Item 1. Business
The registrant, United Grocers, Inc. ("United" or "the Company"), a wholesale grocery distributor, is an Oregon business corporation organized in 1915 which operates and is taxed as a cooperative.
The Company supplies groceries and related products to independent retail grocers located in Oregon, western Washington and northern California. United's goal is both to supply grocery products to retailers at prices which enable them to compete effectively in the retail market, and to furnish them other services, such as marketing assistance, engineering, accounting, financing and insurance, which are important to the successful operation of a retail grocery business.
United also sells groceries and related products at wholesale through 30 Cash and Carry depots, principally to nonmember grocers, restaurants and institutional buyers.
Consolidated revenues by principal product lines and services appear in the following table:
Financial data regarding the Company's industry segments is included in the financial statements appearing in Item 8.
United and its wholly-owned subsidiaries Grocers Insurance Group, Inc., Grocers Insurance Agency, Inc., Grocers Insurance Company, UGIC, Ltd., United Workplace Consultants, Inc., Western Passage Express, Inc., United Store Development, Ltd., Northwest Process, Inc., Western Security Services, Ltd., Premier Consulting, Inc., United Resources, Inc., U.G. Resources, Inc., and B.A.T. Enterprises, Inc. provide a variety of services to members.
Marketing and Distribution
Independent retail grocers within United's market area are eligible to apply for membership. All applicants for membership are subject to approval by United's Board of Directors on the basis of financial responsibility and operational ability. On approval, applicants are required to purchase shares of United's common stock. United has approximately 250 members operating a total of approximately 360 retail grocery stores.
Members receive periodic order guides indicating the price and availability of various merchandise. Members select the desired merchandise and place their orders using United's computerized order system. The merchandise is picked up by the member or delivered by truck to the member's retail facility.
No member or other customer of United accounts for as much as 10 percent of its sales. Management believes that the loss of any one or a few of its members or other customers would not have a material effect on its business or financial condition.
Members are eligible to join United's group advertising programs. Members of advertising groups all do business under the group name, advertise items jointly, are assessed fees for group marketing services, and take part in group promotional programs. Each advertising group has its own coordinator and acts independently in passing upon applications of membership within the group and deciding on promotional and advertising programs.
United's Cash & Carry wholesale outlets provide a convenient, low cost method of purchasing groceries and institutional products for non-member grocers, restaurants, and institutional buyers. Cash & Carry customers select their merchandise at the outlet much in the same manner that a customer at a retail grocery store would. Cash & Carry customers provide their own transportation.
Supplies
United purchases goods from a wide variety of sources ranging from local farmers to large multinational corporations. United attempts to obtain the lowest possible price by pooling the buying power of its members. United is not dependent on any single supplier and the loss of any single supplier would not have a material effect on its business.
United is one of the five stockholders of Western Family Holding Company, a corporation which pools the buying power of its stockholders in order to obtain lower cost merchandise. Purchases from Western Family Holding Company, which account for about 11% of United's total purchases, are distributed under labels such as "Western Family", and "Cottage."
Retail Services
United provides a number of retail services to its members. Services which do not carry a specific fee or charge include marketing information, merchandising assistance, competitive retail price reporting and developmental services such as store site selection, design and engineering.
United also offers its members, at a fee, complete bookkeeping, accounting and tax services for their retail operations. A computerized payroll service is also available. Other miscellaneous retail services which generally carry a scheduled fee assessment include customized retail pricing, retail shelf "unit pricing", and retail information service products.
United, where appropriate, leases retail space and subleases the space to qualified members to enable them to obtain prime commercial space. At September 30, 1994, United was obligated on 45 such leases. Each such sublease requires that the sublessee pay all charges which may be incurred by United. Lease insurance guaranteeing payment of rent in the event of default covers a substantial amount of the lease payments. United's subsidiary UGIC, Ltd. provides lease insurance for twenty-one such subleases. See "Notes to Consolidated Financial Statements" for additional information on these subleases.
Finance Services
United's subsidiary, United Resources, Inc., makes loans and provides other financial services to members. Loans to members are generally made at one and three quarters to two and one quarter percentage points over the prime interest rate. Such loans generally are for terms of one to ten years. Loan funds are obtained under a loan agreement with two commercial banks and a note purchase agreement with National Consumer Cooperative Bank at rates varying with market interest rates. At September 30, 1994, the aggregate principal amount of member loans outstanding due the subsidiary was $37,512,122. The subsidiary's interest income for the year then ended was approximately $ 3,090,000. In the normal course of its activities, United Resources, Inc. acquires retail stores through foreclosure or purchase and operates them on a temporary basis. United Resources owned four such stores at September 30, 1994. During 1994, United Resources acquired five stores through foreclosure and disposed of eight stores through sale or closure.
Insurance Services Overview
Grocers Insurance Group, Inc. was formed on October 25, 1990, and is a holding company for United's insurance related subsidiaries. Grocers Insurance Group, Inc. assists in marketing insurance related services offered by those subsidiaries.
Grocers Insurance Agency, Inc., is an insurance agency offering property, crime, workers' compensation, group life, group health and other types of insurance. Sales of insurance, although primarily made to members, are also made to nonmembers. Commissions earned totaled approximately $804,000 for the year ended September 30, 1994.
Grocers Insurance Company (GIC), formerly United Employers Insurance Co., writes insurance policies for property and casualty, workers' compensation and other types of insurance and provides some reinsurance services. Premiums earned during 1994 decreased slightly to $24.6 million, from $24.9 million in 1993. GIC operates as a specialty insurer, concentrating on grocery stores and related businesses for a customer base. Currently licensed in 19 states located primarily in the western region of the United States, GIC has applications pending in several additional states, concentrated in the Midwest.
UGIC, Ltd. provides some reinsurance services for property and casualty insurance and workers' compensation and provides underwriting for lease insurance. Total written premiums for 1994 was $363,000.
United Workplace Consultants, Inc. offers rehabilitation services to insurance companies, principally those owned by United. Total revenue for the year ended September 30, 1994 was $451,000.
Affiliated General Agency, Inc., purchased by Grocers Insurance Agency, Inc., in 1993 was closed during 1994.
Insurance Operations
The following analysis of insurance operations is limited to Grocers Insurance Company, the significant underwriting subsidiary of the Company.
Premiums Written
An analysis of the GIC's premiums written during the last three years is shown in the following table.
The three states accounting for the largest amounts of direct premiums written for the year ending September 30, 1994 were Oregon with 41%, California with 22%, and Washington with 15%. No other state accounted for more than 5% of such premiums. In 1994, there were no significant changes in business, geographic mix or types of risks assumed.
Underwriting Results
A commonly used industry measurement of property and casualty insurance underwriting results is the combined loss and expense ratio. This ratio is the sum of the ratio of net incurred losses and related loss adjustment expenses to net premiums earned (loss ratio) plus the ratio of underwriting expenses to premiums written (expense ratio). Underwriting results are generally considered profitable when the combined ratio is under 100%. The industry computes this ratio on a calendar year statutory accounting basis for comparison purposes. The loss ratio, expense ratio, and combined ratio for GIC for the last three calendar years are as follows:
These ratios compare to industry composite combined ratios of 107.6% for 1991, 114.6% for 1992, and 105.5% for 1993.
There have been no unusually large gains or losses from underwriting or investment operations during the year ending September 30, 1994. There are no effects from currency fluctuations, since all of GIC's business is transacted within the United States.
Claims Operations
GIC establishes estimates for reported claims on an individual case basis. Fast track types of reserving methods are not used. The estimates are based on GIC's experience within the grocery industry and specific knowledge of facts regarding each individual claim. These estimates are reviewed on a regular basis or as additional information becomes available.
Incurred But Not Reported (IBNR) reserves are established for claims which have occurred but are not yet reported to GIC as well as future development on reported claims. IBNR estimates are principally derived from analysis of historical patterns of development of both paid and incurred losses by line of business and accident years. Independent professional actuaries are engaged on an annual basis to analyze the overall reserving accuracy of GIC. IBNR's account for approximately 42% of GIC's total unpaid claims and claim adjustment expenses.
Net Unpaid Loss and Loss Adjustment Expenses (LAE) for the last three fiscal years are:
For additional historical information on loss reserve development and reconciliation of claims reserves, please refer to Appendix 1 and Appendix 2 to this report.
During the year ending September 30, 1994, GIC adjusted reserves recorded in prior years downward by approximately 3%, due to generally favorable settlements on established case estimates for prior years claims and an actuarially determined decrease in development factors previously used in setting IBNR estimates.
There have been no other significant changes in reserving assumptions. GIC does not typically use structured settlements of any materiality.
Reinsurance
In order to write policies above statutory limits, GIC reinsures limits above $100,000 for all risks. Multiple layers of reinsurance treaties are placed with upper limits of $20 million for workers' compensation and liability exposures, and limits of up to $3 million for property risks. Facultative reinsurance is purchased for property risks written with limits above $3 million.
GIC utilizes a reinsurance intermediary for assistance in the design and placement of reinsurance coverage. The structure of the reinsurance program may vary slightly from year to year, but has remained essentially the same since 1989. Treaties are primarily placed on an excess basis, with an additional share treaty used for property risks. Current reinsurers on these main working layers are all rated A- or better by A.M. Best.
GIC has not entered into any portfolio loss transfers or other types of financial transactions involving loss reserves.
Risk Based Capital
The National Association of Insurance Commissioners (NAIC) has adopted, effective December 31, 1994, a risk based capital formula for property and casualty companies which will be used by insurance regulators in assessing the capital adequacy of insurance companies. The formula computes a required level of capital based on the risks assumed by the insurer. Various regulatory actions are then prescribed if a company's ratio falls below its minimum level. The actions range from requiring the insurer to submit a comprehensive action plan to the state of domicile to placing the insurer under regulatory control.
The ratio for GIC as determined at December 31, 1993 was significantly above the levels which would require regulatory action.
IRIS Ratios
The NAIC produces an annual evaluation, the Insurance Regulatory Information System (IRIS), utilizing data from the statutory annual statements filed as of each December 31 with the state insurance departments. The report is intended to assist regulators in analysis of the financial conditions of insurers and to aid in targeting troubled companies. IRIS identifies eleven industry values and specifies "unusual values" for each ratio that falls outside a pre-determined range. Regulators use the "unusual value" designation as an indication of potential problems.
GIC had no ratios designated as an "Unusual value" in its IRIS Report for the year ended December 31, 1993.
A.M. Best Ratings
A.M. Best Company,Inc. ratings are indications of the solvency of an insurer and are derived from analysis of the financial conditions and operations of a company relative to the insurance industry in general. The 1993 A.M. Best letter ratings range from A++ ("Superior") to F ("In Liquidation"). GIC applied for an initial rating in 1991 and was rated a B+. In 1993, GIC was upgraded to a B++ rating, with a financial size category of V.
GIC believes that the attainment of an "A" rating would have a favorable impact on the marketing of its policies and accordingly makes a significant number of underwriting and operational decisions with this goal in mind.
