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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended September 30, 2000
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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Commission file number 0-10815
UNIFIED WESTERN GROCERS, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA
(State or other jurisdiction of incorporation or organization)
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(Address of principal executive offices) (Zip Code)
5200 Sheila Street, Commerce, CA 90040
I.R.S. Employer Identification No.: 95-0615250
Registrant's telephone number, including area code: (323) 264-5200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE
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<S> <C>
Class A Shares None
Class B Shares None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The Company's shares are not publicly traded and therefore market value is not
readily ascertainable.
The number of shares outstanding of each of the registrant's classes of common
stock, as of December 1, 2000 were as follows:
Class A: 66,008 shares Class B: 420,381 shares Class C: 24 shares
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DOCUMENTS INCORPORATED BY REFERENCE: Portions of the proxy statement for the
2001 annual meeting in Part III.
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TABLE OF CONTENTS
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ITEM PAGE
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PART I
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1. Business.......................................................... 3
2. Properties........................................................ 10
3. Legal Proceedings................................................. 10
4. Submission of Matters to a Vote of Security Holders............... 11
PART II
Market for Registrant's Common Equity and Related Shareholder
5. Matters........................................................... 12
6. Selected Financial Data........................................... 12
Management's Discussion and Analysis of Financial Condition and
7. Results of Operations............................................. 13
7a. Quantitative and Qualitative Disclosures About Market Risk........ 17
8. Financial Statements.............................................. 18
Changes in and Disagreements with Accountants on Accounting and
9. Financial Disclosure.............................................. 49
PART III
10. Directors and Executive Officers of the Registrant................ 50
11. Executive Compensation............................................ 51
12. Security Ownership of Certain Beneficial Owners and Management.... 51
13. Certain Relationships and Related Transactions.................... 51
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.. 52
Signatures.............................................................. 59
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PART 1
ITEM 1. BUSINESS
GENERAL
Unified Western Grocers, Inc. ("Unified" or the "Company") is a grocery
wholesaler serving supermarket operators in California, Oregon, Washington,
Nevada, Arizona, Hawaii and various foreign countries in the South Pacific and
elsewhere. In addition to offering dry grocery, frozen food, deli, meat,
dairy, egg, produce, bakery, gourmet, specialty foods and general merchandise
products, Unified also provides finance, insurance, store design, security
services, information services, and real estate services to its patrons.
Products and services available to patrons may differ depending upon location.
Unified's marketing platform is built on offering its patrons better value
than available elsewhere by combining competitive pricing with superior
selection, quality, service and convenience.
In September 1999, Unified completed a merger (the "Merger") with United
Grocers, Inc. ("United"), a grocery cooperative headquartered in Milwaukie,
Oregon. In connection with the Merger, the Company changed its name from
Certified Grocers of California, Ltd. to its current name.
The merger provided to the independent retailer various benefits. These
benefits included: economies of scale and an expanded range of products and
services; eliminating duplicative facilities and transportation equipment in
overlapping service areas; eliminating duplicative functions, including legal
and accounting services and management information systems; increasing
purchasing volume in order to obtain more favorable pricing on product
purchases; and offering to members the opportunity to purchase specialized
products and services that were previously offered by the separate companies.
A California corporation organized in 1922 and incorporated in 1925, Unified
does business primarily with those patrons which qualify and have been
accepted as "member-patrons." Unified is owned by its member-patrons who are
primarily independent grocers. Unified is operated as a cooperative for tax
purposes except with respect to business conducted with non-patrons and
business conducted by its subsidiaries. Unified establishes minimum purchase
requirements for its member-patrons, which may be modified from time to time.
Patrons not meeting member-patron purchasing requirements conduct business
with Unified either as "associate-patrons" or as customers on a non-patronage
basis. Associate patrons have reduced minimum purchase requirements, are
required to establish deposits, and do not own shares of capital stock of
Unified. The earnings of Unified's subsidiaries are generally retained by
Unified, while the earnings of the parent company attributable to business
conducted with its members are generally distributed to its patrons in the
form of patronage dividends. The benefit of this structure is that taxes are
paid on the Unified patronage earnings only once, by the patron, after notice
of a patronage dividend payout is received by the patron.
WHOLESALE DISTRIBUTION
Unified's wholesale distribution business represented approximately 95% and
93% of sales for the fiscal years ended August 28, 1999 and September 30,
2000, respectively. The wholesale business includes a broad range of branded
and private label products in dry grocery, frozen, delicatessen, general
merchandise, boxed meat, service deli, ice cream, bakery, dairy and produce.
Unified distributes its various product lines from warehouse and manufacturing
complexes located in Los Angeles, Commerce, Stockton, Hayward and Fresno,
California, Renton, Washington and in Milwaukie, Oregon.
Unified sells a full line of branded grocery and nonfood items supplied by
unrelated manufacturers and also sells merchandise under its own private
labels, including the Springfield, Gingham, Special Value, La Corona, and
Golden Creme trade names. Unified also sells private label brand goods under
the Western Family, Home & Garden, Valley Fare and Better Buy labels. Unified
operates its own bakery and dairy facilities in Southern California. Unified
is not dependent upon any single source of supply in any of its businesses,
except for the dairy. Most of the raw milk used in production is purchased
from a dairy cooperative which provides such products at prices established by
the State of California. Management believes that alternative suppliers are
available for substantially all of Unified's products and that the loss of any
one supplier would not have a material adverse effect on Unified's business.
During the course of its business, Unified enters into supply agreements with
certain members or customers of Unified. These agreements require the member
to purchase certain agreed amounts of its merchandise
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requirements from Unified and obligate Unified to supply such merchandise
under agreed terms and conditions relating to such matters as pricing and
delivery. The terms and conditions in such supply agreements may vary in terms
and length.
SUPPORT BUSINESSES
Unified's retail support businesses collectively accounted for approximately
1% of Unified's total revenues for fiscal years ended August 28, 1999 and
September 30, 2000. These retail support operations include services for
financing inventory purchases, equipment purchases, store remodeling and new
store acquisitions. The Company also provides store planning and development
services, equipment procurement, insurance brokerage services, and underwrites
selected insurance risks through two insurance subsidiaries. Unified operates
retail support services to members and customers in Oregon, Washington and
California, including financial services, retail development services for
advertising groups offering "chain"-like identity, and technology, security,
accounting and training services.
RETAIL BUSINESS
Unified, through its subsidiaries, currently owns all of the common stock of
SavMax Foods, Inc. ("SavMax") which operates nine retail grocery stores in
Northern California. Unified acquired SavMax as of December 31, 1998. Unified,
through its subsidiaries, also owns two stores in Washington operated under
the "Thriftway" banner. Retail sales were $75 million and $197 million,
respectively, for the period December 31, 1998 through August 28, 1999 for
SavMax and for the fiscal year ended September 30, 2000 for SavMax, Thriftway
and the Company-owned stores acquired from Albertson's. The retail sales
represented approximately 4% and 6% of sales for the fiscal years ended August
28, 1999 and September 30, 2000, respectively.
In May 1999, Unified entered into an agreement to purchase certain assets
related to 32 stores being divested in connection with Albertson's, Inc.'s
merger with American Stores, Inc. The acquisition was completed in October,
1999. Unified sold or otherwise permitted the direct transfer of 26 of these
stores to Unified members coincident with the closing of the transaction.
Pursuant to agreements with state and federal regulatory agencies, the Company
was required to operate the remaining six stores for a minimum period. The
Company has closed two stores. There are two stores, including one of the
closed stores, under contract for sale. Three stores will be operated until a
suitable buyer can be located.
RETAIL DEVELOPMENT
Unified offers a banner store program designed to convert older stores into
state-of-the-art retail operations. Operating under the common name "Apple
Markets", the stores are owned and operated by patrons of Unified. Unified
intends them to have the look of a chain store because each store carries the
same name and logo and generally utilizes the same design layout.
COMPETITION
The food industry is characterized by intense competition and low profit
margins. In order to compete effectively, Unified must provide its patrons
with the capability to meet rapidly fluctuating competitive market prices,
provide a wide range of perishable and nonperishable products, make prompt and
efficient deliveries, and provide the services which are required by modern
market operations. Unified competes with local, regional and national grocery
wholesalers and with a number of major manufacturers which market their
products directly to retailers. Unified's success is dependent upon its
ability to supply food, general merchandise and services to its patrons in a
cost-effective manner and upon the ability of its independent retail customers
to compete with large chain store operations.
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CUSTOMERS
Unified is a cooperative organization that conducts business on a patronage
basis principally for its members. Unified also conducts business with non-
member customers on a non-patronage basis. Unified's bylaws provide for:
. Member-patrons, who are the shareholders of the company and participate in
the patronage dividend programs; and
. Associate-patrons, who do not own shares but do participate in the
patronage dividend programs.
Unified's patrons are primarily retail grocery store operators ranging in size
from single store operators to multiple store chains. Unified's largest
customer and ten largest customers accounted for approximately 6% and 31%, 6%
and 28% and 7% and 28% of net sales for the fiscal years ended August 29,
1998, August 28, 1999 and September 30, 2000, respectively.
CAPITAL STOCK
Class A Shares. Class A Shares 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 (1) must patronize Unified in amounts and in a manner as may be
established by the board of directors; (2) must have approved financial
standing; (3) must make application in such form as is prescribed by Unified;
and (4) must be accepted as a member after approval by the board of directors.
Unified requires that each of its member-patrons acquire 100 Class A Shares.
The price for these shares is the book value per share of the outstanding
shares at the close of the fiscal year ended prior to purchase. Those former
United shareholders who received less than 100 Class A Shares in the merger
and meet the member-patron minimum purchase requirement are required to
purchase additional Class A Shares in order to maintain member-patron status.
Unified has agreed to repurchase Class A Shares received in the merger by
former United shareholders who do not maintain member-patron status at $253.95
per share. Class A Shares have the right to elect not less than 80% of the
authorized directors of Unified.
Class B Shares. Each holder of Class A Shares is also required to hold a
number of Class B Shares determined by the board of directors of Unified. The
board of directors establishes the number of Class B Shares that each member-
patron must hold, whether based on average weekly purchases or on some other
basis. Ownership of Class B Shares is limited to member-patrons or former
member-patrons who have tendered these shares to Unified for redemption. The
holders of Class B Shares currently have the right to elect approximately 20%
of the authorized number of directors. Except as provided above or by
California law, the holders of Class B Shares do not have any other voting
rights.
Unified requires each member-patron to acquire over time Class B Shares having
combined issuance values in an amount equal to the member-patron's required
subordinated cash deposit.
Class B Shares are generally issued to a new member-patron as part of the
patronage dividends paid to the member-patron over a period of five
consecutive fiscal years, beginning with the second fiscal year following
admission as a member-patron. The Class B issuance formula provides that 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 first full year of
patronage dividend, 40% of the Class B Share requirement after the second
patronage dividend, and so on until the member-patron reaches 100% of its
Class B Share requirement after the fifth patronage dividend.
If following the issuance of Class B Shares as part of the patronage dividend
for any given fiscal year, the member-patron would not hold Class B Shares
having combined issuance values equal to the amount of Class B Shares required
to be held by the member-patron, then additional Class B Shares will be issued
to the member-patron in a quantity sufficient to achieve the required amount.
Issuance of these additional Class B Shares will be paid for by charging the
member-patron's cash deposit account in an amount equal to the issuance value
of the additional Class B Shares.
Member-patrons who were former United members and did not receive sufficient
Class B Shares in the merger to meet the minimum Class B Share ownership
deposit requirements have the following alternatives: (i) provide a cash
deposit for the deficiency; (ii) purchase additional Class B Shares to cover
the deficiency;
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or (iii) assign 80% of the patronage dividends the shareholder will receive in
the future to Unified to purchase Class B Shares for the account of the
shareholder until the deficiency is eliminated. During that period, Unified
will require the member to purchase at least the percentage of product
purchased during the most recent 12 month period prior to the merger under a
supply agreement with Unified.
Class C Shares. Class C Shares are held by members of the board of directors.
Each board member purchases one Class C Share for ten dollars. Class C Shares
are nonvoting shares and share in liquidation only to the extent of ten
dollars per share.
REDEMPTION OF CAPITAL STOCK
Unless otherwise restricted from doing so under applicable law, limitations of
credit agreements or provisions of the Bylaws as described below, Class A
Shares and Class B Shares held by a shareholder who is no longer a qualified
or an active member-patron will be redeemed at the book value of the Company
as of the close of the fiscal year last ended prior to termination of member
status. However, with respect to terminations occurring prior to September 30,
2000, the repurchase price will be Unified's book value at the fiscal year end
prior to the effective date of the merger. There is no obligation to redeem
Class B Shares of terminated members until after September 27, 2002.
Unless otherwise restricted from doing so under applicable law, limitations of
credit agreements or provisions of the Bylaws until September 27, 2002,
Unified will redeem excess Class B Shares at the option of the shareholder, at
either:
. an amount equal to Unified's book value as of the close of the fiscal
year prior to the effective date of the merger ($188.27); or
. an amount equal to the book value as of the close of the fiscal year
prior to the date the shares are tendered to the Company for repurchase,
provided the repurchase price will not be paid until after September 30,
2002.
Unless otherwise restricted from doing so under applicable law, limitations of
credit agreements or provisions of the Bylaws after September 27, 2002,
Unified will repurchase excess Class B Shares tendered for redemption at the
book value as of the close of the fiscal year prior to the date the shares are
tendered for repurchase.
Unless otherwise restricted from doing so under applicable law or limitations
of credit agreements, until January 28, 2001, Unified will repurchase excess
Class B Shares received in the merger tendered for redemption which are held
by former shareholders of United 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 in the merger. The purchase price will be evidenced by a promissory
note of Unified which will be payable in twenty equal quarterly principal
installments and will bear interest at 6% per year. Such purchases will not be
subject to the 5% limit described below.
Pursuant to the Bylaws, the 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:
. The number of Class B Shares outstanding as of the close of the
preceding fiscal year, and
. The number of Class B Shares issued as a part of the patronage dividend
for such preceding fiscal year.
The board of directors has discretion to exceed the 5% limit.
Redemption of all capital stock is subject to limitations imposed by the
Articles of Incorporation and Bylaws, credit agreements to which the Company
is a party, and restrictions imposed by law on the ability of a company to
redeem its own shares.
As a California corporation, the Company is subject to the provisions of the
California General Corporation Law including Section 500 which limits the
ability of the Company to make distributions, including distributions to
repurchase its own shares and any payments on notes issued to repurchase
Unified shares. Section 500 permits such repurchase and note payments only
when retained earnings calculated in accordance with generally accepted
accounting principles ("GAAP") equal or exceed the amount of any
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proposed distribution or an alternative asset/liability ratio test is met.
Historically through the operations of its subsidiaries, the Company has
maintained sufficient retained earnings to accomplish its share repurchase
program. As a result of expenses associated with the merger with United,
current operating losses of subsidiaries acquired from United as well as
operating losses of retail stores owned by the Company, including stores
acquired from Albertson's for resale to members or others, the Company's
retained earnings have been depleted such that they are currently inadequate
to permit repurchase of Company shares. The repurchase test permitted under
Section 500 based on the ratio of assets to liabilities determined under GAAP
with certain adjustments cannot currently be met since the Company relies
heavily on borrowings to finance its operations. The Company is also a party
to credit agreements containing financial and other covenants, which limit the
ability of the Company to make purchases of its capital stock under certain
circumstances.
The Company has established a trust for the purpose of facilitating the
transfer of shares by Unified members obligated or entitled to sell shares in
accordance with the Company's redemption policy to existing members or new
members who are authorized by the Board of Directors to buy shares in
accordance with the Bylaws, during periods when the Company is legally unable
to buy shares or otherwise elects to cause or permit outstanding shares to be
transferred between members. Funds used to purchase shares from selling
members are exclusively sourced from funds provided by buying members.
PATRONAGE DIVIDENDS
Unified distributes patronage dividends based upon its patronage earnings
during the fiscal year. The board of directors approves dividends for the
Company's two patronage earnings divisions: the Dairy Division and the
Cooperative Division.
The following table shows the patronage dividend experience of Unified during
the past three fiscal years and the transition period.
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Division 1998 1999 1999(2) 2000
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Dairy $9,169 $9,902 -- $11,028
Cooperative(3) 980 4,293 -- 4,398
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TOTAL (1) $10,149 $14,195 -- $15,426
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(1) Results in prior periods are not necessarily indicative of results for
future periods.
(2) Effective September 27, 1999, the Company changed its fiscal year end from
the Saturday nearest August 31 to the Saturday nearest September 30. The
transition period covers the period of August 29, 1999 through October 2,
1999. Patronage dividends were not paid in the transition period.
(3) The Cooperative Division dividends are paid based on the patronage
purchases for the following product areas: dry grocery, delicatessen,
frozen food, ice cream, meat and bakery. Beginning in fiscal 2000, the
Cooperative Division also included patronage purchases for general
merchandise. Prior periods have been restated to reflect payments as if
these two divisions had been in place throughout the period.
In connection with the merger, Unified changed its patronage dividend policies
for periods subsequent to the effective date of the merger. Unified currently
pays its patronage dividends to member-patrons and associate-patrons on the
basis of patronage business transacted with Unified's two patronage earnings
divisions: the Dairy Division and the Cooperative Division.
. The Dairy Division consists of patronage earnings generated by the fluid
milk and juice bottling plant located in Los Angeles, California.
Patronage dividends for this division are paid solely to patrons who
purchase manufactured and related products from the Dairy Division.
. The Cooperative Division consists of patronage earnings generated from
all other patronage activities of Unified and without distinction to
geographic location. The Cooperative Division includes the general
merchandise activity which previously was conducted in a non-patronage
subsidiary of Unified.
Net patronage earnings are based on the combined results of the Dairy Division
and the Cooperative Division. In the event of a loss in one division, the
Board of Directors will make an equitable decision with respect to treatment
of the loss.
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Due to logistics and geographic constraints, patrons who purchase from the
Dairy Division are primarily in Southern California. Patrons of Unified
outside of Southern California generally do not participate in the Dairy
Division.
Unified's bylaws provide that patronage dividends may be distributed in cash
or in any other form that constitutes a written notice of allocation under
Section 1388 of the Internal Revenue Code. Section 1388 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, that discloses to the recipient the stated
dollar amount allocated to the recipient by Unified and the portion thereof,
if any, which constitutes a patronage dividend.
Except with respect to member-patrons who were former United members and did
not receive sufficient Class B Shares immediately following the merger to meet
minimum Class B share ownership deposit requirements, patronage dividends for
the cooperative division is currently paid out in the following order and
manner: first, member-patrons receive 20% in cash; second, member-patrons
receive the required amount of Class B Shares; third, the remainder is
credited to the member-patron's deposit account. Dairy Division patronage
dividends are generally paid in cash after the close of each fiscal quarter.
MINIMUM PURCHASE REQUIREMENT
Unified requires that each patron meet the minimum purchase requirements
established by the board of directors, which may be changed from time to time.
Currently, Unified's minimum purchase requirement for member-patrons is $5,000
per week and $3,500 per week for associate-patrons. Exceptions to the minimum
purchase requirements may be granted by the board of directors. Entities not
meeting these minimum purchase requirements may be eligible to purchase
products on a non-patronage basis.
PATRON DEPOSITS
Unified generally requires that its patrons maintain a subordinated cash
deposit equal to the greater of twice the amount of each patron's average
weekly purchases or twice the amount of the patron's average purchases, if the
purchases are not on a regular basis. Required deposits are determined twice a
year, at the end of Unified's second and fourth fiscal quarters, based upon a
review of the patron's purchases from the Cooperative Division during the
preceding two quarters. Member-patrons meeting certain qualifications
established by the board of directors may elect to maintain a reduced required
deposit of $500,000 or one and one-quarter weeks' average purchases, whichever
is greater. Unified pays no interest on the required deposits. Interest is
paid on cash deposits which are in excess of patrons' required deposits.
Member-patrons may satisfy the minimum deposit requirement through a
combination of a cash deposit and the ownership of Class B Shares. The deposit
value of a Class B Share is based upon its book value at the year end prior to
the initial issuance of the Class B Shares except that for former United
shareholders, the deposit value of the Class B Shares received in the merger
is equal to $253.95 per share.
