strong results stronger together - awg inc

2 0 1 5 A N N U A L R E P O R T

STRONG RESULTS

STRONGERTOGETHER

Dale TrahanDale Trahan EnterprisesRayne, LA

Erick TaylorRPCS, Inc.Springfield, MO

Pat RaybouldB&R StoresLincoln, NE

Jim BrownDoc’s Food StoresBixby, OK

Jay LawrenceLawrence Brothers Sweetwater, TX

Jeff ReasorReasor’s Tahlequah, OK

Roger CollinsHarp’s FoodsSpringdale, AR

Alan McKeeverMcKeever’sIndependence, MO

Randy StephersonSuperlo FoodsMemphis, TN

Victor CosentinoCosentino’s Prairie Village, KS

Chuck MurfinOzark Supermarkets Ozark, MO

James NeumannValu Market, Inc.Louisville, KY

Danny BoyleCountry Boy MarketsHarrah, OK

Alan LarsenHouchens IndustriesBowling Green, KY

Barry Queen, ChairmanQueen’s Enterprises - Paola, KS

Don Woods, Jr., Vice-ChairmanWoods Supermarket - Bolivar, MO

Dave NicholasNicholas SupermarketsBoonville, MO

David BallFour B Corp Kansas City, KS

Scott HayesAlbertson’s, LLCFort Worth, TX

BOARD OF DIRECTORS

DEARSHAREHOLDERS

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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.

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

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 SmithPresident/CEO

Barry QueenChairman ofthe Board

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FIVE-YEAR TRENDFounded in 1926, Associated Wholesale Grocers, Inc. (AWG) was established to provide its fami-ly-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 ser-vices and financial returns to our member-retailers, and the collec-tive strength of our cooperative model has provided ongoing oppor-tunities 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 prod-ucts to active retailers throughout the midwestern and southeastern United States. Seven of the nine fa-cilities are full-line divisions, dedi-

cated to providing service to AWG cooperative members in various re-tail locations. Members are required to purchase and hold 15 shares of "Class A" stock to be supplied on a cooperative basis.

The remaining two facilities were operated under the banner of Valu Merchandisers Company, a whol-ly-owned subsidiary which pri-marily provided health and beauty care items, general merchandise and specialty foods, serving co-operative as well as non-member retailers. Additionally, the compa-ny operated Always Fresh, Inc., a wholly-owned military supply sub-sidiary, providing products to com-missaries and base exchanges on a non-member basis.

Headquartered in Kansas City, Kan-sas, the AWG corporate support team provided operational and administrative support to all nine

distribution centers, located in Springfield, MO; Oklahoma City, OK; Ft. Worth, TX; Southaven, MS; Mem-phis, TN; Pearl River, LA; Goodletts-ville, TN; Ft. Scott, KS and Kansas City, KS.

AWG achieved sales on a consoli-dated basis, after eliminations, of $8.94 billion. Within the cooper-ative, net sales were $7.58 billion. Operating income was $203 mil-lion, with net income of $199 mil-lion.

Total patronage returned to share-holders was $193.8 million, distrib-uted on a 60/40 basis (the payout consisting of 60% cash and 40% certificates). As a percent to quali-fying sales, the patronage payout was 2.79%, AWG stock trading val-ue was increased by four percent to $1,915 per share. Total members’ investment and equity ended the year valued at $477.7 million.

CONSOLIDATED RESULTS (thousands) 2011 2012 2013 2014 2015

Net Sales $ 7,766,807 $ 7,852,006 $ 8,380,214 $ 8,934,239 $ 8,935,915Operating Income 180,059 176,513 201,406 231,622 202,620Net Income 169,527 175,949 192,490 226,920 198,919 Weeks 53 52 52 52 52 COOPERATIVE OPERATIONS (before eliminations)* Net Sales $ 6,711,570 $ 6,713,047 $ 7,148,757 $ 7,685,985 $ 7,579,129Distribution to Members Interest 3,002 1,522 227 223 406 Promotional Allowances 314,979 311,201 338,828 351,820 350,155 Year-End Patronage 163,791 172,872 182,576 194,675 193,815Total Distribution to Members $ 481,772 $ 485,595 $ 521,631 $ 546,718 $ 544,376 Members’ Investments $ 54,346 $ 9,308 $ 10,846 $ 9,411 $ 22,105Members’ Equity 304,406 386,850 422,979 439,632 455,610Total Members’ Investments & Equity $ 358,752 $ 396,158 $ 433,825 $ 449,043 $ 477,715

*Includes the accounts of members/subsidiaries.