Other Services
Western Passage Express, Inc. provides freight services to United and others. Northwest Process, Inc. provides store displays, advertising materials, and printing services. U. G. Resources, Inc. leases retail space which is subleased to member store operators. Two new subsidiaries, Western Security Services, Ltd. and Premier Consulting, Inc.,provide various security and employment management services.
Competition
The grocery industry is characterized by intense competition. In order to compete effectively, a wholesale grocer must have the ability to meet competitive market prices which fluctuate rapidly, provide a wide range of perishable and nonperishable products, make prompt and efficient delivery and provide the peripheral services which are required by modern supermarket operations.
United believes that it accounts for a larger volume of sales of groceries than any other wholesaler in its grocery marketing area, which is comprised of Oregon, the northernmost part of California and western Washington. United's principal competitors are two national grocery wholesalers (which because of their operations in other areas are larger than United) and three regional grocery wholesalers.
Other competitors include a number of local grocery wholesalers, many of whom are limited to special product lines, such as candy or produce, or sell only to limited market segments, such as restaurants or institutions. United also competes with a significant number of producers which market their products directly to retailers and with several chain store organizations which control both their wholesale and retail operations. United's competitors range from small local businesses to businesses significantly larger than United. Based on information available to it, United estimates that its members, many of whom are in competition with one another, account for approximately 20% of the retail grocery market within United's marketing area. Although members are free to purchase from sources other than United, members generally purchase goods (except goods which United does not supply, such as beer and wine) principally from United. United does not account for a significant percentage of the national wholesale grocery market.
Recently, competition in the markets served by the Company's customers has increased significantly. Warehouse and club format stores have gained overall strength and are involved in major expansion activities. Direct distributors of certain product lines (produce, general merchandise, etc.) are becoming more aggressive in attempting to direct business away from the Company. The Company has responded with new programs to be more price competitive and has increased item selection and variety in several product areas. The Company's recent warehouse expansion project at its Portland facility was designed to increase its capabilities in frozen food, deli items, general merchandise/housewares and specialty items to support its new program strategies. Further, the Company's new member volume allowance program has been designed to share the savings associated with larger order efficiencies from its member stores, thereby reducing the participating member's cost of product.
Recent trends in the results of the Company's member stores have continued. In general, members outside major metropolitan areas, and those operating newer stores, price oriented or super store formats registered various gains in volume. Members operating average sized conventional stores generally registered small volume losses overall. Like the grocery industry, the insurance industry is highly competitive. Grocers Insurance Group is well positioned to serve the retail food industry. Due to its specialization in the retail food business, Grocers Insurance Group generally operates on lower expense ratios than most of its competitors, allowing it to offer competitive prices for its policies.
Employees
United employs approximately 1,700 persons. Approximately 880 of its employees are members of Teamster or other unions. Collective bargaining contracts with the unions are negotiated through an employer association to which United and other major food distributors in its marketing area belong.
United considers its employee relations to be satisfactory.
Environment and Energy
United's operations are not of a type which ordinarily result in the discharge of significant quantities of pollutants. United believes that its operations substantially meet or exceed all applicable environmental regulations.
United has, for a number of years, maintained a program of collecting waste paper products from its members and from its own operations. This waste paper is then sold to a paper company for recycling. Members participating in this program receive weekly credits reflecting their participation in the program.
United primarily uses electricity in the operation of its warehouses and diesel fuel in the operation of its truck fleet. United believes that it has adequate sources of supply to meet its anticipated energy needs. United's energy suppliers have indicated that, because of the nature of United's business, it would be entitled to priority in the event of any future energy shortages.
Cost Savings
By pooling the buying power of its members, United is able to purchase goods in large quantities at prices lower than the prices generally available to independent retail grocers. The savings from the bulk purchases are passed along to members in the form of rebates, allowances and patronage dividends.
Sales to members are invoiced to their accounts at prices contained in United's order guide. A partnership incentive program results in the addition or subtraction of a percentage of the member's weekly invoice cost based on the member's average weekly purchases by department for the preceding four weeks, excluding purchases of drop shipments. The partnership incentive percentages are designed to reflect the economies of scale realized by United in servicing various sized accounts.
Rebates and allowances are paid to members periodically based upon their purchases of particular items or their promotional and advertising performance. Generally, such rebates and allowances stem from United's margins and the merchandising or promotional programs of United's suppliers.
United also pays its members annual patronage dividends based on the overage, or excess of revenues over expenses, on sales to members for the year. Each year United's board of directors determines the portion of the overage which is to be distributed as patronage dividends. Decisions concerning the portion of the overage to be retained are based upon various factors including United's future capital needs and the amount of earnings available from operations not qualifying for distribution as patronage dividends. The patronage dividends are allocated among the members in proportion to the contribution to United's gross profit (before rebates and allowances) attributable to their purchases from United. The patronage dividends are paid partly in cash and partly in Membership Stock.
Government Contract Business
The Company does not generate significant business based upon contracts with local, state or federal government entities.
Income Taxes
United operates and is taxed as a cooperative. Accordingly, patronage dividends are not included in United's taxable income but are instead taxed to the individual members receiving the patronage dividends. The Internal Revenue Code of 1986, as amended ("Code") requires that not less than 20 percent of each member's patronage dividend be paid in cash. United's patronage dividend policy meets that requirement, providing for cash payments of up to 100% of dividends based on ratios of the value of stock holdings by member stores to their average weekly purchases, and total number of shares of stock owned. Patronage dividends not paid in cash are paid in additional Membership Stock. Members are required to agree to abide by all United's bylaw provisions, including those applicable to federal income taxation of patronage dividends. Accordingly, members must report as taxable income the total amount of patronage dividends, whether paid in cash or Membership Stock, in the year such patronage dividends are received, and such amounts are not taxable to United.
United is taxed on income which does not qualify for distribution as patronage dividends and on the portion of overage which is not distributed to members. United's subsidiaries retain all profits (or losses) from their operations and are part of the consolidated federal income tax return.
Item 2.
Item 2. Properties
United owns and operates two distribution centers. Its main distribution center, located in Milwaukie, Oregon, contains over 815,000 square feet of warehouse space situated on a 62-acre site, owned by United. Also at this location are 84,900 square feet of office space, a 20,000 square foot truck repair shop and a 114,000 square foot frozen food distribution center.
United's southern Oregon Division distribution center, located in Medford, Oregon, contains approximately 200,000 square feet of warehouse space, plus related office and maintenance areas.
United's distribution center warehouses are of modern, one-floor, sprinklered, concrete construction. The warehouses are subject to various mortgages, the terms of which are summarized in the Notes to the Consolidated Financial Statements.
United and its subsidiaries operate a truck fleet consisting of 141 tractor cabs and 300 dry freight and refrigerated semitrailers, including both owned and leased units.
United leases a mainframe computer, together with related peripheral equipment, under various leases expiring in April, 1997. The leases calls for annual rental of approximately $836,500.
United leases the facilities described in the following table for Cash and Carry outlets at an aggregate annual rent of approximately $2,000,000. Most of the leases contain renewal options.
United plans to continue expansion of its Cash and Carry operations, with three stores scheduled to be opened in the 1995 fiscal year.
Additionally, United owns Cash & Carry outlets as follows:
United, as described under "Services," is also the prime lessee of retail stores, which are subleased to members, totaling approximately 1,035,000 square feet. Further, United and its subsidiaries are the lessees and operators of three retail stores acquired through foreclosure and purchase totaling an additional 120,000 square feet. United owns and operates an additional retail store occupying approximately 38,000 square feet.
Item 3.
Item 3. Legal proceedings
The Company is regularly a party to routine legal proceedings not expected to have a material effect on its business.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders None.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
There is no market for United's Common Stock, which is non-transferable. The approximate number of holders of United's Membership Stock as of December 15, 1994, was 250.
United's earnings are distributed only in the form of patronage dividends. Accordingly, no earnings are available for the purpose of paying dividends on Membership Stock.
Item 6.
Item 6. Selected Financial Data
The following balance sheet data at September 30, 1994 and October 1, 1993 and the income statement data for the years ended September 30, 1994, October 1, 1993, and October 2, 1992 have been derived from audited consolidated financial statements and notes thereto appearing elsewhere in this Annual Report on Form 10-K. The balance sheet data at October 2, 1992, September 27, 1991, and September 28, 1990 and income statement data for the years ended September 27, 1991 and September 28, 1990 have been derived from audited financial statements not required to be included in this report. The data should be read in conjunction with the consolidated financial statements and related notes included elsewhere herein.
Notes to Selected Financial Data A. Data concerning net income per common share and cash dividends per common share is omitted because United is a cooperative.
B. Adjusted book value per share is computed by subtracting from total members' equity at year end, stock to be issued from patronage and paid-in capital on such stock and undistributed equity from investments accounted for on the equity method and dividing the resulting number by shares outstanding at year end.
C. The amounts prior to 1993 have been restated to reflect changes in accounting for inventories, income taxes and investments as described in the notes to financial statements.
D. The amounts for 1993 have been restated to reflect changes in accounting for reinsurance as described in the notes to the financial statements.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
During fiscal year 1994, net sales and operations increased 8.8% to $954.2 million. This compares to a 2.2% decrease in fiscal year 1993 to $877.0 million. Income before members' allowances, patronage dividends, and taxes increased $2.1 million to $22.7 million (2.38% of sales). This compares to $20.6 million (2.35% of sales) and $20.7 million (2.31% of sales) in 1993 and 1992, respectively.
During 1994, the increase in net sales and operations was primarily attributable to the distribution segment which enjoyed increased warehouse unit volume, increased Cash & Carry unit volume, and increased equipment unit sales. These gains in sales were offset by lower premium income of the insurance segment.
In 1994, the Company generated increased profits within its distribution segment from the Cash & Carry and service income areas. Within the insurance segment, Grocers Insurance Company increased its profitability despite lower premium income, mainly through the benefit of reduced loss and loss adjustment expenses, which was partially offset by higher operating expenses. The profit improvements in 1994 were offset by higher distribution segment operating expenses, and increased member allowances paid ($2.0 million increase to $11.5 million) and operating losses in retail store operations ($4.5 million in 1994 compared to $2.2 million in 1993).
During 1993, the decrease in net sales and operations was primarily attributed to a 52 week accounting period, lower warehouse unit sales, and lower levels of store financing interest income, which were partially offset by increased service income, insurance segment written premiums, and sales from retail store operations. The Company enjoyed increased profits in 1993 within the distribution segment's Cash & Carry and service income areas. Within the insurance segment, Grocers Insurance Company increased its profitability due to premium volume, increased investment income, and reduced operating expenses. These profit improvements were more than offset by increased member allowance payments and operating losses in retail store operations.
NET SALES AND OPERATIONS
During 1994, sales of the Company's distribution segment increased 8.14% to $888.9 million compared to $822 million in 1993. The sales gain was primarily attributable to an increase in unit volume. Inflation during 1994 impacted net sales by 1.0% of warehouse sales.
Member distribution sales increased due to additional new stores for existing members, and acquisition of new member business. Management expects the recent trend in increased retail store development to continue in 1995, as several members are planning additional new stores.