Former United shareholders who did not have sufficient Class B Shares
immediately following the merger to meet the minimum deposit requirements have
three alternatives: (i) provide a cash deposit for the deficiency; or (ii)
purchase additional Class B Shares to cover the deficiency; or (iii) agree to
assign 80% of the patronage dividends the shareholder will receive in the
future to Unified to purchase Class B Shares for the account of the
shareholder until the deficiency is eliminated. During that period, Unified
requires the member to purchase at least the percentage of their total product
that was purchased from United during the most recent 12 month period prior to
the merger under a supply agreement with Unified.
Associate-patrons may only satisfy the minimum deposit requirement through a
cash deposit.
In addition, patrons who participate in Unified's price reservation program
are required to maintain a noninterest-bearing deposit based upon the value of
their inventory included in this program. Under Unified's price reservation
program, patrons are permitted to submit price reservations in advance for
their dry grocery, frozen, delicatessen and general merchandise purchases. For
the patron to get the benefit of the price reservation, an actual order must
be placed. The price which the patron will be charged is the price in effect
at the time of the reservation.
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The required deposits of patrons are contractually subordinated and subject to
the prior payment in full of certain senior indebtedness of Unified. As a
condition of becoming a patron, each patron is required to execute a
subordination agreement providing for the subordination of the patron's
required deposits. Generally, the subordination is such that no payment can be
made by Unified with respect to the required deposits in the event of an
uncured default by Unified with respect to senior indebtedness, or in the
event of dissolution, liquidation, insolvency or other similar proceedings,
until all senior indebtedness has been paid in full.
Upon request, Unified will return to patrons the amount of cash deposits that
are in excess of the required deposits, provided the patron is not in default
of its obligations to Unified. On termination of membership, patrons are
entitled to a return of deposits, less all amounts that may be owing by the
patron to Unified. In all cases, however, return of that portion of the
patron's cash deposits which consists of required deposits will be governed by
the applicable subordination provisions.
SUBORDINATION AGREEMENT AND PLEDGE OF SHARES
Unified requires each patron, whether a member-patron or an associate-patron,
to execute a subordination agreement which provides for the subordination in
certain circumstances of the patron's right to repayment of its deposit to the
prior payment in full of certain indebtedness of Unified. In addition, Unified
requires each shareholder to pledge the Class A Shares and Class B Shares of
Unified to secure its obligations to Unified, and individual shareholders of
corporate members are required to guarantee the obligations of the corporate
member except that former shareholders of United who are in compliance with
their obligations to United and its subsidiaries are not required to provide
individual guarantees in the absence of financing transactions.
TAX MATTERS
Unified is a corporation operating primarily on a cooperative basis. Unified
is subject to federal and state income and franchise taxes and must pay other
taxes applicable to corporations, such as sales, excise and real and personal
property taxes.
As a corporation operating on a cooperative basis, Unified is subject to
Subchapter T of the Internal Revenue Code. Under Subchapter T, Unified pays
patronage dividends to patrons pertaining to its fiscal year within 8 months
of the close of such fiscal year. To qualify as patronage dividends, payments
are made on the basis of the value of the business done with or for patrons,
under a pre-existing obligation to make such payment, and with reference to
the net earnings from business done with or for the cooperative's patrons.
Patronage dividends are paid in cash or in any form that constitutes a written
notice of allocation. A written notice of allocation is distributed to the
patron and provides notice of the amount allocated to the patron by Unified
and the portion thereof which constitutes a patronage dividend.
Under Subchapter T, Unified may deduct, in the fiscal year for which they are
paid, the amount of patronage dividends paid in cash and qualified notices of
allocation. A written notice of allocation will be qualified if Unified pays
at least 20% of the patronage dividend in cash, and the patron consents to
take the stated dollar amount of the written notice into income in the year in
which it is received. Unified deducts for tax purposes the entire amount of
its patronage dividends by paying at least 20% in cash and issuing qualified
notices of allocation for the remainder.
Unified currently intends to continue to make patronage distributions to the
extent earned to member-patrons comprised of cash and qualified notices of
allocation, including its Class B Shares. At least 20% of patronage dividends
are expected to be paid in cash. Unified will notify patrons of the stated
dollar amount allocated to them and the portion thereof which is a patronage
dividend. Patrons are required to consent to include in their gross income, in
the year received, all cash as well as the stated dollar amount of all
qualified notices of allocation including the patronage certificates and the
book value of the Class B Shares distributed to them as patronage dividends.
Patronage certificates and Class B Shares distributed as part of the patronage
dividends are also subject to state income and corporation franchise taxes in
California and may be subject to these taxes in other states.
Unified is subject to federal income tax and California franchise tax on net
earnings of business with or for patrons which is not distributed as
deductible patronage dividends and on net earnings derived from nonpatronage
business. Unified files consolidated income tax returns with its subsidiaries.
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To the extent that Class B Shares are received by the patron as patronage
dividends under Subchapter T, the Internal Revenue Service ("IRS") has held
that if such Class B Shares are redeemed in full or in part or are otherwise
disposed of, there will be included in the computation of the gross income of
the patron, as ordinary income, in the year of redemption or other
disposition, the excess of the amount realized on the redemption or other
disposition over the amount previously included in the computation of gross
income. However, since Class B Shares may be issued other than as a part of
patronage dividends, it is possible that the IRS could take the position that
the proceeds from a partial redemption of Class B Shares should be taxed as a
dividend. Patrons are strongly urged to consult with their tax advisors for
further clarification of this issue and for the impact the position of the IRS
may have on their own federal and state tax returns.
EMPLOYEES
Unified employs approximately 4,000 employees, of whom approximately 2,500 are
members of one of several unions, the two largest being the International
Brotherhood of Teamsters and the United Food and Commercial Workers. The union
contracts have various expiration dates ranging from 2001 through 2004.
Unified believes its labor relations to be good.
ENERGY MATTERS
Unified's operations are dependent upon the continued availability of electric
power, diesel fuel, and gasoline. Unified's trucking operations are extensive.
Diesel fuel storage capacity represents approximately two weeks average usage.
A shortage of diesel fuel and gasoline could materially affect deliveries of
merchandise and the activities of Unified's service representatives and, thus,
adversely affect Unified's sales. Additionally, a significant increase in the
cost of electricity and/or diesel fuel could have a material impact on the
Company's earnings.
ITEM 2. PROPERTIES
FACILITIES
Unified's corporate offices, warehouses, retail stores and manufacturing
facilities as of September 30, 2000 are summarized as follows:
<TABLE>
<CAPTION>
Approximate
Square Footage
-------------------
Description Owned Leased
---------------------------------------------
<S> <C> <C>
Corporate offices 60,000 150,000
Dry warehouses 1,753,000 1,023,000
Refrigerated warehouses 822,000 945,000
Manufacturing facilities 165,000 --
Retail stores -- 753,000
</TABLE>
These properties are located in California, Oregon, and Washington.
ITEM 3. LEGAL PROCEEDINGS
Unified is a defendant in a number of cases currently in litigation or
potential claims encountered in the normal course of business that are being
vigorously defended. In the opinion of management, the resolutions of these
matters will not have a material adverse effect on Unified's financial
position, results of operations, or cash flow.
The Jerome Lemelson Foundation (the "Foundation"), which asserts ownership of
certain patents relating to bar code technology, issued a demand that the
Company enter into a license agreement with respect to certain patented
technology which the Company is claimed to use and which allegedly infringes
upon patents issued to Jerome Lemelson, which patents, upon the death of
Jerome Lemelson, were assigned to the Foundation. The Company has been advised
that the Foundation has filed an action against the Company and others
asserting patent infringement and seeking damages in unexpected amounts. The
Foundation continues to seek a negotiated settlement of its claim. Due to the
early stage of the proceeding, the Company is unable to assess the merits of
the lawsuit or to determine its potential liability, if any. The Company
intends to vigorously defend the action.
10
<PAGE>
The United States Environmental Protection Agency ("EPA") notified Unified in
1993 that, together with others, it was a potentially responsible party
("PRP") for the disposal of hazardous substances at a landfill site located in
Monterey Park, California. In 1999, the EPA notified the Company that,
together with others, it was a PRP for the disposal of hazardous substances at
a landfill site located in Patterson, California. Unified believes that its
share of cost for the remaining phases of cleanup for these sites will not
exceed the amounts which Unified has reserved.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
11
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
There is no market for Unified's Class A Shares, Class B Shares, or Class C
Shares. As of November 25, 2000, Unified's Class A Shares were held of record
by 673 shareholders, Class B Shares were held of record by 560 shareholders,
and Unified's Class C Shares were held of record, one share each, by the
24 directors of Unified. In the past, the Company has not paid cash dividends
on its stock, and it has no intention to do so in the future.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial information below has been derived from the audited
consolidated financial statements of Unified as of and for its fiscal years
ended August 31, 1996, August 30, 1997, August 29, 1998 and August 28, 1999,
its transition period ended October 2, 1999, and its fiscal year ended
September 30, 2000. This information is only a summary and should be read in
conjunction with Unified's historical financial statements, and related notes,
contained elsewhere in this document.
(In thousands, except book value per share)
<TABLE>
-----------------------------------------------------------------------------------------------
<CAPTION>
Fiscal Year(1) 1996 1997 1998 1999(1) 1999(2) 2000
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $1,948,919 $1,927,092 $1,831,686 $1,893,523 $211,633 $3,067,395
Operating income (loss) 29,502 31,549 26,252 34,589 (1,149) 27,905
Patronage dividends 13,200 14,464 10,149 14,195 -- 15,426
Net earnings (loss) 1,517 2,307 3,389 2,639 (7,269) (11,366)
Total assets 374,737 394,002 389,218 451,135 753,513 765,850
Long-term notes payable 75,617 92,217 125,130 143,727 292,871 259,229
Book value per share 167.94 175.22 183.47 188.27 227.56 200.78
</TABLE>
-------------------------------------------------------------------------------
(1) 1999 includes the acquisition of SavMax Foods, Inc. from December 31,
1998.
(2) Effective September 27, 1999, the Company changed its fiscal year end from
the Saturday nearest August 31 to the Saturday nearest September 30. The
transition period covers the period of August 29, 1999 through October 2,
1999. In September 1999, Unified completed a merger (the "Merger") with
United Grocers, Inc. ("United"), a grocery cooperative headquartered in
Milwaukie, Oregon. The transition period from September 29, 1999 and the
fiscal year ended September 30, 2000 include the results of the Merger with
United which was accounted for as a purchase.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of Unified's financial condition and results of
operations should be read in conjunction with the financial statements and
notes to the financial statements included elsewhere in this document.
RESULTS OF OPERATIONS
The following table sets forth selected financial data of Unified expressed as
a percentage of net sales for the periods indicated below:
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
August 29, August 28, October 2, September 30,
Fiscal Period Ended 1998 1999 1999(1) 2000
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 91.1 90.7 90.9 89.2
Distribution, selling and ad-
ministrative expenses 7.5 7.5 9.6 9.9
Operating income (loss) 1.4 1.8 (0.5) 0.9
Interest expense 0.7 0.6 0.7 0.9
Other (income) expense, net (0.2) 0.3 3.4 --
Earnings (loss) before
patronage dividends, provision
for income taxes and
extraordinary item 0.9 0.9 (4.6) (0.0)
Patronage dividends 0.5 0.8 0.0 0.5
Provision (benefit) for income
taxes 0.1 -- (1.2) (0.1)
Extraordinary item, net of
taxes 0.1 -- -- --
Net earnings (loss) 0.2 0.1 (3.4) (0.4)
-------------------------------------------------------------------------------
</TABLE>
(1) Transition period of August 29, 1999 through October 2, 1999.
FISCAL YEAR ENDED SEPTEMBER 30, 2000 ("2000 PERIOD") COMPARED TO FISCAL YEAR
ENDED AUGUST 28, 1999 ("1999 PERIOD")
Net Sales. Net sales totaled $3.1 billion for the 2000 period as compared to
$1.9 billion for the 1999 period. The sales increase of $1,173 million
represents a 61.9% increase over the 1999 period. The increase in sales is
primarily related to the Merger with United ($873.1 million), additional
wholesale supply volume to stores which certain member retailers acquired as a
result of the Albertson's divestiture ($70.9 million), the consolidation of
SavMax ($36.7 million), the purchase of the operating assets of Gourmet
Specialties ($35.8 million), and the retail volume from stores the Company
acquired as a result of the Albertson's divestiture ($35.9 million).
Cost of Sales. In the 2000 period, cost of sales were $2.7 billion compared to
$1.7 billion in the 1999 period. The overall gross margin as a percentage of
net sales is 1.5% higher compared to the comparable period in 1999. The
increase in gross margin is due primarily to an increase in retail sales,
which have higher gross margins than distribution activities, and to an
increase in higher margin sales from Gourmet Specialties.
Distribution, Selling and Administrative. Distribution, selling and
administrative expenses were $304.5 million in the 2000 period, as compared to
$141.2 million in the 1999 period. The increase is due primarily to higher
operating costs for Unified's expanding retail operations, the higher costs of
the Gourmet Specialties operations, and higher warehousing and distribution
costs related to the accelerated transition process during the second quarter
to combine the distribution operations of the former United and Certified in
northern California ($1.5 million).
Interest. Interest expense was $28.9 million in the 2000 period as compared to
$11.9 million in the 1999 period. Borrowings under the Company's Credit
Agreements were higher during the 2000 period as compared to the 1999 period
as a result of the financing required by the merger with United
($126.8 million). Borrowings related to inventory purchases decreased as a
result of the accelerated consolidation of the northern California facilities
($15.0 million). The Company has also experienced higher interest rates in the
2000 period compared to the 1999 period. Weighted average interest rates
relating to the Senior Notes and Revolving Credit in the 2000 period were
8.16% compared with 6.89% in the 1999 period.
13
<PAGE>
Other Income (Expense), Net. During the 1999 period, Unified sold its 10%
investment in common stock of K.V. Mart Co. for $4.5 million. The sales
resulted in a pretax gain of $1.5 million. The gain was offset by an
impairment of $7.3 million recorded on Unified's investment in Hawaiian
Grocery Stores ("HGS"). HGS defaulted on principal and interest payments
required by a note receivable and was also delinquent in paying accounts
receivable. Due to the uncertainty of when or if the default could be cured
and the belief that the impairment was other than temporary, the Company wrote
down the investment and trade receivable to a nominal carrying value.
Patronage Dividends. Patronage dividends totaled $15.4 million for the 2000
period as compared to $14.2 million for the 1999 period. The patronage
earnings for fiscal 2000 are comprised of the patronage earnings from the
Company's two patronage pools: the Cooperative and Dairy Divisions. For the
2000 period, the Company had patronage earnings of $4.4 million for the
Cooperative Division and patronage earnings of $11.0 million from the Dairy
Division. For the 1999 period, the Company had patronage income of
$4.3 million in the Cooperative Division and patronage earnings of $9.9
million from the Dairy Division.
Income Taxes. The income tax benefit is $5.0 million for the 2000 period
compared to a provision for income taxes of $64,000 for the 1999 period. The
income tax benefit reflects the effect of the current year losses in non-
patronage subsidiaries that can be utilized to offset taxable income in
previous periods and carried forward to offset taxable income in future
periods generated from operations and available tax planning strategies.
Net (Loss) Earnings. Net loss for the 2000 period was $11.4 million compared
to net earnings $2.6 million for the 1999 period. The losses resulted
primarily from Unified's retail operations ($13.7 million pre-tax). This was
predominately due to start-up costs, operating losses, and shutdown costs from
the stores operated by the Company as a result of its store acquisitions from
Albertson's, along with losses of Unified's other retail operations including
retail operations acquired from United. Net earnings/losses are generated by
the Company's subsidiaries and nonpatronage activities, which do not
distribute patronage dividends. The Company intends to sell or close
unprofitable retail operations and is evaluating under-performing subsidiary
operations.
TRANSITION PERIOD ENDED OCTOBER 2, 1999
The transition period resulting from the change in the Company's fiscal year-
end includes the operating activities of Unified for the period between August
29, 1999 and October 2, 1999 and the operating activities of United for the
three day period between the effective date of the merger, September 29, 1999
and October 2, 1999. The operating results for the five week transition period
reflected a pretax loss of $9.9 million. Transition activities accounted for
$8.2 million of the loss. The primary components of the transition activities
included: an early retirement plan for employees of Unified totaling $6.3
million (included in other expense), the write-off of United's deferred
financing costs of $0.7 million, and integration consulting costs of $0.3
million.
FISCAL YEAR ENDED AUGUST 28, 1999 ("1999 PERIOD") COMPARED TO FISCAL YEAR
ENDED AUGUST 29, 1998 ("1998 PERIOD")
Net Sales. Net sales totaled $1.9 billion for the 1999 period and $1.8 billion
in the 1998 period. The sales increase of $61.8 million represents a 3.4%
increase over the 1998 period. In October 1998, North State Grocery Company
was added as a member-patron. Sales to North State Grocery amounted to $35.4
million in the 1999 period. Additionally, retail sales generated by SavMax
since the acquisition date of December 31, 1998, added net sales of $75
million. Also, there were increased sales to the ongoing membership of
approximately $33.6 million. Offsetting these increases were $82.2 million of
sales volume lost as a result of losing two member-patrons, Hughes Family
Markets ("Hughes") and Nob Hill Markets ("Nob Hill"). Hughes and Nob Hill were
acquired by entities that have self-distribution programs; accordingly,
product supply to these member-patron stores migrated into the corresponding
self-distribution facilities in the period between March 1998 through November
1998.
Cost of Sales. In the 1999 period cost of sales were $1.7 billion, or 90.7% of
net sales, compared to $1.7 billion, or 91.1% of net sales, in the 1998
period. The overall gross margin as a percentage of net sales is slightly
higher compared to the comparable period in 1998. The increase in gross margin
is due to additional gross margin from retail sales generated by SavMax which
Unified acquired in December 1998. The
14
<PAGE>
increased margins were partially offset by increased claims expense of
approximately $4.0 million in one of Unified's insurance subsidiaries and
lower margins in the cooperative divisions.
Distribution, Selling and Administrative. Distribution, selling and
administrative expenses were $141.2 million, or 7.5% of net sales in the 1999
period, as compared to $137.2 million, or 7.5% of net sales, in the 1998
period. The increase is due to additional costs of $15.5 million related to
retail operations of SavMax. These costs were partially offset by improvements
in wholesale distribution expenses in the 1999 period. The Company incurred
nonrecurring charges relating to a settlement of litigation in the 1998
period. Also, expenses decreased as a result of retail operations that were
disposed of in fiscal 1998.
Interest. Interest expense decreased from $12.3 million, or 0.7% of net sales,
in the 1998 period to $11.9 million, or 0.6% of net sales, in the 1999 period.
The decrease is due to lower interest rates associated with the $180.0 million
refinancing completed in April 1998. Average interest rates related to the
senior notes and revolving credit in the 1998 period were 7.94% and 6.89% in
the 1999 period.
Other Income (Expense), Net. During the 1999 period, Unified sold its 10%
investment in common stock of K.V. Mart Co. for $4.5 million. The sale
resulted in a pretax gain of $1.5 million. The gain was offset by an
impairment of $7.3 million recorded on Unified's investment in HGS. Subsequent
to year-end, HGS defaulted on principal and interest payments required by a
note receivable and was also delinquent in paying accounts receivable. Due to
the uncertainty of when or if the default could be cured and the belief that
the impairment was other than temporary, the Company wrote down the investment
and trade accounts receivable to a nominal carrying value. In May 1998,
Unified completed the sale of approximately 24 acres of property located in
Commerce, California. This sale resulted in a gain (net of expenses related to
the sale) of $3.2 million.
Patronage Dividends. Declared patronage dividends totaled $14.2 million for
the 1999 period as compared to $10.1 million for the 1998 period. The increase
is due to lower wholesale distribution, selling and administrative expenses,
interest expense, and the non-recurrence of expense related to the early
extinguishment of debt in the 1998 period, offset by impairment expenses
related to HGS as discussed above.
Extraordinary charge. The extraordinary loss of $1.08 million, net of income
taxes, in fiscal 1998 is related to the early extinguishment of debt in
connection with the Company's refinancing transaction. This charge covers
prepayment premiums paid and the write-off of financing costs relating to debt
refinanced in the transaction.
