10-K

United States

Securities and Exchange Commission

Washington, D.C. 20549

Form 10-K

(Mark One)

x Annual report pursuant to Section 13 or 15(d) of the Securities

Exchange Act of 1934 for the fiscal year ended September 29, 2007 or

¨ Transition report pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934 for the transition period from              to             

Commission file number 0-10815

Unified Western Grocers, Inc.

(Exact name of registrant as specified in its charter)

California

(State or other jurisdiction of incorporation or organization)

5200 Sheila Street, Commerce, CA	90040
(Address of principal executive offices)	(Zip Code)

I.R.S. Employer Identification No.: 95-0615250

Registrant’s telephone number, including area code: (323) 264-5200

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Title of each class

Class A Shares

Class B Shares

Class E Shares

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ¨            No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ¨            No  x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x            No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated Filer  ¨ Accelerated Filer  ¨ Non-Accelerated Filer  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes  ¨            No  x

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. There is no public market for the Company’s voting and non-voting common equity.

The number of shares outstanding of each of the registrant’s classes of common stock, as of December 13, 2007, was as follows:

Class A: 167,400 shares Class B: 480,172 shares Class C: 15 shares Class E: 205,330 shares

Documents Incorporated By Reference: Portions of the proxy statement for the 2008 annual meeting, which will be filed within 120 days of the end of the fiscal year, are incorporated by reference into Part III of this Form 10-K.

Table of Contents

Item		Page
Part I
1.	Business	1
1A.	Risk Factors	14
1B.	Unresolved Staff Comments	19
2.	Properties	19
3.	Legal Proceedings	19
4.	Submission of Matters to a Vote of Security Holders	19
Part II
5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	20
6.	Selected Financial Data	21
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
7A.	Quantitative and Qualitative Disclosures About Market Risk	48
8.	Financial Statements and Supplementary Data	49
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	91
9A.	Controls and Procedures	91
9B.	Other Information	91
Part III
10.	Directors, Executive Officers of the Registrant and Corporate Governance	92
11.	Executive Compensation	93
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	93
13.	Certain Relationships and Related Transactions, and Director Independence	93
14.	Principal Accountant Fees and Services	93
Part IV
15.	Exhibits and Financial Statement Schedules	93
Signatures		106

Part I

Item 1.    BUSINESS

General

Unified Western Grocers, Inc. (referred to in this Form 10-K as “Unified,” “the Company,” “we,” “us,” or “our”) is a retailer-owned, grocery wholesale cooperative serving supermarket, specialty and convenience store operators located primarily in the western United States and the South Pacific. Our customers range in size from single store operators to multiple store chains. We sell a wide variety of products typically found in supermarkets. We sell products through Unified or through our specialty food subsidiary (Market Centre) and international sales subsidiary (Unified International, Inc.). We report all product sales in our Wholesale Distribution segment. We also provide support services to our customers through separate subsidiaries, including insurance and financing. Insurance activities are reported in our Insurance segment while finance activities are grouped within our All Other business activities. The availability of specific products and services may vary by geographic region.

As part of an initiative to strengthen our corporate brand and image in the marketplace, we recently have begun to do business as “Unified Grocers” for nearly all purposes, and we expect to effect a legal name change after approval by our shareholders at our next annual meeting in mid-February, 2008.

The Company’s customers include its owners (“Members”) and non-owners (“non-members”). We do business primarily with those customers that have been accepted as Members. Our Members operate supermarkets that range in size from single store operators to regional supermarket chains. Store sizes range from neighborhood stores of less than 10,000 square feet to large box format stores of over 60,000 square feet. Members are required to meet specific capitalization requirements, which include capital stock ownership and may include required cash deposits. In addition, each Member must meet minimum purchase requirements that may be modified at the discretion of the Company’s Board of Directors (the “Board”).

We distribute the earnings from activities conducted with our Members, excluding subsidiaries (collectively “patronage business”), in the form of a patronage dividend. An entity that does not meet Member purchase requirements or does not desire to become a Member may conduct business with Unified as a non-member customer on a non-patronage basis. The earnings from our subsidiaries and from business conducted with non-members (collectively “non-patronage business”) are retained by the Company.

Unified is a California corporation organized in 1922 and incorporated in 1925. In September 1999, we completed a merger (the “Merger”) with United Grocers, Inc. (“United”), a grocery cooperative headquartered in Milwaukie, Oregon. In connection with the Merger, we changed our name from Certified Grocers of California, Ltd. (“Certified”) to Unified.

The Company’s strategic focus is to promote the success of independent retailers. A significant milestone was achieved in early fiscal 2008, when we purchased certain assets and assumed certain liabilities of Associated Grocers, Incorporated and its subsidiaries (“AG”), a grocery cooperative headquartered in Seattle, Washington (the “AG Acquisition”). AG primarily served retailers throughout Washington, Oregon, Alaska and the South Pacific. This transaction is expected to increase Unified’s sales to approximately $4 billion annually, thus providing the independent retailers served by Unified an increased profile with the vendor community, improved retail market share in the Pacific Northwest and the benefit of reduced cost burdens of capital and overhead.

Company Structure and Organization

Wholesale Distribution:    The Wholesale Distribution segment includes the results of operations from the sale of groceries and general merchandise products to both Members and non-members. Our Wholesale Distribution segment represented approximately 99% of consolidated net sales for the fiscal years ended September 29, 2007 (“2007 Period” or “fiscal 2007”), September 30, 2006 (“2006 Period” or “fiscal 2006”) and October 1, 2005 (“2005 Period” or “fiscal 2005”). The Wholesale Distribution segment includes a broad range of branded and corporate label products in nearly all product categories found in a typical supermarket including dry grocery, frozen food, deli, meat, dairy, eggs, produce, bakery, ethnic, gourmet, specialty foods and general merchandise products.

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Patronage Business:    The Company conducts business with both Members and non-members within the patronage business. Members may also conduct business through our subsidiaries on a non-patronage basis. The Company’s patronage earnings are based on the combined results of the Company’s three patronage earnings divisions: the Southern California Dairy Division, the Pacific Northwest Dairy Division and the Cooperative Division.

· Southern California Dairy Division:    The Southern California Dairy Division operates a milk processing plant in Los Angeles, California. Raw milk that is pasteurized and bottled at the plant is purchased from a third party dairy cooperative based in California. The Southern California Dairy also bottles water and various fruit punch drinks.

· Pacific Northwest Dairy Division:    The Pacific Northwest Dairy Division generates earnings from sales of dairy and related products manufactured by third parties and distributed by both our Milwaukie, Oregon distribution facility and by third parties in the Pacific Northwest region.

· Cooperative Division:    The Cooperative Division sells groceries and general merchandise products to Members and non-members throughout the Company’s marketing area. The Company also provides retail support services including promotional planning, technology support services, equipment purchasing services and real estate services. The Company has divided its Cooperative Division into three marketing regions to better serve the product and service needs of its customers. The three regions include Southern California, Northern California and the Pacific Northwest.

Non-Patronage Business:    The Company also does business on a non-patronage basis in the Wholesale Distribution segment through our Cooperative Division, Market Centre and Unified International, Inc. These businesses sell products to both Members and non-members. Earnings from non-patronage business activities are retained by the Company.

Products

National Brands:    Unified supplies more than 70,000 national brand items, which represented approximately 87% of the Company’s net sales in the Wholesale Distribution segment in fiscal 2007. The Company believes that national brands are attractive to chain accounts and other customers seeking consistent product availability throughout their operations. Unified’s national brand strategy is to foster close relationships with many national suppliers, which provide important sales and marketing support to the Company.

Corporate Brands:    Unified’s corporate brands enable the Company to offer its customers an exclusive and expanding line of product alternatives to comparable national brands across a wide range of price points. Unified’s two-tier corporate brand strategy emphasizes certain brands as a direct alternative to national brand items and other brands as an alternative to lower cost regional labels. Unified sells an extensive line of food and non-food items under various corporate brands. Sales of Unified’s corporate brands represented approximately 13% of the Company’s net sales in the Wholesale Distribution segment in fiscal 2007. Unified currently offers over 4,000 corporate brand products, including dry grocery, frozen, delicatessen, general merchandise, ice cream, fluid milk and bakery. These products are sold under the following corporate labels: Western Family, Springfield, Special Value, Golden Creme and Cottage Hearth. Western Family products are acquired from Western Family Holding Company, of which the Company holds a partial ownership interest (see Note 4 to Notes to Consolidated Financial Statements in Part II, Item 8). Western Family does not manufacture its products but contracts with third party providers. All other corporate brands are manufactured by third parties. The Company operates its own bakery and milk, water and juice bottling manufacturing facilities in Los Angeles, California.

Supply Agreements:    During the normal course of business, Unified enters into supply agreements with certain Members and non-member customers. These agreements typically require that the Member or non-member customer purchase specified amounts of their merchandise requirements from Unified and obligates the Company to supply such merchandise pursuant to agreed-upon terms and conditions relating to matters such as pricing and delivery. The supply agreements vary with respect to terms and length.

Facilities and Transportation:    As of September 29, 2007, the Company operates 3.7 million square feet of warehouse and manufacturing space throughout its marketing area. These combined facilities provide more than 74,000 items to our Member and non-member customers.

· Southern California:    The Company owns and operates a dry grocery warehouse facility in Commerce and a combined frozen foods/refrigerated warehouse facility in Santa Fe Springs. The Company also leases a

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cold and frozen storage facility in Santa Fe Springs and a perishable foods warehouse facility in Los Angeles. These facilities serve our Members and non-member customers in Southern California, Southern Nevada, Arizona, Texas and Colorado. The Company owns and operates a bakery manufacturing facility and a milk, water and juice processing plant, both in Los Angeles. These facilities primarily serve Member and non-member customers in Southern California.

· Northern California:    The Company owns a dry grocery and a combined frozen foods/refrigerated warehouse facility in Stockton. We lease dry warehouse facilities in Fresno and Hayward. The Stockton facility provides dry grocery, frozen, and refrigerated foods primarily to our Members and non-member customers in Northern California, Hawaii, Northern Nevada and the South Pacific. The Fresno facility distributes general merchandise to Members and non-member customers throughout California, Nevada, Hawaii, Arizona and the South Pacific. The Hayward facility supplies gourmet, specialty, and natural/organic foods to all three of the Company’s marketing regions.

· Pacific Northwest:    The Company owns and operates a full-service facility in Milwaukie, Oregon that provides dry grocery, frozen and refrigerated foods, as well as general merchandise. In connection with the AG Acquisition, we assumed the leases for a full-service facility in Seattle along with two satellite facilities in Renton, Washington. The facilities serve the Company’s Pacific Northwest region, which includes Alaska, Oregon, Washington, Idaho, certain Pacific Northwest customer locations in California and the South Pacific. The AG Acquisition will expand Unified’s distribution capacity through the addition of leased warehouse facilities located in Seattle and Renton, Washington (see Item 2, “Properties” for additional information).

One of Unified’s competitive strengths lies in its ability to provide the many different items Member and non-member customers need to compete across multiple retail formats. Rather than continuing to build the additional warehouse space necessary to store and distribute duplicate items in all regions, Unified has focused on redefining the supply chain by extending the reach of our current facilities. This strategy enables Unified to provide unique products across the Company, without having to maintain duplicate inventories in each region. For example, the Company’s specialty food subsidiary, Market Centre, operates a facility in Hayward, California that provides gourmet, specialty, and natural/organic foods to all three of the Company’s marketing regions, eliminating the need to buy, store, and manage three duplicate inventories. By extending the reach of our facilities, Unified is also able to supply unique items to our customers on a just-in-time basis, which minimizes the Company’s inventory-carrying requirement.

The Company operates a fleet of 390 tractors and 1,100 trailers that it uses to distribute products to its customers. Customers have the choice of two delivery options. Customers may elect to have the Company deliver orders to their stores or warehouse locations or may choose to pick their orders up from the Company’s distribution centers. Approximately 61% of the Company’s sales are delivered by its own fleet.

Insurance Business

The Company’s insurance business includes the results of operations for the Company’s three insurance subsidiaries (Grocers and Merchants Insurance Service, Inc., Springfield Insurance Company and Springfield Insurance Company, Ltd.). These subsidiaries provide insurance and insurance-related services, including workers’ compensation and liability insurance policies, to both the Company and its Member and non-member customers. Springfield Insurance Company is licensed in California, Arizona, Nevada, Oregon and Utah. The Company’s insurance business accounts for approximately 1% of the Company’s consolidated net sales for the fiscal years ended September 29, 2007, September 30, 2006 and October 1, 2005.

Other Support Businesses

The Company’s other support businesses, consisting primarily of a financing entity, collectively accounted for less than 1% of the Company’s consolidated net sales for the fiscal years ended September 29, 2007, September 30, 2006 and October 1, 2005. The Company’s other support businesses also include the consolidation of a variable interest entity as discussed in Note 2 of Notes to Consolidated Financial Statements in Item 8, “Financial Statements and Supplementary Data.”

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Employees

As of September 29, 2007, Unified employs approximately 2,900 employees, of whom approximately 1,800 are represented by labor unions under 26 collective bargaining agreements. The International Brotherhood of Teamsters represents a significant majority of employees covered by labor contracts. Collective bargaining agreements affecting the Company’s employees have various expiration dates ranging through 2010. The Company believes its labor relations with the various local unions are good. In connection with the AG Acquisition, the Company has added approximately 660 new employees, of whom approximately 380 are represented by labor unions under collective bargaining agreements.

Industry Overview and the Company’s Operating Environment

Competition

The grocery industry, including the wholesale food distribution business, is highly competitive, and is characterized by high volume and low profit margins. As a result of heightened competition, the grocery industry has trended towards vertical integration, alternative format grocery stores (including warehouse club stores and supercenters) and mergers and acquisitions among competing organizations. The drivers of mergers or acquisitions include the need to consolidate to increase efficiency, sales and resource sharing. All of these drivers are central to enabling an organization to achieve its strategic and financial objectives more effectively than it could without the benefit of consolidation within the industry.

We compete in the wholesale grocery industry with regional and national food wholesalers such as C&S Wholesale and Supervalu Inc., as well as other local wholesalers and distributors that provide a broad range of products and services to their customers. Unified was a direct competitor of AG prior to the AG Acquisition. We also compete with many local and regional meat, produce, grocery, specialty, general food, bakery and dairy wholesalers and distributors. Our customers compete directly with vertically integrated regional and national chains. The growth or loss in market share of our customers could also impact the Company’s sales and earnings. For more information about the competition Unified faces, please refer to Item 1A, “Risk Factors.”

In helping our Member and non-member customers remain competitive, we emphasize providing a high quality and diverse line of products, competitive pricing and timely and reliable deliveries. We also provide a wide range of other services, such as financing and insurance, to further support the Member and non-member customers’ business.

The marketplace in which we operate continues to evolve and present challenges both to our customers and us. The continued expansion of alternative grocery and food store formats into our marketplace may present challenges for some of the retail grocery stores owned by our customers. In addition, non-traditional formats such as warehouse, supercenters, discount, drug, natural and organic, and convenience stores continue to expand their offering of products that are a core part of the conventional grocery store offering, thereby creating additional competition for our customers. Demographic changes have created more ethnic diversity in our marketplace. To effectively compete with these changes, our successful customers have focused on, among other things, differentiation strategies in specialty products and items on the perimeter of the store such as produce, service deli, service bakery and meat categories.

To further enhance our strategy to help our customers differentiate themselves from the competition, during the second quarter of fiscal 2006, we changed the name of our specialty grocery subsidiary to Market Centre to better reflect the Company’s broad range of product offerings and unique services that are offered to our retail customers. The new focus on Market Centre will improve this important tool to help our customers with their individual differentiation strategies. Through our Market Centre subsidiary, we offer specialty grocery products in four categories: gourmet specialties, ethnic foods, natural/organic products and confections. In addition to supplying these products, Market Centre offers a wide range of retail support services, including category development and management, merchandising services, marketing programs and promotional strategies.

We also support growth by offering product promotions and by supporting and sponsoring major events that help promote sales at the retail level.

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Economic Factors

We are impacted by changes in the overall economic environment. In recent periods, the Company has experienced significant volatility in the cost of certain commodities and a general increase in the cost of manufactured products. Additionally, we have experienced volatility in other operating costs. For example, costs associated with our workers’ compensation coverage in California have significantly improved after several years of cost increases. Investments tied to the equity markets have also performed well. On the other hand, external factors continue to drive increases in costs associated with fuel and employee health care benefits. Additionally, wage increases occur as a result of negotiated labor contracts and adjustments for non-represented employees. We continually focus attention on initiatives aimed at improving business processes and managing costs. We have also been upgrading our warehouse management system as discussed below in “Technology.” The implementation of these initiatives has resulted in significant improvements throughout the Company, most notably in our distribution system, which has led to improved warehouse and transportation efficiencies.

Technology

Technology has played a significant role in shaping the grocery industry as companies continue to use technology to gain efficiencies and reduce costs. Technological improvements have been an important part of our strategy to improve service to our customers and lower costs. As chain supermarkets 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 management and payment support activities.

Technological improvements in our distribution systems have been an area of concentration. Over the past four years, we have upgraded our warehouse and enterprise reporting systems to improve efficiencies, order fulfillment accuracy and internal management reporting capabilities. Through the end of fiscal 2006, our five main facilities have been upgraded. This process has been instrumental in helping drive the labor efficiencies described above under “Economic Factors.” We expect to see additional warehouse improvements and order fulfillment accuracy as each facility fully realizes the benefits of the upgrade.

During fiscal 2006, we began a major renovation of our Stockton facility to add additional square footage and to install a mechanized conveyor system. This conveyor system will allow us to more effectively merge product warehoused at the facility with products sourced from our other facilities and key vendor partners. This will result in expanded product availability for our Members and non-member customers without the need to carry these products in our Stockton facility. We anticipate the renovation to be completed during fiscal 2008.

We began an upgrade of our on-board tractor tracking and control system during fiscal 2007 and anticipate completing the upgrade in fiscal 2008. The upgrade will provide better tracking of the fleet to assist in dynamic routing and create more operational efficiencies.

During fiscal 2007, our retail support efforts have centered around offering a new Interactive Ordering System (IOS) hand-held device that allows for multiple applications to operate on one device. We have also helped our retailers upgrade their electronic payment terminals to be compliant with Payment Card Industry regulations.

Suppliers and Raw Materials Sources

The products Unified sells to its customers and the raw materials the Company uses in its manufacturing operations are purchased from a number of sources. In general, the Company is not dependent upon any single source of supply in any of its businesses. Management believes that alternative suppliers are available for substantially all of the Company’s products and that the loss of any one supplier would not have a material adverse effect on the Company’s business. Management also believes the products and raw materials generally are available in sufficient supply to adequately meet customer demand.

Seasonality and Backlog

The Company’s wholesale business segment is not subject to significant seasonal fluctuations in demand. The Company experiences no material backlog in sales orders or the fulfillment of customer orders.

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Government Regulation

Unified owns and operates various facilities for the manufacture, warehousing and distribution of products to its Members and non-member customers. Accordingly, the Company is subject to increasingly stringent federal, state and local laws, regulations and ordinances that (i) 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 (ii) impose liability for the costs of cleaning up, and certain damages resulting from sites of past spills, disposals or other releases of hazardous materials. In particular, under applicable environmental laws, Unified 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 its facilities and the land on which the Company’s facilities are situated, regardless of whether Unified leases or owns the facilities or land in question and regardless of whether such environmental conditions were created by it or by a prior owner or tenant. Unified believes it is in compliance with all such laws and regulations and has established reserves for known and anticipated costs of remediation.

Customers and Core Business

Unified conducts business primarily with its Members on a patronage basis. Earnings from business conducted with Members through its patronage business divisions are distributed in the form of patronage dividends, while the Company retains earnings from non-patronage business conducted with Members. Unified also conducts business with non-member customers on a non-patronage basis. Earnings from business activities transacted with non-members are retained by the Company. The Company’s Member and non-member customers are typically retail grocery store operators ranging in size from single store operators to multiple store chains.

The Company’s core business primarily includes sales to independent supermarket operators who comprise approximately 79% of the Company’s sales. The Company’s core business also includes cash & carry format stores, neighborhood markets and secondary supply business to major chains.

The Company’s largest customer, Smart & Final, Inc., accounted for 12%, 11%, and 11% of total net sales for the fiscal years ended September 29, 2007, September 30, 2006 and October 1, 2005, respectively. Super Center Concepts, Inc. dba Superior Grocers, the Company’s second largest customer, accounted for 10%, 10%, and 8% for the fiscal years ended September 29, 2007, September 30, 2006 and October 1, 2005, respectively. The Company’s next eight largest customers combined accounted for 22%, 21% and 20% of total net sales for the fiscal years ended September 29, 2007, September 30, 2006 and October 1, 2005, respectively.

The Company’s ten largest customers’ accounts receivable accounted for approximately 41%, 33% and 30% of total accounts receivable at September 29, 2007, September 30, 2006 and October 1, 2005, respectively.

We attribute the sales growth discussed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Company Overview—Sales Activities,” in part, to the programs and services the Company provides to expand and renew our Member and customer base. We provide real estate services, equipment sales and financing to support existing Members that are remodeling or opening new stores. We also help retailers introduce new products to meet changing consumer demand.

During fiscal 2007, changes to our membership base have occurred as indicated in the following table:

Membership Activity	Number of Members
Membership count as of September 30, 2006	502
New members	14
Members discontinued	(42	)
Membership count as of September 29, 2007	474

Several activities have contributed to the decline in membership. Since the beginning of the equity enhancement program (see Item 7, “Equity Enhancement Plan”), a number of the smaller-volume retailers have made the decision to conduct business with Unified as non-member customers rather than as Members. While the pricing

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program for these non-member customers is higher than that for Members, the benefit is that the change eliminates the need to own Class A and Class B Shares (see “Capital Shares” below). Conducting business as a non-member customer of Unified also allows them to maintain access to the broad product selection we offer that helps them stay competitive. In addition, Members also sold to or combined operations with other Members in fiscal 2007. Of the 42 Members who discontinued during fiscal 2007, 35 converted to non-member customer status with Unified, were sold, or combined operations with other existing Members. In substantially all cases, Unified continued to be their primary supplier. The remaining 7 Members who discontinued during fiscal 2007 either closed their stores or switched to another supplier. The 2007 volume from these 7 Members was $1.3 million. The 2006 volume of the 7 Members was $4.5 million.

Sales in fiscal 2007 from the 14 new Members were $15.4 million. Annualized, this volume would be approximately $21 million.

AG served nearly 200 customers at the time of the AG Acquisition. We anticipate that 100-120 of these customers could eventually become Members of Unified. We expect most of the remaining customers to continue as non-member customers of Unified.

Competitive Strengths

We are a full service provider of products and services to our retail Members and non-member customers. While equity ownership by our Members encourages loyalty, we must still offer them competitive products, pricing and services. We provide nearly all product categories found in a typical supermarket, including dry grocery, frozen food, deli, meat, dairy, eggs, produce, bakery, ethnic, gourmet, specialty foods and general merchandise products. The combination of providing a wide variety of typical products plus an extensive line of specialty, meat and produce makes us unique as compared to our competition. Our services also include insurance, finance, real estate, equipment, advertising support, shelf layout and design, technology and other varied services. We also gather and disseminate industry information to keep our retailers updated on consumer trends, regulations, and products. We help our retailers identify and focus on consumer trends that enhance their opportunity for success. This broad offering allows our retailers to focus their attention on developing differentiation strategies to help them compete more effectively in the marketplace. As they grow, we become stronger as well.

Our scale provides retailers access to vendor support that they would otherwise not have. Support comes in the way of promotional offerings, new items, and other information. With the addition of the AG Acquisition, our annual sales volume should approximate $4 billion.

Corporate or Competitive Strategy

Our strategy is based upon creating success at retail for both our Member and non-member customers. We are focused on helping our retailers understand consumer trends so as to differentiate their stores. Consumers continue to move toward health and wellness and ethnic food choices. Our strategic focus will be to continue our development of programs and services designed with consumers in mind. The retail store is becoming a bigger source of information for customers about the products that are available to them. To provide this information, we are offering more in-store literature to educate consumers about the products we offer, particularly in the health and wellness category. As consumer preferences change, we continue to develop a targeted mix of health and wellness and ethnic products through our Market Centre specialty foods subsidiary.

Capital Shares

There is no established public trading market for Unified’s shares. The Company’s common stock is issued or exchanged solely between the Company and its Members in accordance with the Company’s share purchase requirements and Exchange Value formula (described below) as established by the Board.

The Company exchanges its Class A Shares and Class B Shares with its Members at a price that is based on a formula and is approved by the Board (“Exchange Value Per Share”). Prior to September 30, 2006, the Company computed the Exchange Value Per Share of the Class A and Class B Shares as Book Value divided by the number

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of Class A and Class B Shares outstanding at the end of the fiscal year. Book Value is computed based on the sum of the fiscal year end balances of Class A and Class B Shares, plus retained earnings, plus (less) accumulated other comprehensive earnings (loss). Effective September 30, 2006, the Company modified its Exchange Value Per Share computation to exclude accumulated other comprehensive earnings (loss) from Book Value. Exchange Value Per Share does not necessarily reflect the amount the net assets of the Company could be sold for or the dollar amount that would be required to replace them.

Class A Shares.    Class A Shares may be held only by Members of Unified. A Member (1) must purchase products from Unified in amounts and in a manner that is established by the Board; (2) must meet certain financial performance criteria; (3) must make application in such form as is prescribed by Unified; and (4) must be accepted as a Member by Board action. Each holder of Class A Shares is entitled to one vote per share on all matters to be voted upon by the shareholders, and may cumulate votes in connection with the election of 80% of the authorized number of directors.

Prior to December 2002, Unified’s Bylaws required that each Member acquire and hold 100 Class A Shares. In December 2002, the Company adopted an equity enhancement plan. As part of this plan, the Board increased the required holdings of Class A Shares by a Member to 150 shares at the end of fiscal 2003, 200 shares at the end of fiscal 2004, 250 shares at the end of fiscal 2005, 300 shares at the end of fiscal 2006, and 350 shares at the end of fiscal 2007.

Class B Shares.    Each holder of Class A Shares must also own a number of Class B Shares in an amount established by the Board. Unified requires each Member to hold Class B Shares having an issuance value equal to an amount determined under the Class B Share investment requirement as discussed below (the “Class B Share requirement”). For purposes of determining the Class B Share requirement, each Class B Share held by a Member has an issuance value equal to the Exchange Value Per Share of the Company’s outstanding shares at the close of the fiscal year end prior to the issuance of such Class B Shares. The holders of Class B Shares currently have the right to elect 20% of the authorized number of directors. Except as provided above or by California law, the holders of Class B Shares do not have any other voting rights.

Class B Share investment requirement amounts are determined twice a year, at the end of the Company’s second and fourth fiscal quarters, based on the Member’s purchases from the Cooperative Division during the preceding four quarters.

Members typically must satisfy their Class B Share requirement entirely through the holding of Class B Shares by the end of the sixth year of membership. In such cases, Class B Shares required to be held by a new Member 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 if a subordinated cash deposit (“Required Deposit”) is provided for the full amount of the requirement.

Class B Shares are generally issued to Members as a portion of the Cooperative Division patronage dividends paid. If following the issuance of Class B Shares as part of the patronage dividend distribution for any given fiscal year after the first year as a Member, the Member does not hold the required amount of Class B Shares, then additional Class B Shares must be purchased by the Member in a quantity sufficient to achieve the requirement. The additional Class B Shares are paid for by charging the Member’s cash deposit account in an amount equal to the issuance value of the additional Class B Shares or by direct purchase by the Member.

A reduced investment option is available if certain qualifications are met. The standard Class B investment requirement (“SBI”) is twice the amount of certain average weekly purchases, except for meat and produce, which are one times average weekly purchases. Members may apply for a reduced Class B investment requirement (“RBI”), which requires Members to pay for their purchases electronically on the statement due date and demonstrate credit worthiness. The RBI is based on a sliding scale such that additional purchase volume lowers the requirement. Members who do not apply for the RBI remain on the SBI. These changes were effective with the fiscal 2005 second quarter recalculation of the Class B Share requirement.

Members that were former United members who did not meet the minimum Class B Share ownership requirements at the time of the Merger with Unified were required to (i) purchase additional Class B Shares to cover the deficiency; or (ii) assign at least 80% of the Cooperative Division patronage dividends the shareholder receives in the future to Unified to purchase Class B Shares until the deficiency is eliminated.

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Class C Shares.    Members of the Board hold Class C Shares. Each director purchases one Class C Share for its stated value of ten dollars. Class C Shares are non-voting director qualifying shares and share in liquidation at a value of ten dollars per share. During fiscal 2007, the Board approved a resolution to redeem the Class C Shares, and the Company’s intention is to redeem and simultaneously cancel the outstanding shares in fiscal 2008.

Class E Shares.    In December 2002, as part of its fiscal 2003 equity enhancement plan, a new class of equity, denominated “Class E Shares,” was created. Class E Shares were issued as a portion of the patronage dividends issued for the Cooperative Division in fiscal years 2003 through 2007, and may be issued as a portion of the patronage dividends issued for the Cooperative Division in future periods, as determined annually at the discretion of the Board. The Class E Shares have a stated value of $100 per share, and, unless required by law, are non-voting equity securities. Dividends on Class E Shares can be declared and may be payable at the discretion of the Board. Class E Shares are transferable only with the consent of the Company. Pursuant to the Company’s redemption policy, Class E Shares cannot be repurchased for ten years from their date of issuance unless approved by the Board or upon sale or liquidation of the Company. The shares, when redeemed, will be redeemed at stated value.

Redemption of Capital Shares

The Articles of Incorporation and Bylaws currently provide that Unified has the right to repurchase any Class A Shares, Class B Shares or Class E Shares held by a former Member, and any Class B Shares in excess of the Class B Share requirement (“Excess Class B Shares”) held by a current Member, whether or not the shares have been tendered for repurchase. The repurchase of any Class A Shares, Class B Shares or Class E Shares is solely at the discretion of the Board. Pursuant to the Company’s redemption policy, Class E Shares cannot be repurchased for ten years from their date of issuance unless approved by the Board or upon sale or liquidation of the Company. After ten years, the holder may request that Unified, at the sole discretion of the Board, repurchase Class E Shares, even if the membership of the holder has not terminated. The shares, when redeemed, will be redeemed at stated value.

Subject to the Board’s determination and approval to redeem shares, any repurchase of shares will be on the terms, and subject to the limitations and restrictions if any, set forth in:

· The California General Corporation Law;

· The Company’s Articles of Incorporation and Bylaws;

· The Company’s redemption policy; and

· Any credit or other agreements to which the Company is a party.

California General Corporation Law

The Company is subject to the restrictions imposed by the California General Corporation Law (the “CGCL”). Section 501 of the CGCL prohibits any distribution that would be likely to result in a corporation being unable to meet its liabilities as they mature. In addition, Section 500 of the CGCL prohibits any distribution to shareholders for the purchase or redemption of shares unless (a) the amount of retained earnings immediately prior thereto equals or exceeds the amount of the proposed distribution or (b) an alternative asset-liability ratio test is met. Historically, the Company maintained sufficient retained earnings to accomplish its share repurchase program. However, during fiscal years 2000, 2001 and 2002, the Company’s retained earnings had been depleted such that they were inadequate to permit repurchase of the Company’s shares. This condition was reversed beginning in fiscal year 2003. However, there can be no assurance that the Company will be able in the future to redeem all shares tendered given the restrictions of the CGCL.

Articles of Incorporation and Bylaws

The Board has the right to amend the Company’s redemption policy at any time, including, but not limited to, changing the order in which repurchases will be made or suspending or further limiting the number of shares repurchased, except as otherwise may be expressly provided in the Articles of Incorporation. A copy of the Bylaws, as amended, which contains the Company’s redemption policy, is attached to this Annual Report on Form 10-K as Exhibit 3.2.

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Redemption Policy

The Board has the discretion to modify the redemption policy from time to time. All redemptions occur solely at the discretion of the Board. The Company’s redemption policy currently provides that (i) Class A Shares and Class B Shares held by a shareholder that is no longer a qualified or active Member may be redeemed at the Exchange Value Per Share of the Company at the close of the last fiscal year end prior to termination of Member status, (ii) with respect to terminations prior to September 30, 2000, the repurchase price is the Company’s Exchange Value Per Share at the fiscal year end prior to the effective date of the Merger, (iii) Class B Shares of terminated Members would not be redeemed until after September 28, 2002 and (iv) after September 28, 2002 Unified may repurchase Excess Class B Shares tendered for redemption at the Exchange Value Per Share at the close of the last fiscal year end prior to the date the shares are tendered for repurchase.

Pursuant to the Merger, Unified agreed to repurchase Excess Class B Shares held by former shareholders of United that were received in the Merger and tendered for redemption prior to January 28, 2001 at the Exchange Value Per Share as of April 2, 1999 of the shares of the Company’s common stock for which the Excess Class B Shares were exchanged in the Merger. The Company purchased such shares by issuing notes referred to as “redemption subordinated notes,” which were payable in twenty equal quarterly principal installments and bore interest at 6% per year. As of September 30, 2006, the balance outstanding on these notes had been fully paid.

The Company’s redemption policy also currently provides that the number of Class B Shares that Unified may redeem in any fiscal year will be typically limited to approximately 5% of the sum of:

· The number of Class B Shares outstanding at the close of the preceding fiscal year end; and

· The number of Class B Shares issuable as a part of the patronage dividend distribution for the preceding fiscal year.

If the Company is not able to redeem all shares eligible for redemption in a given year by reason of the 5% limitation, then the shares redeemed will be determined on a pro rata basis. See Item 5, “Market For Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities” for recent redemption activity.

Credit or Other Agreements

The Company is party to credit agreements under which redemptions of Class A, Class B and Class E Shares are prohibited during the period of an event of default under the credit agreements.

Patronage Dividends

Unified distributes patronage dividends to its Members based upon its patronage earnings during a fiscal year. Non-member customers are not entitled to receive patronage dividends. The Board approves the payment of dividends and the form of such payment for the Company’s three patronage earnings divisions: the Southern California Dairy Division, the Pacific Northwest Dairy Division and the Cooperative Division.

· Southern California Dairy Division:    Patronage earnings attributable to the Southern California Dairy Division are generated from sales of products primarily manufactured at a milk, water and juice bottling plant located in Los Angeles, California. Patronage dividends for this division are paid solely to Members who purchase dairy products from the Southern California Dairy Division.

· Pacific Northwest Dairy Division:    Patronage earnings attributable to the Pacific Northwest Dairy Division are generated from sales of dairy products manufactured by third party suppliers located in Oregon. Patronage dividends are paid solely to Members who purchase dairy products from the Pacific Northwest Dairy Division.

· Cooperative Division:    Patronage earnings attributable to the Cooperative Division are generated from all patronage activities of Unified, other than the Southern California and Pacific Northwest Dairy Divisions discussed above, regardless of geographic location. Patronage dividends are paid based on the patronage purchases of the following types of products: dry grocery, deli, health and beauty care, tobacco, general merchandise, frozen food, ice cream, meat, produce and bakery.

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The following table summarizes the patronage dividend earnings of Unified during the past three fiscal years.

(dollars in thousands)
Division	2007		2006		2005
Cooperative	$	6,528	$	10,726	$	10,281
Southern California Dairy		10,544		9,731		10,694
Pacific Northwest Dairy		608		516		429
Total	$	17,680	$	20,973	$	21,404

The Company tracks the volume of qualifying patronage purchases by Members from the Company in the respective divisions on an individual member basis. The Cooperative dividend is calculated and distributed at the end of the year in proportion to the qualified patronage sales during the year. During the 2007 Period, the 2006 Period and the 2005 Period, Cooperative patronage dividends have been positively impacted by favorable settlements and legal judgments as well as California workers’ compensation legislative reforms that were passed in 2003 and 2004, summarized as follows:

· During the 2007 Period, the Company received net settlements whose proceeds increased Cooperative earnings by $0.8 million. In addition, Cooperative earnings were increased by $0.7 million as a result of reduced workers’ compensation reserves relative to years prior to the 2007 Period.

· During the 2006 Period, the Company received payment of a legal judgment whose net proceeds increased earnings by $3.0 million. In addition, Cooperative earnings were increased $2.6 million as a result of reductions in workers’ compensation reserves relative to years prior to the 2006 Period.

· During the 2005 Period, Cooperative patronage earnings were increased by $3.4 million as a result of reductions in workers’ compensation reserves relative to years prior to the 2005 Period.

See additional discussion in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Wholesale Distribution Segment”. Dairy dividends are calculated quarterly and are distributed in proportion to the qualified patronage sales during the quarter. Total patronage earnings are based on the combined results of the Southern California Dairy Division, the Pacific Northwest Dairy Division and the Cooperative Division. In the event of a loss in one division, the Board will make an equitable decision with respect to the treatment of the loss.

The Company’s Bylaws provide that patronage dividends may be distributed in cash or in any other form that constitutes a written notice of allocation under Section 1388 of the Internal Revenue Code. Section 1388 defines the term “written notice of allocation” to mean any capital stock, revolving fund certificate, retain certificate, certificate of indebtedness, letter of advice, or other written notice, that discloses to the recipient the stated dollar amount allocated to the recipient by Unified and the portion thereof, if any, which constitutes a patronage dividend. Written notices of allocation may be in the form of qualified written notices of allocation or non-qualified written notices of allocation. To constitute a qualified written notice of allocation, a patronage dividend must be paid at least 20% in cash and the balance in a form which constitutes a written notice of allocation and which the recipient has agreed to take into income for tax purposes in the year of receipt. If at least 20% of the patronage dividend is not paid in cash, the entire amount of the distribution not paid in cash, whether in the form of stock, subordinated patronage dividend certificates or other debt instrument, constitutes a non-qualified written notice of allocation.

In fiscal 2003, the Company issued $3.3 million of subordinated patronage dividend certificates (“Patronage Certificates”) as a portion of its patronage dividends due to Members for fiscal 2002. Patronage Certificates have a term of five years and an interest rate approximating the five-year treasury rate as such rate exists at fiscal year end, and such rate is to be adjusted annually thereafter to approximate the same benchmark interest rate on each anniversary of the fiscal year end. These Patronage Certificates are included in subordinated patronage dividend certificates in the accompanying consolidated balance sheets.

For fiscal 2005, patronage dividends in the Cooperative Division were paid to Members in the form of:

· Class B Shares to the extent of any deficiency in the Member meeting its Class B Share requirement; and

· Class E Shares for the balance of the patronage dividend due to the Member.

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For fiscal 2007 and fiscal 2006, patronage dividends in the Cooperative Division were paid to Members as follows:

· The first 30% of the patronage dividend was distributed in Class E Shares.

· The remaining 70% of the patronage dividend was distributed as a combination of cash and Class B Shares as follows:

· The first 20% of this portion of the dividend was paid in cash.

· The remaining amount was paid in Class B Shares to the extent of any deficiency in the Member meeting its Class B Share requirement, and the remainder was deposited in cash to the Member’s deposit fund.

The accompanying financial statements reflect patronage dividends earned by Members as of the fiscal year ended September 29, 2007. The actual distribution of the dividend is anticipated to take place in early 2008.

Patronage dividends generated by the dairy divisions have historically been paid in cash.

Minimum Purchase Requirements

Unified requires that each Member meet the minimum purchase requirements established by the Board, which may be modified from time to time. Currently, Unified’s minimum purchase requirement for Members is $5,000 per week. Exceptions to the minimum purchase requirements may be granted by the Board. Entities not meeting these minimum purchase requirements can purchase products on a non-patronage basis.

Member Equity Investments

Unified generally requires that its Members own Class B Shares pursuant to a formula based on average weekly purchases from the Company or the amount of the Member’s average purchases if purchases are not made on a regular basis. New Members may satisfy their Class B Share requirement over the five consecutive fiscal years commencing with the first year after admission as a Member at the rate of 20% per year if a subordinated cash deposit (Required Deposit) is maintained. Members may apply for a reduced Class B investment requirement. The RBI requires Members to pay for their purchases electronically on the current statement due date and demonstrate credit worthiness. The RBI is based on a sliding scale such that additional purchase volume lowers the requirement.

The value of a Class B Share for purposes of satisfying the Class B Share requirement is based upon the Exchange Value Per Share at the last fiscal year end prior to the initial issuance of each Class B Share. Former United shareholders were permitted a value of $253.95 per share for the value of shares received in the Merger. Former United shareholders who did not have sufficient Class B Shares immediately following the Merger to meet the minimum deposit requirements were provided with alternatives to eliminate the deficiency over time. The alternatives were: (i) purchase additional Class B Shares to cover the deficiency; or (ii) assign at least 80% of the Cooperative Division patronage dividends the shareholder receives in the future to Unified to purchase Class B Shares until the deficiency is eliminated.

Unified pays no interest on Required Deposits; however, interest is paid at the prime rate for cash deposits in excess of the Member’s Required Deposit amount.

Members typically must satisfy their Class B Share requirement entirely through the holding of Class B Shares by the end of the sixth year of membership. For any given fiscal year after the first year of membership, if a Member does not hold the required amount of Class B Shares after the patronage dividend distribution, additional Class B Shares must be purchased in a quantity sufficient to achieve the requirement. This is accomplished by charging the Member’s cash deposit account in an amount equal to the issuance value of the additional Class B Shares or by direct purchase by the Member. Deposit fund deficiencies occur when Members do not maintain sufficient Required Deposits to meet the Class B Share investment requirement. The Member deposit fund deficiency was approximately $3.5 million, $5.0 million and $5.7 million at September 29, 2007, September 30, 2006 and October 1, 2005, respectively. The deposit fund deficiencies consisted of approximately $2.3 million, $3.7 million

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and $3.8 million at September 29, 2007, September 30, 2006 and October 1, 2005, respectively, of Members that were approved to build deposit fund requirements over time, and approximately $1.2 million in fiscal 2007, $1.3 million in fiscal 2006 and $1.9 million in fiscal 2005, respectively, of former United members that elected to assign at least 80% of the Cooperative Division patronage dividends to fulfill deposit fund requirements.

The Required Deposits of Members are contractually subordinated and subject to the prior payment in full of certain senior indebtedness of the Company. As a condition of becoming a Member, each Member is required to execute a subordination agreement providing for the subordination of the Member’s Required Deposits. Generally, the subordination is such that no payment can be made by the Company with respect to the Required Deposits in the event of an uncured default by the Company with respect to senior indebtedness, or in the event of dissolution, liquidation, insolvency or other similar proceedings, until all senior indebtedness has been paid in full.

If membership status is terminated, upon request, the Company will return to Members the amount of the cash deposit that is in excess of the Required Deposit amount, less any amounts owed to Unified, provided that the Member is not in default on any other of its obligations to Unified. In all cases, a return of that portion of the Member’s cash deposits that consists of Required Deposits will be governed by the applicable subordination provisions and will be returned only to the extent permitted by the subordination provisions. The Company does not permit the Member to offset any obligations owing to Unified against the Required Deposit.

Pledge of Shares, Patronage Certificates and Guarantees

The Company requires each shareholder to pledge, as collateral, all Class A, B and E Shares of the Company, as well as all Patronage Certificates, held by them to secure their obligations to Unified. As part of the credit evaluation process, individual shareholders of corporate Members may be required to guarantee the obligations of the corporate Member, except that former shareholders of United who were, at the date of the Merger, in compliance with their obligations to United and its subsidiaries are not required to provide individual guarantees in the absence of financing transactions.

Tax Matters

Unified is a California corporation operating on a cooperative basis. The Company is subject to federal, state, franchise and other taxes applicable to corporations, such as sales, excise, real and personal property taxes. The Company files consolidated annual income tax returns with its subsidiaries.

As a corporation operating on a cooperative basis, the Company is subject to Subchapter T of the Internal Revenue Code and regulations promulgated thereunder. Under Subchapter T, Unified generally must distribute patronage dividends to its Members. In order to qualify as a patronage dividend, distributions are made on the basis of the relative value of the business done with or for Members, under a pre-existing obligation to make such payment, and with reference to the net earnings from business done with or for the cooperative’s Members. Patronage dividends are paid in cash or in any form that constitutes a written notice of allocation. A written notice of allocation is distributed to the Member and provides notice of the amount allocated to the Member by Unified and the portion thereof which constitutes a patronage dividend.

Under Subchapter T regulations, Unified may deduct for the fiscal year to which they relate the amount of patronage dividends paid in cash and qualified written notices of allocation or other property (except a nonqualified written notice of allocation) within 8-1/2 months after the end of the fiscal year to which the patronage dividends relate. A written notice of allocation will be qualified if Unified pays at least 20% of the patronage dividend in cash, and the Member consents to take the stated dollar amount of the written notice into income in the year in which it is received. Members sign a consent form at the time of membership to satisfy the consent requirement. Members are required to consent to include in their gross income, in the year received, all cash as well as the stated dollar amount of all qualified written notices of allocation, including the Patronage Certificates and the Exchange Value Per Share of the Class B Shares distributed to them as part of the qualified written notices of allocation. Class B Shares distributed as part of the qualified written notices of allocation are also subject to state income and corporation franchise taxes in California and may be subject to these taxes in other states.

Unified is subject to federal income tax and various state taxes on the net earnings of the business with or for Members that are not distributed as qualified written notices of allocation and on the net earnings derived from

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non-patronage business. In fiscal 2002, as part of its equity enhancement plan, the Company issued nonqualified written notices of allocation in the form of Class B Shares and Patronage Certificates. In fiscal 2005, 2004 and 2003, the Company issued nonqualified written notices of allocation in the form of Class B Shares and Class E Shares. In fiscal 2007 and 2006, the Company issued qualified and nonqualified written notices of allocation in the form of Class B Shares and Class E Shares, respectively. The Member does not include a nonqualified written notice of allocation, whether in Class B Shares, Class E Shares or Patronage Certificates, as taxable income in the year of receipt and the Company is not entitled to an income tax deduction in the year of issuance. When the nonqualified written notice of allocation is redeemed for cash or property, the Member will have ordinary taxable income and the Company will have an income tax deduction for the amount of the redemption.

Members are urged to consult their tax advisors with respect to the applicability of U.S. federal income, state or local tax rules on the ownership and disposition of Class A, B and E Shares and the receipt of Patronage Certificates with respect to their own tax status.

Availability of SEC Filings

Unified makes available, free of charge, through its website (http://www.uwgrocers.com) its Forms 10-K, 10-Q and 8-K, as well as its registration statements, proxy statements and all amendments to those reports, as soon as reasonably practicable after those reports are filed electronically with the Securities and Exchange Commission (“SEC”). A copy of any of the reports filed with the SEC can be obtained from the SEC’s Public 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 website at http://www.sec.gov.

Item 1A.    RISK FACTORS

The risks and uncertainties described below are not the only ones the Company faces. Additional risks and uncertainties not presently known to the Company or that the Company currently deems immaterial also may impair the Company’s business operations. If any of the following risks occur, the Company’s business, prospects, financial condition, operating results and cash flows could be adversely affected in amounts that could be material.

Unified’s management deals with many risks and uncertainties in the normal course of business. Readers should be aware that the occurrence of the risks, uncertainties and events described in the risk factors below and elsewhere in this Form 10-K could have an adverse effect on the Company’s business, results of operations and financial position.

The markets in which we operate are highly competitive, characterized by high volume and low profit margins, customer incentives, including pricing, variety, and delivery, and industry consolidation.    The shifting of market share among competitors is typical of the wholesale food business as competitors attempt to increase sales in various markets. A significant portion of the Company’s sales are made at prices based on the cost of products it sells plus a markup. As a result, the Company’s profit levels may be negatively impacted if it is forced to respond to competitive pressure by reducing prices.

Increased competition has caused the industry to undergo changes as participants seek to lower costs, further increasing pressure on the industry’s already low profit margins. In addition to price competition, food wholesalers also compete with regard to quality, variety and availability of products offered, strength of corporate label brands offered, schedules and reliability of deliveries and the range and quality of services provided.

