<PAGE>
Registration No. 33-57199
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
______________
UNITED GROCERS, INC.
(Exact name of registrant as specified in its charter)
Oregon
93-0301970
(State of incorporation) (I.R.S. Employer
Identification No.)
6433 S. E. Lake Road (Milwaukie, Oregon),
Post Office Box 22187, Portland, Oregon 97222
(503) 833-1000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
ALAN C. JONES, President
United Grocers, Inc.
6433 S. E. Lake Road (Milwaukie, Oregon),
Post Office Box 22187, Portland, Oregon 97222
(503) 833-1000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Miller, Nash, Wiener, Hager & Carlsen
111 S. W. Fifth Avenue
Portland, Oregon 97204-3699
Attention: Erich W. Merrill, Jr.
Approximate date of commencement of proposed sale to the public:
From time to time following the effective date of this registration statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [X]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this form, check the following box. [X]
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
<PAGE>
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
--------------------
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
UNITED GROCERS, INC.
Cross Reference Sheet Between
the Items of Part I of Form S-2 and the Prospectus
Location or Caption
Items in Form S-2 in Prospectus
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1. Forepart of the Registration Statement and Cover page
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Statement of Available
Pages of Prospectus Information; Incorporation
of Certain Documents by
Reference; Table of Contents
3. Summary Information, Risk Factors and Ratio Prospectus Summary
of Earnings to Fixed Charges
4. Use of Proceeds Introduction
5. Determination of Offering Price Introduction
6. Dilution *
7. Selling Security Holders *
8. Plan of Distribution Introduction
9. Description of Securities to be Introduction;
Registered Description of Membership
Stock; Description of Notes
10. Interests of Named Experts and Counsel *
11. Information with Respect to Prospectus Summary;
the registrant Introduction;
The Company; Incorporation
of Certain Documents by
Reference
12. Incorporation of Certain Information Incorporation of Certain
by Reference Documents by Reference
13. Disclosure of Commission Position on *
Indemnification for Securities
Act Liabilities
- ------------------
* Omitted either because the item is inapplicable or because the answer
is in the negative.
<PAGE>
UNITED GROCERS, INC.
(Portland, Oregon)
200,495 Shares
Common Stock, $5 Par Value
$35,875,000 Series J 5% Subordinated
Redeemable Capital Investment Notes
Maturing Approximately 10 Years from Date of Issue
Common stock ("Membership Stock") is sold solely to members of
United Grocers, Inc. ("United"), at adjusted book value determined for each
calendar year as of the end of United's preceding fiscal year. In addition to
shares sold to newly admitted members as a prerequisite for membership,
Membership Stock may be issued to existing members for cash or in payment of
patronage dividends. See "The Company."
Notes are issued in registered form in denominations of $100 or
multiples of $100 at 100% of principal amount, with interest payable
quarterly. Notes are issued in noncertificated form. Notes are redeemable at
United's option during the 7 years prior to maturity at a price equal to
principal plus accrued interest. United does not expect any public market for
Notes to develop. Although it is not legally obligated to do so, United
intends to prepay any Note, at any time, upon request of the holder. See
"Introduction."
The board of directors of United has decided to pay interest at
the rate of 6.5% per annum during the period December 16, 1995, to March 15,
1996, on all Notes outstanding at any time during that period. On March 16,
1996, the interest rate on all Notes will revert to the stated rate of 5% per
annum unless the board of directors takes further action. The decision to pay
interest at 6.5% per annum is a voluntary action taken by the board of
directors in recognition of prevailing interest rates. There can be no
assurance that the interest rate on Notes after March 15, 1996, will exceed 5%
per annum. The only right evidenced by the Notes is to receive timely payment
of principal and interest at 5% per annum.
Price to Underwriting Proceeds
public discounts and to United
commissions
Per Share $62.14 None $62.14
Per Note 100% None 100%
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------
This offering is not underwritten; all sales will be made by
United through its regular employees. United reserves the right to withdraw,
cancel or modify the offer without notice and to reject orders in whole or in
part.
-------------------
The date of this prospectus is January ___, 1996
<PAGE>
TABLE OF CONTENTS
Page
Statement of Available Information 2
Incorporation of Certain Documents by Reference 2
Prospectus Summary 3
Introduction 6
The Company 8
Description of Membership Stock 11
Description of Notes 13
Legal Matters 16
Experts 16
Additional Information 16
No person is authorized to give any information or to make any
representations other than those contained herein, and, if given or made, such
information or representations must not be relied upon as having been
authorized. Neither the delivery hereof nor any sale hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of United since the date hereof. This prospectus does not constitute
an offer to sell or a solicitation of any such offer in any state to any
person to whom it is unlawful to make such an offer in such state.
STATEMENT OF AVAILABLE INFORMATION
United is subject to the informational requirements of the
Securities Exchange Act of 1934 and in accordance therewith files reports and
other information with the Securities and Exchange Commission ("Commission").
Such reports and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C., and at the Commission's
regional offices at 7 World Trade Center, 13th Floor, New York, New York
10048, and The Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies can be obtained at prescribed rates by writing to the
Securities and Exchange Commission, Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549.
United intends to provide its security holders annual reports
containing audited financial statements which have been examined and reported
on by independent certified public accountants.
INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE
United incorporates herein by reference (i) its annual report on
Form 10-K for the fiscal year ended September 29, 1995, and (ii) the material
under the captions "1995 MANAGEMENT" and "BOARD OF DIRECTORS" and the
information on pages ii and 1 through 18 of the separate financial information
and financial statements included with United's annual report to its security
holders for the year ended September 29, 1995.
This prospectus is accompanied by a copy of United's 1995 annual
report to security holders. United will provide, without charge, to each
person to whom a copy of this prospectus is delivered, upon the written or
oral request of any such person, a copy of the above mentioned Form 10-K
(other than certain exhibits). Requests should be directed to John W. White,
Vice President, United Grocers, Inc., Post Office Box 22187, Portland, Oregon
97269-2187, telephone (503) 833-1000.
<PAGE>
PROSPECTUS SUMMARY
The following material summarizes certain matters described in the
prospectus. It is necessarily incomplete and is qualified in its entirety by
reference to the remainder of the prospectus.
<TABLE>
<CAPTION>
<S> <C>
United
The Company United Grocers, Inc., 6433 S. E. Lake Road (Milwaukie,
Oregon), Post Office Box 22187, Portland, Oregon 97269-2187;
telephone (503) 833-1000.
Principal Business A wholesale grocery distributor which operates as a
cooperative. United sells groceries and related products at wholesale to
approximately 368 independent retail grocery stores operated by its
members in Oregon, western Washington and California.
Use of Proceeds of Working capital and general corporate purposes.
Offering
See "Introduction--Use of Proceeds" and "The Company."
Membership Stock
Shares Offered to Retail grocers who have been accepted as members of United on the basis
of 200 shares per retail store. Membership Stock will also be issued to
members in payment of patronage dividends and to members who wish to
acquire additional shares for cash.
Price Adjusted book value computed as of the end of each fiscal year (the
Friday nearest September 30) to be effective for the following calendar
year ($62.14 per share, or $12,428 for 200 shares, during 1996).
Repurchase Under its present bylaws United is obligated to repurchase shares held
by terminated members at the price at which Membership Stock is then
being offered (book value as of the end of the fiscal year preceding the
year of termination, adjusted for certain items). A portion of the
repurchase price may, under certain circumstances, be paid in
installments on such terms as the board of directors determines.
Voting Rights One vote for each shareholder of record.
Transfer Membership Stock is not transferable.
Dividends and It is United's policy not to declare dividends other than
Federal Tax patronage dividends based upon members' purchases. The total
Consequences amount of patronage dividends (including Membership Stock) is
taxable to individual members when distributed.
See "Introduction," "The Company" and "Description of Membership Stock."
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Notes
Notes Offered Series J Subordinated Redeemable Capital Investment Notes.
Interest 5% per annum, payable quarterly. The board of directors of United has
decided to pay interest at the rate of 6.5% per annum during the period
December 16, 1995, to March 15, 1996, on all Notes outstanding at any
time during that period. On March 16, 1996, the interest rate on all
Notes will revert to the stated rate of 5% per annum unless the board of
directors takes further action. The decision to pay interest at 6.5%
per annum is a voluntary action taken by the board of directors in
recognition of prevailing interest rates. There can be no assurance
that the interest rate on Notes after March 15, 1996, will exceed 5% per
annum. The only right evidenced by the Notes is to receive timely
payment of principal and interest at 5% per annum.
Denominations $100 and multiples thereof.
Price 100% of the principal amount.
Certificates Notes will be noncertificated. The rights of holders of Notes will be
evidenced by the Investment Note Register maintained by United. United
will provide holders of Notes with quarterly statements of their Note
holdings.
Maturity of Principal On the interest payment date coinciding with, or next following, the
expiration of 10 years from date of issue.
Prepayment In the event of death of a registered holder or joint registered holder
of a Note, United will be legally obligated to prepay the Note upon
request of the person entitled to the Note. Although United has no
other obligation to prepay Notes, its present intention is to prepay any
Note, at any time, upon request of the holder. Although United's
present intention is to continue this prepayment policy indefinitely, it
may discontinue such policy at any time. See "Introduction--Notes
Offered." The prepayment price is the principal amount plus accrued
interest.
Type Unsecured, subordinated to Senior Indebtedness. The amount of Senior
Indebtedness outstanding as of September 29, 1995, was approximately
$117,869,000. There is no limit upon the amount of Senior Indebtedness
that United may incur.
Redemption Redeemable at the option of United during the 7 years prior to maturity
at a price equal to principal plus accrued interest.
Transfer Notes are transferable but no market for Notes exists or is expected to
develop.
Indenture Trustee First Bank National Association.
See "Introduction" and "Description of Notes."
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Selected Financial Data
Fiscal years ended
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<S> <C> <C> <C> <C> <C>
Sep. 29 Sep. 30 Oct. 1 Oct. 2 Sep. 27
1995 1994 1993 1992 1991
(Dollars in thousands, except per share amounts)
Income Statement(1):
Net sales and operations $1,018,248 $954,220 $876,985 $896,587 $882,878
Income before members'
patronage dividends, income
taxes, and accounting
change 10,503 11,294 11,291 13,314 13,126
Patronage dividends 8,350 8,730 9,000 10,211 10,427
Net income(2)(3) 1,379 1,563 1,714 2,723 1,712
Balance Sheet:
Working capital(4)(8) 52,510 45,258 41,819 53,326 61,032
Total assets(7) 322,456 306,836 285,342 261,289 249,205
Liabilities
Current 159,937 147,443 136,809 113,759 112,256
Long-term 115,624 114,669 105,539 104,645 98,685
Members' equity(8) 42,357 40,425 39,112 39,141 36,431
Adjusted book value per share(5) 62.14 59.50 57.00 53.94 48.99
Ratio of adjusted income
to fixed charges(1)(6) 1.58 1.79 1.85 1.97 2.07
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</TABLE>
<TABLE>
<CAPTION>
<S> <C>
(1) In fiscal 1993, United changed its method of accounting for inventories to the first-in,
first-out method. Amounts for prior periods have been restated to reflect the change.
See Note 4 to the consolidated financial statements appearing in the accompanying annual
report to shareholders ("Consolidated Financial Statements").
(2) Earnings per share are not shown because earnings are distributed only in the form of
patronage dividends; under United's policy no earnings are available for the purpose of
paying dividends on the Membership Stock.
(3) In fiscal 1992, United changed its method of accounting for income taxes, resulting in a
one-time increase in net income of $526,314.
(4) In fiscal 1992, United changed its method of accounting for investments, resulting in an
increase in current assets at October 2, 1992, of $26,684,291 and a corresponding
decrease in non-current assets. Amounts for prior periods have been restated to reflect
the change.
(5) Adjusted book value per share, which is the offering price per share, is computed by
subtracting from total members' equity at fiscal year end, stock to be issued from
patronage and paid-in capital on such stock, unrealized gain on investments, and
undistributed equity from investments accounted for on the equity method and dividing
the resulting amount by shares outstanding at fiscal year end.
(6) Adjusted income used to compute the ratio of adjusted income to fixed charges represents
net income to which has been added income taxes, patronage dividends and fixed charges,
less capitalized interest. Fixed charges consist of interest on all indebtedness and
that portion of rentals considered to be the interest factor.
(7) In fiscal 1994, United changed its method of accounting for reinsurance. Amounts for
fiscal 1993 have been restated to reflect the change. See Note 11 to the Consolidated
Financial Statements.
(8) In fiscal 1995, United changed its method of accounting for investments to comply with
SFAS No. 115. This change is not applied retroactively to prior years financial
statements. See Note 2 to the Consolidated Financial Statements.
</TABLE>
For additional information, reference is made to the Consolidated Financial
Statements and other information incorporated herein by reference as described
under "Incorporation of Certain Documents by Reference."
