<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended September 27, 1996
Commission File Number 2-60487
UNITED GROCERS, INC.
OREGON 93-0301970
6433 S.E. Lake Road (Milwaukie, Oregon)
Post Office Box 22187, Portland, Oregon 97222
Registrant's telephone number, including area code: (503) 833-1000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X . No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. __X__
State the aggregate market value of the voting stock held by non-affiliates of
the registrant.
$38,706,820 (computed on basis of 1996 offering price and number of shares
outstanding at December 22, 1996).
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
622,897 shares of common stock, $5 par value, as of December 22, 1996.
Documents incorporated by reference: None <PAGE>
PART 1
Item 1. Business
The registrant, United Grocers, Inc. ("United" or "the Company"), is an
Oregon business corporation primarily engaged in the wholesale grocery and
food service distribution business. The Company was organized in 1915 and
operates and is taxed as a cooperative.
The Company supplies groceries and related products to independent retail
grocers located in Oregon, Western Washington and California. In addition, the
Company and certain of its wholly owed subsidiaries, provides many services
needed for the operation of a modern, successful grocery business. These
services include marketing assistance, engineering, accounting, financing.
The Company's food service distribution business is conducted through its
Cash & Carry food service division, and its wholly owned subsidiary, Rich &
Rhine, Inc. The Company's Cash & Carry division sells grocery and related
products to non member retail stores, restaurants, and other institutional
entities through its 38 stores located in Oregon, Washington, California, and
Idaho. Rich & Rhine distributes tobacco and candy products to other non member
retail businesses.
The Company is also engaged in providing multiple line insurance and
related insurance to the grocery industry in 29 states through various wholly
owned subsidiaries. These subsidiaries include Grocers Insurance Company,
Grocers Insurance Agency, Inc., UGIC, Ltd., United Work Place Consultants,
Inc., and Grocers Insurance Group, Inc.
In December, 1995, United acquired the assets and related business of the
wholesale division of Bay Area Foods, Inc., doing business as Market Wholesale
Grocery ("Market Wholesale"). The acquired operations increased the Company's
business in California. Annual revenues in 1996 from the acquired operations
were approximately $249 million.
Financial data regarding the Company's industry segments is included in
the financial statements appearing in Item 6.
Membership
Independent retail grocers within United's market area are eligible to
apply for membership. All applicants for membership 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 common stock. United has approximately 248 members operating a
total of approximately 353 retail grocery stores.
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.
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. Decisions
concerning the portion of the 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.
No member or other customer of United accounts for as much as 10 percent
of its sales. Management believes that the loss of any one or a few of its
members or other customers would not have a material effect on its business or
financial condition.
<PAGE>
Member Services
United provides a number of retail services to its members. Services
which do not carry a specific fee or charge include marketing information,
merchandising assistance, competitive retail price reporting and developmental
services such as store site selection, design and engineering.
United also offers its members, at a fee, complete bookkeeping,
accounting and tax services for their retail operations. A computerized
payroll service is also available. Other miscellaneous retail services which
generally carry a scheduled fee assessment include customized retail pricing,
retail shelf "unit pricing," and retail information service products.
Members can receive finance services from United's subsidiary, United
Resources, Inc. United Resources makes loans and provides other financial
services to members. Loans to members are generally made at one and three
quarters to two and one quarter percentage points over the prime interest
rate. Such loans generally are for terms of one to ten years. Loan funds are
obtained under a note purchase agreement with National Consumer Cooperative
Bank at rates varying with market interest rates. At September 27, 1996, the
aggregate principal amount of member loans outstanding due the subsidiary was
$27,515,354. The subsidiary's interest income for the year then ended was
approximately $2,572,000. In the normal course of its activities, United
Resources, Inc., acquires retail stores through foreclosure or purchase and
operates them on a temporary basis. United Resources owned three such stores
at September 27, 1996. During 1996, United Resources acquired two stores
through foreclosure, and disposed of three stores through sale or closure.
United, where appropriate, leases retail space and subleases the space to
qualified members to enable them to obtain prime commercial space. At
September 27, 1996, United was obligated on 51 such leases. During 1996, the
Company changed its policy of requiring lease insurance on subleases whereby
United is the main lessee, and replaced the lease insurance with a program
whereby United recognizes profits on its subleases to compensate the Company
for its sublease risk. See Notes to Consolidated Financial Statements for
more information on these subleases.
Technology
During 1996 United Grocers strategically focused its Information Services
group on building systems platforms to allow for future growth. The Inventory
and Distribution Management system in use by United Grocers was updated to the
DCS2000 system provided by British American Consulting Group (BAcg). This
system is a full multi-warehouse distribution system with a complete set of
modules to support purchasing and warehousing functions. Another key strategic
project this year was the migration of UG's Finance and Accounting system from
the mainframe to a client-server financial package provided by Oracle. The
combination of these two systems helps position United Grocers for maximum
flexibility and capability for business expansion.
In the Retail Systems area, United Grocers has continued to build
strategic computer system platforms that will greatly assist in the success of
independent retail grocers while competing in today's marketplace against the
large chains. To take advantage of the economies of scale enjoyed by retail
chains with the development, purchase, implementation, and support of computer
systems, United Grocers has taken a strong leadership role in providing a
high-quality, standard computing package for its retail customers. This
standard platform has been marketed under the name Project Enterprise.
Project Enterprise bundles software, hardware, network connections, and
maintenance together into a single product offering. This entire system is
placed in the retail location; store personnel are trained by United Grocers
staff. The retailer's only financial responsibility is to pay a weekly fee for
the use of the system. Project Enterprise has allowed United Grocers to make a
strong computing system affordable to its retailers while allowing for volume
discounts for hardware and maintenance. United Grocers can now leverage and
build upon these systems in a similar fashion as a standardized chain
environment. The Project Enterprise platform includes an integrated store
processor (I.S.P.), UG's U-Link family of services, a laser printer, and UG's
Ready Pay electronic payment system. In a mass rollout effort, the UG Retail
Systems group has implemented over 160 of these Project Enterprise systems
this year.
Food Service Distribution
The Company's food service distribution operations generate significant
annual volume for its distribution segment, as well as a prominent source of
potential growth in the future. The main source of food service volume is the
Company's Cash & Carry wholesale outlets. These outlets provide a convenient,
low cost method of purchasing groceries and institutional products for non
member grocers, restaurants, and institutional buyers. Cash & Carry customers
select their merchandise at the outlet much in the same manner that a customer
at a retail grocery store would. Cash & Carry customers provide their own
transportation.
At September 27, 1996, the Cash & Carry outlets generated $233 million in
sales, an increase of 13% over 1995 sales of $206 million. In 1997, the
Company is scheduled to open six new locations, for a total capital investment
of approximately $6 million.
In addition to Cash & Carry operations, the Company's food service
distribution includes Rich & Rhine, Inc., which contributed $38.9 million to
distribution segment sales in 1996.
Insurance
Overview
Grocers Insurance Group, Inc. was formed on October 25, 1990, and is the
holding company for the Company's insurance-related subsidiaries. Grocers
Insurance Group, Inc. assists in marketing insurance-related services offered
by those subsidiaries.
Grocers Insurance Agency, Inc., is an insurance agency offering
commercial and personal lines coverages.
United Workplace Consultants, Inc. offers consulting and rehabilitation
services to corporate clients including members of the Group.
UGIC, Ltd. provides reinsurance services for property and casualty lines.
Grocers Insurance Company, Inc., is a commercial lines underwriter rated
A- by A.M. Best.
Operations
The following analysis of insurance operations is limited to Grocers
Insurance Company (GIC), the significant underwriting subsidiary of the
company.
Premiums Written
An analysis of GIC's premiums written during the past three years is
shown in the following table.
($ in thousands)
Direct Reinsurance Reinsurance Net
Year Written Assumed Ceded Written
1994 $23,992 $ 861 $6,652 $18,201
1995 27,809 698 7,364 21,143
1996 28,988 567 8,185 21,370
The three states accounting for the largest amounts of direct premiums
written for the year ending September 30, 1996, were Oregon with 33%,
California with 24%, and Washington with 10%. No other state accounted for
more than 7% of such premiums. In 1996 there were no significant changes in
business, geographic mix or types of risks assumed.
Underwriting Results
A commonly used industry measurement of property and casualty insurance
underwriting results is the combined loss and expense ratio. This ratio is
the sum of the ratio of net incurred losses and related loss adjustment
expenses to net premiums earned (loss ratio) plus the ratio of underwriting
expenses to premiums written (expense ratio). The loss ratio, expense ratio
and combined ratio for GIC for the last three calendar years are as follows:
Loss Expense Combined
Year Ratio Ratio Ratio
1993 89.6% 13.0% 102.6%
1994 79.0% 21.9% 100.9%
1995 82.9% 21.1% 104.0%
These ratios compare to industry composite combined ratios of 105.7% for
1993, 107.1% for 1994 and 105.0% for 1995.
There have been no unusually large gains or losses from underwriting or
investment operations during the year. There are no effects from currency
fluctuations, with all business being transacted within the United States.
Claim Operations
Net Unpaid Loss and Loss Adjustment Expenses (LAE) for the last three
fiscal years are:
($ in thousands)
Increase
Year Losses LAE Total or (Decrease)
1994 22,968 4,671 27,639 (2.7%)
1995 24,534 4,819 29,353 6.2%
1996 23,676 4,981 28,657 (2.4%)
For additional historical information on loss reserve development and
reconciliation of claim reserves, please refer to Appendix 1 and Appendix 2 to
this report.
Reinsurance
GIC reinsures limits above $100,000 per risk through a treaty
reinsurance program with upper limits of $20 million for workers' compensation
and liability exposures, and limits up to $3 million for property risks.
Facultative reinsurance is purchased for property risks written with limits
above $3 million. Current reinsurers on the main working layers are all rated
A- or better by A.M. Best.
Risk Based Capital / IRIS
The National Association of Insurance Commissioners (NAIC) has adopted,
effective December 31, 1994, a risk-based capital formula for property and
casualty companies which will be used by insurance regulators in assessing the
capital adequacy of insurance companies.
The ratio for GIC as determined at December 31, 1995, was significantly
above the levels which would require regulatory action. Regulatory total
adjusted capital was $15.7 million; authorized control level risk based
capital was $1.9 million.
The NAIC produces an annual evaluation, the Insurance Regulatory
Information System (IRIS), utilizing data from the statutory annual statements
filed as of each December 31 with state insurance departments.
GIC had no ratios designated as an "unusual value" in its IRIS Report
for the year ended December 31, 1995.
Competition
The grocery industry is characterized by intense competition. United's
wholesale grocery marketing area is comprised of Oregon, California and
Western Washington. United's principal competitors are two national grocery
wholesalers (which because of their operations in other areas are larger than
United) and four regional grocery wholesalers.
Other competitors include a number of local grocery wholesalers, many of
whom are limited to special product lines, such as candy or produce, or sell
only to limited market segments, such as restaurants or institutions. United
also competes with a significant number of producers which market their
products directly to retailers and with several chain store organizations
which control both their wholesale and retail operations.
Based on information available to it, United estimates that its members,
many of whom are in competition with one another, account for approximately
14% of the retail grocery market within United's marketing area. Although
members are free to purchase from sources other than United, members
generally purchase goods (except goods which United does not supply (such as
beer and wine) principally from United. United does not account for a
significant percentage of the national wholesale grocery market.
Recent trends in the results of the Company's member stores have
continued. In general, members outside major metropolitan areas, and those
operating newer stores, price oriented or super store formats registered
various gains in volume. Members operating average-sized conventional stores
generally registered small volume losses overall. As a result of these
trends, the Company's member unit volume in the distribution segment decreased
approximately 1%.
Like the grocery industry, the insurance industry is highly competitive.
Grocers Insurance Group is well positioned to serve the retail food industry.
Due to its specialization in the retail food business, Grocers Insurance Group
generally operates on lower expense ratios than most of its competitors,
allowing it to offer competitive prices for its policies.
Employees
United employed approximately 2,000 persons at September 27, 1996.
Approximately 880 of its employees are members of Teamster or other unions.
United's collective bargaining agreements expired in April, 1996, and
new contracts have been ratified. The Company considers its employee relations
to be satisfactory.
Supplies
United purchases goods from a wide variety of sources ranging from local
farmers to large multinational corporations. United attempts to obtain the
lowest possible price by pooling the buying power of its members. United is
not dependent on any single supplier and the loss of any single supplier would
not have a material effect on its business.
United is one of the five stockholders of Western Family Holding
Company, a corporation which pools the buying power of its stockholders in
order to obtain lower cost merchandise. Purchases from Western Family Holding
Company, which account for about 11% of United's total purchases, are
distributed under labels such as "Western Family" and "Cottage."
United's operations are not of a type which ordinarily result in the
discharge of significant quantities of pollutants. United believes that its
operations substantially meet or exceed all applicable environmental
regulations.
Income Taxes
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 Internal
Revenue Code of 1986, as amended ("Code") requires that not less than 20
percent of each member's patronage dividend be paid in cash. United's
patronage dividend policy meets that requirement, providing for cash payments
of up to 100% of dividends based on ratios of the value of stock holdings by
member stores to their average weekly purchases, and total number of shares of
stock owned. Patronage dividends not paid in cash are paid in additional
Membership Stock. 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, whether paid in cash or 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 retain all profits (or losses) from their
operations and are part of the consolidated federal income tax return.
Government Contract Business
The Company does not generate significant business based upon contracts
with local, state or federal government entities.
Item 2. Properties
United owns and operates two distribution centers. Its main
distribution center, located in Milwaukie, Oregon, contains over 815,000
square feet of warehouse space situated on a 62-acre site owned by United.
Also at this location are 84,900 square feet of office space, a 20,000-square-
foot truck repair shop, and a 114,000-square-foot frozen food distribution
center.
United's southern Oregon division distribution center, located in
Medford, Oregon, contains approximately 200,000 square feet of warehouse
space, plus related office and maintenance areas.
United's distribution center warehouses are of modern, one-floor,
sprinklered, concrete construction. The warehouses are subject to various
mortgages, the terms of which are summarized in the Notes to the Consolidated
Financial Statements.
United and its subsidiaries operate a truck fleet consisting of 228
tractor cabs and 417 dry freight and refrigerated semitrailers, including both
owned and leased units.
United leases a mainframe computer, together with related peripheral
equipment, under various leases expiring in April, 1997. The leases call for
annual rental of approximately $797,000.
United, as described under "Services," is also the prime lessee of
retail stores, which are subleased to members, totaling approximately 1.2
million square feet. Further, United and its subsidiaries are the lessees and
operators of two retail stores acquired through foreclosure and purchase
totaling an additional 90,000 square feet. United owns an additional retail
store occupying approximately 38,000 square feet.
Additionally, United owns five Cash & Carry stores ranging in size from
10,800 to 23,520 square feet.
United rents several warehouse and cash and carry stores with lease
terms and rents as follows:
Area in Lease Monthly
Facility Type Location Square Feet Expiration Rent
- ------------- -------- ----------- ----------- ----
Warehouse Santa Rosa, CA 244,000 7/27/05 $80,250
Modesto, CA 275,000 7/27/05 $74,250
Tracy, CA 160,166 7/27/05 $84,888
Portland, OR 18,000 9/30/98 $ 5,000
Milwaukie, OR 9,600 9/30/00 $ 2,836
Woodland, CA 68,400 10/01/05 $24,640
Cash & Carry
Stores Aloha, OR 20,500 2/28/97 $ 6,970
Bend, OR 18,460 4/21/07 $ 5,532
Coos Bay, OR 14,250 8/31/97 $ 2,262
Gresham, OR 18,220 12/31/96 $ 5,830
Newport, OR 16,000 11/30/07 $ 6,700
Portland, OR 17,508 7/01/01 $ 6,000
Portland, OR 20,000 5/31/01 $ 7,948
The Dalles, OR 16,400 6/02/02 $ 2,419
Arcata, CA 23,000 10/31/97 $ 8,288
Redding, CA 25,380 10/31/00 $ 8,882
Olympia, WA 17,780 9/02/99 $ 8,150
Seattle, WA 23,500 5/22/99 $11,280
Seattle, WA 23,764 7/24/99 $12,000
Tacoma, WA 20,400 9/01/99 $ 8,976
Clackamas, OR 21,000 6/01/01 $ 7,600
Bellingham, WA 20,000 11/30/99 $ 8,800
Portland, OR 20,600 3/31/01 $ 9,475
Salem, OR 19,600 9/04/06 $ 7,812
Warrenton, OR 14,700 4/21/07 $ 4,434
Everett, WA 18,750 10/31/00 $ 9,000
Kent, WA 18,896 3/31/06 $10,012
Federal Way, WA 21,453 9/12/08 $11,048
Lynnwood, WA 22,200 6/12/08 $15,000
Bellevue, WA 18,000 12/14/03 $10,500
Sacramento, CA 23,120 1/14/09 $ 8,092
Medford, OR 22,150 6/06/10 $ 8,938
Yuba City, CA 26,871 6/15/10 $19,616
Ballard, WA 15,000 5/31/00 $ 6,000
Bremerton, WA 10,000 4/30/00 $ 2,250
Tukwila, WA 21,000 4/30/00 $ 6,720
Boise, ID 21,094 3/31/16 $13,950
Chico, CA 20,680 7/04/06 $ 6,204
Oakland, CA 25,709 6/10/15 $11,260
Item 3. Legal proceedings
The Company is regularly a party to routine legal proceedings not
expected to have a material effect on its business.