Cash & Carry sales increased 15.3% to $179.4 million compared to $155.6 million in 1993. Sales at new units contributed 6.4% to the sales increase. The balance of the increase was due primarily to higher unit sales volume at existing stores.
Sales at company-owned retail stores, which are acquired as a result of store finance activities, increased $4.9 million to $46.2 million. During 1994, the company disposed of eight retail stores, and acquired five stores, decreasing the number of retail stores to four.
In 1994, the insurance segment's net insurance premiums, commissions, and fees decreased by $1.7 million to $18.8 million. The decrease was primarily attributed to lower commissions earned by the insurance segment's Grocers Insurance Agency.
During 1993, the Company's distribution segment sales declined 3.6 % compared to 1992. When compared to a 52 week period in 1992, the 1993 sales decline was 1.9%. Inflation during 1993 added approximately 0.8 % to sales.
During 1993, a consumer trend towards lower cost items had a negative impact on distribution segment sales. Cash & Carry sales increased slightly, reflecting new store sales, while interest income declined, reflecting lower interest rates during the 1993 year when compared to 1992.
Retail store sales increased $16.1 million in 1993, reflecting a net increase of two stores during the year.
In 1993 the insurance segments's net insurance premiums, commissions, and fees increased by $0.9 million over the 1992 total. The increase was attributable to increased policy volume and rehabilitation fees, partially offset by lower commission levels and increased reinsurance premiums paid.
GROSS OPERATING INCOME
Gross operating income increased to $137.5 million (14.4% of sales) in 1994 from $127.5 million (14.5% of sales) in 1993 and $123.7 million (13.8% of sales) in 1992. The increase in gross operating income occurred due to increased unit volume, and the continued shift in distribution segment's sales mix towards Cash & Carry operations.
Improving trends in loss development experience in the insurance segment also increased gross operating income. In 1994, loss and loss adjustment expenses were 64.7% of total premium income, compared to 83.3% and 75.5% in 1993 and 1992 respectively.
OPERATING, SELLING AND ADMINISTRATIVE EXPENSES
In 1994, operating, selling, and administrative expenses increased $6.0 million to $103.5 million (10.9% of sales). These expenses amounted to $97.5 million (11.1% of sales) and $93.5 million (10.4% of sales) in 1993 and 1992, respectively. The components of these expenses are summarized below:
In 1994, operating, selling, and administrative expenses as a percent of sales decreased primarily due to increased unit volume in the distribution segment. Increased labor productivity resulting from these unit volume increases was partially offset by increases in other operating expense areas, notably supplies and transportation operating expenses and other taxes.
Insurance segment operating expenses increased to 36.3% of segment income. The increase was primarily attributed to increased personnel costs, other taxes, and building expenses associated with the new insurance building. In 1993 and 1992, insurance segment operating expenses were 26.4% and 28.1% of segment sales, respectively.
Provision for doubtful accounts was $2.0 million (0.2% of sales) in 1994. This compares to $2.2 million (0.3% of sales) and $2.1 million (0.2% of sales) in 1993 and 1992, respectively.
Interest expense increased $0.9 million to $9.2 million (1.0% of sales) in 1994. This increase was due to higher levels of average debt during the year, as well as a higher average interest rate.
MEMBER ALLOWANCES AND DIVIDENDS
In 1994, total member allowances and dividends increased 9.9% to $20.2 million (2.1% of sales). In 1993, total allowances and dividends increased 4.0% to $18.4 million.
Total member allowances and dividends as a percent of member sales increased to 2.84% in 1994, compared to 2.75% and 2.53% in 1993 and 1992, respectively.
The Company's updated member allowance program was in place during all of 1994, and management expects that the level of member allowances as a percent of member sales should remain at approximately 1994 levels in future years.
NET INCOME AND INCOME TAXES
In 1994, income before income taxes was $2.6 million (0.3% of sales) compared to $2.3 million (0.3% of sales) and $3.1 million (0.3% of sales) in 1993 and 1992, respectively.
The Company's effective tax rate increased to 39.0% from 25.2% in 1993 and 29.2% in 1992. The increase in effective tax rate was primarily caused by decreased tax refunds as a result of carrybacks that were utilized in 1993. In 1994, net income after income taxes decreased to $1.6 million (0.2% of sales) from $1.7 million (0.2% of sales) and $2.7 million (0.3% of sales) in 1993 and 1992, respectively.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW FROM OPERATIONS
In 1994, the Company used $2.8 million in cash in its operating activities. Increases in accounts receivable as a result of additional member stores and member volume, and investments by the Company in its new information services platform were the major factors contributing to the use of cash in operations. The Company offset these uses of cash by increasing patronage dividends payable with stock and increases in accounts payable.
CASH FLOW FROM INVESTING ACTIVITIES
In 1994, the Company used $16.3 million in its investing activities, a decrease of $8.6 million from the $24.9 million used in 1993. Cash requirements of the Company's retail member finance activities were reduced in 1994 due to the substitution of a new Note Purchase Agreement during the year. Purchases of property and equipment were reduced to $5.3 million from $12.0 million in 1993. These favorable cash flow results were offset by reduced proceeds from the sale of property and equipment, and equity investments in certain affiliated companies.
In fiscal year 1995, anticipated capital expenditures will approximate $8.0 million, representing $3.0 million in replacement assets, $2.0 million for new Cash & Carry units, and $3.0 million in continuing investments in upgraded operations software. In addition, the Company could undertake certain acquisitions to enhance its distribution segment businesses.
CASH FLOW FROM FINANCING ACTIVITIES
In 1994, the Company provided $13.3 million from its financing activities by increasing its levels of senior debt to fund its operations, and the purchase of its new insurance building.
CAPITAL STRUCTURE AND RESOURCES
The following table summarizes the Company's capital structure for the last two years:
In 1994, the Company's capital structure shifted towards greater use of senior debt capital, due to lower interest costs and increased funding needs. The present components of the capital structure are within the Company's long-term targets for funding sources.
Subsequent to September 30, 1994, the Company executed a Note Agreement with an insurance company lender. Proceeds of the senior, unsecured debt were $20 million. The proceeds were used to retire bank debt. The term of the note is eleven (11) years. The note carries a fixed rate of 8.42 %.
In 1994, the Company's working capital increased $3.5 million to $45.3 million. The Company's main sources of funds include earnings, member capital stock, capital investment notes, bank debt, private placement debt,and note purchase programs. As of September 30, 1994, the Company had $19.0 million in unused credit lines available. In addition, the Company had $12.6 million available under its Note Purchase Agreement.
Grocers Insurance Company investments are held to support the payment of claims. These investments are not available to the Company to meet its capital needs due to restrictions imposed by insurance regulators regarding intercompany loans and advances.
In addition, state regulators require that Grocers Insurance Company maintain minimum amounts of capital and surplus. As a result of these regulatory requirements, $3.4 million of Grocers Insurance Company's equity may not be paid as dividends to the Company.
Item 8.
Item 8. Financial Statements and Supplementary Data
The following financial statements are filed as part of this report.
Independent Auditor's Report Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Members' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Independent Auditor's Report on Financial Statement Schedules
UNITED GROCERS, INC. AND SUBSIDIARIES
AUDIT REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE FISCAL YEARS ENDED SEPTEMBER 30, 1994
Page
Independent auditor's report 1
Consolidated financial statements
Balance sheets 2
Statements of income 3
Statements of members' equity 4
Statements of cash flows 5-6
Notes to financial statements 7-28
Independent auditor's report on financial statement schedules 29
Financial statement schedules included
Schedule V - Property, plant and equipment 30
Schedule VI - Accumulated depreciation, depletion and amortization of property, plant and equipment 31
Schedule VIII - Valuation and qualifying accounts 32-33
Schedule IX - Short-term borrowings 34
Schedule X - Supplementary income statement information 35
Schedule XIV - Supplementary information concerning property-casualty insurance operations 36
Financial statement schedules not included Reason
Schedule I - Marketable Securities - Disclosure in notes to Other Investments financial statements
Schedule II - Accounts Receivable from Related Parties and Underwriters, Promoters and Employees Other Than Related Parties Not applicable
Schedule III - Condensed Financial Disclosure in notes to Information of financial statements Registrant
Schedule IV - Indebtedness of and to Related Parties - Not Current Not applicable
Schedule VII - Guarantees of Securities of Other Issuers Not applicable
Schedule XI - Real Estate and Accumulated Not applicable Depreciation
Schedule XII - Mortgage Loans on Real Estate Not applicable
Schedule XIII - Other Investments Disclosure in notes to financial statements
Board of Directors United Grocers, Inc.
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying consolidated balance sheets of United Grocers, Inc. and subsidiaries as of September 30, 1994 and October 1, 1993, and the related consolidated statements of income, members' equity and cash flows for each of the three years in the period ended September 30, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Grocers, Inc. and subsidiaries as of September 30, 1994 and October 1, 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 1994, in conformity with generally accepted accounting principles.
As discussed in Note 12 to the consolidated financial statements, the Company changed its method of accounting for reinsurance in 1993-94. Also, as discussed in Notes 4 and 7, the Company changed its method of accounting for inventories in 1992-93 and for income taxes in 1991-92.
DeLap, White & Raish
Portland, Oregon November 30, 1994
The accompanying notes are an integral part of this financial statement.
The accompanying notes are an integral part of this financial statement.
UNITED GROCERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY YEARS ENDED SEPTEMBER 30, 1994, OCTOBER 1, 1993, AND OCTOBER 2, 1992
The accompanying notes are an integral part of this financial statement.
The accompanying notes are an integral part of this financial statement.
The accompanying notes are an integral part of this financial statement.
UNITED GROCERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED SEPTEMBER 30, 1994
1. Summary of significant accounting policies
a. Reporting year
United Grocers, Inc. and subsidiaries (the Company) reports on a fiscal year of 52 or 53 weeks which is the fiscal year of the distribution segment. The Company's fiscal closing date is the Friday nearest September 30. The fiscal year of the subsidiaries included in the insurance segment is September 30.
b. Organization
As a cooperative, the Company's stock is owned by its member customers. Sales to these members account for approximately 80% of wholesale grocery sales.
c. Principles of consolidation
The consolidated financial statements include the accounts of United Grocers, Inc. and its wholly-owned subsidiaries as follows: Grocers Insurance Group, Inc., Grocers Insurance Agency, Inc., UGIC, Ltd., Grocers Insurance Company (formerly United Employers Insurance Co.), United Workplace Consultants, Inc., Western Passage Express, Inc., United Store Development, Ltd., Northwest Process, Inc., UG Resources, Inc., United Resources, Inc., Affiliated General Agency, Inc., Premier Consulting, Inc. (formerly Employee Management Services, Inc.), Western Security Services, Ltd. and BAT Enterprises, Inc. All intercompany balances and transactions have been eliminated upon consolidation. Investment in affiliated companies is stated at cost plus the Company's share of undistributed earnings since acquisition (see Note 17).
d. Inventories and cost of sales
Inventories are valued at the lower of cost or market. The cost of all inventories is determined under the first-in, first-out (FIFO) method. See Note 4 for change in accounting for inventories.