Continued consolidation in the industry, heightened competition among the Company’s suppliers, new entrants and trends toward vertical integration could create additional competitive pressures that reduce margins and adversely affect the Company’s business, financial condition and results of operations.

The Company may experience reduced sales if Members lose market share to fully integrated chain stores, warehouse stores and supercenters that have gained increased market share. This trend is expected to continue.    These supercenters have benefited from concentrated buying power and low-cost distribution technology, and have increasingly gained market share at the expense of traditional supermarket operators, including some independent operators, many of whom are the Company’s customers. The market share of such

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alternative format stores is expected to grow in the future, potentially resulting in a loss of sales volume for the Company. A loss of sales volume could potentially cause patronage dividends to be reduced and/or the Exchange Value Per Share of the Company’s shares to decrease, thereby reducing the value of the Members’ Class A and Class B Shares.

We will continue to be subject to the risk of loss of Member and non-member customer volume.    The Company’s operating results are highly dependent upon either maintaining or growing its distribution volume to its customers. The Company’s two largest customers, Smart & Final, Inc., a non-member customer, and Super Center Concepts, Inc. dba Superior Grocers, a Member, and the ten largest Member and non-member customers constituted approximately 12%, 10% and 44%, respectively, of total sales for the fiscal year ended September 29, 2007. A significant loss in membership or volume could adversely affect the Company’s operating results. 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 develop their own self-distribution system, we will lose distribution volume. Members may also select other wholesale providers. Reduced volume is normally injurious to profitable operations since fixed costs must be spread over a lower sales volume if the volume cannot be replaced.

The Company may experience reduced sales if Members purchase directly from manufacturers.    Increased industry competitive pressure is causing some of the Company’s Members that can qualify to purchase directly from manufacturers to increase their level of direct purchases from manufacturers and expand their self-distribution activities. The Company’s operating results could be adversely affected if a significant reduction in distribution volume occurred in the future.

We are vulnerable to changes in general economic conditions.    The Company is affected by certain economic factors that are beyond its control including inflation. An inflationary economic period could impact the Company’s operating expenses in a variety of areas, including, but not limited to, employee wages, benefits and workers’ compensation insurance, as well as energy and fuel costs. A portion of the risk related to wages and benefits is mitigated by bargaining agreements that contractually determine the amount of such 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 market fluctuations. A portion of the Company’s debt is at floating interest rates and an inflationary economic cycle typically results in higher interest costs. The Company operates in a highly competitive marketplace and passing on such cost increases to customers could be difficult. To the extent the Company is unable to mitigate increasing costs, patronage dividends may be reduced and/or the Exchange Value Per Share of the Company’s shares may decrease, thereby reducing the value of the Members’ Class A and Class B Shares.

Changes in the economic environment could adversely affect Unified’s customers’ ability to meet certain obligations to the Company or leave the Company exposed for obligations the Company has guaranteed. Loans to Members, trade receivables and lease guarantees could be at risk in a sustained inflationary environment. The Company establishes reserves for notes receivable, trade receivables, and lease commitments for which the Company may be at risk for default. Under certain circumstances, the Company would be required to foreclose on assets provided as collateral or assume payments for leased locations for which the Company has guaranteed payment. Although the Company believes its reserves to be adequate, the Company’s operating results could be adversely affected in the event that actual losses exceed available reserves.

The Company 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 the Company’s investment, and hence the Exchange Value Per Share of the underlying capital shares.

Litigation could lead to unexpected losses.    During the normal course of carrying out its business, the Company may become involved in litigation. In the event that management determines that the probability of an adverse judgment in a pending litigation is likely and that the exposure can be reasonably estimated, appropriate reserves

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are recorded at that time pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 5, “Accounting for 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.    The Company owns and operates various facilities for the manufacture, warehousing and distribution of products to its customers. Accordingly, the Company is subject to increasingly stringent federal, state and local laws, regulations and ordinances that (i) 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 (ii) impose liability for the costs of cleaning up, and certain damages resulting from, sites of past spills, disposals or other releases of hazardous materials. In particular, under applicable environmental laws, the Company 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 its facilities and the land on which the Company facilities are situated, regardless of whether the Company leases or owns the facilities or land in question and regardless of whether such environmental conditions were created by it or by a prior owner or tenant.

We are exposed to potential product liability claims and potential negative publicity surrounding any assertion that the Company’s 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 the Company. These contaminants may result in illness, injury or death if such contaminants are not eliminated. Accordingly, the Company maintains stringent quality standards on the products it purchases from suppliers, as well as products manufactured by the Company itself. The Company generally seeks contractual indemnification and insurance coverage from parties supplying its products and rigorously tests its corporate brands and manufactured products to ensure the Company’s quality standards are met. Product liability claims in excess of insurance coverage, as well as the negative publicity surrounding any assertion that the Company’s products caused illness or injury could have a material adverse effect on its reputation and on the Company’s business, financial condition and results of operations.

Our insurance reserves may be inadequate if unexpected losses occur.    The Company’s insurance subsidiaries are regulated by the State of California and are subject to the rules and regulations promulgated by the appropriate regulatory agencies. In addition, the Company is self-insured for workers’ compensation up to $1,000,000 per incident and maintains appropriate reserves to cover anticipated payments. 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, mortality rates, 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 operating results.

We may not have adequate resources to fund our operations.    The Company relies primarily upon cash flow from its operations and Member investments to fund its operating activities. In the event that these sources of cash are not sufficient to meet the Company’s requirements, additional sources of cash are expected to be obtained from the Company’s credit facilities to fund its daily operating activities. Our revolving credit agreement, which expires on January 31, 2012, requires 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”). While the Company is currently in compliance with all required covenants and expects to remain in compliance, this does not guarantee the Company will remain in compliance in future periods.

As of September 29, 2007, the Company believes it has sufficient cash flow from operations and availability under the revolving credit agreement to meet operating needs, capital spending requirements and required debt repayments through fiscal 2012. However, if access to operating cash or to the revolving credit agreement becomes restricted, the Company may be compelled to seek alternate sources of cash. The Company cannot assure that alternate sources will provide cash on terms favorable to the Company. Consequently, the inability to access alternate sources of cash on terms similar to its existing agreement could adversely affect the Company’s operations.

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The value of our benefit plan assets and liabilities is based on estimates and assumptions, which may prove inaccurate.    The Company’s employees participate in Company sponsored defined pension and postretirement benefit plans. Officers of the Company also participate in a Company sponsored Executive Salary Protection Plan II (“ESPP II”), which provides additional post-termination retirement income based on each participant’s final 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 II and postretirement plans are not funded. The Company accounts for these benefit plans in accordance with SFAS No. 87, “Employers’ Accounting for Pensions,” SFAS No. 106 “Employers’ Accounting for Postretirement Benefits Other Than Pensions” and SFAS No. 112 “Employers’ Accounting for Postemployment Benefits,” which require the Company 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 the Company’s consolidated financial statements. Assumptions include the expected return on plan assets, discount rates, health care cost trend rate, projected life expectancies of plan 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.

Additionally, new accounting pronouncements that require adjustments to shareholders’ equity, such as SFAS No. 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans,” have 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 pronouncements may require companies to redefine the method used to value their shares. As such, the Company modified its Exchange Value Per Share calculation as of September 30, 2006 to exclude accumulated other comprehensive earnings (loss) from Book Value (see Item 1, “Business—Capital Shares”), thereby excluding the potentially volatile impact that the adoption of SFAS No. 158 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.    The Company has 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. Business resumption plans are currently being developed 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. In addition, change management procedures and quality assurance controls have been implemented to ensure that new or upgraded business management systems operate as intended. However, there is still a possibility that a system failure, accident or security breach could result in a material disruption to the Company’s business. In addition, substantial costs may be incurred to remedy the damages caused by these disruptions.

Our success depends on our retention of our executive officers, senior management and our ability to hire and retain additional key personnel.    The Company’s success depends on the skills, experience and performance of its executive officers, senior management and other key personnel. The loss of service of one or more of its executive officers, senior management or other key employees could have a material adverse effect on the Company’s business, prospects, financial condition, operating results and cash flows. The Company’s future success also depends on its 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 the Company can retain our key employees or that it can attract, assimilate or retain other highly qualified technical, sales and managerial personnel in the future.

The successful operation of our business depends upon the supply of products, including raw materials, and marketing relationships from other companies, including those supplying our corporate brand products.    The Company depends upon third parties for 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 the Company’s business, prospects, financial condition, operating results and cash flows.

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The Company participates 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 Unified, or to obtain adequate marketing relationships, could have a material adverse effect on the Company’s business, prospects, financial condition, operating results and cash flows.

Increased energy, diesel fuel and gasoline costs could reduce our profitability.    The Company’s operations require and are dependent upon the continued availability of substantial amounts of electricity, diesel fuel and gasoline to manufacture, store and transport products. The Company’s 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.

Strike or work stoppage by our union employees could disrupt our business. The inability to negotiate acceptable contracts with the unions could result in a strike or work stoppage and increased operating costs resulting from higher wages or benefits paid to union members or replacement workers.    Such outcome could have a material negative impact on the Company’s operations and financial results. Approximately 63% of Unified’s employees are covered by collective bargaining agreements that have various expiration dates ranging through 2010.

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 we could be subject to regulatory scrutiny.    Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”), Unified will be required, beginning in its fiscal year 2008, to perform an evaluation of the Company’s internal controls over financial reporting, and beginning in fiscal year 2009, Unified’s independent registered public accounting firm will have to test and evaluate the design and operating effectiveness of such controls and publicly attest to such evaluation. The Company has prepared an internal plan of action for compliance with the requirements of Section 404, which includes a timeline and scheduled activities, although as of the date of this filing the Company has not yet completed its effectiveness evaluation. Although the Company believes its internal controls are operating effectively, the Company cannot guarantee that it will not have any material weaknesses. Compliance with the requirements of Section 404 is expected to be expensive and time-consuming. If the Company fails to complete this evaluation in a timely manner, the Company could be subject to regulatory scrutiny and a loss of lender and shareholder confidence in our internal controls. In addition, any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm the Company’s operating results or cause the Company to fail to meet its 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 income with patronage dividends that are paid in cash or 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 non-member business. If the Company were not entitled to be taxed as a cooperative under Subchapter T, or if a significant portion of its revenues were from non-member business, its revenues would be taxed when earned by the Company and the Members would be taxed when dividends were distributed. The Internal Revenue Service can challenge the tax status of cooperatives. The Internal Revenue Service has not challenged the Company’s tax status, and the Company 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 the Company.

A failure to successfully integrate the operations of AG could reduce our profitability.    A failure to successfully integrate the AG Acquisition into our existing operations may cause the Company’s results to not meet anticipated levels. The Company structured the AG Acquisition to minimize financial risk by purchasing only certain assets and assuming only certain liabilities. However, if the value of those assets were to decrease, the Company may experience reduced profitability. Additionally, the Company has commenced integrating AG’s Acquisition into our information technology systems and management processes. If we are unsuccessful in integrating the AG Acquisition, the Company may not achieve projected operating results, management may have to divert valuable resources to oversee and manage the integration, and the Company may have to make additional investments in the acquired operations.

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Item 1B.    UNRESOLVED STAFF COMMENTS

Not applicable.

Item 2.    PROPERTIES

The Company’s corporate offices, warehouses and manufacturing facilities as of September 29, 2007 are summarized as follows:

	Approximate Square         Footage
Description	Owned	Leased
Corporate offices	74,000	158,000
Dry warehouses	2,168,000	612,000
Refrigerated warehouses	648,000	120,000
Manufacturing facilities	181,000	—

These properties are located in California and Oregon. Subsequent to the AG Acquisition, the Company will be able to further serve the Pacific Northwest region through the addition of leased facilities in Seattle, Washington encompassing approximately 620,000 square feet of dry warehouse space and 284,000 square feet of refrigerated warehouse space. The Company also leases approximately 128,000 square feet of office space and various service buildings in Seattle. These facilities are leased under two-year terms that include two additional one-year renewal options. The Company also acquired 172,000 square feet of leased warehouse space (approximately 70,000 is refrigerated) in Renton, Washington.

Item 3.    LEGAL PROCEEDINGS

The Company is a party to various litigation, claims and disputes, some of which are for substantial amounts, arising in the ordinary course of business. While the ultimate effect of such actions cannot be predicted with certainty, the Company believes the outcome of these matters will not result in a material adverse effect on its financial condition or results of operations.

Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2007.

Additional Item.    EXECUTIVE OFFICERS OF THE REGISTRANT

Please refer to the information under Part III, Item 10, “Directors and Executive Officers of the Registrant” for information regarding the executive officers of the Registrant.

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Part II

Item 5.    MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

There is no established public trading market for the Company’s Class A, Class B, Class C or Class E Shares. As of December 13, 2007, the Company’s Class A Shares (167,400 shares outstanding) were held of record by 479 shareholders, Class B Shares (480,172 shares outstanding) were held of record by 617 shareholders, Class C Shares were held of record, one share each, by 15 directors of Unified, and the Company’s Class E Shares (205,330 shares outstanding) were held of record by 625 shareholders.

Company Purchases of Equity Securities

Period	Total Number of Shares Purchased	Average Price Paid Per Share
July 1, 2007 – July 28, 2007	—	$	—
July 29, 2007 – August 25, 2007	2,700	$	222.82
August 26, 2007 – September 29, 2007	—	$	—
Total	2,700	$	222.82

Dividends

On January 5, 2007, the Company paid a 6% cash dividend (approximately $0.9 million) on the outstanding Class E Shares of the Company as of September 28, 2006. This cash dividend was the result of favorable, non-recurring events in fiscal 2006 that increased the Company’s earnings (see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”). Cash dividends are not generally paid by the Company and may be declared in unique circumstances solely at the discretion of the Board.

Performance Graph

The following graph sets forth the five-year cumulative total shareholder return on the Company’s shares as compared to the cumulative total shareholder return for the same period of the Company’s Peer Group and the S&P 500 Index. The Company’s Peer Group consists of Nash Finch Company, Spartan Stores, Inc. and Supervalu, Inc. These companies were selected on the basis that the companies, although unlike Unified in that they are not structured as cooperative organizations, have certain operational characteristics that are similar to Unified. For example, each of the companies is a full-line distributor of grocery products. While all shares of the companies included in the Peer Group are publicly traded, the Company’s shares are privately held. The Company exchanges its Class A Shares and Class B Shares with its Members at Exchange Value Per Share (see Item 1, “Business—Capital Shares”). The Company’s Class A and Class B Shares are purchased and sold based on the Exchange Value Per Share of the Company at the close of the last fiscal year end prior to sale or purchase. Accordingly, the graphical presentation of the cumulative total return of the companies included in the Peer Group reflects the incremental change in book value of the shares of those companies. For fiscal years prior to 2006, the book value of the peer group was computed based on total equity divided by the number of voting shares as of the dates indicated. In fiscal year 2006, the Company modified the method used to compute the Exchange Value Per Share to exclude Other Comprehensive Income (see Item 1, “Business—Capital Shares”). The book value of the members of the peer group have been computed based on total equity, less other accumulated comprehensive income, divided by the number of outstanding shares for the years 2006 and 2007.

The comparison assumes $100 was invested on September 27, 2003 in the shares of the Company, the shares of the Peer Group and in each of the foregoing indices through September 29, 2007. The historical cost performance on the following graph is not necessarily indicative of future historical cost performance.

This graph shall not be deemed incorporated by reference by any general statement incorporating by reference this Annual Report on Form 10-K into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts.

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Comparison of Five Year* Cumulative Total Return

Among Unified Western Grocers, Inc., S&P 500 Index and Peer Group

* Fiscal years ended, September 27, 2003, October 2, 2004, October 1, 2005, September 30, 2006 and September 29, 2007.

Item 6.    SELECTED FINANCIAL DATA

The selected financial information below has been compiled from the audited consolidated financial statements of Unified for the fiscal years ended September 29, 2007, September 30, 2006, October 1, 2005, October 2, 2004 and September 27, 2003. The following selected consolidated financial data should be read in conjunction with the Company’s consolidated financial statements and the notes thereto and the information contained in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Historical results are not necessarily indicative of future results.

(dollars in thousands, except Exchange Value Per Share)
Fiscal Year Ended †	September 29, 2007 (52 Weeks)		September 30, 2006 (52 Weeks)		October 1, 2005 (52 Weeks)		October 2, 2004 (53 Weeks)		September 27, 2003 (52 Weeks)
Net sales	$	3,133,441	$	2,953,823	$	2,866,862	$	3,039,953	$	2,731,442	(d)
Operating income		55,706		59,353		53,501		50,040		45,840
Earnings from continuing operations before patronage dividends and income taxes		41,866		45,027		38,650		32,720		25,249
Patronage dividends		17,680		20,973		21,404		20,742		16,612
Net earnings		14,406		16,142		10,820		7,406		5,279
Total assets		751,188		717,115		708,049		721,633		740,100
Long-term notes payable		170,010		153,184		156,640		191,694		232,374
Exchange Value Per Share(a)(b)(c)(e)		245.79		222.82		195.72		174.39		163.00

† The Company’s fiscal year ends on the Saturday nearest September 30.

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(a) During the year ended September 27, 2003, the Company closed seven of its remaining nine operating stores in its discontinued retail business (such retail business was discontinued in fiscal 2002) and obtained binding commitments for the sale and transfer of the leasehold rights for the remaining two stores to Members, which stores were either sold or transferred shortly after fiscal 2003 year end. Sales proceeds realized on the sale of the leasehold rights, store inventories and certain store fixtures were approximately $1.2 million, net of tax which was less than the anticipated estimated proceeds of $5.9 million, net of tax. Also, the Company operated certain stores longer than originally projected in fiscal 2003, and thus the net realizability of certain of the retail business’ remaining assets and liabilities, primarily its estimated lease reserves and settlement costs, were adjusted. The adjustments, which total $5.9 million net of tax, were charged as a reduction to Class A and Class B Shares during the year ended September 27, 2003 pursuant to quasi-reorganization accounting rules.

(b) Additional adjustments were recorded in fiscal years 2005 and 2004 for lease reserves resulting from the sale and transfer of the remaining two retail locations and other contract and settlement costs relating to the final disposition of the retail business. The adjustments, which totaled $0.1 million and $1.2 million net of tax, respectively, were charged as a reduction to Class A and Class B Shares.

(c) The Company had approximately $18.6 million, $10.5 million and $14.2 million in net deferred tax assets that were reduced by a tax valuation allowance of zero, $2.8 million and $2.0 million at October 1, 2005, October 2, 2004 and September 27, 2003, respectively. In fiscal 2003, management evaluated the available positive and negative evidence in determining the realizability of the net deferred tax assets at September 27, 2003 and concluded it was more likely than not that the Company would realize a portion of its net deferred tax assets. In reaching this conclusion, significant weight was given to the Company’s exit from the retail business and other unprofitable subsidiary operations and the continued profitability of its continuing operations. Accordingly, the valuation allowance was reduced by $4.4 million as of September 27, 2003, and pursuant to quasi-reorganization accounting rules, the reduction in the valuation allowance was recorded as an increase to Class A and Class B Shares. Management evaluated the available positive and negative evidence in assessing the Company’s ability to realize the benefits of the net deferred tax assets at October 1, 2005 and concluded it is more likely than not that the Company no longer required a tax valuation allowance. The valuation allowance was reduced by $2.7 million as of October 1, 2005 and the reduction was recorded as an increase to Class A and Class B Shares. The net deferred tax assets should be realized through future operating results and the reversal of taxable temporary differences.

(d) As discussed in Note 1 of Notes to Consolidated Financial Statements in Item 8, the Company adopted Emerging Issues Task Force (“EITF”) Issue No. 03-10, “Application of Issue No. 02-16 by Resellers to Sales Incentives Offered to Consumers by Manufacturers” (“EITF No. 03-10”) beginning with its second quarter of fiscal 2004, which requires manufacturers’ sales incentives offered directly to consumers that do not meet certain criteria to be reflected as a reduction of revenue in the financial statements of a reseller. Pursuant to the transition guidance contained in EITF No. 03-10, the Company reclassified its net sales, cost of sales and distribution, selling and administrative expenses for the year ended September 27, 2003 to reflect the impact of EITF No. 03-10. Accordingly, for the years ended September 29, 2007, September 30, 2006, October 1, 2005 and October 2, 2004, $107.2 million, $100.1 million, $93.9 million and $86.6 million, respectively, of such consideration were classified as a reduction in cost of sales, and for the year ended September 27, 2003, $87.6 million of such consideration was reclassified as a reduction in cost of sales with a corresponding reduction in net sales. In addition, for the years ended September 29, 2007, September 30, 2006, October 1, 2005 and October 2, 2004, $0.6 million, $0.6 million, $0.8 million and $0.6 million, respectively, were classified as a reduction in distribution, selling and administrative expenses, and for the year ended September 27, 2003, $0.7 million was reclassified as a reduction in distribution, selling and administrative expenses with a corresponding increase in cost of sales. The application of EITF No. 03-10 had no effect on net earnings.

(e) The Company exchanges its Class A Shares and Class B Shares with its Members at a price that is based on a formula and is approved by the Board (“Exchange Value Per Share”). Prior to September 30, 2006, the Company computed the Exchange Value Per Share of the Class A and Class B Shares as Book Value divided by the number of Class A and Class B Shares outstanding at the end of the fiscal year. Book Value is computed based on the sum of the fiscal year end balances of Class A and Class B Shares, plus retained earnings, plus (less) accumulated other comprehensive earnings (loss). Effective September 30, 2006, the Company modified its Exchange Value Per Share computation to exclude accumulated other comprehensive earnings (loss) from Book Value. Exchange Value Per Share does not necessarily reflect the amount the net assets the Company could be sold for or the dollar amount that would be required to replace them.

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Item 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 the Company uses words such as “believes,” “expects,” “anticipates” or similar expressions, the Company is making forward-looking statements. Although Unified believes that the expectations reflected in such forward-looking statements are reasonable, the Company 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 the Company’s control. Important factors that could cause actual results to differ materially from the Company’s expectations include, but are not limited to, the factors discussed in the sections entitled Item 1A. “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 Unified 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. The Company undertakes 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 the Company files from time to time with the Securities and Exchange Commission.

COMPANY OVERVIEW

Unified, a California corporation organized in 1922 and incorporated in 1925, is a retailer-owned grocery wholesale cooperative serving supermarket operators primarily located in the western United States and in the South Pacific. In early fiscal 2008, we purchased certain assets and assumed certain liabilities of AG. AG primarily served Washington, Oregon, Alaska and the South Pacific. The AG Acquisition will strengthen our presence in those markets.

The Company sells a wide variety of grocery-related and general merchandise products to its customers. The Company also provides financing and insurance services to its customers, as well as retail support services including promotional planning, technology support services, equipment purchasing services and real estate services. The Company does business primarily with Members on a patronage basis. Retailers may do business with the Company as non-member customers on a non-patronage basis.

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 14 of Notes to Consolidated Financial Statements in Item 8, “Financial Statements and Supplementary Data”).

Sales Activities

Our net sales were $3.13 billion, an overall sales increase of $179.6 million, or 6.1%, for the fiscal year ended September 29, 2007 (“2007 Period”) as compared to net sales of $2.95 billion in the fiscal year ended September 30, 2006 (“2006 Period”). This increase was due primarily to a $105.3 million, or 3.6%, sales increase in our continuing customer business driven primarily by new store openings, growth in our perishable divisions, and growth in our specialty grocery subsidiary and $45.5 million due to inflation in meat, produce and dairy costs. During the 2007 Period, we began supplying customers that were previously served by competitors, resulting in a $51.7 million increase in net sales. Sales related to customers who discontinued their business with us in the 2006 Period and began purchasing from competitors resulted in a $21.8 million decline in net sales in the 2007 Period versus the 2006 Period. Net sales in our insurance segment declined $0.8 million in the 2007 Period versus the 2006 Period due to a reduction in rates and policy renewals associated with our California workers’ compensation insurance product. Net sales in our All Other business activities decreased $0.3 million in the 2007 Period versus the 2006 Period.

The addition of sales from the AG Acquisition is expected to grow our sales to approximately $4 billion annually.

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Results of Operations

The following discussion of the Company’s financial condition and results of operations should be read in conjunction with Item 6, “Selected Consolidated Financial Data” and the consolidated financial statements and notes to the consolidated financial statements, specifically Note 14 to Notes to Consolidated Financial Statements, “Segment Reporting,” included elsewhere in 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 selected consolidated financial data of Unified expressed as a percentage of net sales for the periods indicated below:

Fiscal Year Ended	September 29, 2007		September 30, 2006		October 1, 2005
Net sales	100.0	%	100.0	%	100.0	%
Cost of sales	90.4		90.0		89.8
Distribution, selling and administrative expenses	7.8		8.0		8.3
Operating income	1.8		2.0		1.9
Interest expense	0.4		0.5		0.5
Patronage dividends	0.6		0.7		0.7
Income taxes	0.3		0.3		0.3
Net earnings	0.5	%	0.5	%	0.4	%

Fiscal Year Ended September 29, 2007 (“2007 Period”) Compared to Fiscal Year Ended September 30, 2006 (“2006 Period”)

Overview of the 2007 Period.    Our consolidated operating income decreased by $3.7 million to $55.7 million in the 2007 Period compared to $59.4 million in the 2006 Period. The decrease was driven by a decline in the Insurance segment and was partially offset by increased operating income for our Wholesale Distribution segment over the 2006 Period.

· Wholesale Distribution Segment:    The Wholesale Distribution segment operates primarily within three marketing areas made up of its Southern California, Northern California and Pacific Northwest regions. The Wholesale Distribution segment experienced an overall net increase in operating income of $0.2 million to $51.5 million in the 2007 Period compared to $51.3 million in the 2006 Period. The increase in operating income was due primarily to increased sales, partially offset by an increase in operating expenses related primarily to favorable events that took place in the 2006 Period and did not re-occur in the 2007 Period. See additional discussion under “Net sales—Wholesale Distribution Segment” and “Distribution, selling and administrative expenses—Wholesale Distribution Segment.”

· Insurance Segment:    The Company’s insurance business includes the results of operations for the Company’s three insurance subsidiaries (Grocers and Merchants Insurance Service, Inc., Springfield Insurance Company and Springfield Insurance Company, Ltd.). These subsidiaries provide insurance and insurance-related services, including workers’ compensation and liability insurance policies, to both the Company and its Member and non-member customers. Operating income declined $3.9 million in the Company’s Insurance segment to $5.1 million in the 2007 Period compared to $9.0 million in the 2006 Period. In 2003 and 2004, the California Legislature passed workers’ compensation reforms that have helped to reduce the cost of claims, particularly with respect to medical costs. In the 2006 Period, we experienced reduced claims costs on older policy years, resulting in a favorable adjustment to claims reserves. In the 2007 Period, estimated costs related to older policy years stabilized, resulting in no significant reductions in loss reserves related to earlier periods.

· All Other:    All remaining business activities are grouped into “All Other.” All Other business activities primarily consist of our finance subsidiary and the consolidation of a variable interest entity as discussed in Note 2 of Notes to Consolidated Financial Statements in Item 8, “Financial Statements and Supplementary Data.” Operating income was consistent with a loss of $0.9 million in each of the 2007 and 2006 Periods.

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The following tables summarize the performance of each business segment for the 2007 and 2006 Periods.

Wholesale Distribution Segment

(dollars in thousands)
	2007		2006		Difference
Net sales	$	3,118,748	$	2,938,073	$	180,675
Cost of sales		2,829,765		2,658,864		170,901
Distribution, selling and administrative expenses		237,476		227,947		9,529
Operating income	$	51,507	$	51,262	$	245

Insurance Segment

(dollars in thousands)
	2007			2006			Difference
Gross sales—premiums earned	$	26,614		$	22,163		$	4,451
Inter-segment eliminations		(13,174	)		(7,975	)		(5,199	)
Net sales—premiums earned		13,440			14,188			(748	)
Cost of sales (including underwriting expenses)		2,242			(1,586	)		3,828
Selling and administrative expenses		6,138			6,824			(686	)
Operating income (loss)	$	5,060		$	8,950		$	(3,890	)

All Other

(dollars in thousands)
	2007			2006			Difference
Gross sales	$	2,576		$	2,322		$	254
Inter-segment eliminations		(1,323	)		(760	)		(563	)
Net sales		1,253			1,562			(309	)
Selling and administrative expenses		2,114			2,421			(307	)
Operating loss	$	(861	)	$	(859	)	$	(2	)

Net sales.    Consolidated net sales increased $0.18 billion to $3.13 billion in the 2007 Period compared to $2.95 billion for the 2006 Period.

· Wholesale Distribution Segment:    Net Wholesale Distribution sales increased $180.7 million to $3.119 billion in the 2007 Period compared to $2.938 billion for the 2006 Period. We continued to experience sales growth through new store openings by our customers and growth in sales within our Market Centre subsidiary.

Continuing Customer Sales Growth

· Approximately $105.3 million of sales increases were due to new store locations and growth in our distribution volume at existing locations, including a $32.0 million growth in our perishables product offerings such as meat, produce, service deli and service bakery, and a $39.1 million growth in our Market Centre subsidiary.

· Inflation in meat, produce and dairy costs has accounted for $45.5 million in sales increases in the 2007 Period compared to the 2006 Period.

Customer Changes

· Sales to customers that were previously served by competitors resulted in a $51.7 million increase in sales in the 2007 Period.

· Sales to customers that discontinued business with us and began purchasing their products from competitors resulted in a $21.8 million sales decline in the 2007 Period.

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· Insurance Segment:    Net sales, consisting principally of premium revenues, decreased $0.8 million to $13.4 million in the 2007 Period compared to $14.2 million in the 2006 Period due primarily to decreased premium rates charged to California customers for workers’ compensation insurance. Our Insurance segment primarily sells workers’ compensation coverage in California. The California legislature passed legislation in 2003 and 2004 to allow greater controls over medical and indemnity costs related to workers’ compensation. These cost reductions have led to lower policy premiums in the 2007 Period compared to the 2006 Period.

· All Other:    Net sales decreased $0.3 million to $1.3 million in the 2007 Period compared to $1.6 million for the 2006 Period.

Cost of sales (including underwriting expenses).    Consolidated costs increased $0.1 billion to $2.8 billion for the 2007 Period compared to $2.7 billion for the 2006 Period and comprised 90.4% and 90.0% of consolidated net sales for the 2007 and 2006 Periods, respectively.

· Wholesale Distribution Segment:    Cost of sales increased by $170.9 million to $2.8 billion in the 2007 Period compared to $2.7 billion in the 2006 Period. As a percentage of net wholesale sales, cost of sales was 90.7% and 90.5% for the 2007 and 2006 Periods, respectively. Several factors contributed to the 0.2% increase in cost of sales as a percentage of net wholesale sales.

· A change in product and Member sales mix contributed to a 0.2% increase in cost of sales as a percent of net wholesale sales. Our growth was primarily in products that carry a higher cost of sales as a percent of net sales compared to the 2006 Period product mix average. In addition, our larger customers have driven the sales growth in new store openings. These customers typically pick up their orders from our facilities, and their larger order sizes allow for higher operational efficiencies but result in lower margins. As a result, the margin on these customers was lower than average and increased our overall cost of sales as a percent of net wholesale sales.

· Vendor promotional support contributed to cost of sales is consistent with the prior year as a percentage of net wholesale sales. Our vendors and brokers are continually evaluating their go-to-market strategies to effectively promote their products. Changes in their strategies could have a favorable or unfavorable impact on our financial performance. See additional discussion under “Critical Accounting Policies and Estimates—Vendor Funds.”

· Insurance Segment:    Cost of sales (including underwriting expenses), primarily consisting of claims loss and loss adjustment expenses, underwriting expenses, commissions, premium taxes and regulatory fees, increased $3.8 million to $2.2 million in the 2007 Period compared to $(1.6) million in the 2006 Period. This is primarily due to a decline in required loss reserves and a reduction in cost of sales in the 2006 Period. In the 2007 Period, loss reserves stabilized and required no further reductions in loss reserves related to earlier periods. During 2003 and 2004, California legislative reforms were passed aimed at reducing the rising cost of workers’ compensation expenses, primarily in the cost of providing health care. As a result of these reforms, in the 2006 Period we experienced reductions in costs associated with (1) claims loss expense and loss reserve expenses (consisting of payments to health care providers and injured workers, along with estimates of claims not yet resolved), and (2) loss adjustments expenses (consisting of adjudication expenses and legal expenses associated with defending claims). The cost of insurance and the sufficiency of loss reserves are also impacted by actuarial estimates based on a detailed analysis of health care cost trends, mortality rates, 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.    As a percent to net sales, consolidated distribution, selling and administrative expenses decreased 0.2% to 7.8% in the 2007 Period from 8.0% in the 2006 Period, but increased $8.5 million to $245.7 million in the 2007 Period compared to $237.2 million in the 2006 Period primarily due to higher sales.

· Wholesale Distribution Segment:    Distribution, selling and administrative expenses increased $9.6 million to $237.5 million in the 2007 Period compared to $227.9 million in the 2006 Period. Of this increase, $11.8 million was related to prior year non-recurring favorable legal judgments and workers’

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compensation loss reserve adjustments, as well as variable expenses associated with sales growth, and was partially offset by a $2.2 million reduction in costs related to employee benefits and insurance expenses (discussed in further detail below). Distribution, selling and administrative expenses comprised 7.6% and 7.8% of net wholesale sales for the 2007 and 2006 Periods, respectively. The decrease in expenses as a percentage of net wholesale sales is due primarily to higher sales in the 2007 Period as compared to the 2006 Period.

· Legal Judgments and Settlements:    During the 2006 Period, Unified received payment of a judgment in favor of the Company whose net proceeds, after payment of attorneys’ fees, reduced costs by $3.0 million. During the 2007 Period, Unified received net settlements whose proceeds reduced costs by $0.8 million. This lower level of favorable legal judgments effectively increased costs by $2.2 million, or 0.1% as a percentage of net wholesale sales during the 2007 Period.

· Workers’ Compensation Expense:    Through December 31, 2006, the Company’s Wholesale Distribution segment was self-insured up to $300,000 per incident with a stop loss coverage provided by our Insurance segment up to $1.0 million and third party coverage over that amount. Effective January 1, 2007, workers’ compensation coverage is provided entirely through the Insurance segment up to $1.0 million per incident and third party coverage over that amount. Loss accruals up to the stop loss coverage are made based on actuarially developed loss estimates. Our workers’ compensation expense in the 2007 Period increased by $1.9 million, but remained flat as a percent of net wholesale sales. Related to the California legislative reforms for workers’ compensation passed in 2003 and 2004, we experienced reductions in costs in the 2007 and 2006 Periods associated with lower required loss reserves which reduced workers’ compensation expenses. Additionally, the cost of insurance and the sufficiency of loss reserves are also impacted by actuarial estimates based on a detailed analysis of health care cost trends, mortality rates, 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.”

· Other Expense Changes:    General expenses increased $7.7 million, but declined 0.1% as a percent of net wholesale sales, due to the $180.6 million increase in net wholesale sales.

The following expenses decreased in the 2007 Period compared to the 2006 Period, partially offsetting the increases in distribution, selling and administrative expenses discussed above:

· Pension and Other Postretirement Benefits and Health Care Expenses:    During the 2007 Period, we experienced postretirement benefit cost decreases of $2.3 million, primarily due to plan changes and the favorable impact of changes in actuarial assumptions, partially offset by an increase in health care expenses of $1.5 million. This resulted in a $0.8 million, or 0.1% as a percent of net wholesale sales, net decrease in employee benefits expense. See additional discussion on benefit plan assets and liabilities under “Risk Factors”—“The value of our benefit plan assets and liabilities is based on estimates and assumptions, which may prove inaccurate.”

· Life Insurance Expense:    During the 2007 Period, we experienced increased income due to appreciation in policy values of executive life insurance policies by $1.4 million, or 0.1% as a percent of net wholesale sales as compared to the 2006 Period.

· Insurance Segment:    Selling and administrative expenses for the Insurance segment were $6.1 million for the 2007 Period and $6.8 million for the 2006 Period.

· All Other:    Selling and administrative expenses for the Company’s All Other business activities for the 2007 Period were $2.1 million compared to $2.5 million for the 2006 Period. During the 2006 Period, we recorded higher lease reserves on properties associated with our variable interest entity. During the 2007 Period, additional lease reserves were not required, resulting in lower selling and administrative expenses as compared to the 2006 Period.

Interest.    Interest expense was $13.8 million in the 2007 Period compared to $14.3 million in the 2006 Period and comprised 0.4% and 0.5% of consolidated net sales for the 2007 Period and the 2006 Period, respectively. Factors contributing to the decrease in interest expense are as follows:

· Interest expense on our primary debt instruments was $11.1 million and $11.5 million for the 2007 and 2006 Periods, respectively.

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· Weighted Average Borrowings:    Interest expense increased $0.5 million over the 2006 Period due to an increase in our weighted average borrowings (net of $0.9 million of capitalized interest related primarily to improvements for the Stockton warehouse). Weighted average borrowings increased by $16.5 million due to principal payments on secondary notes (i.e. Capital Investment Notes), payment of patronage dividends, Class E Share dividends and increased capital expenditures, partially offset by improved cash flow from operations and our Equity Enhancement Program (see “Liquidity and Capital Resources—Equity Enhancement Plan”).

· Interest Rates:    Interest expense declined $0.9 million over the 2006 Period due to a decrease in our effective borrowing rate. Our effective borrowing rate for the combined primary debt, made up of the revolving line of credit and senior secured notes, was 7.2% and 7.7% for the 2007 and 2006 Periods, respectively. Two primary factors contributed to the decrease in interest rates. First, we amended and restated our Senior Note Agreement in fiscal 2006 (see “Outstanding Debt and Other Financing Arrangements”), thereby reducing our effective interest rate on this debt. Second, we signed an agreement on December 5, 2006 to amend and restate our revolving credit facility and realized a reduction in our interest rate margin over the base borrowing rate on the revolving line of credit. In addition, we were able to lower the fees associated with the financing, which had the impact of lowering our overall borrowing costs. Partially offsetting the foregoing factors and consistent with the overall market interest rate change, the base borrowing rate on the revolving line of credit increased over the 2006 Period, offsetting the reduction in interest rate margin.

Borrowings on our revolving credit agreement are subject to market rate fluctuations. A 25 basis point change in the market rate of interest over the 2007 Period would result in a $0.2 million increase or decrease in corresponding interest expense.

· Interest expense on all our other outstanding debt instruments was $2.7 million in the 2007 Period, a decrease of $0.1 million compared to $2.8 million in the 2006 Period.

Patronage dividends.    Patronage dividends for the 2007 Period were $17.7 million, compared to $20.9 million in the 2006 Period, a decrease of 15.7%. Patronage dividends for the 2007 Period consisted of the patronage earnings from the Company’s three patronage earning divisions: the Southern California Dairy Division, the Pacific Northwest Dairy Division and the Cooperative Division. For the 2007 and 2006 Periods, respectively, the Company had patronage earnings of $10.6 million and $9.7 million in the Southern California Dairy Division, $0.6 million and $0.5 million in the Pacific Northwest Dairy Division and $6.5 million and $10.7 million in the Cooperative Division. During the 2007 Period and the 2006 Period, Cooperative patronage dividends have been positively impacted by favorable settlements and legal judgments as well as California workers’ compensation legislative reforms that were passed in 2003 and 2004, summarized as follows:

· During the 2007 Period, the Company received net settlements whose proceeds increased Cooperative earnings by $0.8 million. In addition, Cooperative earnings were increased by $0.7 million as a result of reduced workers’ compensation reserves relative to years prior to the 2007 Period.

· During the 2006 Period, the Company received payment of a legal judgment whose net proceeds increased earnings by $3.0 million. In addition, Cooperative earnings were increased $2.6 million as a result of reductions in workers’ compensation reserves relative to years prior to the 2006 Period.

Income taxes.    Income tax expense was $9.8 million for the 2007 Period compared to $7.9 million for the 2006 Period. The Company’s effective income tax rate was 40.4% for the 2007 Period compared to 32.9% for the 2006 Period. The tax rate for the 2007 Period approximates statutory rates and was higher than the 2006 Period because the 2006 Period reflected the recognition of California Enterprise Zone Tax Credits and fluctuations in permanent differences between book and taxable income.

Fiscal Year Ended September 30, 2006 (“2006 Period”) Compared to Fiscal Year Ended October 1, 2005 (“2005 Period”)

Overview of the 2006 Period.    The Company’s consolidated operating income increased by $5.9 million to $59.4 million in the 2006 Period compared to $53.5 million in the 2005 Period. The operating income for the Company’s Wholesale Distribution and Insurance segments increased over the 2005 Period, but was offset in part by a decline

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in the other combined business activities not separately reportable as a segment (collectively referred to as “All Other” business).

· Wholesale Distribution Segment:    The Wholesale Distribution segment operates primarily within three marketing areas made up of its Southern California, Northern California and Pacific Northwest regions. The Wholesale Distribution segment experienced an overall net improvement in operating income of $1.2 million to $51.3 million in the 2006 Period compared to $50.1 million in the 2005 Period. We continue to realize cost reductions in workers’ compensation expense due to the positive impact of recent legislative changes and management’s ongoing emphasis on safety programs and use of higher deductible policies to reduce premiums. See additional discussion under “Net sales—Wholesale Distribution Segment” below.

· Insurance Segment:    The Company’s insurance business includes the results of operations for the Company’s three insurance subsidiaries (Grocers and Merchants Insurance Service, Inc., Springfield Insurance Company and Springfield Insurance Company, Ltd.). These subsidiaries provide insurance and insurance-related services, including workers’ compensation and liability insurance policies, to both the Company and its Members. Operating income improved $5.0 million in the Company’s Insurance segment to $9.0 million in the 2006 Period compared to $4.0 million in the 2005 Period. Our workers’ compensation claims development continued to improve during the 2006 Period. The improvement was attributable to several factors, including the positive impact on claims development resulting from legislative reforms passed by California’s legislature. These reforms have helped to reduce the cost of claims, particularly with respect to medical costs. Continued participation of our customers in higher deductible policies has also contributed to the improvement. These policies can be less costly for customers and reduce Unified’s portion of its claims loss exposure.

· All Other:    All remaining business activities are grouped into “All Other.” All Other business activities primarily consist of our finance subsidiary and the consolidation of a variable interest entity as discussed in Note 2 of Notes to Consolidated Financial Statements in Item 8, “Financial Statements and Supplementary Data.” Operating income decreased $0.3 million to a loss of $0.9 million in the 2006 Period compared to a loss of $0.6 million in the 2005 Period. The loss of $0.9 million for the 2006 period was due to lease expenses associated with the Company’s variable interest entity of $2.2 million partially offset by income of $1.3 million in the finance subsidiary.

The following tables summarize the performance of each business segment for the 2006 and 2005 Periods.

Wholesale Distribution Segment

(dollars in thousands)
	2006		2005		Difference
Net sales	$	2,938,073	$	2,842,348	$	95,725
Cost of sales		2,658,864		2,565,599		93,265
Distribution, selling and administrative expenses		227,947		226,664		1,283
Operating income	$	51,262	$	50,085	$	1,177

Insurance Segment

(dollars in thousands)
	2006			2005			Difference
Gross sales - premiums earned	$	22,163		$	30,331		$	(8,168	)
Inter-segment eliminations		(7,975	)		(7,574	)		(401	)
Net sales - premiums earned		14,188			22,757			(8,569	)
Cost of sales (including underwriting expenses)		(1,586	)		10,337			(11,923	)
Selling and administrative expenses		6,824			8,388			(1,564	)
Operating income	$	8,950		$	4,032		$	4,918

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All Other

(dollars in thousands)
	2006			2005			Difference
Gross sales	$	2,322		$	2,250		$	72
Inter-segment eliminations		(760	)		(493	)		(267	)
Net sales		1,562			1,757			(195	)
Selling and administrative expenses		2,421			2,373			48
Operating loss	$	(859	)	$	(616	)	$	(243	)

Net sales.    Consolidated net sales increased $86.9 million to $2.95 billion in the 2006 Period compared to $2.87 billion for the 2005 Period.

· Wholesale Distribution Segment:    Net Wholesale Distribution sales increased $95.7 million to $2.9 billion in the 2006 Period compared to $2.8 billion in the 2005 Period. We continued to experience sales growth through new store openings and growth in sales of products that help our customers differentiate their stores from the competition. We also continued to experience a decline in sales of center store dry grocery products as a result of continued competitive pressures from alternate format food stores (warehouse, supercenters, discount, drug, natural and organic, and convenience) that are influencing shoppers’ buying practices, as well as certain customers buying more product directly from manufacturers.

Continuing Customer Sales Growth

· Sales increased by approximately $128.1 million due primarily to the distribution volume of existing customers’ expansion to new store locations, growth in our perishables product offerings such as meat, produce, service deli and service bakery, and growth in our specialty foods subsidiary that have helped our customers differentiate themselves from their competition. As a result of these efforts, sales of perishables products grew $69.6 million while our Market Centre sales grew $26.4 million over the 2005 Period.

Customer Changes

· During the 2006 Period, we began supplying customers that were previously serviced by competitors, resulting in a $13.4 million increase in sales.

· Sales to customers in the 2005 Period that discontinued business with us and began purchasing their products from competitors were $45.8 million.

· Insurance Segment:    Net sales, consisting principally of premium revenues, decreased $8.6 million to $14.2 million in the 2006 Period compared to $22.8 million in the 2005 Period due primarily to decreased premium rates charged to California customers for workers’ compensation insurance. Our Insurance segment primarily sells workers’ compensation coverage in California. The California legislature passed legislation in 2003 and 2004 to allow greater controls over medical costs related to workers’ compensation. These cost reductions have led to lower policy premiums in the 2006 and 2005 Periods.

· All Other:    Net sales decreased $0.2 million to $1.6 million in the 2006 Period compared to $1.8 million for the 2005 Period.

Cost of sales.    Consolidated cost of sales increased $81.3 million to $2.7 billion for the 2006 Period compared to $2.6 billion for the 2005 Period and comprised 90.0% and 89.8% of consolidated net sales for the 2006 and 2005 Periods, respectively.

· Wholesale Distribution Segment:    Cost of sales increased by $93.2 million to $2.7 billion in the 2006 Period compared to $2.6 billion in the 2005 Period. As a percentage of net wholesale sales, cost of sales was 90.5% and 90.3% for the 2006 and 2005 Periods, respectively. A change in product and Member sales mix contributed to the 0.2% increase in cost of sales as a percent of net wholesale sales. Our sales growth was primarily in products that carry a higher cost of sales as a percent of net sales compared to the 2005 Period product mix average. In addition, larger customers have driven the sales growth in new

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store openings. These customers typically pick up their orders from our facilities, and their larger order sizes allow for higher operational efficiencies but result in lower margins. As a result, the margin on these customers is lower than average and increases the cost of sales as a percent of net wholesale sales.

· Insurance Segment:    Cost of sales decreased by $11.9 million to $(1.6) million in the 2006 Period compared to $10.3 million in the 2005 Period. The main components in cost of sales that contributed to this decrease were reductions in (1) claims loss expense and loss reserve expenses (consisting of payments to health care providers and injured workers, along with estimates of claims not yet completed), and (2) loss adjustment expenses (consisting of adjudication expenses and legal expenses associated with defending claims). Cost of sales also includes underwriting expenses (consisting of commissions, premium taxes and regulatory fees); however, these expenses remained stable in the 2006 Period relative to the 2005 Period. During 2003 and 2004, California legislative reforms were passed aimed at reducing the rising cost of workers’ compensation expenses, primarily in the cost of providing health care. We began experiencing the benefits of the California legislative reforms in the latter half of our 2005 fiscal year. These benefits have continued in the 2006 Period. The decline in cost of sales in the 2006 Period resulted from lowering loss reserves at September 30, 2006 based on improving loss experience for earlier periods. The reduction in reserves at September 30, 2006 for losses and loss adjustment expenses was greater than the accrual of new reserves plus paid losses and loss adjustment expenses for the 2006 Period. The cost of insurance and the sufficiency of loss reserves are also impacted by actuarial estimates based on a detailed analysis of health care cost trends, mortality rates, 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.

