20092010201120122013 0950 SALE S in billions 0990 1070 1030 1150 1110 145145 145145 145145 145145 A SS O CI ATE D WH OLE S ALE G RO C ER S I N C 5000 KAN S A S ID: 355849
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20092010201120122013 $0.950 SALE S in billions $0.990 $1.070 $1.030 $1.150 $1.110 ‘‘ ‘‘ ‘‘ ‘‘ A SS O CI ATE D WH OLE S ALE G RO C ER S , I N C .5000 KAN S A S AV ENUE KAN S A S C I T Y , KS 66106 \r\f \n\t\b \b \b \b\n \n\t\b \b \b\f\f \b\f \t\b \b €\b \f \t\b \b ‚ \n\b\rƒ \f\f\b \t\b \b „\b… \f‚\nƒ\b†\r \t\b \b ‡\b\n ˆ\b† \t\b \b \b\f\f ƒ‰Š†\b\t\b \b ˆ \b\t\b \b ‹†\f\r\b\nƒŒ\t\b \b ‚\fŽ \n‚\f \b ‘\b Ž’ \b ‹Ž… \n \n \t\b \b \bŒ\f €† \b \tˆ\b‚ \t\b \b ˆ \r„\b ˆ\b† \r \t\b \b \fŠ\n€ “\b\f\r†\b \t\b \b ” \f \r\r\n \r\b\t\b \b „\b… \f “ \f\r \b \fŠ\n€ \t\b \b \tˆ ƒŒ“\f† ’ \b \t‘\b Ž€\b\b\f‹Ž… \b \r\b \t\b \b ‚\fŽ ‰\bŒ\t\b \b ƒ† \n• \f\b”\b‡ \t\b \b \b\bŒ\b‚\n \b \t\b \b ˆ \r„\b‚\n‡ \t\b \b \f\f ˆ\f†\t\b \b \r\n\n– \t\b \b ‹†\f\r\b\n–\b–Š\t\b \b €“ \n \t\b \b —‹ ŽŽ \t\b \b ˆ \rŒ \b €† \r\b\t\b \b ‡\b\nƒŒ\b† \b\f\f \t\b \b €“€ ˜\b\b™\f \t\b \b ‚ \f \fˆ\b† ”’ \b \t‘\b Ž‹„ \b‹Ž… ‹\t\b \b ‰\r” ˆ\b\b\t\b \b \tˆ \r€‚\t S A C O MM UN I T Y S ER VIC AWG O FFIC ER S Charles Fowler of Stillwater, O klahoma, has been named this year’s recipient of the L ou Fox Community Service A twenty years. He supported Stillwater High School with fund raisers, donated money and food. He has been a A huge supporter of O klahoma State U niversity, he provided shopping carts to help O S U students moving into the dorms! He was even recently honored at the O S U Homecoming P arade. as the local school board president and sponsored the annual T Home Cooking School in conjunction with O klahoma State U and the Stillwater N press. He supported the O klahoma 4-H Food Show, the Stillwater P ublic L ibrary Summer R eading program, the Junior Service L eague, the L Stillwater Medical Center, R andom A outh Shelter. A s a member of St. Francis Church, Charles has served on various committees and made donations to the preschool and youth groups. E very O S U home football game, Charles has made a habit of donating his parking lot to the church to use as a fund-raiser. For fty years, and until her passing, Charles’ wife, Jo A nn, joined him in supporting all of these important endeavors. Charles and Jo A nn were given the P ioneer A ward by the high school for their loving support of the Stillwater P ioneers while the City of Stillwater honored Charles and Jo A nn for forty years of community support by their induction into the Stillwater Hall of Fame. A a businessman, he has been a community asset and treasure, someone the community could always count on to ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES F inancial Statements—(Continued)(dollars in thousands unless otherwise indicated) (12) Employee Benefit Plans (continued) (14) Multi-employer Plans its union-represented employees. The risks of participating in a multi-employer plan are different from single-employer plans in the following a. Assets contributed to the multi-employer plan by one employer are used to provide benefits to employees of other participating b. If a participating employer stops contributing to the plan, the unfunded obligations of the plan are borne by the remaining paremployers. c. 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, 2013, is outlined in the table belowNumber” 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 2013 and 2012 is for the plan’s year-end at December 31, 2012 and December 31, 2011, 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 F IP/RP Status Pending/Implemented” column indicates plans for which a financial improvement plan ( F a rehabilitation plan (RP) is either pending or has been implemented. The last column lists the expiration date of the collective-bargaining F inally, there have been no significant changes that affect the comparability of 2013, 2012 and 2011 contributions. (13) Commitments and Contingent Liabilities bers (except for properties operated by the Company’s subsidiaries) for substantially the same lease terms and rental amounts. Rental $42.9, $41.2 and $40.1 in 2013, 2012 and 2011, respectively. Rents charged to general and administraoperating leases, other than supermarket properties, were (in millions) $3.8, $3.0 and $2.4 in 2013, 2012 and 2011 respectively. Operating lease rent expense, expected to be incurred over the next five years, is approximately $2.5 million per year. The Company is a guarantor of a line of credit issued to a member in the amount of $6.0 million. ultimate resolution of these actions will not have a material adverse effect on the Company’s consolidated financial statements. The Company also makes contributions to its defined contribution plans. The total expense for these plans amounted to (in milliand $3.8 in 2013, 2012 and 2011, respectively. The 2005 Non Qualified Deferred Compensation Plan is available for officers of the Company to elect, by the required deadlines year, to have a designated portion of their wages set aside for their own personal tax planning purposes, in a trust held by JP Morof election, the date for future distribution of wages to the participant is established, according to allowable parameters wit The Company was not listed in the plan’s F s consolidated financial statements were issued, the plan’s F orm 5500 was not available for the plan year ending in 2013.(15) Subsequent Events Subsequent events have been evaluated through March 7, 2014, which is the date the financial statements were available to be isno material events requiring recognition or disclosure. Expiration Date EIN and Pension Protection Act of Collective- Pension Pension Plan Zone Status F IP/RP Status Company Contributions Surcharge Bargaining F und Number 2013 2012 Implemented 2013 2012 2011 Imposed Agreements_________________________________________________________________________________________________________Central States, 36-6044243 Red Red Yes $12,762 $12,104 $11,944 No April 4, 2020Southeast and Plan 001Southwest AreasPension F undREPORT O F INDEPENDENT CERTI F IED PUBLIC ACCOUNTANTS We have audited the accompanying consolidated financial statements of Associated Wholesale Grocers, Inc. (a Kansas Corporation) Management’s responsibility for the financial statements 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 ments, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Associated Kansas City, Missouri ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES F inancial Statements—(Continued)(dollars in thousands unless otherwise indicated) ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES F inancial Statements—(Continued)(dollars in thousands unless otherwise indicated) Change in benefit obligation (PBO) 2013 2012 ____________________ ____________________ Benefit obligation at beginning of year ........................................... $ 151,488 $ 137,184 Service cost .............................................................. 11,983 11,946 Interest cost 6,159 6,426 Benefits paid .............................................................. (16,121) (10,202) Actuarial (gain)/loss ........................................................ (1,867) 6,134 ____________________ ____________________ Benefit obligation at end of year .............................................. $ 151,642 $ 151,488 ____________________ ____________________ ____________________ ____________________ ____________________ ____________________ Change in plan assets F air value of plan assets at beginning of year ..................................... $ 132,193 $ 108,017 return on plan assets 19,890 Employer contributions ...................................................... 