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UNIFIED GROCERS, INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Edgar Online, Inc.

FORWARD-LOOKING INFORMATION


This report contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements relate to
expectations concerning matters that (a) are not historical facts, (b) predict
or forecast future events or results, or (c) embody assumptions that may prove
to have been inaccurate. These forward-looking statements involve risks,
uncertainties and assumptions. When we use words such as "believe," "expect,"
"anticipate" or similar expressions, we are making forward-looking statements.
Although we believe that the expectations reflected in such forward-looking
statements are reasonable, we cannot give readers any assurance that such
expectations will prove correct. The actual results may differ materially from
those anticipated in the forward-looking statements as a result of numerous
factors, many of which are beyond our control. Important factors that could
cause actual results to differ materially from our expectations include, but are
not limited to, the factors discussed in the sections entitled "Risk Factors"
and "Critical Accounting Policies and Estimates" within "Management's Discussion
and Analysis of Financial Condition and Results of Operations." All
forward-looking statements attributable to us are expressly qualified in their
entirety by the factors that may cause actual results to differ materially from
anticipated results. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's opinion only as of the
date hereof. We undertake no duty or obligation to revise or publicly release
the results of any revision to these forward-looking statements. Readers should
carefully review the risk factors described in this document as well as in other
documents we file from time to time with the Securities and Exchange Commission
(the "SEC").

COMPANY OVERVIEW

General

Unified Grocers, Inc. (referred to in this Form 10-Q, together with its
consolidated subsidiaries, as "Unified," "the Company," "we," "us" or "our"), a
California corporation organized in 1922 and incorporated in 1925, is a
retailer-owned, grocery wholesale cooperative serving supermarket, specialty and
convenience store operators located primarily in the western United States and
the Pacific Rim. We operate our business in two reportable business segments:
(1) Wholesale Distribution; and (2) Insurance. All remaining business activities
are grouped into All Other (see Note 4 of "Notes to Consolidated Condensed
Financial Statements - Unaudited" in Part I, Item 1. "Financial Statements
(Unaudited)" of this Quarterly Report on Form 10-Q for additional discussion).

We sell a wide variety of products typically found in supermarkets, including
dry grocery, frozen food, deli, ethnic, gourmet, specialty foods, natural and
organic, general merchandise, health and beauty care, service deli, service
bakery, meat, eggs, produce, bakery and dairy products. We also provide
insurance and financing services to our customers, as well as various support
services, including merchandising, retail pricing, advertising, promotional
planning, retail technology, equipment purchasing and real estate services. Our
Wholesale Distribution segment represents approximately 99% of our total net
sales. Insurance activities account for approximately 1% of total net sales. The
availability of specific products and services may vary by geographic region. We
have three separate geographical and marketing regions: Southern California,
Northern California and the Pacific Northwest.

Our customers include our owners ("Members") and non-owners ("Non-Members"). We
do business primarily with those customers that have been accepted as Members.
Our Members operate supermarket companies that range in size from single store
operators to regional supermarket chains. Members are required to meet specific
requirements, which include ownership of our capital shares and may include
required cash deposits. Customers who purchase less than $1 million annually
from us would not generally be considered for membership, while customers who
purchase over $3 million annually are typically required to become Members. See
Part I, Item 1. "Business - Member Requirements," Part I, Item 1. "Business -
Capital Shares" and Part I, Item 1. "Business - Customer Deposits" of our Annual
Report on Form 10-K for the year ended September 29, 2012 for additional
information. Additionally, see "DESCRIPTION OF DEPOSIT ACCOUNTS" in our
Post-Effective Amendment No. 1 to Registration Statement on Form S-1 filed on
February 7, 2013, with respect to our offering of Partially Subordinated
Patrons' Deposit Accounts for further information. The membership requirements,
including purchase and capitalization requirements, may be modified at any time
at the discretion of our Board of Directors (the "Board").



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We distribute the earnings from patronage activities conducted by us, excluding
our subsidiaries, with our Members ("Patronage Business") in the form of
patronage dividends. The Board approves the payment of patronage dividends and
the form of such payment for our three patronage earnings divisions: the
Cooperative Division, the Southern California Dairy Division and the Pacific
Northwest Dairy Division. See Part I, Item 1. "Business - Company Structure and
Organization - Wholesale Business - Wholesale Distribution" of our Annual Report
on Form 10-K for the year ended September 29, 2012 for additional discussion. An
entity that does not meet Member purchase requirements may conduct business with
us as a Non-Member customer. We may also grant an entity that meets our Member
purchase requirements the ability to conduct business with us as a Non-Member
customer. We retain the earnings from our subsidiaries and from business
conducted with Non-Members (collectively, "Non-Patronage Business").

Facilities and Transportation


We operate various warehouse and office facilities that are located in Commerce,
Los Angeles, Santa Fe Springs and Stockton, California, Milwaukie, Oregon and
Seattle, Washington. We also operate a bakery manufacturing facility and a milk,
water and juice processing plant in Los Angeles, which primarily serve the
Southern California region.

During the first quarter of fiscal 2013, we completed the closure of our Fresno
dry warehouse facility and consolidated the distribution of general merchandise
and health and beauty care products into our facilities in Southern and Northern
California.

We believe our properties are generally in good condition, well maintained and suitable and adequate to carry on our business as presently conducted.


Our customers may choose either of two delivery options for the distribution of
our products: have us deliver orders to their stores or warehouses or pick-up
their orders from our distribution centers. For delivered orders, we primarily
utilize our fleet of tractors and trailers.

INDUSTRY OVERVIEW AND THE COMPANY'S OPERATING ENVIRONMENT

Competition


We compete in the wholesale grocery industry with regional and national food
wholesalers such as C&S Wholesale Grocers, Inc. and Supervalu, Inc. We also
compete with many local and regional meat, produce, grocery, specialty, general
food, bakery and dairy wholesalers and distributors.

Our customers include grocery retailers with a broad range of store sizes and
types targeting a diverse range of consumers. Depending on the nature of their
stores and consumer focus, our customers may compete directly with vertically
integrated regional and national chains, such as Albertsons (owned by Supervalu,
Inc.), Kroger Co., Safeway Inc., and WinCo Foods, which operate traditional
format full-service grocery stores. They may also compete with warehouse club
stores and supercenters such as Costco Wholesale Corp., Sam's Club and Wal-Mart
Stores, Inc., discount, drug and alternative format stores such as CVS Caremark
Corporation, Target Corp., and the various "dollar" stores, stores focused on
upscale and natural and organic products such as Trader Joe's and Whole Foods
Market Inc., and various convenience stores. Certain of our customers also serve
niche markets such as the Hispanic and Asian communities. The marketplace in
which our customers compete continues to evolve and present challenges. These
challenges include such recent trends as the continued proliferation of discount
stores, supercenters and warehouse club stores and the efforts of many of the
non-traditional format stores to expand their offerings of product to cover a
greater range of the products offered by the traditional format full-service
grocery store. The success of our customers in attracting consumers to shop at
their stores, as opposed to the traditional and non-traditional format stores of
their competitors, has a direct and significant impact on our sales and
earnings. For more information about the competitive environment we and our
customers face, please refer to "Risk Factors."

Our strategy to help our customers effectively compete in the marketplace includes a focus on helping our customers understand consumer trends. The ongoing challenging economic climate continues to cause consumers

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to place a higher emphasis on lower prices. Job losses have also caused a
significant shift in consumers' eating and living habits. To effectively adjust
to these conditions, many of our customers have focused on, among other things,
enhancing the use of our corporate brand offerings to give consumers a
lower-priced alternative to nationally branded products. This includes a
corporate brand health and wellness offering to satisfy consumers' desire for
products that support a healthy lifestyle but at a lower price. Differentiation
strategies in specialty and ethnic products and items on the perimeter of the
store such as produce, service deli, service bakery and meat categories also
continue to be an important part of our strategy.

One of our sales initiatives is to continue our development of programs and
services designed with consumers in mind. The retail store is becoming a more
important source of information for consumers about the products that are
available to them. To provide this information, we offer our customers tools to
educate consumers about the products we offer through a variety of methods
including social media, websites and mobile devices as well as in-store
displays. We also promote value and savings through event marketing and everyday
low price campaigns.

Economic Factors

Economic factors such as low consumer confidence and high unemployment continue
to persist in most of our operating markets. Severe to extreme drought
conditions currently prevailing in approximately one-third of the U.S. are
expected to result in higher prices on certain food products; however, the
timing and degree of any such impact is uncertain at this time. Consumers
continue to be highly price sensitive and seek lower-cost alternatives in their
grocery purchases, continuing to put pressure on profit margins in an industry
already characterized by low profit margins. Job losses have also caused greater
demographic shifts that have changed the composition of consumers and their
related product focus in a given marketplace. These challenging economic
conditions have contributed to continued low levels of consumer spending and a
shift in consumer buying patterns, including increased purchases from grocery
discounters and other non-traditional format stores for grocery products.

We are impacted by changes in the overall economic environment. An inflationary
or deflationary economic period could impact our operating income in a variety
of areas, including, but not limited to, sales, cost of sales, employee wages
and benefits, workers' compensation insurance and energy and fuel costs. We
typically experience significant volatility in the cost of certain commodities,
the cost of ingredients for our manufactured breads and processed fluid milk and
the cost of packaged goods purchased from other manufacturers. Our operating
programs are designed to give us the flexibility to pass on these costs to our
customers; however, we may not always be able to pass on such changes to
customers on a timely basis. Any delay may result in our recovering less than
all of a price increase. It is also difficult to predict the effect that
possible future purchased or manufactured product cost decreases might have on
our profitability. The effect of deflation in purchased or manufactured product
costs would depend on the extent to which we had to lower selling prices of our
products to respond to sales price competition in the market. Additionally, we
are impacted by changes in prevailing interest rates or interest rates that have
been negotiated in conjunction with our credit facilities. A lower interest rate
(used, for example, to discount our pension and postretirement unfunded
obligations) may increase certain expenses, particularly pension and
postretirement benefit costs, while decreasing potential interest expense for
our credit facilities. An increase in interest rates may have the opposite
impact. Consequently, it is difficult for us to accurately predict the impact
that inflation, deflation or changes in interest rates might have on our
operations.