Distribution, selling and administrative expenses.    Consolidated distribution, selling and administrative expenses decreased $0.2 million to $237.2 million in the 2006 Period compared to $237.4 million in the 2005 Period, and comprised 8.0% and 8.3% of net sales for the 2006 Period and the 2005 Period, respectively.

· Wholesale Distribution Segment:    Distribution, selling and administrative expenses were $227.9 million in the 2006 Period compared to $226.7 million in the 2005 Period, and comprised 7.8% and 8.0% of net Wholesale Distribution sales for the 2006 Period and the 2005 Period, respectively. As discussed in further detail below, the net proceeds of a judgment, combined with decreases in workers’ compensation expense and depreciation and amortization expense, reduced costs $7.9 million, or 0.3% of net wholesale sales, which were partially offset by increased costs for benefits, professional services, transportation and general expenses of $9.1 million, or 0.1% of net wholesale sales.

During the 2006 Period, Unified received payment of a judgment in favor of the Company whose net proceeds, after payment of attorneys’ fees, reduced costs $3.0 million, or 0.1% as a percent of net wholesale sales (see Note 13 of Notes to Consolidated Financial Statements in Item 8, “Financial Statements and Supplementary Data”). Additional factors contributing to the decrease in expenses as a percent of net wholesale sales are as follows:

· Workers’ Compensation Expense:    The Company’s Wholesale Distribution segment is self insured up to $300,000 per incident with a stop loss coverage provided by our Insurance segment up to $1,000,000 and third party coverage over that amount. Loss accruals up to the stop loss coverage are made based on actuarially developed loss estimates. Our workers’ compensation expenses declined by $1.6 million, or 0.1% as a percent of net wholesale sales, primarily due to the positive impact of the California legislative reforms discussed above. Workers’ compensation expenses have also been reduced due to management’s ongoing emphasis on safety programs and use of higher deductible policies to reduce premiums. Since Unified utilizes higher deductible policies and participates directly in losses, it realizes the benefits of lower losses directly and more dramatically than if it had used fully insured policies. Future expenses may significantly change depending on the cost of providing health care and the results of any further legislative action.

· Depreciation and Amortization Expense:    Expenses related to depreciation and amortization declined $3.3 million, or 0.1% of net sales. Following the Merger, our capital and information technology requirements temporarily increased. Over the past three years, our need for new capital and information technology declined from the post-Merger level. The reduction in expense is related to many of those Merger-related activities becoming fully depreciated and amortized. We do not expect this reduction to continue beyond the end of this fiscal year.

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The following expenses increased in the 2006 Period compared to the 2005 Period, partially offsetting the decreases in distribution, selling and administrative expenses as a percent of net wholesale sales that were discussed above:

· Other Expense Changes:    General expenses increased $3.1 million during the 2006 Period, but resulted in no change as a percent of net wholesale sales.

· Benefits and Professional Services:    During the 2006 Period, we incurred cost increases of $3.9 million, or 0.1% as a percent of net wholesale sales. The increases include benefits and wage-related costs of $3.2 million and professional services of $0.7 million.

· Transportation Cost Increases:    During the 2006 Period, costs related to fuel and common carrier activities increased $2.1 million during the 2006 Period, but resulted in no change as a percent of net wholesale sales. The fuel cost increases were recovered through fuel surcharges reported in sales.

· Insurance Segment:    Selling and administrative expenses for the Insurance segment were $6.8 million for the 2006 Period and $8.4 million for the 2005 Period. The improvement is attributable to non-recurring expenses in the 2005 Period that did not impact the 2006 Period.

· All Other:    Selling and administrative expenses for the Company’s All Other business activities for the 2006 Period were $2.5 million compared to $2.3 million for the 2005 Period. During the 2006 Period, the Company recorded higher lease reserves on properties associated with our variable interest entity.

Interest.    Interest expense was $14.3 million in the 2006 Period compared to $14.8 million in the 2005 Period and comprised 0.5% of consolidated net sales for both the 2006 Period and the 2005 Period. Factors contributing to the decrease in interest expense are as follows:

· Interest expense on our primary debt instruments was $11.5 million and $11.9 million for the 2006 and 2005 Periods, respectively.

· Weighted Average Borrowings:    Interest expense declined $1.1 million over the 2005 Period due to a reduction in our weighted average borrowings. Weighted average borrowings were reduced by $20.0 million due to improved cash flow from operations and our Equity Enhancement Program (see “Liquidity and Capital Resources—Equity Enhancement Plan”).

· Interest Rates:    Interest expense increased $0.7 million over the 2005 Period due to an increase in the effective borrowing rate. Our effective borrowing rate for the combined primary debt, made up of the revolving line of credit and senior secured notes, was 7.7% and 7.0% for the 2006 and 2005 Periods, respectively. Several offsetting factors contributed to the increase in interest rates. First, we signed an agreement on January 6, 2006 to amend and restate our Senior Note Agreement (see “Outstanding Debt and Other Financing Arrangements”) reducing our effective interest rate. Second, we realized a reduction in our interest rate margin over the base borrowing rate on the revolving line of credit due to achieving certain financial results. Third, with an overall market interest rate increase, the base borrowing rate on the revolver increased over the 2005 Period, more than offsetting the reduction in margin on the revolver and the improved rate on the Senior Notes.

Our borrowings on the 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.

Changes in all other outstanding debt instruments resulted in a $0.1 million decrease in expense in the 2006 Period as compared to the 2005 Period.

Patronage dividends.    Patronage dividends for the 2006 Period were $20.9 million, compared to $21.4 million in the 2005 Period, a decrease of 2.0%. Patronage dividends for the 2006 Period consisted of the patronage earnings from the Company’s three patronage earnings divisions: the Southern California Dairy Division, the Pacific Northwest Dairy Division and the Cooperative Division. For the 2006 and 2005 Periods, respectively, the Company had patronage earnings of $9.7 million and $10.7 million in the Southern California Dairy Division, $0.5 million and $0.4 million in the Pacific Northwest Dairy Division and $10.7 million and $10.3 million in the Cooperative Division.

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Income taxes.    Income tax expense was $7.9 million for the 2006 Period compared to $6.4 million for the 2005 Period. The Company’s effective income tax rate was 32.9% for the 2006 Period compared to 37.3% for the 2005 Period. The lower effective income tax rate in the 2006 Period reflects the recognition of California Enterprise Zone Tax Credits and fluctuations in permanent differences between book and taxable income.

Liquidity and Capital Resources

The Company finances its capital needs through a combination of internal and external sources. These sources include cash from operations, Member investments, bank borrowings, various types of long-term debt and lease financing. The Company believes that the combination of cash flows from operations, current cash balances, its equity enhancement plan, and available lines of credit, will be sufficient to service its debt, redeem stock per the redemption policy, and to meet its anticipated needs for working capital and capital expenditures through at least fiscal 2011.

Cash Flow

The Company continued to generate positive cash flow from operations during the 2007 Period. Cash from operations and financing activities was used for investing activities, including providing financing to Members, capital expenditures, redemption of Members’ capital shares and reinvesting proceeds from maturing investments.

As a result of these activities, net cash, consisting of cash and cash equivalents, increased by $8.5 million to $19.7 million as of the fiscal year ended September 29, 2007, compared to $11.2 million as of the fiscal year ended September 30, 2006.

The following table summarizes the impact of operating, investing and financing activities from continuing operations on the Company’s cash flows for the 2007 and 2006 Periods:

(dollars in thousands)
Summary of Net Increase (Decrease) in Total Cash Flows	2007			2006			Difference
Cash provided by continuing operating activities	$	50,826		$	8,459		$	42,367
Cash utilized by investing activities		(57,986	)		(14,652	)		(43,334	)
Cash provided (utilized) by financing activities		15,729			(94	)		15,823
Total increase (decrease) in cash flows	$	8,569		$	(6,287	)	$	14,856

Net cash provided by operating, investing and financing activities increased $14.8 million to $8.5 million for the 2007 Period compared to net cash used of $6.3 million for the 2006 Period. The improvement in net cash for the 2007 Period occurred primarily as a result of increased cash provided by operating activities of $42.3 million and increased cash provided by financing activities of $15.8 million due to increased long-term debt as the Company financed improvements to its infrastructure. This improvement was partially offset by increased cash used by investing activities of $43.3 million due primarily to increased capital expenditures and decreased net proceeds from sales of investments by the Company’s insurance subsidiaries. Working capital was $87.5 million and $99.1 million, respectively, and the current ratio was 1.3 at September 29, 2007 and September 30, 2006.

Operating Activities:    Net cash provided by operating activities increased by $42.3 million to $50.8 million for the 2007 Period compared to $8.5 million for the 2006 Period. The increase in cash provided by operating activities compared to the 2006 Period was attributable primarily to decreases between the periods in cash utilized to pay accounts payable and accrued liabilities ($22.9 million), as well as a reduction in cash used for the purchase of inventories and to pay for prepaid expenses ($19.7 million). Additionally, $13.6 million in cash was provided from net sales and purchases of trading securities for the Company’s insurance subsidiaries. These increases of $56.2 million in cash provided were partially offset by increased pension plan contributions ($1.1 million), increased accounts receivable between the periods ($2.0 million), increased cash surrender value of life insurance policies (see “Investing Activities” below) related to appreciation in policy values ($2.0 million) and reduced growth between the periods in long-term liabilities ($6.2 million). In addition, net cash of $2.6 million was used by other operating activities.

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Investing Activities:    Net cash used in investing activities increased by $43.3 million to $58.0 million for the 2007 Period compared to $14.7 million utilized in the 2006 Period. The increase in cash used for investing activities during the 2007 Period as compared to the 2006 Period was due mainly to (1) increases in net capital expenditures of $20.7 million for a renovation of a Company-owned facility and purchases of warehouse and computer equipment, (2) increases in other assets of $2.8 million consisting primarily of life insurance policies held in support of the Company’s executive salary protection plan (excluding the 2007 Period increase in cash surrender value, which is shown as a component of operating activities) and premium deposits for workers’ compensation insurance (see Note 11 to Notes to Consolidated Financial Statements in Item 8, “Financial Statements and Supplementary Data”), and (3) decreases of $22.0 million in net proceeds from sales of investments by the Company’s insurance subsidiaries, consisting of the purchase and sale of securities to replace maturing investments in their portfolios. This $45.5 million in cash used was partially offset by $2.2 million due to (1) decreased notes receivable, reflecting normal fluctuations in loan activity to Members for their inventory and equipment financing, and (2) proceeds from the disposition of 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 provided by financing activities was approximately $15.7 million for the 2007 Period compared to $0.1 million utilized for the 2006 Period. The net increase of $15.8 million in cash provided by financing activities for the 2007 Period as compared to the 2006 Period was due primarily to changes in the Company’s long-term and short-term notes payable and deferred financing fees, an increase of $19.4 million resulting from higher borrowings and the payment of financing fees associated with the Company’s amendment and restatement of its secured revolving credit facility (see “Credit Facilities” and “Contractual Obligations and Commercial Commitments” below). This increase in cash was partially offset by cash utilized as a result of changes in Member investment activities and share redemptions of $3.6 million. Future cash used by financing activities is expected to be funded by the Company’s continuing operating cash flow and the positive impact of the Equity Enhancement Plan to meet operating and capital spending requirements (see “Equity Enhancement Plan” below).

Equity Enhancement Plan

In fiscal 2002, the Company initiated an equity enhancement plan designed to build equity in the Company for future investment in the business and other infrastructure improvements. In fiscal 2002, a portion of the patronage dividend was retained in the form of patronage dividend certificates that mature in fiscal 2008. In November 2002, the Company amended its Bylaws, increasing the required holdings of Class A Shares from 100 shares in fiscal 2002 to 350 shares by the end of fiscal 2007. In addition, in fiscal 2003, the Company introduced a new class of capital stock, denominated “Class E Shares.” Class E Shares were issued as part of the patronage dividends issued in fiscal years 2007, 2006, 2005, 2004 and 2003 for the Cooperative Division and are available to be issued in future years at the discretion of the Board.

Credit Facilities

The Company has a $225 million revolving credit agreement, expiring on January 31, 2012. The revolving credit agreement contains an option to expand to $300 million in the future. See “Contractual Obligations and Commercial Commitments” for additional information. The Company borrowed $77.0 million under the facility as of September 29, 2007, with access to a significant amount of capital (based on the amounts indicated above) under this facility still available to the Company. In addition, on January 6, 2006, the Company amended and restated its Senior Note Agreement with John Hancock Life Insurance Company (see “Outstanding Debt and Other Financing Arrangements”). This amended and restated Senior Note Agreement provided an additional $6.2 million in funds to the Company and extended the maturity date to January 1, 2016 from April 1, 2008 and October 1, 2009 on $86.0 million of the notes.

Pension and Postretirement Benefit Plans

The Company’s employees not subject to a collective bargaining agreement participate in a cash balance pension plan (the “Benefit Plan”) sponsored by the Company. Under the Benefit Plan, participants are credited with an annual accrual based on years of service with the Company. The Company makes contributions to the Benefit 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. The Company also has an

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Executive Salary Protection Plan (“ESPP II”) that provides supplemental post-termination retirement income based on each participant’s final salary and years of service as an officer of the Company. During fiscal 2007, the Company contributed $1.1 million and $3.4 million to the Benefit Plan for the 2006 plan year and 2007 plan year, respectively. In addition, the Company also contributed $0.6 million in fiscal 2007 to the ESPP II Plan to fund benefit payments to participants. At this time, the Company expects to make estimated contributions to the Benefit Plan totaling $10.7 million in fiscal 2008 for the 2008 plan year ($4.7 million) and 2007 plan year ($6.0 million). Additional contributions, if any, for the 2007 plan year will be due by September 15, 2008, while contributions for the 2008 plan year will be due by September 15, 2009. In addition, the Company expects to contribute $1.3 million to the ESPP II Plan to fund projected benefit payments to participants in fiscal 2008.

Assuming a long-term rate of return on plan assets of 8.50%, a discount rate of 6.50% and certain other assumptions, the Company estimates that its combined pension expense for the Benefit Plan and ESPP II for fiscal 2008 will be approximately $4.6 million. Future pension expense will be affected by future investment performance, discount rates and other variables such as expected rate of compensation increases and mortality rates relating to plan participants. Decreasing both the discount rate and projected salary increase assumptions by 0.5% would increase the Company’s projected fiscal 2008 pension expense for the Benefit Plan and ESPP II by approximately $0.4 million.

The Company sponsors postretirement benefit plans that cover both nonunion and union employees. Retired nonunion employees currently are eligible for a plan providing medical benefits and a certain group of retired nonunion employees currently participate in a plan providing life insurance benefits for which active nonunion employees are no longer eligible.

Assuming a discount rate of 6.50% and certain other assumptions, the Company estimates that postretirement expense for fiscal 2008 will be approximately $3.7 million. Future postretirement expense will be affected by discount rates and other variables such as expected rate of compensation increases and projected health care trend rates.

Off-Balance Sheet Arrangements

As of the date of this report, with the exception of the transaction disclosed in Note 2 of Notes to Consolidated Financial Statements in Item 8, “Financial Statements and Supplementary Data,” the Company does 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 contractual narrow or limited purposes.

Contractual Obligations and Commercial Commitments

At September 29, 2007, the Company was contingently liable with respect to ten lease guarantees for certain Members with commitments expiring through 2017. The Company believes the locations underlying these leases are marketable and, accordingly, that it will be able to recover a substantial portion of the guaranteed amounts in the event the Company is required to satisfy its obligations under the guarantees. In addition to the lease guarantees, the Company also guarantees certain third-party loans issued to Members and standby letters of credit to certain beneficiaries. Accordingly, with respect to the third-party loan guarantees, the Company would be required to pay these obligations in the event of default by the Member. The Company would be obligated under the standby letters of credit to the extent of any amount utilized by the beneficiaries.

During fiscal 2006 and 2004, the Company entered into two lease guarantees with two of its Members. The guarantees have twenty-year and ten-year terms, respectively, and as of September 29, 2007, the maximum potential amount of future payments that the Company could be required to make as a result of the Member’s non-payment of rent is approximately $3.5 million and $2.1 million, respectively. Pursuant to Financial Accounting Standards Board Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” Unified has recorded a liability in connection with these guarantee arrangements. These liabilities, which amount to approximately $0.4 million and $0.1 million, respectively, at September 29, 2007, represent the premiums receivable from the Members as consideration for the guarantees, and are deemed to be the fair value of the lease guarantees. The Company does not believe, based on historical experience and information currently available, that it is probable that any amounts will be required to be paid under these guarantee arrangements.

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The Company’s contractual obligations and commercial commitments at September 29, 2007 are summarized as follows:

(dollars in thousands)
	Payments due by period
Contractual Obligations	Total		Less than 1 year		1-3 years		4-5 years		More than 5 years
Senior secured notes	$	95,637	$	4,940	$	4,697	$	6,158	$	79,842
Revolving lines of credit		77,000		—		—		—		77,000
Operating lease obligations		123,545		19,295		32,279		26,196		45,775
Capital lease obligations		472		152		320		—		—
Other long-term obligations		—		—		—		—		—
Secured borrowings to banks, including standby repurchase obligations		2,939		946		1,595		344		54
Projected interest on contractual obligations		100,741		18,841		38,973		26,768		16,159
Total contractual cash obligations	$	400,334	$	44,174	$	77,864	$	59,466	$	218,830

(dollars in thousands)
	Payments due by period
Other Commercial Commitments	Total		Less than 1 year		1-3 years		4-5 years		More than 5 years
Standby letters of credit	$	41,050	$	41,050	$	—	$	—	$	—
Lease and loan guarantees		17,292		3,598		8,447		3,965		1,282
Total commercial commitments	$	58,342	$	44,648	$	8,447	$	3,965	$	1,282

On September 30, 2007, subsequent to Unified’s fiscal 2007 year-end, the Company completed the AG Acquisition (see Note 18 of Notes to Consolidated Financial Statements in Item 8, “Financial Statements and Supplementary Data”). The total purchase price was $39.5 million in cash, which was financed through the Company’s revolving credit line. At the conclusion of the 45-day period following September 30, 2007, the purchase price was adjusted by an increase of approximately $0.3 million, based upon post-closing adjustments to AG’s balance sheet and other considerations as specified in the Asset Purchase Agreement.

Obligations under the Company’s Benefit Plan and ESPP II are disclosed in Note 11 of Notes to Consolidated Financial Statements in Item 8, “Financial Statements and Supplementary Data.”

The projected interest component on the Company’s contractual obligations was estimated based on the prevailing or contractual interest rates for the respective obligations over the period of the agreements (see Note 6 of Notes to Consolidated Financial Statements in Item 8, “Financial Statements and Supplementary Data”).

Prior to fiscal 2005, Springfield Insurance Company, a wholly owned insurance subsidiary of the Company, held investments carried at fair value on deposit with regulatory authorities in compliance with statutory insurance regulations. During fiscal 2005, Springfield Insurance Company entered into a $41.8 million standby letter of credit agreement to secure workers’ compensation claims in the event this subsidiary is unable to meet these obligations. The standby letter of credit is secured by investments of Springfield Insurance Company carried at fair values of $58.3 million and $55.9 million at September 29, 2007 and September 30, 2006 (including $0.9 million and $1.3 million in cash and cash equivalents), respectively, and such investments have concurrently been released from their deposit restriction by virtue of implementing and maintaining the standby letter of credit. During fiscal 2007, the standby letter of credit agreement was amended to (1) extend its expiration date to April 1, 2008, including an automatic extension without amendment for one year beyond the expiration date unless written notice of intention not to extend is given sixty days prior to the expiration date, and (2) decrease the amount under the agreement to $36.7 million.

During August 2006, a Member of the Company, a related party as discussed in Note 17 to Notes to Consolidated Financial Statements in Item 8, “Financial Statements and Supplementary Data,” entered into a $1.1 million standby letter of credit agreement with our finance subsidiary to secure insurance coverage with Springfield

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Insurance Company, a wholly owned subsidiary, in the event the Member is unable to meet its obligations. The non-transferable standby letter of credit expires August 1, 2008, and is automatically renewable in one-year increments without amendment unless 30 days’ prior written notice is provided.

Outstanding Debt and Other Financing Arrangements

In fiscal 2003, the Company issued $3.3 million of patronage dividend certificates (“Patronage Certificates”) as a portion of its patronage dividends for fiscal 2002. The Company offset approximately $128,000 of these certificates against a portion of amounts owed to the Company by the holders in fiscal 2003. These Patronage Certificates are included in subordinated patronage dividend certificates in the consolidated balance sheets.

The Company’s notes payable and scheduled maturities are summarized as follows:

(dollars in thousands)
	September 29, 2007		September 30, 2006
Senior secured notes	$	95,637	$	96,480
Secured revolving credit agreement		77,000		53,600
Member financing arrangement		2,939		5,144
Capital investment notes		—		6,316
Obligations under capital leases		472		49
Total notes payable		176,048		161,589
Less portion due within one year		6,038		8,405
	$	170,010	$	153,184

Senior Secured Notes

The Company had a total of $95.6 million outstanding, at September 29, 2007, 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. At September 30, 2006, $96.5 million was outstanding under the Senior Note Agreement.

On January 6, 2006 (the “effective date”), the Company entered into an agreement (the “Senior Note Agreement Amendment”) with Hancock which amended and restated its Senior Note Agreement to $96.8 million as of the effective date of the Senior Note Agreement Amendment. The Senior Note Agreement Amendment extended the maturity date to January 1, 2016 from April 1, 2008 and October 1, 2009 on $46.0 million and $40.0 million of the notes, respectively. The Senior Note Agreement Amendment also decreased interest rates that ranged from 7.72% to 8.71% on $86.0 million of notes to 6.421% on $46.0 million of notes and 7.157% on $40.0 million of notes.

The Senior Note Agreement Amendment calls for interest only payments for the first five years of the term, and then starting on the 61st payment, approximately $0.8 million principal plus interest on the $86.0 million of notes. At the maturity date, a balloon payment of $66.3 million is due. In addition, $4.7 million of notes will mature on April 1, 2008 (monthly payments of approximately $0.1 million principal plus interest at 7.72%) and $4.5 million of notes will mature on October 1, 2009 (monthly payments of interest only at 8.71%), with balloon payments of $4.4 million and $4.5 million, respectively.

The notes continue to be secured by certain of the Company’s personal and real property and contain customary covenants, default provisions (including acceleration of the debt in the event of an uncured default), and prepayment penalties similar to those included in the original note purchase agreement.

Secured Revolving Credit Agreement

In addition, the Company has a $225.0 million secured revolving credit facility (“Revolving Credit Agreement”). The Revolving Credit Agreement expires on January 31, 2012 and bears interest at either LIBOR plus an applicable

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margin (0.75% to 1.75%), or the lender’s base rate plus an applicable margin (0.00% to 0.25%). At September 29, 2007, the Revolving Credit Agreement bore interest at the lender’s base rate (7.75% plus 0.00%), or adjusted LIBOR (5.61% plus 1.00%). The Revolving Credit Agreement contains an option to expand to $300 million in the future. Undrawn portions of the commitments under the Revolving Credit Agreement bear commitment fees at rates between 0.15% and 0.35% per annum. The Revolving Credit Agreement is collateralized by the accounts receivable and inventories of the Company and certain subsidiaries. The Company had $77.0 million outstanding under the Revolving Credit Agreement at September 29, 2007.

The Company previously had a $225.0 million secured revolving credit facility (“Former Revolving Credit Agreement”), whose term was scheduled to expire on December 5, 2007. The Former Revolving Credit Agreement bore interest at either LIBOR plus an applicable margin (1.00% to 2.00%), or the lender’s base rate plus an applicable margin (0.00% to 0.75%). At September 30, 2006, the Former Revolving Credit Agreement bore interest at the lender’s base rate (8.25% plus 0.00%), or adjusted LIBOR (5.34% plus 1.25%). In each case, the applicable margin was based on the ratio of funded debt to operating cash flow. The Former Revolving Credit Agreement permitted advances of up to 85% of eligible accounts receivable and 65% of eligible inventories. The unused portion of the credit line was subject to a commitment fee of 0.25%. The Former Revolving Credit Agreement was collateralized by the accounts receivable and inventories of the Company and certain subsidiaries. The Company had $53.6 million outstanding under the Former Revolving Credit Agreement at September 30, 2006.

The Revolving Credit Agreement, the Former Revolving Credit Agreement and the Senior Note Agreement Amendment each contain customary representations, warranties, financial covenants, and default and pre-payment provisions for these types of financing. Obligations under these credit agreements are senior to the rights of Members with respect to Required Deposits, patronage dividend certificates and subordinated notes. Both the Revolving Credit Agreement and the Senior Note Agreement Amendment limit the incurrence of additional funded debt and the incurrence of liens except permitted liens. Examples of default conditions include the failure to pay an installment of principal or interest under the agreements, the making of false representations and warranties, and non-compliance with one or more financial covenants (minimum tangible net worth, fixed charge coverage ratio and funded debt to earnings before interest, income taxes, depreciation, amortization and patronage dividends, “EBITDAP”). The Revolving Credit Agreement and the Senior Note Agreement Amendment both limit distributions to shareholders (including the repurchase of shares) to designated permitted redemptions, and prohibit all distributions and payments on Patronage Certificates when an event of default has occurred and is continuing. In the event the Company is not in compliance with the financial covenants of the Revolving Credit Agreement and the Senior Note Agreement Amendment, the continued availability of loan funds or the terms upon which such loans would be available could be negatively impacted, and the impact to the Company could be material. As of September 29, 2007, the Company was in compliance with all applicable covenants of its Revolving Credit Agreement and Senior Note Agreement Amendment.

Member Financing Arrangement

A $10.0 million credit agreement with a third party bank is collateralized by Grocers Capital Company’s (“GCC”) Member loan receivables. GCC is a wholly owned subsidiary of the Company whose primary function is to provide financing to Members who meet certain credit requirements. Funding for loans is derived from the cash reserves of GCC, as well as the $10.0 million credit facility. The credit agreement, which was amended and restated, matures on March 31, 2010. Amounts advanced under the credit agreement bear interest at prime (7.75% and 6.75%) or Eurodollar (5.23% and 5.36%) plus 2.00% at September 29, 2007 and September 30, 2006, respectively. The applicable rate is determined at the Company’s discretion. The unused portion of the credit line is subject to a commitment fee of 0.125%. GCC had no borrowings outstanding at September 29, 2007 and September 30, 2006.

Member loan receivables are periodically sold by GCC to the third party bank through a loan purchase agreement. This loan purchase agreement, which was amended and restated, matures on March 31, 2008. Total loan purchases under the agreement are limited to a total aggregate principal amount outstanding of $70.0 million. The loan purchase agreement does not qualify for sale treatment pursuant to SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” as amended by SFAS No. 156, “Accounting for Servicing of Financial Assets.” Accordingly, the Company accounts for the transfer of these financial assets as a secured borrowing with a pledge of collateral. The aggregate amount of secured borrowings with the third party

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bank was $2.9 million and $5.1 million at September 29, 2007 and September 30, 2006, respectively. The pledged collateral included in current notes receivable was $0.9 million and $1.2 million and non-current amounts were $2.0 million and $3.9 million at September 29, 2007 and September 30, 2006, respectively. The notes receivable generally bear interest at rates averaging prime/LIBOR plus 1.26%, are paid monthly and have remaining maturity dates ranging from 2007 to 2014.

Capital Investment Notes

The Company’s capital investment notes were serialized, had a minimum interest rate of 5.00% and matured ten years from the date of issuance. The notes were subordinated and had maturity dates through 2007. The notes originated with United Grocers, Inc. (“United”) and were assumed as part of the Company’s merger (the “Merger”) with United. As of September 29, 2007, the balance outstanding on these notes has been fully paid.

Loan Guarantees

The Company also guarantees certain loans made directly to Members by third-party lenders. At September 29, 2007 and September 30, 2006, the maximum principal amount of these guarantees was $0.1 million and $0.2 million, respectively. Member loans, provided by the Company and third parties, are generally secured with collateral, which usually consists of personal and real property owned by Members and may include personal guarantees of Members at the discretion of the Company.

MEMBER INVESTMENTS AND PATRONAGE DIVIDENDS

Members are required to meet specific capitalization requirements, which include capital stock ownership and may include required cash deposits. In addition, each Member must meet minimum purchase requirements that may be modified at the discretion of the Company’s Board of Directors (the “Board”). Unified currently requires each Member to hold Class B Shares having an issuance value equal to an amount determined under one of the two methods as discussed below (the “Class B Share requirement”). For purposes of determining the Class B Share requirement, each Class B Share held by a Member has an issuance value equal to the Exchange Value Per Share of the Company’s outstanding shares at the close of the fiscal year end prior to the issuance of such Class B Shares.

The Class B Share requirement is determined twice a year, at the end of the Company’s second and fourth fiscal quarters, based on the Member’s purchases from the Cooperative Division during the preceding four quarters. In addition to providing equity capital to Unified, the Class B Shares also serve to secure the credit obligations of the Members to Unified. However, withdrawing Members are not permitted to offset amounts owed to Unified against their capital stock ownership in Unified. Any shares held by such withdrawing Members are subject to repurchase as described under “Redemption of Capital Stock.”

A reduced investment option is available if certain qualifications are met. The Standard Class B Investment requirement (“SBI”) is twice the amount of certain of the Member’s average weekly purchases, except for meat and produce, which are one times average weekly purchases. If purchases are not made weekly, the average weekly purchases are based on the number of weeks in which purchases were actually made. Members may apply for the Reduced Class B Investment requirement (“RBI”), which requires Members to pay for their purchases electronically on the statement due date and demonstrate credit worthiness. The RBI is based on a sliding scale such that additional purchase volume marginally reduces the requirement as a percentage of purchase volume. These modifications were effective as of the end of the second quarter of fiscal 2005. Members who do not apply for the RBI remain on the SBI.

New Members typically must satisfy their Class B Share requirement entirely through the holding of Class B Shares by the end of the sixth year of membership. In such cases, the purchase price for Class B Shares may be paid by either direct purchase or new Members may satisfy their Class B Share requirement over the five consecutive fiscal years commencing with the first year after admission as a Member by acquiring Class B Shares at the rate of 20% per year if a subordinated cash deposit (“Required Deposit”) is provided for the full amount of the Class B Share requirement.

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The Required Deposit may generally be paid either in full upon acceptance as a new Member or 75% upon acceptance and the balance paid over a 26-week period. Required Deposits for Members adding new stores can either be paid in full or with a 50% down payment and the balance paid over a 26-week period. Members may also maintain deposits with Unified in excess of such Required Deposit amounts (“Excess Deposits”). The Company does not pay interest on the Required Deposit amounts. However, the Company currently pays interest at the prime rate for any cash deposits in excess of the Member’s Required Deposit amount. All such deposits of a Member are maintained in the Member’s deposit account.

Former United members who did not receive sufficient Class B Shares to meet the minimum Class B Share requirement immediately following the Merger were provided the opportunity to build the Class B Share requirement over time.

Members are required to execute subordination agreements providing for the pledging of their Required Deposit accounts to Unified and the subordination of the Member’s right to repayment of their Required Deposit to the prior payment in full of senior indebtedness of Unified.

Upon request, the Company will return Excess Deposits to Members provided that the Member is not in default of any of its obligations to Unified. Members may have cash in their deposit accounts that exceed the Required Deposit amounts if the Members’ purchases during the period when the Required Deposit amount is determined to have declined from the previous measuring period or the Members have received cash patronage dividends, which are deposited into the Members’ deposit accounts. If membership status is terminated, Members are entitled to have their cash deposits returned, less any amounts owed to Unified. In all cases, a return of that portion of the Member’s cash deposits that consists of Required Deposits will be governed by the applicable subordination provisions and will be returned only to the extent permitted by the subordination provisions. In addition, a withdrawing Member is entitled to recover Required Deposits in excess of its obligations to Unified if permitted by the applicable subordination provisions. The Company does not permit the Member to offset any obligations owing to Unified against the Required Deposit.

Unified’s obligation to repay Members’ Required Deposit accounts on termination of Member status (once the Member’s obligations to Unified have been satisfied) is reported as a long-term liability on Unified’s consolidated balance sheets. Excess Deposits are not subordinated to Unified’s other obligations and are reported as short-term liabilities on Unified’s consolidated balance sheets. At September 29, 2007 and September 30, 2006, Unified had $7.0 and $10.2 million, respectively, in “Members’ required deposits” and $17.4 and $13.9 million, respectively, in “Members’ excess deposits and declared patronage dividends” (of which $15.0 and $10.7 million, respectively, represented Excess Deposits as previously defined).

For fiscal 2002, patronage dividends for the Cooperative Division were paid in Class B Shares and Patronage Certificates. Patronage Certificates have a term of five years and an interest rate approximating the five-year Treasury rate as such rate exists at fiscal year end, and such rate is to be adjusted annually thereafter to approximate the same benchmark interest rate on each anniversary of the fiscal year end.

In fiscal 2003, the Company issued $3.3 million of Patronage Certificates as a portion of its patronage dividends for fiscal 2002. These Patronage Certificates are included in “Subordinated patronage dividend certificates” in the accompanying consolidated balance sheets.

In December 2002, as part of its fiscal 2003 Equity Enhancement Plan, the Board and the shareholders authorized the creation of a new class of equity, denominated “Class E Shares.” The Class E Shares were issued as a portion of the patronage dividends issued for the Cooperative Division in fiscal years 2003 through 2007, and may be issued as a portion of the patronage dividends issued for the Cooperative Division in future periods, as determined annually at the discretion of the Board. The Class E Shares have a stated value of $100 per share, and are non-voting equity securities. Dividends on Class E Shares can be declared and may be payable at the discretion of the Board. Class E Shares are transferable only with the consent of the Company.

On October 5, 2006, the Board declared a 6% cash dividend (approximately $0.9 million) on the outstanding Class E Shares of the Company as of September 28, 2006. The dividend was paid on January 5, 2007. This cash dividend was the result of favorable, non-recurring events in fiscal 2006 that increased the Company’s earnings

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(see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”). Cash dividends are not generally paid by the Company and may be declared in unique circumstances solely at the discretion of the Board.

For fiscal 2005, patronage dividends in the Cooperative Division were paid to Members in the form of:

· Class B Shares to the extent of any deficiency in the Member meeting its Class B Share requirement; and

· Class E Shares for the balance of the patronage dividend due to the Member.

For fiscal 2007 and fiscal 2006, patronage dividends in the Cooperative Division were paid to Members as follows:

· The first 30% of the patronage dividend was distributed in Class E Shares.

· The remaining 70% of the patronage dividend was distributed as a combination of cash and Class B Shares as follows:

· The first 20% of this portion of the dividend was paid in cash.

· The remaining amount was paid in Class B Shares to the extent of any deficiency in the Member meeting its Class B Share Requirement, and the remainder will be deposited in cash to the Member’s deposit fund.

The accompanying financial statements reflect patronage dividends earned by Members as of the fiscal year ended September 29, 2007. The actual distribution of the dividend is anticipated to take place in early 2008.

Patronage dividends generated by the dairy divisions have historically been paid in cash.

REDEMPTION OF CAPITAL STOCK

The Articles of Incorporation and Bylaws currently provide that Unified has the right to repurchase any Class A Shares, Class B Shares or Class E Shares held by a former Member, and any Class B Shares in excess of the Class B Share requirement (“Excess Class B Shares”) held by a current Member, whether or not the shares have been tendered for repurchase. The repurchase of Class A Shares, Class B Shares or Class E Shares is solely at the discretion of the Board. Pursuant to the Company’s redemption policy, Class E Shares cannot be repurchased for ten years from their date of issuance unless approved by the Board or upon sale or liquidation of the Company. After ten years, the holder may request that Unified, at the sole discretion of the Board, repurchase Class E Shares, even if the membership of the holder has not terminated. The shares, when redeemed, will be redeemed at stated value.

Subject to the Board’s determination to redeem shares, any repurchase of shares will be on the terms, and subject to restrictions, if any, set forth in:

· The California General Corporation Law, including Section 500;

· The Company’s Articles of Incorporation and Bylaws;

· Any credit or other agreement to which the Company is a party; and

· The Company’s redemption policy.

The Board has the discretion to modify the redemption policy from time to time.

The Company’s redemption policy also currently provides that the number of Class B Shares that Unified may redeem in any fiscal year will be typically limited to approximately 5% of the sum of:

· The number of Class B Shares outstanding at the close of the preceding fiscal year end; and

· The number of Class B Shares issuable as a part of the patronage dividend distribution for such preceding fiscal year.

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The Board has the right to amend the Company’s redemption policy at any time, including, but not limited to, changing the order in which repurchases will be made or suspending or further limiting the number of shares repurchased, except as otherwise may be expressly provided in the Articles of Incorporation.

As a California corporation, the Company is subject to the provisions of the California General Corporation Law, including Section 500, which limits the ability of the Company to make distributions, including distributions to repurchase its own shares and make any payments on notes issued to repurchase Unified shares. Section 500 permits such repurchase and note payments only when retained earnings calculated in accordance with generally accepted accounting principles equal or exceed the amount of any proposed distribution or an alternative asset/liability ratio test is met.

Critical Accounting Policies and Estimates

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

The Company believes the following discussion addresses its most critical accounting policies, which are those that are most important to the portrayal of the Company’s financial condition and results and requires management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company’s critical accounting policies and important accounting practices are described below.

Insurance Reserves.    The Company’s insurance subsidiaries provide various types of insurance products to its Members including workers’ compensation, general liability, auto, directors and officers and others. Certain of the Company’s insurance subsidiaries are regulated by the State of California and are subject to the rules and regulations promulgated by the appropriate state regulatory agencies. There are many factors that contribute to the variability in estimating insurance loss reserves and related costs. Changes in state regulations may have a direct impact on workers’ compensation cost and reserve requirements. In fiscal 2004, mandatory contributions to the California Workers’ Compensation Fund for California based companies were reduced to somewhat mitigate the impact of the rising workers’ compensation cost to these businesses. The cost of insurance and the sufficiency of loss reserves are also impacted by actuarial estimates based on a detailed analysis of health care cost trends, mortality rates, claims history, demographics and industry trends. As a result, the amount of the loss reserve and the related expense is significantly affected by these variables, as well as the periodic changes in state and federal law. The Company regularly assesses the sufficiency of its loss reserves, which represent potential future claims and settlements to policyholders. Insurance reserves are recorded based on estimates and assumptions made by management using data available at the valuation date and are validated by third party actuaries to ensure such estimates are within acceptable ranges. In addition, the Company’s Wholesale Distribution segment was self-insured for workers’ compensation of up to $300,000 per incident through December 31, 2006, while the Company’s insurance subsidiaries provided additional coverage from $300,001 to $1,000,000 per incident. Beginning January 1, 2007, the Company is self-insured for workers’ compensation up to $1,000,000 per incident through its insurance subsidiaries and maintains appropriate reserves to cover anticipated payments. Insurance reserves maintained by the Company’s insurance subsidiaries and the Company’s reserve for projected workers’ compensation payouts totaled approximately $55.4 million as of September 29, 2007 and $57.0 million as of September 30, 2006.

Allowance for Uncollectible Accounts and Notes Receivable.    The preparation of the Company’s consolidated financial statements requires management to make estimates of the collectibility of its accounts and notes receivable. The Company’s trade and short-term notes receivable, net was approximately $148.2 million and $146.3 million (including approximately $4.2 million and $5.3 million of short-term notes receivable) at September 29, 2007 and September 30, 2006, respectively. The Company’s long-term notes receivable, net was approximately $10.2 million and $10.6 million at September 29, 2007 and September 30, 2006, respectively. Management regularly analyzes its accounts and notes receivable for changes in the credit-worthiness of

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customers, economic trends and other variables that may affect the adequacy of recorded reserves for potential bad debt. In determining the appropriate level of reserves to establish, the Company utilizes several techniques including specific account identification, percentage of aged receivables and historical collection and write-off trends. In addition, the Company considers in its reserve calculations collateral such as Member shareholdings, cash deposits and personal guarantees. A bankruptcy or financial loss associated with a major customer could have a material adverse effect on the Company’s sales and operating results. The Company’s allowance for doubtful accounts for trade and short-term notes receivable was approximately $1.7 million and $2.4 million at September 29, 2007 and September 30, 2006, respectively, and $0.4 million and $0.5 million for long-term notes receivable at September 29, 2007 and September 30, 2006, respectively.

Lease Loss Reserves.    The Company has historically subleased store sites to independent retailers who meet certain credit requirements, at rates that are at least as high as the rent paid by the Company. Under the terms of the original lease agreements, the Company remains primarily liable for any financial commitments a retailer may no longer be able to satisfy. Should a retailer be unable to perform under the terms of the sublease, the Company would record a charge to earnings for the cost of the remaining term of the lease, less any expected sublease income, at net present value. The Company is also contingently liable for certain subleased facilities. Variables affecting the level of lease reserves recorded include the remaining lease term, vacancy rates of leased property, the state of the economy, property taxes, common area maintenance costs and the time required to sublease the property. Favorable changes in economic conditions, leading to shorter vacancy periods or higher than expected sublease rental commitments, could result in a reduction of the required reserves. The Company’s lease reserves for all leased locations were approximately $7.8 million and $11.2 million as of September 29, 2007 and September 30, 2006, respectively.

Goodwill and Intangible Assets.    The Company’s operating results are highly dependent upon either maintaining or growing its distribution volume to its customers. The Company’s top ten Member and non-member customers constituted approximately 44% of total sales at September 29, 2007. A significant loss in membership or volume could adversely affect the Company’s operating results. The Merger with United resulted in the recording of goodwill representing the excess of the purchase price over the fair value of the net assets of the acquired business. The carrying value of the goodwill was approximately $24.3 million at September 29, 2007. Although the sales volume and customer base of the combined entity remains strong, significant reductions in the distribution volume in the future could potentially impair the carrying amount of goodwill necessitating a write-down of this asset.

The Company evaluates its goodwill and intangible assets for impairment pursuant to SFAS No. 142, “Goodwill and Other Intangible Assets,” which provides that goodwill and other intangible assets with indefinite lives are not amortized but tested for impairment annually, or more frequently if circumstances indicate potential impairment. The impairment test is comprised of two steps: (1) a reporting unit’s fair value is compared to its carrying value; if the fair value is less than its carrying value, impairment is indicated; and (2) if impairment is indicated in the first step, it is measured by comparing the implied fair value of goodwill and intangible assets to its carrying value at the reporting unit level. In determining fair value, the Company uses the discounted cash flow method, which assumes a certain growth rate projected over a period of time in the future and then discounted to net present value using the Company’s estimated cost of capital. The Company evaluates its goodwill for impairment in the third quarter of each fiscal year. Accordingly, the Company tested its goodwill and noted no impairment for the fiscal quarter ended June 30, 2007. In addition to the annual impairment test required under SFAS No. 142, during fiscal 2007 and 2006, the Company assessed whether events or circumstances occurred that potentially indicate that the carrying amount of these assets may not be recoverable. The Company concluded that there were no such events or changes in circumstances during fiscal 2007 and 2006 and determined that the fair value of the Company’s reporting units was in excess of its carrying value as of September 29, 2007 and September 30, 2006. Consequently, no impairment charges were recorded in fiscal 2007 and 2006.

Long-lived Assets.    In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets,” the Company assesses the impairment of long-lived assets when events or changes in circumstances indicate that the carrying value may not be recoverable. Recoverability is measured by comparing the carrying amount of an asset to expected future net cash flows generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized to the extent of the difference. SFAS No. 144 requires companies to separately report discontinued operations, including components of an entity that either have been disposed of (by sale, abandonment or in a distribution to owners) or classified as held for sale. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

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Factors that the Company considers important which could individually or in combination trigger an impairment review include the following:

· Significant underperformance relative to expected historical or projected future operating results;

· Significant changes in the manner of the Company’s use of the acquired assets or the strategy for our overall business; and

· Significant changes in our business strategies and/or negative industry or economic trend.

If the Company determines that the carrying value of long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, the Company will measure any impairment based on a projected discounted cash flow method using a discount rate commensurate with the Company’s estimated cost of capital.

On a quarterly basis, the Company assesses whether events or changes in circumstances occur that potentially indicate the carrying value of long-lived assets may not be recoverable. The Company concluded that there were no material events or significant changes in circumstances during fiscal 2007 and 2006.

Tax Valuation Allowances.    The Company accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes” (“SFAS No. 109”), which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. SFAS No. 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the net deferred tax asset will not be realized. In accordance with SFAS No. 109 and post quasi-reorganization accounting, valuation allowance reductions are accounted for as an adjustment to additional paid-in capital, while increases to the valuation allowance are accounted for as an adjustment to the income tax provision. The Company had approximately $16.3 million and $20.7 million in net deferred tax assets at September 29, 2007 and September 30, 2006. Management evaluated the available positive and negative evidence in assessing the Company’s ability to realize the benefits of the net deferred tax assets at September 29, 2007 and September 30, 2006 and concluded it is more likely than not that the Company does not require a tax valuation allowance. The net deferred tax assets should be realized through future operating results and the reversal of temporary differences. Of the net deferred tax assets, $10.5 million and $10.6 million are classified as current assets in deferred income taxes and $5.8 million and $10.1 million are included in other assets in the accompanying consolidated balance sheets as of September 29, 2007 and September 30, 2006, respectively.

Pension and Postretirement Benefit Plans.    The Company’s non-union employees participate in Company sponsored defined benefit pension and postretirement benefit plans. Officers of the Company also participate in a Company sponsored ESPP II plan, which provides supplemental post-termination retirement income based on each participant’s final salary and years of service as an officer of the Company. The Company accounts for these benefit plans in accordance with SFAS No. 87, “Employers’ Accounting for Pensions,” SFAS No. 106 “Employers’ Accounting for Postretirement Benefits Other Than Pensions” and SFAS No. 112 “Employers’ Accounting for Postemployment Benefits—an amendment of FASB Statements No. 5 and 43” which require the Company to make actuarial assumptions that are used to calculate the carrying value of the related assets and liabilities and the amount of expenses to be recorded in the Company’s consolidated financial statements. Assumptions include the expected return on plan assets, discount rates, projected life expectancies of plan participants, anticipated salary increases and health care cost trends. The assumptions are regularly evaluated by management in consultation with outside actuaries who are relied upon as experts. While the Company believes 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.

As discussed under “Recently Issued Pronouncements,” the Financial Accounting Standards Board (“FASB”) issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 106, and 132(R)” (“SFAS No. 158”). SFAS No. 158 requires companies to prospectively recognize the funded status of pension and other postretirement benefit plans on the balance sheet. Additionally, SFAS No. 158 requires companies to measure plan assets and obligations at their year-end balance sheet date. We adopted the recognition and disclosure provisions as of September 29, 2007 and will adopt the year-end measurement date provision as of October 3, 2009.

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The adoption of SFAS No. 158 impacted our September 29, 2007 consolidated balance sheet as follows: decrease in total assets of $6.7 million, decrease in total liabilities of $16.1 million, and increase in shareholders’ equity of $9.4 million. For additional information, see Notes 11 and 12 of Notes to Consolidated Financial Statements in Item 8, “Financial Statements and Supplementary Data”).

The Company contributes to collectively-bargained, multi-employer defined benefit pension plans in accordance with the provisions of negotiated labor contracts. The amount of the Company’s contribution is, in part, dependent upon the performance of the multi-employer plans’ assets whose administration is not subject to control by the Company.

Poor investment performance by the multi-employer plans could result in increased contributions required of all participating employers, including the Company, and such amounts may be material.