16,731 22,513 Benefits paid .............................................................. (21,123) (10,202) ____________________ ____________________ F air value of plan assets at end of year .......................................... $ 147,691 $ 132,193 ____________________ ____________________ ____________________ ____________________ ____________________ ____________________ Funded status, end of year $ $ ____________________ ____________________ ____________________ ____________________ ____________________ ____________________ 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 $130,634 and $126,854 at December 28, 2013 and December 29, 2012, respectively. At December 28, 2013 and December 29, 2012, the fair value of the DB Plan assets exceeded the accumulated benefit obligation. The amounts recognized for the DB Plan in the Company's accumulated other comprehensive loss consisted of the following: (12) Employee Benefit Plans bargaining agreement provides for participation in plans sponsored by the Company. The Company sponsors a defined benefit pension participants for the fiscal years ended December 28, 2013, and December 29, 2012, 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 participants of the DB Plan. The Company provides no health care, life insurance, nor disability plans to former and inactive employees after The benefit obligation (which is the projected benefit obligation or “PBO”), fair value of plan assets, and funded status of ths DB Plan is as follows: As of December 28, 2013 and December 29, 2012, valuation allowances of $3,700 and $2,744, respectively, were required to reduce the deferred tax examinations by tax authorities for fiscal years ending December 26, 2009 and prior. The Company recognizes interest and penalties related to income tax deficiencies separately from the tax expense. As of December 28, 2013 and December 29, 2012, the Company had liabilities of $0 and $81, respectively, related to accrued interest and penalties for uncertain tax positions recorded on its balance sheet. 2013 2012 ____________________ _____________________ Prior service cost ............................................................ $ (1,139) $ (1,676) actuarial loss ............................................................ (6,920) (21,534) ____________________ _____________________ Total recognized in AOCI, before tax ............................................. $ (8,059) $ (23,210) ____________________ _____________________ Total recognized in AOCI, net of tax $ (4,956) $ (14,274) ____________________ _____________________ ____________________ _____________________ (11) Income Taxes (continued) The estimated future benefit payments to be paid from the DB Plan, which reflect expected future service, are as follows: DB Plan Benefits ________________________ Fiscal year 2014 ................................................................. $ 21,639 2015 ................................................................. 28,013 2016 ................................................................. 21,691 2017 ................................................................. 14,107 2018 17,462 ears 2019-2023 .......................................................... 75,953 ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES F inancial Statements—(Continued)(dollars in thousands unless otherwise indicated) The estimated prior service cost and net actuarial loss that will be amortized from accumulated other comprehensive income/lossperiodic benefit cost for the DB Plan over the next fiscal year are $500 and $3,000, 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: 2013 2012 _______________________ ________________________ Weighted-average assumptions used to determine benefit obligations: Discount rate 5.10% 4.25% of compensation increase ............................................... 3.00% 3.00% Weighted-average assumptions used to determine net periodic benefit cost: Discount rate 4.25% 4.75% of compensation increase 3.00% 3.50% return on plan assets ............................................... 7.50% 7.50% The fair value of the Company’s DB Plan assets at the end of the 2013 calendar year, by asset category, are as follows: Quoted Prices Significant Significant in Active Markets Observable Unobservable for Identical Assets Inputs InputsAsset Category Total (Level 1) (Level 2) (Level 3) _______________ _______________ _______________ _______________ ................................. $ 87,270 $ 87,270 $ ---- $ ---- .................................. 40,617 29,039 11,578 ----Other, including cash and cash equivalents ............ 13,781 1,462 ---- 12,319 _______________ _______________ _______________ _______________ Totals ........................................ $ 141,668 $ 117,771 $ 11,578 $ 12,319 _______________ _______________ _______________ _______________ _______________ _______________ _______________ _______________ Subsequent to the Company’s fiscal year end, certain benefit payments were made, which lower the fair value of assets from the amount Employee Benefit Plans (continued) Net periodic benefit expense for the DB Plan consisted of the following: 2013 2012 ________________________ ________________________ Service cost -- .................................. $ $ 11,946 Interest cost on projected benefit obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,159 6,426 Expected return on plan assets ................................................ (9,417) (7,991) Amortization of prior service cost 537 537 Amortization of net actuarial loss 6,520 11,886 Settlement loss 75 ---- ________________________ ________________________ Net periodic benefit expense $ 16,538 $ 22,804 ________________________ ________________________ ________________________ ________________________ The fair value of the DB Plan assets at the end of the 2012 calendar year, by asset category Quoted Prices Significant Significant in Active Markets Observable Unobservable for Identical Assets Inputs InputsAsset Category Total (Level 1) (Level 2) (Level 3) _______________ _______________ _______________ _______________ ................................. $ 78,792 $ 78,792 $ ---- $ ---- .................................. 33,196 15,837 17,359 ----Other, including cash and cash equivalents ............ 13,680 7,940 ---- 5,740 _______________ _______________ _______________ _______________ Totals ........................................ $ 125,668 $ 102,569 $ 17,359 $ _______________ _______________ _______________ _______________ _______________ _______________ _______________ _______________ The Company's investment policy re ects the nature of the DB Plan's funding obligations. The assets are invested to provide both income and growth of principal. This objective is pursued as a goal designed to provide required bene ts for participants without undue risk. It is expected that this objective can be achieved through a well-diversi ed asset portfolio. Investment managers are directed DB assets was determined based on expectations of future returns for the DB Plan's investments based on the target asset DB investments. The Company expects to contribute approximately $17.0 million to the DB Plan during 2014. ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES F inancial Statements—(Continued) (dollars in thousands unless otherwise indicated)(8) Allocated Earnings subordinate to the claims of all creditors of AWG. 0.1 million and $0.3 million as of December 28, 2013 and December 29, 2012, respectively. 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 transshareholder matters. The Board of Directors of the Company declared a 2-for-1 stock dividend effective March 22, 2009 for shareholders of record, whereby at $1,700 per share. Issuances and redemptions between March 18, 2012 and March 23, 2013 were made at 1,635 per share. Issuances and redemptions The changes in common stock for the fiscal years ended December 28, 2013 and December 29, 2012 were as follows: Total Class A Class B Common Stock Members ___________ ___________ ___________ ___________ Balances at December 31, 2011 Shares 9,015 18,265 27,280 601 Dollar V alue ...................................... $ 900 $ 1,825 $ 2,725 ___________ ___________ ___________ Issued Shares 480 __ 480 32 Dollar V alue ...................................... $ 48 $ __ $ 48 ___________ ___________ ___________ Redeemed Shares (660) (1,320) (1,980) (44) Dollar V alue ...................................... $ (66) $ (132) $ (198) ___________ ___________ ___________ Balances at December 29, 2012 Shares 8,835 16,945 25,780 589 Dollar V alue ...................................... $ 882 $ 1,693 $ 2,575 ___________ ___________ ___________ Issued Shares 825 44 869 55 Dollar V alue ...................................... $ 83 $ 4 $ 87 ___________ ___________ ___________ Redeemed Shares (615) (630) (1,245) (41) Dollar V alue ...................................... $ (62) $ (63) $ (125) ___________ ___________ ___________ Balances at December 28, 2013 Shares 9,045 16,359 25,404 603 Dollar V alue ...................................... $ 903 $ 1,634 $ 2,537 ___________ ___________ ___________ ___________ ___________ ___________ Accumulated Other Comprehensive Loss Changes in accumulated other comprehensive loss attributable to the Company for the fiscal years ended December 28, 2013 and Dewere as follows: 2013 2012 ____________________ _____________________ Balances, beginning of year ...................................................... $ (14,274) $ (20,524) Change in funded status of pension plan, net of $5,833 in taxes and $3,913 in taxes ...... 