Item 4. Submission of Matters to a Vote of Security Holders None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
There is no market for United's Common Stock, which is non-transferable.
The approximate number of holders of United's Membership Stock as of December
24, 1996, was 248.
United's earnings are distributed only in the form of patronage
dividends. Accordingly, no earnings are available for the purpose of paying
dividends on Membership Stock.
Item 6. Selected Financial Data
Consolidated revenues by principal product lines and services appear in
the following table:
<TABLE>
<CAPTION>
For Fiscal Year Ended
September 27, 1996 September 29, 1995 September 30, 1994
================== ================== ==================
(dollars in thousands)
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> 670,746 51.54 432,499 42.48 399,803 41.87
Dairy & Deli 113,094 8.69 105,263 10.34 105,336 11.04
Meat 76,850 5.90 83,227 8.17 86,893 9.11
Produce 48,456 3.72 49,108 4.82 47,709 5.00
Frozen Foods 71,602 5.50 53,992 5.30 53,803 5.64
Gen. Merchandise 48,396 3.72 45,165 4.44 45,285 4.75
Institutional<F2> 232,913 17.90 206,312 20.26 179,422 18.81
Retail Services 18,249 1.40 18,284 1.80 14,169 1.49
Store Finance 2,572 .20 3,117 .30 3,846 .41
Distribution Segment 1,282,878 98.57 996,967 97.91 936,266 98.12
Insurance Segment 18,629 1.43 21,281 2.09 17,954 1.88
TOTAL $1,301,507 100.00 $1,018,248 100.00 $954,220 100.00
<FN>
<F1> Grocery revenues include sales from retail stores operated on a temporary
basis.
<F2> Institutional revenues include sales of all product lines.
</TABLE>
The following balance sheet data at September 27, 1996 and September 29,
1995 and the income statement data for the years ended September 27, 1996,
September 29, 1995, and September 30, 1994 have been derived from audited
consolidated financial statements and notes thereto appearing elsewhere in
this Annual Report on Form 10-K. The balance sheet data at September 30,
1994, October 1, 1993, and October 2, 1992 and income statement data for the
years ended October 1, 1993 and October 2, 1992 have been derived from audited
financial statements not required to be included in this report. The data
should be read in conjunction with the consolidated financial statements and
related notes included elsewhere herein.
Fiscal Years
Sept 27 Sept 29 Sept 30 Oct 1 Oct 2
1996 1995 1994 1993 1992
------- ------- ----- ----- -------
(Dollars in thousands, except per share amounts)
Income Statement:
Net sales and operations $1,301,507 $1,018,248 $954,220 $876,587 $896,587
Income before members'
patronage dividends,
income taxes
and accounting change 4,227 10,503 11,294 11,291 13,314
Patronage dividends 4,000 8,350 8,730 9,000 10,211
Net income 152 1,379 1,563 1,714 2,723
Balance Sheet:
Working capital 59,224 52,510 45,258 41,819 53,326
Total assets 384,144 322,456 306,836 285,342 261,289
Long-term liabilities 143,134 115,624 114,669 105,539 104,645
Members' equity 41,459 42,357 40,425 39,112 39,141
Adjusted book value per
share 61.53 62.15 59.50 57.00 53.94
Notes to Selected Financial Data
A. Data concerning net income per common share and cash dividends per
common share is omitted because United is a cooperative.
B. Adjusted book value per share is computed by subtracting from
total members' equity at year end, stock to be issued from patronage and
paid-in capital on such stock, unrealized gain on investments, and
undistributed equity from investments accounted for on the equity method
and dividing the resulting number by shares outstanding at year end.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
During fiscal year 1996, net sales and operations increased 27.8 %
to $1,301.5 million. This compares to an 6.7% increase in 1995 to $1,018.2
million. Income before members' allowances, patronage dividends, and income
taxes decreased $6.2 million to $15.8 million (1.22 % of sales). This
compares to $22.0 million (2.16% of sales) and $22.7 million (2.38% of sales)
in 1995 and 1994 respectively.
In December, 1995, United acquired the assets and related business
of the wholesale division of Bay Area Foods, Inc., doing business as Market
Wholesale Grocery ("Market Wholesale"). In December 1995, United acquired
operations were approximately $249.2 million. Total assets at year end from
the acquired operations amounted to $47.6 million, and the Company's net
investment in the assets was approximately $34.0 million.
During 1996, the increase in net sales and operations was primarily
attributable to the distribution segment which enjoyed increased food service
distribution unit volume and increased sales from the Company's acquisition of
Market Wholesale. These gains were off set by decreased premium income in the
insurance segment, lower volume from member owned retail stores, and lower
unit volume in the distribution segment's member business.
In 1996, the Company had increased profits within its distribution
segment from its food service and other nonmember distribution segment
operations, and lower operating losses at company-owned retail stores. Within
the insurance segment, profits increased from the agency and underwriting
operations. These profit gains were offset by increased operating expenses in
the distribution segment due to cost inflation and system integration
activities. Profit gains were also impacted by higher interest expenses due
to increased average levels of debt caused by the acquisition of Market
Wholesale and increased software investments.
During 1995, the increase in net sales and operations was primarily
attributable to the distribution segment. In addition, the insurance segment
generated increased sales primarily due to increased premium volume from
growth in policies issued. These gains in sales were offset by lower sales
from company-owned retail stores. In 1995, the Company had increased profits
within its distribution segment from its Cash & Carry and other nonmember
distribution segment operations, and lower operating losses at company-owned
retail stores. Within the insurance segment, profits increased from agency
operations and lease insurance activities. These profit gains were offset by
higher interest expenses, increased operating expenses in the distribution
segment, and increased property losses in Grocers Insurance Company.
Net Sales and Operations
During 1996, sales of the Company's distribution segment increased
30.5% to $1,275.0 million. The sales gain was primarily due to volume realized
from acquired operations and increased food service distribution unit volume.
Price changes during 1996 impacted warehouse sales by approximately 2.1 %.
Food service distribution increased 15.4% to $271.8 million
compared to $235.5 million in 1995. Sales at new units and businesses
acquired in 1995 contributed 9.1% to the sales increase. Sales at company-
owned retail stores, which are primarily acquired as a result of store finance
operations, decreased $20.1 million to $22.4 million. During the year, the
company acquired two stores and disposed of three stores. As a net result,
the number of company-owned retail stores decreased by one store.
In 1996, the insurance segment's net insurance premiums,
commissions, and fees decreased $2.7 million to $20.1 million. The decrease
was primarily attributed to increased unearned premium reserves in the
Company's workman's compensation business, and increased reinsurance expenses
associated with the increase in business mix towards larger volume accounts.
Policy premiums increased approximately $1.1 million despite declining rates
in workman's compensation, and flat rates in property and casualty lines of
business.
Gross Operating Income
Gross operating income increased to $174.3 million (13.4% of
sales) in 1996 from $148.2 million (14.6% of sales) in 1995, and $137.5
million (14.4% of sales) in 1994. Gross operating income from the acquired
operations of Market Wholesale contributed $26.6 million to gross operating
income. The Company's gross operating income also increased due to higher unit
sales in food service distribution, and improved loss experience in Grocers
Insurance Company. These improvements were off set by lower gross operating
income from retail stores owned by the Company due to a lower number of
stores.
In 1996, loss and loss adjustment expenses were 68.7% of total
premium income, compared to 74.7% and 64.7% in 1995 and 1994, respectively.
The improvement in loss experience resulted from the absence of major property
and casualty losses during the year, and continued improvement in loss
experience in the workman's compensation area.
Operating, Selling, and Administrative Expenses
In 1996, operating, selling, and administrative expenses increased
$29.3 million to $141.2 million (11.0% of sales). In 1995 and 1994, these
expenses were $111.8 million (11.0% of sales), and $103.5 million (10.9% of
sales), respectively. Operating expenses associated with the acquired
operations of Market Wholesale were $23.7 million of the increase.
The components of these expenses are summarized below:
Percent of Total Sales
1996 1995 1994
---- ---- ----
Salaries & Wages 5.8 6.1 6.0
Rents, Maintenance, and Repairs 1.8 1.7 1.7
Taxes, Other Than Income 0.9 0.8 0.9
Utilities, Supplies, & Services 1.2 1.1 1.6
Other Expenses 1.1 1.0 0.5
Provision for Doubtful Accounts 0.2 0.2 0.2
--- ---- ----
Total 11.0 11.0 10.9
==== ==== ====
During 1996, total operating, selling, and administrative expenses
increased primarily due to higher unit volume in both the distribution and the
insurance segments, and as a result of the acquired operations of Market
Wholesale. Operating expenses associated with the acquired operations of
Market Wholesale were $23.7 million of the increase in total operating,
selling, and administrative expenses. Excluding the impact from Market
Wholesale, operating, selling, and administrative expenses changed due to
increases in salaries, telephone, temporary labor, maintenance and repairs,
and other taxes.
Insurance segment operating expenses increased to 38.5% of segment
net sales and operations. In 1995 and 1994, insurance segment operating
expenses were 32.3% and 36.3% of segment net sales and operations,
respectively. Operating expenses increased due to the opening of new offices
in other states during the year.
Provision for doubtful accounts was $2.1 million (0.2% of sales)
in 1996. This compares to $1.9 million (0.2% of sales) and $2.0 million (0.3%
of sales) in 1995 and 1994, respectively.
Interest expense increased $2.0 million to $14.8 million (1.1% of
sales) in 1996. This increase was primarily due to the debt associated with
the Market Wholesale acquisition.
Member Allowances and Dividends
In 1996, total member allowances and dividends decreased $4.3
million to $15.6 million (1.2% of sales). In 1995, total member allowances
and dividends decreased 1.6% to $19.9 million (2.0% of sales).
Total member allowances and dividends as a percent of member sales
decreased to 2.15% in 1996, compared to 2.84% in 1995, and 2.90% in 1994.
Net Income and Income Taxes
In 1996, income before taxes was $0.2 million compared to $2.2
million (0.2% of sales) in 1995 and $2.6 million (0.3% of sales) in 1994.
Net income after taxes was $0.2 million in 1996, a decrease of
$1.2 million from $1.4 million (0.1% of sales) and $1.6 million (0.2% of
sales) in 1995 and 1994, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow From Operating Activities
In 1996, the Company generated $6.2 million in cash in its operating
activities. Increases in accounts receivable, inventories, and information
services platform investments were the major factors contributing to the use
of cash in operations.
Cash Flow From Investing Activities
In 1996, the Company used $40.2 million in its investing activities, a
increase of $37.3 million from the $2.9 million used in 1995. The acquisition
of Market Wholesale accounted for $34.0 million in 1996. Purchases of property
and equipment increased to $16.2 million in 1996 from $10.4 million in 1995.
In fiscal year 1996, anticipated capital expenditures will approximate
$7.0 million, representing $1.0 million in replacement assets, $3.0 million
for new Cash & Carry units, and $3.0 million in continuing investments in
upgraded operations software.
Cash Flow From Financing Activities
In 1995, the Company provided $37.5 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:
Year Ended
-------------------------------------------------
September 27, 1996 September 29, 1995
$000 % $000 %
------------------ ------------------
Average Short Term
Borrowings $ 56,740 22.7 $ 42,632 20.6
End of Year Amounts
Senior Term Debt $ 95,027 38.0 $ 68,135 32.9
Subordinated Debt $ 57,181 22.8 $ 53,844 26.0
Equity $ 41,259 16.5 $ 42,357 20.5
Total $250,207 100.0 $206,968 100.0
In 1996, the Company's working capital increased $6.7 million to $59.2
million. The Company's main sources of funds include earnings, member capital
stock, capital investment notes, bank debt, and note purchase programs. As of
September 27, 1996, the Company had $14.5 million in unused credit lines
available. In addition, the Company had $10.7 million available under its
Note Purchase Agreement.
The Company purchased the net assets of the wholesale operations of Bay
Area Foods, Inc., on December 14, 1995, for approximately $21 million.
Funding for the acquisition was provided by increased bank credit. The
Company anticipates refinancing with asset reductions or the securitization of
eligible trade accounts receivable.
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, $5.0 million of Grocers Insurance Company's equity
may not be paid as dividends to the Company.
At September 27, 1996, the Company was not in compliance with its fixed
charge financial covenant. The Company will be working with its senior
creditors to establish a plan to return to compliance with this ratio, and
will request the necessary waivers of the covenant. In connection with the
above, certain terms and conditions of the senior credit agreements could
change.
<PAGE>
Item 8. Financial Statements and Supplementary Data
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
AUDIT REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE FISCAL YEARS ENDED SEPTEMBER 27, 1996
---------------------------------------------------
TABLE OF CONTENTS
-----------------
Page
----
Independent auditor's report on financial statements 1
- ----------------------------------------------------
Consolidated financial statements
- ---------------------------------
Balance sheets 2-3
Statements of income 4
Statements of members' equity 5
Statements of cash flows 6-7
Notes to financial statements 8-32
Independent auditor's report on supplemental
- --------------------------------------------
information 33
-----------
Supplemental information
- ------------------------
Pro forma consolidated schedules of income
for the years ended September 27, 1996 and
September 29, 1995 34
Independent auditor's report on financial
- -----------------------------------------
statement schedules 35
-------------------
Financial statement schedules included
- --------------------------------------
Schedule I - Condensed financial information
of registrant 36-39
Schedule II - Valuation and qualifying accounts 40-41
Schedule V - Supplementary information concerning
property-casualty insurance
operations 42
Financial statement schedules not included Reason
- ------------------------------------------ ----------
Schedule III - Real Estate and
Accumulated Depreciation Not applicable
Schedule IV - Mortgage Loans on Real
Estate Not applicable
<PAGE>
Board of Directors
United Grocers, Inc.
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS
----------------------------------------------------
We have audited the accompanying consolidated balance sheets of United
Grocers, Inc. and subsidiaries as of September 27, 1996 and September 29,
1995, and the related consolidated statements of income, members' equity and
cash flows for each of the three years in the period ended September 27, 1996.
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 27, 1996 and September 29, 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 27, 1996, in conformity with
generally accepted accounting principles.
As discussed in Note 1.f. to the consolidated financial statements, the
Company changed its method of accounting for postretirement benefits other
than pensions in 1995-96. Also, as discussed in Notes 1.g. and 1.h.
respectively, the Company changed its method of accounting for investments in
1994-95 and for reinsurance in 1993-94.
/s/ DeLap, White & Raish
Portland, Oregon
December 12, 1996
1
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995
-----------------------------------------
ASSETS
-------
1996 1995
------------ -----------
Current assets:
Cash and cash equivalents $ 16,509,866 $ 13,045,456
Investments maintained for
insurance reserves (Note 1.g. & j.