Cost of sales includes the cost of distribution and insurance operations. The distribution operation costs include the purchases of product, the net of allowances paid and received on purchases, less the net advertising department margins, plus the handling allowances made to members based upon the cost of servicing their accounts. The insurance operation costs include losses reported, a provision for losses incurred but not reported and premium refunds.
e. Treasury stock
The Company uses the par value method of accounting for treasury stock. Under Oregon corporation law, treasury stock must be canceled upon redemption.
f. Investments
Investments are primarily in non-equity securities and as such are carried at cost. The Company's intent is to hold these securities until maturity. Sales and redemptions of investments are primarily the result of maturities. Any realized gains or losses are usually the result of immaterial differences between the called amount and amortized cost. The market value of these investments at September 30, 1994 and October 1, 1993 is $36,487,841 and $36,464,552, respectively.
g. Property, plant and equipment
Property, plant and equipment is carried at cost and includes expenditures for new facilities and those which substantially increase the useful lives of the existing plant and equipment. The Company capitalizes interest as a component of the cost of significant construction projects. During the year ended October 1, 1993 and October 2, 1992, interest was capitalized in the amount of $64,929 and $578,611, respectively, out of a total interest of $8,281,946 and $9,303,377, respectively, which resulted in an increase in the net income of approximately $49,000 and $410,000.
Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. Estimated useful lives are generally as follows:
Buildings 40 - 75 years Building improvements Balance of building life Warehouse equipment 5 - 20 years Truck equipment 3 - 8 years Office equipment 5 - 10 years
h. Amortization
Long-term liability loan costs, software costs, and non-competition agreements are being amortized and charged to operating expenses on a straight-line basis over five to twenty years.
i. Reinsurance
In the normal course of business, the Company seeks to reduce the loss that may arise from catastrophes or other events that cause unfavorable underwriting results by reinsuring certain levels of risk in various areas of exposure with other insurance enterprises or reinsurers. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policy. Amounts paid for prospective reinsurance are reported as prepaid reinsurance premiums and amortized over the remaining contract period in proportion to the amount of insurance protection provided.
j. Income taxes
The Company and its subsidiaries file a consolidated federal income tax return. The Company operates and is taxed as a cooperative. Accordingly, amounts distributed as patronage dividends are not included in its taxable income but are instead taxed to the individual members receiving the patronage dividends. Deferred income taxes are recorded to reflect the tax consequences on future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year end. No valuation allowances were considered necessary to reduce deferred tax assets to the amount expected to be realized. See Note 8 for details of timing differences and Note 7 for change in accounting method.
k. Earnings per common share
The Company's policy is to distribute earnings only in the form of patronage dividends. No dividends have ever been declared on the common stock of the Company, and all earnings not distributed as patronage dividends have been retained. Earnings per common share are not shown because no earnings are available for the purpose of paying dividends on the common stock.
l. Statement of cash flows
For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
m. Restricted assets and net assets
Restricted assets and net assets that may not be transferred to the parent company in the form of loans, advances, or cash dividends by the insurance company subsidiary without the consent of various state insurance agencies as of September 30, 1994 are as follows:
Cash and cash equivalents $ 725,000 Investments 15,370,300 ----------- Total $16,095,300 ===========
In addition, although not formally restricted, the balance of the investments of $21,569,278 represents assets that have been accumulated for the possible payment of claims against the insurance reserves.
n. Reclassifications
Certain reclassifications have been made to prior year balances to conform to the current year classification.
2. Investments
The amortized cost and estimated market values of investments in debt securities and other investments at the balance sheet date are as follows:
Carrying amount and Number amortized Market Name of issuer and of shares cost of value of title of each issue or units each issue each issue ------------------- ---------- ---------- ---------- 1994:
United States Government and its agencies 18,670,000 $19,303,713 $18,846,955
Any state of the United States and its agencies 3,395,000 3,539,142 3,531,561
Political subdivision of a state of the United States and its agencies 8,275,000 8,604,835 8,615,517
Corporate bonds 5,410,000 5,490,407 5,487,134 ---------- ---------- Subtotal - debt securities 36,938,097 36,481,167
Corporate stock 271 1,481 6,674 ----------- ----------- Total $36,939,578 $36,487,841 =========== =========== 1993:
United States Government and its agencies 16,010,000 $16,634,109 $17,824,552
Any state of the United States and its agencies 2,275,000 2,375,434 2,480,717
Political subdivision of a state of the United States and its agencies 8,320,000 8,691,136 9,076,131
Corporate bonds 6,160,000 6,218,187 6,598,802 ---------- ---------- Subtotal - debt securities 33,918,866 35,980,202
Corporate stock 271 1,481 7,114
Real estate mortgage -- 477,236 477,236 ---------- ---------- Total $34,397,583 $36,464,552 =========== ===========
The amortized cost and estimated market value of debt securities at the balance sheet date, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
1994 1993 --------------------- ---------------------
Amortized Market Amortized Market cost value cost value --------- --------- --------- --------- Due in one year or less $ 4,136,043 $ 4,176,752 $ 3,546,086 $ 3,645,477 Due after one year through five years 16,869,731 17,046,729 19,073,123 20,498,132 Due after five years through ten years 15,882,892 15,207,218 9,852,844 10,323,560 Due after ten years 49,431 50,468 1,446,813 1,513,033 ---------- ---------- ---------- ---------- Total $36,938,097 $36,481,167 $33,918,866 $35,980,202 =========== =========== =========== ===========
The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities." The Company plans to adopt this Statement in 1995 and does not anticipate any significant change as a result of this Statement on the present accounting for investments.
3. Accounts and notes receivable
These consist of amounts due principally from members at the balance sheet date as follows: 1994 1993 ----------- ----------- Accounts receivable $46,640,928 $31,048,455 Insurance premiums and related balances 10,898,715 10,503,463 Less allowance for doubtful accounts (1,270,987) (1,283,681) ----------- ----------- Net accounts receivable 56,268,656 40,268,237 ----------- ----------- Notes receivable - current portion 4,057,961 3,788,864 Less allowance for doubtful notes (36,156) (48,964) ----------- ----------- Net current notes receivable 4,021,805 3,739,900 ----------- ----------- Net current accounts and notes receivable $60,290,461 $44,008,137 =========== =========== Notes receivable - non-current portion $33,454,161 $33,577,706 Less allowance for doubtful notes (298,618) (327,144) ----------- ----------- Net non-current notes receivable $33,155,543 $33,250,562 =========== ===========
The notes receivable from members are generally for periods of two years to ten years at interest rates of 4.25% to 10.00%. The annual maturities for each of the next five fiscal years following September 30, 1994 are as follows:
Year Amount ---- ----------- 1995 $ 4,057,961 1996 4,112,058 1997 4,289,174 1998 4,161,963 1999 4,089,972
The provision for doubtful accounts and notes charged to operating expenses for the three years ended September 30, 1994 amounted to $1,992,589, $2,182,551, and $2,108,346, respectively.
4. Change in accounting for inventories
Effective October 3, 1992, the Company changed its method of accounting for the cost of the general wholesale grocery category of inventories from the last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method. The Company believes that the use of the FIFO method better matches current costs with current revenues and more appropriately reflects its financial condition. This change has also been made for income tax purposes.
The change has been applied retroactively and comparative amounts for prior periods have been restated. The effect of this change on retained earnings and net income for restated 1991-92 is as follows:
Change in beginning retained earnings: As previously reported in 1991-92 $13,311,329 ----------- LIFO inventory adjustment 958,912 Less tax effect (296,303) ----------- Net adjustment 662,609 ----------- As restated $13,973,938 =========== Change in net income: As previously reported in 1991-92 $ 3,275,772 ----------- LIFO inventory adjustment (780,878) Less tax effect 228,016 ----------- Net adjustment (552,862) ----------- As restated $ 2,722,910 ===========
Cumulative effect on ending retained earnings October 2, 1992: As previously reported in 1991-92 $14,924,706 ----------- LIFO inventory adjustment 178,034 Less tax effect (68,287) ----------- Net adjustment 109,747 ----------- As restated $15,034,453 ===========
5. Other non-current assets
Other non-current assets at the balance sheet date consist of the following:
1994 1993 ----------- ----------- Covenant not to compete - net of accumulated amortization of $802,445 in 1994 and $518,059 in 1993 $ 765,953 $ 1,014,338 Software - net of accumulated amortization of $1,295,466 in 1994 and $730,587 in 1993 4,802,562 1,559,449 Loan fees - net of accumulated amortization of $584,847 in 1994 and $490,814 in 1993 460,097 322,630 Other 1,701,963 259,884 ----------- ----------- Total $ 7,730,575 $ 3,156,301 =========== ===========
6. Property, plant and equipment (at cost)
Property, plant and equipment as of the balance sheet date consists of the following:
1994 1993 ----------- ----------- Land $ 3,421,277 $ 3,032,145 Buildings and improvements 54,204,591 50,265,721 Warehouse and truck equipment 34,291,075 32,212,528 Office equipment 8,564,659 7,515,498 Construction in progress 640,035 4,366,038 ----------- ----------- Total property, plant and equipment 101,121,637 97,391,930 Less accumulated depreciation (42,604,517) (37,890,574) ----------- ----------- Net property, plant and equipment $58,517,120 $59,501,356 =========== ===========
7. Change in accounting for income taxes
The Company adopted, effective September 28, 1991, the Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, issued in February, 1992. Under the method specified by SFAS No. 109, the deferred tax asset or liability is determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense is the result of changes in the liability for deferred taxes. The principal types of differences between assets and liabilities for financial statement and tax return purposes are accumulated depreciation, insurance loss reserves, allowance for doubtful accounts, and capitalized costs in inventory.
The deferred method, used in the years prior to 1992, required the Company to provide for deferred tax expense based on certain items of income and expense which were reported in different years in the financial statements and the tax returns as measured by the tax rate in effect for the year the difference occurred.
As allowed by SFAS No. 109, the Company did not restate the years prior to the year ended October 2, 1992 and, accordingly, the cumulative effect of the accounting change on the prior years of $526,314 is included in the earnings for the year ended October 2, 1992.