Net Earnings. Net earnings for the 1999 period were $2.6 million compared to
$3.4 million for the 1998 period. Net earnings are generated by the Company's
subsidiaries and nonpatronage activities, which do not distribute patronage
dividends.
LIQUIDITY AND CAPITAL RESOURCES
Unified relies upon cash flow from operations, patron deposits, shareholdings
and borrowings under Unified's credit lines, to finance operations. Net cash
provided by operating activities totaled $51.3 million for the 2000 period.
Net cash provided by operating activities totaled $9.5 million for the 1999
period. Net cash provided by operating activities in the 2000 period is
primarily due to increased accounts payable and long-term liabilities in the
distribution and SavMax operations and increased depreciation and
amortization. At September 30, 2000, working capital was $132.9 million. The
current ratio was 1.5, 1.7 and 1.4 as of August 28, 1999, October 2, 1999 and
September 30, 2000, respectively. Working capital varies primarily as a result
of seasonal inventory requirements.
Capital expenditures totaled $23.4 million in the 2000 period, $17.3 million
in the 1999 period, and $18.4 million in the 1998 period.
Unified has a five-year, $200 million revolving credit facility which expires
October 1, 2004, secured by accounts receivable and inventories. Borrowings
bear interest at either LIBOR plus an applicable margin based on a funded debt
to operating cash flow ratio or the higher of the lender's base rate or 0.50%
above the lender's federal funds borrowing rate. The revolving credit facility
permits advances up to 85% of eligible accounts receivable and 65% of eligible
inventories. The security interest would be released if Unified achieves
designated investment grade ratings for a period of not less than one year.
15
<PAGE>
Unified also has outstanding to certain insurance companies and pension funds
$78.3 million of 7.72% senior notes due April 2008, and $40 million of 8.71%
senior notes due October 2009, both of which are secured by property, plant
and equipment. The interest rate on the $78.3 million senior notes would
reduce .50% and the securitization of both notes would be eliminated in the
event Unified achieves designated investment grade ratings for a period of not
less than one year.
The credit agreements contain customary representations, warranties,
covenants, including financial covenants, and default provisions for financing
of this type. Obligations under the credit agreements are senior to the rights
of members with respect to deposits, patronage dividend certificates and
subordinated Notes. Both the Senior Notes and the revolving credit facility
limit the incurrence of additional funded debt, restrict the issuance of
secured debt, and prohibit distributions to shareholders (including repurchase
of shares) under certain circumstances.
Unified entered into a five-year interest rate collar agreement during
February 1999 in relation to certain borrowings on its revolving credit
facility. The collar agreement was put in place without incurring a fee with
respect to the collar transaction. The hedge agreement is structured such that
Unified pays a variable rate of interest between 6% (cap rate) and 4.94%
(floor rate) based on a notional amount of $50,000,000. The weighted average
interest rate, prior to lender's margin, on borrowings on the revolving credit
was 6.71% at September 30, 2000.
A $10 million credit agreement is collateralized by Grocers Capital Company's
("GCC's") member loan receivables. GCC is a wholly owned subsidiary of
Unified. The primary function of GCC is to provide loan financing to Unified's
member-patrons. The funding for loans made by GCC is provided by GCC's cash
reserves as well as the $10 million credit agreement. The maturity date of the
credit agreement is September 20, 2001, but is subject to an annual extension
of one year by the mutual consent of GCC and the bank. No amounts were
outstanding under this credit line at September 30, 2000. The unused portion
of this credit line is subject to commitment fees of 0.125% plus $25,000
annually.
Member loan receivables are periodically sold by GCC to a bank through a loan
purchase agreement. The maturity date of the loan purchase agreement is August
29, 2001, but is subject to extension by mutual agreement of GCC and the bank
for an additional one year on each anniversary date of the initial purchase
date. Total loan purchases under the agreement are limited to a total
aggregate principal outstanding of $50 million. GCC entered into an additional
loan purchase agreement with a different bank in January 1999. This additional
loan purchase agreement can be terminated upon ninety days prior written
notice and there is no maximum limitation on the loan purchases. At August 28,
1999 and September 30, 2000, the aggregate outstanding principal balance of
loans purchased by the banks was $27 million and $17 million, respectively.
The loan sales are subject to limited recourse provisions.
Unified distributes at least 20% of the patronage dividends in cash and
distributes Class B Shares as a portion of the patronage dividends distributed
to its member-patrons. Patrons are generally required to maintain subordinated
deposits with Unified and member-patrons purchase Class B shares to satisfy
this requirement. In the Merger, former United members were provided the
opportunity to build the minimum subordinated deposit over time, provided that
they agree to assign 80% of patronage dividends received and maintain a supply
agreement with Unified until the minimum deposit condition is satisfied. Upon
termination of patron status, the withdrawing patron will be entitled to
recover deposits in excess of its obligations to Unified if permitted by the
applicable subordination provisions, and a member-patron also will be entitled
to have its shares redeemed, subject to applicable legal requirements, company
policies and credit agreement limitations.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. The statement requires that
Unified recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. As amended by SFAS
No. 137, this statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000.
Unified makes limited use of hedge agreements, primarily to manage the risk
associated with interest rates of its debt agreements. Additionally, Unified
has investments in convertible bonds that are held for sale. The
16
<PAGE>
convertible feature of the bonds constitutes an embedded derivative, as
defined by SFAS No. 133. Unified classifies these investments as available for
sale in its financial statements and reflects them at fair value. With respect
to derivatives used as hedges, management has determined that the adoption of
SFAS No. 133 will result in a cumulative after tax increase to other
comprehensive earnings (loss) for the year ended September 29, 2001 of
approximately $800,000 and will not have a significant impact on net earnings.
The adoption of SFAS No. 133 relative to the embedded derivatives in the
convertible bonds will not have a material effect on the financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB No. 101") which summarizes certain of the
staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. The effective date of SAB No. 101 for the
Company is the quarter ending September 29, 2001. The application of SAB No.
101 will not have a material impact on the Company's financial position or its
results of operations.
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; 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; sales
decline and loss of customers; exposure to the uncertainties of litigation and
other contingent liabilities; 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 establish their
required minimum deposits over time through use of patronage dividends to
purchase Class B Shares if such members default on their obligations to
Unified prior to their deposit requirements being met and the existing deposit
proves inadequate to cover such members' obligation. All forward-looking
statements attributable to Unified are expressly qualified in their entirety
by the factors which may cause actual results to differ materially.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Unified has only limited involvement with derivative financial instruments and
does not use them for trading purposes. They are used to manage well-defined
interest rate risks. Unified entered into a five-year interest rate collar
agreement during February 1999 in relation to certain borrowings on its
variable rate revolving credit. The collar agreement was put in place without
incurring a fee with respect to the collar transaction. The hedge agreement is
structured such that Unified pays a variable rate of interest between 6% (cap
rate) and 4.94% (floor rate) based on a notional amount of $50,000,000. The
weighted average interest rate, prior to lender's margin, on borrowings on the
revolving credit was 6.71% at September 30, 2000. The fair value of the collar
agreement at September 30, 2000 was approximately $1,195,000.
17
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Unified Western Grocers, Inc.
We have audited the accompanying consolidated balance sheets of Unified
Western Grocers, Inc. and subsidiaries (the "Company") as of August 28, 1999,
October 2, 1999, and September 30, 2000, and the related consolidated
statements of earnings and comprehensive earnings, shareholders' equity, and
cash flows for the years ended August 29, 1998 and August 28, 1999, the
transition period ended October 2, 1999, and the year ended September 30,
2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of August 28,
1999, October 2, 1999, and September 30, 2000, and the results of its
operations and its cash flows for the years ended August 29, 1998 and August
28, 1999, the transition period ended October 2, 1999, and the year ended
September 30, 2000 in conformity with accounting principles generally accepted
in the United States of America.
DELOITTE & TOUCHE LLP
Los Angeles, California
December 5, 2000
18
<PAGE>
--------------------------------------------------------------------------------
Unified Western Grocers, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August October 2, September 30,
28, 1999 1999 2000
---------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $8,027 $17,057 $ 10,355
Accounts and notes receivable, net 108,786 190,989 190,654
Inventories 150,800 228,997 230,259
Prepaid expenses 5,544 11,352 6,493
Deferred taxes 4,286 7,005 14,210
---------------------------------------------------------------------------------
Total current assets 277,443 455,400 451,971
Properties, net 79,231 119,574 123,374
Investments 35,017 40,479 43,585
Notes receivable 13,914 45,426 46,780
Goodwill, net 22,964 54,297 55,745
Other assets, net 22,566 38,337 44,395
---------------------------------------------------------------------------------
TOTAL ASSETS $451,135 $753,513 $765,850
---------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $102,172 $170,711 $214,607
Accrued liabilities 54,536 82,881 77,258
Current portion of notes payable 6,623 7,605 10,760
Patrons' excess deposits and declared pat-
ronage dividends 16,091 13,026 16,428
---------------------------------------------------------------------------------
Total current liabilities 179,422 274,223 319,053
Notes payable, due after one year 143,727 292,871 259,229
Long-term liabilities, other 29,393 53,336 62,114
Commitments and contingencies
Patrons' deposits and certificates:
Patrons' required deposits 12,450 22,325 21,970
Subordinated patronage dividend certifi-
cates 5,986 5,986 5,926
Shareholders' equity:
Class A Shares 5,669 10,398 10,899
Class B Shares 57,833 70,591 74,870
Additional paid-in capital 18,095 18,095
Retained earnings (deficit) 17,160 6,247 (5,572)
Accumulated other comprehensive (loss) (505) (559) (734)
---------------------------------------------------------------------------------
Total shareholders' equity 80,157 104,772 97,558
---------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQ-
UITY $451,135 $753,513 $765,850
---------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
19
<PAGE>
--------------------------------------------------------------------------------
Unified Western Grocers, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE EARNINGS
(dollars in thousands)
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
Transition
Year ended Year ended Period ended Year ended
August 29, August 28, October 2, September 30,
1998 1999 1999 2000
-------------------------------------------------------------------------------
Net sales $1,831,686 $1,893,523 $211,633 $3,067,395
Costs and expenses:
Cost of sales 1,668,202 1,717,779 192,323 2,735,011
Distribution, selling and
administrative 137,232 141,155 20,459 304,479
-------------------------------------------------------------------------------
Operating income (loss) 26,252 34,589 (1,149) 27,905
Interest expense (12,320) (11,911) (1,495) (28,880)
Other income (expense),
net 3,200 (5,780) (7,218) --
-------------------------------------------------------------------------------
Earnings (loss) before
patronage dividends,
provision for income
taxes and extraordinary
item 17,132 16,898 (9,862) (975)
Patronage dividends (10,149) (14,195) -- (15,426)
-------------------------------------------------------------------------------
Earnings (loss) before
provision for income
taxes and extraordinary
item 6,983 2,703 (9,862) (16,401)
Provision (benefit) for
income taxes 2,515 64 (2,593) (5,035)
-------------------------------------------------------------------------------
Earnings (loss) before
extraordinary item 4,468 2,639 (7,269) (11,366)
-------------------------------------------------------------------------------
Extraordinary item (net
of income taxes of $714) 1,079 -- -- --
-------------------------------------------------------------------------------
NET EARNINGS (LOSS) 3,389 2,639 (7,269) (11,366)
-------------------------------------------------------------------------------
Other comprehensive
earnings (loss), net of
income taxes:
Unrealized holding (loss)
gain (5) (738) (54) 189
Minimum pension liability
adjustment 27 56 -- (364)
-------------------------------------------------------------------------------
COMPREHENSIVE EARNINGS
(LOSS) $3,411 $1,957 $(7,323) $(11,541)
-------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
20
<PAGE>
--------------------------------------------------------------------------------
Unified Western Grocers, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(dollars in thousands)
<TABLE>
----------------------------------------------------------------------------------------------
<CAPTION>
Class A Class B
--------------- ----------------
for fiscal years ended
August 29, 1998,
August 28, 1999, the Accumulated
transition period ended Other
October 2, 1999, and Retained Comprehensive
fiscal year ended Paid-in Earnings Earnings
September 30, 2000 Shares Amount Shares Amount Capital (Deficit) (Loss)
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, August 30, 1997 47,900 $ 5,361 385,990 $57,349 $ 13,162 $ 155
Class A Shares issued 4,800 841
Class A Shares redeemed (5,900) (723) (311)
Class B Shares issued 13,456 2,470
Class B Shares redeemed (19,300) (2,827) (555)
Net earnings 3,389
Net unrealized loss on
depreciation of
investments (net of
deferred tax benefit
of $5) (5)
Minimum pension
liability adjustment
(net of deferred tax
liability of $17) 27
----------------------------------------------------------------------------------------------
Balance, August 29, 1998 46,800 5,479 380,146 56,992 15,685 177
Class A Shares issued 4,800 879
Class A Shares redeemed (5,200) (689) (264)
Class B Shares issued 18,210 3,429
Class B Shares redeemed (19,007) (2,588) (900)
Net earnings 2,639
Net unrealized loss on
depreciation of
investments (net of
deferred tax benefit
of $375) (738)
Minimum pension
liability adjustment
(net of deferred tax
liability of $41) 56
----------------------------------------------------------------------------------------------
Balance, August 28, 1999 46,400 5,669 379,349 57,833 17,160 (505)
Class A Shares issued 18,952 4,793 $ 3,176
Class A Shares redeemed (500) (64) (30)
Class B Shares issued 87,526 22,227 14,919
Class B Shares redeemed (71,310) (9,469) (3,614)
Net loss (7,269)
Net unrealized loss on
depreciation of
investments (net of
deferred tax benefit
of $27) (54)
Minimum pension
liability adjustment
(net of deferred tax
liability of $0) --
----------------------------------------------------------------------------------------------
Balance, October 2, 1999 64,852 10,398 395,565 70,591 18,095 6,247 (559)
Class A Shares issued 4,280 1,024
Class A Shares redeemed (3,294) (523) (110)
Class B Shares issued 37,131 7,490
Class B Shares redeemed (12,645) (3,211) (343)
Net loss (11,366)
Net unrealized gain on
appreciation of
investments (net of
deferred tax liability
of $91) 189
Minimum pension
liability adjustment
(net of deferred tax
benefit of $241) (364)
----------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30,
2000 65,838 $10,899 420,051 $74,870 $18,095 $ (5,572) $(734)
----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
21
<PAGE>
--------------------------------------------------------------------------------
Unified Western Grocers, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Transition Year
Year ended Year ended Period ended ended
August 29, August 28, October 2, September 30,
1998 1999 1999 2000
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating ac-
tivities:
Net earnings (loss) $3,389 $2,639 $(7,269) $(11,366)
Adjustments to reconcile net
earnings (loss) to net cash
(utilized) provided by oper-
ating activities:
Depreciation and amortization 14,792 16,906 2,478 26,514
Deferred taxes (1,219) (1,535) (5,035)
Gain on sale of investments
in affiliates, member loan
receivables,
and properties, net (2,460) (1,360) (32) (50)
Reduction in fair value of
investment 7,280
(Increase) decrease in as-
sets:
Accounts and notes receiv-
able, net (1,297) (11,971) (17,173) (2,258)
Inventories 10,853 (15,166) (5,804) (1,262)
Prepaid expenses 163 (275) 1,554 4,859
Notes receivable (5,057) (2,753) (700) (3,865)
Increase (decrease) in lia-
bilities:
Accounts payable (23,628) 7,713 8,517 43,896
Accrued liabilities (7,293) (1,438) 9,155 (6,798)
Patrons' excess deposits and
declared patronage divi-
dends (3,196) 2,461 (3,065) 3,402
Long-term liabilities, other 2,329 6,978 6,458 3,269
-------------------------------------------------------------------------------
Net cash (utilized) provided
by operating activities (12,624) 9,479 (5,881) 51,306
-------------------------------------------------------------------------------
Cash flows from investing ac-
tivities:
Purchase of properties (18,414) (11,372) (1,141) (23,363)
Investment in securities, net (4,632) (7,720) 200 (2,917)
Proceeds from sales of notes
receivable 2,780 6,590 2,511
Proceeds from sales of prop-
erties 12,320 82 81 674
Increase in other assets (2,236) (3,024) (4,473) (7,970)
Acquisition of net assets
from wholesale distribution
companies* (8,954) 7,134 (428)
Acquisition of net assets in
retail store operations** 75
-------------------------------------------------------------------------------
Net cash (utilized) provided
by investing activities (10,182) (24,323) 1,801 (31,493)
-------------------------------------------------------------------------------
Cash flows from financing ac-
tivities:
Additions to long-term notes
payable 124,000 20,500 114,000
Reduction of long-term notes
payable (90,344) (139) (86,098) (26,248)
Additions to short-term notes
payable 109 81
Reduction of short-term notes
payable (11,329) (1,593) (3,010) (7,531)
Redemption of patronage divi-
dend certificates (172)
Repurchase of shares from
members (4,416) (4,441) (13,177) (976)
(Decrease) increase in mem-
bers' required deposits (2,211) 303 1,230 (713)
Issuance of shares to members 3,311 4,308 56 8,872
-------------------------------------------------------------------------------
Net cash provided (utilized)
by financing activities 19,011 18,766 13,110 (26,515)
-------------------------------------------------------------------------------
Net (decrease) increase in
cash and cash equivalents (3,795) 3,922 9,030 (6,702)
Cash and cash equivalents at
beginning of year 7,900 4,105 8,027 17,057
-------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $4,105 $8,027 $17,057 $10,355
-------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
22
<PAGE>
-------------------------------------------------------------------------------
Unified Western Grocers, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(dollars in thousands)
<TABLE>
--------------------------------------------------------------------------------
<CAPTION>
Transition
Year ended Year ended Period ended Year ended
August 29, August 28, October 2, September 30,
1998 1999 1999 2000
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMA-
TION:
Cash paid during the
year for:
Interest $12,790 $11,962 $2,426 $26,262
Income taxes $3,179 $1,673
--------------------------------------------------------------------------------
*ACQUISITION OF NET AS-
SETS FROM WHOLESALE
DISTRIBUTION COMPANIES:
Working capital, other
than cash $(6,292) $(62,814) $(431)
Properties (1,442) (40,709) 850
Notes receivable and
other assets (1,220) (45,457) (2,217)
Goodwill - United Gro-
cers, Inc. (29,233) (2,452)
Goodwill - Central Food
Sales (428)
Long-term notes payable 119,429
Long-term liabilities,
other 17,485 4,250
--------
(41,299)
Total equity investment
in United Grocers,
Inc. 48,433
--------------------------------------------------------------------------------
Net cash effect due to
acquisition of net as-
sets from wholesale
distribution companies $(8,954)(A) $7,134 (B) $(428)(C)
--------------------------------------------------------------------------------
**ACQUISITION OF NET AS-
SETS IN RETAIL STORE
OPERATIONS:
Working capital, other
than cash $11,327
Properties (4,467)
Notes receivable and
other long-term assets (2,681)
Goodwill (23,354)
Long-term liabilities,
other 1,883
Long-term notes payable 5,479
--------------------------------------------------------------------------------
(11,813)
Previous investment in
retail store opera-
tions 11,888
--------------------------------------------------------------------------------
Net cash effect due to
acquisition of net
assets in retail
store operations $75
--------------------------------------------------------------------------------
</TABLE>
(A) Acquisition of Gourmet Specialties in fiscal 1999.
(B) Acquisition of United Grocers, Inc. on September 29, 1999.
(C) Acquisition of Central Food Sales in fiscal 2000 and adjustments to
acquisition of net assets from United Grocers, Inc. at September 29, 1999.
NONCASH TRANSACTION:
During the year ended September 30, 2000, the Company issued $3,211 of
subordinated redemption notes to repurchase Class B Shares from members.
The accompanying notes are an integral part of these statements.
23
<PAGE>
Unified Western Grocers, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS)
Fiscal years ended August 29, 1998 and August 28, 1999, the transition period
ended October 2, 1999 and fiscal year ended September 30, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation:
On September 27, 1999, the shareholders of Certified Grocers of California,
Ltd. ("Certified") and United Grocers, Inc. ("United") (a grocery cooperative
headquartered in Milwaukie, Oregon) approved a merger agreement (the "Merger")
in which United merged with a wholly owned subsidiary of Certified (see Note
4). The Merger became effective on September 29, 1999. In connection with the
Merger, Certified changed its name to Unified Western Grocers, Inc. (the
"Company" or "Unified"). The acquisition was accounted for as a purchase as of
September 29, 1999.
