<PAGE>
Registration No. 33-57199
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
----------------
UNITED GROCERS, INC.
(Exact name of registrant as specified in its charter)
Oregon 93-0301970
(State of incorporation) (I.R.S. Employer Identification No.)
6433 S. E. Lake Road (Milwaukie, Oregon),
Post Office Box 22187, Portland, Oregon 97222
(503) 833-1000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
ALAN C. JONES, President
United Grocers, Inc.
6433 S. E. Lake Road (Milwaukie, Oregon),
Post Office Box 22187, Portland, Oregon 97222
(503) 833-1000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Miller, Nash, Wiener, Hager & Carlsen
111 S. W. Fifth Avenue
Portland, Oregon 97204-3699
Attention: Erich W. Merrill, Jr.
Approximate date of commencement of proposed sale to the public:
From time to time following the effective date
of this registration statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. [X]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to
Item 11(a)(1) of this form, check the following box. [X]
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
PART II
Information Not Required in Prospectus
Item 16. Exhibits.
The exhibits are listed in the accompanying index to exhibits.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-2 and has duly caused this
amendment to this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Milwaukie, State of
Oregon, on January 16, 1995.
UNITED GROCERS, INC.
(Registrant)
By:/s/ JOHN W. WHITE
John W. White, Vice President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to this registration statement has been signed by the following
persons in the capacities indicated on January 16, 1995.
Name Title
---- -----
Principal executive officer
* ALAN C. JONES President
Alan C. Jones Secretary and Treasurer
Principal financial officer and
principal accounting officer
/s/ JOHN W. WHITE Vice President and
John W. White Chief Financial Officer
A majority of the Board of Directors
* GILBERT A. FOSTER Director
Gilbert A. Foster
* H. LAWRENCE MONTGOMERY Director
H. Lawrence Montgomery
* MARLIN A. SMYTHE Director
Marlin A. Smythe
* DENNIS BLASINGAME Director
Dennis Blasingame
* CRAIG DANIELSON Director
Craig Danielson
* JAMES C. VICKERS Director
James C. Vickers
* DAVID NEAL Director
David Neal
* PETER J. O'NEAL Director
Peter J. O'Neal
* RAYMOND L. NIDIFFER Director
Raymond L. Nidiffer
* By /s/ JOHN W. WHITE
John W. White
Attorney-in-fact
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
4.A. Form of certificate representing shares of the registrant's common
stock, $5 par value (incorporated by reference to Exhibit 4-A to
the registrant's registration statement on Form S-2, No. 33-26631).
4.B. Copy of indenture dated as of February 1, 1978, between the
registrant and United States National Bank of Oregon, as trustee,
relating to the registrant's Capital Investment Notes (incorporated
by reference to Exhibit 4-I to the registrant's registration
statement on Form S-1, No. 2-60488).
4.C. Copy of supplemental indenture dated as of January 9, 1995, between
the registrant and First Bank National Association, as trustee,
relating to the registrant's Series J 5% Subordinated Redeemable
Capital Investment Notes.
4.D. Copy of the registrant's restated articles of incorporation, as
amended (incorporated by reference to Exhibit 4-E to the
registrant's registration statement on Form S-2, No. 33-26631).
4.E. Copy of the registrant's bylaws, as amended (incorporated by
reference to Exhibit 4-F to the registrant's registration statement
on Form S-2, No. 33-26631).
5. Opinion of Miller, Nash, Wiener, Hager & Carlsen.*
10.A1. Copy of United Grocers, Inc. pension plan and trust agreement dated
as of October 1, 1985 (incorporated by reference to Exhibit 10-A to
the registrant's registration statement on Form S-2, No. 33-11212).
10.A2. Copy of first amendment to United Grocers, Inc. pension plan and
trust agreement dated as of October 1, 1987 (incorporated by
reference to Exhibit 10-B to post-effective amendment No. 1 to the
registrant's registration statement on Form S-2, No. 33-11212).
10.A3. Copy of policy summary and related documents pertaining to a life
insurance policy for Alan C. Jones, President of the registrant,
purchased pursuant to the registrant's supplemental executive
retirement plan (incorporated by reference to Exhibit 10-E to the
registrant's Form 10-K for the fiscal year ended September 28,
1990).
10.A4. Copy of registrant's executive deferred compensation plan
(incorporated by reference to Exhibit 10-U to the registrant's Form
10-K for the fiscal year ended September 27, 1991).
10.A5. Copy of executive compensation agreement dated March 1, 1991
(incorporated by reference to Exhibit 10-T to the registrant's
Form 10-K for the fiscal year ended September 27, 1991).
10.B. Copy of binder of insurance with respect to indemnification of
officers and directors, as described under Item 15 (incorporated by
reference to Exhibit 10-C to the registrant's Form 10-K for the
fiscal year ended October 1, 1993).
10.C1. Copy of credit agreement of July 31, 1991, among the registrant,
United States National Bank of Oregon, Seattle-First National Bank,
and Security Pacific Bank Oregon (incorporated by reference to
Exhibit 4-H to the registrant's Form 10-K for the fiscal year ended
September 27, 1991).
10.C2. Copy of amendments 1, 2, and 3 to credit agreement of July 31,
1991, among the registrant, United States National Bank of Oregon,
Seattle-First National Bank, and Security Pacific Bank Oregon,
dated as of August 19, 1991, December 20, 1991, and March 13, 1992
(incorporated by reference to Exhibit 4-C2 to the registrant's
Form 10-K for the fiscal year ended October 2, 1992).
10.C3. Copy of amendment 4 to credit agreement of July 31, 1991, among the
registrant, United States National Bank of Oregon, Seattle-First
National Bank, and Bank of America Oregon (successor organization
to Security Pacific Bank Oregon), dated as of April 20, 1993
(incorporated by reference to Exhibit 4-C3 to the registrant's Form
10-K for the fiscal year ended October 1, 1993).
10.C4. Copy of amendment 5 to credit agreement of July 31, 1991, and
amendment to notes, among the registrant, United States National
Bank of Oregon, Seattle-First National Bank, and Bank of America
Oregon (successor organization to Security Pacific Bank Oregon),
dated as of May 28, 1993 (incorporated by reference to Exhibit 4-C4
to the registrant's Form 10-K for the fiscal year ended October 1,
1993).
10.C5. Copy of promissory notes to United States National Bank of Oregon,
Seattle-First National Bank, and Bank of America Oregon (successor
organization to Security Pacific Bank Oregon), dated as of April
20, 1993 (incorporated by reference to Exhibit 4-C5 to the
registrant's Form 10-K for the fiscal year ended October 1, 1993).
10.C6. Copy of amendments 6 and 7 to credit agreement and amendments
to notes of July 31, 1991 among the registrant, United States
National Bank and Seattle First National Bank, dated as of October
29, 1993 and January 28, 1994 (incorporated by reference to
Exhibits 10.A. and 10.B. to the registrant's Form 10-Q for the
quarterly period ended April 1, 1994).
10.C7. Copy of amendment 8 to credit agreement and amendment to revolving
line notes and operating line notes of July 31, 1991, among the
registrant, United States National Bank of Oregon and Seattle-First
National Bank, dated as of February 22, 1994 (incorporated by
reference to Exhibit 4.C7 to the registrant's Form 10-K for the
fiscal year ended September 30, 1994).
10.C8. Copy of amendment 9 to credit agreement and amendment to revolving
line notes and operating line notes of July 31, 1991, among the
registrant, United States National Bank of Oregon and Seattle-First
National Bank, dated as of April 30, 1994 (incorporated by
reference to Exhibit 4.C8 to the registrant's Form 10-K for the
fiscal year ended September 30, 1994).
10.C9. Copy of note agreement dated as of September 20, 1991, and Senior
Notes dated September 24, 1991, among the registrant and various
purchasers (incorporated by reference to Exhibit 4-I to the
registrant's Form 10-K for the fiscal year ended September 27,
1991).
10.C10. Copy of Promissory Note, Assignment of Rents and Leases, Deed of
Trust, Financing Agreement and Security Agreement, and
Environmental Indemnity Agreement dated as of September 30, 1993,
between the registrant and United of Omaha Life Insurance Company,
relating to the registrant's construction of a new office building
(incorporated by reference to Exhibit 4-E to the registrant's Form
10-K for the fiscal year ended October 1, 1993).
10.C11. Interest rate and currency exchange agreement dated as of April 22,
1993, between the registrant and Bank of America National Trust and
Savings Association (incorporated by reference to Exhibit 10-C19 to
Post-Effective Amendment No. 1 to the registrant's registration
statement on Form S-2, No. 33-57272).
10.C12. Copy of Loan Purchase and Servicing Agreement dated as of May 13,
1994, between United Resources, Inc., as Seller and Servicer, the
registrant, as Guarantor, and National Consumer Cooperative Bank,
as Buyer, relating to the selling of loans originated by the
registrant's subsidiary, United Resources, Inc. (incorporated by
reference to Exhibit 4.F1 to the registrant's Form 10-K for the
fiscal year ended September 30, 1994).
10.C13. Copy of First Amendment to Loan Purchase and Servicing Agreement
dated as of May 13, 1994, between United Resources, Inc., the
registrant, and National Consumer Cooperative Bank (incorporated by
reference to Exhibit 4.F2 to the registrant's Form 10-K for the
fiscal year ended September 30, 1994).
10.C14. Copy of Note Agreement dated October 10, 1994, between the
registrant and Phoenix Home Life Mutual Insurance Company
(incorporated by reference to Exhibit 4.G to the registrant's Form
10-K for the fiscal year ended September 30, 1994).
10.D1. Typical forms executed in connection with loans to members,
including directors:
10.D1a. Installment note (Stevens-Ness form 217), with optional interest
rate riders (incorporated by reference to Exhibit 10-D1a to the
registrant's Form 10-K for the fiscal year ended October 2, 1992).
10.D1b. Promissory note (Stevens-Ness form 216), with optional interest
rate riders (incorporated by reference to Exhibit 10-D16 to the
registrant's Form 10-K for the fiscal year ended October 2, 1992).
10.D1c. Subsequent note (three forms) (incorporated by reference to
Exhibit 10-D1c to the registrant's Form 10-K for the fiscal year
ended October 2, 1992).
10.D1d. Loan agreement (two forms) (incorporated by reference to
Exhibit 10-D1d to the registrant's Form 10-K for the fiscal year
ended October 2, 1992).
10.D1e. Loan agreement for subsequent notes (incorporated by reference to
Exhibit 10-D1e to the registrant's Form 10-K for the fiscal year
ended October 2, 1992).
10.D1f. Amendment to loan and security agreements, including optional
clauses (incorporated by reference to Exhibit 10-D1f to the
registrant's Form 10-K for the fiscal year ended October 2, 1992).
10.D1g. Security agreement (Stevens-Ness form 1201) (incorporated by
reference to Exhibit 10-D1g to the registrant's Form 10-K for the
fiscal year ended October 2, 1992).
10.D1h. Purchase money security agreement (Stevens-Ness form 1202)
(incorporated by reference to Exhibit 10-D1h to the registrant's
Form 10-K for the fiscal year ended October 2, 1992).
10.D1i. Security agreement for equipment (Stevens-Ness form 1203)
(incorporated by reference to Exhibit 10-D1i to the registrant's
Form 10-K for the fiscal year ended October 2, 1992).
10.D1j. Inventory loan and security agreement (Stevens-Ness form 1206)
(incorporated by reference to Exhibit 10-D1j to the registrant's
Form 10-K for the fiscal year ended October 2, 1992).
10.D1k. Security agreement (equipment and inventory) (incorporated by
reference to Exhibit 10-D1k to the registrant's Form 10-K for the
fiscal year ended October 2, 1992).
10.D1l. Security agreement for subsequent notes (incorporated by reference
to Exhibit 10-D1l to the registrant's Form 10-K for the fiscal year
ended October 2, 1992).
Pursuant to Instruction 2 to Item 601 of Regulation S-K, the
registrant has filed the forms listed above in lieu of filing each
document executed in connection with loans to directors. A
schedule showing the principal amount and interest rate of each
director loan at November 26, 1994, appears in Item 13.C of the
registrant's Form 10-K for the fiscal year ended September 30,
1994. The registrant agrees to furnish a copy of any omitted loan
document to the Securities and Exchange Commission upon request.
10.D2a. Typical form of residual stock redemption note executed in
connection with redemption of common stock from members, including
directors (incorporated by reference to Exhibit 10-D2 to the
registrant's Form 10-K for the fiscal year ended October 2, 1992).
10.D2b. Schedule listing material details of residual stock redemption
notes payable to directors and nominees.*
Pursuant to Instruction 2 to Item 601 of Regulation S-K, the
registrant has filed the form and schedule listed above in lieu of
filing each document executed in transactions with directors. The
registrant agrees to furnish a copy of any omitted document to the
Securities and Exchange Commission upon request.
10.E1. Copy of sublease agreement for Aloha store dated January 3, 1994,
between the registrant and CTD, L.L.C., a limited liability company
controlled by Craig Danielson, a director of the registrant
(incorporated by reference to Exhibit 10.E to the registrant's Form
10-Q for the quarterly period ended April 1, 1994).
10.E2. Copy of sublease agreement for Tigard store dated January 3, 1994,
between the registrant and CTD, L.L.C., a limited liability company
controlled by Craig Danielson, a director of the registrant
(incorporated by reference to Exhibit 10.D to the registrant's Form
10-Q for the quarterly period ended April 1, 1994).
10.E3. Copy of sublease agreement for Sandy store dated May 4, 1994,
between the registrant and Dan Inc Oregon, a corporation controlled
by Craig Danielson, a director of the registrant (incorporated by
reference to Exhibit 10.G3 to the registrant's Form 10-K for the
fiscal year ended September 30, 1994).