& 2) 46,828,893 40,809,762
Accounts and notes receivable
(Note 3) 78,571,016 70,706,049
Inventories (Note 1.i.) 105,420,187 81,477,754
Other current assets 4,814,449 3,870,703
Deferred income taxes (Note 8) 2,317,772 2,537,323
------------ ------------
Total current assets 254,462,183 212,447,047
------------ ------------
Non-current assets:
Notes receivable (Note 3) 24,715,039 21,950,478
Investment in and accounts with
affiliated companies (Note 1.c. & 15) 12,477,107 8,392,281
Other receivables and investments 6,363,865 6,869,895
Other non-current assets (Note 4) 17,223,023 11,668,590
------------ ------------
Total non-current assets 60,779,034 48,881,244
------------ ------------
Property, plant and equipment - (net
of accumulated depreciation) (Note 5) 68,902,737 61,127,772
------------ ------------
Total $384,143,954 $322,456,063
============ ============
The accompanying notes are an integral part of this financial statement.
2
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED BALANCE SHEETS - CONTINUED
SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995
-----------------------------------------
LIABILITIES AND MEMBERS' EQUITY
-------------------------------
1996 1995
----------- ------------
Current liabilities:
Notes payable - bank (Note 6) $ 61,173,867 $ 48,515,543
Accounts payable 82,076,707 60,461,117
Insurance reserves supported by
investments (Note 1.j. and 2) 29,561,657 29,958,678
Compensation and taxes payable 5,021,977 3,118,827
Other accrued expenses 5,130,182 3,662,495
Members' patronage payable (Note 9) 3,200,110 6,646,867
Current installments of long-term
liabilities (Note 7) 9,073,983 7,573,215
------------ ------------
Total current liabilities 195,238,483 159,936,742
Long-term liabilities (Note 7) 143,134,105 115,623,670
Deferred income taxes (Note 8) 3,312,267 3,651,247
Deferred income (Note 13) 1,000,026 886,917
------------ ------------
Total liabilities 342,684,881 280,098,576
------------ ------------
Commitments and contingencies (Note 18)
Members' equity:
Common stock (authorized, 10,000,000
shares at $5.00 par value; issued
and outstanding, 638,451 shares in
1996 and 655,663 shares in 1995)
(shares owned by a member in excess
of 4,000 are subject to repurchase
Note 1.o. & p.) 3,192,255 3,278,315
Additional paid-in capital 24,224,262 23,956,797
Retained earnings 13,842,966 14,923,491
Unrealized gain on investments (Note 2) 199,590 198,884
------------ ------------
Total members' equity 41,459,073 42,357,487
------------ ------------
Total $384,143,954 $322,456,063
============ ============
The accompanying notes are an integral part of this financial statement.
3
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 27, 1996, SEPTEMBER 29, 1995, AND SEPTEMBER 30, 1994
--------------------------------------------------------------------------
1996 1995 1994
------------- -------------- --------------
Net sales and operations $1,301,506,666 $1,018,248,456 $954,220,350
-------------- -------------- ------------
Costs and expenses:
Cost of sales (Note 1.i.) 1,127,188,263 870,097,228 816,721,077
Operating expenses 126,205,437 101,029,068 93,991,529
Selling and administrative
expenses 14,989,440 10,872,432 9,533,741
Depreciation (Note 1.k. & 5) 6,629,240 5,952,576 5,609,779
Interest:
Interest expense 14,825,357 12,773,947 9,156,822
Interest income (4,162,561) (4,494,053) (3,535,802)
-------------- -------------- ------------
Interest expense, net 10,662,796 8,279,894 5,621,020
-------------- -------------- ------------
Total costs and expenses 1,285,675,176 996,231,198 931,477,146
-------------- -------------- ------------
Income before members' allowances
and patronage dividends, and
income taxes 15,831,490 22,017,258 22,743,204
Members' allowances (11,604,949) (11,513,784) (11,449,305)
Members' patronage dividends
(Note 9) (4,000,000) (8,350,000) (8,730,168)
-------------- ------------- ------------
Income before income taxes 226,541 2,153,474 2,563,731
Provision for income taxes
(Note 8) (74,229) (774,469) (1,000,341)
-------------- ------------- ------------
Net income $ 152,312 $ 1,379,005 $ 1,563,390
============== ============= ============
The accompanying notes are an integral part of this financial statement.
4
<PAGE>
<TABLE>
<CAPTION>
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
YEARS ENDED SEPTEMBER 27, 1996, SEPTEMBER 29, 1995, AND SEPTEMBER 30, 1994
--------------------------------------------------------------------------
Additional Unrealized
Common paid-in Retained gain on
stock capital earnings investments Total
---------------------- ----------- ----------------------
<S> <C> <C> <C> <C> <C>
Balances, October 1, 1993$ 3,285,755$21,006,563$14,820,084 $ -- $39,112,402
Stock:
Issued 148,090 1,515,656 -- -- 1,663,746
Repurchased (334,440) (1,757,412) (1,687,261) -- (3,779,113)
Patronage dividends 156,675 1,707,757 -- -- 1,864,432
Net income -- -- 1,563,390 -- 1,563,390
---------------------- ----------- ----------------------
Balances, September 30, 1994 3,256,080 22,472,564 14,696,213 -- 40,424,857
Stock:
Issued 115,780 1,260,324 -- -- 1,376,104
Repurchased (230,585) (1,342,184) (1,151,727) -- (2,724,496)
Patronage dividends 137,040 1,566,093 -- -- 1,703,133
Net income -- -- 1,379,005 -- 1,379,005
Change in accounting principle
(Note 1.g.) -- -- -- (45,693) (45,693)
Change in unrealized gain -- -- -- 244,577 244,577
---------------------- ----------- ----------------------
Balances, September 29, 1995 3,278,315 23,956,797 14,923,491 198,884 42,357,487
Stock:
Issued 93,620 1,059,512 -- -- 1,153,132
Repurchased (244,680) (1,526,937) (1,232,837) -- (3,004,454)
Patronage dividends 65,000 734,890 -- -- 799,890
Net income -- -- 152,312 -- 152,312
Change in unrealized gain -- -- -- 706 706
---------------------- ----------- ----------------------
Balances, September 27, 1996$ 3,192,255$24,224,262$13,842,966$ 199,590$41,459,073
====================== =========== ======================
</TABLE>
Common stock share information:
Number
Description of shares
----------- ---------
Balance, October 1, 1993 632,312
Issued 54,457*
Repurchased (66,888)
---------
Balance, September 30, 1994 619,881
Issued 81,899*
Repurchased (46,117)
---------
Balance, September 29, 1995 655,663
Issued 31,724*
Repurchased (48,936)
---------
Balance, September 27, 1996 638,451
=========
* Includes prior year patronage dividends to be issued.
The accompanying notes are an integral part of this financial statement.
5
<PAGE>
<TABLE>
<CAPTION>
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 27, 1996, SEPTEMBER 29, 1995, AND SEPTEMBER 30, 1994
--------------------------------------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 152,312 $ 1,379,005 $ 1,563,390
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation 6,629,240 5,952,576 5,609,779
Provision for doubtful accounts
and notes 2,063,041 1,894,189 1,992,589
Patronage dividends payable
in common stock 799,890 1,703,133 1,864,432
Loss on sale of assets 342,092 402,634 174,927
Equity in loss (earnings) of
affiliated companies (567,701) 46,989 191,760
Deferred income taxes (119,429) 181,729 474,889
(Increase) decrease in non-cash
current assets:
Accounts and notes receivable (2,312,952) (11,087,908) (15,343,787)
Inventories (3,146,910) (7,170,332) (441,006)
Other current assets (403,181) 1,496,592 (642,531)
Increase (decrease) in non-cash
current liabilities:
Accounts payable and
insurance reserves 7,858,525 (6,248,023) 5,018,583
Compensation and taxes payable 403,007 166,293 264,397
Other accrued expenses 1,467,687 502,595 (552,204)
Members' patronage payable (3,446,757) (218,869) (349,191)
(Increase) decrease in other
non-current assets (3,564,825) (3,908,777) (2,598,160)
----------- ----------- -----------
Net cash provided by (used in)
operating activities 6,154,039 (14,908,174) (2,772,133)
----------- ----------- -----------
Cash flows from investing activities:
Loans to members (22,512,203) (18,578,568) (17,768,465)
Collections on loans to members 10,625,597 7,758,425 6,325,619
Proceeds from sale of member loans 10,549,302 20,803,339 8,606,739
Sale of investments 600,798 3,607,299 843,718
Redemption of investments 6,784,264 4,630,686 4,747,745
Purchase of investments (13,403,487) (11,909,285) (8,133,459)
Investment in affiliated companies (267,125) (606,786) (6,094,315)
Sale of property, plant
and equipment 6,883,519 1,738,326 408,777
Purchase of property, plant
and equipment (16,231,137) (10,371,740) (5,254,582)
Purchase of business combination (23,251,791) -- --
----------- ----------- -----------
Net cash used in investing
activities (40,222,263) (2,928,304) (16,318,223)
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of this financial statement.
6
<PAGE>
<TABLE>
<CAPTION>
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED SEPTEMBER 27, 1996, SEPTEMBER 29, 1995, AND SEPTEMBER 30, 1994
--------------------------------------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from financing activities:
Sale of common stock $ 1,153,132 $ 1,376,104 $ 1,663,746
Repurchase of common stock (3,004,454) (2,724,496) (3,779,113)
Proceeds of long-term liabilities:
Revolving bank lines of credit 1,043,200,000 689,100,000 807,500,000
Mortgages and notes 30,310,851 25,640,393 12,104,717
Redeemable notes and certificates 18,056,500 19,529,600 22,395,400
Repayment of long-term liabilities:
Revolving bank lines of credit (1,030,541,677) (671,605,124) (801,209,733)
Mortgages and notes (6,923,218) (23,925,822) (2,789,206)
Redeemable notes and certificates (14,718,500) (19,492,749) (22,618,900)
----------- ----------- -----------
Net cash provided by
financing activities 37,532,634 17,897,906 13,266,911
----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents 3,464,410 61,428 (5,823,445)
Cash and cash equivalents:
Beginning of year 13,045,456 12,984,028 18,807,473
----------- ----------- -----------
End of year $16,509,866 $13,045,456 $12,984,028
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
7
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 27, 1996
--------------------------------------------
1. Summary of significant accounting policies
------------------------------------------
a. Reporting year
United Grocers, Inc. (the Parent) and subsidiaries (the Company) reports
on a fiscal year of 52 or 53 weeks which is the fiscal year of the
distribution segment. The Parent's fiscal closing date is the Friday
nearest September 30. The fiscal year of the subsidiaries included in
the insurance segment ends on September 30.
b. Organization and nature of operations
The Company has two operating segments. See Note 11 for segment
details. The Parent operates primarily as a wholesale grocery
cooperative. The Parent's stock is owned by its member customers.
Sales to these members account for approximately 80% of the 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, United Workplace Consultants, Inc., Western
Passage Express, Inc., Northwest Process, Inc., UG Resources, Inc.,
United Resources, Inc., Premier Consulting, Inc., Western Security
Services, Ltd., and Rich and Rhine, 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 15).
d. Business combination
On December 14, 1995 the Company acquired, using the purchase method of
accounting, certain assets of the Market Wholesale (Market) grocery
division operations of Bay Area Foods, Inc. (Bay Area Foods), for a cash
purchase price of approximately $21 million. The Company assumed
certain liabilities including obligations under certain real and
personal property leases relating to Bay Area Foods, including three
leased warehouse locations and leased equipment. The operations of
Market are included in the consolidated statement of income beginning
December 3, 1995.
8
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 27, 1996
--------------------------------------------
1. Summary of significant accounting policies (continued)
------------------------------------------------------
d. Business combination (continued)
The approximate values allocated to the assets acquired, amount of
liabilities assumed, and net value of assets acquired, are stated below:
Acquired assets Amount
--------------- -----------
Accounts receivable and customer loans $12,290,000
Inventories 20,796,000
Deposits and other assets 1,541,000
Equipment including capitalized leases 5,286,000
Goodwill amortized over 15 years 484,000
-----------
Total acquired assets 40,397,000
-----------
Assumed liabilities
Accounts payable 13,360,000
Customer rebates and employee accruals 1,500,000
Capitalized lease payable 2,286,000
-----------
Total assumed liabilities 17,146,000
-----------
Net value of assets acquired $23,251,000
===========
In connection with the acquisition, the Company entered into a five year
supply agreement with Bay Area Foods and some of their retail stores.
The agreement calls for normal rebates, other than year-end patronage,
that is available to other customers. These retail stores account for
approximately 20 percent of the total warehouse volume of the acquired
operations.
Funding for the acquisition was provided by increased short-term bank
credit. The Company anticipates refinancing the additional bank credit
with new senior debt, or the securitization of eligible trade accounts
receivable.
The assets acquired include all owned warehouse equipment, furniture,
and fixtures of the Market operations, such as forklifts, warehouse
racking, office equipment and computers, and software. The Company
intends to continue to utilize these assets in the wholesale grocery
distribution business in substantially the same manner as used by Bay
Area Foods.
e. Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
9
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 27, 1996
--------------------------------------------
1. Summary of significant accounting policies (continued)
------------------------------------------------------
f. Accounting changes
Beginning in 1995-96, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 106, EMPLOYERS' ACCOUNTING FOR
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. SFAS No. 106 requires that
companies accrue the projected future cost of providing postretirement
benefits during the period that employees render the services necessary
to be eligible for such benefits. While the adoption of this standard
does have an impact on the Company's reported net income, it does not
impact the Company's cash flow because the Company intends to continue
its current practice of paying the cost of postretirement benefits as
incurred. The Company has elected to recognize the effect of the change
to SFAS No. 106 by amortizing the transition obligation of $3,668,682
over 20 years (see Note 13).
g. Investments
Beginning in 1994-95, the Company accounts for investments in accordance
with Statement of Financial Accounting Standards (SFAS) No. 115,
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. The
Company's investments are primarily in non-equity securities and their
intent is to hold most of 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 27, 1996 and September 29, 1995
is $46,966,058 and $41,610,228, respectively (see Note 2).
h. Reinsurance
Beginning in 1993-94 the Company adopted the Statement of Financial
Accounting Standards (SFAS) No. 113, ACCOUNTING AND REPORTING FOR
REINSURANCE OF SHORT-DURATION AND LONG-DURATION CONTRACTS. 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. There is no effect or change to the consolidated
statement of income as 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.
10
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 27, 1996
--------------------------------------------
1. Summary of significant accounting policies (continued)
------------------------------------------------------
h. Reinsurance (continued)
In the normal course of business, the Company seeks to reduce the losses
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. Inventories and cost of sales
Inventories relate primarily to the distribution segment and are valued
at the lower of cost or market. The cost of these inventories is
determined under the first-in, first-out (FIFO) method.
Cost of sales includes primarily the cost of distribution and insurance
operations. The distribution segment costs include the purchases of
product net of allowances paid and received, less the net advertising
department margins, plus the handling allowances made to members based
upon the cost of servicing their accounts. The insurance segment costs
include losses reported, a provision for losses incurred but not
reported and premium refunds.
j. Restricted assets and net assets
Restricted assets and net assets that may not be transferred to the
Parent in the form of loans, advances, or cash dividends by the
insurance subsidiary without the consent of state insurance agencies as
of September 27, 1996 are as follows:
Cash and cash equivalents $ 410,903
Investments 16,417,243
-----------
Total $16,828,146
===========
In addition, although not formally restricted, the balance of the
investments of $30,212,060 represent assets that have been accumulated
for the possible payment of claims against the insurance reserves.
k. 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 when applicable as a component of the cost of
significant construction projects. No interest was capitalized for the
three years ended September 27, 1996.
11
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 27, 1996
--------------------------------------------
1. Summary of significant accounting policies (continued)
------------------------------------------------------
k. Property, plant and equipment (continued)
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
l. Amortization
Long-term liability loan costs, software costs, goodwill, and non-
competition agreements are being amortized and charged to operating
expenses on a straight-line basis over five to twenty years.
m. Income taxes
The Company and its subsidiaries file a consolidated federal income tax
return. Income tax expense is allocated among those companies with
taxable income. 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 based on enacted tax laws and statutory tax
rates applicable to the years in which the differences are expected to
affect taxable income. In 1996 a valuation allowance of approximately
$500,000 was considered necessary for the insurance reserves and the
state NOL carryovers to reduce the deferred tax asset to the amount
expected to be realized. Income tax expense is the combination of the
tax payable for the year and the change during the year in net deferred
tax assets and liabilities. See Note 9 for details.
n. 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.