Effective September 27, 1999, the Company changed its fiscal year end from the
Saturday nearest August 31 to the Saturday nearest September 30. The
transition period covers the period from August 29, 1999 through October 2,
1999.
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Intercompany transactions and accounts with subsidiaries
have been eliminated.
Nature of Business:
The Company is a cooperative organization engaged principally in the
distribution of food products and related general merchandise products
primarily to retail establishments owned by shareholders of the Company. All
establishments with which directors are affiliated, as members of the Company,
purchase groceries, related products and store equipment from the Company in
the ordinary course of business pursuant to published terms or according to
the provisions of supply agreements.
The Company makes investments in retail grocery operations to assist its
members. Periodically, the Company will own and manage retail grocery stores
on a temporary basis until a qualified and suitable owner can be identified.
Use of Estimates:
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash Equivalents:
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Inventories:
Inventories are valued at the lower of cost or market. Cost is determined on
the first-in, first-out method for items of warehouse stock and on the retail
method for retail stores.
Depreciation:
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which range from 3 to 40 years. Leasehold
improvements are amortized based on the estimated life of the asset or the
life of the lease, whichever is shorter. Expenditures for replacements or
major improvements are
24
<PAGE>
Unified Western Grocers, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
capitalized; expenditures for normal maintenance and repairs are charged to
operations as incurred. Upon sale or retirement of properties, the cost and
accumulated depreciation are removed from the accounts, and any gain or loss
is included in operations.
Investments:
The Company has classified all investments in debt securities as held-to-
maturity securities, based on the Company's positive intent and ability to
hold those securities. Held-to-maturity securities are carried at cost,
adjusted for amortization of premiums and accretion of discounts to maturity.
Equity investments and subordinated interests, residual interests and
servicing fee amounts from the sale of member loan receivables are carried at
estimated fair value and are classified as investments available-for-sale.
Unrealized gains and losses, net of taxes, on available-for-sale investments
are recorded as a separate component of shareholder's equity.
Goodwill:
Goodwill, representing the excess of the purchase price over the estimated
fair value of net assets acquired (see Note 4), is amortized over the period
of expected benefit. Management reviews goodwill for impairment whenever
events or changes in circumstances indicate that the carrying amount may not
be recoverable. Management deems goodwill to be impaired if the estimated
expected undiscounted future cash flows are less than the carrying amount.
Estimates of expected future cash flows are based on management's best
estimates of anticipated operating results over the remaining useful life of
the assets. Included in the consolidated balance sheet at August 28, 1999,
October 2, 1999, and September 30, 2000 is goodwill totaling $23.4 million,
$54.8 million, and $57.6 million, net of accumulated amortization of $0.4
million, $0.5 million, and $1.9 million, respectively.
Environmental Costs:
The Company expenses, on a current basis, certain recurring costs incurred in
complying with environmental regulations and remediating environmental
pollution. The Company also reserves for certain non-recurring future costs
required to remediate environmental pollution for which the Company is liable
whenever, by diligent legal and technical investigation, the scope or extent
of pollution has been determined, the Company's contribution to the pollution
has been ascertained, remedial measures have been specifically identified as
practical and viable, and the cost of remediation and the Company's
proportionate share can be reasonably estimated.
Reclassifications:
Certain amounts in the prior years' financial statements have been
reclassified to conform to the current year's presentation.
25
<PAGE>
Unified Western Grocers, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Comprehensive Earnings (Loss):
During fiscal 1999, the Company adopted Statement of Financial Accounting
Standard ("SFAS") No. 130, "Reporting Comprehensive Income." This statement
establishes standards for the reporting and displaying of comprehensive income
and its components. Comprehensive income is net earnings, plus certain other
items that are recorded by the Company directly to shareholders' equity,
bypassing net earnings. The only items currently applicable to the Company are
the unrealized gain or loss on appreciation or depreciation of investments and
the minimum pension liability adjustment. The balance and current period
change for each component of comprehensive earnings (loss) are summarized as
follows:
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Net Unrealized Gain
(Loss) On Appreciation Minimum Pension
(Depreciation) of Investments Liability Adjustment
-------------------------------------------------------------------------------
<S> <C> <C>
Balance, August 30, 1997 $ 238 $ (83)
Current-period change (5) 27
-------------------------------------------------------------------------------
Balance, August 29, 1998 233 (56)
Current-period change (738) 56
-------------------------------------------------------------------------------
Balance, August 28, 1999 (505) 0
Current-period change (54) 0
-------------------------------------------------------------------------------
Balance, October 2, 1999 (559) 0
Current-period change 189 (364)
-------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 2000 $(370) $(364)
-------------------------------------------------------------------------------
</TABLE>
The components of the net change in unrealized holding gains (losses) are as
follows:
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
Transition
Period
Year ended Year ended ended Year ended
August 29, August 28, October 2, September 30,
1998 1999 1999 2000
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Unrealized holding gains
(losses) arising during the
period $205 $(641) $(49) $253
Less reclassification
adjustment for gains
included in net earnings 210 97 5 64
------------------------------------------------------------------------------
NET UNREALIZED HOLDING GAINS
(LOSSES) $ (5) $(738) $(54) $189
------------------------------------------------------------------------------
</TABLE>
Recently Issued Accounting Pronouncements:
The Financial Accounting Standards Board issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. The statement requires that the Company recognize all derivatives
as either assets or liabilities in the balance sheet and measure those
instruments at fair value. As amended, this statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000.
Unified makes limited use of hedge agreements, primarily to manage the risk
associated with interest rates of its debt agreements. Additionally, Unified
has investments in convertible bonds that are held for sale. The convertible
feature of the bonds constitutes an embedded derivative, as defined by SFAS
No. 133. Unified classifies these investments as available for sale in its
financial statements and reflects them at fair value. With respect to
derivatives used as hedges, management has determined that the adoption of
SFAS No. 133 will result in a cumulative after tax increase to other
comprehensive earnings (loss) for the year ended September 29, 2001 of
approximately $800 thousand and will not have a significant impact on net
earnings. The adoption of SFAS No. 133 relative to the embedded derivatives in
the convertible bonds will not have a material effect on the financial
statements.
26
<PAGE>
Unified Western Grocers, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB No. 101") which summarizes certain of the
staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. The effective date of SAB No. 101 for the
Company is the quarter ending September 29, 2001. The application of SAB
No. 101 will not have a material impact on the Company's financial position or
its results of operations.
2. PROPERTIES:
Properties stated at cost, are comprised of:
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
October
August 28, 2, September 30,
1999 1999 2000
------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 8,338 $ 15,904 $ 16,250
Buildings and leasehold improvements 61,910 120,477 114,410
Equipment 104,932 118,877 131,518
Equipment under capital leases 6,364 6,364 6,364
------------------------------------------------------------------------------
181,544 261,622 268,542
Less accumulated depreciation and amortiza-
tion 102,313 142,048 145,168
------------------------------------------------------------------------------
$ 79,231 $119,574 $123,374
------------------------------------------------------------------------------
</TABLE>
On May 19, 1998, the Company completed the sale of approximately 24 acres of
property located in Commerce, California. The sale resulted in a gain (net of
expenses related to the sale) of $3.2 million. This transaction required
certain administrative offices and distribution facilities to be relocated.
The Company utilized its remaining properties to accommodate most of the
displaced facilities.
27
<PAGE>
Unified Western Grocers, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. INVESTMENTS:
The amortized cost and fair value of available-for-sale investments, including
equity securities, were as follows:
<TABLE>
-------------------------------------------------------------------------
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
August 28, 1999 Cost Gains Losses Value
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed Maturities:
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $17,083 $26 $660 $16,449
Corporate securities 6,055 375 209 6,221
Mortgage backed securities 8,192 11 286 7,917
-------------------------------------------------------------------------
Sub-total 31,330 412 1,155 30,587
Redeemable preferred stock 1,324 99 103 1,320
Equity securities 3,114 12 16 3,110
-------------------------------------------------------------------------
$35,768 $523 $1,274 $35,017
-------------------------------------------------------------------------
-------------------------------------------------------------------------
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
October 2, 1999 Cost Gains Losses Value
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed Maturities:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $17,095 $11 $661 $16,445
Corporate securities 6,007 422 268 6,161
Mortgage backed securities 8,148 11 250 7,909
-------------------------------------------------------------------------
Sub-total 31,250 444 1,179 30,515
Redeemable preferred stock 1,484 91 189 1,386
Equity securities 8,578 8,578
-------------------------------------------------------------------------
$41,312 $535 $1,368 $40,479
-------------------------------------------------------------------------
-------------------------------------------------------------------------
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
September 30, 2000 Cost Gains Losses Value
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed Maturities:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $18,645 $59 $469 $18,235
Corporate securities 5,544 380 229 5,695
Mortgage backed securities 8,655 33 173 8,515
-------------------------------------------------------------------------
Sub-total 32,844 472 871 32,445
Redeemable preferred stock 1,611 113 158 1,566
Equity securities 9,572 7 5 9,574
-------------------------------------------------------------------------
$44,027 $592 $1,034 $43,585
-------------------------------------------------------------------------
</TABLE>
28
<PAGE>
Unified Western Grocers, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Fixed maturity investments are due as follows:
<TABLE>
----------------------------------------------------------
<CAPTION>
Amortized Fair
August 28, 1999 Cost Value
----------------------------------------------------------
<S> <C> <C>
Fixed Maturities Available for Sale:
Due after one year through five years $8,723 $8,722
Due after five years through ten years 9,060 8,914
Due after ten years 13,547 12,951
----------------------------------------------------------
$31,330 $30,587
----------------------------------------------------------
----------------------------------------------------------
<CAPTION>
Amortized Fair
October 2, 1999 Cost Value
----------------------------------------------------------
<S> <C> <C>
Fixed Maturities Available for Sale:
Due after one year through five years $8,854 $8,924
Due after five years through ten years 8,908 8,668
Due after ten years 13,488 12,923
----------------------------------------------------------
$31,250 $30,515
----------------------------------------------------------
----------------------------------------------------------
<CAPTION>
Amortized Fair
September 30, 2000 Cost Value
----------------------------------------------------------
<S> <C> <C>
Fixed Maturities Available for Sale:
Due after one year through five years $12,076 $11,994
Due after five years through ten years 6,399 6,372
Due after ten years 14,369 14,079
----------------------------------------------------------
$32,844 $32,445
----------------------------------------------------------
</TABLE>
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties. Mortgage-backed securities are shown as being due at
their average expected maturity dates.
Investment income is summarized as follows:
<TABLE>
------------------------------------------------------------------------
<CAPTION>
August 29, August 28, October 2, September 3,
Fiscal years ended 1998 1999 1999 2000
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed maturities $2,526 $2,280 $129 $2,292
Preferred stock 444 115 (21) 305
Equity securities 82 (18) -- 125
Cash and cash equivalents 364 131 17 294
------------------------------------------------------------------------
3,416 2,508 125 3,016
Less investment expenses 22 232 20 218
------------------------------------------------------------------------
NET INVESTMENT INCOME $3,394 $2,276 $105 $2,798
------------------------------------------------------------------------
</TABLE>
Investments carried at fair values of $19,688, $19,681 and $23,590 at August
28, 1999, October 2, 1999 and September 30, 2000, respectively, are on deposit
with regulatory authorities in compliance with insurance company regulations.
Equity securities which do not have readily determinable fair values are
accounted for using the cost method.
The Company held investments in Western Family Holding Company common stock of
$5,541 and $5,553 at October 2, 1999 and September 30, 2000, respectively. The
investment represents approximately 22% ownership. The investment is accounted
for under the equity method of accounting.
At August 28, 1999, the Company held investments in preferred stock ($1,000),
a note receivable ($5,300), and was owed trade receivables ($980) from
Hawaiian Grocery Stores, Inc. ("HGS"), a customer. The entire amount was
either reserved or written-off in fiscal 1999 based on developments pertaining
to HGS. Subsequent to the fiscal 1999 year end, HGS defaulted on the principal
and interest payments required by the note receivable. The trade receivables
also became delinquent during the Company's fiscal 1999 fourth quarter.
29
<PAGE>
Unified Western Grocers, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. ACQUISITIONS:
On September 27, 1999, the shareholders of Unified and United each approved
the Merger pursuant to which shareholders of United exchanged their shares for
Unified's Class A Shares and Class B Shares based on an exchange ratio of
0.228 shares of the Company's stock for each share of United Common Stock
outstanding. The Merger became effective on September 29, 1999 and was
accounted for as a purchase pursuant to Accounting Principles Board Opinion
No. 16, "Business Combinations." Accordingly, the consideration was allocated
to the assets acquired and liabilities assumed based on their relative
estimated fair values. The excess of the purchase price over the fair value of
the net assets acquired was $31.7 million and was recorded as goodwill.
Goodwill is being amortized over forty years. In the Merger, United
shareholders received 18,652 Class A Shares and 87,526 Class B Shares. The
following summarizes the fair value of assets acquired and liabilities assumed
of United as of September 29, 1999.
<TABLE>
--------------------------------------------------
<S> <C>
Current assets $148,520
Properties 39,859
Other 47,674
--------------------------------------------------
Total assets 236,053
--------------------------------------------------
Accounts payable 58,546
Other liabilities 37,709
Notes payable 123,050
--------------------------------------------------
Total liabilities 219,305
--------------------------------------------------
Net 16,748
Total investment in United Grocers, Inc. 48,433
--------------------------------------------------
Goodwill $ 31,685
--------------------------------------------------
</TABLE>
As a result of the Merger, the Company established reserves for the closure of
various facilities. In addition, reserves for involuntary employee termination
and lease termination costs were recorded at the time of the Merger. The type
and amount of such reserves, charges against the reserves, and fair value
adjustments to the liabilities representing changes in the cost of the
acquired company are presented in the table below.
<TABLE>
------------------------------------------------------------------
<CAPTION>
October Charges to Fair Value September
Description 2, 1999 reserve Adjustments 30, 2000
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Facility closure costs $ (7,741) $2,977 $ 230 $(4,534)
Severance costs (1,250) 235 1,015 --
Lease buyout reserve (2,100) -- 2,100 --
------------------------------------------------------------------
TOTAL $(11,091) $3,212 $3,345 $(4,534)
------------------------------------------------------------------
</TABLE>
The transition period reflects the operating activities of United for the
three day period between September 29, 1999 and October 2, 1999. Transition
activities included an early retirement plan for employees of Unified totaling
$6.3 million which was included in other expense, the write-off of United's
deferred financing costs of $0.7 million, and integration consulting costs of
$0.3 million.
30
<PAGE>
Unified Western Grocers, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The accompanying consolidated statements of earnings do not include any
revenues or expenses related to United prior to the September 29, 1999
acquisition date. The following unaudited consolidated pro forma information
utilizes the audited information for the Company for fiscal 1998 and 1999 and
unaudited information for United for those periods. The unaudited consolidated
pro forma information presents the results of operations of the Company as if
the acquisition of United had taken place on August 31, 1997.
<TABLE>
----------------------------------------------------------------------------
<CAPTION>
August 29, August 28,
Fiscal year ended 1998 1999
----------------------------------------------------------------------------
<S> <C> <C>
Sales $3,006,965 $2,932,521
Earnings (loss) before patronage dividends, provision
for income
taxes and extraordinary items $ 36,514 $ (6,902)
Patronage dividends $ 8,449 $ 10,501
Earnings (loss) before extraordinary item $ 17,363 $ (15,292)
</TABLE>
These unaudited consolidated pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of the results
of operations which would have actually resulted had the acquisition been in
effect on August 31, 1997, or of future results of operations.
At August 29, 1998, the Company owned an equity interest in SavMax Foods, Inc.
("SavMax"), a member-patron. SavMax operated seven retail grocery stores with
retail sales of approximately $75 million for the period December 31, 1998
through August 28, 1999. Sales on an annual basis were approximately
$115 million. The investment consisted of (a) 10% of the outstanding Series A
common stock with an original cost of $2.5 million and (b) $6.3 million of
8.5% Series B cumulative redeemable preferred stock.
The Company purchased the remaining common and preferred shares of SavMax as
of December 31, 1998, for an aggregate purchase price of approximately $4.5
million. The transaction also included an ongoing covenant not to compete from
a selling shareholder, termination of the sellers' existing employment and
consulting agreements, and the entry into a consulting arrangement with a
selling shareholder. The acquisition has been accounted for as a purchase
pursuant to Accounting Principles Board Opinion No. 16, "Business
Combinations." Accordingly, the consideration was allocated to the assets
acquired and liabilities assumed based on the relative fair values. The excess
of the purchase price over the fair value of the net assets acquired was $23.4
million and was recorded as goodwill. Goodwill is being amortized over forty
years. The results of the acquired business have been included in the
consolidated financial statements from December 31, 1998. The following
summarizes the fair value of assets acquired and the liabilities assumed of
SavMax as of January 2, 1999.
<TABLE>
--------------------------------------------------
<S> <C>
Current assets $8,530
Equipment and leasehold improvements 4,467
Other assets 2,681
--------------------------------------------------
Total assets 15,678
--------------------------------------------------
Accounts payable 12,724
Accrued liabilities and deferred credits 5,747
Notes payable 8,673
--------------------------------------------------
Total liabilities 27,144
--------------------------------------------------
Net (11,466)
Total investment in SavMax Foods, Inc. 11,888
--------------------------------------------------
Goodwill $23,354
--------------------------------------------------
</TABLE>
The accompanying consolidated statements of earnings do not include any
revenues or expenses related to SavMax prior to the December 31, 1998
acquisition date.
31
<PAGE>
Unified Western Grocers, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. ACCRUED LIABILITIES:
Accrued liabilities are summarized as follows:
<TABLE>
<CAPTION>
August 28, October 2, September 30,
1999 1999 2000
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Insurance loss reserves and other insur-
ance liabilities $24,933 $28,333 $35,008
Accrued wages and related taxes 13,401 21,404 18,506
Accrued income and other taxes payable 5,292 6,213 5,996
Accrued promotional liabilities 277 1,022 2,174
Other accrued liabilities 10,633 25,909 15,574
-----------------------------------------------------------------------------
$54,536 $82,881 $77,258
-----------------------------------------------------------------------------
</TABLE>
6. NOTES PAYABLE:
Notes payable are summarized as follows:
<TABLE>
<CAPTION>
August October September 30,
28, 1999 2, 1999 2000
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Senior secured notes payable expiring April 1,
2008, current interest rate at 7.72% payable
monthly (interest rate at 7.22% prior to Sep-
tember 29, 1999), interest only through April
1, 2000 and $854 principal and interest
thereafter through April 1, 2008, remaining
$36.0 million due April 1, 2008. $80,000 $80,000 $ 78,283
Senior secured notes payable expiring October
1, 2009, interest rate at 8.71% payable
monthly, interest only. 40,000 40,000
Notes payable to banks under a $200 million
secured revolving credit agreement expiring
October 1, 2004, interest rate at the agent's
base rate (8.25% at August 28, 1999) or ad-
justed LIBOR (5.36% plus 0.9% at August 28,
1999, 5.4% plus 2.0% at October 2, 1999, and
6.71% plus 1.75% at September 30, 2000) 64,500 138,500 116,000
Capital stock subordinated residual notes,
payable in twenty quarterly installments plus
interest at a variable interest rate based on
the current capital investment note rate 5,227 3,626
Redemption subordinated notes, payable in
twenty quarterly installments plus interest
at 6.0%. 2,922
Capital investment notes (subordinated), in-
terest at 7.0%, maturity dates through 2005 33,758 28,640
Other debt related to SavMax 4,599 1,652 81
Obligations under capital leases 1,251 1,189 287
Other notes payable 150 150
-------------------------------------------------------------------------------
Total notes payable 150,350 300,476 269,989
Less portion due within one year 6,623 7,605 10,760
-------------------------------------------------------------------------------
$143,727 $292,871 $259,229
-------------------------------------------------------------------------------
</TABLE>
Maturities of notes payable as of September 30, 2000 are:
<TABLE>
<CAPTION>
Fiscal
year
----------------------------------------------------------------------------
<S> <C>
2001 $ 10,760
2002 9,508
2003 9,692
2004 125,510
2005 9,129
Thereafter 105,390
----------------------------------------------------------------------------
$269,989
----------------------------------------------------------------------------
</TABLE>
At September 30, 2000, Unified had outstanding $78.3 million and $40 million in
senior notes to certain insurance companies and pension funds. The $78.3
million senior notes are secured, due in April 2008 and
32
<PAGE>
Unified Western Grocers, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
bear interest at 7.72% per annum. The $40 million senior notes are secured,
due in October 2009 and bear interest at 8.71% per annum.
