<PAGE>
Registration No. 33-57199
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
AMENDMENT NO. 3
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.
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UNITED GROCERS, INC.
Cross Reference Sheet Between
the Items of Part I of Form S-2 and the Prospectus
Location or Caption
Items in Form S-2 in Prospectus
1. Forepart of the Registration Statement and Cover page
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages Statement of Available
of Prospectus Information; Incorporation
of Certain Documents by
Reference; Table of Contents
3. Summary Information, Risk Factors and Ratio
Prospectus Summary
of Earnings to Fixed Charges
4. Use of Proceeds Introduction
5. Determination of Offering Price Introduction
6. Dilution *
7. Selling Security Holders *
8. Plan of Distribution Introduction
9. Description of Securities to be Introduction;
Registered Description of Membership
Stock; Description of Notes
10. Interests of Named Experts and Counsel *
11. Information with Respect to Prospectus Summary;
the Registrant Introduction;
The Company; Incorporation
of Certain
Documents by Reference
12. Incorporation of Certain Information Incorporation of Certain
by Reference Documents by Reference
13. Disclosure of Commission Position on *
Indemnification for Securities
Act Liabilities
* Omitted either because the item is inapplicable or because the answer is
in the negative.
<PAGE>
UNITED GROCERS, INC.
(Portland, Oregon)
250,000 Shares
Common Stock, $5 Par Value
$50,000,000 Series J 5% Subordinated
Redeemable Capital Investment Notes
Maturing Approximately 10 Years from Date of Issue
Common stock ("Membership Stock") is sold solely to members of United
Grocers, Inc. ("United"), at adjusted book value determined for each calendar
year as of the end of United's preceding fiscal year. In addition to shares
sold to newly admitted members as a prerequisite for membership, Membership
Stock may be issued to existing members for cash or in payment of patronage
dividends. See "The Company."
Notes are issued in registered form in denominations of $100 or
multiples of $100 at 100% of principal amount, with interest payable
quarterly. Notes are issued in noncertificated form. Notes are redeemable
at United's option during the 7 years prior to maturity at a price equal to
principal plus accrued interest. United does not expect any public market
for Notes to develop. Although it is not legally obligated to do so, United
intends to prepay any Note, at any time, upon request of the holder. See
"Introduction."
The board of directors of United has decided to pay interest at the
rate of 6.5% per annum during the period December 16, 1994, to March 15,
1995, on all Notes outstanding at any time during that period. On March 16,
1995, the interest rate on all Notes will revert to the stated rate of 5% per
annum unless the board of directors takes further action. The decision to
pay interest at 6.5% per annum is a voluntary action taken by the board of
directors in recognition of prevailing interest rates. There can be no
assurance that the interest rate on Notes after March 15, 1995, will exceed
5% per annum. The only right evidenced by the Notes is to receive timely
payment of principal and interest at 5% per annum.
Price to Underwriting Proceeds
public discounts and to United
commissions
_________________________________________________________________________
Per Share $59.50 None $59.50
Per Note 100% None 100%
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
This offering is not underwritten; all sales will be made by United
through its regular employees. United reserves the right to withdraw, cancel
or modify the offer without notice and to reject orders in whole or in part.
The date of this prospectus is March 3, 1995
<PAGE>
TABLE OF CONTENTS
Page
Statement of Available Information 2
Incorporation of Certain Documents by Reference 2
Prospectus Summary 3
Introduction 6
The Company 8
Description of Membership Stock 11
Description of Notes 13
Legal Matters 16
Experts 16
Additional Information 16
No person is authorized to give any information or to make any
representations other than those contained herein, and, if given or made,
such information or representations must not be relied upon as having been
authorized. Neither the delivery hereof nor any sale hereunder shall, under
any circumstances, create any implication that there has been no change in
the affairs of United since the date hereof. This prospectus does not
constitute an offer to sell or a solicitation of any such offer in any state
to any person to whom it is unlawful to make such an offer in such state.
STATEMENT OF AVAILABLE INFORMATION
United is subject to the informational requirements of the
Securities Exchange Act of 1934 and in accordance therewith files reports and
other information with the Securities and Exchange Commission ("Commission").
Such reports and other information can be inspected and copied at the public
reference facilities maintained by the Commission in Washington, D.C., at 450
Fifth Street, N.W., Washington, D.C., and at the Commission's regional
offices at 7 World Trade Center, 13th Floor, New York, New York 10048, and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies can be
obtained at prescribed rates by writing to the Securities and Exchange
Commission, Public Reference Section, 450 Fifth Street, N.W., Washington,
D.C. 20549.
United intends to provide its security holders annual reports
containing audited financial statements which have been examined and reported
on by independent certified public accountants.
INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE
United incorporates herein by reference (i) its annual report on
Form 10-K for the fiscal year ended September 30, 1994, as amended by
Form 10-K/A dated January 5, 1995, Form 10-K/A dated February 8, 1995, and
Form 10-K/A dated March 1, 1995 (ii) its quarterly report on Form 10-Q for
the fiscal quarter ended December 30, 1994, as amended by Form 10-Q/A dated
March 1, 1995, and (iii) the material under the captions "Board of Directors"
and "Management" and the information on pages 6 through 24 of United's annual
report to its security holders for the year ended September 30, 1994.
This prospectus is accompanied by a copy of United's 1994 annual
report to security holders and by a copy of United's quarterly report on Form
10-Q for the fiscal quarter ended December 30, 1994, as amended by
Form 10-Q/A dated March 1, 1995. United will provide, without charge, to
each person to whom a copy of this prospectus is delivered, upon the written
or oral request of any such person, a copy of the above mentioned Form 10-K
(other than certain exhibits). Requests should be directed to John W. White,
Vice President, United Grocers, Inc., Post Office Box 22187, Portland, Oregon
97269-2187, telephone (503) 833-1000.