<PAGE>
INTRODUCTION
General. United is offering to sell 200,495 shares of its
Membership Stock and $35,875,000 in principal amount of Notes. All sales will
be made by United through its regular employees, who will not receive any
additional remuneration in connection with the sales. No sales will be made
through brokers and there are no underwriters. Membership Stock is not
transferable and there is, therefore, no public market for it. United does
not expect that any public market for Notes will develop. United anticipates
that the securities offered hereby will not all be sold in the immediate
future and that the offerings will, therefore, be made on a continuous basis
over a period of time. There is no assurance that any portion of the
offerings will be sold.
Use of Proceeds. United expects to use the proceeds from the sale
of the securities offered hereby for working capital and general corporate
purposes. To the extent that proceeds are insufficient to meet United's
requirements for working capital at any particular time, United intends to
rely upon increased borrowing from banks. Although United has not in the past
experienced any substantial difficulty in obtaining bank financing, there can
be no assurance that United will be able to obtain additional bank financing
or that it will be able to obtain such financing at interest rates which it
considers reasonable.
Membership Stock Offered. Membership Stock is sold only upon
approval by United's board of directors to retail grocers who have applied for
and been accepted for membership in United. Retail grocers accepted for
membership will thereby gain the right to purchase groceries and related
products from United on a cooperative basis. See "The Company." Membership
Stock is sold in units of 200 shares for each retail store accepted for
membership. Shares will be sold from time to time as United's board of
directors admits additional members and as existing members are accepted for
membership with respect to additional stores. Membership Stock will also be
issued to existing members in partial payment of patronage dividends (see "The
Company") and to members who wish to purchase additional shares for cash.
Membership Stock is offered at its adjusted book value, as
determined by United's annual audited balance sheet as of the end of each
fiscal year, effective the following January 1. Adjusted book value per share
is computed by subtracting from total members' equity at fiscal year end,
stock to be issued from patronage and paid-in capital on such stock and
undistributed equity from investments accounted for on the equity method, net
of the tax effect, and dividing the resulting amount by shares outstanding at
fiscal year end. At September 29, 1995, the only adjustment for investments
accounted for on the equity method was United's investment in Western Family
Holding Company. The adjusted book value at September 29, 1995, was $62.14
per share. Thus, the offering price for 200 shares during calendar year 1996
is $12,428.
From time to time, United sells Membership Stock to new members on
an installment basis. If the board of directors determines that an
applicant's financial standing merits such treatment, Membership Stock may be
issued upon receipt of a cash down payment plus a promissory note or other
undertaking to pay the balance of the purchase price. The amount of the down
payment, interest rate and other terms of installment sales may vary depending
on the applicant's financial standing.
United's bylaws provide that, upon termination of membership,
Membership Stock will be repurchased by United at the price at which
Membership Stock is then being offered (adjusted book value). United's board
of directors may elect to pay the repurchase price in installments upon such
terms as the board of directors determines with respect to any shares held
over and above the number of shares a member was initially required to
purchase upon acceptance to membership. For additional information, see
"Description of Membership Stock." Although United has no other obligation to
repurchase Membership Stock, the board of directors has indicated that it will
consider requests for repurchase of Membership Stock from members which are
corporations upon a bona fide transfer of ownership of the corporate member.
It is United's policy not to declare dividends other than
patronage dividends based on a member's purchases from United. The total
amount of patronage dividends (including Membership Stock) is taxable to
individual members when distributed. See "The Company."
United's bylaws provide that the number of shares of Membership
Stock which a member is required to purchase shall be established by the board
of directors. The board of directors has decided that, at present, members
must purchase a unit of 200 shares for each retail store for which they are
admitted as members. This number is subject to change from time to time.
There will not be any refund on or redemption of any shares already purchased
as a result of any decrease in the number of shares required for new stores.
Existing members will not be required to purchase additional shares as a
result of any future increase in the number of shares required per store.
United's bylaws and articles of incorporation also provide that
each holder of record of Membership Stock is entitled to one vote regardless
of the number of shares owned. Thus, a newly admitted member purchasing 200
shares of Membership Stock will have the same voting rights as an existing
member directly holding a greater or lesser number of shares. Certain members
control family corporations or other separate entities that own shares. Those
members may control more than one vote because each controlled entity is a
separate holder of record. See "Description of Membership Stock."
Under United's present policies, members acquiring additional
Membership Stock may have (i) the possibility, under certain circumstances, of
receiving a greater portion of future patronage dividends in cash (see "The
Company--Deposit") and (ii) the possibility of realizing gain in the event of
future appreciation in the book value of Membership Stock (see "Description of
Membership Stock"). Members considering acquiring additional shares of
Membership Stock should be aware that there can be no assurance that United's
future operations will result in the payment of patronage dividends or in any
appreciation in book value. In the event of losses in future years, the book
value of Membership Stock could decline. Also, as described more fully under
"The Company" and "Description of Membership Stock," the proportion of
patronage dividends to be paid in cash and the method of payment for
repurchased shares of Membership Stock are all subject to the discretion of
United's board of directors, and the right to repurchase at book value upon
termination of membership is subject to change by a vote of United's members.
Acquisition of additional shares of Membership Stock will not give a member
any additional voting rights.
Any increase in the total number of shares outstanding will, of
course, proportionately reduce the effect of future changes in total members'
equity upon book value per share. In other words, future increases or
decreases in members' equity resulting from earnings or losses will have a
lesser effect per share if the total number of shares outstanding is
increased.
Notes Offered. United is offering Notes only in fully registered
form without coupons in denominations of $100 or multiples of $100 at 100% of
principal amount. Notes bear interest at 5% per annum, payable quarterly, and
mature on the interest payment date coinciding with, or next following, the
expiration of 10 years from the date of issue. The board of directors of
United has decided to pay interest at the rate of 6.5% per annum during the
period December 16, 1995, to March 15, 1996, on all Notes outstanding at any
time during that period. On March 16, 1996, the interest rate on all Notes
will revert to the stated rate of 5% per annum unless the board of directors
takes further action. The decision to pay interest at 6.5% per annum is a
voluntary action taken by the board of directors in recognition of prevailing
interest rates. The board expects to review the interest rate paid on Notes
from time to time in light of prevailing interest rates and other factors.
There can be no assurance that the interest rate on Notes after March 15,
1996, will exceed 5% per annum. The only right evidenced by the Notes offered
hereby is to receive timely payment of principal and interest at 5% per annum.
Notes are issued as noncertificated Notes. The rights of Note
holders are evidenced by the Investment Note Register. Note holders are
therefore dependent on the Investment Note Registrar to maintain accurate
records regarding their Note holdings. United presently serves as Investment
Note Registrar. Because there is no certificate, Notes may not be readily
saleable. However, no market for Notes exists or is expected to develop.
Notes are unsecured and are subordinated in right of payment to
Senior Indebtedness (as defined, see "Description of Notes--Subordination") in
the event of any liquidation or dissolution. The amount of Senior
Indebtedness at September 29, 1995, was approximately $117,869,000 (consisting
of approximately $61,780,000 in unsubordinated long-term debt and
approximately $56,089,000 in current liabilities). Notes may be redeemed at
United's option during the 7 years prior to maturity at a redemption price
equal to their principal amount plus accrued interest. For additional
information, see "Description of Notes."
Upon the death of a registered holder or joint registered holder,
United will be legally obligated to prepay the Note upon request of the person
entitled to the Note. United may require evidence of death before making
prepayment. Although United has no other legal obligation to prepay Notes,
its present intention is to prepay any Note, at any time, upon request of the
holder. The prepayment price upon death or under United's prepayment policy
is the principal amount of the Note plus accrued interest.
United's prepayment policy may provide holders of Notes with
liquidity which they might not otherwise have. Although United's present
intention is to continue its prepayment policy indefinitely, it may
discontinue such policy at any time. In the event that United discontinues
its prepayment policy, holders of Notes might, because of the absence of an
established market, be unable to sell their Notes prior to maturity or might
be unable to sell the Notes other than at a price below their principal
amount.
It is anticipated that most sales of Notes will be made to members
of United, friends and relatives of members, key employees and other persons
with existing relationships with United. United allows members to purchase
Notes on a regular basis by adding the purchase price to any such member's
weekly invoice for grocery purchases.
THE COMPANY
General. United, a wholesale grocery distributor, is an Oregon
business corporation organized in 1915 which operates and is taxed as a
cooperative.
It supplies groceries and related products to independent retail
grocers located in Oregon, western Washington and northern California.
United's goal is both to supply grocery products to retailers at prices which
enable them to compete effectively in the retail market and to furnish them
other services, such as marketing assistance, engineering, accounting,
financing, and insurance, which are important to the successful operation of a
retail grocery business.
United also sells groceries and related products at wholesale
through 35 cash-and-carry depots, principally to nonmember grocers,
restaurants, and institutional buyers.
United's board of directors consists of nine members serving
staggered three-year terms, and they may not be elected to consecutive terms.
Directors, all grocers, must either be proprietors or partners owning a
membership in United or the holder of a substantial interest in a corporation
owning a membership in United. United's directors are Dennis Blasingame,
Craig Danielson, James C. Vickers, David Neal, Peter J. O'Neal, Raymond L.
Nidiffer, Deano Ryan, Gordon Smith, and Dick Leonard.
The management of the corporation is under the direction of a
President and Chief Executive Officer who is employed and guided by the board
of directors.
Additional information is set forth in the documents incorporated
herein by reference.
Membership. United has approximately 253 members operating a
total of approximately 368 retail grocery stores. All applicants for
membership, who must be retail grocers, are subject to approval by United's
board of directors on the basis of financial responsibility and operational
ability. On approval, applicants are required to purchase shares of United's
Membership Stock.
Upon termination of membership, a member's shares of Membership
Stock are redeemed. Sales and redemptions of Membership Stock are made at
adjusted book value. Adjusted book value for this purpose is determined
according to United's most recent annual audited balance sheet, adjusted for
certain items, effective for the following calendar year. See "Description of
Membership Stock."
United's board of directors may elect to pay the repurchase price
in installments with respect to any shares held over and above the number of
shares a member was initially required to purchase upon acceptance to
membership. See "Description of Membership Stock."
The following table shows the adjusted book value per share of
Membership Stock for the past five years:
<TABLE>
<CAPTION>
Fiscal years ended
---------------------------------------------
<S> <C> <C> <C> <C> <C>
Sep. 29 Sep. 30 Oct. 1 Oct. 2 Sep. 27
1995 1994 1993 1992 1991
Adjusted book value per share $62.14 $59.50 $57.00 $53.94 $48.99
</TABLE>
The issuance of the additional shares offered hereby may result in
substantial dilution of the rate of increase or decrease in adjusted book
value per share. See "Introduction."
Cost Savings. By pooling the buying power of its members, United
is able to purchase goods in large quantities at prices lower than the prices
generally available to independent retail grocers. The savings from the bulk
purchases are passed along to members in the form of rebates, allowances and
patronage dividends.
Sales to members are invoiced to their accounts at prices
contained in United's order guide. While the complex pricing systems used in
the wholesale grocery industry make item-by-item price comparisons
impracticable, United believes that its pricing structure, including the
various cost savings available to members, compares favorably on an overall
basis with the pricing structures of its competitors. A cost equalization
program results in the addition or subtraction of a percentage of the member's
weekly invoice cost based on the member's average weekly purchases for the
preceding four weeks, excluding drop shipment purchases. The cost
equalization percentages are designed to reflect the economies of scale
realized by United in servicing larger accounts.
Rebates and allowances are paid to members periodically based upon
their purchases of particular items or their promotional and advertising
performance. Generally, such rebates and allowances stem from United's
margins and the merchandising or promotional programs of United's suppliers.
The amount of rebates and allowances paid to members with respect to
particular items may vary from the amount realized by United from its
suppliers.
United also pays its members annual patronage dividends based on
the overage, or excess of revenues over expenses, on sales to members for the
year. Each year United's board of directors determines the portion of the
overage which is to be distributed as patronage dividends. For fiscal year
1995, the board decided to distribute 97% of the overage that was available
for distribution. Decisions concerning the portion of overage to be retained
are based upon various factors, including United's future capital needs and
the amount of earnings available from operations not qualifying for
distribution as patronage dividends. The patronage dividends are allocated
among the members in proportion to the contribution to United's gross profit
(before rebates and allowances) attributable to their purchases from United.
The patronage dividends are paid partly in cash and partly in Membership
Stock. See "Deposit."
As a result of cost equalization, rebates, allowances and
patronage dividends, the total cost savings each member realizes will vary
depending on the member's volume of purchases and merchandising of particular
products.
Patronage Dividends and Tax Matters. The following discussion
summarizes the operation of certain aspects of the federal income tax
treatment of cooperatives. The tax treatment of cooperatives is subject to
change from time to time as the Internal Revenue Code of 1986, as amended
("Code"), is amended and as new regulations and interpretations are
periodically adopted.
United operates and is taxed as a cooperative. Accordingly,
patronage dividends are not included in United's taxable income but are
instead taxed to the individual members receiving the patronage dividends.
