strong results - Associated Wholesale Grocers

Transcription

STRONG RESULTS
STRONGER
TOGETHER
2015 ANNUAL REPORT
BOARD OF
DIRECTORS
Barry Queen, Chairman
Queen’s Enterprises - Paola, KS
David Ball
Four B Corp
Kansas City, KS
Danny Boyle
Country Boy Markets
Harrah, OK
Jim Brown
Doc’s Food Stores
Bixby, OK
Roger Collins
Harp’s Foods
Springdale, AR
Victor Cosentino
Cosentino’s
Prairie Village, KS
Don Woods, Jr., Vice-Chairman
Woods Supermarket - Bolivar, MO
Scott Hayes
Albertson’s, LLC
Fort Worth, TX
Alan Larsen
Houchens Industries
Bowling Green, KY
Jay Lawrence
Lawrence Brothers
Sweetwater, TX
Alan McKeever
McKeever’s
Independence, MO
Chuck Murfin
Ozark Supermarkets
Ozark, MO
Dave Nicholas
Nicholas
Supermarkets
Boonville, MO
Pat Raybould
B&R Stores
Lincoln, NE
Jeff Reasor
Reasor’s
Tahlequah, OK
Randy Stepherson
Superlo Foods
Memphis, TN
Erick Taylor
RPCS, Inc.
Springfield, MO
Dale Trahan
Dale Trahan
Enterprises
Rayne, LA
James Neumann
Valu Market, Inc.
Louisville, KY
DEAR
SHAREHOLDERS
March 20, 2016
Your Board of Directors and management are pleased
to present the audited results for our fiscal year
2015. Consolidated company sales reached another
all-time record of $8.94 billion. Total year-end
patronage after retainage was $193.8 million, which
was 2.79% of qualifying sales. Total distribution
including patronage, allowances and interest back
to members was $544.4 million. Additionally, AWG
stock trading value was increased four percent to
$1,915 per share.
AWG achieved this strong patronage achievement
despite slightly lower year-over-year sales within
the cooperative. Cooperative net sales were $7.58
billion, down 1.41% from the prior year, due
primarily to over 130 direct competitive impacts
to our member stores and a significant decline in
overall average wholesale product cost by $1.44 per
case, or 5.5%.
This year marked the 20th anniversary of both
our Oklahoma City Division and our subsidiary,
Valu Merchandisers Company (VMC). Due to the
support and growth of our member stores and their
collective business, since its first year, the Oklahoma
City Division sales volume has more than tripled
and VMC has increased an incredible six times. Both
businesses are great examples of grocers achieving
much more through their combined efforts.
for AWG and member stores. Also, resulting from the
reduced shrink, AWG is paying a one-time reclamation
bonus payment of 10%, which is supplemental to the
typical reclaim rebate of 30%.
AWG’s strong results for 2015, which overcame our
top-line sales challenges, were made possible by our
members and a superior cooperative model, whereby
independent grocers are stronger together. This theme
is communicated as the title of this year’s annual report:
“Strong Results – Stronger Together!”
AWG is proud to be a primary resource in our
retailers’ ongoing fight against all risks and
challenges, while seeking new sources of
growth, revenue and success. We are truly
Stronger Together!
Sincerely,
David Smith
President/CEO
Barry Queen
Chairman of
the Board
Beyond our operating results, AWG members also
benefited by a new product freshness program,
tracking all open-dated inventory by expiration date.
This ensures acceptable product dating at receipt
by AWG, proper rotation in our supply chain and
significantly improved product freshness at delivery
to member stores. Our product dating standards
for members has improved by approximately 50%,
resulting in fresher product and reduced shrink
1
FIVE -YEAR TREND
Founded in 1926, Associated
Wholesale Grocers, Inc. (AWG) was
established to provide its family-owned retail member stores the
essential building blocks needed
to establish strategic positions in
their unique retail marketplaces.
This Annual Report marks 89 years
of providing products, support services and financial returns to our
member-retailers, and the collective strength of our cooperative
model has provided ongoing opportunities for our members to develop
and grow unique and sustainable
businesses that have survived, as
well as thrived, in an ever-changing
retail environment.
Operating nine distribution centers
during the 2015 fiscal year, AWG
delivered grocery and related products to active retailers throughout
the midwestern and southeastern
United States. Seven of the nine facilities are full-line divisions, dedi-
distribution centers, located in
Springfield, MO; Oklahoma City, OK;
Ft. Worth, TX; Southaven, MS; Memphis, TN; Pearl River, LA; Goodlettsville, TN; Ft. Scott, KS and Kansas
City, KS.
The remaining two facilities were
operated under the banner of Valu
Merchandisers Company, a wholly-owned subsidiary which primarily provided health and beauty
care items, general merchandise
and specialty foods, serving cooperative as well as non-member
retailers. Additionally, the company operated Always Fresh, Inc., a
wholly-owned military supply subsidiary, providing products to commissaries and base exchanges on a
non-member basis.
AWG achieved sales on a consolidated basis, after eliminations, of
$8.94 billion. Within the cooperative, net sales were $7.58 billion.
Operating income was $203 million, with net income of $199 million.
Total patronage returned to shareholders was $193.8 million, distributed on a 60/40 basis (the payout
consisting of 60% cash and 40%
certificates). As a percent to qualifying sales, the patronage payout
was 2.79%, AWG stock trading value was increased by four percent to
$1,915 per share. Total members’
investment and equity ended the
year valued at $477.7 million.
Headquartered in Kansas City, Kansas, the AWG corporate support
team provided operational and
administrative support to all nine
CONSOLIDATED RESULTS (thousands)
Net Sales
Operating Income
Net Income
Weeks
cated to providing service to AWG
cooperative members in various retail locations. Members are required
to purchase and hold 15 shares of
"Class A" stock to be supplied on a
cooperative basis.
2011
$
2013
2014
7,766,807
180,059
169,527
53
$
7,852,006
176,513
175,949
52
2012
$
8,380,214
201,406
192,490
52
$ 8,934,239
231,622
226,920
52
$
8,935,915
202,620
198,919
52
2015
$
6,713,047
$
7,148,757
$
7,685,985
$
7,579,129
$
1,522
311,201
172,872
485,595
$
227
338,828
182,576
521,631
$
223
351,820
194,675
546,718
$
406
350,155
193,815
544,376
COOPERATIVE OPERATIONS (before eliminations)*
Net Sales
Distribution to Members
Interest
Promotional Allowances
Year-End Patronage
Total Distribution to Members
$
6,711,570
$
3,002
314,979
163,791
481,772
Members’ Investments
Members’ Equity
Total Members’ Investments & Equity
$
$
*Includes the accounts of members/subsidiaries.
2
54,346
304,406
358,752
$
$
9,308
386,850
396,158
$
$
10,846
422,979
433,825
$
$
9,411
439,632
449,043
$
$
22,105
455,610
477,715
NET SALES
Consolidated (after eliminations)
$8.94
BILLION
$8.38
$8.93
BILLION
BILLION
$7.85
$7.77
BILLION
BILLION
2011
2012
2013
2014
2015
53 WEEKS
52 WEEKS
52 WEEKS
52 WEEKS
52 WEEKS
$195.0
$185.0
Patronage Dollars
(Millions)
$163.8
5.81%
*As percent of total net sales
5.83%
5.71%
5.69%
5.6%
2011
2012
2013
2014
2015
Co-op Patronage (Percentage to qualifying sales)
2.81%
2.80%
5.90%
5.7%
$145.0
2.90%
(Co-op only, includes cash discount)
5.9%
5.8%
$172.9
$165.0
$155.0
$193.8
$182.6
$175.0
Total Gross Profit
6.0%
$194.7
2.71%
2.76%
2.77%
2.79%
2011
2013
2014
2015
Selling, General &
Administrative Expense
3.5%
3.4%
3.30%
2.70%
2012
(Co-op only)
3.32%
*As percent of total net sales
3.3%
3.22%
2.60%
3.2%
2011
2012
2013
2014
2015
3.12%
2011
2012
2013
2014
3.13%
2015
3
RETIREMENT
JERRY GARLAND
Jerry Garland has been a
leader with an undeniable
drive for delivering strong
results since joining AWG in 1991.
He was born in 1950 in the small
town of Nocona, Texas; as the son of
a homemaker and an oil field worker,
he learned his strong work ethic
early in life. In 1970 he enlisted with
the U.S. Army, ultimately becoming
a tank commander, which no doubt
strengthened his “never give up”
attitude and helped establish an
extraordinary discipline that Jerry
carried forward into his successful
subsequent business career.
After graduating from North Texas
University in Denton, Texas in 1973,
he married Melinda Runyon, his
high school sweetheart and began
working for the Kroger Company
in a variety of roles. Very quickly,
Kroger identified Jerry’s leadership
skills and began promoting him
through the ranks of management
and supervisory positions, leading
up to the position of Chief Merchant
for the Dallas Division. David Dillon,
past President, CEO and Chairman
of the Kroger Company describes
Jerry as “the big fish that got away”
because of the loss Kroger felt
following his leaving the company
and watching all
his further
accomplishments.
After 24 years of service, Jerry left
Kroger for a brief stint to head a
regional retail grocery chain based
in Little Rock, Arkansas. While there,
Jerry led a process to evaluate the
potential sale of the company’s
warehouse
and
distribution
assets along with an arrangement
4
to outsource wholesale supply
for the company. During this
process, Jerry was evaluating AWG
and other for-profit voluntary
wholesalers within the area. His
most memorable takeaways from
the process were not only that
AWG had an unquestionable cost
advantaged model as compared to
other wholesalers, but that dealing
with AWG was an open book – all
retailers pay the same along with
complete transparency in the cost
of goods and services.
Jerry’s introduction to AWG during
his wholesaler evaluation process
opened an important door to his
future and ultimately, for AWG.
Subsequent to the meetings with
AWG and its leadership team, in
1991 Mike DeFabis, President and
CEO, recruited Jerry to join AWG as
the Vice-President of Marketing at
the Springfield, Missouri division.
Jerry came in like a whirlwind,
working for Gary Phillips, Senior
Vice-President and Springfield
Division Manager and working
closely with his contemporaries
Mike Rand in warehousing, Don
McBride in meat, Larry Collins in
produce, Walt Lemons in grocery
and Kevin Hale in bakery/deli.
After four years in Springfield,
due to tremendous growth and
an expanding trade area, Jerry
accepted a new challenge and
left to open up and operate
a newly-acquired division in
Oklahoma City, Oklahoma. Jerry
and Melinda promptly packed up
their belongings and children,
Mendalyn and Michael, and moved
to open up AWG’s first expansion
division. Jerry recruited Mike Rand
to accompany him in this venture as
his right hand and Vice-President of
Marketing. After leaving the highvolume business in Springfield,
both Mike and Jerry were surprised
and underwhelmed when their firstweek sales were tallied and were a
small fraction of Springfield’s sales.
In only two years, they successfully
led the new Oklahoma City Division
to a strong sales base exceeding
$900 million annually. Due to this
successful start-up and operation,
Jerry was called upon again in 1997
to accept another challenge: move
back to Kansas City and lead AWG’s
largest division. Jerry made the
move and successfully operated the
division until 1999 when another
door of advancement opened for
him: lead all of the merchandising
and marketing of AWG. For the
next ten years Jerry flourished,
serving as Executive Vice-President
of Marketing and Merchandising,
a position from which he shaped
many of today’s programs and
offerings, as well as supported Gary
Phillips as his “go-to guy” in that
time of tremendous growth.