12
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 27, 1996
--------------------------------------------
1. Summary of significant accounting policies (continued)
------------------------------------------------------
o. 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.
p. Common stock
The Company's board policy, subject to change without notice, requires
the Company to repurchase on request the number of shares a member owns
in excess of 4,000 shares. The excess shares are repurchased over a
five year period at the current adjusted book value each year, payable
in cash. At September 27, 1996 and September 29, 1995, there were
19,926 and 18,229 shares, respectively, subject to repurchase in the
amount of $1,238,202 and $1,084,626, respectively. At September 27,
1996 and September 29, 1995, there were 2,779 and 1,471 shares,
respectively, held for possible redemption in the amount of $172,687 and
$87,525, respectively.
q. Advertising costs
The Company expenses the production costs of advertising the first time
the advertising takes place. Advertising expense for 1996, 1995 and
1994 was $2,593,450, $1,191,436 and $1,027,214, respectively.
r. 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.
s. Reclassifications
Certain reclassifications have been made to prior year balances to
conform to the current year classification.
2. Investments
-----------
Investments are classified and accounted for as follows:
- Held-to-maturity securities are reported at amortized cost.
- Trading securities are reported at fair value, with unrealized gains
and losses included in earnings.
- Available-for-sale securities are reported at fair value, with
unrealized gains and losses excluded from earnings and reported in a
separate component of members' equity.
13
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 27, 1996
--------------------------------------------
2. Investments (continued)
-----------------------
The amortized cost and estimated fair market values of investments in debt
securities and other investments at the balance sheet date are as follows:
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
--------- ---------- ----------
1996:
United States Government
and its agencies 35,295,000 $35,714,257 $35,918,833
Any state of the United
States and its agencies 2,520,000 2,619,934 2,644,354
Political subdivision of
a state of the United
States and its agencies 4,100,000 4,198,701 4,283,334
Corporate bonds 4,060,000 4,094,930 4,106,350
---------- ---------- -----------
Subtotal - debt securities 46,627,822 46,952,871
Corporate stock 298 1,481 13,187
---------- -----------
Subtotal 46,629,303 46,966,058
Unrealized gain on available-
for-sale securities 199,590 --
---------- -----------
Total $46,828,893 $46,966,058
=========== ===========
1995:
United States Government
and its agencies 25,350,000 $25,769,781 $26,506,490
Any state of the United
States and its agencies 2,840,000 2,979,132 3,018,919
Political subdivision of
a state of the United
States and its agencies 5,995,000 6,201,500 6,319,852
Corporate bonds 5,610,000 5,658,984 5,756,735
----------- -----------
Subtotal - debt securities 40,609,397 41,601,996
Corporate stock 298 1,481 8,232
----------- -----------
Subtotal 40,610,878 41,610,228
Unrealized gain on available-
for-sale securities 198,884 --
----------- -----------
Total $40,809,762 $41,610,228
=========== ===========
14
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 27, 1996
--------------------------------------------
2. Investments (continued)
-----------------------
Investments of debt securities by classification under SFAS No. 115 at
September 27, 1996 are as follows:
<TABLE>
<CAPTION>
Gross Gross Aggregate
Amortized unrealized unrealized fair
cost gains losses value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Held-to-maturity $36,246,674 $ 502,829 $ 377,370 $36,372,133
Available-for-sale 10,381,148 209,817 10,227 10,580,738
----------- ----------- ----------- -----------
Total $46,627,822 $ 712,646 $ 387,597 $46,952,871
=========== =========== =========== ===========
</TABLE>
For the years ended September 27, 1996 and September 29, 1995 (initial year
of application) the gross proceeds from the sales of securities available-
for-sale were $1,104,720 and $3,607,299, respectively. The gross realized
gains from these sales were $4,226 and $142,257, respectively, and gross
realized losses were nil. The method used to determine cost when
calculating the realized gains was the amortized cost of the specific
security sold. There are no gains or losses included in earnings as a
result of transfers of securities between categories. There were no
securities classified as trading securities during the initial year.
During the initial year of 1994-95, because of changing market conditions,
management decided to transfer certain securities from the held-to-maturity
category to the available-for-sale category. The amortized cost of these
securities at the time of transfer was $4,751,807 with a related net
unrealized gain of $386,834.
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>
<CAPTION>
1996 1995
------------------------- -------------------------
Amortized Market Amortized Market
cost value cost value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less $ 4,929,669 $ 4,915,145 $ 5,210,406 $ 5,303,554
Due after one year
through five years 27,091,870 27,210,376 19,066,319 19,415,921
Due after five years
through ten years 13,445,579 13,658,945 15,783,193 16,324,879
Due after ten years 1,160,704 1,168,405 549,479 557,642
----------- ----------- ----------- -----------
Total $46,627,822 $46,952,871 $40,609,397 $41,601,996
=========== =========== =========== ===========
</TABLE>
<PAGE>
When SFAS No. 115 was adopted in 1994-95 it was not applied retroactively to
the prior years' financial statements. The cumulative effect of the change in
accounting principle as of October 1, 1994 was an unrealized loss of $45,693
charged to retained earnings.
15
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 27, 1996
--------------------------------------------
3. Accounts and notes receivable
-----------------------------
These consist of amounts due principally from members at the balance sheet
date as follows:
1996 1995
----------- -----------
Accounts receivable $64,638,621 $59,229,982
Insurance premiums and related balances 12,237,565 8,509,160
Less allowance for doubtful accounts (1,140,724) (1,176,767)
----------- -----------
Net accounts receivable 75,735,462 66,562,375
----------- -----------
Notes receivable - current portion 3,072,175 4,224,381
Less allowance for doubtful notes (236,621) (80,707)
----------- -----------
Net current notes receivable 2,835,554 4,143,674
----------- -----------
Net current accounts and
notes receivable $78,571,016 $70,706,049
=========== ===========
Notes receivable - non-current portion $25,588,062 $22,378,000
Less allowance for doubtful notes (873,023) (427,522)
----------- -----------
Net non-current notes receivable $24,715,039 $21,950,478
=========== ===========
The notes receivable from members are generally for periods of two years to
ten years at interest rates of 3.00% to 11.00%. The annual maturities for
each of the next five fiscal years following September 27, 1996 are as
follows:
Year Amount
----- -----------
1997 $ 2,325,916
1998 2,666,459
1999 2,890,812
2000 2,933,663
2001 2,825,431
Thereafter 15,017,956
The Company performs ongoing credit evaluations of its members' financial
condition and maintains allowances for potential credit losses. Actual
losses and allowances have been within management's expectations. The
provision for doubtful accounts and notes charged to operating expenses for
the three years ended September 27, 1996 amounted to $2,063,041,
$1,894,189, and $1,992,589, respectively.
16
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 27, 1996
--------------------------------------------
4. Other non-current assets
------------------------
Other non-current assets at the balance sheet date consists of the
following:
1996 1995
----------- -----------
Covenant not to compete - net
of accumulated amortization of
$1,485,557 in 1996 and $1,232,869
in 1995 $ 1,238,727 $ 1,641,813
Software - net of accumulated
amortization of $2,440,207 in
1996 and $1,737,639 in 1995 2,070,007 1,582,531
Loan fees - net of accumulated
amortization of $700,109 in
1996 and $682,199 in 1995 529,818 425,189
Goodwill - net of accumulated
amortization of $291,609 in 1996
and $114,613 in 1995 1,951,246 1,413,557
Software in progress 10,172,326 5,162,152
Deposits 1,082,439 494,252
Other 178,460 949,096
----------- -----------
Total $17,223,023 $11,668,590
=========== ===========
5. Property, plant and equipment (at cost)
---------------------------------------
Property, plant and equipment as of the balance sheet date consists of the
following:
1996 1995
----------- -----------
Land $ 3,424,677 $ 3,580,477
Buildings and improvements 57,907,740 54,103,086
Warehouse and truck equipment 33,110,049 37,627,830
Office equipment 13,621,540 11,104,702
Construction in progress 4,528,122 1,323,492
----------- -----------
Total property, plant and
equipment 112,592,128 107,739,587
Less accumulated depreciation (43,689,391)
(46,611,815)
----------- -----------
Net property, plant and
equipment $68,902,737 $61,127,772
=========== ===========
Depreciation expense for 1996, 1995 and 1994 was $6,629,240, $5,952,576 and
$5,609,779, respectively.
6. Notes payable - bank
--------------------
Notes payable - bank consists of borrowings on bank lines of credit at a
weighted average interest rate of 6.41% at September 27, 1996 and 6.75% at
September 29, 1995.
17
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 27, 1996
--------------------------------------------
6. Notes payable - bank (continued)
--------------------------------
At September 27, 1996 and September 29, 1995, the Company had unused lines
of credit totaling $14,400,000 and $24,500,000, 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.
7. Long-term liabilities
---------------------
Long-term liabilities at the balance sheet date consists of the following:
1996 1995
------------ -----------
Notes payable - bank:
Credit agreement notes maturing
on April 30, 1998 with interest
rates of 6.24% per annum at
September 27, 1996 and 6.70% per
annum at September 29, 1995. The
interest rates ranged from 6.02%
to 6.74% in 1996 and from 5.95%
to 7.00% in 1995. $ 44,400,000 $ 17,000,000
Notes payable - insurance companies:
Senior notes payable to seven
insurance companies with interest
rates of 8.42% and 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 until 2000; and
$4,000,000 due annually beginning
in 2001, maturing in full 2005. 36,665,000 39,998,000
18
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 27, 1996
--------------------------------------------
7. Long-term liabilities (continued)
1996 1995
----------- -----------
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. $ 4,225,006 $ 4,239,958
A discounted note payable in the
original amount of $1,741,265 without
interest, discounted at 9.90%, payable
in two installments of $641,265 in
1996 and $1,100,000 in 1997. 935,000 1,528,170
A covenant not-to-compete in the
original amount of $1,072,008 with
interest at 9.90%, payable in
monthly installments of $42,500
until 2004. 951,312 1,022,795
Four notes with interest at 7.50%
per annum payable in monthly
installments of $23,017 beginning
October 1995 (secured by equipment). 951,780 1,217,712
Five notes with interest at 7.50%
per annum payable in monthly
installments of $24,108 beginning
October 1995 (secured by equipment). 997,084 --
Several capitalized equipment leases,
payable in monthly installments of
$43,853 including interest at 12% to
20% over seven to ten years until
2005 (secured by equipment). 2,123,571 --
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). 66,872 85,386
Other note payable -- 2,292
Mortgage notes (secured by real property):
A note payable in monthly installments
of $41,449 including interest at 9%
until 1996. -- 442,243
19
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 27, 1996
--------------------------------------------
7. Long-term liabilities (continued)
---------------------------------
1996 1995
----------- -----------
Mortgage notes (secured by real
property) - continued:
A note payable in monthly installments
of $31,615 including interest at 7.25%
until 2013. $ 3,710,663 $ 3,816,529
Redeemable notes and certificates:
Capital investment notes
(subordinated), interest ranging
from 6.25% to 8%. Maturity dates
range from 1996 to 2005 which is
ten years from dates of issue. 54,018,200 50,619,400
Registered redeemable building
notes (subordinated), interest
at 8%. No fixed maturity date. 3,138,300 3,199,100
Redeemable transferable notes,
(subordinated), interest at
6.50%. No fixed maturity. 25,300 25,300
------------ ------------
Total 152,208,088 123,196,885
Less current installments (9,073,983) (7,573,215)
------------ ------------
Total long-term liabilities $143,134,105 $115,623,670
============ ============
Total maturities of long-term liabilities in each of the next five fiscal
years are as follows:
Year Amount
---- ------------
1997 $ 9,073,983
1998 50,911,311
1999 6,755,475
2000 7,087,769
2001 9,458,923
The terms of certain financing agreements contain, among other provisions,
requirements for maintaining certain financial ratios. Also, a minimum
amount of equity must be maintained, subordinated debt restrictions on the
sale of assets, and allowable contingent indebtedness. The Company was not
in compliance with the fixed charge coverage covenant as of September 27,
1996. The Company will be working with its senior creditors to establish a
plan to return to compliance with this ratio and will request the necessary
waivers for noncompliance with this particular covenant.
20
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 27, 1996
--------------------------------------------
8. Income taxes
------------
The provision for income taxes for the three years consists of the
following:
1996 1995 1994
---------- ---------- ----------
Current payable:
Federal $ 146,016 $ 542,585 $ 439,200
State 47,640 50,156 86,252
Deferred:
Federal (95,036) 113,948 506,977
State (24,391) 67,780 (32,088)
---------- ---------- ----------
Total $ 74,229 $ 774,469 $1,000,341
========== ========== ==========
The effective income tax rate for the three years ended September 27,
1996 does not correspond with the Federal tax rate. The reconciliation
of this rate to the effective income tax rate is as follows:
1996 1995 1994
---------- ---------- ----------
Statutory income tax rate (34%) $ 82,934 $ 732,181 $ 871,668
State income taxes, net of
Federal income tax benefit 31,443 33,103 56,926
Tax exempt interest (97,712) (133,622) (158,673)
Refunds as a result of carrybacks -- (64,954) --
Prior year under accrual -- -- 179,235
Other 57,564 207,761 51,185
---------- ---------- ----------
Income tax expense $ 74,229 $ 774,469 $1,000,341
========== ========== ==========
Effective income tax rate 30.4% 36.0% 39.0%
==== ==== ====
The significant components of the deferred income taxes - current asset and
non-current liability as of the balance sheet date are as follows:
1996 1995
---------- ----------
Deferred income taxes -
current asset:
Insurance reserves $ 785,964 $1,041,485
Inventories 839,507 746,442
Unearned insurance premiums 571,239 508,089
Allowance for doubtful accounts 294,566 420,530
Other (173,504) (179,223)
---------- ----------
Total $2,317,772 $2,537,323
========== ==========
21
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 27, 1996
--------------------------------------------
8. Income taxes (continued)
-----------------------
1996 1995
---------- ----------
Deferred income taxes -
non-current liability:
Accumulated depreciation $5,017,128 $5,070,833
Deferred income (634,029) (345,898)
Allowance for doubtful notes (401,818) (233,679)
Deferred compensation (174,550) (174,550)
Alternative minimum tax
(AMT) credit (446,739) (611,439)
Other (47,725) (54,020)
---------- ----------
Total $3,312,267 $3,651,247
========== ==========
Net amount by tax paying component:
Federal $ 597,823 $ 692,860
State 396,672 421,064
---------- ----------
Total $ 994,495 $1,113,924
========== ==========
The significant components of deferred income tax expense for the three
years are as follows:
1996 1995 1994
---------- ---------- ----------
Decrease (increase) in deferred
income taxes - asset $ 219,551 $ 274,590 $ 11,915
(Decrease) increase in
deferred income taxes -
liability after applying
AMT credit (338,980) (92,862) 462,974
---------- ---------- ----------
Total $ (119,429) $ 181,728 $ 474,889
========== ========== ==========
The Company has net operating loss carryovers of approximately $5,000,000
to apply against future years' State income taxes, expiring in years 2007
through 2011. 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.
22
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 27, 1996
--------------------------------------------
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:
1996 1995 1994
----------- ----------- -----------
Payable in cash and shown as
a current liability $ 3,200,110 $ 6,646,867 $ 6,865,736
Distributable in the form
of common stock 799,890 1,703,133 1,864,432
----------- ----------- -----------
Total $ 4,000,000 $ 8,350,000 $ 8,730,168
=========== =========== ===========
10. Reinsurance
-----------
Reinsurance amounts reflected in the financial statements are as follows:
1996 1995
----------- -----------
For the balance sheet:
Reinsurance recoverable for
ceded losses $ 6,496,713 $ 5,081,542
Prepaid reinsurance premiums 2,831,215 2,050,101
----------- -----------
Total $ 9,327,928 $ 7,131,643
=========== ===========
1996 1995 1994
----------- ----------- -----------
For the income statement:
Premiums written:
Gross $28,987,953 $27,808,928 $23,992,639
Assumed 567,243 698,280 860,953
Ceded (8,184,619) (7,364,002) (6,652,410)
----------- ----------- -----------
Net premiums written $21,370,577 $21,143,206 $18,201,182
=========== =========== ===========
Percentage of amount assumed
to net 2.65% 3.30% 4.73%
==== ==== ====
Premiums earned:
Gross $26,515,356 $26,719,189 $23,736,321
Assumed 598,048 718,692 829,978
Ceded (7,403,505) (6,708,155) (6,505,887)
----------- ----------- -----------
Net premiums earned $19,709,899 $20,729,726 $18,060,412
=========== =========== ===========
Percentage of amount assumed
to net 3.03% 3.47% 4.60%
==== ==== ====
23
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 27, 1996
--------------------------------------------
10. Reinsurance (continued):
-----------------------
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.