External factors continue to drive volatility in our costs associated with fuel.
Our pricing includes a fuel surcharge on product shipments to recover fuel costs
over a specified index. When fuel costs differ from a specified index, pricing
adjustments are passed on to our customers. The surcharge is reviewed monthly
and adjusted when appropriate.

We are subject to recurring wage and benefit increases as a result of negotiated
labor contracts with our represented employees and compensation and benefit
adjustments for non-represented employees. We continually focus attention on
initiatives aimed at improving operating efficiencies throughout the
organization to offset the impact of these increases.

Our insurance subsidiaries invest a significant portion of premiums received in
fixed maturity securities and equity securities to fund loss reserves. As a
result, our operating performance may be impacted by the performance of these
investments. The majority of our investments (approximately 85% at December 29,
2012) are held by two of



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our insurance subsidiaries, and include obligations of U.S. government
corporations and agencies, high quality investment grade corporate bonds, U.S.
government treasury securities, U.S. state and municipal securities and common
equity securities. The investments held by our insurance subsidiaries, excluding
the common equity securities, are generally not actively traded and are valued
based upon inputs including quoted prices for identical or similar assets.
Collectively, the estimated fair value or market value of these investments
continued to exceed their cost during the thirteen weeks ended December 29,
2012. Approximately 10% of our investments are held by our Wholesale
Distribution segment, which consists primarily of Western Family Holding Company
("Western Family") common stock. Western Family is a private cooperative located
in Oregon from which we purchase food and general merchandise products.
Approximately 5% of our investments are held by our other support businesses and
consist of an investment by our wholly-owned finance subsidiary in National
Consumer Cooperative Bank ("NCB"). NCB operates as a cooperative and therefore
its participants are required to own its Class B common stock.

We invest in life insurance policies (reported at cash surrender value) and
various publicly-traded mutual funds (reported at estimated fair value based on
quoted market prices) to fund obligations pursuant to our Executive Salary
Protection Plan and deferred compensation plan (see Note 7 of "Notes to
Consolidated Condensed Financial Statements - Unaudited" in Part I, Item 1.
"Financial Statements (Unaudited)" of this Quarterly Report on Form 10-Q for
additional discussion). Life insurance and mutual fund assets with values tied
to the equity markets are impacted by overall market conditions. During the
thirteen weeks ended December 29, 2012, net earnings and net comprehensive
earnings experienced an increase corresponding to the increase in life insurance
and mutual fund assets, respectively.

Technology


Technology has played a significant role in shaping the grocery industry as
companies continue to use technology to improve efficiency and reduce costs.
Technological improvements have been an important part of our strategy to
improve service to our customers and lower costs. As supermarket chains increase
in size and alternative format grocery stores gain market share, independent
grocers are further challenged to compete. Our customers benefit from our
substantial investment in supply-chain technology, including improvements in our
vendor management activities through new item introductions, promotions and
payment support activities. We also provide our customers with network
connectivity, data exchange and a portfolio of retail automation applications.
Most of these offerings are provided under a subscription model allowing our
retailers to utilize these systems without high up-front costs. We fully support
these products, eliminating the need for our customers to manage these systems.
We continue to invest in technology solutions that offer value to the supply
chain and bring our customers closer to the consumer.

RESULTS OF OPERATIONS


The following discussion of our financial condition and results of operations
should be read in conjunction with the consolidated condensed financial
statements and notes to the consolidated condensed financial statements,
specifically Note 4 of "Notes to Consolidated Condensed Financial Statements -
Unaudited," "Segment Information," included in Part I, Item 1. "Financial
Statements (Unaudited)" of this report. Certain statements in the following
discussion are not historical in nature and should be considered to be
forward-looking statements that are inherently uncertain.

The following table sets forth our selected consolidated financial data expressed as a percentage of net sales for the periods indicated and the percentage increase or decrease in such items over the prior year period.



                                                      Thirteen Weeks Ended                 % Change
                                                December 29,           December 31,        Thirteen
Fiscal Period Ended                                     2012                   2011           Weeks
Net sales                                              100.0 %                100.0 %          (3.8 )%
Cost of sales                                           92.0                   91.5            (3.3 )
Distribution, selling and administrative
expenses                                                 7.5                    7.4            (2.3 )
Operating income                                         0.5                    1.1           (55.2 )
Interest expense                                        (0.3 )                 (0.3 )           3.8
Estimated patronage dividends                           (0.3 )                 (0.2 )          51.2
Income taxes                                             0.1                   (0.2 )        (137.0 )
Net (loss) earnings                                        - %                  0.4 %        (102.1 )%





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THIRTEEN WEEK PERIOD ENDED DECEMBER 29, 2012 ("2013 PERIOD") COMPARED TO THE THIRTEEN WEEK PERIOD ENDED DECEMBER 31, 2011 ("2012 PERIOD")


Overview of the 2013 Period. We experienced an overall net sales decrease of
$37.7 million, or 3.8%, to $953.4 million for the 2013 Period as compared to
$991.1 million for the 2012 Period. Our net sales for the Wholesale Distribution
segment decreased $38.5 million, or 3.9%, for the comparable 2013 and 2012
Periods. We increased sales due to the addition of new customers; however, those
sales improvements did not fully offset reduced sales to continuing customers
and the loss of sales due to lost customers and store closures. Net sales in our
Insurance segment increased $0.8 million for the comparable thirteen week
periods.

Our consolidated operating income decreased $6.0 million to $4.9 million in the 2013 Period compared to $10.9 million in the 2012 Period.

The overall decrease in operating income is summarized in our operating segments and other business activities as follows:

· Wholesale Distribution Segment: The Wholesale Distribution segment's

operating income decreased $4.5 million to $5.7 million in the 2013 Period

compared to $10.2 million in the 2012 Period. This decrease in earnings was

primarily due to a change in sales mix towards lower margin products,

decreased inventory holding gains, lower net sales, transition costs

incurred during the consolidation of our Fresno dry warehouse facility into

our facilities in Southern and Northern California and an increase in our

insurance expense, partially offset by an employee postretirement benefit

plan curtailment gain recorded in distribution, selling and administrative

        expenses.




    ·   Insurance Segment:  Operating income decreased $1.5 million in our

Insurance segment to a loss of $0.9 million in the 2013 Period compared to

earnings of $0.6 million in the 2012 Period. This decrease was primarily

due to an increase in workers compensation reserves for claims exposure

        related to previous years.




    ·   All Other:  Operating income in our All Other business activities was $0.1

million in both the 2013 and 2012 Periods. All Other business activities

primarily consist of activities conducted through our finance subsidiary.

The following tables summarize the performance of each business segment for the 2013 and 2012 Periods.

Wholesale Distribution Segment


(dollars in thousands)



                                      Thirteen Weeks Ended                  Thirteen Weeks Ended
                                        December 29, 2012                     December 31, 2011
                                   Amounts in         Percent to         Amounts in         Percent to
                                        000's          Net Sales              000's          Net Sales         Difference
Gross sales                      $    948,436                 -        $    986,961                 -        $    (38,525 )
Inter-segment eliminations                 -                  -                  -                  -                  -

Net sales                             948,436              100.0 %          986,961              100.0 %          (38,525 )
Cost of sales                         873,435               92.1            905,790               91.8            (32,355 )
Distribution, selling and
administrative expenses                69,313                7.3             71,015                7.2             (1,702 )

Operating income                 $      5,688                0.6 %     $     10,156                1.0 %     $     (4,468 )





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Insurance Segment

(dollars in thousands)



                                         Thirteen Weeks Ended                     Thirteen Weeks Ended
                                          December 29, 2012                        December 31, 2011
                                    Amounts in           Percent to          Amounts in           Percent to
                                         000's            Net Sales               000's            Net Sales          Difference
Gross sales - premiums earned
and investment income              $     7,613                   -          $     7,054                   -         $        559
Inter-segment eliminations              (2,961 )                 -               (3,206 )                 -                  245

Net sales - premiums earned
and investment income                    4,652                100.0 %             3,848                100.0 %               804
Cost of sales - underwriting
expenses                                 3,748                 80.6               1,369                 35.6               2,379
Selling and administrative
expenses                                 1,826                 39.3               1,841                 47.8                 (15 )

Operating (loss) income            $      (922 )              (19.9 )%      $       638                 16.6 %      $     (1,560 )



All Other

(dollars in thousands)



                                               Thirteen Weeks Ended                      Thirteen Weeks Ended
                                                December 29, 2012                         December 31, 2011
                                          Amounts in            Percent to          Amounts in            Percent to
                                               000's             Net Sales               000's             Net Sales        Difference
Gross sales                             $        363                    -         $        345                    -                $18
Inter-segment eliminations                       (37 )                  -                  (31 )                  -                (6)

Net sales                                        326                 100.0 %               314                 100.0 %              12
Selling and administrative expenses              205                  62.9                 199                  63.4                 6

Operating income                        $        121                  37.1 %      $        115                  36.6 %              $6


Net sales. Consolidated net sales decreased $37.7 million, or 3.8%, to $953.4 million in the 2013 Period compared to $991.1 million for the 2012 Period. Factors impacting net sales are as follows:

· Wholesale Distribution Segment: Wholesale Distribution net sales decreased

$38.5 million to $948.5 million in the 2013 Period compared to $987.0

million for the 2012 Period. Significant components of this decrease are

        summarized below.




      (dollars in millions)
      Key Net Sales Changes                            Increase (Decrease)
      New customers                                   $                 3.1
      Decrease in net sales to continuing customers                   (17.7 )
      Lost customers                                                  (14.1 )
      Store closures                                                   (9.8 )

      Change in net sales                             $               (38.5 )




· Insurance Segment: Net sales, consisting principally of premium revenues

and investment income, increased $0.8 million to $4.6 million in the 2013

Period compared to $3.8 million for the 2012 Period. The increase is

primarily due to an increase in workers' compensation premium revenue

resulting from the addition of new policyholders and increased renewal

        premiums.