In 2003, while Gary Phillips was
President and CEO, Jerry stepped up
as lead and primary architect of the
largest acquisition project in AWG’s
history. In April of that year the
nation’s largest wholesale supplier,
Fleming Companies, filed for
Chapter 11 bankruptcy protection
and began the process to sell all its
wholesale assets. With Jerry and
Gary’s incredible negotiating skills
and AWG’s superior cooperative
model, AWG was the successful
bidder on five facilities, three of
which are now operated by AWG
as our Nashville and Memphis
divisions and VMC Memphis.
The remaining volume in the
Nashville and Memphis wholesale
divisions at the time of purchase
in August 2003 was approximately
$550 million. These new divisions
quickly became the highestgrowth divisions in the company,
ultimately with annualized sales
eclipsing $2.3 billion before
volume was transferred to the new
Gulf Coast Division in 2013. Today,
due to this expansion, AWG’s sales
in the combined areas of Gulf Coast,
Memphis and Nashville exceed
$3.3 billion annually, six times the
original volume.
In March, 2009 AWG’s Board
of Directors selected Jerry as
Gary Phillips’ replacement as its
twelfth President and CEO. During
Jerry’s tenure as President, AWG
achieved record high sales, record
low operating expenses, reduced
the gross margin, landed product
cost on products sold to members
and achieved record patronage.
Additionally,
with
approval
and support by AWG’s Board of
Directors and due to the confidence
in his leadership, Jerry led the
company in building, and in 2013
successfully launching our first ever
“green field” new division in Pearl
River, Louisiana. After transferring
approximately $455 million of
annualized sales from the Nashville
and Memphis divisions, the new
division quickly grew to a current
sales base of approximately $1.2
billion in 2016.
In 2012, Jerry also saw an
opportunity to improve intracompany
communication
and
reduce expenses by combining all
corporate functions for AWG and
VMC into a single location on Kansas
Avenue in Kansas City, Kansas. After
obtaining generous support from
the state of Kansas, the expanded
corporate office complex was
completed in 2013. Included were
many new features for the benefit
of our members including a store
design center, customer-connect
center for digital marketing and
accessibility to all
resources in one
physical location.
During his tenure
as AWG’s leader,
Jerry
gained
national attention
as a “go-to guy”
by
supporting
the
needs
of
independent
grocery retailers.
He served on
the
Board
of
Directors
and
various leadership
committees,
including
the
Independent Grocers Alliance (IGA),
IGA International, National Grocers
Association and UMB Bank, N.A.
For the past seven years Jerry also
served on the Board of Directors
and Executive Committee for the
Food Marketing Institute (FMI),
ultimately being elected as the
Chairman of the Board of FMI with
his term ending in January 2016.
Delivering strong results for the
benefit of AWG and its member
retailers was certainly Jerry’s
passion, but his first love was always
his family. No matter what his busy
schedule required, Jerry always
found a way to celebrate every
special occasion with Melinda,
his lovely wife of 42 years. It was
also hard to have a conversation
with Jerry without hearing about
his son, Dr. Michael Garland,
currently serving a residency at
Yale University Hospital in New
Haven, Connecticut. Fortunately
for parents Jerry and Melinda,
their beautiful daughter Mendalyn
Garland-Hellman and her husband
Pasi live in the Kansas City area, so
access for the doting grandparents
to their grandson Reino is always
available.
As Jerry has now left AWG to
begin the next phase of his life in
retirement, he has left us in a very
good place. He leaves behind a
legacy of growth and prosperity at
AWG and a visible impact on the
industry, for which he will be long
remembered.
Thank you, Jerry Garland!
5
THE NEW CHAIRMAN OF THE BOARD
BARRY QUEEN
Immediately following the
Annual
Shareholders
meeting in March, 2015,
the Board of Directors elected Barry
Queen as the new Chairman of the
Board, successor to Bob Hufford who
retired from this position. Don Woods
was re-elected Vice-Chairman of
the Board for Associated Wholesale
Grocers.
Barry Queen is a 1987 graduate of
Kansas State University, Manhattan,
Kansas and holds a Bachelor of
Science Degree in Business. Barry has
been married to his beautiful wife
Kim for 27 years and they are very
proud parents of two great children:
Dylan, 21, a full-time student at
Missouri Western State University
and Paige, 23, a pharmaceutical
sales representative.
Barry’s roots in AWG and the grocery
industry run deep, as he’s been in
the business his entire life. Barry’s
father, Jim Queen, was formerly
Vice-President and Treasurer of AWG
during Lou Fox’s tenure as President
and CEO. Back in the early ’70s
Barry often came to AWG’s office
with his father on weekends when
he was “closing out the books.” He
remembers checking the pay phones
for unclaimed change and making
himself at home in the AWG office!
Later, his parents, Jim and Barbara,
entered the retail side of the
business as store operators, and at
the age of 11, Barry began working
in the family store sorting glass pop
bottles, among many other tasks his
parents found for him to do.
6
Following his parents’ advice, Barry
worked in every position in the
company from the bottom up so he
would gain an in-depth appreciation
for the long hours and hard work it
takes to be an independent retailer.
Upon completion of college, Barry
joined the family business full-time
and in 1991, the family’s holdings
expanded into multiple stores; Barry
became part of the management
team. He is currently President/
Managing Owner of Queen’s Price
Chopper and continues the tradition
his parents began. They own and
operate five large Price Chopper
stores in the Kansas City area,
proudly employing over 650 people.
Barry recognizes the value of serving
the communities which support his
business and has served on the Paola
Chamber of Commerce Board, Paola
Country Club Board and Paola Rotary
Club. He has also been actively
involved in numerous school,
athletic and charitable events. In
his free time, he enjoys spending
time with his family, sports, hunting,
fishing and showing livestock.
In addition to his community
involvement, he is engaged in
leadership positions with multiple
industry associations: a Retail
Grocers Association Board member
since 1999, Chairman from 200608; Associated Wholesale Grocers
Board Member since 2001, Finance
Committee member since 2008
and Board Chair; National Grocers
Association Board Member since
2010, Executive Committee since
2014.
As AWG heads into our 90th year,
Barry looks forward to his new
responsibilities as Chairman of the
Board. As a life-long grocer himself,
he clearly understands that the
future of AWG is totally dependent
on the success of its members.
Committed to a focus on retailers’
needs, Barry’s ultimate goal is to
achieve continuing growth and
prosperity for existing and new
members of our cooperative family.
Jim and Barbara Queen
THE NEW AWG
LEADERSHIP TEAM
A/ Jeff Pedersen; B/Dan Funk; C/Scott Welman; D/Gary Koch; E/ Pat Reeves and F/ Richard Kearns
AWG’s
commitment
to
ensuring the success and
prosperity of its retail
members is the sole focus of
its Leadership Team.
Drawing on the wealth
of background diversity,
experience
and
talents
of its employees, the
Leadership Team aligns
itself to provide guidance
within its core values:
Humility - Accountability Transparency - Service.
B
A
D
C
F
E
7
INITIATIVES
FRESHEN UP
TO
WN
OR
MY
E
Our online “Freshen Up”
series was created as an
informative, easy-access way
to help our member retailers and
their teams focus on innovative ways
and best practices to continuously
improve their people, facilities and
operations.
•
MY
ST
Dollar stores, “small marts” and
other new niche-format competitors
are changing the retail landscape
in many markets, so we created a
proactive, accessible resource to
give our members a retail-level
advantage against these new
formats.
In 2015, AWG created the short
web series “Freshen Up My Town
• My Store,” its primary focus to
share key-area insights and provide
a competitive edge in today’s
constantly-changing
grocery
industry.
The
online
information
is
structured by department or topic
to easily communicate real-world
observations,
recommend
best
practices and give easy, actionable
items for immediate in-store
implementation. The series not
only covers center store, fresh and
non-foods, but also provides insight
into people, customer service, plano-grams, pricing, re-models, store
décor, cost-plus stores and many
other categories.
“Freshen Up” interviews were
recorded with owners, category
managers, department heads and
industry experts within each topic to
give our members the widest scope
of pertinent information.
New additions to the series will
appear throughout 2016, all
focused on supporting members’
profitability in same-store sales,
keeping up-to-date with consumer
trends and identifying upcoming
opportunities for additional growth
and development.
Our vision is to be the most retailerfocused,
highest-performing
member-owned grocery wholesaler
in America. It is our responsibility
to listen, research, collect and
share relevant information vital to
our members’ ongoing growth and
prosperity.
You can find the entire series online
at www.awginc.com; just click on
the “Freshen Up” logo to access the
video library.
“ At AWG, we are focused on your retail success and have
people and programs available to help you compete.”
8
INITIATIVES
FRESHNESS DATING
Product freshness is a key
element, essential to the
overall success of any
grocery store as well as being
a top factor toward attracting
and retaining retail customers.
Freshness helps reduce shrink
and its associated financial losses
throughout the entire supply chain,
ultimately ending at retail.
AWG implemented a companywide initiative in 2015 to increase
the shelf life of every product
we provide our members. From
receiving to shipping, every phase
of our operation was scrutinized.
The resulting findings, along with
support and guidance from our
members, were implemented as
major changes to AWG’s operating
policies, procedures and practices.
Already at the industry’s leading
edge, implementing this initiative
improved shelf life by an average of
50% overall and impacted virtually
every product category.
Improvements started with adjusting
receiving dates from vendorpartners, followed by revamped
management of in-house dating and
tracking within AWG’s distribution
centers down to the actual item.
Strict adherence to first-in, first-out
methods based on product sell-by
dates helped guarantee extended
shelf-life at time of shipment. The
net benefits have been an improved
2015 INCREASES IN GUARANTEED
SHELF LIFE TO THE STORES
CANNED VEGETABLES
30 DAYS
90 DAYS
CHEESE
10 DAYS
30 DAYS
FROZEN FOOD
30 DAYS
60 DAYS
FROZEN MEAT
30 DAYS
60 DAYS
customer perception of freshness on
the shelf, improving overall shopper
satisfaction.
As we move into 2016 and beyond,
these changes will ensure our
members receive the freshest
product available, allowing them
to not only meet, but exceed their
customers’ expectations.
“ Convenience, Price, FRESHNESS,
Cleanliness and Service are the TOP 5
reasons a customer shops at a store.”
9
ANNUAL REPORT
AWG BRANDS
AWG Brands finished 2015
with impressively strong
results. Case volumes grew
year- over-year and helped our
members compete favorably at
retail, despite a year of competitive
challenges and retail deflation.
Our members successfully utilize
the brands program as a competitive
advantage within their stores and
markets, which is demonstrated by
AWG's industry-leading distribution.
Twenty-five percent of all cases sold
and well over one billion dollars in
annual sales make these brands a
key differentiator within the store
brands arena and overall industry.
Our members’ collective scale and
volume make this sales advantage
available at all retail levels.
With multiple tiers and labels, our
brands meet consumers’ needs.
Our everyday low-price program
(Always Save), our national-brand
equivalent core line (Best Choice)
and our premium-product lines
(Clearly Organic and Superior
Selections) are designed to meet
all different categories of shoppers’
requirements.
