual base rent under the sublease is at the following per
square foot
39
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
rates: $8.00 during years 1 and 2; $8.40 during years 3 through 5; $8.82 during
years 6 through 10; $9.26 during years 11 through 15; and, $9.72 during years 16
through 20. In addition, the Company receives monthly an additional amount equal
to 5% of the base monthly rent. Upon default by SavMax, the Company has the
right to retake possession of the premises under the sublease. In the event of a
default by SavMax under the sublease, the Company's remaining liability under
its lease would approximate $10.0 million, assuming the leased premises and
other support provided to the Company by way of offset rights proved to be of no
value to the Company.
The Company guarantees certain obligations of SavMax under three leases of
market premises located in Sacramento, San Jose and San Leandro, California.
Each of these guarantees relates to the obligation of SavMax to pay base rent,
common area maintenance charges, real estate taxes and insurance during the
initial 20 year terms of these leases. However, the guarantees are such that the
Company's obligation under each of them is limited to an amount equal to sixty
monthly payments (which need not be consecutive) of the obligations guaranteed.
Base rent is $40,482 per month under the Sacramento lease and $56,756 per month
under the San Jose lease, in each case subject to a 7 1/2% increase at the end
of each five years. Base rent is $42,454 per month under the San Leandro lease,
subject to a 10% increase at the end of each five years. In consideration of
these guarantees, the Company receives a monthly fee from SavMax equal to 5% of
the base monthly rent under these leases. If SavMax were to default under the
leases, the Company's remaining liability under its guarantees would range from
$10.0 million to $11.9 million, assuming other support provided to the Company
by way of offset rights and the reimbursement and indemnification agreements
proved to be of no value to the Company.
The Company guarantees certain obligations of SavMax under two leases of
market premises located in Ceres and Vacaville, California. The leases have
initial terms expiring in January 2005 and April 2007, respectively. Base
monthly rent under the Ceres lease is presently $32,175, increasing to $34,425
in January of 2000. Base monthly rent under the Vacaville lease is presently
$29,167, increasing by $25,000 per year in April of 1997 and 2002. In
consideration of these guarantees, the Company will receive a monthly fee from
SavMax equal to 5% of the base monthly rent under these leases. If SavMax were
to default under the leases, the Company's contingent liability under its
guarantees would approximate $11.4 million, assuming other support provided to
the Company by way of offset rights and the reimbursement and indemnification
agreements proved to be of no value to the Company.
The Company has guaranteed the payment by Cala Co. of certain promissory
notes related to an acquisition of Bell Markets, Inc. The promissory notes
mature in June 1996 and total $8 million; however, the Company's guaranty
obligation is limited to $4 million. In addition, and in connection with the
acquisition, the Company has guaranteed certain lease obligations of Bell
Markets, Inc. during a 20-year period under a lease relating to two retail
grocery stores. Annual rent under the lease is $327,019. In the event the
Company is called upon to perform on this guaranty, the Company has the right to
receive an assignment of the lease relating to the locations. Accordingly,
assuming the leased premises and other support provided to the Company by way of
offset rights and the reimbursement and indemnification agreement proved to be
of no value to the Company, the Company would be contingently liable under its
lease guarantee for approximately $4.7 million. Concurrently, a 5-year agreement
to purchase a substantial portion of merchandise requirements from the Company
was obtained from Bell Markets, Inc.
The Company has guaranteed a lease for Mar-Val Food Stores, Inc. (whose
President, Mark Kidd, is a director of the Company) on store premises in Valley
Springs, California. The guarantee is for a period of fifteen years and is
limited to the lessee's obligation to pay base rent of $10,080 per month, common
area costs, real estate taxes and insurance. The Company's total obligation
under the guarantee is limited to $736,800. In consideration of the guarantee,
the Company receives a monthly fee from Mar-Val Food Store, Inc. equal to 5% of
the base monthly rent under the lease.
40
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company has guarantees remaining on various member-patron leases during
the period of fiscal 1995 through fiscal 1998. In the event the support provided
to the Company by way of offset rights and the reimbursement and indemnification
agreements proved to be of no value, the Company would be contingently liable
under its guarantees for approximately $1.9 million.