Unified also has a $200 million secured revolving credit facility with a group
of banks. The revolving credit agreement is secured, expiring on October 1,
2004 and bears interest at the bank's base rate or at an adjusted LIBOR rate
plus a margin ranging from 1.25% to 2% depending on Unified's leverage ratio.
The revolving credit facility permits advances of up to 85% of eligible
accounts receivable and 65% of eligible inventories. Both the senior notes and
the revolving credit facility limit the incurrence of additional funded debt,
restrict the issuance of secured indebtedness and prohibit the payment of
dividends (other than patronage dividends) and distributions to shareholders
in certain circumstances. These credit agreements contain various financial
covenants, including fixed charge coverage ratios, maximum capital
expenditures, and tangible net worth. Obligations under the credit agreements
are senior to the rights of member-patrons with respect to deposits,
redemption notes, and patronage dividend certificates.
In the event Unified achieves designated investment grade ratings for a period
of not less than one year, the interest rate on the $78.3 million senior notes
would be reduced by 0.50% and the securitization of the senior notes and the
revolving credit facility would be eliminated.
Unified entered into a five-year interest rate collar agreement during
February 1999 in relation to certain borrowings on its variable rate revolving
credit. The collar agreement was put in place without incurring a fee. The
collar agreement is structured such that Unified pays a variable rate of
interest between 6% (cap rate) and 4.94% (floor rate) based on a notional
amount of $50 million. The weighted average interest rate, prior to lender's
margin, on borrowings on the revolving credit was 6.71% at September 30, 2000.
The extraordinary loss of $1.08 million, net of income taxes, in fiscal 1998
is related to the early extinguishment of debt in connection with the
Company's refinancing transaction. This charge covers prepayment premiums paid
and the write-off of financing costs relating to debt refinanced in the
transaction.
Unified's Capital Investment Notes are serialized, bear interest at 7%, and
mature ten years from the date of issuance. The notes are subordinated and
have maturity dates through 2005. As of October 2, 1999 and September 30,
2000, the total balance of the notes outstanding was $33.8 million and $28.6
million, respectively. The notes originated with the former United and were
assumed as part of the Merger.
A $10 million credit agreement is collateralized by Grocers Capital Company's
("GCC") member loan receivables. GCC is a wholly owned subsidiary of Unified.
The primary function of GCC is to provide loan financing to Unified's member-
patrons. Member loans are made at a market rate of interest starting at prime
plus 0.5%. The funding for loans made by GCC is provided by GCC's cash
reserves as well as the $10 million credit agreement. The maturity date of the
credit agreement is September 20, 2001, but is subject to an annual extension
of one year by the mutual consent of GCC and the bank. Amounts advanced under
the credit agreement bear interest at prime (9.5% at September 30, 2000) or
Eurodollar (6.77% at September 30, 2000) plus 0.9%. No amounts were
outstanding under this credit line at August 28, 1999, October 2, 1999 or
September 30, 2000. The unused portion of this credit line is subject to
commitment fees of 0.125% plus $25 annually.
Member loan receivables are periodically sold by GCC to a bank through a loan
purchase agreement. The maturity date of the loan purchase agreement is August
29, 2001, but is subject to extension by mutual agreement of GCC and the bank
for an additional one year on each anniversary date of the initial purchase
date. Total loan purchases under the agreement are limited to a total
aggregate principal outstanding of $50 million. GCC entered into an additional
loan purchase agreement with a different bank in January 1999. This additional
loan purchase agreement can be terminated upon ninety days prior written
notice. There is no maximum limitation on the additional loan purchase
agreement. At August 28, 1999, October 2, 1999 and September 30, 2000, the
aggregate principal outstanding balance of loans purchased by the banks was
approximately $27 million, $25 million and $17 million, respectively. The loan
sales are subject to limited recourse provisions.
United Resources, a subsidiary of the Company, has an agreement whereby it
sold certain of its notes receivable from members subject to limited recourse
provisions. At October 2, 1999 and September 30,
33
<PAGE>
Unified Western Grocers, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2000, the balance of transferred notes that were outstanding and subject to
recourse provisions was approximately $18 million and $11 million,
respectively.
The Company has also guaranteed loans made directly to members by third-party
lenders. At August 28, 1999, October 2, 1999 and September 30, 2000 the
maximum principal amount of these guarantees was $1.1 million. Member loans,
provided by the Company and third parties, are generally secured with
collateral which usually consists of personal and real property owned by
member-patrons and personal guarantees of member-patrons.
As a result of maturing long-term debt (a noncash financing activity), the
Company reclassified from long to short-term debt $0.7 million, $2.3 million
and $10.0 million in 1998, 1999 and 2000, respectively.
7. LEASES:
The Company has entered into operating and capital leases for certain
warehouse, transportation and data processing equipment. The Company has also
entered into operating leases for approximately 83 retail supermarkets. The
majority of these locations are subleased to various member-patrons of the
Company. The operating leases and subleases are noncancelable, renewable,
include purchase options in certain instances, and require payment of real
estate taxes, insurance and maintenance.
In addition, on September 30, 2000, the Company was contingently liable with
respect to 14 lease guarantees for certain member-patrons. The total current
annual rent on locations underlying such lease guarantees on that date was
approximately $3.9 million. The commitments have expiration dates through
2017. The Company believes the locations underlying these leases are
marketable and, accordingly, would be able to recover a substantial portion of
the guaranteed amounts in the event the Company is required to satisfy its
obligations under the guarantees.
In consideration of lease guarantees and subleases, the Company normally
receives a monthly fee equal to 5% of the monthly rent under the lease
guarantees and subleases. Obligations of member-patrons to the Company,
including lease guarantees, are generally supported by the Company's right of
offset, upon default, against the member-patrons' cash deposits, shareholdings
and patronage certificates, as well as in certain instances, personal
guarantees and reimbursement and indemnification agreements.
Rent expense was $16.2 million, $18.4 million, $2.3 million and $49.4 million
in fiscal years ended August 29, 1998, August 28, 1999, the transition period
ended October 2, 1999, and the fiscal year ended September 30, 2000,
respectively. Sublease rental income was $6.2 million, $4.5 million, $0.4
million and $13.2 million in fiscal years ended August 29, 1998, August 28,
1999, the transition period ended October 2, 1999 and the fiscal year ended
September 30, 2000, respectively.
Minimum rentals on properties leased by the Company, including properties
subleased to third parties, as of September 30, 2000 are summarized as
follows:
<TABLE>
<CAPTION>
Capital Operating
Fiscal year Leases Leases
--------------------------------------------------------------
<S> <C> <C>
2001 $296 $ 35,784
2002 31,848
2003 27,746
2004 24,707
2005 20,438
Thereafter 106,252
--------------------------------------------------------------
Total minimum lease payments 296 $246,775
Less amount representing interest 9
--------------------------------------------------------------
Present value of net minimum lease payments 287
Less current portion 287
--------------------------------------------------------------
Total long term portion --
--------------------------------------------------------------
</TABLE>
34
<PAGE>
Unified Western Grocers, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum sublease rental income on operating leases as of September 30,
2000 is summarized as follows:
<TABLE>
<CAPTION>
Fiscal
year
--------------------
<S> <C>
2001 $ 15,136
2002 14,471
2003 13,513
2004 12,201
2005 11,208
Thereafter 73,703
--------------------
$140,232
--------------------
</TABLE>
8. INCOME TAXES:
The significant components of income tax expense are summarized as follows:
<TABLE>
<CAPTION>
August 29, August 28, October 2, September 30,
Fiscal years ended 1998 1999 1999 2000
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal:
Current $2,367 $1,299 -- --
Deferred (820) (1,077) $(2,018) $(4,379)
-------------------------------------------------------------------------------
Total federal 1,547 222 (2,018) (4,379)
-------------------------------------------------------------------------------
State:
Current 653 300 -- --
Deferred (399) (458) (575) (656)
-------------------------------------------------------------------------------
Total state 254 (158) (575) (656)
-------------------------------------------------------------------------------
INCOME TAX EXPENSE (BENEFIT) $1,801 $64 $(2,593) $(5,035)
-------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
Unified Western Grocers, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The effects of temporary differences and other items that give rise to
deferred tax assets and deferred tax liabilities are presented below:
<TABLE>
<CAPTION>
August 28, October 2, September 30,
1999 1999 2000
------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Accounts receivable $ 2,109 $ 3,146 $ 5,757
Accrued benefits 11,109 16,180 19,151
Deferred income 1,275 1,406 1,404
Lease reserve -- 3,475 6,092
Store reserve and facility consolidation 98 2,999 1,909
Insurance reserves 1,702 1,613 2,219
Investment valuation adjustment 642 607 642
Accrued environmental liabilities 313 296 292
Accrued rent 619 702 740
Asset impairment adjustment 849 849 849
Alternative minimum tax and other cred-
its 1,285 1,820 1,923
Net operating loss carryforwards 3,205 5,990 14,488
Other 1,180 2,829 3,061
------------------------------------------------------------------------------
Total gross deferred tax assets 24,386 41,912 58,527
Less valuation allowance 5,536 6,450 6,450
------------------------------------------------------------------------------
Deferred tax assets $18,850 $35,462 $52,077
------------------------------------------------------------------------------
Deferred tax liabilities:
Properties $ 6,283 $10,214 $11,565
Market value adjustment -- 2,123 6,718
Accrued pension cost -- 3,392 3,604
Capitalized software 1,992 1,960 4,503
Intangible assets 707 669 987
Deferred state taxes 782 1,124 1,408
Deferred gain on installment method 479 446 383
Other 248 1,536 346
------------------------------------------------------------------------------
Total gross deferred tax liabilities 10,491 21,464 29,514
------------------------------------------------------------------------------
NET DEFERRED TAX ASSET $ 8,359 $13,998 $22,563
------------------------------------------------------------------------------
</TABLE>
Net deferred tax assets of $4.3 million, $7.0 million and $14.2 million are
included in deferred taxes, current and $4.1 million, $7.0 million and $8.4
million in other assets on the Company's accompanying consolidated balance
sheets as of August 28, 1999, October 2, 1999 and September 30, 2000,
respectively.
A valuation allowance is provided to reduce the deferred tax assets to a level
which, more likely than not, will be realized. The change in the valuation
allowance between fiscal 1999 and the transition period ended October 2, 1999
is primarily a result of the acquisition of United. The remaining balance of
the net deferred tax assets should be realized through future operating
results, the reversal of taxable temporary differences, and available tax
planning strategies.
36
<PAGE>
Unified Western Grocers, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The provision for income taxes at the Company's effective tax rate differed
from the provision for income taxes at the statutory rate (34%) as follows:
<TABLE>
<CAPTION>
August 29, August 28, October 2, September 30,
Fiscal years ended 1998 1999 1999 2000
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal income tax expense
(benefit) at the statutory
rate $1,765 $919 $(3,353) $(5,576)
State income taxes, net of fed-
eral income tax benefit 303 158 (575) (656)
Insurance subsidiary not recog-
nized for state taxes (278) (41) 53 122
Tax exempt income -- (94) (6) (80)
(Reduction) increase in valua-
tion allowance -- (820) 914 --
Non-deductible equity transac-
tions -- -- 358 --
Non-deductible goodwill amorti-
zation -- -- -- 593
Other, net 11 (58) 16 562
-------------------------------------------------------------------------------
PROVISION (BENEFIT) FOR INCOME
TAXES (NET OF TAXES RELATED TO
EXTRAORDINARY ITEM IN 1998) $1,801 $64 $(2,593) $(5,035)
-------------------------------------------------------------------------------
</TABLE>
At September 30, 2000, the Company has alternative minimum tax credit
carryforwards of approximately $1,386 available to offset future regular
income taxes payable to the extent such regular taxes exceed alternative
minimum taxes payable. In addition, the Company has tax benefits associated
with the net operating loss carryforwards for federal and state income tax
purposes of approximately $11,843 and $2,645, which begin expiring in 2011 and
2000, respectively.
9. SUBORDINATED PATRONAGE DIVIDEND CERTIFICATES:
The Company has a patronage dividend retention program whereby, subject to
annual Board approval, it may retain a portion of the patronage dividends and
issue patronage certificates (the "Patronage Certificates") evidencing the
indebtedness respecting the retained amounts. The program provides for the
issuance of the Patronage Certificates to patrons in a portion and at an
interest rate determined by the Board in connection with its approval of a
particular issuance. The Patronage Certificates are unsecured general
obligations, subordinated to certain indebtedness of Unified, and
nontransferable without the consent of Unified.
The Company issued Patronage Certificates for fiscal years 1993, 1994 and
1995. The outstanding Patronage Certificates have a seven-year term and bear
interest payable annually on December 15 in each year. The following table
represents a summary of the outstanding Patronage Certificates at September
2000 and their respective terms:
<TABLE>
<CAPTION>
Aggregate Annual
Fiscal Principal Interest Maturity
Year Amount Rate Date
-----------------------------------
<S> <C> <C> <C>
1993 $1,793 7% 12/15/00
1994 $2,228 8% 12/15/01
1995 $1,905 7% 12/15/02
</TABLE>
During fiscal 2000 Unified set off approximately $60 in Patronage Certificates
against a portion of amounts owed to the Company by the holders. No amounts
were set off in fiscal 1999 or in the transition period.
Patronage Certificates have not been issued subsequent to fiscal 1995.
However, the program has not been discontinued, and the Board could authorize
the issuance of Patronage Certificates in connection with patronage dividends
payable in future years.
10. CAPITAL SHARES:
The Company requires that each member-patron hold 100 Class A Shares. Each
member-patron must over time also acquire Class B Shares having combined
issuance values equal to the lesser of the amount of the member-patron's
required deposit or twice the member-patron's average weekly purchases (the
"Class B Share requirement"). For this purpose, each Class B Share held by a
member-patron has an issuance value equal to the book value of Unified's
outstanding shares as of the close of the fiscal year last ended prior to the
issuance of such Class B Share.
37
<PAGE>
Unified Western Grocers, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
After payment of at least 20% of the patronage dividend in cash, and the
issuance of the Patronage Certificates, Class B Shares are issued as a portion
of each member-patron's patronage dividend and, to the extent necessary to
fulfill the member-patron's Class B Share requirement, by crediting the
member-patron's cash deposit account for the issuance values of such shares.
All shares of a terminated member, or member who holds Class B Shares in
excess of their Class B Share requirement, may be redeemed by the Company
(subject to certain legal limitations, provisions of the Company's redemption
policy, and provisions of certain of the Company's committed lines of credit)
at a redemption price based on book value, less all amounts that may be owing
by the member to the Company, as fixed in the Articles of Incorporation. All
shares are pledged to the Company to secure the Company's redemption rights
and as collateral for all obligations to the Company with certain exceptions.
The Company is not obligated in any fiscal year to redeem more than 5% of the
sum of the number of Class B Shares outstanding as of the close of the
preceding fiscal year and the number of Class B Shares issued as a part of the
patronage dividend for the preceding year (the "5% limit"). Thus, shares
tendered for redemption in a given fiscal year may not necessarily be redeemed
in that fiscal year. In fiscal 1999, the 5% limitation restricted Unified's
redemption of shares to 19,007 shares for $3.5 million. The following table
summarizes the Class B Shares tendered and presently approved for redemption,
shares redeemed, and the remaining number of shares pending redemption at the
fiscal year end of each of the following periods:
<TABLE>
<CAPTION>
Redemption
Value at
September 30,
Class B Shares Tendered Redeemed Remaining 2000
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prior to fiscal year 1997 74,868 $15,032
Fiscal year 1997 9,575 19,191 65,252 $13,101
Fiscal year 1998 29,680 19,300 75,632 $15,185
Fiscal year 1999 25,177 19,007 81,802 $16,424
The transition period ended October
2, 1999 1,233 71,310 11,725 $ 2,354
Fiscal year 2000 25,842 12,645 24,922 $ 5,004
</TABLE>
Subsequent to the 1999 fiscal year end and in connection with the Merger with
United (see Note 4), the Company (i) redeemed 71,310 Class B Shares held by
terminated member-patrons and (ii) adopted amendments to its Articles of
Incorporation and Bylaws which restrict the Company's obligation to repurchase
Class B Shares of terminated members for a three-year period and changed the
redemption provisions in other respects.
As a California corporation, the Company is subject to the provisions of the
California General Corporation Law including Section 500 which limits the
ability of the Company to make distributions, including distributions to
repurchase its own shares and any payments on notes issued to repurchase
Unified shares. Section 500 permits such repurchase and note payments only
when retained earnings calculated in accordance with generally accepted
accounting principles ("GAAP") equal or exceed the amount of any proposed
distribution or an alternative asset/liability ratio test is met. Historically
through the operations of its subsidiaries, the Company has maintained
sufficient retained earnings to accomplish its share repurchase program. As a
result of expenses associated with the merger with United, current operating
losses of subsidiaries acquired from United as well as operating losses of
retail stores owned by the Company, including stores acquired from Albertson's
for resale to members or others, the Company's retained earnings have been
depleted such that they are currently inadequate to permit repurchase of
Company shares. The repurchase test permitted under Section 500 based on the
ratio of assets to liabilities determined under GAAP with certain adjustments
cannot currently be met since the Company relies heavily on borrowings to
finance its operations. The Company is also a party to credit agreements
containing financial and other covenants, which limit the ability of the
Company to make purchases of its capital stock under certain circumstances.
The Company has established a trust for the purpose of facilitating the
transfer of shares by Unified members in circumstances where the member is
obligated or entitled to sell shares in accordance with the Company's
redemption policy to members or new members who are authorized by the Board of
Directors to
38
<PAGE>
Unified Western Grocers, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
buy shares in accordance with the Bylaws, during periods when the Company is
legally unable to buy shares or otherwise elects to cause or permit
outstanding shares to be transferred between members. Funds used to purchase
these shares from selling members are exclusively sourced from funds provided
by buying members.
There are 500,000 authorized Class A Shares, of which 46,400, 64,852 and
65,838 were outstanding at August 28, 1999, October 2, 1999 and September 30,
2000, respectively. There are 2,000,000 authorized Class B Shares, of which
379,349, 395,565 and 381,217 were outstanding at August 28, 1999, October 2,
1999 and September 30, 2000, respectively.
No member-patron may hold more than 100 Class A Shares. However, it is
possible that a member-patron 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 100 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 100 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.
There were 24 authorized Class C Shares of which 24 are outstanding as of
September 30, 2000. These shares are valued at ten dollars per share, and
ownership is limited to members of the board of directors with no rights as to
dividends or other distributions.
Holders of Class A Shares are entitled to vote such shares cumulatively for
the election of 80% of the authorized number of directors. Holders of the
Class B Shares are entitled to vote such shares cumulatively for the election
of 20% of the authorized number of directors. Except as required by California
law, the Class C Shares have no voting rights.
11. BENEFIT PLANS:
The Company has two noncontributory, defined benefit pension plans ("benefit
plans") covering substantially all of its nonunion employees. The benefits
under the plans generally are based on the employee's years of service and
final average earnings for the years immediately preceding retirement. The
Company makes contributions to the pension plans in amounts which are at least
sufficient to meet the minimum funding requirements of applicable laws and
regulations but no more than amounts deductible for federal income tax
purposes. Benefits under the plans are provided through a trust and also
through annuity contracts.
The Company also has an Executive Salary Protection Plan ("ESPP II"), which
provides additional post-termination retirement income based on each
participant's final salary and years of service with the Company. The
financing of this benefit is facilitated through the purchase of life
insurance policies, the premiums of which are paid by the Company.
Pension expense for the benefit plans totaled $1,399, $1,364, $3,549 and $815
in fiscal years ended August 29, 1998, August 28, 1999, the transition period
ended October 2, 1999 and fiscal year ended September 30, 2000, respectively.