1996 1995 1994
----------- ----------- -----------
Expenses:
Losses and loss adjustment
expenses $18,051,136 $21,000,749 $15,079,858
Reinsurance recoveries (4,616,616) (5,511,850) (3,389,844)
----------- ----------- -----------
Net losses and loss
adjustment expenses $13,434,520 $15,488,899 $11,690,014
=========== =========== ===========
11. 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:
1996 1995 1994
-------------- -------------- --------------
Net sales and operations:
Distribution $1,283,119,244 $ 996,966,961 $ 936,266,067
Insurance 20,095,633 22,794,952 18,788,523
Less intersegment
insurance sales and
expenses (1,708,211) (1,513,457) (834,240)
-------------- -------------- --------------
Total $1,301,506,666 $1,018,248,456 $ 954,220,350
============== ============== ==============
Income before allowances,
dividends, income taxes
and accounting change:
Distribution $ 13,351,190 $ 18,889,425 $ 19,791,157
Insurance 2,480,300 3,127,833 2,952,047
-------------- -------------- --------------
Total $ 15,831,490 $ 22,017,258 $ 22,743,204
============== ============== ==============
24
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 27, 1996
--------------------------------------------
11. Segment reporting (continued)
-----------------------------
1996 1995 1994
-------------- -------------- --------------
Total assets:
Distribution $ 314,180,675 $ 260,365,677 $ 243,267,148
Insurance 69,963,279 63,698,155 64,923,598
-------------- -------------- --------------
Total $ 384,143,954 $ 324,063,832 $ 308,190,746
============== ============== ==============
Depreciation expense:
Distribution $ 6,442,124 $ 5,770,681 $ 5,408,896
Insurance 187,124 181,895 200,883
-------------- -------------- --------------
Total $ 6,629,248 $ 5,952,576 $ 5,609,779
============== ============== ==============
Capital expenditures:
Distribution $ 16,151,402 $ 10,096,516 $ 5,161,425
Insurance 79,735 275,224 93,157
-------------- -------------- --------------
Total $ 16,231,137 $ 10,371,740 $ 5,254,582
============== ============== ==============
For net sales and operations during the three years ended September 27,
1996, wholesale grocery sales (primarily to members) accounted for
approximately 95% of the distribution total. Premium revenue (primarily
from members) accounted for approximately 95% of the insurance total.
12. Retirement 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's union
employees participate.
The financial statements include pension expense for the Company-sponsored
pension plan as determined using Statement of Financial Accounting
Standards (SFAS) No. 87, EMPLOYERS' ACCOUNTING FOR PENSIONS. The effect
of SFAS No. 87 was an increase of pension expense in the amount of
$191,893 for 1996, and a decrease of $362,794 for 1995 and $546,894 for
1994. The Company's unrecognized net asset resulting from the initial
application of SFAS No. 87 of $3,027,024 is being amortized over eighteen
years with a remaining balance of $1,547,153 as of September 27, 1996.
25
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 27, 1996
--------------------------------------------
12. Retirement plans (continued)
----------------------------
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:
1996 1995 1994
----------- ----------- -----------
Company-sponsored:
Service costs of benefits
earned $ 952,126 $ 945,413 $ 918,423
Interest cost on the projected
benefit obligation 1,667,852 1,557,954 1,448,447
Expected return on plan assets (1,932,053) (1,713,673) (1,688,595)
Net amortization of unrecognized
net asset (168,168) (168,168) (168,168)
Unrecognized net gain (37,901) -- (4,414)
Unrecognized prior service
cost 61,478 61,478 73,760
----------- ----------- -----------
Net salaried pension cost 543,334 683,004 579,453
Multi-employer plan costs 3,326,359 2,590,269 2,395,300
Matching costs of 401(k) plans 290,518 384,282 391,605
----------- ----------- -----------
Total pension expense $ 4,160,211 $ 3,657,555 $ 3,366,358
=========== =========== ===========
The following table sets forth the Company-sponsored plan's funded status
as of year end:
1996 1995 1994
----------- ----------- -----------
Actuarial present value of
benefit obligations:
Vested $14,458,251 $14,997,208 $13,337,570
Non-vested 985,366 927,101 823,015
----------- ----------- -----------
Accumulated benefit
obligation 15,443,617 15,924,309 14,160,585
Effect of projected future
compensation levels 5,837,535 4,767,286 4,881,117
----------- ----------- -----------
Projected benefit obligation 21,281,152 20,691,595 19,041,702
Plan assets at fair value,
primarily listed stocks, fixed
income, and bond and equity
funds 27,252,210 24,482,376 22,030,725
----------- ----------- -----------
Excess of plan assets over
projected benefit obligation 5,971,058 3,790,781 2,989,023
Unrecognized prior service cost 655,515 716,993 778,471
Unrecognized net gain (4,802,538) (2,745,049) (1,422,307)
Unrecognized net asset, net of
amortization (1,561,167) (1,729,335) (1,897,503)
----------- ----------- -----------
Prepaid pension cost $ 262,868 $ 33,390 $ 447,684
=========== =========== ===========
26
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 27, 1996
--------------------------------------------
12. Retirement plans (continued)
----------------------------
In addition to providing pension benefits, the Company provides certain
medical benefits for certain salaried retirees, spouse and eligible
dependents. Employees who were hired prior to January 1, 1989, the last
eligibility date, and have met the Company's minimum service requirements,
become eligible for these benefits. The medical benefits available are
non-contributory in nature, and it is the Company's practice to fund these
benefits as incurred.
Postretirement benefit costs for 1996 were $491,993, which is comprised of
$52,361 for service costs, $270,543 for interest cost and $169,089 for the
amortization of the transition obligation. The Company's unrecognized
transition obligation resulting from the initial application of SFAS
No.106 of $3,668,682 is being amortized over twenty years and has a
remaining balance of $3,499,593 as of September 27, 1996. The assumed
health care cost trend used to measure the expected cost of benefits was
10% in year one, decreasing 1% per year to a minimum rate of 4%. Prior to
adopting SFAS No. 106, postretirement benefits were expensed as claims
were paid, and amounted to approximately $349,000 and $356,000 for 1995
and 1994, respectively.
13. Leases
------
The Company is obligated under one hundred and twenty-seven significant
leases in 1996. Fifty-one of these leases are for twenty to twenty-five
years with renewal options and involve supermarket properties which are
subleased to members. Six 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
2022. Rental expense for the three years consists of the following:
1996 1995 1994
----------- ----------- -----------
Minimum rentals $19,463,073 $15,252,948 $13,690,702
Less sublease income (6,873,099) (6,549,338) (5,971,461)
----------- ----------- -----------
Net rental expense $12,589,974 $ 8,703,610 $ 7,719,241
=========== =========== ===========
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 27,
1996:
Fiscal Minimum Minimum Net
year payments (A) receipts (B) minimum
--------- ------------ ------------ ------------
1996-1997 $ 21,279,652 $ 7,904,468 $ 13,375,184
1997-1998 20,060,119 8,923,638 11,136,481
1998-1999 18,556,581 8,859,209 9,697,372
1999-2000 17,548,978 8,664,809 8,884,169
2000-2001 16,884,746 8,502,442 8,382,304
Later years 143,943,281 94,120,970 49,822,311
------------ ------------ ------------
Total $238,273,357 $136,975,536 $101,297,821
============ ============ ============
27
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 27, 1996
--------------------------------------------
13. Leases (continued)
------------------
Minimum Minimum Net
payments (A) receipts (B) minimum
----------- ----------- -----------
Summary:
Building leases $229,625,277 $136,122,368 $ 93,502,909
Equipment leases 8,648,080 853,168 7,794,912
------------ ------------ ------------
Total $238,273,357 $136,975,536 $101,297,821
============ ============ ============
(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.
The Company has sale-leaseback transactions for four cash and carry
outlets. The sales resulted in deferred gains of approximately
$1,200,000 which are being amortized over the leaseback period of fifteen
years. The total remaining lease commitments are approximately
$3,940,000 over fourteen years with an annual rental of approximately
$310,000.
14. Supplemental cash flow information
----------------------------------
1996 1995 1994
----------- ----------- -----------
Supplemental disclosures:
Cash paid during the
year for:
Interest $14,546,216 $11,753,143 $ 8,898,144
Income taxes - net
of refunds 278,730 341,836 336,810
Supplemental schedule of
noncash investing and
financing activities:
Patronage dividends payable
in common stock 799,890 1,703,103 1,864,432
Exchange of member loan
for equity interest in
affiliate 3,250,000 -- --
15. Affiliated companies
--------------------
The Company owns interests in three separate affiliates which are
accounted for on the equity method. All of these affiliates are in the
grocery distribution business. One affiliate is a vendor that provides
private label brand merchandise. The other affiliates operate retail
grocery stores and are also members of the Company.
28
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 27, 1996
--------------------------------------------
15. Affiliated companies (continued)
--------------------------------
An approximate summary of accounts aggregate transactions with these
affiliates is as follows:
1996 1995
------------ -----------
For the balance sheet:
Equity interest $ 12,477,000 $ 8,392,000
Accounts receivable 3,800,000 4,820,000
Notes receivable 2,853,000 6,440,000
Accounts payable (5,259,000) (4,930,000)
Undistributed earnings 1,975,000 1,416,000
1996 1995 1994
------------ ----------- -----------
For the income statement:
Increase in equity
investments $ 3,517,000 $ 607,000 $ 6,094,000
Sales (129,855,000) (91,447,000) (22,945,000)
Purchases 111,348,000 97,541,000 89,179,000
Volume incentive rebate (2,931,000) (1,707,000) (1,561,000)
Refunds, rebates and
allowances 2,570,000 3,013,000 701,000
Equity interest
income (loss) 568,000 (47,000) (192,000)
Dividends received -- -- --
These affiliates and the Company's percentage of ownership are as follows:
Western Family Holding Company 22%
C & K Market, Inc. 22%
R.A.F. Limited Liability Company 94%
North State Grocery, Inc. 26%
West Linn Foods Marketplace, L.L.C. 20%
Willamette Foods Marketplace, L.L.C. 49%
All of these affiliates are privately held companies for which no ready
market values are available. In management's opinion, the equity interest
as stated is equal to or less than the fair value of their interest in
these affiliates.
16. Concentrations of credit risk
-----------------------------
Financial instruments that potentially subject the company to significant
concentrations of credit risk consist principally of cash and cash
equivalents, investments, store financing loans and trade accounts
receivable.
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.
29
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 27, 1996
---------------------------------------------
16. Concentrations of credit risk (continued)
-----------------------------------------
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. See Note 18.a. for sale of notes subject to limited recourse
provisions.
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. See Note 2 for
investment details.
17. Fair value of financial instruments
-----------------------------------
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS. The estimated fair
value amounts have been determined by the Company using available market
information and appropriate valuation methodologies.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS, INVESTMENTS MAINTAINED FOR INSURANCE RESERVES
AND LONG-TERM NOTES RECEIVABLES INCLUDING THE CURRENT PORTION: The
carrying amounts reported in the balance sheet for cash and cash
equivalents and long-term receivables approximate their fair value.
INVESTMENT IN AND ACCOUNTS WITH AFFILIATED COMPANIES: It is not
practicable to estimate the fair value of an investment representing the
common stock of a non-public company because this stock is not traded;
that investment is carried at its original cost plus equity in earnings to
date in the consolidated balance sheet.
NOTES PAYABLE - BANK AND LONG-TERM LIABILITIES, INCLUDING CURRENT
MATURITIES: The carrying amounts of commercial paper and other variable-
rate debt instruments approximate their fair value. The fair values of
fixed-rate long-term debt are estimated using discounted cash flow
analyses based on the Company's incremental borrowing rates for similar
types of borrowing arrangements. The assumed incremental borrowing rates
used to determine the fair value of fixed-rate long-term debt were 7.50%
to 8.30% and 7.50% to 8.00% for 1996 and 1995, respectively.
30
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 27, 1996
--------------------------------------------
17. Fair value of financial instruments (continued)
-----------------------------------------------
INSURANCE RESERVES SUPPORTED BY INVESTMENTS: The fair value of insurance
accruals, which represent contractual obligations to pay cash in the
future, is estimated based on a discounted cash flow analysis using the
Company's incremental borrowing rate as the discount rate.
The carrying amounts and fair values of the Company's financial
instruments at the balance sheet date are as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------------------------------------------
Carrying Fair Carrying Fair
amounts values amounts values
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents$16,509,866 $16,509,866 $13,045,456 $13,045,456
Investments maintained for
insurance reserves 46,828,893 46,966,058 40,809,762 41,610,228
Long-term notes receivable,
including the current
portion 28,660,237 28,165,237 26,602,381 26,302,381
Investment in and accounts
with affiliated companie 12,477,107 12,477,107 8,392,281 8,392,281
Notes payable - bank 61,173,867 61,173,867 48,515,543 48,515,543
Insurance reserves supported
by investments 29,561,657 29,561,657 29,958,678 29,958,678
Long-term liabilities,
including current maturities 152,208,088153,560,695123,196,885124,416,290
</TABLE>
18. Commitments and contingencies
-----------------------------
a. The Company has entered into various agreements under which it sells
certain of its notes receivable from members subject to limited
recourse provisions. These notes are secured by collateral which
usually consists of personal property, securities and guarantees.
The Company in turn receives a monthly service fee. In 1996, 1995
and 1994, the Company sold notes totaling approximately $10,549,000,
$20,800,000 and $8,600,000, respectively. The balances of
transferred notes that were outstanding and subject to recourse
provisions were approximately $27,426,000, $28,537,000 and
$13,652,000 at September 27, 1996, September 29, 1995 and September
30, 1994, respectively.
b. In connection with its loan activities to members, the Company has
approved loan applications totaling approximately $16,528,900 for
which funds have been committed, but not disbursed, as of September
27, 1996.
c. The Company is guarantor of a covenant and a loan by members as of
September 27, 1996 totaling approximately $2,137,000 with annual
payments of approximately $291,000.
31
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 27, 1996
--------------------------------------------
18. Commitments and contingencies (continued)
-----------------------------------------
d. The Company is in labor negotiations with several of its unions,
whose contract expired in April, 1996. If the Company is unable to
reach a negotiated settlement, it is likely that a strike would
occur which would depress volumes and cause plant efficiencies to
suffer.
e. 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.
32
<PAGE>
Board of Directors
United Grocers, Inc.
INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTAL INFORMATION
--------------------------------------------------------
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements included in United Grocers, Inc.'s annual
report to stockholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated December 12, 1996. Our audits were made for
the purpose of forming an opinion on those financial statements taken as a
whole. The pro forma consolidated schedules of income for the years ended
September 27, 1996 and September 29, 1995 are presented for purposes of
additional analysis and are not a required part of the basic financial
statements. Such information has not been subjected to the auditing
procedures applied in the audit of the basic financial statements and,
accordingly, we express no opinion on it.
/s/ DeLap, White & Raish
Portland, Oregon
December 12, 1996
33
<PAGE>
UNITED GROCERS, INC.
