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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
Amendment No. 1
to
Annual Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended September 30, 1994
Commission File Number 2-60487
UNITED GROCERS, INC.
OREGON 93-0301970
6433 S.E. Lake Road (Milwaukie, Oregon)
Post Office Box 22187, Portland, Oregon 97222
Registrant's telephone number, including area code: (503) 833-1000
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The undersigned registrant hereby amends Item 7 of its Annual Report on
Form 10-K for the fiscal year ended September 30, 1994, as follows:
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
During fiscal year 1994, net sales and operations increased 8.8% to
$954.2 million. This compares to a 2.2% decrease in fiscal year 1993 to
$877.0 million. Income before members' allowances, patronage dividends, and
taxes increased $2.1 million to $22.7 million (2.38% of sales). This compares
to $20.6 million (2.35% of sales) and $20.7 million (2.31% of sales) in 1993
and 1992, respectively.
During 1994, the increase in net sales and operations was primarily
attributable to the distribution segment which enjoyed increased warehouse
unit volume, increased Cash & Carry unit volume, and increased equipment unit
sales. These gains in sales were offset by lower premium income of the
insurance segment.
In 1994, the Company generated increased profits within its
distribution segment from the Cash & Carry and service income areas. Within
the insurance segment, Grocers Insurance Company increased its profitability
despite lower premium income, mainly through the benefit of reduced loss and
loss adjustment expenses, which was partially offset by higher operating
expenses. The profit improvements in 1994 were offset by higher distribution
segment operating expenses, and increased member allowances paid ($2.0
million increase to $11.5 million) and operating losses in retail store
operations ($4.5 million in 1994 compared to $2.2 million in 1993).
During 1993, the decrease in net sales and operations was primarily
attributed to a 52 week accounting period, lower warehouse unit sales, and
lower levels of store financing interest income, which were partially offset
by increased service income, insurance segment written premiums, and sales
from retail store operations. The Company enjoyed increased profits in 1993
within the distribution segment's Cash & Carry and service income areas.
Within the insurance segment, Grocers Insurance Company increased its
profitability due to premium volume, increased investment income, and reduced
operating expenses. These profit improvements were more than offset by
increased member allowance payments and operating losses in retail store
operations.
NET SALES AND OPERATIONS
During 1994, sales of the Company's distribution segment increased
8.14% to $888.9 million compared to $822 million in 1993. The sales gain was
primarily attributable to an increase in unit volume. Inflation during 1994
impacted net sales by 1.0% of warehouse sales.
Member distribution sales increased due to additional new stores for
existing members, and acquisition of new member business. Management expects
the recent trend in increased retail store development to continue in 1995,
as several members are planning additional new stores.
Cash & Carry sales increased 15.3% to $179.4 million compared to $155.6
million in 1993. Sales at new units contributed 6.4% to the sales increase.
The balance of the increase was due primarily to higher unit sales volume at
existing stores.
Sales at company-owned retail stores, which are acquired as a result of
store finance activities, increased $4.9 million to $46.2 million. During
1994, the company disposed of eight retail stores, and acquired five stores,
decreasing the number of retail stores to four.
In 1994, the insurance segment's net insurance premiums, commissions,
and fees decreased by $1.7 million to $18.8 million. The decrease was
primarily attributed to lower commissions earned by the insurance segment's
Grocers Insurance Agency.
During 1993, the Company's distribution segment sales declined 3.6 %
compared to 1992. When compared to a 52 week period in 1992, the 1993 sales
decline was 1.9%. Inflation during 1993 added approximately 0.8 % to sales.
During 1993, a consumer trend towards lower cost items had a negative
impact on distribution segment sales. Cash & Carry sales increased slightly,
reflecting new store sales, while interest income declined, reflecting lower
interest rates during the 1993 year when compared to 1992.
Retail store sales increased $16.1 million in 1993, reflecting a net
increase of two stores during the year.
In 1993 the insurance segments's net insurance premiums, commissions,
and fees increased by $0.9 million over the 1992 total. The increase was
attributable to increased policy volume and rehabilitation fees, partially
offset by lower commission levels and increased reinsurance premiums paid.
GROSS OPERATING INCOME
Gross operating income increased to $137.5 million (14.4% of sales) in
1994 from $127.5 million (14.5% of sales) in 1993 and $123.7 million (13.8%
of sales) in 1992. The increase in gross operating income occurred due to
increased unit volume, and the continued shift in distribution segment's
sales mix towards Cash & Carry operations.
Improving trends in loss development experience in the insurance
segment also increased gross operating income. In 1994, loss and loss
adjustment expenses were 64.7% of total premium income, compared to 83.3% and
75.5% in 1993 and 1992 respectively.
OPERATING, SELLING AND ADMINISTRATIVE EXPENSES
In 1994, operating, selling, and administrative expenses increased $6.0
million to $103.5 million (10.9% of sales). These expenses amounted to $97.5
million (11.1% of sales) and $93.5 million (10.4% of sales) in 1993 and 1992,
respectively. The components of these expenses are summarized below:
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<TABLE>
<CAPTION>
Percent of Total Sales
1994 1993 1992
<S> <C> <C> <C>
Salaries & Wages 6.0 6.3 5.9
Rents, Maintenance,
and Repairs 1.7 1.6 1.6
Taxes, Other Than
Income 0.9 0.9 0.8
Utilities, Supplies,
and Services 1.6 1.5 1.5
Other Expenses 0.5 0.5 0.4
Provision for Doubtful
Accounts 0.2 0.3 0.2
Total 10.9 11.1 10.4
</TABLE>
In 1994, operating, selling, and administrative expenses as a percent
of sales decreased primarily due to increased unit volume in the distribution
segment. Increased labor productivity resulting from these unit volume
increases was partially offset by increases in other operating expense areas,
notably supplies and transportation operating expenses and other taxes.