10.E4. Copy of Asset Purchase and Sale Agreement dated May 4, 1994, for
Sandy store between the registrant and Dan Inc Oregon, a
corporation controlled by Craig Danielson, a director of the
registrant (incorporated by reference to Exhibit 10.G4 to the
registrant's Form 10-K for the fiscal year ended September 30,
1994).
10.E5. Copy of Asset Purchase and Sale Agreement dated January 3, 1994,
for Aloha and Tigard stores between the registrant and CTD, L.L.C.,
a limited liability company controlled by Craig Danielson, a
director of the registrant (incorporated by reference to Exhibit
10.C to the registrant's Form 10-Q for the quarterly period ended
April 1, 1994).
10.F. Copy of sublease agreement for Orland store dated August 19, 1994,
between the registrant and Gil's Supermarkets, Inc., a corporation
controlled by Gil Foster, a director of the registrant
(incorporated by reference to Exhibit 10.H to the registrant's Form
10-K for the fiscal year ended September 30, 1994).
10.G1. Copy of sublease agreement for Coos Bay store dated February 28,
1991, between the registrant and Raymond L. Nidiffer, a director of
the registrant (incorporated by reference to Exhibit 10-I19 to the
registrant's Form 10-K for the fiscal year ended September 27,
1991).
10.G2. Copy of sublease agreement for Arcata store dated August 11, 1977,
between the registrant and Raymond L. Nidiffer, a director of the
registrant (incorporated by reference to Exhibit 10-Q2 to the
registrant's registration statement on Form S-2, No. 33-26631).
10.G3. Copy of sublease agreement for Gold Beach store dated July 6, 1979,
between the registrant and Raymond L. Nidiffer, a director of the
registrant (incorporated by reference to Exhibit 10-Q3 to the
registrant's registration statement on Form S-2, No. 33-26631).
10.G4. Copy of assignment of lease and related documents for Mt. Shasta
store between the registrant and C & K Market, Inc., an affiliate
of Raymond L. Nidiffer, a director of the registrant (incorporated
by reference to Exhibit 10-Q4 to the registrant's registration
statement on Form S-2, No. 33-26631).
10.G5. Copy of sublease agreement for Rogue River store dated June 25,
1976, between the registrant and Raymond L. Nidiffer, a director of
the registrant (incorporated by reference to Exhibit 10-Q5 to the
registrant's registration statement on Form S-2, No. 33-26631).
10.G6. Copy of lease agreement for Coos Bay store dated February 28, 1991,
between the registrant and Raymond L. Nidiffer, a director of the
registrant (incorporated by reference to Exhibit 10-I20 to the
registrant's Form 10-K for the fiscal year ended September 27,
1991).
10.G7. Copy of loan guaranties dated June 12, 1980 and September 30, 1988
given by registrant for the benefit of C & K Market, Inc., an
affiliate of Raymond L. Nidiffer, a director of the registrant
(incorporated by reference to Exhibit 10-I12 to the registrant's
Form 10-K for the fiscal year ended September 30, 1989).
10.G8. Copy of stock purchase agreement dated as of June 20, 1994, between
the registrant and C&K Market, Inc., an affiliate of Raymond L.
Nidiffer, a director of registrant (incorporated by reference to
Exhibit 10.F8 to the registrant's Form 10-K for the fiscal year
ended September 30, 1994).
12. Statement of computation of ratio of adjusted income to fixed
charges (incorporated by reference to Exhibit 12 to the
registrant's Form 10-K for the fiscal year ended September 30,
1994).
13. Portions of annual report to security holders incorporated by
reference in the prospectus forming a part of this registration
statement.
23.A. Consent of Miller, Nash, Wiener, Hager & Carlsen (filed as part of
Exhibit 5).*
23.B. Consent of DeLap, White & Raish.*
24. Power of attorney.*
25. Statement of Eligibility of Trustee.*
28. Copy of schedule P of the annual statement for Grocers Insurance
Company, a subsidiary of the registrant, as filed with the state
insurance departments where the company operates, for the year
ended December 31, 1993 (incorporated by reference to Exhibit 28 to
the registrant's Form 10-K for the fiscal year ended September 30,
1994).*
* Previously filed.
<PAGE>
EXHIBIT 4.C
UNITED GROCERS, INC.
AND
FIRST BANK NATIONAL ASSOCIATION
TRUSTEE
________________
SUPPLEMENTAL INDENTURE
Dated as of January 9, 1995
________________
Series J Capital Investment Notes
<PAGE>
TABLE OF CONTENTS
Page
Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE ONE
Definitions and Other Provisions
of General Application
Section 1.01. Definitions. . . . . . . . . . . . . . . . . . . . . . 2
Section 1.02. Provisions of General Application. . . . . . . . . . . 3
Section 1.03. Provisions Specially Applicable to Series J Notes. . . 3
Section 1.04. Effect of Headings and Table of Contents . . . . . . . 3
Section 1.05. Successors and Assigns . . . . . . . . . . . . . . . . 4
Section 1.06. Separability Clause. . . . . . . . . . . . . . . . . . 4
Section 1.07. Governing Law. . . . . . . . . . . . . . . . . . . . . 4
Section 1.08. Counterparts . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE TWO
Series J Note Forms
Section 2.01. Forms Generally. . . . . . . . . . . . . . . . . . . . 4
ARTICLE THREE
Series J Notes
Section 3.01. Authorization of Series J Notes. . . . . . . . . . . . 5
Section 3.02. Entry in Investment Note Register of Series J
Investment Notes . . . . . . . . . . . . . . . . . . . 5
Section 3.03. Form, Issue, Dating, Payment of Principal at
Maturity and Cancellation of Series J Notes. . . . . . 6
Section 3.04. Registration of Transfer and Exchange of Series J
Notes. . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.05. Persons Deemed Owners. . . . . . . . . . . . . . . . . 7
ARTICLE FOUR
Designation and Entry in Investment
Note Register, Stated Maturity, and
Rate of Interest of Series J Notes
Section 4.01. Designation and Entry in Investment Note Register. . . 8
Section 4.02. Stated Maturity and Rate of Interest . . . . . . . . . 8
Section 4.03. Quarterly Statement of Series J Note Holdings. . . . . 9
ARTICLE FIVE
Prepayment and Redemption of Series J Notes
Section 5.01. Prepayment . . . . . . . . . . . . . . . . . . . . . . 9
Section 5.02. Election to Redeem . . . . . . . . . . . . . . . . . . 10
Section 5.03. Procedure for Redemption . . . . . . . . . . . . . . . 10
Section 5.04. Effect of Redemption . . . . . . . . . . . . . . . . . 11
ARTICLE SIX
Subordination of Series J Notes
Section 6.01. Agreement of Subordination . . . . . . . . . . . . . . 12
Section 6.02. Distribution on Dissolution and Reorganization;
Subrogation of Series J Notes. . . . . . . . . . . . . 12
Section 6.03. Payments on Series J Notes . . . . . . . . . . . . . . 15
Section 6.04. Trustee Authorized to Effectuate Subordination . . . . 16
Section 6.05. Rights of Trustee as a Holder of Senior
Indebtedness . . . . . . . . . . . . . . . . . . . . . 16
Section 6.06. Reliance by Holders of Senior Indebtedness . . . . . . 16
Section 6.07. Subordination Not to Be Prejudiced by Certain Acts . . 16
ARTICLE SEVEN
Miscellaneous
Section 7.01. No Alteration of Prior Series of Investment Notes. . . 17
Section 7.02. Additional Supplemental Indentures . . . . . . . . . . 17
Section 7.03. Amendment of Section 9.01 of Indenture . . . . . . . . 17
Section 7.04. Satisfaction and Discharge of Indenture. . . . . . . . 18
Testimonium. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Signatures and Seal. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Acknowledgments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
<PAGE>
THIS SUPPLEMENTAL INDENTURE dated as of January 9, 1995, between UNITED
GROCERS, INC., an Oregon corporation (hereinafter called the "Company"),
having its principal offices at 6433 S.E. Lake Road, Milwaukie, Oregon, and
FIRST BANK NATIONAL ASSOCIATION, a national banking association (hereinafter
called the "Trustee") having its principal corporate trust office at 1000
S.W. Broadway, Suite 1750, Portland, Oregon 97205,
W I T N E S S E T H :
WHEREAS the Company and the Trustee, as successor to the corporate
trust business of United States National Bank of Oregon, are parties to an
Indenture dated as of February 1, 1978 (hereinafter called the "Indenture"),
providing for the issuance by the Company of its Capital Investment Notes
(hereinafter called "Investment Notes");
WHEREAS the Indenture provides for the issuance of one or more series
of Investment Notes, each series to have such provisions as set forth in the
Indenture and indentures supplemental thereto;
WHEREAS the Company and the Trustee, as successor to the corporate
trust business of United States National Bank of Oregon, are parties to
supplemental indentures dated as of the dates set forth below, providing for
the issuance by the Company of the series of Investment Notes indicated:
Date Series
August 15, 1979 B
November 11, 1981 C
December 15, 1984 D
December 15, 1986 E
January 27, 1989 F
January 22, 1991 G
July 6, 1992 H
WHEREAS the Company has duly authorized the creation of an issue of an
additional series of Investment Notes (hereinafter sometimes called "Series J
Notes"); and
WHEREAS all things have been done that are necessary (1) to make the
Series J Notes the valid obligations of the Company once the Terms (as
defined herein) of the Series J Notes have been entered in the Investment
Note Register (as defined herein) and notice thereof has been given to the
Trustee and (2) to make this Supplemental Indenture a valid agreement of the
Company, in accordance with the terms of the Series J Notes and of this
Supplemental Indenture;
NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH that, in
consideration of the premises and the purchase of Series J Notes by the
Holders thereof, the Company covenants and agrees to and with the Trustee,
for the equal and proportionate benefit of all present and future Holders of
Series J Notes, as follows:
ARTICLE ONE
Definitions and Other Provisions
of General Application
Section 1.01. Definitions.
Unless otherwise defined herein, the terms defined in the Indenture
have the meanings assigned to them therein and the rules of construction
specified therein shall apply hereto.
"Senior Indebtedness" means all indebtedness of the Company of every
kind and character, whether outstanding on the date of the Indenture or
thereafter created (other than indebtedness evidenced by the Investment Notes
and the Building Notes), (i) for money borrowed by the Company, (ii) for
money borrowed by others and guaranteed by the Company, (iii) constituting
purchase money indebtedness incurred for the purchase of tangible property
and for the payment of which the Company is directly or contingently liable,
(iv) arising under any document creating an absolute or contingent obligation
of the Company to purchase promissory notes and related documents from third
parties, or (v) for fees, expenses, and other obligations of the Company due
in connection with indebtedness of the Company that constitutes Senior
Indebtedness; unless in each case by the terms of the instrument creating or
evidencing the indebtedness or obligation it is provided that such
indebtedness or obligation is not superior in right of payment to the
Investment Notes.
"Series J Notes" means the Series J Capital Investment Notes provided
for by this Supplemental Indenture once the Terms of the Series J Notes have
been entered in the Investment Note Register and notice thereof has been
given to the Trustee pursuant to Section 4.01.
"Terms," with respect to any Series J Note, means all of the following
items of information: number, name and address of Holder, date from which
interest is payable, date of issue, maturity date, principal sum, and annual
rate of interest.
References to Articles or Sections are references to the Articles or
Sections hereof unless such references are specifically identified as being
references to Articles or Sections of the Indenture.
Section 1.02. Provisions of General Application.
Except as otherwise specifically provided herein, the provisions of
Article One of the Indenture, Sections 3.01 through 3.06, 3.08, and 3.10 of
the Indenture and Articles Seven through Thirteen of the Indenture, as
amended with respect to Series J Notes by Article Seven of this Supplemental
Indenture, which provisions are applicable to the rights, privileges, duties,
and obligations of the Company, the Trustee, the Holders, and other Persons
with respect to Investment Notes generally, shall apply to the Series J Notes
as fully to all intents and purposes as though set forth in full herein, it
being the intent hereof that the Series J Notes authorized hereby shall
constitute Additional Investment Notes which are Investment Notes as
contemplated by the Indenture.
This Supplemental Indenture shall be construed as supplemental to the
Indenture and shall form a part thereof. The Indenture, including
specifically but without limitation Section 1.06 thereof, is hereby
incorporated by reference herein and is hereby ratified, approved, and
confirmed.
Section 1.03. Provisions Specially Applicable to Series J Notes.
To the extent the provisions of the Indenture govern the Series J Notes
as provided in Section 1.02:
(1) The reference to "Article Six" contained in Section 9.08 of the
Indenture shall be deemed to include a reference to Article Six hereof.
(2) The references to "Series A Notes" contained in Section 13.01 of
the Indenture shall be deemed to be references to "Series A Notes, Series B
Notes, Series C Notes, Series D Notes, Series E Notes, Series F Notes,
Series G Notes, Series H Notes and Series J Notes."
(3) Pursuant to Sections 1.01 and 13.05 of the Indenture, references
to the Trust Indenture Act in the Indenture and references therein to terms
defined in the Trust Indenture Act to the extent the same form a part of this
Supplemental Indenture shall mean the Trust Indenture Act as in effect at the
date as of which this Supplemental Indenture is executed.
Section 1.04. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience of reference only, are not to be considered a part hereof,
and shall not affect the construction hereof.
Section 1.05. Successors and Assigns.
All covenants and agreements in this Supplemental Indenture by the
Company shall bind its successors and assigns, whether so expressed or not.
Section 1.06. Separability Clause.
In case any provision in this Supplemental Indenture or in the
Investment Notes shall be invalid, illegal or unenforceable, the validity,
legality, and enforceability of the remaining provisions shall not in any way
be affected or impaired thereby.
