As filed with the Securities and Exchange Commission on November __, 1999
Registration No. 33-38152
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
POST-EFFECTIVE AMENDMENT NO. 12
TO
FORM S-2
REGISTRATION STATEMENT
Under
The Securities Act of 1933
UNIFIED WESTERN GROCERS, INC.
(formerly Certified Grocers of California, Ltd.)
(Exact name of registrant as specified in its charter)
California 95-0615250
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5200 Sheila Street
Commerce, California 90040
(323) 264-5200
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
Robert M. Ling, Jr., General Counsel
Unified Western Grocers, Inc.
5200 Sheila Street
Commerce, California 90040
(323) 264-5200
(Name, address, including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
------------
Copy To:
John D. Hussey, Esquire
Sheppard, Mullin, Richter & Hampton LLP
333 South Hope Street
48th Floor
Los Angeles, California 90071
(213) 617-4112
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 securities
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. |X|
================================================================================
<PAGE>
Prospectus
UNIFIED WESTERN GROCERS, INC.
(formerly Certified Grocers of California, Ltd.)
14,100 Class A Shares
94,767 Class B Shares
Unified Western Grocers, Inc. We operate a grocery wholesale
5200 Sheila Street distribution business primarily
Commerce, California 90040 on a cooperative basis. Customers
(323) 264-5200 that meet certain volume purchase
requirements are required to
purchase shares in Unified Western
Price to Public: Book Value Grocers, Inc. These customers are
Proceeds to Unified: 100% referred to as member-patrons.
Each member-patron is required to
. Offering of Class A Shares and purchase 100 Class A shares. Class
Class B Shares to member-patrons B shares are required to be
for cash and deferred payment acquired over time in amounts
or as patronage dividends from determined by the volume of
time to time. business done by the member-patron
with Unified.
. Shares can be acquired only by
member-patrons in accordance
with Unified's share purchase
requirements.
. There is no market for Unified's
shares. Unified's obligation to
redeem shares is restricted.
. Price is the book value at the
fiscal year end prior to the
date of issuance.
. The total proceeds of shares
purchased are received by Unified.
There are no commissions or
discounts.
Acquiring shares in Unified involves certain risks. See "Risk Factors" beginning
on page 3 for a discussion of certain factors you should consider before
acquiring our shares.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
November __, 1999
<PAGE>
SUMMARY OF PROSPECTUS
The following is a brief summary of certain matters described more fully
elsewhere in this document. You should read this summary in connection with the
more detailed information contained elsewhere in this document. You should pay
special attention to the section of this document entitled "RISK FACTORS."
Business Description. Unified was formed in California in 1922 and became a
corporation in 1925. Unified distributes groceries on a wholesale basis to
customers on a cooperative basis. Customers are called patrons in this document.
Patrons meeting certain volume purchase requirements are required to become
shareholders of Unified.
Recent Developments. On September 27, 1999, the shareholders of Certified
Grocers of California, Ltd. and United Grocers, Inc. (a grocery cooperative
headquartered in Portland, Oregon) approved a merger agreement in which United
merged with a wholly owned subsidiary of Certified. The merger beame effective
on September 29, 1999. In connection with the merger, Certified Grocers of
California, Ltd. changed its name to Unified Western Grocers, Inc. The merger
was accounted for as a purchase of United by Unified. Also, in connection with
the merger, the board of directors agreed that to the extent a former United
shareholder did not hold sufficient Class B Shares to meet the Class B Share
requirement, the member-patron would be permitted to continue as a member-patron
provided that the member-patron assigned 80% of all future patronage dividends
to Unified to be utilized to purchase Class B Shares until holdings of Class B
Shares are sufficient to meet the Class B Share requirements. The historical
financial statements of United Grocers, Inc. and the unaudited Pro Forma
Condensed Combined Financial Statements of United and Unified are included in
this prospectus. See -- "INDEX TO FINANCIAL STATEMENTS."
Eligibility to Hold Shares: Membership in Unified is limited to
persons and entities meeting certain product purchase requirements.
See "OFFERING OF CLASS A SHARES AND CLASS B SHARES -- Eligibility to
Hold Shares."
Member-Patrons Required to Purchase One Hundred Class A Shares: Unified requires
each member-patron to purchase one hundred Class A Shares. The price per share
is the book value per share as of the close of the preceding fiscal year. See
"OFFERING OF CLASS A SHARES AND CLASS B SHARES -- Member-Patrons Required to
Purchase One Hundred Class A Shares."
Issuance of Class B Shares to Member-Patrons: Unified requires each
member-patron to hold over time Class B Shares having combined issuance values
in an amount equal to the lesser of (a) the amount of the member-patron's
required deposit or (b) twice the member-patron's average weekly purchases. For
purposes of this Class B Share requirement, the issuance value of each Class B
Share held by a member-patron is the book value of Unified's outstanding shares
as of the close of the fiscal year last ended prior to the issuance to the
member-patron of such Class B Share, except that the deposit value of Class B
Shares received by former shareholders of United Grocers, Inc. in the merger
between United and a subsidiary of Unified, is equal to the book value of the
shares of United's Common Stock for which they were exchanged calculated as of
April 2, 1999 ($57.90 per United Share). The board of directors may increase or
otherwise change the Class B Share requirement at its discretion.
2
<PAGE>
Issuance of Class B Shares to member-patrons in order to comply with this
requirement will generally be accomplished in one of the following manners:
. Unified will issue existing member-patrons Class B Shares
as a part of the patronage dividends paid to such member-
patrons over a period of five consecutive fiscal years,
beginning with the second fiscal year following admission
as a member-patron, so that, following the patronage
dividend paid for the fifth year, such member-patron would
hold Class B Shares having combined issuance values equal
to the member-patron's Class B Share requirement.
. Alternatively, a member-patron may request during September
of any year that Unified issue to it as part of the next
patronage dividend Class B Shares which would cause the
member-patron to hold Class B Shares with a combined
issuance value equal to that member-patron's Class B Share
requirement. Unified may grant this request, in its sole
discretion. Once a member-patron makes such a request, the
member-patron may not revoke the request without Unified's
consent.
In addition, former United shareholders may assign 80% of all patronage
dividends received to be used to purchase Class B Shares until the Class B Share
requirement is met and, during the period of a Class B Share requirement deposit
deficiency, are required to comply with a Supply Agreement requiring maintenance
of pre-merger levels of purchase from Unified.
Relationship to Cash Deposits: Patrons are generally required to maintain cash
deposits with Unified. The deposits serve as security for the patron's
contractual obligations to Unified. They are based on the amount of the patron's
purchases from certain divisions of Unified. A portion of these deposits is
subordinated to certain indebtedness of Unified. Presently, as Class B Shares
are issued, each member-patron receives credit against its required deposit
based upon the combined issuance values of such member's Class B Shares. To the
extent a member-patron's deposit exceeds the required amount, Unified will
return the excess upon request. Former United shareholders who do not hold
sufficient Class B Shares to meet the minimum deposit requirements are provided
an opportunity to accumulate Class B Shares over time without posting a cash
deposit. See "OFFERING OF CLASS A SHARES AND CLASS B SHARES -- Issuance of Class
B Shares to Member-Patrons and Other Matters Relating to Issuance of Class B
Shares."
RISK FACTORS
The following subheadings describe characteristics of the Class A Shares and
Class B Shares which involve risks of the investment.
You may not be able to transfer your shares.
You must have Unified's permission to transfer your ownership of Class A Shares
or Class B Shares to someone other than Unified. Unified will normally not grant
its consent except where the transfer of the shares is in connection with the
transfer of a member-patron's business to an existing or new member-patron for
continuation of such business.
3
<PAGE>
There will be no market for your shares.
There currently is no established market for Unified's Class A Shares or Class B
Shares, and we do not expect there to be a trading market for the shares. In
order to liquidate shares, shareholders will be dependent on the ability of
Unified to redeem the shares or upon the sale of the shares to a successor
retailer in connection with the sale of the shareholder's business.
Your shares will be held as security.
The certificates for Class A Shares and Class B Shares will not be delivered to
member-patrons. All shares will be pledged to and held by Unified to secure the
prohibition against their transfer, to secure Unified's redemption rights and as
security for performance of obligations of the member to Unified or its
subsidiaries. See "DESCRIPTION OF CAPITAL STOCK -- Shares Held as Security."
You may not be able to redeem your shares.
Upon a patron's termination of its membership, Unified will purchase the
patron's Class A Shares and Class B Shares only if permitted by Unified's
redemption policy and by legal requirements. There is no assurance that
Unified's financial condition will enable it to legally redeem shares tendered
for redemption. Assuming that the redemptions were otherwise permitted by
Unified's redemption policy, under current legal requirements (which include
Unified's continuing ability to meet its liabilities as they mature) Unified
would be permitted to redeem shares up to the amount of Unified's retained
earnings immediately prior to the redemption. Even if redemption is permitted by
legal requirements, it is possible under Unified's redemption policy that a
member's Class B Shares will not be fully, or even partially, redeemed in the
year in which they are tendered for redemption. Unified has no obligation to
redeem Class B Shares held by terminated member-patrons until after the end of
the third full fiscal year following the effective date of the United merger.
With limited exceptions, in each fiscal year, the redemption policy only
requires Unified to redeem Class B Shares in an amount up to the "five percent
limit" described in the redemption policy in each fiscal year, and any
redemption of Class B Shares in excess of the limit for such fiscal year is at
the discretion of Unified's board of directors. In addition, certain of
Unified's credit agreements prohibit redemptions of Class A Shares and Class B
Shares if and while Unified is in breach or default under the credit agreement.
As described in the share redemption policy, redemptions may be effected by
payment to the member or credit to the member's account. See "DESCRIPTION OF
CAPITAL STOCK -- Share Redemption."
We will continue to be subject to risk of loss of member volume.
We will continue to be subject to the risks associated with the consolidation of
the grocery industry. When independent retailers are acquired by large chains
with self distribution capacity, are driven from business by larger grocery
chains, or become large enough to develop their own self-distribution system, we
will lose distribution volume. Members may also select other wholesale
providers. Reduced volume is normally injurious to profitable operations since
fixed costs must be spread over a lower volume of transactions.
4
<PAGE>
Income Tax Liability Incidental to Patronage Dividends.
A patron must report as gross income, for federal income tax purposes, the
patronage dividends, if any, distributed to it by Unified. Receipt of Class B
Shares by a member-patron as a part of a patronage dividend must be reported as
income at their full stated dollar amount. Class B Shares distributed as a part
of a patronage dividend are also subject to state income and corporation
franchise taxes.
Integrating business operations may prove difficult and may harm operating
results.
The United merger will require integrating the operations and systems of the two
companies and eliminating duplicate facilities in Northern California. The costs
of eliminating duplicative facilities in Northern California may be greater than
Unified anticipated. If Unified is not successful in eliminating duplicate
personnel in administrative functions, anticipated cost savings will not be
realized. If planned efficiencies in distribution can not be realized, cost
saving will not be realized and prepatronage dividend income would be reduced or
eliminated. These and other difficulties associated with the merger, including
the challenges in assimilating personnel, may harm operating results.
5
<PAGE>
DESCRIPTION OF SHARES OFFERED
The rights, preferences, privileges and restrictions of the Class A Shares and
Class B Shares are the same, except as to voting and redemption. Shares may not
be transferred without Unified's consent. Unified will normally withhold its
consent. See "DESCRIPTION OF CAPITAL STOCK."
Voting
Holders of Class A Shares are entitled to vote such shares cumulatively for the
election of 80% of the directors on the board of directors rounded up to the
nearest whole number. Holders of the Class B Shares are entitled to vote such
shares cumulatively for the election of the remaining directors on the board of
directors. The Class B Shares have no other voting rights, except as required by
California law. See "DESCRIPTION OF CAPITAL STOCK -- Voting Rights."
Share Redemption
Unified will redeem the Class A Shares and Class B Shares of a terminated member
subject to the limitations of Unified's share redemption policy, to legal
limitations and to limitations under certain credit agreements to which Unified
is a party. In addition, and subject to the same limitations, Unified will upon
request redeem those Class B Shares held by a member which are in excess of the
amount required to be held by such member, which are referred to as the "excess
Class B Shares". See "DESCRIPTION OF CAPITAL STOCK -- Share Redemption."
Under the redemption policy, Class A Shares eligible for redemption will be
redeemed in the order in which memberships terminate, and will be redeemed prior
to the redemption of any Class B Shares which have not yet been redeemed but are
eligible for redemption. The aggregate amount of Class B Shares which Unified
will be obligated to redeem in any fiscal year will be limited to 5% of the sum
of (a) the number of Class B Shares outstanding as of the close of the preceding
fiscal year and (b) the number of Class B Shares issued as a part of the
patronage dividend for such preceding fiscal year, which is referred to as the
"five percent limit". Unified has no obligation to redeem Class B Shares of
terminated members until after September 27, 2002. Subject to the foregoing, in
any fiscal year, Unified will redeem, up to the five percent limit, Class B
Shares which were eligible for redemption in a prior year, but which have not
yet been redeemed. If the five percent limit would preclude redemption of all
such shares, then such shares will be redeemed pro rata. In the event that the
five percent limit would permit the redemption of all such shares and
6
<PAGE>
would permit the redemption of other Class B Shares as well, then, subject to
the five percent limit, Unified will redeem other Class B Shares eligible for
redemption in the order in which memberships terminate or shares are tendered
for redemption. The redemption policy provides that the board of directors may,
in its discretion, redeem shares without regard to the five percent limit or
other provisions of the redemption policy.
The five percent limit contained in Unified's redemption policy permits the
redemption of 18,967 Class B Shares in fiscal year 2000. In excess of that
number of Class B Shares has been redeemed in fiscal year 2000 with the
redemption of 71,310 Class B Shares held by terminated members of Unified at the
time of the merger. Any further redemption of Class B Shares in excess of the
five percent limit for fiscal year 2000 will be at the discretion of Unified's
board of directors, provided that in the period ending 120 days after the end of
the first fiscal year following the United merger, Unified will repurchase
excess Class B Shares tendered for redemption which are held by former United
Shareholders at the book value as of April 2, 1999 of the shares of United's
common stock for which the excess Class B Shares were exchanged, payable by a
five-year note without application of the five percent limit but subject to all
other limitations or redemptions. See "DESCRIPTION OF CAPITAL STOCK -- Share
Redemption."
OFFERING OF CLASS A SHARES AND CLASS B SHARES
The Class A Shares and Class B Shares of Unified are offered only to such
persons or entities who from time to time may be accepted as member-patrons of
Unified. The sale of the shares offered pursuant to this prospectus will be made
by Unified through its regular employees, who will not receive any additional
remuneration in connection therewith. No sales will be made through brokers, and
there are no underwriters.
7
<PAGE>
Eligibility to Hold Shares
Class A Shares are issued to and may be held only by member-patrons of Unified.
In order to qualify for and retain membership as a member-patron, a person or
other entity must:
. opatronize Unified in such amounts and manner, and otherwise
comply with the bylaws and with such rules, regulations and
policies, as may be established from time to time by Unified;
. have and maintain acceptable financial standing;
. make application in such form as is prescribed; and
. be accepted as a member after approval by the board of directors.
Membership does not obligate Unified to make any sale of merchandise or services
or any extension of credit.
Membership is not transferable either voluntarily or by operation of law.
Membership may be terminated by written resignation of the member or by Unified
on the member's failure to meet any requirement of membership, or on the
member's failure to timely pay or otherwise meet any obligation to Unified or
its subsidiaries or to comply with any requirement established by Unified for
servicing of accounts, or on the member's death or incompetency, or except as
permitted by the bylaws on any attempted transfer of membership, or on an
insolvency, bankruptcy, arrangement or reorganization proceeding by or against
the member, or on the member's account or any Class A or Class B Shares held by
the member being subjected to any process of law, or on any transfer or
encumbrance or attempted transfer or encumbrance of any such account or share.
Termination of membership does not relieve the patron of obligations incurred
prior to termination.
The board of directors may approve the issuance of Class B Shares to any person
and for any purpose. However, the board of directors does not now intend to
authorize, and this offering does not include, the issuance of Class B Shares
except to member-patrons.
Member-Patrons Required to Purchase One Hundred Class A Shares
Each member-patron of Unified is required to hold one hundred Class A Shares.