<PAGE>
PROSPECTUS SUMMARY
The following material summarizes certain matters described in the
prospectus. It is necessarily incomplete and is qualified in its entirety by
reference to the remainder of the prospectus.
United
The Company United Grocers, Inc., 6433 S. E. Lake Road
(Milwaukie, Oregon), Post Office Box 22187,
Portland, Oregon 97269-2187; telephone
(503) 833-1000.
Principal Business A wholesale grocery distributor which operates
as a cooperative. United sells groceries and
related products at wholesale to approximately
360 independent retail grocery stores operated
by its members in Oregon, western Washington
and northern California.
Use of Proceeds of Working capital and general corporate purposes.
Offering
See "Introduction--Use of Proceeds" and "The Company."
Membership Stock
Shares Offered to Retail grocers who have been accepted as
members of United on the basis of 200 shares
per retail store. Membership Stock will also
be issued to members in payment of patronage
dividends and to members who wish to acquire
additional shares for cash.
Price Adjusted book value computed as of the end of
each fiscal year (the Friday nearest
September 30) to be effective for the following
calendar year ($59.50 per share, or $11,900 for
200 shares, during 1995).
Repurchase Under its present bylaws United is obligated to
repurchase shares held by terminated members at
the price at which Membership Stock is then
being offered (book value as of the end of the
fiscal year preceding the year of termination,
adjusted for certain items). A portion of the
repurchase price may, under certain
circumstances, be paid in installments on such
terms as the board of directors determines.
Voting Rights One vote for each shareholder of record.
Transfer Membership Stock is not transferable.
Dividends and Federal It is United's policy not to declare dividends
other than
Tax Consequences patronage dividends based upon members'
purchases. The total
amount of patronage dividends (including
Membership Stock) is
taxable to individual members when distributed.
See "Introduction," "The Company" and "Description of Membership Stock."
Notes
Notes Offered Series J Subordinated Redeemable Capital Investment
Notes.
Interest 5% per annum, payable quarterly. The board of
directors of United has decided to pay interest at
the rate of 6.5% per annum during the period
December 16, 1994, to March 15, 1995, on all Notes
outstanding at any time during that period. On
March 16, 1995, the interest rate on all Notes will
revert to the stated rate of 5% per annum unless
the board of directors takes further action. The
decision to pay interest at 6.5% per annum is a
voluntary action taken by the board of directors in
recognition of prevailing interest rates. There
can be no assurance that the interest rate on Notes
after March 15, 1995, will exceed 5% per annum.
The only right evidenced by the Notes is to receive
timely payment of principal and interest at 5% per
annum.
Denominations $100 and multiples thereof.
Price 100% of the principal amount.
Certificates Notes will be noncertificated. The rights of
holders of Notes will be evidenced by the
Investment Note Register maintained by United.
United will provide holders of Notes with quarterly
statements of their Note holdings.
Maturity of Principal On the interest payment date coinciding with, or
next following, the expiration of 10 years from
date of issue.
Prepayment In the event of death of a registered holder or
joint registered holder of a Note, United will be
legally obligated to prepay the Note upon request
of the person entitled to the Note. Although
United has no other obligation to prepay Notes, its
present intention is to prepay any Note, at any
time, upon request of the holder. Although
United's present intention is to continue this
prepayment policy indefinitely, it may discontinue
such policy at any time. See "Introduction--Notes
Offered." The prepayment price is the principal
amount plus accrued interest.
Type Unsecured, subordinated to Senior Indebtedness.
The amount of Senior Indebtedness outstanding as of
September 30, 1994, was approximately $67,597,000.
There is no limit upon the amount of Senior
Indebtedness that United may incur.
Redemption Redeemable at the option of United during the 7
years prior to maturity at a price equal to
principal plus accrued interest.
Transfer Notes are transferable but no market for Notes
exists or is expected to develop.
Indenture Trustee First Bank National Association.
See "Introduction" and "Description of Notes."
<TABLE>
<CAPTION>
Selected Financial Data
Fiscal years ended
________________________________________________________
Sept. 30 Oct. 1 Oct. 2 Sept. 27 Sept. 28
1994 1993 1992 1991 1990
____ ____ ____ ____ ____
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Income Statement(1):
Net sales and operating
revenues $954,220 $876,985 $896,587 $882,878 $873,685
Income before members'
patronage dividends, income
taxes, and accounting
change 11,294 11,291 13,314 13,126 12,408
Patronage dividends 8,730 9,000 10,211 10,427 10,000
Net income(2)(3) 1,563 1,714 2,723 1,712 1,394
Balance Sheet:
Working capital(4) 45,258 41,819 53,326 61,032 49,912
Total assets(7) 306,836 285,342 261,289 249,205 218,143
Liabilities
Current 147,443 136,809 113,759 112,256 101,179
Long-term 114,669 105,539 104,645 98,685 82,918
Members' equity 40,425 39,112 39,141 36,431 33,299
Adjusted book value per share(5) 59.50 57.00 53.94 48.99 46.24
Ratio of adjusted income
to fixed charges(1)(6) 1.79 1.85 1.97 2.07 2.05
(1) In fiscal 1993, United changed its method of accounting for inventories to the first-
in, first-out method. Amounts for prior periods have been restated to reflect the
change. See Note 4 to the consolidated financial statements appearing in the
accompanying annual report to shareholders ("Consolidated Financial Statements").
(2) Earnings per share are not shown because earnings are distributed only in the form of
patronage dividends; under United's policy no earnings are available for the purpose
of paying dividends on the Membership Stock.
(3) In fiscal 1992, United changed its method of accounting for income taxes, resulting
in a one-time increase in net income of $526,314. See Note 7 to the Consolidated
Financial Statements.