· All Other: Net sales were $0.3 million in both the 2013 and 2012 Periods.



Cost of sales (including underwriting expenses).  Consolidated cost of sales was
$877.2 million for the 2013 Period and $907.2 million for the 2012 Period and
comprised 92.0% and 91.5% of consolidated net sales for the 2013 and 2012
Periods, respectively. Factors impacting cost of sales are as follows:



· Wholesale Distribution Segment: Cost of sales decreased by $32.4 million

to $873.4 million in the 2013 Period compared to $905.8 million in the 2012

Period. As a percentage of Wholesale Distribution net sales, cost of sales

        was 92.1% and 91.8% for the 2013 and 2012 Periods, respectively.




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· The change in customer sales mix and change in product mix between

           perishable and non-perishable products resulted in a 0.1%

increase in

           cost of sales as a percent of Wholesale Distribution net sales in the
           2013 Period compared to the 2012 Period.




      ·    Vendor related activity resulted in a 0.2% increase in cost of sales as
           a percent of Wholesale Distribution net sales in the 2013 Period
           compared to the 2012 Period. This was comprised of declines in inventory
           holding gains (realized upon sale) due to a lack of vendor price
           increases as well as changes in vendor marketing activity.



· Insurance Segment: Cost of sales primarily consists of claims loss and loss

adjustment expenses, underwriting expenses, commissions, premium taxes and

regulatory fees. Cost of sales increased $2.4 million to $3.8 million in

the 2013 Period compared to $1.4 million in the 2012 Period. The increase

is primarily due to additional claims exposure related to new workers'

compensation policies written during the 2013 Period and increased claims

exposure for workers' compensation policies related to previous years. The

cost of insurance and the adequacy of loss reserves are impacted by

actuarial estimates based on a detailed analysis of health care cost

trends, claims history, demographics and industry trends. As a result, the

amount of loss reserves and future expenses is significantly affected by

        these variables and may significantly change, depending on the cost of
        providing benefits and the results of further legislative action. See

additional discussion related to insurance reserves under "Risk Factors -

Our insurance reserves may be inadequate if unexpected losses occur."



Distribution, selling and administrative expenses.  Consolidated distribution,
selling and administrative expenses were $71.3 million in the 2013 Period
compared to $73.0 million in the 2012 Period, reflecting a decrease of $1.7
million, and comprised 7.5% and 7.4% of net sales for the 2013 and 2012 Periods,
respectively. Factors impacting distribution, selling and administrative
expenses are as follows:



· Wholesale Distribution Segment: Distribution, selling and administrative

expenses decreased $1.7 million to $69.3 million in the 2013 Period

compared to $71.0 million in the 2012 Period, and comprised 7.3% and 7.2%

        of Wholesale Distribution net sales for the 2013 and 2012 Periods,
        respectively.



· Insurance: During the 2013 Period, we experienced net insurance expense

           increases of $1.2 million, or 0.1% as a percent of Wholesale
           Distribution net sales. This increase in expense is primarily 

due to the

           decrease in the cash surrender value of our life insurance

policy

           assets, which are held in a rabbi trust to support 

post-termination

           retirement benefits and are not available for general corporate
           purposes. The changes in our policy assets are a result of

changes in

           the fair value of the underlying securities, which are highly
           concentrated in U.S. equity markets and priced based on readily
           determinable market values.



· Employee Postretirement Benefit Plan Curtailment Gain: Effective

December 31, 2012, we amended several of our employee benefit 

plans. As

           a result of these benefit plan amendments, we remeasured the 

projected

           pension and accumulated postretirement benefit obligations

associated

           with the plans as of December 31, 2012. Such remeasurement

resulted in

           the recognition of a one-time curtailment gain of $2.7 million, 

or 0.3%

           as a percent of Wholesale Distribution net sales, which was

recorded in

           addition to the net periodic postretirement benefit cost in
           distribution, selling and administrative expenses. See Note 7 of 

"Notes

           to Consolidated Condensed Financial Statements - Unaudited" in 

Part I,

           Item 1. "Financial Statements (Unaudited)" of this Quarterly 

Report on

           Form 10-Q for additional discussion.




      ·    General Expenses:  General expenses decreased $0.2 million, but
           increased 0.3% as a percent of Wholesale Distribution net sales due to
           the decline in net sales. During the 2013 Period, we reduced both
           represented and non-represented labor expenses due to a

continued focus

           on cost reduction. This reduction was partially offset by

additional

           expenses associated with the closure and consolidation of one of our
           warehouses. We anticipate our warehouse expenses will return to normal
           levels by the end of our fiscal year.



· Insurance Segment: Selling and administrative expenses for the Insurance

        segment were $1.8 million for both the 2013 and 2012 Periods.



· All Other: Selling and administrative expenses for our All Other business

        activities were $0.2 million in both the 2013 and 2012 Periods.




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Interest.  Interest expense increased $0.1 million to $3.2 million compared to
$3.1 million for the 2012 Period and comprised 0.3% of consolidated net sales
for both the 2013 and 2012 Periods. Factors impacting interest expense are as
follows:


· Interest expense on our primary debt instruments (as described below)

increased $0.1 million to $2.9 million in the 2013 Period compared to $2.8

        million in the 2012 Period.



· Weighted Average Borrowings: Interest expense decreased $0.2 million

           from the 2012 Period as a result of lower outstanding debt.

Weighted

           average borrowings decreased by $18.6 million primarily due to 

decreased

           inventory levels during the 2013 Period.



· Interest Rates: Interest expense increased $0.3 million from the 2012

           Period. Our effective borrowing rate for the combined primary 

debt, made

           up of the revolving lines of credit for Unified and Grocers Capital
           Company, and senior secured notes, was 4.5% and 4.1% for the 2013 and
           2012 Periods, respectively. The rate increase was due to a higher
           effective rate on Unified's revolving line of credit.


Borrowings on Unified's revolving credit agreement are subject to market rate
fluctuations. A 25 basis point change in the market rate of interest over the
period would have resulted in a $0.1 million increase or decrease in
corresponding interest expense.



· Interest expense on our other debt instruments was $0.3 million for both

the 2013 and 2012 Periods.



Estimated patronage dividends.  Estimated patronage dividends for the 2013
Period were $2.6 million, compared to estimated patronage dividends of $1.7
million in the 2012 Period. Estimated patronage dividends for the 2013 and 2012
Periods consisted of the patronage activities from our three patronage earnings
divisions: the Southern California Dairy Division, the Pacific Northwest Dairy
Division and the Cooperative Division. For the 2013 and 2012 Periods,
respectively, we had patronage earnings of $2.3 million and $2.5 million in the
Southern California Dairy Division, $0.3 million and $0.3 million in the Pacific
Northwest Dairy Division and no patronage earnings for the 2013 Period compared
to a $1.1 million loss for the 2012 Period in the Cooperative Division. The
improvement in the Cooperative Division patronage earnings for the 2013 Period
was primarily due to a one-time curtailment gain related to employee benefit
plan amendments partially offset by a change in sales mix towards lower margin
products, decreased inventory holding gains and lower net sales. Patronage
dividends produced by the Cooperative Division are distributed annually,
historically in cash, Class B and Class E Shares (see Part I, Item 1. "Business
- Patronage Dividends" of our Annual Report on Form 10-K for the year ended
September 29, 2012 for additional information), while patronage dividends
produced by the dairy divisions are paid quarterly, historically in cash.

Income taxes.  Our effective income tax rate was 89.6% for the 2013 Period
compared to 33.0% for the 2012 Period. The higher than statutory rate for the
2013 Period was due to our pre-tax loss and favorable adjustments to our tax
contingency reserve.

LIQUIDITY AND CAPITAL RESOURCES


We finance our capital needs through a combination of internal and external
sources. These sources include cash flows from operations, Member capital and
other Member investments, bank borrowings, various types of long-term debt and
lease financing.

The acquisition, holding and redemption of our capital shares and making of
deposits by our Members, and our policies with respect to such matters, can
significantly affect our liquidity and capital resources. Our Bylaws, which may
be changed by the Board at its discretion, currently require that each Member
own 350 Class A Shares. In addition, we currently require each Member to own
such amount of Class B Shares as may be established by the Board. This
requirement to own Class B Shares is referred to as the "Class B Share
Requirement." Members who do not satisfy the Class B Share Requirement solely
from their holdings of Class B Shares are generally required to make a
subordinated deposit (a "Required Deposit") with us. Member and Non-Member
customers may be required to provide us a Credit Deposit in order to purchase
products on credit terms established by us. "Credit Deposit" means any
non-subordinated deposit that is required to be maintained by a Member or
Non-Member customer in accordance with levels established by our credit office
from time to time in excess of the amount of the Required Deposit set by the
Board. We do not pay interest on Required Deposits or Credit Deposits; however,
interest is paid at the prime rate for deposits in excess of a Member's Required
Deposit or Credit Deposit (an "Excess Deposit").



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See Part I, Item 1. "Business - Capital Shares," Part I, Item 1. "Business -
Customer Deposits" and Part I, Item 1. "Business - Pledge of Shares and
Guarantees" of our Annual Report on Form 10-K for the year ended September 29,
2012 for additional information. Additionally, see "DESCRIPTION OF DEPOSIT
ACCOUNTS" in our Post-Effective Amendment No. 1 to Registration Statement on
Form S-1 filed on February 7, 2013, with respect to our offering of Partially
Subordinated Patrons' Deposit Accounts and see "OFFERING OF CLASS A, CLASS B AND
CLASS E SHARES" in our Post-Effective Amendment No. 1 to Registration Statement
on Form S-1 filed on February 7, 2013, with respect to our offering of Class A,
Class B and Class E Shares for further information.