39
<PAGE>
Unified Western Grocers, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of net periodic costs for the benefit plan and ESPP II consist
of the following:
<TABLE>
<CAPTION>
Benefit Plan
-------------------------------------------------------------------------------
Transition
Year ended Year ended Period ended Year ended
August 29, August 28, October 2, September 30,
1998 1999 1999 2000
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service cost $1,586 $1,926 $ 187 $2,768
Interest cost 2,705 2,927 287 5,046
Expected return on plan as-
sets (3,165) (3,733) (373) (6,846)
Amortization of prior service
cost (39) (39) (4) (35)
Recognized actuarial loss -- -- -- 120
Amortization of transition
asset (309) (309) (30) (280)
Effect of curtailments, set-
tlements, special benefits -- -- 3,410 (715)
-------------------------------------------------------------------------------
NET PERIODIC BENEFIT COST $778 $772 $3,477 $58
-------------------------------------------------------------------------------
<CAPTION>
ESPP II
-------------------------------------------------------------------------------
Transition
Year ended Year ended Period ended Year ended
August 29, August 28, October 2, September 30,
1998 1999 1999 2000
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service cost $200 $150 $24 $252
Interest cost 294 301 32 334
Amortization of prior service
cost 112 141 16 171
Recognized actuarial loss 15 -- -- --
-------------------------------------------------------------------------------
NET PERIODIC BENEFIT COST $621 $592 $72 $757
-------------------------------------------------------------------------------
</TABLE>
The following table sets forth the change in benefit obligation for the benefit
plan and ESPP II:
<TABLE>
<CAPTION>
Benefit Plan ESPP II
---------------------------------------------------------------------------------------------------------
August 28, October 2, September 30, August 28, October 2, September 30,
1999 1999 2000 1999 1999 2000
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Benefit obligation at beginning
of year $39,914 $40,746 $72,899 $3,971 $4,748 $4,775
Service cost 1,926 187 2,768 150 24 252
Interest cost 2,927 287 5,046 301 32 334
Plan amendments -- -- 3,430 889 -- --
Actuarial loss (gain) (558) (43) (10,284) (159) 14 996
Benefits paid (3,463) (47) (15,508) (404) (43) (518)
Merger of United retirement plan 31,769
---------------------------------------------------------------------------------------------------------
BENEFIT OBLIGATION AT END OF
YEAR $40,746 $72,899 $58,351 $4,748 $4,775 $5,839
---------------------------------------------------------------------------------------------------------
The following table sets forth the change in plan assets for the benefit plan
and ESPP II:
<CAPTION>
Benefit Plan ESPP II
---------------------------------------------------------------------------------------------------------
Transition Transition
Period Year Period Year
Year ended ended ended Year ended ended ended
August 28, October 2, September 30, August 28, October 2, September 30,
1999 1999 2000 1999 1999 2000
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fair value of plan assets at be-
ginning of period $41,511 $43,134 $ 81,392 -- -- --
Actual return on plan assets 5,086 1,895 13,462 -- -- --
Employer contribution -- -- -- $404 $ 43 $518
Merger of United retirement plan 36,410
Benefits paid (3,463) (47) (15,509) (404) (43) (518)
---------------------------------------------------------------------------------------------------------
FAIR VALUE OF PLAN ASSETS AT END
OF PERIOD $43,134 $81,392 $79,345 $0 $0 $0
---------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE>
Unified Western Grocers, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The accrued pension and other benefit costs recognized in the accompanying
consolidated balance sheets at August 28, 1999, October 2, 1999 and September
30, 2000 are computed as follows:
<TABLE>
--------------------------------------------------------------------------------------------------
<CAPTION>
Benefit Plan ESPP II
August 28, October 2, September 30, August 28, October 2, September 30,
1999 1999 2000 1999 1999 2000
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Funded status at June 1
overfunded/(underfunded) $2,388 $ 3,852 $20,994 $(4,748) $(4,775) $(5,839)
Unrecognized actuarial
(gain)/loss (1,110) (2,682) (14,890) 327 313 990
Unrecognized prior serv-
ice cost (188) (184) (129) 2,095 2,079 2,306
Unrecognized transition
asset (603) (573) (200) -- -- --
Effect of curtailments,
settlements, special
benefits -- (3,410) -- -- -- --
Fourth quarter net peri-
odic pension (expense)
income (194) (187) 415 (148) (164) (192)
--------------------------------------------------------------------------------------------------
NET AMOUNT RECOGNIZED: $293 $(3,184) $6,190 $(2,474) $(2,547) $(2,735)
--------------------------------------------------------------------------------------------------
</TABLE>
The additional minimum liability for the ESPP II represents the excess of the
unfunded accumulated benefit obligation over previously accrued pension costs.
A corresponding intangible asset is recorded as an offset to this additional
liability. Because the asset recognized may not exceed the amount of
unrecognized prior service cost, the balance, net of tax benefits, of $0, $0
and $364 is reported as a separate component of shareholders' equity at August
28, 1999, October 2, 1999 and September 30, 2000, respectively.
The weighted average assumptions used in computing the preceding information
as of June 1 were as follows:
<TABLE>
--------------------------------------------------------------
<CAPTION>
Benefit Plan
1998 1999 2000
--------------------------------------------------------------
<S> <C> <C> <C>
Discount rate for benefit obligation 7.00% 7.00% 7.75%
Discount rate for net periodic benefit cost 7.50% 7.00% 7.00%
Expected return on plan assets 9.00% 9.00% 9.00%
Rate of compensation increase 5.50% 5.50% 5.50%
</TABLE>
<TABLE>
--------------------------------------------------------------
<CAPTION>
ESPP II
1998 1999 2000
--------------------------------------------------------------
<S> <C> <C> <C>
Discount rate for benefit obligation 7.00% 7.00% 7.75%
Discount rate for net periodic benefit cost 7.50% 7.00% 7.00%
Expected return on plan assets NA NA NA
Rate of compensation increase 4.00% 4.00% 4.00%
</TABLE>
The Company also made contributions of $5.6 million, $6.6 million, $0.5
million and $11.1 million in fiscal years ended August 29, 1998, August 28,
1999, the transition period ended October 2, 1999 and the fiscal year ended
September 30, 2000, respectively, to collectively bargained, multiemployer
defined benefit pension plans in accordance with the provisions of negotiated
labor contracts. Information from the plans' administrators is not available
to permit the Company to determine its proportionate share of termination
liability, if any.
The Company has an Employees' Sheltered Savings Plan ("SSP"), which is a
defined contribution plan, adopted pursuant to Section 401 (k) of the Internal
Revenue Code for substantially all of its California nonunion employees. The
Company matches each dollar deferred up to 4% of compensation and, at its
discretion, matches 40% of amounts deferred between 4% and 8%. At the end of
each fiscal year, the Company also contributes an amount equal to 2% of the
compensation of those participants employed at that date. Participants are
immediately 100% vested in the Company's contribution.
41
<PAGE>
Unified Western Grocers, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has a Special 401 (k) Savings Plan, which is a defined
contribution plan, adopted pursuant to Section 401 (k) of the Internal Revenue
Code for substantially all of its Oregon non-union employees. The Company
matches 35% of each dollar deferred up to 6% of compensation. Participants
become vested in this Company match at the rate of 20% after 2 years of
service, 40% after 3 years of service, 60% after 4 years of service, 80% after
5 years of service, and 100% after 6 years of service.
The Company contributed approximately $2.3 million, $1.9 million, $0.1 million
and $2.4 million related to its 401 (k) savings plan(s) in the fiscal years
ended August 29, 1998 and August 28, 1999, the transition period ended October
2, 1999 and the fiscal year ended September 30, 2000, respectively.
The Company has a bargaining employee savings plan, which is a defined
contribution plan, adopted pursuant to Section 401 (k) of the Internal Revenue
Code for substantially all of its Oregon union employees. The Company does not
match any employee deferrals into this plan, and therefore, there is no
related vesting schedule. No expense was incurred in the periods presented.
The Company has an Employee Savings Plan ("ESP"), which is a defined
contribution plan, for substantially all union and nonunion employees hired
prior to March 1, 1983. Subsequent to March 1, 1983, the Company's
contribution to the ESP in any fiscal year is based on net earnings as a
percentage of total sales and is applicable to union employees only. In the
event net earnings are less than 1.5% of total sales, no contribution is
required. All nonunion employees who had a previous balance in the ESP had
their balances transferred to the SSP effective the first quarter of fiscal
1992. No expense was incurred in the periods presented.
12. POSTRETIREMENT BENEFIT PLANS OTHER THAN PENSIONS:
The Company sponsors postretirement benefit plans that cover both nonunion and
union employees. Retired nonunion employees currently are eligible for a plan
providing medical benefits. A certain group of retired nonunion employees
currently participate in a plan providing life insurance benefits for which
active nonunion employees are no longer eligible. Certain eligible union and
nonunion employees have separate plans providing a lump-sum payout for unused
days in the sick leave bank. The postretirement health care plan is
contributory for nonunion employees retiring after January 1, 1990, with the
retiree contributions adjusted annually. The life insurance plan and the sick
leave payout plans are noncontributory. A group of retired non-union employees
in Oregon participate in a postretirement benefit plan providing medical,
dental, and vision care benefits. The plans are unfunded.
The components of net periodic benefit cost consist of the following for the
fiscal years ended August 29, 1998, August 28, 1999, the transition period
ended October 2, 1999 and the fiscal year ended September 30, 2000,
respectively:
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
August 29, August 28, October 2, September 30,
1998 1999 1999 2000
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service cost $ 920 $1,055 $ 112 $1,433
Interest cost 2,145 2,345 241 3,140
Amortization of transition ob-
ligation 1,124 1,124 108 1,100
Recognized actuarial loss 79 75 12 86
Curtailment cost -- -- 2,580 --
------------------------------------------------------------------------------
NET PERIODIC BENEFIT COST $4,268 $4,599 $3,053 $5,759
------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
Unified Western Grocers, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The change in the benefit obligations consist of the following during fiscal
1999, the transition period ended October 2, 1999, and fiscal 2000:
<TABLE>
----------------------------------------------------------------------------
<CAPTION>
August 28, October 2, September 30,
1999 1999 2000
----------------------------------------------------------------------------
<S> <C> <C> <C>
Benefit obligation at beginning of year $33,238 $35,507 $43,025
Service cost 1,055 112 1,433
Interest cost 2,345 241 3,140
Actuarial loss (gain) 508 (87) 2,098
Benefits paid (1,639) (155) (2,054)
Merger of United retirement plan 7,407
----------------------------------------------------------------------------
BENEFIT OBLIGATION AT END OF YEAR $35,507 $43,025 $47,642
----------------------------------------------------------------------------
</TABLE>
The change in the plan assets during the year is:
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
August 28, October 2, September 30,
1999 1999 2000
------------------------------------------------------------------------------
<S> <C> <C> <C>
Fair value of plan assets at beginning of
year -- -- --
Employer contribution $ 1,639 $ 155 $ 2,054
Benefits paid (1,639) (155) (2,054)
------------------------------------------------------------------------------
FAIR VALUE OF PLAN ASSETS AT END OF YEAR $ 0 $ 0 $ 0
------------------------------------------------------------------------------
</TABLE>
The funded status of the plans is:
<TABLE>
-----------------------------------------------------------------------------
<CAPTION>
August 28, October 2, September 30,
1999 1999 2000
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Funded status at June 1 (underfunded) $(35,507) $(35,618) $(47,642)
Unrecognized actuarial loss 5,128 5,085 4,620
Unrecognized transition obligation 15,677 15,569 14,096
Fourth quarter contribution 398 421 446
Effect of curtailment, settlements, spe-
cial benefits -- (2,580) --
Fourth quarter net periodic pension ex-
pense (1,521) (1,600) (1,315)
-----------------------------------------------------------------------------
NET AMOUNT RECOGNIZED: $(15,825) $(18,723) $(29,795)
-----------------------------------------------------------------------------
</TABLE>
The weighted-average assumptions as of June 1 are:
<TABLE>
--------------------------------------------------------------
<CAPTION>
1998 1999 2000
--------------------------------------------------------------
<S> <C> <C> <C>
Discount rate for benefit obligation 7.00% 7.00% 7.75%
Discount rate for net periodic benefit cost 7.50% 7.00% 7.00%
Rate of compensation increase 5.50% 5.50% 5.50%
</TABLE>
For measurement purposes, a 6.85% annual rate of increase in the per capita
cost of covered health care benefits was assumed for fiscal 2001; the rate was
assumed to decrease to 5.00% in fiscal 2003 and remain at that level
thereafter. The health care cost trend rate assumption has a significant
effect on the amounts reported. To illustrate, increasing the assumed health
care cost trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of September 30, 2000 by $5.3
million and the aggregate benefit cost for the year then ended by $0.7
million. A decrease of 1% would decrease the accumulated postretirement
benefit obligation as of September 30, 2000 by $4.5 million and the aggregate
benefit cost for the year then ended by $0.6 million.
The Company's union employees participate in a multiemployer plan that
provides health care benefits for retired union employees. Amounts contributed
to the multiemployer plan for these union employees totaled $1.1 million in
fiscal 1998, $0.1 million in fiscal 1999, $7 thousand in the transition period
ended October 2, 1999 and $1.2 million in fiscal 2000.
43
<PAGE>
Unified Western Grocers, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. CONTINGENCIES:
Litigation. The Company is a defendant in a number of cases currently in
litigation or potential claims encountered in the normal course of business
which are being vigorously defended. In the opinion of management, the
resolution of these matters will not have a material adverse effect on the
Company's financial position, results of operations, or cash flow.
The Jerome Lemelson Foundation (the "Foundation"), which asserts ownership of
certain patents relating to bar code technology, issued a demand that the
Company enter into a license agreement with respect to certain patented
technology which the Company is claimed to use and which allegedly infringes
upon patents issued to Jerome Lemelson, which patents, upon the death of
Jerome Lemelson, were assigned to the Foundation. The Company has been advised
that the Foundation has filed an action against the Company and others
asserting patent infringement and seeking damages in unexpected amounts. The
Foundation continues to seek a negotiated settlement of its claim. Due to the
early stage of the proceeding, the Company is unable to assess the merits of
the lawsuit or to determine its potential liability, if any. The Company
intends to vigorously defend the action.
Environmental Matters. The United States Environmental Protection Agency
("EPA") notified the Company in 1993 that, together with others, it was a
potentially responsible party ("PRP") for the disposal of hazardous substances
at a landfill site located in Monterey Park, California. In 1999, the EPA
notified the Company that, together with others, it was a PRP for the disposal
of hazardous substances at a landfill site located in Patterson, California.
The Company believes that its share of cost for the remaining phases of
cleanup for these sites will not exceed the amounts which the Company has
reserved.
14. SEGMENT INFORMATION:
Unified is a grocery wholesaler serving supermarket operators in California,
Oregon, Washington, Nevada, Arizona, Hawaii and various foreign countries in
the South Pacific and elsewhere. In addition to offering dry grocery, frozen
food, deli, meat, dairy, egg, produce, bakery, gourmet, specialty foods and
general merchandise products, Unified also provides finance, insurance, store
design, security services, information services, and real estate services to
its patrons.
Based on the information monitored by the Company's operating decision makers
to manage the business, the Company has identified one reportable segment.
Wholesale distribution includes the results of operations from the sale of
food and general merchandise items to independent supermarket operators, both
members and non-members, and sales to company-owned retail stores.
The "all other" category includes the aggregation of retail sales, finance,
insurance and other services provided to a common customer base, none of which
individually meets the quantitative thresholds of a reportable segment.
44
<PAGE>
Unified Western Grocers, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Information about the Company's operations by operating segment is as follows:
<TABLE>
---------------------------------------------------------------------------------
<CAPTION>
Transition
Year Ended Year Ended Period Ended Year Ended
August 29, August 28, October 2, September 30,
1998 1999 1999 2000
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales
Wholesale distribution $1,807,366 $1,822,382 $208,279 $2,960,883
All other 38,446 112,075 12,969 253,720
Intersegment elimination (14,126) (40,934) (9,615) (147,208)
---------------------------------------------------------------------------------
TOTAL NET SALES $1,831,686 $1,893,523 $211,633 $3,067,395
---------------------------------------------------------------------------------
Operating earnings (loss)
Wholesale distribution $22,946 $33,638 $(499) $ 43,866
All other 3,306 951 (650) (15,961)
---------------------------------------------------------------------------------
Total operating earnings
(loss) 26,252 34,589 (1,149) 27,905
Interest expense (12,320) (11,911) (1,495) (28,880)
Other income (expense), net 3,200 (5,780) (7,218) --
Patronage dividends (10,149) (14,195) -- (15,426)
---------------------------------------------------------------------------------
EARNINGS (LOSS)
BEFORE PROVISION FOR INCOME
TAXES AND EXTRAORDINARY
ITEM $6,983 $2,703 $(9,862) $(16,401)
---------------------------------------------------------------------------------
Depreciation and amortiza-
tion
Wholesale distribution $14,470 $15,690 $2,328 $24,137
All other 322 1,216 150 2,377
---------------------------------------------------------------------------------
TOTAL DEPRECIATION AND AMOR-
TIZATION $14,792 $16,906 $2,478 $26,514
---------------------------------------------------------------------------------
Capital expenditures
Wholesale distribution $18,060 $11,756 $40,561 $12,419
All other 354 5,525 1,289 10,944
---------------------------------------------------------------------------------
TOTAL CAPITAL EXPENDITURES $18,414 $17,281 $41,850 $23,363
---------------------------------------------------------------------------------
Identifiable assets
Wholesale distribution $324,907 $336,635 $618,311 $605,569
All other 64,311 114,500 135,202 160,281
---------------------------------------------------------------------------------
TOTAL IDENTIFIABLE ASSETS $389,218 $451,135 $753,513 $765,850
---------------------------------------------------------------------------------
</TABLE>
15. CONCENTRATION OF CREDIT RISK:
Financial instruments which potentially expose the Company to concentrations
of credit risk consist primarily of trade receivables, notes receivable, and
lease guarantees for certain member-patrons. These concentrations of credit
risk may be affected by changes in economic or other conditions affecting the
Western United States, particularly California and Oregon. However, management
believes that receivables are well diversified, and the allowances for
doubtful accounts are sufficient to absorb estimated losses. Obligations of
member-patrons to the Company, including lease guarantees, are generally
supported by the Company's right of offset, upon default, against the member-
patrons' cash deposits, shareholdings and Patronage Certificates, as well as
personal guarantees and reimbursement and indemnification agreements.
The Company's largest customer and ten largest customers accounted for
approximately 6% and 31%, 6% and 28%, and 7% and 28%, of net sales for the
fiscal years ended August 29, 1998, August 28, 1999 and September 30, 2000.
45
<PAGE>
Unified Western Grocers, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
Cash and cash equivalents:
The carrying amount approximates fair value due to the short maturity of these
instruments.
Investments and Notes receivable:
The fair values for investments and notes receivable are based primarily on
their quoted market prices or those of similar instruments. Equity securities
which do not have readily determinable fair values are accounted for using the
cost method. The Company regularly evaluates securities carried at cost to
determine whether there has been any diminution in value that is deemed to be
other than temporary and adjusts the value accordingly.
Notes payable, Notes payable due after one year, Subordinated patronage
dividend certificates and Interest rate collar agreement:
The fair values for notes payable, notes payable due after one year,
subordinated patronage dividend certificates, and the interest rate collar
agreement are based primarily on rates currently available to the Company for
debt and collar agreements with similar terms and remaining maturities. The
fair values for notes payable, notes payable due after one year, and patronage
dividend certificates approximated their carrying value at August 28, 1999,
October 2, 1999 and September 30, 2000. The fair value of the collar agreement
at September 30, 2000 was approximately $1.2 million.
The methods and assumptions used to estimate the fair values of the Company's
financial instruments at August 28, 1999, October 2, 1999, and September 30,
2000 were based on estimates of market conditions, estimates using present
value and risks existing at that time. These values represent an approximation
of possible value and may never actually be realized.
17. RELATED PARTY TRANSACTIONS:
Members affiliated with directors of the Company make purchases of merchandise
from the Company and also may receive benefits and services which are of the
type generally offered by the Company to its eligible members.