The Code requires that not less than 20% of each member's
patronage dividend be paid in cash. It is United's policy to at least meet
that minimum requirement and to pay the balance of patronage dividends in
Membership Stock. See "Deposit" for information regarding the method used by
United to determine the patronage dividends to be paid in cash in excess of
the Code's minimum requirement.
Members are required to agree to abide by all United's bylaw
provisions, including those applicable to federal income taxation of patronage
dividends. Accordingly, members must report as taxable income the total
amount of patronage dividends, including the adjusted book value of Membership
Stock, in the year such patronage dividends are received, and such amounts are
not taxable to United.
United is taxed on income which does not qualify for distribution
as patronage dividends and on the portion of overage which is not distributed
to members. United's subsidiaries generally retain all profits (or losses)
from their operations and are subject to all applicable income taxes.
Deposit. Members are encouraged to accumulate holdings of
Membership Stock. Such holdings are referred to in the cooperative grocery
trade as "Deposits," although the Membership Stock is not physically deposited
with United. The amount of a member's Deposit is defined to be the adjusted
book value of his or her Membership Stock. The Deposit does not include notes
representing United's obligation to pay the deferred balance of the price of
Membership Stock repurchased from members or Capital Investment Notes. The
Deposit is used to:
a. Provide a guarantee fund for the member's purchases on open
account.
b. Ensure the funding of United's operations.
c. Serve as a basis for calculating cash patronage dividends.
The method of calculation is intended to encourage members to maintain
Deposits of at least one and one half times their average weekly
purchases ("AWP") from United. AWP is the average of a member's weekly
purchases of all items from United during the fiscal year for which
patronage dividends are being calculated.
In recent years, the noncash portion of patronage dividends has
been paid in Membership Stock, and it is anticipated that future payments will
also be made in Membership Stock. The board's present policy is to pay
patronage dividends as follows:
1. If the Deposit is less than one and one half times AWP, the
member's patronage dividend is paid 20% in cash and 80% in Membership
Stock.
2. If the Deposit equals or exceeds one and one half times AWP
but is less than 4,000 shares, the member's patronage dividend is paid
80% in cash and 20% in Membership Stock.
3. If the Deposit equals or exceeds one and one half times AWP
and is at least 4,000 shares, the member's patronage dividend is paid
100% in cash.
4. In the case of multiple store operations, Deposit and AWP
requirements are applied on a per store basis.
5. If a member' Deposit exceeds 4,000 shares of Membership Stock
per store, excess shares may be submitted for redemption over a five-
year period. Twenty percent of the shares submitted for each store will
be redeemed each year at the current share price for that year.
The board's Deposit policy is subject to change from time to time.
Although the board expects to retain the general principle of paying
increasing portions of patronage dividends in cash as a member's Deposit
increases, the board may, in the future, decide to consider additional factors
in the payment of patronage dividends. Therefore, there can be no assurance
that the purchase of Membership Stock by a member will result in the member's
receiving any particular portion of future patronage dividends in cash.
DESCRIPTION OF MEMBERSHIP STOCK
United's authorized Membership Stock consists of 10,000,000 shares
of Membership Stock, $5 par value. Membership Stock is sold only to members
of United. All members must be actively engaged in the retail grocery
business and must be approved by the board of directors, primarily on grounds
of financial responsibility and operational ability, before being admitted to
membership.
Each member must purchase the number of shares of Membership Stock
as determined by the board of directors for each retail store the member
operates. Each shareholder of record is entitled to one vote, regardless of
the number of shares owned. Certain members control family corporations or
other separate entities that own shares. Those members may control more than
one vote because each controlled entity is a separate holder of record.
Voting for directors is noncumulative.
Membership Stock is not transferable and is not negotiable. Under
United's bylaws all shares are sold at adjusted book value and, upon a
member's death, retirement, voluntary withdrawal, expulsion or cessation of
purchases from United, will be repurchased by United at adjusted book value as
determined by United's annual audited balance sheet as of the end of each
fiscal year, effective the following January 1. Adjusted book value per share
is computed by subtracting from total members' equity, stock to be issued from
patronage and paid-in capital on such stock and undistributed equity from
investments accounted for on the equity method, net of the tax effect, and
dividing the resulting amount by shares outstanding at fiscal year end (as
restated for any stock splits, stock dividends or similar changes). United's
bylaws provide that the repurchase price for any shares over and above the
number of shares the member was required to purchase as a condition of
membership for a retail store or stores may, in the discretion of United's
board of directors, be paid in 20 quarterly installments with interest at the
same rate being paid from time to time (presently 6.5%) on United's Capital
Investment Notes then being offered or in such other manner as the board of
directors may from time to time determine.
United's board has adopted a policy, subject to change without
notice, requiring United to repurchase on request the number of shares a
member owns in excess of 4,000. The excess shares are repurchased over a
five-year period at the current adjusted book value each year, payable in
cash.
United's obligation to repurchase the shares of members is subject
to the general limitations imposed by the Oregon Business Corporation Act that
United may not purchase shares if, after giving the purchase effect, United
would not be able to pay its debts as they become due in the usual course of
business or United's total assets would be less than its total liabilities.
A member is subject to expulsion by the board of directors for the
following reasons: (l) disclosure to nonmembers of confidential information
relating to United's business, (2) abuse of office by officers, (3) purchase
of goods for the benefit of a nonmember, (4) commission of a felony, (5)
violation of the corporation's bylaws, or (6) action to the detriment of the
corporation. Since 1954, no members have been expelled. Patronage dividends
for the fiscal year in which a membership is terminated are paid in cash
following the end of the fiscal year, based on the member's purchases from
United during the fiscal year. All bylaw provisions, including those relating
to the repurchase of Membership Stock at adjusted book value, are subject to
amendment by a vote of a two-thirds majority of the quorum of shares voting on
such amendment.
Shares of Membership Stock are issued from time to time upon
payment of less than the full purchase price. Upon payment of the full
purchase price, shares of Membership Stock are fully paid and nonassessable.
A member's interest in the adjusted book value of shares of Membership Stock,
is, however, subject to being set off against any debts of the member to
United or its subsidiaries.
The shares of Membership Stock are entitled to share pro rata in
any liquidating distributions and dividends other than patronage dividends.
It is not the policy of the board of directors to declare any dividends other
than patronage dividends. In the event of any liquidation of United, the
rights of holders of Membership Stock with respect to any liquidating
distributions and the rights of former holders of Membership Stock with
respect to any deferred payments due them would be subordinated to all other
claims against United's assets.
Shares of Membership Stock are not subject to any sinking fund
provisions and have no conversion rights.
DESCRIPTION OF NOTES
The Notes offered hereby are issued as the ninth series of Capital
Investment Notes under an indenture dated as of February 1, 1978, between
United and United States National Bank of Oregon, as trustee ("U. S. Bank"),
as supplemented by supplemental indentures dated as of August 15, 1979,
November 11, 1981, December 15, 1984, December 15, 1986, January 27, 1989,
January 22, 1991, July 6, 1992, and January 9, 1995 (which indenture, as so
supplemented, is herein referred to as the "Indenture"). First Bank National
Association ("Trustee") has assumed U. S. Bank's rights and obligations as
trustee under the Indenture. A copy of the Indenture is on file with the
Securities and Exchange Commission as an exhibit to the registration statement
of which this prospectus forms a part. The following description summarizes
certain provisions of the Indenture and is subject to the detailed provisions
of the Indenture, to which reference is hereby made for a complete statement
of such provisions. Whenever particular Sections or terms defined in the
Indenture are referred to herein, such Sections or definitions are
incorporated by reference. References in parentheses are to Sections of the
indenture dated as of February 1, 1978, except that references marked with an
asterisk (*) are to Sections of the supplemental indenture dated as of January
9, 1995. See "Additional Information."
General. Notes bear interest from the date of issue at the stated
annual rate indicated on the cover page of this prospectus. United may, under
the Indenture, issue Notes at other interest rates, but no change in interest
rates may affect the stated interest rate on Notes then outstanding. Interest
is paid on the 15th day of March, June, September, and December for the
quarters ending on those dates to the persons in whose names the Notes are
registered as of the last business day of the calendar month preceding the
payment date. (Secs. 3.06 and 4.02*)
Notes mature on the interest payment date which is on, or next
following, the date ten years from the date of issue, are unsecured
obligations of United and are limited to $50,000,000 aggregate principal
amount, $38,875,000 of which is being offered pursuant to this prospectus.
Notes are issuable only in registered form, without coupons, in denominations
of $100 or any multiple of $100 approved by United. Notes are issued as
noncertificated Notes. (Secs. 1.15, 3.02, 2.01*, 4.01* and 4.02*)
Principal and interest on all Notes are payable at the principal
office of United in Clackamas County, Oregon, provided that, at the option of
United, interest and principal payments on Notes may be made by check mailed
to the address of the registered holders of the Notes. United intends to pay
interest and principal by check. (Secs. 3.01, 7.02 and 3.03*) United will
exchange Notes for other Notes of the same series and of a like principal
amount and having the same terms and conditions upon written request of the
holder. No service charge will be made to the holder for any exchange or
transfer, except for any tax or governmental charge incidental thereto.
(Secs. 3.04 and 3.04*) United is required to mail quarterly statements of Note
holdings to holders of Notes. (Sec. 4.03*)
United may from time to time without the consent of any holder of
an outstanding Note issue under the Indenture, by means of an indenture
supplemental thereto, additional Capital Investment Notes having different
terms and of a series other than the Notes. The amount of additional Capital
Investment Notes or other debt which may be issued by United is not limited by
the Indenture. (Sec. 4.01)
The Indenture does not contain any covenant or provision that
protects the holders of Notes against a reduction in the value of the Notes
resulting from a highly leveraged transaction, whether or not such transaction
involves a change in control of United. Similarly, no holder of Senior
Indebtedness of United at September 29, 1995, is protected against a reduction
in the value of Senior Indebtedness held by such holder resulting from a
highly leveraged transaction, except that certain agreements relating to
Senior Indebtedness require that United maintain specified financial ratios.
Prepayment. Although United is not obligated to prepay Notes
except in the event of the death of a registered holder, United's present
intention is to prepay the principal amount of any Note, together with accrued
interest to the date of payment, at any time upon the request of the holder.
In the event of the death of a registered holder or joint
registered holder of a Note, United is obligated, at the option of the person
legally entitled to become the holder of the Note, to prepay the principal
amount of the Note, together with accrued interest to the date of payment.
Any request for prepayment must be made to United in writing. United may, as
a condition precedent to the prepayment, require the submission of evidence
satisfactory to United of the death of the registered holder or joint
registered holder and such additional documents or other material as it may
consider necessary to establish the person entitled to become the holder of
the Note or such other facts as it considers relevant to the fulfillment of
its prepayment obligation. (Sec. 5.01*)
Redemption. The Notes may be redeemed at the election of United
during the seven years prior to maturity at their principal amount, plus
accrued interest, upon not less than 30 days' notice by mail to the registered
holder. United, in its sole discretion, may designate for redemption Notes
maturing on specified dates or bearing specified interest rates. If less than
all the Notes with a specified maturity date or interest rate are to be
redeemed, the Trustee shall select the particular Notes to be redeemed in
whole or in part. (Secs. 5.02* and 5.03*) No interest on Notes selected for
redemption will accrue after the date fixed for redemption. (Sec. 5.04*)
Subordination. Payment of the principal of, and interest on, the
Notes is subordinated in the manner and to the extent set forth in the
Indenture in right of payment to the prior payment in full of all Senior
Indebtedness. (Sec. 6.01*) Senior Indebtedness is defined as indebtedness of
United, whether outstanding on the date of the Indenture or thereafter
incurred, (a) for money borrowed by United (other than indebtedness evidenced
by Capital Investment Notes and Registered Redeemable Building Notes); (b) for
money borrowed by others and guaranteed by United; (c) constituting purchase
money indebtedness incurred for the purchase of tangible property and for the
payment of which United is directly or contingently liable; (d) arising under
any document creating an absolute or contingent obligation of United to
purchase promissory notes and related documents from third parties; or (e) for
fees, expenses, and other obligations of United due in connection with
indebtedness of United that constitutes Senior Indebtedness, unless by the
terms of the instrument creating or evidencing the indebtedness it is provided
that such indebtedness is not superior in right of payment to the Notes.
(Secs. 1.01* and 6.01*) The Indenture does not limit the amount of Senior
Indebtedness which United may incur.
The Indenture provides that, in the event of and during the
continuation of any default on any Senior Indebtedness, no payment may be made
on the Notes or for the redemption or purchase of Notes. (Sec. 6.03*) Upon
any distribution of assets of United, upon any liquidation, dissolution,
winding up or reorganization of United, whether in bankruptcy, insolvency or
receivership proceedings or upon an assignment for the benefit of creditors,
or other proceeding, all principal of (and premium, if any) and interest on
all Senior Indebtedness must be paid in full before the holders of the Notes
are entitled to receive or retain any payment. Subject to the payment in full
of all Senior Indebtedness, the holders of the Notes are subrogated to the
rights of the holders of the Senior Indebtedness to receive distributions of
assets of United applicable to Senior Indebtedness until the Notes are paid in
full. (Sec. 6.02*) By reason of such subordination, in the event of
insolvency, creditors of United who are holders of Senior Indebtedness may
recover more, ratably, than the holders of the Notes, and creditors of United
who are not holders of Senior Indebtedness or of the Notes may recover less,
ratably, than the holders of Senior Indebtedness, and may recover more,
ratably, than the holders of the Notes.