The board of directors is authorized to accept member-patrons without the
issuance of Class A Shares when the board of directors determines that such
action is justified by reason of the fact that the ownership of the patron is
the same, or sufficiently the same, as that of another member-patron holding one
hundred Class A Shares.
8
<PAGE>
Such persons or entities who from time to time may be accepted as new
member-patrons of Unified will be required to purchase or subscribe for the
purchase of one hundred Class A Shares. The price for such shares will be the
book value per share of outstanding shares at the close of the fiscal year last
ended. During the fiscal year ending September 30, 2000, the book value, and
hence the price, per share will be deemed to be the book value at October 2,
1999. Any subscription will require a minimum cash down payment with terms to be
determined by the board of directors. Unified at its option may, as a condition
to accepting a member, require that instead of issuing Class A Shares, such
member purchase said shares from a terminated member at the same price which
would have been payable had the new member purchased said shares from Unified.
No member may hold more than one hundred Class A Shares. It is possible,
however, that a member may have an interest in another member, or that a person
may have an interest in more than one member, and thus have an interest in more
than one hundred Class A Shares. Such a situation might arise, for example,
where a member-patron owns the stock of another member-patron.
Issuance of Class B Shares to Member-Patrons
General. Following the close of the fiscal year, the net earnings of Unified
from business done on a cooperative basis with member-patrons are distributed in
the form of patronage dividends to such patrons based in amount on the volume of
such business transacted with them. Unified's bylaws provide that patronage
dividends may be paid in money or in any other form which constitutes a written
notice of allocation under Section 1388 of the Internal Revenue Code. Section
1388 of the Internal Revenue Code defines the term "written notice of
allocation" to mean any capital stock, revolving fund certificate, retain
certificate, certificate of indebtedness, letter of advice, or other written
notice, which discloses to the recipient the stated dollar amount allocated to
him by Unified and the portion thereof, if any, which constitutes a patronage
dividend.
As a portion of the patronage dividend paid to each member-patron, Unified
issues Class B Shares. Each member-patron is required to hold Class B Shares
having combined issuance values in an amount equal to the lesser of (a) the
amount of the member-patron's required subordinated cash deposit or (b) twice
the member-patron's average weekly purchases, which is referred to as the
9
<PAGE>
"Class B Share requirement". The amount of a member-patron's average weekly
purchases is determined by Unified. For purposes of this requirement, each Class
B Share held by a member-patron is valued at the book value of Unified's
outstanding shares as of the close of the fiscal year last ended prior to the
issuance to the member-patron of such Class B Share, except that the deposit
value of Class B Shares received by former shareholders of United in the United
merger will be equal to the book value of the shares of United's Common Stock
for which they were exchanged calculated as of April 2, 1999 ($57.90 per United
Share). These values are referred to as the "issuance values". For example, a
Class B Share issued in fiscal year 1999 has an issuance value equal to the book
value of Unified's outstanding shares as of the close of fiscal year 1998. In
order to satisfy the requirement regarding the holding of Class B Shares, a
member-patron is required to hold Class B Shares having combined issuance values
in an amount equal to the member-patron's Class B Share requirement.
Issuance of Class B Shares to member-patrons in order to comply with this
requirement will be accomplished as described below. In connection with the
issuance of Class B Shares as described below, it should be noted that Unified
pays at least 20% of the patronage dividends in cash. In addition, with respect
to the patronage dividends payable for a fiscal year, Unified's board of
directors may authorize the retention of a portion of the patronage dividends
payable to patrons and the issuance of interest-bearing subordinated patronage
dividend certificates evidencing the indebtedness of Unified respecting the
amounts retained. Issuance of Class B Shares as a portion of patronage dividends
as described below will occur only to the extent of the member-patron's
patronage dividend remaining after the cash payment and any retention which may
be authorized by the board of directors.
Manner of Issuance of Class B Shares. Member-patrons, and those persons or
entities who from time to time may be accepted as new member-patrons of Unified,
will be issued Class B Shares in the manner described below. It is proposed that
each member-patron would be issued Class B Shares as a part of the patronage
dividends, but after deducting the cash payment and any authorized retention,
paid to such member-patron over a period of five consecutive fiscal years,
beginning with the second fiscal year following admission as a member-patron,
such that following the patronage dividend paid for the fifth year, such
member-patron would hold Class B Shares having combined issuance values equal to
the amount of the member-patron's Class B Share requirement.
It is intended to issue Class B Shares to such member-patrons as a portion of
patronage dividends paid, beginning with the second fiscal year following
admission as a member-patron, as follows:
10
<PAGE>
After payment of the cash portion of the patronage dividend and deduction
of any authorized retention, Class B Shares would be issued in an amount not
exceeding the member-patron's remaining patronage dividend for any one year
so that, subject to the foregoing, after the first patronage dividend, the
member-patron will hold Class B Shares having issuance values equal to 20%
of the member-patron's Class B Share requirement; after the second patronage
dividend, the member-patron will hold Class B Shares having combined
issuance values equal to 40% of the member-patron's Class B Share
requirement; after the third patronage dividend, the member-patron will hold
Class B Shares having combined issuance values equal to 60% of the
member-patron's Class B Share requirement; after the fourth patronage
dividend, the member-patron will hold Class B Shares having combined
issuance values equal to 80% of the member-patron's Class B Share
requirement; and, after the fifth patronage dividend, the member-patron will
hold Class B Shares having combined issuance values equal to the amount of
the member-patron's Class B Share requirement.
If following the issuance of Class B Shares as a part of the patronage dividend
for any given fiscal year, the member-patron would not hold Class B Shares
having a combined issuance value equal to the amount of Class B Shares required
to be held by the member-patron following the patronage dividend for such fiscal
year, then additional Class B Shares would be issued to the member-patron in a
quantity sufficient to achieve the required amount. Issuance of these additional
Class B Shares would be paid for by debiting the member-patron's cash deposit
account in an amount equal to the issuance values of such additional Class B
Shares, and the member-patron will be required to authorize Unified to debit
such account.
Former United shareholders who do not hold shares sufficient to meet the Class B
Share requirement are required to assign 80% of all patronage dividends received
to be used to purchase Class B Shares until the Class B Share requirement is met
and, during the period of a deficiency, are required to enter into and comply
with a Supply Agreement requiring maintenance of pre-merger levels of product
purchases from Unified.
Alternative Manner of Issuance of Class B Shares. As an alternative to the
issuance of Class B Shares in the manner described directly above, upon the
request of any member-patron, which request may only be made in September of any
year, Unified may, at its sole option, issue to each member-patron as a part of
11
<PAGE>
the next ensuing patronage dividend, and after payment of the cash portion of
such patronage dividend and deduction of any authorized retention, Class B
Shares in an amount and having issuance values not exceeding the member-patron's
remaining patronage dividend such that, following such issuance, the
member-patron would hold Class B Shares having combined issuance values equal to
the member-patron's Class B Share requirement. If following the issuance of
Class B Shares in the foregoing manner, the member-patron would not hold Class B
Shares having combined issuance values equal to the member-patron's Class B
Share requirement, then additional Class B Shares would be issued to the
member-patron in a quantity sufficient to achieve this amount. Issuance of these
additional Class B Shares would be paid for by debiting the member-patron's cash
deposit account in an amount equal to the issuance values of such additional
Class B Shares, and the member-patron, in making the above described request,
will be required to authorize Unified to debit such account. Once made, the
member-patron's request would not be revocable by the member-patron without
Unified's consent, which consent can be granted or withheld in Unified's sole
discretion.
Other Matters Relating to Issuance of Class B Shares. Following the issuance of
Class B Shares, Unified proposes to continue to issue Class B Shares as a part
of patronage dividends but after deducting the cash payment and any authorized
retention, and, to the extent necessary, to issue additional Class B Shares to
be paid for by debiting the member-patron's cash deposit account, so as to
establish and maintain each member-patron's holdings of such shares in an amount
having combined issuance values equal to the member-patron's Class B Share
requirement.
The holding of Class B Shares having combined issuance values equal to the
amount of the member-patron's Class B Share requirement has been established by
the board of directors as the amount of Class B Shares required to be held by
each member-patron. The board of directors in its discretion may increase this
amount or may otherwise require that additional Class B Shares be held by each
member-patron, and Unified may issue, at any time from time to time, additional
Class B Shares as a part of patronage dividends. The requirement regarding the
holding of Class B Shares as established by the board of directors is subject to
change by the board of directors, which may, in its discretion, add to,
increase, decrease, limit, eliminate or otherwise change such requirement.
No member-patron whose membership has terminated during a given fiscal year, or
whose membership has terminated following the close of a given fiscal year and
prior to the payment of patronage dividends for such fiscal year, would receive
Class B Shares as a part of patronage dividends paid for such fiscal year.
12
<PAGE>
Class B Shares held by a member-patron in excess of what has been established by
the board of directors as the Class B Shares required to be held by each
member-patron will be considered "excess Class B Shares."
Both Class A and Class B Shares are pledged to, and the certificates held by,
Unified to secure the prohibition against transfer, to secure Unified's right to
purchase or redeem such shares and to secure performance of the patron's
obligations to Unified and its subsidiaries.
Patrons are generally required to maintain cash deposits with Unified as
security for the patron's contractual obligations to Unified and to its
subsidiaries. That portion of the deposits which the patron is required to
maintain is subordinated to certain indebtedness of Unified. Upon request by the
patron, deposits in excess of the required amount are returned, provided the
patron is not in default in its obligations to Unified or any of its
subsidiaries. The entire deposit is returned upon termination of membership less
any amounts owing Unified or any of its subsidiaries; provided that, in all
cases, return of the required portion is governed by the subordination
provisions to which it is subject and will be returned only as and to the extent
permitted by the subordination provision. Inasmuch as the Class B Shares as well
as the Class A Shares will be held as security for the performance of the
member-patron's obligations, in calculating each member-patron's required
deposit, credit is presently given based upon the combined issuance values of
the Class B Shares held. Thus, it will be possible for a member-patron to
withdraw cash from the deposit as Class B Shares are issued. Unified's policies
regarding deposits, issuance of Class B Shares and credits against deposits as a
result of issuance of Class B Shares are subject to change by the board of
directors, which may, in its discretion, add to, increase, decrease, limit,
eliminate or otherwise change such policies. In connection with the United
merger, former United shareholders not holding sufficient Class B Shares to meet
the minimum deposit are permitted to meet the requirement over time by agreeing
to assign 80% of patronage dividends received to purchase Class B Shares for the
account of the shareholder until the deficiency is eliminated.
13
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The capital structure of Unified consists of three classes of shares, Class A
Shares, Class B Shares, and Class C Shares. The rights, preferences, privileges
and restrictions of the Class A Shares and the Class B Shares are the same,
except with respect to voting and redemption. The Class C Shares are held, one
share each, by the directors of Unified.
Dividend Rights
It is the policy of Unified not to pay cash dividends on its stock.
Voting Rights
The holders of Class A Shares are entitled to elect 80%, rounded up to the
nearest whole number, of the authorized directors. The holders of Class B Shares
are entitled to elect the remaining directors, and otherwise have no voting
rights except as may be required by California law. California law extends to
non-voting shares the right to vote upon certain matters such as amendments to
the articles of incorporation, which would affect the rights of non-voting
shares and certain reorganizations in which other securities are to be issued in
exchange for the non-voting shares. In addition, California law extends voting
rights on certain matters, such as voluntary dissolution, to those shares having
voting power which is defined as the power to vote for directors. The percentage
of voting power of a class of shares is based on the percentage of the directors
it may elect. Thus, in those situations involving such voting power, the Class A
Shares would have 80% of the voting power, and the Class B Shares would have 20%
of the voting power.
In the election of directors, the Class A Shares may be voted cumulatively for
the 80%, rounded up to the nearest whole number, of the authorized directors to
be elected by the Class A shareholders, that is, each holder of Class A Shares
may give one candidate a number of votes equal to the number of directors to be
elected by the holders of Class A Shares multiplied by the number of the
shareholder's Class A Shares or the shareholder may distribute such votes among
as many candidates as the shareholder sees fit. Similarly, the Class B Shares
may be voted cumulatively for the remaining directors to be elected by the
holders of Class B Shares.
Since the holders of the Class A Shares are only entitled to elect 80%, rounded
up to the nearest whole number, of the authorized of the directors, a greater
number of votes is required under cumulative voting in order to elect a single
14
<PAGE>
director than would be required in order to elect a single director if such
shareholders were entitled to vote their shares cumulatively for the election of
all of the directors. Likewise, since the Class B shareholders are only entitled
to elect the remaining directors, a greater number of votes is required under
cumulative voting in order to elect a single director than would be required in
order to elect a single director if such shareholders were entitled to vote
their shares cumulatively for the election of all of the directors.
A director must be either an employee of Unified, a member-patron, or a member
of a partnership or an employee of a corporation which is a member-patron.
Except as required by California law, the Class C Shares have no voting rights.
Liquidation Rights
In the event of any liquidation or winding up of the affairs of Unified, whether
voluntary or involuntary, the net assets of Unified would be distributed among
the holders of Class A Shares and the holders of Class B Shares proportionately
in accordance with their share holdings. The Class C Shares would share in
liquidation only to the extent of $10 per share.
Non-Transferability
Other than for transfer to Unified, neither the Class A Shares nor the Class B
Shares may be transferred or assigned without the consent of Unified, which will
normally be withheld, except where the transfer of the shares is in connection
with the transfer of a member-patron's business to an existing or new
member-patron for continuation of such business.
Shares Held As Security
The certificates for Class A Shares and Class B Shares will not be delivered to
members but will be pledged to and held by Unified to secure the prohibition
against transfer, to secure Unified's right to repurchase or redeem such shares
and to secure performance by the member of all obligations to Unified or any of
its subsidiaries. The secretary of Unified is authorized, and is given a power
of attorney, on behalf of each member to surrender the shares for repurchase or
redemption. Certificates for shares will bear a legend stating that Unified is
entitled to offset against any payments which might otherwise be due for shares
being repurchased or redeemed all amounts owed by the member to Unified or any
of its subsidiaries.
15
<PAGE>
Share Redemption
Both Class A Shares and Class B Shares are subject to repurchase or redemption
by Unified. As used herein, unless the context otherwise requires, the terms
"redeem" and "redemption" include repurchase. Unified will redeem the shares of
outgoing members on termination of membership in accordance with and pursuant to
limitations of the share redemption policy described below, which is set forth
in the bylaws, and pursuant to legal limitations and to certain limitations
under Unified's credit agreements. Provided that the redemption price equals or
exceeds $1,000, Unified will also upon request redeem the excess Class B Shares
of a member who owns Class B Shares in excess of that which is required to be
held by such member, which are referred to as "excess Class B Shares". Any such
redemption of excess Class B Shares will be governed by the same rules that
govern the redemption of shares upon termination of membership. As described
below in the share redemption policy, redemptions may be effected by payment to
the member or credit to the member's account.
The redemption price for Class A Shares being redeemed on termination of
membership shall be:
. through September 30, 2000, an amount equal to $188.27.
. after September 30, 2000, an amount equal to the book value of the Class
A Shares as of the close of the fiscal year last ended prior to
termination of member status.
Unified will not redeem Class B Shares held by terminated members until after
the fiscal year ended September 27, 2002. Commencing September 28, 2002, the
redemption price for Class B Shares being redeemed on termination of membership
shall be an amount equal to the book value of the Class B Shares as of the close
of the fiscal year last ended prior to termination of member status.
Until September 27, 2002, Unified will redeem excess Class B Shares, other than
upon termination of membership, at the option of the Shareholder, at either:
. an amount equal to $188.27; or
. an amount equal to the book value as of the close of the fiscal year
prior to the date the Class B Shares are tendered to Unified, provided
the repurchase price will not be paid until after September 27, 2002;
provided that with respect to excess Class B Shares received in the merger by
former United shareholders that are tendered for redemption within 120 days
after September 30, 2000, Unified will purchase said shares at the book value as
16
<PAGE>
of April 2, 1999, of the United Common Stock for which the excess Class B Shares
were exchanged in the merger ($57.90 per United Share) by issuance of a
promissory note of United payable in 20 equal quarterly principal installments
and bearing interest at 6% per annum. Such purchase shall not be subject to the
five percent limit.
After September 27, 2002, Unified will repurchase excess Class B Shares at the
book value as of the close of the fiscal year prior to the date the shares are
tendered for repurchase.