Inventories.    Inventories are primarily comprised of merchandise purchased for resale and are stated at the lower of FIFO (first-in, first-out) cost or market. The Company provides for estimated inventory losses between physical inventory counts based upon historical inventory losses as a percentage of sales. The provision is adjusted periodically to reflect updated trends of actual physical inventory count results.

Vendor Funds.    The Company receives funds from many of the vendors whose products the Company buys for resale to its Members. These vendor funds are provided to increase the sell-through of the related products. The Company receives funds for a variety of merchandising activities: placement of vendors’ products in the Members’ advertising; placement of vendors’ products in prominent locations in the Members’ stores; introduction of new products into the Company’s distribution system and Members’ stores; exclusivity rights in certain categories that have slower-turning products; and to compensate for temporary price reductions offered to customers on products held for sale at Members’ stores.

Vendor funds are reflected as a reduction of inventory costs or as an offset to cost incurred on behalf of the vendor for which the Company is being reimbursed in accordance with Emerging Issues Task Force (“EITF”) Issue No. 02-16, “Accounting by a Customer (including a Reseller) for Certain Consideration Received from a Vendor” (“EITF No. 02-16”). Amounts due from vendors upon achievement of certain milestones, such as minimum purchase volumes, are accrued prior to the achievement of the milestone if the Company believes it is probable the milestone will be achieved, and the amounts to be received are reasonably estimable.

The Company adheres to EITF Issue No. 03-10, “Application of Issue No. 02-16 by Resellers to Sales Incentives Offered to Consumers by Manufacturers” (“EITF No. 03-10”), which requires manufacturers’ sales incentives offered directly to consumers that do not meet certain criteria to be reflected as a reduction of revenue in the financial statements of a reseller. Accordingly, certain discounts and allowances negotiated by the Company on behalf of its Members are classified as a reduction in cost of sales with a corresponding reduction in net sales. Vendor funds that offset costs incurred on behalf of the vendor are classified as a reduction in distribution, selling and administrative expenses.

Recently Issued Pronouncements

In December 2007, the FASB issued Statements of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations,” and No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS No. 141(R)” and “SFAS No. 160”). SFAS No. 141(R) requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. SFAS No. 160 requires all entities to report noncontrolling (minority) interests in subsidiaries in the same manner—as equity in the consolidated financial statements and also requires transactions between an entity and noncontrolling interests to be treated as equity transactions. SFAS No. 160 requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated (as of the date the parent ceases to have a controlling financial interest in the subsidiary). Both statements are effective for fiscal years beginning on or after December 15, 2008. Early adoption of both statements is not permitted. Accordingly, SFAS No. 141(R) and SFAS No. 160 will be adopted commencing in the first quarter for the Company’s fiscal year 2010. The Company is currently assessing the impact these standards may have on its consolidated financial statements.

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In September 2006, the FASB ratified Emerging Issues Task Force (“EITF”) No. 06-4, “Accounting for Deferred Compensation and Postretirement Benefits Associated with Endorsement Split-Dollar Life Insurance Arrangements” (“EITF No. 06-4”) and in March 2007, the FASB ratified EITF Issue No. 06-10, “Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements” (“EITF No. 06-10”). EITF No. 06-4 requires deferred compensation or postretirement benefit aspects of an endorsement-type split-dollar life insurance arrangement to be recognized as a liability by the employer and states the obligation is not effectively settled by the purchase of a life insurance policy. The liability for future benefits should be recognized based on the substantive agreement with the employee, which may be either to provide a future death benefit or to pay for the future cost of the life insurance. EITF No. 06-10 provides recognition guidance for postretirement benefit liabilities related to collateral assignment split-dollar life insurance arrangements, as well as recognition and measurement of the associated asset on the basis of the terms of the collateral assignment split-dollar life insurance arrangement. EITF No.’s 06-4 and 06-10 are effective for fiscal years beginning after December 15, 2007. Accordingly, EITF No.’s 06-4 and 06-10 will be adopted commencing in the first quarter for the Company’s fiscal year 2009. The Company is currently assessing the impact these standards may have on its consolidated financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 provides companies with an option to measure, at specified election dates, many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS No. 159 is expected to expand the use of fair value measurement consistent with the Board’s long-term objectives for financial instruments. A company that adopts SFAS No. 159 will report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. Accordingly, SFAS No. 159 will be adopted commencing in the first quarter for the Company’s fiscal year 2009. The Company is currently assessing the impact this standard may have on its consolidated financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (“SFAS No. 158”). SFAS No. 158 requires that employers recognize on a prospective basis the funded status of an entity’s defined benefit pension and postretirement plans as an asset or liability in the financial statements, requires the measurement of defined benefit pension and postretirement plan assets and obligations as of the end of the employer’s fiscal year, and requires recognition of the funded status of defined benefit pension and postretirement plans. Due to unrecognized prior service costs and net actuarial gains and losses, the initial impact of adopting SFAS No. 158 (as well as subsequent changes in funded status) is recognized as a component of accumulated other comprehensive income which is included in total shareholders’ equity, net of applicable income tax. Previous amounts recorded as additional minimum liabilities and related intangible assets are also reversed upon adoption. In accordance with SFAS No. 158, fiscal year 2006 accounting and related disclosures were not affected by adoption of the new standard. SFAS No. 158 also requires additional disclosures in the notes to the financial statements. An employer without publicly traded equity securities shall initially apply the requirement to recognize the funded status of a benefit plan and the disclosure requirements as of the end of the fiscal year ending after June 15, 2007. Accordingly, the Company adopted SFAS No. 158 in the fourth quarter of its fiscal year ending September 29, 2007.

The table below summarizes the incremental effect of SFAS No. 158 adoption on the individual line items in the company’s consolidated balance sheet at September 29, 2007:

(dollars in thousands)
	Pre-SFAS No. 158 Adoption			SFAS No. 158 Adjustments			Post-SFAS No. 158 Adoption
Other assets, net (including deferred income taxes)	$	54,825		$	(6,364	)	$	48,461
Intangible pension asset (included in Other assets, net)		394			(394	)		—
Accrued liabilities (current portion of pension and postretirement liability)		100,312			4,209			104,521
Additional minimum pension liability (included in long-term liabilities, other)		394			(394	)		—
Long-term liabilities, other		103,320			(19,939	)		83,381
Accumulated other comprehensive (loss) earnings		(146	)		9,366			9,220

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The Company’s fiscal 2008 pension expense will include an estimated $0.4 million charge for its Cash Balance Plan and ESPP II plan combined as a result of amortizing prior service costs of $0.3 million and an actuarial loss of $0.1 million from accumulated other comprehensive income into pension expense over the next fiscal year. In addition, the Company’s fiscal 2008 postretirement expense will include an estimated $0.4 million credit for its postretirement benefit plans as a result of amortizing actuarial gains of $0.4 million from accumulated other comprehensive income into postretirement expense over the next fiscal year.

The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position shall be effective for fiscal years ending after December 15, 2008. Accordingly, the Company will adopt this requirement effective with its fiscal year-end 2009. The Company is currently assessing the impact that adoption of this portion of the standard will have on its consolidated financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 provides guidance for using fair value to measure assets and liabilities. Under SFAS No. 157, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. SFAS No. 157 establishes a fair value hierarchy that prioritizes the information used to develop the assumptions that market participants would use when pricing the asset or liability. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. In addition, SFAS No. 157 requires that fair value measurements be separately disclosed by level within the fair value hierarchy. SFAS No. 157 does not require new fair value measurements. In November 2007, the FASB reaffirmed that (1) companies will be required to implement SFAS No. 157 for financial assets and liabilities, as well as for any other assets and liabilities that are carried at fair value on a recurring basis in the financial statements; and (2) SFAS No. 157 remains effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The FASB did, however, provide a one-year deferral for the implementation of SFAS No. 157 for other non-financial assets and liabilities. Accordingly, SFAS No. 157, as modified above, will be adopted commencing in the first quarter for the Company’s fiscal year 2009. The Company is currently assessing the impact this standard may have on its consolidated financial statements.

In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB No. 108”). SAB No. 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The SEC staff believes that registrants should quantify errors using both a balance sheet and an income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. The guidance in SAB No. 108 must be applied to annual financial statements for fiscal years ending after November 15, 2006. Accordingly, the Company adopted SAB No. 108 effective with its fiscal year ending September 29, 2007. The adoption of SAB No. 108 did not have a significant impact on the Company’s financial condition and results of operations.

In July 2006, the FASB issued Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes,” which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” FIN 48 provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. Accordingly, FIN 48 will be adopted commencing in the first quarter of the Company’s fiscal year 2008. The Company believes the adoption of FIN 48 will not have a significant impact on its consolidated financial statements.

In June 2006, the FASB ratified the consensus reached on EITF Issue No. 06-03, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (that is, Gross versus Net Presentation).” The EITF reached a consensus that the presentation of taxes on either a gross or net basis is an accounting policy decision that requires disclosure. EITF Issue No. 06-03 is effective for the first interim or annual reporting period beginning after December 15, 2006. Taxes collected from the Company’s customers are and have been recorded on a net basis. As such, the adoption of EITF Issue No. 06-03 did not have an effect on the Company’s consolidated financial statements.

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In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS No. 154”). SFAS No. 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle and that a change in method of depreciation, amortization, or depletion for long-lived, non-financial assets be accounted for as a change in accounting estimate that is effected by a change in accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company adopted SFAS No. 154 effective with its fiscal year ending September 29, 2007. The adoption of SFAS No. 154 had no impact on the Company’s financial condition and results of operations.

Item 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following discussion of the market risks the Company faces contains forward-looking statements. Forward-looking statements are subject to risks and uncertainties. Actual results could differ materially from those discussed in the forward-looking statements.

Unified is subject to interest rate changes on certain of its notes payable under the Company’s credit agreements that may affect the fair value of the notes payable, as well as cash flow and earnings. Based on the notes payable outstanding at September 29, 2007 and the current market conditions, a one percent increase in the applicable interest rates would decrease the Company’s annual cash flow and pretax earnings by approximately $0.8 million. Conversely, a one percent decrease in the applicable interest rates would increase annual cash flow and pretax earnings by $0.8 million.

The Company is exposed to credit risk on accounts receivable through the ordinary course of business and the Company performs ongoing credit evaluations. Concentration of credit risk with respect to accounts receivable is limited due to the nature of our customer base (i.e., primarily Members). The Company currently believes its allowance for doubtful accounts is sufficient to cover customer credit risks.

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Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Unified Western Grocers, Inc.

We have audited the accompanying consolidated balance sheets of Unified Western Grocers, Inc. and subsidiaries (the “Company”) as of September 29, 2007 and September 30, 2006, and the related consolidated statements of earnings and comprehensive earnings, shareholders’ equity, and cash flows for each of the three years in the period ended September 29, 2007. Our audits also included the consolidated financial statement schedule listed in the index at Item 15(a)(2). These financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Unified Western Grocers, Inc. and subsidiaries as of September 29, 2007 and September 30, 2006, and the results of their operations and their cash flows for each of the three years in the period ended September 29, 2007, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, effective September 29, 2007, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132(R)”.

/s/ DELOITTE & TOUCHE LLP

Los Angeles, California

December 13, 2007

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Unified Western Grocers, Inc. and Subsidiaries

Consolidated Balance Sheets

(dollars in thousands)

	September 29, 2007			September 30, 2006
Assets
Current Assets:
Cash and cash equivalents	$	19,719		$	11,150
Accounts and current portion of notes receivable, net of allowances of $1.7 million and $2.4 million at September 29, 2007 and September 30, 2006, respectively		148,243			146,321
Inventories		204,994			206,843
Prepaid expenses		6,565			8,817
Deferred income taxes		10,531			10,563
Total current assets		390,052			383,694
Properties, net		196,276			176,333
Investments		78,178			74,972
Notes receivable, less current portion and net of allowances of $0.4 million and $0.5 million at September 29, 2007 and September 30, 2006, respectively		10,239			10,621
Goodwill		27,982			27,982
Other assets, net		48,461			43,513
Total Assets	$	751,188		$	717,115
Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable	$	171,429		$	153,577
Accrued liabilities		104,521			108,718
Current portion of notes payable		6,038			8,405
Current portion of subordinated patronage dividend certificates		3,141			—
Patrons’ excess deposits and declared patronage dividends		17,456			13,904
Total current liabilities		302,585			284,604
Notes payable, less current portion		170,010			153,184
Long-term liabilities, other		83,381			103,682
Patrons’ deposits and certificates:
Patrons’ required deposits		6,948			10,211
Subordinated patronage dividend certificates		—			3,141
Commitments and contingencies
Shareholders’ equity:
Class A Shares: 500,000 shares authorized, 168,300 and 154,150 shares outstanding at September 29, 2007 and September 30, 2006, respectively		28,886			25,333
Class B Shares: 2,000,000 shares authorized, 480,172 and 495,041 shares outstanding at September 29, 2007 and September 30, 2006, respectively		80,116			81,306
Class E Shares: 2,000,000 shares authorized, 205,330 and 186,350 shares outstanding at September 29, 2007 and September 30, 2006, respectively		20,533			18,635
Retained earnings after elimination of accumulated deficit of $26,976 effective September 28, 2002		50,385			38,017
Receivable from sale of Class A Shares to members		(876	)		(989	)
Accumulated other comprehensive earnings (loss)		9,220			(9	)
Total shareholders’ equity		188,264			162,293
Total Liabilities and Shareholders’ Equity	$	751,188		$	717,115

The accompanying notes are an integral part of these statements.

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Unified Western Grocers, Inc. and Subsidiaries

Consolidated Statements of Earnings and Comprehensive Earnings

(dollars in thousands)

	September 29, 2007			September 30, 2006			October 1, 2005
Net sales	$	3,133,441		$	2,953,823		$	2,866,862
Cost of sales		2,832,007			2,657,278			2,575,936
Distribution, selling and administrative expenses		245,728			237,192			237,425
Operating income		55,706			59,353			53,501
Interest expense		(13,840	)		(14,326	)		(14,851	)
Earnings before patronage dividends and income taxes		41,866			45,027			38,650
Patronage dividends		(17,680	)		(20,973	)		(21,404	)
Earnings before income taxes		24,186			24,054			17,246
Income taxes		9,780			7,912			6,426
Net earnings		14,406			16,142			10,820
Other comprehensive earnings (loss), net of income taxes:
Unrealized holding (loss) gain on investments		(137	)		99			(162	)
Minimum pension liability adjustment		—			366			(339	)
Comprehensive earnings	$	14,269		$	16,607		$	10,319

The accompanying notes are an integral part of these statements.

51

Unified Western Grocers, Inc. and Subsidiaries

Consolidated Statements of Shareholders’ Equity

(dollars in thousands)

For the fiscal years ended September 29, 2007, September 30, 2006, and October 1, 2005	Class A					Class B					Class E					Retained Earnings (Accumulated Deficit)			Receivable from sale of Class A Shares			Accumulated Other Comprehensive Earnings (Loss)			Total
	Shares		Amount			Shares		Amount			Shares		Amount
Balance, October 2, 2004	111,700		$	16,947		524,474		$	81,586		92,827		$	9,283		$	12,383		$	(1,047	)	$	27		$	119,179
Class A Shares issued	25,495			4,375																						4,375
Class A Shares redeemed	(9,300	)		(1,484	)												(103	)								(1,587	)
Class B Shares issued						27,730			5,427																	5,427
Class B Shares converted to Class A Shares	4,905			848		(4,905	)		(848	)																—
Class B Shares redeemed						(33,743	)		(5,291	)							(586	)								(5,877	)
Class B Shares retired						(7,799	)		(1,234	)																(1,234	)
Class E Shares issued											63,428			6,343												6,343
Class E Shares redeemed											(544	)		(55	)											(55	)
Net earnings																	10,820									10,820
Decrease in receivable due to payment for Class A Shares by members																				321						321
Net unrealized loss on depreciation of investments (net of deferred tax benefit of $90)																							(162	)		(162	)
Minimum pension liability adjustment (net of deferred tax benefit of $231)																							(339	)		(339	)
Quasi-reorganization adjustments:
Adjustment to pre quasi-reorganization discontinued operations reserves (net of deferred tax benefit of $33)				(7	)				(45	)																(52	)
Reduction of pre quasi-reorganization income tax valuation allowance				344					2,318																	2,662
Balance, October 1, 2005	132,800			21,023		505,757			81,913		155,711			15,571			22,514			(726	)		(474	)		139,821
Class A Shares issued	25,997			5,012																						5,012
Class A Shares redeemed	(9,550	)		(1,557	)												(271	)								(1,828	)
Class B Shares issued						17,642			3,889																	3,889
Class B Shares converted to Class A Shares	4,903			855		(4,903	)		(855	)																—
Class B Shares redeemed						(23,455	)		(3,641	)							(368	)								(4,009	)
Class E Shares issued											30,639			3,064												3,064
Net earnings																	16,142									16,142
Increase in receivable from sale of Class A Shares to members																				(263	)					(263	)
Net unrealized gain on appreciation of investments (net of deferred tax liability of $51)																							99			99
Minimum pension liability adjustment (net of deferred tax liability of $249)																							366			366
Balance, September 30, 2006	154,150			25,333		495,041			81,306		186,350			18,635			38,017			(989	)		(9	)		162,293
Class A Shares issued	22,989			5,123																						5,123
Class A Shares redeemed	(13,750	)		(2,348	)												(620	)								(2,968	)
Class B Shares issued						13,447			3,305																	3,305
Class B Shares converted to Class A Shares	4,911			778		(4,911	)		(778	)																—
Class B Shares redeemed						(23,405	)		(3,717	)							(490	)								(4,207	)
Class E Shares issued											18,980			1,898												1,898
Class E Share cash dividend																	(928	)								(928	)
Net earnings																	14,406									14,406
Decrease in receivable due to payment for Class A Shares by members																				113						113
Net unrealized loss on depreciation of investments (net of deferred tax benefit of $74)																							(137	)		(137	)
Adoption of SFAS No. 158 (net of deferred tax liability of $6,364)																							9,366			9,366
Balance, September 29, 2007	168,300		$	28,886		480,172		$	80,116		205,330		$	20,533		$	50,385		$	(876	)	$	9,220		$	188,264

The accompanying notes are an integral part of these statements.

52

Unified Western Grocers, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(dollars in thousands)

	September 29, 2007			September 30, 2006			October 1, 2005
Cash flows from operating activities:
Net earnings	$	14,406		$	16,142		$	10,820
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		19,371			21,239			24,181
Provision for doubtful accounts		(529	)		(473	)		712
(Gain) loss on sale of properties		(210	)		(107	)		112
Gain on sale of investment in mandatorily redeemable preferred stock		—			(1,148	)		—
Deferred income taxes		(1,966	)		(2,054	)		(5,935	)
Purchases of trading securities		—			(6,899	)		(8,946	)
Proceeds from maturities or sales of trading securities		11,775			5,053			852
Increase in cash surrender value of life insurance		(2,034	)		—			—
(Increase) decrease in assets:
Accounts receivable		(3,287	)		(1,277	)		(4,712	)
Inventories		1,849			(13,686	)		(2,112	)
Prepaid expenses		2,252			(1,869	)		748
Benefit plan assets		(4,453	)		(3,384	)		(7,480	)
Increase (decrease) in liabilities:
Accounts payable		17,800			(3,177	)		7,139
Accrued liabilities		(8,462	)		(10,417	)		(3,108	)
Long-term liabilities, other		4,314			10,516			7,767
Net cash provided by continuing operating activities		50,826			8,459			20,038
Net cash utilized by discontinued operating activities		—			—			(71	)
Net cash provided by operating activities		50,826			8,459			19,967
Cash flows from investing activities:
Purchases of properties		(34,866	)		(14,163	)		(11,746	)
Purchases of securities and other investments		(35,340	)		(34,543	)		(34,517	)
Proceeds from maturities or sales of securities and other investments		20,148			41,319			30,136
Decrease (increase) in notes receivable		1,678			(329	)		4,191
Proceeds from sales of properties		228			66			46
Increase in other assets		(9,834	)		(7,002	)		(5,496	)
Net cash utilized by investing activities		(57,986	)		(14,652	)		(17,386	)
Cash flows from financing activities:
Additions to long-term notes payable		21,988			4,943			—
Reduction of long-term notes payable		—			—			(24,240	)
Reduction of short-term notes payable		(8,320	)		(11,143	)		(9,961	)
Payment of deferred financing fees		(564	)		(75	)		(46	)
Increase in members’ excess deposits and declared patronage dividends		3,552			472			485
Class E Share cash dividend		(928	)		—			—
Decrease in members’ required deposits		(3,263	)		(156	)		(3,772	)
Decrease (increase) in receivable from sale of Class A Shares to members		113			(263	)		321
Repurchase of shares from members		(7,175	)		(5,914	)		(7,519	)
Issuance of shares to members		10,326			12,042			16,145
Net cash provided (utilized) by financing activities		15,729			(94	)		(28,587	)
Net increase (decrease) in cash and cash equivalents		8,569			(6,287	)		(26,006	)
Cash and cash equivalents at beginning of year		11,150			17,437			43,443
Cash and cash equivalents at end of year	$	19,719		$	11,150		$	17,437

The accompanying notes are an integral part of these statements.

53

Unified Western Grocers, Inc. and Subsidiaries

Consolidated Statements of Cash Flows—(Continued)

(dollars in thousands)

	September 29, 2007			September 30, 2006			October 1, 2005
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest	$	12,383		$	11,984		$	13,347
Income taxes	$	8,282		$	15,273		$	9,147
Supplemental disclosure of non-cash items:
Conversion of Class B Shares to Class A Shares	$	778		$	855		$	848
Capital leases	$	472		$	—		$	—
Retirement of Class B Shares	$	—		$	—		$	1,234
Reduction in purchase accounting reserve against goodwill	$	—		$	—		$	750
Recognition of defined benefit intangible asset	$	(394	)	$	(1,068	)	$	(256	)
Reduction of pre quasi-reorganization income tax valuation allowance	$	—		$	—		$	2,662
Adjustment to pre quasi-reorganization discontinued operations and lease reserves, net of deferred tax benefit of $33 as of October 1, 2005	$	—		$	—		$	52

The accompanying notes are an integral part of these statements.

54

Unified Western Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Fiscal Years Ended September 29, 2007, September 30, 2006, and October 1, 2005

1.    Basis of Presentation and Summary of Significant Accounting Policies

Nature of Business.    Unified Western Grocers, Inc. (“Unified” or the “Company”) is a retailer-owned grocery wholesale cooperative serving supermarket operators located primarily in the western United States and in the South Pacific. The Company’s customers range in size from single store operators to multiple store chains. The Company sells a wide variety of grocery-related and general merchandise products to its customers, who include owners (“Members”) and non-owners (“non-members”). Unified and its subsidiaries also provide financing and insurance services to its customers. The availability of specific products and services may vary by geographic region. Members affiliated with directors of the Company purchase groceries and related products and services from the Company in the ordinary course of business pursuant to published terms or according to the provisions of individually negotiated supply agreements.

Principles of Consolidation.    The consolidated financial statements include the accounts of the Company and all of its subsidiaries and/or variable interest entities required to be consolidated in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Intercompany accounts and transactions between the consolidated companies have been eliminated in consolidation.

Investments in companies in which Unified has significant influence, or ownership between 20% and 50% of the investee, are accounted for using the equity method. Under the equity method, the investment is originally recorded at cost and adjusted to recognize the Company’s share of net earnings or losses of the investee. The adjustment is limited to the extent of the Company’s investment in and advances to the investee and financial guarantees made on behalf of the investee.

Fiscal Year End.    The Company’s fiscal year ends on the Saturday nearest September 30. Fiscal 2007, 2006 and 2005 each comprised 52 weeks.

Discontinued Operations.    On September 25, 2002, the Board of Directors (the “Board”) approved a plan to exit its retail operations, which resulted in an impairment of the underlying assets and the accrual of exit-related costs and liabilities in accordance with Accounting Principles Board (“APB”) Opinion No. 30, “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” (“APB Opinion No. 30”). During fiscal 2003, the Company closed seven of its remaining nine stores and obtained binding commitments for the sale and transfer of the leasehold rights for the remaining two stores to Members, which stores were either sold or transferred in the first quarter of fiscal 2004, pursuant to the respective agreements.

Quasi-reorganization.    On September 25, 2002, the Company’s Board approved a plan to affect a quasi-reorganization effective September 28, 2002. A quasi-reorganization is an accounting procedure that eliminates an accumulated deficit in retained earnings and permits a company to proceed on much the same basis as if it had been legally reorganized. A quasi-reorganization involves adjusting a company’s assets and liabilities to their fair values. Any remaining deficit in retained earnings is then eliminated by a transfer of amounts from paid-in capital and capital stock, if necessary, giving a company a “fresh start” and a zero balance in retained earnings.

Use of Estimates.    The preparation of the financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates. These estimates are based on historical experience and on various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

Cash Equivalents.    The Company considers all highly liquid debt investments with maturities of three months or less when purchased to be cash equivalents.

55

Unified Western Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

The Company’s banking arrangements allow the Company to fund outstanding checks when presented to the financial institution for payment. This cash management practice frequently results in total issued checks exceeding available cash balances at a single financial institution. The Company’s policy is to record its cash disbursement accounts with a cash book overdraft in accounts payable. At September 29, 2007 and September 30, 2006, the Company had book overdrafts of $41.5 million and $33.1 million, respectively, classified in accounts payable.

Inventories.    Inventories are valued at the lower of cost or market. Cost is determined on the first-in, first-out method. Inventory is primarily comprised of finished goods.

Depreciation.    Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from 2 to 40 years as follows: buildings (10 – 40 years), computer equipment and software (2 – 5 years), machinery and equipment (2 – 10 years) and furniture and fixtures (5 – 10 years). Leasehold improvements and equipment under capital leases are amortized on a straight-line basis over the shorter of the remaining lease term or their estimated useful lives. Expenditures for replacements or major improvements are capitalized; expenditures for normal maintenance and repairs are charged to operations as incurred. Upon the sale or retirement of properties, the cost and accumulated depreciation are removed from the accounts, and any gain or loss is included in the results of operations.

Investments.    Investments in securities are classified as held to maturity securities based on the Company’s positive intent and ability to hold those securities. Held to maturity securities are carried at cost, adjusted for amortization of premiums and accretion of discounts to maturity. Convertible corporate securities are classified as trading and carried at fair market value with any changes recorded in net earnings (loss). Equity securities and other fixed maturity securities are classified as investments available for sale. Unrealized gains and losses, net of taxes, on available for sale investments are recorded as a separate component of accumulated other comprehensive earnings (loss) unless impairment is determined to be other-than-temporary.

Goodwill and Intangible Assets.    Goodwill, arising from business combinations, represents the excess of the purchase price over the estimated fair value of net assets acquired. In accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”), goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests. Other intangible assets are amortized over their estimated useful lives. SFAS No. 142 requires that goodwill and certain intangible assets be assessed for impairment on an annual basis and between annual tests, when circumstances or events have occurred that may indicate a potential impairment, using fair value measurement techniques. For purposes of financial reporting and impairment testing in accordance with SFAS No. 142, the Company operates in two principal reporting segments, Wholesale Distribution and Insurance.

The performance of the impairment test requires a two-step process. The first step involves comparing the reporting unit’s estimated fair value with its carrying value. If the estimated fair value exceeds the carrying value, the assets are considered not to be impaired and no additional steps are necessary. If the carrying value exceeds the estimated fair value, the Company performs the second step of the impairment test to determine the amount of impairment loss. The second step involves comparing the carrying amount of the reporting unit’s goodwill with its implied fair value. If the carrying amount of goodwill exceeds the respective reporting unit’s implied fair value, an impairment loss would be recognized in an amount equal to the excess.

Upon the Company’s adoption of SFAS No. 142, the amortization of goodwill, including goodwill recorded in past transactions, ceased. The Company evaluates goodwill (reported entirely within the Wholesale Distribution segment) for impairment in the third quarter of each fiscal year. In addition to the annual impairment test required under SFAS No. 142, during fiscal 2007 and 2006, the Company assessed whether events or circumstances occurred that potentially indicate that the carrying amount of these assets may not be recoverable. The Company concluded that there were no such events or changes in circumstances during 2007 and 2006 and determined that the fair value of the Company’s reporting units was in excess of its carrying value as of September 29, 2007 and September 30, 2006. Consequently, no impairment charges were recorded in fiscal 2007 and 2006.

56

Unified Western Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Intangible assets are recorded at cost, less accumulated amortization, and are included in other assets in the accompanying consolidated balance sheets as of September 29, 2007 and September 30, 2006. Amortization of intangible assets with finite lives as of September 29, 2007 is provided over their estimated useful lives ranging from 15 to 68 months on a straight-line basis. As of September 29, 2007 and September 30, 2006, balances of intangible assets with finite lives and goodwill, net of accumulated amortization, were as follows:

(dollars in thousands)
September 29, 2007	Remaining Amortization Period	Historical Cost		Accumulated Amortization		Net
Intangible assets subject to amortization:
Customer contracts	15 – 68 months	$	2,250	$	1,691	$	559
Intangible assets not subject to amortization:
Goodwill						$	27,982
Intangible pension asset(1)						$	—
(dollars in thousands)
September 30, 2006	Remaining Amortization Period	Historical Cost		Accumulated Amortization		Net
Intangible assets subject to amortization:
Customer contracts	27 – 80 months	$	2,250	$	1,370	$	880
Intangible assets not subject to amortization:
Goodwill						$	27,982
Intangible pension asset						$	394

(1) Reversal based on adoption of SFAS No. 158.

Capitalized Software Costs.    The Company capitalizes costs associated with the development of software for internal use pursuant to Statement of Position (“SOP”) 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use,” and amortizes the costs over a 3 or 4-year period. These costs were $5.2 million and $5.0 million (net of accumulated amortization of $31.9 million and $47.3 million) at September 29, 2007 and September 30, 2006, respectively, and are included in other assets in the consolidated balance sheets. Costs incurred in planning, training and post-implementation activities are expensed as incurred.

Long-Lived Assets.    The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to expected future cash flows generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, the carrying amount is compared to fair value and an impairment charge is recognized to the extent of the difference. On a quarterly basis, the Company assesses whether events or changes in circumstances have occurred that potentially indicate the carrying amount of long-lived assets may not be recoverable. The Company concluded that there were no material events or significant changes in circumstances during fiscal 2007 and 2006.

Lease and Loan Guarantees.    The Company evaluates lease and loan guarantees pursuant to Financial Accounting Standards Board Interpretation (“FIN”) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” Guarantees meeting the characteristics described in the interpretation are initially recorded at fair value. The Company is contingently liable for certain leases and loans guaranteed for certain Members (See Notes 6, 7 and 17).

Income Taxes.    Unified operates primarily as a grocery wholesaler serving independent supermarket operators. In addition, the Company has several wholly owned subsidiaries providing support services to its customers. These services are provided on a non-patronage basis and any earnings from these activities are taxable. In addition, the Company conducts wholesale business with non-member customers on a non-patronage basis and such earnings are retained by the Company and are taxable. The earnings of the Company’s subsidiaries and the business

57

Unified Western Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

conducted with non-member customers are collectively referred to as “non-patronage business.” Otherwise, the Company principally operates as a non-exempt cooperative owned by the Members for income tax purposes. Earnings from business (other than non-patronage business) conducted with its Members are distributed to its Members in the form of patronage dividends. This allows the Company to deduct, for federal and state income tax purposes, the patronage dividends paid to Members made in the form of qualified written notices of allocation based on their proportionate share of business done with the cooperative.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company’s ability to realize the deferred tax asset is assessed throughout the year and a valuation allowance is established accordingly.

Revenue Recognition.    The Company recognizes revenue in accordance with GAAP and with Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 104, “Revenue Recognition” which clarifies certain existing accounting principles for the timing of revenue recognition and classification of revenues in the financial statements. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, and collectibility is reasonably assured. Revenue generated from the Company’s wholesale distribution segment is not recognized until title and risk of loss is transferred to the customer, which occur upon delivery of the products. Provisions for discounts, rebates to customers, and returns are provided for at the time the related sales are recorded, and are reflected as a reduction of sales. Service revenues are recognized when such services have been rendered.

Vendor Funds.    The Company receives funds from many of the vendors whose products the Company buys for resale to its Members. These vendor funds are provided to increase the sell-through of the related products. The Company receives funds for a variety of merchandising activities: placement of vendors’ products in the Members’ advertising; placement of vendors’ products in prominent locations in the Members’ stores; introduction of new products into the Company’s distribution system and Members’ stores; exclusivity rights in certain categories that have slower-turning products; and to compensate for temporary price reductions offered to customers on products held for sale at Members’ stores.

Vendor funds are reflected as a reduction of inventory costs or as an offset to costs incurred on behalf of the vendor for which the Company is being reimbursed in accordance with Emerging Issues Task Force (“EITF”) Issue No. 02-16, “Accounting by a Customer (including a Reseller) for Certain Consideration Received from a Vendor” (“EITF No. 02-16”). Amounts due from vendors upon achievement of certain milestones, such as minimum purchase volumes, are accrued prior to the achievement of the milestone if the Company believes it is probable the milestone will be achieved, and the amounts to be received are reasonably estimable.

The Company adheres to EITF Issue No. 03-10, “Application of Issue No. 02-16 by Resellers to Sales Incentives Offered to Consumers by Manufacturers” (“EITF No. 03-10”), which requires manufacturers’ sales incentives offered directly to consumers that do not meet certain criteria to be reflected as a reduction of revenue in the financial statements of a reseller. Accordingly, certain discounts and allowances negotiated by the Company on behalf of its Members are classified as a reduction in cost of sales with a corresponding reduction in net sales. Vendor funds that offset costs incurred on behalf of the vendor are classified as a reduction in distribution, selling and administrative expenses.

Shipping and Handling Costs.    Costs for shipping and handling are included as a component of distribution, selling and administrative expenses. Shipping and handling costs were $196.8 million, $192.7 million and $192.1 million for the fiscal years ended September 29, 2007, September 30, 2006, and October 1, 2005, respectively.

Environmental Costs.    The Company expenses, on a current basis, certain recurring costs incurred in complying with environmental regulations and remediating environmental pollution. The Company also reserves for certain

58

Unified Western Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

non-recurring future costs required to remediate environmental pollution for which the Company is liable whenever, by diligent legal and technical investigation, the scope or extent of pollution has been determined, the Company’s contribution to the pollution has been ascertained, remedial measures have been specifically identified as practical and viable, and the cost of remediation and the Company’s proportionate share can be reasonably estimated.

Comprehensive Earnings (Loss).    Comprehensive earnings (loss) are net earnings, plus certain other items that are recorded by the Company directly to accumulated other comprehensive earnings (loss), bypassing net earnings. The balance and current period change for each component of comprehensive earnings (loss), net of taxes, are summarized as follows:

(dollars in thousands)
	Net Unrealized Gain (Loss) on Appreciation (Depreciation) of Investments			Minimum Pension Liability Adjustment
Balance, October 2, 2004	$	54		$	(27	)
Current period (charge)		(162	)		(339	)
Balance, October 1, 2005		(108	)		(366	)
Current period credit		99			366
Balance, September 30, 2006		(9	)		—
Current period (charge) credit		(137	)		—
Balance, September 29, 2007	$	(146	)	$	—

The following table indicates the benefit plans that comprise the adjustment to accumulated other comprehensive earnings (loss) for the initial adoption of SFAS No. 158:

(dollars in thousands)
Description of Benefit Plan	Pre-tax Adjustment for Initial Adoption of SFAS No. 158 (charge)/credit			Deferred Tax Benefit (Liability)			Adjustment for Initial Adoption of SFAS No. 158, Net of Taxes (charge)/credit
Cash Balance Plan	$	10,165		$	(4,112	)	$	6,053
ESPP II		(3,502	)		1,417			(2,085	)
Postretirement benefit plans		8,831			(3,573	)		5,258
Postemployment benefit plans		236			(96	)		140
Total, September 29, 2007	$	15,730		$	(6,364	)	$	9,366

The components of the change in net unrealized gains (losses) on investments, net of taxes, are as follows:

(dollars in thousands)
	September 29, 2007			September 30, 2006			October 1, 2005
Unrealized holding gains (losses) arising during the period	$	(20	)	$	115		$	(172	)
Add reclassification adjustment for gains (losses) included in net earnings		(117	)		(16	)		10
Net unrealized holding gains (losses)	$	(137	)	$	99		$	(162	)

Recently Issued Pronouncements

In December 2007, the FASB issued Statements of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations,” and No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS No. 141(R)” and “SFAS No. 160”). SFAS No. 141(R) requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-

59

Unified Western Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. SFAS No. 160 requires all entities to report noncontrolling (minority) interests in subsidiaries in the same manner—as equity in the consolidated financial statements and also requires transactions between an entity and noncontrolling interests to be treated as equity transactions. SFAS No. 160 requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated (as of the date the parent ceases to have a controlling financial interest in the subsidiary). Both statements are effective for fiscal years beginning on or after December 15, 2008. Early adoption of both statements is not permitted. Accordingly, SFAS No. 141(R) and SFAS No. 160 will be adopted commencing in the first quarter for the Company’s fiscal year 2010. The Company is currently assessing the impact these standards may have on its consolidated financial statements.

In September 2006, the FASB ratified Emerging Issues Task Force (“EITF”) No. 06-4, “Accounting for Deferred Compensation and Postretirement Benefits Associated with Endorsement Split-Dollar Life Insurance Arrangements” (“EITF No. 06-4”) and in March 2007, the FASB ratified EITF Issue No. 06-10, “Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements” (“EITF No. 06-10”). EITF No. 06-4 requires deferred compensation or postretirement benefit aspects of an endorsement-type split-dollar life insurance arrangement to be recognized as a liability by the employer and states the obligation is not effectively settled by the purchase of a life insurance policy. The liability for future benefits should be recognized based on the substantive agreement with the employee, which may be either to provide a future death benefit or to pay for the future cost of the life insurance. EITF No. 06-10 provides recognition guidance for postretirement benefit liabilities related to collateral assignment split-dollar life insurance arrangements, as well as recognition and measurement of the associated asset on the basis of the terms of the collateral assignment split-dollar life insurance arrangement. EITF No.’s 06-4 and 06-10 are effective for fiscal years beginning after December 15, 2007. Accordingly, EITF No.’s 06-4 and 06-10 will be adopted commencing in the first quarter for the Company’s fiscal year 2009. The Company is currently assessing the impact these standards may have on its consolidated financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 provides companies with an option to measure, at specified election dates, many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS No. 159 is expected to expand the use of fair value measurement consistent with the Board’s long-term objectives for financial instruments. A company that adopts SFAS No. 159 will report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. Accordingly, SFAS No. 159 will be adopted commencing in the first quarter for the Company’s fiscal year 2009. The Company is currently assessing the impact this standard may have on its consolidated financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS No. 158”). SFAS No. 158 requires that employers recognize on a prospective basis the funded status of an entity’s defined benefit pension and postretirement plans as an asset or liability in the financial statements, requires the measurement of defined benefit pension and postretirement plan assets and obligations as of the end of the employer’s fiscal year, and requires recognition of the funded status of defined benefit pension and postretirement plans. Due to unrecognized prior service costs and net actuarial gains and losses, the initial impact of adopting SFAS No. 158 (as well as subsequent changes in funded status) is recognized as a component of accumulated other comprehensive earnings (loss) which is included in total shareholders’ equity, net of applicable income tax. Previous amounts recorded as additional minimum liabilities and related intangible assets are also reversed upon adoption. In accordance with SFAS No. 158, fiscal year 2006 accounting and related disclosures were not affected by adoption of the new standard. SFAS No. 158 also requires additional disclosures in the notes to the financial statements (see Notes 11 and 12). An employer without publicly traded

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Unified Western Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

equity securities shall initially apply the requirement to recognize the funded status of a benefit plan and the associated disclosure requirements as of the end of the fiscal year ending after June 15, 2007. Accordingly, the Company adopted SFAS No. 158 in the fourth quarter of its fiscal year ending September 29, 2007. The table below summarizes the incremental effect of SFAS No. 158 adoption on the individual line items in the company’s consolidated balance sheet at September 29, 2007:

(dollars in thousands)
	Pre-SFAS No. 158 Adoption			SFAS No. 158 Adjustments			Post-SFAS No. 158 Adoption
Other assets, net (including deferred income taxes)	$	54,825		$	(6,364	)	$	48,461
Intangible pension asset (included in Other assets, net)		394			(394	)		—
Accrued liabilities (current portion of pension and postretirement liabilities)		100,312			4,209			104,521
Additional minimum pension liability (included in long-term liabilities, other)		394			(394	)		—
Long-term liabilities, other		103,320			(19,939	)		83,381
Accumulated other comprehensive (loss) earnings, net of tax		(146	)		9,366			9,220

The Company’s fiscal 2008 pension expense will include an estimated $0.4 million charge for its Cash Balance Plan and ESPP II plan, combined, as a result of amortizing prior service costs of $0.3 million and an actuarial loss of $0.1 million from accumulated other comprehensive income into pension expense over the next fiscal year. In addition, the Company’s fiscal 2008 postretirement expense will include an estimated $0.4 million credit for its postretirement benefit plans as a result of amortizing actuarial gains of $0.4 million from accumulated other comprehensive earnings (loss) into postretirement expense over the next fiscal year.

The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position shall be effective for fiscal years ending after December 15, 2008. Accordingly, the Company will adopt this requirement effective with its fiscal year-end 2009. The Company is currently assessing the impact that adoption of this portion of the standard will have on its consolidated financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 provides guidance for using fair value to measure assets and liabilities. Under SFAS No. 157, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. SFAS No. 157 establishes a fair value hierarchy that prioritizes the information used to develop the assumptions that market participants would use when pricing the asset or liability. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. In addition, SFAS No. 157 requires that fair value measurements be separately disclosed by level within the fair value hierarchy. SFAS No. 157 does not require new fair value measurements. In November 2007, the FASB reaffirmed that (1) companies will be required to implement SFAS No. 157 for financial assets and liabilities, as well as for any other assets and liabilities that are carried at fair value on a recurring basis in the financial statements; and (2) SFAS No. 157 remains effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The FASB did however, provide a one-year deferral for the implementation of SFAS No. 157 for other non-financial assets and liabilities. Accordingly, SFAS No. 157, as modified above, will be adopted commencing in the first quarter for the Company’s fiscal year 2009. The Company is currently assessing the impact this standard may have on its consolidated financial statements.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB No. 108”). SAB No. 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The SEC staff believes that registrants should quantify errors using both a balance sheet and an income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are

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Unified Western Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

considered, is material. The guidance in SAB No. 108 must be applied to annual financial statements for fiscal years ending after November 15, 2006. Accordingly, the Company adopted SAB No. 108 effective with its fiscal year ending September 29, 2007. The adoption of SAB No. 108 did not have a significant impact on the Company’s financial condition and results of operations.

In July 2006, the FASB issued Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes,” which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” FIN 48 provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. Accordingly, FIN 48 will be adopted commencing in the first quarter of the Company’s fiscal year 2008. The Company believes the adoption of FIN 48 will not have a significant impact on its consolidated financial statements.

In June 2006, the FASB ratified the consensus reached on EITF Issue No. 06-03, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (that is, Gross versus Net Presentation).” The EITF reached a consensus that the presentation of taxes on either a gross or net basis is an accounting policy decision that requires disclosure. EITF Issue No. 06-03 is effective for the first interim or annual reporting period beginning after December 15, 2006. Taxes collected from the Company’s customers are and have been recorded on a net basis. As such, the adoption of EITF Issue No. 06-03 did not have an effect on the Company’s consolidated financial statements.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS No. 154”). SFAS No. 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle and that a change in method of depreciation, amortization, or depletion for long-lived, non-financial assets be accounted for as a change in accounting estimate that is effected by a change in accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005 (period ending September 29, 2007 for the Company). The Company adopted SFAS No. 154 effective with its fiscal year ending September 29, 2007. The adoption of SFAS No. 154 had no impact on the Company’s financial condition and results of operations.

2.    Variable Interest Entity

In fiscal 2004, the Company signed a purchase and sale agreement with an unrelated business property developer to transfer and assign the leasehold and sub-leasehold interests and certain assets relating to eleven closed store locations for which the Company is contingently liable for the lease payments. The Company paid approximately $5.4 million including brokers’ commissions (which approximated the Company’s recorded lease liabilities for these locations at the date of transfer) to transfer its leasehold and sub-leasehold interests in these properties but remains contingently liable until such time as the leases expire or the Company is released from all liabilities and obligations under the leases.

Although the Company has no ownership interest in the unrelated third party that assumed the leasehold and sub-leasehold interests from the Company, that third party is considered a variable interest entity pursuant to FIN 46 Revised (“FIN 46R”), “Consolidation of Variable Interest Entities—an Interpretation of ARB No. 51, Consolidated Financial Statements.” Because the primary investor in the variable interest entity currently does not have sufficient equity at risk, the Company is considered the primary beneficiary. Accordingly, the Company is required to consolidate the assets, liabilities and non-controlling interests of the variable interest entity, as well as the results of operations. At September 29, 2007 and September 30, 2006, the Company consolidated the variable interest entity’s accounts, including total assets of $0.9 million and $1.2 million, respectively. These assets are comprised primarily of $0.3 and $0.2 million in properties and $0.6 and $1.0 million in other assets, respectively, to be used in the development of the properties and for payment of lease obligations, with lease reserves of approximately $2.4 and $4.7 million for fiscal 2007 and fiscal 2006, respectively.

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Unified Western Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

At September 29, 2007, the Company remains contingently liable for the lease payments on four store locations. The net present value of the Company’s currently estimated obligation for the remaining leasehold and sub-leasehold interests for the four stores totaled approximately $2.4 million and $4.7 million at September 29, 2007 and September 30, 2006, respectively, with the last lease expiring in 2019. The Company’s maximum loss exposure related to these leases is $14.3 million at September 29, 2007.

3.    Properties

Properties, stated at cost, consisted of the following:

(dollars in thousands)
	September 29, 2007		September 30, 2006
Land	$	59,291	$	59,291
Buildings and leasehold improvements		129,063		106,354
Equipment		81,263		70,362
Equipment under capital leases		472		770
		270,089		236,777
Less accumulated depreciation and amortization		73,813		60,444
	$	196,276	$	176,333

Consolidated depreciation and amortization expense related to properties was $15.3 million, $14.7 million and $14.7 million for the years ended September 29, 2007, September 30, 2006 and October 1, 2005, respectively.

Included in accumulated amortization at September 29, 2007 and September 30, 2006 is approximately $0.1 million and $0.7 million, respectively, related to capital leases. Amortization expense related to capital leases aggregated $0.1, $0.2 and $0.5 million for the years ended September 29, 2007, September 30, 2006 and October 1, 2005, respectively.

4.    Investments

The amortized cost and fair value of investments are as follows:

(dollars in thousands)
September 29, 2007	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for sale securities:
Fixed maturity securities:
Available for sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	39,410	$	190	$	(319	)	$	39,281
Corporate securities		29,683		113		(208	)		29,588
Total fixed maturity securities		69,093		303		(527	)		68,869
Equity securities		—		—		—			—
Total available for sale securities	$	69,093	$	303	$	(527	)		68,869
Trading securities									—
Common stock, at cost									9,309
Total Investments								$	78,178

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Unified Western Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(dollars in thousands)
September 30, 2006	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for sale securities:
Fixed maturity securities:
Available for sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	38,552	$	198	$	(412	)	$	38,338
Corporate securities		13,432		166		(92	)		13,506
Total fixed maturity securities		51,984		364		(504	)		51,844
Equity securities:
Available for sale:
Redeemable preferred stock		1,927		141		(14	)		2,054
Total available for sale securities	$	53,911	$	505	$	(518	)		53,898
Trading securities:
Convertible corporate securities									11,775
Common stock, at cost									9,299
Total Investments								$	74,972

During the fiscal years ended September 29, 2007, September 30, 2006 and October 1, 2005, the Company recorded unrealized losses of $0.3 million and $0.1 million and unrealized gains of $0.6 million, respectively, due to changes in the fair value of the convertible corporate securities, which are classified as trading securities. Net realized gains resulting from sales of the convertible corporate securities during the fiscal years ended September 29, 2007, September 30, 2006 and October 1, 2005 were $0.9 million, $0.6 million and $0.2 million, respectively.