In July 1993, the Company entered into an agreement to lease the produce
warehouse to Joe Notrica, Inc., of which director Morrie Notrica is the
President and a shareholder. The lease period is for five years, July 21, 1993
through July 31, 1998, at a monthly rent of $24,000. The lease has one five year
option and makes provision for inflation adjustments to monthly rent during the
option term.
During fiscal year 1992, Grocers Capital Company ("GCC"), a subsidiary,
acquired 40,000 shares of preferred stock of SavMax. The purchase price was $100
per share. In fiscal 1994, GCC, acquired an additional 25,000 shares of
preferred stock of SavMax, at a price of $100 per share. As part of the new
purchase of preferred stock, the annual cumulative dividend on the 65,000 shares
of preferred stock owned by GCC was increased from $8.25 per share to $8.50 per
share, payable quarterly. Mandatory partial redemption of this stock at a price
of $100 per share began in 1994 and will continue annually thereafter for eight
years, at which time the stock is to be completely retired. GCC also purchased
from Mr. Webb and another member of his immediate family, 10% of the common
stock of SavMax for a price of $2.3 million. In connection with this purchase,
Mr. Webb, SavMax and GCC agreed that GCC will have certain preemptive rights to
acquire additional common shares, rights to have its common shares included
proportionately in any transfer of common shares by Mr. Webb, and rights to have
its common shares included in certain registered public offerings of common
stock which may be made by SavMax. In addition, GCC has certain rights, at its
option, to require that SavMax repurchase GCC's shares, and SavMax has certain
rights, at its option, to repurchase GCC's shares. In connection with these
transactions, SavMax entered into a seven year supply agreement with the Company
(to replace an existing supply agreement) whereunder SavMax is required to
purchase a substantial portion of its merchandise requirements from the Company.
The supply agreement is subject to earlier termination in certain situations.
Grocers General Merchandise Company, ("GM"), a subsidiary of the Company,
and Food 4 Less GM, Inc. ("F4LGM"), a subsidiary of Food 4 Less Supermarkets,
Inc., are partners to a joint venture partnership agreement. Under the
agreement, GM and F4LGM are partners operating as Golden Alliance Distribution
("GAD"). The partnership was formed for the purpose of providing for the shared
use of the Company's general merchandise warehouse located in Fresno, California
and each of the partners has entered into a supply agreement with GAD providing
for the purchase of general merchandise products from GAD.
One of the Company's largest customers, Alpha Beta (which is wholly-owned by
Food 4 Less Supermarkets, Inc.) together with its affiliated companies,
accounted for a combined total of approximately 9.7% of fiscal 1994 sales.
Another customer, Hughes Markets, Inc. (of which director Roger K. Hughes is
Chairman of the Board) accounted for approximately 3.8% of fiscal 1994 sales.
14. SUBSEQUENT EVENT
The Company, subsequent to its year-end, completed a sale leaseback
transaction with Trinet Corporate Realty Trust, Inc. ("Trinet"), an unaffiliated
third party, wherein it sold approximately 5.5 acres of real property in the
City of Commerce, together with all buildings, structures and improvements
located on such real property, including an office building containing
approximately 100,000 square feet and a cafeteria building containing
approximately 8,000 square feet. The total sales price for the property was
$11,500,000. Concurrent with the sale of the real property, the Company and
Trinet entered into a twenty year lease of the property, with two ten year
extension options. The monthly rental is approximately $108,000 and is subject
to CPI adjustment commencing on the first day of the sixth, eleventh and
sixteenth years. However, such CPI adjustments shall not exceed four percent per
annum on a cumulative basis during each five year period. Any gain or loss
recognized on the transaction is not expected to be material to the financial
statements and will be amortized over the life of the lease.
41
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(THOUSANDS OMITTED)
DECEMBER 3, SEPTEMBER 3,
1994 1994
----------- ------------
ASSETS
Current:
Cash and cash equivalents........................................... $ 8,275 $ 7,702
Accounts and notes receivable....................................... 110,225 96,545
Inventories......................................................... 152,431 146,869
Prepaid expenses.................................................... 5,671 3,810
----------- ------------
Total current assets.............................................. 276,602 254,926
Properties, at cost................................................... 160,260 158,324
Less, accumulated depreciation...................................... (73,834) (71,641)
----------- ------------
86,426 86,683
Investments........................................................... 20,102 20,274
Notes receivable...................................................... 22,531 23,335
Other assets.......................................................... 15,572 15,878
----------- ------------
TOTAL ASSETS...................................................... $421,233 $401,096
----------- ------------
----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current:
Accounts payable.................................................... $ 89,435 $ 82,137
Accrued liabilities................................................. 57,115 61,428
Notes payable....................................................... 3,010 2,978
Patrons' excess deposits and estimated patronage dividends.......... 13,592 11,541
----------- ------------
Total current liabilities......................................... 163,152 158,084
Notes payable, due after one year..................................... 164,342 149,673
Commitments and contingencies.........................................