Unified will not redeem excess Class B Shares at any time unless the member
tendering the shares for repurchase is current in all obligations to Unified and
its subsidiaries and there exist no grounds for termination of membership;
otherwise the redemption price for such shares shall be the same as provided on
the termination of membership. Such redemption may be effected by paying to the
member or crediting to the member's account the redemption price, with Unified
having the right to deduct any amounts owing to Unified or any of its
subsidiaries.
The redemption of shares is subject to the following:
. Corporate Law Requirements.
Redemption is subject to the restrictions imposed by the Corporations Code
of the State of California and to other applicable legal restrictions.
Section 501 of the Corporations Code prohibits any distribution which
would be likely to result in a corporation being unable to meet its
liabilities as they mature. In addition, Section 500 of the Corporations
Code prohibits any distribution to shareholders for the purchase or
redemption of shares unless (a) the amount of retained earnings
immediately prior thereto equals or exceeds the amount of the proposed
distribution or (b) immediately after such distribution the assets of the
corporation, with certain exceptions, are at least equal to one and
one-quarter times its liabilities and its current assets are at least
equal to its current liabilities or under some circumstances equal to one
and one-quarter times its current liabilities. To the extent that retained
earnings do not exceed the amount of any proposed distribution, Unified
will have to satisfy the asset-liability ratio test in order to make a
distribution in redemption of shares.
. Redemption Policy.
Subject to the board of directors' determination that Unified is able to
meet the legal requirements described above, shares will be redeemed in
accordance with the following:
17
<PAGE>
(a) Class A Shares eligible for redemption by reason of termination
of membership will be redeemed in the order in which memberships
terminate, and will be redeemed prior to the redemption of any Class B
Shares which have not yet been redeemed but are eligible for redemption
either by reason of termination of membership or as excess Class B
Shares tendered for redemption. All determinations by Unified of the
order in which memberships terminate or shares are tendered will be
conclusive.
(b) Unified is not obligated to redeem Class B Shares of terminated
members until after the fiscal year ended September 27, 2002.
(c) Subject to the exceptions noted above, the aggregate amount of
Class B Shares which Unified will be obligated to redeem in any fiscal
year will be limited to 5% of the sum of (i) the number of Class B
Shares outstanding as of the close of the preceding fiscal year and
(ii) the number of Class B Shares issued as a part of the patronage
dividend for such preceding fiscal year, referred to as the "five
percent limit".
(d) Subject to the limitation above with respect to the Shares held
by terminated member-patrons, in any fiscal year, Unified will redeem,
up to the five percent limit, Class B Shares which were eligible for
redemption in a prior year, either by reason of termination of
membership in a prior year or which were excess Class B Shares tendered
for redemption in a prior year, but which have not yet been redeemed,
provided that if the five percent limit would preclude redemption of all
such shares, then such shares will be redeemed pro rata. In the event
that the five percent limit would permit the redemption of all such
shares and would permit the redemption of other Class B Shares as well,
then, subject to the five percent limit, Unified will redeem other Class
B Shares eligible for redemption by reason of termination of membership
or which are excess Class B Shares tendered for redemption, in the order
in which memberships terminate or shares are tendered for redemption.
All determinations by Unified of the order in which memberships
terminate or shares are tendered will be conclusive.
(e) The redemption of shares may be accomplished by paying to the
member or crediting to the member's account the redemption price. In
making such payment or credit for the redemption of shares, Unified
shall have the right to deduct any amounts owing by the member to
18
<PAGE>
Unified or any of its subsidiaries. Such payment or credit for the
redemption of shares will be made within 120 days after such shares have
become eligible for redemption, either by reason of termination of
membership or tender in the case of excess Class B Shares, and are
otherwise entitled to be redeemed in accordance with legal limitations
and as provided in paragraphs (a), (b) (c) and (d) above. In no event
will interest be payable on the redemption price for any delay in paying
or crediting the redemption price.
(f) Without regard to each year's five percent limit or any other
provision of paragraphs (a), (b), (c) or (d) above, Unified's board of
directors will have the absolute discretion to redeem Class A or Class B
Shares of any outgoing member or to redeem excess Class B Shares,
regardless of when the membership terminated or the Class B Shares were
tendered. The board of directors will also have the right to elect to
redeem excess Class B Shares even though such redemption has not been
requested.
(g) The board of directors will have the absolute discretion,
without regard to any provision of the redemption policy, to authorize
Unified to agree with any shareholder to purchase Class B Shares held by
such shareholder and to make such purchase and payment for such shares
in such manner as may be agreed upon, subject only to corporate law
requirements.
. Other Limitations on Share Redemption.
Unified is a party to certain credit agreements under which redemptions of
Class A and Class B Shares are prohibited during the pendency of a breach
or default under the credit agreements.
19
<PAGE>
Use of Book Value
Shares will be issued at a price equal to the book value of shares outstanding
as of the close of the fiscal year last ended. Shares will be redeemed for a
redemption price based on the book value of outstanding shares as of the close
of the fiscal years prior to the date the shares are tendered for redemption
except as noted above.
Book value per share means the excess of the assets over the liabilities of
Unified as determined in accordance with generally accepted accounting
principles as set forth on Unified's audited consolidated financial statements,
divided by the total number of shares then outstanding. It does not necessarily
reflect what the assets could be sold for or the dollar amount that would be
required to replace them.
If the book value per share increases between the time of issuance and
redemption in a later year, the member would benefit from such appreciation.
However, the member would suffer a loss if the book value had declined during
such period. Book value could decline if Unified sustained net losses on a
consolidated basis.
Because the price at which the shares are issued and redeemed is adjusted only
once each year, some dilution is probable in each transaction. If a new member
purchases Class A Shares late in a particular fiscal year, the price paid for
the shares will be based on the book value for the shares of up to twelve months
earlier; this amount is likely to be more or less than the book value per share
as of the purchase date. If the book value has increased, the new member's
purchase will dilute the book value of the shares of existing members.
Conversely, if the book value has decreased, the new member will suffer
20
<PAGE>
immediate dilution and the existing members will receive a benefit. Similarly,
the shares of a member whose membership has terminated will be redeemed at a
price based on their book value as of the end of the fiscal year last ended
prior to the date the shares are tendered for redemption. If the book value had
increased since the date the Shares were tendered for redemption, the terminated
member would realize no benefit from that appreciation. However, if the book
value had decreased since the date the Shares were tendered for redemption, the
redemption price for the shares would exceed the actual book value as of the
date of redemption, and remaining members would incur the loss.
AVAILABLE INFORMATION
Unified has certain obligations under the Securities Exchange Act of 1934 to
file documents which provide updated information with the Securities and
Exchange Commission. Therefore, Unified files reports, proxy statements and
other information with the Commission. You can obtain copies of such materials
from the Public Reference Section of the Commission, Washington, D.C. 20549 or
by calling the Commission at 1-800-SEC-0330, for a charge set by the Commission.
In addition, you can inspect and copy these documents at public reference
facilities maintained by the Commission and located at the Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and at 7
World Trade Center, New York, New York 10048. Additional information can also be
obtained at the Securities and Exchange website at http://www.sec.gov.
ADDITIONAL INFORMATION
This prospectus omits certain information and exhibits contained in a
Registration Statement on Form S-2 (File No. 33-38152) filed with the
Commission. For further information, you should refer to that Registration
Statement, including its exhibits. You may obtain copies of that Registration
Statement and exhibits from the principal office of the Commission in
Washington, D.C. once you pay the fee which the Commission requires. This
prospectus is accompanied by a copy of Unified's Annual Report on Form 10-K for
the fiscal year ended August 28, 1999.
INCORPORATION BY REFERENCE
The following documents are already on file with the Commission and are
incorporated by reference into this Prospectus: (i) Annual Report on Form 10-K
for the fiscal year ended August 28, 1999, and (ii) all other reports filed
pursuant to Section 13(a) or 15(a) of the Exchange Act since the end of the
fiscal year covered by the Annual Report. You may request a copy of these
filings at no cost, by contacting Unified either is writing or by telephone, at
the following address: Office of General Counsel, Unified Western Grocers, Inc.,
5200 Sheila Street, Commerce, California 90040, (323) 264-5200.
USE OF PROCEEDS
Proceeds from the sale of Class A Shares to new member-patrons will be added to
Unified's working capital.
21
<PAGE>
Cash retained by Unified by virtue of the issuance of Class B Shares as part of
patronage dividends paid to member-patrons will be used to provide for the
return annually of such members' deposits in an amount equal to the issuance
values of such shares and for general working capital purposes. See "OFFERING OF
CLASS A SHARES AND CLASS B SHARES -- Issuance of Class B Shares to
Member-Patrons -- Other Matters Relating to Issuance of Class B Shares."
EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference from Unified Western Grocers, Inc.'s Annual Report on Form 10-K for
the year ended August 28, 1999 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The financial statements of United Grocers, Inc. as of October 2, 1998 and
October 3, 1997, and for each of the three years in the period ended October 2,
1998, included in this prospectus, have been included in reliance on the report
(which contains an explanatory paragraph related to the restatement of the 1996
financial statements as described in Note 2 to the financial statements) of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.
FORWARD-LOOKING INFORMATION
This document and the documents of Unified incorporated by reference may contain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements relate to expectations
concerning matters that (a) are not historical facts, (b) predict or forecast
future events or results, (c) embody assumptions which may prove to have been
inaccurate, including Unified's assessment of the probability and materiality of
losses associated with litigation and other contingent liabilities; Unified's
ability to develop and implement Year 2000 systems solutions; and Unified's
expectations regarding the adequacy of capital and liquidity. Also, when we use
words such as "believes," "expects," "anticipates" or similar expressions, we
are making forward-looking statements. Although Unified believes that the
expectations reflected in such forward-looking statements are reasonable, we
cannot give you any assurance that such expectations will prove correct.
Important factors that could cause actual results to differ materially from such
expectations include the adverse effects of the changing industry environment
and increased competition; continuing sales decline and loss of customers;
exposure to the uncertainties of litigation and other contingent liabilities;
the failure of Unified, its vendors or its customers to develop and implement
year 2000 systems solutions; and the failure of Unified to integrate the
operations and systems of Certified and United; and the increased credit risk to
Unified caused by the ability of former United members to maintain their
required minimum deposits if such members default on their obligations to
Unified prior to their full deposit requirements being met and the existing
deposit proves inadequate to cover such members obligation. All forward-looking
statements attributable to Unified or United are expressly qualified in their
entirety by the factors which may cause actual results to differ materially.
22
<PAGE>
INDEX TO FINANCIAL STATEMENTS
United Grocers, Inc.
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheets at October 3, 1997, October 2, 1998
and July 2, 1999........................................................ F-3
Consolidated Statements of Operations for the years ended September 27,
1996 (as restated), October 3, 1997 and October 2, 1998 and the
nine month periods ended July 3, 1998 and July 2, 1999 (Unaudited)...... F-4
Consolidated Statements of Members' Equity for the years ended
September 27, 1996 (as restated), October 3, 1997 and October 2, 1998
and the nine month period ended July 2, 1999 (Unaudited)................ F-6
Consolidated Statements of Cash Flows for the years ended September 27,
1996 (as restated), October 3, 1997 and October 2, 1998, and the
nine month periods ended July 3, 1998 and July 2, 1999 (Unaudited)...... F-7
Notes to Consolidated Financial Statements................................. F-9
Unaudited Pro Forma Condensed Combined Financial Statements
Unaudited Pro Forma Condensed Combined Balance Sheet at August 28, 1999....F-38
Notes to Unaudited Pro Forma Condensed Combined Balance Sheet at
August 28, 1999.........................................................F-40
Unaudited Pro Forma Condensed Combined Statement of Operations for
the year ended August 28, 1999..........................................F-42
Notes to Unaudited Pro Forma Condensed Combined Statements of
Operations for the year ended August 28, 1999...........................F-43
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
United Grocers, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, members' equity and cash flows, present
fairly, in all material respects, the financial position of United Grocers, Inc.
and Subsidiaries (United) at October 3, 1997 and October 2, 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended October 2, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
United's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards, which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note 1 to the consolidated financial statements, during the
year ended October 2, 1998, United changed its method of amortizing the
unrecognized gains and losses in connection with its defined benefit plan.
As discussed in Note 2 to the consolidated financial statements, results of
operations for the year ended September 27, 1996 and members' equity as of
September 29, 1995 and September 27, 1996 have been restated.