With keen focus on quality and
value, our brands meet our
members’ and consumers’
needs with the highest product
standards. In 2015, AWG
Brands updated over 1,000
products with new packaging,
as well as introducing
a new Best Choice logo.
Both are delivering
positive feedback and
incremental sales from
retailers and shoppers
across the country.
10
2015 also saw AWG’s greatest
to-date investment: reducing the
cost and increasing promotional
allowances on the entire family
of brands. Our members received
improved everyday costs and
incremental promotional offers on
Always Save, Best Choice, Clearly
Organic and Superior Selections
brands.
AWG Brands will continue to grow
throughout 2016 by adding new
items within all labels in its portfolio.
Our focus will be driving samestore sales through private-label
offerings; introducing innovative
new items with an eye toward everchanging consumer tastes will be a
renewed focus. A new AWG Brands
sales management team will be
installed at division level to head
local support as well as continue
building on the successful growth of
the Brands program.
20TH ANNIVERSARY
VALU MERCHANDISERS
2015 marked the 20th
anniversary of VMC, founded
in 1995 to help our members
more effectively compete within
an ever-evolving marketplace. Over
time, the primary competitors have
shifted, but the strategic mission of
VMC has not. With over $785 million
in total net sales, spread out over
more than 40,000 SKUs, VMC offers
programs encompassing Health and
Wellness, General Merchandise,
Natural/Organic, Specialty Foods
and Pharmacy options for member
stores. Members and customers are
supplied from distribution centers
in Memphis, Tennessee and Ft. Scott,
Kansas.
One
of
the
highest-growth
categories in today’s supermarkets,
healthy lifestyle products and
services are offered in an end-toend solution, catering to customers’
health and wellness goals. VMC
offers a complete Natural and
Organic program, focused on
shoppers’ changing lifestyles. This
program includes grocery, dairy and
frozen items from both established
brands as well as trending items.
This low-cost program includes
a variety of promotional support
offerings, national/regional brands
plus our own Clearly Organic private
label brand, all designed to drive
customer traffic, incremental sales
and margin.
With an aging population a
Pharmacy
program,
stretching
across both branded and generic
medications, offering one-on-one
counseling and holistic wellness
solutions, is an in-store solution that
can be a valuable addition to your
Health and Wellness program.
This highly-regulated, ever-changing
segment is a constant focus in VMC’s
efforts to provide better cost of
goods and add services that support
better patient outcomes.
Changing
local
and
national
demographics challenge retailers
to better serve the needs of
a wider clientele; VMC has
built
comprehensive
General
Merchandise, Dollar and Hispanic
programs, which are currently
growing by double digits nationally.
Its General Merchandise and
Seasonal offerings drive incremental
sales, increase basket spend and
ultimately, store margins.
Looking to the future, VMC’s goals
are clear: to continue delivering
best-in-class category solutions,
help shoppers lead healthier
lifestyles through a variety of
product offerings, drive down
overall cost of goods and help our
members increase both sales and
bottom-line profits.
VMC Total Net Sales
(millions)
$800
$775
$750
$725
$700
2011
2012
2013
2014
2015
11
EXCELLENCE IN MERCHANDISING
GROCERY
CASH SAVER
Owner: Rick James
Memphis, TN
DIVISION WINNERS
Checkers - Lawrence, KS
Roy’s Cardinal Foods - Wilburton, OK
Piggly Wiggly - Tylertown, MS
Hank’s Market - Washington, IN
Hudson’s Market - Harrison, AR
Cash Saver - Weatherford, TX
DIVISION WINNERS
Harps - Bellafonte, AR
Five Star Marketplace - Knox, IN
Price Chopper #2423 - Rolla, MO
Crest Foods - Edmond, OK
Houchens IGA - Olney, IL
Under the supervision of Mark
Gatlin, Memphis Mid-Town Cash
Saver completely achieves its
stated mission to be a true lowprice leader, featuring massive
product displays, impressive
variety and top quality in a
customer-friendly
shopping
venue. Cash Saver offers a
complete selection of national
brands, plus award-winning
Best Choice and Always Save
products
as
private-label
offerings.
“Eat Fresh - Pay Less,” “Where
More is Less,” “Taste the Local
Flavor;” all these marketing
James is an accomplished,
creative merchandiser with
forward-looking goals for his
store; Cash Saver’s in-store
displays, merchandising, promotions and featured items are
solid building blocks to carry
this store successfully into the
future.
VMC
REASOR’S
helped them achieve high
sales goals.
Reasor’s newest store is located
in the popular Brookside area of
Tulsa, OK. Mike Todd, Director
of Health and Beauty/General
Merchandise and Mike Naylor,
Director of Grocery, combine
their skills and resources in
this 55,000-square-foot venue
to create an atmosphere for
sales, growth and profitability.
Sharing a parking lot with
Whole Foods, this store was
intended to emphasize natural,
organic and specialty foods,
while not losing sight of the
conventional grocery side
of the business. Although a
difficult undertaking in such
a small space, outstanding
merchandising,
innovative
ideas and a great customer
experience combine to achieve
these goals and more.
Tulsa, OK
An entire team is involved
in this ongoing effort: Store
Director Tim Willingham and
HBC Manager Darla Johnson
are integral parts of the
Reasor’s team concept. Taking
full advantage of AWG’s TPRs,
Power Buys and Show Deals
12
slogans
greet
shoppers
every day, exemplifying the
commitment to excellence
that makes this store such an
outstanding retailer. Owner
Rick James buys aggressively,
taking full advantage of AWG’s
direct-store delivery deals, Solo
items, Food Show and Web Blast
specials to position his store
as a true one-stop shopping
destination.
Reasor’s theme for this store
was “Bring Your Table to Life;”
and the Brookside store has
exceeded all expectations!
MEAT
CREST MARKETPLACE
Owner: Bruce Harroz
Norman, OK
Congratulations to owner Bruce
Harroz, store manager Gary
Tiedke and Meat department
buyer Arthur Villareal and the
entire team at Crest Foods!
Known throughout the Norman
area for its aggressive lowprice stance, Crest provides its
shoppers with fantastic displays,
wide meat selection and overall
great customer experience.
The meat department wows
shoppers with 40 feet of fullservice beef, pork, poultry and
seafood offerings with helpful,
experienced associates behind
the counter.
Certified Angus Beef, USDA
Prime cuts and self-service CAB
Choice Beef offer customers
the widest possible selection
of
beef.
Hormel
Natural
Choice pork, Crest’s own, allnatural poultry line round out
the usual choices, but Crest
goes further, with all-natural
specialties like buffalo, ground
elk, venison, wild boar sausage
and grass-fed beef, plus organic
selections. Their seafood and
special-cuts service areas offer
quick, convenient shopping for
discriminating customers.
Crest Foods is justly famous
for their “Massive Meat” 3-day
sales; the impressive bottomline results bear out the hard
work of the entire Norman store
team.
SEAFOOD
ROUSES
alligator meat; these aren’t items
you find just anywhere!
Harvested from the Gulf waters
and bayous of southern Louisiana
as well as the Atlantic and Pacific
oceans, Rouses Market has the
freshest seafood to be found!
Keta salmon is always popular
with customers; Rouses recently
purchased a huge supply to
kick off a company-wide sales
program and had it flown in just
for the event.
Vast offerings of Gulf crab,
shrimp and fresh fish are always
available, plus multiple varieties
of
always-popular
salmon
fill their cases. Their shrimp
selection
deserves
special
mention: delivered straight from
the docks to the store by local
shrimpers. Many of the offerings
are prepared from family recipes
or are unique to the Louisiana
market. Added to their selection:
turtle meat, crawfish tails and
In an area where “Gulf-fresh”
is always the norm, Rouses has
risen to become the number-one
seafood retailer in this town of
125,000, which has over 65 other
locations selling seafood. Using
creative signage, eye-catching
decor and an assortment of
ocean-fresh
product
have
enabled Rouses to achieve that
honor, no small thing in these
parts!
Layfayette, LA
DIVISION WINNERS
Price Chopper - Shawnee, KS
Main’s Market - Folsom, LA
Cash Saver - Paducah, KY
Collins Country Market - Garrison, KY
Price Cutter - East Battlefield, MO
Cash Saver - Seminole, TX
DIVISION WINNERS
Buehler’s IGA - Evansville, IN
Reasor’s - Tulsa, OK
Harps Food Stores - Springdale, AR
Food Giant - Little Rock, AR
Yoss Brothers Grocers - Holden, MO
13
PRODUCE
RAMEY'S
Sumrall, MS
DIVISION WINNERS
Piggly Wiggly - Batesville, MS
Country Mart #5763 Taylorsville, KY
Lindley Grocery - Hartshorne, OK
Town & Country - Farmington, MO
Super Saver - Grand Island, NE
DIVISION WINNERS
Reasor’s - Sand Springs, OK
Rouse’s - Lafayette, LA
Banks Market - Paducah, KY
Fishers Foods - Canton, OH
Price Chopper - Branson, MO
Ramey’s Marketplace’s eyecatching produce department
is everything it should be: fully
stocked with fresh, colorful
displays, plus a knowledgeable
staff, ready to assist customers
with selection, recipes and
education. The strength of this
store’s team lies in its in-depth
knowledge of product and
dedication to great customer
service.
Elizabeth Bennet, Produce
Manager, is an outstanding
salesperson: customers are
always greeted with seasonal
displays featuring great prices
on the week’s most in-demand
Summer sales, holidays or
Ramey’s annual Open House are
all opportunities for Bennet to
showcase her department. Fruit
fountains, free samples, easy
recipes, cross-merchandising
and helpful associates are only
a few of the many effective and
profitable tools she uses to full
advantage to drive sales, both
at special events and every day!
FLORAL
QUEEN’S
PRICE CHOPPER
Overland Park, KS
Dedicated to being the area’s
finest floral retailer, Queen’s
Price Chopper’s recent remodel
not only expanded their
amazing Floral department, but
pushed its overall sales to new
heights.
Well-timed displays entice
shoppers right on the sidewalk,
featuring
colorful
product
to complement the seasonal
themes throughout the store
and setting the stage for
increased impulse sales and
custom orders. Floral & Bakery
Director Robin Bird, along with
14
items.
Aggressive
crossmerchandising is a department
hallmark: as an example, most
strawberry displays routinely
feature pie filling nearby, but
Ramey’s makes sure customers
can easily pick up chocolate for
dipping, cake mix or smoothie
mix for shoppers to use those
strawberries!
teammates Phyllis Shea and
Angie Isenberg are instrumental
in coordinating the beautiful
displays and guaranteeing
outstanding customer service.
With an average increase in
sales of 25% over previous
year, this department hit a new
high with holiday sales, making
it tops in the Kansas City market
and well above the average for
U.S. grocery floral sales.
Impressive, colorful displays
themed to seasonal offerings,
plus ceaseless dedication to
outstanding customer service
are the keys to the continuing
success of Queen’s Price
Chopper Floral.
DELI
COUNTRY MART
St. James, MO
An impressive remodel and
great merchandising strategies
earned Country Mart in St. James,
Missouri the AWG “Excellence in
Merchandising” Award for Deli
in 2015. This store, a member of
the Gott group, is an outstanding
example of aggressive retail
merchandising in the face of
increasing competition.