Section 1.07. Governing Law.
This Supplemental Indenture shall be governed by and construed in
accordance with the laws of the state of Oregon.
Section 1.08. Counterparts.
This Supplemental Indenture may be executed in any number of
counterparts, each of which shall be an original, but such counterparts shall
together constitute but one and the same instrument.
ARTICLE TWO
Series J Note Forms
Section 2.01. Forms Generally.
Notwithstanding any provision in the Indenture to the contrary,
Series J Notes will be issued as noncertificated Series J Notes. Except as
otherwise expressly provided herein, each Holder of a Series J Note shall be
entitled to receive payments of principal and interest in the same amounts
and currency and at the same time and place and shall be entitled to all
other rights under the Indenture and this Supplemental Indenture as if the
Holder of said Series J Note were a Holder of a certificated Series J Note
having the same Terms. Except as otherwise expressly provided herein, each
reference in the Indenture or in this Supplemental Indenture to
authentication and delivery of Investment Notes shall, when made with respect
to Series J Notes, be deemed to include a reference to the entry of the Terms
thereof in the Investment Note Register and the giving of notice thereof to
the Trustee and each Series J Note as to which the Terms have been entered in
the Investment Note Register and notice thereof has been given to the Trustee
pursuant to Section 4.01 shall be deemed to be a duly authenticated and
delivered Investment Note, notwithstanding the provisions to the contrary in
the third and fifth paragraphs of Section 3.03 of the Indenture.
ARTICLE THREE
Series J Notes
Section 3.01. Authorization of Series J Notes.
Pursuant to the provisions of Sections 3.01, 3.10, and 13.01(6) of the
Indenture, there is hereby authorized for issuance a series of Additional
Investment Notes which shall be the Series J Notes as specified herein.
Section 3.02. Entry in Investment Note Register of Series J Investment
Notes.
Upon Company Order, without any further action by the Company, the
Terms of the Series J Notes authorized herein shall be entered in the
Investment Note Register and notice shall be given to the Trustee as provided
in Section 4.01. The Trustee acknowledges receipt of the following documents
pursuant to and in satisfaction of the provisions of Section 3.10 of the
Indenture:
(1) A Board Resolution authorizing the execution of this Supplemental
Indenture and the issuance of Series J Notes of up to the principal amount
specified in Section 4.01 and requesting the entry by the Investment Note
Registrar in the Investment Note Register of the Terms of such Series J Notes
and notification thereof to the Trustee.
(2) An Officers' Certificate stating that no event has occurred and is
continuing which is, or after notice or lapse of time or both would become,
an Event of Default and that all conditions precedent provided for in the
Indenture and in this Supplemental Indenture relating to the entry in the
Investment Note Register of the Terms of the Series J Notes and notification
thereof to the Trustee have been complied with.
(3) A counterpart of this Supplemental Indenture authorizing the
issuance of the Series J Notes executed by the Company and the Trustee.
(4) An Opinion of Counsel:
(A) Specifying all conditions precedent provided for in the Indenture
and in this Supplemental Indenture relating to the issuance of Series J Notes
and the entry in the Investment Note Register of the Terms of such Series J
Notes and notification thereof to the Trustee and stating that all such
conditions have been complied with;
(B) Stating that once the Terms of the Series J Notes have been
entered in the Investment Note Register and notice thereof has been given to
the Trustee, such Series J Notes will constitute legal, valid, and binding
obligations of the Company, enforceable in accordance with their terms and
entitled to the benefits of the Indenture and this Supplemental Indenture
subject to applicable bankruptcy, reorganization, insolvency or other laws
relating to or affecting the enforcement of creditors' rights;
(C) Stating that all applicable stamp taxes or other governmental
charges (if any) in respect of the original issue of the Series J Notes have
been paid;
(D) Stating that the Supplemental Indenture constitutes the valid and
binding obligation of the Company enforceable in accordance with its terms
except as enforcement may be limited by laws affecting creditor's rights
generally or by principles of equity or public policy; and
(E) Stating that the amendments and supplements to the Indenture made
by this Supplemental Indenture are permitted by Section 13.01 of the
Indenture.
The acts and documents specified above with respect to the
authorization and issuance of Series J Notes shall be deemed to be the
equivalent of the acts and documents specified in Section 3.10 of the
Indenture with respect to the execution, authentication, delivery, and issue
of certificated Investment Notes.
Section 3.03. Form, Issue, Dating, Payment of Principal at Maturity
and Cancellation of Series J Notes.
Series J Notes will be noncertificated. A Series J Note is issued upon
both the entry of its Terms in the Investment Note Register and notification
thereof by an officer of the Company to the Trustee. The date of
authentication of a Series J Note, as well as its date of issue, shall be the
date on which both its Terms are entered in the Investment Note Register and
notice is given by an officer of the Company to the Trustee.
All payments of principal and interest shall be made in lawful money of
the United States of America at the office or agency of the Company
maintained for that purpose in the county of Clackamas, Oregon, provided that
the Company may pay the principal of and interest on Series J Notes by
mailing a check to the Holder at the Holder's last address as it appears in
the Investment Note Register.
A Series J Note shall be canceled by entering a notation to that effect
in the Investment Note Register and giving notice thereof to the Trustee.
Section 3.04. Registration of Transfer and Exchange of Series J Notes.
Upon written request to the Company by the Holder for registration of
transfer of a Series J Note, the Investment Note Registrar shall enter upon
the Investment Note Register the Terms of a new Investment Note or Notes
bearing interest at the same rate and with the same Stated Maturities of
principal and interest of authorized denominations for the same aggregate
principal amount and issued in the name of the transferee. Notwithstanding
any provision in the Indenture to the contrary, the new Investment Note or
Notes will be issued as a noncertificated Series J Note or Notes. There
shall be no service charge for registration of transfer of Investment Notes,
but the Company may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith.
Upon written request to the Company by the Holder for exchange of a
Series J Note, the Investment Note Registrar shall enter upon the Investment
Note Register the Terms of a new Investment Note or Notes bearing interest at
the same rate and with the same Stated Maturities of principal and interest
of authorized denominations for the same aggregate principal amount.
Notwithstanding any provision in the Indenture to the contrary, the new
Investment Note or Notes will be issued as a noncertificated Series J Note or
Notes. There shall be no service charge for exchange of Investment Notes,
but the Company may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith.
The Company or the Investment Note Registrar may require the written
request for registration of transfer or exchange to be in form satisfactory
to the Company and the Investment Note Registrar and duly executed by the
Holder of the Series J Note or his attorney duly authorized in writing.
The office or agency maintained by the Company pursuant to Section 7.02
of the Indenture shall be the place where Holders of Series J Notes may
submit written requests for registration of transfer or exchange.
Section 3.05. Persons Deemed Owners.
Prior to receipt by the Company of a written request from the Holder of
a Series J Note for registration of transfer, the Company, the Trustee and
any agent of the Company or the Trustee may treat the Person in whose name
any Series J Note is registered as the owner of such Series J Note for the
purpose of receiving payment of principal of, and (subject to Section 3.06 of
the Indenture) interest on, such Series J Note and for all other purposes
whatsoever, whether or not such Series J Note be overdue, and neither the
Company, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary.
Receipt by the Company of a written request for registration of
transfer from the Holder of a Series J Note shall be deemed the equivalent of
due presentment of a certificate for registration of transfer by the Holder.
ARTICLE FOUR
Designation and Entry in Investment
Note Register, Stated Maturity, and
Rate of Interest of Series J Notes
Section 4.01. Designation and Entry in Investment Note Register.
The series of Investment Notes designated in accordance with
Section 3.01 shall be "Series J Capital Investment Notes" (herein sometimes
referred to as the "Series J Notes").
The aggregate principal amount of Series J Notes which may be issued is
limited to $50,000,000, except for Series J Notes issued upon registration of
transfer of or in exchange for or in lieu of other Series J Notes pursuant to
Sections 3.04 of the Indenture or Sections 3.04 or 5.03 hereof.
Forthwith upon the execution and delivery of this Supplemental
Indenture, or from time to time thereafter, the Company may authorize the
issuance of Series J Notes up to such aggregate principal amount, and
thereupon and upon Company Order, without any further action by the Company,
the Terms of the Series J Notes shall be entered in the Investment Note
Register and notice thereof shall be given to the Trustee.
Section 4.02. Stated Maturity and Rate of Interest.
The Stated Maturity of principal of any Series J Note other than a
Series J Note issued upon registration of transfer of or in exchange for or
in lieu of another Series J Note pursuant to Sections 3.04 of the Indenture
or Sections 3.04 or 5.03 hereof, shall be the Interest Payment Date of such
Series J Note which is ten years from its date of issue as specified in the
Investment Note Register or, if the expiration of ten years from the date of
issue shall not fall on an Interest Payment Date, then the Stated Maturity of
principal of such Series J Note shall be the Interest Payment Date next
following the expiration of ten years from its date of issue. Each Series J
Note shall bear interest at the rate per annum specified in the Investment
Note Register from the date so specified or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, as the
case may be. Such interest shall be payable quarterly on March 15, June 15,
September 15, and December 15, to the person in whose name such Series J Note
is registered at the close of business on the last Business Day of the
calendar month next preceding the calendar month in which an interest payment
is due, except as otherwise provided in the Indenture and this Supplemental
Indenture, until the principal of such Series J Note is paid or made
available for payment. The interest rates on Series J Notes shall be
determined by Board Resolution and shall be subject to change by Board
Resolution from time to time, but no such change shall affect any Series J
Notes theretofore issued. The denominations, dates from which interest is
payable and Stated Maturities of principal and interest of Series J Notes
shall be subject to change by the Company from time to time by an indenture
supplemental hereto executed as permitted by the Indenture and this
Supplemental Indenture and authorizing the change in such denominations,
dates, and Stated Maturities, but no such change shall affect any Series J
Notes theretofore issued.
Section 4.03. Quarterly Statement of Series J Note Holdings.
The Company shall mail or cause to be mailed not earlier than 30 days
before and not later than 30 days after each Interest Payment Date to each
Holder of a Series J Note to the Holder's address as it appears in the
Investment Note Register a statement which provides the following information
with regard to each Series J Note held by such Holder: number, date from
which interest is payable, date of issue, maturity date, principal sum, and
annual rate of interest.
<PAGE>
ARTICLE FIVE
Prepayment and Redemption of Series J Notes
Section 5.01. Prepayment.
Subject to the provisions of Article Six, in the event of the death of
the registered Holder of any Series J Note or of any joint registered Holder,
the Company shall, at the option of the person legally entitled to become the
Holder of the Series J Note, prepay the principal amount of the Series J Note
together with all accrued interest to the date of payment. Any request for
prepayment shall be made to the Company in writing. The Company may, as a
condition precedent to the prepayment herein provided for, require the
submission of evidence satisfactory to the Company of the death of the
registered Holder or joint registered Holder and such additional documents or
other material as it may consider necessary to establish the Person entitled
to become the Holder of the Series J Note, or such other facts as it
considers relevant to the fulfillment of its obligations hereunder.
Section 5.02. Election to Redeem.
Subject to the provisions of Article Six, the Series J Notes may be
redeemed at the election of the Company evidenced by Board Resolution, as a
whole or from time to time in part, at any time during the seven-year period
prior to maturity at Redemption Prices equal to the principal amount of the
Series J Notes to be redeemed plus accrued interest thereon. The Company may
for the purpose of redeeming Series J Notes classify the Series J Notes then
subject to redemption into one or more classes on the basis of their maturity
or their annual rate of interest or any combination thereof and designate for
redemption a specified principal amount of any such class or classes of
Series J Notes.
Section 5.03. Procedure for Redemption.
In case the Company shall desire to exercise its right to redeem
Series J Notes which are subject to redemption, it shall give notice of such
redemption to Holders of the Series J Notes to be redeemed as hereinafter
provided in this Section.
In the event the principal amount of Series J Notes to be redeemed
shall not be equal to the principal amount of the class or classes of
Series J Notes designated by the Company for redemption, or in the event no
such class has been so designated and if less than all the Series J Notes
subject to redemption are to be redeemed, the Company shall, at least 45 days
prior to the Redemption Date fixed by the Company (unless a shorter notice
shall be satisfactory to the Trustee), notify the Trustee of such Redemption
Date and of the principal amount of Series J Notes to be redeemed by class,
if applicable. Thereupon the Trustee shall select (giving effect to the
designation, if any, of a class or classes of Series J Notes to be redeemed),
in such manner as it shall deem appropriate and fair in its sole discretion
and which may provide for the selection of portions (equal to $100 or an
integral multiple of $100) of the principal of Series J Notes of a
denomination larger than $100, the particular Series J Notes to be redeemed
in whole or in part and shall thereafter promptly notify the Company and each
Investment Note Registrar in writing, by designating the numbers thereof or
by any other method, which Series J Notes or portions thereof are to be
redeemed.
Notice of redemption shall be given to the Holders of Series J Notes to
be redeemed as a whole or in part by mailing by first class mail a notice of
such redemption not less than 30 nor more than 60 days prior to the date
fixed for redemption to their last addresses as they shall appear upon the
Investment Note Register, but failure to give such notice by mail to the
Holder of any Series J Note or any defect in such notice shall not affect the
validity of the proceedings for the redemption of any other Series J Note or
portion thereof. Any notice mailed in the manner provided in this paragraph
shall be conclusively presumed to have been duly given, whether or not the
Holder receives the notice.