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NET SALES

2.71%

2.60%

2.70%

2.80%

2.90%

2.76%2.81%

2.77% 2.79%

2011 2012 2013 2014 2015

Co-op Patronage (Percentage to qualifying sales)

$172.9

$182.6 $194.7 $193.8

2011 2012 2013 2014 2015

$145.0

$155.0

$165.0

$175.0

$185.0

$195.0 Total Gross Profit(Co-op only, includes cash discount)

*As percent of total net sales

5.81%

5.6%

5.8%

5.7%

6.0%

5.9%5.90%

5.83%

5.69%

5.71%

2011 2012 2013 2014 2015

$163.8

Patronage Dollars(Millions)

Selling, General & Administrative Expense

(Co-op only)*As percent of total net sales3.30%

3.2%

3.3%

3.5%

3.4%3.32%

3.22%

3.12% 3.13%

2011 2012 2013 2014 2015

Consolidated (after eliminations)

201552 WEEKS

201153 WEEKS

$7.77BILLION

201452 WEEKS

$8.93 BILLION

$8.94 BILLION

201352 WEEKS

$8.38 BILLION

201252 WEEKS

$7.85BILLION

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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

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 high-volume business in Springfield, both Mike and Jerry were surprised and underwhelmed when their first-week 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.

RETIREMENT

JERRY GARLAND

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 highest-growth 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 intra-company 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 i n d e p e n d e n t 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!

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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.

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 2006-08; 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

A

B

C

D

E

F

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.

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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.

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, plan-o-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 retailer-focused, 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.

INITIATIVES

FRESHEN UP

MY TOW N • MY STORE

“ At AWG, we are focused on your retail success and have people and programs available to help you compete.”

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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 company-wide 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 vendor-partners, 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

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.

INITIATIVES

FRESHNESS DATING

“ Convenience, Price, FRESHNESS, Cleanliness and Service are the TOP 5 reasons a customer shops at a store.”

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

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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.

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 same-store sales through private-label offerings; introducing innovative new items with an eye toward ever-changing 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.

ANNUAL REPORT

AWG BRANDS

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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.

20TH ANNIVERSARY

VALU MERCHANDISERSLooking to the future, VMC’s goals 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-to-end 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.

VMC Total Net Sales(millions)

$700

$750

$725

$800

$775

2011 2012 2013 2014 2015

EXCELLENCE IN MERCHANDISING

VMC


GROCERYCASH SAVER Owner: Rick JamesMemphis, TN

Under the supervision of Mark Gatlin, Memphis Mid-Town Cash Saver completely achieves its stated mission to be a true low-price 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

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.

James is an accomplished, creative merchandiser with forward-looking goals for his store; Cash Saver’s in-store displays, merchandising, pro-motions and featured items are solid building blocks to carry this store successfully into the future.

REASOR’STulsa, OKReasor’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.

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

helped them achieve high sales goals.

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.

Reasor’s theme for this store was “Bring Your Table to Life;” and the Brookside store has exceeded all expectations!

DIVISION WINNERS

Checkers - Lawrence, KSRoy’s Cardinal Foods - Wilburton, OKPiggly Wiggly - Tylertown, MSHank’s Market - Washington, INHudson’s Market - Harrison, ARCash Saver - Weatherford, TX

Harps - Bellafonte, ARFive Star Marketplace - Knox, INPrice Chopper #2423 - Rolla, MOCrest Foods - Edmond, OKHouchens IGA - Olney, IL

DIVISION WINNERS

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SEAFOOD


MEATCREST MARKETPLACEOwner: Bruce HarrozNorman, 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 low-price 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 full-service 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, all-natural 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 bottom-line results bear out the hard work of the entire Norman store team.