(4) In fiscal 1992, United changed its method of accounting for investments, resulting in
an increase in current assets at October 2, 1992, of $26,684,291 and a corresponding
decrease in non-current assets. Amounts for prior periods have been restated to
reflect the change. See Note 1.f. to the Consolidated Financial Statements.
(5) Adjusted book value per share, which is the offering price per share, is computed by
subtracting from total members' equity at fiscal year end, stock to be issued from
patronage and paid-in capital on such stock and undistributed equity from investments
accounted for on the equity method and dividing the resulting amount by shares
outstanding at fiscal year end.
(6) Adjusted income used to compute the ratio of adjusted income to fixed charges
represents net income to which has been added income taxes, patronage dividends and
fixed charges, less capitalized interest. Fixed charges consist of interest on all
indebtedness and that portion of rentals considered to be the interest factor.
(7) In fiscal 1994, United changed its method of accounting for reinsurance. Amounts for
fiscal 1993 have been restated to reflect the change. See Note 12 to the
Consolidated Financial Statements.
</TABLE>
For additional information, reference is made to the Consolidated Financial
Statements and other information incorporated herein by reference as
described under "Incorporation of Certain Documents by Reference."
INTRODUCTION
General. United is offering to sell 250,000 shares of its
Membership Stock and $50,000,000 in principal amount of Notes. All sales
will be made by United through its regular employees, who will not receive
any additional remuneration in connection with the sales. No sales will be
made through brokers and there are no underwriters. Membership Stock is not
transferable and there is, therefore, no public market for it. United does
not expect that any public market for Notes will develop. United anticipates
that the securities offered hereby will not all be sold in the immediate
future and that the offerings will, therefore, be made on a continuous basis
over a period of time. There is no assurance that any portion of the
offerings will be sold.
Use of Proceeds. United expects to use the proceeds from the sale
of the securities offered hereby for working capital and general corporate
purposes. To the extent that proceeds are insufficient to meet United's
requirements for working capital at any particular time, United intends to
rely upon increased borrowing from banks. Although United has not in the
past experienced any substantial difficulty in obtaining bank financing,
there can be no assurance that United will be able to obtain additional bank
financing or that it will be able to obtain such financing at interest rates
which it considers reasonable.
Membership Stock Offered. Membership Stock is sold only upon
approval by United's board of directors to retail grocers who have applied
for and been accepted for membership in United. Retail grocers accepted for
membership will thereby gain the right to purchase groceries and related
products from United on a cooperative basis. See "The Company." Membership
Stock is sold in units of 200 shares for each retail store accepted for
membership. Shares will be sold from time to time as United's board of
directors admits additional members and as existing members are accepted for
membership with respect to additional stores. Membership Stock will also be
issued to existing members in partial payment of patronage dividends (see
"The Company") and to members who wish to purchase additional shares for
cash.
Membership Stock is offered at its adjusted book value, as
determined by United's annual audited balance sheet as of the end of each
fiscal year, effective the following January 1. Adjusted book value per
share is computed by subtracting from total members' equity at fiscal year
end, stock to be issued from patronage and paid-in capital on such stock and
undistributed equity from investments accounted for on the equity method, net
of the tax effect, and dividing the resulting amount by shares outstanding at
fiscal year end. At September 30, 1994, the only adjustment for investments
accounted for on the equity method was United's investment in Western Family
Holding Company. The adjusted book value at September 30, 1994, was
$59.50 per share. Thus, the offering price for 200 shares during calendar
year 1994 is $11,900.
From time to time, United sells Membership Stock to new members on
an installment basis. If the board of directors determines that an
applicant's financial standing merits such treatment, Membership Stock may be
issued upon receipt of a cash down payment plus a promissory note or other
undertaking to pay the balance of the purchase price. The amount of the down
payment, interest rate and other terms of installment sales may vary
depending on the applicant's financial standing.
United's bylaws provide that, upon termination of membership,
Membership Stock will be repurchased by United at the price at which
Membership Stock is then being offered (adjusted book value). United's board
of directors may elect to pay the repurchase price in installments upon such
terms as the board of directors determines with respect to any shares held
over and above the number of shares a member was initially required to
purchase upon acceptance to membership. For additional information, see
"Description of Membership Stock." Although United has no other obligation to
repurchase Membership Stock, the board of directors has indicated that it
will consider requests for repurchase of Membership Stock from members which
are corporations upon a bona fide transfer of ownership of the corporate
member.
It is United's policy not to declare dividends other than patronage
dividends based on a member's purchases from United. The total amount of
patronage dividends (including Membership Stock) is taxable to individual
members when distributed. See "The Company."
United's bylaws provide that the number of shares of Membership
Stock which a member is required to purchase shall be established by the
board of directors. The board of directors has decided that, at present,
members must purchase a unit of 200 shares for each retail store for which
they are admitted as members. This number is subject to change from time to
time. There will not be any refund on or redemption of any shares already
purchased as a result of any decrease in the number of shares required for
new stores. Existing members will not be required to purchase additional
shares as a result of any future increase in the number of shares required
per store.
United's bylaws and articles of incorporation also provide that
each holder of record of Membership Stock is entitled to one vote regardless
of the number of shares owned. Thus, a newly admitted member purchasing
200 shares of Membership Stock will have the same voting rights as an
existing member directly holding a greater or lesser number of shares.
Certain members control family corporations or other separate entities that
own shares. Those members may control more than one vote because each
controlled entity is a separate holder of record. See "Description of
Membership Stock."
Under United's present policies, members acquiring additional
Membership Stock may have (i) the possibility, under certain circumstances,
of receiving a greater portion of future patronage dividends in cash (see
"The Company--Deposit") and (ii) the possibility of realizing gain in the
event of future appreciation in the book value of Membership Stock (see
"Description of Membership Stock"). Members considering acquiring additional
shares of Membership Stock should be aware that there can be no assurance
that United's future operations will result in the payment of patronage
dividends or in any appreciation in book value. In the event of losses in
future years, the book value of Membership Stock could decline. Also, as
described more fully under "The Company" and "Description of Membership
Stock," the proportion of patronage dividends to be paid in cash and the
method of payment for repurchased shares of Membership Stock are all subject
to the discretion of United's board of directors, and the right to repurchase
at book value upon termination of membership is subject to change by a vote
of United's members. Acquisition of additional shares of Membership Stock
will not give a member any additional voting rights.