9,318 6,250 ____________________ _____________________ Balances, end of year ......................................................... $ (4,956) $ (14,274) ____________________ _____________________ ____________________ _____________________ The effects of temporary differences and other items that give rise to deferred income tax assets and liabilities are presented 2013 2012 ____________________ ____________________ Deferred income tax assets: Gain on sale of subsidiary .................................................... $ 4,476 $ 2,661 Pension ................................................................... 1,502 7,419 Insurance ................................................................. 3,392 2,845 Compensation 8,679 7,752 Accounts receivable ......................................................... 2,629 2,062 Inventory 496 733 Contribution carryovers . . . ................................................... 2,792 2,406 State credit carryover . . . ..................................................... 3,016 3,079 Other . . . ................................................................. 1,842 2,060 ____________________ ____________________ Deferred income tax assets. . . ............................................... 28,824 31,017 V aluation allowance . . . (3,700) ____________________ ____________________ Total deferred income tax assets ............................................. $ 25,124 $ 28,273 ____________________ ____________________ ____________________ ____________________ ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES F inancial Statements—(Continued) (dollars in thousands unless otherwise indicated) 2013 2012 2011 ____________ ____________ ____________ F ederal: Current ........................................................ $ 7,651 $ 6,863 $ 4,348 Deferred ...................................................... (4,254) (3,085) 1,867 ____________ ____________ ____________ otal federal .................................................... $ 3,397 $ 3,778 $ 6,215 ____________ ____________ ____________ State: Current ........................................................ $ 2,004 $ 963 $ 2,294 Deferred ...................................................... 851 (2,040) (1,681) ____________ ____________ ____________ otal state ..................................................... $ 2,855 $ (1,077) $ 613 ____________ ____________ ____________ Total income tax ................................................... $ 6,252 $ 2,701 $ 6,828 ____________ ____________ ____________ ____________ ____________ (11) Income Taxes The significant components of income tax expense are summarized as follows: (10) Derivative Financial Instruments and Hedging Activities The Company’s use of derivative financial instruments is limited to interest rate swaps entered into with financial institutions. The objecis to reduce AWG’s exposure to interest rate fluctuations (rate risk) for a portion of its variable rate bank debt and to lower overall borrowing costs. Reset dates and the floating rate indices on the swaps match those of the underlying bank debt. Accordingly, any change in market value The Company accounts for an interest rate swap as a cash flow hedge and accordingly, gains and losses on an interest rate swap (dependent the movement in interest rates) are deferred in a component of equity (accumulated other comprehensive income or loss - “AOCI”) to the Changes in noncontrolling interest for the years ended December 28, 2013 and December 29, 2012, were as follows: 2013 2012 ____________________ _____________________ Balances, beginning of year ...................................................... $ (2,025) $ 126 Income (loss) attributable to noncontrolling interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,554 (2,151) ____________________ _____________________ Balances, end of year ......................................................... $ 7,529 $ (2,025) ____________________ _____________________ ____________________ _____________________ (9) Equity (continued) Deferred income tax liabilities: F ixed assets ............................................................... $ 10,004 $ 10,519 expenses . . . ........................................................ 1,958 1,934 . . . ................................................................. 696 924 ____________________ ____________________ Total deferred income tax liabilities .......................................... $ 12,658 $ 13,377 ____________________ ____________________ ____________________ ____________________ Net deferred income tax assets .............................................. $ 12,466 $ 14,896 ____________________ ____________________ ____________________ ____________________ ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES F inancial Statements—(Continued)(dollars in thousands unless otherwise indicated)(2) Fair Value Measurements (continued) be disposed of mber 29, 2012, and December 31, 2011, the Company recorded (in millions) $2.0, $0, and $0.2 respectively, property, equipment and software impairment charges, which were measured at fair value using Level 3 inputs. The impairment charges are a component of the general and administrative expenses in the con The carrying amounts of the Company’s long-term debt reported on the consolidated balance sheets approximate fair value since their interest rates derivatives and whether they qualify for hedge accounting. Derivatives that are not hedges must be recorded at fair value through earnings. There (3) Intangible Assets for intangible assets was $2.1 million in 2013, $1.9 million in 2012 and $1.5 million in 2011. Amortization expense for the next five fiscal years is estimated to be as follows (in millions): 2014 - $2.1; 2015 - $2.0; 2016 - $2.0; 2017 - $1.6; and 2018 - $1.1. (4) Acquisitions, Divestitures and Certain Transactions with Members Oklahoma (72), Texas (4) and Kansas (1) at the time of the transaction. The purchaser, ESOP (see V Entity in note 1), bought 100% of the controlling stock of ancing in a series of loan Tranche A d an he loan balance outstanding at December 28, 2013 and December 29, 2012 was (in millions) $49.4 and $54.7 respectively. Tranche B .25% all-in interest-only payment until the earlier of: (i) December 26, 2016, or (ii) the repayment of the Tranche-A obligation. Estimated ayment 0 respectively. Tranche C ber 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 ormance stated period beyond the 5 million to manage its seasonal borrowing needs at a borrowing rate of Prime, which was drawn at $4.5 million at December 29, 2012 and is currently drawn at $2.5 million at F CW multi-employer pension plans. The Company had loaned HAC an additional V s consolidated financial statements. Therefore, the rimary beneficiary of ESOP. In September 2013, the U.S. Bankruptcy Court for the Northern District of Alabama approved the Company’s stalking horse bid for the purchase of F 2013. The aggregate purchase price paid of $24.5 million included $16.1 million of fixtures and equipment, $8.2 million of inventory and a nominal were immediately t any of the stores prior to both outright buyer and aggregator of 27 stores for 8 members and 7 stores for third parties not currently purchasing goods from the Company. Purchase price loan financing was provided by the Company to some of the members for a total of $14.2 million, while the Company, some members and the 2 third parties provided ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES F inancial Statements—(Continued)(dollars in thousands unless otherwise indicated)(7) Long-term Debt December 29, 2012, the outstanding principal amount of this loan was (in millions) $5.5 and $5.6, respectively. 