ROUSES Layfayette, LA

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!

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

alligator meat; these aren’t items you find just anywhere!

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.

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!

DIVISION WINNERS

Price Chopper - Shawnee, KSMain’s Market - Folsom, LACash Saver - Paducah, KYCollins Country Market - Garrison, KYPrice Cutter - East Battlefield, MOCash Saver - Seminole, TX

DIVISION WINNERS

Buehler’s IGA - Evansville, INReasor’s - Tulsa, OKHarps Food Stores - Springdale, ARFood Giant - Little Rock, ARYoss Brothers Grocers - Holden, MO

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FLORAL


PRODUCERAMEY'S Sumrall, MS

Ramey’s Marketplace’s eye-catching 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

items. Aggressive cross-merchandising 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!

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!

QUEEN’SPRICE CHOPPEROverland Park, KSDedicated 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

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.

DIVISION WINNERS

Piggly Wiggly - Batesville, MSCountry Mart #5763 - Taylorsville, KYLindley Grocery - Hartshorne, OKTown & Country - Farmington, MOSuper Saver - Grand Island, NE

DIVISION WINNERS

Reasor’s - Sand Springs, OKRouse’s - Lafayette, LABanks Market - Paducah, KYFishers Foods - Canton, OHPrice Chopper - Branson, MO

14


BAKERY


DELICOUNTRY MART St. James, MOAn 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 self-serve 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!

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.

Of course, distribution is a major factor for any department; Cooke’s Bakery maintains an enviable high-performing ave-rage of 4% of total store sales; Bakery and Deli combined average an impressive 18.2%.

DIVISION WINNERS

Cosentino's Price Chopper - Kearney, MOHomeland #4267 - Oklahoma, OKRameys - Purvis, MSVowell’s - Starkville, MSFresh n Low - Ocoee, TN

DIVISION WINNERS

Hay's - Walnut Ridge, ARJumbo Foods - Enid, OKFrick’s Market - Union, MOCannata’s - Houma, LAPrice Chopper 600 - Overland Park, KS

15


AWG BRANDS


OUTSTANDING EVENTFAMILY MARKET Malvern, AR

When owners David and Doug Hendrix decided to relocate their existing supermarket last year to a new location that in-cluded fuel pump equipment, that change sparked an idea that ultimately became Family Market’s “Never Pay Full Price on Gas Again!” marketing cam-paign.

Promoting item and price on a variety of products gave Fam-ily’s shoppers a cents-off gas discount, which was so pop-ular that sales were 129% over pre-opening projections, with a 120% growth in overall sales. At times, Family Market

sales topped 150% over previ-ous-year totals!

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!”

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.

SAV U MOREBastrop, 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 sit-uation for owner Tandy Key’s family business. Sav U More not only survived the change, but thrived.

It was not easy. The entire store was overhauled, with Key and his team adding new store-brand 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 empha-sized with end caps and wing displays prominently featur-ing 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 in-creased at this single store by over 8% in just six months.

DIVISION WINNERS

Hilltop CeeBee - Clarksville, TNDoc’s Family of Food Stores - (Multiple locations)Murfin’s Market - Ozark, MORalph’s Market - Gonzales, LACash Saver #7477 - Weatherford, TXRuss’s Markets - Lincoln, NE

DIVISION WINNERS

PayLess - Olathe, KSBeachler’s - El Reno, OKGreer’s Cash Saver - Poplarville, MSPrice Less Foods - Louisville, KYKing Cash Saver - Springfield, MOSupermercado El Rancho - Cockrell Hill, TX

16


STORE MANAGERSHEILA AUSTIN Buehler's IGADarmstadt, IN

Sheila Austin of Buelher’s IGA, Darmstadt, Indiana is AWG’s recip-ient of its “Store Manager of the Year” award for 2015. Austin, cho-sen from AWG’s Nashville division, won out over an impressive roster of candidates from all seven divi-sions, exemplifying what it takes to be a truly effective and successful store manager.