At December 29, 2012, we had no tendered Class A Shares and $21.2 million of
tendered Class B Shares pending redemption, whose redemption is subject to final
approval by the Board, and in the case of Class B Shares, subject to the 5%
limitation on redemptions contained in our redemption policy (see "DESCRIPTION
OF CAPITAL STOCK - Redemption Policy" in our Post-Effective Amendment No. 1 to
Registration Statement on Form S-1 filed on February 7, 2013, with respect to
our offering of Class A, Class B and Class E Shares for further information).

Our obligations to repay a Member's Required Deposit on termination of Member
status (once the Member's obligations to us have been satisfied) is reported as
a long-term liability within "Members' and Non-Members' deposits" on our
consolidated condensed balance sheets. Excess Deposits are not subordinated to
our other obligations and are reported as short-term liabilities within
"Members' deposits and estimated patronage dividends" on our consolidated
condensed balance sheets. At December 29, 2012 and September 29, 2012, we had
$7.4 million and $7.5 million, respectively, in "Members' and Non-Members'
deposits" and $12.4 million and $12.1 million, respectively, in "Members'
deposits and estimated patronage dividends" (of which $11.1 million and $10.7
million, respectively, represented Excess Deposits).

We believe that the combination of cash flows from operations, current cash
balances and available lines of credit will be sufficient to service our debt,
redeem Members' capital shares, make income tax payments and meet our
anticipated needs for working capital and capital expenditures through at least
the next two fiscal years.

CASH FLOW

We generated positive cash flow from operating activities during the thirteen
week 2013 Period. Cash from operations was used for investing and financing
activities, including redemption of Members' capital shares and investing in our
infrastructure. We also reinvested proceeds from maturing investments.

As a result of these activities, net cash, consisting of cash and cash equivalents, increased by $3.7 million to $14.8 million as of December 29, 2012 compared to $11.1 million as of September 29, 2012.

The following table summarizes the impact of operating, investing and financing activities on our cash flows for the thirteen week 2013 and 2012 Periods:




(dollars in thousands)
Summary of Net Increase in Total Cash                    2013            2012         Difference
Cash provided by operating activities                $ 13,737        $  3,661        $     10,076
Cash utilized by investing activities                  (9,234 )        (6,982 )            (2,252 )
Cash (utilized) provided by financing activities         (829 )         9,316             (10,145 )

Total increase in cash                               $  3,674        $  5,995        $     (2,321 )



Net cash flows from operating, investing and financing activities decreased by
$2.3 million, resulting in a $3.7 million increase in cash for the 2013 Period
compared to an increase of $6.0 million in cash for the 2012 Period. The
increase in net cash flow for the 2013 Period consisted of cash provided by
operating activities of $13.7 million, offset by cash used in investing
activities of $9.2 million and financing activities of $0.8 million. The primary
factors contributing to the changes in cash flow are discussed below. At
December 29, 2012 and September 29, 2012, working capital was $155.6 million and
$163.1 million, respectively, and the current ratio was 1.5 at both December 29,
2012 and September 29, 2012.

Operating Activities: Net cash provided by operating activities increased by $10.0 million to $13.7 million provided in the 2013 Period compared to $3.7 million provided in the 2012 Period. The increase in cash provided

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by operating activities compared to the 2012 Period was attributable to (1) an
increase between the periods in net cash flows related to decreased inventories
of $1.2 million, (2) a decrease between the periods in cash used to pay accounts
payable and accrued liabilities of $17.2 million, and (3) a decrease between the
periods in cash used to fund pension plan contributions of $1.5 million. The
foregoing increases of $19.9 million in cash provided were partially offset by
(1) a decrease in long-term liabilities, other between the periods of $2.0
million, primarily attributable to a decrease in pension and postretirement
liabilities, (2) an increase in accounts receivable between the periods of $0.7
million, (3) an increase between the periods related to prepaid expenses of $0.2
million, (4) a reduction in net earnings between the periods of $4.2 million,
(5) an adjustment in the 2013 Period to reconcile net (loss) earnings to net
cash provided by operating activities of $2.7 million related to the curtailment
gain for other postretirement benefit plans, and (6) an increase between the
periods in net cash used by other operating activities of $0.1 million.

Investing Activities:  Net cash utilized by investing activities increased by
$2.2 million to $9.2 million for the 2013 Period compared to $7.0 million in the
2012 Period. The increase in cash utilized by investing activities during the
2013 Period as compared to the 2012 Period was due mainly to (1) an increase in
capital expenditures between the periods of $3.2 million for the purchase of
tractors, (2) an increase of $0.3 million in net investment activities by our
insurance subsidiaries, consisting of the purchase and sale of securities to
replace maturing investments in their portfolios, and (3) an increase in cash
used for net notes receivable activities of $1.5 million, reflecting normal
fluctuation in loan activity to Members for their inventory and equipment
financing, offset by a decrease in other assets between the periods of $2.8
million, primarily related to the changes in value between the periods of our
mutual fund and life insurance policy assets. Spending on investing activities
is expected to be funded by existing cash balances, cash generated from
operations or additional borrowings.

Financing Activities:  Net cash utilized by financing activities was $0.8
million for the 2013 Period compared to cash provided of $9.3 million in the
2012 Period. The net increase of $10.1 million in cash utilized by financing
activities for the 2013 Period as compared to the 2012 Period was due to a
decrease in cash provided of $8.5 million as a result of lower revolver and
notes payable borrowings in the 2013 Period offset by deferred financing fees.
See "Outstanding Debt and Other Financing Arrangements" for further discussion
regarding our credit facilities and financing arrangements. In addition, cash
utilized by Member investment and share activity increased by $1.6 million.
Future cash used by financing activities to meet capital spending requirements
is expected to be funded by our continuing operating cash flow or additional
borrowings.

OFF-BALANCE SHEET ARRANGEMENTS

As of the date of this report, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually, narrow or limited purposes.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS


Other than "Other Debt Agreements" discussed below in "Outstanding Debt and
Other Financing Arrangements," there have been no material changes in our
contractual obligations and commercial commitments outside the ordinary course
of our business during the thirteen week period ended December 29, 2012. See
"Contractual Obligations and Commercial Commitments" discussed in Part II,
Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of Operations" of our Annual Report on Form 10-K for the year ended
September 29, 2012 for additional information.

OUTSTANDING DEBT AND OTHER FINANCING ARRANGEMENTS


As discussed below, we entered into amendments with both of our senior lenders
in December 2012 to provide temporary adjustments on certain loan covenants. The
changes were pursued to provide flexibility due to the volatility and
uncertainty associated with the prevailing economic environment. Other than
discussed below, there have been no material changes in our outstanding debt and
other financing arrangements outside the ordinary course of our business during
the thirteen week period ended December 29, 2012. Amounts outstanding related to
our secured revolving credit agreement, senior secured notes, Member financing
arrangement and other debt agreements are disclosed below. See "Outstanding Debt
and Other Financing Arrangements" discussed in Part II,



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Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Note 5 "Notes Payable" of "Notes to Consolidated Financial
Statements" in Part II, Item 8. "Financial Statements and Supplementary Data" of
our Annual Report on Form 10-K for the year ended September 29, 2012 for
additional information.

Secured Revolving Credit Agreement


In fiscal 2011, we entered into a Credit Agreement (the "Agreement") with the
lenders party thereto and Wells Fargo Bank, National Association, as
Administrative Agent. The Agreement replaced our previous revolving credit
agreement, with substantially the same parties, terms and conditions. The
Agreement expires on October 8, 2015, and it refinanced existing indebtedness
and finances capital expenditures, working capital needs, potential acquisitions
and general corporate purposes.

Our outstanding borrowings under the Agreement increased to $94.2 million at
December 29, 2012 (Eurodollar and Base Rate Loans at a blended average rate of
2.31% per annum) from $90.0 million at September 29, 2012 (Eurodollar and Base
Rate Loans at a blended average rate of 2.25% per annum), with access to
approximately $180.8 million of additional capital available under the Agreement
(based on the amounts indicated above) to fund our continuing operations and
capital spending requirements for the foreseeable future.

On December 29, 2012, we entered into the third amendment (the "Third
Amendment") of the Agreement. The Third Amendment raised the Consolidated Total
Funded Debt to EBITDAP Ratio (the "Debt Ratio," as defined) of the Company
allowed by the financial covenants in the Agreement for the fiscal quarter
ending December 29, 2012 to be no higher than 4.0 to 1 (previously, the maximum
Debt Ratio for such fiscal quarter allowed under the Agreement was 3.5 to 1).
For subsequent fiscal quarters, the Debt Ratio remains the same as before the
Third Amendment.

A copy of the Third Amendment was filed as Exhibit 99.2 to the Company's Current
Report on Form 8-K, filed on December 31, 2012. The foregoing description of the
Third Amendment does not purport to be complete and is qualified in its entirety
by reference to the exhibit.

Senior Secured Notes

At December 29, 2012 and September 29, 2012, respectively, we had a total of
$103.9 million and $104.8 million outstanding in senior secured notes to certain
insurance companies and pension funds (referred to collectively as "John Hancock
Life Insurance Company" or "Hancock") under a note purchase agreement dated
September 29, 1999 (as amended, the "Senior Note Agreement") as amended and
restated effective January 6, 2006 and further amended on November 3, 2009.

On December 26, 2012, we entered into the fifth amendment ("Fifth Amendment") to
the Senior Note Agreement. The Fifth Amendment raised the maximum Indebtedness
to Consolidated EBITDAP Ratio (the "Indebtedness Ratio," as defined) of the
Company allowed by the financial covenants in the Senior Note Agreement for the
fiscal quarter ending December 29, 2012 to be no higher than 4.0 to 1
(previously, the maximum Indebtedness Ratio for such fiscal quarter allowed
under the Senior Note Agreement was no higher than 3.75 to 1). For subsequent
fiscal quarters, the Indebtedness Ratio remains the same as before the Fifth
Amendment.