2013, another amendment increased the credit facility to $100 million. Total borrowings and outstanding letters of credit were $39.6 million V ariable interest rates are based on the F ed F and $42.2 million, respectively, available for borrowing under this agreement. bond loan (see Restricted Cash in note 1). At December 29, 2012, total borrowings and outstanding letters of credit were $161.9 million, which included $75 million of the aforementioned bond loan. V interest rates are based on the London Interbank Borrowing Rate and ranged from 0.80% to 1.21% and $113.1 million, respectively, available for borrowing under this agreement. The Company’s credit facilities share certain financial covenants related to cash flow leverage, minimum tangible net worth andCompany was in compliance with all covenants at December 28, 2013.(6) Property and Equipment Property and equipment are summarized as follows: 2013 2012 ____________________ _____________________ Land ...................................................................... $ 45,438 $ 36,569 and leasehold improvements ........................................... 344,363 298,302 Equipment .................................................................. 307,400 276,142 Construction in progress and other 6,038 55,111 ____________________ _____________________ $ 703,239 $ 666,124 accumulated depreciation ............................................... (323,481) (290,964) ____________________ _____________________ Property and equipment, net ................................................... $ 379,758 $ 375,160 ____________________ _____________________ ____________________ _____________________ Depreciation expense incurred in 2013, 2012, and 2011 was (in millions) $40.0, $36.0 and $37.4, respectively. In 2013, 2012 and 2011, the Companyan aggregate total of (in millions) $0.1, $0.2 and $0.1, respectively, of capitalized construction period interest. (4) Acquisitions, Divestitures and Certain Transactions with Members (continued)WG, purchased a supermarket property in Iowa from Dahl’s Holdings I, LLC (“Dahl’s”) and assumed a fixed-term loan associated with the property. The principal amount of the loan was $5.6 million (see note 7). Concurrent with F oods, Inc., an affiliate of Dahl’s. In August 2011, HAC, Inc., a subsidiary of the Company, purchased equipment and inventory for three supermarkets located in Texas from North Texas Supersave, LP and one supermarket located in Texas from Weatherford Super Save, Inc. The aggregate cash purchase price for all four stores was $4.3 Patronage Refund Certificates and Deposits 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 on patronage certificates, member deposits, and member savings in 2013, 2012 and 2011 was $0.2 million, $1.5 million and $2.9 million, respectively. ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES F inancial Statements(dollars in thousands unless otherwise indicated)(1) Summary of Significant Accounting Policies General 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 expenses during the reporting period. Actual results may differ from these estimates. The Company’s fiscal year ends on the last Saturday in December. F iscal 2011 included 53 weeks of operations. F iscal 2012 and 2013 both included 52 weeks of operations. Variable Interest Entity F inancial Accounting Standards Board (“ F ASB”) Accounting Standards Codification Topic 810, “Consolidations” (“ASC 810”), the V IE”) in which the Company has a controlling financial interest and, therefore, is the V 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 V IE that most significantly affect the V IE’s economic performance and the obligation to absorb losses of the V IE that could potentially be significant to the V IE or the right to receive benefits from the V IE that could potentially be significant to the V IE. The Company has determined that HAC, Inc. Employee Stock Ownership Plan and Trust (“ESOP”) is a V IE 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 28, 2013 and December 29, 2012. 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 acquisition/expansion of supermarket properties. Trade and notes receivables are generally secured (see note 5) and the Company establishes an allowance for doubtful accounts based on collectibility. The Company’s lending rate is generally one percent over F $1.5 million and $2.0 million, respectively. Interest income is recorded when earned. Cash Equivalents credit and debit card transactions with settlement terms of less than five days are also included. The Company maintains cash balances at major F ederal Deposit Insurance Corporation coverage limit. Restricted Cash a designated borrowing under the five-year Revolving Credit Agreement (see note 7). The proceeds from the bond issuance have been used towards the construction of the Company’s new distribution center in Louisiana. At December 29, 2012, the unused proceeds were recorded in Restricted Cash in the Inventories Merchandise is valued at the lower of cost or market. Cost for 71% and 69% of inventories in 2013 and 2012, respectively, is determined using F O) method. Cost for perishables, general merchandise, health care and retail store inventories is determined using the first-in, first-out ( F I F O) method. Had all products been valued at F I F and $107.4 million at December 29, 2012. Sales and Cost of Goods Sold related to selling products to customers are recorded as a reduction in sales. F and upfront monies received from vendors are recorded as a reduction of the cost of goods sold in the period in ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES F inancial Statements—(Continued)(dollars in thousands unless otherwise indicated)(1) Summary of Significant Accounting Policies (continued)Property and Equipment Property and equipment are stated at cost and include assets held for sale of $0.2 million at December 28, 2013 and December 29. Expenditures for improvements, which significantly increase property lives, are capitalized. Interest costs incurred during the Recently Adopted and Recently Issued Authoritative Accounting Standards On January 16, 2014, the F ASB issued Accounting Standard Update (ASU) No. 2014-02, Intangibles - Goodwill and Other (Topic 350): Accounting for Goodwill. This ASU permits a private company to subsequently amortize goodwill on a straight-line basis over a period of ten years, or l F ASB. Under the goodwill accounting alternative, goodwill should be tested for impairment when a triggering event occurs that indicates that the fair value of a company (or a reporting unit) may be beloll for impairment at either the company level or the reporting unit level. 2015. Early application is permitted, including application to any period for which the entity’s annual or interim financial statements have not been made Investments The Company has all investments stated at cost, fair value is not estimable or practical to estimate. Patronage -end patronage. In 2013 and 2012, an additional $7.8 million and $8.1 million, respectively, was authorized to be retained of interest income generated from financing the sale of the Company’s retail subsidiary (see note 4). 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 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. distributions from cooperative operations are deductible for income tax purposes. Deferred income taxes result primarily from differences in The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than F nt tax authority. Fair Value Measurements F tion between market 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 -tions that market participants would use in valuation. F s financial instruments, including cash and cash equivalents, accounts and notes receivables and accounts payable; the 2013 2012 ____________________ _____________________Allocated Balances at beginning of year ................................................... $ 284,771 $ 222,709 certificates (note 8): Issued ............................................................ 69,690 63,920 Redeemed ......................................................... (49,223) (1,426) B certificates: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ------ 11 Redeemed ......................................................... (204) (542) ____________________ _____________________ Balances at end of year ........................................................ $ 305,034 $ 284,771 ____________________ _____________________Unallocated Balances at beginning of year ................................................... $ 82,443 $ 71,014 income. . ............................................................ 