Any increase in the total number of shares outstanding will, of
course, proportionately reduce the effect of future changes in total members'
equity upon book value per share. In other words, future increases or
decreases in members' equity resulting from earnings or losses will have a
lesser effect per share if the total number of shares outstanding is
increased.
Notes Offered. United is offering Notes only in fully registered
form without coupons in denominations of $100 or multiples of $100 at 100% of
principal amount. Notes bear interest at 5% per annum, payable quarterly,
and mature on the interest payment date coinciding with, or next following,
the expiration of 10 years from the date of issue. The board of directors of
United has decided to pay interest at the rate of 6.5% per annum during the
period December 16, 1994, to March 15, 1995, on all Notes outstanding at any
time during that period. On March 16, 1995, the interest rate on all Notes
will revert to the stated rate of 5% per annum unless the board of directors
takes further action. The decision to pay interest at 6.5% per annum is a
voluntary action taken by the board of directors in recognition of prevailing
interest rates. The board expects to review the interest rate paid on Notes
from time to time in light of prevailing interest rates and other factors.
There can be no assurance that the interest rate on Notes after March 15,
1995, will exceed 5% per annum. The only right evidenced by the Notes
offered hereby is to receive timely payment of principal and interest at 5%
per annum.
Notes are issued as noncertificated Notes. The rights of Note
holders are evidenced by the Investment Note Register. Note holders are
therefore dependent on the Investment Note Registrar to maintain accurate
records regarding their Note holdings. United presently serves as Investment
Note Registrar. Because there is no certificate, Notes may not be readily
saleable. However, no market for Notes exists or is expected to develop.
Notes are unsecured and are subordinated in right of payment to
Senior Indebtedness (as defined, see "Description of Notes--Subordination")
in the event of any liquidation or dissolution. The amount of Senior
Indebtedness at September 30, 1994, was approximately $67,597,000 (consisting
of approximately $61,991,000 in unsubordinated long-term debt and
approximately $5,606,000 in current liabilities). Notes may be redeemed at
United's option during the 7 years prior to maturity at a redemption price
equal to their principal amount plus accrued interest. For additional
information, see "Description of Notes."
Upon the death of a registered holder or joint registered holder,
United will be legally obligated to prepay the Note upon request of the
person entitled to the Note. United may require evidence of death before
making prepayment. Although United has no other legal obligation to prepay
Notes, its present intention is to prepay any Note, at any time, upon request
of the holder. The prepayment price upon death or under United's prepayment
policy is the principal amount of the Note plus accrued interest.
United's prepayment policy may provide holders of Notes with
liquidity which they might not otherwise have. Although United's present
intention is to continue its prepayment policy indefinitely, it may
discontinue such policy at any time. In the event that United discontinues
its prepayment policy, holders of Notes might, because of the absence of an
established market, be unable to sell their Notes prior to maturity or might
be unable to sell the Notes other than at a price below their principal
amount.
It is anticipated that most sales of Notes will be made to members
of United, friends and relatives of members, key employees and other persons
with existing relationships with United. United allows members to purchase
Notes on a regular basis by adding the purchase price to any such member's
weekly invoice for grocery purchases.
THE COMPANY
General. United, a wholesale grocery distributor, is an Oregon
business corporation organized in 1915 which operates and is taxed as a
cooperative.
It supplies groceries and related products to independent retail
grocers located in Oregon, western Washington and northern California.
United's goal is both 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.
United also sells groceries and related products at wholesale
through 28 cash-and-carry depots, principally to nonmember grocers,
restaurants, and institutional buyers.
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 owning a
membership in United or the holder of a substantial interest in a corporation
owning a membership in United. United's directors are Marlin A. Smythe,
Dennis Blasingame, Craig Danielson, James C. Vickers, David Neal, Peter J.
O'Neal, Raymond L. Nidiffer, Deano Ryan, Gordon Smith, and Dick Leonard.
The management of the corporation is under the direction of a
President and Chief Executive Officer who is employed and guided by the board
of directors.
Additional information is set forth in the documents incorporated
herein by reference.
Membership. United has approximately 250 members operating a total
of approximately 360 retail grocery stores. All applicants for membership,
who must be retail grocers, are subject to approval by United's board of
directors on the basis of financial responsibility and operational ability.
On approval, applicants are required to purchase shares of United's
Membership Stock.
Upon termination of membership, a member's shares of Membership
Stock are redeemed. Sales and redemptions of Membership Stock are made at
adjusted book value. Adjusted book value for this purpose is determined
according to United's most recent annual audited balance sheet, adjusted for
certain items, effective for the following calendar year. See "Description
of Membership Stock."
United's board of directors may elect to pay the repurchase price
in installments with respect to any shares held over and above the number of
shares a member was initially required to purchase upon acceptance to
membership. See "Description of Membership Stock."
The following table shows the adjusted book value per share of
Membership Stock for the past five years:
Fiscal years ended
______________________________________________
Sept. 30 Oct. 1 Oct. 2 Sept. 27 Sept. 28
1994 1993 1992 1991 1990
____ ____ ____ ____ ____
Adjusted book value
per share $59.50 $57.00 $53.94 $48.99 $46.24
The issuance of the additional shares offered hereby may result in
substantial dilution of the rate of increase or decrease in adjusted book
value per share. See "Introduction."
Cost Savings. By pooling the buying power of its members, United
is able to purchase goods in large quantities at prices lower than the prices
generally available to independent retail grocers. The savings from the bulk
purchases are passed along to members in the form of rebates, allowances and
patronage dividends.