Each notice to be mailed to the Holders of Series J Notes as aforesaid
shall state the following: (a) the Redemption Date; (b) if less than all of
the Series J Notes are to be redeemed, the distinguishing numbers (which may
be given by individual numbers of Series J Notes, by specifying all Series J
Notes ending in certain key numbers and/or by specifying all Series J Notes
between two stated numbers) or other characteristics of the Series J Notes to
be redeemed (indicating the extent of any partial redemption thereof),
together with such other description of the Series J Notes (and portions of
Series J Notes, if any) as may be necessary in order to identify the same,
provided that any such notice to be mailed need describe only the Series J
Notes to be redeemed from the Holder to whom such notice is mailed; (c) the
Redemption Price; (d) that interest on such Series J Notes (or on the portion
to be redeemed of any of such Series J Notes so designated for redemption in
part) shall cease on the Redemption Date; and (e) that on said date the
Company will mail a check for the Redemption Price to each Holder of Series J
Notes which are to be redeemed to the last address of such Holder as it
appears in the Investment Note Register.
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own
Paying Agent, segregate and hold in trust as provided in Section 7.03 of the
Indenture) an amount of money sufficient to pay the Redemption Price of, and
(except with respect to any Series J Note or portion thereof for which the
Redemption Date shall be an Interest Payment Date) accrued interest on, all
the Series J Notes or portions thereof which are to be redeemed on that date.
Section 5.04. Effect of Redemption.
If notice of redemption shall have been given as above provided, the
Series J Notes or portions of Series J Notes specified in such notice shall
become due and payable on the Redemption Date by mail at the applicable
Redemption Price, together with interest accrued to the Redemption Date, and
on and after such Redemption Date (unless the Company shall default in the
payment of such Series J Notes at the Redemption Price, together with
interest accrued to the Redemption Date) interest on the Series J Notes or
portions thereof so called for redemption shall cease to accrue. Without any
action by the Holder of a Series J Note, such Series J Note or portion
thereof shall be paid and redeemed by the Company at the applicable
Redemption Price, together with interest accrued to the Redemption Date by
mailing a check to the Holder at such Holder's last address as it appears in
the Investment Note Register; provided that installments of interest whose
Stated Maturity is on or prior to the Redemption Date shall be payable to the
Holder in whose name the Series J Note (or Predecessor Series J Note) was
registered at relevant record dates according to its terms and the provisions
of Section 3.06 of the Indenture, as amended by this Supplemental Indenture.
In the case of a Series J Note which is redeemed in part only, the
Company shall request the Investment Note Registrar to reflect in the
Investment Note Register the principal amount of the unredeemed portion of
the Series J Note.
ARTICLE SIX
Subordination of Series J Notes
Section 6.01. Agreement of Subordination.
The Company agrees, and each Holder of a Series J Note, by his purchase
or acceptance thereof, likewise agrees, that the payment of the principal of
and interest on each and all of the Series J Notes is hereby expressly
subordinated, to the extent and in the manner hereinafter set forth, in right
of payment to the prior payment in full of all Senior Indebtedness.
Section 6.02. Distribution on Dissolution and Reorganization;
Subrogation of Series J Notes.
Upon any distribution of assets of the Company upon any liquidation,
dissolution, winding up or reorganization of the Company (whether in
bankruptcy, insolvency or receivership proceedings or upon an assignment for
the benefit of creditors or any other liquidation, dissolution, winding up,
or reorganization of the Company):
(1) The holders of all Senior Indebtedness shall first be entitled to
receive payment in full, or have provision made for payment in full, of the
principal thereof, and the premium, if any, and interest thereon, before the
Holders of the Series J Notes are entitled to receive any payment on account
of the principal of or interest on the Series J Notes;
(2) Any payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities, to which the Holders
of the Series J Notes or the Trustee would be entitled except for the
provisions of this Article shall be paid by the liquidating trustee or agent
or other person making such payment or distribution, whether a trustee in
bankruptcy, a receiver or liquidating trustee or other trustee or agent,
direct to the holders of Senior Indebtedness or their representative or
representatives or to the trustee or trustees under any indenture under which
any instruments evidencing any of such Senior Indebtedness may have been
issued, ratably (subject to any subordination of any class of Senior
Indebtedness, by the provisions thereof, to any other class or classes of
Senior Indebtedness) according to the aggregate amounts remaining unpaid on
account of the principal of, and the premium, if any, and interest on, the
Senior Indebtedness held or represented by each, to the extent necessary to
make payment in full of all Senior Indebtedness remaining unpaid, after
giving effect to any concurrent payment or distribution, or provision
therefor, to the holders of such Senior Indebtedness; and
(3) In the event that, notwithstanding the foregoing, any such payment
or distribution of assets of the Company of any kind or character, whether in
cash, property or securities, shall be received by the Trustee or the Holders
of the Series J Notes before all Senior Indebtedness is paid in full, or
provision made for its payment, such payment or distribution shall be paid
over to the holders of Senior Indebtedness remaining unpaid or unprovided for
or their representative or representatives or to the trustee or trustees
under any indenture under which any instrument evidencing any of such Senior
Indebtedness may have been issued, as provided in the foregoing
subparagraph (2), for application to the payment of such Senior Indebtedness
until all such Senior Indebtedness shall have been paid in full, after giving
effect to any concurrent payment or distribution, or provision therefor, to
the holders of such Senior Indebtedness.
Subject to the payment in full of all Senior Indebtedness, the Holders
of the Series J Notes shall be subrogated pro rata (based on the respective
amounts paid over for the benefit of the holders of Senior Indebtedness) with
the holders of any other subordinated indebtedness of the Company that by its
terms ranks pari passu with the Series J Notes (such subordinated
indebtedness being hereafter in this Section referred to as "pari passu
indebtedness") to the rights of the holders of Senior Indebtedness to receive
payments or distributions of cash, property or securities of the Company
applicable to the Senior Indebtedness until the principal of and interest on
the Series J Notes shall be paid in full; and, for purposes of such
subrogation, no such payments or distributions to the holders of Senior
Indebtedness, which, but for the provisions of this Article, would have been
payable or distributable to Holders of the Series J Notes or the pari passu
indebtedness, shall, as between the Company, its creditors other than the
holders of Senior Indebtedness and the Holders of the Series J Notes and the
pari passu indebtedness be deemed to be a payment by the Company to or on
account of the Senior Indebtedness. It is understood that the provisions of
this Article are and are intended solely for the purpose of defining the
relative rights of the Holders of the Series J Notes and the holders of the
pari passu indebtedness and the holders of the Senior Indebtedness. Nothing
contained in this Article, elsewhere in this Supplemental Indenture, in the
Indenture or in the Series J Notes is intended to or shall impair, as between
the Company, its creditors other than the holders of Senior Indebtedness, and
the Holders of the Series J Notes, the obligation of the Company, which is
absolute and unconditional, to pay to the Holders of the Series J Notes the
principal of and interest on the Series J Notes as and when the same shall
become due and payable in accordance with their terms, or is intended to or
shall affect the relative rights of the Holders of the Series J Notes and
creditors of the Company other than the holders of the Senior Indebtedness,
nor shall anything herein or therein prevent the Trustee or the Holder of any
Series J Note from exercising all remedies otherwise permitted by applicable
law upon default under this Indenture, subject to the rights, if any, under
this Article of the holders of Senior Indebtedness in respect of cash,
property or securities of the Company received upon the exercise of any such
remedy. Upon any distribution of assets of the Company referred to in this
Article, the Trustee, subject to the provisions of Section 10.01 of the
Indenture, and the Holders of the Series J Notes shall be entitled to rely
upon any order or decree made by any court of competent jurisdiction in which
such liquidation, dissolution, winding up or reorganization proceedings are
pending or a certificate of the liquidating trustee or agent or other person
making any distribution to the Trustee or to the Holders of the Series J
Notes for the purpose of ascertaining the Persons entitled to participate in
such distribution, the holders of the Senior Indebtedness and other
indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article.
In the event that the Trustee determines, in good faith, that further
evidence is required with respect to the right of any person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Section, the Trustee may request such person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior
Indebtedness held by such person, as to the extent to which such person is
entitled to participate in such payment or distribution, and as to other
facts pertinent to the rights of such person under this Section, and, if such
evidence is not furnished, the Trustee may defer any payment to such person
pending judicial determination as to the right of such person to receive such
payment.
The Trustee, however, shall not be deemed to owe any fiduciary duty to
the holders of Senior Indebtedness and shall not be liable to any such
holders if it shall mistakenly pay over or distribute to Holders of Series J
Notes or the Company or any other Person, moneys or assets to which any
holder of Senior Indebtedness shall be entitled by virtue of this Article or
otherwise.
The terms "paid in full" and "payment in full" as used in this Section
with respect to Senior Indebtedness mean the receipt, in cash or securities
(taken at their market value at the time of the receipt thereof), of the
principal amount of the Senior Indebtedness (and any premium due thereon) and
full interest thereon to the date of such payment of principal.
The Series J Notes shall not be superior in right of payment to the
Series A, Series B, Series C, Series D, Series E, Series F, Series G, or
Series H Notes. The Series J Notes are hereby expressly declared to rank
pari passu with the Series A, Series B, Series C, Series D, Series E,
Series F, Series G, and Series H Notes and to constitute "pari passu
indebtedness" with respect to the Series A, Series B, Series C, Series D,
Series E, Series F, Series G, and Series H Notes. The Series J Notes shall
not constitute Senior Indebtedness as defined in the Indenture.
Section 6.03. Payments on Series J Notes.
In the event and during the continuation of any default under any
instrument constituting Senior Indebtedness or pursuant to which any Senior
Indebtedness is issued continuing beyond the period of grace, if any,
specified in such instrument, the Company shall not make any payment of
principal of or interest on the Series J Notes or purchase or redeem or set
aside funds for the redemption of Series J Notes or otherwise acquire any
Series J Notes, and neither the Trustee nor any Holder of Series J Notes
shall be entitled to receive any such payment. Nothing contained in this
Article, elsewhere in this Supplemental Indenture or in the Indenture shall,
however, (a) affect the obligation of the Company to make or prevent the
Company from making, at any time, except during the pendency of any such
liquidation, dissolution, winding up, or reorganization proceedings or during
the continuation of any such default, payments of principal of or interest on
the Series J Notes or (b) prevent the application by the Trustee or any
Paying Agent of any moneys deposited with it hereunder by the Company to the
payment of or on account of the principal of or interest on the Series J
Notes if, not less than two business days prior to such application, the
Trustee or such Paying Agent, as the case may be, did not have written notice
from the Company or a holder of Senior Indebtedness of any event prohibiting
the making of such deposit by the Company or such application by the Trustee.
Prior to the receipt of any such written notice, the Trustee shall be
entitled to assume that no such event exists and shall not be charged with
knowledge of the existence of any such event.
Section 6.04. Trustee Authorized to Effectuate Subordination.
Each Holder of a Series J Note, by his purchase or acceptance thereof,
authorizes and directs the Trustee in his behalf to take such action as may
be necessary or appropriate to effectuate the subordination provided for in
this Article and appoints the Trustee his attorney in fact for such purpose.
Section 6.05. Rights of Trustee as a Holder of Senior Indebtedness.
The Trustee shall be entitled to all rights set forth in this Article
with respect to any Senior Indebtedness which may at any time be held by it,
to the same extent as any other holder of Senior Indebtedness; and nothing in
Section 10.12 of the Indenture, or elsewhere in the Indenture or in this
Supplemental Indenture, shall deprive the Trustee of any of its rights as
such holder.
Section 6.06. Reliance by Holders of Senior Indebtedness.
Each Holder of any Series J Note, by his purchase or acceptance
thereof, agrees that the subordination provisions of this Article are, and
are intended to be, an inducement and a consideration to each holder of any
Senior Indebtedness, whether such Senior Indebtedness was created or acquired
before or after the issuance of the Series J Notes, to acquire and continue
to hold, or to continue to hold, such Senior Indebtedness, and such holder of
Senior Indebtedness shall be deemed conclusively to have relied on such
subordination provisions in acquiring and continuing to hold, or in
continuing to hold, such Senior Indebtedness.
Section 6.07. Subordination Not to Be Prejudiced by Certain Acts.
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part, of the
Company or by any act or failure to act, in good faith, by any such holder or
by any noncompliance by the Company with the terms, provisions, and covenants
of this Indenture, regardless of any knowledge thereof any such holder may
have or be otherwise charged with.
ARTICLE SEVEN
Miscellaneous
Section 7.01. No Alteration of Prior Series of Investment Notes.
Nothing contained herein shall alter or amend any provision of the
Indenture insofar as it affects the rights and duties of the Company, the
Trustee, the Holders of Investment Notes or other Persons with respect to
Series A, Series B, Series C, Series D, Series E, Series F, Series G, or
Series H Notes.
Section 7.02. Additional Supplemental Indentures.
Nothing contained herein shall alter or impair the rights of the
Company and the Trustee under the Indenture to enter into one or more
additional supplemental indentures in the manner provided in the Indenture
which may be either supplemental to the Indenture or supplemental to this
Supplemental Indenture and which may be for the purpose of authorizing one or
more series of Additional Investment Notes or for any other purpose provided
by the Indenture.
Section 7.03. Amendment of Section 9.01 of Indenture.
For purposes of the Series J Notes, Sections 9.01(5) and (6) of the
Indenture are hereby amended to read, in full, as follows:
(5) The entry of a decree or order by a court having jurisdiction in
the premises for relief in respect of the Company under the United States
Bankruptcy Code or any other applicable federal or state law or appointing
a custodian, receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of or for the Company or any substantial part of
its property or ordering the winding up or liquidation of its affairs and
the continuance of any such decree or order unstayed and in effect for a
period of 60 consecutive days; or
(6) the commencement by the Company of a voluntary case under the
United States Bankruptcy Code or any other applicable federal or state law
or the consent or acquiescence by it to the filing of any such petition or
to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of
or for the Company or any substantial part of its property or the making by
it of an assignment for the benefit of creditors or its failure to pay its
debts generally as they become due or the taking of corporate action by the
Company in furtherance of any such action.