Respected within the surrounding community as well as by her asso-ciates, Austin’s 13 years as manager have been summed up in her coach-ing mantra, “You can make a differ-ence!” Her steadfast encourage-ment 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 custom-ers, 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 aggres-siveness within the store organi-zation have proven essential in building personal and communi-ty 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 sup-porting 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 with-in the local retail environment, Buehler’s IGA has remained one of Houchens Industries top-perform-ing stores. This overall success could not have been achieved without the efforts and expertise of manager Sheila Austin and her associates.

17

18

JACK VIDMER GREER, SR. AND JANICE GREERMobile, ALThe Lou Fox Community Service Award is given annually in honor of Lou Fox, president of Associat-ed Wholesale Grocers from 1955 through 1983. Throughout his life, Lou was a well-known philanthro-pist and civic supporter.

This award is presented at the An-nual Shareholders Meeting each year to an AWG retailer who exem-plifies the Lou Fox tradition of giv-ing 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 vi-sion: “To bring added joy, well-be-ing 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,”

he continues to review Greer’s numbers and help teach and train the fourth and fifth generations which continue to manage the company. Over the years, Jack has been ac-tive in many civic organizations. He has held such diverse positions as president with the Mobile Asso-ciation for the Blind, The Mobile Exploreum, Mobile Rotary Club, Mobile Environmental Association and advised numerous communi-ty and charity organizations. His partnerships with education, such as Greer’s “Apples for Students” program, have provided over $325,000 in equipment and sup-plies to local schools.

Jack helped preserve and renovate two historical buildings, moving them onto the Greer family prop-erty at Belle Fontaine, where he and wife Janice have lived since rebuilding after 1979’s Hurricane Frederic.

Along with the Greer Family Chap-el and Toulminville Schoolhouse, the Greer’s Sunny Cove Village in-cludes 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 Bar-tee bought out other family mem-bers. Bartee became Chairman of the company and Jack became President. Jack and Bartee, along with sons Jackie and Robert proud-ly 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 consistent-ly 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 em-ployees, customers, organizations and communities by doing good for all!

2015

LOU FOX AWARD

ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

December 26, 2015 and December 27, 2014(dollars in thousands)

ASSETS 2015 2014 ________________ ________________

Current Assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 166,221 $ 154,149 Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 729 ------- Receivables, net of allowance for doubtful accounts of $2,954 in 2015 and $2,897 in 2014 . . . . . 295,359 265,943 Notes receivable from members, current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,251 12,081 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 452,669 429,959 Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,675 22,691 ________________ ________________ Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 946,904 884,823 Notes receivable from members, maturing after one year, net of allowance for doubtful accounts of $7,292 in 2015 and $5,945 in 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,187 23,456 Property and equipment, net (note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405,099 373,542 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 619 619 Intangibles, net of accumulated amortization of $19,329 in 2015 and $17,273 in 2014 (note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,933 9,444 Deferred income taxes (note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,988 22,987 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,564 44,100 ________________ ________________ Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,475,294 $ 1,358,971 ________________ ________________ ________________ ________________

LIABILITIES AND EQUITYCurrent Liabilities: Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 572,067 $ 495,139 Cash portion of current year patronage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,423 130,101 Member deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,106 9,413 Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113,261 103,617 ________________ ________________ Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 817,857 738,270Long-term debt maturing after one year (note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146,188 132,938Deferred income and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,517 48,808 ________________ ________________ Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,012,562 920,016 ________________ ________________

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 911 903 Class B, nonvoting; 150,000 shares authorized; 14,249 and 15,099 shares issued in 2015 and 2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,423 1,508 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,797 12,551 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444,964 424,783 Accumulated other comprehensive loss (notes 9 and 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21,745) (17,158) ________________ ________________ Total members’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 438,350 422,587 Noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,382 16,368 ________________ ________________ Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 462,732 438,955 ________________ ________________ Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,475,294 $ 1,358,971 ________________ ________________ ________________ ________________

See accompanying notes to consolidated financial statements.