Sales to members are invoiced to their accounts at prices contained
in United's order guide. While the complex pricing systems used in the
wholesale grocery industry make item-by-item price comparisons impracticable,
United believes that its pricing structure, including the various cost
savings available to members, compares favorably on an overall basis with the
pricing structures of its competitors. A cost equalization program results
in the addition or subtraction of a percentage of the member's weekly invoice
cost based on the member's average weekly purchases for the preceding four
weeks, excluding drop shipment purchases. The cost equalization percentages
are designed to reflect the economies of scale realized by United in
servicing larger accounts.
Rebates and allowances are paid to members periodically based upon
their purchases of particular items or their promotional and advertising
performance. Generally, such rebates and allowances stem from United's
margins and the merchandising or promotional programs of United's suppliers.
The amount of rebates and allowances paid to members with respect to
particular items may vary from the amount realized by United from its
suppliers.
United also pays its members annual patronage dividends based on
the overage, or excess of revenues over expenses, on sales to members for the
year. Each year United's board of directors determines the portion of the
overage which is to be distributed as patronage dividends. For fiscal year
1994, the board decided to distribute 95% of the overage that was available
for distribution. Decisions concerning the portion of overage to be retained
are based upon various factors, including United's future capital needs and
the amount of earnings available from operations not qualifying for
distribution as patronage dividends. The patronage dividends are allocated
among the members in proportion to the contribution to United's gross profit
(before rebates and allowances) attributable to their purchases from United.
The patronage dividends are paid partly in cash and partly in Membership
Stock. See "Deposit."
As a result of cost equalization, rebates, allowances and patronage
dividends, the total cost savings each member realizes will vary depending on
the member's volume of purchases and merchandising of particular products.
Patronage Dividends and Tax Matters. The following discussion
summarizes the operation of certain aspects of the federal income tax
treatment of cooperatives. The tax treatment of cooperatives is subject to
change from time to time as the Internal Revenue Code of 1986, as amended
("Code"), is amended and as new regulations and interpretations are
periodically adopted.
United operates and is taxed as a cooperative. Accordingly,
patronage dividends are not included in United's taxable income but are
instead taxed to the individual members receiving the patronage dividends.
The Code requires that not less than 20% of each member's patronage
dividend be paid in cash. It is United's policy to at least meet that
minimum requirement and to pay the balance of patronage dividends in
Membership Stock. See "Deposit" for information regarding the method used by
United to determine the patronage dividends to be paid in cash in excess of
the Code's minimum requirement.
Members are required to agree to abide by all United's bylaw
provisions, including those applicable to federal income taxation of
patronage dividends. Accordingly, members must report as taxable income the
total amount of patronage dividends, including the adjusted book value of
Membership Stock, in the year such patronage dividends are received, and such
amounts are not taxable to United.
United is taxed on income which does not qualify for distribution
as patronage dividends and on the portion of overage which is not distributed
to members. United's subsidiaries generally retain all profits (or losses)
from their operations and are subject to all applicable income taxes.
Deposit. Members are encouraged to accumulate holdings of
Membership Stock. Such holdings are referred to in the cooperative grocery
trade as "Deposits," although the Membership Stock is not physically
deposited with United. The amount of a member's Deposit is defined to be the
adjusted book value of his or her Membership Stock. The Deposit does not
include notes representing United's obligation to pay the deferred balance of
the price of Membership Stock repurchased from members or Capital Investment
Notes. The Deposit is used to:
a. Provide a guarantee fund for the member's purchases on open
account.
b. Ensure the funding of United's operations.
c. Serve as a basis for calculating cash patronage dividends. The
method of calculation is intended to encourage members to maintain
Deposits of at least one and one half times their average weekly
purchases ("AWP") from United. AWP is the average of a member's weekly
purchases of all items from United during the fiscal year for which
patronage dividends are being calculated.
In recent years, the noncash portion of patronage dividends has
been paid in Membership Stock, and it is anticipated that future payments
will also be made in Membership Stock. The board's present policy is to pay
patronage dividends as follows:
1. If the Deposit is less than one and one half times AWP, the
member's patronage dividend is paid 20% in cash and 80% in Membership
Stock.
2. If the Deposit equals or exceeds one and one half times AWP but
is less than 4,000 shares, the member's patronage dividend is paid 80%
in cash and 20% in Membership Stock.
3. If the Deposit equals or exceeds one and one half times AWP and
is at least 4,000 shares, the member's patronage dividend is paid 100%
in cash.
4. In the case of multiple store operations, Deposit and AWP
requirements are applied on a per store basis.
5. If a member's Deposit exceeds 4,000 shares of Membership Stock
per store, excess shares may be submitted for redemption over a five-
year period. Twenty percent of the shares submitted for each store
will be redeemed each year at the current share price for that year.
The board's Deposit policy is subject to change from time to time.
Although the board expects to retain the general principle of paying
increasing portions of patronage dividends in cash as a member's Deposit
increases, the board may, in the future, decide to consider additional
factors in the payment of patronage dividends. Therefore, there can be no
assurance that the purchase of Membership Stock by a member will result in
the member's receiving any particular portion of future patronage dividends
in cash.
DESCRIPTION OF MEMBERSHIP STOCK
United's authorized Membership Stock consists of 10,000,000 shares
of Membership Stock, $5 par value. Membership Stock is sold only to members
of United. All members must be actively engaged in the retail grocery
business and must be approved by the board of directors, primarily on grounds
of financial responsibility and operational ability, before being admitted to
membership.
Each member must purchase the number of shares of Membership Stock
as determined by the board of directors for each retail store the member
operates. Each shareholder of record is entitled to one vote, regardless of
the number of shares owned. Certain members control family corporations or
other separate entities that own shares. Those members may control more than
one vote because each controlled entity is a separate holder of record.