Section 7.04. Satisfaction and Discharge of Indenture.
Notwithstanding the provisions of Section 11.01 of the Indenture, the
Indenture shall not be satisfied and discharged until (a) all Series J Notes
issued have been paid and canceled or (b) all Series J Notes issued which
have not been paid and canceled have become due and payable, will become due
and payable at their Stated Maturity within one year, or are to be called for
redemption within one year in accordance with Section 11.01(l)(B) of the
Indenture and the Company has provided for their payment pursuant to such
Section.
<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Supplemental
Indenture to be duly executed and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above
written.
UNITED GROCERS, INC.
By /s/ ALAN C. JONES
Alan C. Jones
President
Attest:
/s/ G. P. FLEMING
Assistant Secretary
FIRST BANK NATIONAL
ASSOCIATION, as Trustee
By /s/ LINDA A. MERCER
Authorized Officer
Attest:
/s/ CHERYL NELSON
Authorized Officer
STATE OF OREGON )
) SS
COUNTY OF CLACKAMAS)
The foregoing instrument was acknowledged before me this 13 day of
January, 1995, by Alan C. Jones, President of United Grocers, Inc., an Oregon
corporation, on behalf of the corporation.
/s/ LYMAN R. BROWN
Notary Public for Oregon
My commission expires:
STATE OF OREGON )
) SS
COUNTY OF MULTNOMAH)
The foregoing instrument was acknowledged before me this 12th day of
January, 1995, by Linda A. Mercer, Authorized Officer of First Bank National
Association, a national banking association, on behalf of First Trust
National Association.
/s/ SHIRLEY A. GAUDIN
Notary Public for Oregon
My commission expires:
June 28, 1997
<PAGE>
Board of Directors
Top row, left to right:
Raymond L. Nidiffer
C&K Market Inc. - term expires 1997
Member: Facility Planning Committee, Bylaw Review Committee
Dennis K. Blasingame
DA Boys Market - term expires 1996
Member: Audit Committee, Facility Planning Committee
Peter J. O'Neal
Quality Food Investments, Inc. - term expires 1997
Member: Executive Finance Committee
Chairperson: Bylaw Review Committee
H. Larry Montgomery
Larry's Markets - term expires 1995
Member: Executive Finance Committee
Chairperson: Nominating Committee
David Neal
SMN Company - term expires 1997
Member: Facility Planning Committee
Bottom row, left to right:
James C. Vickers
J.C. Market, Inc. - term expires 1996
Member: Audit Committee, UGPAC Legislative Committee
Gilbert A. Foster
Gil's Supermarkets, Inc. - term expires 1995
Chairperson: Facility Planning Committee
Marlin A. Smythe
Chairman
MCS Management Company - term expires 1995
Member: Compensation Committee, Bylaw Review Committee
Chairperson: Audit Committee, Executive Finance Committee
Craig T. Danielson
Vice Chairman
Dan Inc., Oregon - term expires 1996
Member: Executive Finance Committee
Chairperson: Compensation Committee
Management
Alan C. Jones - President & CEO
Ronald E. Dove - Director of Operations
Ross E. Dwinell - President of Grocers Insurance Group, Inc.
George P. Fleming - Assistant Secretary - President of United Resources, Inc.
Ralph P. Matile III - Medford Division Manager
R. David May - Director of Retail Services
Keith A. Miller - Director of Purchasing & Marketing
James E. Robinson - President, Thriftway Stores, Inc.
Susan D. Weber - Director of Human Resources
John W. White - Vice President & CFO
John M. Willis - Director of Foodservice
<PAGE>
<TABLE>
<CAPTION>
UNITED GROCERS 1994 ANNUAL REPORT
SUMMARY OF NET SALES AND OPERATIONS
(Dollars in Thousands)
For Fiscal Year Ended
September 30, 1994 October 1, 1993 October 2, 1992
================== ================ =================
Percentage Percentage Percentage
of Total of Total of Total
Product or Revenue Revenue Revenue Revenue Revenue Revenue
Service
<S> <C> <C> <C> <C> <C> <C>
Grocery<F1> $399,803 41.87 $370,23742.20 $381,67942.58
Dairy & Deli 105,336 11.04 97,42511.11 101,86811.36
Meat 86,893 9.11 86,115 9.82 86,115 9.60
Produce 47,709 5.00 46,462 5.30 44,672 4.98
Frozen Foods 53,803 5.64 49,078 5.60 51,787 5.78
Gen. Merchandise 45,285 4.75 42,494 4.85 44,901 5.01
Institutional<F2> 179,42218.81 155,57217.74 156,70517.48
Retail Services 14,169 1.49 7,683 .88 7,477 .83
Store Finance 3,846 .41 2,374 .27 2,942 .33
Distribution
Segment Total 936,266 98.12 857,44097.77 878,14697.95
Insurance Segment 17,954 1.88 19,545 2.23 18,441 2.05
TOTAL $954,220 100.00$876,985 100.00$896,587 100.00
<FN>
<F1> Grocery revenues include sales from retail stores operated on a temporary basis.
<F2> Institutional revenues include sales of all product lines.
</TABLE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in Thousands)
For Fiscal Year Ended
Sept. 30 Oct. 1 Oct. 2 Sept. 27 Sept. 28
1994 1993 1992 1991 1990 <S>
<C> <C> <C> <C> <C>
Net sales and operations $954,220 $876,985 $896,587 $882,878 $873,685
Net income 1,563 1,714 2,723 1,712 1,394
Total assets 306,836 285,342 261,289 249,205 218,143
Long-term obligations 114,669 105,539 104,645 98,685 82,918
</TABLE>
No dividends on common stock have been declared during any of the fiscal
years presented.
Sales are reported on a 52/53 week year basis. The year ending October 2,
1992 was 53 weeks, all other years are 52 weeks.
The amounts prior to 1993 have been restated to reflect changes in accounting
for inventories, income taxes and investments as described in the notes to
financial statements. The amounts for 1993 have been restated to reflect
changes in accounting for reinsurance as described in the notes to the
financial statements.
ANNUAL 10-K REPORT
Stockholders may obtain a copy of the Company's 1994 Form 10-K Report
filed with the Securities and Exchange Commission without charge by writing
to John White, Vice-President, United Grocers, Inc., Box 22187, Portland, OR
97269.
A BRIEF REVIEW
United Grocers, Inc. (United) an Oregon corporation organized in 1915, taxed
as a cooperative, is a wholesale grocery distributor. It supplies groceries
and related products to retail grocers located in Oregon, western Washington,
and northern California. United's goal is to supply grocery products to
retailers at prices which enable them to compete effectively in the retail
market, and to furnish them other services, such as marketing assistance,
engineering, accounting, financing, and insurance, which are important to the
successful operation of a retail grocery business.
The Common Stock of United is sold only to members who must be retail
grocers. Upon termination of membership, a member's shares of stock are
redeemed. Sales and redemption of stock are made at book value. United's
Board of Directors consists of nine members serving staggered three-year
terms, and they may not be elected to consecutive terms. Directors, all
grocers, must either be proprietors or partners in a partnership owning a
membership in United or the holder of a substantial interest in a corporation
owning a membership in United. The management of the corporation is under
the direction of a President and Chief Executive Officer who is guided by the
Board of Directors.
United, operating upon a cooperative basis, usually returns most of its
earnings to its members every year in the form of "patronage dividends."
These payments are based on the excess of revenues over expenses on sales to
members for the year. Consequently, net income of the corporation is
relatively low, but not unusual for a cooperative. The patronage dividends
are paid partly in cash and partly in Common Stock.
United also sells groceries and related products to restaurants, and
other institutional buyers, as well as to retailers who are not members.
These sales are through 30 company-owned Cash and Carry stores located
throughout its marketing area.
Grocers Insurance Group, Inc. is a holding company for United's
insurance related subsidiaries. Grocers Insurance Group, Inc. assists in
marketing insurance services offered by those related subsidiaries. Grocers
Insurance Agency, Inc. is an insurance agency. Sales of insurance are made
to members and nonmembers in nineteen states. Grocers Insurance Co., based
in Oregon, and UGIC, Ltd., based in Bermuda, are both insurance companies.
United Workplace Consultants, Inc. offers rehabilitation services to
insurance companies.
Western Passage Express, Inc. provides freight services to United and
others. Northwest Process, Inc. dba Creative Process provides printing
services. United Resources, Inc. and its subsidiaries provide financing and
engineering services. In addition, it is involved in retail store
development activities.
United owns 22 percent of the stock of Western Family Holding Company,
an Oregon-based corporation which pools the buying power of its stockholders
in order to obtain lower cost, high-quality merchandise. Purchases from
Western Family Holding Company, which account for about 11 percent of
United's total purchases, are distributed under "Western Family," and "Valley
Fare" labels.
In existence for 79 years, United is proud of its record growth and
success. But more important, United takes special pride in the success of
its retailers, who own the Corporation, depend on it as their principal
supplier, and are the ultimate source of its success.
The general public knows United's 358 member stores and 248 stockholders
by the name of their advertising groups; e.g., Thriftway Stores, Sentry
Markets, Select Markets, Food Warehouse, or by the individual store names;
e.g., Hanks, Holiday Quality Foods, Kienow's, Murphy's, Price Chopper, Rays
Food Place, Strohecker's, Wizer's, etc. Almost all the leading independent
retailers in its marketing area are members of United Grocers, Inc.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
United Grocers, Inc.
We have audited the accompanying consolidated balance sheets of United
Grocers, Inc. and subsidiaries as of September 30, 1994 and October 1, 1993,
and the related consolidated statements of income, members' equity and cash
flows for each of the three years in the period ended September 30, 1994.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
United Grocers, Inc. and subsidiaries as of September 30, 1994 and October 1,
1993, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended September 30, 1994, in
conformity with generally accepted accounting principles.
As discussed in Note 12 to the consolidated financial statements, the
Company changed its method of accounting for reinsurance in 1993-94. Also,
as discussed in Notes 4 and 7, the Company changed its method of accounting
for inventories in 1992-93 and for income taxes in 1991-92.
DeLap, White & Raish
Certified Public Accountants
Portland, Oregon
November 30, 1994
<PAGE>
<TABLE>
<CAPTION>
UNITED GROCERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30, 1994, OCTOBER 1, 1993, AND OCTOBER 2, 1992
1994 1993 1992
------------------------------------
<S> <C> <C> <C>
Net sales and operations $954,220,350 $876,985,353 $896,587,372
------------ ------------ ------------
Costs and expenses:
Cost of sales (Note 1.d.) 816,721,077 749,447,130 772,846,658
Operating expenses 93,991,529 88,046,293 83,656,610
Selling and administrative expenses 9,533,741 9,441,916 9,866,765
Depreciation 5,609,779 4,737,401 4,290,543
Interest:
Interest expense 9,156,822 8,217,017 8,724,766
Interest income (3,535,802) (3,552,107) (3,547,423)
------------ ------------ ------------
Interest expense, net 5,621,020 4,664,910 5,177,343
------------ ------------ ------------
Total costs and expenses 931,477,146 856,337,650 875,837,919
------------ ------------ ------------
Income before members' allowances
and patronage dividends, income
taxes and cumulative effect of
change in accounting principle 22,743,204 20,647,703 20,749,453
Members' allowances (11,449,305) (9,356,885) (7,435,167)
Members' patronage dividends (Note 9) (8,730,168) (9,000,000) (10,211,000)
------------ ------------ ------------
Income before income taxes and
cumulative effect of change in
accounting principle 2,563,731 2,290,818 3,103,286
Provision for income taxes (Note 8) (1,000,341) (576,435) (906,690)
Cumulative effect of change in
accounting principle (Note 7) -- -- 526,314
------------ ------------ ------------
Net income $ 1,563,390 $ 1,714,383 $ 2,722,910
============ ============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE>
<TABLE>
<CAPTION>
UNITED GROCERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1994 AND OCTOBER 1, 1993
ASSETS
1994 1993
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 12,984,028 $ 18,807,473
Investments (Note 1.e. & 2) 36,939,578 34,397,583
Accounts and notes receivable
(Note 3 & 12) 60,290,461 44,008,137
Inventories (Note 1.d. & 4) 74,307,422 73,866,416
Other current assets (Note 12) 5,367,295 4,724,764
Deferred income taxes (Note 7 & 8) 2,811,914 2,823,829
------------ -----------
Total current assets 192,700,698 178,628,202
------------ -----------
Non-current assets:
Notes receivable (Note 3) 33,155,543 33,250,562
Investment in affiliated
companies (Note 1.c. & 17) 7,832,484 1,929,929
Other receivables and investments 6,899,133 8,875,247
Other non-current assets (Note 5) 7,730,575 3,156,301
------------ ------------
Total non-current assets 55,617,735 47,212,039
------------ ------------
Property, plant and equipment - (net
of accumulated depreciation) (Note 6) 58,517,120 59,501,356
------------ ------------
Total $306,835,553 $285,341,597
============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND MEMBERS' EQUITY
1994 1993
------------ ------------
<S> <C> <C>
Current liabilities:
Notes payable - bank (Note 10) $ 31,020,667 $ 24,730,400
Accounts payable (Note 12) 64,629,410 59,133,838
Insurance reserves (Note 12) 32,038,408 32,515,397
Compensation and taxes payable 2,952,534 2,688,137
Other accrued expenses 3,159,900 3,712,105
Members' patronage payable 6,865,736 7,214,927
Current installments on long-term
liabilities (Note 11) 6,776,197 6,814,221
------------ ------------
Total current liabilities 147,442,852 136,809,025
------------ ------------
Long-term liabilities (Note 11) 114,669,266 105,539,231
------------ ------------
Deferred income taxes (Notes 7 & 8) 3,744,109 3,281,135
------------ ------------
Deferred income (Note 15) 554,469 599,804
------------ ------------
Members' equity:
Common stock (authorized, 10,000,000
shares at $5.00 par value; issued
and outstanding, 619,881 shares in
1994 and 632,312 shares in 1993) 3,256,080 3,285,755
Additional paid-in capital 22,472,564 21,006,563
Retained earnings 14,696,213 14,820,084
------------ ------------
Total members' equity 40,424,857 39,112,402
------------ ------------
Commitments and contingencies (Note 19)
Total $306,835,553 $285,341,597
============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1994, OCTOBER 1, 1993, AND OCTOBER 2, 1992
<TABLE>
<CAPTION>
Common stock Additional
Number paid-in Retained
Description of shares Amount capital earnings Total
<S> <C> <C> <C> <C> <C> <C>
Balance 09/27/91 632,100 $3,563,500 $19,556,361 $13,973,938 $37,093,799
Stock: Issued 87,069* 32,345 334,723 -- 367,068
Repurchased (67,919) (339,595) (1,291,015) (1,662,395) (3,293,005)
Patronage dividend To be issued
41,697 shares -- 208,485 2,042,059 -- 2,250,544
Net income -- -- -- 2,722,910 2,722,910
Balance 10/02/92 651,250 3,464,735 20,642,128 15,034,453 39,141,316
Stock: Issued 57,448* 78,755 759,972 -- 838,727
Repurchased (76,386) (381,930) (1,687,165) (1,928,752) (3,997,847)
Patronage dividend To be issued
24,839 shares -- 124,195 1,291,628 -- 1,415,823
Net income -- -- -- 1,714,383 1,714,383
Balance 10/01/93 632,312 3,285,755 21,006,563 14,820,084 39,112,402
Stock: Issued 54,457* 148,090 1,515,656 -- 1,663,746
Repurchased (66,888) (334,440) (1,757,412) (1,687,261) (3,779,113)
Patronage dividend To be issued
31,335 shares -- 156,675 1,707,757 -- 1,864,432
Net income -- -- -- 1,563,390 1,563,390
Balance 09/30/94 619,881 $3,256,080 $22,472,564 $14,696,213 $40,424,857
* Includes prior year
patronage dividend to
be issued.