The Company’s insurance subsidiaries invest a significant portion of premiums received in fixed income securities to fund loss reserves. As a result, the Company’s insurance subsidiaries are subject to both credit and interest rate risk. Management has established guidelines and practices to limit the amount of credit risk through limitation of non-investment grade securities. The Company assesses whether unrealized losses are other than temporary. The discussion and table that follow describe the Company’s securities that have unrealized losses.

Unrealized losses on the Company’s investments in fixed income securities were caused by interest rate increases rather than credit quality. Because the Company’s insurance subsidiaries have the ability and intent to hold these investments until recovery of fair value, which may be upon maturity, the Company does not consider these investments to be other-than-temporarily impaired at September 29, 2007.

The table below illustrates the length of time securities, not deemed to be other-than-temporarily impaired, have been in a continuous unrealized loss position at September 29, 2007:

(dollars in thousands)
	Less than 12 Months				12 Months or Greater				Total
Description of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Treasury securities and U.S. Government obligations	$	250	$	1	$	3,184	$	36	$	3,434	$	37
Federal agency mortgage-backed securities		6,798		32		8,139		255		14,937		287
Corporate bonds		12,110		168		3,418		35		15,528		203
Total Investments	$	19,158	$	201	$	14,741	$	326	$	33,899	$	527

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Unified Western Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Held to maturity and available for sale fixed maturity securities are due as follows:

(dollars in thousands)
September 29, 2007	Amortized Cost		Fair Value
Due in one year or less	$	3,767	$	3,767
Due after one year through five years		14,231		14,288
Due after five years through ten years		16,455		16,430
Due after ten years		34,640		34,384
	$	69,093	$	68,869

September 30, 2006	Amortized Cost		Fair Value
Due in one year or less	$	9,333	$	9,333
Due after one year through five years		5,876		5,795
Due after five years through ten years		10,367		10,316
Due after ten years		26,408		26,400
	$	51,984	$	51,844

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities are shown as being due at their average expected maturity dates.

Amounts reported as “due in one year or less” are included in long-term investments as a wholly-owned subsidiary of the Company is required to maintain investments in support of a letter of credit issued on behalf of a regulatory authority in compliance with statutory regulations (see Note 6). The standby letter of credit agreement includes provisions for automatic extensions without amendment (unless advance notification to terminate is given by the Company) and is therefore considered to be a long-term commitment. Hence, investments with maturities less than one year maintained in support of this long-term commitment are generally sold to repurchase investments with longer maturities. As these investments continue to support a long-term commitment obligation, the Company classifies such amounts as long-term.

Net investment income is summarized as follows:

(dollars in thousands)
	Years Ended
	September 29, 2007		September 30, 2006		October 1, 2005
Fixed maturity securities	$	3,540	$	2,831	$	2,788
Preferred stock		42		70		138
Equity securities		142		2		26
Cash and cash equivalents		24		172		172
		3,748		3,075		3,124
Less investment expenses		491		477		315
	$	3,257	$	2,598	$	2,809

Investments carried at fair values of $58.3 million and $55.9 million at September 29, 2007 and September 30, 2006 (which include $0.9 million and $1.3 million recorded in cash and cash equivalents), respectively, are maintained in support of a letter of credit issued on behalf of a regulatory authority ($36.7 million and $46.0 million at September 29, 2007 and September 30, 2006, respectively) in compliance with statutory regulations. Additionally, investments with fair values of $2.8 million and $2.4 million at September 29, 2007 and September 30, 2006 (which include $0.1 million and $1.0 million recorded in cash and cash equivalents), respectively, are on deposit with regulatory authorities in compliance with statutory regulations.

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Unified Western Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Equity securities that do not have readily determinable fair values are accounted for using the cost or equity methods of accounting. The Company evaluated its investments in equity securities for impairment as of September 29, 2007 and September 30, 2006, and the Company did not consider any of these equity securities to be impaired.

The Company held investments in Western Family Holding Company (“Western Family”) common stock of $5.2 million at both September 29, 2007 and September 30, 2006. Western Family is a private cooperative located in Oregon from which the Company purchases food and related general merchandise products. The investment represents approximately a 15% ownership interest at both September 29, 2007 and September 30, 2006. The Company’s ownership percentage in Western Family is based, in part, on the volume of purchases transacted with Western Family. During fiscal 2006, the Company received a return of invested capital resulting from Western Family’s recalculation of its members’ ownership percentage in the cooperative based on purchase volume. The investment is accounted for using the equity method of accounting.

Prior to fiscal year 2004, the Company purchased 80,000 shares of preferred stock (the “Series A-1 Preferred Shares”) from C&K Market, Inc. (“C&K”) for $8.0 million. Douglas A. Nidiffer, a director of the Company, is a shareholder, director and an officer of C&K. In connection with a capital restructuring of C&K during fiscal year 2004 (approved by the Company and an unrelated third party lender), the Company exchanged its 80,000 Series A-1 Preferred Shares and $1.5 million of deferred dividends for 95,000 shares of Series A-2 Preferred Shares (the “Series A-2 Preferred Shares”). The original value of the Series A-2 Preferred Shares was $8.0 million and was to accrete to the redemption value of $9.5 million over 10 years. The Company received scheduled cash dividends of $0.2 million during the first quarter of fiscal 2006 and $0.8 million during fiscal year 2005.

On February 9, 2006, C&K repurchased the 95,000 shares of Series A-2 Preferred Shares held by Unified for $9.8 million. The payment included $9.5 million for the redemption value of the Series A-2 Preferred Shares and $0.3 million for accrued dividends. The investment was carried at $8.4 million, which represented the original value of the Series A-2 Preferred Shares plus cumulative accretion through the date of repurchase. As a result of the share repurchase, the Company recognized a gain on the difference between the carrying value of the investment and the redemption value of approximately $1.1 million.

5.    Accrued Liabilities

Accrued liabilities are summarized as follows:

(dollars in thousands)
	September 29, 2007		September 30, 2006
Insurance loss reserves and other insurance liabilities	$	61,428	$	68,452
Accrued wages, current portion of retirement benefits and related taxes		24,935		19,819
Accrued income and other taxes payable		2,648		1,367
Accrued promotional liabilities		1,153		2,318
Other accrued liabilities		14,357		16,762
	$	104,521	$	108,718

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Unified Western Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

6.    Notes Payable

The Company’s notes payable and scheduled maturities are summarized as follows:

(dollars in thousands)
	September 29, 2007		September 30, 2006
Senior secured notes	$	95,637	$	96,480
Secured revolving credit agreement		77,000		53,600
Member financing arrangement		2,939		5,144
Capital investment notes		—		6,316
Obligations under capital leases		472		49
Total notes payable		176,048		161,589
Less portion due within one year		6,038		8,405
	$	170,010	$	153,184

Maturities of notes payable as of September 29, 2007 are:

(dollars in thousands)
Fiscal year
2008	$	6,038
2009		5,773
2010		839
2011		2,835
2012		3,667
Thereafter		156,896
	$	176,048

Senior Secured Notes

The Company had a total of $95.6 million outstanding, at September 29, 2007, 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. At September 30, 2006, $96.5 million was outstanding under the Senior Note Agreement.

On January 6, 2006 (the “effective date”), the Company entered into an agreement (the “Senior Note Agreement Amendment”) with Hancock which amended and restated its Senior Note Agreement to $96.8 million as of the effective date of the Senior Note Agreement Amendment. The Senior Note Agreement Amendment extended the maturity date to January 1, 2016 from April 1, 2008 and October 1, 2009 on $46.0 million and $40.0 million of the notes, respectively. The Senior Note Agreement Amendment also decreased interest rates that ranged from 7.72% to 8.71% on $86.0 million of notes to 6.421% on $46.0 million of notes and 7.157% on $40.0 million of notes.

The Senior Note Agreement Amendment calls for interest only payments for the first five years of the term, and then starting on the 61st payment, approximately $0.8 million principal plus interest on the $86.0 million of notes. At the maturity date, a balloon payment of $66.3 million is due. In addition, $4.7 million of notes will mature on April 1, 2008 (monthly payments of approximately $0.1 million principal plus interest at 7.72%) and $4.5 million of notes will mature on October 1, 2009 (monthly payments of interest only at 8.71%), with balloon payments of $4.4 million and $4.5 million, respectively.

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Unified Western Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

The notes continue to be secured by certain of the Company’s personal and real property and contain customary covenants, default provisions (including acceleration of the debt in the event of an uncured default), and prepayment penalties similar to those included in the original note purchase agreement.

Secured Revolving Credit Agreement

In addition, the Company has a $225.0 million secured revolving credit facility (“Revolving Credit Agreement”). The Revolving Credit Agreement expires on January 31, 2012 and bears interest at either LIBOR plus an applicable margin (0.75% to 1.75%), or the lender’s base rate plus an applicable margin (0.00% to 0.25%). At September 29, 2007, the Revolving Credit Agreement bore interest at the lender’s base rate (7.75% plus 0.00%), or adjusted LIBOR (5.61% plus 1.00%). The Revolving Credit Agreement contains an option to expand to $300 million in the future. Undrawn portions of the commitments under the Revolving Credit Agreement bear commitment fees at rates between 0.15% and 0.35% per annum. The Revolving Credit Agreement is collateralized by the accounts receivable and inventories of the Company and certain subsidiaries. The Company had $77.0 million outstanding under the Revolving Credit Agreement at September 29, 2007.

The Company previously had a $225.0 million secured revolving credit facility (“Former Revolving Credit Agreement”), whose term was scheduled to expire on December 5, 2007. The Former Revolving Credit Agreement bore interest at either LIBOR plus an applicable margin (1.00% to 2.00%), or the lender’s base rate plus an applicable margin (0.00% to 0.75%). At September 30, 2006, the Former Revolving Credit Agreement bore interest at the lender’s base rate (8.25% plus 0.00%), or adjusted LIBOR (5.34% plus 1.25%). In each case, the applicable margin was based on the ratio of funded debt to operating cash flow. The Former Revolving Credit Agreement permitted advances of up to 85% of eligible accounts receivable and 65% of eligible inventories. The unused portion of the credit line was subject to a commitment fee of 0.25%. The Former Revolving Credit Agreement was collateralized by the accounts receivable and inventories of the Company and certain subsidiaries. The Company had $53.6 million outstanding under the Former Revolving Credit Agreement at September 30, 2006.

The Revolving Credit Agreement and the Senior Note Agreement Amendment each contain customary representations, warranties, financial covenants, default and pre-payment provisions for these types of financing. Obligations under these credit agreements are senior to the rights of Members with respect to Required Deposits, patronage dividend certificates and subordinated notes. Both the Revolving Credit Agreement and the Senior Note Agreement Amendment limit the incurrence of additional funded debt and the incurrence of liens except permitted liens. Examples of default conditions include the failure to pay an installment of principal or interest under the agreements, the making of false representations and warranties, and non-compliance with one or more financial covenants (minimum tangible net worth, fixed charge coverage ratio and funded debt to earnings before interest, income taxes, depreciation, amortization and patronage dividends, “EBITDAP”). The Revolving Credit Agreement and the Senior Note Agreement Amendment both limit distributions to shareholders (including the repurchase of shares) to designated permitted redemptions, and prohibit all distributions and payments on patronage dividend certificates (“Patronage Certificates”) when an event of default has occurred and is continuing. In the event the Company is not in compliance with the financial covenants of the Revolving Credit Agreement and the Senior Note Agreement Amendment, the continued availability of loan funds or the terms upon which such loans would be available could be negatively impacted, and the impact to the Company could be material. As of September 29, 2007, the Company was in compliance with all applicable covenants of its Revolving Credit Agreement and Senior Note Agreement Amendment.

Member Financing Arrangement

A $10.0 million credit agreement with a third party bank is collateralized by Grocers Capital Company’s (“GCC”) Member loan receivables. GCC is a wholly owned subsidiary of the Company whose primary function is to provide financing to Members who meet certain credit requirements. Funding for loans is derived from the cash reserves of GCC, as well as the $10.0 million credit facility. The credit agreement, which was amended and restated, matures on March 31, 2010. Amounts advanced under the credit agreement bear interest at prime (7.75% and 8.25%) or Eurodollar (5.23% and 5.36%) plus 2.00% at September 29, 2007 and September 30, 2006, respectively. The

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unused portion of the credit line is subject to a commitment fee of 0.125%. The applicable rate is determined at the Company’s discretion. GCC had no borrowings outstanding at September 29, 2007 and September 30, 2006.

Member loan receivables are periodically sold by GCC to the third party bank through a loan purchase agreement. This loan purchase agreement, which was amended and restated, matures on March 31, 2008. Total loan purchases under the agreement are limited to a total aggregate principal amount outstanding of $70.0 million. The loan purchase agreement does not qualify for sale treatment pursuant to SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities – a replacement of FASB Statement No. 125,” as amended by SFAS No. 156, “Accounting for Servicing of Financial Assets.” Accordingly, the Company accounts for the transfer of these financial assets as a secured borrowing with a pledge of collateral. The aggregate amount of secured borrowings with the third party bank was $2.9 million and $5.1 million at September 29, 2007 and September 30, 2006, respectively. The pledged collateral included in current notes receivable was $0.9 million and $1.2 million and non-current amounts were $2.0 million and $3.9 million at September 29, 2007 and September 30, 2006, respectively. The notes receivable generally bear interest at rates averaging prime/LIBOR plus 1.26%, are paid monthly and have remaining maturity dates ranging from 2007 to 2014.

The third party bank operates as a cooperative and therefore its borrowers are required to own its Class B stock. GCC’s investment in the Class B common stock of this third party bank aggregated $4.1 million at September 29, 2007 and September 30, 2006, respectively. GCC recorded dividend income of $0.1 million, $0.5 million and $0.8 million for the fiscal years ended 2007, 2006 and 2005, respectively.

Capital Investment Notes

The Company’s capital investment notes were serialized, had a minimum interest rate of 5.00% and matured ten years from the date of issuance. The notes were subordinated and had maturity dates through 2007. The notes originated with United Grocers, Inc. (“United”) and were assumed as part of the Company’s merger (the “Merger”) with United. As of September 29, 2007, the balance outstanding on these notes has been fully paid.

Standby Letters of Credit

During fiscal 2005, a Member of the Company entered into a $0.9 million standby letter of credit agreement with the Company’s finance subsidiary to secure insurance coverage in the event the Member is unable to meet its obligations. Effective August 2006, this agreement was cancelled and replaced with a new standby letter of credit agreement with the same parties containing similar terms in the amount of $1.1 million (see Note 17). Prior to fiscal 2005, a wholly-owned subsidiary of the Company held investments carried at fair value on deposit with regulatory authorities in compliance with statutory insurance regulations. During fiscal 2005, the Company’s wholly-owned subsidiary entered into a $41.8 million standby letter of credit agreement to secure workers’ compensation claims in the event it is unable to meet its obligations under these claims. The standby letter of credit is secured by investments of the Company’s wholly-owned subsidiary (see Note 4), and such investments have concurrently been released from their deposit restriction by virtue of implementing and maintaining the standby letter of credit. During fiscal 2007, the standby letter of credit agreement was amended to (1) extend its expiration date to April 1, 2008, including an automatic extension without amendment for one year beyond the expiration date unless written notice of intention not to extend is given sixty days prior to the expiration date, and (2) decrease the amount under the agreement to $36.7 million. In addition, the Company also has $2.7 million in standby letters of credit outstanding at September 29, 2007, to secure various bank, insurance and vendor obligations.

Loan Guarantees

The Company also guarantees certain loans made directly to Members by third-party lenders. At September 29, 2007 and September 30, 2006, the maximum principal amount of these guarantees was $0.1 million and $0.2 million, respectively. Member loans, provided by the Company and third parties, are generally secured with collateral, which usually consists of personal and real property owned by Members and may include personal guarantees of Members at the discretion of the Company.

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7.    Leases

Capital and Operating Leases

The Company has entered into operating leases for certain warehouse, transportation and data processing equipment, and non-cancelable capital leases, primarily for warehouse equipment.

The Company has also entered into operating leases for approximately 36 retail supermarkets. The majority of these locations are subleased to various Members of the Company. The operating leases and subleases are non-cancelable, renewable in certain instances, include purchase options that are not bargain purchase options, and require payment of real estate taxes, insurance and maintenance.

Rent expense for operating leases was $22.3 million, $21.9 million and $27.1 million for the fiscal years ended September 29, 2007, September 30, 2006 and October 1, 2005, respectively. Sublease rental income was $6.8 million, $6.6 million and $9.1 million for the fiscal years ended September 29, 2007, September 30, 2006 and October 1, 2005, respectively.

Minimum rentals on equipment under capital leases and properties leased by the Company, including properties subleased to third parties, as of September 29, 2007, are summarized as follows:

(dollars in thousands)
Fiscal year	Capital Leases			Operating Leases
2008	$	198		$	19,295
2009		198			16,959
2010		158			15,321
2011		—			13,900
2012		—			12,296
Thereafter		—			45,775
Total minimum lease payments		554		$	123,546
Less: amount representing interest		(82	)
Present value of net minimum lease payments		472
Less: current installments of obligations under capital leases		(152	)
Obligations of capital leases excluding current installments	$	320

Future minimum sublease rental income on operating leases as of September 29, 2007 is summarized as follows:

(dollars in thousands)
Fiscal year	Operating Leases
2008	$	6,545
2009		5,989
2010		5,095
2011		4,141
2012		3,180
Thereafter		18,702
Total future minimum sublease income	$	43,652

Lease Guarantees

At September 29, 2007, the Company was contingently liable with respect to 10 lease guarantees for certain Members with commitments expiring through 2017. The Company believes the locations underlying these leases

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are marketable and, accordingly, that it will be able to recover a substantial portion of the guaranteed amounts in the event the Company is required to satisfy its obligations under the guarantees.

The Company’s guarantees of certain leases are summarized in the table below.

(dollars in thousands)
Remaining Lease Term	Guaranteed Leases
Less than 1 year	$	3,598
1 – 3 years		8,447
4 – 5 years		3,837
More than 5 years		1,282
Total lease guarantees	$	17,164

In consideration of lease guarantees and subleases, the Company typically receives a monthly fee equal to 5% of the monthly rent under the lease guarantees and subleases. Obligations of Members to the Company, including lease guarantees, are generally supported by the Company’s right of offset, upon default, against the Members’ cash deposits, shareholdings and patronage certificates, as well as in certain instances, personal guarantees and reimbursement and indemnification agreements.

Total lease guarantees as disclosed above include lease guarantees entered into during fiscal 2006 and fiscal 2004 with respect to two Members. The guarantees consist of one twenty-year term and one ten-year term, respectively, and as of September 29, 2007, the maximum potential amount of future payments that the Company could be required to make as a result of the Member’s non-payment of rent is approximately $3.5 million and $2.1 million, respectively. Pursuant to FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” Unified has recorded a liability in connection with these guarantee arrangements. These liabilities, which amount to approximately $0.4 million and $0.1 million, respectively, at September 29, 2007 and September 30, 2006, represent the premiums receivable from the Members as consideration for the guarantees, and are deemed to be the fair value of the lease guarantees. The Company does not believe, based on historical experience and information currently available, that it is probable that any amounts will be required to be paid under these guarantee arrangements.

8.    Income Taxes

The significant components of income tax expense are summarized as follows:

(dollars in thousands)
	September 29, 2007			September 30, 2006			October 1, 2005
Federal:
Current	$	9,705		$	9,871		$	10,604
Deferred		(1,640	)		(1,866	)		(5,323	)
Total federal		8,065			8,005			5,281
State:
Current		2,041			95			1,757
Deferred		(326	)		(188	)		(612	)
Total state		1,715			(93	)		1,145
Income taxes	$	9,780		$	7,912		$	6,426

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The effects of temporary differences and other items that give rise to deferred tax assets and liabilities are presented below:

(dollars in thousands)
	September 29, 2007		September 30, 2006
Deferred tax assets:
Accounts receivable	$	970	$	1,324
Accrued benefits		38,459		46,075
Lease reserves		3,319		3,567
Insurance reserves		3,002		2,964
Tax credits		639		683
Net operating loss carry forwards		1,483		1,683
Non-qualified written notice of allocation		15,504		15,145
Asset retirement reserve		633		709
Inventory reserve		595		—
Other		1,289		572
Total gross deferred tax assets	$	65,893	$	72,722
Deferred tax liabilities:
Properties	$	43,948	$	46,103
Market value adjustment		1,957		1,603
Capitalized software		2,254		2,189
Deferred state taxes		957		1,298
Other		429		858
Total gross deferred tax liabilities	$	49,545	$	52,051
Net deferred tax assets	$	16,348	$	20,671

The Company had net deferred tax assets of $16.3 million and $20.7 million, of which $10.5 million and $10.6 million are classified as deferred income taxes in current assets and $5.8 million and $10.1 million are included in other assets in the accompanying consolidated balance sheets as of September 29, 2007 and September 30, 2006, respectively.

A valuation allowance is required to be provided to reduce the deferred tax assets to a level which, more likely than not, will be realized. The Company’s net deferred tax assets of approximately $16.3 million and $20.7 million were not reduced by tax valuation allowances at September 29, 2007 and September 30, 2006. Management evaluated the available positive and negative evidence in determining the realizability of the net deferred tax assets at September 29, 2007 and September 30, 2006 and concluded it is more likely than not that the Company should realize its net deferred tax assets through future operating results and the reversal of taxable temporary differences. A valuation allowance established with the quasi-reorganization was eliminated at October 1, 2005 and the reduction of $2.7 million was recorded as an increase to Class A and Class B Shares.

The Company had federal net operating loss carryforwards of approximately $4.2 million and $4.8 million and no state net operating loss carryforwards as of the fiscal years ended September 29, 2007 and September 30, 2006, respectively. A portion of the federal net operating loss has not been utilized in the current year and is being carried forward due to certain limitations under Internal Revenue Code Section 382. In fiscal 2005 and 2004, a portion of the federal net operating loss was attributable to the Company’s inability to include the tax loss of its captive insurance company and was carried forward in compliance with Internal Revenue Code Section 953(d). In fiscal 2006, the remaining net operating loss attributable to the Company’s captive insurance company has been fully utilized. The net operating losses expire in 2018 for federal income taxes.

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The provision for income taxes at the Company’s effective tax rate differed from the provision for income taxes at the federal statutory rate (35%) as follows:

(dollars in thousands)
	September 29, 2007			September 30, 2006			October 1, 2005
Federal income tax expense at the statutory rate	$	8,465		$	8,419		$	6,036
State income taxes, net of federal income tax benefit		1,115			(61	)		745
Tax exempt income and dividends received deduction		(32	)		(162	)		(277	)
Extraterritorial income exclusion		(22	)		(99	)		(437	)
Disallowed loss		625			875			610
Officers’ life insurance		(644	)		(218	)		(281	)
Adjustment to prior year tax liabilities		280			(998	)		69
Other, net		(7	)		156			(39	)
Provision for income taxes	$	9,780		$	7,912		$	6,426

9.    Patronage Dividends and Subordinated Patronage Dividend Certificates

Unified distributes patronage dividends to its Members based upon its patronage earnings during a fiscal year. Non-member customers are not entitled to receive patronage dividends. The Board approves the payment of dividends and the form of such payment for the Company’s three patronage earnings divisions: the Southern California Dairy Division, the Pacific Northwest Dairy Division and the Cooperative Division.

· Southern California Dairy Division:    Patronage earnings attributable to the Southern California Dairy Division are generated from sales of products primarily manufactured at a milk and fruit drink bottling plant located in Los Angeles, California. Patronage dividends for this division are paid solely to Members who purchase dairy and other related products from the Southern California Dairy Division.

· Pacific Northwest Dairy Division:    Patronage earnings attributable to the Pacific Northwest Dairy Division are generated from sales of dairy products manufactured by third party suppliers located in Oregon. Patronage dividends for this division are paid solely to Members who purchase dairy products from the Pacific Northwest Dairy Division.

· Cooperative Division:    Patronage earnings attributable to the Cooperative Division are generated from all patronage activities of Unified other than the Southern California and Pacific Northwest Dairy Divisions regardless of geographic location. Patronage dividends are paid based on the patronage purchases of the following types of products: dry grocery, deli, health and beauty care, tobacco, general merchandise, frozen food, ice cream, meat, produce and bakery.

The following table summarizes the patronage dividend earnings of Unified during the past three fiscal years.

(dollars in thousands)
Division	2007		2006		2005
Cooperative	$	6,528	$	10,726	$	10,281
Southern California Dairy		10,544		9,731		10,694
Pacific Northwest Dairy		608		516		429
Total	$	17,680	$	20,973	$	21,404

The Company at its option may elect to issue a portion of its patronage dividends in the form of subordinated patronage dividend certificates (“Patronage Certificates”) evidencing subordinated indebtedness of the Company. Patronage Certificates are unsecured general obligations, subordinated to certain indebtedness of Unified, not subject to offset by the holder, and nontransferable without the consent of Unified.

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In fiscal 2003, the Company issued $3.3 million of Patronage Certificates as a portion of its patronage dividends for fiscal 2002. The Company offset approximately $0.1 million in Patronage Certificates against a portion of amounts owed to the Company by the holders in fiscal 2003. The remaining Patronage Certificates that were issued in fiscal 2003 are included in subordinated patronage dividend certificates in the consolidated balance sheets.

For fiscal 2005, patronage dividends in the Cooperative Division were paid to Members in the form of:

· Class B Shares (See Note 10) to the extent of any deficiency in the Member meeting its Class B Share requirement; and

· Class E Shares (see Note 10) for the balance of the patronage dividend due to the Member.

For fiscal 2007 and fiscal 2006, patronage dividends in the Cooperative Division were paid to Members as follows:

· The first 30% of the patronage dividend were distributed in Class E Shares.

· The remaining 70% of the patronage dividend were distributed as a combination of cash and Class B Shares as follows:

· The first 20% of this portion of the dividend was paid in cash.

· The remaining amount was paid in Class B Shares to the extent of any deficiency in the Member meeting its Class B Share Requirement, and the remainder will be deposited in cash to the Member’s deposit fund.

The accompanying financial statements reflect patronage dividends earned by Members as of the fiscal year ended September 29, 2007. The actual distribution of the dividend is anticipated to take place in early 2008.

Patronage dividends generated by the dairy divisions have historically been paid in cash.

10.    Capital Shares

The Class A, Class B and Class E Shares of Unified are offered only to such persons or entities who from time to time may be accepted as Members of the Company.

Class A Shares.    Class A Shares may be held only by Members of Unified. In order to qualify for and retain Member status, a person or other entity (1) must purchase products from Unified in amounts and in a manner that is established by the Board; (2) must meet certain financial performance criteria; (3) must make application in such form as is prescribed by Unified; and (4) must be accepted as a Member by Board action.

The Company exchanges its Class A Shares and Class B Shares with its Members at a price that is based on a formula and is approved by the Board (“Exchange Value Per Share”). Prior to September 30, 2006, the Company computed the Exchange Value Per Share of the Class A and Class B Shares as Book Value divided by the number of Class A and Class B Shares outstanding at the end of the fiscal year. Book Value is computed based on the sum of the fiscal year end balances of Class A and Class B Shares, plus retained earnings, plus (less) accumulated other comprehensive earnings (loss). Effective September 30, 2006, the Company modified its Exchange Value Per Share computation to exclude accumulated other comprehensive earnings (loss) from Book Value. Exchange Value Per Share does not necessarily reflect the amount the net assets of the Company could be sold for or the dollar amount that would be required to replace them.

Prior to December 2002, Unified’s Bylaws required that each Member acquire and hold 100 Class A Shares. Thereafter, the required holdings of Class A Shares by a Member were increased to 150 shares at the end of fiscal 2003, 200 shares at the end of fiscal 2004, 250 shares at the end of fiscal 2005, 300 shares at the end of fiscal 2006, and 350 shares at the end of fiscal 2007. The Board is authorized to accept Members without the issuance

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of Class A Shares when the Board determines that such action is justified by reason of the fact that the ownership of the patron is the same, or sufficiently the same, as that of another Member holding the required number of Class A Shares.

Such persons or entities who from time to time may be accepted as new Members of Unified will be required to purchase or subscribe for the purchase of the number of Class A Shares in the manner set forth in the preceding paragraph. The price for these shares is the Exchange Value Per Share of the Company’s outstanding shares at the close of the fiscal year end prior to purchase. At September 29, 2007 and September 30, 2006, the Exchange Value Per Share was $245.79 and $222.82, respectively. Any subscription will require a minimum cash down payment with terms to be determined by the Board. Unified at its option may, as a condition to accepting a Member, require that instead of issuing Class A Shares, such Member purchase said shares from a terminated Member at the same price which would have been payable had the new Member purchased said shares from Unified.

Holders of Class A Shares are entitled to vote such shares cumulatively for the election of 80% of the authorized number of directors.

Class B Shares.    The Company requires each Member to hold Class B Shares having an issuance value equal to an amount determined under either the standard or reduced Class B Share investment requirement as discussed below (the “Class B Share requirement”). For purposes of determining the Class B Share requirement, each Class B Share held by a Member has an issuance value equal to the Exchange Value Per Share of the Company’s outstanding shares at the close of the fiscal year end prior to the issuance of such Class B Shares. The holders of Class B Shares currently have the right to elect 20% of the authorized number of directors. Except as provided above or by California law, the holders of Class B Shares do not have any other voting rights.

Class B Share investment requirement amounts are determined twice a year, at the end of the Company’s second and fourth fiscal quarters, based on the Member’s purchases from the Cooperative Division during the preceding four quarters.

Members and those persons or entities who from time to time may be accepted as new Members of Unified will be issued Class B Shares in the manner described below. Members typically must satisfy their Class B Share requirement entirely through the holding of Class B Shares by the end of the sixth year of membership. In such cases, Class B Shares required to be held by a new Member 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 if a subordinated cash deposit (“Required Deposit”) is provided for the full amount of the requirement.

Class B Shares are generally issued to Members as a portion of the Cooperative Division patronage dividends paid. If following the issuance of Class B Shares as part of the patronage dividend distribution for any given fiscal year after the first year as a Member, the Member does not hold the required amount of Class B Shares, then additional Class B Shares must be purchased by the Member in a quantity sufficient to achieve the requirement. The additional Class B Shares are paid for by charging the Member’s cash deposit account in an amount equal to the issuance value of the additional Class B Shares or by direct purchase by the Member.

A reduced investment option is available if certain qualifications are met. The standard Class B investment requirement (“SBI”) is twice the amount of certain average weekly purchases, except for meat and produce, which are one times average weekly purchases. Members may apply for a reduced Class B investment requirement (“RBI”), which requires Members to pay for their purchases electronically on the statement due date and demonstrate credit worthiness. The RBI is based on a sliding scale such that additional volume lowers the requirement. Members who do not apply for the RBI remain on the SBI. These changes were effective with the fiscal 2005 second quarter recalculation of the Class B Share requirement.

Members that were former United members who did not meet the minimum Class B Share ownership requirements at the time of the merger were required to (i) purchase additional Class B Shares to cover the deficiency; or (ii) assign at least 80% of the Cooperative Division patronage dividends the shareholder receives in the future to Unified to purchase Class B Shares until the deficiency is eliminated.

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Upon termination of Member status, the withdrawing Member is entitled to recover cash deposits in excess of its obligations to Unified if permitted by the applicable subordination provisions, and any shares held by such withdrawing Member are subject to repurchase as described below (see “Redemption of Capital Shares”).

Class C Shares.    There are 24 authorized Class C Shares of which 15 were outstanding as of September 29, 2007 and September 30, 2006, respectively. Class C Shares are held by Members of the Board. Each director purchases one Class C Share for its stated value of ten dollars. Class C Shares are non-voting director qualifying shares, with no rights as to dividends or other distributions, and share in liquidation at a value of ten dollars per share. During fiscal 2007, the Board approved a resolution to redeem the Class C Shares, and the Company’s intention is to redeem and simultaneously cancel the outstanding shares in fiscal 2008.

Class E Shares.    In December 2002, the Company, with the approval of the Board, adopted an equity enhancement plan. As part of this plan, a new class of equity, denominated “Class E Shares,” was created. Class E Shares were issued as a portion of the patronage dividends issued for the Cooperative Division in fiscal 2007, fiscal 2006, fiscal 2005, fiscal 2004 and fiscal 2003, and may be issued as a portion of the patronage dividends issued for the Cooperative Division in future periods, as determined annually at the discretion of the Board. The Class E Shares have a stated value of $100 per share, and are non-voting equity securities. Dividends on Class E Shares can be declared and may be payable at the discretion of the Board. Class E Shares are transferable only with the consent of the Company. Pursuant to the Company’s redemption policy, Class E Shares cannot be repurchased for ten years from their date of issuance unless approved by the Board or upon sale or liquidation of the Company. The shares, when redeemed, will be redeemed at stated value. Thereafter, shares may be repurchased by the Company subject to the limitations of California General Corporation Law, credit agreements, the Articles of Incorporation and Bylaws, redemption policy and approval by the Board.

Redemption of Capital Shares.    The Articles of Incorporation and Bylaws currently provide that Unified has the right to repurchase any Class A, Class B or Class E Shares held by a former Member, and any Class B Shares in excess of the Class B Share requirement (“Excess Class B Shares”) held by a current Member, whether or not the shares have been tendered for repurchase. The repurchase of any Class A, Class B or Class E Shares is solely at the discretion of the Board. Ten years after the issuance of Class E Shares, and not before, the holder may request that Unified, at its sole discretion, repurchase Class E Shares, even if the membership of the holder has not terminated.

Subject to the Board’s determination and approval to redeem shares, any repurchase of shares will be on the terms and, subject to the limitations and restrictions, if any, set forth in California General Corporation Law, the Company’s Articles of Incorporation and Bylaws, credit or other agreements to which the Company is a party, and the Company’s redemption policy, which is subject to change at the sole discretion of the Company’s Board.

The following tables summarize the Class A and Class B Shares tendered for redemption, shares converted, shares redeemed, and the remaining number of shares and their associated redemption value pending redemption at the fiscal year end of each of the following periods:

(dollars in thousands)
Class A Shares	Tendered	Redeemed	Remaining	Redemption Value at September 29, 2007
Fiscal 2004			3,100	$	505
Fiscal 2005	8,150	9,300	1,950	$	340
Fiscal 2006	11,150	9,550	3,550	$	695
Fiscal 2007	12,600	13,750	2,400	$	535

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(dollars in thousands)
Class B Shares	Tendered	Converted		Redeemed	Remaining	Redemption Value at September 29, 2007
Fiscal 2004					67,832	$	11,949
Fiscal 2005	31,623	4,905	(a)	33,743	60,807	$	10,637
Fiscal 2006	14,034	4,903	(a)	23,455	46,483	$	8,382
Fiscal 2007	18,351	4,911	(a)	23,405	36,518	$	7,179

(a) Shares converted to Class A Shares pursuant to the Company’s equity enhancement program.

11.    Benefit Plans

The Company’s employees participate in a cash balance pension plan (“Benefit Plan”) sponsored by the Company. Under the Benefit Plan, participants are credited with an annual accrual based on years of service with the Company. The Benefit Plan balance receives an annual interest credit, currently tied to the 30-year Treasury rate that is in effect the previous November, but in no event shall the rate be less than 5%. On retirement, participants will receive a lifetime annuity based on the total cash balance in their account. The Company makes contributions to the Benefit 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. Benefits under the Benefit Plan are provided through a trust and also through annuity contracts.

The Company also has an Executive Salary Protection Plan (“ESPP II”) that provides supplemental post-termination retirement income based on each participant’s final salary and years of service as an officer of the Company. Depending on when the officer became a participant in the ESPP II, final salary is defined as the highest compensation of the last three years preceding employment separation or the average of the highest five years of compensation out of the last ten years preceding employment separation. Funds are held in a rabbi trust for the ESPP II consisting primarily of life insurance policies reported at cash surrender value. In accordance with EITF No. 97-14, “Accounting for Deferred Compensation Arrangements Where Amounts Earned are Held in a Rabbi Trust,” the assets and liabilities of a rabbi trust must be accounted for as if they are assets and liabilities of the Company. The assets held in the rabbi trust are not available for general corporate purposes. In addition, all earnings and expenses of the rabbi trust are reported in the Company’s consolidated statement of earnings. The cash surrender value of such life insurance policies aggregated $18.8 million and $15.2 million at September 29, 2007 and September 30, 2006, respectively, and is included in other assets in the Company’s consolidated balance sheets. The related accrued benefit cost (representing the Company’s benefit obligation to participants) of $18.4 million and $13.4 million at September 29, 2007 and September 30, 2006, respectively, is recorded in other long-term liabilities in the Company’s consolidated balance sheets. The rabbi trust is subject to creditor claims in the event of insolvency. The ESPP II accrued benefit cost is included in the pension tables below. However, the trust assets are excluded from the tables as they do not qualify as plan assets under SFAS No. 87, “Employers’ Accounting for Pensions” (“FAS 87”).

Pension expense for the Benefit Plan and ESPP II totaled $4.9 million, $5.4 million and $5.7 million for the fiscal years ended September 29, 2007, September 30, 2006 and October 1, 2005, respectively.

The components of net periodic cost for the Benefit plan and ESPP II consist of the following:

(dollars in thousands)
	Benefit Plan
	September 29, 2007			September 30, 2006			October 1, 2005
Service cost	$	3,149		$	3,559		$	3,314
Interest cost		6,626			5,892			5,610
Expected return on plan assets		(7,296	)		(6,556	)		(5,698	)
Net periodic cost	$	2,479		$	2,895		$	3,226

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(dollars in thousands)
	ESPP II
	September 29, 2007		September 30, 2006		October 1, 2005
Service cost	$	1,208	$	1,324	$	1,442
Interest cost		1,000		814		754
Amortization of prior service cost		241		241		241
Recognized actuarial loss		—		139		33
Net periodic cost	$	2,449	$	2,518	$	2,470

The following table sets forth the change in benefit obligation for the Benefit Plan and ESPP II:

(dollars in thousands)
	Benefit Plan						ESPP II
	September 29, 2007			September 30, 2006			September 29, 2007			September 30, 2006
Benefit obligation at beginning of year	$	103,694		$	108,700		$	15,799		$	15,128
Service cost		3,149			3,559			1,208			1,324
Interest cost		6,626			5,892			1,000			814
Plan amendments		76			—			—			—
Actuarial loss/(gain)		688			(11,394	)		973			(775	)
Benefits paid		(3,373	)		(3,063	)		(603	)		(692	)
Benefit obligation at end of year	$	110,860		$	103,694		$	18,377		$	15,799

The following table sets forth the change in plan assets for the Benefit Plan and ESPP II:

(dollars in thousands)
	Benefit Plan						ESPP II
	September 29, 2007			September 30, 2006			September 29, 2007			September 30, 2006
Fair value of plan assets at beginning of year	$	84,863		$	73,201		$	—		$	—
Actual return on plan assets		13,585			7,122			—			—
Employer contribution		4,522			7,603			603			692
Benefits paid		(3,373	)		(3,063	)		(603	)		(692	)
Fair value of plan assets at end of year	$	99,597		$	84,863		$	—		$	—

The accrued pension and other benefit costs recognized in the accompanying consolidated balance sheets are computed as follows:

(dollars in thousands)
	Benefit Plan						ESPP II
	September 29, 2007			September 30, 2006			September 29, 2007			September 30, 2006
Funded status at June 30, 2007 and 2006, respectively (under-funded)	$	(11,263	)	$	(18,831	)	$	(18,377	)	$	(15,799	)
Unrecognized actuarial loss/(gain)		—			(4,640	)		—			1,534
Unrecognized prior service cost		—			—			—			1,236
Fourth quarter employer contribution		2,275			2,344			—			—
Net amount recognized	$	(8,988	)	$	(21,127	)	$	(18,377	)	$	(13,029	)

78

Unified Western Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

In fiscal year 2006, the unrecognized actuarial gains and losses and prior service cost represent the impact of actuarial assumption changes for the Benefit Plan and ESPP II and cumulative prior service costs for new entrants into the ESPP II plan which had not yet been recognized in the financial statements. The company’s adoption of SFAS No. 158 in the fourth quarter of its fiscal year ending September 29, 2007 required recognition of the funded (under-funded) status of each of the defined benefit pension plans, and therefore eliminated such unrecognized differences.

The following table sets forth the amounts recognized in the consolidated balance sheets for the Benefit Plan and ESPP II:

(dollars in thousands)
	Benefit Plan						ESPP II
	September 29, 2007			September 30, 2006			September 29, 2007			September 30, 2006
Accrued benefit cost	$	(19,153	)	$	(21,127	)	$	(14,875	)	$	(13,423	)
Intangible assets		—			—			—			394
Accumulated other comprehensive earnings (loss)		10,165			—			(3,502	)		—
Net amount recognized	$	(8,988	)	$	(21,127	)	$	(18,377	)	$	(13,029	)

The following table summarizes the minimum liability adjustment included in other comprehensive earnings (loss):

(dollars in thousands)
	Benefit Plan					ESPP II
	September 29, 2007		September 30, 2006			September 29, 2007		September 30, 2006
Increase (decrease) in minimum liability included in other comprehensive income	$	—	$	(615	)	$	—	$	—
Increase (decrease) in minimum liability included in other comprehensive income, net of taxes	$	—	$	(366	)	$	—	$	—

79

Unified Western Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Pursuant to SFAS No. 158, the following tables reconcile the change in net periodic benefit cost, plan assets, benefit obligation and accumulated other comprehensive (income) loss (and components thereof) for the Benefit Plan:

(dollars in thousands)
													Accumulated Other Comprehensive Income Components
September 29, 2007	Annual Cost			Plan Assets			Benefit Obligation			Accumulated Other Comprehensive (Income)/Loss			Deferred Plan Amendment (Unrecognized Prior Service Cost)			Deferred Actuarial (Gains)/ Losses
Beginning balance				$	84,863		$	(103,694	)	$	(4,640	)(a)		—	(a)	$	(4,640	)(a)
Service cost	$	3,149			—			(3,149	)		—			—			—
Interest cost		6,626			—			(6,626	)		—			—			—
Actual return (gain)/loss		(13,585	)		13,585			—			—			—			—
Basic annual cost		(3,810	)		—			—			—			—			—
Contributions		—			4,522			—			—			—			—
Benefits paid		—			(3,373	)		3,373			—			—			—
Deferrals
Unexpected return adjustment		6,289			—			—			(6,289	)		—			(6,289	)
Plan amendments		—			—			(76	)		76			76			—
Unrecognized actuarial loss/(gain)		—			—			(688	)		688			—			688
Ending balance	$	2,479		$	99,597		$	(110,860	)	$	(10,165	)	$	76		$	(10,241	)

(a) This amount represents the pro-forma impact on beginning accumulated other comprehensive earnings as if SFAS No. 158 had been in effect at the beginning of the year and is provided for illustrative purposes only in order to properly display the incremental effects of the activity in accumulated other comprehensive earnings during fiscal 2007.

Pursuant to SFAS No. 158, the following tables reconcile the change in net periodic benefit cost, plan assets, benefit obligation and accumulated other comprehensive (income) loss (and components thereof) for the ESPP II:

(dollars in thousands)
												Accumulated Other Comprehensive Income Components
September 29, 2007	Annual Cost		Plan Assets			Benefit Obligation			Accumulated Other Comprehensive (Income)/Loss			Deferred Prior Service Cost			Deferred Actuarial (Gains)/ Losses
Beginning balance			$	—		$	(15,799	)	$	2,770	(a)	$	1,236	(a)	$	1,534	(a)
Service cost	$	1,208		—			(1,208	)		—			—			—
Interest cost		1,000		—			(1,000	)		—			—			—
Basic annual cost		2,208		—			—			—			—			—
Contributions		—		603			—			—			—			—
Benefits paid		—		(603	)		603			—			—			—
Deferrals
Unrecognized actuarial loss/(gain)		—		—			(973	)		973			—			973
Amortization
Prior service cost		241		—			—			(241	)		(241	)		—
Ending balance	$	2,449	$	—		$	(18,377	)	$	3,502		$	995		$	2,507

(a) This amount represents the pro-forma impact on beginning accumulated other comprehensive earnings as if SFAS No. 158 had been in effect at the beginning of the year and is provided for illustrative purposes only in order to properly display the incremental effects of the activity in accumulated other comprehensive earnings during fiscal 2007.

80

Unified Western Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

The Company accounts for its Benefit Plan and ESPP II in accordance with SFAS No. 87, which requires the Company to make actuarial assumptions that are used to calculate the carrying value of the related assets and liabilities and the amount of expenses to be recorded in the Company’s consolidated financial statements.

In fiscal 2006, the Company reversed the additional pension liability for the Benefit Plan of $0.6 million recorded in fiscal 2005, and recorded a corresponding credit to accumulated other comprehensive earnings (loss), since the accrued expense of $21.1 million exceeded the unfunded accumulated benefit obligation (“ABO”) as of June 30, 2006, the plan’s measurement date, as determined by third party actuaries. The Company adopted SFAS No. 158 for the fiscal year ending September 29, 2007, which required the recognition of the funded status of both of the Company’s defined benefit pension plans, therefore eliminating the previous requirement to measure and record an adjustment for the additional minimum pension liability.

In fiscal 2006, the Company recorded an additional minimum liability for the ESPP II plan of $0.4 million, with a corresponding intangible asset of $0.4 million recorded as an offset to this additional liability. Since the intangible asset was sufficient to offset the additional liability recorded, there was no required charge to accumulated other comprehensive earnings (loss) at September 30, 2006. Pursuant to the adoption of SFAS No. 158 for fiscal year-end 2007, the Company reversed both the additional minimum liability for the ESPP II plan of $0.4 million and the corresponding intangible asset of $0.4 million recorded as an offset to this additional liability.

The weighted-average assumptions used in computing the preceding information as of June 30, 2007, 2006 and 2005 (the annual plan measurement dates) were as follows:

Benefit Plan	2007		2006		2005
Benefit obligations:
Discount rate for benefit obligation	6.50	%	6.50	%	5.50	%
Rate of compensation increase	4.25	%	4.25	%	3.25	%
Net periodic cost:
Discount rate for net periodic benefit cost	6.50	%	5.50	%	6.25	%
Expected long-term return on plan assets	8.50	%	8.50	%	8.50	%
Rate of compensation increase	4.25	%	3.25	%	4.00	%

ESPP II	2007		2006		2005
Benefit obligations:
Discount rate for benefit obligation	6.50	%	6.50	%	5.50	%
Rate of compensation increase	4.25	%	4.25	%	3.25	%
Net periodic cost:
Discount rate for net periodic benefit cost	6.50	%	5.50	%	6.25	%
Expected long-term return on plan assets	N/A		N/A		N/A
Rate of compensation increase	4.25	%	3.25	%	4.00	%

The Company’s fiscal 2007 pension expense was calculated based upon a number of actuarial assumptions, including an expected long-term rate of return on plan assets of 8.50%. In developing the long-term rate of return assumption, the Company evaluated historical asset class returns based on broad equity and bond indices. The expected long-term rate of return on plan assets assumes an asset allocation of approximately 65% equity and 35% fixed income financial instruments. The Company regularly reviews with its third party advisors the asset allocation and periodically rebalances the investment mix to achieve certain investment goals when considered appropriate (see further discussion and related table under “Plan Assets” below). Actuarial assumptions, including the expected rate of return, are reviewed at least annually, and are adjusted as necessary. Lowering the expected long-term rate of return on the Company’s plan assets by 0.50% (from 8.50% to 8.00%) would have increased its pension expense for fiscal 2007 by approximately $0.4 million.