Patrons' required deposits............................................ 18,123 17,589
Subordinated patronage dividend certificates.......................... 4,444 4,444
Shareholders' equity
Class A Shares...................................................... 4,717 4,704
Class B Shares...................................................... 56,593 56,593
Retained earnings................................................... 10,274 10,313
Net unrealized loss on investments.................................. (412) (304)
----------- ------------
Total shareholders' equity........................................ 71,172 71,306
----------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........................ $421,233 $401,096
----------- ------------
----------- ------------
The accompanying notes are an integral part of these statements.
42
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)
(THOUSANDS OMITTED)
13 WEEKS ENDED
--------------------------
DECEMBER 3, NOVEMBER 27,
1994 1993
----------- ------------
Net sales............................................................. $460,907 $473,724
----------- ------------
Costs and expenses:
Cost of sales....................................................... 420,301 431,523
Distribution, selling and administrative............................ 34,605 34,397
----------- ------------
Operating income...................................................... 6,001 7,804
Interest expense...................................................... (3,713) (3,789)
----------- ------------
Earnings before estimated patronage dividends, provision for income
taxes and cumulative effect of accounting change..................... 2,288 4,015
Estimated patronage dividends......................................... (2,220) (3,905)
----------- ------------
Earnings before income tax provision and cumulative effect of
accounting change.................................................... 68 110
Provision for income taxes............................................ 29 11
----------- ------------
Earnings before cumulative effect of accounting change................ 39 99
Cumulative effect of accounting change................................ 2,500
----------- ------------
Net earnings.......................................................... $ 39 $ 2,599
----------- ------------
----------- ------------
The accompanying notes are an integral part of these statements.
43
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(THOUSANDS OMITTED)
THIRTEEN WEEKS ENDED
--------------------------
DECEMBER 3, NOVEMBER 27,
1994 1993
----------- ------------
Cash flows from operating activities:
Net earnings.......................................................... $ 39 $ 2,599
----------- ------------
Adjustments to reconcile net earnings to net cash utilized by
operating activities:
Cumulative effect of accounting change............................ (2,500)
Depreciation and amortization..................................... 2,712 2,735
Gain on disposal of properties.................................... (30) (35)
Accrued postretirement benefit costs.............................. 749 575
Accrued postemployment benefit costs.............................. 373
Decrease (increase) in assets:
Accounts and notes receivable................................... (13,680) (18,992)
Inventories..................................................... (5,562) (15,197)
Prepaid expenses................................................ (1,861) (774)
Notes receivable................................................ 804 825
Increase (decrease) in liabilities:
Accounts payable.................................................. 7,298 7,571
Accrued liabilities............................................... (5,435) 4,023
Patrons' excess deposits and estimated patronage dividends........ 2,051 2,362
----------- ------------
Total adjustments................................................... (12,581) (19,407)
----------- ------------
Net cash utilized by operating activities............................. (12,542) (16,808)
----------- ------------
Cash flows from investing activities:
Purchase of properties.............................................. (3,869) (1,668)
Proceeds from sales of properties................................... 1,510 252
Decrease in other assets............................................ 240 68
Investment in preferred stocks, net................................. (108)
Investment in long-term bonds, net.................................. 172 (1,161)
----------- ------------
Net cash utilized by investing activities............................. (2,055) (2,509)
----------- ------------
Cash flows from financing activities:
Additions to long-term notes payable................................ 15,653 18,043
Reduction of long-term notes payable................................ (400) (1,000)
Reduction of short-term notes payable............................... (552) (553)
Increase in members' required deposits.............................. 534 1,181
Repurchase of shares from members................................... (179) (82)
Issuance of shares to members....................................... 114 16
----------- ------------
Net cash provided by financing activities............................. 15,170 17,605
----------- ------------
Net increase (decrease) in cash and cash equivalents.................. 573 (1,712)
Cash and cash equivalents at beginning of year........................ 7,702 11,411
----------- ------------
Cash and cash equivalents at end of period............................ $ 8,275 $ 9,699
----------- ------------
----------- ------------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................................ $ 4,622 $ 4,890
Income taxes........................................................ 250 23
----------- ------------
$ 4,872 $ 4,913
----------- ------------
----------- ------------
The accompanying notes are an integral part of these statements.