Since the programs listed below are only available to patrons of the Company,
it is not possible to assess whether transactions with members of the Company,
including entities affiliated with directors of the Company, are less
favorable to the Company than similar transactions with unrelated third
parties. However, management believes such transactions are on terms which are
consistent with terms available to other patrons similarly situated.
46
<PAGE>
Unified Western Grocers, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A brief description of related party transactions with members affiliated with
directors of the Company follows:
Loans and Loan Guarantees:
Unified provides loan financing to its member-patrons. The Company had the
following loans outstanding at September 30, 2000 to members affiliated with
directors of the Company:
<TABLE>
---------------------------------------------------
<CAPTION>
Aggregate
Loan
Balance at
September 30, Maturity
DIRECTOR 2000 Date
---------------------------------------------------
<S> <C> <C>
Darioush Khaledi $12,684 2001-2004
Bill Andronico 2,093 2001-2004
David Bennett 2,000 2003
Michael A. Provenzano, Jr. 266 2001
Gaylon G. Baese(1) 171 2000
Mimi R. Song 98 2000
---------------------------------------------------
</TABLE>
(1) Subsequent to September 30, 2000, Mr. Baese sold his store to another
member patron, resulting in the pay-off of the outstanding loan balance.
On May 12, 2000, the Company loaned $7 million to K.V. Mart Co. ("KV") which
is payable over a period of five years. The loan is secured by substantially
all of the assets of KV, including leasehold deeds of trust on several parcels
currently leased by KV. Director Darioush Khaledi, his partner Parviz Vazin
and two entities to which these individuals are related have guaranteed the
obligations of KV under the loan. Coincident with the transaction, KV and the
Company extended the term of their existing supply agreement until May 12,
2005.
On July 5, 2000, the Company loaned $3 million to 1999 Lawndale Associates LLC
("Lawndale"), of which director Darioush Khaledi is an affiliate. The loan is
payable over a period of five years and is secured by a pledge of all of the
outstanding shares of KV. The proceeds of the loan were used to repay amounts
due KV that had been advanced by KV to members of Lawndale. The loan is
guaranteed by Darioush Khaledi, his partner Parviz Vazin and three entities to
which these individuals are related.
Member-patron loans made by GCC and United Resources are periodically sold to
a bank, subject to limited recourse provisions. At September 30, 2000, the
principal balances of loans to members affiliated with directors of the
Company that were sold with recourse were as follows:
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Aggregate Loan
Balance at
September 30, Maturity
DIRECTOR 2000 Date
-----------------------------------------
<S> <C> <C>
Peter J. O'Neal $1,801 2004-2008
Gaylon G. Baese 494 2003
Mark Kidd 64 2003
James R. Stump 62 2001
John Berberian 1 2000
</TABLE>
The Company provides loan guarantees to its members. GCC has guaranteed 10% of
the principal amount of certain third-party loans to KV of which director
Darioush Khaledi is an affiliate. At September 30, 2000, the principal amount
of this guarantee was $535.
GCC has guaranteed 10% of the principal amount of certain third-party loans to
companies owned by Michael A. Provenzano, Jr. The maximum amount of this
guarantee is $550.
47
<PAGE>
Unified Western Grocers, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Lease Guarantees and Subleases:
The Company provides lease guarantees and subleases to its member-patrons. The
Company has executed lease guarantees or subleases to members affiliated with
directors of the Company at September 30, 2000 as follows:
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. Of Total Current Expiration
DIRECTOR Stores Annual Rent Date(s)
-----------------------------------------------------------
<S> <C> <C> <C>
Darioush Khaledi 5 $1,415 2002-2011
Bill Andronico 1 861 2014
Richard L. Wright 1 273 2007
Michael A. Provenzano, Jr. 2 351 2016-2017
John Berberian 2 310 2001-2007
Gaylon G. Baese 1 278 2004
James R. Stump 2 208 2001-2003
David Bennett 1 193 2004
Mimi R. Song 1 187 2004
Mark Kidd 1 121 2008
</TABLE>
The Company has committed to guarantee store leases for stores currently under
development affiliated with directors of Unified as follows:
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Estimated
Estimated Annual
DIRECTOR Term Rent
------------------------------------
<S> <C> <C>
Edmund K. Davis 10 years $1,560
Bill Andronico 20 years 990
</TABLE>
Other Leases:
The Company leases its produce warehouse to Joe Notrica, Inc., with which
director Morrie Notrica is affiliated. The lease is for a term of five years
expiring in July 2003. Monthly rent during the term is $24.
Supply Agreements:
During the course of its business, the Company enters into supply agreements
with members of the Company. These agreements require the member to purchase
certain agreed amounts of its merchandise requirements from the Company and
obligate the Company to supply such merchandise under agreed terms and
conditions relating to such matters as pricing and delivery. Members
affiliated with directors Andronico, Bennett, Davis, Khaledi, Kidd, McCormack,
Provenzano, Song and Wright have entered into supply agreements with the
Company. These supply agreements vary in terms and length, and expire at
various dates through 2007, and are subject to earlier termination in certain
events.
Direct Investment:
At August 29, 1998, GCC owned 10% of the common stock of KV. The cost of the
investment was approximately $3 million. The stock purchase agreement
contained a provision which allowed KV to repurchase the shares upon certain
terms and conditions. In March 1999, KV exercised its repurchase rights under
the agreement.
KV purchased the shares for $4.5 million, payable in cash and in an interest-
bearing note, resulting in a pre-tax gain of $1.5 million which is included in
Other income (expense), net, in the accompanying consolidated statements of
earnings and comprehensive earnings. The stock purchase agreement also
provides that for a five-year period commencing as of the date of the
agreement, in the event of (i) a change of control of KV or (ii) a breach of
the supply agreement by KV, KV shall pay the Company $900 or an amount equal
to the difference between 10% of the appraised value of KV as of the
approximate date of the Agreement (as prepared by an independent third party
appraisal firm) and $4.5 million, whichever is greater.
48
<PAGE>
The Company owns 49% of the interests of RAF, LLC. Wright's Foodliner, Inc.,
which is controlled by director Richard W. Wright, who owns the remaining 51%
of the interests in RAF, LLC. During fiscal 1999, RAF, LLC purchased groceries
and other products in the ordinary course of business from United on the same
terms and conditions as United's other members. On October 29, 1999, the store
was closed and the parties are in the process of liquidating RAF, LLC in
accordance with the terms of the Operating Agreement. Pursuant to that
agreement, Wright's Foodliner, Inc. is entitled to receive approximately $389
thousand and may be entitled to additional amounts depending on final
resolution of issues relating to the liquidation.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
49
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors of Unified is incorporated herein by
reference to Unified's proxy statement in connection with its next annual
meeting of shareholders to be filed within 120 days after the end of the most
recent fiscal year. The following table sets forth certain information about
executive officers of Unified.
<TABLE>
<CAPTION>
Officer's Name Age Business Experience During Last Five Years
-------------- --- ------------------------------------------------------
<C> <C> <S>
Alfred A. Plamann 58 President and Chief Executive Officer since February
1994.
Robert M. Ling, Jr. 43 Executive Vice President, General Counsel and
Secretary since November, 1999; Senior Vice President,
General Counsel and Secretary, October 1997 to
November 1999; Vice President, General Counsel and
Secretary, August 1996 to October 1997; Vice President
and General Counsel, April 1996 to August 1996; Vice
President, General Counsel and Secretary, Megafoods
Stores, Inc., July 1994 to April 1996.
Richard J. Martin 55 Executive Vice President, Finance & Administration and
Chief Financial Officer since November 1999; Senior
Vice President and Chief Financial Officer, May 1998
to November 1999; previously Executive Vice President
and Chief Financial Officer, Rykoff-Sexton, Inc.
through December 1997 when it merged with J.P.
Foodservice to form US Foodservice and Executive Vice
President Finance and Administration of US Foodservice
through January 1998.
Charles J. Pilliter 52 Executive Vice President, Sales and Marketing since
November 1999; Senior Vice President and President,
Northern California, January 1990 to November 1999.
Harley J. Delano 63 Senior Vice President, Retail Development and
President, SavMax Foods, Inc. since November 1999;
President, SavMax Foods, Inc., April 1999 to November
1999; President, Cala Foods, Inc., division of Ralphs
Grocery Company, prior to March 1999.
George D. Gardner 47 Senior Vice President, Non Foods and Specialty
Products since November 1999; Vice President, Non
Foods and Specialty Products, May 1996 to November
1999; General Manager of Grocers Specialty Co., June
1995 to May 1996; Vice President & General Manager,
Ingro Mexican Foods, Inc., May 1993 to June 1995.
Daniel J. Murphy 53 Senior Vice President, Retail Support Services since
October 2000; Vice President of Merchandising,
HomeGrocer.com, May 1999 to September 2000; Vice
President of Retail Client Services, Interact
Electronic Marketing Inc., October 1998 to May 1999;
Vice President, Super Fresh Food Markets, October 1997
to October 1998; Vice President, Sales and
Merchandising, Wakefern Food Corp., July 1989 to
October 1997.
Philip S. Smith 50 Senior Vice President, Procurement since November
1999; Vice President, Procurement, October 1997 to
November 1999; Executive Director, Purchasing, July
1997 to October 1997; General Manager, Northern
California, June 1996 to July 1997; Manager, Product
Sales, September 1994 to June 1996.
Rodney L. VanBebber 45 Senior Vice President, Distribution since January
2000; Group Vice President, Distribution, Ralphs
Grocery Company 1996 to January 2000.
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
Officer's Name Age Business Experience During Last Five Years
-------------- --- --------------------------------------------------------
<C> <C> <S>
William O. Cote 43 Vice President, Controller since November 1999; Director
of Accounting prior to November 1999.
Joseph A. Ney 52 Vice President, Insurance since November 1998;
President, Grocers and Merchants Insurance Services,
Inc., Springfield Insurance Company, and Springfield
Insurance Company, Ltd. prior to November 1998.
David A. Woodward 58 Vice President, Treasurer since November 1999; Treasurer
from August 1996 to November 1999; Secretary and
Treasurer prior to August 1996.
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to Unified's proxy statement in connection
with its next annual meeting of shareholders to be filed within 120 days after
the end of the most recent fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to Unified's proxy statement in connection
with its next annual meeting of shareholders to be filed within 120 days after
the end of the most recent fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
All firms with which directors are affiliated, as members of Unified, purchase
groceries, related products and store equipment from Unified in the ordinary
course of business. As members, firms with which directors are affiliated may
receive various benefits including patronage dividends, allowances and retail
support services. Unified makes a variety of benefits available to members on
a negotiated basis. See Footnote 17 to Notes to Consolidated Financial
Statements, which is incorporated herein by this reference, for a description
of related party transactions. Additional information is incorporated herein
by reference to Unified's proxy statement in connection with its next annual
meeting of shareholders to be filed within 120 days after the end of the most
recent fiscal year.
51
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Financial Statements
Independent Auditors' Report.
Consolidated Balance Sheets as of August 28, 1999, October 2, 1999 and
September 30, 2000.
Consolidated Statements of Earnings and Comprehensive Earnings for the Fiscal
Years Ended August 29, 1998, August 28, 1999, the transition period from
August 29, 1999 through October 2, 1999 and the fiscal year ended September
30, 2000.
Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended
August 29, 1998, August 28, 1999, the transition period from August 29, 1999
through October 2, 1999 and the fiscal year ended September 30, 2000.
Consolidated Statements of Cash Flows for the Fiscal Years Ended August 29,
1998 and August 28, 1999, the transition period from August 29, 1999 through
October 2, 1999 and the fiscal year ended September 30, 2000.
(b) Reports on Form 8-K
None.
(c) Exhibits
<TABLE>
<C> <S>
3.1 Amended and Restated Articles of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to the Registrant's Current
Report on Form 8-K filed on October 13, 1999, File No. 0-10815).
3.2 Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the
Registrant's Current Report on Form 8-K filed on October 13, 1999, File No.
0-10815).
4.1 Retail Grocer Application and Agreement for Continuing Service Affiliation
With Unified Western Grocers, Inc. And Pledge Agreement (incorporated by
reference to Exhibit 4.7 to Amendment No. 2 to Form S-1 Registration
Statement of the Registrant filed on December 31, 1981, File No. 2-70069).
4.2 Retail Grocer Application And Agreement For Service Affiliation With And
The Purchase Of Shares Of Unified Western Grocers, Inc. And Pledge
Agreement (incorporated by reference to Exhibit 4.2 to Post Effective
Amendment No. 7 to Form S-2 Registration Statement of the Registrant filed
on December 13, 1989, File No. 33-19284).
4.3 Copy of Application and Agreement for Service Affiliation as a Member-
Patron/Affiliate with Unified Western Grocers, Inc. and Pledge and Security
Agreement (incorporated by reference to Exhibit 4.1 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2000,
file No. 000-10815).
4.4 Copy of Application and Agreement for Service Affiliation as an Associate-
Patron with Unified Western Grocers, Inc. and Pledge and Security Agreement
(incorporated by reference to Exhibit 4.2 to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended April 1, 2000, file No.
000-10815).
4.5 Agreement respecting directors' shares (incorporated by reference to
Exhibit 4.9 to Amendment No. 2 to Form S-1 Registration Statement of the
Registrant filed on December 31, 1981, File No. 2-70069).
4.6 Subordination Agreement (Member-Patron-1988) (incorporated by reference to
Exhibit 4.4 to Post-Effective Amendment No. 4 to Form S-2 Registration
Statement of the Registrant filed on July 15, 1988, File No. 33-19284).
4.7 Subordination Agreement (Associate Patron-1988) (incorporated by reference
to Exhibit 4.5 to Post-Effective Amendment No. 4 to Form S-2 Registration
Statement of the Registrant filed on July 15, 1988, File No. 33-19284).
</TABLE>
52
<PAGE>
<TABLE>
<S> <C>
4.8 Subordination Agreement (New Member-Patron-1988) (incorporated by reference
to Exhibit 4.6 to Post-Effective Amendment No. 4 to Form S-2 Registration
Statement of the Registrant filed on July 15, 1988, File No. 33-19284).
4.9 Subordination Agreement (New Associate Patron-1988) (incorporated by
reference to Exhibit 4.7 to Post-Effective Amendment No. 4 to Form S-2
Registration Statement of the Registrant filed on July 15, 1988, File No.
33-19284).
4.10 Copy of Member Patron/Affiliate Subordination Agreement (Subordination of
Required Deposit) (incorporated by reference to Exhibit 4.3 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended
April 1, 2000, file No. 000-10815).
4.11 Copy of Associate-Patron Subordination Agreement (Subordination of Required
Deposit Agreement (incorporated by reference to Exhibit 4.4 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended
April 1, 2000, file No. 000-10815).
</TABLE>
<TABLE>
<C> <S>
4.12 Form of Class A Share Certificate.
4.13 Form of Class B Share Certificate.
4.14.1 Articles FIFTH and SIXTH of the Registrant's Articles of Incorporation (See
Exhibit 3.1).
4.14.2 Article I, Section 5, and Article VII of the Registrant's Bylaws (See
Exhibit 3.2).
4.15 Indenture between the Registrant and First Interstate Bank of California,
as Trustee, relating to $3,000,000 Subordinated Patronage Dividend
Certificates Due December 15, 2000 (incorporated by reference to Exhibit
4.3 to Amendment No. 1 to Form S-2 Registration Statement of the Registrant
filed on September 27, 1993, File No. 33-68288).
4.16 Indenture between the Registrant and First Interstate Bank of California,
as Trustee, relating to $5,000,000 Subordinated Patronage Dividend
Certificates due December 15, 2001 (incorporated by reference to Exhibit
4.3 to Form S-2 Registration Statement of the Registrant filed on October
12, 1994, File No. 33-56005).
4.17 Indenture between the Registrant and First Interstate Bank of California,
as Trustee, relating to $3,000,000 Subordinated Patronage Dividend
Certificates due December 15, 2002 (incorporated by reference to Exhibit
4.3 to Form S-2 Registration Statement of the Registrant filed on October
13, 1995, File No. 33-63383).
4.18 Loan Purchase and Service Agreement Dated as of August 29, 1996 between
Grocers Capital Company and National Consumer Cooperative Bank
(incorporated by reference to Exhibit 4.18 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended August 31, 1996 filed on
November 5, 1996, File No. 0-10815).
4.19 $10,000,000 Credit Agreement and Security Agreement each dated as of
September 20, 1996 between Grocers Capital Company and National Cooperative
Bank as agent (incorporated by reference to Exhibit 4.19 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended August
31, 1996 filed on November 5, 1996, File No. 0-10815).
4.20 Amended and Restated Loan Purchase Agreement (Existing Program) dated January 30, 1998
among United Resources, Inc., United Grocers, Inc. (predecessor-in interest
to the Registrant) and National Consumer Cooperative Bank (incorporated by
reference to Exhibit 4.D1 to United Grocers, Inc. Annual Report on Form 10-
K for the fiscal year ended October 2, 1998 filed on January 30, 1999, File
No. 002-60487, as amended).
4.21 Amended and Restated Loan Purchase Agreement (Holdback Program) dated
January 30, 1998 among United Resources, Inc., United Grocers, Inc.
(predecessor-in interest to the Registrant) and National Consumer
Cooperative Bank (incorporated by reference to Exhibit 4.D2 to United
Grocers, Inc. Annual Report on Form 10-K for the fiscal year ended October
2, 1998 filed on January 30, 1999, File No. 002-60487, as amended).
4.22 Guarantee dated September 29, 1999 by the Registrant of debt securities of
United Grocers, Inc. (predecessor-in interest to the Registrant) issued
pursuant to that certain Indenture dated as of February 1, 1978, and as
subsequently amended and supplemented, by and between United Grocers, Inc.,
and State Street Bank and Trust Company (incorporated by reference to
Exhibit 4.1 to the Registrants Current Report on Form 8-K filed on October
13, 1999, File No. 000-10815).
</TABLE>
53
<PAGE>
<TABLE>
<S> <C>
4.23 Note purchase Agreement dated as of September 29, 1999 by and among
Registrant and the persons listed on Schedule I thereto (incorporated by
reference to Exhibit 10.1 to the Registrant's Current report on Form 8-K
filed on October 13, 1999, File No. 000-10815).
4.24 Amendment No. 1 and Limited Waiver to Note Purchase Agreement, dated as of
September 14, 2000, by and among Registrant and the Noteholders listed on
the signature pages thereto.
4.25 Secured Revolving Credit Agreement dated as of September 29, 1999, by and
among Registrant, the Lenders named therein and Rabobank Nederland, New
York Branch (incorporated by reference to Exhibit 10.2 to the Registrant's
Current report on Form 8-K filed on October 13, 1999, File No. 000-10815).
4.26 Amendment No. 1 to Secured Revolving Credit Agreement dated as of November
18, 1999 by and among Registrant, the Lenders named therein and Rabobank
Nederland, New York Branch.
</TABLE>
<TABLE>
<S> <C>
4.27 Amendment No. 2 and Limited Waiver to Secured Revolving Credit Agreement
dated as of July, 2000 by and among Registrant, the Lenders named therein
and Rabobank Nederland, New York Branch.
4.28 Copy of indenture dated as of February 1, 1978, between Unified Western
Grocers, Inc. (as successor to United Grocers, Inc.) and United States
National Bank of Oregon, as trustee, relating to Unified Western Grocers,
Inc.'s Capital Investment Notes (incorporated by reference to Exhibit 4-1
to United Grocers, Inc.'s Registration Statement on Form S-1, No. 2-60488)
4.29 Copy of supplemental indenture dated as of January 27, 1989, between
Unified Western Grocers, Inc. (as successor to United Grocers, Inc.) and
United States National Bank of Oregon, as trustee, relating to Unified
Western Grocers, Inc.'s Series F 5% Subordinated Redeemable Capital
Investment Notes (incorporated by reference to Exhibit 4-G to the United
Grocers, Inc. Form 10-K for the fiscal year ended September 30, 1989).
4.30 Copy of supplemental indenture dated as of January 22, 1991, between
Unified Western Grocers, Inc. (as successor to United Grocers, Inc.) and
United States National Bank of Oregon, as trustee, relating to Unified
Western Grocers, Inc.'s Series G 5% Subordinated Redeemable Capital
Investment Notes (incorporated by reference to Exhibit 4-D to the United
Grocers, Inc. Registration Statement on Form S-2, No. 33-38617)
4.31 Copy of supplemental indenture dated as of July 6, 1992, between Unified
Western Grocers, Inc. (as successor to United Grocers, Inc.) and United
States National Bank of Oregon, as trustee, relating to Unified Western
Grocers, Inc.'s Series H 5% Subordinated Redeemable Capital Investment
Notes (incorporated by reference to Exhibit 4-C to the United Grocers, Inc.