PricewaterhouseCoopers LLP
Portland, Oregon
April 30, 1999
F-2
<PAGE>
<TABLE>
United Grocers, Inc. and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands, except share data)
<CAPTION>
October 3, October 2, July 2,
1997 1998 1999
(unaudited)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents........................................ $ 10,223 $ 1,294 $ 3,907
Investments restricted or maintained for insurance reserves...... 51,513 -- --
Accounts and notes receivable, net............................... 78,537 67,269 64,582
Inventories...................................................... 102,333 68,898 69,716
Other current assets............................................. 7,037 5,115 5,918
Deferred income taxes............................................ 8,147 1,526 1,525
--------- --------- ---------
Total current assets.......................................... 257,790 144,102 145,648
Notes receivable, net................................................ 16,498 29,201 20,143
Investments in affiliated companies.................................. 6,971 3,360 3,354
Other receivables.................................................... 4,837 3,033 3,169
Deferred income taxes................................................ 553 -- --
Other assets, net.................................................... 17,335 16,032 13,129
Property, plant and equipment, net................................... 61,443 37,914 30,386
--------- --------- ---------
$ 365,427 $ 233,642 $ 215,829
========= ========= =========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Notes payable, current portion................................... $ 10,191 $ 41,159 $ 55,688
Accounts payable................................................. 97,587 59,676 57,840
Insurance reserves............................................... 26,356 -- --
Compensation and taxes payable................................... 8,328 6,335 4,578
Other current liabilities........................................ 8,115 5,780 2,708
--------- --------- ---------
Total current liabilities..................................... 150,577 112,950 120,814
Notes payable, net of current portion................................ 187,995 74,434 56,596
Deferred gains on sale-leaseback transactions........................ 3,650 1,257 1,168
Deferred income taxes................................................ -- 2,233 2,233
Other liabilities.................................................... 7,434 7,520 5,647
--------- --------- ---------
Total liabilities............................................. 349,656 198,394 186,458
--------- --------- ---------
Commitments and contingencies
Redeemable members' equity........................................... 1,120 3,905 1,886
Members' equity:
Common stock--authorized, 10,000,000 shares at
$5.00 par value; issued and outstanding, 586,834,
523,955 and 508,479 (unaudited) shares, respectively........... 2,934 2,620 2,542
Additional paid-in capital....................................... 22,886 20,394 18,827
Retained earnings (accumulated deficit).......................... (11,431) 8,329 6,116
Unrealized gain on investments................................... 262 -- --
--------- --------- ---------
Total members' equity......................................... 14,651 31,343 27,485
--------- --------- ---------
$ 365,427 $ 233,642 $ 215,829
========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
United Grocers, Inc. and Subsidiaries
Consolidated Statements of Operations
(dollars in thousands)
<CAPTION>
Nine month periods
------------------
Years ended ended
------------------------------ -----
September 27,
-------------
1996 October 3, October 2, July 3, July 2,
---- ---------- ---------- ------- -------
(Restated) 1997 1998 1998 1999
---------- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales and operations....................................... $ 1,280,453 $ 1,306,602 $ 1,175,279 $ 892,279 $ 773,475
----------- ----------- ----------- ---------- ----------
Costs and expenses:
Cost of sales............................................. 1,115,735 1,133,690 1,015,268 771,653 667,883
Operating expenses........................................ 119,785 130,323 114,595 83,214 68,659
Selling and administrative expenses....................... 15,365 22,425 19,565 16,795 16,405
Depreciation and amortization............................. 8,015 11,483 10,416 7,715 7,413
----------- ----------- ----------- ---------- ----------
1,258,900 1,297,921 1,159,844 879,377 760,360
----------- ----------- ----------- ---------- ----------
Other income (expense):
Interest expense.......................................... (14,825) (16,307) (13,585) (11,229) (7,069)
Interest income........................................... 828 733 2,206 1,330 1,912
Gain on sale of Cash & Carry division..................... -- -- 29,033 26,670 --
Gain (loss) on write-down or disposition of assets, net... -- (4,385) 2,213 1,077 1,956
----------- ----------- ----------- ---------- ----------
(13,997) (19,959) 19,867 17,848 (3,201)
----------- ----------- ----------- ---------- ----------
Income (loss) from continuing operations before
members' allowances, members' patronage
dividends, cumulative effect on prior years of a
change in accounting principle and income taxes.... 7,556 (11,278) 35,302 30,750 9,914
Members' allowances............................................ (11,605) (10,349) (14,108) (9,060) (13,602)
Members' patronage dividends................................... (4,000) -- -- -- --
----------- ----------- ----------- ---------- ----------
Income (loss) from continuing operations before
cumulative effect on prior years of a change in
accounting principle and income taxes.............. (8,049) (21,627) 21,194 21,690 (3,688)
Income tax benefit (provision)................................. -- 10,466 (7,939) (8,676) 1,475
----------- ----------- ----------- ---------- ----------
Net income (loss) from continuing operations, before
cumulative effect of a change in accounting
principle.......................................... (8,049) (11,161) 13,255 13,014 (2,213)
Discontinued operations:
Income from operations of insurance segment (less income
Taxes of $0, $1,666, $903 and $624 (unaudited),
Respectively)........................................... 2,480 2,501 1,355 1,355 --
Gain on disposal of insurance segment (less income taxes
of $2,000 for 1998)..................................... -- -- 3,403 -- --
----------- ----------- ----------- ---------- ----------
Net income (loss) before cumulative effect of a change
in accounting principle............................ (5,569) (8,660) 18,013 $ 14,369 $ (2,213)
========== ==========
</TABLE>
F-4
<PAGE>
<TABLE>
United Grocers, Inc. and Subsidiaries
Consolidated Statements of Operations (Continued)
(dollars in thousands)
<CAPTION>
Nine month periods
------------------
Years ended ended
------------------------------ -----
September 27,
-------------
1996 October 3, October 2, July 3, July 2,
---- ---------- ---------- ------- -------
(Restated) 1997 1998 1998 1999
---------- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C>
Cumulative effect on prior years (to October 3, 1997) of
changing methods of amortizing the unrecognized net gain in
the Company's defined benefit pension plan (less income taxes
of $1,165 for 1998)......................................... -- -- 1,747
----------- ----------- -----------
Net income (loss).................................... $ (5,569) $ (8,660) $ 19,760
=========== =========== ===========
Pro forma net income (loss), assuming the new
amortization method is applied retroactively....... $ (4,877) $ (8,342) $ 18,013
=========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
United Grocers, Inc. and Subsidiaries
Consolidated Statements of Members' Equity
(dollars in thousands, except for share data)
<CAPTION>
Retained
--------
Additional Earnings Unrealized
---------- -------- ----------
Paid-in (Accumulate Gain on
------- ----------- -------
Common Stock Capital Deficit) Investments Total
------------ ------- -------- ----------- -----
Shares Amount
------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 29, 1995 (restated)................. 655,663 $ 3,278 $ 23,957 $ 4,918 $ 199 $ 32,352
Common stock issued.................................... 18,724 94 1,059 -- -- 1,153
Repurchase of common stock............................. (48,936) (245) (1,527) (1,232) -- (3,004)
Patronage dividends.................................... 13,000 65 735 -- -- 800
Net loss (restated).................................... -- -- -- (5,569) -- (5,569)
Changes in unrealized gains on
investments......................................... -- -- -- -- 1 1
------- --------- --------- --------- --------- ---------
Balance, September 27, 1996 (restated)................. 638,451 3,192 24,224 (1,883) 200 25,733
Common stock issued.................................... 13,775 69 780 -- -- 849
Repurchase of common stock............................. (34,609) (173) (1,152) (888) -- (2,213)
Redemptions pending.................................... (30,783) (154) (966) -- -- (1,120)
Net loss............................................... -- -- -- (8,660) -- (8,660)
Change in unrealized gain on
investments......................................... -- -- -- -- 62 62
------- --------- --------- --------- --------- ---------
Balance, October 3, 1997............................... 586,834 2,934 22,886 (11,431) 262 14,651
Repurchase of common stock............................. (577) (3) (18) -- -- (21)
Redemptions pending.................................... (62,302) (311) (2,474) -- -- (2,785)
Net income............................................. -- -- -- 19,760 -- 19,760
Change in unrealized gain on
investments......................................... -- -- -- -- (262) (262)
------- --------- --------- --------- --------- ---------
Balance, October 2, 1998............................... 523,955 2,620 20,394 8,329 -- 31,343
Common stock issued (unaudited)........................ 21,528 108 655 -- -- 763
Repurchase of common stock
(unaudited)......................................... (96,124) (481) (3,947) -- -- (4,428)
Redemptions pending (unaudited)........................ 59,120 295 1,725 -- -- 2,020
Net loss (unaudited)................................... -- -- -- (2,213) -- (2,213)
------- --------- --------- --------- --------- ---------
Balance, July 2, 1999 (unaudited)...................... 508,479 $ 2,542 $ 18,827 $ 6,116 $ -- $ 27,485
========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-6
<PAGE>
<TABLE>
United Grocers, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(dollars in thousands)
<CAPTION>
Nine month
----------
Years ended Periods ended
---------------------------- -------------
September 27,
-------------
1996 October 3, October 2, July 3, July 2,
---- ---------- ---------- ------- -------
(Restated) 1997 1998 1998 1999
---------- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................... $ (5,569) $ (8,660) $ 19,760 $ 14,369 $ (2,213)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization.............................. 8,202 11,842 10,522 7,875 7,413
Patronage dividends paid in common stock................... 800 -- -- -- --
Loss (gain) on write-down or disposition of assets......... -- 4,385 (2,213) (1,077) (1,956)
Gain on disposal of discontinued operations................ -- -- (5,403) -- --
Gain on sale of Cash & Carry division...................... -- -- (29,033) (26,670) --
Equity in earnings of affiliated companies................. (568) (107) (41) -- --
Deferred income taxes...................................... -- (8,700) 9,407 -- --
Changes in assets and liabilities:
Accounts receivable.................................... 4,731 (2,133) (6,932) (2,910) 3,137
Inventories............................................ (2,631) 2,312 7,900 16,296 (818)
Other assets........................................... 1,354 (96) (1,731) 4,400 (2,081)
Accounts payable....................................... 8,902 14,864 (11,465) (18,225) (1,836)
Insurance reserves..................................... (397) (3,206) 1,406 1,406 --
Compensation and taxes payable......................... 403 3,306 (1,850) (1,468) (1,757)
Other liabilities...................................... 791 (1,117) (1,418) 7,278 (5,034)
Members' patronage payable............................. (3,447) (2,427) -- -- --
Deferred gains on sale leaseback transactions.......... -- 2,650 (2,393) -- --
---------- -------- ---------- -------- --------
Net cash flows provided by (used in) operating activities.. 12,571 12,913 (13,484) 1,274 (5,145)
---------- -------- ---------- -------- --------
Cash flows from investing activities:
Loans to members................................................ (22,512) (10,396) (2,416) (1,647) (358)
Collections on member loans..................................... 10,626 4,988 3,798 2,603 8,966
Proceeds from sale of member loans.............................. 10,549 13,205 2,918 1,550 --
Sale of investment in affiliated company........................ -- 6,023 -- -- --
Purchase of investments restricted or maintained for insurance
reserves...................................................... (13,404) (10,226) (3,167) (3,167) --
Sale of investments restricted or maintained for insurance
reserves...................................................... 7,385 5,604 8,685 8,685 --
Investment in affiliated companies.............................. (267) (48) -- -- --
Proceeds from disposition of assets............................. 6,884 11,036 18,313 15,193 7,912
Purchase of property, plant and equipment....................... (16,231) (15,607) (3,677) (1,870) (1,789)
Purchase of other assets........................................ (6,417) (6,446) (1,011) -- --
Acquisition of California operations............................ (23,252) -- -- -- --
Proceeds from sale of discontinued operations, net.............. -- -- 26,813 -- --
Proceeds from sale of Cash & Carry division..................... -- -- 37,986 37,986 --
---------- -------- ---------- -------- --------
Net cash flows provided by (used in) investing activities.. (46,639) (1,867) 88,242 59,333 14,731
---------- -------- ---------- -------- --------
</TABLE>
F-7
<PAGE>
<TABLE>
United Grocers, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
(dollars in thousands)
<CAPTION>
Nine month
----------
Years ended Periods ended
---------------------------- -------------
September 27,
-------------
1996 October 3, October 2, July 3, July 2,
---- ---------- ---------- ------- -------
(Restated) 1997 1998 1998 1999
---------- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Sale of common stock............................................ 1,153 76 -- -- 762
Repurchase of common stock...................................... (3,004) (2,213) (21) -- (4,427)
Proceeds from notes payable..................................... 1,091,567 932,370 1,171,161 871,891 818,850
Repayments of notes payable..................................... (1,052,183) (947,566) (1,253,754) (927,050) (822,158)
Payment of debt issuance costs.................................. -- -- (1,073) -- --
---------- -------- ---------- -------- --------
Net cash flows provided by (used in) financing activities.. 37,533 (17,333) (83,687) (55,159) (6,973)
---------- -------- ---------- -------- --------
Net increase (decrease) in cash and cash equivalents....... 3,465 (6,287) (8,929) 5,448 2,613
Cash and cash equivalents, beginning of year......................... 13,045 16,510 10,223 10,223 1,294
---------- -------- ---------- -------- --------
Cash and cash equivalents, end of year............................... $ 16,510 $ 10,223 $ 1,294 $ 15,671 $ 3,907
=========== ========= =========== ========= =========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-8
<PAGE>
United Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Operations and Summary of Significant Accounting Policies:
Organization and Nature of Operations
United Grocers, Inc. and subsidiaries (United) operates a distribution
business primarily in Oregon, Southern Washington and Northern California. The
distribution business includes all operations relating to wholesale grocery and
related product sales, service department revenues and financing income and
fees. Through July 1998, United had an additional operating segment, which
included all operations relating to insurance underwriting, commissions and
reinsurance, primarily to provide workers' compensation and property-casualty
coverage. As discussed in Note 9, the insurance operations were sold in July
1998 and those operations discontinued by United.
Its member customers own United's stock. Sales to these members accounted
for approximately 80%, 56% and 57% of sales from continuing operations for the
years ended September 27, 1996, October 3, 1997 and October 2, 1998,
respectively.
Unaudited Interim Financial Statements
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the consolidated
financial position of United at July 2, 1999 and the consolidated results of
operations and cash flows for the nine month periods ended July 3, 1998 and July
2, 1999.
Operating results for the interim period ended July 2, 1999 are not
necessarily indicative of the results that may be expected for the entire fiscal
year ending October 1, 1999, or any other period.
Fiscal Year
United reports on a fiscal year of 52 or 53 weeks, which is the fiscal year
of the distribution segment. United's fiscal closing date is the Friday nearest
September 30. The fiscal year of the subsidiaries included in the insurance
segment ended on September 30.
Principles of Consolidation
The consolidated financial statements include the accounts of United
Grocers, Inc. and its wholly-owned subsidiaries as follows: Western Passage
Express, Inc.; Northwest Process, Inc.; UG Resources, Inc.; United
Resources, Inc.; Western Security Services, Ltd.; R&R Liquidating
Corporation; and Bergrens Market, Inc. The consolidated financial
statements also include: Grocers Insurance Group, Inc.; Grocers Insurance
Agency, Inc., UGIC Ltd., Grocers Insurance Company and United Workplace
Consultants, Inc. (collectively, the insurance segment) through July 1998
(see Notes 9 and 13); and Rich and Rhine, Inc. through May 1998. All
intercompany balances and transactions have been eliminated upon
consolidation.
F-9
<PAGE>
United Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Cash and Cash Equivalents
United considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Investments
Investments, which were held by subsidiaries within the insurance segment,
were classified and accounted for as follows:
. held-to-maturity securities were reported at amortized cost.
. available-for-sale securities were reported at fair value, with
unrealized gains and losses excluded from earnings and reported in a
separate component of members' equity.
The cost of investments used in computing realized gains or losses was
determined using the specific identification method.
Reinsurance
United accounted for reinsurance transactions in accordance with Statement
of Financial Accounting Standards (SFAS) No. 113, Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts. SFAS No. 113 requires
that transactions relating to reinsurance transactions be reported at gross
amounts rather than net amounts. Net premiums earned are reported as net sales
and operations while net losses and loss adjustment expenses are reported as
cost of sales.
In the normal course of business, United sought to reduce the losses that
may have resulted from catastrophes or other events that would 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 were estimated in a manner consistent with the claim liability
associated with the reinsured policy. Amounts paid for prospective reinsurance
were reported as prepaid reinsurance premiums and amortized over the remaining
contract period in proportion to the amount of insurance protection provided.
Inventories and Cost of Sales
Inventories are stated at the lower of cost or market. The cost of these
inventories is determined under the first-in, first-out (FIFO) method or other
methods that approximate FIFO.
Cost of sales includes primarily the costs of distribution, which include
the purchases of product, net of allowances paid and received and the net
advertising department margins, plus the handling allowances made to members
based upon the cost of servicing their accounts.
Restricted Assets and Net Assets
Restricted assets and net assets that could not be transferred to the parent
company in the form of loans, advances or cash dividends by the insurance
subsidiary without the consent of state insurance agencies as of October 3, 1997
were as follows:
F-10
<PAGE>
United Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Restricted cash... $ 401,000
Investments....... 18,486,000
-------------
Total.......... $ 18,887,000
=============
In addition, the balance of the investments of $32,626,000 represented
assets that had been accumulated for the possible payment of claims against the
insurance reserves.
Investments in Affiliated Companies
Investments in affiliated companies represent United's ownership in entities
in which it does not have a controlling interest. The investments are accounted
for using the equity method, in which carrying value represents cost plus
United's share of earnings since acquisition, less distributions received.
Other Assets
Software costs, non-competition agreements and other intangibles, included
in other assets in the accompanying balance sheets, are stated at cost and are
being amortized and charged to operating expenses on a straight-line basis over
the estimated or contractual lives of three to five years.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and include expenditures
for new facilities and those that substantially increase the useful lives of the
existing plant and equipment. United capitalizes interest when applicable as a
component of the cost of significant construction projects. No interest was
capitalized for the years ended September 27, 1996, October 3, 1997 and October
2, 1998.
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 and improvements................. 4-75 years
Warehouse equipment........................ 5-20 years
Truck equipment............................ 3-8 years
Office equipment........................... 3-10 years
Maintenance and repairs are charged to expense as incurred. Upon the sale or
retirement of property, plant and equipment, any gain or loss on disposition is
reflected in the consolidated statement of operations and the related asset cost
and accumulated depreciation are removed from the respective accounts.
Recoverability of Long-Term Assets
Management of United reviews the carrying value of long-lived assets and certain
identifiable intangibles for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
F-11
<PAGE>
United Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Debt Classification
United classifies as current liabilities any line of credit arrangements that
contain a subjective acceleration clause and a lock-box arrangement.
Income Taxes
United files a consolidated income tax return. United operates and is taxed
as a cooperative. Accordingly, amounts distributed as qualified patronage
dividends are not included in its taxable income but are instead taxed to the
patrons receiving the patronage dividends. Deferred income taxes are recorded to
reflect the tax consequences on future years of the non-patronage portion of
temporary 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. Valuation allowances are established when
necessary to reduce deferred income tax assets to the amount expected to be
realized. Income tax expense is the combination of the tax payable for the year
and the change during the year in net deferred tax assets and liabilities.
Earnings per Common Share
United's policy is to distribute earnings only in the form of patronage
dividends. No dividends have ever been declared on the common stock of United
and all earnings not distributed as patronage dividends have been retained. In
accordance with generally accepted accounting principles, earnings per share
information is not presented because United does not have publicly held common
stock.
Common Stock
United's Board of Directors' policy, subject to change without notice,
requires United to repurchase on request the number of shares a member owns in
excess of 4,000 shares. The excess shares are redeemed in exchange for cash or
capital stock residual notes, payable over a five-year period. In fiscal 1998,
United's Board of Directors temporarily suspended redemptions of members'
capital stock. Future redemptions are at the discretion of the Board of
Directors.
At October 3, 1997, October 2, 1998 and July 2, 1999, there were 30,783,
93,085 and 33,965 (unaudited) shares in the amounts of $1,120,000, $3,905,000
and $1,886,000 (unaudited), respectively, which have been presented by members
for redemption, but which had not yet been redeemed. These shares are included
in redeemable members' equity in the accompanying consolidated balance sheet.