--------------------
PRO FORMA CONSOLIDATED SCHEDULES OF INCOME
YEARS ENDED SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995
-----------------------------------------------------
1996 1995
-------------- --------------
Net sales and operations $1,352,302,776 $1,326,522,799
-------------- --------------
Cost and expenses:
Cost of sales 1,172,830,590 1,149,986,553
Operating expenses 130,089,635 126,054,112
Selling and administrative expenses 15,997,692 11,705,432
Depreciation 6,631,292 6,392,862
Interest:
Interest expense 14,825,357 14,175,652
Interest income (4,162,561) (4,494,053)
-------------- --------------
Interest expense, net 10,662,796 9,681,599
-------------- --------------
Total costs and expenses 1,336,212,005 1,303,820,558
-------------- --------------
Income before members' allowances and
patronage dividends, and income taxes 16,090,771 22,702,241
Members' allowances (11,604,949) (11,513,784)
Members' patronage dividends (4,000,000) (8,350,000)
-------------- --------------
Income before income taxes 485,822 2,838,457
Provision for income taxes (185,052) (1,021,063)
-------------- --------------
Net income $ 300,770 $ 1,817,394
============== ==============
This pro forma presentation attempts to show United Grocers, Inc. and Market
combined and operating as one business unit using historical financial
statements as if the transaction had been consummated at the beginning of the
year that ended September 29, 1995. (See Note 1.d. of the notes to
consolidated financial statements for more details of this transaction.)
The accompanying independent auditor's report on supplemental information
should be read as part of this schedule.
34
<PAGE>
Board of Directors
United Grocers, Inc.
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENT SCHEDULES
-------------------------------------------------------------
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements included in United Grocers, Inc.'s annual
report to stockholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated December 12, 1996. Our audits were made for
the purpose of forming an opinion on those financial statements taken as a
whole. Schedules I, II and V listed in the index under Section 210.12-04 are
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ DeLap, White & Raish
Portland, Oregon
December 12, 1996
35
<PAGE>
SCHEDULE I
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995
----------------------------------------
BALANCE SHEETS:
- --------------
ASSETS
------
1996 1995
------------ -------------
Current assets:
Cash and cash equivalents $ 6,538,664 $ 1,215,643
Accounts receivable - net of allowance 60,052,031 55,014,559
Inventories 99,762,081 73,880,989
Other current assets 3,791,262 2,875,918
Deferred income taxes 683,022 884,350
------------ ------------
Total current assets 170,827,060 133,871,459
------------ ------------
Non-current assets:
Investments in affiliated companies
and intercompany accounts 75,357,036 74,593,758
Other non-current assets 22,796,883 15,410,908
------------ ------------
Total non-current assets 98,153,919 90,004,666
------------ ------------
Property, plant and equipment - (net
of accumulated depreciation) 63,667,719 55,669,749
------------ ------------
Total $332,648,698 $279,545,874
============ ============
LIABILITIES AND MEMBERS' EQUITY
-------------------------------
Current liabilities:
Notes payable - bank $ 61,173,867 $ 48,515,543
Accounts payable 61,126,166 49,765,896
Other expenses and taxes 9,130,914 4,678,846
Members' patronage payable 3,200,110 6,646,867
Current installments on long-term
liabilities 9,073,983 7,573,215
------------ ------------
Total current liabilities 143,705,040 117,180,367
Long-term liabilities 143,134,105 115,623,670
Deferred income taxes 3,550,044 3,696,317
Deferred income 1,000,026 886,917
------------ ------------
Total liabilities 291,389,215 237,387,271
------------ ------------
Members' equity:
Common stock 3,192,255 3,278,315
Additional paid-in capital 24,224,262 23,956,797
Retained earnings 13,842,966 14,923,491
------------ ------------
Total members' equity 41,259,483 42,158,603
------------ ------------
Total $332,648,698 $279,545,874
============ ============
The independent auditor's report on financial statement schedules should be
read with this supplemental schedule along with the notes to the consolidated
financial statements.
36
<PAGE>
SCHEDULE I
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
YEARS ENDED SEPTEMBER 27, 1996, SEPTEMBER 29, 1995,
AND SEPTEMBER 30, 1994
----------------------
<TABLE>
<CAPTION>
STATEMENTS OF INCOME:
- --------------------
1996 1995 1994
-------------- ------------ ------------
<S> <C> <C> <C>
Net sales and operations $1,226,617,871 $937,134,185 $898,754,635
-------------- ------------ ------------
Costs and expenses:
Cost of sales 1,072,100,764 812,077,258 782,437,215
Operating expenses 103,928,225 76,575,960 71,084,769
Selling and administrative expenses 14,989,440 10,872,432 9,533,741
Depreciation 5,636,998 4,878,412 4,444,310
Interest expense, net of interest
income 13,981,587 11,450,122 8,343,701
-------------- ------------ ------------
Total costs and expenses 1,210,637,014 915,854,184 875,843,736
-------------- ------------ ------------
Income before members' allowances and
patronage dividends, income taxes and
income (loss) of subsidiaries 15,980,857 21,280,001 22,910,899
Members' allowances (11,744,604) (11,513,784) (11,449,305)
Members' patronage dividends (4,000,000) (8,350,000) (8,730,168)
-------------- ------------ -----------
Income before income taxes and
income (loss) of subsidiaries 236,253 1,416,217 2,731,426
Provision for income taxes (76,092) (457,895) (876,343)
Income (loss) of subsidiaries (7,849) 420,683 (291,693)
-------------- ------------ ------------
Net income $ 152,312 $ 1,379,005 $ 1,563,390
============== ============ ============
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF MEMBERS' EQUITY:
- -----------------------------
Additional
Common paid-in Retained
stock* capital earnings Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, October 1, 1993 $ 3,285,755 $21,006,563 $14,820,084 $39,112,402
Stock:
Issued 148,090 1,515,656 -- 1,663,746
Repurchased (334,440) (1,757,412) (1,687,261) (3,779,113)
Patronage dividends 156,675 1,707,757 -- 1,864,432
Net income -- -- 1,563,390 1,563,390
----------- ----------- ----------- -----------
Balance, Sept 30, 1994 3,256,080 22,472,564 14,696,213 40,424,857
Stock:
Issued 115,780 1,260,324 -- 1,376,104
Repurchased (230,585) (1,342,184) (1,151,727) (2,724,496)
Patronage dividends 137,040 1,566,093 -- 1,703,133
Net income -- -- 1,379,005 1,379,005
----------- ----------- ----------- -----------
Balance, Sept 29, 1995 3,278,315 23,956,797 14,923,491 42,158,603
<PAGE>
Stock:
Issued 93,620 1,059,512 -- 1,153,132
Repurchased (244,680) (1,526,937) (1,232,837) (3,004,454)
Patronage dividends 65,000 734,890 -- 799,890
Net income -- -- 152,312 152,312
----------- ----------- ----------- -----------
Balance, Sept 27, 1996 $ 3,192,255 $24,224,262 $13,842,966 $41,259,483
=========== =========== =========== ===========
*See consolidated statements of members' equity for common stock share information.
The independent auditor's report on financial statement schedules should be read with
this supplemental schedule along with the notes to the consolidated financial
statements.
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
YEARS ENDED SEPTEMBER 27, 1996, SEPTEMBER 29, 1995, AND SEPTEMBER 30, 1994
--------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS:
- ------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 152,312 $ 1,379,005 $ 1,563,390
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation 5,636,998 4,878,412 4,444,310
Provision for doubtful accounts 828,086 622,000 722,000
Patronage dividends payable
in common stock 799,890 1,703,133 1,864,432
Loss (gain) on sale of assets 545,650 213,478 22,593
(Income) loss of subsidiaries 7,849 (420,683) 291,693
Equity in loss (earnings) of
affiliated companies (567,701) 46,989 191,760
Deferred income taxes 55,055 296,932 719,262
(Increase) decrease in non-cash
current assets:
Accounts receivable 6,426,757 (11,183,991) (16,408,543)
Inventories (5,085,569) (3,504,412) (1,560,061)
Other current assets (374,779) (283,055) (592,812)
Increase (decrease) in non-cash
current liabilities:
Accounts payable (1,999,775) (3,936,161) 6,050,699
Other expenses and taxes 2,951,925 1,217,329 134,923
Members' patronage payable (3,446,757) (218,869) (349,191)
(Increase) decrease in other
non-current assets (5,902,398) (2,811,565) (1,529,897)
----------- ----------- -----------
Net cash provided by (used in)
operating activities 27,543 (12,001,458) (4,435,442)
----------- ----------- -----------
Cash flows from investing activities:
(Increase) decrease in investment
in affiliated companies (203,426) 1,199,609 (13,363,124)
Sale of property, plant
and equipment 6,621,492 824,916 46,238
Purchase of property, plant
and equipment (15,403,431) (8,039,599) (3,923,351)
Purchase of business combination (23,251,791) -- --
----------- ----------- -----------
Net cash used in investing
activities (32,237,156) (6,015,074) (17,240,237)
----------- ----------- -----------
The independent auditor's report on financial statement schedules should be read with
this supplemental schedule along with the notes to the consolidated financial
statements.
38
<PAGE>
SCHEDULE I
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
YEARS ENDED SEPTEMBER 27, 1996, SEPTEMBER 29, 1995, AND SEPTEMBER 30, 1994
---------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS (CONTINUED):
- ------------------------------------
1996 1995 1994
-------------- ----------- ------------
Cash flows from financing activities:
Sale of common stock $ 1,153,132 $ 1,376,104 $ 1,663,746
Repurchase of common stock (3,004,454) (2,724,496) (3,779,113)
Proceeds of long-term liabilities:
Revolving bank lines of credit 1,043,200,000 689,100,000 807,500,000
Mortgages and notes 30,310,851 25,640,393 12,104,717
Redeemable notes and certificates 18,056,500 19,529,600 22,395,400
Repayment of long-term liabilities:
Revolving bank lines of credit (1,030,541,677) (671,605,124) (801,209,733)
Mortgages and notes (6,923,218) (23,842,696) (2,157,310)
Redeemable notes and certificates (14,718,500) (19,492,749) (22,618,900)
-------------- ------------ ------------
Net cash provided by
financing activities 37,532,634 17,981,032 13,898,807
-------------- ------------ ------------
Net increase (decrease) in cash
and cash equivalents 5,323,021 (35,500) (7,776,872)
Cash and cash equivalents:
Beginning of year 1,215,643 1,251,143 9,028,015
-------------- ------------ ------------
End of year $ 6,538,664 $ 1,215,643 $ 1,251,143
============== ============ ============
Supplemental disclosures:
Cash paid during the year for:
Interest $ 14,546,216 $ 11,753,143 $ 8,898,144
============== ============ ============
Income taxes - net of refunds $ 278,730 $ 341,836 $ 336,810
============== ============ ============
Dividends paid to registrant by
UGIC, Ltd. $ 723,829 $ -- $ --
============== ============ ============
Supplemental schedule of noncash
investing and financing activities:
Patronage dividends payable in
common stock $ 799,890 $ 1,703,133 $ 1,864,432
============== ============ ============
</TABLE>
The independent auditor's report on financial statement schedules should be
read with this supplemental schedule along with the notes to the consolidated
financial statements.
39
<PAGE>
<TABLE>
<CAPTION>
UNITED GROCERS, INC. AND SUBSIDIARIES SCHEDULE II
-------------------------------------
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED SEPTEMBER 27, 1996
--------------------------------------------
Column A Column B Column C - Additions Column D Column E
- ----------- ------------ ----------------------------------------- ----------
(1) (2)
Balance at Charged to Business Deductions- Balance at
beginning costs and combination net writeoffs end of
Description of period expenses accounts and payments period
- ----------- ------------ -------------------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
1996:
Reserves deducted in
balance sheet from asset
to which it applies -
Allowance for doubtful
accounts for:
Accounts receivable $ 1,176,767 $ 1,001,041 $ 587,540 $ 1,624,624 $ 1,140,724
Notes receivable 508,229 1,062,000 317,716 778,301 1,109,644
----------- -------------------------- ------------ -----------
Total $ 1,684,996 $ 2,063,041 $ 905,256 $ 2,402,925 $ 2,250,368
=========== =========== =========== =========== ===========
Reserves which support
the balance sheet caption:
Insurance reserves for
losses and expenses:
Workers' compensation $16,181,057 $ 7,232,693 $ -- $ 8,486,847 $14,926,903
Property and casualty 13,777,621 5,853,398 -- 4,996,265 14,634,754
----------- ----------- ----------- ----------- -----------
Total $29,958,678 $13,086,091 $ -- $13,483,112 $29,561,657
=========== =========== =========== =========== ===========
1995:
Reserves deducted in
balance sheet from asset
to which it applies -
Allowance for doubtful
accounts for:
Accounts receivable $ 1,270,987 $ 794,189 $ -- $ 888,409 $ 1,176,767
Notes receivable 334,774 1,100,000 -- 926,545 508,229
----------- ----------- -------------------------- -----------
Total $ 1,605,761 $ 1,894,189 $ -- $ 1,814,954 $ 1,684,996
=========== =========== ============ =========== ===========
Reserves which support
the balance sheet caption:
Insurance reserves for
losses and expenses:
Workers' compensation $15,205,999 $ 9,837,535 $ -- $ 8,862,477 $16,181,057
Property and casualty 16,832,409 5,652,133 -- 8,706,921 13,777,621
----------- ----------- ------------ ----------- -----------
Total $32,038,408 $15,489,668 $ -- $17,569,398 $29,958,678
=========== =========== ========================== ===========
The independent auditor's report on financial statement schedules should be read with this supplemental schedule.
40
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
VALUATION AND QUALIFYING ACCOUNTS (CONTINUED)
FOR THE THREE YEARS ENDED SEPTEMBER 27, 1996
============================================
Column A Column B Column C Column D Column E
- ---------- ---------- ---------- ------------- ----------
Additions
Balance at charged to Deductions- Balance at
beginning costs and net writeoffs end of
Description of period expenses and payments period
- ----------- ----------- ----------- ------------- ----------
<S> <C> <C> <C> <C>
1994:
Reserves deducted in balance
sheet from asset to which it
applies -
Allowance for doubtful
accounts for:
Accounts receivable $ 1,283,681 $ 1,092,589 $ 1,105,283 $ 1,270,987
Notes receivable 376,108 900,000 941,334 334,774
----------- ----------- ----------- -----------
Total $ 1,659,789 $ 1,992,589 $ 2,046,617 $ 1,605,761
=========== =========== =========== ===========
Reserves which support the
balance sheet caption:
Insurance reserves for
losses and expenses:
Workers' compensation $15,230,686 $ 6,355,601 $ 6,380,288 $15,205,999
Property and casualty 17,284,711 5,635,565 6,087,867 16,832,409
----------- ----------- ----------- -----------
Total $32,515,397 $11,991,166 $12,468,155 $32,038,408
=========== =========== =========== ===========
As to columns omitted, the answer is "none".
The independent auditor's report on financial statement schedules should be read with
this supplemental schedule.
41
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE V
UNITED GROCERS, INC. AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION CONCERNING
PROPERTY-CASUALTY INSURANCE OPERATIONS
FOR THE THREE YEARS ENDED SEPTEMBER 27, 1996
--------------------------------------------
Column A Column B Column C Column E Column F
- ----------- ---------- ------------ ----------- -----------
Reserves for
Deferred unpaid claims
policy and claims
acquisition adjustment Unearned Earned
Affiliation with Registrant costs expenses premiums premiums
- --------------------------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Consolidated property -
casualty entities:
1996 $ 519,338 $29,561,657 $10,347,514 $19,781,425
1995 471,064 29,958,678 8,735,486 21,581,735
1994 432,192 32,038,408 8,518,168 18,192,765
<CAPTION>
Column G Column H Column I Column J Column K
---------- ----------------------------- ------------ ------------ ----------
Amortization
of deferred Paid claims
Net Claims and claim policy and claim
investment adjustment expenses acquisition adjustment Premiums
income incurred related to costs expenses written
---------- ------------------------------ ------------ ------------ -----------
(1) (2)
Current year Prior years
------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Consolidated property -
casualty entities:
1996 $ 3,219,591 $10,882,025 $ 2,504,066 $ 1,789,755 $13,386,090 $21,370,577
1995 2,981,013 14,609,091 880,577 1,765,422 15,489,668 21,143,200
1994 2,666,023 12,251,155 (558,021) 1,479,422 11,991,166 18,201,182
As to columns omitted, the answer is "none".
The independent auditor's report on financial statement schedules should be read with this supplemental schedule.
42
</TABLE>
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
A. Identification of Directors:
Name Age Principal Occupation
---- --- --------------------
Directors whose terms began in 1994 and expire in 1997:
Raymond Nidiffer 67 President, C & K Markets, Inc.