A new hot foods case, service
case and self-serve section
plus a convenient sit-down
dining area highlighted the
deli overhaul. The bakery area
added a new thaw-and-sell
merchandiser, a doughnut selfserve case plus an up-to-date
display rack to promote fresh
breads and cookies, capitalizing
on impulse buys.
Rick Baker, Deli/Bakery Director,
instituted several department
programs designed to further
differentiate Country Mart from
area competition. A expanded
variety of available meals
included a pizza program, more
grab-&-go offerings plus smoked
meats of all sorts from a local
favorite, Glen’s Smokehouse.
Remodeling the department
and implementing a revamped
merchandising
scheme
is
already showing substantial
sales increases for the store;
a proven return on time and
money invested!
BAKERY
COOKE’S
Cleveland, TN
Dan Cooke and his daughter,
Brittany, own Cooke’s Food Store
in Cleveland, Tennessee. Their
commitment to driving sales and
increasing customer satisfaction
throughout the store is nowhere
better demonstrated than in
their Bakery department.
Focusing on specialties like
salted chocolate and thumbprint
cookies (plus a Cleveland
favorite: tomato pie!) helps
put Cooke’s firmly in the minds
of shoppers when it comes to
oven-fresh goodies.
Sifted Bakery at Cooke’s helps
customers who want something
a little out of the ordinary: a
custom-designed
wedding
cake, a Margaritaville-themed
confection, even a replica of
the University of Tennessee’s
Neyland
Stadium!
Cooke’s
Bakery won a first-place award
in the Café Valley Nationwide
Display contest. The entire
store was also selected for the
Outstanding Independent Single
Store Award from Progressive
Grocer magazine.
DIVISION WINNERS
Cosentino's Price Chopper Kearney, MO
Homeland #4267 - Oklahoma, OK
Rameys - Purvis, MS
Vowell’s - Starkville, MS
Fresh n Low - Ocoee, TN
DIVISION WINNERS
Hay's - Walnut Ridge, AR
Jumbo Foods - Enid, OK
Frick’s Market - Union, MO
Cannata’s - Houma, LA
Price Chopper 600 - Overland Park, KS
Of course, distribution is a major
factor for any department;
Cooke’s Bakery maintains an
enviable high-performing average of 4% of total store sales;
Bakery and Deli combined
average an impressive 18.2%.
15
OUTSTANDING EVENT
FAMILY MARKET
sales topped 150% over previous-year totals!
DIVISION WINNERS
When owners David and Doug
Hendrix decided to relocate
their existing supermarket last
year to a new location that included fuel pump equipment,
that change sparked an idea
that ultimately became Family
Market’s “Never Pay Full Price
on Gas Again!” marketing campaign.
During their Grand Opening
week, their first 100 customers
received a $10 gas certificate;
the following week, certificates
went to the first 75 customers
each day. The finale of Family’s
Grand Opening week was the
awarding of a Grand Prize “Win
Free Gas for a Year!”
Hilltop CeeBee - Clarksville, TN
Doc’s Family of Food Stores (Multiple locations)
Murfin’s Market - Ozark, MO
Ralph’s Market - Gonzales, LA
Cash Saver #7477 - Weatherford, TX
Russ’s Markets - Lincoln, NE
Promoting item and price on a
variety of products gave Family’s shoppers a cents-off gas
discount, which was so popular that sales were 129%
over pre-opening projections,
with a 120% growth in overall
sales. At times, Family Market
Building on that initial success
has been an ongoing goal for
the Hendrixes; cross-marketing
food and fuel has continued the
store’s sales amazing growth
and created a loyal shopper
base for its future success.
Malvern, AR
DIVISION WINNERS
PayLess - Olathe, KS
Beachler’s - El Reno, OK
Greer’s Cash Saver - Poplarville, MS
Price Less Foods - Louisville, KY
King Cash Saver - Springfield, MO
Supermercado El Rancho Cockrell Hill, TX
AWG BRANDS
SAV U MORE
Bastrop, LA
Bastrop, Louisiana has had its
share of economic downturns
over the past few years: the
area’s largest employer shut
down, the town’s population
dropped by 12% and more
grocery competition moved
into the area, compounding an
already challenging retail situation for owner Tandy Key’s
family business. Sav U More not
only survived the change, but
thrived.
It was not
store was
Key and his
store-brand
16
easy. The entire
overhauled, with
team adding new
display bins plus
a revamped Wall of Values
featuring Always Save and
Best Choice, giving the store
an overall lower price image.
More value appeal was emphasized with end caps and wing
displays prominently featuring store brands, plus heavy
cross-merchandising created
impulse sales with a definite
bottom-line increase. With the
heavy promotion of Always
Save and Best Choice brands,
customers are assured that Sav
U More has the best deals in
town!
Store brand penetration has increased at this single store by
over 8% in just six months.
STORE MANAGER
SHEILA AUSTIN
Buehler's IGA
Darmstadt, IN
Sheila Austin of Buelher’s IGA,
Darmstadt, Indiana is AWG’s recipient of its “Store Manager of the
Year” award for 2015. Austin, chosen from AWG’s Nashville division,
won out over an impressive roster
of candidates from all seven divisions, exemplifying what it takes to
be a truly effective and successful
store manager.
Respected within the surrounding
community as well as by her associates, Austin’s 13 years as manager
have been summed up in her coaching mantra, “You can make a difference!” Her steadfast encouragement and excitement for the job set
the tone for the entire store team.
Austin leads by example: a large
percentage of her time is spent on
the sales floor, engaging customers, providing service and advice
to shoppers throughout the day.
Taking any opportunity to increase
sales while holding to budget is a
given.
Austin’s flexibility plus her aggressiveness within the store organization have proven essential in
building personal and community relations throughout the years.
Helping others and giving back are
motivators for Buehler’s continued
participation in a wide variety of
fund-raising events as well as supporting many local organizations.
In 2015, Ace Hardware opened an
in-store location within Buehler’s
IGA; the merger has proven to be
both profitable and successful, due
in large part to Austin’s leadership
throughout the process. Even with
a variety of ongoing changes within the local retail environment,
Buehler’s IGA has remained one of
Houchens Industries top-performing stores. This overall success could
not have been achieved without the
efforts and expertise of manager
Sheila Austin and her associates.
17
2015
LOU FOX AWARD
he continues to review Greer’s
numbers and help teach and train
the fourth and fifth generations
which continue to manage the
company.
JACK VIDMER GREER, SR.
AND JANICE GREER
Mobile, AL
The Lou Fox Community Service
Award is given annually in honor
of Lou Fox, president of Associated Wholesale Grocers from 1955
through 1983. Throughout his life,
Lou was a well-known philanthropist and civic supporter.
This award is presented at the Annual Shareholders Meeting each
year to an AWG retailer who exemplifies the Lou Fox tradition of giving back to the community which
has helped make them successful.
The spirit of Lou Fox lives on in
each of these recipients.
This year, the Lou Fox Community
Service Award was presented to
Jack Vidmer Greer, Sr. and Janice
Greer of Mobile, Alabama. Jack’s
community involvement spans
60-plus years and continues even
today as he lives out the Greer’s vision: “To bring added joy, well-being and value to people’s lives!”
In 1948, Jack started bagging
and checking groceries and has
since served in many supervisory,
managerial and directorial roles
throughout the years. Jack says, “I
tried to give my best and to learn
from the best!”
Although Jack is officially “retired,”
18
Over the years, Jack has been active in many civic organizations.
He has held such diverse positions
as president with the Mobile Association for the Blind, The Mobile
Exploreum, Mobile Rotary Club,
Mobile Environmental Association
and advised numerous community and charity organizations. His
partnerships with education, such
as Greer’s “Apples for Students”
program, have provided over
$325,000 in equipment and supplies to local schools.
Jack helped preserve and renovate
two historical buildings, moving
them onto the Greer family property at Belle Fontaine, where he
and wife Janice have lived since
rebuilding after 1979’s Hurricane
Frederic.
Along with the Greer Family Chapel and Toulminville Schoolhouse,
the Greer’s Sunny Cove Village includes a lake, replica of a general
store, grist mill, covered bridge,
train station, blacksmith shop and
golf course. The Cove Village has
hosted field trips for local school
children and church groups, as well
as providing a camp site for local
scout troops.
In 1986, after Jack’s father “Bank”
passed away, he and brother Bartee bought out other family members. Bartee became Chairman
of the company and Jack became
President. Jack and Bartee, along
with sons Jackie and Robert proudly carry on the Greer’s tradition of
service to others and continue to
remind us of their priorities in life:
God, family and Greer’s - in that order!
The 2015 Lou Fox Award was proudly
given to those who have consistently followed Lou’s example of service
to the community, Jack Vidmer Greer,
Sr. and Janice Greer. He was properly
recognized as a distinguished industry
leader who has helped so many employees, customers, organizations and
communities by doing good for all!
ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 26, 2015 and December 27, 2014
(dollars in thousands)
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables, net of allowance for doubtful accounts of $2,954 in 2015 and $2,897 in 2014 . . . . .
Notes receivable from members, current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes receivable from members, maturing after one year, net of allowance
for doubtful accounts of $7,292 in 2015 and $5,945 in 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net (note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles, net of accumulated amortization of $19,329 in 2015 and
$17,273 in 2014 (note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes (note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash portion of current year patronage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Member deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt maturing after one year (note 7). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income and other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
________________
2014
________________
$
$
166,221
729
295,359
12,251
452,669
19,675
________________
946,904
154,149
------265,943
12,081
429,959
22,691
________________
884,823
43,187
405,099
619
23,456
373,542
619
8,933
28,988
41,564
________________
$________________
1,475,294
________________
9,444
22,987
44,100
________________
$________________
1,358,971
________________
$
$
572,067
110,423
22,106
113,261
________________
817,857
146,188
48,517
________________
1,012,562
________________
495,139
130,101
9,413
103,617
________________
738,270
132,938
48,808
________________
920,016
________________
Commitments and contingent liabilities (note 12)
Equity:
Common stock, $100 par value:
Class A, voting; 35,000 shares authorized; 9,120 and 9,045 shares
issued in 2015 and 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B, nonvoting; 150,000 shares authorized; 14,249 and 15,099
shares issued in 2015 and 2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss (notes 9 and 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total members’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
911
903
1,423
12,797
444,964
(21,745)
________________
438,350
24,382
________________
462,732
________________
1,508
12,551
424,783
(17,158)
________________
422,587
16,368
________________
438,955
________________
Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,475,294
________________
________________
$ 1,358,971
________________
________________
See accompanying notes to consolidated financial statements.
19
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Fiscal years ended December 26, 2015, December 27, 2014, and December 28, 2013
2015
2014
__________________
__________________
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expenses):
Interest income (note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense (note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net
....................................................
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes (note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss)
Change in funded status of pension plan, net of taxes (note 9) . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
__________________
$ 8,935,915 $ 8,934,239 $ 8,380,214
8,244,604 __________________
8,243,483 ___________________
7,715,466
__________________
691,311
690,756
664,748
488,691
459,134
463,342
__________________ __________________ ___________________
202,620
231,622
201,406
3,879
1,910
1,360
(3,810)
(3,426)
(3,255)
2,804 __________________
89 ___________________
(769)
__________________
205,493
230,195
198,742
6,574 __________________
3,275 ___________________
6,252
__________________
198,919
226,920
192,490
(4,587) __________________
(12,202) ___________________
9,318
__________________
$__________________
194,332
$
214,718
$
201,808
__________________ __________________
__________________ ___________________
___________________
Amounts attributable to noncontrolling interest
20
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income attributable to noncontrolling interest . . . . . .