Modification of Indenture. Modifications and amendments of the
Indenture may be made by United and the Trustee with the consent of the
holders of 66 2/3% in principal amount of the Capital Investment Notes of all
series then outstanding, provided that no such modification or amendment may,
without the consent of the holder of each Note affected thereby, (a) change
the maturity date of the principal or the interest payment dates; (b) reduce
the principal amount of or the interest on any Note; (c) change the currency
of payment; (d) impair the right to institute suit for the enforcement of any
such payment on or after the maturity date or the Redemption Date, as the case
may be; or (e) reduce the above-stated percentage of holders of Capital
Investment Notes necessary to modify or amend the Indenture. (Sec. 13.02)
Events of Default; Notice and Waiver. The following constitute
Events of Default: (a) default in the payment of any interest continued for
30 days; (b) default in the payment of the principal of (or premium, if any,
on) any Capital Investment Note at its maturity; (c) default in the
performance of any other covenant or warranty of United, continued for 60 days
after written notice as provided in the Indenture; (d) acceleration of any
Senior Indebtedness of United as a result of a default with respect thereto if
such acceleration is not rescinded within 30 days after written notice as
provided in the Indenture; and (e) certain events in bankruptcy, insolvency or
reorganization. (Sec. 9.01) If an Event of Default shall happen and be
continuing, the Trustee or the holders of not less than 25% in principal
amount of outstanding Capital Investment Notes may declare the principal of
all the Capital Investment Notes to be due and payable immediately. (Sec.
9.02)
The Indenture provides that the Trustee will, within 90 days after
the occurrence of a default, give to the holders of Capital Investment Notes
notice of such default known to it, unless such default shall have been cured
or waived; but, except in the case of a default in the payment of the
principal of (or premium, if any) or interest on any of the Capital Investment
Notes, the Trustee shall be protected in withholding such notice if it in good
faith determines that the withholding of such notice is in the interest of
such holders. (Sec. 9.14)
The holders of a majority in principal amount of the outstanding
Capital Investment Notes may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on the Trustee, provided that such direction shall not be
in conflict with any rule of law or the Indenture. (Sec. 9.12) Before
proceeding to exercise any right or power under the Indenture at the direction
of such holders, the Trustee is entitled to receive from such holders
reasonable security or indemnity against the costs, expenses and liabilities
which might be incurred by it in compliance with any such direction. (Sec.
10.02)
The holders of not less than a majority in principal amount of the
outstanding Capital Investment Notes may, on behalf of the holders of all the
Capital Investment Notes, waive any past default except (a) a default in the
payment of principal of (or premium, if any) or interest on any Capital
Investment Note, and (b) a default in respect of a covenant or provision of
the Indenture which cannot be amended without the consent of the holder of
each Capital Investment Note affected. (Sec. 9.13)
United is required to furnish to the Trustee annually a statement
as to the fulfillment by United of all its obligations under the Indenture.
(Sec. 7.06)
Other. The Notes have no sinking fund provisions. The Indenture
contains no restrictions on the dividends that may be paid by United and
imposes no obligations with respect to the maintenance of reserves, levels of
net worth, liabilities, working capital or the like.
Regarding the Trustee. United has no agreements or business
relationships with the Trustee other than those contained in or contemplated
by the Indenture. The Trustee is required to furnish annual reports to
holders of Notes as to certain matters relating to the Notes, the Trustee's
performance and the Trustee's eligibility to act as Trustee. (Sec. 8.03)
LEGAL MATTERS
The validity of the Membership Stock and Notes offered hereby have
been passed upon for United by Miller, Nash, Wiener, Hager & Carlsen,
Portland, Oregon, who have acted as special counsel to United in connection
with this offer.
EXPERTS
The consolidated financial statements of United incorporated in
this prospectus by reference have been audited by DeLap, White & Raisch,
independent certified public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of
said firm as experts in auditing and accounting in giving said report.
ADDITIONAL INFORMATION
This prospectus omits certain information contained in a
registration statement filed by United with the Securities and Exchange
Commission. For further information, reference is made to the registration
statement, including the financial schedules and exhibits filed as a part
thereof. See "Statement of Available Information."
<PAGE>
PART II
Information Not Required in Prospectus
Item 16. Exhibits.
The exhibits are listed in the accompanying index to exhibits.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-2 and has duly caused this
amendment to this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Milwaukie, State of
Oregon, on January 10, 1996.
UNITED GROCERS, INC.
(Registrant)
By: /s/ JOHN W. WHITE
John W. White, Vice President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to this registration statement has been signed by the following
persons in the capacities indicated on January 10, 1996.
<TABLE>
<CAPTION>
Name Title
<S> <C>
Principal executive officer
* ALAN C. JONES President
Alan C. Jones Secretary and Treasurer
Principal financial officer and
principal accounting officer
/s/ JOHN W. WHITE Vice President and
John W. White Chief Financial Officer
A majority of the Board of Directors
* DENNIS BLASINGAME Director
Dennis Blasingame
* CRAIG DANIELSON Director
Craig Danielson
* JAMES C. VICKERS Director
James C. Vickers
* DAVID NEAL Director
David Neal
* PETER J. O'NEAL Director
Peter J. O'Neal
* RAYMOND L. NIDIFFER Director
Raymond L. Nidiffer
* DEANO RYAN Director
Deano Ryan
* GORDON SMITH Director
Gordon Smith
* DICK LEONARD Director
Dick Leonard
* By /s/ JOHN W. WHITE
John W. White
Attorney-in-fact
<PAGE>
EXHIBIT INDEX
4.A Form of certificate representing shares of the registrant's common
stock, $5 par value (incorporated by reference to Exhibit 4-A to
the registrant's registration statement on Form S-2,
No. 33-26631).
4.B Copy of indenture dated as of February 1, 1978, between the
registrant and United States National Bank of Oregon, as trustee,
relating to the registrant's Capital Investment Notes
(incorporated by reference to Exhibit 4-I to the registrant's
registration statement on Form S-1, No. 2-60488).
4.C Copy of supplemental indenture dated as of January 9, 1995,
between the registrant and First Bank National Association, as
trustee, relating to the registrant's Series J 5% Subordinated
Redeemable Capital Investment Notes (incorporated by reference to
Exhibit 4-C to the registrant's registration statement on Form
S-2, No. 33-57199).
4.D Copy of the registrant's restated articles of incorporation, as
amended (incorporated by reference to Exhibit 4-E to the
registrant's registration statement on Form S-2, No. 33-26631).
4.E Copy of the registrant's bylaws, as amended (incorporated by
reference to Exhibit 4-F to the registrant's registration
statement on Form S-2, No. 33-26631).
5. Opinion of Miller, Nash, Wiener, Hager & Carlsen.*
10.A1 Copy of United Grocers, Inc. pension plan and trust agreement
dated as of October 1, 1985 (incorporated by reference to
Exhibit 10-A to the registrant's registration statement on Form
S-2, No. 33-11212).
10.A2 Copy of first amendment to United Grocers, Inc. pension plan and
trust agreement dated as of October 1, 1987 (incorporated by
reference to Exhibit 10-B to post effective amendment No. 1 to
the registrant's registration statement on Form S-2, No.
33-11212).
10.A3 Copy of policy summary and related documents pertaining to a life
insurance policy for Alan C. Jones, President of the registrant,
purchased pursuant to the registrant's supplemental executive
retirement plan (incorporated by reference to Exhibit 10-E to the
registrant's Form 10-K for the fiscal year ended September 28,
1990).
10.A4 Copy of registrant's executive deferred compensation plan
(incorporated by reference to Exhibit 10-U to the registrant's
Form 10-K for the fiscal year ended September 27, 1991).
10.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
From 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, 1995, appears in Item
13.C of the registrant's Form 10-K for the fiscal year ended September 29,
1995. The registrant agrees to furnish a copy of any omitted loan document to
the Securities and Exchange Commission upon request.
10.D2a Typical form of residual stock redemption note executed in
connection with redemption of common stock from members
(incorporated by reference to Exhibit 10-D2 to the registrant's
Form 10-K for the fiscal year ended October 2, 1992).
10.D2b Schedule listing material details of residual stock redemption
notes payable to directors and nominees.
Pursuant to Instruction 2 to Item 601 of Regulation S-K, the registrant has
filed the form and schedule listed above in lieu of filing each 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 registrant (incorporated by
reference to Exhibit 10.F8 to the registrant's Form 10-K for the
fiscal year ended September 30, 1994).
10.J Copy of sublease agreement for Oroville store dated June 4, 1993,
between the registrant and Food Club of California, Incorporated,
a corporation controlled by Michael S. Werness, a nominee for
director of the registrant (incorporated by reference to Exhibit
10.J to the registrant's Form 10-K for the fiscal year ended
September 29, 1995).
10.K1 Copy of sublease agreement for Albany store dated February 1,
1994, between the registrant and RAF Limited Liability Company, a
limited liability company controlled by Richard L. Wright, a
nominee for director of the registrant (incorporated by reference
to Exhibit 10.K1 to the registrant's Form 10-K for the fiscal year
ended September 29, 1995).
10.K2 Copy of sublease agreement for Cottage Grove store effective as of
February 1, 1989, between the registrant and Wright's Foodliner,
Inc., a corporation controlled by Richard L. Wright, a nominee for
director of the registrant (incorporated by reference to Exhibit
10.K2 to the registrant's Form 10-K for the fiscal year ended
September 29, 1995).
10.K3 Copy of sublease agreement for Eugene store dated October 27,
1991, between the registrant and Wright's Foodliner, Inc., a
corporation controlled by Richard L. Wright, a nominee for
director of the registrant (incorporated by reference to Exhibit
10.K3 to the registrant's Form 10-K for the fiscal year ended
September 29, 1995).
10.K4 Copy of sublease agreement for Lincoln City store dated June 30,
1993, between the registrant and Wright's Foodliner, Inc., a
corporation controlled by Richard L. Wright, a nominee for
director of the registrant (incorporated by reference to Exhibit
10.K4 to the registrant's Form 10-K for the fiscal year ended
September 29, 1995).
10.L 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).
10.M Copy of note agreement dated as of September 20, 1991, and senior
notes dated September 24, 1991 among the registrant and various
purchasers (incorporated by reference to Exhibit 4-I to the
registrant's Form 10-K for the fiscal year ended September 27,
1991).
10.N Copy of Promissory Note, Assignment of Rents and Leases, Deed of
Trust, Financing Agreement and Security Agreement, and
Environmental Indemnity Agreement dated as of September 30, 1993,
between the registrant and United of Omaha Life Insurance Company,
relating to the registrant's construction of a new office building
(incorporated by reference to Exhibit 4.E to the registrant's Form
10-K for the fiscal year ended October 1, 1993).
10.01 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).
10.02 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).
10.03 Copy of Second Amendment to Loan Purchase and Servicing Agreement
of May 13, 1994, dated as of September 28, 1995, between United
Resources, Inc., the registrant, and National Consumer Cooperative
Bank (incorporated by reference to Exhibit 4.F3 to the
registrant's From 10-K for the fiscal year ended September 29,
1995).
10.04 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 the registrant's Form 10-K for the fiscal year ended
September 29, 1995).
10.P 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).
12. Statement of Computation of Ratio of Adjusted Income to Fixed
Charges (incorporated by reference to Exhibit 12 to the
registrant's Form 10-K for the fiscal year ended September 29,
1995).
13. Portions of annual report to security holders incorporated by
reference in the prospectus forming a part of this registration
statement.
23.A. Consent of Miller, Nash, Wiener, Hager & Carlsen (filed as part of
Exhibit 5).*
23.B. Consent of DeLap, White & Raish.
24. Power of attorney.
25. Statement of Eligibility of Trustee.*
28. Copy of schedule P of the annual statement for Grocers Insurance
Company, a subsidiary of the registrant, as filed with the state
insurance departments where the company operates, for the year
ended December 31, 1993 (incorporated by reference to Exhibit 28
to the registrant's Form 10-K for the fiscal year ended
September 29, 1995).
* Previously filed.
</TABLE>
<PAGE>
RESIDUAL STOCK NOTES
PAYABLE TO
DIRECTORS OR NOMINEES
All information is as of January 10, 1996
Director or Nominee Note Amount Interest Rate
- -------------------- ----------- -------------
Craig Danielson $108,382.99 6.5%
Robert Lamb $207,740.21 6.5%
Larry Montgomery $73,815.00 6.5%
<PAGE>
1995 MANAGEMENT
Alan C. Jones, President & CEO
Ronald E. Dove, Director of Operations
Ross E. Dwinell, President of Grocers Insurance Group, Inc.