44
CERTIFIED GROCERS OF CALIFORNIA, LTD., AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The accompanying consolidated condensed financial statements reflect all
adjustments which are, in the opinion of management, both of a normal recurring
nature and necessary to a fair statement of the results of the interim periods
presented. Certain reclassifications have been made to prior period's financial
statements to present them on a basis comparable with the current period's
presentation.
2. The consolidated condensed financial statements include the accounts of
Certified Grocers of California, Ltd. and all of its subsidiaries (the
"Company"). Intercompany transactions and accounts with subsidiaries have been
eliminated.
3. The Company adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" ("SFAS No. 112"), in the
first quarter of 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 adoption of this new
accounting method had a $373,000 impact on the first quarter 1995 Consolidated
Condensed Statement of Earnings. Management estimates the effect on its results
of operations in fiscal 1995 will approximate $1.5 million.
4. The Company reclassified $584,000 from long-term to short-term debt (a
noncash financing activity) for the 13 weeks ended December 3, 1994, in its
Consolidated Condensed Statements of Cash Flows.
45
- -------------------------------------------
- -------------------------------------------
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
PAGE
----
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 3,
1994.......................................... 11
Management's Discussion and Analysis of
Financial Condition and Results of Operations
as of December 3, 1994, and for the Thirteen
Weeks Then Ended and the Comparable Thirteen
Weeks of 1993................................. 17
Legal Matters.................................. 19
Experts........................................ 19
Index to Financial Statements.................. 20
Report of Independent Accountants.............. 21
Financial Statements........................... 22
- -------------------------------------------
- -------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
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
---------
---------
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
ITEM 16. EXHIBITS
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).
S-2
10.4.1 Executive Salary Protection Plan Life Insurance Agreement between the
Registrant and John Andikian, William O. Christy, H. Edward Collins, Donald
W. Dill, Everett W. Dingwell II, David Fitton III, Gerald F. Friedler, Donald
G. Grose, Herman Hensley, Rodney J. Love, Robert H. Mason, Lawrence J. Picano
and Robert P. Walz (incorporated by reference to Exhibit 10.7 to
Post-Effective Amendment No. 2 to the Form S-2 Registration Statement of the
Registrant filed on March 1, 1988, File No. 33-19284).
10.4.2 Executive Salary Protection Plan Life Insurance Agreement between the
Registrant and Jerald L. Lauer, Alfred A. Plamann, Paul D. Rohde and David A.
Woodward (incorporated by reference to Exhibit 10.4.2 to Form S-2
Registration Statement of the Registrant filed on December 10, 1990, File No.
33-38152).
10.5.1 Comprehensive Amendment to Certified Grocers of California, Ltd. Employees'
Excess Benefit and Supplemental Deferred Compensation Plan (incorporated by
reference to Exhibit 10.8 to Post-Effective Amendment No. 15 to Form S-1
Registration Statement of the Registrant filed on December 20, 1988, File No.
2-70069).
10.5.2 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).
10.5.3 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).
10.6 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).
10.6.1 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).
10.7 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.
10.8 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).
10.9 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).
10.9.1 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).
10.9.2 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).
10.10 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).
S-3
10.11 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).
10.12 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).
10.13 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).
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.
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
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 February 15, 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.