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE>
<TABLE>
<CAPTION>
UNITED GROCERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1994, OCTOBER 1, 1993, AND OCTOBER 2, 1992
1994 1993 1992
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 1,563,390 $ 1,714,383 $ 2,722,910
Adjustments to reconcile net
income to net cash (used in)
provided by operating activities:
Depreciation 5,609,779 4,737,401 4,290,543
Provision for doubtful accounts
and notes 1,992,589 2,182,551 2,108,346
Patronage dividends payable
in common stock 1,864,432 1,415,823 2,250,544
Loss (gain) on sale of assets 174,927 (472,126) (173,596)
Equity in loss (earnings) of
affiliates 191,760 (772) (1,170)
Deferred income taxes 474,889 341,209 (227,982)
Decrease (increase) in non-cash
current assets:
Accounts and notes receivable (15,343,787) 1,564,454 10,034,315
Inventories (441,006) (3,358,014) 623,364
Other current assets (642,531) 134,362 (639,411)
Increase (decrease) in non-cash
current liabilities:
Accounts payable and
insurance reserves 5,018,583 9,768,705 (1,588,806)
Compensation and taxes payable 264,397 (1,107,883) 122,475
Other accrued expenses (552,204) 239,803 872,465
Members' patronage and other
refunds (349,191) (525,047) 1,187,271
Decrease (increase) in other
non-current assets (2,598,160) 518,142 (1,955,120)
Net cash (used in) provided
by operating activities (2,772,133) 17,152,991 19,626,148
Cash flows from investing activities:
Loans to members (17,768,465) (18,766,639) (15,158,344)
Collections on loans to members 6,325,619 6,155,085 5,044,961
Proceeds from sale of member loans 8,606,739 900,373 5,805,685
Sale and redemption of investments 5,591,463 3,857,384 242,223
Purchase of investments (8,133,459) (8,039,512) (5,079,844)
Investment in affiliated companies (6,094,315) -- --
Sale of property, plant
and equipment 408,777 2,936,809 3,361,255
Purchase of property, plant
and equipment (5,254,582) (11,990,981) (20,479,941)
Net cash used in investing
activities (16,318,223) (24,947,481) (26,264,005)
/TABLE
<PAGE>
<TABLE>
<CAPTION>
UNITED GROCERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1994, OCTOBER 1, 1993, AND OCTOBER 2, 1992
1994 1993 1992
<S> <C> <C> <C>
Cash flows from financing activities:
Sale of common stock $ 1,663,746 $ 838,727 $ 367,068
Repurchase of common stock (3,779,113) (3,997,847) (3,293,005)
Proceeds of long-term liabilities:
Revolving bank lines of credit 807,500,000 510,100,000 519,500,000
Mortgages and notes 12,104,717 5,505,830 6,014,106
Redeemable notes and certificates 22,395,400 25,322,100 22,887,400
Repayment of long-term liabilities:
Revolving bank lines of credit (801,209,733)(499,918,520)(522,001,080)
Mortgages and notes (2,789,206) (10,893,362) (5,809,105)
Redeemable notes and certificates (22,618,900) (18,745,800) (13,957,700)
Net cash provided by
financing activities 13,266,911 8,211,128 3,707,684
Net (decrease) increase in cash
and cash equivalents (5,823,445) 416,638 (2,930,173)
Cash and cash equivalents,
beginning of year 18,807,473 18,390,835 21,321,008
Cash and cash equivalents,
end of year $12,984,028 $18,807,473 $18,390,835
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. REPORTING YEAR
United Grocers, Inc. and subsidiaries (the Company) reports on a
fiscal year of 52 or 53 weeks which is the fiscal year of the
distribution segment. The Company's fiscal closing date is the
Friday nearest September 30. The fiscal year of the subsidiaries
included in the insurance segment is September 30.
b. ORGANIZATION
As a cooperative, the Company's stock is owned by its member
customers. Sales to these members account for approximately 80%
of wholesale grocery sales.
c. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
United Grocers, Inc. and its wholly-owned subsidiaries as follows:
Grocers Insurance Group, Inc., Grocers Insurance Agency, Inc.,
UGIC, Ltd., Grocers Insurance Company (formerly United Employers
Insurance Co.), United Workplace Consultants, Inc., Western
Passage Express, Inc., United Store Development, Ltd., Northwest
Process, Inc., UG Resources, Inc., United Resources, Inc.,
Affiliated General Agency, Inc., Premier Consulting, Inc.
(formerly Employee Management Services, Inc.), Western Security
Services, Ltd. and BAT Enterprises, Inc. All intercompany
balances and transactions have been eliminated upon consolidation.
Investment in affiliated companies is stated at cost plus the
Company's share of undistributed earnings since acquisition (see
Note 17).
d. INVENTORIES AND COST OF SALES
Inventories are valued at the lower of cost or market. The cost
of all inventories is determined under the first-in, first-out
(FIFO) method. See Note 4 for change in accounting for
inventories.
Cost of sales includes the cost of distribution and insurance
operations. The distribution operation costs include the
purchases of product, the net of allowances paid and received on
purchases, less the net advertising department margins, plus the
handling allowances made to members based upon the cost of
servicing their accounts. The insurance operation costs include
losses reported, a provision for losses incurred but not reported
and premium refunds.
e. INVESTMENTS
Investments are primarily in non-equity securities and as such are
carried at cost. The Company's intent is to hold these securities
until maturity. Sales and redemptions of investments are
primarily the result of maturities. Any realized gains or losses
are usually the result of immaterial differences between the
called amount and amortized cost. The market value of these
investments at September 30, 1994 and October 1, 1993 is
$36,487,841 and $36,464,552, respectively.
f. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is carried at cost and includes
expenditures for new facilities and those which substantially
increase the useful lives of the existing plant and equipment.
The Company capitalizes interest as a component of the cost of
significant construction projects. During the year ended October
1, 1993 and October 2, 1992, interest was capitalized in the
amount of $64,929 and $578,611, respectively, out of a total
interest of $8,281,946 and $9,303,377, respectively, which
resulted in an increase in the net income of approximately $49,000
and $410,000.
Depreciation is computed using the straight-line method over
the estimated useful lives of the respective assets. Estimated
useful lives are generally as follows:
Buildings........................................40-75 years
Building improvements............................Balance of
building life
Warehouse equipment..............................5-20 years
Truck equipment..................................3-8 years
Office equipment.................................5-10 years
g. AMORTIZATION
Long-term liability loan costs, software costs, and non-
competition agreements are being amortized and charged to
operating expenses on a straight-line basis over five to twenty
years.
h. REINSURANCE
In the normal course of business, the Company seeks to reduce the
loss that may arise from catastrophes or other events that cause
unfavorable underwriting results by reinsuring certain levels of
risk in various areas of exposure with other insurance enterprises
or reinsurers. Amounts recoverable from reinsurers are estimated
in a manner consistent with the claim liability associated with
the reinsured policy. Amounts paid for prospective reinsurance
are reported as prepaid reinsurance premiums and amortized over
the remaining contract period in proportion to the amount of
insurance protection provided.
i. INCOME TAXES
The Company and its subsidiaries file a consolidated federal
income tax return. The Company operates and is taxed as a
cooperative. Accordingly, amounts distributed as patronage
dividends are not included in its taxable income but are instead
taxed to the individual members receiving the patronage dividends.
Deferred income taxes are recorded to reflect the tax consequences
on future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year
end. No valuation allowances were considered necessary to reduce
deferred tax assets to the amount expected to be realized. See
Note 8 for details of timing differences and Note 7 for change in
accounting method.
j. EARNINGS PER COMMON SHARE
The Company's policy is to distribute earnings only in the form of
patronage dividends. No dividends have ever been declared on the
common stock of the Company, and all earnings not distributed as
patronage dividends have been retained. Earnings per common share
are not shown because no earnings are available for the purpose of
paying dividends on the common stock.
k. TREASURY STOCK
The Company uses the par value method of accounting for treasury
stock. Under Oregon corporation law, treasury stock must be
canceled upon redemption.
l. STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents.
m. RESTRICTED ASSETS AND NET ASSETS
Restricted assets and net assets that may not be transferred to
the parent company in the form of loans, advances, or cash
dividends by the insurance company subsidiary without the consent
of various state insurance agencies as of September 30, 1994 are
as follows:
Cash and cash equivalents $ 725,000
Investments 15,370,300
-------------------------------------------------------------
Total $16,095,300
-------------------------------------------------------------
In addition, although not formally restricted, the balance of the
investments of $21,569,278 represents assets that have been
accumulated for the possible payment of claims against the
insurance reserves.
n. RECLASSIFICATIONS
Certain reclassifications have been made to prior year balances to
conform to the current year classification.
2. INVESTMENTS
The amortized cost and estimated market values of investments in debt
securities and other investments at the balance sheet date are as follows:
<TABLE>
<CAPTION>
Carrying
amount and
Number amortized Market
Name of issuer and of shares cost of value of
title of each issue or units each issue each issue
- ---------------------------------------------------------------------------------------------
1994:
<S> <C> <C> <C>
United States Government and its
agencies 18,670,000 $19,303,713 $18,846,955
Any state of the United States and
its agencies 3,395,000 3,539,142 3,531,561
Political subdivision of a state of the
United States and its agencies 8,275,000 8,604,835 8,615,517
Corporate bonds 5,410,000 5,490,407 5,487,134
- ---------------------------------------------------------------------------------------------
Subtotal - debt securities 36,938,097 36,481,167
Corporate stock 271 1,481 6,674
- ---------------------------------------------------------------------------------------------
Total $36,939,578 $36,487,841
=============================================================================================
1993:
United States Government and its
agencies 16,010,000 $16,634,109 $17,824,552
Any state of the United States and
its agencies 2,275,000 2,375,434 2,480,717
Political subdivision of a state of the
United States and its agencies 8,320,000 8,691,136 9,076,131
Corporate bonds 6,160,000 6,218,187 6,598,802
- ---------------------------------------------------------------------------------------------
Subtotal - debt securities 33,918,866 35,980,202
Corporate stock 271 1,481 7,114
Real estate mortgage --- 477,236 477,236
- ---------------------------------------------------------------------------------------------
Total $34,397,583 $36,464,552
=============================================================================================
The amortized cost and estimated market value of debt securities at the balance sheet date, by
contractual maturity, are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
</TABLE>
<TABLE>
<CAPTION>
1994 1993
-------------------------------------------------------
Amortized Market Amortized Market
cost value cost value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 4,136,043 $ 4,176,752$ 3,546,086 $ 3,645,477
Due after one year through
five years 16,869,731 17,046,729 19,073,123 20,498,132
Due after five years through
ten years 15,882,892 15,207,218 9,852,844 10,323,560
Due after ten years 49,431 50,468 1,446,813 1,513,033
- ---------------------------------------------------------------------------------------------
Total $36,938,097 $36,481,167$33,918,866 $35,980,202
=============================================================================================
The Financial Accounting Standards Board has issued Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The
Company plans to adopt this Statement in 1995 and does not anticipate any significant change
as a result of this Statement on the present accounting for investments.