192,490 175,949 Net (income) loss attributable to noncontrolling interest .......................... (9,554) 2,151 allocated earnings (note 8): Patronage certificates ............................................... (69,690) (63,920) Class B .................................................. ------ (110) Less cash portion of current year patronage .................................... (100,643) Redemption and retirement of common stock ................................... (765) (1,998) ____________________ _____________________ Balances at end of year ........................................................ $ 90,390 $ 82,443 ____________________ _____________________ Total retained earnings .............................................. $ 395,424 $ 367,214 ____________________ _____________________ ____________________ ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES CONSOLIDATED STA O F RETAINED EARNINGSF ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES CONSOLIDATED STA O F CASH F LOWS F iscal years ended December 28, 2013, December 29, 2012 and December 31, 2011(dollars in thousands) 2013 2012 2011 ____________ ____________ ____________Cash flows from operating activities: Net income ...................................................... $ 192,490 $ 175,949 $ 169,527Adjustments to reconcile net income to net cash provided by operating activities: and amortization ...................................... 42,275 37,946 38,746 of assets ............................................. 2,000 — 224 income taxes ............................................ 1,938 (72) (2,419) Gain on disposition of property and equipment. . . . . . . . . . . . . . . . . . . . . . . . . (2,076) (2,333) (1,779) Changes in assets and liabilities, net of effects of acquisitions: Receivables ................................................. (26,538) (5,074) 5,364 Inventories (78,372) 2,007 (33,077) Other assets (23,965) (22,045) (1,245) Accounts payable, accrued expenses and other liabilities 98,880 (4) 16,708 ____________ ____________ _____ cash provided by operating activities ....................... 206,632 186,374 192,049 ____________ ____________ _____ Reductions in (additions to) restricted cash .............................. 18,024 44,209 (62,233) Additions to intangibles ............................................. (593) (2,188) (255) Proceeds from investments .......................................... — 200 400 Loans to members (17,884) (5,355) (11,717) Repayment of loans by members 15,896 22,550 12,400 Additions to property and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (69,891) (104,182) (54,322) Proceeds from sale of property and equipment ........................... 28,782 2,729 2,861 Acquisition of assets, net of cash acquired (note 4) ....................... (6,568) — (4,312) ____________ ____________ _____ cash used in investing activities ........................... (32,234) (42,037) (117,178) ____________ ____________ _____ Year ...................................... (100,643) (93,382) (86,533) Redemption of prior year's patronage refund certificates ................... (49,427) (41,446) (33,413) Issuance of common stock 1,461 774 859 Redemption and retirement of common stock ........................... (2,048) (3,129) (1,790) Net borrowing (repayments) under credit facilities ........................ (47,186) (5,617) 44,850 Subsidiary acquisition of shareholder patronage — — (4,613) Net proceeds (repayments) of member deposits .......................... 1,537 (2,429) 3,527 ____________ ____________ _____ cash used in financing activities ........................... (196,306) (145,229) (77,113) ____________ ____________ _____ ................................. (21,908) (892) (2,242) .............................. 81,294 82,186 84,428 ____________ ____________ _____ ................................... $ 59,386 $ 81,294 $ 82,186 ____________ ____________ _____ ____________ ____________ _____ Cash paid for interest, net of amount capitalized .................... $ 3,263 $ 6,360 $ 8,473 ____________ ____________ _____ ____________ ____________ _____ Cash paid for income taxes ...................................... $ 5,178 $ 5,324 $ 7,774 ____________ ____________ _____ ____________ ____________ _____ See accompanying notes to consolidated financial statements. ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES CONSOLIDATED S December 28, 2013 and December 29, 2012(dollars in thousands) ASSETS 2013 2012 ________________ ________________ Current Assets: Cash and cash equivalents ......................................................... $ 59,386 $ 81,294 Restricted cash .................................................................. ------- 18,024 Receivables, net of allowance for doubtful accounts of $2,647 in 2013 and in 2012 225,631 199,093 Notes receivable from members, current maturities, net of allowance for doubtful accounts of $0 in 2013 and $0 in 2012 6,961 7,130 Inventories 457,110 375,891 Deferred income taxes (note 11) 17,713 15,425 Other current assets .............................................................. 18,631 15,886 ________________ ________________ Total current assets 785,432 712,743 Notes receivable from members, maturing after one year, net of allowance for doubtful accounts of $4,487 in 2013 and $3,073 in 2012 22,627 20,470 Property and equipment, net (note 6) 379,758 375,160 Investments ........................................................................ 677 677 Intangibles, net of accumulated amortization of $15,029 in 2013 and $12,966 in 2012 (note 3) ........................................................... 9,815 11,052 Other assets ........................................................................ 51,588 30,272 ________________ ________________ Total assets ............................................................. $ 1,249,897 $ 1,150,374 ________________ ________________ ________________ ________________ LIABILITIES AND EQUITYCurrent Liabilities: Accounts payable ................................................................ $ 426,268 $ 348,979 Cash portion of current year patronage ............................................... 104,534 100,643 Member deposits ................................................................ 10,846 9,309 Long-term debt maturing within one year ............................................. 134 125 Accrued expenses and other current liabilities ......................................... 93,114 81,375 ________________ ________________ Total current liabilities 634,896 540,431Long-term debt maturing after one year (note 7) ............................................ 148,913 196,108Deferred income taxes (note 11) 5,247 1,021Deferred income and other liabilities ..................................................... 47,728 46,961 ________________ ________________ Total liabilities 836,784 784,521 ________________ ________________Commitments and contingent liabilities (note 13)Equity: Common stock, $100 par value: Class A, voting; 35,000 shares authorized; 9,045 and 8,835 shares in 2013 and 2012 903 882 Class B, nonvoting; 150,000 shares authorized; 16,359 and 16,945 shares issued in 2013 and 2012. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,634 1,693 Additional paid-in capital .......................................................... 12,579 12,363 Retained earnings 395,424 367,214 Accumulated other comprehensive loss (notes 9 and 12) ................................. (4,956) (14,274) ________________ ________________ Total members’ equity 405,584 367,878 Noncontrolling interest ........................................................... 7,529 (2,025) ________________ ________________ Total equity 413,113 365,853 ________________ ________________ Total liabilities and equity ........................................... $ 1,249,897 $ 1,150,374 ________________ ________________ ________________ ________________See accompanying notes to consolidated financial statements. 2013 2012 2011 __________________ __________________ __________________Net sales ............................................................ $ 8,380,214 $ 7,852,006 $ 7,766,807Cost of goods sold 7,715,466 7,218,733 7,142,260 __________________ __________________ ___________________ Gross profit ................................................... 664,748 633,273 624,547General and administrative expenses ................................... 