19

2015 2014 2013 __________________ __________________ __________________

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,935,915 $ 8,934,239 $ 8,380,214Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,244,604 8,243,483 7,715,466 __________________ __________________ ___________________ Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 691,311 690,756 664,748General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 488,691 459,134 463,342 __________________ __________________ ___________________ Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202,620 231,622 201,406Other income (expenses): Interest income (note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,879 1,910 1,360 Interest expense (note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,810) (3,426) (3,255) Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,804 89 (769) __________________ __________________ ___________________Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205,493 230,195 198,742Income taxes (note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,574 3,275 6,252 __________________ __________________ ___________________ Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198,919 226,920 192,490

Other comprehensive income (loss) Change in funded status of pension plan, net of taxes (note 9) . . . . . . . . . (4,587) (12,202) 9,318 __________________ __________________ ___________________Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 194,332 $ 214,718 $ 201,808 __________________ __________________ ___________________ __________________ __________________ ___________________

Amounts attributable to noncontrolling interest

Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 194,332 $ 214,718 $ 201,808 Comprehensive income attributable to noncontrolling interest . . . . . . (8,014) (8,839) (9,554) __________________ __________________ ___________________ Comprehensive income attributable to AWG, Inc. and subsidiaries . . $ 186,318 $ 205,879 $ 192,254 __________________ __________________ ___________________ __________________ __________________ ___________________

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 198,919 $ 226,920 $ 192,490 Net income attributable to noncontrolling interest . . . . . . . . . . . . . . (8,014) (8,839) (9,554) __________________ __________________ ___________________ Net income attributable to AWG, Inc. and subsidiaries . . . . . . . . . . . $ 190,905 $ 218,081 $ 182,936 __________________ __________________ ___________________ __________________ __________________ ___________________

ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

Fiscal years ended December 26, 2015, December 27, 2014, and December 28, 2013(dollars in thousands)

See accompanying notes to consolidated financial statements.20

2015 2014 ____________________ _____________________Allocated Balances at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 322,810 $ 305,034 Patronage certificates (note 8): Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,637 74,401 Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (58,372) (57,069) Class B certificates: Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ------ 444 Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (417) ------ ____________________ _____________________ Balances at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 337,658 $ 322,810 ____________________ _____________________

Unallocated Balances at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 101,973 $ 90,390 Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198,919 226,920 Net income attributable to noncontrolling interest (note 9) . . . . . . . . . . . . . . . . . . . . . . . . (8,014) (8,839) Less allocated earnings (note 8): Patronage certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (73,637) (74,400) Class B certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ------ ------ Less cash portion of current year patronage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (110,423) (130,101) Redemption and retirement of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,512) (1,997) ____________________ _____________________ Balances at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 107,306 $ 101,973 ____________________ _____________________ Total retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 444,964 $ 424,783 ____________________ _____________________ ____________________ _____________________


ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

Fiscal years ended December 26, 2015 and December 27, 2014(dollars in thousands)

21

ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

Fiscal years ended December 26, 2015, December 27, 2014 and December 28, 2013(dollars in thousands)

2015 2014 2013____________ ____________ ____________Cash flows from operating activities:

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 198,919 $ 226,920 $ 192,490Adjustments to reconcile net income to net cash provided

by operating activities:Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,147 44,189 42,275Impairment of assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ------ 9,463 2,000Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,001 ) (10,521) 1,938Loss/(gain) on disposition of property and equipment . . . . . . . . . . . . . . . . . . . 868 (533) (2,076)