A copy of the Fifth Amendment was filed as Exhibit 99.1 to the Company's Current
Report on Form 8-K, filed on December 31, 2012. The foregoing description of the
Fifth Amendment does not purport to be complete and is qualified in its entirety
by reference to the exhibit.

Member Financing Arrangement

In fiscal 2010, our wholly-owned finance subsidiary, Grocers Capital Company
("GCC"), entered into a Loan and Security Agreement (the "GCC Loan Agreement"),
by and among GCC, the lenders signatory thereto and California Bank & Trust, as
Arranger and Administrative Agent. The GCC Loan Agreement matures on
September 24, 2013, and the proceeds therefrom will be used to fund loans to our
customers and for GCC's general corporate purposes, including customary
financing and operating activities. The GCC Loan Agreement provides for
revolving loans and term loans. GCC had revolving loan borrowings of $2.0
million and $5.5 million, both bearing an interest rate of



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4.00% (3.25% prime plus 0.75% interest rate margin), outstanding at December 29,
2012 and September 29, 2012, respectively. There were no term loan borrowings
outstanding at December 29, 2012 and September 29, 2012.

Other Debt Agreements


During the first quarter of fiscal 2013, we entered into two note and security
agreements for the purchase of tractors. At December 29, 2012, the outstanding
loan balance under the two agreements totaled $3.1 million.

REDEMPTION OF CAPITAL STOCK


Our Articles of Incorporation and Bylaws provide that the Board has the absolute
discretion to repurchase, or not repurchase, any Class A, Class B or Class E
Shares of any outgoing Member regardless of when the membership terminated, and
any Class B Shares in excess of the Class B Share Requirement held by a current
Member, whether or not the shares have been tendered for repurchase and
regardless of when the shares were tendered. The Board considers the redemption
of eligible Class A Shares at each board meeting. All other shares eligible for
redemption are considered by the Board on an annual basis, usually in December.
Class E Shares will only be redeemed upon approval of the Board or upon sale or
liquidation of the Company. The Class E Shares, when redeemed, will be redeemed
at their stated value of $100 per share. The following table presents our
redemption of Class A and Class B Shares during the thirteen weeks ended
December 29, 2012:



                                     Number of Shares   Approximate Value of Shares
  Share Class   Date of Redemption           Redeemed                      Redeemed
  A               October 11, 2012              2,450                 $ 0.8 million
  A              December 27, 2012              1,050                 $ 0.3 million
  B              December 26, 2012              8,867                 $ 2.7 million



See Part I, Item 1. "Business - Capital Shares - Classes of Shares" and Part I,
Item 1. "Business - Capital Shares - Redemption of Class A, Class B and Class E
Shares" of our Annual Report on Form 10-K for the year ended September 29, 2012
for additional information.

PENSION AND POSTRETIREMENT BENEFIT PLANS


We sponsor a cash balance plan ("Unified Cash Balance Plan"). The Unified Cash
Balance Plan is a noncontributory defined benefit pension plan covering
substantially all of our employees who are not subject to a collective
bargaining agreement. Under the Unified Cash Balance Plan, participants are
credited with an annual accrual based on their years of service with us. Our
funding policy is to make contributions to the Unified Cash Balance Plan in
amounts that are at least sufficient to meet the minimum funding requirements of
applicable laws and regulations, but no more than amounts deductible for federal
income tax purposes. All of our qualifying employees not subject to a collective
bargaining agreement accrue benefits pursuant to the Unified Cash Balance Plan.
We also sponsor an Executive Salary Protection Plan ("ESPP") for our executive
officers that provides supplemental post-termination retirement income based on
each participant's salary and years of service as an officer with us. Funds are
held in a rabbi trust for the ESPP consisting primarily of life insurance
policies tied to underlying investments in the equity market (reported at cash
surrender value) and mutual fund assets consisting of various publicly-traded
mutual funds (reported at estimated fair value based on quoted market prices).

We sponsor other postretirement benefit plans that provide certain medical coverage to retired non-union employees and provide unused sick leave benefits for certain eligible non-union and union employees. Those plans are not funded.


In December 2012, we amended several of our employee benefit plans. We amended
the Unified Grocers, Inc. Executive Insurance Plan and the Unified Grocers, Inc.
Officer Retiree Medical Plan to close the plans to new entrants as of
September 30, 2012. Accordingly, no employee that is either hired or becomes an
officer on or after such date can become a participant or recommence
participation in either plan. We also amended the ESPP for executive officers to
close the eligibility provisions of the ESPP to new entrants as of September 30,
2012 (the "Freeze Date"); accordingly, no employee that is either hired or
becomes an officer on or after the Freeze Date can



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become a participant or recommence participation in the ESPP. Additionally,
benefit accruals under the ESPP were frozen for officers who have already
attained a 65% gross benefit accrual (generally attained after fifteen (15) or
more years of service under the ESPP) as of September 30, 2012; accordingly, no
such officers will accrue further gross benefits under the ESPP after the Freeze
Date. For officers participating in the ESPP as of the Freeze Date who had less
than a 65% gross benefit accrual, such officers will continue to accrue gross
benefits under the ESPP until they reach a 65% gross benefit accrual. Lastly, in
connection with freezing the benefit accrual under the ESPP, a participant's
gross accrued benefit will not consider any compensation earned by the
participant after the Freeze Date, which effectively freezes the final pay and
final average pay formulas under the plan at the September 30, 2012 levels. See
Item 5.02. "Compensatory Arrangements of Certain Officers" of our Current Report
on Form 8-K, filed on January 7, 2013, for additional information.

In December 2012, we also amended the Unified Grocers, Inc. Retiree Medical Plan
(the "RMP") to modify the eligibility requirements for the RMP. Effective as of
the end of the first quarter of fiscal 2013, only employees of Unified who have
reached 49 years of age with at least 15 years of continuous service with us as
of the end of the first quarter of fiscal 2013 will remain eligible to
participate in the RMP. To receive benefits under the RMP, those employees who
remain eligible must remain in continuous service with us through their
retirement following the attainment of at least 55 years of age.

As a result of the foregoing benefit plan amendments, we remeasured the
projected pension and accumulated postretirement benefit obligations associated
with the respective plans as of the end of the first quarter of fiscal 2013.
Such remeasurement resulted in a $29.7 million reduction in our long-term
liabilities associated with the foregoing plans. These reductions were offset by
an increase in other comprehensive earnings of $17.5 million (net of income tax
of $9.5 million) and the recognition of a one-time curtailment gain of $2.7
million, related to the RMP, which is recorded in addition to the net periodic
postretirement benefit cost in our accompanying Consolidated Condensed
Statements of (Loss) Earnings.

Our net periodic benefit cost for our combined pension and other postretirement
benefits was approximately $1.9 million (including the one-time curtailment gain
of $2.7 million related to the RMP) and $3.9 million for the thirteen weeks
ended December 29, 2012 and December 31, 2011, respectively. As a result of the
amendments described above, we anticipate that our fiscal 2013 combined pension
and other postretirement benefits cost will be $6.4 million, a reduction of
$11.8 million (comprised of $1.4 million in reduced pension benefit cost and
$10.4 million in reduced postretirement benefit cost) compared to our original
estimates for fiscal year 2013.

We expect to make estimated minimum contributions to the Unified Cash Balance
Plan totaling $7.4 million during fiscal 2013, which is comprised of $3.6
million for the 2013 plan year and $3.8 million for the 2012 plan year. At our
discretion, we may contribute in excess of these amounts. Additional
contributions, if any, will be based, in part, on future actuarial funding
calculations and the performance of plan investments. We contributed zero and
$1.0 million to the Unified Cash Balance Plan during the thirteen weeks ended
December 29, 2012 for the 2013 and 2012 plan years, respectively.

During July 2012, legislation to provide pension-funding relief was enacted as
part of the 2012 student loan and transportation legislation titled "Moving
Ahead for Progress in the 21st Century" ("MAP-21"). Funding relief is to be
achieved through changes in the methodology employed to determine interest rates
used to calculate required funding contributions. The funding relief applies to
Employee Retirement Income Security Act ("ERISA") single-employer plans that
base pension liability calculations on interest rates determined pursuant to the
Pension Protection Act of 2006 and was predicted to reduce 2012 and 2013
contribution requirements for typical plans. As a result of MAP-21, we
anticipate our fiscal year 2013 contributions to the Unified Cash Balance Plan
will be reduced by approximately $7.9 million from our originally estimated
amounts.

Additionally, we expect to contribute $0.7 million to the ESPP to fund projected
benefit payments to participants for the 2013 plan year. We contributed $0.2
million to the ESPP during the thirteen weeks ended December 29, 2012 to fund
benefit payments to participants for the 2013 plan year.

During fiscal year 2010, comprehensive health care reform legislation under the Patient Protection and Affordable Care Act (HR 3590) and the Health Care Education and Affordability Reconciliation Act(HR 4872) (collectively, the

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"Acts") was passed and signed into law. The Acts contain provisions that could
impact our accounting for retiree medical benefits in future periods. However,
the extent of that impact, if any, cannot be determined until regulations are
promulgated under the Acts and additional interpretations of the Acts become
available. We will continue to assess the accounting implications of the Acts as
related regulations and interpretations of the Acts become available. In
addition, we may consider plan amendments in future periods that may have
accounting implications. See Note 7 of "Notes to Consolidated Condensed
Financial Statements - Unaudited" in Part I, Item 1. "Financial Statements
(Unaudited)" of this Quarterly Report on Form 10-Q for additional discussion.

RISK FACTORS


The risks and uncertainties described below are those that we believe are the
material risks related to our business. If any of the following risks occur, our
business, prospects, financial condition, operating results and cash flows could
be adversely affected in amounts that could be material.

The markets in which we operate are highly competitive, characterized by high
volume, low profit margins and industry consolidation, and many of our
competitors have greater financial resources than us which could place us at a
competitive disadvantage and adversely affect our financial performance.  The
grocery distribution business is generally characterized by a relatively high
volume of sales with relatively low profit margins. Price competition among food
wholesalers is intense. In addition, we compete with such food wholesalers with
regard to quality, variety and availability of products offered, strength of
corporate brand labels offered, schedule and reliability of deliveries and the
range and quality of services provided.