463,342 456,760 ,488 __________________ __________________ ___________________ Operating income .............................................. 201,406 176,513 180,059Other income (expenses): Interest income (note 1) ............................................. 1,360 789 2,571 Interest expense (note 7) (3,255) (4,721) (7,038) , net (769) 1,069 763 __________________ __________________ ___________________Income before income taxes 198,742 178,650 176,355Income taxes (note 11) .................................................. 6,252 2,701 6,828 __________________ __________________ ___________________ Net income 192,490 175,949 169,527Other comprehensive income (loss) Change in funded status of pension plan, net of taxes 9,318 6,250 (5,060) Change in cash flow hedge, net of taxes ------ 919 __________________ __________________ ___________________Comprehensive income ................................................. $ 201,808 $ 182,199 $ 165,386 __________________ __________________ ___________________ __________________ __________________ ___________________Amounts attributable to noncontrolling interest Comprehensive income ......................................... $ 201,808 $ 182,199 $ 165,386 Comprehensive (income) loss attributable to noncontrolling interest (9,554) 2,151 (126) __________________ __________________ ___________________ Comprehensive income attributable to AWG, Inc. and subsidiaries .. $ 192,254 $ 184,350 $ 165,260 __________________ __________________ ___________________ __________________ __________________ ___________________ Net income .................................................. $ 192,490 $ 175,949 $ 169,527 Net (income) loss attributable to noncontrolling interest .......... (9,554) 2,151 (126) __________________ __________________ ___________________ Net income attributable to AWG, Inc. and subsidiaries ........... $ 182,936 $ 178,100 $ 169,401 __________________ __________________ ___________________ __________________ __________________ ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES CONSOLIDATED STA O F OPERATIONS AND COMPREHENSI V E INCOMEF iscal years ended December 28, 2013, December 29, 2012, and December 31, 2011(dollars in thousands)See accompanying notes to consolidated financial statements. T he Valu Merchandisers Company was founded by the Board of Directors on A WG opened a new wholly-owned subsidiary and began to ship health and beauty care and general merchandise direct from T hat mission has remained: to provide our retailers with a comprehensive assortment of products, procured at the lowest cost of goods, with the lowest O time, VMC’s market-leading programs that originally began with Valu Merchandisers has expanded its service offerings to include category A , health and beauty, plus natural and organic food solutions. T hese health and wellness solutions have been designed to ful ll retailers’ comprehensive assortment requirements, with integrated merchandising, T he VMC P industry. L everaging scale, delivering growth solutions and providing expertise to retailers has driven overall program success. R etail sales growth and changing consumer needs have propelled the VMC program into the future. O \b V V ALU M ER CH AN DISER S V V ALU M ER CH AN DISER S VMC meets the retailers needs Health, Beauty and P ersonal Care, combined with our expanding N atural, Specialty & O rganic Foods program provides R ETA I L SOLUT I ON A WG is focused on being “ N with the needs of our retailers and nding solutions for the business challenges they face everyday. N touch is a suite of services offered to A WG member retailers, providing solutions in diverse areas. T oday, N touch covers the important areas of P ricing, Data Security, P rint Solutions, A d P lanning and Scan programs. P R ICI N G N pricing was launched in 2009, addressing A WG members’ T his application supports A visibility, item movement, deal information and provides P R I NT A WG has partnered with P our members on retail print T resource provides printing of tags, shelf markers and ad signs R etailers have the ability to go online to view, edit and custom-order their in-store signage. O ne additional bene t is the option to have a dedicated printer installed in-store for everyday use. A s part of the in-store solution, the printer and toner are provided at no cost; stores pay for tag or sign inventory and a minimal click charge.SA F ET YN ET Safety N important issue of data security. T his P CI ( P customer’s credit card information. Vendorsafe also offers a security guarantee through T rustVault against data breach. Don’ T arget” of a data breach! AD P LANN I N G In 2013 A WG searched for a new ad-planning solution to replace the outdated technology then being used. A WG partnered with A ptaris to ful ll that need. T new multifunctional ad-planning system incorporates many previously T he ad planner will not only build an ad or TPR ( T emporary P rice R program, ad layout, ad calendar and data mining features. It began AD S C AN A s part of the N touch ad-planning program, A WG has added this additional bene t in 2014. R etailers using the program are now able to eliminate handling the paper scan process. A WG has partnered with R DS/DSI, providing the ability to process all scans electronically through the ad program. T his will enable stores to reduce the amount of time and resources needed to process and Buishiug Prsfits TsheyAsssgietlh Wosslsesl GrsglrsBuishiug Prsfits TsheyAsssgietlh Wosslsesl Grsglrs ntouch SafetyNET Associated Wholesale Grocers \r \r n TOU CH n TOU CH Houchens in Bowling Green, Kentucky, an employee-owned companyearned this year’s “ O utstanding Merchandising E vent A and execution of their “Fall into Savings” campaign held in O in their A concept stores. L everaging the A WG Super Sale promotion, which was extended to similar IG A branded merchandise, Houchens loaded their stores with great buys at great prices. Store displays were loaded with IG A grocery products with great in-store signage and aggressive advertising support. By branding this store IG A , Houchens’ overall image in pricing, quality and service was enhanced while capitalizing on that “Hometown” feel. T hey conducted store planning meetings to get their managers excited about the event. T hey invested margin to drive customers into their stores and expanded their print ads. Merchandising planners were developed and supported with ads, end cap displays, dump bins, and other creative displays. T hey cross-merchandised products with shelf-extenders and in the perimeter departments throughout the stores. Dump bins were used to showcase product in-aisle and a large “W O W” display greeted shoppers as they entered the store. O nce again Houchens IG A proved that aggressive advertised pricing on the right items brings customer traf c in the store. R average sale per customer. T year’s event was a huge success in dollar and case growth percent over last year. T he A WG A ward for “Best Marketing Campaign” was earned by Dale T rahan‘s P iggly Wiggly in R ayne, L ouisiana, located in an area of south L ouisiana called A cadiana, where the Cajun and Creole cultures are alive and well. L ocal is more than a catch phrase in A cadiana, it’s a “Statement of P ride”. L ike most things in L ouisiana, food serves as the center of family and friends’ gatherings. L ocal folks not only have their own dialect but they have their own local taste for such favorites as pickled okra, Creole tomatoes, sassafras, T he store celebrated important occasions using proven techniques such as massive end caps to merchandise Dale T rahan’s landmark achievement was with an ongoing marketing P ride”, complete with special in-store signage. T followed the ever-evolving harvest calendar and corresponding festivals in south Cajun Country, shifting from Mardi Gras early in the year to Dale’s motto is “give the people what they want and give them plenty of it”. R ayne, LA E IM M ER CH AN DISI N GE V T E IM M AR K ET I N G C A M A IG N Ramey’sDahl’s H omelandOklahoma City, OKCash S Tahlequah, OK S onsMobile, ALMoser’s F oodsMexico, MO S averAbilene, TXWarren, ARCash S averMemphis, TNApple Market Rogersville, MO F oodsElizabethtown, KY H T he “ E xcellence in Deli Merchandising A ward” was earned by Jim Brown’s A pple Market in Watonga, O out to update the delicatessen and establish that department as the signature Watonga is home to the annual Watonga