The discount rate that was utilized for determining the Company’s fiscal 2006 pension obligation and fiscal 2007 net periodic benefit cost was selected to reflect the rates of return currently available on high quality fixed income

81

Unified Western Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

securities whose cash flows (via coupons and maturities) match the timing and amount of future benefit payments of the plan. Bond information was provided by a recognized rating agency for all high quality bonds receiving one of the two highest ratings. As a result of this modeling process, the discount rate was increased from 5.50% at June 30, 2005 to 6.50% at June 30, 2006. Decreasing both the discount rate and projected salary increase assumptions by 0.50% would have increased the Company’s fiscal 2007 pension expense for the Benefit Plan and ESPP II by approximately $0.2 million.

The discount rate that was utilized for determining the Company’s fiscal 2007 pension obligation and projected fiscal 2008 net periodic benefit cost was selected to reflect the rates of return currently available on high quality fixed income securities whose cash flows (via coupons and maturities) match the timing and amount of future benefit payments of the plan. Bond information was provided by a recognized rating agency for all high quality bonds receiving one of the two highest ratings. As a result of this modeling process, the discount rate remained consistent at 6.50% at both June 30, 2007 and June 30, 2006.

Plan Assets

The Company’s Benefit Plan weighted-average asset allocation at September 29, 2007 and September 30, 2006, by asset category are as follows:

(dollars in thousands)
	September 29, 2007		September 30, 2006
Asset Category:
Equity securities	$	69,065	$	57,303
Debt securities		26,903		24,614
Other		3,629		2,946
Total	$	99,597	$	84,863

The assets of the Benefit Plan are invested to provide safety through diversification in a portfolio of common stocks, bonds, cash equivalents and other investments that may reflect varying rates of return. The overall return objective for the portfolio is a reasonable rate consistent with the risk levels established by the Company’s Benefits Committee. The investments are to be diversified within asset classes (e.g., equities should be diversified by economic sector, industry, quality and size).

The long-term target asset allocation for the investment portfolio is divided into three asset classes as follows:

Asset Classes	Maximum %		Minimum %		Target %
Equities	75	%	50	%	65	%
Fixed Income	45	%	25	%	35	%
Cash Equivalents	30	%	0	%	0	%

The equity segment is further diversified by exposure to domestic and international, small and large capitalization, and growth and value stocks. The fixed income segment is subject to quality and duration targets, and is invested in core fixed income and high yield sectors. The percentage of total assets allocated to cash equivalents should be sufficient to assure liquidity to meet disbursements and general operational expenses. Cash equivalents may also be used as an alternative to other investments when the investment manager believes that other asset classes carry higher than normal risk.

Contributions

During fiscal 2007, the Company contributed $3.4 million and $1.1 million to the Benefit Plan for the 2007 plan year and 2006 plan year, respectively. In addition, the Company also contributed $0.6 million in fiscal 2007 to the

82

Unified Western Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

ESPP II Plan to fund benefit payments to participants. At this time, the Company expects to make estimated contributions to the Benefit Plan totaling $10.7 million in fiscal 2008 for the 2008 plan year ($4.7 million) and 2007 plan year ($6.0 million). Additional contributions, if any, for the 2007 plan year will be due by September 15, 2008, while contributions for the 2008 plan year will be due by September 15, 2009. In addition, the Company expects to contribute $1.3 million to the ESPP II Plan to fund projected benefit payments to participants in fiscal 2008.

The Company also made contributions of $12.2 million, $12.0 million and $11.1 million for the fiscal years ended September 29, 2007, September 30, 2006 and October 1, 2005, respectively, to collectively bargained, multi-employer defined benefit pension plans in accordance with the provisions of negotiated labor contracts. Information from the plans’ administrators is not available to permit the Company to determine its proportionate share of termination liability, if any.

The Company has a Sheltered Savings Plan (“SSP”), which is a defined contribution plan, adopted pursuant to Section 401(k) of the Internal Revenue Code for substantially all of its nonunion employees. The Company matches, after an employee’s one year of service, each dollar deferred up to 4% of compensation and, at its discretion, matches 40% of amounts deferred between 4% and 8%. At the end of each plan year, the Company may also contribute an amount equal to 2% of the compensation of those participants employed at that date. Participants are immediately 100% vested in the Company’s contribution.

The Company contributed approximately $3.9 million, $3.8 million and $3.3 million related to its SSP in the fiscal years ended September 29, 2007, September 30, 2006 and October 1, 2005, respectively.

The Company has a nonqualified Deferred Compensation Plan (“DCP”), which allows eligible employees to defer and contribute to an account a percentage of compensation on a pre-tax basis, as defined in the plan, in excess of amounts contributed to the SSP pursuant to IRS limitations, the value of which is measured by the fair value of the underlying investments. The Company informally funds its deferred compensation liability with assets held in a rabbi trust consisting primarily of life insurance policies reported at cash surrender value. The assets held in the rabbi trust are not available for general corporate purposes. Participants can direct the investment of their deferred compensation plan accounts in several investment funds as permitted by the DCP. Gains or losses on investments are fully allocable to the plan participants. The cash surrender value of life insurance policies is included in other assets in the Company’s consolidated balance sheets because they remain assets of the Company until paid out to the participants. The cash surrender value of the life insurance policies was $8.6 million and $6.9 million at September 29, 2007 and September 30, 2006, respectively. The liability to participants ($8.6 million and $7.0 million at September 29, 2007 and September 30, 2006, respectively) is included in other long-term liabilities in the Company’s consolidated balance sheets. The rabbi trust is subject to creditor claims in the event of insolvency.

The Company has an Employee Savings Plan, which is a defined contribution plan, adopted pursuant to Section 401(k) of the Internal Revenue Code for substantially all of its union employees. The Company does not match any employee deferrals into the plan, and therefore, there is no related vesting schedule. No expense was incurred in the periods presented.

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid in fiscal years:

(dollars in thousands)
	Benefit Plan		ESPP II
2008	$	4,206	$	1,330
2009		4,560		1,359
2010		5,021		1,351
2011		5,506		1,861
2012		6,206		2,060
2013 – 2017		38,146		11,655
Total	$	63,645	$	19,616

83

Unified Western Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

12.    Postretirement Benefit Plans Other Than Pensions

The Company sponsors postretirement benefit plans that cover both nonunion and union employees. Retired nonunion employees currently are eligible for a plan providing medical benefits and a certain group of retired nonunion employees currently participate in a plan providing life insurance benefits for which active nonunion employees are no longer eligible. Additionally, certain eligible union and nonunion employees have separate plans providing a lump-sum payout for unused days in the sick leave bank. The postretirement medical plan is contributory for nonunion employees retiring after January 1, 1990, with the retiree contributions adjusted annually. The life insurance plan and the sick leave payout plans are noncontributory. A group of retired nonunion employees in Oregon participate in a postretirement benefit plan providing medical, dental, and vision care benefits. The plans are not funded.

The components of net periodic benefit cost consist of the following:

(dollars in thousands)
	September 29, 2007			September 30, 2006		October 1, 2005
Service cost	$	1,338		$	1,648	$	1,349
Interest cost		2,632			3,408		3,454
Recognized actuarial (gain) loss		(432	)		744		431
Net periodic benefit cost	$	3,538		$	5,800	$	5,234

The change in the benefit obligations consists of the following:

(dollars in thousands)
	September 29, 2007			September 30, 2006
Benefit obligation at beginning of year	$	41,805		$	63,562
Service cost		1,338			1,648
Interest cost		2,632			3,408
Actuarial loss (gain)		616			(24,186	)
Benefits paid		(2,475	)		(2,627	)
Benefit obligation at end of year	$	43,916		$	41,805

The change in the plan assets during the year is:

(dollars in thousands)
	September 29, 2007			September 30, 2006
Fair value of plan assets at beginning of year	$	—		$	—
Employer contribution		2,475			2,627
Benefits paid		(2,475	)		(2,627	)
Fair value of plan assets at end of year	$	—		$	—

The funded status of the plans is:

(dollars in thousands)
	September 29, 2007			September 30, 2006
Funded status at June 30, 2007 and 2006 (under-funded)	$	(43,916	)	$	(41,805	)
Unrecognized actuarial (gain) loss		—			(9,879	)
Net amount recognized	$	(43,916	)	$	(51,684	)

84

Unified Western Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

The accrued benefit costs of $43.9 million and $51.7 million at September 29, 2007 and September 30, 2006, respectively, are included in net long-term liabilities, other in the consolidated balance sheets. In fiscal year 2006, the unrecognized actuarial gain represents the impact of actuarial assumption changes for the postretirement benefit plans, which had not yet been recognized in the financial statements. The company’s adoption of SFAS No. 158 in the fourth quarter of its fiscal year ending September 29, 2007 required recognition of the funded status of the postretirement benefit plans, and therefore eliminated such unrecognized differences.

Pursuant to SFAS No. 158, the following tables reconcile the change in net periodic benefit cost, plan assets, benefit obligation and accumulated other comprehensive (income) loss (and components thereof) for the Company’s postretirement benefit plans:

(dollars in thousands)
													Accumulated Other Comprehensive Income Components
September 29, 2007	Annual Cost			Plan Assets			Benefit Obligation			Accumulated Other Comprehensive (Income)/Loss			Deferred Prior Service Cost			Deferred Actuarial (Gains)/Losses
Beginning balance		—		$	—		$	(41,805	)	$	(9,879	)(a)	$	—	(a)	$	(9,879	)(a)
Service cost	$	1,338			—			(1,338	)		—			—			—
Interest cost		2,632			—			(2,632	)		—			—			—
Basic annual cost		3,970			—			—			—			—			—
Contributions		—			2,475			—			—			—			—
Benefits paid		—			(2,475	)		2,475			—			—			—
Deferrals
Unrecognized actuarial loss/(gain)		—			—			(616	)		616			—			616
Amortization
Prior service cost		—			—			—			—			—			—
Recognized actuarial loss/(gain)		(432	)		—			—			432			—			432
Ending balance	$	3,538		$	—		$	(43,916	)	$	(8,831	)	$	—		$	(8,831	)

(a) This amount represents the pro-forma impact on beginning accumulated other comprehensive earnings as if SFAS No. 158 had been in effect at the beginning of the year and is provided for illustrative purposes only in order to properly display the incremental effects of the activity in accumulated other comprehensive earnings during fiscal 2007.

The Company expects to make contributions to its postretirement benefit plans in amounts equivalent to the expected benefit payments as indicated below.

Benefit payments, including those amounts to be paid out of corporate assets and reflecting future expected service as appropriate, are expected to be paid in fiscal years:

(dollars in thousands)
	Postretirement Benefit Plans
2008	$	2,879
2009		3,069
2010		3,217
2011		3,395
2012		3,557
2013 – 2017		20,811
Total	$	36,928

85

Unified Western Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

The weighted-average assumptions as of June 30, 2007, 2006 and 2005 are as follows:

	Postretirement benefit plans
	2007		2006		2005
Benefit obligations:
Discount rate for benefit obligation	6.50	%	6.50	%	5.50	%
Rate of compensation increase	4.25	%	4.25	%	3.25	%
Net periodic benefit cost:
Discount rate for net periodic benefit cost	6.50	%	5.50	%	6.25	%
Rate of compensation increase	4.25	%	3.25	%	4.00	%

For measurement purposes, the following table sets forth the assumed health care trend rates:

	September 29, 2007		September 30, 2006
Health care cost trend rate assumed for 2008 and 2007 (a)	10.00	%	10.00	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) (b)	5.00	%	5.00	%
Year that the rate reaches the ultimate trend rate	2013		2012

(a) The annual rate of increase in the per capita cost of covered health care benefits.

(b) The health care trend rate is assumed to decrease annually by 1% until reaching the ultimate trend rate of 5% in fiscal 2013 and 2012 for the years ended September 29, 2007 and September 30, 2006, respectively.

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects as of September 29, 2007:

(dollars in thousands)
	1-Percentage-Point Increase		1-Percentage-Point Decrease
Effect on total of service and interest cost	$	165	$	(164	)
Effect on accumulated postretirement benefit obligation	$	2,397	$	(2,233	)

The Company’s union employees participate in a multi-employer plan that provides health care benefits for retired union employees. Amounts contributed to the multi-employer plan for these union employees totaled $3.5 million in fiscal 2007, $3.4 million in fiscal 2006 and $3.8 million in fiscal 2005. Information from the plans’ administrators is not available to permit the Company to determine its proportionate share of termination liability, if any.

13.    Contingencies

The Company is a party to various litigation, claims and disputes, some of which are for substantial amounts, arising in the ordinary course of business. While the ultimate effect of such actions cannot be predicted with certainty, the Company believes the outcome of these matters will not result in a material adverse effect on its financial condition or results of operations.

14.    Segment Reporting

Management identifies segments based on the information monitored by the Company’s chief operating decision-makers to manage the business and, accordingly, has the following two reportable segments:

· Wholesale Distribution includes the results of operations from the sale of food and general merchandise products to both Member and non-member independent and chain supermarket operators. As of September 29, 2007, the Wholesale Distribution segment represents approximately 99% of the Company’s total sales and 87% of total assets.

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Unified Western Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

· The Insurance segment includes the results of operations for the Company’s three insurance subsidiaries (Grocers and Merchants Insurance Service, Inc., Springfield Insurance Company and Springfield Insurance Company, Ltd.). These subsidiaries provide insurance and insurance-related services, including workers’ compensation and liability insurance policies, to both the Company and its Members primarily located in California. As of September 29, 2007, the Company’s Insurance segment collectively accounts for approximately 1% of the Company’s total sales and 11% of total assets.

The “All Other” category includes the results of operations for the Company’s other support businesses, including its finance subsidiary, whose services are provided to a common customer base, none of which individually meets the quantitative thresholds of a reportable segment. As of September 29, 2007, the “All Other” category collectively accounts for less than 1% of the Company’s total sales and 2% of total assets.

Information about the Company’s operations by operating segment is as follows:

(dollars in thousands)
	September 29, 2007			September 30, 2006			October 1, 2005
Net sales
Wholesale distribution	$	3,118,748		$	2,938,073		$	2,842,348
Insurance		26,614			22,163			30,331
All other		2,576			2,322			2,250
Intersegment elimination		(14,497	)		(8,735	)		(8,067	)
Total net sales	$	3,133,441		$	2,953,823		$	2,866,862
Operating income
Wholesale distribution	$	51,507		$	51,262		$	50,085
Insurance		5,060			8,950			4,032
All other		(861	)		(859	)		(616	)
Total operating income		55,706			59,353			53,501
Interest expense		(13,840	)		(14,326	)		(14,851	)
Patronage dividends		(17,680	)		(20,973	)		(21,404	)
Income taxes		(9,780	)		(7,912	)		(6,426	)
Net earnings	$	14,406		$	16,142		$	10,820
Depreciation and amortization
Wholesale distribution	$	19,194		$	21,016		$	23,904
Insurance		141			207			269
All other		36			16			8
Total depreciation and amortization	$	19,371		$	21,239		$	24,181
Capital expenditures
Wholesale distribution	$	34,240		$	13,915		$	11,606
Insurance		—			56			85
All other		626			192			55
Total capital expenditures	$	34,866		$	14,163		$	11,746
Identifiable assets
Wholesale distribution	$	650,722		$	613,079		$	602,475
Insurance		84,762			86,403			88,058
All other		15,704			17,633			17,516
Total identifiable assets	$	751,188		$	717,115		$	708,049

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Unified Western Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

15.    Concentration of Credit Risk

Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of trade receivables, notes receivable, and lease guarantees for certain Members. These concentrations of credit risk may be affected by changes in economic or other conditions affecting the western United States, particularly California, Oregon and Washington. However, management believes that receivables are well diversified, and the allowances for doubtful accounts are sufficient to absorb estimated losses. Obligations of Members to the Company, including lease guarantees, are generally supported by the Company’s right of offset, upon default, against the Members’ cash deposits, shareholdings and Patronage Certificates, as well as personal guarantees and reimbursement and indemnification agreements.

The Company’s largest customer, Smart & Final, Inc., accounted for 12%, 11%, and 11% of total net sales for the fiscal years ended September 29, 2007, September 30, 2006 and October 1, 2005, respectively. Super Center Concepts, Inc. dba Superior Grocers, the Company’s second largest customer, accounted for 10%, 10%, and 8% for the fiscal years ended September 29, 2007, September 30, 2006 and October 1, 2005, respectively. The Company’s next eight largest customers combined accounted for 22%, 21% and 20% of total net sales for the fiscal years ended September 29, 2007, September 30, 2006 and October 1, 2005, respectively.

The Company’s ten largest customers’ accounts receivable accounted for approximately 41%, 33% and 30% of total accounts receivable at September 29, 2007, September 30, 2006 and October 1, 2005, respectively.

16.    Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and cash equivalents.    The carrying amount approximates fair value due to the short maturity of these instruments.

Accounts receivable and current portion of notes receivable.    The carrying amount of accounts receivable and the current portion of notes receivable approximates the fair value of net accounts and notes receivable due to their short-term maturity.

Investments.    The fair values for investments are based primarily on their quoted market prices. Equity securities that do not have readily determinable fair values are accounted for using the cost or equity methods of accounting. The Company regularly evaluates securities carried at cost to determine whether there has been any diminution in value that is deemed to be other than temporary and adjusts the value accordingly.

Notes payable and subordinated patronage dividend certificates.    The fair values for notes payable and subordinated patronage dividend certificates are based primarily on rates currently available to the Company for debt with similar terms and remaining maturities.

The fair value of variable interest rate notes payable approximates their carrying value at September 29, 2007 and September 30, 2006. The fair value of fixed rate notes payable was $172.6 million and $98.4 million compared to their carrying value of $172.6 million and $102.8 million at September 29, 2007 and September 30, 2006, respectively.

The fair value of subordinated patronage dividend certificates approximated their carrying value at September 29, 2007 and September 30, 2006.

The methods and assumptions used to estimate the fair values of the Company’s financial instruments at September 29, 2007 and September 30, 2006 were based on estimates of market conditions, estimates using present value and risks existing at that time. These values represent an approximation of possible value and may never actually be realized.

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Unified Western Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

17.    Related Party Transactions

Members affiliated with directors of the Company make purchases of merchandise from the Company and also may receive benefits and services that are of the type generally offered by the Company to its similarly situated eligible Members.

Since the programs listed below are only available to Members of the Company, it is not possible to assess whether transactions with Members of the Company, including entities affiliated with directors of the Company, are less favorable to the Company than similar transactions with unrelated third parties. However, management believes such transactions are on terms that are generally consistent with terms available to other Members similarly situated.

A brief description of related party transactions with Members affiliated with directors of the Company and transactions with executive officers follows:

Loans and Loan Guarantees

Unified provides loan financing and loan guarantees to its Members. The Company had the following loans outstanding at September 29, 2007 to Members affiliated with directors of the Company:

(dollars in thousands)
Director	Aggregate Loan Balance at September 29, 2007		Maturity Date
Peter J. O’Neal	$	71	2011

On August 1, 2006, K.V. Mart Co. (“KV”), of which director Darioush Khaledi is affiliated, entered into a $1.1 million standby letter of credit agreement with GCC to secure insurance coverage with Springfield Insurance Company, a wholly owned subsidiary of the Company, in the event KV is unable to meet its obligations. The non-transferable standby letter of credit expires August 1, 2008, and is automatically renewable in one-year increments without amendment unless KV provides 30 days’ prior written notice to GCC.

The Company has guaranteed 22% of the principal amount of a third party loan to C&K, of which director Douglas A. Nidiffer is a shareholder, director and officer. At September 29, 2007 and September 30, 2006, the principal amount of this guarantee was $0.1 million and $0.2 million.

Lease Guarantees and Subleases

The Company provides lease guarantees and subleases to its Members. The Company has executed lease guarantees or subleases to Members affiliated with directors of the Company at September 29, 2007 as follows:

(dollars in thousands)
Director	No. of Stores	Total Current Annual Rent		Total Guaranteed Rent	Expiration Date(s)
Douglas A. Nidiffer	1	$	693	3,481	2026
Michael A. Provenzano, Jr.	2		341	3,223	2017
John Berberian	2		310	1,482	2012-2013
Peter J. O’Neal	1		144	432	2010
Mark Kidd	1		121	151	2009

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Unified Western Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Supply Agreements

During the course of its business, the Company enters into individually negotiated supply agreements with Members of the Company. These agreements require the Member to purchase certain agreed amounts of its merchandise requirements from the Company and obligate the Company to supply such merchandise under agreed terms and conditions relating to such matters as pricing and delivery. The Company has executed supply agreements with Members affiliated with directors of the Company at September 29, 2007 as follows:

Director	Expiration Date
Douglas A. Nidiffer	12/29/2013
Michael A. Provenzano, Jr.	10/03/2007

Loans to Executive Officers

In December 2000, to facilitate a senior executive’s relocation to Southern California, the Company loaned to this executive, pursuant to a note, $0.1 million with interest of 7.0% per annum payable quarterly and principal due at the option of the holder.

18.    Subsequent Events

On October 5, 2007, the Board authorized the repurchase on October 11, 2007 of 900 shares of the Company’s Class A Shares that had been tendered and were pending redemption. The Company paid approximately $0.2 million to redeem the shares. On December 12, 2007, the Board authorized the repurchase on or before December 28, 2007 of 2,200 Class A Shares with an approximate redemption value of $0.5 million and 22,055 Class B Shares with an approximate redemption value of $4.3 million.

On September 30, 2007, the Company completed the purchase of certain assets, including inventory, prepaid and deferred expenses (other than deferred tax assets), notes receivable, and certain fixed assets, and assumption of certain liabilities, including accounts payable, non-union employee pension plan and a warehouse lease related to the operation of Associated Grocers, Incorporated and its subsidiaries (“AG”) of Seattle, Washington. AG is a wholesaler providing food, nonfood, general merchandise and retail services to stores from its office and distribution facilities in Seattle and Renton, Washington. The total purchase price was $39.5 million in cash, which was financed through the Company’s revolving credit line. At the conclusion of the 45-day period following September 30, 2007, the purchase price was adjusted by an increase of approximately $0.3 million, based upon post-closing adjustments to AG’s balance sheet and other considerations as specified in the Asset Purchase Agreement.

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Item 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

Item 9A.    CONTROLS AND PROCEDURES

Disclosure controls and procedures.    Disclosure controls are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Exchange Act, such as this Annual Report, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls are also designed to reasonably assure that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Disclosure controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving an entity’s disclosure objectives. The likelihood of achieving such objectives is affected by limitations inherent in disclosure controls and procedures. These include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures such as simple errors, mistakes or intentional circumvention of the established processes.

At the end of the period covered by this report, Unified’s management, with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Our Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective at the reasonable assurance level described above as of the end of the period covered in this report.

Changes in internal controls over financial reporting.    Management, with the participation of the Chief Executive Officer and Chief Financial Officer of the Company, has evaluated any changes in the Company’s internal control over financial reporting that occurred during the fourth quarter of our fiscal year ended September 29, 2007. Management, the Chief Executive Officer and the Chief Financial Officer of the Company have concluded that no change in our internal control over financial reporting (as defined in Rule 13a—15(f) under the Securities Exchange Act of 1934) occurred during the fourth quarter of our fiscal year ended September 29, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

The Company is a non-accelerated filer and will be required, beginning in our 2008 fiscal year, to perform an evaluation of our internal control over financial reporting, and beginning in our 2009 fiscal year, our independent registered public accounting firm will have to test and evaluate the design and operating effectiveness of such controls and publicly attest to such evaluation. The Company is currently in the documentation phase of its Section 404 compliance and will comply with these disclosure requirements for its fiscal year ending September 27, 2008.

Item 9B.    OTHER INFORMATION

On October 5, 2007, the Board amended the Bylaws of the Company. Before this amendment, Article III, Section 2 of the Bylaws provided that all of the directors of the Company, except up to three directors elected by the Class A Shares, were required to be Shareholder-Related Directors (as defined in that section). As amended, the Bylaws now permit up to six directors elected by the Class A Shares to be non-Shareholder-Related Directors. A copy of the Bylaws, as amended, is attached to this Annual Report on Form 10-K as Exhibit 3.2.

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Part III

Item 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information regarding the directors of Unified is incorporated from the information under the captions “Election of Directors,” “Board Meetings and Committees,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Code of Financial Ethics” in the Company’s proxy statement for its 2008 annual meeting of shareholders to be filed within 120 days after the end of the most recent fiscal year.

The Company has adopted a code of ethics that applies to the Company’s principal executive officer, principal financial officer and principal accounting officer. The code of ethics has been posted to the Company’s Internet website at http://www.uwgrocers.com. The Company intends to satisfy disclosure requirements regarding amendments to, or waivers from, any provisions of its code of ethics on its website.

The following table sets forth certain information about executive, senior and other officers that have direct financial reporting responsibilities. Information on all other officers will be provided in the Company’s Annual Report.

Officer’s Name	Age	Business Experience During Last Five Years
Alfred A. Plamann	65	President and Chief Executive Officer since February 1994.
Robert M. Ling, Jr.	50	Executive Vice President, General Counsel and Secretary since November 1999.
Richard J. Martin	62	Executive Vice President, Finance & Administration and Chief Financial Officer since November 1999.
Philip S. Smith	57	Executive Vice President, Chief Marketing / Procurement Officer since October 2003; Senior Vice President, Procurement, November 1999 to October 2003.
Joseph L. Falvey	47	Senior Vice President, Sales since August 2007; Vice President and President Northern California, January 2000 to July 2007.
Daniel J. Murphy	61	Senior Vice President, Retail Support Services and Perishables, since July 2001.
Rodney L. VanBebber	52	Senior Vice President, Distribution since January 2000.
Christine Neal	54	Vice President and Treasurer since March 2003; Financial Consultant, April 1999 to February 2003.
Joseph A. Ney	59	Vice President, Insurance since November 1998.
Randall G. Scoville	47	Vice President, Accounting and Chief Accounting Officer since October 2005; Chief Financial Officer, Cardenas Markets, Inc., January 2004 to October 2005; Financial Consultant, July 2002 to December 2003.

Under the securities laws of the United States, our directors, executive officers and any persons holding more than 10 percent of our common stock are required to report their ownership of common stock and any changes in that ownership, on a timely basis, to the SEC. In mid-2003, the SEC amended its rules to require that substantially all Section 16 reports be filed within two business days of a reportable event, and that all filings be effected through the SEC’s EDGAR filing system. Based on our review of such reports and written representations furnished to us, all such required reports were filed on a timely basis in 2006, except that the Company, who has been authorized to file such reports on behalf of Peter J. O’Neal, failed to timely report Mr. O’Neal’s acquisition of 68, 25 and 72 Class B Shares and 1, 78 and 39 Class E Shares on December 17, 2004, December 8, 2005 and January 2, 2007, respectively. The Company has a program in effect to assist its directors in complying with the reporting rules of Section 16(a) of the Exchange Act. The Company believes that this program effectively helps prevent unintentional failures to comply with the reporting provisions.

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Item 11.    EXECUTIVE COMPENSATION

Incorporated by reference from the information under the captions “Compensation Discussion and Analysis,” “Compensation Committee Interlocks and Insider Participation,” “Report of Compensation Committee on Executive Compensation,” “Executive Officer Compensation” and “Director Compensation” in the Company’s proxy statement for its 2008 annual meeting of shareholders to be filed within 120 days after the end of the most recent fiscal year.

Item 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Incorporated by reference from the information under the caption “Security Ownership of Directors and Officers” in the Company’s proxy statement for its 2008 annual meeting of shareholders to be filed within 120 days after the end of the most recent fiscal year.

Item 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Entities with which directors are affiliated, as Members of Unified, purchase groceries and related products and services from Unified in the ordinary course of business pursuant to published terms or according to the provisions of individually negotiated supply agreements. As Members, firms with which directors are affiliated may receive various benefits including patronage dividends, allowances and retail support services. Unified makes a variety of benefits available to Members on a negotiated basis. Unified has provided to its Members loan financing in the form of direct loans and loan guarantees; provided lease guarantees and subleases; as well as invested directly in Members who are sometimes affiliated with directors of the Company. In addition, Unified may also enter into other agreements with Members which are affiliated with directors of the Company, as well as agreements with its executive officers. See Note 17 of Notes to Consolidated Financial Statements in Item 8, “Financial Statements and Supplementary Data,” which is incorporated herein by this reference, for a description of related party transactions. Additional information is incorporated by reference from the information under the captions “Compensation Committee Interlocks and Insider Participation,” “Transactions with Management and Other Persons” in the Company’s proxy statement for its 2008 annual meeting of shareholders to be filed within 120 days after the end of the most recent fiscal year.

Item 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

Incorporated by reference from the information under the caption “Independent Registered Public Accounting Firm” in the Company’s proxy statement for its 2008 annual meeting of shareholders to be filed within 120 days after the end of the most recent fiscal year.

Part IV

Item 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) (1) and (2) Financial Statements and Financial Statement Schedule

The following consolidated financial statements of the Company, the notes thereto, and the related report thereon of the independent registered public accounting firm are filed under Item 8 of this report. The financial statement schedule is filed herein and the related report thereon of the independent registered public accounting firm is filed under Item 8 of this report.

(a) (1) Consolidated Financial Statements:

· Report of Independent Registered Public Accounting Firm.

· Consolidated Balance Sheets as of September 29, 2007 and September 30, 2006.

· Consolidated Statements of Earnings and Comprehensive Earnings for the fiscal years ended September 29, 2007, September 30, 2006 and October 1, 2005.

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· Consolidated Statements of Shareholders’ Equity for the fiscal years ended September 29, 2007, September 30, 2006 and October 1, 2005.

· Consolidated Statements of Cash Flows for the fiscal years ended September 29, 2007, September 30, 2006 and October 1, 2005.

· Notes to Consolidated Financial Statements.

   (2) Financial Statement Schedule:

· Schedule II—Valuation and Qualifying Accounts for the fiscal years ended September 29, 2007, September 30, 2006 and October 1, 2005.

All other financial statement schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the instructions to Item 8 or are inapplicable and therefore have been omitted.

   (3) Exhibits:

See Item 15 (b) below.

(b) Exhibits

The following documents are filed as part of this Annual Report on Form 10-K:

Exhibit No.	Description
3.1	Amended and Restated Articles of Incorporation of the Registrant, as amended (incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2003, File No. 000-10815).
3.2*	Bylaws of the Registrant, as amended.
4.1	Retail Grocer Application and Agreement for Continuing Service Affiliation with Unified Western Grocers, Inc. and Pledge Agreement (incorporated by reference to Exhibit 4.7 to Amendment No. 2 to Form S-1 Registration Statement of the Registrant filed on December 31, 1981, File No. 2-70069).
4.2	Retail Grocer Application and Agreement for Service Affiliation with and the Purchase of Shares of Unified Western Grocers, Inc. and Pledge Agreement (incorporated by reference to Exhibit 4.2 to Post Effective Amendment No. 7 to Form S-2 Registration Statement of the Registrant filed on December 13, 1989, File No. 33-19284).
4.3	Copy of Application and Agreement for Service Affiliation as a Member-Patron/Affiliate with Unified Western Grocers, Inc. and Pledge and Security Agreement (incorporated by reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2000, File No. 000-10815).
4.4	Copy of Application and Agreement for Service Affiliation as an Associate Patron with Unified Western Grocers, Inc. and Pledge and Security Agreement (incorporated by reference to Exhibit 4.2 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2000, File No. 000-10815).
4.5	Agreement respecting directors’ shares (incorporated by reference to Exhibit 4.9 to Amendment No. 2 to Form S-1 Registration Statement of the Registrant filed on December 31, 1981, File No. 2-70069).
4.6	Subordination Agreement (Member-Patron-1988) (incorporated by reference to Exhibit 4.4 to Post-Effective Amendment No. 4 to Form S-2 Registration Statement of the Registrant filed on July 15, 1988, File No. 33-19284).
4.7	Subordination Agreement (Associate Patron-1988) (incorporated by reference to Exhibit 4.5 to Post-Effective Amendment No. 4 to Form S-2 Registration Statement of the Registrant filed on July 15, 1988, File No. 33-19284).

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Exhibit No.	Description
4.8	Subordination Agreement (New Member-Patron-1988) (incorporated by reference to Exhibit 4.6 to Post-Effective Amendment No. 4 to Form S-2 Registration Statement of the Registrant filed on July 15, 1988, File No. 33-19284).
4.9	Subordination Agreement (New Associate Patron-1988) (incorporated by reference to Exhibit 4.7 to Post-Effective Amendment No. 4 to Form S-2 Registration Statement of the Registrant filed on July 15, 1988, File No. 33-19284).
4.10	Copy of Member Patron/Affiliate Subordination Agreement (Subordination of Required Deposit) (incorporated by reference to Exhibit 4.10 to Registrant’s Form 10-K for the fiscal year ended September 29, 2001 filed on December 27, 2001, File No. 000-10815).
4.11	Copy of Associate-Patron Subordination Agreement (Subordination of Required Deposit Agreement (incorporated by reference to Exhibit 4.11 to Registrant’s Form 10-K for the fiscal year ended September 29, 2001 filed on December 27, 2001, File No. 000-10815).
4.12	Form of Class A Share Certificate (incorporated by reference to Exhibit 4.12 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2000, filed on December 26, 2000, File No. 000-10815).
4.13	Form of Class B Share Certificate (incorporated by reference to Exhibit 4.13 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2000, filed on December 26, 2000, File No. 000-10815).
4.14	Amended and Restated Loan Purchase and Servicing Agreement Dated as of December 7, 2001 between Grocers Capital Company and National Consumer Cooperative Bank (incorporated by reference to Exhibit 10.1 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 28, 2002, filed on January 13, 2003, File No. 000-10815).
4.15	Amended and Restated Credit Agreement dated as of December 7, 2001 among Grocers Capital Company, the lenders listed therein and National Cooperative Bank, as agent (incorporated by reference to Exhibit 10.1 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 28, 2002, filed on January 13, 2003, File No. 000-10815).
4.16	Amended and Restated Loan Purchase Agreement (Existing Program) dated January 30, 1998 among United Resources, Inc., United Grocers, Inc. (predecessor-in-interest to the Registrant) and National Consumer Cooperative Bank (incorporated by reference to Exhibit 4.D1 to United Grocers, Inc. Annual Report on Form 10-K for the fiscal year ended October 2, 1998 filed on January 30, 1999, File No. 002-60487, as amended).
4.17	Amended and Restated Loan Purchase Agreement (Holdback Program) dated January 30, 1998 among United Resources, Inc., United Grocers, Inc. (predecessor-in-interest to the Registrant) and National Consumer Cooperative Bank (incorporated by reference to Exhibit 4.D2 to United Grocers, Inc. Annual Report on Form 10-K for the fiscal year ended October 2, 1998 filed on January 30, 1999, File No. 002-60487, as amended).
4.18	Guarantee dated September 29, 1999 by the Registrant of debt securities of United Grocers, Inc. (predecessor-in-interest to the Registrant) issued pursuant to that certain Indenture dated as of February 1, 1978, and as subsequently amended and supplemented, by and between United Grocers, Inc., and State Street Bank and Trust Company (incorporated by reference to Exhibit 4.1 to the Registrants Current Report on Form 8-K filed on October 13, 1999, File No. 000-10815).
4.19	Note purchase Agreement dated as of September 29, 1999 by and among Registrant and the persons listed on Schedule I thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current report on Form 8-K filed on October 13, 1999, File No. 000-10815).
4.20	Amendment No. 1 and Limited Waiver to Note Purchase Agreement, dated as of September 14, 2000, by and among Registrant and the Noteholders listed on the signature pages thereto (incorporated by reference to Exhibit 4.24 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2000, filed on December 26, 2000, File No. 000-10815).

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Exhibit No.	Description
4.21	Second Amendment to Note Purchase Agreement and Notes dated as of March 27, 2002 by and among the Registrant and the Noteholders on the signature pages thereto (incorporated by reference to Exhibit 4.24.1 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2002, filed on May 14, 2002, File No. 000-10815).
4.22	Third Amendment to Note Purchase Agreement and Notes dated as of December 31, 2002 by and among the Registrant and the Noteholders on the signature pages thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 28, 2002, filed on January 13, 2003, File No. 000-10815).
4.23	Secured Revolving Credit Agreement dated as of September 29, 1999, by and among Registrant, the Lenders named therein and Rabobank Nederland, New York Branch (incorporated by reference to Exhibit 10.2 to the Registrant’s Current report on Form 8-K filed on October 13, 1999, File No. 000-10815).
4.24	Amendment No. 1 to Secured Revolving Credit Agreement dated as of November 18, 1999 by and among Registrant, the Lenders named therein and Rabobank Nederland, New York Branch (incorporated by reference to Exhibit 4.26 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2000, filed on December 26, 2000, File No. 000-10815).
4.25	Amendment No. 2 and Limited Waiver to Secured Revolving Credit Agreement dated as of July, 2000 by and among Registrant, the Lenders named therein and Rabobank Nederland, New York Branch (incorporated by reference to Exhibit 4.27 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2000, filed on December 26, 2000, File No. 000-10815).
4.26	Amendment No. 3 to Secured Revolving Credit Agreement dated as of December 7, 2001 by and among the Registrant, the Lenders named therein and Rabobank Nederland, New York Branch (incorporated by reference to Exhibit 4.27.1 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 29, 2001, filed on December 27, 2001, File No. 000-10815).
4.27	Copy of indenture dated as of February 1, 1978, between Unified Western Grocers, Inc. (as successor to United Grocers, Inc.) and United States National Bank of Oregon, as trustee, relating to Unified Western Grocers, Inc.’s Capital Investment Notes (incorporated by reference to Exhibit 4.1 to United Grocers, Inc.’s registration Statement on Form S-1, No. 2-60488).
4.28	Copy of supplemental indenture dated as of January 27, 1989, between Unified Western Grocers, Inc. (as successor to United Grocers, Inc.) and United States National Bank of Oregon, as trustee, relating to Unified Western Grocers, Inc.’s Series F 5% Subordinated Redeemable Capital Investment Notes (incorporated by reference to Exhibit 4.G to the United Grocers, Inc. Form 10-K for the fiscal year ended September 30, 1989).
4.29	Copy of supplemental indenture dated as of January 22, 1991, between Unified Western Grocers, Inc. (as successor to United Grocers, Inc.) and United States National Bank of Oregon, as trustee, relating to Unified Western Grocers, Inc.’s Series G 5% Subordinated Redeemable Capital Investment Notes (incorporated by reference to Exhibit 4.D to the United Grocers, Inc. Registration Statement on Form S-2, No. 33-38617).
4.30	Copy of supplemental indenture dated as of July 6, 1992, between Unified Western Grocers, Inc. (as successor to United Grocers, Inc.) and United States National Bank of Oregon, as trustee, relating to Unified Western Grocers, Inc.’s Series H 5% Subordinated Redeemable Capital Investment Notes (incorporated by reference to Exhibit 4.C to the United Grocers, Inc. Registration Statement on Form S-2, No. 33-49450).
4.31	Copy of supplemental indenture dated as of January 9, 1995, between Unified Western Grocers, Inc. (as successor to United Grocers, Inc.) and First Bank National Association, as trustee, relating to Unified Western Grocers, Inc.’s Series J 5% Subordinated Redeemable Capital Investment Notes (incorporated by reference to Exhibit 4.C to the United Grocers, Inc. Registration Statement on Form S-2, No. 33-57199).

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Exhibit No.	Description
4.32	Form of Indenture between the Registrant and U.S. Bank, N.A., as Trustee, relating to $4,000,000 Subordinated Patronage Dividend Certificates Due December 15, 2007 (incorporated by reference to Exhibit 4.35 to the Registrant’s Registration Statement on Form S-2, filed on February 28, 2003, File No. 333-103535).
4.33	Form of Subordinated Patronage Dividend Certificate Due December 15, 2007 (included in Exhibit 4.32).
4.34	Secured Revolving Credit Agreement dated as of December 5, 2003, by and among Registrant, the Lenders named therein and Harris Trust and Savings Bank (incorporated by reference to Exhibit 4.34 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 27, 2003, filed on December 16, 2003, File No. 000-10815).
4.35	Security Agreement dated as of December 5, 2003, by and among Registrant, the Lenders named therein and Harris Trust and Savings Bank relating to the Secured Revolving Credit Agreement dated as of December 5, 2003, by and among Registrant, the Lenders named therein and Harris Trust and Savings Bank (incorporated by reference to Exhibit 4.35 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 27, 2003, filed on December 16, 2003, File No. 000-10815).
4.36	Amended and Restated Note Purchase Agreement, effective January 6, 2006, by and among Registrant and the Noteholders listed on the signature pages thereto (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed on January 11, 2006, File No. 000-10815).
4.37	Form of Class E Share Certificate (incorporated by reference to Exhibit 4.37 to the Registrant’s Registration Statement on Form S-1, filed on January 31, 2006, File No. 333-131414).
4.38	Amended and Restated Credit Agreement, dated as of December 5, 2006, by and among Unified Western Grocers, Inc., other credit parties as identified therein, Bank of Montreal, Chicago Branch, as Administrative Agent, Bank of America, N.A., as Syndication Agent, Wells Fargo Bank, as Documentation Agent, BMO Capital Markets, as Lead Arranger and Book Runner, General Electric Capital Corporation, Union Bank of California, N.A., and PNC Bank National Association (incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed on December 11, 2006, File No. 000-10815).
4.39	Amended and Restated Security Agreement, dated as of December 5, 2006, by and among Unified Western Grocers, Inc., the Debtors identified therein and Bank of Montreal, Chicago Branch (incorporated by reference to Exhibit 99.2 to the Registrant’s Current Report on Form 8-K, filed on December 11, 2006, File No. 000-10815).
4.40	Amendment to Note Purchase Agreement and Consent, dated as of December 19, 2006, by and among Registrant, John Hancock Life Insurance Company as collateral agent for the Noteholders and the Noteholders under the Amended and Restated Note Purchase Agreement listed on the signature pages thereto (incorporated by reference to Exhibit 4.40 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 30, 2006 filed on February 13, 2007, File No. 000-10815).
10.1**	Amended and Restated Unified Western Grocers, Inc. Cash Balance Plan effective January 1, 2002, as amended (incorporated by reference to Exhibit 10.1 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 28, 2002, filed on January 13, 2003, File No. 000-10815).
10.1.1**	Amendment No. 2 to the Unified Western Grocers, Inc. Cash Balance Plan, amended as of November 15, 2004 (incorporated by reference to Exhibit 10.1.1 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended October 1, 2005, filed on December 21, 2005, File No. 000-10815).
10.1.2**	Amendment No. 3 to the Unified Western Grocers, Inc. Cash Balance Plan, amended as of November 15, 2004 (incorporated by reference to Exhibit 10.1.2 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended October 1, 2005, filed on December 21, 2005, File No. 000-10815).

97

Exhibit No.	Description
10.1.3**	Amendment No. 4 to the Unified Western Grocers, Inc. Cash Balance Plan, amended as of August 8, 2005 (incorporated by reference to Exhibit 10.1.3 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended October 1, 2005, filed on December 21, 2005, File No. 000-10815).
10.1.4**	Amendment No. 5 to the Unified Western Grocers, Inc. Cash Balance Plan, amended as of December 22, 2006 (incorporated by reference to Exhibit 10.1.4 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 30, 2006 filed on February 13, 2007, File No. 000-10815).
10.2**	Amended and Restated Unified Western Grocers, Inc. Deferred Compensation Plan dated as of May 1, 1999 (incorporated by reference to Exhibit 10.2 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended August 28, 1999 filed on November 14, 1999, File No. 000-10815).
10.2.1*(**)	Amendment No. 1 to the Amended and Restated Unified Western Grocers, Inc. Deferred Compensation Plan, amended as of October 19, 2007.
10.3**	Amended and Restated Unified Western Grocers, Inc. Employees’ Sheltered Savings Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 29, 2001 filed on February 19, 2002, File No. 000-10815).
10.3.1**	Amendment No. 1 to the Unified Western Grocers, Inc. Employees’ Sheltered Savings Plan, amended as of June 11, 2002 (incorporated by reference to Exhibit 10.3.1 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended October 1, 2005, filed on December 21, 2005, File No. 000-10815).
10.3.2**	Amendment No. 2 to the Unified Western Grocers, Inc. Employees’ Sheltered Savings Plan, amended as of September 1, 2003 (incorporated by reference to Exhibit 10.3.2 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended October 1, 2005, filed on December 21, 2005, File No. 000-10815).
10.3.3**	Amendment No. 3 to the Unified Western Grocers, Inc. Employees’ Sheltered Savings Plan, amended as of December 19, 2003 (incorporated by reference to Exhibit 10.3.3 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended October 1, 2005, filed on December 21, 2005, File No. 000-10815).
10.3.4**	Amendment No. 4 to the Unified Western Grocers, Inc. Employees’ Sheltered Savings Plan, amended as of November 15, 2004 (incorporated by reference to Exhibit 10.3.4 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended October 1, 2005, filed on December 21, 2005, File No. 000-10815).
10.3.5**	Amendment No. 5 to the Unified Western Grocers, Inc. Employees’ Sheltered Savings Plan, amended as of August 17, 2005 (incorporated by reference to Exhibit 10.3.5 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended October 1, 2005, filed on December 21, 2005, File No. 000-10815).
10.3.6**	Amendment No. 6 to the Unified Western Grocers, Inc. Employees’ Sheltered Savings Plan, amended as of December 1, 2005 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2005).
10.3.7**	Amendment No. 7 to the Unified Western Grocers, Inc. Employees’ Sheltered Savings Plan, amended as of December 22, 2006 (incorporated by reference to Exhibit 10.3.7 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 30, 2006 filed on February 13, 2007, File No. 000-10815).
10.3.8*(**)	Amendment No. 8 to the Unified Western Grocers, Inc. Employees’ Sheltered Savings Plan, amended as of September 26, 2007.
10.4.1**	Unified Western Grocers, Inc., Executive Salary Protection Plan II (“ESPP II”), Master Plan Document, effective January 4, 1995 (incorporated by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 2, 1995 filed on December 1, 1995, File No. 000-10815).

98

Exhibit No.	Description
10.4.2**	Amendment No. 1999-I to Unified Western Grocers, Inc. Executive Salary Protection Plan II, effective as of January 1, 1999 (incorporated by reference to Exhibit 10.5 to the Registrant’s Form 10-Q for the quarterly period ended December 31, 2000, filed on February 13, 2001, File No. 000-10815).
10.4.3**	Amendment No. 2000-I to Unified Western Grocers, Inc. Executive Salary Protection Plan II, effective as of January 1, 2000 (incorporated by reference to Exhibit 10.6 to the Registrant’s Form 10-Q for the quarterly period ended December 31, 2000, filed on February 13, 2001, File No. 000-10815).
10.4.4**	Amended and Restated Unified Western Grocers, Inc. Executive Salary Protection Plan II, effective as of January 1, 2003 (incorporated by reference to Exhibit 10.4.4 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended October 2, 2004, filed on December 16, 2004, File No. 000-10815).
10.4.5*(**)	Amendment No. 1 to the Amended and Restated Unified Western Grocers, Inc. Executive Salary Protection Plan II, amended as of October 19, 2007.
10.5**	Master Trust Agreement For Unified Western Grocers, Inc. Executive Salary Protection Plan II, dated as of April 28, 1995 (incorporated by reference to Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 2, 1995 filed on December 1, 1995, File No. 000-10815).
10.6**	Unified Western Grocers, Inc. Executive Insurance Plan Split dollar Agreement and Schedule of Executive Officers party thereto (incorporated by reference to Exhibit 10.6 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 2, 1995 filed on December 1, 1995, File No. 000-10815).
10.7**	Comprehensive Amendment to Unified Western Grocers, Inc. Employees’ Excess Benefit Plan dated as of December 5, 1995 (incorporated by reference to Exhibit 10.7 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended August 30, 1997 filed on November 28, 1997, File No. 000-10815).
10.8**	Comprehensive Amendment to Unified Western Grocers, Inc. Employees’ Supplemental Deferred Compensation Plan dated as of December 5, 1995 (incorporated by reference to Exhibit 10.8 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended August 30, 1997 filed on November 28, 1997, File No. 000-10815).
10.9**	Amended and Restated Unified Western Grocers, Inc. Employee Savings Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 29, 2001 filed on February 19, 2002, File No. 000-10815).
10.9.1*(**)	Amendment No. 1 to the Unified Western Grocers, Inc. Employee Savings Plan, amended as of April 16, 2002.
10.9.2*(**)	Amendment No. 2 to the Unified Western Grocers, Inc. Employee Savings Plan, amended as of September 1, 2003.
10.9.3*(**)	Amendment No. 3 to the Unified Western Grocers, Inc. Employee Savings Plan, amended as of December 19, 2003.
10.9.4*(**)	Amendment No. 4 to the Unified Western Grocers, Inc. Employee Savings Plan, amended as of November 15, 2004.
10.9.5*(**)	Amendment No. 5 to the Unified Western Grocers, Inc. Employee Savings Plan, amended as of July 29, 2005.
10.9.6**	Amendment No. 6 to the Unified Western Grocers, Inc. Employee Savings Plan, amended as of December 22, 2006 (incorporated by reference to Exhibit 10.9.1 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 30, 2006 filed on February 13, 2007, File No. 000-10815).
10.9.7*(**)	Amendment No. 7 to the Unified Western Grocers, Inc. Employee Savings Plan, amended as of September 26, 2007.