Changes in assets and liabilities, net of effects of acquisitions: Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (29,416) (42,045) (26,538) Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,875) 27,150 (78,372) Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,552 5,161 (23,965) Accounts payable, accrued expenses and other liabilities . . . . . . . . . . . 81,694 (51,426) 137,648 ____________ ____________ ____________ Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . 279,888 208,358 245,400 ____________ ____________ ____________Cash flows from investing activities: Reductions in restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (729) — 18,024 Additions to intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,675) (2,336) (593) Proceeds from investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ------ 58 — Loans to members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (51,253) (18,105) (17,884) Repayment of loans by members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,352 12,156 15,896 Additions to property and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (80,074) (47,578) (69,891) Proceeds from sale of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,579 10,382 28,782 Acquisition of assets, net of cash acquired (note 4) . . . . . . . . . . . . . . . . . . . . . . . (8,726) — (6,568) ____________ ____________ ____________ Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . (103,526) (45,423) (32,234) ____________ ____________ ____________Cash flows from financing activities: Year-end patronage distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (130,101) (104,534) (100,643) Redemption of prior year's patronage refund certificates . . . . . . . . . . . . . . . . . . . (58,788) (56,625) (49,427) Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,419 815 1,461 Redemption and retirement of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,763) (2,966) (2,048) Net advances (repayments) under credit facilities . . . . . . . . . . . . . . . . . . . . . . . . 13,250 (16,109) (47,186) Net proceeds (repayments) of member deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 12,693 (1,433) 1,537 ____________ ____________ ____________ Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . (164,290) (180,852) (196,306) ____________ ____________ ____________Net (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,072 (17,917) 16,860Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154,149 172,066 155,206 ____________ ____________ ____________Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 166,221 $ 154,149 $ 172,066 ____________ ____________ ____________ ____________ ____________ ____________

Supplemental cash flow statement information: Cash paid for interest, net of amount capitalized . . . . . . . . . . . . . . . . . . . . $ 3,649 $ 3,476 $ 3,263 ____________ ____________ ____________ ____________ ____________ ____________ Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,886 $ 17,635 $ 5,178 ____________ ____________ ____________ ____________ ____________ ____________


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ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES 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 financ-ing 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: 2015 2014 _________ _________

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,945 $ 4,487Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,347 1,458

Write-offs / Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — _________ _________ Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,292 $ 5,945 _________ _________ _________ _________

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ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements—(Continued)


(1) Summary of Significant Accounting Policies (continued)

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.

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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.



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 recog-nized 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 assump-tions 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 con-solidated 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 pre-sented 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 mil-lion 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.

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(1) Summary of Significant Accounting Policies (continued)



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.

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(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:



(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 obli-gations 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.

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(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.

(6) Property and Equipment

Property and equipment are summarized as follows: 2015 2014 ____________________ _____________________Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 54,718 $ 47,411 Buildings and leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378,971 350,895Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340,321 327,764 Construction in progress and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,380 1,757 ____________________ _____________________

$ 785,390 $ 727,827Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (380,291) (354,285) ____________________ _____________________Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 405,099 $ 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.

(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.

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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:

TotalClass A Class B Common Stock Members ___________ ___________ ___________ ___________

Balances at December 28, 2013 Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,045 16,359 25,404 603 Dollar Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 903 $ 1,634 $ 2,537 ___________ ___________ ___________

Issued Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 465 — 465 31

Dollar Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47 $ — $ 47 ___________ ___________ ___________ Redeemed

Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (465) (1,260) (1,725) (31) Dollar Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (47) $ (126) $ (173)___________ ___________ ___________

Balances at December 27, 2014 Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,045 15,099 24,144 603Dollar Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 903 $ 1,508 $ 2,411 ___________ ___________ ___________ ___________ ___________ ___________

Issued Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 795 — 795 53

Dollar Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 80 $ — $ 80 ___________ ___________ ___________ Redeemed

Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (720) (850) (1,570) (48)Dollar Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (72) $ (85) $ (157) ___________ ___________ ___________

Balances at December 26, 2015 Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,120 14,249 23,369 608Dollar Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 911 $ 1,423 $ 2,334 ___________ ___________ ___________ ___________ ___________ ___________

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (21,745) $ (17,158) ____________________ _________________________________________ _____________________



(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 trans-fer 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.