David D. Neal 46 President, SMN Company
Peter J. O'Neal 52 President, Quality Food Investments, Inc.
Directors whose terms began in 1995 and expire in 1998:
Dick Leonard 57 President, L & L Market, Inc.
Dean Ryan 38 President, Topps Industries, Inc.
Gordon Smith 51 President, Market Place Foods, Inc.
Directors whose terms began in 1996 and expire in 1999:
Robert A. Lamb 56 Partner, Lamb Lasko Partnership
Ron Mansacola 60 President, Al Mansacola Grocery Market,
Inc.
H. Larry Montgomery 52 President, Larry's Market, Inc.
Nominees for Director (three to be elected in 1997 for terms expiring in
2000):
Kenneth W. Findley 57 Vice President, Bales Thriftway, Inc.
Dennis Blasingame 48 Owner, Da Boys #2
Craig Danielson 48 President, Dan, Inc. Oregon
Gaylon Baese 59 President, Howards on Scholls, Inc.
James Glassel 56 President, Fatewell, Inc.
James Wiley 38 President, Wiley & Sons, Inc.
B. Identification of Executive Officers:
Name Age Offices Held Officer Since
---- --- ------------ -------------
Alan C. Jones 54 President, Secretary, Treas. 1981
John W. White 43 Vice President 1988
George P. Fleming 56 Assistant Secretary 1980
C. Identification of Certain Significant Employees:
None.
D. Family Relationships
None.
E. Business Experience
All executive officers have been employed by United in various
management and executive capacities for more than the past five years.
All directors and nominees have been principally engaged in the retail
grocery business for more than the past five years with the firms shown
opposite their names. Except as described in Item 13 below, none of such
firms is a parent, subsidiary or other affiliate of United.
No director or nominee is a director in another company with a class of
securities registered pursuant to Section 12 of the Securities Exchange Act of
1934 or subject to the requirements of Section 15(d) of such Act or any
company registered as an investment company under the Investment Company Act
of 1940.
F. Involvement in Certain Legal Proceedings
None
Item 11. Executive Compensation
A. Remuneration
The following table shows the compensation, during each of the years in
the three year period ended September 27, 1996, earned by each of the
Company's executive officers whose total annual salary and bonus for fiscal
1996 exceeded $100,000. The Company does not provide long term compensation to
its executive officers other than retirement benefits, as discussed below.
<TABLE>
<CAPTION>
Name of
Individual Annual Compensation All
and Other
Principal Compen-
Position Year Salary Bonus sation <F1>
- ---------- ---- ------ ----- -----------
<S> <C> <C> <C> <C>
Alan C. Jones 1996 $268,676 $ 60,000 $37,228
President, 1995 251,713 28,781 34,048
Chief Executive 1994 252,398 54,000 54,111
Officer
John W. White 1996 119,078 45,000 2,700
Vice President, 1995 112,195 38,000 2,767
Chief Financial 1994 108,959 35,000 4,823
Officer
<FN>
<F1> Amounts shown for fiscal 1996 and 1995 include the dollar amount of
insurance premiums paid by the Company with respect to term life insurance for
the benefit of Mr. Jones, in the amount of $30,000 for 1996 and $27,000 for
1995. Such amounts also include matching contributions by the Company under
the United Grocers Special 401(k) Savings Plan as follows: Mr. Jones, $7,228
and $7,048; Mr. White, $2,700 and $2,767. The Company provides Mr. Jones with
a company car and a social membership at a local golf club.
</TABLE>
B. Employment Agreement
Mr. Jones has an employment agreement with the Company pursuant to which
he is entitled to an annual base salary (subject to cost of living adjustment)
plus bonuses subject to performance targets set at the discretion of the board
of directors. The agreement further provides for Mr. Jones to receive certain
payments if the agreement is terminated without "cause" (as defined) or in the
event of a change in control of United.
In the event Mr. Jones is terminated without cause during the term of the
agreement, he will be entitled to receive payments for the remaining term of
the agreement equal to 50% of his then-current base salary plus the annual
premium for his life insurance policy. Further, Mr. Jones would be entitled
to be covered under the Company's medical and dental plans for the remaining
term of the agreement. As of September 27, 1996, the employment agreement had
a remaining term of 12 months.
In the event of a change of control of United (as defined), Mr. Jones will
have the right to terminate the employment agreement and receive a severance
payment equal to three times an amount which is 150% of his then-current base
salary.
C. Retirement Plan
The Company's retirement plan is an actuarially funded defined benefit
plan. The following table shows the estimated annual benefits payable upon
retirement (assuming normal retirement at age 65) for employees at specified
annual salary levels (based upon the highest average of five consecutive
years) with various years of service.
<TABLE>
<CAPTION>
Annual Pension Plan Table
Remuneration Years of Service <F1>
- ------------ ---------------------
10 15 20 25 30 35
<S> <C> <C> <C> <C> <C> <C>
$50,000 $ 7,733 $11,600 $15,467 $19,333 $23,200 $27,067
$75,000 $12,358 $18,537 $24,717 $30,896 $37,075 $43,254
$100,000 $16,983 $25,475 $33,967 $42,458 $50,950 $59,422
$125,000 $21,608 $32,412 $43,217 $54,021 $64,825 $75,629
$150,000 $26,233 $39,350 $52,467 $65,583 $78,700 $91,817
<F1> Under the present terms of the Company's retirement plan, the maximum
salary level and number of years of service considered for the purposes of
determining benefits are $150,000 and 35 years, respectively.
</TABLE>
The number of years of service under the plan for the officers listed in
the table on the preceding page is as follows:
Years of
Person Service
------ --------
Alan C. Jones 32
John W. White 9
The amount of compensation used in calculation of pension benefits for
Mr. Jones and Mr. White is the dollar amount shown under "salary" and "bonus,"
subject to plan limitations, in the table for Item 11, Section A. above.
Amounts payable under the plan are not subject to deduction for social
security or other offset amounts.
D. Remuneration of directors
Directors, except the Chairman of the Board, received $10, plus expenses, for
each board meeting attended. The Chairman received $25, plus expenses, for
each board meeting attended and for each additional day spent on the conduct
of United's business.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
A. Security Ownership of Certain Beneficial Owners
The following table sets forth information as of December 22, 1996,
regarding each person known to United to be the beneficial owner of more than
5 percent of United's Common Stock.
Title of Class Name and address Amount and nature of Percent of
of beneficial owner beneficial ownership class
- -------------- ------------------- -------------------- ----------
United Grocers, Raymond L. Nidiffer 55,482 shares<F1> 8.9% of class
Inc., Common P. O. Box 730
Stock Brookings, OR 97415
[FN]
<F1> Includes 1,409 shares issuable as patronage dividendsithin 60 days.
Mr. Nidiffer has sole voting and investment power with respect to the shares
indicated in the table.
B. Security Ownership of Management.
As of December 22, 1996, the directors and nominees forelection as
directors of United owned the indicated amounts of United's Common Stock,
United's only class of voting security.
Amount of
Beneficial Stock to Percent
Beneficial Owner Ownership <F1><F2> be issued <F9> of class
---------------- ------------------ -------------- --------
Directors:
Ray Nidiffer 54,073 shares 1,409 shares 8.9<F7>
Dave Neal 4,000 shares -0- shares .6<F3>
Peter J. O'Neal 4,174 shares 51 shares .7
Deano Ryan 4,263 shares -0- shares .7<F3>
Gordon Smith 4,996 shares 27 shares .8<F8>
Dick Leonard 4,133 shares -0- shares .7
Robert A. Lamb 13,472 shares 15 shares 2.2<F4>
Ron Mancasola 6,376 shares 73 shares 1.0<F3>
H. Larry Montgomery 2,862 shares 20 shares .5<F3>
Directors and
officers as
a group 98,349 shares 1,595 shares 16.1
Nominees:
Kenneth W. Findley 11,499 shares 0 shares 1.9<F6>
Gaylon G. Baese 4,216 shares 0 shares .7<F3>
Craig T. Danielson 19,999 shares 268 shares 3.6<F5>
Dennis Blasingame 1,699 shares 19 shares .3<F3>
James Glassel 1,073 shares 31 shares .2<F3>
James E. Wiley 200 shares 47 shares <F3>
[FN]
<F1> According to the bylaws, each stockholder of record is
entitled to one vote and one vote only, irrespective of
number of shares owned. All of the above-named individuals
have only one vote, except for Messrs. Smith, Danielson,
Lamb and Findley, who may be deemed to have more than one
vote because they have interests in various entities that own
shares.
<PAGE>
<F2> Except as indicated below, all of the above-named individuals
have sole voting and investment power with respect to the
shares indicated in the table.
<F3> These shares are owned jointly by the person named and his
spouse or by a corporation whose stock is owned jointly by
the person named and his spouse.
<F4> These shares are owned by a corporation and a partnership in which
Mr. Lamb has an equity or voting interest.
<F5> These shares are owned by two corporations in which Mr.
Danielson has an equity interest.
<F6> These shares are owned by a corporation in which Mr. Findley has a
voting interest.
<F7> These shares are owned by a corporation in which Mr. Nidiffer
has a controlling interest.
<F8> These shares are owned by two corporations in which Mr. Smith
has an equity interest.
<F9> These shares are issuable as patronage dividends within 60 days
and are included in the total shown under "Amount of
Beneficial Ownership."
C. Changes in Control. None
Item 13. Certain Relationships and Related Transactions.
A. Transactions with Management and Others
All directors and nominees (or their firms), as members of United,
purchase groceries and related products from United in the ordinary course of
business at prices available to members generally.
In the ordinary course of business, United enters into prime leases and
subleases property to qualified members. United presently is a party to
subleases with entities affiliated with Ray Nidiffer, Craig Danielson, Ron
Mancasola, Gaylon Baese and Robert Lamb, directors or nominees for director of
United. At September 27, 1996, monthly payments due pursuant to the subleases
were as follows:
Danielson $91,049
Nidiffer $51,660
Mancasola $16,054
Baese $20,078
Lamb $47,841
United guarantees members' indebtedness under certain conditions and
loans money to members through its financing department. The Company has
guaranteed certain loan obligations of C&K Market, Inc., a corporation owned
and controlled by Ray Nidiffer, a director.
During 1996, the company acquired one store in satisfaction of
indebtedness from a corporation in which David Neal, a director, had an
ownership interest.
B. Certain Business Relationships
During fiscal year 1996, C&K Market, Inc., a corporation controlled by
Ray Nidiffer, a director, purchased groceries and other products in the
ordinary course of business from United in the amount of $89,279,472. United
owns a 22% equity interest in C&K Market, Inc.
<PAGE>
C. Indebtedness of Management
The following directors, officers, nominees or related persons or entities
were indebted to United during the fiscal year ended September 27, 1996, or
thereafter and prior to the date of this report:
<TABLE>
<CAPTION>
Largest
aggregate
amount of debt
outstanding # of
during Balance at Notes
year ended November 30, & Rate of
Name of Debtor September 27, 1996 Interest
1996
- -------------- --------------- ------------ ---------
<S> <C> <C> <C>
Quality Food Investments,
Inc. 75,000 -0-
Peter J O'Neal - Director
SMN Company 14,948,277 1,567,065 1 @ 10.00%
David Neal - Director
C & K Market, Inc. 6,901,839 1,653,480 3 @ 10.00%
Ray Nidiffer - Director
Wiley & Sons, Inc. 27,304 -0-
James e. wiley - Nominee
Robert Lamb/Gale Lasko,
Partnership
Robert Lamb, Director 233,101 -0-
Howard's on Scholls, Inc. 1,319,484 -0-
Gaylon Baese - Nominee
</TABLE>
All of the above loans were for purchase of inventory and equipment
and are secured by inventory and equipment. Variable rate loans bear
interest at prime plus 1.75 percent to 2.25 percent.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as part of the report
1. The following financial statements are filed as part of this report:
Independent Auditor's Report on Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Members' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditor's Report on Supplemental Information
Supplemental Information
Independent Auditor's Report on Financial Statement Schedules
2. The following financial statement schedules are filed as part of this
report:
Schedule I - Condensed financial information of registrant
Schedule II - Valuation and qualifying accounts
Schedule V - Supplementary information concerning property - casualty
insurance operations
3. Exhibits. The exhibits listed on the accompanying index to exhibits
are filed as part of this report.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
UNITED GROCERS, INC.
(Registrant)
Dated: December 24, 1996 By: /s/ Alan C. Jones
Alan C. Jones
President
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ Alan C. Jones President, Secretary and 12-24-96
Alan C. Jones Treasurer (Principal
executive officer)
/s/ John W. White Vice President 12-24-96
John W. White (Principal financial officer
and principal accounting officer)
/s/ Robert A. Lamb* Director 12-24-96
Robert A. Lamb
/s/Peter J. O'Neal*
Peter J. O'Neal Director 12-24-96
/s/ David D. Neal* Director 12-24-96
David D. Neal
/s/ Harry R. (Dick) Leonard* Director 12-24-96
Harry R. (Dick) Leonard
Director 12-24-96
Deano Ryan
/s/ Gordon Smith* Director 12-24-96
Gordon Smith
/s/ Ron L. Mancasola* Director 12-24-96
Ron L. Mancasola
/s/ H. Larry Montgomery* Director 12-24-96
H. Larry Montgomery
/s/Raymond L. Nidiffer* Director 12-24-96
Raymond L. Nidiffer
* By /s/ John W. White
John W. White
Attorney-in-fact
<PAGE>
Supplemental Information to be Furnished With Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered
Securities Pursuant to Section 12 of the Act.
No annual report covering the company's last fiscal year has been sent
to security holders. An annual report will be furnished to security
holders subsequent to the filing of the annual report on Form 10-K and
copies of the annual report shall be sent to the Commission when sent to
security holders.
Enclosed with this report is a copy of proxy soliciting material, including
the form of proxy, sent to United's shareholders for the January 11, 1997
annual meeting.
The enclosed proxy soliciting material and, when provided, the annual
report for the last fiscal year are, or will be, furnished to the Commission
for its information and shall not be deemed filed with the Commission or
otherwise subject to the liabilities of Section 18 of the Securities Exchange
Act of 1934, except to the extent that the company specifically incorporates
them in its annual report on this form by reference.
<PAGE>
<TABLE>
<CAPTION>
APPENDIX 1
Analysis of Loss Reserve Development
($ in thousands)
(9 Mos) (9 Mos)
Year Ended 12/84 12/85 12/86 12/87 12/88 12/89 12/90 12/91 12/92 12/93 12/94 9/94 9/95
---------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Liability for
Unpaid Claims and
Claim Adjustment
Expenses 4,169 6,498 8,985 11,251 13,123 15,951 17,610 22,357 25,252 27,784 28,351 27,639 29,353
Paid (Cumulative)
as of:
One Year Later 1,808 2,558 4,568 4,534 4,580 6,219 5,311 5,620 7,466 8,708
Two Years Later 2,798 4,414 6,788 6,903 7,383 8,238 8,057 10,016 12,815
Three Years Later 3,666 4,844 8,233 8,399 8,084 9,390 10,349 12,063
Four Years Later 3,748 5,302 9,074 8,881 8,427 10,113 11,100
Five Years Later 3,782 5,424 9,296 8,972 8,644 10,336
Six Years Later 3,876 5,413 9,287 9,118 8,669
Seven Years Later 3,897 5,257 9,387 9,120
Eight Years Later 3,872 5,250 9,351
Nine Years Later 3,865 5,240
Ten Years Later 3,838
Reserves Reesti-
mated
Year Ended 12/84 12/85 12/86 12/87 12/88 12/89 12/90 12/91 12/92 12/93
One Year Later 4,632 6,765 10,902 12,419 14,410 17,226 17,696 19,574 22,726 24,623
Two Years Later 4,577 6,898 11,188 12,875 13,927 14,673 15,024 18,058 22,203
Three Years Later 4,792 6,350 11,951 12,817 11,386 12,807 14,315 17,692
Four Years Later 4,457 6,831 11,903 11,026 10,337 12,298 14,826
Five Years Later 4,573 6,801 10,643 10,353 10,096 12,777
Six Years Later 4,603 6,140 10,142 10,215 10,576
Seven Years Later 4,284 5,720 10,132 10,645
Eight Years Later 4,128 5,533 10,486
Nine Years Later 3,999 5,733
Ten Years Later 4,050
Cumulative
Redundancy
or (Deficiency) 119 765 (1,501) 606 2,547 3,174 2,784 4,665 3,049 3,161
</TABLE>
<PAGE>
APPENDIX 2
<TABLE>
<CAPTION>
Reconciliation of claim reserves:
($ in thousands)
@ 9 mos @ 9 mos
1995 1994 1994 1993 1992
======= ======= ====== ====== ======
<S> <C> <C> <C> <C> <C>
a Net liabilities, beginning 28,351 27,784 27,784 25,252 22,357
of year
b Incurred claims & claim
adjustment expense
i Provision for current
accident year claims 12,928 11,837 17,864 18,426 16,933
ii Increase/(decrease) in
prior year claims 120 (1,425) (3,162) (1,778) (2,156)
Total incurred claims and
claim adjustment expense 13,048 10,412 14,702 16,648 14,777
c Payments
i Provision for current 3,852 2,136 5,426 5,903 5,634
accident year claims
ii Attributable to prior
year claims 8,037 6,894 8,708 8,212 6,122
Total Payments 11,888 9,030 14,134 14,115 11,756
d Other None None None None None
e Net liabilities, end of year 29,603 27,639 28,351 27,784 25,252
/TABLE
<PAGE>
EXHIBIT INDEX
2.A Copy of agreement for sale and purchase of business assets dated
December 7, 1994, between Commissary Cash & Carry, Inc., and the
registrant (incorporated by reference to Exhibit 10.1 to the
registrant's quarterly report on Form 10-Q for the period ended
March 31, 1995).