</TABLE>
<PAGE>
3. ACCOUNTS AND NOTES RECEIVABLE
These consist of amounts due principally from members at the balance sheet
date as follows:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Accounts receivable $46,640,928 $31,048,455
Insurance premiums and related balances 10,898,715 10,503,463
Less allowance for doubtful accounts (1,270,987) (1,283,681)
----------- -----------
Net accounts receivable 56,268,656 40,268,237
----------- -----------
Notes receivable - current portion 4,057,961 3,788,864
Less allowance for doubtful notes (36,156) (48,964)
----------- -----------
Net current notes receivable 4,021,805 3,739,900
----------- -----------
Net current accounts and
notes receivable $60,290,461 $44,008,137
=========== ===========
Notes receivable - non-current portion$33,454,161 $33,577,706
Less allowance for doubtful notes (298,618) (327,144)
----------- -----------
Net non-current notes receivable $33,155,543 $33,250,562
=========== ===========
</TABLE>
The notes receivable from members are generally for periods of two years
to ten years at interest rates of 4.25% to 10.00%. The annual
maturities for each of the next five fiscal years following September
30, 1994 are as follows:
Year Amount
---- -----------
1995 $ 4,057,961
1996 4,112,058
1997 4,289,174
1998 4,161,963
1999 4,089,972
The provision for doubtful accounts and notes charged to operating
expenses for the three years ended September 30, 1994 amounted to
$1,992,589, $2,182,551, and $2,108,346, respectively.
4. CHANGE IN ACCOUNTING FOR INVENTORIES
Effective October 3, 1992, the Company changed its method of accounting
for the cost of the general wholesale grocery category of inventories
from the last-in, first-out (LIFO) method to the first-in, first-out
(FIFO) method. The Company believes that the use of the FIFO method
better matches current costs with current revenues and more
appropriately reflects its financial condition. This change has also
been made for income tax purposes.
The change has been applied retroactively and comparative amounts for
prior periods have been restated. The effect of this change on retained
earnings and net income for restated 1991-92 is as follows:
Change in beginning retained earnings:
As previously reported in 1991-92 $13,311,329
-----------
LIFO inventory adjustment 958,912
Less tax effect (296,303)
-----------
Net adjustment 662,609
-----------
As restated $13,973,938
===========
Change in net income:
As previously reported in 1991-92 $ 3,275,772
-----------
LIFO inventory adjustment (780,878)
Less tax effect 228,016
------------
Net adjustment (552,862)
------------
As restated $ 2,722,910
===========
Cumulative effect on ending
retained earnings October 2, 1992:
As previously reported in 1991-92 $14,924,706
-----------
LIFO inventory adjustment 178,034
Less tax effect (68,287)
-----------
Net adjustment 109,747
-----------
As restated $15,034,453
===========
5. OTHER NON-CURRENT ASSETS
Other non-current assets at the balance sheet date consist of the
following:
<PAGE>
<TABLE>
<CAPTION>
1994 1993
----------------------
<S> <C> <C>
Covenant not to compete - net
of accumulated amortization of
$802,445 in 1994 and $518,059
in 1993 $ 765,953$ 1,014,338
Software - net of accumulated
amortization of $1,295,466 in
1994 and $730,587 in 1993 4,802,562 1,559,449
Loan fees - net of accumulated
amortization of $584,847 in
1994 and $490,814 in 1993 460,097 322,630
Other 1,701,963 259,884
----------------------
Total $ 7,730,575$ 3,156,301
======================
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT (AT COST)
Property, plant and equipment as of the balance sheet date consists of
the following:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Land $ 3,421,277 $ 3,032,145
Buildings and improvements 54,204,591 50,265,721
Warehouse and truck equipment 34,291,075 32,212,528
Office equipment 8,564,659 7,515,498
Construction in progress 640,035 4,366,038
----------- -----------
Total property, plant and
equipment 101,121,637 97,391,930
Less accumulated depreciation (42,604,517) (37,890,574)
----------- ----------
Net property, plant and
equipment $58,517,120 $59,501,356
=========== ===========
</TABLE>
7. CHANGE IN ACCOUNTING FOR INCOME TAXES
The Company adopted, effective September 28, 1991, the Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income
Taxes, issued in February, 1992. Under the method specified by SFAS No.
109, the deferred tax asset or liability is determined based on the
difference between the financial statement and tax bases of assets and
liabilities as measured by the enacted tax rates which will be in effect
when these differences reverse. Deferred tax expense is the result of
changes in the liability for deferred taxes. The principal types of
differences between assets and liabilities for financial statement and
tax return purposes are accumulated depreciation, insurance loss
reserves, allowance for doubtful accounts, and capitalized costs in
inventory.
The deferred method, used in the years prior to 1992, required the
Company to provide for deferred tax expense based on certain items of
income and expense which were reported in different years in the
financial statements and the tax returns as measured by the tax rate in
effect for the year the difference occurred.
As allowed by SFAS No. 109, the Company did not restate the years prior
to the year ended October 2, 1992 and, accordingly, the cumulative
effect of the accounting change on the prior years of $526,314 is
included in the earnings for the year ended October 2, 1992.
8. INCOME TAXES
The provision for income taxes for the three years consists of the
following:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Current payable (refund):
Federal $ 439,200 $ 162,758 $ 624,516
State 86,252 72,468 (16,158)
Deferred 474,889 341,209 298,332
---------- ---------- ----------
Total $1,000,341 $ 576,435 $ 906,690
========== ========== ==========
</TABLE>
The effective income tax rate for the three years ended September 30,
1994 does not correspond with the Federal tax rate. The reconciliation
of this rate to the effective income tax rate is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Statutory income tax rate (34%) $ 871,668 $ 778,878 $1,055,117
State income taxes, net of
Federal income tax benefit 56,926 47,829 (10,664)
Tax exempt interest (158,673) (133,080) (104,537)
Refunds as a result of carrybacks -- (184,980) --
Prior year under accrual 179,235 -- --
Other 51,185 67,788 (33,226)
---------- ---------- ----------
Income tax expense $1,000,341 $ 576,435 $ 906,690
========== ========== ==========
Effective income tax rate 39.0 % 25.2 % 29.2 %
==== ==== ====
</TABLE>
The significant components of the deferred income taxes - current asset
and non-current liability as of the balance sheet date are as follows:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Deferred income taxes -
current asset:
Insurance reserves $1,041,678 $1,230,094
Inventories 738,842 712,212
Unearned insurance premiums 541,417 496,405
Allowance for doubtful accounts 471,288 478,866
Other 18,689 (93,748)
---------- ----------
Total $2,811,914 $2,823,829
========== ==========
Deferred income taxes -
non-current liability:
Accumulated depreciation $4,589,568 $4,173,575
Deferred income (216,243) (230,325)
Allowance for doubtful notes (143,653) (140,364)
Deferred compensation (129,398) (89,598)
Advance deposits (52,004) (16,128)
Alternative minimum tax
(AMT) credit (304,161) (416,025)
---------- ----------
Total $3,744,109 $3,281,135
========== ==========
</TABLE>
The significant components of deferred income tax expense for the
three years are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- -----------
<S> <C> <C> <C>
Decrease (increase) in deferred
income taxes - asset $ 11,915 $ 157,747 $ (273,942)
Increase in deferred income
taxes - liability after applying
AMT credit 462,974 183,462 572,274
---------- ---------- ----------
Total $ 474,889 $ 341,209 $ 298,332
========== ========== ===========
</TABLE>
The Company has net operating loss carryovers of approximately
$3,500,000 to apply against future years' State income taxes,
expiring in years 2007 through 2009. These operating loss carryovers
are the result of the insurance company subsidiary being required to
file a separate calendar year State tax return and not giving the
parent the benefit of this offset on its State tax return. The
Company also has unused State energy tax credits of approximately
$45,000, expiring in 1998.
9. MEMBERS' PATRONAGE DIVIDENDS
The Company's income from sales to members, before income taxes and
patronage dividends, is available at the discretion of the Board of
Directors, to be returned to the members in the form of patronage
dividends. As of year end, the Board of Directors voted to
distribute the following in patronage dividends:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- -----------
<S> <C> <C> <C>
Payable in cash and shown as
a current liability $ 6,865,736 $ 7,584,177 $ 7,960,456
Distributable in the form
of common stock 1,864,432 1,415,823 2,250,544
---------- ---------- ----------
Total $ 8,730,168 $ 9,000,000 $10,211,000
=========== =========== ===========
</TABLE>
10. NOTES PAYABLE - BANK
Notes payable - bank consists of borrowings on bank lines of credit at
an average interest rate of 5.72% at September 30, 1994 and 3.95% at
October 1, 1993.
At September 30, 1994 and October 1, 1993, the Company had unused lines
of credit totaling $19,000,000 and $10,300,000, respectively; and
unused letters of credit totaling $350,000 and $450,000, respectively.
In April of 1993, the Company entered into a three year reverse
interest swap agreement with a bank. Under the agreement, the Company
receives a fixed rate of 4.40% on $20 million (notional amount) and
pays a floating rate based on LIBOR, as determined in six month
intervals. The transaction effectively changes a portion of the
Company's interest rate exposure from a fixed rate to a floating rate
basis, accordingly, all gains or losses have been recognized as
adjustments to interest expense. This swap agreement has been entered
into with a major financial institution which is expected to fully
perform under the terms of the agreement thereby further mitigating the
risk from the transaction.
11. LONG-TERM LIABILITIES
Long-term liabilities at the balance sheet date consist of the
following:
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Notes payable - bank:
Credit agreement notes maturing
on April 30, 1995 with interest
rates of 5.77% per annum at
September 30, 1994 and 3.98% per
annum at October 1, 1993. The
interest rates ranged from 3.84%
to 5.89% in 1994 and from 3.94%
to 4.78% in 1993. $ 35,000,000 $ 25,000,000
Notes payable - insurance companies:
Senior notes payable to six
insurance companies with an
interest rate of 9.15% per annum.
Interest payable monthly. Principal
repayments annually commencing
October 1, 1992 in the amount of
$3,336,000 and each October 1
thereafter in the amount of
$3,333,000, maturing in full
October 2, 2000. 23,331,000 23,331,000
Notes payable - other:
Capital stock residual notes, payable
in twenty quarterly installments with
a variable interest rate based on the
current capital investment note rate. 3,810,679 2,878,311
Two notes (three in 1993) with
interest at 9.25% per annum
payable in monthly installments
of $28,136 ($50,660 in 1993)
beginning January 21, 1988
(secured by equipment). $ 83,123 $ 715,022
A real property contract for the
purchase of an office building,
payable in 180 monthly installments
of $2,346 including interest at
12.5% per annum until 1999 (secured
by real property). 101,734 116,171
Other note payable 27,500 55,000
Mortgage notes (secured by real property):
A note payable in monthly installments
of $41,449 including interest at 9%
until 1996. 878,279 1,276,922
A note payable in monthly installments
of $43,721 including interest at 10.30%
per annum until 1995. 457,059 909,026
A note payable in monthly installments
of $31,615 including interest at 7.25%
until 2013. 3,907,589 4,000,000
Redeemable notes and certificates:
Capital investment notes
(subordinated), interest ranging
from 5.75% to 8%. Maturity dates
range from 1993 to 2003 which is
ten years from dates of issue. 50,319,700 50,395,400
Registered redeemable building
notes (subordinated), interest
at 8%. No fixed maturity date. 3,482,400 3,615,600
Redeemable transferable notes,
(subordinated), interest at
5.75%. No fixed maturity. $ 46,400 $ 61,000
------------ ------------
Total 121,445,463 112,353,452
Less current installment (6,776,197) (6,814,221)
Total long-term liabilities $114,669,266 $105,539,231
============ ============
</TABLE>
Total maturities of long-term liabilities in each of the next five
fiscal years are as follows:
Year Amount
---- ------------
1995 $ 6,776,197
1996 41,394,636
1997 6,971,062
1998 5,360,233
1999 5,706,690
The Company's bank loan agreements require the maintenance of certain
financial ratios and a minimum amount of capital and subordinated
debt. The Company was in compliance with these requirements as of
September 30, 1994 and October 1, 1993.
12. REINSURANCE
The Company in 1994 adopted the Statement of Financial Accounting
Standards (SFAS) No. 113, Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts, issued in December, 1992.
The Statement requires that transactions relating to reinsurance
transactions be reported at gross amounts rather than net amounts.
The effect on the consolidated financial statements of the Company is
to gross up the insurance liabilities by reclassifying the ceded
reinsurance amounts for reinsurance recoverables and prepaid
reinsurance premiums as assets. The change had the effect of
increasing 1993 total assets and total liabilities by $4,741,852 as
follows:
Increase in current assets:
Reinsurance recoverables for ceded
loss reserves - now classified as
accounts and notes receivable $3,494,121
Prepaid reinsurance premiums - now
classified as other current assets 1,247,731
----------
Total $4,741,852
==========
Increase in current liabilities:
Insurance reserves $3,494,121
Unearned premiums - classified
as accounts payable 1,247,731
----------
Total $4,741,852
==========
There is no effect or change to the consolidated income statement as
the income statement classifications did not change. Net premiums
earned continue to be reported as net sales and operations while net
losses and loss adjustment expenses continue to be reported as cost
of sales.
Reinsurance contracts do not relieve the Company from its obligation
to policyholders. Failure of reinsurers to honor their obligations
could result in losses to the Company. The Company evaluates the
financial condition of its reinsurers and monitors concentrations of
credit risk arising from similar geographic regions, activities, or
economic characteristics of the reinsurers to minimize its exposure
to significant losses from reinsurer insolvencies. The Company holds
collateral under related reinsurance agreements in the form of
letters of credit totaling $338,000 that can be drawn on for amounts
that remain unpaid for more than 60 days.