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Noncontrolling Interest

Changes in noncontrolling interest for the years ended December 26, 2015 and December 27, 2014, were as follows: 2015 2014 ____________________ _____________________ Balances, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,368 $ 7,529 Income attributable to noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,014 8,839 ____________________ _____________________ Balances, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,382 $ 16,368 ____________________ _____________________ ____________________ _____________________

(9) Equity (continued)

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 3,526Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,679 1,701 ____________________ ____________________

Deferred income tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,884 38,975Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,070) (1,094) ____________________ ____________________

Total deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,814 $ 37,881 ____________________ ____________________ ____________________ ____________________

2015 2014 2013 ____________ ____________ ____________ Federal: Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,110 $ 5,092 $ 7,651 Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,270) (2,012) (4,254) ____________ ____________ ____________

Total federal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,840 $ 3,080 $ 3,397 ____________ ____________ ____________ State: Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,509 $ 972 $ 2,004 Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225 (777) 851 ____________ ____________ ____________

Total state . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,734 $ 195 $ 2,855 ____________ ____________ ____________ Total income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,574 $ 3,275 $ 6,252 ____________ ____________ ____________ ____________ ____________ ____________

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 ____________________ ____________________ ____________________ ____________________

(10) Income Taxes

The significant components of income tax expense are summarized as follows:

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:

2015 2014 ____________________ _____________________Balances, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,551 $ 12,579

Stock purchase or redemption surplus value paid in/(out) . . . . . . . . . . . . . . . . . . . . . . . . . . 246 (28) ____________________ _____________________Balances, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,797 $ 12,551____________________ _________________________________________ _____________________

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Change in benefit obligation (PBO) 2015 2014 ____________________ ____________________ Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 175,029 $ 151,642 Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,420 11,913 Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,007 7,581 Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (34,517) (20,513) Actuarial (gain)/loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (737) 24,406 ____________________ ____________________ Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 158,202 $ 175,029 ____________________ ____________________ ____________________ ____________________ ____________________ ____________________ Change in plan assets Fair value of plan assets at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 151,777 $ 147,691 Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,396) 6,394 Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,007 18,205 Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (34,517) (20,514) ____________________ ____________________ Fair value of plan assets at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 127,871 $ 151,776 ____________________ ____________________ ____________________ ____________________ ____________________ ____________________

Funded status, end of year $ (30,331) $ (23,253) ____________________ ____________________ ____________________ ____________________ ____________________ ____________________

(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 ware-house, 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:

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.

(10) Income Taxes (continued)

2015 2014 2013____________ ____________ ____________ Net periodic benefit expense for the DB Plan consisted of the following:

Service cost --- benefits earned during the period . . . . . . . . . . . . . . . . . . . . . . $ 11,420 $ 11,913 $ 11,983Interest cost on projected benefit obligations . . . . . . . . . . . . . . . . . . . . . . . . . 7,007 7,581 6,159Expected return on plan assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,365) (9,963) (9,417)Amortization of prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271 538 537Amortization of net actuarial loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,256 4,738 6,520Settlement loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,991 2,928 756____________ ____________ ____________

Net periodic benefit expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,580 $ 17,735 $ 16,538 ____________ ____________ ________________________ ____________ ____________

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(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:

2015 2014 ____________________ _____________________ Prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (330) $ (601) Net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (34,006) (27,230) ____________________ _____________________ Total recognized in AOCI, before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (34,336) $ (27,831) ____________________ _____________________ Total recognized in AOCI, net of tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (21,745) $ (17,158) ____________________ _____________________ ____________________ _____________________

The estimated future benefit payments to be paid from the DB Plan, which reflect expected future service, are as follows:

DB Plan Benefits ______________________ Fiscal year2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 38,561

2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,849 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,993 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,415 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,602 Years 2021-2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,069

32



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:

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 Total Level 1 Level 2 Level 3 _______________ _______________ _______________ _______________

Money Market Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,023 $ 2,023 $ ---- $ ----Mutual Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,560 110,560 ---- ----Government Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . ---- ---- ---- ----Corporate Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ---- ---- ---- ----Limited Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,288 ---- ---- 15,288 _______________ _______________ _______________ _______________ Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 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 Total Level 1 Level 2 Level 3 _______________ _______________ _______________ _______________