Comprehensive income attributable to AWG, Inc. and subsidiaries . .
$
194,332
(8,014)
__________________
$__________________
186,318
__________________
$
214,718
(8,839)
__________________
$
205,879
__________________
__________________
$
201,808
(9,554)
___________________
$
192,254
___________________
___________________
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling interest . . . . . . . . . . . . . .
Net income attributable to AWG, Inc. and subsidiaries . . . . . . . . . . .
$
198,919
(8,014)
__________________
$__________________
190,905
__________________
$
226,920
(8,839)
__________________
$__________________
218,081
__________________
$
192,490
(9,554)
___________________
$
182,936
___________________
___________________
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Fiscal years ended December 26, 2015 and December 27, 2014
Allocated
Balances at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Patronage certificates (note 8):
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B certificates:
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balances at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated
Balances at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling interest (note 9) . . . . . . . . . . . . . . . . . . . . . . . .
Less allocated earnings (note 8):
Patronage certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less cash portion of current year patronage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemption and retirement of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balances at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
2014
____________________
_____________________
$
322,810
$
73,637
(58,372)
305,034
74,401
(57,069)
-----444
(417) _____________________
-----____________________
$
337,658
$
322,810
____________________ _____________________
$
101,973 $
198,919
(8,014)
(73,637)
-----(110,423)
(1,512)
____________________
$
107,306
____________________
$
444,964
____________________
____________________
90,390
226,920
(8,839)
(74,400)
-----(130,101)
(1,997)
_____________________
$
101,973
_____________________
$
424,783
_____________________
_____________________
21
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal years ended December 26, 2015, December 27, 2014 and December 28, 2013
2015
2014
2013
____________
____________
____________
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss/(gain) on disposition of property and equipment . . . . . . . . . . . . . . . . . . .
Changes in assets and liabilities, net of effects of acquisitions:
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable, accrued expenses and other liabilities . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from investing activities:
Reductions in restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions to intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans to members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of loans by members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions to property and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of assets, net of cash acquired (note 4) . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from financing activities:
Year-end patronage distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemption of prior year's patronage refund certificates. . . . . . . . . . . . . . . . . . .
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemption and retirement of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net advances (repayments) under credit facilities . . . . . . . . . . . . . . . . . . . . . . . .
Net proceeds (repayments) of member deposits . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental cash flow statement information:
Cash paid for interest, net of amount capitalized . . . . . . . . . . . . . . . . . . . .
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
198,919
45,147
-----(6,001)
868
226,920
44,189
9,463
(10,521)
(533)
$
192,490
42,275
2,000
1,938
(2,076)
(29,416)
(42,045)
(26,538)
(16,875)
27,150
(78,372)
5,552
5,161
(23,965)
81,694 ____________
(51,426) ____________
137,648
____________
279,888
208,358
245,400
____________ ____________ ____________
(729)
—
18,024
(1,675)
(2,336)
(593)
-----58
—
(51,253)
(18,105)
(17,884)
31,352
12,156
15,896
(80,074)
(47,578)
(69,891)
7,579
10,382
28,782
(8,726) ____________
— ____________
(6,568)
____________
(103,526)
(45,423)
(32,234)
____________ ____________ ____________
(130,101)
(58,788)
1,419
(2,763)
13,250
12,693
____________
(164,290)
____________
12,072
154,149
____________
$
166,221
____________
____________
(104,534)
(56,625)
815
(2,966)
(16,109)
(1,433)
____________
(180,852)
____________
(17,917)
172,066
____________
$
154,149
____________
____________
(100,643)
(49,427)
1,461
(2,048)
(47,186)
1,537
____________
(196,306)
____________
16,860
155,206
____________
$
172,066
____________
____________
$____________
3,649
____________
$____________
5,886
____________
$____________
3,476
____________
$
17,635
____________
____________
$____________
3,263
____________
$____________
5,178
____________
22
$
Notes to Consolidated Financial Statements
(dollars in thousands unless otherwise indicated)
(1) Summary of Significant Accounting Policies
General
Associated Wholesale Grocers, Inc. predominately operates on a cooperative basis (see Patronage) procuring grocery merchandise for distribution
to its retailer/shareholders (“Members”) throughout the Midwestern, Southwestern and Southeastern United States. Non-Cooperative businesses include
nonfood distribution centers, military distribution and retail supermarkets that operate under the banners of Homeland, United Supermarkets, Cash Saver
and Price Chopper. The cooperative represents approximately 81% of total net sales. "AWG" and "Company" refer to Associated Wholesale Grocers,
Inc. and its subsidiaries.
Principles of Consolidation and Use of Estimates
The consolidated financial statements include the accounts of AWG, its subsidiaries and variable interest entities where the Company is considered
the primary beneficiary. All significant intercompany transactions have been eliminated. The financial statements have been prepared in conformity with
generally accepted accounting principles in the United States of America. In preparing financial statements, management makes informed judgments and
estimates that affect the reported amounts of assets and liabilities as of the date of the statements and affects the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from these estimates. The Company’s fiscal year ends on the last Saturday in December.
Fiscal 2015, 2014, and 2013 included 52 weeks of operations.
Variable Interest Entity
In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 810, “Consolidations” (“ASC 810”), the
Company consolidates any variable interest entity (“VIE”) in which the Company has a controlling financial interest and, therefore, is the VIE’s primary
beneficiary. ASC 810 states that a controlling financial interest in an entity is present when an enterprise has the power to direct the activities of a VIE
that most significantly affect the VIE’s economic performance and the obligation to absorb losses of the VIE that could potentially be significant to the VIE
or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company has determined that HAC, Inc. Employee Stock
Ownership Plan and Trust (“ESOP”) is a VIE pursuant to certain financing provided by the Company in the sale of its retail grocery operation (see note 4)
and has included the ESOP in the Company’s consolidated financial statements for the fiscal years ended December 26, 2015, December 27, 2014 and
December 28, 2013.
Business and Credit Concentrations
The majority of the Company’s sales are to Members/retailers located in Kansas, Missouri, Oklahoma, Arkansas, Texas, Louisiana, Mississippi,
Kentucky, Alabama and Tennessee. No single customer accounted for more than 10% of sales in any year presented. Lease and equipment financing through AWG is available to qualified retailers for acquisitions/expansion, improvements and opening inventory purchases. Loans to Members
are generally collateralized by the Member’s inventory, property and equipment, and the Members’ AWG equity. The Company’s lending rate is
generally one percent over the prime rate with borrowing terms to 10 years. For the fiscal years 2015, 2014, and 2013, the Company earned interest
income on loans of $2.7 million, $2.1 million and $1.3 million respectively. Interest is recorded when earned.
Trade accounts receivable primarily consists of receivables from Members and are stated at the amount the Company expects to collect, net of
allowance. Trade receivables are generally secured (see Note 5).
The Company establishes an allowance for doubtful accounts based on collectability, which reflects management’s best estimate of probable
losses determined principally on the basis of historical experience, financial analysis of the retail customer and loan guarantors, and evaluation of
the loan collateral.
Changes in Notes Receivable allowance for doubtful accounts are as follows:
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-offs / Recoveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
_________
$
5,945
1,347
—
_________
$
7,292
_________
2014
_________
$ 4,487
1,458
—
_________
$
5,945
_________
23
Notes to Consolidated Financial Statements—(Continued)
(1) Summary of Significant Accounting Policies (continued)
Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Proceeds due
from credit and debit card transactions with settlement terms of less than five days are also included. The Company maintains cash balances at major
financial institutions. At times such cash balances may be in excess of the Federal Deposit Insurance Corporation coverage limit. The Company does not
fund its disbursement accounts for checks it has written until the checks are presented to the bank for payment. The amount of outstanding checks is
recorded in accounts payable. The change in outstanding checks is included in the change in accounts payable, accrued expenses and other liabilities on
the consolidated statement of cash flows.
Restricted Cash
Restricted cash consists of $0.8 million placed in escrow to be paid to the contractor upon completion of the expansion of the Company’s distribution
center in Louisiana.
Inventories
Merchandise is valued at the lower of cost or market. Cost for 70% and 71% of inventories in both 2015 and 2014, respectively, is determined
using the last-in, first-out (LIFO) method. Cost for perishables, general merchandise, health care and retail store inventories is determined using the
first-in, first-out (FIFO) method. Had all products been valued at FIFO, inventories would have increased by $112.6 million at December 26, 2015,
and $113.8 million at December 27, 2014.
Property and Equipment
Property and equipment are stated at cost and include assets held for sale of $0.0 million at December 26, 2015 and $0.2 million December 27, 2014.
Expenditures for improvements, which significantly increase property lives, are capitalized. Interest costs incurred during the construction of facilities
are included in the cost of such properties. Depreciation and amortization are calculated using the straight-line method over the assets estimated useful
lives, which range from 15 to 50 years for buildings; 3 to 10 years for equipment; and 3 to 5 years for vehicles. Leasehold improvements are amortized
over the respective lease terms.
Investments
The Company has all investments stated at cost; fair value is not assessable or practical to estimate.
Patronage
Income from cooperative operations, less a nominal amount authorized by the Board of Directors to be retained, is returned to the Members in the
form of year-end patronage. At each year-end, a percentage of net income to be distributed is paid in cash (60%) with the remainder paid in the form of
patronage certificates (see notes 5 and 8). Such amounts are apportioned to the Members based on qualifying warehouse purchases. Patronage source
income derived from an extraordinary event of significant magnitude may be distributed to members separately based on the quantity of the business done
proportionately with a member, which may span multiple years or a combination of years, as provided in the bylaws, as amended.
Sales and Cost of Goods Sold
The Company recognizes sales of merchandise when products are shipped and promotional allowances related to selling products to customers are
recorded as a reduction in sales. Fees and upfront monies received from vendors are recorded as a reduction of the cost of goods sold in the period in
which they are earned, based on contractual commitments to achieve certain milestones in purchases or prorated over the duration of the agreement.
Shipping and Handling Costs
Shipping and handling costs incurred to deliver product to our customers are included as a component of general and administrative expenses in the
consolidated statements of operations and comprehensive income. Shipping and handling costs for the fiscal years 2015, 2014, and 2013 were $143.8
million, $153.9 million and $148.9 million, respectively.
Advertising Expense
Advertising costs are charged to expense as incurred and are included as a component of general and administrative expenses in the consolidated
statements of operations and comprehensive income. Advertising expense for the fiscal years 2015, 2014, and 2013 were $7.6 million, $7.6 million and
$6.4 million, respectively.
24
(1) Summary of Significant Accounting Policies (continued)
Income Taxes
AWG and its subsidiaries file a consolidated federal income tax return. Deferred income taxes are accounted for under the asset and liability method.
Patronage distributions from cooperative operations are deductible for income tax purposes. Deferred income taxes result primarily from differences in
financial reporting bases for net receivables, depreciation, insurance, deferred compensation, and the deferred gain on the sale of HAC not yet recognized in the financial statements. The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax
authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount
recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement
with the relevant tax authority. The company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. During 2015,
2014 and 2013, the Company did not recognize any interest or penalties.