99

Exhibit No.	Description
10.10**	Unified Western Grocers, Inc. Early Retirement Program (incorporated by reference to Exhibit 10.28 to the Form S-4 Registration Statement filed on August 26, 1999, File No. 333-05917).
10.11	Lease, dated as of December 23, 1986, between Cercor Associates and Grocers Specialty Company (incorporated by reference to Exhibit 10.8 to Form S-2 Registration Statement of the Registrant filed on September 2, 1993, File No. 33-68288).
10.12	Expansion Agreement, dated as of May 1, 1991, and Industrial Lease, dated as of May 1, 1991, between Dermody Properties and the Registrant (incorporated by reference to Exhibit 10.9 to Form S-2 Registration Statement of the Registrant filed on September 2, 1993, File No. 33-68288).
10.13	Lease Amendment, dated June 20, 1991, between Dermody Properties and the Registrant (incorporated by reference to Exhibit 10.9.1 to Form S-2 Registration Statement of the Registrant filed on September 2, 1993, File No. 33-68288).
10.14	Lease Amendment, dated October 18, 1991, between Dermody Properties and the Registrant (incorporated by reference to Exhibit 10.9.2 to Form S-2 Registration Statement of the Registrant filed on September 2, 1993, File No. 33-68288).
10.15	Commercial Lease-Net dated December 6, 1994 between TriNet Essential Facilities XII and the Registrant (incorporated by reference to Exhibit 10.17 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 2, 1995 filed on December 1, 1995, File No. 0-10815).
10.16	Purchase Agreement dated November 21, 1994 between the Registrant and TriNet Corporate Realty Trust, Inc. (incorporated by reference to Exhibit 10.18 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 2, 1995 filed on December 1, 1995, File No. 000-10815).
10.17**	Form of Employment Agreement between the Company and Alfred A. Plamann (incorporated by reference to Exhibit 10.19 to Form S-4 Registration Statement of the Registrant filed on August 26, 1999, File No. 333-85917).
10.18**	Amendment to Employment Agreement dated as of August 1999, between the Registrant and Alfred A. Plamann (incorporated by reference to Exhibit 10.27 to Form S-4 Registration Statement of the Registrant filed on August 26, 1999, File No. 333-85917).
10.19**	Second Amendment to Employment Agreement dated as of April 2001, between registrant and Alfred A. Plamann (incorporated by reference to Exhibit 10.51 to the Registrant’s Form 10-Q for the quarterly period ended June 30, 2001, filed on August 14, 2001, File No. 000-10815).
10.19.1**	Third Amendment to Employment Agreement dated as of August 2003, between Registrant and Alfred A. Plamann (incorporated by reference to Exhibit 10.19.1 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 27, 2003, filed on December 16, 2003, File No. 000-10815).
10.20**	Form of Indemnification Agreement between the Company and each Director and Officer (incorporated by reference to Exhibit A to the Registrant’s Proxy Statement dated February 24, 1997 filed on February 24, 1997, File No. 000-10815).
10.20.1**	Form of Indemnification Agreement between the Company and each Director and Officer (incorporated by reference to Exhibit 10.20.1 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2007 filed on August 14, 2007, File No. 000-10815).
10.21**	Annual Incentive Plan for Chief Executive Officer (incorporated by reference to Exhibit 10.23 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended August 30, 1997 filed on November 28, 1997, File No. 000-10815).
10.22**	Annual Incentive Plan for Senior Management (incorporated by reference to Exhibit 10.24 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended August 30, 1997 filed on November 28, 1997, File No. 000-10815).
10.28	Loan guaranties dated June 12, 1980 and September 30, 1988, given by United Grocers, Inc. (predecessor-in-interest to the Registrant) for the benefit of C&K Market, Inc., an affiliate of Raymond L. Nidiffer (incorporated by reference to Exhibit 10.I12 to United Grocers’ Form 10-K for the fiscal year ended September 30, 1989).

100

Exhibit No.	Description
10.29	Agreement for Purchase and Sale and Escrow Instructions dated September 17, 1997, between United Grocers, Inc. (predecessor-in-interest to the Registrant) and C&K Market, Inc., an affiliate of Raymond L. Nidiffer (incorporated by reference to Exhibit 10.I5 to United Grocers, Inc.’s Form 10-K for the fiscal year ended October 2, 1998 filed on January 20, 1999, File No. 002-60487).
10.30	Stock Purchase Agreement dated November 17, 1997, by and among United Grocers, Inc. (predecessor-in-interest to the Registrant) and C&K Market, an affiliate of Raymond L. Nidiffer (incorporated by reference to Exhibit 10.I6 to Form 10-K of United Grocers, Inc. filed on January 20, 1999, File No. 002-60487).
10.31	Stock Purchase Agreement dated March 26, 1999 by and among Grocers Capital Company, K.V. Mart Co., an affiliate of Darioush Khaledi, Khaledi Family Partnership I, Khaledi Family Trust dated May 17, 1995, and Parviz Vazin and Vida Vazin (incorporated by reference to Exhibit 10.35 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2000, filed on December 26, 2000, File No. 000-10815).
10.32	Pledge Agreement dated March 26, 1999 by Khaledi Family Partnership I, Khaledi Family Trust dated May 17, 1995, and Parviz Vazin and Vida Vazin in favor of Grocers Capital Company (incorporated by reference to Exhibit 10.36 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2000, filed on December 26, 2000, File No. 000-10815).
10.33	Guaranty dated March 26, 1999 by K.V. Mart Co. in favor of Grocers Capital Company (incorporated by reference to Exhibit 10.37 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2000, filed on December 26, 2000, File No. 000-10815).
10.34	Term Loan Agreement dated as of May 12, 2000 between K.V. Mart Co. and Unified Western Grocers, Inc. relating to a $7,000,000 Promissory Note due May 12, 2005 in favor of Unified Western Grocers, Inc. by K.V. Mart Co. (incorporated by reference to Exhibit 10.38 to the Registrant’s Form 10-Q for the quarterly period ended July 1, 2000 filed on August 17, 2000, File No. 000-10815).
10.35	Security Agreement dated as of May 12, 2000 between K.V. Mart Co. and Unified Western Grocers, Inc. relating to the Term Loan Agreement dated as of May 12, 2000 between K.V. Mart Co. and Unified Western Grocers, Inc. (incorporated by reference to Exhibit 10.39 to the Registrant’s Form 10-Q for the quarterly period ended July 1, 2000 filed on August 17, 2000, File No. 000-10815).
10.36	Guaranty dated as of May 12, 2000 by Darioush Khaledi and Shahpar Khaledi, husband and wife, Darioush Khaledi, as Trustee of the Khaledi Family Trust under Declaration of Trust dated May 17, 1995, K.V. Property Company, and Parviz Vazin and Vida Vazin in favor of Unified Western Grocers, Inc. issued pursuant to that certain Term Loan Agreement dated as of May 12, 2000 between K.V. Mart Co. and Unified Western Grocers, Inc. (incorporated by reference to Exhibit 10.40 to the Registrant’s Form 10-Q for the quarterly period ended July 1, 2000 filed on August 17, 2000, File No. 000-10815).
10.37	Stock Collateral Acknowledgement and Consent dated as of May 12, 2000 executed by the shareholders of K.V. Mart Co. (incorporated by reference to Exhibit 10.41 to the Registrant’s Form 10-Q for the quarterly period ended July 1, 2000 filed on August 17, 2000, File No. 000-10815).
10.38	Preferred Stock Purchase Agreement by and between C & K Market, Inc. and Unified Western Grocers, Inc. dated as of December 19, 2000 (incorporated by reference to Exhibit 10.47 to the Registrant’s Form 10-Q for the quarterly period ended December 31, 2000, filed on February 13, 2001, File No. 000-10815).
10.39	Shareholders Agreement by and among Unified Western Grocers, Inc., C & K Market, Inc. and designated shareholders of C & K Market, Inc. dated as of December 19, 2000 (incorporated by reference to Exhibit 10.48 to the Registrant’s Form 10-Q for the quarterly period ended December 31, 2000, filed on February 13, 2001, File No. 000-10815).
10.40**	Form of Severance Agreement for Executive Vice Presidents with Three Years or More in an Officer Position executed by Robert M. Ling, Jr., Richard J. Martin and Charles J. Pilliter (incorporated by reference to Exhibit 10.49 to the Registrant’s Form 10-Q for the quarterly period ended December 31, 2000, filed on February 13, 2001, File No. 000-10815).

101

Exhibit No.	Description
10.41**	Form of Severance Agreement for Vice Presidents, Senior Vice Presidents and Executive Vice Presidents with Less Than Three Years in an Officer Position executed by Philip S. Smith, Rodney L. Van Bebber, Daniel J. Murphy, John C. Bedrosian, William O. Coté, Dirk T. Davis, Luis de la Mata, Stanley G. Eggink, Joseph L. Falvey, Carolyn S. Fox, Don Gilpin, Gary C. Hammett, Gary S. Herman, Joseph A. Ney, David A. Woodward (incorporated by reference to Exhibit 10.50 to the Registrant’s Form 10-Q for the quarterly period ended December 31, 2000, filed on February 13, 2001, File No. 000-10815).
10.42	Form of Subordinated Redemption Note—Excess Class B Shares (incorporated by reference to Exhibit 10.50 to Registrant’s Form 10-K for the fiscal year ended September 29, 2001 filed on December 27, 2001, File No. 000-10815).
10.43	Agreement relating to the Registrant’s five-year interest rate collar (incorporated by reference to Exhibit 10.51 to Amendment No. 2 to Registrant’s Registration Statement on Form S-2 filed on May 1, 2002).
10.44	Smart & Final Supply Agreement Dated May 16, 2003 (incorporated by reference to Exhibit 10.45 to Registrant’s Form 10-Q for the fiscal quarter ended June 28, 2003 filed on August 8, 2003, File No. 000-10815).
10.45	Promissory Note dated June 4, 1996, due on demand in favor of Grocers Capital Company by Robert M. Ling, Jr. (incorporated by reference to Exhibit 10.45 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 27, 2003, filed on December 16, 2003, File No. 000-10815).
10.46	Promissory Note dated December 6, 2000, due on demand in favor of Grocers Capital Company by Daniel J. Murphy and Debra A. Murphy (incorporated by reference to Exhibit 10.46 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 27, 2003, filed on December 16, 2003, File No. 000-10815).
10.47	Purchase and Sale Agreement with Joint Escrow Instructions dated as of June 19, 2003, by and between Registrant and The Alamo Group, Inc. (incorporated by reference to Exhibit 10.47 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 27, 2003, filed on December 16, 2003, File No. 000-10815).
10.48	Addendum to Purchase and Sale Agreement with Joint Escrow Instructions dated as of June 25, 2003, by and between Registrant and The Alamo Group, Inc. relating to the Purchase and Sale Agreement with Joint Escrow Instructions dated as of June 19, 2003, by and between Registrant and The Alamo Group, Inc. (incorporated by reference to Exhibit 10.48 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 27, 2003, filed on December 16, 2003, File No. 000-10815).
10.49	First Amendment to Purchase and Sale Agreement with Joint Escrow Instructions dated as of July 31, 2003, by and between Registrant and The Alamo Group, Inc. relating to the Purchase and Sale Agreement with Joint Escrow Instructions dated as of June 19, 2003, by and between Registrant and The Alamo Group, Inc. (incorporated by reference to Exhibit 10.49 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 27, 2003, filed on December 16, 2003, File No. 000-10815).
10.50	Second Amendment to Purchase and Sale Agreement with Joint Escrow Instructions dated as of August 15, 2003, by and between Registrant and The Alamo Group, Inc. relating to the Purchase and Sale Agreement with Joint Escrow Instructions dated as of June 19, 2003, by and between Registrant and The Alamo Group, Inc. (incorporated by reference to Exhibit 10.50 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 27, 2003, filed on December 16, 2003, File No. 000-10815).
10.51	Third Amendment to Purchase and Sale Agreement with Joint Escrow Instructions dated as of August 22, 2003, by and between Registrant and The Alamo Group, Inc. relating to the Purchase and Sale Agreement with Joint Escrow Instructions dated as of June 19, 2003, by and between Registrant and The Alamo Group, Inc. (incorporated by reference to Exhibit 10.51 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 27, 2003, filed on December 16, 2003, File No. 000-10815).

102

Exhibit No.	Description
10.52	Fourth Amendment to Purchase and Sale Agreement with Joint Escrow Instructions dated as of August 27, 2003, by and between Registrant and The Alamo Group, Inc. relating to the Purchase and Sale Agreement with Joint Escrow Instructions dated as of June 19, 2003, by and between Registrant and The Alamo Group, Inc. (incorporated by reference to Exhibit 10.52 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 27, 2003, filed on December 16, 2003, File No. 000-10815).
10.53	Fifth Amendment to Purchase and Sale Agreement with Joint Escrow Instructions dated as of November 18, 2003, by and between Registrant and AH Investors, LLC relating to the Purchase and Sale Agreement with Joint Escrow Instructions dated as of June 19, 2003, by and between Registrant and The Alamo Group, Inc. (incorporated by reference to Exhibit 10.53 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 27, 2003, filed on December 16, 2003, File No. 000-10815).
10.54	Operating Agreement of AH Investors, LLC dated as of November 26, 2003, by and among AH Investors, LLC, Hall Portola, Inc. and Alamo Group VIII, LLC (incorporated by reference to Exhibit 10.54 to the Registrant’s Form 10-Q for the fiscal quarter ended December 27, 2003 filed on February 10, 2004, File No. 000-10815).
10.55	Operating Agreement of TDH Investors, LLC dated as of November 26, 2003, by and among TDH Investors, LLC, Hall Portola, Inc. and Alamo Group VIII, LLC (incorporated by reference to Exhibit 10.55 to the Registrant’s Form 10-Q for the fiscal quarter ended December 27, 2003 filed on February 10, 2004, File No. 000-10815).
10.56	First Amendment to Agreement Regarding Assets dated as of December 19, 2003, by and among the Registrant, AH Investors, LLC and TDH Investors, LLC relating to the Fifth Amendment to Purchase and Sale Agreement with Joint Escrow Instructions dated as of November 18, 2003, by and between the Registrant and AH Investors, LLC (incorporated by reference to Exhibit 10.56 to the Registrant’s Form 10-Q for the fiscal quarter ended December 27, 2003 filed on February 10, 2004, File No. 000-10815).
10.57	Sixth Amendment to Purchase and Sale Agreement with Joint Escrow Instructions dated as of December 19, 2003, by and between the Registrant and AH Investors, LLC relating to the Purchase and Sale Agreement with Joint Escrow Instructions dated as of June 19, 2003, by and between the Registrant and The Alamo Group, Inc. (incorporated by reference to Exhibit 10.57 to the Registrant’s Form 10-Q for the fiscal quarter ended December 27, 2003 filed on February 10, 2004, File No. 000-10815).
10.58**	Form of Severance Agreement for Vice Presidents and Senior Vice Presidents, and Executive Vice Presidents with Less than Three Years in an Officer Position dated as of March 12, 2003, by and between the Registrant and Christine Neal (incorporated by reference to Exhibit 10.58 to the Registrant’s Form 10-Q for the fiscal quarter ended December 27, 2003 filed on February 10, 2004, File No. 000-10815).
10.59**	Form of Severance Agreement for Executive Vice Presidents with Three Years or More in an Officer Position dated as of October 2, 2003, by and between the Registrant and Philip S. Smith (incorporated by reference to Exhibit 10.59 to the Registrant’s Form 10-Q for the fiscal quarter ended December 27, 2003 filed on February 10, 2004, File No. 000-10815).
10.60	Series A Preferred Stock Exchange Agreement dated as of December 29, 2003, by and between C&K Market, Inc. and the Registrant (incorporated by reference to Exhibit 10.60 to the Registrant’s Form 10-Q for the fiscal quarter ended December 27, 2003 filed on February 10, 2004, File No. 000-10815).
10.61	Shareholders Agreement dated as of December 29, 2003, by and among the Registrant, C&K Market, Inc. and designated shareholders of C&K Market, Inc. (incorporated by reference to Exhibit 10.61 to the Registrant’s Form 10-Q for the fiscal quarter ended December 27, 2003 filed on February 10, 2004, File No. 000-10815).
10.62	Supply Agreement dated as of December 29, 2003, by and between the Registrant and C&K Market, Inc. (incorporated by reference to Exhibit 10.62 to the Registrant’s Form 10-Q for the fiscal quarter ended December 27, 2003 filed on February 10, 2004, File No. 000-10815).

103

Exhibit No.	Description
10.63	Continuing Guaranty dated as of December 29, 2003, by designated shareholders of C&K Market, Inc. in favor of the Registrant relating to the Series A Preferred Stock Exchange Agreement dated as of December 29, 2003, by and between C&K Market, Inc. and the Registrant (incorporated by reference to Exhibit 10.63 to the Registrant’s Form 10-Q for the fiscal quarter ended December 27, 2003 filed on February 10, 2004, File No. 000-10815).
10.64	Intercreditor and Subordination Agreement dated as of December 29, 2003, by and among designated subordinated creditors of C&K Market, Inc., C&K Market, Inc. and the Registrant (incorporated by reference to Exhibit 10.64 to the Registrant’s Form 10-Q for the fiscal quarter ended December 27, 2003 filed on February 10, 2004, File No. 000-10815).
10.65	Right of First Refusal Agreement dated as of December 29, 2003, by and among C&K Market, Inc., designated shareholders of C&K Market, Inc. and the Registrant (incorporated by reference to Exhibit 10.65 to the Registrant’s Form 10-Q for the fiscal quarter ended December 27, 2003 filed on February 10, 2004, File No. 000-10815).
10.66	Seventh Amendment to Purchase and Sale Agreement with Joint Escrow Instructions dated as of April 26, 2004, by and between the Registrant and AH Investors, LLC relating to the Purchase and Sale Agreement with Joint Escrow Instructions dated as of June 19, 2003, by and between the Registrant and The Alamo Group, Inc. (incorporated by reference to Exhibit 10.66 to the Registrant’s Form 10-Q for the fiscal quarter ended June 26, 2004 filed on August 3, 2004, File No. 000-10815).
10.67	Second Amended and Restated Loan Purchase and Service Agreement dated as of June 9, 2004, between Grocers Capital Company and National Consumer Cooperative Bank, as buyer (incorporated by reference to Exhibit 10.67 to the Registrant’s Form 10-Q for the fiscal quarter ended June 26, 2004 filed on August 3, 2004, File No. 000-10815).
10.67.1	Change in Terms Agreement dated as of March 26, 2007 to Second Amended and Restated Loan Purchase and Service Agreement dated as of June 9, 2004, between Grocers Capital Company and National Consumer Cooperative Bank, as buyer (incorporated by reference to Exhibit 10.67.1 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2007 filed on May 11, 2007, File No. 000-10815).
10.68	Second Amended and Restated Credit Agreement dated as of June 9, 2004, among Grocers Capital Company, the lenders listed therein and National Consumer Cooperative Bank, as agent (incorporated by reference to Exhibit 10.68 to the Registrant’s Form 10-Q for the fiscal quarter ended June 26, 2004 filed on August 3, 2004, File No. 000-10815).
10.68.1	Change in Terms Agreement dated as of March 27, 2007 to Second Amended and Restated Credit Agreement dated as of June 9, 2004, among Grocers Capital Company, the lenders listed therein and National Consumer Cooperative Bank, as agent (incorporated by reference to Exhibit 10.68.1 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2007 filed on May 11, 2007, File No. 000-10815).
10.69**	Form of Severance Agreement for Vice Presidents and Senior Vice Presidents, and Executive Vice Presidents with Less than Three Years in an Officer Position dated as of December 8, 2006, by and between the Registrant and Randall G. Scoville (incorporated by reference to Exhibit 10.69 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 30, 2006 filed on February 13, 2007, File No. 000-10815).
10.70***	Asset Purchase Agreement between Unified Western Grocers, Inc. and Associated Grocers, Incorporated and its Subsidiaries, dated as of August 2, 2007 (incorporated by reference to Exhibit 10.70 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2007 filed on August 14, 2007, File No. 000-10815).
10.70.1	Limited Waiver of Asset Purchase Agreement dated as of September 30, 2007 (incorporated by reference to Exhibit 10.70.1 to the Registrant’s Current Report on Form 8-K filed on October 4, 2007, File No. 000-10815).

104

Exhibit No.	Description
14.1	Code of Financial Ethics (incorporated by reference to Exhibit 14.1 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended October 1, 2005, filed on December 21, 2005, File No. 000-10815).
21*	Subsidiaries of the Registrant.
31.1*	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed herein.

** Management contract or compensatory plan or arrangement.

*** Confidential treatment was requested with respect to the omitted portions of this Exhibit, which portions have been filed separately with the Securities and Exchange Commission. Certain schedules were omitted in reliance upon Item 601(b)(2) of Regulation S-K. The Company agreed to furnish the SEC, supplementally, with a copy of any omitted schedule(s) upon request.

    (c) Financial Statement Schedule:

Schedule II—Valuation and Qualifying Accounts for the fiscal years ended September 29, 2007, September 30, 2006 and October 1, 2005.

105

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

UNIFIED WESTERN GROCERS, INC.

By	/s/    RICHARD J. MARTIN
	Richard J. Martin
	Executive Vice President, Finance & Administration and Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer)

Dated: December 13, 2007

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Robert M. Ling, Jr., Executive Vice President, General Counsel and Secretary, his or her true and lawful attorney-in-fact and agent, with full power of substitution, to sign and execute on behalf of the undersigned any and all amendments to this report, and to perform any acts necessary in order to file the same, with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requested and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or their or his or her substitutes, shall do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/    ALFRED A. PLAMANN         Alfred A. Plamann	President and Chief Executive Officer (Principal Executive Officer)	December 13, 2007
/s/    RICHARD J. MARTIN         Richard J. Martin	Executive Vice President, Finance & Administration and Chief Financial Officer (Principal Financial and Accounting Officer)	December 13, 2007
/s/    RANDALL G. SCOVILLE         Randall G. Scoville	Vice President, Accounting and Chief Accounting Officer	December 13, 2007
/s/    LOUIS A. AMEN         Louis A. Amen	Director	December 13, 2007
/s/    JOHN BERBERIAN          John Berberian	Director	December 13, 2007

106

Signature	Title	Date
/s/    OSCAR GONZALEZ         Oscar Gonzalez	Director	December 13, 2007
/s/    RICHARD E. GOODSPEED         Richard E. Goodspeed	Director	December 13, 2007
/s/    TERRY H. HALVERSON         Terry H. Halverson	Director	December 13, 2007
/s/    PAUL KAPIOSKI         Paul Kapioski	Director	December 13, 2007
/s/    DARIOUSH KHALEDI         Darioush Khaledi	Director	December 13, 2007
/s/    MARK KIDD         Mark Kidd	Director	December 13, 2007
/s/    JOHN D. LANG         John D. Lang	Director	December 13, 2007
/s/    JAY T. MCCORMACK         Jay T. McCormack	Director	December 13, 2007
/s/    JOHN NAJJAR         John Najjar	Director	December 13, 2007
/s/    DOUGLAS A. NIDIFFER         Douglas A. Nidiffer	Director	December 13, 2007
/s/    PETER J. O’NEAL         Peter J. O’Neal	Director	December 13, 2007
/s/    MICHAEL A. PROVENZANO, JR.         Michael A. Provenzano, Jr.	Director	December 13, 2007
/s/    THOMAS S. SAYLES         Thomas S. Sayles	Director	December 13, 2007
/s/    ROBERT E. STILES         Robert E. Stiles	Director	December 13, 2007
/s/    MICHAEL S. TRASK         Michael S. Trask	Director	December 13, 2007
/s/    KENNETH RAY TUCKER         Kenneth Ray Tucker	Director	December 13, 2007
/s/    RICHARD L. WRIGHT         Richard L. Wright	Director	December 13, 2007

107

Schedule II

Valuation and Qualifying Accounts

For the Fiscal Years Ended September 29, 2007, September 30, 2006 and October 1, 2005

(dollars in thousands)
	Balance at Beginning of Period		Additions (Reductions) Charged (Credited) to Costs and Expense			Write-Offs(a)			Balance at end of Period
Year ended October 1, 2005:
Reserves and allowances deducted from asset accounts:
Allowance for uncollectible accounts and notes receivable	$	2,888	$	712		$	(141	)	$	3,459
Year ended September 30, 2006:
Reserves and allowances deducted from asset accounts:
Allowance for uncollectible accounts and notes receivable	$	3,459	$	(473	)	$	(103	)	$	2,883
Year ended September 29, 2007:
Reserves and allowances deducted from asset accounts:
Allowance for uncollectible accounts and notes receivable	$	2,883	$	(529	)	$	(237	)	$	2,117

(a) Accounts written off, net of recoveries.

108

EX-3.2

Exhibit 3.2

BYLAWS

OF

UNIFIED WESTERN GROCERS, INC.

(Amended as of October 5, 2007)

ARTICLE I

SHAREHOLDERS

Section 1. Qualifications for Class A Shareholders. It is the intent and purpose of this Corporation to limit the ownership of its Class A Shares to qualified and active member patrons of this Corporation.

Applicants for membership as member-patrons (referred to sometimes as “members”) may be persons, firms, associations, corporations or other legal entities, but must be of good and approved financial standing engaged in selling groceries and related merchandise at retail or wholesale, must patronize the Corporation in such amounts and such manner as may be prescribed by policies adopted or approved by the Board of Directors, must comply with the conditions and agreements contained in the application for membership and with the Corporation’s Bylaws and with such rules, regulations and policies for the servicing of accounts as may from time to time be established by the Corporation. Any applicant so qualified, wishing to become a member-patron, shall make written application therefor in such form as the Corporation may from time to time require. Any such application shall be considered by the Board of Directors, and no membership shall be accepted or shares of the Corporation be issued to any such applicant without the approval of the Board of Directors.

Section 2. Member-Patrons. The Class A Shares of this Corporation shall be issued only to member-patrons of this Corporation. Each member-patron shall be required to hold 150 Class A Shares in the fiscal year ending in 2003, 200 shares in the fiscal year ending in 2004, 250 shares in the fiscal year ending in 2005, 300 shares in the fiscal year ending in 2006 and 350 shares in the fiscal year ending in 2007 and thereafter. No member-patron shall be entitled to hold more than such number of Class A Shares. Each member-patron shall also hold such amount of Class B Shares of the Corporation as the Board of Directors may establish as being required to be held by member-patrons whether based on a percentage of average weekly purchases or on some other basis. In order to qualify for and retain membership, patrons must qualify and be accepted as member-patrons in accordance with Section 1, must patronize the Corporation in such amounts and manner as may be prescribed from time to time by the Bylaws or by policies adopted or approved by the Board of Directors, must purchase and hold the requisite number of the Corporation’s Class A Shares set forth above (provided that the manner of purchase of such shares shall be determined by the Board of Directors), must hold such amount of Class B Shares as may be specified by requirements regarding the holding of Class B Shares as may from time to time be established by the Board of Directors, must comply with the agreements contained in the application for membership and with the Corporation’s Bylaws and with such rules, regulations, and policies for the servicing of accounts as may from time to time

be established by the Corporation including, without limitation, payment of such service dues, maintenance of such deposits and compliance with all terms of purchase and payment as may be prescribed. Membership as a member-patron does not obligate the Corporation to make any sale of merchandise or services or any extension of credit. Membership as a member-patron is not transferable either voluntarily or by operation of law.

Section 3. Affiliated Member-Patrons. Notwithstanding the provisions of Section 2 above, the Board of Directors may, in its discretion, authorize the acceptance and service of member patrons without the issuance thereto of the Corporation’s Class A Shares when the Board determines that such action is justified by reason of the fact that the ownership of such member-patron is the same, or in the Board’s determination sufficiently the same, as that of another member-patron holding Class A Shares. Such member-patron however shall be required to hold Class B Shares in the same manner as other member-patrons.

Section 4. Associate-Patrons. The Board of Directors may, in its discretion, authorize doing business on a patronage basis with patrons who are not member-patrons and who are referred to herein as “associate-patrons.”

Section 5. Rules and Regulations for Servicing Accounts. The Board of Directors shall establish or shall authorize the establishment, from time to time, of such rules, regulations and policies for the servicing of accounts as it shall deem advisable, including, without limitation, rules prescribing monthly service dues, charges applicable on late payments of accounts, amounts and manner of purchases, required deposits, guarantees and other credit requirements and other terms of service, purchases and payment of accounts.

Section 5.A Patronage Dividend Deposit Accounts. Without limiting the requirement of any condition, rule, regulation or policy for the servicing of accounts which may otherwise require patron deposits, member-patrons and associate-patrons may be required to maintain “Patronage Dividend Deposit Accounts” which shall consist of that portion of patronage dividends distributable to such patrons and allocated by the Corporation on its books to such patrons’ Patronage Dividend Deposit Accounts. The indebtedness of the Corporation respecting such accounts may be evidenced by the issuance of notes, revolving fund certificates, retain certificates, certificates of indebtedness, patronage dividend certificates or any other written evidences of indebtedness of the Corporation (collectively, “Patronage Dividend Certificates”). The portion of the patronage dividends to be so allocated and evidenced by the issuance of Patronage Dividend Certificates, together with the rate of interest payable thereon and the maturity date thereof, will be determined by the Board of Directors prior to their issuance. Such Patronage Dividend Deposit Accounts shall be maintained, and the Patronage Dividend Certificates shall be issued and held, on and be subject to such terms and conditions as may be prescribed by the Corporation, including without limitation the right of the Corporation to set off against principal and interest thereon all or any portion of amounts owing to the Corporation or any of its subsidiaries. The indebtedness evidenced by such Patronage Dividend Certificates shall be subordinated and subject in right of payment to the prior payment in full of all “Senior Indebtedness” as that term may be defined in such Patronage Dividend Certificates or in any indenture under which they are issued and the terms and provisions of such subordination shall be as set forth in such Patronage Dividend Certificates or in such indenture.

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Section 6. Termination of Membership as a Member-Patron. Membership as a member-patron may be terminated:

(a) By written resignation of the member received by the Treasurer of the Corporation;

(b) By the Corporation on default of the member in any requirement for membership as set forth in the application for membership, the Bylaws of the Corporation, or any rules, regulations or policies established by or pursuant to the authorization of the Board of Directors;

(c) By the Corporation on the member’s failure to timely pay or otherwise meet any obligation to the Corporation or any of its subsidiaries or to comply with any rule, regulation, requirement or policy for the servicing of accounts that may be prescribed by the Corporation;

(d) By the Corporation pursuant to provisions of the application for membership or other agreement with the member;

(e) By the Corporation on the levy of an attachment or execution against any account of the member or any of the Corporation’s shares held by the member or on any such account or share being subjected to any other process of law;

(f) By the Corporation on the member’s becoming insolvent, being adjudged bankrupt, commencing any proceeding under any bankruptcy, insolvency, arrangement or reorganization statute or making an assignment for the benefit of creditors;

(g) By the Corporation on the death or incompetency of a member;

(h) By the Corporation on the assignment, transfer or encumbrance, or attempted or purported assignment, transfer or encumbrance, except to the Corporation or any of its subsidiaries, of any account of the member or of any of the Corporation’s shares held by the member;

(i) By the Corporation whenever it shall determine that for a period of six months or more during any fiscal year of the Corporation any member’s account is one which entails an operating loss to the Corporation. Termination of membership shall not relieve the patron of obligations incurred prior to termination.

Section 7. Qualifications For Class B and Class E Shareholders. Unless and until the Board of Directors shall expressly authorize Class B Shares and Class E Shares to be issued to or held by any person other than a member-patron, it is the intent and purpose of this Corporation that the ownership of this Corporation’s Class B Shares and Class E Shares shall be limited to qualified and active member-patrons of this Corporation or former member-patrons.

Section 8. Required Class B Shares; Excess Class B Shares. The Board of Directors may from time to time establish the amount of Class B Shares that shall be held by member-patrons. This may be based upon the member’s average weekly purchases and/or upon any other basis that the Board may determine. The requirement regarding the holding of Class B Shares as established by the Board of Directors is subject to change from time to time by the Board of

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Directors which may, in its discretion, add to, increase, decrease, limit, eliminate or otherwise change such requirement.

Class B Shares held by a member-patron in excess of what is established by the Board of Directors as the Class B Shares required to be held by such member-patron will be considered “Excess Class B Shares.”

Section 9. Nontransferability of Shares; Changes in Ownership of Members.

(a) Nontransferability of Shares. Neither the Class A Shares, the Class B Shares nor the Class E Shares may be transferred without the prior written consent of the Corporation. Such consent will not normally be given. Without in any way limiting the generality of the foregoing:

(1) Corporation Election to Permit Transfer of Shares. The Corporation may, but shall not be required to, permit the transfer of such shares provided (i) the member’s membership has not been terminated, (ii) the member is not in default in any requirement for membership or in any obligation to the Corporation or any of its subsidiaries, (iii) all debts and obligations of the member to the Corporation and all of its subsidiaries have been paid and satisfied or otherwise provided for to the satisfaction of the Corporation, (iv) the transfer is to a new member-patron or to an existing member-patron and, in each case, is in connection with the transfer of the transferor’s business to such new member-patron or existing member-patron, as the case may be, for continuation of such business, (v) such transferee, if a new member-patron, duly executes such forms then in use for application for membership and qualifies in all respects for membership and meets all credit requirements and has been accepted as a new member-patron with the approval of the Board of Directors, and (vi) the Corporation has elected not to purchase or redeem such shares.

(2) Proprietorships and Partnership Members. Any change in a proprietorship or partnership which is a member will require a new membership; however, where the change is a transfer of the business to a family member or to a partnership or corporation in which a proprietor or partner continues as a partner or major shareholder, the Corporation may elect, but shall not be required, to treat such new membership as a continuation of the prior membership and permit the transfer of shares held by the prior member to the new member in accordance with (1) above. The Corporation may, in the discretion of its managing officers, require such guarantees of the obligations of partnership and proprietorship members as said officers deem advisable.

(3) Corporate Members. The Corporation may elect, but shall not be required, to treat as being a change in the ownership of the member and requiring a new membership, any change in the control of the voting power of the shareholders of a corporate member (whether by the transfer, issuance or repurchase of shares or otherwise) (other than the transfer among or issuance to members of the public of shares publicly traded and widely held of a publicly owned corporate member). The transfer of stock in a corporate member by any stockholder thereof shall not affect such stockholder’s liability on any guarantees given of the obligations of the corporate member. The Corporation may, in the discretion of its managing officers, require such

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guarantees of the obligations of a corporate member, from any or all of its shareholders or from other persons, as said officers deem advisable.

(b) Notification of Change in Ownership. Each member must inform the Corporation in writing of any contemplated or actual changes in ownership of a member—whether a proprietorship, partnership or corporate member (other than the transfer in public trading of shares of a corporate member whose shares are publicly traded).

Section 10. Shares Held as Security. All Class A Shares, Class B Shares and Class E Shares shall be pledged to, and the certificates for said shares held by, the Corporation to secure the prohibition against their transfer, to secure the Corporation’s rights to purchase or redeem said shares and as security for the payment of any and all obligations of the member to the Corporation or any of its subsidiaries.

Section 11. Repurchase of Shares. In addition to the rights of purchase or redemption of shares as contained in the Articles of Incorporation and without limiting or restricting, or being limited or restricted by, the provisions for repurchase or redemption as contained in the Articles, the Corporation shall have the right, to repurchase Class A Shares, Class B Shares and Class E Shares held by a member in accordance with the following and the redemption policy set forth in Section 12.

(a) Repurchase of Class A Shares and Class B Shares.

(i) Right to Repurchase. The Corporation shall have (i) the right to repurchase Class A Shares and Class B Shares held by a member upon or at any time after the termination of membership of such member, and (ii) in the case of Excess Class B Stock (as hereinafter defined), the right to repurchase Excess Class B Shares at any time.

(ii) Repurchase Price. The repurchase price for Class A Shares and Class B Shares repurchased by the Corporation shall be determined as follows:

(A) Except as provided in (B) below, the repurchase price for said shares shall be the greater of:

(1) one cent ($0. 01) per share or

(2) An amount which is calculated by (x) multiplying the number of shares to be repurchased by the “exchange value” (as defined below) per share as of the close of the Corporation’s fiscal year last ended prior to the date on which the holder ceases to be a qualified and active member, as conclusively determined by the Board of Directors, provided that with respect to termination of memberships occurring during the first full year following the effective date of the Merger between United Grocers, Inc. (“United”) and a wholly-owned subsidiary of the Corporation (the “Merger”) the exchange value shall be determined as of the year end immediately preceding the Effective Time of the Merger, and (y) subtracting from the amount computed in clause (x) the amounts of any and all indebtedness that may be owing the Corporation or any of its subsidiaries by either the holder or the member from whom the

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holder has acquired said shares if such acquisition was without the written consent of the Corporation. Notwithstanding the foregoing, with respect to Class A Shares received in the Merger by former United shareholders that receive less than 100 Class A Shares in the Merger and elect not to become a member and to have their shares repurchased, the repurchase price shall equal an amount equal to the exchange value as of April 2, 1999, of the United Common Shares for which the Class A Shares were exchanged (which amount was $57.90 per United Common Share).

(B) On the repurchase of Excess Class B Shares, other than on termination of membership, and provided the member is in good standing, is not in default or delinquent in any obligation to the Corporation or any of its subsidiaries and there exist no grounds for termination of membership and provided further that prior to the payment for said shares neither the member nor the Corporation terminate such membership, the repurchase of Excess Class B Shares will be effected by paying to the member, crediting to the member’s account or delivering a note as provided in (3) below:

(1) during the period prior to the end of the third full fiscal year of the Corporation following the effective date of the Merger, at the option of the member made in writing at the time such shares are tendered for redemption, either: (i) an amount which is equal to the exchange value of said shares as of the close of the fiscal year prior to the effective date of the Merger, as conclusively determined by the Board of Directors, the Corporation having the right however to deduct any amounts owing to the Corporation or any of its subsidiaries; or (ii) an amount which is equal to the exchange value of said shares as of the close of the fiscal year last ended prior to the date said shares are tendered for repurchase, as conclusively determined by the Board of Directors, the Corporation having the right however to deduct any amounts owing to the Corporation or any of its subsidiaries, provided that no redemption pursuant to this subparagraph (1) shall be made until after the end of the third full fiscal year of the Corporation following the effective date of the Merger;

(2) during any period following the end of the third full fiscal year of the Corporation following the effective date of the Merger, an amount which is equal to the exchange value of said shares as of the close of the fiscal year of the Corporation last ended prior to the date said shares are tendered for repurchase, as conclusively determined by the Board of Directors, the Corporation having the right however to deduct any amounts owing to the Corporation or any of its subsidiaries; and

(3) notwithstanding (1) and (2) above, during the period ending one year and 120 days after the effective date of the Merger, with respect to Excess Class B Shares held by former shareholders of United and received in the Merger, an amount which is equal to the exchange value as of April 2, 1999 (which amount was $57.90 per United common share) of the United common shares for which the Excess Class B Shares were exchanged, payable by delivery of a non-negotiable note of the Corporation payable in twenty quarterly installments and bearing interest at 6% per annum, the Corporation having the right, however, to deduct any amounts owing to the Corporation or any of its subsidiaries.

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(C) For purpose for this Section 11, the term “exchange value” shall be equal to: (1) total shareholders’ equity, determined in accordance with accounting principles generally accepted in the United States of America (“GAAP”), plus the receivable for sale of Class A Shares to members, less the cumulative stated value of outstanding Class E Shares, divided by the number of Class A Shares and Class B Shares, for any repurchase price the determination of which is to be made with respect to a fiscal year end before September 30, 2006; and (2) otherwise, total shareholders’ equity, determined in accordance with GAAP, plus the receivable for sale of Class A Shares to members, less the cumulative stated value of outstanding Class E Shares, less accumulated other comprehensive earnings (loss), divided by the number of Class A Shares and Class B Shares.

(b) Repurchase of Class E Shares.

(i) Right to Repurchase. Provided that the repurchase price equals or exceeds $l,000 and provided that at least ten years has elapsed since the issuance date of such shares, the Corporation may, upon request repurchase the Class E Shares of a member. Any such repurchase of Class E Shares will be governed by the same rules that govern the redemption of shares upon termination of membership. Such repurchase is subject to the priorities and restrictions in Section 12 below.

(ii) Repurchase Price. The repurchase price for Class E Shares repurchased by the Corporation shall be $100.00 per share.

Section 12. Share Redemption Policy. As used herein, unless the context otherwise requires, the terms “redeem” and “redemption” include repurchase. In the event the Board of Directors decides to redeem shares of the Corporation in its discretion based upon its determination that such redemption is in the best interests of the Corporation, the Corporation will redeem the shares in accordance with and subject to limitations of the share redemption policy described below.

Provided that the redemption price equals or exceeds $l,000 the Corporation may also, upon request redeem the excess Class B Shares of a member who owns Class B Shares in excess of that which is required to be held by such member (“Excess Class B Shares”). Any such redemption of Excess Class B Shares will be governed by the same rules that govern the redemption of shares upon termination of membership. The redemption price for shares being redeemed shall be as set forth in Section 11(a)(ii). Such redemption is subject to the following priorities and restrictions.

1. Restrictions on Redemption.

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Redemption is subject to the restrictions imposed by (a) the Corporations Code of the State of California, (b) any loan agreement, security agreement, mortgage, indenture or contract approved by the Board of Directors, to which the Corporation is or will be a party, and which includes a restriction that prohibits the redemption of shares during the existence thereunder of a breach or default by the Corporation, (c) changes in this redemption policy from time to time and (d) other applicable legal restrictions. The determination of the Board of Directors as to whether or not, and to what extent redemptions are permitted by such restrictions shall be within the authority of the Board and such determination shall be conclusive.

2. Redemption Policy.

Subject to the Board of Directors’ determining that the Corporation is able to meet the requirements set forth in Paragraph 1 above, shares will be redeemed in accordance with the following:

(a) Class A Shares eligible for redemption by reason of termination of membership will be redeemed in the order in which memberships terminate, and will be redeemed prior to the redemption of any Class B Shares or Class E Shares which have not yet been redeemed but are eligible for redemption either by reason of termination of membership, or as Excess Class B Shares or Class E Shares tendered for redemption. All determinations by the Company of the order in which memberships terminate or shares are tendered shall be conclusive.

(b) The aggregate amount of Class B Shares which the Corporation will redeem in any fiscal year will be limited to 5% of the sum of (i) the number of Class B Shares outstanding as of the close of the preceding fiscal year plus (ii) the number of Class B Shares issued as a part of the patronage dividend for such preceding fiscal year (the “five percent limit”); provided that until after the end of the third full fiscal year following the effective date of the Merger the Corporation shall not redeem any Class B Shares eligible for redemption by reason of termination of membership of such member; and provided further that shares repurchased pursuant to Section 11(a)(ii)(B)(3) shall not be subject to the 5% limitation on the obligation to redeem.

(c) Subject to the limitations contained in (b) above, in any fiscal year, the Corporation will redeem, up to the five percent limit, Class B Shares which were eligible for redemption in a prior year, either by reason of termination of membership in a prior year or which were Excess Class B Shares tendered for redemption in a prior year, but which have not yet been redeemed, provided that if the five percent limit would preclude redemption of all such shares, then such shares will be redeemed pro rata. In the event that the five percent limit would permit the redemption of all such shares and would permit the redemption of other Class B Shares as well, then, subject to the five percent limit, the Corporation will redeem other Class B Shares eligible for redemption by reason of termination of membership or which are Excess Class B Shares tendered for redemption, in the order in which memberships terminate or shares are tendered for redemption. All determinations by the Corporation of the order in which memberships terminate or shares are tendered shall be conclusive.

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(d) Except as provided in Section 11(a)(ii)(B)(3), the redemption of shares may be accomplished by paying to the member or crediting to the member’s account the redemption price. In making such payment or credit for the redemption of shares, the Corporation shall have the right to deduct any amounts owing by the member to the Corporation or any of its subsidiaries. Such payment or credit for the redemption of shares will be made within 120 days after such shares have become eligible for redemption, either by reason of termination of membership or tender in the case of Excess Class B Shares and Class E Shares, and are otherwise entitled to be redeemed in accordance with legal limitations and as provided in paragraphs (a), (b) and (c) above. In no event will interest be payable on the redemption price for any delay in paying or crediting the redemption price.

(e) Without regard to each year’s five-percent limit or any other provision of paragraphs (a), (b) and (c) above, the Corporation’s Board of Directors will have the absolute discretion to redeem Excess Class B shares or to redeem Class A or Class B Shares of any outgoing member regardless of when the membership terminated or the Class B shares were tendered. The Board of Directors will also have the right to elect to redeem Excess Class B Shares or Class E Shares even though such redemption has not been requested and without regard to the five percent limit or any other provision of Sections 11 or 12 above.

(f) The Board of Directors will have the absolute discretion, without regard to the five-percent limit or any other provision of the redemption policy, to authorize the Corporation to agree with any shareholder to purchase Class B Shares or Class E Shares held by such shareholder and to make such purchase and payment for such shares in such manner as may be agreed upon, subject only to corporate law requirements.

ARTICLE II

Section 1. Place of Meetings. Meetings of shareholders shall be held at any place within or outside the State of California designated by the Board of Directors. In the absence of any such designation, shareholders’ meetings shall be held at the principal executive office of the Corporation.

Section 2. Annual Meetings. The annual meeting of shareholders shall be held each year on a date and at a time designated by the Board of Directors. At each annual meeting Directors shall be elected, and any other proper, business may be transacted.

Section 3. Special Meetings. Special meetings of the shareholders may be called at any time by the Board of Directors, the Chairman of the Board, the Vice Chairman of the Board, the President, or by the holders of shares entitled to cast not less than ten (10) percent of the votes at such meeting. Upon request in writing to the Chairman of the Board, the President, any vice President or the Secretary by any person (other than the Board of Directors) entitled to call a special meeting of shareholders, the officer forthwith shall cause notice to be given to the shareholders entitled to vote that a meeting will be held at a time requested by the person or persons calling the meeting, not less than 35 nor more than 60 days after the receipt of the

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request. If the notice is not given within 20 days after receipt of the request, the persons entitled to call the meeting may give the notice.