Reinsurance amounts reflected in the financial statements are as
follows:
<PAGE>
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
For the balance sheet:
Reinsurance recoverable for
ceded losses $ 3,792,152 $ 3,494,121
Prepaid reinsurance premiums 1,394,254 1,247,731
----------- -----------
Total $ 5,186,406 $ 4,741,852
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------------------
<S> <C> <C> <C>
For the income statement:
Premiums written:
Gross $23,992,639 $24,430,854$23,861,615
Assumed 860,953 715,760 1,183,691
Ceded (6,652,410) (6,597,150) (5,067,239)
----------- ----------------------
Net premiums written $18,201,182 $18,549,464$19,978,067
=========== ======================
Percentage of amount
assumed to net 4.73 % 3.86 % 6.33 %
====== ====== ======
Premiums earned:
Gross $23,736,321 $24,185,628$21,969,296
Assumed 829,978 750,619 1,151,517
Ceded (6,505,887) (6,493,811) (4,920,045)
----------- ----------------------
Net premiums earned $18,060,412 $18,442,436$18,200,768
=========== ======================
Percentage of amount
assumed to net 4.60 % 4.07 % 5.92 %
====== ====== ======
Expenses:
Losses and loss adjustment
expenses $15,079,858 $17,481,462$15,604,171
Reinsurance recoveries (3,389,844) (2,121,602) (1,867,112)
----------- ----------------------
Net losses and loss
adjustment expenses $11,690,014 $15,359,860$13,737,059
=========== ======================
</TABLE>
13. SEGMENT REPORTING
The Company has two operating segments which are located primarily in
the Pacific Northwest. The distribution segment includes all
operations relating to wholesale grocery and related product sales,
retail grocery sales, service department revenues, and financing
income and fees. The insurance segment includes all operations
relating to insurance underwriting, commissions, and reinsurance
primarily to provide workers' compensation and property-casualty
coverage.
A summary of information about the Company's operations by segment
before intersegment eliminations for the three years is as follows:
<PAGE>
<TABLE>
<CAPTION>
1994 1993 1992
-----------------------------------
<S> <C> <C> <C>
Net sales and operations:
Distribution $936,266,067$857,439,871$878,146,111
Insurance 18,788,523 20,525,392 19,555,963
Less intersegment sales
of insurance (834,240) (979,910) (1,114,702)
------------------------------------
Total $954,220,350$876,985,353$896,587,372
====================================
Income before allowances,
dividends, income taxes
and accounting change:
Distribution $ 19,791,157$ 18,162,132$ 17,860,059
Insurance 2,952,047 2,485,571 2,889,394
------------------------------------
Total $ 22,743,204$ 20,647,703$ 20,749,453
====================================
Total assets:
Distribution $243,267,148$226,346,768$209,063,967
Insurance 64,923,598 64,591,472 59,875,762
------------------------------------
Total $308,190,746$290,938,240$268,939,729
====================================
Depreciation expense:
Distribution $ 5,408,896$ 4,643,401$ 4,163,138
Insurance 200,883 94,000 127,405
------------------------------------
Total $ 5,609,779$ 4,737,401$ 4,290,543
====================================
Capital expenditures:
Distribution $ 5,161,425$ 11,310,048$ 19,922,924
Insurance 93,157 680,933 557,017
------------------------------------
Total $ 5,254,582$ 11,990,981$ 20,479,941
====================================
</TABLE>
For net sales and operations, wholesale grocery sales (primarily to
members) during the three years ended September 30, 1994 accounted
for approximately 95%, 93% and 95%, respectively, of the distribution
total. Premium revenue (primarily from members) accounted for
approximately 95%, 90% and 86%, respectively, of the insurance total.
The change in the method of accounting for inventories (Note 4)
related to and affected only the distribution segment.
14. PENSION PLANS
The Company has a Company-sponsored pension plan that covers
substantially all of its salaried employees. The Company also has
separate Company-sponsored 401(k) plans for salaried and union
employees. The Company has made annual contributions to the plans
equal to the amount annually accrued for pension expense. The
Company's funding policy is to satisfy the funding requirements of
the Employees' Retirement Income Security Act.
The Company also participates in several multi-employer pension plans
for the benefit of its employees who are union members. The data
available from administrators of the multi-employer plans is not
sufficient to determine the accumulated benefit obligation, nor the
net assets attributable to the multi-employer plans in which the
Company union employees participate.
The financial statements include pension expense for the Company-
sponsored pension plan as determined using Statement of Financial
Accounting Standards No. 87 (SFAS 87). The effect of SFAS 87 was a
decrease of pension expense in the amount of $546,894 for 1994,
$484,020 for 1993, and $317,193 for 1992. The Company's unrecognized
net asset resulting from the initial application of SFAS 87 is being
amortized over eighteen years.
In determining the actuarial present value of the projected benefit
obligation, a discount rate of 8% and a future maximum compensation
increase rate of 4% were used. The expected long-term rate of return
on assets was 8%.
Pension costs for all plans for the three years consist of the
following:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Company-sponsored:
Service costs of benefits
earned $ 918,423 $ 910,214 $ 832,866
Interest cost on the projected
benefit obligation 1,448,447 1,339,393 1,102,517
Expected return on plan assets (1,688,595) (1,443,513) (1,199,657)
Net amortization of unrecognized
net asset (168,168) (168,168) (154,154)
Unrecognized net gain (4,414) -- --
Unrecognized prior service cost 73,760 73,760 1,164
----------- ----------- -----------
Net salaried pension cost 579,453 711,686 582,736
Multi-employer plan costs 2,395,300 2,180,280 2,183,086
Matching costs of 401(k) plans 391,605 437,413 395,731
----------- ----------- -----------
Total pension expense $ 3,366,358 $ 3,329,379 $ 3,161,553
=========== =========== ===========
</TABLE>
The following table sets forth the Company-sponsored plan's funded
status as of year end:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Actuarial present value of
benefit obligations:
Vested $13,337,570 $12,397,747 $10,951,935
Non-vested 823,015 819,479 675,609
----------- ----------- -----------
Accumulated benefit obligation 14,160,585 13,217,226 11,627,544
Effect of projected future
compensation levels 4,881,117 4,501,814 4,237,333
----------- ----------- -----------
Projected benefit obligation 19,041,702 17,719,040 15,864,877
Plan assets at fair value,
primarily listed stocks, fixed
income, and bond and equity
funds 22,030,725 21,056,267 17,981,115
----------- ----------- -----------
Excess of plan assets over
projected benefit obligation 2,989,023 3,337,227 2,116,238
Unrecognized prior service cost 778,471 1,031,162 14,965
Unrecognized net gain (1,422,307) (2,273,777) (273,680)
Unrecognized net asset, net of
amortization (1,897,503) (2,065,671) (2,233,839)
----------- ----------- -----------
Prepaid (accrued)
pension cost $ 447,684 $ 28,941 $ (376,316)
=========== =========== ===========
</TABLE>
In addition to pension benefits, the Company provides health benefits
for certain retired salaried employees. The Financial Accounting
Standards Board has issued Statement of Financial Accounting
Standards No. 106, "Employer's Accounting for Post Retirement
Benefits Other Than Pensions." This statement will require accrual
of such benefits during the years an employee provides services. The
costs of these benefits are currently expensed on a pay-as-you-go
basis. The cost of this retiree health care is funded out of current
operations and was approximately $356,000 in 1994, $282,000 in 1993
and $257,000 in 1992. The impact of this new standard has not been
fully determined, but the change likely will result in a greater
liability and expense being recognized for these benefits. The
Company has until 1995-96 to adopt this Statement because fewer than
500 employees will be affected.
15. LEASES
The Company is obligated under one hundred and five significant
leases in 1994. Forty-five of these leases are for twenty to twenty-
five years with renewal options and involve supermarket properties
which are subleased to members. Twelve of these leases are subleased
to affiliated companies. The remaining leases represent property and
equipment used by the Company. The leases expire at various dates,
the last expiring in 2013. Rental expense for the three years
consists of the following:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Minimum rentals $13,690,702 $14,082,104 $12,447,688
Less sublease income (5,971,461) (6,554,855) (6,355,385)
----------- ----------- -----------
Net rental expense $ 7,719,241 $ 7,527,249 $ 6,092,303
=========== =========== ===========
</TABLE>
The following is a schedule by years showing future minimum rental
payments required under operating leases that have initial or
remaining non-cancelable lease terms in excess of one year as of
September 30, 1994:
<TABLE>
<CAPTION>
Fiscal Minimum Minimum Net
year payments (A) receipts (B) minimum
--------- ------------ -----------------------
<S> <C> <C> <C> <C>
1994-1995 $ 14,259,330 $ 6,788,922 $ 7,470,408
1995-1996 13,364,382 6,654,450 6,709,932
1996-1997 11,079,707 6,335,846 4,743,861
1997-1998 9,456,613 5,963,962 3,492,651
1998-1999 9,364,253 5,935,555 3,428,698
Later years 80,530,013 57,103,637 23,426,376
------------ ------------ -----------
Total $138,054,298 $ 88,782,372 $49,271,926
============ ============ ===========
Summary:
Building leases $129,755,112 $ 88,465,191 $41,289,921
Equipment leases 8,299,186 317,181 7,982,005
------------ ------------ -----------
Total $138,054,298 $ 88,782,372 $49,271,926
============ ============ ===========
(A) Minimum payments are those required by the Company over the terms of the
significant leases.
(B) Minimum receipts are those to be received by the Company from sublease
agreements.
Twenty-one of the subleases as of September 30, 1994, are insured by the
Company's foreign subsidiary, UGIC, Ltd. The annual rental for these leases is
approximately $2,400,000. The total minimum payments over the lease term for
these same leases is approximately $54,100,000.
</TABLE>
In 1992 and 1991, the Company entered into sale-leaseback
transactions for three cash and carry outlets. The sales resulted in
deferred gains of approximately $800,000 which are being amortized
over the leaseback period of fifteen years. The total lease
commitments are approximately $2,500,000 over fifteen years with an
annual rental of approximately $155,000 for each of the first five
years.
16. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Supplemental disclosures:
Cash paid during the year for:
Interest $ 8,898,144 $ 8,292,247 $ 8,952,346
Income taxes 336,810 647,836 982,169
Supplemental schedule of
noncash investing and
financing activities:
Patronage dividends payable
in common stock 1,864,432 1,415,823 2,250,544
</TABLE>
17. INVESTMENT IN AND TRANSACTIONS WITH AFFILIATED COMPANIES
The Company owns 22.42% of the outstanding common stock of Western
Family Holding Company (the Affiliate). The Company and certain other
retailer owned grocery wholesalers located primarily in the Pacific
Northwest organized the Affiliate to provide a source for the Affiliate
private label brand. An officer of the Company is a director of the
Affiliate. The amount of consolidated retained earnings represented by
undistributed earnings of the Affiliate as of September 30, 1994 is
$1,679,869 and $1,654,629 as of October 1, 1993 in addition to the
original investment of $275,300.
An approximate summary of transactions with this Affiliate by year is as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Purchases $89,179,000 $70,334,000 $71,994,000
Volume incentive rebate 1,561,000 1,231,000 1,260,000
Open accounts payable 6,006,000 5,150,000 4,000,000
</TABLE>
The Company in 1994 made an approximately 22% minority equity
investment of $6,094,315 in the retail store operations of two members.
The Company's share of losses in these operations in 1994 was $217,000.
Transactions with these two members for the short periods in 1994 were
sales of approximately $22,945,000 and open accounts receivable as of
September 30, 1994 were approximately $1,860,000.
UGIC, Ltd. paid cash dividends to the Parent in 1992 in the amount of
$500,000.
18. CONCENTRATIONS OF CREDIT RISK
The Company holds its cash and cash equivalents in several banks
located in the Pacific Northwest and a zero balance bank account
located in the Midwest. Each bank is covered by FDIC insurance;
balances in excess of coverage are not insured.
As a cooperative, the majority of the Company's accounts receivable
represent sales to its members who are located throughout the Pacific
Northwest. These accounts are not generally secured by collateral but
each member has stock holdings in the Company as well as patronage
rebates which the Company could apply against account balances.
The Company makes store financing loans to members from time to time
mainly to finance the acquisition of grocery store properties and
equipment. These loans are represented by notes receivable which are
secured by collateral consisting of personal property, securities and
guarantees.
The insurance subsidiaries have investments primarily in federal
securities and state municipal bonds which are backed by the full faith
and credit of the respective governmental agency.
19. COMMITMENTS AND CONTINGENCIES
a. During 1994, 1991 and 1990, the Company entered into agreements
under which it sold and continues to sell certain of its notes
receivable from members subject to limited recourse provisions.
These are secured by collateral which usually consists of
personal property, securities and guarantees. The Company is
responsible for collection of the notes, for which it receives a
collection fee, and remits the net proceeds to the purchaser on a
monthly basis. In 1994, 1993 and 1992, the Company sold notes
totaling approximately $8,625,000, $900,000 and $5,800,000,
respectively. The balances of transferred notes that were
outstanding and subject to recourse provisions were $13,652,000,
$13,441,000 and $20,934,000 at September 30, 1994, October 1,
1993 and October 2, 1992, respectively.
b. In connection with its loan activities to members, the Company
has approved loan applications totaling approximately $8,000,000
for which funds have been committed, but not disbursed, as of
September 30, 1994.
c. The Company is guarantor of a covenant by a member as of
September 30, 1994 totaling $350,000 with annual principal
payments of approximately $50,000.
d. The Company is a party to various litigation and claims arising
in the ordinary course of business. While the ultimate effect of
such actions cannot be predicted with certainty, the Company
expects that the outcome of these matters will not result in a
material adverse effect on the Company's consolidated financial
position or results of operations.
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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:
<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 11.110.4
</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.
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.
<PAGE>
CAPITAL STRUCTURE AND RESOURCES
The following table summarizes the Company's capital structure for
the last two years:
<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.
<PAGE>