Recently Adopted and Recently Issued Authoritative Accounting Standards
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers”, which implements a five step process of determining
revenue from contracts and is intended to improve comparability across entities, jurisdictions, and capital markets. In August 2015, ASU 2015-14,
“Revenue from Contracts with Customers: Deferral of the Effective Date” was issued. The standards become effective for public business entities
and all other entities for fiscal years beginning after December 15, 2017 and 2018, respectively. The Company is currently assessing the impact of the
adoption of ASU 2014-09.
(2) Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Assets and liabilities recorded at fair value are categorized using defined hierarchical levels directly related
to the amount of subjectivity associated with the inputs to fair value measurements as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities;
Level 2 – Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable;
Level 3 – Unobservable inputs in which little or no market activity exists, requiring an entity to develop its own assumptions about the assumptions that market participants would use in valuation.
For certain of the Company’s financial instruments, including cash and cash equivalents, accounts and short term notes receivables and accounts
payable, the fair values approximate book values due to their short term maturities.
Since there is no market for long term notes receivables, it is impractical to assess whether the carrying amounts, which are reported on the consolidated balance sheets for these items, approximate fair value.
Property, equipment and intangible assets are reviewed for impairment whenever events or circumstances indicate the carrying amount may not
be recoverable. Recoverability of assets held and used is assessed based on the undiscounted future cash flows. Assets to be disposed of are presented at the lower of cost or fair value less costs of disposal. During the fiscal years ended December 26, 2015, December 27, 2014, and December
28, 2013, the Company recorded (in millions) $0.0, $9.5, and $2.0 respectively, for impairment charges on real property and ongoing lease liabilities,
which were measured at fair value using Level 3 inputs. The impairment charges are a component of the general and administrative expenses in the
consolidated statements of operations.
The carrying amounts of the Company’s long-term debt reported on the consolidated balance sheets approximate fair value since their interest rates
are periodically adjusted to reflect market conditions.
(3) Intangible Assets
The Company has intangible assets subject to amortization that include wholesale volume agreements and non-compete agreements of $20.7 million and $20.3 million for 2015 and 2014, respectively, which are being amortized over 15 years and have accumulated amortization of $16.8 million
and $15.5 million for 2015 and 2014, respectively. The Company’s VIE has recorded goodwill at December 26, 2015 and December 27, 2014 of $5.6
million and $4.5 million, which is being amortized over a useful life of 10 years and has accumulated amortization of $1.0 million and $0.5 million,
respectively. The Company’s VIE also has gross deferred financing costs of $1.9 million and $1.8 million for 2015 and 2014, respectively, which are
being amortized over 5 years, the term of the loan, and has accumulated amortization of $1.5 million and $1.1 million at December 26, 2015 and
December 27, 2014, respectively. Amortization expense for intangible assets was $2.2 million in 2015, $2.2 million in 2014 and $2.1 million in 2013.
Amortization expense for the next five fiscal years is estimated to be as follows (in millions): 2016 - $2.4; 2017 - $1.9; 2018 - $1.4; 2019 - $0.7 and
2020 - $0.7.
25
(4) Acquisitions, Divestitures and Certain Transactions with Members
In December 2011, the Company sold its subsidiary retail grocery operation, Associated Retail Grocers, Inc, (“ARG”), whose only asset consisted of
an investment in HAC, Inc. The operation is commonly referred to as Homeland Stores, which operated grocery stores situated in Oklahoma (72), Texas
(4) and Kansas (1) at the time of the transaction. The purchaser, ESOP (see Variable Interest Entity in note 1), bought 100% of the controlling stock of
ARG in a transaction valued at $145 million subject to a working capital adjustment of $10.1 million. The Company provided financing in a series of loan
tranches, with maturity dates of 5 to 11 years, as follows:
Tranche A – $60 million, due in weekly payments (subject to floating rate adjustments based on Prime + 0% margin) representing principal and an
initial 3.25% all-in interest rate. The loan amortizes based on a ten-year life and a balloon payment due December 26, 2016. The loan
balance outstanding at December 26, 2015 and December 27, 2014 was (in millions) $38.2 and $43.9 respectively.
Tranche B – $50 million, due in weekly payments (subject to floating rate adjustments based on Prime + 1% margin) representing an initial 4.25%
all-in interest-only payment until the earlier of: (i) December 26, 2016, or (ii) the repayment of the Tranche-A obligation. Estimated
weekly payments of principal and interest will then begin, with principal amortization based on a ten-year life and a balloon payment
due December 26, 2021. The loan balance outstanding at December 26, 2015 and December 27, 2014 was (in millions) $47.9 and $48.6
respectively.
Tranche C – $35 million, due in weekly payments representing a fixed rate of 7% for 2015 and 2016 and 11% thereafter and interest-only payments
until the earlier of: (i) December 26, 2019, or (ii) the repayment of the Tranche-B obligation. Estimated weekly payments of principal
and interest will then begin, with principal amortization based on a five-year life and a balloon payment due December 26, 2022. Only
Tranche-C is subject to an early termination penalty from early redemption. The borrower can, under certain circumstances, lower the
fixed rate if certain performance targets are achieved. Loan balance outstanding as of December 26, 2015 and December 27, 2014, is
$35 million.
Beneficial terms of the transaction require ESOP to maintain its purchase concentration of current and future stores for a stated period beyond the final
repayment of all the outstanding obligations. The Company provides ESOP access to a line of credit up to $15 million to manage its seasonal borrowing
needs at a borrowing rate of Prime, which was drawn at $2.5 million at December 27, 2014 and $2.5 million at December 26, 2015. The ESOP paid the
$2.5 million obligation on January 2, 2016. On December 17, 2015, the Company provided a guaranty to Bank of America, up to $2.5 million, for Letters
of Credit issued by Bank of America for the benefit of HAC. The amount available under the line of credit is reduced by the amount guaranteed to Bank
of America. The guaranteed balance as of December 26, 2015 was $1.3 million. Additional commitments beyond the initial transaction relate to assisting
HAC, Inc. to borrow up to $10 million to meet its obligations from withdrawing from its sponsoring participation in several UFCW multi-employer pension
plans. The Company had loaned HAC an additional $5.6 million during 2013 and 2012, of which $3.8 million is outstanding at December 26, 2015 and
$4.3 million was outstanding at December 27, 2014.
ESOP is considered a VIE, requiring its continuing operations to be combined with the Company’s consolidated financial statements. Therefore, the
Company will not reflect the gain on the sale of the subsidiary until such time as the Company determines it is no longer the primary beneficiary of ESOP.
In March 2015, DGS-Acquisitions, LLC and DGS-RE, LLC, wholly owned subsidiaries of AWG, purchased certain assets of Foods, Inc., Dahl’s Food
Mart, Inc. and Dahl’s Holdings I, LLC through the U. S. Bankruptcy Court for the Southern District of Iowa, including 7 supermarket locations and 2 fuel
centers in Des Moines, Iowa. The $9.1 million purchase price was allocated as follows: cash - $0.4 million, inventory - $5.8 million, real estate - $1.0
million and property and equipment - $1.9 million. These stores currently operate under the Price Chopper and Cash Saver banners and the results of
their operations since the transaction date have been included in the consolidated financial statements.
(5) Patronage Refunds and Deposits
Patronage Refund Certificates have been issued to Members in the past as part of annual distributions of net income from cooperative operations.
In 2008, new non-maturing certificates began being issued (see note 8). The pertinent provisions of Patronage Refund Certificates (issued prior to 2008)
are as follows: (a) the certificates are not transferable; (b) AWG has the right to offset, but the certificate holder does not; (c) the Board of Directors of
AWG has the authority to set the interest rate on these certificates, subject to the maintenance of an interest rate of at least 4%, but not in excess of
8%; and (d) the certificates are subordinate to the claims of all creditors of AWG. During 2012, interest accrued at 4%, however, all Patronage Refund
Certificates had matured and been paid as of December 29, 2012.
Member deposits represent interest-bearing accounts that may be required to collateralize weekly purchases of products. Interest expense incurred
on patronage certificates, member deposits, and member savings in 2015, 2014 and 2013 was $0.4 million, $0.2 million and $0.2 million, respectively.
Since there is no market for Patronage Refund Certificates and Member Deposits, it is impractical to assess whether the carrying amounts, which are
reported on the consolidated balance sheets for these items, approximate fair value.
26
(5) Patronage Refunds and Deposits (continued)
In 2010, AWG filed a lawsuit against a group of suppliers of commodity goods and related affiliates for antitrust and unlawful price fixing activities.
In August 2015, a special patronage dividend was paid to its members consisting of monies obtained as a result of entering into separate confidential
settlement agreements with individual defendants during 2014. Because the proceeds related to multiple years, the patronage dividend was allocated
among the members and was paid separately from the current year distribution in 2015.
(6) Property and Equipment
Property and equipment are summarized as follows:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
____________________
$
54,718
378,971
340,321
11,380
____________________
$
785,390
(380,291)
____________________
$
405,099
____________________
____________________
2014
_____________________
$
47,411
350,895
327,764
1,757
_____________________
$
727,827
(354,285)
_____________________
$
373,542
_____________________
_____________________
Depreciation expense incurred in 2015, 2014, and 2013 was (in millions) $41.1, $40.1 and $38.2, respectively. In 2015, 2014 and 2013, the Company capitalized
an aggregate total of (in millions) $0.1, $0.0 and $0.1, respectively, of capitalized construction period interest.
(7) Long-term Debt
In May 2011, the Company amended its five-year Revolving Credit Agreement, which extended the maturity to May 2016 and provided a $275 million
credit facility. At December 27, 2014, total borrowings and outstanding letters of credit were $79 million, which includes a $72.1 million tax-exempt bond
loan. Variable interest rates are based on the London Interbank Borrowing Rate and ranged from 0.81% to 1.17% during 2014 (which included a base
rate mark-up charged by the lenders). At December 27, 2014, the Company had an additional $196 million available for borrowing under this agreement.
This loan was paid off in May 2015.
In May 2014, a 365-day Revolving Credit Agreement was amended, which included a “term-out” feature to extend the maturity to June 15, 2016. At
December 27, 2014, the outstanding principal amount of this loan was $66.9 million. Variable interest rates are based on the Fed Funds rate and ranged
from 1.06% to 1.12% during 2014 (which included a base rate mark-up charged by the lender). Daily borrowings during 2014 averaged $30.3 million and
overall borrowings and repayments were approximately $2.5 billion. At December 27, 2014, the Company had an additional $33.1 million available for
borrowing under this agreement. This loan was paid off in May 2015.
In May 2015, the Company entered into a five year revolving Credit Agreement with a maturity date of May 20, 2020, which provides a $300 million
revolving credit facility and a $75 million tax exempt bond facility. At December 26, 2015, total borrowings and outstanding letters of credit were $160
million, which includes a $72.1 million tax-exempt bond loan. Variable interest rates are based on the London Interbank Borrowing Rate and ranged from
0.64% to 1.124% during 2015 (which included a base rate mark-up charged by the lenders). Daily borrowings during 2015 averaged $108.4 million and
overall annual borrowings and repayments were approximately $2.3 billion. At December 26, 2015, the Company had an additional $215 million available
for borrowing under this agreement.
The Company’s credit facility contains certain financial covenants related to cash flow leverage and minimum tangible net worth. The Company was
in compliance with all covenants at December 26, 2015.