Registration Statement on Form S-2, No. 33-49450)
4.32 Copy of supplemental indenture dated as of January 9, 1995, between Unified
Western Grocers, Inc. (as successor to United Grocers, Inc.) and First Bank
National Association, as trustee, relating to Unified Western Grocers,
Inc.'s Series J 5% Subordinated Redeemable Capital Investment Notes
(incorporated by reference to Exhibit 4-C to the United Grocers, Inc.
Registration Statement on Form S-2, No. 33-57199)
4.33 Copy of supplemental indenture dated as of January 21, 1997, between
Unified Western Grocers, Inc. (as successor to United Grocers, Inc.) and
First Bank National Association, as successor trustee, relating to Unified
Western Grocers, Inc.'s Series K 5% Subordinated Redeemable Capital
Investment Notes (incorporated by reference to Exhibit 4-C to the United
Grocers, Inc. Registration Statement on Form S-2, No. 33-26285)
4.34 Copy of supplemental indenture dated as of February 11, 2000, between
Unified Western Grocers, Inc., United Grocers, Inc. and State Street Bank
and Trust Company (as successor trustee) (incorporated by reference to
Exhibit 4.29 to Unified Western Grocers, Inc.'s Quarterly Report on Form
10-Q for the fiscal quarter ended January 1, 2000 File No. 00-10815
10.1 Comprehensive Amendment to Retirement Plan for Employees of the Registrant
dated as of July 27, 1995 (incorporated by reference to Exhibit 10.1 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended August
30, 1997 filed on November 28, 1997, File No. 0-10815).
</TABLE>
54
<PAGE>
<TABLE>
<S> <C>
10.2 Amended and Restated Deferred Compensation Plan dated as of May 1, 1999
(incorporated by reference to Exhibit 10.2 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended August 28, 1999 filed on
November 14, 1999, File No. 0-10815).
10.3 Comprehensive Amendment to Unified Western Grocers, Inc. Employees'
Sheltered Savings Plan dated as of July 27, 1995 (incorporated by reference
to Exhibit 10.3 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended August 30, 1997 filed on November 28, 1997, File No. 0-
10815).
10.4 Unified Western Grocers, Inc., Executive Salary Protection Plan II ("ESPP
II"), Master Plan Document, effective January 4, 1995 (incorporated by
reference to Exhibit 10.4 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended September 2, 1995 filed on December 1, 1995, File
No. 0-10815).
10.5 Master Trust Agreement For Unified Western Grocers, Inc. Executive Salary
Protection Plan II, dated as of April 28, 1995 (incorporated by reference
to Exhibit 10.5 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended September 2, 1995 filed on December 1, 1995, File No. 0-
10815).
10.6 Unified Western Grocers, Inc. Executive Insurance Plan Split dollar
Agreement and Schedule of Executive Officers party thereto (incorporated by
reference to Exhibit 10.6 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended September 2, 1995 filed on December 1, 1995, File
No. 0-10815).
10.7 Comprehensive Amendment to Unified Western Grocers, Inc. Employees' Excess
Benefit Plan dated as of December 5, 1995 (incorporated by reference to
Exhibit 10.7 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended August 30, 1997 filed on November 28, 1997, File No. 0-10815).
10.8 Comprehensive Amendment to Unified Western Grocers, Inc. Employees'
Supplemental Deferred Compensation Plan dated as of December 5, 1995
(incorporated by reference to Exhibit 10.8 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended August 30, 1997 filed on
November 28, 1997, File No. 0-10815).
10.9 Comprehensive Amendment to Unified Western Grocers, Inc. Employee Savings
Plan dated as of August 18, 1995 (incorporated by reference to Exhibit 10.9
to the Registrant's Annual Report on Form 10-K for the fiscal year ended
August 30, 1997 filed on November 28, 1997, File No. 0-10815).
10.10 Unified Western Grocers, Inc. Early Retirement Program (incorporated by
reference to Exhibit 10.28 to the Form S-4 Registration Statement filed on
August 26, 1999, File No. 333-05917).
10.11 Lease, dated as of December 23, 1986, between Cercor Associates and Grocers
Specialty Company (incorporated by reference to Exhibit 10.8 to Form S-2
Registration Statement of the Registrant filed on September 2, 1993. File
No. 33-68288).
10.12 Expansion Agreement, dated as of May 1, 1991, and Industrial Lease, dated
as of May 1, 1991, between Dermody Properties and the Registrant
(incorporated by reference to Exhibit 10.9 to Form S-2 Registration
Statement of the Registrant filed on September 2, 1993. File No. 33-68288).
10.12.1 Lease Amendment, dated June 20, 1991, between Dermody Properties and the
Registrant (incorporated by reference to Exhibit 10.9.1 to Form S-2
Registration Statement of the Registrant filed on September 2, 1993. File
No. 33-68288).
10.12.2 Lease Amendment, dated October 18, 1991, between Dermody Properties and the
Registrant (incorporated by reference to Exhibit 10.9.2 to Form S-2
Registration Statement of the Registrant filed on September 2, 1993. File
No. 33-68288).
10.17 Commercial Lease-Net dated December 6, 1994 between TriNet Essential
Facilities XII and the Registrant (incorporated by reference to Exhibit
10.17 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended September 2, 1995 filed on December 1, 1995, File No. 0-10815).
</TABLE>
55
<PAGE>
<TABLE>
<S> <C>
10.18 Purchase Agreement dated November 21, 1994 between the Registrant and
TriNet Corporate Realty Trust, Inc. (incorporated by reference to Exhibit
10.18 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended September 2, 1995 filed on December 1, 1995, File No. 0-10815).
10.19 Form of Employment Agreement between the Company and Alfred A. Plamann
(incorporated by reference to Exhibit 10.19 to Form S-4 Registration
Statement of the Registrant filed on August 26, 1999, File No. 333-85917).
10.19.1 Amendment to Employment Agreement dated as of August, 1999, between the
Registrant and Alfred A. Plamann (incorporated by reference to Exhibit
10.27 to Form S-4 Registration Statement of the Registrant filed on August
26, 1999, File No. 333-85917).
10.20 Severance Agreement between the Company and Charles J. Pilliter
(incorporated by reference to Exhibit 10.21 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended August 30, 1997 filed on
November 28, 1997, File No. 0-10815).
10.21 Severance Agreement between the Company and Robert M. Ling, Jr.
(incorporated by reference to Exhibit 10.21 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended August 29, 1998 filed on
November 16, 1998, File No. 0-10815).
10.22 Severance Agreement between the Company and Richard J. Martin (incorporated
by reference to Exhibit 10.22 to the Registrant's Annual Report on Form 10-
K for the fiscal year ended August 29, 1998 filed on November 16, 1998,
File No. 0-10815).
10.23 Form of Indemnification Agreement between the Company and each Director and
Officer (incorporated by reference to Exhibit A to the Registrant's Proxy
Statement dated February 24, 1997 filed on February 24, 1997, File No. 0-
10815).
10.24 Annual Incentive Plan for Chief Executive Officer (incorporated by
reference to Exhibit 10.23 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended August 30, 1997 filed on November 28, 1997, File
No. 0-10815).
10.25 Annual Incentive Plan for Senior Management (incorporated by reference to
Exhibit 10.24 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended August 30, 1997 filed on November 28, 1997, File No. 0-10815).
10.26 Sublease Agreement dated August 28, 1991 for the Tigard Store between
United Grocers, Inc. (predecessor-in-interest to the Registrant) and a
corporation in which Gaylon G. Baese, a director of the Registrant, has an
interest (incorporated by reference to Exhibit 10.G of United Grocers, Inc.
Annual Report on Form 10-K for the fiscal year ended October 2, 1998 filed
on January 20, 1999, File No. 002-60487).
10.27 Sublease Agreement dated October 27, 1991 for the Eugene Store between
United Grocers, Inc. (predecessor-in-interest to the Registrant) and a
corporation in which Richard L. Wright, a director of the Registrant, has
an interest (incorporated by reference to Exhibit 10.H1 of United Grocers,
Inc. Annual Report on Form 10-K for the fiscal year ended October 2, 1998
filed on January 20, 1999, File No. 002-60487).
10.28 Sublease Agreement dated October 27, 1991 for the Cottage Grove Store
between United Grocers, Inc. (predecessor-in-interest to the Registrant)
and a corporation in which Richard L. Wright, a director of the Registrant,
has an interest (incorporated by reference to Exhibit 10.H2 of United
Grocers, Inc. Annual Report on Form 10-K for the fiscal year ended October
2, 1998 filed on January 20, 1999, File No. 002-60487).
10.29 Sublease Agreement dated February 1, 1994 for the Albany Store between
United Grocers, Inc. (predecessor-in-interest to the Registrant) and a
corporation in which Richard L. Wright, a director of the Registrant, has
an interest (incorporated by reference to Exhibit 10.H3 of United Grocers,
Inc. Annual Report on Form 10-K for the fiscal year ended October 2, 1998
filed on January 20, 1999, File No. 002-60487).
10.30 Sublease Agreement dated July 26, 1979 for the Gold Beach Store between
United Grocers, Inc. (predecessor-in interest to the Registrant) and
Raymond L. Nidiffer, a holder of more than five percent of the Registrant's
shares (incorporated by reference to Exhibit 10-Q3 of United Grocers'
Registration Statement on Form S-2, File No. 33-26631).
</TABLE>
56
<PAGE>
<TABLE>
<S> <C>
10.31 Assignment of Lease and related documents for Mt. Shasta Store between
United Grocers, Inc. (predecessor-in interest to the Registrant) and C&K
Market, Inc., an affiliate of Raymond L. Nidiffer (incorporated by
reference to Exhibit 10-Q4 of United Grocers, Inc.'s Registration Statement
on Form S-2, File No. 33-26631).
10.32 Loan guaranties dated June 12, 1980 and September 30, 1988, given by United
Grocers, Inc. (predecessor-in interest to the Registrant) for the benefit
of C&K Market, Inc., an affiliate of Raymond L. Nidiffer (incorporated by
reference to Exhibit 10-I12 to United Grocer's Form 10-K for the fiscal
year ended September 30, 1989).
10.33 Agreement for Purchase and Sale and Escrow Instructions dated September 17,
1997, between United Grocers, Inc. (predecessor-in interest to the
Registrant) and C&K Market, Inc., an affiliate of Raymond L. Nidiffer
(incorporated by reference to Exhibit 10.I5 to United Grocers, Inc.'s Form
10-K for the fiscal year ended October 2, 1998 filed on January 20, 1999,
File No. 002-60487).
10.34 Stock Purchase Agreement dated November 17, 1997, by and among United
Grocers, Inc. (predecessor-in interest to the Registrant) and C&K Market,
an affiliate of Raymond L. Nidiffer (incorporated by reference to Exhibit
10.I6 to Form 10-K of United Grocers, Inc. filed on January 20, 1999, File
No. 002-60487).
10.35 Stock Purchase Agreement dated March 26, 1999 by and among Grocers Capital
Company, K.V. Mart Co., an affiliate of Darioush Khaledi, Khaledi Family
Partnership I, Khaledi Family Trust dated May 17, 1995, and Parviz Vazin
and Vida Vazin.
10.36 Pledge Agreement dated March 26, 1999 by Khaledi Family Partnership I,
Khaledi Family Trust dated May 17, 1995, and Parviz Vazin and Vida Vazin in
favor of Grocers Capital Company.
10.37 Guaranty dated March 26, 1999 by K.V. Mart Co. in favor of Grocers Capital
Company.
10.38 Term Loan Agreement dated as of May 12, 2000 between K.V. Mart Co. and
Unified Western Grocers, Inc. relating to a $7,000,000 Promissory Note due
May 12, 2005 in favor of Unified Western Grocers, Inc. by K.V. Mart Co.
(incorporated by reference to Exhibit 10.38 to the Registrant's Form 10-Q
for the quarterly period ended July 1, 2000 filed on August 17, 2000,
File No. 0-10815)
10.39 Security Agreement dated as of May 12, 2000 between K.V. Mart Co. and
Unified Western Grocers, Inc. relating to the Term Loan Agreement dated as
of May 12, 2000 between K.V. Mart Co. and Unified Western Grocers, Inc.
(incorporated by reference to Exhibit 10.39 to the Registrant's Form 10-Q
for the quarterly period ended July 1, 2000 filed on August 17, 2000,
File No. 0-10815)
10.40 Guaranty dated as of May 12, 2000 by Darioush Khaledi and Shahpar Khaledi,
husband and wife, Darioush Khaledi, as Trustee of the Khaledi Family Trust
under Declaration of Trust dated May 17, 1995, K.V. Property Company, and
Parviz Vazin and Vida Vazin in favor of Unified Western Grocers, Inc.
issued pursuant to that certain Term Loan Agreement dated as of May 12,
2000 between K.V. Mart Co. and Unified Western Grocers, Inc. (incorporated
by reference to Exhibit 10.40 to the Registrant's Form 10-Q for the
quarterly period ended July 1, 2000 filed on August 17, 2000, File No. 0-
10815)
10.41 Stock Collateral Acknowledgement and Consent dated as of May 12, 2000
executed by the shareholders of K.V. Mart Co. (incorporated by reference to
Exhibit 10.41 to the Registrant's Form 10-Q for the quarterly period ended
July 1, 2000 filed on August 17, 2000, File No. 0-10815)
10.42 Term Loan Agreement dated as of July 15, 2000 between 1999 Lawndale
Associates LLC and Unified Western Grocers, Inc. relating to the $3,000,000
Promissory Note due January 5, 2002 in favor of Unified Western Grocers,
Inc. by 1999 Lawndale Associates LLC (incorporated by reference to Exhibit
10.42 to the Registrant's Form 10-Q for the quarterly period ended July 1,
2000 filed on August 17, 2000, File No. 0-10815)
10.43 Pledge Agreement dated as of July 5, 2000 by and among certain shareholders
of K.V. Mart Co., Unified Western Grocers, Inc. and Grocers Capital Company
relating to the Term Loan Agreement dated as of July 5, 2000 between 1999
Lawndale Associates LLC and Unified Western Grocers, Inc. (incorporated by
reference to Exhibit 10.43 to the Registrant's Form 10-Q for the quarterly
period ended July 1, 2000 filed on August 17, 2000, File No. 0-10815)
</TABLE>
57
<PAGE>
<TABLE>
<S> <C>
10.44 Pledge Agreement dated as of July 5, 2000 by and among certain shareholders
of K.V. Mart Co., Unified Western Grocers, Inc. and Grocers Capital Company
relating to the Term Loan Agreement dated as of July 5, 2000 between 1999
Lawndale Associates LLC and Unified Western Grocers, Inc. (incorporated by
reference to Exhibit 10.44 to the Registrant's Form 10-Q for the quarterly
period ended July 1, 2000 filed on August 17, 2000, File No. 0-10815)
10.45 Guaranty dated as of July 5, 2000 by shareholders and affiliates of K.V.
Mart Co. in favor of Unified Western Grocers, Inc. issued pursuant to that
certain Term Loan Agreement dated as of July 5, 2000 between 1999 Lawndale
Associates LLC and Unified Western Grocers, Inc. (incorporated by reference
to Exhibit 10.45 to the Registrant's Form 10-Q for the quarterly period
ended July 1, 2000 filed on August 17, 2000, File No. 0-10815)
10.46 Trust Agreement for Unified Western Grocers, Inc., effective as of April 1,
2000, between Registrant and Robert M. Ling, Jr., Richard J. Martin and
David A. Woodward.
21 Subsidiaries of the Registrant.
27 Financial Data Schedule.
</TABLE>
(d) Financial Statement Schedules
All required schedule information is presented in the financial statements or
notes thereto. Other schedule information is either not applicable or not
material.
58
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
UNIFIED WESTERN GROCERS, INC.
/s/ Alfred A. Plamann
By _________________________________
Alfred A. Plamann
President and
Chief Executive Officer
/s/ Richard J. Martin
By _________________________________
Richard J. Martin
Executive Vice President, Finance
& Administration and Chief
Financial Officer
/s/ William O. Cote
By _________________________________
William O. Cote
Vice President, Controller
Date: December 20, 2000
<TABLE>
<CAPTION>
Signature Title Date
----------------------------------------------------------------------------------
<S> <C> <C>
/s/ Louis A. Amen Director December 20, 2000
__________________________________
Louis A. Amen
/s/ Bill Andronico Director December 20, 2000
__________________________________
Bill Andronico
/s/ David Bennett Director December 20, 2000
__________________________________
David Bennett
/s/ John Berberian Director December 20, 2000
__________________________________
John Berberian
/s/ Edmund K. Davis Director December 20, 2000
__________________________________
Edmund K. Davis
/s/ Kenneth W. Findley Director December 20, 2000
__________________________________
Kenneth W. Findley
/s/ James F. Glassel Director December 20, 2000
__________________________________
James F. Glassel
/s/ David Goodwin Director December 20, 2000
__________________________________
David Goodwin
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
----------------------------------------------------------------------------------
<S> <C> <C>
/s/ Darioush Khaledi Director December 20, 2000
__________________________________
Darioush Khaledi
/s/ Mark Kidd Director December 20, 2000
__________________________________
Mark Kidd
/s/ Jay McCormack Director December 20, 2000
__________________________________
Jay McCormack
/s/ Mary McDonald Director December 20, 2000
__________________________________
Mary McDonald
/s/ Morrie Notrica Director December 20, 2000
__________________________________
Morrie Notrica
/s/ Peter J. O'Neal Director December 20, 2000
__________________________________
Peter J. O'Neal
/s/ Michael A. Provenzano Director December 20, 2000
__________________________________
Michael A. Provenzano
/s/ Edward J. Quijada Director December 20, 2000
__________________________________
Edward J. Quijada
/s/ Gordon E. Smith Director December 20, 2000
__________________________________
Gordon E. Smith
/s/ Mimi R. Song Director December 20, 2000
__________________________________
Mimi R. Song
/s/ Robert E. Stiles Director December 20, 2000
__________________________________
Robert E. Stiles
/s/ James R. Stump Director December 20, 2000
__________________________________
James R. Stump
/s/ Kenneth Tucker Director December 20, 2000
__________________________________
Kenneth Tucker
/s/ Floyd West Director December 20, 2000
__________________________________
Floyd West
/s/ Richard L. Wright Director December 20, 2000
__________________________________
Richard L. Wright
</TABLE>
60
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
4.12 Form of Class A Share Certificate.
4.13 Form of Class B Share Certificate.
4.24 Amendment No. 1 and Limited Waiver to Note Purchase Agreement, dated as of
September 14, 2000, by and among Registrant and the Noteholders listed on
the signature pages thereto.
4.26 Amendment No. 1 to Secured Revolving Credit Agreement dated as of November
18, 1999 by and among Registrant, the Lenders named therein and Rabobank
Nederland, New York Branch.
4.27 Amendment No. 2 and Limited Waiver to Secured Revolving Credit Agreement
dated as of July, 2000 by and among Registrant, the Lenders named therein
and Rabobank Nederland, New York Branch.
10.35 Stock Purchase Agreement dated March 26, 1999 by and among Grocers Capital
Company, K.V. Mart Co., an affiliate of Darioush Khaledi, Khaledi Family
Partnership I, Khaledi Family Trust dated May 17, 1995, and Parviz Vazin
and Vida Vazin.
10.36 Pledge Agreement dated March 26, 1999 by Khaledi Family Partnership I,
Khaledi Family Trust dated May 17, 1995, and Parviz Vazin and Vida Vazin in
favor of Grocers Capital Company.
10.37 Guaranty dated March 26, 1999 by K.V. Mart Co., in favor of Grocers Capital
Company.
10.46 Trust Agreement for Unified Western Grocers, Inc., effective as of April 1,
2000, between Registrant and Robert M. Ling, Jr., Richard J. Martin and
David A. Woodward.
21 Subsidiaries of the Registrant.
27 Financial Data Schedule.
</TABLE>
61