As of October 2, 1998, United holds $111,000 to be used for issuance of
5,400 shares to new members.
F-12
<PAGE>
United Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Advertising Costs
United expenses the costs of advertising the first time the advertising
takes place. Advertising expense for the years ended September 27, 1996, October
3, 1997 and October 2, 1998 was $2,593,000, $1,734,000 and $444,000,
respectively, exclusive of costs incurred on behalf of members
for which United is reimbursed.
Members' Allowances
United makes rebates to members based on the respective members' volume of
purchases over defined periods of time.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Change in Method of Accounting for Net Periodic Pension Costs
For the year ended October 2, 1998, United began amortizing its unrecognized
net gains and losses in connection with its defined benefit pension plan (see
Note 14) over a three-year period. In previous years United used the minimum
amortization allowed by SFAS No. 87, Employer's Accounting for Pensions. The new
method was adopted to more currently recognize the effects of changes in
actuarial assumptions and differences between the assumptions used and the
actual experience. The pro forma amounts in the statement of operations have
been adjusted for the effect of the retroactive application of the change on
operating expenses and related income taxes. The effect of the change on the
statement of operations for the year ended October 2, 1998 was to increase net
income before the cumulative effect of the change in accounting method by
approximately $996,000.
Transfers and Servicing of Financial Assets
The Financial Accounting Standards Board (FASB) issued SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, which United adopted in 1997. The Statement provides for
standards that are based on consistent application of a financial-components
approach that focuses on control. Under that approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes financial assets when
control has been surrendered, and derecognizes liabilities when extinguished.
This Statement provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.
Accordingly, United conformed to the new requirements of SFAS No. 125 for
transactions involving the sale of member loans receivable for applicable
transactions occurring after December 31, 1996.
F-13
<PAGE>
United Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Accounting Pronouncements
During the first quarter of 1998, United adopted FASB SFAS No. 130,
Reporting Comprehensive Income, which establishes requirements for disclosure of
comprehensive income. The objective of SFAS No. 130 is to report a measure of
all changes in equity that result from transactions and economic events other
than transactions with owners. Comprehensive income is the total of net income
and all other non-owner changes in equity. Comprehensive income did not differ
significantly from reported net income or loss in the periods presented.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. This statement will change the way public
companies report information about segments of their business in their annual
financial statements and requires them to report selected segment information in
their quarterly reports issued to shareholders. It also requires entity-wide
disclosures about the products and services an entity provides, the material
countries in which it holds assets and earns revenues and its major customers.
The statement is effective for fiscal years beginning after December 15, 1997.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about
Pensions and Other Post-retirement Benefits. This statement revises employers'
disclosures about pension and other post-retirement benefit plans. It does not
change the measurement or recognition of those plans. The statement suggests
combined formats for presentation of pension and other post-retirement benefit
disclosures. The statement is effective for fiscal years beginning after
December 15, 1997.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133 also requires that changes in the derivative instrument's fair
value be recognized currently in results of operations unless specific hedge
accounting criteria are met. SFAS No. 133, as amended by SFAS No. 137, is
effective for fiscal years beginning after June 15, 2000.
United's management has studied the implications of SFAS Nos. 131 and 132,
and based on the initial evaluation, expects the adoption to have no impact on
United's financial condition or results of operations, but will require revised
disclosures when the respective statements become effective. United's management
has studied the implications of SFAS No. 133 and based on the initial
evaluation, expects the adoption to have no impact on United's financial
condition or results of operations.
F-14
<PAGE>
United Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
2. Restatement:
United previously reported retained earnings as of September 29, 1995 and
September 27, 1996 of $14,923,000 and $13,843,000, respectively. These amounts
have been restated to retained earnings of $4,918,000 as of September 29, 1995
and an accumulated deficit of $1,883,000 as of September 27, 1996 in the
accompanying consolidated statements of members' equity. The adjustments which
necessitated the restatement, and their effect on United's net income for the
year ended September 27, 1996 and members' equity as of September 29, 1995 are
summarized as follows:
<TABLE>
<CAPTION>
Decrease (Increase) In:
-----------------------
Members' Equity
---------------
Fiscal 1996 September 29,
----------- -------------
Net Income 1995
---------- ----
<S> <C> <C>
Accruals for losses on lease/sublease arrangements........................ $(2,258,000) $ 11,872,000
Write-off of advertising and other receivables............................ 3,561,000 --
Accrual of vendor trust account liabilities............................... 1,581,000 --
Adjustment of carrying value of used store equipment to net
realizable value....................................................... 1,309,000 --
Income taxes.............................................................. (74,000) (2,126,000)
Other..................................................................... 1,602,000 259,000
----------- -------------
Net restatement..................................................... $ 5,721,000 $ 10,005,000
=========== =============
</TABLE>
F-15
<PAGE>
United Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
3. Investments Restricted or Maintained for Insurance Reserves:
The amortized costs and estimated fair values of investments in debt
securities and other investments at October 3, 1997 are as follows:
<TABLE>
<CAPTION>
Gross Gross
----- -----
Amortized Unrealized Unrealized
--------- ---------- ----------
Cost Gains Losses Fair Value
---- ----- ------ ----------
<S> <C> <C> <C> <C>
Available-for-sale securities
U.S. Treasury securities....................................... $ 3,512,000 $ 103,000 $ -- $ 3,615,000
Obligations of states, political subdivisions and
government agencies......................................... 4,410,000 134,000 -- 4,544,000
Corporate securities........................................... 1,026,000 25,000 -- 1,051,000
------------ ----------- ---------- ------------
Subtotal........................................... 8,948,000 262,000 -- 9,210,000
Common stocks.................................................. 225,000 -- -- 225,000
------------ ----------- ---------- ------------
Total.............................................. $ 9,173,000 $ 262,000 $ -- $ 9,435,000
============ =========== ========== ============
Held-to-maturity securities
U.S. Treasury securities....................................... $ 16,547,000 $ 848,000 $ (42,000) $ 17,353,000
Obligations of states, political subdivisions and
government agencies......................................... 19,154,000 255,000 (66,000) 19,343,000
Corporate securities........................................... 5,976,000 141,000 (19,000) 6,098,000
------------ ----------- ---------- ------------
Total.............................................. $ 41,677,000 $ 1,244,000 $ (127,000) $ 42,794,000
============ =========== ========== ============
Restricted assets
Cash and cash equivalents...................................... $ 401,000 $ -- $ -- $ 401,000
============ =========== ========== ============
Reconciliation to balance sheet:
Available-for-sale securities, at fair value............. $ 9,435,000
Held-to-maturity securities, at amortized cost........... 41,677,000
Restricted assets, at fair value......................... 401,000
------------
Total investments.................................. $ 51,513,000
============
</TABLE>
Gross realized gains of $3,000 were realized in the year ended October 3,
1997 from the maturity and redemption of held-to-maturity securities being
called by the issuers. The amortized cost of these securities at the time of
call was $4,470,000. There were no realized losses.
Proceeds from the sale of available-for-sale securities were $1,105,000 and
$1,131,000 in the years ended September 27, 1996 and October 3, 1997,
respectively. The gross realized gains on these sales were $4,226 in the year
ended September 27, 1996 and losses on these sales were $9,000 in the year ended
October 3, 1997.
F-16
<PAGE>
United Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
4. Accounts and Notes Receivable:
These consist of amounts due principally from members at the balance sheet
date as follows:
<TABLE>
<CAPTION>
Nine-Month
----------
Year Ended Period Ended
---------- ------------
October 3, October 2, July 2,
---------- ---------- -------
1997 1998 1999
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Accounts receivable.............................................. $69,778,000 $60,503,000 $60,198,000
Insurance premiums receivable and related balances............... 14,521,000 -- --
Less allowance for doubtful accounts............................. (7,598,000) (1,236,000) (1,185,000)
----------- ----------- -----------
Net accounts receivable.................................... 76,701,000 59,267,000 59,013,000
----------- ----------- -----------
Notes receivable, current portion................................ 1,977,000 8,002,000 5,569,000
Less allowance for doubtful notes................................ (141,000) -- --
----------- ----------- -----------
Net current notes receivable............................... 1,836,000 8,002,000 5,569,000
----------- ----------- -----------
Net accounts and current notes receivable.................. $78,537,000 $67,269,000 $64,582,000
=========== =========== ===========
Notes receivable, non-current portion............................ $18,886,000 $29,515,000 $20,899,000
Less allowance for doubtful accounts............................. (2,388,000) (314,000) (756,000)
----------- ----------- -----------
Net non-current notes receivable........................... $16,498,000 $29,201,000 $20,143,000
</TABLE>
During the year ended October 2, 1998, United wrote off approximately $11
million of accounts and notes receivable, and adjusted the related allowance for
doubtful accounts, for amounts determined to be uncollectible.
The notes receivable from members are generally for periods of two to ten
years at annual interest rates of 3% to 11%. The notes receivable as of October
2, 1998 include $17.5 million in connection with the sale of the Cash & Carry
division (see Note 10). This note carries an annual interest rate of 6.5%. The
annual maturities of notes receivable for each of the next five fiscal years
following October 2, 1998 are as follows:
F-17
<PAGE>
United Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1999........................... $ 8,002,000
2000........................... 4,349,000
2001........................... 6,859,000
2002........................... 6,632,000
2003........................... 6,562,000
Thereafter..................... 5,113,000
-----------
$37,517,000
===========
Changes in the allowance for doubtful accounts for the years ended September
27, 1996, October 3, 1997 and October 2, 1998 and for the nine month period
ended July 2, 1999 are summarized as follows:
<TABLE>
<CAPTION>
Balance at Charged to Balance at
---------- ---------- ----------
Beginning costs and end of
--------- --------- ------
Description of year expenses Deductions year
----------- ------- -------- ---------- ----
1996:
- ----
<S> <C> <C> <C> <C>
Allowance for doubtful accounts for:
Accounts receivable....................... $ 1,177,000 $ 6,213,000 $ (6,250,000) $ 1,140,000
Notes receivable.......................... 508,000 1,062,000 (460,000) 1,110,000
------------ ------------ ------------- ------------
Total............................... $ 1,685,000 $ 7,275,000 $ (6,710,000) $ 2,250,000
============ ============ ============= ============
1997:
- ----
Allowance for doubtful accounts for:
Accounts receivable....................... $ 1,140,000 $ 7,829,000 $ (1,371,000) $ 7,598,000
Notes receivable.......................... 1,110,000 2,943,000 (1,524,000) 2,529,000
------------ ------------ ------------- ------------
Total..................................... $ 2,250,000 $10,772,000 $ (2,895,000) $10,127,000
============ ============ ============= ============
1998:
- ----
Allowance for doubtful accounts for:
Accounts receivable....................... $ 7,598,000 $ 1,440,000 $ (7,802,000) $ 1,236,000
Notes receivable.......................... 2,529,000 1,000,000 (3,215,000) 314,000
------------ ------------ ------------- ------------
Total............................... $10,127,000 $ 2,440,000 $(11,017,000) $ 1,550,000
============ ============ ============= ============
1999:
- ----
Allowance for doubtful accounts for:
Accounts receivable (unaudited)........... $ 1,236,000 $ 291,000 $ (342,000) $ 1,185,000
Notes receivable (unaudited).............. 314,000 450,000 (8,000) 756,000
------------ ------------ ------------- ------------
Total (unaudited)................... $ 1,550,000 $ 741,000 $ (349,000) $ 1,941,000
============ ============ ============= ============
</TABLE>
F-18
<PAGE>
United Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
5. Other Assets:
Other assets consist of the following:
<TABLE>
<CAPTION>
Nine-Month
----------
Year Ended Period Ended
---------- ------------
October 3, October 2, July 2,
---------- ---------- -------
1997 1998 1999
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Software................................ $18,356,000 $19,999,000 $21,195,000
Prepaid loan fees....................... -- 1,073,000 1,111,000
Other................................... 2,570,000 1,941,000 1,973,000
----------- ----------- -----------
Subtotal.......................... 20,926,000 23,013,000 24,279,000
Less accumulated amortization........... (3,591,000) (6,981,000) (11,150,000)
----------- ----------- -----------
Total other assets, net........... $17,335,000 $16,032,000 $13,129,000
=========== =========== ===========
</TABLE>
Amortization expense for the years ended September 27, 1996, October 3, 1997
and October 2, 1998 was $1,573,000, $4,152,000 and $4,143,000, respectively, and
$3,091,000 (unaudited) and $4,052,000 (unaudited) for the nine month periods
ended July 3, 1998 and July 2, 1999, respectively.
6. Property, Plant and Equipment:
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
Nine-Month
----------
Year Ended Period Ended
---------- ------------
October 3, October 2, July 2,
---------- ---------- -------
1997 1998 1999
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Land................................................ $ 3,865,000 $ 2,163,000 $ 537,000
Buildings and improvements.......................... 55,999,000 42,996,000 37,128,000
Warehouse and truck equipment....................... 31,316,000 24,022,000 22,148,000
Office equipment.................................... 14,185,000 14,432,000 13,405,000
Construction in progress............................ 5,069,000 466,000 470,000
----------- ----------- -----------
Total property, plant and equipment........... 110,434,000 84,079,000 73,688,000
Less accumulated depreciation....................... (48,991,000) (46,165,000) (43,302,000)
----------- ----------- -----------
Property, plant and equipment, net............ $61,443,000 $37,914,000 $30,386,000
=========== =========== ===========
</TABLE>
F-19
<PAGE>
United Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Depreciation expense for the years ended September 27, 1996, October 3, 1997
and October 2, 1998 was $6,629,000, $7,690,000 and $6,379,000, respectively,
including $187,000, $359,000 and $160,000, respectively, related to discontinued
operations. Depreciation expense for the nine month periods ended July 3, 1998
and July 2, 1999 was $4,784,000 (unaudited) and $3,361,000 (unaudited),
respectively, including $160,000 (unaudited) related to discontinued operations
for the nine month period ended July 3, 1998. Due to operating losses incurred
by a retail store in Sacramento, California, United recorded during the year
ended October 3, 1997 a write-down of approximately $1.8 million to reduce the
carrying cost of the store's assets to estimated net realizable value. The loss
is included in "gain/loss on write-down or disposition of assets, net" in the
accompanying statements of operations. The store incurred losses for the years
ended September 27, 1996, October 3, 1997 and October 2, 1998 of $601,000,
$520,000 and $562,000, respectively. The carrying value of the store's assets at
October 2, 1998 is $10,000. The store is being operated but is being held for
sale.
F-20
<PAGE>
United Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
7. Notes Payable:
Notes payable consists of the following:
<TABLE>
<CAPTION>
Nine-Month
----------
Year Ended Period Ended
---------- ------------
October 3, October 2, July 2,
---------- ---------- -------
1997 1998 1999
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Line of credit with financial institution............................... $ 69,000,000 $34,315,000 $47,568,000
Notes payable with financial institution:
Term loan, interest at 7.344%, payable in four equal
annual payments beginning May 1999............................. -- 10,000,000 10,000,000
Real estate term loan, interest at 7.344%, payable in
120 equal monthly principal and interest payments
beginning February 1999........................................ -- 25,000,000 16,863,000
Notes payable, other:
Capital stock residual notes, payable in 20 quarterly
installments plus interest at a variable interest rate
based on the current capital investment note rate.............. 4,071,000 2,327,000 3,683,000
Capitalized equipment leases, payable in monthly
installments of $43,853, including interest at 12% to
20% through 2005 (collateralized by equipment)................. 2,276,000 1,563,000 --
Other notes payable............................................... 1,495,000 281,000 150,000
Redeemable notes and certificates:
Capital investment notes (subordinated), interest at 7.5%,
maturity dates through 2005.................................... 41,745,000 39,277,000 31,302,000
Registered redeemable building notes (subordinated),
interest at 8%, not fixed maturity date........................ 3,088,000 2,830,000 2,718,000
Credit agreement notes, interest from 7.0875% to
7.1875%........................................................ 42,915,000 -- --
Senior notes payable to insurance companies, interest at
8.42% and 9.15%...................................................... 29,999,000 -- --
Mortgage notes payable, interest at 7.25%............................... 3,597,000 -- --
------------ ----------- -----------
Total....................................................... 198,186,000 115,593,000 112,284,000
Less current portion.................................................... (10,191,000) (41,159,000) (55,688,000)
------------ ----------- -----------
Total notes payable, net of current portion................. $187,995,000 $74,434,000 $56,596,000
============ =========== ===========
</TABLE>
Maturities of notes payable subsequent to October 2, 1998 are as follows:
1999............ $ 41,159,000
2000............ 7,942,000
2001............ 9,984,000
2002............ 9,206,000
2003............ 6,200,000
Thereafter...... 41,102,000
------------
$115,593,000
============
F-21
<PAGE>
United Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
United has a credit agreement with a financial institution providing for a
line of credit of $100 million for revolving loans and $35 million for term loan
facilities. The agreement was entered into in August 1998 and matures in
February 2002. The agreement provides for letter of credit accommodations up to
$1 million.