SIGNATURE TITLE DATE
- ------------------------------------------------------ ------------------------------------ --------------------
/s/ALFRED A. PLAMANN President and Chief February 15, 1995
------------------------------------------- Executive Officer
Alfred A. Plamann
/s/DANIEL T. BANE Senior Vice President, February 15, 1995
------------------------------------------- Chief Financial Officer and
Daniel T. Bane Chief Accounting Officer
/s/WILLARD R. MACALONEY Director February 15, 1995
-------------------------------------------
Willard R. MacAloney
(Chairman of the Board)
/s/LOUIS A. AMEN Director February 15, 1995
-------------------------------------------
Louis A. Amen
Director
-------------------------------------------
John Berberian
/s/WILLIAM C. EVANS Director February 15, 1995
-------------------------------------------
William C. Evans
/s/GENE A. FULTON Director February 15, 1995
-------------------------------------------
Gene A. Fulton
/s/LYLE A. HUGHES Director February 15, 1995
-------------------------------------------
Lyle A. Hughes
S-5
SIGNATURE TITLE DATE
- ------------------------------------------------------ ------------------------------------ --------------------
/s/ROGER K. HUGHES Director February 15, 1995
-------------------------------------------
Roger K. Hughes
/s/DARIOUSH KHALEDI Director February 15, 1995
-------------------------------------------
Darioush Khaledi
/s/MARK KIDD Director February 15, 1995
-------------------------------------------
Mark Kidd
/s/LEONARD R. LEUM Director February 15, 1995
-------------------------------------------
Leonard R. Leum
/s/JAY McCORMACK Director February 15, 1995
-------------------------------------------
Jay McCormack
/s/MORRIE NOTRICA Director February 15, 1995
-------------------------------------------
Morrie Notrica
/s/MICHAEL A. PROVENZANO Director February 15, 1995
-------------------------------------------
Michael A. Provenzano
/s/ALLAN SCHARN Director February 15, 1995
-------------------------------------------
Allan Scharn
/s/JAMES R. STUMP Director February 15, 1995
-------------------------------------------
James R. Stump
/s/MICHAEL A. WEBB Director February 15, 1995
-------------------------------------------
Michael A. Webb
/s/KENNETH YOUNG Director February 15, 1995
-------------------------------------------
Kenneth Young
S-6
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. 2 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
February 16, 1995
F-1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Post-Effective Amendment No. 2 to the
Registration Statement on Form S-2 (File No. 33-51457) of our report dated
November 30, 1994, and the incorporation by reference of said report appearing
on page 19 of the Annual Report on Form 10-K and Amendment No. 1 thereto on Form
10K/A, on our audits of the consolidated balance sheets of Certified Grocers of
California, Ltd. and subsidiaries as of September 3, 1994 and August 28, 1993,
and the related consolidated statements of earnings, shareholders' equity, and
cash flows for each of the three fiscal years in the period ended September 3,
1994. We also consent to the reference to our Firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Los Angeles, California
February 15, 1995
F-2
EXHIBIT INDEX
SEQUENTIAL
NUMBERING
EXHIBITS PAGE NO.
- --------------- ----------
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).
SEQUENTIAL
NUMBERING
EXHIBITS PAGE NO.
- --------------- ----------
10.4.1 Executive Salary Protection Plan Life Insurance Agreement between the Registrant and
John Andikian, William O. Christy, H. Edward Collins, Donald W. Dill, Everett W.
Dingwell II, David Fitton III, Gerald F. Friedler, Donald G. Grose, Herman Hensley,
Rodney J. Love, Robert H. Mason, Lawrence J. Picano and Robert P. Walz (incorporated
by reference to Exhibit 10.7 to Post-Effective Amendment No. 2 to the Form S-2
Registration Statement of the Registrant filed on March 1, 1988, File No. 33-19284).
10.4.2 Executive Salary Protection Plan Life Insurance Agreement between the Registrant and
Jerald L. Lauer, Alfred A. Plamann, Paul D. Rohde and David A. Woodward
(incorporated by reference to Exhibit 10.4.2 to Form S-2 Registration Statement of
the Registrant filed on December 10, 1990, File No. 33-38152).
10.5.1 Comprehensive Amendment to Certified Grocers of California, Ltd. Employees' Excess
Benefit and Supplemental Deferred Compensation Plan (incorporated by reference to
Exhibit 10.8 to Post-Effective Amendment No. 15 to Form S-1 Registration Statement
of the Registrant filed on December 20, 1988, File No. 2-70069).
10.5.2 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).
10.5.3 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).
10.6 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).
10.6.1 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).
10.7 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.
10.8 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).
10.9 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).
10.9.1 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).
10.9.2 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).
SEQUENTIAL
NUMBERING
EXHIBITS PAGE NO.
- --------------- ----------
10.10 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).
10.11 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).
10.12 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).
10.13 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).
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.