8. Income taxes
The provision for income taxes for the three years consists of the following: 1994 1993 1992 ---------- ---------- ---------- Current payable (refund): Federal $ 439,200 $ 162,758 $ 624,516 State 86,252 72,468 (16,158) Deferred 474,889 341,209 298,332 ---------- ---------- ---------- Total $1,000,341 $ 576,435 $ 906,690 ========== ========== ==========
The effective income tax rate for the three years ended September 30, 1994 does not correspond with the Federal tax rate. The reconciliation of this rate to the effective income tax rate is as follows:
1994 1993 1992 ---------- ---------- ---------- Statutory income tax rate (34%) $ 871,668 $ 778,878 $1,055,117 State income taxes, net of Federal income tax benefit 56,926 47,829 (10,664) Tax exempt interest (158,673) (133,080) (104,537) Refunds as a result of carrybacks -- (184,980) -- Prior year under accrual 179,235 -- -- Other 51,185 67,788 (33,226) ---------- ---------- ---------- Income tax expense $1,000,341 $ 576,435 $ 906,690 ========== ========== ========== Effective income tax rate 39.0 % 25.2 % 29.2 % ==== ==== ==== The significant components of the deferred income taxes - current asset and non-current liability as of the balance sheet date are as follows:
1994 1993 ---------- ---------- Deferred income taxes - current asset: Insurance reserves $1,041,678 $1,230,094 Inventories 738,842 712,212 Unearned insurance premiums 541,417 496,405 Allowance for doubtful accounts 471,288 478,866 Other 18,689 (93,748) ---------- ---------- Total $2,811,914 $2,823,829 ========== ========== Deferred income taxes - non-current liability: Accumulated depreciation $4,589,568 $4,173,575 Deferred income (216,243) (230,325) Allowance for doubtful notes (143,653) (140,364) Deferred compensation (129,398) (89,598) Advance deposits (52,004) (16,128) Alternative minimum tax (AMT) credit (304,161) (416,025) ---------- ---------- Total $3,744,109 $3,281,135 ========== ==========
The significant components of deferred income tax expense for the three years are as follows: 1994 1993 1992 ---------- ---------- ----------- Decrease (increase) in deferred income taxes - asset $ 11,915 $ 157,747 $ (273,942) Increase in deferred income taxes - liability after applying AMT credit 462,974 183,462 572,274 ---------- ---------- ----------- Total $ 474,889 $ 341,209 $ 298,332 ========== ========== ===========
The Company has net operating loss carryovers of approximately $3,500,000 to apply against future years' State income taxes, expiring in years 2007 through 2009. These operating loss carryovers are the result of the insurance company subsidiary being required to file a separate calendar year State tax return and not giving the parent the benefit of this offset on its State tax return. The Company also has unused State energy tax credits of approximately $45,000, expiring in 1998.
9. Members' patronage dividends
The Company's income from sales to members, before income taxes and patronage dividends, is available at the discretion of the Board of Directors, to be returned to the members in the form of patronage dividends. As of year end, the Board of Directors voted to distribute the following in patronage dividends:
1994 1993 1992 ---------- ---------- ----------- Payable in cash and shown as a current liability $ 6,865,736 $ 7,584,177 $ 7,960,456 Distributable in the form of common stock 1,864,432 1,415,823 2,250,544 ---------- ---------- ---------- Total $ 8,730,168 $ 9,000,000 $10,211,000 =========== =========== =========== 10. Notes payable - bank
Notes payable - bank consists of borrowings on bank lines of credit at an average interest rate of 5.72% at September 30, 1994 and 3.95% at October 1, 1993.
At September 30, 1994 and October 1, 1993, the Company had unused lines of credit totaling $19,000,000 and $10,300,000, respectively; and unused letters of credit totaling $350,000 and $450,000, respectively.
In April of 1993, the Company entered into a three year reverse interest swap agreement with a bank. Under the agreement, the Company receives a fixed rate of 4.40% on $20 million (notional amount) and pays a floating rate based on LIBOR, as determined in six month intervals. The transaction effectively changes a portion of the Company's interest rate exposure from a fixed rate to a floating rate basis, accordingly, all gains or losses have been recognized as adjustments to interest expense. This swap agreement has been entered into with a major financial institution which is expected to fully perform under the terms of the agreement thereby further mitigating the risk from the transaction.
11. Long-term liabilities
Long-term liabilities at the balance sheet date consist of the following: 1994 1993 ------------ ------------ Notes payable - bank:
Credit agreement notes maturing on April 30, 1995 with interest rates of 5.77% per annum at September 30, 1994 and 3.98% per annum at October 1, 1993. The interest rates ranged from 3.84% to 5.89% in 1994 and from 3.94% to 4.78% in 1993. $ 35,000,000 $ 25,000,000
Notes payable - insurance companies:
Senior notes payable to six insurance companies with an interest rate of 9.15% per annum. Interest payable monthly. Principal repayments annually commencing October 1, 1992 in the amount of $3,336,000 and each October 1 thereafter in the amount of $3,333,000, maturing in full October 2, 2000. 23,331,000 23,331,000
Notes payable - other:
Capital stock residual notes, payable in twenty quarterly installments with a variable interest rate based on the current capital investment note rate. 3,810,679 2,878,311
Two notes (three in 1993) with interest at 9.25% per annum payable in monthly installments of $28,136 ($50,660 in 1993) beginning January 21, 1988 (secured by equipment). $ 83,123 $ 715,022
A real property contract for the purchase of an office building, payable in 180 monthly installments of $2,346 including interest at 12.5% per annum until 1999 (secured by real property). 101,734 116,171
Other note payable 27,500 55,000
Mortgage notes (secured by real property):
A note payable in monthly installments of $41,449 including interest at 9% until 1996. 878,279 1,276,922
A note payable in monthly installments of $43,721 including interest at 10.30% per annum until 1995. 457,059 909,026
A note payable in monthly installments of $31,615 including interest at 7.25% until 2013. 3,907,589 4,000,000
Redeemable notes and certificates:
Capital investment notes (subordinated), interest ranging from 5.75% to 8%. Maturity dates range from 1993 to 2003 which is ten years from dates of issue. 50,319,700 50,395,400
Registered redeemable building notes (subordinated), interest at 8%. No fixed maturity date. 3,482,400 3,615,600
Redeemable transferable notes, (subordinated), interest at 5.75%. No fixed maturity. $ 46,400 $ 61,000 ------------ ------------ Total 121,445,463 112,353,452 Less current installments (6,776,197) (6,814,221)
Total long-term liabilities $114,669,266 $105,539,231 ============ ============
Total maturities of long-term liabilities in each of the next five fiscal years are as follows:
Year Amount ---- ------------ 1995 $ 6,776,197 1996 41,394,636 1997 6,971,062 1998 5,360,233 1999 5,706,690
The Company's bank loan agreements require the maintenance of certain financial ratios and a minimum amount of capital and subordinated debt. The Company was in compliance with these requirements as of September 30, 1994 and October 1, 1993.
12. Reinsurance
The Company in 1994 adopted the Statement of Financial Accounting Standards (SFAS) No. 113, Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts, issued in December, 1992. The Statement requires that transactions relating to reinsurance transactions be reported at gross amounts rather than net amounts.
The effect on the consolidated financial statements of the Company is to gross up the insurance liabilities by reclassifying the ceded reinsurance amounts for reinsurance recoverables and prepaid reinsurance premiums as assets. The change had the effect of increasing 1993 total assets and total liabilities by $4,741,852 as follows:
Increase in current assets: Reinsurance recoverables for ceded loss reserves - now classified as accounts and notes receivable $3,494,121 Prepaid reinsurance premiums - now classified as other current assets 1,247,731 ---------- Total $4,741,852 ==========
Increase in current liabilities: Insurance reserves $3,494,121 Unearned premiums - classified as accounts payable 1,247,731 ---------- Total $4,741,852 ==========
There is no effect or change to the consolidated income statement as the income statement classifications did not change. Net premiums earned continue to be reported as net sales and operations while net losses and loss adjustment expenses continue to be reported as cost of sales.
Reinsurance contracts do not relieve the Company from its obligation to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. The Company holds collateral under related reinsurance agreements in the form of letters of credit totaling $338,000 that can be drawn on for amounts that remain unpaid for more than 60 days.
Reinsurance amounts reflected in the financial statements are as follows:
1994 1993 For the balance sheet: Reinsurance recoverable for ceded losses $ 3,792,152 $ 3,494,121 Prepaid reinsurance premiums 1,394,254 1,247,731 ----------- -----------
Total $ 5,186,406 $ 4,741,852 =========== ===========
1994 1993 1992 ----------- ----------- ----------- For the income statement: Premiums written: Gross $23,992,639 $24,430,854 $23,861,615 Assumed 860,953 715,760 1,183,691 Ceded (6,652,410) (6,597,150) (5,067,239) ----------- ----------- ----------- Net premiums written $18,201,182 $18,549,464 $19,978,067 =========== =========== =========== Percentage of amount assumed to net 4.73 % 3.86 % 6.33 % ======= ====== ======
Premiums earned: Gross $23,736,321 $24,185,628 $21,969,296 Assumed 829,978 750,619 1,151,517 Ceded (6,505,887) (6,493,811) (4,920,045) ----------- ----------- ----------- Net premiums earned $18,060,412 $18,442,436 $18,200,768 =========== =========== =========== Percentage of amount assumed to net 4.60 % 4.07 % 5.92 % ======= ====== ====== Expenses: Losses and loss adjustment expenses $15,079,858 $17,481,462 $15,604,171 Reinsurance recoveries (3,389,844) (2,121,602) (1,867,112) ----------- ----------- ----------- Net losses and loss adjustment expenses $11,690,014 $15,359,860 $13,737,059 =========== =========== ===========
13. Segment reporting
The Company has two operating segments which are located primarily in the Pacific Northwest. The distribution segment includes all operations relating to wholesale grocery and related product sales, retail grocery sales, service department revenues, and financing income and fees. The insurance segment includes all operations relating to insurance underwriting, commissions, and reinsurance primarily to provide workers' compensation and property-casualty coverage.
A summary of information about the Company's operations by segment before intersegment eliminations for the three years is as follows:
1994 1993 1992 ----------- ------------ ------------ Net sales and operations: Distribution $936,266,067 $857,439,871 $878,146,111 Insurance 18,788,523 20,525,392 19,555,963 Less intersegment sales of insurance (834,240) (979,910) (1,114,702) ------------ ------------ ------------ Total $954,220,350 $876,985,353 $896,587,372 ============ ============ ============
Income before allowances, dividends, income taxes and accounting change: Distribution $ 19,791,157 $ 18,162,132 $ 17,860,059 Insurance 2,952,047 2,485,571 2,889,394 ------------ ------------ ------------ Total $ 22,743,204 $ 20,647,703 $ 20,749,453 ============ ============ ============
Total assets: Distribution $243,267,148 $226,346,768 $209,063,967 Insurance 64,923,598 64,591,472 59,875,762 ------------ ------------ ------------ Total $308,190,746 $290,938,240 $268,939,729 ============ ============ ============ Depreciation expense: Distribution $ 5,408,896 $ 4,643,401 $ 4,163,138 Insurance 200,883 94,000 127,405 ------------ ------------ ------------ Total $ 5,609,779 $ 4,737,401 $ 4,290,543 ============ ============ ============ Capital expenditures: Distribution $ 5,161,425 $ 11,310,048 $ 19,922,924 Insurance 93,157 680,933 557,017 ------------ ------------ ------------ Total $ 5,254,582 $ 11,990,981 $ 20,479,941 ============ ============ ============
For net sales and operations, wholesale grocery sales (primarily to members) during the three years ended September 30, 1994 accounted for approximately 95%, 93% and 95%, respectively, of the distribution total. Premium revenue (primarily from members) accounted for approximately 95%, 90% and 86%, respectively, of the insurance total.
The change in the method of accounting for inventories (Note 4) related to and affected only the distribution segment.