The amount of borrowings available under the revolving line of credit, based
upon a lending formula applied to accounts and notes receivable and inventory,
was $70.4 million as of October 2, 1998. The revolving line of credit bears
interest at LIBOR plus 1.75% or at prime rate (7.125% and 8.5%, respectively, at
October 2, 1998). United had $34.3 million outstanding under the revolving
loans, $20 million at LIBOR and $14.3 million at prime. The term loans bear
interest at LIBOR plus 1.75% as of October 2, 1998. The revolving line of credit
and term loans are collateralized by account receivables, inventory and other
assets.
As of October 2, 1998, United had letters of credit totaling $11 million, $1
million required by certain real property leases and $10 million required under
its cash management agreement with a bank. The revolving and term loans and
letters of credit are cross-collateralized by essentially all assets of the
borrowers (United Grocers, Inc. and United Resources, Inc.) and are guaranteed
by all subsidiaries.
United's most restrictive covenants require it to maintain certain minimum
adjusted net worth, minimum accounts receivable turnover and fill rates (as
defined). United is in compliance with covenants related to its credit
agreements as of October 2, 1998.
Amounts available under the credit agreement and letter of credit
accommodations are subject to reduction by the lender being permitted to
establish availability reserves based upon certain events, conditions,
contingencies or risks which it may in good faith determine.
8. Income Taxes:
The income tax (provision) benefit, including amounts associated with
discontinued operations and the cumulative effect of a change in accounting
method, for the years ended September 27, 1996, October 3, 1997 and October 2,
1998 consists of the following:
1996 1997 1998
--------- ---------- ------------
Current:
Federal.................... $ -- $ 100,000 $ (2,600,000)
--------- ---------- ------------
Deferred:
Federal.................... -- 7,493,000 (8,135,000)
State...................... -- 1,207,000 (1,272,000)
--------- ---------- ------------
-- 8,700,000 (9,407,000)
--------- ---------- ------------
$ -- $8,800,000 $(12,007,000)
========= ========== ============
The current provision for the year ended October 2, 1998 primarily relates
to the gain on disposal of the insurance segment.
F-22
<PAGE>
United Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The reconciliation of the statutory Federal tax rate to the effective income
tax rate for the years ended September 27, 1996, October 3, 1997 and October 2,
1998 is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Statutory income tax rate (34%).......................... $ 1,893,000 $5,937,000 $(10,801,000)
State income taxes, net of Federal income tax
benefit............................................... 223,000 797,000 (1,272,000)
Tax exempt interest...................................... 98,000 -- --
Establishment of valuation allowance..................... (2,156,000) -- --
Reversal of valuation allowance due to tax
planning strategy..................................... -- 3,568,000 --
Patronage-related book/tax differences -- (1,502,000) --
Other.................................................... (58,000) -- 66,000
----------- ---------- ------------
Total.............................................. $ -- $8,800,000 $(12,007,000)
=========== ========== ============
</TABLE>
The significant components of deferred income taxes as of October 3, 1997
and October 2, 1998 is as follows:
<TABLE>
<CAPTION>
1997 1998
----------- ------------
<S> <C> <C>
Deferred income taxes, current asset:
Insurance reserves........................................... $ 1,359,000
Inventories.................................................. 362,000 $ 309,000
Allowance for doubtful accounts.............................. 1,650,000 253,000
Accrued employee benefits.................................... 192,000 168,000
Capitalized lease insurance.................................. 244,000 244,000
Nonpatronage net operating loss carryforward................. 4,128,000 --
Alternative minimum tax credit 150,000 178,000
Other........................................................ 62,000 374,000
-------------
Net current deferred tax asset......................... 8,147,000 1,526,000
------------
Deferred income taxes, non-current asset (liability):
Accumulated depreciation..................................... (2,561,000) (3,088,000)
Impairment reserve........................................... 689,000 --
Lease accrual................................................ 1,474,000 1,302,000
Prepaid pension cost......................................... -- (738,000)
Deferred income on sale-leaseback transactions............... 845,000 --
Deferred compensation........................................ 106,000 291,000
----------- -----------
Net non-current deferred tax asset (liability)......... 553,000 (2,233,000)
----------- -----------
Total.................................................. $ 8,700,000 $ (707,000)
=========== ===========
</TABLE>
F-23
<PAGE>
United Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
9. Discontinued Operations:
In September 1997, United's management and board of directors approved a
plan whereby the insurance operations would be sold to an unrelated party. The
sale of the insurance operations was completed in July 1998. Accordingly, the
results of operations of the insurance segment for the years ended September 27,
1996, October 3, 1997 and October 2, 1998 have been presented as "discontinued
operations" in the accompanying statements of operations.
The following is a summary of the assets and liabilities of the insurance
segment as of October 3, 1997:
Assets:
Investments............................................ $51,513,000
Receivables and other current assets................... 22,070,000
Long-term assets....................................... 1,328,000
----------
74,911,000
Liabilities:
Insurance reserves supported by investments............ 26,356,000
Accounts payable and other current liabilities......... 19,544,000
----------
Net investment in insurance segment................. $29,011,000
===========
10. Sale of Cash & Carry Division:
On May 15, 1998, United sold to an unrelated party the assets and
liabilities of its Cash & Carry division, consisting of 40 wholesale grocery
stores. The net sales proceeds included a $17,500,000 note from the buyer.
United realized a gain on the sale, as follows:
Net sales proceeds............................... $55,486,000
-----------
Net investment in Cash & Carry division:
Current assets................................ 26,589,000
Non-current assets............................ 5,864,000
Current liabilities........................... (6,000,000)
-----------
26,453,000
-----------
$29,033,000
===========
The accompanying consolidated statements of operations for the years ended
September 27, 1996, October 3, 1997 and October 2, 1998 (through May 15, 1998)
include the following amounts with respect to the Cash & Carry division:
F-24
<PAGE>
United Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1996 1997 1998
------------ ------------ ------------
Net sales and operations......... $ 32,882,000 $ 37,530,000 $ 22,797,000
Costs and expenses............... (32,133,000) (34,551,000) (22,380,000)
Other income..................... 1,707,000 1,179,000 1,519,000
------------ ------------ ------------
Income before income taxes.... 2,456,000 4,158,000 1,936,000
============ ============ ============
11. Members' Patronage Dividends:
United'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. For the year ended
September 27, 1996, the Board of Directors voted to distribute $4 million in
patronage dividends, approximately $3.2 million which was paid in cash and
approximately $800,000 which was distributable in the form of common stock. No
patronage earnings were available to pay patronage dividends for the years ended
October 3, 1997 and October 2, 1998.
12. Reinsurance:
Reinsurance contracts do not relieve United from its obligations to
policyholders. Failure of reinsurers to honor their obligations could result in
losses to United. United 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.
United limits the maximum net loss that can arise from large risks or risks
in concentrated areas of exposure by reinsuring (ceding) certain levels of high
risk with other insurers or reinsurers, either on an automatic basis under
general reinsurance contracts known as "treaties" or by negotiation on
substantial individual risks. Ceded reinsurance is treated as the risk and
liability of the assuming companies.
Reinsurance amounts reflected in the financial statements as of October 3,
1997 and for the years ended September 27, 1996 and October 3, 1997 are as
follows:
F-25
<PAGE>
United Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
For the balance sheet:
Reinsurance recoverable.................................. $ 9,440,000
Prepaid reinsurance premiums............................. 3,746,000
-----------
Total.............................................. $13,186,000
===========
For the statement of operations:
Premiums written:
Gross.............................................. $28,988,000 $31,198,000
Assumed............................................ 567,000 742,000
Ceded.............................................. (8,185,000) (10,331,000)
----------- -----------
Net premiums written............................... $21,370,000 $21,609,000
=========== ===========
Premiums earned:
Gross.............................................. $26,515,000 $29,596,000
Assumed............................................ 598,000 682,000
Ceded.............................................. (7,403,000) (9,698,000)
----------- -----------
Net premiums earned................................ $19,710,000 $20,580,000
=========== ===========
Expenses:
Losses and loss adjustment expenses................ $18,051,000 $16,610,000
Reinsurance recoveries............................. (4,617,000) (3,142,000)
----------- -----------
Net losses and loss adjustment expenses............ $13,434,000 $13,468,000
=========== ===========
</TABLE>
13. Segment Reporting:
A summary of information about United's operations by the distribution and
insurance segments for the years ended September 27, 1996 and October 3, 1997 is
as follows:
F-26
<PAGE>
United Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
Net sales and operations:
Distribution................................... $1,280,453,000 $1,306,602,000
Insurance (1).................................. 20,096,000 22,231,000
-------------- --------------
Total....................................... $1,300,549,000 $1,328,833,000
============== ==============
Income (loss) before income taxes:
Distribution................................... $ (8,049,000) $ (21,627,000)
Insurance (1).................................. 2,480,000 4,167,000
-------------- --------------
Total....................................... $ (5,569,000) $ (17,460,000)
============== =============
Depreciation and amortization expense:
Distribution................................... $ 8,015,000 $ 11,483,000
Insurance (1).................................. 187,000 359,000
-------------- --------------
Total....................................... $ 8,202,000 $ 11,842,000
============== =============
Capital expenditures, including software:
Distribution................................... $ 22,568,000 $ 21,974,000
Insurance...................................... 80,000 79,000
-------------- --------------
Total....................................... $ 22,648,000 $ 22,053,000
============== ==============
Total assets at October 3, 1997:
Distribution................................... $ 290,516,000
Insurance...................................... 74,911,000
--------------
Total....................................... $ 365,427,000
==============
</TABLE>
(1) Reported as discontinued operations.
14. Retirement Plans:
United has a company-sponsored pension plan that covers substantially all of
its salaried employees. United has made annual contributions to the plan equal
to the amount annually accrued for pension expense. United's funding policy is
to satisfy the funding requirements of the Employees' Retirement Income Security
Act.
In determining the actuarial present value of the projected benefit
obligation, a discount rate of 8%, 7.75% and 6.75% was used for the years ended
September 27, 1996, October 3, 1997 and October 2, 1998, respectively, and a
future maximum compensation increase rate of 4%, 3.75% and 2.75% was used for
the years ended September 27, 1996, October 3, 1997 and October 2, 1998,
respectively. The expected long-term rate of return on assets was 8%.
F-27
<PAGE>
United Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Pension costs for the plan consists of the following for the years ended
September 27, 1996, October 3, 1997 and October 2, 1998, respectively:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Company-sponsored:
Service costs of benefits earned................................ $ 952,000 $ 1,155,000 $ 1,184,000
Interest cost on the projected benefit obligation............... 1,668,000 1,788,000 1,856,000
Expected return on plan assets.................................. (1,932,000) (2,197,000) (2,616,000)
Amortization of:
Unrecognized net asset....................................... (168,000) (168,000) (168,000)
Unrecognized net gain........................................ (38,000) (100,000) (4,962,000)
Unrecognized prior service cost.............................. 61,000 61,000 61,000
----------- ----------- -----------
Net periodic pension cost (benefit).......................... $ 543,000 $ 539,000 $(4,645,000)
=========== =========== ===========
</TABLE>
Amortization of the unrecognized net gain for the year ended October 2,
1998, includes the cumulative effect of a change in accounting method (see Note
1) of $2,912,000.
The following table sets forth the plan's funded status as of the years
ended October 3, 1997 and October 2, 1998:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested................................................................ $17,200,000 $27,082,000
Non-vested............................................................ 1,137,000 841,000
----------- -----------
Accumulated benefit obligation.................................. 18,337,000 27,923,000
Effect of projected future compensation levels 5,268,000 2,125,000
----------- -----------
Projected benefit obligation.................................... 23,605,000 30,048,000
Plan assets at fair value, primarily listed stocks, fixed income
and bond and equity funds................................................ 33,541,000 33,919,000
----------- -----------
Excess of plan assets over projected benefit
obligation..................................................... 9,936,000 3,871,000
Unrecognized net asset...................................................... (1,393,000) (1,225,000)
Unrecognized net gain....................................................... (9,064,000) (976,000)
Unrecognized prior service cost............................................. 594,000 271,000
----------- -----------
Prepaid pension cost............................................ $ 73,000 $ 1,941,000
=========== ===========
</TABLE>
F-28
<PAGE>
United Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
United 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 benefits obligation, nor the net assets attributable to the
multi-employer plans in which United's union employees participate. United's
costs for these multi-employer plans for the years ended September 27, 1996,
October 3, 1997 and October 2, 1998 were $3,326,000, $3,874,000 and $3,965,000,
respectively.
In addition to providing pension benefits, United provides certain medical
benefits for certain salaried retirees, spouse and eligible dependents.
Employees who were hired prior to January 1, 1989, the last eligibility date,
and have met United's minimum service requirements, become eligible for United
Grocers, Inc. and Subsidiaries these benefits. The post-retirement medical
benefits available are non-contributory in nature and it is United's practice to
fund these benefits as incurred.
The following table presents the status of the plan and amounts recognized
for post-retirement benefits in United's financial statements as of and for the
years ended October 3, 1997 and October 2, 1998:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Accumulated post-retirement benefit obligation:
Retirees................................................... $1,810,000 $2,515,000
Fully eligible active plan participants.................... 1,578,000 1,111,000
Other active plan participants............................. 927,000 370,000
---------- ----------
Total accumulated post-retirement benefit
obligation......................................... 4,315,000 3,996,000
Unrecognized net transition obligation........................... (3,331,000) (3,075,000)
---------- ----------
Accrued post-retirement benefit obligation........... $ 984,000 $ 921,000
========== ==========
1996 1997 1998
-------- -------- --------
Net periodic post-retirement benefit cost includes the
following components for the years ended September 27,
1996, October 3, 1997 and October 2, 1998:
Service cost..................................................... $ 52,000 $ 52,000 $ 24,000
Interest cost.................................................... 271,000 271,000 246,000
Amortization of transition obligation............................ 169,000 169,000 178,000
-------- -------- --------
Net periodic post-retirement benefit cost.................. $492,000 $492,000 $448,000
======== ======== ========
</TABLE>
F-29
<PAGE>
United Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The assumed health care cost trend rate used to measure the expected cost of
benefits was 11% in year one, decreasing 1% per year to a minimum rate of 4%.
The effect of a 1% increase in the assumed health care cost trend rate on the
aggregate of the service and interest cost components of the net periodic
post-retirement benefit cost and the accumulated post-retirement benefit
obligation would be to increase these amounts by approximately $170,000,
$170,000 and $12,000 for the years ended September 27, 1996, October 3, 1997 and
October 2, 1998, respectively. The discount rate used in determining the
accumulated post-retirement benefit obligation was 7.75%, 8% and 7% as of
September 27, 1996, October 3, 1997 and October 2, 1998, respectively.
United also has two separate company-sponsored 401(k) plans. In one plan,
all salaried non-union employees are eligible to participate. Contributions by
United are at the discretion of the Board of Directors. In the other plan, union
employees are eligible to participate, but United makes no matching
contributions. For the years ended September 27, 1996, October 3, 1997 and
October 2, 1998, United made matching contributions to the 401(k) plans totaling
$291,000, $305,000 and $262,000, respectively.