Insurance segment operating expenses increased to 36.3% of segment
income. The increase was primarily attributed to increased personnel costs,
other taxes, and building expenses associated with the new insurance
building. In 1993 and 1992, insurance segment operating expenses were 26.4%
and 28.1% of segment sales, respectively.
Provision for doubtful accounts was $2.0 million (0.2% of sales) in
1994. This compares to $2.2 million (0.3% of sales) and $2.1 million (0.2% of
sales) in 1993 and 1992, respectively.
Interest expense increased $0.9 million to $9.2 million (1.0% of
sales) in 1994. This increase was due to higher levels of average debt during
the year, as well as a higher average interest rate.
MEMBER ALLOWANCES AND DIVIDENDS
In 1994, total member allowances and dividends increased 9.9% to $20.2
million (2.1% of sales). In 1993, total allowances and dividends increased
4.0% to $18.4 million.
Total member allowances and dividends as a percent of member sales
increased to 2.84% in 1994, compared to 2.75% and 2.53% in 1993 and 1992,
respectively.
The Company's updated member allowance program was in place during all
of 1994, and management expects that the level of member allowances as a
percent of member sales should remain at approximately 1994 levels in future
years.
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NET INCOME AND INCOME TAXES
In 1994, income before income taxes was $2.6 million (0.3% of sales)
compared to $2.3 million (0.3% of sales) and $3.1 million (0.3% of sales) in
1993 and 1992, respectively.
The Company's effective tax rate increased to 39.0% from 25.2% in 1993
and 29.2% in 1992. The increase in effective tax rate was primarily caused by
decreased tax refunds as a result of carrybacks that were utilized in 1993.
In 1994, net income after income taxes decreased to $1.6 million (0.2% of
sales) from $1.7 million (0.2% of sales) and $2.7 million (0.3% of sales) in
1993 and 1992, respectively.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW FROM OPERATIONS
In 1994, the Company used $2.8 million in cash in its operating
activities. Increases in accounts receivable as a result of additional member
stores and member volume, and investments by the Company in its new
information services platform were the major factors contributing to the use
of cash in operations. The Company offset these uses of cash by increasing
patronage dividends payable with stock and increases in accounts payable.
CASH FLOW FROM INVESTING ACTIVITIES
In 1994, the Company used $16.3 million in its investing activities, a
decrease of $8.6 million from the $24.9 million used in 1993. Cash
requirements of the Company's retail member finance activities were reduced
in 1994 due to the substitution of a new Note Purchase Agreement during the
year. Purchases of property and equipment were reduced to $5.3 million from
$12.0 million in 1993. These favorable cash flow results were offset by
reduced proceeds from the sale of property and equipment, and equity
investments in certain affiliated companies.
In fiscal year 1995, anticipated capital expenditures will approximate
$8.0 million, representing $3.0 million in replacement assets, $2.0 million
for new Cash & Carry units, and $3.0 million in continuing investments in
upgraded operations software. In addition, the Company could undertake
certain acquisitions to enhance its distribution segment businesses.
CASH FLOW FROM FINANCING ACTIVITIES
In 1994, the Company provided $13.3 million from its financing
activities by increasing its levels of senior debt to fund its operations.
CAPITAL STRUCTURE AND RESOURCES
The following table summarizes the Company's capital structure for the
last two years:
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<TABLE>
<CAPTION>
Year Ended
September 30, 1994 October 1, 1993
$000 % $000 %
<S> <C> <C> <C> <C>
Average Short Term
Borrowings $34,775 17.7 $17,000 10.1
End of Year Amounts
Senior Term Debt $67,597 34.4 $58,342 34.6
Subordinated Debt $53,848 27.4 $54,011 32.1
Equity $40,425 20.5 $39,112 23.2
Total $196,645 100.0 $168,465 100.0
</TABLE>
In 1994, the Company's capital structure shifted towards greater use of
senior debt capital, due to lower interest costs and increased funding needs.
The present components of the capital structure are within the Company's
long-term targets for funding sources.
Subsequent to September 30, 1994, the Company executed a Note Agreement
with an insurance company lender. Proceeds of the senior, unsecured debt
were $20 million. The proceeds were used to retire bank debt. The term of
the note is eleven (11) years. The note carries a fixed rate of 8.42 %.
In 1994, the Company's working capital increased $3.5 million to $45.3
million. The Company's main sources of funds include earnings, member capital
stock, capital investment notes, bank debt, private placement debt,and note
purchase programs. As of September 30, 1994, the Company had $19.0 million in
unused credit lines available. In addition, the Company had $12.6 million
available under its Note Purchase Agreement.
Grocers Insurance Company investments are held to support the payment
of claims. These investments are not available to the Company to meet its
capital needs due to restrictions imposed by insurance regulators regarding
intercompany loans and advances.
In addition, state regulators require that Grocers Insurance Company
maintain minimum amounts of capital and surplus. As a result of these
regulatory requirements, $3.4 million of Grocers Insurance Company's equity
may not be paid as dividends to the Company.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amendment to be signed on its behalf by
the undersigned, thereunto duly authorized.
UNITED GROCERS, INC.
(Registrant)
Dated: January 5, 1995 By: /s/ John W. White
John W. White
Vice President
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