14. Pension plans
The Company has a Company-sponsored pension plan that covers substantially all of its salaried employees. The Company also has separate Company-sponsored 401(k) plans for salaried and union employees. The Company has made annual contributions to the plans equal to the amount annually accrued for pension expense. The Company's funding policy is to satisfy the funding requirements of the Employees' Retirement Income Security Act.
The Company also participates in several multi-employer pension plans for the benefit of its employees who are union members. The data available from administrators of the multi-employer plans is not sufficient to determine the accumulated benefit obligation, nor the net assets attributable to the multi-employer plans in which the Company union employees participate.
The financial statements include pension expense for the Company- sponsored pension plan as determined using Statement of Financial Accounting Standards No. 87 (SFAS 87). The effect of SFAS 87 was a decrease of pension expense in the amount of $546,894 for 1994, $484,020 for 1993, and $317,193 for 1992. The Company's unrecognized net asset resulting from the initial application of SFAS 87 is being amortized over eighteen years.
In determining the actuarial present value of the projected benefit obligation, a discount rate of 8% and a future maximum compensation increase rate of 4% were used. The expected long-term rate of return on assets was 8%.
Pension costs for all plans for the three years consist of the following: 1994 1993 1992 ----------- ----------- ----------- Company-sponsored: Service costs of benefits earned $ 918,423 $ 910,214 $ 832,866 Interest cost on the projected benefit obligation 1,448,447 1,339,393 1,102,517 Expected return on plan assets (1,688,595) (1,443,513) (1,199,657) Net amortization of unrecognized net asset (168,168) (168,168) (154,154) Unrecognized net gain (4,414) -- -- Unrecognized prior service cost 73,760 73,760 1,164 ----------- ----------- ----------- Net salaried pension cost 579,453 711,686 582,736
Multi-employer plan costs 2,395,300 2,180,280 2,183,086 Matching costs of 401(k) plans 391,605 437,413 395,731 ----------- ----------- ----------- Total pension expense $ 3,366,358 $ 3,329,379 $ 3,161,553 =========== =========== ===========
The following table sets forth the Company-sponsored plan's funded status as of year end:
1994 1993 1992 ----------- ----------- ----------- Actuarial present value of benefit obligations: Vested $13,337,570 $12,397,747 $10,951,935 Non-vested 823,015 819,479 675,609 ----------- ----------- ----------- Accumulated benefit obligation 14,160,585 13,217,226 11,627,544 Effect of projected future compensation levels 4,881,117 4,501,814 4,237,333 ----------- ----------- ----------- Projected benefit obligation 19,041,702 17,719,040 15,864,877 Plan assets at fair value, primarily listed stocks, fixed income, and bond and equity funds 22,030,725 21,056,267 17,981,115 ----------- ----------- ----------- Excess of plan assets over projected benefit obligation 2,989,023 3,337,227 2,116,238 Unrecognized prior service cost 778,471 1,031,162 14,965 Unrecognized net gain (1,422,307) (2,273,777) (273,680) Unrecognized net asset, net of amortization (1,897,503) (2,065,671) (2,233,839) ----------- ----------- ----------- Prepaid (accrued) pension cost $ 447,684 $ 28,941 $ (376,316) =========== =========== ===========
In addition to pension benefits, the Company provides health benefits for certain retired salaried employees. The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 106, "Employer's Accounting for Post Retirement Benefits Other Than Pensions." This statement will require accrual of such benefits during the years an employee provides services. The costs of these benefits are currently expensed on a pay-as-you-go basis. The cost of this retiree health care is funded out of current operations and was approximately $356,000 in 1994, $282,000 in 1993 and $257,000 in 1992. The impact of this new standard has not been fully determined, but the change likely will result in a greater liability and expense being recognized for these benefits. The Company has until 1995-96 to adopt this Statement because fewer than 500 employees will be affected.
15. Leases
The Company is obligated under one hundred and five significant leases in 1994. Forty-five of these leases are for twenty to twenty-five years with renewal options and involve supermarket properties which are subleased to members. Twelve of these leases are subleased to affiliated companies. The remaining leases represent property and equipment used by the Company. The leases expire at various dates, the last expiring in 2013. Rental expense for the three years consists of the following:
1994 1993 1992 ----------- ----------- ----------- Minimum rentals $13,690,702 $14,082,104 $12,447,688 Less sublease income (5,971,461) (6,554,855) (6,355,385) ----------- ----------- ----------- Net rental expense $ 7,719,241 $ 7,527,249 $ 6,092,303 =========== =========== ===========
The following is a schedule by years showing future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of September 30, 1994:
Fiscal Minimum Minimum Net year payments (A) receipts (B) minimum --------- ------------ ------------ ----------- 1994-1995 $ 14,259,330 $ 6,788,922 $ 7,470,408 1995-1996 13,364,382 6,654,450 6,709,932 1996-1997 11,079,707 6,335,846 4,743,861 1997-1998 9,456,613 5,963,962 3,492,651 1998-1999 9,364,253 5,935,555 3,428,698 Later years 80,530,013 57,103,637 23,426,376 ------------ ------------ ----------- Total $138,054,298 $ 88,782,372 $49,271,926 ============ ============ =========== Summary: Building leases $129,755,112 $ 88,465,191 $41,289,921 Equipment leases 8,299,186 317,181 7,982,005 ------------ ------------ ----------- Total $138,054,298 $ 88,782,372 $49,271,926 ============ ============ ===========
(A) Minimum payments are those required by the Company over the terms of the significant leases.
(B) Minimum receipts are those to be received by the Company from sublease agreements.
Twenty-one of the subleases as of September 30, 1994, are insured by the Company's foreign subsidiary, UGIC, Ltd. The annual rental for these leases is approximately $2,440,000. The total minimum payments over the lease term for these same leases is approximately $54,100,000.
In 1992 and 1991, the Company entered into sale-leaseback transactions for three cash and carry outlets. The sales resulted in deferred gains of approximately $800,000 which are being amortized over the leaseback period of fifteen years. The total lease commitments are approximately $2,500,000 over fifteen years with an annual rental of approximately $155,000 for each of the first five years.
16. Supplemental cash flow information
1994 1993 1992 ----------- ----------- ----------- Supplemental disclosures: Cash paid during the year for: Interest $ 8,898,144 $ 8,292,247 $ 8,952,346 Income taxes 336,810 647,836 982,169
Supplemental schedule of noncash investing and financing activities: Patronage dividends payable in common stock 1,864,432 1,415,823 2,250,544
17. Investment in and transactions with affiliated companies
The Company owns 22.42% of the outstanding common stock of Western Family Holding Company (the Affiliate). The Company and certain other retailer owned grocery wholesalers located primarily in the Pacific Northwest organized the Affiliate to provide a source for the Affiliate private label brand. An officer of the Company is a director of the Affiliate. The amount of consolidated retained earnings represented by undistributed earnings of the Affiliate as of September 30, 1994 is $1,679,869 and $1,654,629 as of October 1, 1993 in addition to the original investment of $275,300.
An approximate summary of transactions with this Affiliate by year is as follows: 1994 1993 1992 ----------- ----------- ----------- Purchases $89,179,000 $70,334,000 $71,994,000 Volume incentive rebate 1,561,000 1,231,000 1,260,000 Open accounts payable 6,006,000 5,150,000 4,000,000
The Company in 1994 made an approximately 22% minority equity investment of $6,094,315 in the retail store operations of two members. The Company's share of losses in these operations in 1994 was $217,000. Transactions with these two members for the short periods in 1994 were sales of approximately $22,945,000 and open accounts receivable as of September 30, 1994 were approximately $1,860,000.
UGIC, Ltd. paid cash dividends to the Parent in 1992 in the amount of $500,000.
18. Concentrations of credit risk
The Company holds its cash and cash equivalents in several banks located in the Pacific Northwest and a zero balance bank account located in the Midwest. Each bank is covered by FDIC insurance; balances in excess of coverage are not insured.
As a cooperative, the majority of the Company's accounts receivable represent sales to its members who are located throughout the Pacific Northwest. These accounts are not generally secured by collateral but each member has stock holdings in the Company as well as patronage rebates which the Company could apply against account balances.
The Company makes store financing loans to members from time to time mainly to finance the acquisition of grocery store properties and equipment. These loans are represented by notes receivable which are secured by collateral consisting of personal property, securities and guarantees.
The insurance subsidiaries have investments primarily in federal securities and state municipal bonds which are backed by the full faith and credit of the respective governmental agency.
19. Commitments and contingencies
a. During 1994, 1991 and 1990, the Company entered into agreements under which it sold and continues to sell certain of its notes receivable from members subject to limited recourse provisions. These are secured by collateral which usually consists of personal property, securities and guarantees. The Company is responsible for collection of the notes, for which it receives a collection fee, and remits the net proceeds to the purchaser on a monthly basis. In 1994, 1993 and 1992, the Company sold notes totaling approximately $8,625,000, $900,000 and $5,800,000, respectively. The balances of transferred notes that were outstanding and subject to recourse provisions were $13,652,000, $13,441,000 and $20,934,000 at September 30, 1994, October 1, 1993 and October 2, 1992, respectively.
b. In connection with its loan activities to members, the Company has approved loan applications totaling approximately $8,000,000 for which funds have been committed, but not disbursed, as of September 30, 1994.
c. The Company is guarantor of a covenant by a member as of September 30, 1994 totaling $350,000 with annual principal payments of approximately $50,000.
d. The Company is a party to various litigation and claims arising in the ordinary course of business. While the ultimate effect of such actions cannot be predicted with certainty, the Company expects that the outcome of these matters will not result in a material adverse effect on the Company's consolidated financial position or results of operations.
Board of Directors United Grocers, Inc.
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENT SCHEDULES
We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements included in United Grocers, Inc.'s annual report to stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated November 30, 1994. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. Schedules V, VI, VIII, IX, X and XIV listed in the index under Item 14(a)2, are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
DeLap, White & Raish
Portland, Oregon November 30, 1994
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
A. Identification of Directors:
C. Identification of Certain Significant Employees:
None.
D. Family Relationships
None.
E. Business Experience
All executive officers have been employed by United in various management and executive capacities for more than the past five years.
All directors and nominees have been principally engaged in the retail grocery business for more than the past five years with the firms shown opposite their names. Except as described in Item 13 below, none of such firms is a parent, subsidiary or other affiliate of United.
No director or nominee is a director in another company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 or subject to the requirements of Section 15(d) of such Act or any company registered as an investment company under the Investment Company Act of 1940.
F. Involvement in Certain Legal Proceedings None
Item 11.
Item 11. Executive Compensation
A. Remuneration
The following table shows the compensation, during each of the years in the three year period ended September 30, 1994, earned by each of the Company's executive officers whose total annual salary and bonus for fiscal 1994 exceeded $100,000. The Company does not provide long term compensation to its executive officers other than retirement benefits, as discussed below.
B. Employment Agreement
Mr. Jones has an employment agreement with the Company pursuant to which he is entitled to an annual base salary (subject to cost of living adjustment) plus bonuses subject to performance targets set at the discretion of the Board of Directors. The agreement further provides for Mr. Jones to receive certain payments if the agreement is terminated without "cause" (as defined) or in the event of a change in control of United.