15. Leases:
United has various operating leases for buildings and equipment, certain of
which are subleased to affiliated companies and members. The leases expire at
various dates through 2022. Rental United Grocers, Inc. and Subsidiaries expense
consists of the following for the years ended September 27, 1996, October 3,
1997 and October 2, 1998:
1996 1997 1998
----------- ------------ -----------
Minimum rentals.................. $19,463,000 $ 24,551,000 $25,768,000
Less sublease income............. (6,873,000) (10,506,000) (8,844,000)
----------- ------------ -----------
Net rental expense............ $12,590,000 $ 14,045,000 $16,924,000
=========== ============ ===========
The following is a schedule by years showing future minimum rentals under
operating leases that have initial or remaining non-cancelable lease terms in
excess of one year as of October 2, 1998:
F-30
<PAGE>
United Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(a) (b)
Minimum Minimum Net
Fiscal Year Payments Receipts Minimum
----------- ------------ ----------- -----------
1999......................... $ 21,486,000 $ 8,890,000 $ 12,596,000
2000......................... 19,408,000 8,143,000 11,265,000
2001......................... 17,016,000 7,689,000 9,327,000
2002......................... 15,616,000 7,247,000 8,369,000
2003......................... 13,786,000 6,567,000 7,219,000
Thereafter................... 82,695,000 57,044,000 25,651,000
------------ ----------- -----------
Total.................. $170,007,000 $95,580,000 $74,427,000
============ =========== ===========
Summary:
Building leases........... $141,073,000 $89,266,000 $51,807,000
Equipment leases.......... 28,934,000 6,314,000 22,620,000
------------ ----------- -----------
Total.................. $170,007,000 $95,580,000 $74,427,000
============ =========== ===========
(a) Minimum payments are those required by the Company over the terms of
significant leases.
(b) Minimum receipts are those to be received by the Company from sublease
agreements.
United has accrued $7,310,000 and $7,751,000 as of October 3, 1997 and
October 2, 1998, respectively, for the estimated losses on subleasing
arrangements, $5,505,000 and $5,896,000, respectively, of which is included in
other liabilities and $1,805,000 and $1,855,000, respectively, of which is
included in other current liabilities in the accompanying consolidated balance
sheets.
United has entered into sale-leaseback transactions for various supermarket
properties, which resulted in deferred gains of approximately $3,650,000 and
$1,257,000 as of October 3, 1997 and October 2, 1998, respectively. The deferred
gains are being amortized over the leaseback periods of twenty years. The total
remaining lease commitments at October 2, 1998 are approximately $7,877,000 over
nineteen years with an annual rental of approximately $336,000.
F-31
<PAGE>
United Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
16. Supplemental Cash Flow Information:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Supplemental disclosures:
Cash paid during the years for:
Interest.............................................. $14,546,000 $16,342,000 $12,738,000
Income taxes, net of refunds of $1,200,000
in 1998............................................... 279,000 151,000 4,800,000
Supplemental schedule of noncash investing and
financing activities:
Sale of insurance segment in exchange for
note receivable....................................... -- -- 4,000,000
Sale of Cash & Carry division and other
assets in exchange for notes receivable............... -- -- 18,846,346
Members' allowances paid in common
stock................................................. -- 773,000 --
Exchange of member receivable for equity
interest in affiliate................................. 3,250,000 362,000 --
Exchange of investment in affiliate for note
receivable............................................ -- -- 4,550,000
</TABLE>
17. Affiliated Companies:
United owns interests in affiliates, which are accounted for on the equity
method. One affiliate is a vendor that provides private label brand merchandise.
The other affiliates operate retail grocery stores and are also members of
United. A member of United's Board of Directors controls R.A.F. Limited
Liability Company.
An approximate summary of aggregate balances and transactions with
affiliates in which United had an interest as of year-end is as follows:
October 3, October 2,
---------- ----------
1997 1998
---- ----
Balance sheet:
Investment in affiliated companies.......... $6,971,000 $3,360,000
Accounts receivable......................... 2,898,000 2,651,000
Notes receivable............................ 428,000 --
Accounts payable............................ 7,046,000 4,079,000
F-32
<PAGE>
United Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Year ended
-------------------------------------------
September 27, October 3, October 2,
------------- ---------- ----------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Statement of operations:
Sales................................................... $129,855,000 137,029,000 2,933,000
Purchases............................................... 111,348,000 118,268,000 119,495,000
Volume incentive rebate for purchases from
affiliated company................................... 2,931,000 3,909,000 4,361,000
Refunds, rebates and member allowances to
affiliated companies................................. 2,570,000 1,985,000 34,000
Equity in earnings of affiliated companies.............. 568,000 107,000 169,000
</TABLE>
These affiliates and United's net investments as of October 3, 1997 and
October 2, 1998 and percentages of ownership during the years then ended are as
follows:
Net Percentage
--- ----------
1997 Investment Ownership
---- ---------- ---------
Western Family Holding Company.................. $1,974,000 22%
C & K Market, Inc. (sold July 1997)............. -- 22%
R.A.F. Limited Liability Company................ 1,081,000 94%
North State Grocery, Inc........................ 3,623,000 26%
Other........................................... 293,000
----------
$6,971,000
==========
1998
----
Western Family Holding Company.................. $2,143,000 22%
R.A.F. Limited Liability Company................ 1,081,000 94%
Other........................................... 136,000
----------
$3,360,000
==========
Combined unaudited financial information of the affiliated entities,
including third-party interests is as follows:
October 3, October 2,
---------- ----------
1997 1998
---- ----
Current assets................ $55,359,000 $41,903,000
Non-current assets............ 13,559,000 4,185,000
Current liabilities........... 49,193,000 35,905,000
Non-current liabilities....... 3,872,000 --
Owners' equity................ 15,853,000 10,184,000
F-33
<PAGE>
United Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Year Ended Year Ended Year Ended
---------- ---------- ----------
September 27, October 3, October 2,
------------- ---------- ----------
1996 1997 1998
---- ---- ----
Revenues................. $777,379,000 $633,124,000 $525,514,000
Gross profit............. 98,929,000 46,506,000 19,550,000
Net income (loss)........ 2,531,000 220,000 (77,000)
All of these affiliates are privately held companies for which no ready
market values are available. In management's opinion, the equity interests as
stated are equal to or less than the fair market value of United's interests in
these affiliates.
18. Related Party Transactions:
United is owned by its primary customers, and its Board of Directors
consists entirely of members who are also customers; accordingly, the nature of
United's business involves a significant number of related party transactions.
Such transactions with members, some of whom are directors, include leasing and
sub-leasing arrangements, sale of merchandise and related extensions of trade
credit, extensions of long-term credit for members' purchases of fixed assets,
notes payable to members for capital stock and capital investment notes and
payment of purchase incentives (see United Grocers, Inc. and Subsidiaries
members allowances in the accompanying consolidated statements of operations) in
the form of cash and shares of United's stock.
19. Concentrations of Credit Risk:
Financial instruments that potentially subject United to significant
concentrations of credit risk consist principally of cash and cash equivalents,
investments, store financing loans and trade accounts receivable.
United 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 Federal Depositors Insurance Corporation insurance; balances
in excess of coverage are not insured.
As a cooperative, the majority of United's accounts receivable represent
sales to its members who are located throughout the Pacific Northwest and
Northern California. These accounts are not generally collateralized but each
member has stock holdings in United as well as patronage rebates, which United
could apply against account balances.
United 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 collateralized with personal
property, securities and guarantees.
United performs ongoing credit evaluations of its members' financial
condition and maintains allowances for potential credit losses.
Two customers accounted for more than 10% of United's net sales for the year
ended October 2, 1998. Sales to these customers were approximately $118 million
and $235 million.
F-34
<PAGE>
United Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
20. Fair Value of Financial Instruments:
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
Disclosures About Fair Value of Financial Instruments. The estimated fair value
amounts have been determined by United using available market information and
appropriate valuation methodologies.
United in estimating its fair value disclosures for financial instruments
used the following methods and assumptions:
Cash and cash equivalents and long-term notes receivabless -- the
carrying amounts reported in the balance sheet for cash and cash equivalents
and long-term receivables approximate their fair value.
Investments restricted or maintained for insurance reserves -- see Note
4.
Investment in and accounts with affiliated companies--it is not
practicable to estimate the fair value of an investment representing the
common stock of a privately-held company because the stock is not traded;
thus, the investments are carried at original cost plus equity in earnings
to date in the consolidated balance sheet. Such investments are subject to
review for possible impairment.
Notes payable--the carrying amounts of variable-rate debt
instruments approximate their fair value. The fair values of fixed-rate
long-term debt are estimated using discounted cash flow United Grocers, Inc.
and Subsidiaries analyses based on United's incremental borrowing rates for
similar types of borrowing arrangements. The assumed incremental borrowing
rates used to determine the fair value of fixed-rate long-term debt were 11%
and 8% for 1997 and 1998.
The carrying amounts and approximate fair values of United's financial
instruments at the balance sheet dates are as follows:
<TABLE>
<CAPTION>
Carrying Fair
-------- ----
1997 Amounts Values
---- ------- ------
<S> <C> <C>
Cash and cash equivalents.............................................. $10,223,000 $10,223,000
Long-term notes receivable, including the current portion,
net of allowance for doubtful notes................................. 18,334,000 18,334,000
Investment in and accounts with affiliated companies 6,971,000 6,971,000
Notes payable.......................................................... 198,186,000 193,886,000
1998
----
Cash and cash equivalents.............................................. $ 1,294,000 $ 1,294,000
Long-term notes receivable, including the current portion,
net of allowance for doubtful notes................................. 37,203,000 37,203,000
Investment in and accounts with affiliated companies 3,360,000 3,360,000
Notes payable.......................................................... 115,593,000 112,688,000
</TABLE>
F-35
<PAGE>
United Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
21. Commitments and Contingencies:
United has entered into various agreements under which it sells certain of
its notes receivable from members subject to limited recourse provisions.
Personal property, securities and guarantees collateralize these notes. United
in turn receives a monthly service fee. United recognizes the net present value
of the excess of the future service fees over the estimated service cost as a
servicing asset and related gain upon the sale of a loan. The service asset is
amortized over the life of the related note agreement. In the years ended
September 27, 1996, October 3, 1997 and October 2, 1998, United sold notes
totaling approximately $10,549,000, $13,205,000 and $1,518,000, respectively,
and recognized $330,852, $1,734,000 and $20,000, respectively, of gains on the
sales. The balances of transferred notes that were outstanding and subject to
recourse provisions were approximately $39,313,000 and $24,426,000 at October 3,
1997 and October 2, 1998, respectively. The unamortized service asset as of
October 3, 1997 and October 2, 1998 was $1,969,000 and $1,281,000, respectively.
In the event United is in default of other credit agreements, the buyer of these
notes has the right to demand collection of the outstanding notes balances from
United.
United is guarantor of a covenant not to compete and loans by members as of
October 2, 1998 totaling approximately $6,740,000 with annual payments of
approximately $837,000.
United 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, United expects the outcome of these matters will not
result in a material adverse effect on United's consolidated financial position,
results of operations or cash flows.
United is guarantor of a letter of credit a customer has with a bank. The
letter of credit is $1,500,000 of which no amount has been drawn at October 2,
1998.
22. Proposed Merger (Unaudited):
In March 1999, United executed a letter of intent with respect to a proposed
merger with Certified Grocers of California, Ltd., a grocery cooperative
headquartered in Commerce, California. The consummation of the merger is
conditional upon the execution of a mutually approved definitive merger
agreement following completion of due diligence, approval of the agreement by
the shareholders of both entities, required filings with regulatory entities,
and other customary conditions.
F-36
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The merger is being accounted for as a purchase pursuant to Accounting
Principles Board Opinion No. 16, "Business Combinations." Accordingly, the
consideration is being allocated to the assets and liabilities based upon the
relative fair values. Such allocations are subject to final determination based
on valuations and other studies to be performed.
The unaudited pro forma condensed combined financial statements, including
the notes thereto, are based upon, and should be read in conjunction with, the
historical consolidated financial statements of both Unified Western Grocers,
Inc. (formerly Certified) and United, including the notes thereto.
The unaudited pro forma condensed combined balance sheet gives effect to the
merger between United and Unified as if it had occurred as of August 28, 1999.
The unaudited pro forma condensed combined statement of operations for the year
ended August 28, 1999 assumes the merger took place as of the beginning of the
period presented. The unaudited pro forma condensed combined statement of
operations combines Unified Western Grocers, Inc.'s (formerly Certified) year
ended ended August 28, 1999 with United's twelve months ended July 2, 1999.
The adjustments included in the unaudited pro forma condensed combined
financial statements represent a preliminary determination of these adjustments
based upon available information. The consideration exceeded the fair value of
the net assets acquired. This difference has been allocated to goodwill, which
will be amortized over forty years. Such allocations are subject to final
determination based on real estate, leasehold and equipment valuation studies
which are not yet complete. These studies are expected to be completed before
the end of the fiscal year 2000. Accordingly, the final allocations may be
different from the amounts reflected herein.
The computation of patronage earnings involves complex cost allocations
among member/non-member groups and non-patronage activities. United's management
believes that patronage earnings for the twelve month period ended July 2, 1999
would have approximated break-even.
Management is in the process of finalizing its integration plans, which
includes the elimination of duplicative facilities and functions and other
restructuring actions. The pro forma financial information includes only the
impact of transaction costs related to the merger, amortization of goodwill,
interest expense attributable to the amendment of credit facilities and the
related tax effect of these items. The pro forma financial information does not
include any synergy cost savings the combined company is expected to realize.
Based on the finalization of the integration plans and other factors, the final
purchase accounting adjustments may differ materially from those presented in
these unaudited pro forma condensed combined financial statements.
The unaudited pro forma condensed combined financial statements are
presented for illustrative purposes only and are not necessarily indicative of
the combined financial position and results of operations that would have been
realized had Unified and United been a combined company during the specified
periods.
F-37
<PAGE>
<TABLE>
Unified Western Grocers, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet August 28, 1999
(Dollars in thousands)
<CAPTION>
Unified Western
---------------
Grocers, Inc. Pro Forma
------------- ---------
(formerly United Unified
-------- ------ -------
Certified) Grocers Pro Forma Western
--------- ------- --------- -------
August 28, 1999 July 2, 1999 Adjustments Grocers, Inc.
--------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
ASSETS
Current:
Cash and cash equivalents...................................$ 8,027 $ 3,907 $ 11,934
Accounts and notes receivable, net.......................... 108,786 64,582 173,368
Inventories................................................. 150,800 69,716 220,516
Other current assets........................................ 5,544 5,918 11,462
Deferred income taxes....................................... 4,286 1,525 $ 412 (3) 6,223
------------ ---------- ----------- -----------
Total current assets.................................. 277,443 145,648 412 423,503
Notes receivable, net............................................. 13,914 20,143 34,057
Investments....................................................... 35,017 -- 35,017
Property, plant and equipment, net................................ 79,231 30,386 13,263 (2) 122,880
Other assets
Goodwill, net............................................... 22,964 -- 29,913 (2) 52,877
Deferred financing costs, net............................... 812 793 2,200 (1) 2,749
(1,056)(3)
Other....................................................... 21,754 18,859 (3,129)(2) 36,652
(832)(2)
Total assets..........................................$ 451,135 $ 215,829 $ 40,771 $ 707,735
============ ========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current:
Notes payable...............................................$ 6,623 $ 55,688 $(52,568)(1) $ 10,120
377 (1)
Accounts payable and other current liabilities.............. 156,708 65,126 10,200 (2) 232,034
Patrons' excess deposits and patronage dividends............ 16,091 -- 16,091
------------ ---------- ----------- -----------
Total current liabilities............................. 179,422 120,814 (41,991) 258,245
Notes payable, net of current portion............................. 143,727 56,596 (86,363)(1) 273,526
158,057 (1)
1,509 (1)
Other long-term liabilities....................................... 29,393 9,048 38,441
Patrons' deposits and certificates:
Patrons' required deposits.................................. 12,450 -- 12,450
Subordinated patronage dividend certificates................ 5,986 -- 5,986
------------ ---------- ----------- -----------
Total liabilities..................................... 370,978 186,458 31,212 588,648
Redeemable members' equity........................................ -- 1,886 (1,886)(1) --
------------ ---------- ----------- -----------
</TABLE>
F-38
<PAGE>
<TABLE>
Unified Western Grocers, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet August 28, 1999 (Continued)
(Dollars in thousands)
<CAPTION>
Unified Western
---------------
Grocers, Inc. Pro Forma
------------- ---------
(formerly United Unified
-------- ------ -------
Certified) Grocers Pro Forma Western
--------- ------- --------- -------
August 28, 1999 July 2, 1999 Adjustments Grocers, Inc.