Voting for directors is noncumulative.
Membership Stock is not transferable and is not negotiable. Under
United's bylaws all shares are sold at adjusted book value and, upon a
member's death, retirement, voluntary withdrawal, expulsion or cessation of
purchases from United, will be repurchased by United at adjusted book value
as determined by United's annual audited balance sheet as of the end of each
fiscal year, effective the following January 1. Adjusted book value per
share is computed by subtracting from total members' equity, stock to be
issued from patronage and paid-in capital on such stock and undistributed
equity from investments accounted for on the equity method, net of the tax
effect, and dividing the resulting amount by shares outstanding at fiscal
year end (as restated for any stock splits, stock dividends or similar
changes). United's bylaws provide that the repurchase price for any shares
over and above the number of shares the member was required to purchase as a
condition of membership for a retail store or stores may, in the discretion
of United's board of directors, be paid in 20 quarterly installments with
interest at the same rate being paid from time to time (presently 6.5%) on
United's Capital Investment Notes then being offered or in such other manner
as the board of directors may from time to time determine.
United's board has adopted a policy, subject to change without
notice, requiring United to repurchase on request the number of shares a
member owns in excess of 4,000. The excess shares are repurchased over a
five-year period at the current adjusted book value each year, payable in
cash.
United's obligation to repurchase the shares of members is subject
to the general limitations imposed by the Oregon Business Corporation Act
that United may not purchase shares if, after giving the purchase effect,
United would not be able to pay its debts as they become due in the usual
course of business or United's total assets would be less than its total
liabilities.
A member is subject to expulsion by the board of directors for the
following reasons: (l) disclosure to nonmembers of confidential information
relating to United's business, (2) abuse of office by officers, (3) purchase
of goods for the benefit of a nonmember, (4) commission of a felony, (5)
violation of the corporation's bylaws, or (6) action to the detriment of the
corporation. Since 1954, no members have been expelled. Patronage dividends
for the fiscal year in which a membership is terminated are paid in cash
following the end of the fiscal year, based on the member's purchases from
United during the fiscal year. All bylaw provisions, including those
relating to the repurchase of Membership Stock at adjusted book value, are
subject to amendment by a vote of a two-thirds majority of the quorum of
shares voting on such amendment.
Shares of Membership Stock are issued from time to time upon
payment of less than the full purchase price. Upon payment of the full
purchase price, shares of Membership Stock are fully paid and nonassessable.
A member's interest in the adjusted book value of shares of Membership Stock,
is, however, subject to being set off against any debts of the member to
United or its subsidiaries.
The shares of Membership Stock are entitled to share pro rata in
any liquidating distributions and dividends other than patronage dividends.
It is not the policy of the board of directors to declare any dividends other
than patronage dividends. In the event of any liquidation of United, the
rights of holders of Membership Stock with respect to any liquidating
distributions and the rights of former holders of Membership Stock with
respect to any deferred payments due them would be subordinated to all other
claims against United's assets.
Shares of Membership Stock are not subject to any sinking fund
provisions and have no conversion rights.
DESCRIPTION OF NOTES
The Notes offered hereby are issued as the ninth series of Capital
Investment Notes under an indenture dated as of February 1, 1978, between
United and United States National Bank of Oregon, as trustee ("U. S. Bank"),
as supplemented by supplemental indentures dated as of August 15, 1979,
November 11, 1981, December 15, 1984, December 15, 1986, January 27, 1989,
January 22, 1991, July 6, 1992, and January 9, 1995, (which indenture, as so
supplemented, is herein referred to as the "Indenture"). First Bank National
Association ("Trustee") has assumed U. S. Bank's rights and obligations as
trustee under the Indenture. A copy of the Indenture is on file with the
Securities and Exchange Commission as an exhibit to the registration
statement of which this prospectus forms a part. The following description
summarizes certain provisions of the Indenture and is subject to the detailed
provisions of the Indenture, to which reference is hereby made for a complete
statement of such provisions. Whenever particular Sections or terms defined
in the Indenture are referred to herein, such Sections or definitions are
incorporated by reference. References in parentheses are to Sections of the
indenture dated as of February 1, 1978, except that references marked with an
asterisk (*) are to Sections of the supplemental indenture dated as of
January 9, 1995. See "Additional Information."
General. Notes bear interest from the date of issue at the stated
annual rate indicated on the cover page of this prospectus. United may,
under the Indenture, issue Notes at other interest rates, but no change in
interest rates may affect the stated interest rate on Notes then outstanding.
Interest is paid on the 15th day of March, June, September, and December for
the quarters ending on those dates to the persons in whose names the Notes
are registered as of the last business day of the calendar month preceding
the payment date. (Secs. 3.06 and 4.02*)
Notes mature on the interest payment date which is on, or next
following, the date ten years from the date of issue, are unsecured
obligations of United and are limited to $50,000,000 aggregate principal
amount, all of which is being offered pursuant to this prospectus. Notes are
issuable only in registered form, without coupons, in denominations of $100
or any multiple of $100 approved by United. Notes are issued as
noncertificated Notes. (Secs. 1.15, 3.02, 2.01*, 4.01* and 4.02*)
Principal and interest on all Notes are payable at the principal
office of United in Clackamas County, Oregon, provided that, at the option of
United, interest and principal payments on Notes may be made by check mailed
to the address of the registered holders of the Notes. United intends to pay
interest and principal by check. (Secs. 3.01, 7.02 and 3.03*) United will
exchange Notes for other Notes of the same series and of a like principal
amount and having the same terms and conditions upon written request of the
holder. No service charge will be made to the holder for any exchange or
transfer, except for any tax or governmental charge incidental thereto.