Some of our competitors, including C&S Wholesale Grocers, Inc. and Supervalu,
Inc., are significantly larger and have greater financial resources than us. In
addition, industry consolidation has in the past increased, and may continue in
the future to increase, the number of large competitors that we face. These
large national distributors have the resources to compete aggressively on price
and may be able to offer customers a wider range of products and services and a
wider area of distribution than we are. We also face intense competition from
regional or specialized distributors and, from time to time, new entrants in
various niche markets, with such competitors often able to compete very
aggressively in such niches with unique or highly tailored products and
services.

To compete effectively, we must keep our costs down to maintain margins while
simultaneously increasing sales by offering the right products and services at
competitive prices, with the expected quality, variety and availability, to
appeal to consumers. If we are unable to compete effectively in our highly
competitive industry, we may suffer reduced net sales and/or reduced margins and
profitability, or suffer a loss, and our business, financial condition and
results of operations could suffer.

We may experience reduced sales and earnings if Members continue to lose market
share to larger, often fully integrated traditional full-service grocery store
chains or to warehouse club stores, supercenters and discount stores, many of
which have greater financial resources than our Members or us.  Our Members
continue to face intense competition from large, often fully integrated
traditional full-service grocery store chains. Most of these store chains have
greater resources than our Members and us and benefit from local or national
brand name recognition and efficiencies of scale from a fully integrated
distribution network, standardization across stores, concentrated buying power
and shared overhead costs. In addition, traditional format full-service grocery
stores, which include most of our customers, have in recent years faced intense
competition from, and lost market share to, non-traditional format stores,
including warehouse club stores, supercenters, discount stores and stores
focused on upscale and natural and organic products. Many of these
non-traditional format stores are very large, with considerable resources,
national brand names and economies of scale. This competition from
non-traditional format stores has been particularly intense, and significant
market share has been lost, with respect to categories of non-perishable
products that we sell. Traditional format grocery stores, including our
customers, have tended to move to expand their offerings and sales of perishable
products, which generally have lower margins for us than non-perishable
products. A continued decline in our sales of non-perishable products may
adversely affect our profitability.

The market share of non-traditional format stores may grow in the future,
potentially resulting in continued losses of sales volume and reduced earnings
for our Members and, in turn, for us. Continued losses of market share by our
Members, whether to other traditional full-service grocery store chains or to
non-traditional format stores, could



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reduce our net sales, margins and profitability, or cause us to incur losses. As a result, our business, financial condition and results of operations could suffer.


We have an increasingly concentrated customer base, which has in the past
reduced, and may continue in the future to reduce, our margins and expose us to
an increase in risk concentration, including in the areas of credit risk and the
sudden loss of significant customer business.  Our operating results are highly
dependent upon maintaining or growing our sales to our customers. Our largest
customer, Smart & Final, Inc., a Non-Member customer, constituted approximately
15% of our total net sales for the thirteen week period ended December 29, 2012.
In recent years, we have seen our sales become increasingly concentrated with
our large customers, with our top ten customers having increased from 42% of our
total net sales in fiscal 2008 to 46% of our total net sales in fiscal 2012. Our
top ten customers constituted approximately 48% of our total net sales for the
thirteen week period ended December 29, 2012. A significant loss in membership
or volume by one of our larger customers could have a sudden and material
adverse effect on our operating results. For example, in the third quarter of
fiscal 2011, we lost one of our top ten customers who represented $144.9 million
in net sales for the fifty-two weeks immediately preceding the date they ceased
purchasing from us. Between fiscal 2011 and fiscal 2012, this resulted in a loss
of $87.2 million in annual net sales, or 2% of total net sales in fiscal 2012.
Any other such loss of a large customer, or the loss of a number of smaller
customers, could have a material and adverse effect on our net sales. In
addition, to the extent we have suffered and may in the future suffer a decline
in net sales, our margins and profitability have been and will be further
negatively impacted to the extent we are unable to correspondingly reduce our
fixed costs, such as warehouses, equipment and headcount. As it is difficult to
quickly make significant reductions in fixed costs, if we were to suffer a
significant and rapid decline in our net sales, such as from the loss of one or
more significant customers, our margins and profitability may be adversely
impacted, we may incur losses and our business, financial condition and results
of operations could suffer.

We will continue to be subject to the risks associated with consolidation within
the grocery industry. When independent retailers are acquired by large chains
with self-distribution capacity, are driven from business by larger grocery
chains, or become large enough to purchase directly from manufacturers or
develop their own self-distribution capabilities, we will lose distribution
volume. Members may also select other wholesale providers. Reduced volume is
normally injurious to profitable operations since fixed costs must be spread
over a lower sales volume if the volume cannot be replaced. In addition, as a
higher percentage of our sales go to larger customers, our margins tend to be
adversely affected as these larger customers typically receive discounts for the
higher volume of their purchases, which may adversely impact our profitability.

We are also exposed to concentrations of credit risk related primarily to trade
receivables, notes receivable and lease guarantees for certain Members. Our ten
customers with the largest accounts receivable balances accounted for
approximately 38% and 39% of total accounts receivable at December 29, 2012 and
September 29, 2012, respectively. These concentrations of credit risk may be
affected by changes in economic or other conditions affecting the western United
States, particularly Arizona, California, Nevada, Oregon and Washington. We
could suffer losses as a result of our concentrated credit risk in the event of
a significant adverse change in economic or other conditions.

We may experience reduced sales if Members purchase directly from manufacturers
or decide to self-distribute.  Increased industry competitive pressure is
causing some of our Members that can qualify to purchase directly from
manufacturers to increase their level of direct purchases from manufacturers and
expand their self-distribution activities. Our operating results could be
adversely affected if a significant reduction in distribution volume occurred in
the future as a result of such a shift to direct purchases and self-distribution
by our customers.

We are vulnerable to changes in general economic conditions.  We are affected by
certain economic factors that are beyond our control, including changes in the
overall economic environment. In recent periods, we have experienced significant
volatility in the cost of certain commodities, the cost of ingredients for our
manufactured breads and processed fluid milk and the cost of packaged goods
purchased from other manufacturers. An inflationary economic period could impact
our operating expenses in a variety of areas, including, but not limited to,
employee wages and benefits, workers' compensation insurance and energy and fuel
costs. A portion of the risk related to employee wages and benefits is mitigated
by bargaining agreements that contractually determine the amount of inflationary
increases. General economic conditions also impact our pension plan liabilities,
as the assets funding or supporting these liabilities are invested in securities
that are subject to interest rate and stock



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market fluctuations. A portion of our debt is at floating interest rates and an
inflationary economic cycle typically results in higher interest costs. We
operate in a highly competitive marketplace and passing on such cost increases
to customers could be difficult. It is also difficult to predict the effect that
possible future purchased or manufactured product cost decreases might have on
our profitability. A lack of inflation in the cost of food products may also
adversely impact our margins when we are unable to take advantage of forward
buying opportunities whereby we purchase product at a lower price and, by the
time we sell the product, the market price and the price at which we are able to
sell the product has risen to a higher price as a result of inflation. The
effect of deflation in purchased or manufactured product costs would depend on
the extent to which we had to lower selling prices of our products to respond to
sales price competition in the market. Consequently, it is difficult for us to
accurately predict the impact that inflation or deflation might have on our
operations. To the extent we are unable to mitigate increasing costs, or retain
the benefits from decreases in costs, patronage dividends may be reduced and/or
the Exchange Value Per Share of our Class A and Class B Shares may decrease.

Changes in the economic environment could adversely affect our customers'
ability to meet certain obligations to us or leave us exposed for obligations we
have guaranteed. Loans to Members, trade receivables and lease guarantees could
be at risk in a sustained economic downturn. We establish reserves for notes
receivable, trade receivables and lease commitments for which the customer may
be at risk for default. Under certain circumstances, we would be required to
foreclose on assets provided as collateral or assume payments for leased
locations for which we have guaranteed payment. Although we believe our reserves
to be adequate, our operating results could be adversely affected in the event
that actual losses exceed available reserves.

We may on occasion hold investments in the common and/or preferred stock of
Members and suppliers. These investments are generally held at cost or the
equity method and are periodically evaluated for impairment. As a result,
changes in the economic environment that adversely affect the business of these
Members and suppliers could result in the write-down of these investments. This
risk is unique to a cooperative form of business in that investments are made to
support Members' businesses, and those economic conditions that adversely affect
the Members can also reduce the value of our investment, and hence the Exchange
Value Per Share of our Class A and Class B Shares. We do not currently hold any
equity investments in our Members.

The United States economy and financial markets have declined and experienced
volatility due to uncertainties related to energy prices, availability of
credit, difficulties in the banking and financial services sectors, the decline
in the housing market, diminished market liquidity, falling consumer confidence
and high unemployment rates. As a result, consumers may be more cautious. This
may lead to additional reductions in consumer spending, to consumers trading
down to a less expensive mix of products or to consumers trading down to
discounters for grocery and non-food items, all of which may affect our
financial condition and results of operations. We are unable to predict when the
economy will improve. If the economy does not improve, our business, results of
operations and financial condition may be adversely affected.

Litigation could lead to unexpected losses.  During the normal course of
carrying on our business, we may become involved in litigation. In the event
that management determines that the likelihood of an adverse judgment in a
pending litigation is probable and that the exposure can be reasonably
estimated, appropriate reserves are recorded at that time pursuant to FASB's
Accounting Standards Codification ("ASC") Topic 450, "Contingencies." The final
outcome of any litigation could adversely affect operating results if the actual
settlement amount exceeds established reserves and insurance coverage.