Cheese and Wine Festival of which A pple Market was a lead sponsor. By supplying samples for the two-day Store-made smoked ribs and brisket have always been customer favorites. A pple Market used a Southern P ride smoker with Best Choice hickory chips to get their special signature ribs and brisket to Watonga dinner tables on a area created a restaurant atmosphere that diverted many customers from local Superior customer service with smiling, helpful employees played a major role in building the deli’s great reputation. A pple Market’s numbersingle party tray or a fully-catered event for hundreds of guests. Watongans responded by making Jim Brown’s A pple Market deli the premier destination for convenience, great service and great food! Gary’s Foods in Mt. Vernon, Iowa, owned by Denny Dietrich, has earned the E xcellence in Bakery Merchandising A made their store the destination spot for sweet treats in Mt. Vernon. Fresh- A s the exclusive provider of gourmet pies baked in nearby Cedar R Gary’s sold six hundred pies per week during the holidays. Some customers even drove over forty- ve miles to pay $27.99 for an eight-inch creation from Bakery items were cross-merchandised throughout the store. For example, the meat department promoted fresh-baked buns with a sign that read, “ A Home-Made Hamburger, Hot Dog or Brat Deserves a Home-Made Bun.” Seasonal selling events were another secret ingredient in their success. During strawberry season, 80 strawberry cakes and 96 strawberry pies were A feet long started summer peach season; Gary’s sold 180 sheet cakes in four Watonga, O Mt. Vernon, I A E IM E XC ELLEN C E I N D EL I M ER CH AN DISI N G E IM E XC ELLEN C E I N B A K ER Y M ER CH AN DISI N G Jerry Lee’s H en H Prairie Village, KS F ood GiantLittle Rock, AR H LIshman’s F Reasor’sCooke’s T he “ E xcellence in P roduce Merchandising A Clair, Missouri, Country Mart owned by R Hensley and his sons, Greg and T im. R ay and the store team focus on making sales happen. A n aggressive approach using web blasts and creating huge single-item displays gave customers that “wow” factor as they entered the store. T sales, sidewalk sales and multiple cross-merchandising opportunities throughout the year. A nother tactic was to aggressively promote the meat department. Whenever they saw one of the world-famous “massive meat sales” on the calendar, they cross-merchandised to get plenty of tie-ins with fresh produce displays and When the summer selling season arrived, fresh-cut watermelons, cantaloupe and other varieties of cut fruit were showcased throughout the produce T he emphasis on cut fruit not only increased sales and customer count, but also increased overall department pro t. With the arrival of spring, their annual garden center exploded with color, T he sidewalk out front was a great opportunity to sell more produce! A lbertsons in O dessa, T exas has earned the “ E xcellence in Floral Merchandising A ward.” T heir talented in-store design team worked daily to ensure the department was lled with unique signature oral arrangements for sales. T attention to design, quality and fresh product have made this department a destination point for West T exas shoppers. T his A lbertsons oral department has specialized in merchandising to the large local Hispanic community. T his cultural group traditionally places great emphasis on family-centered celebrations throughout the year: T , Holy Week, A Saints Day, A Souls Day, Flag Day, and Cinco de Mayo are A lbertsons created a merchandising blueprint to drive oral sales. A lbertsons of O has built quite a reputation for being the place to go for oral designs for quinceanera celebrations, which recognize a young woman’s 15th birthday, as well as multiple religious holiday observances throughout the year. T oral team actively pursued corporate oral orders from major employers O alentine’s Day, E aster, T events, impulse sales or special orders, this store team met every Saint Clair, M OO dessa, T X E IM E XC ELLEN C E I N PRO D U C EM ER CH AN DISI N G E IM E XC ELLEN C E I N F LORALM ER CH AN DISI N G F Century, FL H aysJonesboro, AR H Russ’s MarketReasor’sBixby, OK T he “ E xcellence in Meat Merchandising A ward” was earned by Cannata’s L ouisiana. Cannata’s Market, known for outstanding variety and commitment to freshness throughout its meat department, has remained a destination point for southern L ouisianans looking for great-tasting fare. Great-looking, full-colored cuts with consistent trim speci cations are s on-site meat cutters. For shoppers in a hurry, Cannata’solutions, plus value-added specialty items such as Cannata’s own store-made sausage, boudin and regional Cajun favorites. P in southern L s to deliver top-quality ingredients. Doing just that has Successful merchandising programs include a xed-weight, ve-dollar steak program, big bundle-pack promotions and multi-pack “ P . Cannata’s meat department has become their signature for excellence in a very competitive R s, an employee-owned company in Bixby, O klahoma, has earned the “Seafood Merchandising A ward.” T hat’s quite an achievement for a location so far from the ocean! R easor’s started by using U SD A -licensed suppliers who could consistently offer fresh, in-season seafood in promotable quantities with A ll product is inspected on arrival to ensure it meets R then it’s carefully stored at the correct temperature. R display is truly larger-than-life, featuring an attention-getting shing boat. T show off the products, with plenty of attention-grabbing signage to help Customer favorites include R easor’s signature stuffed salmon, sole and tilapia, ready-to-grill seafood kabobs, crab cakes and salmon patties. A offerings are prepared fresh daily. O course, a knowledgeable sales shoppers, is the nal key ingredient to their seafood success. A dditionally, R s offers regular cooking demonstrations showcasing their seafood and LA Bixby , O K E IM E XC ELLEN C E I N M EAT ER CH AN DISI N G E IM E XC ELLEN C E I N S EA F OO D M ER CH AN DISI N G C O- WI NNE R : V owell’s Cash S averMeridian, MS Price ChopperKansas City, MO E l RanchoOdessa, TXBig S University City, MO V Rouse’sWarsaw, MO V Cash Saver in Searcy, A rkansas, owned by Bill & Wally O rr, earned the award for “ E xcellence in A WG Brands Merchandising” through their creative use of the A lways Save and Best Choice labels to promote a low-price, high-quality image throughout this recently converted store. T he low price image was obvious to customers as soon as they entered the store: it was impossible to miss the 32-foot A all of Values! T o further promote their low price image, the majority of end caps and wing A lways Save products, and 70% of the 140 merchandising bins throughout the store featured A WG Brands. A WG brand emphasis went well beyond the grocery department; cross- merchandised private label products promoted value at every turn. Best Choice/ A lways Save pallets, bins and shippers were prominently displayed throughout all the perishable departments. Since its conversion, this Cash Saver has enjoyed record sales, with much of its success attributed to the emphasis on promoting A Wally O rr believe A WG Brands offer “the right products at the right price,” giving them the strategy to compete against anyone! T he “ E xcellence in Grocery Merchandising A ward” was earned by Woods T oods family, who has operated stores for decades throughout was taken in the frozen department with an outstanding T he dairy department featured fresh, trendy items including a wide selection of popular Greek yogurts, U wines for the most discriminating connoisseurs. L ocal O zark items are also featured throughout the store to support local companies wherever P , when the late Don Woods, Sr., patriarch, remarked, “I never thought we would ever have a store like this.” T he residents of the L ake of the O Searcy, AR Sunrise Beach, M O E IM E XC ELLEN C E I N A WG BRAN DS M ER CH AN DISI N G E IM E XC ELLEN C E I N G RO C ER YM ER CH AN DISI N G S ullivan’s S Tulsa, OKMuncy’s F Mizer’s E l RanchoFt. Worth, TX F ood GiantMedina, TNCrestMidwest City, OK F N amed “Most O utstanding P rivate L abel” among all retail outlets in the U nited States, A WG Brands received this honor from Private Label Magazine, a leading national private label publication. Featuring Best Choice, A lways Save, Superior Selections, IG A and Clearly O rganic lines, A their outstanding