(Secs. 3.04 and 3.04*) United is required to mail quarterly statements of
Note holdings to holders of Notes. (Sec. 4.03*)
United may from time to time without the consent of any holder of
an outstanding Note issue under the Indenture, by means of an indenture
supplemental thereto, additional Capital Investment Notes having different
terms and of a series other than the Notes. The amount of additional Capital
Investment Notes or other debt which may be issued by United is not limited
by the Indenture. (Sec. 4.01)
The Indenture does not contain any covenant or provision that
protects the holders of Notes against a reduction in the value of the Notes
resulting from a highly leveraged transaction, whether or not such
transaction involves a change in control of United. Similarly, no holder of
Senior Indebtedness of United at September 30, 1994, is protected against a
reduction in the value of Senior Indebtedness held by such holder resulting
from a highly leveraged transaction, except that certain agreements relating
to Senior Indebtedness require that United maintain specified financial
ratios.
Prepayment. Although United is not obligated to prepay Notes
except in the event of the death of a registered holder, United's present
intention is to prepay the principal amount of any Note, together with
accrued interest to the date of payment, at any time upon the request of the
holder.
In the event of the death of a registered holder or joint
registered holder of a Note, United is obligated, at the option of the person
legally entitled to become the holder of the Note, to prepay the principal
amount of the Note, together with accrued interest to the date of payment.
Any request for prepayment must be made to United in writing. United may, as
a condition precedent to the prepayment, require the submission of evidence
satisfactory to United 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 Note or such other facts as it considers relevant to the fulfillment of
its prepayment obligation. (Sec. 5.01*)
Redemption. The Notes may be redeemed at the election of United
during the seven years prior to maturity at their principal amount, plus
accrued interest, upon not less than 30 days' notice by mail to the
registered holder. United, in its sole discretion, may designate for
redemption Notes maturing on specified dates or bearing specified interest
rates. If less than all the Notes with a specified maturity date or interest
rate are to be redeemed, the Trustee shall select the particular Notes to be
redeemed in whole or in part. (Secs. 5.02* and 5.03*) No interest on Notes
selected for redemption will accrue after the date fixed for redemption.
(Sec. 5.04*)
Subordination. Payment of the principal of, and interest on, the
Notes is subordinated in the manner and to the extent set forth in the
Indenture in right of payment to the prior payment in full of all Senior
Indebtedness. (Sec. 6.01*) Senior Indebtedness is defined as indebtedness of
United, whether outstanding on the date of the Indenture or thereafter
incurred, (a) for money borrowed by United (other than indebtedness evidenced
by Capital Investment Notes and Registered Redeemable Building Notes);
(b) for money borrowed by others and guaranteed by United; (c) constituting
purchase money indebtedness incurred for the purchase of tangible property
and for the payment of which United is directly or contingently liable;
(d) arising under any document creating an absolute or contingent obligation
of United to purchase promissory notes and related documents from third
parties; or (e) for fees, expenses, and other obligations of United due in
connection with indebtedness of United that constitutes Senior Indebtedness,
unless by the terms of the instrument creating or evidencing the indebtedness
it is provided that such indebtedness is not superior in right of payment to
the Notes. (Secs. 1.01* and 6.01*) The Indenture does not limit the amount
of Senior Indebtedness which United may incur.
The Indenture provides that, in the event of and during the
continuation of any default on any Senior Indebtedness, no payment may be
made on the Notes or for the redemption or purchase of Notes. (Sec. 6.03*)
Upon any distribution of assets of United, upon any liquidation, dissolution,
winding up or reorganization of United, whether in bankruptcy, insolvency or
receivership proceedings or upon an assignment for the benefit of creditors,
or other proceeding, all principal of (and premium, if any) and interest on
all Senior Indebtedness must be paid in full before the holders of the Notes
are entitled to receive or retain any payment. Subject to the payment in
full of all Senior Indebtedness, the holders of the Notes are subrogated to
the rights of the holders of the Senior Indebtedness to receive distributions
of assets of United applicable to Senior Indebtedness until the Notes are
paid in full. (Sec. 6.02*) By reason of such subordination, in the event of
insolvency, creditors of United who are holders of Senior Indebtedness may
recover more, ratably, than the holders of the Notes, and creditors of United
who are not holders of Senior Indebtedness or of the Notes may recover less,
ratably, than the holders of Senior Indebtedness, and may recover more,
ratably, than the holders of the Notes.
Modification of Indenture. Modifications and amendments of the
Indenture may be made by United and the Trustee with the consent of the
holders of 66 2/3% in principal amount of the Capital Investment Notes of all
series then outstanding, provided that no such modification or amendment may,
without the consent of the holder of each Note affected thereby, (a) change
the maturity date of the principal or the interest payment dates; (b) reduce
the principal amount of or the interest on any Note; (c) change the currency
of payment; (d) impair the right to institute suit for the enforcement of any
such payment on or after the maturity date or the Redemption Date, as the
case may be; or (e) reduce the above-stated percentage of holders of Capital
Investment Notes necessary to modify or amend the Indenture. (Sec. 13.02)
Events of Default; Notice and Waiver. The following constitute
Events of Default: (a) default in the payment of any interest continued for
30 days; (b) default in the payment of the principal of (or premium, if any,
on) any Capital Investment Note at its maturity; (c) default in the
performance of any other covenant or warranty of United, continued for 60
days after written notice as provided in the Indenture; (d) acceleration of
any Senior Indebtedness of United as a result of a default with respect
thereto if such acceleration is not rescinded within 30 days after written
notice as provided in the Indenture; and (e) certain events in bankruptcy,
insolvency or reorganization. (Sec. 9.01) If an Event of Default shall
happen and be continuing, the Trustee or the holders of not less than 25% in
principal amount of outstanding Capital Investment Notes may declare the
principal of all the Capital Investment Notes to be due and payable
immediately. (Sec. 9.02)
The Indenture provides that the Trustee will, within 90 days after
the occurrence of a default, give to the holders of Capital Investment Notes
notice of such default known to it, unless such default shall have been cured
or waived; but, except in the case of a default in the payment of the
principal of (or premium, if any) or interest on any of the Capital
Investment Notes, the Trustee shall be protected in withholding such notice
if it in good faith determines that the withholding of such notice is in the
interest of such holders. (Sec. 9.14)
The holders of a majority in principal amount of the outstanding
Capital Investment Notes may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any
trust or power conferred on the Trustee, provided that such direction shall
not be in conflict with any rule of law or the Indenture. (Sec. 9.12) Before
proceeding to exercise any right or power under the Indenture at the
direction of such holders, the Trustee is entitled to receive from such
holders reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with any such
direction. (Sec. 10.02)
The holders of not less than a majority in principal amount of the
outstanding Capital Investment Notes may, on behalf of the holders of all the
Capital Investment Notes, waive any past default except (a) a default in the
payment of principal of (or premium, if any) or interest on any Capital
Investment Note, and (b) a default in respect of a covenant or provision of
the Indenture which cannot be amended without the consent of the holder of
each Capital Investment Note affected. (Sec. 9.13)
United is required to furnish to the Trustee annually a statement
as to the fulfillment by United of all its obligations under the Indenture.