--------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Shareholders' equity:
Class A shares.............................................. 5,669 -- 9,510 (3) 15,179
Class B shares.............................................. 57,833 2,542 (2,542)(3) 91,854
(9,469)(1)
43,490 (3)
Additional paid in capital.................................. -- 18,827 (18,827)(3) --
Retained earnings........................................... 17,160 6,116 (6,116)(3) 12,559
(3,957)(1)
(644)(3)
Accumulated other comprehensive earnings.................... (505) -- -- (505)
------------ ---------- ----------- -----------
Total shareholders' equity............................ 80,157 27,485 11,445 119,087
------------ ---------- ----------- -----------
Total liabilities and shareholders' equity............$ 451,135 $ 215,829 $ 40,771 $ 707,735
============ ========== =========== ===========
See Notes to the Unaudited Pro Forma Condensed Combined Balance Sheet
</TABLE>
F-39
<PAGE>
Notes to the Unaudited Pro Forma Condensed Combined Balance Sheet as of
August 28, 1999 (Dollars in thousands)
(1) Gives effect to the new credit facility completed in connection with the
merger, and the anticipated application of the net proceeds therefrom
(including payment of debt, redeemed shares, and related fees) as follows:
<TABLE>
<S> <C> <C>
Proceeds from new credit facility................................................. $ 158,057
Conversion of United redeemable members' equity
Notes payable, current......................................................... $ 377
Notes payable, net of current portion.......................................... 1,509 1,886
---------
Repayment of bank borrowings and senior debt
Notes payable, current......................................................... (52,568)
Notes payable, net of current portion.......................................... (86,363) (138,931)
---------
Purchase of Certified shares pending redemption
Initial issue value............................................................ (9,469)
Redemption value in excess of initial issue value.............................. (3,957) (13,426)
---------
Redeemable members' equity of United.............................................. (1,886)
Merger related costs.............................................................. (3,500)
Financing costs................................................................... (2,200)
--------
Net cash....................................................................... $ --
========
</TABLE>
Unified has entered financing agreements for a new term loan of $40 million,
amendment of the terms of its existing $80 million term loan, and a revolving
credit facility for $200 million.
(2) Consideration for the Merger consists of issuance of Unified Western
Grocers, Inc. shares for all of the outstanding shares of United Grocers,
Inc. based upon a previously negotiated exchange ratio. At the conclusion of
the exchange, former members of Certified and United will own approximately
75% and 25%, respectively, of the total outstanding shares of Unified. The
merger is being accounted for as a purchase pursuant to Accounting
Principles Board Opinion No. 16, "Business Combinations." Accordingly, the
consideration is being allocated to the assets and liabilities based upon
the relative fair values. Such allocations are subject to final
determination based on valuations and other studies to be performed. The
final values may differ from those set forth below:
F-40
<PAGE>
Notes to the Unaudited Pro Forma Condensed Combined Balance Sheet as of
August 28, 1999 (Dollars in thousands) -- (Continued)
<TABLE>
<S> <C> <C>
Equity issued (Class A & B shares)............................................. $ 53,000
Acquisition costs.............................................................. 3,500
Less book value of net assets acquired......................................... (27,485)
--------
Excess of purchase price over book value of net assets acquired................ $ 29,015
========
Allocation of excess purchase price over book value of assets of United:
Property, plant and equipment, net
Land................................................................... $ 7,374
Buildings.............................................................. 8,789
Equipment.............................................................. (2,900) $ 13,263
---------
Other assets
Over-funded pension ................................................... 3,871
Capitalized software................................................... (7,000) (3,129)
---------
Accrued liabilities (primarily severance and duplicate facility closure
costs)................................................................... (10,200)
Deferred taxes on temporary differences (39%).................................. (832)
Goodwill....................................................................... 29,913
--------
$ 29,015
========
</TABLE>
(3) Following is a summary of the change in shareholders' equity as a result of
the merger and refinancing:
<TABLE>
<S> <C> <C>
Issuance of new Unified Class A Shares.................................... $ 9,510
Issuance of new Unified Class B Shares.................................... 43,490
Elimination of United historical members' equity.......................... (27,485)
Elimination of former Certified shares tendered for redemption ........... (13,426)
</TABLE>
<TABLE>
<CAPTION>
Cost Tax Effect
---- ----------
<S> <C> <C> <C>
Write-off United historical deferred financing costs...................... (793) 309
Write-off Unified historical deferred financing costs..................... (263) 103
------ ------
(1,056) 412 (644)
--------
Pro forma adjustment to shareholders' equity.............................. $ 11,445
========
</TABLE>
F-41
<PAGE>
<TABLE>
Unified Western Grocers, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations for the Year ended August 28, 1999
(Dollars in Thousands)
<CAPTION>
Unified Western
---------------
Grocers, Inc.
-------------
(formerly United
-------- ------
Certified) Grocers
--------- -------
(August 30, (July 4,
----------- ------
1998- 1998- Pro Forma
----- ----- ---------
August 28, July 2, Pro Forma Unified Western
---------- ------- --------- ---------------
1999) 1999) Adjustments Grocers, Inc.
----- ----- ----------- -------------
<S> <C> <C> <C> <C>
Net sales.............................................................. $ 1,893,523 $1,057,057 -- $ 2,950,580
Costs and expenses:
Cost of sales.................................................... 1,717,779 930,147 2,647,927
Distribution, selling and administrative......................... 141,155 129,328 $ 62 (A) 271,293
748 (A)
------------ --------- ------------- -----------
1,858,934 1,059,476 810 2,919,220
------------ --------- ------------- -----------
Operating income (loss)................................................ 34,589 (2,419) (810) 31,360
Interest expense....................................................... 11,911 7,219 2,996 (B) 22,126
Other (expense) income, net............................................ (5,780) 5,455 (325)
------------ --------- ------------- -----------
Earnings (loss) before patronage dividends and provision
(benefit) for income taxes.......................................... 16,898 (4,183) (3,806) 8,909
Patronage dividends.................................................... 14,195 -- (3,694)(C) 10,501
------------ --------- ------------- -----------
Earnings (loss) before provision (benefit) for income
taxes............................................................... 2,703 (4,183) (112) (1,593)
Provision (benefit) for income taxes................................... 64 (2,212) 248 (D) (1,900)
------------ --------- ------------- -----------
Net earnings (loss).................................................... $ 2,639 $ (1,971) $ (360) $ 308
============ ========= ============= ===========
See Notes to the Unaudited Pro Forma Condensed Combined Statement of Operations
</TABLE>
F-42
<PAGE>
Notes to the Unaudited Pro Forma Condensed Combined Statement of
Operations for the Year Ended August 28, 1999
(Dollars in thousands)
(A) Reflects adjustments to depreciation and amortization based upon the
preliminary purchase accounting allocations related to property, plant and
equipment and intangible assets in connection with the merger of Unified
Western Grocers, Inc. (formerly Certified) and United as more fully
described in Note (2) to the unaudited pro forma condensed combined balance
sheet. Buildings and equipment are being depreciated over their remaining
useful lives and goodwill is being amortized over forty years. Depreciation
and amortization for the year ended August 28, 1999 would have increased by
$62 and $748, respectively.
(B) Represents the elimination of historical interest expense on debt which has
been refinanced, offset by the additional interest expense that would have
been incurred had the merger and new credit facility occurred at the
beginning of the pro forma period. For purposes of the unaudited pro forma
condensed combined statement of operations, the interest rate on the new
$200 million revolving credit facility was assumed to be LIBOR plus 2.0% and
the interest rate on the new $40 million subordinated notes was assumed to
be 8.71%. The interest rate on Unified's existing senior term debt increased
from 7.22% to 7.72%. The weighted average rate assumed was 7.84%. The
proceeds from the new credit facility have been used to refinance
substantially all of United's institutional debt, and to refinance Unified's
revolving credit agreement and purchase shares of members previously
tendered for redemption at book value. The unused portion of the $200
million revolving credit facility will be used to fund the Company's normal
and seasonal business operations and maintain additional working capital to
provide for future business opportunities. The interest rates on the debt
retired ranged from 7.1% to 8.3% on Unified's institutional debt, 6.07% to
6.76% on Unified's revolving credit agreement and 7.22% on Unified's
senior notes. United's redeemable members' equity converted to residual
stock notes payable over twenty quarters plus interest at 6%. Following is a
summary of the pro forma interest adjustment:
Historical Interest Expense
Congress Term Loan and Revolver.................. $ 5,962
Unified Senior Term Notes........................ 5,840
Unified Revolving Credit Agreement............... 3,923
--------
$ 15,725
--------
Pro Forma Interest Expense
Senior Term Notes................................ $ 6,176
Subordinated Term Notes.......................... 3,484
Revolver (including unused fees)................. 8,848
Residual Stock Notes............................. 213
--------
$ 18,721
--------
Net increase in interest expense...................... $ 2,996
========
F-43
<PAGE>
Notes to the Unaudited Pro Forma Condensed Combined Statement of
Operations for the Year Ended August 28, 1999
(Dollars in thousands)
A 0.125% increase or decrease in the weighted average interest rate would change
pro forma interest expense by $298 for the year ended August 28, 1999.
See Note 7 to the consolidated financial statements of United included elsewhere
herein for further information regarding the historical indebtedness of United.
See Note 6 to the consolidated financial statements of Unified incorporated by
reference herein for further information with respect to the historical
indebtedness of Unified.
(C) Pro forma adjustments to depreciation expense, amortization of goodwill, and
interest expense would be allocated to patronage and non-patronage
activities and result in a reduction of patronage dividends paid of $3,694.
(D) The pro forma adjustment to the provision (benefit) for income taxes is
based upon a tax rate of 39% applied to the pro forma earnings (loss) before
provision (benefit) for income taxes adjusted for amortization of goodwill.
F-44
<PAGE>
======================================== ====================================
You should rely only on the
information contained in this
document. We have not authorized
anyone to provide you with
information with respect to
deposit accounts that is not
contained or referred to in this
prospectus. This document deals
only with the sale of the deposit
accounts and only in places where
it is legal to do so.
Information about Unified may
change subsequent to the date of
this document.
---------------
TABLE OF CONTENTS
Page
Summary of Prospectus................ 2
Business Description................. 2
Recent Developments.................. 2
Risk Factors......................... 3
Description of Shares Offered........ 6
Voting............................. 6
Share Redemption................... 6
Offering of Class A Shares and
Class B Shares..................... 7
Eligibility to Hold Shares........ 8
Member-Patrons Required to Purchase
One Hundred Class A Shares....... 8
Issuance of Class B Shares to
Member-Patrons................... 9
General........................... 9
Manner of Issuance of Class B
Shares........................... 10
Alternative Manner of Class B
Shares........................... 11
Other Matters Relating to Issuance
of Class B Shares................ 12
Description of Capital Stock......... 14
Dividend Rights.................... 14
Voting Rights...................... 14
Liquidation Rights................. 15
Non-Transferability................ 15
Shares Held As Security............ 15
Share Redemption................... 16
Use of Book Value.................. 20
Available Information................ 21
Additional Information............... 21
Incorporation by Reference........... 21
Use of Proceeds...................... 21
Experts.............................. 22
Forward-Looking Information.......... 22
Index to Financial Statements........F-1
======================================== ====================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 15. Indemnification of Directors and Officers
Article V of Unified's bylaws provides that Unified shall, to the maximum extent
permitted by law, have the power to indemnify its directors, officers, employees
and other agents. Section 317 of the California Corporations code provides that
a corporation has the power to indemnify agents of the corporation against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with any proceeding arising by reason of the
fact that any such person is or was an agent of the corporation. Unified has
entered into agreements in the form filed as Exhibit 10.22 with each of its
directors and certain of its officers which provide to such directors and
officers the maximum indemnification allowed under applicable law. In addition,
Unified and its subsidiaries maintain a policy of directors' and officers'
liability and company reimbursement insurance.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of Unified
pursuant to the foregoing provisions, or otherwise, Unified has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Unified of expenses incurred or paid
by a director, officer or controlling person of Unified in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered,
Unified will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Item 16. Exhibits
Exhibits:
Exhibit 23.1 Consent of Deloitte & Touche LLP
Exhibit 23.2 Consent of PriceWaterhouseCoopers LLP
II-1
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual and corporation whose
signature appears below constitutes and appoints Alfred A. Plamann, Richard J.
Martin and Robert M. Ling, Jr., and each of them singly, as his, her or its true
and lawful attorneys-in-fact and agents with full power of substitution, for
him, her or it and in his, her or its name, place and stead, in the capacities
listed below, to sign any and all amendments (including any and all
pre-effective and post-effective amendments) to this Registration Statement, and
to file the same, with all exhibits thereto and all documents therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them singly, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he, she
or it might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them singly, or his or their substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Post-Effective Amendment No. 3 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Commerce, State of California, on November __, 1999.
UNIFIED WESTERN GROCERS, INC.
By /s/ Alfred A. Plamann
-------------------------------------
Alfred A. Plamann
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment 12 to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Alfred A. Plamann
- ----------------------------- President and Chief November 19, 1999
Alfred A. Plamann Executive Officer
/s/ Richard J. Martin
- ----------------------------- Senior Vice President-- November 19, 1999
Richard J. Martin Finance and Administration
and Chief Financial Officer
(principal accounting officer)
S-1
<PAGE>
/s/ Louis A. Amen
- ----------------------------- Director November 19, 1999
Louis A. Amen
/s/ Bill Andronico
- ----------------------------- Director November 19, 1999
Bill Andronico
/s/ Gaylon G. Baese
- ----------------------------- Director November 19, 1999
Gaylon G. Baese
/s/ David Bennett
- ----------------------------- Director November 19, 1999
David Bennett
/s/ John Berberian
- ----------------------------- Director November 19, 1999
John Berberian
/s/ Edmund K. Davis
- ----------------------------- Director November 19, 1999
Edmund K. Davis
/s/ Kenneth W. Findley
- ----------------------------- Director November 19, 1999
Kenneth W. Findley
/s/ James F. Glassel
- ----------------------------- Director November 19, 1999
James F. Glassel
/s/ Darioush Khaledi
- ----------------------------- Director November 19, 1999
Darioush Khaledi
/s/ Mark Kidd
- ----------------------------- Director November 19, 1999
Mark Kidd
/s/ Jay McCormack
- ----------------------------- Director November 19, 1999
Jay McCormack
/s/ Mary McDonald
- ----------------------------- Director November 19, 1999
Mary McDonald
/s/ Morrie Notrica
- ----------------------------- Director November 19, 1999
Morrie Notrica
S-2
<PAGE>
/s/ Michael Provenzano
- ----------------------------- Director November 19, 1999
Michael Provenzano
/s/ Edward J. Quijada
- ----------------------------- Director November 19, 1999
Edward J. Quijada
/s/ Gordon E. Smith
- ----------------------------- Director November 19, 1999
Gordon E. Smith
/s/ Mimi R. Song
- ----------------------------- Director November 19, 1999
Mimi R. Song
/s/ Robert E. Stiles
- ----------------------------- Director November 19, 1999
Robert E. Stiles
/s/ James R. Stump
- ----------------------------- Director November 19, 1999
James R. Stump
/s/ Kenneth Tucker
- ----------------------------- Director November 19, 1999
Kenneth Tucker
/s/ Floyd West
- ----------------------------- Director November 19, 1999
Floyd West
/s/ Richard L. Wright
- ----------------------------- Director November 19, 1999
Richard L. Wright
S-3
<PAGE>
INDEX TO EXHIBITS AND SCHEDULES
Exhibits:
Exhibit 23.1 Consent of Deloitte & Touche LLP
Exhibit 23.2 Consent of PricewaterhouseCoopers LLP
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective Amendment
No. 12 to Registration Statement No. 33-38152 of Unified Western Grocers, Inc.
on Form S-2 of our report dated October 29, 1999, appearing in the Annual Report
on Form 10-K of Unified Western Grocers, Inc. for the year ended August 28,
1999, and to the reference to us under the heading "Experts" in the Prospectus,
which is part of such Registration Statement.
/s/ DELOITTE & TOUCHE LLP
- -----------------------------
DELOITTE & TOUCHE LLP
Los Angeles, California
November 19, 1999
Exhibit 23.1
<PAGE>
[PricewaterhouseCoopers LLP Letterhead]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Post-Effective Amendment No. 12 (File No.
33-38152) to Registration Statement on Form S-2 of Unified Western, Inc. of our
report dated April 30, 1999, relating to the financial statements of United
Grocers, Inc. and Subsidiaries, which appears in such Registration Statement. We
also consent to the references to us under the headings "Experts" in such
Registration Statement.
/s/ PricewaterhouseCoopers LLP
- -------------------------------
PricewaterhouseCoopers LLP
Portland, Oregon
November 19, 1999
Exhibit 23.2