2.B Copy of agreement for sale and purchase of business assets dated
December 22, 1994, between Rich and Rhine, Inc., and the
registrant (incorporated by reference to Exhibit 10.2 to the
registrant's quarterly report on Form 10-Q for the period ended
March 31, 1995).
2.C Copy of asset purchase agreement dated as of November 10, 1995,
between Bay Area Foods, Inc., and the registrant (incorporated by
reference to Exhibit 2 to the registrant's current report on Form
8-K dated December 13, 1995).
3.A 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).
3.B 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).
4.A 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.B1 Copy of supplemental indenture dated as of December 15, 1984,
between the registrant and United States National Bank of Oregon,
as trustee, relating to the registrant's Series D 5% Subordinated
Redeemable Capital Investment Notes (incorporated by reference to
Exhibit 4-F to the registrant's registration statement on Form
S-2, No. 33-95213).
4.B2 Copy of supplemental indenture dated as of December 15, 1986,
between the registrant and United States National Bank of Oregon,
as trustee, relating to the registrant's Series E 5% Subordinated
Redeemable Capital Investment Notes (incorporated by reference to
Exhibit 4-G to the registrant's registration statement on Form
S-2, No. 33-11212).
4.B3 Copy of supplemental indenture dated as of January 27, 1989,
between the registrant and United States National Bank of Oregon,
as trustee, relating to the registrant's Series F 5% Subordinated
Redeemable Capital Investment Notes (incorporated by reference to
Exhibit 4-G to the registrant's Form 10-K for the fiscal year
ended September 30, 1989).
4.B4 Copy of supplemental indenture dated as of January 22, 1991,
between the registrant and United States National Bank of Oregon,
as trustee, relating to the registrant's Series G 5% Subordinated
Redeemable Capital Investment Notes (incorporated by reference to
Exhibit 4-D to the registrant's registration statement on Form
S-2, No. 33-38617).
4.B5 Copy of supplemental indenture dated as of July 6, 1992, between
the registrant and United States National Bank of Oregon, as
trustee, relating to the registrant's Series H 5% Subordinated
Redeemable Capital Investment Notes (incorporated by reference to
Exhibit 4-C to the registrant's registration statement on Form
S-2, No. 33-49450).
4.B6 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 (incorporated by reference to
Exhibit 4-C to the registrant's registration statement on Form
S-2, No. 33-57199).
4.C Copy of amended and restated credit agreement of May 31, 1995,
among the registrant, United States National Bank of Oregon, and
Seattle-First National Bank. (incorporated by reference to Exhibit
4-C to the registrant's Form 10-K for the fiscal year ended
September 29, 1995).
4.D 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).
4.E 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).
4.F1 Copy of Loan Purchase and Servicing Agreement dated as of May 13,
1994, among 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).
4.F2 Copy of First Amendment to Loan Purchase and Servicing Agreement
of May 13, 1994, dated as of July 15, 1994, among 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).
4.F3 Copy of Second Amendment to Loan Purchase and Servicing Agreement
of May 13, 1994, dated as of September 28, 1995, among United
Resources, Inc., the registrant, and National Consumer Cooperative
Bank.(incorporated by reference to Exhibit 4.F3 to the
registrant's Form 10-K for the fiscal year ended September 29,
1995).
4.F4 Copy of Loan Purchase and Servicing Agreement (Holdback Program)
dated as of September 28, 1995, between United Resources, Inc., as
Seller and Servicer, and National Consumer Cooperative Bank, as
Buyer, and related guaranty agreement between the registrant and
National Consumer Cooperation Bank.(incorporated by reference to
Exhibit 4.F4 to the registrant's Form 10-K for the fiscal year
ended September 29, 1995).
4.G 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).
Pursuant to Item 601 (b)(4)(iii) of Regulation S-K, the registrant is not
filing certain instruments with respect to its long-term debt because the
amount authorized under any such instrument does not exceed 10 percent of the
total consolidated assets of the registrant at September 27, 1996. The
registrant agrees to furnish a copy of any such instrument to the Securities
and Exchange Commission upon request.
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.B* 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.C* Copy of binder of insurance with respect to indemnification of
officers and directors (incorporated by reference to Exhibit 10.C
to the registrant's Form 10-K for the fiscal year ended October 1,
1993).
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-D1b to the
registrant's Form 10-K for the fiscal year ended October 2, 1992).
10.D1c Installment note.(incorporated by reference to Exhibit 10-D1c to
the registrant's Form 10-K for the fiscal year ended September 29,
1995).
10.D1d Renewal note for fixed rate loan.(incorporated by reference to
Exhibit 10-D1d to the registrant's Form 10-K for the fiscal year
ended September 29, 1995).
10.D1e 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.D1f 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.D1g 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.D1h 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.D1i Amendment to installment note and security agreements.
(incorporated by reference to Exhibit 10-D1i to the registrant's
Form 10-K for the fiscal year ended September 29, 1995).
10.D1j 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.D1k 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.D1l 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.D1m 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.D1n 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.D1o 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 copy executed in
connection with loans to directors. A schedule showing the principal amount
and interest rate of each director loan at November 30, 1996, appears in Item
13.C of this Form 10-K. The registrant agrees to furnish a copy of any
omitted loan document to the Securities and Exchange Commission upon request.
10.D2 Typical form of residual stock redemption note executed in
connection with redemption of common stock from members
(incorporated by reference to Exhibit 10-D2 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 form listed above in lieu of filing each copy 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 T. 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 T. 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 T. 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 T. 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 T.
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.F1 Copy of sublease agreement for Troutdale store dated December 15,
1993, between the registrant and a partnership in which Robert A.
Lamb, a nominee for director of the registrant, is a partner
(incorporated by reference to Exhibit 10-F1 to the registrant's
Form 10-K for the fiscal year ended September 29, 1995).
10.F2 Copy of sublease agreement for Wilsonville store dated June 25,
1991, between the registrant and a partnership in which Robert A.
Lamb, a nominee for director of the registrant, is a partner
(incorporated by reference to Exhibit 10-F2 to the registrant's
Form 10-K for the fiscal year ended September 29, 1995).
10.G Copy of sublease agreement for Magalia store dated March 15, 1994,
between the registrant and Al Mancasola Grocery Markets, Inc., a
corporation controlled by Ronald L. Mancasola, a nominee for
director of the registrant (incorporated by reference to
Exhibit 10-G to the registrant's Form 10-K for the fiscal year
ended September 29, 1995).
10.H1 Copy of sublease agreement for Silverton store effective as of
December 14, 1994, between the registrant and a partnership in
which David D. Neal, a director of the registrant, is a partner
(incorporated by reference to Exhibit 10-H1 to the registrant's
Form 10-K for the fiscal year ended September 29, 1995).
10.H2 Copy of assignment of real property sale contract dated
February 20, 1985, by David D. Neal to the registrant
(incorporated by reference to Exhibit 10-H2 to the registrant's
Form 10-K for the fiscal year ended September 29, 1995).
10.I1 Copy of sublease agreement for Coos Bay store dated February 28,
1991, between the registrant and Raymond 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.I2 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 of the
registrant's registration statement on Form S-2, No. 33-26631).
10.I3 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 of
the registrant's registration statement on Form S-2, No. 33-
26631).
10.I4 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 of the registrant's registration
statement on Form S-2, No. 33-26631).
10.I5 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 of
the registrant's registration statement on Form S-2, No. 33-
26631).
10.I6 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.I7 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.I8 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 the 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.
22 Subsidiaries of the registrant.
24 Power of Attorney of certain directors of the registrant.
27 Financial Data Schedule.
* Denotes management contract or compensatory plan or arrangement.
<PAGE>
<PAGE>
EXHIBIT 12
UNITED GROCERS, INC. AND SUBSIDIARIES
Schedule of Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
For the Years Ended
Sept. 27 Sept. 29 Sept. 30 Oct. 1 Oct. 2
1996 1995 1994 1993 1992
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Computation of
Earnings:
Pretax Income $ 226,541 $2,153,474 $ 2,563,731 $ 2,290,818 $ 3,103,286
Plus Patronage
Dividend 4,000,000 8,350,000 8,730,168 9,000,000 10,211,000
Less
capitalized
interest -0- -0- -0- (64,929) (578,611)
Total Earnings 4,226,541 10,503,474 11,293,899 11,225,889 12,735,675
Computation of
Fixed Charges:
Total
Interest
Expense 14,825,357 12,773,947 9,156,822 8,281,946 9,303,377
Interest factor
in rental
Expense 7,711,602 5,350,735 5,172,638 4,864,189 3,769,920
Total
Fixed
Charges (1) 22,536,959 18,124,682 14,329,460 13,146,135 13,073,297
Total Earnings
and Fixed
Charges (2) 26,763,500 28,628,156 25,623,359 24,436,953 26,187,583
Ratio of
Earnings
to Fixed
Charges
(2)/(1) 1.19 1.58 1.79 1.85 1.97
Notes:
A. 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. Fixed charges consist of
interest on all indebtedness and that portion of rentals considered to
be the interest factor.
B. Interest portion of buildings and equipment rental expense was
calculated at 60% for each year.
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES
OF
UNITED GROCERS, INC.
September 27, 1996
B.A.T. Enterprises, Inc.
Grocers Insurance Company
Grocers Insurance Group, Inc.
Grocers Insurance Agency, Inc.
Northwest Process, Inc.
Premier Consulting, Inc.
Rich and Rhine, Inc.
U.G. Resources, Inc.
UGIC, Ltd.
United Resources, Inc.
United Store Development, Ltd.
United Workplace Consultants, Inc.
Western Security Services, Ltd.
Western Passage Express, Inc.
<PAGE>
<PAGE>
Exhibit 24.2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints ALAN C. JONES and JOHN W. WHITE and
each of them his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution for him and in his name, place and stead,
in any and all capacities, to sign the Annual Report on Form 10-K of United
Grocers, Inc., for its fiscal year ended September 27, 1996, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or each of them or their or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF this power of attorney has been signed by the
following persons in the capacities indicated on December 18, 1996.
Signature Title
/s/ H. LARRY MONTGOMERY Director
H. Larry Montgomery
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints ALAN C. JONES and JOHN W. WHITE and
each of them his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution for him and in his name, place and stead,
in any and all capacities, to sign the Annual Report on Form 10-K of United
Grocers, Inc., for its fiscal year ended September 27, 1996, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or each of them or their or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF this power of attorney has been signed by the
following persons in the capacities indicated on December 20, 1996.
Signature Title
/s/ GORDON E. SMITH Director
Gordon E. Smith
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints ALAN C. JONES and JOHN W. WHITE and
each of them his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution for him and in his name, place and stead,
in any and all capacities, to sign the Annual Report on Form 10-K of United
Grocers, Inc., for its fiscal year ended September 27, 1996, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or each of them or their or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF this power of attorney has been signed by the
following persons in the capacities indicated on December 20, 1996.
Signature Title
/s/ DAVID D. NEAL Director
David D. Neal
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints ALAN C. JONES and JOHN W. WHITE and
each of them his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution for him and in his name, place and stead,
in any and all capacities, to sign the Annual Report on Form 10-K of United
Grocers, Inc., for its fiscal year ended September 27, 1996, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or each of them or their or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF this power of attorney has been signed by the
following persons in the capacities indicated on December 20, 1996.
Signature Title
/s/ RAYMOND L. NIDIFFER Director
Raymond L. Nidiffer
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints ALAN C. JONES and JOHN W. WHITE and
each of them his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution for him and in his name, place and stead,
in any and all capacities, to sign the Annual Report on Form 10-K of United
Grocers, Inc., for its fiscal year ended September 27, 1996, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or each of them or their or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF this power of attorney has been signed by the
following persons in the capacities indicated on December 19, 1996.
Signature Title
/s/ ROBERT A. LAMB Director
Robert A. Lamb
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints ALAN C. JONES and JOHN W. WHITE and
each of them his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution for him and in his name, place and stead,
in any and all capacities, to sign the Annual Report on Form 10-K of United
Grocers, Inc., for its fiscal year ended September 27, 1996, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or each of them or their or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF this power of attorney has been signed by the
following persons in the capacities indicated on December 19, 1996.
Signature Title
/s/ RON L. MANCASOLA Director
Ron L. Mancasola
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints ALAN C. JONES and JOHN W. WHITE and
each of them his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution for him and in his name, place and stead,
in any and all capacities, to sign the Annual Report on Form 10-K of United
Grocers, Inc., for its fiscal year ended September 27, 1996, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or each of them or their or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF this power of attorney has been signed by the
following persons in the capacities indicated on December 18, 1996.
Signature Title
/s/ PETER J. O'NEAL Director
Peter J. O'Neal
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints ALAN C. JONES and JOHN W. WHITE and
each of them his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution for him and in his name, place and stead,
in any and all capacities, to sign the Annual Report on Form 10-K of United
Grocers, Inc., for its fiscal year ended September 27, 1996, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or each of them or their or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF this power of attorney has been signed by the
following persons in the capacities indicated on December 18, 1996.
Signature Title
/s/ HENRY R. (DICK) LEONARD Director
Henry R. (Dick) Leonard
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial
information extracted from the
consolidated financial statements of
United Grocers, Inc., for the fiscal year
ended September 27, 1996 and is qualified
in its entirety by reference to such
financial statements.
<MULTIPLIER> 1
<FISCAL-YEAR-END> SEP-27-1996
<PERIOD-START> SEP-30-1995
<PERIOD-END> SEP-27-1996
<PERIOD-TYPE> YEAR
<S> <C>
<CASH> 16,509,866
<SECURITIES> 46,828,893
<RECEIVABLES> 78,571,016
<ALLOWANCES> 2,250,368
<INVENTORY> 105,420,187
<CURRENT-ASSETS> 254,462,183
<PP&E> 112,592,128
<DEPRECIATION> 43,689,391
<TOTAL-ASSETS> 384,143,954
<CURRENT-LIABILITIES> 195,238,483
<BONDS> 143,134,105
0
0
<COMMON> 27,416,517
<OTHER-SE> 14,042,556
<TOTAL-LIABILITY-AND-EQUITY> 384,143,954
<SALES> 1,301,506,666
<TOTAL-REVENUES> 1,301,506,666
<CGS> 1,127,188,263
<TOTAL-COSTS> 141,194,877
<OTHER-EXPENSES> 17,292,036
<LOSS-PROVISION> 2,063,041
<INTEREST-EXPENSE> 14,825,357
<INCOME-PRETAX> 226,541
<INCOME-TAX> 74,229
<INCOME-CONTINUING> 152,312
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 152,312
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