In the event Mr. Jones is terminated without cause during the term of the agreement, he will be entitled to receive payments for the remaining term of the agreement equal to 50% of his then current base salary plus the annual premium for his life insurance policy. Further, Mr. Jones would be entitled to be covered under the Company's medical and dental plans for the remaining term of the agreement. As of September 30, 1994, the employment agreement had a remaining term of 42 months.
In the event of a change of control of United (as defined), Mr. Jones will have the right to terminate the employment agreement and receive a severance payment equal to three times an amount which is 150% of his then current base salary.
C. Retirement Plan
The Company's retirement plan is an actuarially funded defined benefit plan. The following table shows the estimated annual benefits payable upon retirement (assuming normal retirement at age 65) for employees at specified annual salary levels (based upon the highest average of five consecutive years) with various years of service.
The number of years of service under the plan for the officers listed in the table on the preceding page is as follows:
The amount of compensation used in calculation of pension benefits for Mr. Jones and Mr. White is the dollar amount shown under "salary" and "bonus," subject to plan limitations, in the table for Item 11, Section A. above.
[Amounts payable under the plan are not subject to deduction for social security or other offset amounts.]
D. Remuneration of directors
Directors, except the Chairman of the Board, received $10, plus expenses, for each board meeting attended. The Chairman received $25, plus expenses, for each board meeting attended and for each additional day spent on the conduct of United's business.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
A. Security Ownership of Certain Beneficial Owners
The following table sets forth information as of December 9, 1994, regarding each person known to United to be the beneficial owner of more than 5 percent of United's Common Stock.
B. Security Ownership of Management.
As of December 9, 1994, the directors and nominees for election as directors of United owned the indicated amounts of United's Common Stock, United's only class of voting security.
C. Changes in Control. None
Item 13.
Item 13. Certain Relationships and Related Transactions.
A. Transactions with Management and Others All directors and nominees (or their firms), as members of United, purchase groceries and related products from United in the ordinary course of business at prices available to members generally. In the ordinary course of business, United enters into prime leases and subleases property to qualified members. United presently is a party to subleases with entities affiliated with Ray Nidiffer, Craig Danielson and Gil Foster, directors of United. At September 30, 1994, monthly payments due pursuant to the subleases were as follows:
United guarantees members' indebtedness under certain conditions and loans money to members through its financing department. The Company has guaranteed certain loan obligations of C&K Market, Inc., a corporation owned and controlled by Ray Nidiffer, a director.
During 1994, entities in which Craig Danielson, a director, has an equity interest purchased the assets of three retail stores at book value. These entities also assumed sublease obligations of the stores.
On June 20, 1994, the Company purchased 142,256 shares (representing 22%) of the common stock of C&K Market, Inc., a corporation owned and controlled by Ray Nidiffer, a director, for a purchase price of $5,750,000.
B. Certain Business Relationships
During fiscal year 1994, C&K Market, Inc., a corporation owned and controlled by Ray Nidiffer, a director, purchased groceries and other products in the ordinary course of business from United in the amount of $76,229,400.
C. Indebtedness of Management
The following directors, officers, nominees or related persons or entities were indebted to United during the fiscal year ended September 30, 1994, or thereafter and prior to the date of this report:
All of the above loans were for purchase of inventory and equipment and are secured by inventory and equipment. Variable rate loans bear interest at prime, plus 1.75 percent to 2.25 percent.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) Documents filed as part of the report
1. The following financial statements are filed as part of this report:
Independent Auditor's Report Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Members' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Independent Auditor's Report on Financial Statement Schedules
2. The following financial statement schedules are filed as part of this report: Schedule II - Amounts receivable from related parties and underwriters, promoters and employees (other than related parties)
Schedule V - Property, plant and equipment
Schedule VI - Accumulated depreciation, depletion and amortization of property, plant and equipment
Schedule VIII - Valuation and qualifying accounts
Schedule IX - Short-term borrowings
Schedule X - Supplementary income statement information
Schedule XIV - Supplementary information concerning property - casualty insurance operations
3. Exhibits. The exhibits listed on the accompanying index to exhibits are filed as part of this annual report.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
UNITED GROCERS, INC. (Registrant)
Dated: December 14, 1994 By: /s/ Alan C. Jones
Alan C. Jones President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name Title Date
Alan C. Jones President, Secretary and 12-14-94 Alan C. Jones Treasurer (Principal executive officer)
John W. White Vice President 12-14-94 John W. White (Principal Financial Officer)
Dennis Blasingame Director 12-14-94 Dennis Blasingame
Craig Danielson Director 12-14-94 Craig Danielson
Peter J. O'Neal Director 12-14-94 Peter J. O'Neal
Dave Neal Director 12-14-94 Dave Neal
Gilbert A. Foster Director 12-14-94 Gilbert A. Foster
H. Larry Montgomery Director 12-14-94 H. Larry Montgomery
Marlin Smythe Director 12-14-94 Marlin Smythe
James C. Vickers Director 12-14-94 James C. Vickers
Ray Nidiffer Director 12-14-94 Ray Nidiffer
Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act.
No annual report covering the company's last fiscal year has been sent to security holders. An annual report will be furnished to security holders subsequent to the filing of the annual report on Form 10-K and copies of the annual report shall be sent to the Commission when sent to security holders.
Enclosed with this report are four copies of proxy soliciting material, including the form of proxy, sent to United's shareholders for the January 14, 1995 annual meeting.
The enclosed proxy soliciting material and, when provided, the annual report for the last fiscal year are, or will be, furnished to the Commission for its information and shall not be deemed filed with the Commission or otherwise subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, except to the extent that the company specifically incorporates them in its annual report on this form by reference.
APPENDIX 2
UNITED GROCERS, INC. AND SUBSIDIARIES SCHEDULE II Notes to Schedule II
Note A Smith: Two notes bearing interest at a fixed rate of 7.99% and paid in full on March 1, 1994.
Note B Neal: One note bearing interest at a fixed rate of 9.50% per annum payable in equal monthly installments, plus interest, maturing March 1, 1998, and secured by inventory and fixtures. (Loan #497)
Note C DeJardin: One note bearing interest at a fixed rate of 7.99% payable in equal monthly installments, plus interest, maturing January 1, 1996,(Loan # 137) secured by inventory.
Note D Miller: One note bearing interest at a fixed rate of 7.99% per annum, payable in equal monthly installments, maturing December 1, 1995. (Loans #123)
Note E Leonard: One note bearing interest at a variable rate and paid in full on July 1, 1994.
Note F O'Neal: Two notes paid in full on January 1, 1992 (Loan #545) and April 10, 1992 (Loan #514)
Note G Danielson: Two notes paid in full on July 24, 1992 (Loan #125) and May 14, 1992 (Loan #124).
Note H Blasingame: One note bearing interest at a variable rate (9.00 % at October 1, 1993) payable in equal monthly installments plus interest, maturing February 1, 2000, and secured by inventory, fixtures and a mortgage. (Loan #604)
Note I Smythe: One note bearing interest at a fixed rate of 8.50 % per annum, payable in equal monthly installments, maturing June 1, 2000 and secured by inventory, fixtures, and two mortgages. (Loan #536)
Note J Montgomery: Two notes bearing interest at a variable rate (9.50% at September 30, 1994), one note bearing interest at a fixed rate of 8.50% per annum, payable in equal monthly installments plus interest maturing 8/1/97, 1/1/96, and 12/1/98;, and secured by inventory and fixtures at two locations. (Loans # 754, 793 and 802)
Note K Foster: Three notes bearing interest at fixed rates of 9.00%, 9.75% and 9.75% per annum, and one note at a variable interest rate, (9.50% @ September 30, 1994) payable in equal monthly installments maturing 2/1/00, 11/1/01, 9/1/01 and 8/1/95. All loans secured by inventory and fixtures at five locations. (Loans #596, 839, 818 and 855)
Note L Badger: Two notes bearing interest at a variable rates (9.75% at September 30, 1994) payable in equal monthly installments maturing September 1, 1995. (Loans #417, 417a).
Note M Vickers: One note bearing interest at fixed rates of 7.99% per annum and one note bearing interest at a variable rate (9.50% at September 30, 1994), payable in equal monthly installments maturing March 1, 1997; (Loans #126 and 779), and secured by inventory and fixtures at two locations.
Note N Babb: One note bearing interest at a fixed rate of 7.75% per annum, payable in equal monthly installments, maturing February 1, 1994 and secured by inventory and fixtures. (Loan #823)
Note O Nidiffer: Four notes bearing interest at a fixed rate of 9.25% per annum, and one note bearing interest at a fixed rate of 6.0% per annum, payable in equal monthly install- ments plus interest, maturing 1/99, 9/99, 1/00, 12/00 and 1/02 and secured by inventory and fixtures at three locations and inventories at two locations. (Loans 836/845/846/869/773)
EXHIBIT INDEX
1 This number not used.
2 This number not used.
3.A Copy of the registrant's restated articles of incorporation, as amended (incorporated by reference to Exhibit 4-E to the registrant's registration statement on Form S-2, No. 33-26631).
3.B Copy of the registrant's bylaws, as amended (incorporated by reference to Exhibit 4-F to the registrant's registration statement on Form S-2, No. 33-26631).
4.A Copy of indenture dated as of February 1, 1978, between the registrant and United States National Bank of Oregon, as trustee, relating to the registrant's Capital Investment Notes (incorporated by reference to Exhibit 4-I to the registrant's registration statement on Form S-1, No. 2-60488).
4.B Copy of supplemental indenture dated as of July 6, 1992, between the registrant and United States National Bank of Oregon, as trustee, relating to the registrant's Series H Capital Investment Notes (incorporated by reference to Exhibit 4-C to the registrant's registration statement on Form S-2, No. 33-49450).
4.C1 Copy of credit agreement of July 31, 1991 among the registrant, United States National Bank of Oregon, Seattle-First National Bank, and Security Pacific Bank Oregon (incorporated by reference to Exhibit 4-H to the registrant's Form 10-K for the fiscal year ended September 27, 1991).
4.C2 Copy of Amendments 1, 2 and 3 to credit agreement of July 31, 1991 among the registrant, United States National Bank of Oregon, Seattle-First National Bank, and Security Pacific Bank Oregon, dated as of August 19, 1991, December 20, 1991 and March 13, 1992 (incorporated by reference to Exhibit 4-C2 to the registrant's Form 10-K for the fiscal year ended October 2, 1992).
4.C3 Copy of Amendment 4 to credit agreement of July 31, 1991 among the registrant, United States National Bank of Oregon, Seattle-First National Bank, and Bank of America Oregon (successor organization to Security Pacific Bank Oregon), dated as of April 20, 1993 (incorporated by reference
to Exhibit 4.C3 to the registrant's Form 10-K for the fiscal year October 1, 1993).
4.C4 Copy of Amendment 5 to credit agreement and amendment to notes of July 31, 1991 among the registrant, United States National Bank of Oregon, Seattle-First National Bank, and Bank of America Oregon (successor organization to Security Pacific Bank Oregon), dated as of May 28, 1993 (incorporated by reference to Exhibit 4.C4 to the registrant's Form 10-K for the fiscal year ended October 1, 1993).