George P. Fleming, Ass't Secretary, President of United Resources, Inc.
Ralph P. Matile III, Medford Division Manager
R. David May, President of Rich & Rhine, Inc.
Keith A. Miller, Director of Purchasing & Marketing
James E. Robinson, President of Thriftway Stores, Inc.
Susan D. Weber, Director of Human Resources
John W. White, Vice President & CFO
John M. Willis, Director of Foodservice
BOARD OF DIRECTORS
Top Row, left to right
Raymond L. Nidiffer
C&K Market, Inc. - Term expires l997
Chairperson: Facility Planning Committee
Member: Executive Finance Committee
H. Richard Leonard
Market Basket Thriftway - Term expires l998
Member: Executive Finance Committee
Gordon E. Smith
Vernonia Sentry & Food Basket Market Place Select
Term expires l998
Member: Audit Committee
David D. Neal
SMN Company - Term expires l997
Chairperson: Bylaw Review Committee
Member: Audit Committee
Dennis K. Blasingame
DA Boys Market - Term expires l996
Chairperson: Audit Committee
Bottom Row, left to right
Peter J. O'Neal, Vice Chairman
Quality Food Investments, Inc.
Term expires l997
Chairperson: Executive Finance Committee
Member: Facility Planning Committee
Member: Compensation Committee
Craig T Danielson, Chairman
Dan, Inc., Oregon - Term expires l996
Chairperson: Compensation Committee
Member: Executive Finance Committee
Dean F. Ryan
Tops Sentry Market - Term expires l998
Member: Facility Planning Committee
Not pictured
James C. Vickers
J.C. Market, Inc. - Term expires l996
Chairperson: Nominating Committee
Member: UGPAC Legislative Committee
<PAGE>
SUMMARY OF NET SALES AND OPERATIONS
<TABLE>
<CAPTION>
(Dollars in Thousands)
For Fiscal Year Ended
September 29, 1995 September 30, 1994 October 1, 1993
================== ================== ===============
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> 432,499 42.48 399,803 41.87 370,237 42.20
Dairy & Deli 105,263 10.34 105,336 11.04 97,425 11.11
Meat 83,227 8.17 86,893 9.11 86,115 9.82
Produce 49,108 4.82 47,709 5.00 46,462 5.30
Frozen Foods 53,992 5.30 53,803 5.64 49,078 5.60
General Merchandise 45,165 4.44 45,285 4.75 42,494 4.85
Institutional<F2> 206,312 20.26 179,422 18.81 155,572 17.74
Retail Services 18,284 1.80 14,169 1.49 7,683 .88
Store Finance 3,117 .30 3,846 .41 2,374 .27
Distribution Segment 996,967 97.91 936,266 98.12 857,440 97.77
Insurance Segment 21,281 2.09 17,954 1.88 19,545 2.23
TOTAL $1,018,248 100.00 $954,220 100.00 $876,985 100.00
<FN>
<F1> Grocery revenues include sales from retail stores operated on a temporary
basis.
<F2> Institutional revenues include sales of all product lines.
</TABLE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in Thousands)
For Fiscal Year Ended
Sept. 29, Sept. 30, Oct. 1, Oct. 2 Sept. 27
1995 1994 1993 1992 1991
======== ========== ======== ========== ========
<S> <C> <C> <C> <C> <C>
Net sales and $1,018,248 $954,220 $876,985 $896,587 $882,878
operations
Net income 1,379 1,563 1,714 2,723 1,712
Total assets 322,456 306,836 285,342 261,289 249,205
Long-term 115,624 114,669 105,539 104,645 98,685
obligations
</TABLE>
No dividends on common stock have been declared during any of the fiscal years
presented.
Sales are reported on a 52/53 week year basis. The year ending October 2,
1992 was 53 weeks, all other years are 52 weeks.
The amounts prior to 1993 have been restated to reflect charges in accounting
for inventories, income taxes and investments as described in the notes to
financial statements. The amounts for 1993 have been restated to reflect
changes in accounting for reinsurance as described in the notes to financial
statements.
ANNUAL 10-K REPORT
Stockholders may obtain a copy of the Company's 1995 Form 10-K Report filed
with the Securities and Exchange Commission without charge by writing to John
White, Vice President, United Grocers, Inc., Box 22187, Portland, OR 97269.
A BRIEF REVIEW
United Grocers, Inc. (United) an Oregon corporation organized in 1915, taxed
as a cooperative, is a wholesale grocery distributor. It supplies groceries
and related products to retail grocers located in Oregon, western Washington,
and northern California. United's goal is to supply grocery products to
retailers at prices which enable them to compete effectively in the retail
market, and to furnish them other services, such as marketing assistance,
engineering, accounting, financing, and insurance, which are important to the
successful operation of a retail grocery business.
United also sells groceries and related products to restaurants, and other
institutional buyers, as well as to retailers who are not members. These
sales are through company-owned Cash and Carry stores located throughout its
marketing areas.
<PAGE>
Board of Directors
United Grocers, Inc.
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying consolidated balance sheets of United
Grocers, Inc. and subsidiaries as of September 29, 1995 and September 30,
1994, and the related consolidated statements of income, members' equity and
cash flows for each of the three years in the period ended September 29, 1995.
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 29, 1995 and September 30, 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 29, 1995, in conformity with
generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for investments in 1994-95. Also, as
discussed in Notes 4 and 11, the Company changed its method of accounting for
inventories in 1992-93 and for reinsurance in 1993-94.
Portland, Oregon
December 14, 1995
DeLap, White & Raish
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 29, 1995 AND SEPTEMBER 30, 1994
ASSETS
1995 1994
-------- --------
Current assets:
Cash and cash equivalents $ 13,045,456 $ 12,984,028
Investments maintained for
insurance reserves (Note 1.d. & f.
& 2) 40,809,762 36,939,578
Accounts and notes receivable
(Note 3 & 11) 70,706,049 60,290,461
Inventories (Note 1.e. & 4) 81,477,754 74,307,422
Other current assets (Note 11 & 13) 3,870,703 5,367,295
Deferred income taxes (Note 9) 2,537,323 2,811,914
------------ ------------
Total current assets 212,447,047 192,700,698
------------ ------------
Non-current assets:
Notes receivable (Note 3) 21,950,478 33,155,543
Investment in and accounts with
affiliated companies (Note 1.c. & 16) 8,392,281 7,832,484
Other receivables and investments 6,869,895 6,899,133
Other non-current assets (Note 5) 11,668,590 7,730,575
------------ ------------
Total non-current assets 48,881,244 55,617,735
------------ ------------
Property, plant and equipment - (net
of accumulated depreciation) (Note 6) 61,127,772 58,517,120
------------ ------------
Total $322,456,063 $306,835,553
============ ============
The accompanying notes are an integral part of this financial statement.
<PAGE>
LIABILITIES AND MEMBERS' EQUITY
1995 1994
------------ ------------
Current liabilities:
Notes payable - bank (Note 7) $ 48,515,543 $ 31,020,667
Accounts payable 60,461,117 64,629,410
Insurance reserves supported by
investments (Note 1.f., 2 and 11) 29,958,678 32,038,408
Compensation and taxes payable 3,118,827 2,952,534
Other accrued expenses 3,662,495 3,159,900
Members' patronage payable (Note 10) 6,646,867 6,865,736
Current installments on long-term
liabilities (Note 8) 7,573,215 6,776,197
------------ ------------
Total current liabilities 159,936,742 147,442,852
Long-term liabilities (Note 8) 115,623,670 114,669,266
Deferred income taxes (Note 9) 3,651,247 3,744,109
Deferred income (Note 14) 886,917 554,469
------------ ------------
Total liabilities 280,098,576 266,410,696
------------ ------------
Commitments and contingencies (Note 18)
Members' equity:
Common stock (authorized, 10,000,000
shares at $5.00 par value; issued
and outstanding, 655,663 shares in
1995 and 619,881 shares in 1994)
(shares owned by a member in excess
of 4,000 are subject to repurchase
Note 1.l. & m.) 3,278,315 3,256,080
Additional paid-in capital 23,956,797 22,472,564
Retained earnings 14,923,491 14,696,213
Unrealized gain on investments (Note 2) 198,884 --
------------ ------------
Total members' equity 42,357,487 40,424,857
------------ ------------
Total $322,456,063 $306,835,553
============ ============
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 29, 1995, SEPTEMBER 30, 1994, AND OCTOBER 1, 1993
1995 1994 1993
-------------- ------------ ------------
Net sales and operations $1,018,248,456 $954,220,350 $876,985,353
-------------- ------------ ------------
Costs and expenses:
Cost of sales (Note 1.e.) 870,097,228 816,721,077 749,447,130
Operating expenses 101,029,068 93,991,529 88,046,293
Selling and administrative
expenses 10,872,432 9,533,741 9,441,916
Depreciation (Note 1.g. & 6) 5,952,576 5,609,779
4,737,401
Interest:
Interest expense 12,773,947 9,156,822 8,217,017
Interest income (4,494,053) (3,535,802) (3,552,107)
-------------- ------------ ------------
Interest expense, net 8,279,894 5,621,020 4,664,910
-------------- ------------ ------------
Total costs and expenses 996,231,198 931,477,146 856,337,650
-------------- ------------ ------------
Income before members' allowances
and patronage dividends, and
income taxes 22,017,258 22,743,204 20,647,703
Members' allowances (11,513,784) (11,449,305) (9,356,885)
Members' patronage dividends
(Note 10) (8,350,000) (8,730,168) (9,000,000)
-------------- ------------ ------------
Income before income taxes 2,153,474 2,563,731 2,290,818
Provision for income taxes
(Note 9) (774,469) (1,000,341) (576,435)
-------------- ------------ ------------
Net income $ 1,379,005 $ 1,563,390 $ 1,714,383
============== ============ ============
The accompanying notes are an integral part of this financial statement.
<PAGE>
<TABLE>
<CAPTION>
UNITED GROCERS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
YEARS ENDED SEPTEMBER 29, 1995, SEPTEMBER 30, 1994,
AND OCTOBER 1, 1993
Additional Unrealized
Common paid-in Retained gain on
stock capital earnings investments Total
------ ---------- -------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance, October 2, 1992 $ 3,464,735 $20,642,128 $15,034,453 $ -- $39,141,316
Stock:
Issued 78,755 759,972 -- -- 838,727
Repurchased (381,930) (1,687,165) (1,928,752) -- (3,997,847)
Patronage dividends 124,195 1,291,628 -- -- 1,415,823
Net income -- -- 1,714,383 -- 1,714,383
----------- ----------- ----------- ----------- -----------
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, 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
Unrealized gain on
investments -- -- -- 198,884 198,884
----------- ----------- ----------- ----------- -----------
Balance, September 29,
1995 $ 3,278,315 $23,956,797 $14,923,491 $ 198,884 $42,357,487
=========== =========== =========== =========== ===========
</TABLE>
Common stock share information:
Number
Description of shares
- ----------- ---------
Balance, October 2, 1992 651,250
Issued 57,448*
Repurchased (76,386)
--------
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
========
* Includes prior year patronage dividends to be issued.
The accompanying notes are an integral part of this financial statement.