We are subject to environmental laws and regulations.  We own and operate
various facilities and equipment for the manufacture, warehousing and
distribution of products to our customers. Accordingly, we are subject to
increasingly stringent federal, state and local laws, regulations and ordinances
that (1) govern activities or operations that may have adverse environmental
effects, such as discharges to air and water, as well as handling and disposal
practices for solid and hazardous wastes and (2) impose liability for the costs
of cleaning up, and certain damages resulting from, past or present spills,
disposals or other releases of hazardous materials. In particular, under
applicable environmental laws, we may be responsible for remediation of
environmental conditions and may be subject to associated liabilities (including
liabilities resulting from lawsuits brought by private litigants) relating to
our facilities and the land on which our facilities are situated, regardless of
whether we lease or own the facilities or land in question and regardless of
whether such environmental conditions were created by us or by a prior owner or
tenant. In addition, we may be subject to pending federal and state legislation
that if ultimately



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passed, may require us to incur costs to improve facilities and equipment to
reduce emissions in order to comply with regulatory limits or to mitigate the
financial consequences of a "cap and trade" regime. We are unable to predict the
ultimate outcome of such legislation; however, should such legislation require
us to incur significant expenditures, our business, results of operations and
financial condition may be adversely affected.

We are exposed to potential product liability claims and potential negative
publicity surrounding any assertion that our products caused illness or
injury.  The packaging, marketing and distribution of food products purchased
from others involve an inherent risk of product liability, product recall and
adverse publicity. Such products may contain contaminants that may be
inadvertently redistributed by us. These contaminants may result in illness,
injury or death if such contaminants are not eliminated. Product liability
claims in excess of insurance coverage, as well as the negative publicity
surrounding any assertion that our products caused illness, injury or death
could have a material adverse effect on our reputation, business, financial
condition and results of operations.

Our insurance reserves may be inadequate if unexpected losses occur.  Our
insurance subsidiaries are subject to the rules and regulations promulgated by
various regulatory agencies, including, but not limited to, the State of
California and the Commonwealth of Bermuda. Insurance reserves are recorded
based on estimates made by management and validated by third party actuaries to
ensure such estimates are within acceptable ranges. Actuarial estimates are
based on detailed analyses of health care cost trends, claims history,
demographics, industry trends and federal and state law. As a result, the amount
of reserve and related expense is significantly affected by the outcome of these
studies. Significant and adverse changes in the experience of claims settlement
and other underlying assumptions could negatively impact our operating results.

We may not have adequate financial resources to fund our operations.  We rely
primarily upon cash flow from our operations and Member investments to fund our
operating activities. In the event that these sources of cash are not sufficient
to meet our requirements, additional sources of cash are expected to be obtained
from our credit facilities to fund our daily operating activities. Our revolving
credit agreement, which expires on October 8, 2015, and our senior secured
notes, which expire on January 1, 2016 and November 1, 2019, require compliance
with certain financial covenants, including minimum tangible net worth, fixed
charge coverage ratio and total funded debt to earnings before interest, taxes,
depreciation, amortization and patronage dividends ("EBITDAP"). See Note 5 of
"Notes to Consolidated Financial Statements" in Part II, Item 8. "Financial
Statements and Supplementary Data" of our Annual Report on Form 10-K for the
year ended September 29, 2012 and "Outstanding Debt and Other Financing
Arrangements" in this Quarterly Report on Form 10-Q for additional information.
While we are currently in compliance with all required covenants and expect to
remain in compliance, this does not guarantee we will remain in compliance in
future periods.

As of December 29, 2012, we believe we have sufficient cash flow from operations
and availability under the revolving credit agreement to meet our operating
needs, capital spending requirements and required debt repayments through
October 8, 2015. However, if access to operating cash or to the revolving credit
agreement becomes restricted, we may be compelled to seek alternate sources of
cash. We cannot assure that alternate sources will provide cash on terms
favorable to us or at all. Consequently, the inability to access alternate
sources of cash on terms similar to our existing agreement could adversely
affect our operations.

The value of our benefit plan assets and liabilities is based on estimates and
assumptions, which may prove inaccurate.  Our non-union employees participate in
a Company sponsored defined benefit pension plan and Company sponsored
postretirement benefit plans. Certain eligible union and non-union employees
participate in separate plans providing payouts for unused sick leave. Our
officers also participate in a Company sponsored Executive Salary Protection
Plan ("ESPP"), which provides additional post-termination retirement income
based on each participant's salary and years of service as an officer of the
Company. The postretirement plans provide medical benefits for retired non-union
employees, life insurance benefits for retired non-union employees for which
active non-union employees are no longer eligible and lump-sum payouts for
unused sick days covering certain eligible union and non-union employees.
Liabilities for the ESPP and postretirement plans are not funded. We account for
these benefit plans in accordance with ASC Topic 715, "Compensation - Retirement
Benefits" and ASC Topic 712, "Compensation - Nonretirement Postemployment
Benefits," which require us to make actuarial assumptions that are used to
calculate the carrying value of the related assets, where applicable, and
liabilities and the amount of expenses to be recorded in our consolidated
financial statements. Assumptions include the expected return on plan assets,
discount rates, health care cost trend rate, projected life expectancies of plan



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participants and anticipated salary increases. While we believe the underlying
assumptions are appropriate, the carrying value of the related assets and
liabilities and the amount of expenses recorded in the consolidated financial
statements could differ if other assumptions are used. See Note 11 of "Notes to
Consolidated Financial Statements" in Part II, Item 8. "Financial Statements and
Supplementary Data" of our Annual Report on Form 10-K for the year ended
September 29, 2012 for additional information.

The credit and liquidity crisis in the United States and throughout the global
financial system triggered substantial volatility in the world financial markets
and banking system. As a result, the investment portfolios of the Unified Cash
Balance Plan incurred a significant decline in fair value during fiscal 2008.
While the values of the investment portfolios of our defined benefit pension
plans increased during fiscal 2012 and reflected improvement for the thirteen
weeks ended December 29, 2012, as the values of the plans' individual
investments have and will fluctuate in response to changing market conditions,
and the amount of gains or losses that will be recognized in subsequent periods,
if any, cannot be determined.

Authoritative accounting guidance may necessitate companies who issue and redeem
shares based on book value to redefine the method used to value their
shares.  Authoritative accounting guidance that requires adjustments to
shareholders' equity has the potential to impact companies whose equity
securities are issued and redeemed at book value ("book value companies")
disproportionately more than companies whose share values are market-based
("publicly traded"). While valuations of publicly traded companies are primarily
driven by their income statement and cash flows, the traded value of the shares
of book value companies, however, may be immediately impacted by adjustments
affecting shareholders' equity upon implementation. Therefore, such guidance may
necessitate companies who issue and redeem shares based on book value to
redefine the method used to value their shares. As such, we modified our
Exchange Value Per Share calculation to exclude accumulated other comprehensive
earnings (loss) from Book Value (see Part II, Item 6. "Selected Financial Data"
of our Annual Report on Form 10-K for the year ended September 29, 2012 for
additional information on the calculation of the Exchange Value Per Share),
thereby excluding the potentially volatile impact that (1) ASC Topic 715-20,
"Compensation - Retirement Benefits - Defined Benefit Plans - General" and
(2) changes in unrealized gains and losses, net of taxes, on available for sale
investments would have on shareholders' equity and Exchange Value Per Share.

A system failure or breach of system or network security could delay or interrupt services to our customers or subject us to significant liability.

We

have implemented security measures such as firewalls, virus protection,
intrusion detection and access controls to address the risk of computer viruses
and unauthorized access. A business continuity plan has been developed focusing
on the offsite restoration of computer hardware and software applications. We
have also developed business resumption plans, which include procedures to
ensure the continuation of business operations in response to the risk of damage
from energy blackouts, natural disasters, terrorism, war and telecommunication
failures, and we have implemented change management procedures and quality
assurance controls designed to ensure that new or upgraded business management
systems operate as intended. However, there can be no assurances that any of
these efforts will be adequate to prevent a system failure, accident or security
breach, any of which could result in a material disruption to our business. In
addition, substantial costs may be incurred to remedy the damages caused by any
such disruptions.

Our success depends on our retention of our executive officers and senior
management, and our ability to hire and retain additional key personnel.  Our
success depends on the skills, experience and performance of our executive
officers, senior management and other key personnel. The loss of service of one
or more of our executive officers, senior management or other key employees
could have a material adverse effect on our business, prospects, financial
condition, operating results and cash flows. Our future success also depends on
our continuing ability to attract and retain highly qualified technical, sales
and managerial personnel. Competition for these personnel is intense, and there
can be no assurance that we can retain our key employees or that we can attract,
assimilate or retain other highly qualified technical, sales and managerial
personnel in the future.

We depend on third parties for the supply of products and raw materials and for
marketing and promotional programs.  We depend upon third parties for the supply
of products, including corporate brand products, and raw materials. Any
disruption in the services provided by any of these suppliers, or any failure by
them to handle current or higher volumes of activity, could have a material
adverse effect on our business, prospects, financial condition, operating
results and cash flows.



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We participate in various marketing and promotional programs to increase sales
volume and reduce merchandise costs. Failure to continue these relationships on
terms that are acceptable to us, or to obtain adequate marketing relationships,
could have a material adverse effect on our business, prospects, financial
condition, operating results and cash flows.

Increased electricity, diesel fuel and gasoline costs could reduce our
profitability.  Our operations require and are dependent upon the continued
availability of substantial amounts of electricity, diesel fuel and gasoline to
manufacture, store and transport products. Our trucking operations are extensive
and diesel fuel storage capacity represents approximately two weeks average
usage. The prices of electricity, diesel fuel and gasoline fluctuate
significantly over time. Given the competitive nature of the grocery industry,
we may not be able to pass on increased costs of production, storage and
transportation to our customers. As a result, either a shortage or significant
increase in the cost of electricity, diesel fuel or gasoline could disrupt
distribution activities and negatively impact our business and results of
operations.