4.C5 Copy of Promissory Notes to United States National Bank of Oregon, Seattle-First National Bank, and Bank of America Oregon (successor organization to Security Pacific Bank Oregon), dated as of April 20, 1993 (incorporated by reference to Exhibit 4.C5 to the registrant's Form 10-K for the fiscal year ended October 1, 1993).
4.C6 Copy of Amendments 6 and 7 to credit agreement and amendments to notes of July 31, 1991 among the registrant, United States National Bank and Seattle First National Bank, dated as of October 29, 1993 and January 28, 1994 (incorporated by reference to Exhibits 10.A. and 10.B. to the registrant's Form 10-Q for the quarterly period ending April 1, 1994).
4.C7 Copy of Amendment 8 to credit agreement and amendment to revolving line notes and operating line notes of July 31, 1991 among the registrant, United States National Bank of Oregon and Seattle-First National Bank, dated as of February 22, 1994.
4.C8 Copy of Amendment 9 to credit agreement and amendment to revolving line notes and operating line notes of July 31, 1991 among the registrant, United States National Bank of Oregon and Seattle-First National Bank, dated as of April 30, 1994.
4.D Copy of Note Agreement dated as of September 20, 1991, and Senior Notes dated September 24, 1991 among the registrant and various purchasers (incorporated by reference to Exhibit 4-I to the registrant's Form 10-K for the fiscal year ended September 27, 1991).
4.E Copy of Promissory Note, Assignment of Rents and Leases, Deed of Trust, Financing Agreement and Security Agreement, and Environmental Indemnity Agreement dated as of September 30, 1993, between the registrant and United of Omaha Life Insurance Company, relating to the registrant's construction of a new office building (incorporated by reference to Exhibit 4.E to the registrant's Form 10-K for the fiscal year ended October 1, 1993).
4.F1 Copy of Loan Purchase and Servicing Agreement dated as of May 13, 1994, between United Resources, Inc., as Seller and Servicer, the registrant, as Guarantor, and National Consumer Cooperative Bank, as Buyer, relating to the selling of loans originated by the registrant's subsidiary, United Resources, Inc.
4.F2 Copy of First Amendment to Loan Purchase and Servicing Agreement dated as of May 13, 1994, between United Resources, Inc., the registrant, and National Consumer Cooperative Bank.
4.G Copy of Note Agreement dated October 10, 1994, between the registrant and Phoenix Home Life Mutual Insurance Company).
Pursuant to Item 601 (b)(4)(iii) of Regulation S-K, the registrant is not filing certain instruments with respect to its long-term debt because the amount authorized under any such instrument does not exceed 10 percent of the total consolidated assets of the registrant at September 30, 1994. The registrant agrees to furnish a copy of any such instrument to the Securities and Exchange Commission upon request.
5-9 These numbers not used.
10.A Copy of United Grocers, Inc. pension plan and trust agreement dated as of October 1, 1985 (incorporated by reference to Exhibit 10-A to the registrant's registration statement on Form S-2, No. 33-11212).
10.B Copy of first amendment to United Grocers, Inc. pension plan and trust agreement dated as of October 1, 1987 (incorporated by reference to Exhibit 10-B to post effective amendment No. 1 to the registrant's registration statement on Form S-2, No. 33-11212).
10.C Copy of binder of insurance with respect to indemnification of officers and directors (incorporated by reference to Exhibit 10.C to the registrant's Form 10-K for the fiscal year ended October 1, 1993).
10.D1 Typical forms executed in connection with loans to members, including directors:
10.D1a Installment note (Stevens-Ness form 217), with optional interest rate riders (incorporated by reference to Exhibit 10-D1a to the registrant's Form 10-K for the fiscal year ended October 2, 1992).
10.D1b Promissory note (Stevens-Ness form 216), with optional interest rate riders (incorporated by reference to Exhibit 10-D1b to the registrant's Form 10-K for the fiscal year ended October 2, 1992).
10.D1c Subsequent note (three forms) (incorporated by reference to Exhibit 10-D1c to the registrant's Form 10-K for the fiscal year ended October 2, 1992).
10.D1d Loan agreement (two forms) (incorporated by reference to Exhibit 10-D1d to the registrant's Form 10-K for the fiscal year ended October 2, 1992).
10.D1e Loan agreement for subsequent notes (incorporated by reference to Exhibit 10-D1e to the registrant's Form 10-K for the fiscal year ended October 2, 1992).
10.D1f Amendment to loan and security agreements, including optional clauses (incorporated by reference to Exhibit 10-D1f to the registrant's Form 10-K for the fiscal year ended October 2, 1992).
10.D1g Security agreement (Stevens Ness form 1201) (incorporated by reference to Exhibit 10-D1g to the registrant's Form 10-K for the fiscal year ended October 2, 1992).
10.D1h Purchase money security agreement (Stevens-Ness form 1202) (incorporated by reference to Exhibit 10-D1h to the registrant's Form 10-K for the fiscal year ended October 2, 1992).
10.D1i Security agreement for equipment (Stevens Ness form 1203) (incorporated by reference to Exhibit 10-D1i to the registrant's Form 10-K for the fiscal year ended October 2, 1992).
10.D1j Inventory loan and security agreement (Stevens-Ness form 1206) (incorporated by reference to Exhibit 10-D1j to the registrant's Form 10-K for the fiscal year ended October 2, 1992).
10.D1k Security agreement (equipment and inventory) (incorporated by reference to Exhibit 10-D1k to the registrant's Form 10-K for the fiscal year ended October 2, 1992).
10.D1l Security agreement for subsequent notes (incorporated by reference to Exhibit 10-D1l to the registrant's Form 10-K for the fiscal year ended October 2, 1992).
Pursuant to Instruction 2 to Item 601 of Regulation S-K, the registrant has filed the forms listed above in lieu of filing each copy executed in connection with loans to directors. A schedule showing the principal amount and interest rate of each director loan at November 26, 1994, appears in Item 13.C of this Form 10-K. The registrant agrees to furnish a copy of any omitted loan document to the Securities and Exchange Commission upon request.
10.D2 Typical form of residual stock redemption note executed in connection with redemption of common stock from members (incorporated by reference to Exhibit 10-D2 to the registrant's Form 10-K for the fiscal year ended October 2, 1992).
Pursuant to Instruction 2 to Item 601 of Regulation S-K, the registrant has filed the form listed above in lieu of filing each copy executed in transactions with directors. The registrant agrees to furnish a copy of any omitted document to the Securities and Exchange Commission upon request.
10.E Copy of policy summary and related documents pertaining to a life insurance policy for Alan C. Jones, President of the registrant (incorporated by reference to Exhibit 10-E to the registrant's Form 10-K for the fiscal year ended September 28, 1990).
10.F1 Copy of sublease agreement for Coos Bay store dated February 28, 1991, between the registrant and Raymond Nidiffer, a director of the registrant (incorporated by reference to Exhibit 10-I19 to the registrant's Form 10-K for the fiscal year ended September 27, 1991).
10.F2. Copy of sublease agreement for Arcata store dated August 11, 1977, between the registrant and Raymond L. Nidiffer, a director of the registrant (incorporated by reference to Exhibit 10-Q2 of the registrant's registration statement on Form S-2, No. 33-26631).
10.F3. Copy of sublease agreement for Gold Beach store dated July 6, 1979, between the registrant and Raymond L. Nidiffer, a director of the registrant (incorporated by reference to Exhibit 10-Q3 of the registrant's registration statement on Form S-2, No. 33-26631).
10.F4. Copy of assignment of lease and related documents for Mt. Shasta store between the registrant and C & K Market, Inc., an affiliate of Raymond L. Nidiffer, a director of the registrant (incorporated by reference to Exhibit 10-Q4 of the registrant's registration statement on Form S-2, No. 33-26631).
10.F5. Copy of sublease agreement for Rogue River store dated June 25, 1976, between the registrant and Raymond L. Nidiffer, a director of the registrant (incorporated by reference to Exhibit 10-Q5 of the registrant's registration statement on Form S-2, No. 33-26631).
10.F6. Copy of lease agreement for Coos Bay store dated February 28, 1991, between the registrant and Raymond L. Nidiffer, a director of the registrant (incorporated by reference to Exhibit 10-I20 to the registrant's Form 10-K for the fiscal year ended September 27, 1991).
10.F7. Copy of loan guaranties dated June 12, 1980 and September 30, 1988 given by registrant for the benefit of C & K Market, Inc. an affiliate of Raymond L. Nidiffer, a director of the registrant (incorporated by reference to Exhibit 10-I12 to the registrant's Form 10-K for the fiscal year ended September 30, 1989).
10.F8. Copy of stock purchase agreement dated as of June 20, 1994, between the registrant and C&K Market, Inc., an affiliate of Raymond L. Nidiffer, a director of registrant.
10.G1 Copy of sublease agreement for Aloha store dated January 3, 1994 between the registrant and CTD, L.L.C., a limited liability company controlled by Craig Danielson, a director of the registrant (incorporated by reference to Exhibit 10.E to the registrant's Form 10-Q for the quarterly period ended April 1, 1994).
10.G2. Copy of sublease agreement for Tigard store dated January 3, 1994 between the registrant and CTD, L.L.C., a limited liability company controlled by Craig Danielson, a director of the registrant (incorporated by reference to Exhibit 10.D to the registrant's Form 10-Q for the quarterly period ended April 1, 1994).
10.G3. Copy of sublease agreement for Sandy store dated May 4, 1994 between the registrant and Dan Inc Oregon, a corporation controlled by Craig Danielson, a director of the registrant.
10.G4 Copy of Asset Purchase and Sale Agreement dated May 4, 1994 for Sandy store between the registrant and Dan Inc Oregon, a corporation controlled by Craig Danielson, a director of the registrant.
10.G5 Copy of Asset Purchase and Sale Agreement dated January 3, 1994 for Aloha and Tigard stores between the registrant and CTD, L.L.C., a limited liability company controlled by Craig Danielson, a director of the registrant (incorporated by reference to Exhibit 10.C to the registrant's Form 10-Q for the quarterly period ended April 1, 1994).
10.H. Copy of sublease agreement for Orland store dated August 19, 1994 between the registrant and Gil's Supermarkets, Inc., a corporation controlled by Gil Foster, a director of the registrant.
10.I Copy of executive compensation agreement dated March 1, 1991 (incorporated by reference to Exhibit 10-T to the registrant's Form 10-K for the fiscal year ended September 27, 1991).
10.J Copy of registrant's executive deferred compensation plan (incorporated by reference to Exhibit 10-U to the registrant's Form 10-K for the fiscal year ended September 27, 1991).
11. This number not used.
12. Statement of Computation of Ratio of Adjusted Income to Fixed Charges.
13-20. These numbers not used.
21. Subsidiaries of the registrant.
22-26. These numbers not used.
27. Financial Data Schedules.
28. Copy of schedule P of the annual statement for Grocers Insurance Company, a subsidiary of the registrant, as filed with the State Insurance Departments where the company operates, for the year ended December 31, 1993.(P)