<PAGE>
<TABLE>
<CAPTION>
UNITED GROCERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 29, 1995, SEPTEMBER 30, 1994, AND OCTOBER 1, 1993
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,379,005 $ 1,563,390 $ 1,714,383
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation 5,952,576 5,609,779 4,737,401
Provision for doubtful accounts
and notes 1,894,189 1,992,589 2,182,551
Patronage dividends payable
in common stock 1,703,133 1,864,432 1,415,823
Loss (gain) on sale of assets 402,634 174,927 (472,126)
Equity in loss (earnings) of
affiliates 46,989 191,760 (772)
Deferred income taxes 181,729 474,889 341,209
(Increase) decrease in non-cash
current assets:
Accounts and notes receivable (11,087,908) (15,343,787) 1,564,454
Inventories (7,170,332) (441,006) (3,358,014)
Other current assets 1,496,592 (642,531) 134,362
Increase (decrease) in non-cash
current liabilities:
Accounts payable and
insurance reserves (6,248,023) 5,018,583 9,768,705
Compensation and taxes payable 166,293 264,397 (1,107,883)
Other accrued expenses 502,595 (552,204) 239,803
Members' patronage payable (218,869) (349,191) (525,047)
(Increase) decrease in other
non-current assets (3,908,777) (2,598,160) 518,142
------------ ------------ -----------
Net cash provided by (used in)
operating activities (14,908,174) (2,772,133) 17,152,991
------------ ------------ -----------
Cash flows from investing activities:
Loans to members (18,578,568) (17,768,465) (18,766,639)
Collections on loans to members 7,758,425 6,325,619 6,155,085
Proceeds from sale of member loans 20,803,339 8,606,739 900,373
Sale of investments 3,607,299 843,718 --
Redemption of investments 4,630,686 4,747,745 3,857,384
Purchase of investments (11,909,285) (8,133,459) (8,039,512)
Investment in affiliated companies (606,786) (6,094,315) --
Sale of property, plant
and equipment 1,738,326 408,777 2,936,809
Purchase of property, plant
and equipment (10,371,740) (5,254,582) (11,990,981)
------------ ------------ -----------
Net cash used in investing
activities (2,928,304) (16,318,223) (24,947,481)
------------ ------------ -----------
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE>
<TABLE>
<CAPTION>
UNITED GROCERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED SEPTEMBER 29, 1995, SEPTEMBER 30, 1994, AND OCTOBER 1, 1993
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Sale of common stock $ 1,376,104 $ 1,663,746 $ 838,727
Repurchase of common stock (2,724,496) (3,779,113) (3,997,847)
Proceeds of long-term liabilities:
Revolving bank lines of credit 689,100,000 807,500,000 510,100,000
Mortgages and notes 25,640,393 12,104,717 5,505,830
Redeemable notes and certificates 19,529,600 22,395,400 25,322,100
Repayment of long-term liabilities:
Revolving bank lines of credit (671,605,124) (801,209,733) (499,918,520)
Mortgages and notes (23,925,822) (2,789,206) (10,893,362)
Redeemable notes and certificates (19,492,749) (22,618,900) (18,745,800)
------------ ------------- -------------
Net cash provided by
financing activities 17,897,906 13,266,911 8,211,128
------------ ------------- -------------
Net increase (decrease) in cash
and cash equivalents 61,428 (5,823,445) 416,638
Cash and cash equivalents:
Beginning of year 12,984,028 18,807,473 18,390,835
------------ ------------- -------------
End of year $ 13,045,456 $12,984,028 $18,807,473
============ ============= =============
The accompanying notes are an integral part of this financial statement.
</TABLE>
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 29, 1995
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
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., Affiliated General Agency, Inc., Premier
Consulting, Inc., Western Security Services, Ltd., Rich and Rhine, Inc.
(new in 1995) and BAT Enterprises, Inc. All intercompany balances and
transactions have been eliminated upon consolidation. Investment in
affiliated companies is stated at cost plus the Company's share of
undistributed earnings since acquisition (see Note 16).
d. 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, issued
May 1993. See Note 2 for details. Investments are primarily in non-
equity securities. The Company's 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
29, 1995 and September 30, 1994 is $41,610,228 and $36,487,841,
respectively.
e. Inventories and cost of sales
Inventories relate primarily to the distribution operation 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. See Note 4 for
change in accounting for inventories.
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 29, 1995
1. Summary of significant accounting policies (continued)
e. Inventories and cost of sales (continued)
Cost of sales includes primarily the cost of distribution and insurance
operations. The distribution operation 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 operation
costs include losses reported, a provision for losses incurred but not
reported and premium refunds.
f. Restricted assets and net assets
Restricted assets and net assets that may not be transferred to the
parent company in the form of loans, advances, or cash dividends by the
insurance company subsidiary without the consent of various state
insurance agencies as of September 29, 1995 are as follows:
Cash and cash equivalents $ 350,238
Investments 17,284,345
-----------
Total $17,634,583
===========
In addition, although not formally restricted, the balance of the
investments of $23,326,533 represents assets that have been accumulated
for the possible payment of claims against the insurance reserves.
g. Property, plant and equipment
Property, plant and equipment is carried at cost and includes
expenditures for new facilities and those which substantially increase
the useful lives of the existing plant and equipment. The Company
capitalizes interest as a component of the cost of significant
construction projects. During the year ended October 1, 1993,
interest was capitalized in the amount of $64,929 out of a total
interest of $8,281,946 which resulted in an increase in the net income
of approximately $49,000. No interest was capitalized in 1995 or 1994.
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
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 29, 1995
1. Summary of significant accounting policies (continued)
h. 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.
i. Reinsurance
In the normal course of business, the Company seeks to reduce the loss
that may arise from catastrophes or other events that cause unfavorable
underwriting results by reinsuring certain levels of risk in various
areas of exposure with other insurance enterprises or reinsurers.
Amounts recoverable from reinsurers are estimated in a manner consistent
with the claim liability associated with the reinsured policy. Amounts
paid for prospective reinsurance are reported as prepaid reinsurance
premiums and amortized over the remaining contract period in proportion
to the amount of insurance protection provided.
j. 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 1995 a valuation allowance of $2,994,000 was
considered necessary for state NOL carryovers to reduce the deferred tax
asset to the amount expected to be realized. Income tax expense is the
tax payable for the year and the change during the year in net deferred
tax assets and liabilities. See Note 9 for details.
k. 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.
l. 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.
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 29, 1995
1. Summary of significant accounting policies (continued)
m. 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 29, 1995 and September 30, 1994, there were
18,229 and 22,409 shares, respectively, subject to repurchase in the
amount of $1,084,626 and $1,277,313, respectively. At September 29,
1995 and September 30, 1994, there were 1,471 and 2,869 shares,
respectively, held for possible redemption in the amount of $87,525 and
$163,533, respectively.
n. Advertising costs
The Company expenses the production costs of advertising the first time
the advertising takes place. Advertising expense for 1995, 1994 and
1993 was $1,191,436, $1,027,214 and $981,399, respectively.
o. 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.
p. Reclassifications
Certain reclassifications have been made to prior year balances to
conform to the current year classification.
2. Investments
Investments in accordance with SFAS No. 115 (see Note 1.d.) 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.
SFAS No. 115 is not applied retroactively to prior years' financial
statements. The effect on retained earnings of initially applying this
statement is reported as a change in accounting principle. The cumulative
effect as of October 1, 1994 was an unrealized loss of approximately
$46,000.
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 29, 1995
2. Investments (continued)
The amortized cost and estimated 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
------------------- --------- ---------- ----------
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
=========== ===========
1994:
United States Government
and its agencies 18,670,000 $19,303,713 $18,846,955
Any state of the United
States and its agencies 3,395,000 3,539,142 3,531,561
Political subdivision of
a state of the United
States and its agencies 8,275,000 8,604,835 8,615,517
Corporate bonds 5,410,000 5,490,407 5,487,134
----------- -----------
Subtotal - debt securities 36,938,097 36,481,167
Corporate stock 298 1,481 6,674
----------- -----------
Total $36,939,578 $36,487,841
=========== ===========
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 29, 1995
2. Investments (continued)
Investments of debt securities by classification under SFAS No. 115 at
September 29, 1995 are as follows:
Gross
unrealized Aggregate
Amortized gains and fair
cost (losses) value
--------- ---------- ---------
Held-to-maturity $35,827,706 $ 793,715 $36,621,421
Available-for-sale 4,781,691 198,884 4,980,575
----------- ----------- -----------
Total $40,609,397 $ 992,599 $41,601,996
=========== =========== ===========
For the year ended September 29, 1995 (initial year of application) the
gross proceeds from the sales of securities available-for-sale was
$3,607,299. The gross realized gains from these sales were $142,257.
There were no realized losses. 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 this initial year.
During this initial year, because of changing market conditions, management
decided to transfer certain securities from 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.
1995 1994
----------------------- ----------------------
Amortized Market Amortized Market
cost value cost value
--------- ----- --------- ------
Due in one year or
less $ 5,210,406 $ 5,303,554 $ 4,136,043 $ 4,176,752
Due after one year
through five years 19,066,319 19,415,921 16,869,731 17,046,729
Due after five years
through ten years 15,783,193 16,324,879 15,882,892 15,207,218
Due after ten years 549,479 557,642 49,431 50,468
----------- ----------- ----------- -----------
Total $40,609,397 $41,601,996 $36,938,097 $36,481,167
=========== =========== =========== ===========
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 29, 1995
3. Accounts and notes receivable
These consist of amounts due principally from members at the balance sheet
date as follows:
1995 1994
----------- -----------
Accounts receivable $59,229,982 $46,640,928
Insurance premiums and related balances 8,509,160 10,898,715
Less allowance for doubtful accounts (1,176,767) (1,270,987)
----------- -----------
Net accounts receivable 66,562,375 56,268,656
----------- -----------
Notes receivable - current portion 4,224,381 4,057,961
Less allowance for doubtful notes (80,707) (36,156)
----------- -----------
Net current notes receivable 4,143,674 4,021,805
----------- -----------
Net current accounts and
notes receivable $70,706,049 $60,290,461
=========== ===========
Notes receivable - non-current portion $22,378,000 $33,454,161
Less allowance for doubtful notes (427,522) (298,618)
----------- -----------
Net non-current notes receivable $21,950,478 $33,155,543
=========== ===========
The notes receivable from members are generally for periods of two years
to ten years at interest rates of 3.00% to 12.00%. The annual maturities
for each of the next five fiscal years following September 29, 1995 are as
follows:
Year Amount
---- ------
1996 $ 4,224,381
1997 1,812,209
1998 1,894,931
1999 2,021,685
2000 1,877,851
The provision for doubtful accounts and notes charged to operating expenses
for the three years ended September 29, 1995 amounted to $1,894,189,
$1,992,589, and $2,182,551, respectively.
4. Change in accounting for inventories
The Company changed in 1992-93 its method of accounting for the cost of the
general wholesale grocery category of inventories from the last-in, first-
out (LIFO) method to the first-in, first-out (FIFO) method. The Company
believes that the use of the FIFO method better matches current costs with
current revenues and more appropriately reflects its financial condition.
This change has also been made for income tax purposes.
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 29, 1995
4. Change in accounting for inventories (continued)
The change has been applied retroactively and the effect of this change on
beginning retained earnings at October 2, 1992 is as follows:
As previously reported in 1991-92 $14,924,706
-----------
LIFO inventory adjustment 178,034
Less tax effect (68,287)
-----------
Net adjustment 109,747
-----------
As restated $15,034,453
===========
5. Other non-current assets
Other non-current assets at the balance sheet date consist of the
following:
1995 1994
------------ ------------
Covenant not to compete - net
of accumulated amortization of
$1,232,869 in 1995 and $802,445
in 1994 $ 1,641,813 $ 765,953
Software - net of accumulated
amortization of $1,737,639 in
1995 and $1,295,466 in 1994 1,582,531 2,108,790
Loan fees - net of accumulated
amortization of $682,199 in
1995 and $584,847 in 1994 425,189 460,097
Software in progress 5,162,152 2,693,772
Other 2,856,905 1,701,963
----------- -----------
Total $11,668,590 $ 7,730,575
=========== ===========
6. Property, plant and equipment (at cost)
Property, plant and equipment as of the balance sheet date consists of the
following:
1995 1994
------------ ------------
Land $ 3,580,477 $ 3,421,277
Buildings and improvements 54,103,086 54,204,591
Warehouse and truck equipment 37,627,830 34,291,075
Office equipment 11,104,702 8,564,659
Construction in progress 1,323,492 640,035
----------- -----------
Total property, plant and
equipment 107,739,587 101,121,637
Less accumulated depreciation (46,611,815) (42,604,517)
----------- -----------
Net property, plant and
equipment $61,127,772 $58,517,120
=========== ===========
Depreciation expense for 1995, 1994 and 1993 was $5,952,576, $5,609,779 and
$4,737,401, respectively.
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 29, 1995
7. Notes payable - bank
Notes payable - bank consists of borrowings on bank lines of credit at a
weighted average interest rate of 6.75% at September 29, 1995 and 5.72% at
September 30, 1994.
At September 29, 1995 and September 30, 1994, the Company had unused lines
of credit totaling $24,500,000 and $19,000,000, respectively; and unused
letters of credit totaling $350,000 at September 30, 1994, only.
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.
8. Long-term liabilities
Long-term liabilities at the balance sheet date consist of the following:
1995 1994
----------- -----------
Notes payable - bank:
Credit agreement notes maturing
on April 30, 1997 with interest
rates of 6.70% per annum at
September 29, 1995 and 5.77% per
annum at September 30, 1994. The
interest rates ranged from 5.95%
to 7.00% in 1995 and from 3.84%
to 5.89% in 1994. $ 17,000,000 $ 35,000,000
Notes payable - insurance companies:
Senior notes payable to seven
(six in 1994) 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 in 2004, maturing
in full 2005. 39,998,000 23,331,000
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 29, 1995
8. Long-term liabilities (continued)
1995 1994
------------ ------------
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. $ 4,239,958 $ 3,810,679
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. 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. 1,022,795 --
Four notes with interest at 7.50%
per annum payable in monthly
installments of $24,404 beginning
October 1995 (secured by equipment). 1,217,712 --
Two notes with interest at 9.25%
per annum payable in monthly
installments of $28,136 beginning
January 1988 (secured by equipment). -- 83,123
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). 85,386 101,734
Other note payable 2,292 27,500
Mortgage notes (secured by real property):
A note payable in monthly installments
of $41,449 including interest at 9%
until 1996. 442,243 878,279
A note payable in monthly installments
of $43,721 including interest at 10.30%
per annum until 1995. -- 457,059
A note payable in monthly installments
of $31,615 including interest at 7.25%
until 2013. 3,816,529 3,907,589
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 29, 1995
8. Long-term liabilities (continued)
1995 1994
----------- -----------
Redeemable notes and certificates:
Capital investment notes
(subordinated), interest ranging
from 5.75% to 8%. Maturity dates
range from 1995 to 2004 which is
ten years from dates of issue. $ 50,619,400 $ 50,319,700
Registered redeemable building
notes (subordinated), interest
at 8%. No fixed maturity date. 3,199,100 3,482,400
Redeemable transferable notes,
(subordinated), interest at
5.75%. No fixed maturity. 25,300 46,400
------------ ------------
Total 123,196,885 121,445,463
Less current installments (7,573,215) (6,776,197)
------------ ------------
Total long-term liabilities $115,623,670 $114,669,266
============ ============
Total maturities of long-term liabilities in each of the next five fiscal
years are as follows:
Year Amount
---- ------
1996 $ 7,573,215
1997 25,377,366
1998 5,904,803
1999 6,115,983
2000 6,346,450
The Company's loan agreements require the maintenance of certain financial
ratios and a minimum amount of capital and subordinated debt. The Company
was in compliance with these requirements as of September 29, 1995 and
September 30, 1994.