A strike or work stoppage by employees could disrupt our business and/or we
could face increased operating costs from higher wages or benefits we must pay
our employees.  Approximately 60% of our employees are covered by collective
bargaining agreements, which have various expiration dates ranging from 2013
through 2016. If we are unable to negotiate acceptable contracts with labor
unions representing our unionized employees, we may be subject to a strike or
work stoppage that disrupts our business and/or increased operating costs
resulting from higher wages or benefits paid to union members or replacement
workers. Any such outcome could have a material adverse effect on our operations
and financial results.

If we fail to maintain an effective system of internal controls, we may not be
able to detect fraud or report our financial results accurately, which could
harm our business and subject us to regulatory scrutiny.  Pursuant to
Section 404 of the Sarbanes-Oxley Act of 2002, we perform an annual evaluation
of our internal controls over financial reporting. In July 2010, the Dodd-Frank
Wall Street Reform and Consumer Protection Act (the "Reform Act") became law.
The Reform Act includes a provision that indefinitely exempts companies that
qualify as either a non-accelerated filer or smaller reporting company from the
auditor attestation requirement of Section 404(b) of the Sarbanes-Oxley Act of
2002. For our fiscal 2012 and subsequent foreseeable fiscal years, we expect to
be exempt from such requirement. Although we believe our internal controls are
operating effectively, we cannot guarantee that we will not have any material
weaknesses in the future. In addition, any failure to implement required new or
improved controls, or difficulties encountered in their implementation, could
harm our operating results or cause us to fail to meet our reporting
obligations.

A loss of our cooperative tax status could increase tax liability.  Subchapter T
of the Internal Revenue Code sets forth rules for the tax treatment of
cooperatives. As a cooperative, we are allowed to offset patronage earnings with
patronage dividends that are paid in cash or through qualified written notices
of allocation. However, we are taxed as a typical corporation on the remainder
of our earnings from our Member business and on earnings from our Non-Member
business. If we are not entitled to be taxed as a cooperative under Subchapter
T, our revenues would be taxed when earned by us and the Members would be taxed
when dividends are distributed. The Internal Revenue Service can challenge the
tax status of cooperatives. The Internal Revenue Service has not challenged our
tax status, and we would vigorously defend any such challenge. However, if we
were not entitled to be taxed as a cooperative, taxation at both the Company and
the Member level could have a material adverse impact on us and our Members.

Each method used to meet the Class B Share Requirement has its own tax
consequences.  Class B Shares required to be held by a new Member may be
purchased directly at the time of admission as a Member or may be acquired over
the five consecutive fiscal years commencing with the first year after admission
as a Member at the rate of 20% per year. In addition, certain Members, including
former shareholders of United Grocers, Inc. or Associated Grocers, Incorporated,
may elect to satisfy their Class B Share Requirement only with respect to stores
owned at the time of admission as a Member solely from their patronage dividend
distributions. Each of these purchase alternatives may have tax consequences
which are different from those applicable to other purchase alternatives.
Members and prospective Members are urged to consult their tax advisers with
respect to the application of U.S. federal income, state or local tax rules to
the purchase method selected.

Members' Class A, Class B and Class E Shares are subject to risk of loss. Class A and Class B Shares are purchased and sold at purchase prices equal to the Exchange Value Per Share at the close of the last fiscal year

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end prior to the date the shares are purchased or tendered for redemption. Class
E Shares are purchased and sold at a value of $100 per share. If a Member were
to sell shares at a price that is less than the price at which the shares were
purchased, the Member would lose all or a portion of its investment in the
Class A, Class B or Class E Shares. See "OFFERING OF CLASS A, CLASS B AND CLASS
E SHARES" in our Post-Effective Amendment No. 1 to Registration Statement on
Form S-1 filed on February 7, 2013, with respect to our offering of Class A,
Class B and Class E Shares for further information.

If the Board decides in any year to retain a portion of our earnings from our
Non-Patronage Business, and not to allocate those earnings to the Exchange Value
Per Share, the redemption price of Class A and Class B Shares that are
repurchased in the year of such retention and in future years will be reduced.

The requirement that Members invest in our shares and/or make Required Deposits,
and the lack of liquidity with respect to such investments and Required
Deposits, may make attracting new Members difficult and may cause existing
Members to withdraw from membership.  Members are required to meet specific
requirements, which include ownership of our capital shares and may include
required cash deposits. These investments by Members are a principal source of
our capital, and for the thirteen weeks ended December 29, 2012, approximately
79% of our net sales were to Members. We compete with other wholesale suppliers
who are not structured as cooperatives and therefore have no investment
requirements for customers. Our requirements to purchase shares or maintain cash
deposits may become an obstacle to retaining existing business and attracting
new business. For a discussion of required Member equity investments and
deposits, see Part I, Item 1. "Business - Capital Shares" and Part I, Item 1.
"Business - Customer Deposits" of our Annual Report on Form 10-K for the year
ended September 29, 2012.

Our Bylaws give the Board complete discretion with respect to the redemption of
shares held by terminated Members and excess shares held by Members. Our
redemption policy currently provides that the number of Class B Shares that we
may redeem in any fiscal year is limited to no more than 5% of the outstanding
Class B Shares (after patronage dividends payable in Class B Shares). In
connection with the closing of fiscal 2012, we redeemed 8,867 Class B Shares,
leaving 69,442 Class B Shares, or 16.0% of our outstanding Class B Shares, that
have been tendered for redemption but not yet redeemed. This percentage has
steadily increased in recent years, from 14.8% and 11.9% of our outstanding
Class B Shares at the close of fiscal 2011 and 2010, respectively, as we have
had an increase in the number of shares our Members have sought to redeem and we
have redeemed less than the 5% limit in fiscal 2012, 2011 and 2010. Based on the
current level of redemption as compared to the number of shares tendered for
redemption, Members seeking to redeem shares may be required to wait a number of
years. Members may have even less liquidity with respect to shares in Unified
should the Board, in its discretion, cease redemptions of stock. See Part II,
Item 8. "Financial Statements and Supplementary Data - Notes 10 and 18"of our
Annual Report on Form 10-K for the year ended September 29, 2012 for recent
redemption activity and the number of outstanding shares tendered for redemption
but which have not yet been redeemed. Furthermore, required cash deposits are
contractually subordinated and subject to the prior payment in full of our
senior indebtedness. For a discussion of the limitations on the redemption of
capital shares and the subordination of cash deposits, see Part I, Item 1.
"Business - Capital Shares - Redemption of Class A, Class B and Class E Shares,"
Part I, Item 1. "Business - Customer Deposits" and Part I, Item 1. "Business -
Pledge of Shares and Guarantees" of our Annual Report on Form 10-K for the year
ended September 29, 2012. These limitations on our obligation to redeem capital
shares or repay the cash deposits of Members may cause Members to withdraw from
membership or potential Members to not become Members.

Severe weather, natural disasters and adverse climate changes may adversely
affect our financial condition and results of operations.  Severe weather
conditions, such as hurricanes or tornadoes, or natural disasters, such as
earthquakes or fires, in areas in which we have distribution facilities, in
which customers' stores are located or from which we obtain products may
adversely affect our results of operations. Such conditions may cause physical
damage to our properties, closure of one or more of our distribution facilities,
closure of customers' stores, lack of an adequate work force in a market,
temporary disruption in the supply of products, disruption in the transport of
goods, delays in the delivery of goods to our distribution centers or customer
stores or a reduction in the availability of products we offer. In addition,
adverse climate conditions and adverse weather patterns, such as droughts and
floods, impact growing conditions and the quantity and quality of crops yielded
by food producers and may adversely affect the availability or cost of certain
products within the grocery supply chain. Our business resumption plans may not
be effective in a timely manner and a significant disruption to our business
could occur



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in the event of a natural disaster, terrorism or war. In addition, while we carry insurance to cover business interruption and damage to buildings and equipment, some of the insurance carries high deductibles. Any of these factors may disrupt our business and adversely affect our financial condition and results of operations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES


The preparation of our consolidated condensed financial statements in conformity
with accounting principles generally accepted in the United States of America
requires us to make estimates, assumptions and judgments that affect the amount
of assets and liabilities reported in the consolidated condensed financial
statements, the disclosure of contingent assets and liabilities as of the date
of the consolidated condensed financial statements and reported amounts of
revenues and expenses during the year. We believe our estimates and assumptions
to be reasonable; however, future results could differ from those estimates
under different assumptions or conditions.

Our discussion and analysis of our financial condition and results of operations
are based upon our consolidated condensed financial statements. On an ongoing
basis, we evaluate our estimates, including those related to allowances for
doubtful accounts, lease loss reserves, investments, goodwill and intangible
assets, long-lived assets, income taxes, insurance reserves, pension and
postretirement benefits and contingencies and litigation. We base our estimates
on historical experience and on various other assumptions and factors that we
believe to be reasonable under the circumstances. Based on our ongoing review,
we make adjustments we consider appropriate under the facts and circumstances.
The accompanying consolidated condensed financial statements are prepared using
the same critical accounting policies and estimates discussed in Part II,
Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of Operations" of our Annual Report on Form 10-K for the fiscal year ended
September 29, 2012.

RECENTLY ADOPTED AND RECENTLY ISSUED AUTHORITATIVE ACCOUNTING GUIDANCE)


Refer to Note 9 of "Notes to Consolidated Condensed Financial Statements -
Unaudited" in Part I, Item 1. "Financial Statements (Unaudited)" of this
Quarterly Report on Form 10-Q for management's discussion of recently adopted
and recently issued authoritative accounting guidance and their expected impact,
if any, on our consolidated condensed financial statements.

AVAILABILITY OF SEC FILINGS


We make available, free of charge, through our website
(http://www.unifiedgrocers.com) our Forms 10-K, 10-Q and 8-K, as well as our
registration statements, proxy statements and all amendments to those reports,
as soon as reasonably practicable after those reports are electronically filed
with the SEC. A copy of any of the reports filed with the SEC can be obtained
from the SEC'sPublic Reference Room at 100 F Street, N.E., Washington, D.C.
20549. A copy may also be obtained by calling the SEC at 1-800-SEC-0330. All
reports filed electronically with the SEC are available on the SEC's web site at
http://www.sec.gov.
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