(Sec. 7.06)
Other. The Notes have no sinking fund provisions. The Indenture
contains no restrictions on the dividends that may be paid by United and
imposes no obligations with respect to the maintenance of reserves, levels of
net worth, liabilities, working capital or the like.
Regarding the Trustee. United has no agreements or business
relationships with the Trustee other than those contained in or contemplated
by the Indenture. The Trustee is required to furnish annual reports to
holders of Notes as to certain matters relating to the Notes, the Trustee's
performance and the Trustee's eligibility to act as Trustee. (Sec. 8.03)
LEGAL MATTERS
The validity of the Membership Stock and Notes offered hereby have
been passed upon for United by Miller, Nash, Wiener, Hager & Carlsen,
Portland, Oregon, who have acted as special counsel to United in connection
with this offer.
EXPERTS
The consolidated financial statements of United incorporated in
this prospectus by reference have been audited by DeLap, White & Raish,
independent certified public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of
said firm as experts in auditing and accounting in giving said report.
ADDITIONAL INFORMATION
This prospectus omits certain information contained in a
registration statement filed by United with the Securities and Exchange
Commission. For further information, reference is made to
the registration statement, including the financial schedules and exhibits
filed as a part thereof. See "Statement of Available Information."
<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 March 1, 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 March 1, 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
* 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<PAGE>
* RAYMOND L. NIDIFFER Director
Raymond L. Nidiffer
* By /s/ JOHN W. WHITE
John W. White
Attorney-in-fact
<PAGE>
EXHIBIT INDEX
Exhibit Description
No.
- ------- -----------
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>
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, except
for Members' equity disclosure
and Note 1.o., as to which
the date is February 28, 1995
<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 maintained for insurance
reserves (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 supported
by investments (Note 1.e., 2, and 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 (Members' equity is subject
to redemption due to the occurrence
of certain events, e.g., termination
of membership. See Note 1.o.):
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)
(shares owned by a member in excess
of 4,000 are subject to repurchase, see
Common Stock Note below, and Note 1.o.) 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>
Common stock note:
At September 30, 1994, and October 1, 1993,
There were 22,409 and 20,920 shares, respectively,
subject to repurchase in the amount of $1,227,313
and $1,128,425, respectively. At September 30, 1994,
and October 1, 1993, there were 2,869 and 4,551 shares,
respectively, held for possible redemption in the
amount of $163,533 and $245,481, respectively.
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.
o. COMMON STOCK
United's common stock is not transferable and is not negotiable.
Under United's Bylaws, all shares of United's common stock are
sold at adjusted book value and, upon a member's death,
retirement, voluntary withdrawal, expulsion, or cessation of
purchases from United, will be repurchased by United at adjusted
book value as determined by United's annual audited balance sheet
as of the end of each fiscal year, effective the following January
1. Adjusted book value per share is computed by subtracting from
total members' equity, stock to be issued from patronage and paid-
in capital on such stock and undistributed equity from investments
accounted for on the equity method, net of the tax effect, and
dividing the resulting amount by shares outstanding at fiscal year
end (as restated for any stock splits, stock dividends, or similar
changes). United's Bylaws provide that the repurchase price for
any shares over and above the number of shares the member was
required to purchase as a condition of membership for a retail
store or stores may, in the discretion of United's board of
directors, be paid in 20 quarterly installments with interest at
the same rate being paid from time to time (presently 6.5%) on
United's Capital Investment Notes then being offered or in such
other manner as the board of directors may from time to time
determine.
United's board of directors has adopted a policy, subject to
change without notice, requiring United to repurchase upon request
the number of shares a member owns in excess of 4,000. The excess
shares are repurchased over a five-year period at the current
adjusted book value each year, payable in cash.
United's obligation to repurchase the shares of members is subject
to the general limitations imposed by the Oregon Business
Corporation Act that United may not purchase shares if, after
giving the purchase effect, United would not be able to pay its
debts as they became due in the normal course of business, or
United's total assets would be less than its total liabilities.
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>
EXHIBIT 23.B.
CONSENT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference of (i) our
report dated November 30, 1994, except for Members' equity disclosure and
Note 1.o., as to which the date is February 28, 1995, with respect to the
financial statements of United Grocers, Inc., and (ii) our report dated
November 30, 1994, with respect to the financial statement schedules,
both of which are included in the annual report on Form 10-K, as amended,
of United Grocers, Inc., for the year ended September 30, 1994, into the
prospectus constituting part of this Registration Statement on Form S-2
of United Grocers, Inc.
DeLAP, WHITE & RAISH
Certified Public Accountants
Portland, Oregon
March 1, 1995