9. Income taxes
The provision for income taxes for the three years consists of the
following:
1995 1994 1993
---- ---- ----
Current payable:
Federal $ 542,585 $ 439,200 $ 162,758
State 50,156 86,252 72,468
Deferred 181,728 474,889 341,209
---------- ---------- ----------
Total $ 774,469 $1,000,341 $ 576,435
========== ========== ==========
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 29, 1995
9. Income taxes (continued)
The effective income tax rate for the three years ended September 29, 1995
does not correspond with the Federal tax rate. The reconciliation of this
rate to the effective income tax rate is as follows:
1995 1994 1993
---- ---- ----
Statutory income tax rate (34%) $ 732,181 $ 871,668 $ 778,878
State income taxes, net of
Federal income tax benefit 33,103 56,926 47,829
Tax exempt interest (133,622) (158,673) (133,080)
Refunds as a result of carrybacks (64,954) -- (184,980)
Prior year under accrual -- 179,235 --
Other 207,761 51,185 67,788
---------- ---------- ----------
Income tax expense $ 774,469 $1,000,341 $ 576,435
========== ========== ==========
Effective income tax rate 36.0% 39.0% 25.2%
==== ==== ====
The significant components of the deferred income taxes - current asset and
non-current liability as of the balance sheet date are as follows:
1995 1994
---------- ----------
Deferred income taxes -
current asset:
Insurance reserves $1,041,485 $1,041,678
Inventories 746,442 738,842
Unearned insurance premiums 508,089 541,417
Allowance for doubtful accounts 420,530 471,288
Other (179,223) 18,689
---------- ----------
Total $2,537,323 $2,811,914
========== ==========
Deferred income taxes -
non-current liability:
Accumulated depreciation $5,070,833 $4,589,568
Deferred income (345,898) (216,243)
Allowance for doubtful notes (233,679) (143,653)
Deferred compensation (174,550) (129,398)
Advance deposits (54,020) (52,004)
Alternative minimum tax
(AMT) credit (611,439) (304,161)
---------- ----------
Total $3,651,247 $3,744,109
========== ==========
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 29, 1995
9. Income taxes (continued)
The significant components of deferred income tax expense for the three
years are as follows:
1995 1994 1993
---- ---- ----
Decrease (increase) in deferred
income taxes - asset $ 274,590 $ 11,915 $ 157,747
(Decrease) increase in
deferred income taxes -
liability after applying
AMT credit (92,862) 62,974 183,462
---------- --------- ---------
Total $ 181,728 $ 474,889 $ 341,209
========== ========= =========
The Company has net operating loss carryovers of approximately $3,500,000
to apply against future years' State income taxes, expiring in years 2007
through 2010. 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.
10. 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:
1995 1994 1993
--------- ---------- ----------
Payable in cash and shown as
a current liability $ 6,646,867 $ 6,865,736 $ 7,584,177
Distributable in the form
of common stock 1,703,133 1,864,432 1,415,823
----------- ----------- -----------
Total $ 8,350,000 $ 8,730,168 $ 9,000,000
=========== =========== ===========
11. Reinsurance
The Company in 1994 adopted the Statement of Financial Accounting
Standards (SFAS) No. 113, Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts, issued in December, 1992.
The Statement requires that transactions relating to reinsurance
transactions be reported at gross amounts rather than net amounts. The
effect on the consolidated financial statements of the Company is to
gross up the insurance liabilities by reclassifying the ceded reinsurance
amounts for reinsurance recoverables and prepaid reinsurance premiums as
assets.
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 29, 1995
11. Reinsurance (continued)
There is no effect or change to the consolidated income statement as the
income statement classifications did not change. Net premiums earned
continue to be reported as net sales and operations while net losses and
loss adjustment expenses continue to be reported as cost of sales.
Reinsurance contracts do not relieve the Company from its obligation to
policyholders. Failure of reinsurers to honor their obligations could
result in losses to the Company. The Company evaluates the financial
condition of its reinsurers and monitors concentrations of credit risk
arising from similar geographic regions, activities, or economic
characteristics of the reinsurers to minimize its exposure to significant
losses from reinsurer insolvencies.
Reinsurance amounts reflected in the financial statements are as follows:
1995 1994
----------- ------------
For the balance sheet:
Reinsurance recoverable for
ceded losses $ 5,081,542 $ 3,792,152
Prepaid reinsurance premiums 2,050,101 1,394,254
----------- -----------
Total $ 7,131,643 $ 5,186,406
=========== ===========
1995 1994 1993
---- ---- ----
For the income statement:
Premiums written:
Gross $27,808,928 $23,992,639 $24,430,854
Assumed 698,280 860,953 715,760
Ceded (7,364,002) (6,652,410) (6,597,150)
----------- ----------- -----------
Net premiums written $21,143,206 $18,201,182 $18,549,464
=========== =========== ===========
Percentage of amount
assumed to net 3.30% 4.73% 3.86%
==== ==== ====
Premiums earned:
Gross $27,375,036 $23,736,321 $24,185,628
Assumed 718,692 829,978 750,619
Ceded (7,364,002) (6,505,887) (6,493,811)
----------- ----------- -----------
Net premiums earned $20,729,726 $18,060,412 $18,442,436
=========== =========== ===========
Percentage of amount
assumed to net 3.47% 4.60% 4.07%
==== ==== ====
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 29, 1995
11. Reinsurance (continued)
1995 1994 1993
------------ ------------ ------------
Expenses:
Losses and loss adjustment
expenses $21,000,749 $15,079,858 $17,481,462
Reinsurance recoveries (5,511,850) (3,389,844) (2,121,602)
----------- ----------- -----------
Net losses and loss
adjustment expenses $15,488,899 $11,690,014 $15,359,860
=========== =========== ===========
12. 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:
1995 1994 1993
-------------- ------------ ------------
Net sales and operations:
Distribution $ 996,966,961 $936,266,067 $857,439,871
Insurance 22,794,952 18,788,523 20,525,392
Less intersegment insurance
sales and expenses (1,513,457) (834,240) (979,910)
-------------- ------------ ------------
Total $1,018,248,456 $954,220,350 $876,985,353
============== ============ ============
Income before allowances,
dividends, income taxes
and accounting change:
Distribution $ 18,889,425 $ 19,791,157 $ 18,162,132
Insurance 3,127,833 2,952,047 2,485,571
-------------- ------------ ------------
Total $ 22,017,258 $ 22,743,204 $ 20,647,703
============== ============ ============
Total assets:
Distribution $ 260,365,677 $243,267,148 $226,346,768
Insurance 63,698,155 64,923,598 64,591,472
-------------- ------------ ------------
Total $ 324,063,832 $308,190,746 $290,938,240
============== ============ ============
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 29, 1995
12. Segment reporting (continued)
1995 1994 1993
---- ---- ----
Depreciation expense:
Distribution $ 5,770,681 $ 5,408,896 $ 4,643,401
Insurance 181,895 200,883 94,000
------------ ------------ ------------
Total $ 5,952,576 $ 5,609,779 $ 4,737,401
============ ============ ============
Capital expenditures:
Distribution $ 10,096,516 $ 5,161,425 $ 11,310,048
Insurance 275,224 93,157 680,933
------------ ------------ ------------
Total $ 10,371,740 $ 5,254,582 $ 11,990,981
============ ============ ============
For net sales and operations, wholesale grocery sales (primarily to
members) during the three years ended September 29, 1995 accounted for
approximately 93%, 95% and 93%, respectively, of the distribution total.
Premium revenue (primarily from members) accounted for approximately 96%,
95% and 90%, respectively, of the insurance total.
The change in the method of accounting for inventories (Note 4) related
to and affected only the distribution segment.
13. 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 87 was a decrease of pension expense in the amount of $362,794 for
1995, $546,894 for 1994, and $484,020 for 1993. The Company's
unrecognized net asset resulting from the initial application of SFAS 87
is being amortized over eighteen years.
In determining the actuarial present value of the projected benefit
obligation, a discount rate of 8% and a future maximum compensation
increase rate of 4% were used. The expected long-term rate of return on
assets was 8%.
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 29, 1995
13. Retirement plans (continued)
Pension costs for all plans for the three years consist of the following:
1995 1994 1993
---- ---- ----
Company-sponsored:
Service costs of benefits
earned $ 945,413 $ 918,423 $ 910,214
Interest cost on the projected
benefit obligation 1,557,954 1,448,447 1,339,393
Expected return on plan assets (1,713,673) (1,688,595) (1,443,513)
Net amortization of unrecognized
net asset (168,168) (168,168) (168,168)
Unrecognized net gain -- (4,414) --
Unrecognized prior service cost 61,478 73,760 73,760
----------- ----------- -----------
Net salaried pension cost 683,004 579,453 711,686
Multi-employer plan costs 2,590,269 2,395,300 2,180,280
Matching costs of 401(k) plans 384,282 391,605 437,413
----------- ----------- -----------
Total pension expense $ 3,657,555 $ 3,366,358 $ 3,329,379
=========== =========== ===========
The following table sets forth the Company-sponsored plan's funded status
as of year end:
Actuarial present value of
benefit obligations:
Vested $14,997,208 $13,337,570 $12,397,747
Non-vested 927,101 823,015 819,479
----------- ----------- -----------
Accumulated benefit obligation 15,924,309 14,160,585 13,217,226
Effect of projected future
compensation levels 4,767,286 4,881,117 4,501,814
----------- ----------- -----------
Projected benefit obligation 20,691,595 19,041,702 17,719,040
Plan assets at fair value,
primarily listed stocks, fixed
income, and bond and equity
funds 24,482,376 22,030,725 21,056,267
----------- ----------- -----------
Excess of plan assets over
projected benefit obligation 3,790,781 2,989,023 3,337,227
Unrecognized prior service cost 716,993 778,471 1,031,162
Unrecognized net gain (2,745,049) (1,422,307) (2,273,777)
Unrecognized net asset, net of
amortization (1,729,335) (1,897,503) (2,065,671)
----------- ----------- -----------
Prepaid pension cost $ 33,390 $ 447,684 $ 28,941
=========== =========== ===========
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 29, 1995
13. Retirement plans (continued)
In addition to pension benefits, the Company provides health benefits for
certain retired salaried employees. The Financial Accounting Standards
Board has issued Statement of Financial Accounting Standards No. 106,
Employer's Accounting for Post Retirement Benefits Other Than Pensions.
This statement will require accrual of such benefits during the years an
employee provides services. The costs of these benefits are currently
expensed on a pay-as-you-go basis. The cost of this retiree health care
is funded out of current operations and was approximately $349,000 in
1995, $356,000 in 1994 and $282,000 in 1993. The impact of this new
standard has not been fully determined, but the change likely will result
in a greater liability and expense being recognized for these benefits.
The Company has until 1995-96 to adopt this Statement because fewer than
500 employees will be affected.
14. Leases
The Company is obligated under one hundred and thirteen significant
leases in 1995. Forty-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 2018. Rental expense for the three years consists of
the following:
1995 1994 1993
------------ ----------- -----------
Minimum rentals $15,252,948 $13,690,702 $14,082,104
Less sublease income 6,549,338 (5,971,461) (6,554,855)
------------ ----------- -----------
Net rental expense $ 8,703,610 $ 7,719,241 $ 7,527,249
============ =========== ===========
The following is a schedule by years showing future minimum rental
payments required under operating leases that have initial or remaining
non-cancelable lease terms in excess of one year as of September 30,
1995:
Fiscal Minimum Minimum Net
year payments (A) receipts (B) minimum
--------- ------------ ------------ -----------
1995-1996 $ 15,340,062 $ 6,616,852 $ 8,723,010
1996-1997 12,632,668 6,272,417 6,360,251
1997-1998 11,177,507 5,659,728 5,517,779
1998-1999 11,052,452 5,657,941 5,394,511
1999-2000 10,568,835 5,731,107 4,837,728
Later years 84,945,834 51,838,150 33,837,728
------------ ------------ -----------
Total $145,717,358 $81,776,195 $63,941,163
============ ============ ===========
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 29, 1995
14. Leases (continued)
Minimum Minimum Net
payments (A) receipts (B) minimum
------------ ----------- -----------
Summary:
Building leases $141,084,573 $81,582,941 $59,501,532
Equipment leases 4,632,785 193,054 4,439,531
------------ ----------- -----------
Total $145,717,358 $81,776,195 $63,941,163
============ =========== ===========
(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.