Money Market Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,502 $ 5,502 $ ---- $ ----Mutual Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,667 120,667 ---- ----Government Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,982 ---- 4,982 ----Corporate Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,487 ---- 5,487 ----Limited Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,138 ---- ---- 15,138 _______________ _______________ _______________ _______________ Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 151,776 $ 126,169 $ 10,469 $ 15,138 _______________ _______________ _______________ _______________ _______________ _______________ _______________ _______________

2015 2014 2013 ____________ ____________ ____________ Weighted-average assumptions used to determine benefit obligations:

Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.65% 4.35% 5.10% Rate of compensation increase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.50%, 3.00% 3.00% 3.00%

Weighted-average assumptions used to determine net periodic benefit cost:. . . Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.35% 5.10% 4.25% Rate of compensation increase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.00% 3.00% 3.00% Expected return on plan assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.25% 7.25% 7.50%


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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 3,363Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (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.

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(12) Commitments and Contingent Liabilities

The Company is obligated as lessee under various noncancelable long-term supermarket property leases with minimum annual rent-als of approximately $39.3 million. These leases have an average remaining life of 6 years. It is expected in the ordinary course of busi-ness 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 administra-tive 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.

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 _______________ _______________ _______________ _______________Money Market Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 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 $ _______________ _______________ _______________ ______________________________ _______________ _______________ _______________

2014 Level 1 Level 2 Level 3 _______________ _______________ _______________ _______________Money Market Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,512 $ 2,512 $ ---- $ ----Corporate Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,292 ---- 1,292 ----Common Stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,527 10,527 ---- ----Mutual Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,873 2,873 ---- ----Self Directed brokerage accounts . . . . . . . . . . . . . . . . . . . 1,128 ---- ---- 1,128_______________ _______________ _______________ _______________

Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,332 $ 15,912 $ 1,292 $ 1,128_______________ _______________ _______________ ______________________________ _______________ _______________ _______________


35

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.

Expiration Date EIN and Pension Protection Act of Collective- Pension 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, 2020Southeast and Plan 001Southwest AreasPension Fund

(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 amountbased 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, respec-tively. 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.



REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of DirectorsAssociated 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 prepara-tion 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 state-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 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, MissouriMarch 4, 2016

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Jerry EdneySr. Vice President Perishables

Tony StaffordVice President VMC

Bob PickerillSr. Vice President Kansas City

Gary KochExecutive Vice PresidentChief Financial Officer

Dan FunkExecutive Vice PresidentMerchandising & Marketing

Dave SuttonPresident VMC

Frances (Chi Chi) PuhlSr. Vice President General Counsel and Corporate Secretary

Danny LaneSr. Vice President Grocery

Scott WelmanSr. Vice President Real Estate and Development

Brian RehaganVice President Oklahoma City

Bo HawkinsVice President Meat

Charlie LynnVice President Springfield

Jack Wall Vice President Gulf Coast

Patrick ReevesVice President Human Resources

Linda LawsonSr. Vice President Fort Worth

David GatesVice President Memphis

Tye AnthonyVice President Fort Worth

Steve Arnold Sr. Vice President Oklahoma City

Tim BellantiSr. Vice President Springfield

David CarlSr. Vice PresidentFinance

Terry RobertsVice President Nashville

Anna ManciniVice President VMC

Robert HenryVice President Corporate Controller

John CrumleyVice PresidentEngineering

Frank SchmittVice President Kansas City

Joe MaslakVice President Pharmacy

Gary JenningsSr. Vice President Memphis

Mike DanesSr. Vice President Nashville

Mike SchumacherPresident Always Fresh

Jon PayneSr. Vice President Chief Information Officer

Richard KearnsExecutive Vice President Distribution and Logistics

Bob DurandSr. Vice President Gulf Coast

David Smith President andChief Executive Officer

Jeff PedersenExecutive Vice PresidentDivision Operations

Dan KochVice PresidentBakery and Deli

Randy BerryVice President Information Technology

AWG

OFFICERS

ASSOCIATED WHOLESALE GROCERS, INC.

2015 ANNUAL REPORT

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