quality, selection, pricing, promotional programs and customer T he primary focus of A WG Brands remained, to deliver high-quality, consistent T his year, A WG Brands marked its tenth consecutive year of record sales with $1.15 billion, a 4% increase over prior year sales. Store brand case sales A WG’s distribution centers. T he Best Choice and Clearly O rganic lines began a multi-year packaging conversion and design update program, based on consumer input. “Facts U p Front” was added to the fronts of all packaging to better inform shoppers of O ur expert eld staff of 55 representatives assisted stores throughout the entire trade area, helping to maximize sales and pro ts. O ur representatives were constantly communicating with our members to implement category initiatives, Customers wanting healthier food options and more transparency in origin, processing and growing conditions helped create the launch of A WG’s Clearly O rganic line in 2008. T oday’s U alone total over $32 billion dollars annually, with a projected growth rate of over 10% per year. For a product to be labeled “organic”, speci c requirements must be met and maintained during growth and processing. Growers may not use synthetic pesticides/herbicides, genetically bioengineered seeds, petroleum- or sludge-based fertilizers, plus the land must be maintained chemical-free for a period of time before it can O ver the past few years, consumers have become concerned over genetically modi ed organisms (GM O . However, the Food and Drug A has determined that the presence of GM O provide no health risk to the consumer. Clearly O rganic makes choosing products easier than ever by offering a wide variety of certi ed organic options throughout all departments. T items and focus on newer, replacement items more in demand by shoppers. L uniformity, and provides an easy way for shoppers to identify our brand. It also communicates the “back-to-nature” feeling that connects with local products. Clearly O provides easy-to-read ingredient statements, U SD A organically certi ed. T his gives A WG customers a Clearly O \n \t \b AWG B RAN DS AWG B RAN DS Pantone 117Pantone BlackSpot Color LogoC-0, M-18,Y-100, B-15Process BlackProcess Color LogoPantone BlackScreenedPantone BlackOne Color w/Screen LogoPantone BlackOne Color LogoAWG Best Choice Food Products LogoAWG Best Choice Logo \r \f € € ›\t’\b “Get the best-quality produce for A WG members at the right price!” T hat’s the goal of A WG’s P roduce Field P rocurement program, established in 2006. T his innovative program eliminated the middleman and established direct contact between \r \f \r \f A WG and our produce suppliers. O produce experts are in the of ce one day getting T oday’s A WG suppliers must meet or exceed increasingly stringent food safety regulations and inspections. T he A not working with industry speci cations like Safe Quality Food (SQF), you won’t be that we aren’t selling today?” T out new and unique items to sweet jumbo citrus variety. O ur visits with industry leaders like Dole, Sage, Sunkist, N aturipe, O cean Mist and many other growers and processors help A industry trends. We get to Why do we take the time to do all this? It’s vital that we growers and shippers, then pass T his is your A WG P rocurement team: working hard to bring you the best and freshest F R ESHPRO D U C E PRO C URE M ENTF R ESHPRO D U C E PRO C URE M ENT Begun in 1926, A ssociated Wholesale Grocers, Inc. ( A blocks to establish strategic positions in their unique marketplaces. O 87 years provided ongoing opportunities to grow sustainable business models that have survived, as well as thrived, in an ever-changing market. O perating nine distribution centers during the 2013 scal year, A WG delivered grocery and related products to 3,172 active retailers throughout the midwest and U States. Seven of the nine centers were dedicated to providing A WG cooperative members in 2,481 different locations. R etailers are required to purchase and hold 15 shares of Class A stock to be supplied on a cooperative basis. A dditionally, the company provided products to 120 military commissaries and base exchanges on a non-member basis. T under the banner of Valu Merchandisers Company Headquartered in Kansas City, Kansas, the A WG corporate structure provided O ; O klahoma City, O K; Ft. Worth, T X; Southaven, MS; Memphis, TN ; N ashville, TN ; Ft. Scott, KS and Kansas City, KS. A WG proudly opened its ninth distribution center in P earl R iver, LA early in 2013. A billion. Within the cooperative, net sales were $7.15 billion. O income was T otal patronage returned was $182.6 million, distributed on a 60/40 basis (the payout consisting of 60% cash and 40% certi cates). A all-time high. A value was increased by four percent to T otal members’ investments and equity ended the year valued at $433.8 million. I VE Y EAR TREN D NE TS ALE S Selling, General & A dministrative E (Co-op only) A s percent of total net sales 2009201020112012201320092010201120122013 Co-op P atronage( P ercentage to qualifying sales) T otal Gross P (Co-op only, includes cash discount) A s percent of total net sales W EE KS $151.652 W EE KS $172.9 52 W EE KS $182.6 52 W EE KS 2009201020112012201320092010201120122013 $163.853 W EE KSP (Millions) CON S OL ID AT D R E S UL S housands 2009 2010 2011 2012 20 N et Sales $ 7,057,036 $ 7,251,719 $ 7,766,807 $ 7,852,006 $ 8,380,214 O perating Income 169,667 179,122 180,059 176,513 201,406 N et Income 147,765 164,018 169,527 175,949 192,490 52 52 53 52 52 COOPERAT IV E O PERAT I ON S (before eliminations)* N et Sales $ 6,159,035 $ 6,354,877 $ 6,711,570 $ 6,713,047 $ 7,148,757 Interest 6,205 4,503 3,002 1,522 22 P romotional A llowances 295,867 340,249 314,979 311,201 338,828 Year- E nd P atronage 145,658 151,633 163,791 172,872 182,576 T otal Distribution to Members $ 447,730 $ 496,385 $ 481,772 $ 485,595 $ 521,631Members’ Investments $ 128,133 $ 86,293 $ 54,346 $ 9,308 $ 10,846 E quity 153,031 230,002 304,406 386,850 422,979 T otal Members’ Investments & E quity $ 281,164 $ 316,295 $ 358,752 $ 396,158 $ 433,825 *Includes the accounts of members/subsidiaries. BI LL I ON52 W EE KS $7.25 BI LL I ON52 W EE KS $8.38 BI LL I ON52 W EE KS $7.85 BI LL I ON52 W EE KS 20092010201120122013 $7.50 $8.00 $8.50 $7.77 BI LL I ON53 W EE KS Kansas City, KS O Doc’s Food Stores, Bixby, O K R Harp’s Foods, AR Victor CosentinoCosentino’s, P rairie Village, KS A lan L arsenHouchens, Jay L awrence L Sweetwater, T X A McKeever’s, O Chuck Mur n O zark Supermarkets, O zark, M O Dave N icholas N icholas Supermarkets, Boonville, M O James N Valu Market Inc., L Queen’s E nterprises, P aola, KS P at R aybouldB& R Stores, L incoln, NE Jeff R easor R easor’s, T ahlequah, O K R andy StephersonSuperlo Foods, TNE rick T aylor RP CS Inc., Spring eld, M O Mike Withers A lbertsons LL Fort Worth, T X B OAR D O F LTR TO T H E SH ARE H OL D ER S Your Board of Directors and management are pleased to present the audited results for our 2013 scal year. T . Year-end patronage as a Sales building efforts within the cooperative, along with an investment in gross dollars, produced a consolidated warehouse sales gain before eliminations of 528 million for an increase of 6.7%. Same store sales were up almost O consistent performance once again served as a testament to the cooperative model where everyone has T he title chosen for this year’s annual report is “Meeting Challenges, Seeking O pportunities.” T he theme recognizes that the grocery industry is more competitive than ever, with new formats of every size and shape in “brick and mortar” and new competitive threats from “on-line” options. T federal, state and local agencies. A ct (FSM A will be faced with more responsibilities and greater risks. L year Colorado cantaloupe growers were A extends those same risks to grocers and food distributors. T the holidays by shoppers at several national retailers were front-page news and repercussions are still surfacing. Damaged reputations, millions of dollars in nes and reimbursements Cyber-crime, including identity theft, is one of the fastest-growing crimes in this country. It’s imperative that A for opportunities to bring new sources for revenue and success. T ogether, we cannot only address these issues Don Woods, Jr., Vice-ChairmanWoods Supermarket, Bolivar, M O left:Bob Hufford, Chairman T own & Country, O Sincerely,Jerry Garland, P resident/C EO Bob Hufford, Chairman of the Board