Nineteen of the subleases as of September 29, 1995, are insured by
the Company's foreign subsidiary, UGIC, Ltd. The annual rental for
these leases is approximately $1,900,000. The total remaining
minimum payments over the lease term for these same leases is
approximately $26,900,000.
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
$4,250,000 over fifteen years with an annual rental of approximately
$310,000.
15. Supplemental cash flow information
1995 1994 1993
----------- ----------- -----------
Supplemental disclosures:
Cash paid during the
year for:
Interest $11,753,143 $ 8,898,144 $ 8,292,247
Income taxes - net
of refunds 341,836 336,810 647,836
Supplemental schedule of
noncash investing and
financing activities:
Patronage dividends payable
in common stock 1,703,103 1,864,432 1,415,823
16. 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.
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 29, 1995
16. Affiliated companies (continued)
An approximate summary of aggregate transactions with these affiliates is
as follows:
1995 1994
----------- -----------
As of year end:
Equity interest $ 8,392,000 $ 7,832,000
Accounts receivable 4,820,000 1,860,000
Notes receivable 6,440,000 4,355,000
Accounts payable (4,930,000) (6,006,000)
Undistributed earnings 1,416,000 1,463,000
1995 1994 1993
----------- ----------- ----------
During the year ended:
Increase in equity
interest $ 607,000 $ 6,094,000 $ --
Sales 91,447,000 22,945,000 --
Purchases 97,541,000 89,179,000 70,334,000
Volume incentive rebate (1,707,000) (1,561,000) (1,231,000)
Refunds, rebates and
allowances 3,013,000 701,000 --
Equity interest
income (loss) (47,000) (192,000) --
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 50%
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.
17. Concentrations of credit risk
The Company holds its cash and cash equivalents in several banks located
in the Pacific Northwest and a zero balance bank account located in the
Midwest. Each bank is covered by FDIC insurance; balances in excess of
coverage are not insured.
As a cooperative, the majority of the Company's accounts receivable
represent sales to its members who are located throughout the Pacific
Northwest. These accounts are not generally secured by collateral but
each member has stock holdings in the Company as well as patronage rebates
which the Company could apply against account balances.
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 29, 1995
17. Concentrations of credit risk (continued)
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 18a. 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.
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 1995, 1994
and 1993, the Company sold notes totaling approximately $20,800,000,
$8,625,000 and $900,000, respectively. The balances of transferred
notes that were outstanding and subject to recourse provisions were
$28,537,400, $13,652,000 and $13,441,000 at September 29, 1995,
September 30, 1994 and October 1, 1993, respectively.
b. In connection with its loan activities to members, the Company has
approved loan applications totaling approximately $12,700,000 for
which funds have been committed, but not disbursed, as of September
29, 1995.
c. The Company is guarantor of a covenant by a member as of September
29, 1995 totaling $300,000 with annual principal payments of
approximately $50,000.
d. The Company is a party to various litigation and claims arising in
the ordinary course of business. While the ultimate effect of such
actions cannot be predicted with certainty, the Company expects that
the outcome of these matters will not result in a material adverse
effect on the Company's consolidated financial position or results
of operations.
19. Subsequent event
In December 1995 the Company entered into a transaction to acquire
certain assets and assume certain liabilities and property leases of a
wholesale grocery operation in California. The approximate net book
value purchase amount was $19,200,000. The approximate annual sales
volume for this new operation is $300,000,000.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Overview
During fiscal year 1995, net sales and operations increased 6.7% to
$1,018.2 million. This compares to an 8.8% increase in 1994 to $954.2
million. Income before members' allowances, patronage dividends, and income
taxes decreased $0.7 million to $22.0 million (2.16% of sales). This compares
to $22.7 million (2.38% of sales) and $20.6 million (2.35% of sales) in 1994
and 1993 respectively.
During 1995, the increase in net sales and operations was primarily
attributable to the distribution segment which enjoyed increased Cash & Carry
unit volume and increased sales from the Company's acquisition of Rich and
Rhine, Inc. 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 due to higher borrowing rates and average levels of debt, increased
operating expenses in the distribution segment, and increased property losses
in Grocers Insurance Company.
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. Estimated annual revenues from the acquired operations are
approximately $300 million.
In 1994, the increase in net sales and operations was primarily
attributed to increased Cash & Carry unit volume, and increased equipment
sales. These gains in sales were offset by lower premium income of the
insurance segment. 1994 profit improvements were primarily due to increased
profits from Cash & Carry and service income areas, and gains in insurance
segment profits caused by improved loss experience. These gains in profits
were offset by higher distribution segment operating expenses, increased
member allowances paid, and operating losses in retail store operations.
Net Sales and Operations
During 1995, sales of the Company's distribution segment increased
6.5% to $997.0 million. The sales gain was primarily due to increased Cash &
Carry and equipment sales unit volume, and sales from Rich and Rhine, Inc.
Price changes during 1995 impacted warehouse sales by 2.8%.
Cash & Carry sales increased 15.0% to $206.3 million compared to
$179.4 million in 1994. Sales at new units contributed 7.4% to the sales
increase.
Sales at company-owned retail stores, which are primarily acquired as
a result of store finance operations, decreased $3.7 million to $42.5 million.
During the year, the company acquired three stores, and disposed of three
stores. As a result, the number of company-owned retail stores remained at
four stores.
In 1995, the insurance segment's net insurance premiums, commissions,
and fees increased $4.0 million to $22.8 million. The increase was primarily
attributed to increased policy volume, and earned lease insurance premiums.
During 1994, distribution segment sales increased 5.9% to
$936.2 million. The sales gain was primarily attributed to increased unit
volume. The insurance segment's net premiums, commissions, and fees decreased
$1.7 million due to lower commissions earned by Grocers Insurance Agency.
Gross Operating Income
Gross operating income increased to $148.2 million (14.6% of sales) in
1995 from $137.5 million (14.4% of sales) in 1994, and $127.5 million (14.5%
of sales) in 1993. The increase in gross operating income was due to higher
unit sales, gross margin improvements in Cash & Carry operations from
centralized pricing controls, and higher insurance commissions, fees, and
lease insurance premiums. These improvements were offset by higher property
loss experience in Grocers Insurance Company, and lower retail store sales.
In 1995, loss and loss adjustment expenses were 74.7% of total premium
income, compared to 64.7% and 83.3% in 1994 and 1993, respectively.
Operating, Selling, and Administrative Expenses
In 1995, operating, selling, and administrative expenses increased
$8.3 million to $111.8 million (11.0% of sales). In 1994 and 1993, these
expenses were $103.5 million (10.9% of sales), and $97.5 million (11.1% of
sales), respectively. The components of these expenses are summarized below:
<PAGE>
Percent of Total Sales
1995 1994 1993
---- ---- ----
Salaries & Wages 6.1 6.0 6.3
Rents, Maintenance, and Repairs 1.7 1.7 1.6
Taxes, Other Than Income 0.8 0.9 0.9
Utilities, Supplies, & Services 1.1 1.6 1.5
Other Expenses 1.0 0.5 0.5
Provision for Doubtful Accounts 0.2 0.2 0.3
---- ---- ----
Total 11.0 10.9 11.1
During 1995, total operating, selling, and administrative expenses
increased primarily due to higher unit volume in both the distribution and
insurance segments, higher software expenses, and amortization of covenants
not to compete and goodwill relating to recent acquisitions.
Insurance segment operating expenses decreased to 32.3% of segment net
sales and operations. In 1994 and 1993, insurance segment operating expenses
were 36.3% and 26.4% of segment net sales and operations, respectively.
Provision for doubtful accounts was $1.9 million (0.2% of sales) in
1995. This compares to $2.0 million (0.3% of sales) and $2.2 million (0.3% of
sales) in 1994 and 1993, respectively.
Interest expense increased $3.6 million to $12.8 million (1.3% of
sales) in 1995. This increase was due to higher levels of average debt, as
well as higher average borrowing rates.
Member Allowances and Dividends
In 1995, total member allowances and dividends decreased 1.6% to $19.9
million (2.0% of sales). In 1994, total member allowances and dividends
increased 9.9% to $20.2 million (2.1% of sales).
Total member allowances and dividends as a percent of member sales
decreased to 2.84% in 1995, compared to 2.90% in 1994, and 2.75% in 1993.
Net Income and Income Taxes
In 1995, income before taxes was $2.2 million (0.2% of sales) compared
to $2.6 million (0.3% of sales) and $2.3 million (0.3% of sales) in 1994 and
1993, respectively.
Net income after taxes was $1.4 million (0.1% of sales) in 1995, a
decrease of $0.2 million from $1.6 million (0.2% of sales) and $1.7 million
(0.2% of sales) in 1994 and 1993, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow From Operating Activities
In 1995, the Company used $14.9 million in cash in its operating
activities. Increases in accounts receivable and inventories as a result of
increased volume and acquisitions, and investments by the Company in its new
information services platform were the major factors contributing to the use
of cash in operations.
Cash Flow From Investing Activities
In 1995, the Company used $2.9 million in its investing activities, a
decrease of $13.4 million from the $16.3 million used in 1994. Cash
requirements of the Company's retail member finance activities were reduced in
1995 due to a $12.2 million increase in proceeds from the sale of member loans
under its Note Purchase Agreement during the year. Purchases of property and
equipment increased to $10.4 million from $5.3 million in 1994.
In fiscal year 1995, anticipated capital expenditures will approximate
$5.0 million, representing $1.0 million in replacement assets, $2.0 million
for new Cash & Carry units, and $2.0 million in continuing investments in
upgraded operations software.
Cash Flow From Financing Activities
In 1995, the Company provided $17.8 million from its financing
activities by increasing its levels of senior debt to fund its operations.
Capital Structure and Resources
The following table summarizes the Company's capital structure for the
last two years:
Year Ended
-------------------------------------------------
September 29, 1995 September 30, 1994
$000 % $000 %
------------------ ------------------
Average Short Term
Borrowings $42,632 20.6 $34,775 17.7
End of Year Amounts
Senior Term Debt $68,135 32.9 $67,597 34.4
Subordinated Debt $53,844 26.0 $53,848 27.4
Equity $42,357 20.5 $40,425 20.5
Total 206,968 100.0 $196,645 100.0
In 1995, the Company's capital structure shifted towards greater use of
short-term borrowings, due to increased funding needs. The present components
of the capital structure are within the Company's long-term targets for
funding sources.
In 1995, the Company's working capital increased $7.2 million to $52.5
million. The Company's main sources of funds include earnings, member capital
stock, capital investment notes, bank debt, private placement debt, and note
purchase programs. As of September 29, 1995, the Company had $24.5 million in
unused credit lines available. In addition, the Company had $8.4 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 the additional bank credit with new senior
debt 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, $4.6 million of Grocers Insurance Company's equity
may not be paid as dividends to the Company.
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference of (i) our
report dated December 14, 1995, with respect to the financial statements of
United Grocers, Inc., and (ii) our report dated December 14, 1995, with
respect to the financial statement schedules, both of which are included in
the annual report on Form 10-K of United Grocers, Inc., for the year ended
September 29, 1995, into the prospectus constituting part of this Post-
Effective Amendment No. 1 to Registration Statement on Form S-2 of United
Grocers, Inc.
/s/ DeLap, White & Raish
DeLAP, WHITE & RAISH
Certified Public Accountants
Portland, Oregon
January 10, 1996
<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 any and all amendments (including
post-effective amendments) on Form S-2 of United Grocers, Inc., Registration
No. 33-57199 relating to its Series J Capital Investment Notes and to its
Common Stock, $5 par value per share, 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 November 8, 1995.
Signature Title
/s/ Alan C. Jones President,
Alan C. Jones Secretary and Treasurer
/s/ John W. White Vice President and
John W. White Chief Financial Officer
/s/ Dennis Blasingame Director
Dennis Blasingame
/s/ Craig Danielson Director
Craig Danielson
/s/ James C. Vickers Director
James C. Vickers
/s/ David Neal Director
David Neal
/s/ Peter J. O'Neal Director
Peter J. O'Neal
/s/ Raymond L. Nidiffer Director
Raymond L. Nidiffer
/s/ Deano Ryan Director
Deano Ryan
/s/ Gordon Smith Director
Gordon Smith
/s/ Dick Leonard Director
Dick Leonard