(8) Allocated Earnings
At December 26, 2015 and December 27, 2014, $73.6 and $74.4 million of the current year non-maturing patronage has been allocated within Retained
Earnings. The pertinent provisions of these Patronage Certificates (issued in 2008 or after) are as follows: (a) the certificates are not transferable; (b) AWG
has the right to offset, but the certificate holder does not; (c) no interest is accrued on outstanding certificates; (d) the certificates have no stated maturity
date, and (e) the certificates are subordinate to the claims of all creditors of AWG.
In July 2005, the Board of Directors created another form of patronage certificate (“Class B Certificates”) for members who are delinquent with their obligations owed to the Company. The Class B Certificates are non-interest bearing and have no maturity date. These certificates are only redeemed upon the
dissolution of the Company and the redemption of all other patronage certificates. The Class B Certificates are included in Retained Earnings and amounted
to $0.1 million and $0.5 million as of December 26, 2015 and December 27, 2014, respectively.
27
(9) Equity
All members of the cooperative are required to hold 15 shares of Class A Common Stock. The by-laws of AWG contain restrictions concerning the transfer of common stock, which serves as collateral to secure members’ indebtedness. Each member holding Class A Common Stock is entitled to one vote in
shareholder matters. The Board of Directors of the Company declared a 2-for-1 stock dividend effective March 22, 2009 for shareholders of record, whereby
every shareholder of A and B stock received additional shares in the form of B stock. All issuances and redemptions since March 22, 2015 have been made
at $1,840 per share. Issuances and redemptions between March 23, 2014 and March 21, 2015 were made at $1,770 per share. Issuances and redemptions
between March 24, 2013 and March 22, 2014 were made at $1,700 per share.
The following table describes the number of authorized and outstanding shares of AWG Class A and Class B stock at December 26, 2015 and December
27, 2014:
OUTSTANDING AT
CLASS
AUTHORIZED
2015
2014
_____________________________________________________________________________________
Class A Stock, $100 par value
35,000
9,120
9,045
Class B Stock, $100 par value
150,000
14,249
15,099
The changes in common stock for the fiscal years ended December 26, 2015 and December 27, 2014 were as follows:
Total
Class A
Class B
Common Stock
___________
___________
___________
Balances at December 28, 2013
Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dollar Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issued
Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dollar Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redeemed
Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dollar Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dollar Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issued
Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dollar Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redeemed
Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dollar Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dollar Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Members
___________
9,045
16,359
25,404
$
903 ___________
$
1,634 ___________
$
2,537
___________
603
465
—
465
$
47 ___________
$
— ___________
$
47
___________
31
(465)
(1,260)
(1,725)
$___________
(47) ___________
$
(126) ___________
$
(173)
(31)
9,045
15,099
24,144
$___________
903
$
1,508
$
2,411
___________ ___________
___________
___________ ___________
603
795
—
795
$___________
80 ___________
$
— ___________
$
80
53
(720)
(850)
(1,570)
$
(72) ___________
$
(85) ___________
$
(157)
___________
(48)
9,120
14,249
23,369
$___________
911
$
1,423
$
2,334
___________ ___________
___________
___________ ___________
608
Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss attributable to the Company for the fiscal years ended December 26, 2015 and December 27, 2014
were as follows:
2015
2014
____________________
_____________________
Balances, beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(17,158) $
(4,956)
Change in funded status of pension plan, net of ($1,956) in tax credits in 2015
and ($7,570) in tax credits in 2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,587) _____________________
(12,202)
____________________
Balances, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28
$
(21,745) _____________________
$
(17,158)
____________________
_____________________
____________________
(9) Equity (continued)
Additional Paid in Capital
Changes in additional paid in capital attributable to the Company for the fiscal years ended December 26, 2015 and December 27, 2014, were as follows:
Stock purchase or redemption surplus value paid in/(out) . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
2014
____________________
_____________________
$
12,551 $
12,579
246
(28)
____________________ _____________________
$
12,797 _____________________
$
12,551
____________________
_____________________
____________________
Noncontrolling Interest
Changes in noncontrolling interest for the years ended December 26, 2015 and December 27, 2014, were as follows:
2015
2014
____________________
_____________________
$
16,368 $
7,529
Income attributable to noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,014
8,839
____________________ _____________________
$
24,382 _____________________
$
16,368
____________________
____________________
_____________________
(10) Income Taxes
The significant components of income tax expense are summarized as follows:
2015
2014
2013
____________
____________
____________
Federal:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
9,110
$
5,092 $
7,651
(4,270) ____________
(2,012) ____________
(4,254)
____________
Total federal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
4,840 ____________
$
3,080 ____________
$
3,397
____________
State:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,509
$
972 $
2,004
225
(777)
851
____________ ____________ ____________
Total state . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,734 ____________
$
195 ____________
$
2,855
____________
$
6,574 ____________
$
3,275 ____________
$
6,252
____________
____________
____________
____________
The effects of temporary differences and other items that give rise to deferred income tax assets and liabilities are presented below:
2015
2014
____________________
____________________
Deferred income tax assets:
Gain on sale of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
5,631 $
6,391
Pension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,009
8,889
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,062
4,295
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,538
9,537
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,885
3,296
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,394
178
Contribution carryovers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
1,162
State credit carryover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,686
3,526
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,679 ____________________
1,701
____________________
Deferred income tax assets. . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45,884
38,975
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,070) ____________________
(1,094)
____________________
Total deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
43,814 ____________________
$
37,881
____________________
____________________
____________________
Deferred income tax liabilities:
Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
12,739 $
12,779
Prepaid expenses . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,041
1,692
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46
423
____________________ ____________________
Total deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
14,826 ____________________
$
14,894
____________________
____________________
____________________
Net deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
28,988 ____________________
$
22,987
____________________
____________________
____________________
29
(10) Income Taxes (continued)
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states and municipalities. At this time the
Company is not subject to U.S. federal income tax examinations. The Company and/or its subsidiaries are subject to various state and local income tax
examinations and no adverse tax consequences are anticipated. As of December 27, 2014 and December 26, 2015, respectively, a valuation allowance
of a $1.1 million and $2.1 million was required to reduce the deferred income tax assets to a level, which more likely than not, will be realized as future
benefit. The differences between income taxes expected at the U.S. federal statutory income tax rate of 35% and the reported income tax (benefit)
expense are comprised of nonmaterial, reconciling items including, but not limited to patronage dividend, state and local income taxes. In November,
2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2015-17, “Balance Sheet Classification of Deferred
Taxes”, which simplifies the presentation of deferred federal income taxes by requiring all balances be classified as noncurrent on the balance sheet.
The Company has early adopted this guidance retrospectively, and accordingly reclassified $22 million of current to non-current deferred tax assets as of
December 27, 2014.
(11) Employee Benefit Plans
Substantially all employees of the Company and its subsidiaries are covered by various contributory and non-contributory pension or profit
sharing plans. Union employees participate in multi-employer retirement plans under collective bargaining agreements, unless the collective
bargaining agreement provides for participation in plans sponsored by the Company. The Company sponsors a defined benefit pension
plan, both qualified and non-qualified (“the DB Plan”), and several defined contribution pension plans. The DB Plan covers 1,415 and 1,552
participants for the fiscal years ended December 26, 2015, and December 27, 2014, respectively, which is comprised mainly of non-union warehouse, clerical and managerial employees. Beginning November 1, 2012, the Company’s DB Plan was closed to new employees and replaced
with an enhanced contribution to the existing defined contribution plan. At present, the Company continues to accrue service costs for eligible
participants of the DB Plan. The Company provides no health care, life insurance, nor disability plans to former and inactive employees after
retirement under post-employment benefit plans.
The benefit obligation (which is the projected benefit obligation or “PBO”), fair value of plan assets, and funded status of the Company’s
DB Plan is as follows:
Change in benefit obligation (PBO)
Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial (gain)/loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30
2015
____________________
$
175,029
11,420
7,007
(34,517)
(737)
____________________
$____________________
158,202
____________________
2014
____________________
$
151,642
11,913
7,581
(20,513)
24,406
____________________
$
175,029
____________________
____________________
$
$
Change in plan assets
Fair value of plan assets at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
151,777
(8,396)
19,007
(34,517)
____________________
$
127,871
____________________
____________________
Funded status, end of year
$
(30,331) ____________________
$
(23,253)
____________________
____________________
____________________
147,691
6,394
18,205
(20,514)
____________________
$
151,776
____________________
____________________
(11) Employee Benefit Plans (continued)
Benefit calculations for the Company's sponsored DB Plan for primarily non-union eligible participants are generally based on years
of service and the participants' highest compensation during five consecutive years during the last ten years of employment. The
Company's accumulated benefit obligation for the DB Plan was $139,332 and $153,938 at December 26, 2015 and December 27, 2014,
respectively.
The amounts recognized for the DB Plan in the Company's accumulated other comprehensive loss consisted of the following:
Prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total recognized in AOCI, before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total recognized in AOCI, net of tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
____________________
$
(330)
(34,006)
____________________
$
(34,336)
____________________
$
(21,745)
____________________
____________________
2014
_____________________
$
(601)
(27,230)
_____________________
$
(27,831)
_____________________
$
(17,158)
_____________________
_____________________
The estimated future benefit payments to be paid from the DB Plan, which reflect expected future service, are as follows:
Fiscal year
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years 2021-2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DB
Plan Benefits
______________________
$
38,561
18,849
14,993
14,415
18,602
78,069
2015
2014
2013
____________
____________
____________
Net periodic benefit expense for the DB Plan consisted of the following:
Service cost --- benefits earned during the period . . . . . . . . . . . . . . . . . . . . . .
Interest cost on projected benefit obligations . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of net actuarial loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlement loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,420
$
11,913 $
11,983
7,007
7,581
6,159
(10,365)
(9,963)
(9,417)
271
538
537
4,256
4,738
6,520
6,991 ____________
2,928 ____________
756
____________
Net periodic benefit expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
19,580 ____________
$
17,735 ____________
$
16,538
____________
____________
____________
____________
$
31
The estimated prior service cost and net actuarial loss that will be amortized from accumulated other comprehensive income/loss into net
periodic benefit cost for the DB Plan over the next fiscal year are $201 and $6,055, respectively. The majority of the unfunded non-qualified
portion of the plan has been expensed.
Weighted average assumptions used for the DB Plan are as follows:
2015
2014
2013
____________
____________
____________
Weighted-average assumptions used to determine benefit obligations:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average assumptions used to determine net periodic benefit cost:. . .
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.65%
2.50%, 3.00%
4.35%
3.00%
7.25%
4.35%
3.00%
5.10%
3.00%
5.10%
3.00%
7.25%
4.25%
3.00%
7.50%
The fair value of the Company’s DB Plan assets at the end of the 2015 calendar year, by asset category, are as follows:
Asset Category
Money Market Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mutual Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Limited Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
Level 1
Level 2
Level 3
_______________
_______________
_______________
_______________
$
2,023
$
2,023
$
---$
---110,560
110,560
------------------------------15,288
------15,288
_______________
_______________
_______________
_______________
$
127,871
$
112,583
$
---$
15,288
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
The fair value of the Company’s DB Plan assets at the end of the 2014 calendar year, by asset category, are as follows:
Asset Category
Mutual Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Limited Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32
Total
Level 1
Level 2
Level 3
_______________
_______________
_______________
_______________
$
5,502
$
5,502
$
---$
---120,667
120,667
------4,982
---4,982
---5,487
---5,487
---15,138
------15,138
_______________
_______________
_______________
_______________
$
151,776
$
126,169
$
10,469 _______________
$
15,138
_______________
_______________
_______________
_______________
_______________
_______________
_______________
The following is a description of the valuation methodologies used for assets measured at fair value at December 31, 2015 and December 31, 2014:
Money Market Funds, Mutual Funds and Common Stocks are valued at the closing price reported on the active market on which the individual
securities are traded.
