<PAGE>
-------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------------------------------------------------------
FORM 10-K/A
(AMENDMENT NO. 1)
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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
-------------------------------------------------------------------------------
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)
-------------------------------------------------------------------------------
(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:
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
<S> <C>
------------------------------------------
Class A Shares None
Class B Shares None
</TABLE>
-------------------------------------------------------------------------------
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
-------------------------------------------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the proxy statement for the
2001 annual meeting in Part III.
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<PAGE>
THE PURPOSE OF THIS AMENDMENT IS TO AMEND THE FOLLOWING ITEM OF REGISTRANT'S
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000 AS
FOLLOWS:
PART II
Item 8. FINANCIAL STATEMENTS
To amend the last paragraph of Item 8.
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
2
<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.
3
<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.
4
<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.
5
<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.
6
<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.
7
<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
8
<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.
9
<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.
10
<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.
11
<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>
12
<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.
13
<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.
14
<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.
15
<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
16
<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,
17
<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>
18
<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>
19
<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.
20
<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.
21
<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
22
<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.
23
<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>
24
<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.
25
<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>
26
<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.
27
<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.
28
<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.
29
<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.
30
<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.
31
<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.
32
<PAGE>
The Company is a member of RAF Limited Liability Company ("RAF"). The only
other member is Wright's Foodliner, Inc., an entity controlled by Director
Richard L. Wright. Wright's Foodliner, Inc. is the managing member of RAF.
During fiscal 1999, RAF purchased groceries and other products in the ordinary
course of business from United on the same terms and conditions as United's
other members. In October, 1999, the store was closed and the parties are in
the process of liquidating RAF in accordance with the terms of the limited
liability company operating agreement. Pursuant to that agreement, the Company
is currently obligated to fund a payment to Wright's Foodliner, Inc. of
approximately $389 thousand and may be obligated to fund additional amounts
depending on final resolution of issues relating to the liquidation.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or Section 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/ Robert M. Ling, Jr.
By ________________________________
Robert M. Ling, Jr.
Executive Vice President, General
Counsel
and Secretary
Date: January 12, 2001
34