U. S. Government Securities and Corporate Bonds are valued at the closing price reported on the active market on which the individual securities
are traded. If no active market is available, they are valued by Interactive Data Corporation based on quoted prices for similar assets or liabilities
in an active market.
Limited Partnerships that are hedge funds are valued based on estimates for the fair value of investment funds held by the partnership that have
calculated net asset value per share as a practical expedient in accordance with the specialized accounting guidance for investment companies.
Another limited partnership is valued based on the contributions paid into the fund through year end, which approximates fair value. The majority of
Limited Partnerships held as investments are subject to redemption restrictions of a quarterly frequency with 95 day notice periods and a minimum
investment period of one year.
Self Directed brokerage accounts are managed by officers in the Deferred Compensation Plan. There is no additional information available to the
Company.
A reconciliation of the beginning and ending balances of financial assets measured at fair value on a recurring basis using significant unobservable
inputs (Level 3) during the fiscal year ended December 26, 2015 and December 27, 2014 is as follows:
2015
2014
________________________
________________________
Fair value, beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
15,138
$
12,319
Unrealized gains/(losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(385)
554
Purchases
.............................................................
573
3,363
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ________________________
(38)
(1,098)
________________________
Fair value, ending balance
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ________________________
$
15,288
$
15,138
________________________
________________________
________________________
The Company's investment policy reflects the nature of the DB Plan's funding obligations. The assets are invested to provide the opportunity for
both income and growth of principal. This objective is pursued as a goal designed to provide required benefits for participants without undue risk.
It is expected that this objective can be achieved through a well-diversified asset portfolio. Investment managers are directed to maintain equity
portfolios at a risk level approximately equivalent to that of the specific benchmark established for the portfolio. The expected rate of return on DB
Plan assets was determined based on expectations of future returns for the DB Plan's investments based on the target asset allocation of the DB
Plan's investments. The Company expects to contribute approximately $30.7 million to the DB Plan during 2016.
The Company also makes contributions to its defined contribution plans. The total expense for these plans amounted to (in millions) $7.7, $6.5 and
$4.0 in 2015, 2014 and 2013, respectively.
The 2005 Non Qualified Deferred Compensation Plan is available for officers of the Company to elect, by the required deadlines in the preceding
year, to have a designated portion of their wages set aside for their own personal tax planning purposes, in a trust held by Wells Fargo. At the time
of election, the date for future distribution of wages to the participant is established, according to allowable parameters within the plan documents.
Both the asset and offsetting liability recorded at December 26, 2015 and December 27, 2014 were $27.2 million and $18.3 million, respectively.
33
The fair value of the Company’s Deferred Compensation plan assets at the end of 2015 and 2014 calendar year, by asset category are as
follows:
2015
Level 1
Level 2
Level 3
_______________
_______________
_______________
_______________
$
5,318
$
5,318
$
---$
---Corporate Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,245
---1,245
---Common Stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,446
10,446
------Mutual Funds
................................
10,143
10,143
------Self Directed brokerage accounts . . . . . . . . . . . . . . . . . . . _______________
------------_______________
_______________
_______________
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _______________
$
27,152
$
25,907
$
1,245
$
_______________ _______________
_______________ _______________
_______________ _______________
_______________
Corporate Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common Stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mutual Funds
................................
Self Directed brokerage accounts . . . . . . . . . . . . . . . . . . .
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
Level 1
Level 2
Level 3
_______________
_______________
_______________
_______________
$
2,512
$
2,512
$
---$
---1,292
---1,292
---10,527
10,527
------2,873
2,873
------1,128
------1,128
_______________
_______________
_______________
_______________
$
18,332
$
15,912
$
1,292 _______________
$
1,128
_______________
_______________
_______________
_______________
_______________
_______________
_______________
(12) Commitments and Contingent Liabilities
The Company is obligated as lessee under various noncancelable long-term supermarket property leases with minimum annual rentals of approximately $39.3 million. These leases have an average remaining life of 6 years. It is expected in the ordinary course of business that these leases will be renewed or replaced. The Company has subleased the majority of its supermarket properties to Members
(except for properties operated by the Company’s subsidiaries) for substantially the same lease terms and rental amounts. Rental
income received was (in millions) $40.1, $41.3 and $42.9 in 2015, 2014 and 2013, respectively. Rents charged to general and administrative expenses for operating leases, other than supermarket properties, were (in millions) $2.9, $3.0 and $3.8 in 2015, 2014 and 2013,
respectively. Operating lease rent expense, expected to be incurred over the next five years, is approximately $3.1 million per year.
The Company is a guarantor of loans issued to members in the amount of $3.5 million and $1.0 million for December 26, 2015 and
December 27, 2014, respectively.
In December 2015, the Company entered into a limited guaranty with the Bank of America on behalf of HAC, Inc. This limited guaranty
allows HAC, Inc. to issue standby letters of credit in amounts up to $2.5 million without requiring HAC to maintain a cash collateral account
with Bank of America. The company has since prohibited borrowing by HAC on the existing $15 million revolver above $12.5 million. The
Company is able to revoke the limited guaranty at any time in respect to future transactions. The Company will, however, be at risk for
existing indebtedness at the time of revocation.
The Company is involved in various claims and litigation arising in the normal course of business. In the opinion of management, the
ultimate resolution of these actions will not have a material adverse effect on the Company’s consolidated financial statements.
34
(13) Multi-employer Plans
The Company contributes to a single multi-employer defined benefit pension plan under the terms of the collective-bargaining agreements that
cover its union-represented employees. The risks of participating in a multi-employer plan are different from single-employer plans in the following
aspects:
a. Assets contributed to the multi-employer plan by one employer are used to provide benefits to employees of other participating employers.
b. If a participating employer stops contributing to the plan, the unfunded obligations of the plan are borne by the remaining participating
employers.
c. If the Company chooses to stop participating in its multi-employer plan, then it is required to pay that plan an amount
based on the underfunded status of the plan, referred to as a withdrawal liability.
The Company’s participation in this plan for the annual period ended December 31, 2015, is outlined in the table below. The “EIN and Pension
Plan Number” column provides the Employee Identification Number (EIN) and the three-digit plan number. Unless otherwise noted, the most recent
Pension Protection Act (PPA) zone status available in 2015 and 2014 is for the plan’s year-end at December 31, 2014 and December 31, 2013, respectively. The zone status is based on information that the Company received from the plan and is certified by the plan’s actuary. Among other factors,
plans in the red zone are generally less than 65 percent funded, plans in the yellow zone are less than 80 percent funded and plans in the green
zone are at least 80 percent funded. The “FIP/RP Status Pending/Implemented” column indicates plans for which a financial improvement plan
(FIP) or a rehabilitation plan (RP) is either pending or has been implemented. The last column lists the expiration date of the collective-bargaining
agreements to which the plan is subject. Finally, there have been no significant changes that affect the comparability of 2015, 2014 and 2013
contributions.
Expiration Date
EIN and
Pension Protection Act
of CollectivePension
Pension Plan
Zone Status
FIP/RP Status
Company Contributions
Surcharge
Bargaining
Fund
Number
2015
2014
Implemented
2015
2014
2013 Imposed
Agreements
_________________________________________________________________________________________________________
Central States,
36-6044243
Red
Red
Yes
$13,184 $13,069 $12,762
No
April 4, 2020
Southeast and
Plan 001
Southwest Areas
Pension Fund
The Company was not listed in the plan’s Form 5500 as providing more than 5% of the total contributions for the plan years ending in 2014 and
2013. At the date the Company’s consolidated financial statements were issued, the plan’s Form 5500 was not available for the plan year ending
in 2015.
(14) Subsequent Events
Subsequent events have been evaluated through March 4, 2016, which is the date the financial statements were available to be issued, and there were
no material events requiring recognition or disclosure.
35
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Associated Wholesale Grocers, Inc. and Subsidiaries
We have audited the accompanying consolidated financial statements of Associated Wholesale Grocers, Inc. (a Kansas Corporation) and subsidiaries,
which comprise the consolidated balance sheets as of December 26, 2015 and December 27, 2014, and the related consolidated statements of operations
and comprehensive income, retained earnings, and cash flows for each of the three years in the period ended December 26, 2015, and the related notes
to the financial statements.
Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with
auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The
procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair
presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating
the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Associated
Wholesale Grocers and subsidiaries as of December 26, 2015 and December 27, 2014, and the results of their operations and their cash flows for each of
the three years in the period ended in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter
As discussed in Note 10 of the consolidated financial statements, in 2015 Associated Wholesale Grocers, Inc. and subsidiaries adopted new accounting
guidance related to the presentation of deferred income taxes which was retrospectively applied to the 2014 balance sheet. Our opinion is not modified
with respect to this matter.
Kansas City, Missouri
March 4, 2016
36
AWG
OFFICERS
Tye Anthony
Steve Arnold
Tim Bellanti
Randy Berry
Sr. Vice President
Springfield
Vice President
Information
Technology
David Carl
John Crumley
Mike Danes
Bob Durand
Sr. Vice President
Gulf Coast
Jerry Edney
Dan Funk
David Gates
Bo Hawkins
Sr. Vice President
Nashville
Robert Henry
Gary Jennings
Richard Kearns
Dan Koch
Gary Koch
Danny Lane
Linda Lawson
Charlie Lynn
Jeff Pedersen
Bob Pickerill
Sr. Vice President
Kansas City
Frances (Chi Chi) Puhl
Sr. Vice President
General Counsel and
Corporate Secretary
Patrick Reeves
Brian Rehagan
David Smith
Tony Stafford
Dave Sutton
Jack Wall
Scott Welman
Vice President
Fort Worth
Sr. Vice President
Finance
Vice President
Corporate Controller
Sr. Vice President
Oklahoma City
Vice President
Engineering
Sr. Vice President
Memphis
Executive Vice
President Distribution
and Logistics
Anna Mancini
Joe Maslak
Jon Payne
Vice President
Pharmacy
Sr. Vice President
Chief Information
Officer
Terry Roberts
Frank Schmitt
Mike Schumacher
Vice President
VMC
Vice President
Nashville
Vice President
Kansas City
President
Always Fresh
Vice President
Bakery and Deli
Executive Vice
President
Division Operations
President and
Chief Executive Officer
Sr. Vice President
Perishables
Executive Vice
President
Chief Financial Officer
Vice President
VMC
Executive Vice
President
Merchandising &
Marketing
Sr. Vice President
Grocery
President
VMC
Vice President
Memphis
Sr. Vice President
Fort Worth
Vice President
Human Resources
Vice President
Gulf Coast
Vice President
Meat
Vice President
Springfield
Vice President
Oklahoma City
Sr. Vice President
Real Estate and
Development
ASSOCIATED WHOLESALE GROCERS, INC.
2015 ANNUAL REPORT

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