Section 4. Notice of Shareholders’ Meetings. Written notice of each annual or special meeting of shareholders shall be given not less than 10 nor more than 60 days before the date of the meeting to each shareholder entitled to vote thereat. Such notice shall state the place, date, and hour of the meeting and (i) in the case of a special meeting the general nature of the business to be transacted, and no other business may be transacted, or (ii) in the case of the annual meeting, those matters which the Board, at the time of the mailing of the notice, intends to present for action by the shareholders, but, subject to the provisions of applicable law, any proper matter may be presented at the meeting for such action. The notice of any meeting at which Directors are to be elected shall include the names of nominees intended at the time of the notice to be presented by management for election.

Section 5. Manner of Giving Notice. Notice of a shareholders’ meeting shall be given either personally or by mail or telegraphic or other means of written communication, charges prepaid, addressed to the shareholder at the address of such shareholder appearing on the books of the Corporation or given by the shareholder to the Corporation for the purpose of notice; or, if no such address appears or is given, at the place where the principal executive office of the Corporation is located or by publication at least once in a newspaper of general circulation in the county in which the principal executive office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication.

Section 6. Quorum. A majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at any meeting of shareholders. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shareholders required to constitute a quorum.

Section 7. Adjourned Meeting: Notice. Any shareholders’ meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the shares represented at that meeting, either in person or by proxy, but in the absence of a quorum, no other business may be transacted at that meeting, except as provided in Section 6 of this Article II.

When any meeting of shareholders is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place are announced at the meeting at which the adjournment is taken, unless a new record date for the adjourned meeting is fixed, or unless the adjournment is for more than 45 days from the date set for the original meeting, in which case notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Sections 4 and 5 of this Article II. At any adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting.

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Section 8. Voting. The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of Section 9 of this Article II, subject to the provisions of Sections 702 to 704, inclusive, of the Corporations Code of California. The shareholders’ vote may be by voice vote or by ballot; provided, however, that any election of Directors must be by ballot if demanded by any shareholder at the meeting and before the voting begins. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on any matter (other than the election of Directors) shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by California General Corporation Law or by the Articles of Incorporation.

Subject to the following sentence and to the provisions of Section 708 of the California General Corporation Law, every shareholder entitled to vote at any election of Directors may cumulate such shareholder’s votes and give one candidate a number of votes equal to the number of Directors to be elected multiplied by the number of votes to which the shareholder’s shares are entitled, or distribute the shareholder’s votes on the same principle among as many candidates as the shareholder thinks fit. No shareholder shall be entitled to cumulate votes for any candidate or candidates pursuant to the preceding sentence unless such candidate or candidates’ names have been placed in nomination prior to the voting and the shareholder has given notice at the meeting prior to the voting of the shareholder’s intention to cumulate the shareholder’s votes. If any one shareholder has given such notice, all shareholders may cumulate their votes for candidates in nomination.

Section 9. Record Date for Shareholders of Record.

(a) In order that the Corporation may determine the shareholders entitled to notice of any meeting or to vote or entitled to receive payment of any distribution or allotment of any rights or entitled to exercise any rights in respect of any other lawful action, the Board may fix, in advance, a record date which shall not be more than 60 nor less than 10 days prior to the date of such meeting nor more than 60 days prior to any other action.

(b) If no record date is fixed:

(1) The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held.

(2) The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board has been taken, shall be the day on which the first written consent is given.

(3) The record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto, or the 60th day prior to the date of such other action, whichever is later.

(c) A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board fixes a

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new record date for the adjourned meeting, but the Board shall fix a new record date if the meeting is adjourned for more than 45 days from the date set for the original meeting.

(d) Shareholders on the record date are entitled to notice and to vote or to receive the distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after the record date, except as otherwise provided in the Articles or by agreement or by the California General Corporation Law.

Section 10. Action Without Meeting. Subject to Section 603 of the California General Corporation Law, any action which, under any provision of the California General Corporation Law, may be taken at any annual or special meeting of shareholders, may be taken without a meeting and without prior notice if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.

Section 11. Proxies. Every person entitled to vote shares has the right to do so either in person or by one or more persons authorized by a written proxy executed by such shareholder and filed with the Secretary. Any proxy duly executed is not revoked and continues in full force and effect until revoked by the Person executing it prior to the vote pursuant thereto by a writing delivered to the corporation stating that the proxy is revoked or by a subsequent proxy executed by, or by attendance at the meeting and voting in person by, the person executing the proxy; provided, however, that no proxy shall be valid after the expiration of 11 months from the date of its execution unless otherwise provided in the proxy.

Section 12. Organization. The Chairman of the Board of Directors, or in his absence, any Vice Chairman, or in their absence the President, shall call the meeting of the stockholders to order and shall act as Chairman of such meeting. In the absence of the Chairman of the Board of Directors, and of the Vice Chairman of the Board of Directors, and the President, stockholders shall appoint a Chairman for such meetings. The Secretary of the Company, or in his absence the Assistant Secretary, shall act as Secretary at any meeting of the stockholders, but in the absence of the Secretary and the Assistant Secretary at any meeting of the stockholders, the presiding officer may appoint any person to act as Secretary of the meeting.

Section 13. Inspectors of Election. In advance of any meeting of shareholders, the Board may appoint any persons other than nominees for office as inspectors of election to act at such meeting and any adjournment thereof. If inspectors of meeting may, and on the request of any shareholder or shareholder’s proxy shall, make such appointment at the meeting. The number of inspectors shall be either one or three. If appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares present shall determine whether one or three inspectors are to be appointed.

The duties of such inspectors shall be as prescribed by Section 707(b) of the California General Corporation Law and shall include: determining the number of shares outstanding and the voting power of each; the shares represented at the meeting, the existence of a quorum; the authenticity, validity, and effect of proxies; receiving votes, ballots, or consents; hearing and

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determining all challenges and questions in any way arising in connection with the right to vote; counting and tabulating all votes or consents, determining when the polls shall close; determining the result; and doing such acts as may be proper to conduct the election or vote with fairness to all shareholders. If there are three inspectors of election, the decision, act, or certificate of a majority is effective in all respects as the decision, act, or certificate of all.

ARTICLE III

DIRECTORS

Section 1. Powers. Subject to the provisions of the new California General Corporation Law and any limitations in the Articles of Incorporation and these Bylaws relating to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the Corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors.

Without prejudice to these general powers, and subject to the same limitations, the Directors shall have the power to:

(a) To select and remove all the other officers, agents and employees of the Corporation, prescribe the powers and duties for them as may not be inconsistent with law, or with the Articles or these Bylaws, fix their compensation, and require from them security for faithful service.

(b) To conduct, manage, and control the affairs and business of the Corporation and to make such rules and regulations therefor not inconsistent with law, or with the Articles of Incorporation or these Bylaws, as they may deem best.

(c) Change the principal executive office or the principal business office in the State of California from one location to another; cause the Corporation to be qualified to do business in any other state, territory, dependency, or country, and conduct business within or without the State of California; and designate any place within or without the State of California for the holding of any shareholders’ meeting, or meetings.

(d) To adopt, make, and use a corporate seal, and to prescribe the forms of certificates of stock, and to alter the form of such seal and of such certificates from time to time as in their judgment they may deem best.

(e) To authorize the issuance of shares of stock of the Corporation from time to time, upon such terms and for such consideration as may be lawful.

(f) To borrow money and incur indebtedness for the purposes of the Corporation, and to cause to be executed and delivered therefor; in the corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations, or other evidences of debt and securities therefor.

Section 2. Number and Qualification of Directors. The number of Directors of this Corporation shall be as specified in, and such Directors shall be elected as provided in, Article

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Fifth of this Corporation’s Articles of Incorporation. All of the Directors except up to six directors elected by the Class A Shares shall constitute Shareholder-related Directors (as herein defined). “Shareholder-related Director” shall mean a director who is a shareholder, or a partner of a partnership which is a shareholder, or a member of a limited liability company which is a shareholder, or an employee of a corporation, partnership or limited liability company which is a shareholder. Any Shareholder-related Director who shall, if an employee of a shareholder, cease to be employed by the shareholder, or if not an employee, cease to be a partner, member of a shareholder that is a partnership or limited liability company, respectively, shall automatically become disqualified to act as a Shareholder-related Director on the date which is six months from such cessation. If the shareholder to whom the Shareholder-related Director is related ceases to be engaged in the grocery business for a period of six months, the Shareholder-related Director shall likewise automatically become disqualified to act as a Shareholder-related Director.

Section 3. Election and Term of Office. The Directors shall be elected at each annual meeting of shareholders but if any such annual meeting is not held or the Directors are not elected thereat, the Directors may be elected at any special meeting of shareholders held for that purpose. Each director shall hold office until the next annual meeting and until a successor has been elected and qualified.

Section 4. Vacancies. Any director may resign effective upon giving written notice to the Chairman of the Board, the President, Secretary, or the Board, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective.

Vacancies in the Board excepting those existing as a result of a removal of a director by the vote or written consent of the shareholders, may be filled by a majority of the remaining Directors, though less than a quorum, or by a sole remaining director, and each director so elected shall hold office until the next annual meeting and until such director’s successor has been elected and qualified.

A vacancy or vacancies in the Board shall be deemed to exist in case of the death, resignation, or removal of any director, or if the authorized number of Directors be increased, or if the shareholders fail, at any annual or special meeting of shareholders at which any director or Directors are elected, to elect the full authorized number of Directors to be voted for that meeting.

The Board may declare vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony.

The shareholders may elect a director or Directors at any time to fill any vacancy or vacancies not filled by the Directors. Any such election by written consent requires the consent of a majority of the outstanding shares entitled to vote. If the Board accepts the resignation of a director tendered to take effect at a future time, the Board or the shareholders shall have power to elect a successor to take office when the resignation is to become effective.

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No reduction of the authorized number of Directors shall have the effect of removing any director prior to the expiration of the director’s term of office.

Section 5. Nominating Committee. On or before the last monthly meeting of the Board of Directors of the Corporation in October of each year, the Directors shall appoint a Nominating Committee of three or more of its members to select nominees for election as Directors of the Corporation for the ensuing year and until their successors are elected and qualified. The President of the Corporation shall be an exofficio member of the Nominating Committee. The Nominating Committee shall give due consideration to geographic representation in selecting a slate of nominees for election to the Board of Directors.

The Nominating Committee shall submit its nominations to the Board of Directors on or before the last monthly meeting of Directors in January of each year, and the nominees so selected shall be those submitted by the Board of Directors to the shareholders to be voted upon at the regular annual meeting of the shareholders of the Corporation.

Section 6. Place of Meetings and Meetings by Telephone. Regular meetings of the Board of Directors may be held at any place within or outside the State of California that has been designated from time to time by resolution of the Board. In the absence of such a designation, regular meetings shall be held at the principal executive office of the Corporation. Special meetings of the Board shall be held at any place within or outside the State of California that has been designated in the notice of the meeting or, if not stated in the notice or there is no notice, at the principal executive office of the Corporation. Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all Directors participating in the meeting can hear one another, and all such Directors shall be deemed to be present in person at the meeting.

Section 7. Regular Meetings. Regular meetings of the Board of Directors shall be held without call at such time as shall from time to time be fixed by the Board of Directors. Such regular meetings may be held without notice.

Section 8. Special Meetings. Special meetings of the Board for any purpose or purposes may be called at any time by the Chairman of the Board, the President, or the Secretary or by any two Directors.

Special meetings of the Board shall be held upon four days’ written notice or 48 hours’ notice given personally or by telephone, telegraph, telex, or other similar means of communication. Any such notice shall be addressed or delivered to each director at such director’s address as it is shown upon the records of the Corporation or as may have been given to the Corporation by the Director for purposes of notice or, if such address is not shown on such records or is not readily ascertainable, at the place in which the meetings of the Directors are regularly held.

Notice by mail shall be deemed to have been given at the time a written notice is deposited in the United States mails, postage prepaid. Any other written notice shall be deemed to have been given at the time it is personally delivered to the recipient or is delivered to a common carrier for transmission, or actually transmitted by the person giving the notice by

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electronic means, to the recipient. Oral notice shall be deemed to have been given at the time it is communicated, in person or by telephone or wireless, to the recipient or to a person at the office of the recipient who the person giving the notice has reason to believe will promptly communicate it to the recipient.

Section 9. Quorum. A majority of the authorized number of Directors constitutes a quorum of the Board for the transaction of business, except to adjourn as hereinafter provided. Every act or decision done or made by a majority of the Directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board, unless a greater number be required by law or by the Articles. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of Directors, if any action taken is approved by at least a majority of the required quorum for such meeting.

Section 10. Adjournment. A majority of the Directors present, whether or not a quorum is present, may adjourn any Directors’ meeting to another time and place. Notice of the time and place of holding an adjourned meeting need not be given to absent Directors if the time and place be fixed at the meeting adjourned. If the meeting is adjourned for more than 24 hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting to the Directors who were not present at the time of the adjournment.

Section 11. Action Without Meeting. Any action required or permitted to be taken by the Board may be taken without a meeting if all members of the Board shall individually or collectively consent in writing to such action. Such consent or consents shall have the same effect as a unanimous vote of the Board and shall be filed with the minutes of the proceedings of the Board.

Section 12. Fees and Compensation. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by the Board.

Section 13. Presiding Officers. At the first meeting of the Board of Directors each year (at which a quorum shall be present), held next after the annual meeting of the stockholders, the Board shall elect from its membership a chairman, a First Vice Chairman and a Second Vice Chairman. The Chairman of the Board of Directors shall preside at all meetings of the Board of Directors. The First Vice Chairman of the Board of Directors shall preside at all meetings of the Board of Directors during the absence or disability of the Chairman. The Second Vice Chairman of the Board of Directors shall preside at all meetings of the Board of Directors during the absence or disability of the Chairman and the First Vice Chairman.

Section 14. Election of Officers. At the first meeting of the Board of Directors each year (at which a quorum shall be present), held next after the annual meeting of the stockholders, the Directors shall proceed to the election of the executive officers of the Corporation.

Section 15. Committees. The Board of Directors may, by resolution adopted by a majority of the authorized number of Directors, designate one or more committees, each consisting of two or more Directors, to serve at the pleasure of the Board. The Board may

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designate one or more Directors as alternate members of any committee. The Board may delegate to such committee any of the authority of the Board except with respect to:

(a) The approval of any action for which the General Corporation Law also requires shareholders’ approval or approval of the outstanding shares;

(b) The filling of vacancies on the Board or on any committee;

(c) The fixing of compensation of the Directors for serving on any committee;

(d) The amendment or repeal of Bylaws or the adoption of new Bylaws;

(e) The amendment or repeal of any resolution of the Board which by its express terms is not so amendable or repealable;

(f) A distribution to the shareholders of the Corporation except at a rate or in a periodic amount or within a price range determined by the Board;

(g) The appointment of other committees of the Board or the members thereof.

The Board shall have the power to prescribe the manner in which proceedings of any committee shall be conducted. In the absence of any such prescription, such committee shall have the power to prescribe the manner in which its proceedings shall be conducted. Unless the Board or such committee shall otherwise provide, the regular and special meetings and other actions of any such committee shall be governed by the provisions of this Article applicable to meetings and actions of the Board. Minutes shall be kept of each meeting of each committee.

ARTICLE IV

OFFICERS

Section 1. Officers. The officers of the Corporation shall be a President, one or more vice Presidents, a Secretary, a Treasurer and chief financial officer. The Corporation may also have, at the discretion of the Board of Directors, a Chairman and one or more Vice Chairmen of the Board, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article. One person may hold two or more offices.

Section 2. Election. The officers of the Corporation, except such officers as may be elected or appointed in accordance with the provisions of Section 3 or Section 5 of this Article, shall be chosen annually by, and shall serve at the pleasure of, the Board, and shall hold their respective offices until their resignation, removal or other disqualification from service, or until their respective successors shall be elected.

Section 3. Subordinate Officers. The Board may elect, and may empower the President to appoint, such other officers as the business of the Corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these Bylaws or as the Board may from time to time determine.

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Section 4. Removal and Resignation. Any officer may be removed, either with or without cause, by the Board of Directors at any time, or, except in the case of an officer chosen by the Board, by any officer upon whom such power of removal may be conferred by the Board. Any such removal shall be without prejudice to the rights, if any, of the officer under any contract of employment of the officer.

Any officer may resign at any time by giving written notice to the Corporation, but without prejudice to the rights, if any, of the Corporation under any contract to which the officer is a party. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Section 5. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification, or any other cause shall be filled in the manner prescribed in these Bylaws for regular election or appointment to such office.

Section 6. Chairman of the Board. The Chairman of the Board, if there shall be such an officer, shall, if present, preside at all meetings of the Board of Directors, and at all meetings of the shareholders, and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by the Bylaws. In the absence of the Chairman, the First Vice Chairman, and in his absence, the Second Vice Chairman, of the Board of Directors shall preside at all meetings of the shareholders. The Chairman of the Board shall be an ex officio member of all the standing committees.

Section 7. President. Subject to such powers, if any, as may be given by the Board to the Chairman of the Board, if there be such an officer, the President is the general manager and chief executive officer of the Corporation and has, subject to the control of the Board, general supervision, direction, and control of the business and officers of the Corporation. The President has the general powers and duties of management usually vested in the office of president and general manager of a corporation and such other powers and duties as may be prescribed by the Board.

Section 8. Vice Presidents. In the absence or disability of the President, the Vice Presidents in order of their rank as fixed by the Board, or, if not ranked, the Vice President designated by the Board, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board.

Section 9. Secretary. The Secretary shall keep or cause to be kept, at the principal executive office and such other place as the Board may order, a book of minutes of all meetings of shareholders, the Board of Directors, and its committees, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at Board and committee meetings, the number of shares present or represented at shareholders’ meetings, and the proceedings thereof. The Secretary shall keep, or cause to be kept, a copy of the Bylaws of the corporation at the principal executive office or business office in accordance with Section 213 of the California General Corporation Law.

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The Secretary shall keep, or cause to be kept, at the principal office or at the office of the Corporation’s transfer agent or registrar, if one be appointed, a share register, or a duplicate share register, showing the names of the shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation.

The Secretary shall give, or cause to be given, notice of all the meetings of the shareholders and of the Board and of any committees thereof required by these Bylaws or by law to be given, and shall keep the seal of the corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board.

Section 10. Chief Financial Officer. The chief financial officer of the Corporation shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the Corporation, and shall send of cause to be sent to the shareholders of the Corporation such financial statements and reports as are by law or these Bylaws required to be sent to them, and shall render to the President and directors, whenever they request it, an account of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board. The books of accounts shall at all times be open to inspection by any director.

Section 11. Treasurer. The Treasurer shall deposit all moneys and other valuables in the name and to the credit of the Corporation with such depositaries as may be designated by the Board. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board, shall render to the President and Directors, whenever they request it, an account of all transactions as Treasurer, and shall have such other powers and perform such other duties as may be prescribed by the Board.

ARTICLE V

INDEMNIFICATION

The Corporation shall, to the maximum extent permitted by law, have the power to indemnify each of its agents against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding arising by reason of the fact any such person is or was an agent of the Corporation. For purposes of this Section, an “agent” of the Corporation includes any person who is or was a director, officer, employee, or other agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust or other enterprise, or was a director, officer, employee, or agent of a Corporation which was a predecessor corporation of the Corporation or of another enterprise at the request of such predecessor corporation.

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ARTICLE VI

OTHER PROVISIONS

Section 1. Principal Office. The principal executive office for the transaction of the business of the corporation is hereby fixed and located at:

5200 Sheila Street

Commerce, California 90040

The Board of Directors is hereby granted full power and authority to change said principal office from one location to another within or outside the State of California. Any such change shall be noted on the Bylaws by the Secretary, opposite this Section, or this Section may be amended to state the new location.

Section 2. Other Offices. Branch or subordinate offices may at any time be established by the Board of Directors at any place or places where the Corporation is qualified to do business.

Section 3. Inspection of Bylaws. The Corporation shall keep in its principal executive office the original or a copy of these Bylaws as amended to date which shall be open to inspection by shareholders at all reasonable times during office hours.

Section 4. Annual Report to Shareholders. The Board of Directors shall cause an annual report to be sent to the shareholders not later than 120 days after the close of the fiscal year adopted by the Corporation. This report shall be sent at least 15 days before the annual meeting of shareholders to be held during the next fiscal year and in the manner specified in Section 5 of Article II of these Bylaws for giving notice to shareholders of the Corporation. The annual report shall contain a balance sheet as of the end of the fiscal year and an income statement and statement of changes in financial position for the fiscal year, accompanied by any report of independent accountants or, if there is no such report, the certificate of an authorized officer of the Corporation that the statements were prepared without audit from the books and records of the Corporation.

Section 5. Corporate Contracts and Instruments; How Executed. The Board of Directors, except as otherwise provided in these Bylaws, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation and this authority may be general or confined to specific instances; and, unless so authorized or ratified by the Board of Directors no officer, agent, or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.

Section 6. Certificates of Stock.

(a) Form and Execution of Certificates. The certificates of shares of stock of the company shall be in such form as shall be signed by the President, or a Vice President, and also by the Secretary, or Assistant Secretary, or be authenticated by the facsimile of the signature of the President and the written signature of the Secretary or Assistant Secretary.

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(b) Shares and certificates for shares may be issued prior to full payment under such restrictions and for such purposes as the Board of Directors or the Bylaws may provide.

(c) Certificates to be Entered. All certificates shall be consecutively numbered and the names of the owners, all the number of shares and the date of issue shall be entered in the company’s books.

(d) Transfer of Shares. The issued Class A Shares, Class B Shares and Class E Shares of the Corporation shall be transferable only as provided by Article I of these Bylaws. New Class A Shares, Class B Shares and Class E Shares shall be issued only to qualified applicants in accordance with Article I of these Bylaws.

Section 7. Representation of Shares of Other Corporations. The Chairman of the Board, the President, or any vice President, or any other person authorized by resolution of the Board of Directors or by any of the foregoing designated officers, is authorized to vote on behalf of the Corporation any and all shares of any other corporation or corporations, foreign or domestic, standing in the name of the Corporation. The authority granted to these officers to vote or represent on behalf of the Corporation any and all shares held by the Corporation in any other corporation or corporations may be exercised by any of these officers in person or by any person authorized to do so by a proxy duly executed by these officers.

Section 8. Construction and Definitions. Unless the context otherwise requires, the general provisions, rules of construction, and definitions contained in the General California Corporation Law shall govern the construction of these Bylaws.

Section 9. Seal. The Board of Directors shall provide a suitable seal containing the name of the Company and the words “Incorporated March, 1925”, or other appropriate words, which seal shall be in the charge of the Secretary to be used as required by law and the Bylaws of the Company.

Section 10. Dividends (other than patronage dividends). No ordinary dividends shall be paid with respect to shares of stock of the Corporation from net earnings of the Corporation from business transacted by the Corporation with or for its member patrons and associate patrons (from “patronage earnings”), and patronage earnings shall not be reduced by ordinary dividends. Any ordinary dividends shall be paid; (a) first from net earnings of the Corporation other than patronage earnings; and (b) then from unallocated retained earnings. Any ordinary dividends paid with respect to shares of stock of the Corporation shall be in addition to amounts payable to member patrons and associate patrons as patronage dividends pursuant to Article VII.

ARTICLE VII

PATRONAGE DIVIDENDS

The net earnings of the Corporation from business transacted by the Corporation with its member patrons and associate patrons, except such amounts as may be required for reserves for normal business requirements, as dictated by good accounting practice, shall be distributed on a patronage basis to the member patrons and associate patrons of the Corporation based in amount upon the volume of business transacted by Divisions of the Corporation with each of such

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patrons. Said distributions may be made in money or part in money and the balance in written notices of allocation, as defined in Section 1388 of the United States Internal Revenue Code, as determined by the Board of Directors.

ARTICLE VIII

CONSENT OF MEMBERS

Section 1. Each applicant who hereafter applies for and is accepted to membership in Unified Western Grocers, Inc. and each member of Unified Western Grocers, Inc. who continues as a member after the adoption of this Bylaw shall, by such act alone, consent that the amount of any patronage dividend payments made to such member which are made in written notices of allocation (as defined in Section 1388 of the United States Internal Revenue Code) will be taken into account by said member at their stated dollar amounts in the manner provided in Section 1385(a) of the United States Internal Revenue Code in the taxable year in which such notices of allocation are received by said member, provided, however, that this consent shall not extend to written notices of allocation that are clearly labeled to be “nonqualified.”

Section 2. Each person who hereafter applies for and is accepted to membership in Unified Western Grocers, Inc. (Unified) and each member of Unified on the date of adoption of this Bylaw who continues as a member after such date shall, by such act alone, consent that the amount of any distributions with respect to his patronage occurring after the adoption of this Bylaw which are made in written notices of allocation (as defined in 26 U.S. Code 1388) and which are received by him from Unified, will be taken into account by him at their stated dollar amounts in the manner provided in 26 U.S. Code 1385 (a) in the taxable year in which such written notices of allocation are received by him, provided, however, that this consent shall not extend to written notices of allocation that are clearly labeled to be “nonqualified.” As used herein, “person” includes persons, partnerships, associations and corporations; the masculine includes the feminine and neuter; and the singular includes the plural.

ARTICLE IX

AMENDMENTS

These Bylaws may be repealed or amended or new Bylaws may be adopted at a meeting by the vote of shareholders entitled to exercise a majority of the voting power or by the written assent of such shareholders. Subject to the right of shareholders to adopt, amend or repeal Bylaws, these Bylaws, other than a Bylaw or amendment thereof changing the authorized number of Directors, or a Bylaw or any amendment thereof providing for the payment of patronage dividends to the shareholders of the Corporation, may be adopted, amended or repealed by the Board of Directors. The power of the shareholders to adopt, repeal or amend Bylaws fixing the number of Directors, or the Bylaws providing for the payment of patronage dividends to its shareholders, may not be delegated to the Directors. Whenever any amendment or any Bylaw is adopted, it must be copied in the book of Bylaws with the original Bylaws and immediately after them. If any Bylaw is repealed, the fact of repeal, with the date of the meeting at which the repeal was enacted, or written assent was filed, must be stated in said book.

Last Amended 10/05/2007 -22-

EX-10.2.1

Exhibit 10.2.1

AMENDMENT NO. 1

TO THE

UNIFIED WESTERN GROCERS, INC.

DEFERRED COMPENSATION PLAN

Unified Western Grocers, Inc. (the “Company”) hereby amends the above-named plan (the “Plan”), effective as of December 31, 2004, as follows:

The “Purpose” section of the Plan is amended and restated to read as follows:

“The purpose of this Plan is to provide specified benefits to a select group of management and highly compensated Employees who contribute materially to the continued growth, development and future business success of Unified Western Grocers, Inc., formerly known as Certified Grocers of California, Ltd. and its subsidiaries, if any, that sponsor this Plan. This Plan shall be unfunded for tax purposes and for purposes of Title I of ERISA. This Plan combines, amends and restates each of the Certified Grocers of California, Ltd. Employees’ Supplemental Deferred Compensation Plan as amended as of September 3, 1989, and the Certified Grocers of California, Ltd. Employees’ Excess Benefit Plan, Certified Grocers of California, Ltd. amended and restated deferred compensation plan as amended as of March 24, 2000. The Company froze this Plan effective as of December 31, 2004, and established a new plan, the Unified Western Grocers, Inc. Deferred Compensation Plan II (‘Plan II’), effective January 1, 2005. The Plan shall not be subject to Section 409A of the Code. Any amounts deferred after December 31, 2004 shall be credited to Plan II.”

IN WITNESS WHEREOF, the Company, by its duly authorized officers, have executed this Amendment effective as of December 31, 2004.

	UNIFIED WESTERN GROCERS, INC
Dated: October 19, 2007	By:	/s/ Robert M. Ling Jr.
		Robert M. Ling, Jr.
		Executive Vice President & General Counsel
Dated: October 19, 2007	By:	/s/ Richard J. Martin
		Richard J. Martin
		Executive Vice President & Chief Financial Officer

EX-10.3.8

Exhibit 10.3.8

AMENDMENT NO. 8

TO THE

UNIFIED WESTERN GROCERS, INC.

SHELTERED SAVINGS PLAN

Unified Western Grocers, Inc. (the “Company”) hereby amends the above-named plan (the “Plan”), effective as of September 29, 2007, as follows:

1. Section 1.2 of the Plan is hereby amended by adding two new definitions of “AGI Acquisition” and “Former AGI Employee” to read as follows:

“‘AGI Acquisition’ shall mean the acquisition of Associated Grocers, Inc. by the Company.”

“‘Former AGI Employee’ shall mean any Employee whose employment with Associated Grocers, Inc. terminated immediately prior to the closing of the AGI Acquisition, and who immediately after such closing accepted and commenced employment with the Company.”

2. Section 3.4(b) of the Plan is hereby amended in its entirety to read as follows:

“(b) Rollover Contributions. Effective as of July 1, 1998, a Participant may make a Rollover Contribution to the Plan or a trustee-to-trustee transfer described in Code Section 401(a)(31), provided that any asset so contributed or transferred is acceptable to the Committee and the Trustee. Notwithstanding the foregoing, a Former AGI Employee may make a Rollover Contribution to the Plan in accordance with this Section 3.4(b) whether or not he or she is then a Participant, provided that (i) any asset (including a loan note) so contributed or transferred is acceptable to the Committee and the Trustee, and (ii) such Rollover Contribution is completed within 31 days of the AGI Acquisition.”

* * * * *

The Company has caused this Amendment No. 8 to be signed on the date indicated below, to be effective as indicated above.

	“Company”
	UNIFIED WESTERN GROCERS, INC.
Dated: September 26, 2007	By:	/s/ Robert M. Ling Jr.
		Its: Executive Vice President & General Counsel

EX-10.4.5

Exhibit 10.4.5

AMENDMENT NO. 1

TO THE

UNIFIED WESTERN GROCERS, INC.

EXECUTIVE SALARY PROTECTION PLAN II

Unified Western Grocers, Inc. (the “Company”) hereby amends the above-named plan (the “Plan”), effective as of December 31, 2004, as follows:

1. Article 1 of the Plan is amended and restated to read as follows:

“This Plan is designed to provide retirement benefits for certain eligible Employees and their beneficiaries. The Plan is intended to be a “top hat” plan providing benefits to a select group of management or highly compensated employees within the meaning of Section 201(2) of ERISA. The Company froze this Plan effective as of December 31, 2004 (the “Freeze Date”), and established a new plan, the Unified Western Grocers, Inc. Executive Salary Protection Plan III (“Plan III”), effective as of January 1, 2005. A Participant’s frozen Supplemental Retirement Benefit under this Plan shall be calculated in accordance with Section 1.409A-6(a)(3)(i) of the Final Treasury Regulations.”

2. The definition of “Compensation” under Article 2 of the Plan is hereby amended by adding a new subsection (c) at the end to read as follows:

“(c) Effective as of the Freeze Date, benefit accruals under this Plan shall cease, and accordingly, a Participant’s Compensation shall be calculated as of the Freeze Date.”

3. The definition of “Final Average Pay” under Article 2 of the Plan is hereby amended by adding at the end a new sentence to read as follows:

“Effective as of the Freeze Date, benefit accruals under this Plan shall cease, and accordingly, a Participant’s Final Average Pay shall be calculated as of the Freeze Date.”

4. The definition of “Final Pay” under Article 2 of the Plan is hereby amended by adding at the end a new sentence to read as follows:

“Effective as of the Freeze Date, benefit accruals under this Plan shall cease, and accordingly, a Participant’s Final Pay shall be calculated as of the Freeze Date.”

5. The definition of “Normal Retirement Benefit” under Article 2 of the Plan is hereby amended by adding at the end a new sentence to read as follows:

“Effective as of the Freeze Date, benefit accruals under this Plan shall cease, and accordingly, a Participant’s Normal Retirement Benefit shall be calculated as of the Freeze Date.”

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6. The definition of “Supplemental Retirement Benefit” under Article 2 of the Plan is hereby amended by adding at the end a new sentence to read as follows:

“Effective as of the Freeze Date, benefit accruals under this Plan shall cease, and accordingly, a Participant’s Supplemental Retirement Benefit will be determined as of the Freeze Date and in accordance with Section 1.409A-6(a)(3)(i) of the Final Treasury Regulations.”

7. The definition of “Vesting Percentage” under Article 2 of the Plan is hereby amended by adding a new subsection (d) at the end to read as follows:

“(d) Effective as of the Freeze Date, benefit accruals under this Plan shall cease, and accordingly, a Participant’s Vesting Percentage will be determined as of the Freeze Date.”

8. The definition of “Year of Service” under Article 2 of the Plan is hereby amended by adding a new subsection (d) at the end to read as follows:

“(d) Effective as of the Freeze Date, benefit accruals under this Plan shall cease, and accordingly, (i) a Participant’s Years of Service for purposes of determining such Participant ‘s Supplemental Retirement Benefit and Vesting Percentage shall be calculated as of the Freeze Date, and (ii) a Participant’s Years of Service after the Freeze Date shall not be recognized for any purpose.”

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IN WITNESS WHEREOF, the Company, by its duly authorized officers, have executed this Amendment effective as of December 31, 2004.

	UNIFIED WESTERN GROCERS, INC
Dated: October 19, 2007	By:	/s/ Robert M. Ling Jr.
		Robert M. Ling, Jr.
		Executive Vice President & General Counsel
Dated: October 19, 2007	By:	/s/ Richard J. Martin
		Richard J. Martin
		Executive Vice President & Chief Financial Officer

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EX-10.9.1

Exhibit 10.9.1

AMENDMENT NO. 1

TO THE

UNIFIED WESTERN GROCERS, INC.

EMPLOYEE SAVINGS PLAN

Effective as of August 31, 1997, the definition of “Employee” in Section 1.2 of the Unified Western Grocers, Inc. Employee Savings Plan (the “Plan”) is amended and restated to read as follows:

“‘Employee’ shall mean every person classified by the Company as a common law, hourly employee of the Company and any Affiliated Company that has adopted the Plan with the permission of the Board of Directors. With respect to persons employed in a United Grocers facility, ‘Employee’ shall mean every person classified by the Company as a common law, collectively bargained employee of such a facility (‘United Employee’). ‘Employee’ shall not include any person who is (i) employed by or through a leasing, temporary, or similar agency or company, or (ii) classified by the Company as a leased employee (‘Leased Employee’) of the Company or any such Affiliated Company. For this purpose, a Leased Employee is a person whose services are performed under primary direction or control by the Company or any Affiliated Company on a substantially full time basis for a period of at least one year in accordance with Code Section 414(n)(2). If any person described in the preceding sentence is determined to be a common law employee of the Company by court decision or otherwise, such person shall nonetheless continue to be treated as not being an Employee.’

* * *

IN WITNESS WHEREOF, Unified Western Grocers, Inc. has executed this Amendment this 16 day of April, 2002.

UNIFIED WESTERN GROCERS, INC.
By:	/s/ Don Gilpin
Its:	Vice President, Human Resources

EX-10.9.2

Exhibit 10.9.2

AMENDMENT NO. 2

TO THE

UNIFIED WESTERN GROCERS, INC.

EMPLOYEE SAVINGS PLAN

Unified Western Grocers, Inc. (the “Company”) hereby amends the above-named plan (the “Plan”), effective as of January 1, 2003 (except as otherwise provided below), as follows:

Article XII. MINIMUM DISTRIBUTION REQUIREMENTS.

Section 1. General Rules

1.1. Effective Date. Unless an earlier effective date is specified in Section 6 below, the provisions of this Article will apply for purposes of determining required minimum distributions for calendar years beginning with the 2003 calendar year.

1.2. Coordination with Minimum Distribution Requirements Previously in Effect. If Section 6 below specifies an effective date of this Article that is earlier than calendar years beginning with the 2003 calendar year, required minimum distributions for 2002 under this Article will be determined as follows. If the total amount of 2002 required minimum distributions under the Plan made to the distributee prior to the effective date of this Article equals or exceeds the required minimum distributions determined under this Article, then no additional distributions will be required to be made for 2002 on or after such date to the distributee. If the total amount of 2002 required minimum distributions under the Plan made to the distributee prior to the effective date of this Article is less than the amount determined under this Article, then required minimum distributions for 2002 on and after such date will be determined so that the total amount of required minimum distributions for 2002 made to the distributee will be the amount determined under this Article.

1.3. Precedence. The requirements of this Article will take precedence over any inconsistent provisions of the Plan.

1.4. Requirements of Treasury Regulations Incorporated. All distributions required under this Article will be determined and made in accordance with the Treasury Regulations under Section 401(a)(9) of the Internal Revenue Code.

1.5. TEFRA Section 242(b)(2) Elections. Notwithstanding the other provisions of this Article, distributions may be made under a designation made before January 1, 1984, in accordance with Section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act (“TEFRA”) and the provisions of the Plan that relate to Section 242(b)(2) of TEFRA.

Section 2. Time and Manner of Distribution

2.1. Required Beginning Date. The Participant’s entire interest will be distributed, or begin to be distributed, to the Participant no later than the Participant’s required beginning date.

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2.2. Death of Participant Before Distributions Begin. If the Participant dies before distributions begin, the Participant’s entire interest will be distributed, or begin to be distributed, no later than as follows:

(a) If the Participant’s surviving spouse is the Participant’s sole designated beneficiary, then distributions to the surviving spouse will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died, or by December 31 of the calendar year in which the Participant would have attained age 70 1/2, if later.

(b) If the Participant’s surviving spouse is not the Participant’s sole designated beneficiary, then distributions to the designated beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died.

(c) If there is no designated beneficiary as of September 30 of the year following the year of the Participant’s death, the Participant’s entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

(d) If the Participant’s surviving spouse is the Participant’s sole designated beneficiary and the surviving spouse dies after the Participant but before distributions to the surviving spouse begin, this Section 2.2, other than Section 2.2(a), will apply as if the surviving spouse were the Participant.

For purposes of this Section 2.2 and Section 4, unless Section 2.2(d) applies, distributions are considered to begin on the Participant’s required beginning date. If Section 2.2(d) applies, distributions are considered to begin on the date distributions are required to begin to the surviving spouse under Section 2.2(a). If distributions under an annuity purchased from an insurance company irrevocably commence to the Participant before the Participant’s required beginning date (or to the Participant’s surviving spouse before the date distributions are required to begin to the surviving spouse under Section 2.2(a)), the date distributions are considered to begin is the date distributions actually commence.

2.3. Forms of Distribution. Unless the Participant’s interest is distributed in the form of an annuity purchased from an insurance company or in a single sum on or before the required beginning date, as of the first distribution calendar year distributions will be made in accordance with Sections 3 and 4 of this Article. If the Participant’s interest is distributed in the form of an annuity purchased from an insurance company, distributions thereunder will be made in accordance with the requirements of Section 401(a)(9) of the Code and the Treasury Regulations.

Section 3. Required Minimum Distributions During Participant’s Lifetime

3.1. Amount of Required Minimum Distribution For Each Distribution Calendar Year. During the Participant’s lifetime, the minimum amount that will be distributed for each distribution calendar year is the lesser of:

(a) the quotient obtained by dividing the Participant’s account balance by the distribution period in the Uniform Lifetime Table set forth in Section 1.401(a)(9)-9 of the Treasury Regulations, using the Participant’s age as of the Participant’s birthday in the distribution calendar year; or

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(b) if the Participant’s sole designated beneficiary for the distribution calendar year is the Participant’s spouse, the quotient obtained by dividing the Participant’s account balance by the number in the Joint and Last Survivor Table set forth in Section 1.401(a)(9)-9 of the Treasury Regulations, using the Participant’s and spouse’s attained ages as of the Participant’s and spouse’s birthdays in the distribution calendar year.

3.2. Lifetime Required Minimum Distributions Continue Through Year of Participant’s Death. Required minimum distributions will be determined under this Section 3 beginning with the first distribution calendar year and up to and including the distribution calendar year that includes the Participant’s date of death.

Section 4. Required Minimum Distributions After Participant’s Death

4.1. Death On or After Date Distributions Begin.

(a) Participant Survived by Designated Beneficiary. If the Participant dies on or after the date distributions begin and there is a designated beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s account balance by the longer of the remaining life expectancy of the Participant or the remaining life expectancy of the Participant’s designated beneficiary, determined as follows:

(1) The Participant’s remaining life expectancy is calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

(2) If the Participant’s surviving spouse is the Participant’s sole designated beneficiary, the remaining life expectancy of the surviving spouse is calculated for each distribution calendar year after the year of the Participant’s death using the surviving spouse’s age as of the spouse’s birthday in that year. For distribution calendar years after the year of the surviving spouse’s death, the remaining life expectancy of the surviving spouse is calculated using the age of the surviving spouse as of the spouse’s birthday in the calendar year of the spouse’s death, reduced by one for each subsequent calendar year.

(3) If the Participant’s surviving spouse is not the Participant’s sole designated beneficiary, the designated beneficiary’s remaining life expectancy is calculated using the age of the beneficiary in the year following the year of the Participant’s death, reduced by one for each subsequent year.

(b) No Designated Beneficiary. If the Participant dies on or after the date distributions begin and there is no designated beneficiary as of September 30 of the year after the year of the Participant’s death, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s account balance by the Participant’s remaining life expectancy calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

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4.2. Death Before Date Distributions Begin.

(a) Participant Survived by Designated Beneficiary. If the Participant dies before the date distributions begin and there is a designated beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s account balance by the remaining life expectancy of the Participant’s designated beneficiary, determined as provided in Section 4.1.

(b) No Designated Beneficiary. If the Participant dies before the date distributions begin and there is no designated beneficiary as of September 30 of the year following the year of the Participant’s death, distribution of the Participant’s entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

(c) Death of Surviving Spouse Before Distributions to Surviving Spouse Are Required to Begin. If the Participant dies before the date distributions begin, the Participant’s surviving spouse is the Participant’s sole designated beneficiary, and the surviving spouse dies before distributions are required to begin to the surviving spouse under Section 2.2(a), this Section 4.2 will apply as if the surviving spouse were the Participant.

Section 5. Definitions

5.1. Designated beneficiary. The individual who is designated as the beneficiary under Section 2.2 of the Plan and is the designated beneficiary under Section 401(a)(9) of the Internal Revenue Code and Section 1.401(a)(9)-1, Q&A-4, of the Treasury Regulations.

5.2. Distribution calendar year. A calendar year for which a minimum distribution is required. For distributions beginning before the Participant’s death, the first distribution calendar year is the calendar year immediately preceding the calendar year which contains the Participant’s required beginning date. For distributions beginning after the Participant’s death, the first distribution calendar year is the calendar year in which distributions are required to begin under Section 2.2. The required minimum distribution for the Participant’s first distribution calendar year will be made on or before the Participant’s required beginning date. The required minimum distribution for other distribution calendar years, including the required minimum distribution for the distribution calendar year in which the Participant’s required beginning date occurs, will be made on or before December 31 of that distribution calendar year.

5.3. Life expectancy. Life expectancy as computed by use of the Single Life Table in Section 1.401(a)(9)-9 of the Treasury Regulations.

5.4. Participant’s account balance. The account balance as of the last valuation date in the calendar year immediately preceding the distribution calendar year (valuation calendar year) increased by the amount of any contributions made and allocated or forfeitures allocated to the account balance as of dates in the valuation calendar year after the valuation date and decreased by distributions made in the valuation calendar year after the valuation date. The account balance for the valuation calendar year includes any amounts rolled over or transferred to the Plan either in the valuation calendar year or in the distribution calendar year if distributed or transferred in the valuation calendar year.

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5.5. Required beginning date. The date specified in Section 6.4(c) of the Plan.

Section 6. Effective Date of Plan Amendment for Section 401(a)(9) Final and Temporary Treasury Regulations

This Article XII, Minimum Distribution Requirements, applies for purposes of determining required minimum distributions for distribution calendar years beginning with the 2003 calendar year.

* * * * *

The Company has caused this Amendment No. 2 to be signed on the date indicated below, to be effective as indicated above.

	“Company”
	UNIFIED WESTERN GROCERS, INC.
Date: September 1, 2003	By:	/s/ Robert M. Ling, Jr.
	Its:	Robert M. Ling, Jr. Executive Vice President General Counsel

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EX-10.9.3

Exhibit 10.9.3

AMENDMENT NO. 3

TO THE

UNIFIED WESTERN GROCERS, INC.

EMPLOYEE SAVINGS PLAN

Unified Western Grocers, Inc. (the “Company”) hereby amends the Unified Western Grocers, Inc. Employee Savings Plan (the “Plan”), effective as of January 1, 2004, as follows:

1. Section 3.1 of the Plan is amended and restated to read as follows:

“Section 3.1: [Reserved]”

The Company has signed this Amendment No. 3 on the date indicated below, to be effective as set forth above.

	UNIFIED WESTERN GROCERS, INC.
Date: 12-19-03	By:	/s/ Robert M. Ling, Jr.
		Robert M. Ling, Jr.
	Its:	Executive Vice President and General Counsel

EX-10.9.4

Exhibit 10.9.4

AMENDMENT NO. 4

TO THE

UNIFIED WESTERN GROCERS, INC.

EMPLOYEE SAVINGS PLAN

Unified Western Grocers, Inc. (the “Company”) hereby amends the above-named plan (the “Plan”), effective as of October 1, 2004, as follows:

1. The first two sentences of Section 9.1 of the Plan are hereby amended in their entirety to read as follows:

“The Company, acting through the Board of Directors, or the Committee may amend the Plan from time to time and may amend or cancel any such amendment. Each amendment must be set forth in a document that is signed by an officer of the Company, and the Plan shall be deemed to have been amended in the manner and at the time set forth in such document, and all Participants shall be bound by it.”

2. Section 8.6 of the Plan is hereby amended in its entirety to read as follows:

“Section 8.6: Administrative Expenses Of The Plan. All reasonable expenses of administering the Plan, including, but not limited to, actuarial, administration, accounting, investment, recordkeeping, and legal fees and costs incurred in connection with such activities, shall be paid by the Trustee pursuant to the direction of the Committee and shall be a charge against the trust estate, except to the extent that such expenses may be paid by the Company. The Committee, in the Committee’s sole discretion, shall determine whether each such charge shall be allocated pro rata or per capita to Participants’ Accounts, and whether such a charge shall be allocated directly to the Accounts of the affected Participant. The expense of maintaining errors and omissions liability insurance, if any, covering members of the Committee, the Trustee, or any other Fiduciary shall be paid by the Company.”

* * * * *

The Company has caused this Amendment No. 4 to be signed on the date indicated below, to be effective as indicated above.

	“Company”
	UNIFIED WESTERN GROCERS, INC.
Date: November 15, 2004	By:	/s/ Don Gilpin
		Don Gilpin
	Its:	Vice President, Human Resources

EX-10.9.5

Exhibit 10.9.5

AMENDMENT NO. 5

TO THE

UNIFIED WESTERN GROCERS, INC.

EMPLOYEE SAVINGS PLAN

Unified Western Grocers, Inc. (the “Company”) hereby amends the above-named plan (the “Plan”), effective as of March 28, 2005, as follows:

1. Article VI of the Plan is hereby amended by adding the following new Section 6.13 to read as follows:

“Section 6.13: Automatic Rollover. In the event of a mandatory distribution greater than $1,000 in accordance with the provisions of Article VI, if the Participant does not elect to have such distribution paid directly to an Eligible Retirement Plan specified by the Participant in a direct rollover or to receive the distribution directly in accordance with Article VI, then the Committee shall pay the distribution in a direct rollover to an individual retirement plan designated by the Committee.”

* * * * *

The Company has caused this Amendment No. 5 to be signed on the date indicated below, to be effective as indicated above.

	“Company”
	UNIFIED WESTERN GROCERS, INC.
Dated: July 29, 2005	By:	/s/ Don Gilpin
		Don Gilpin
	Its:	Vice President, Human Resources

EX-10.9.7

Exhibit 10.9.7

AMENDMENT NO. 7

TO THE

UNIFIED WESTERN GROCERS, INC.

EMPLOYEE SAVINGS PLAN

Unified Western Grocers, Inc. (the “Company”) hereby amends the above-named plan (the “Plan”), effective as of September 29, 2007, as follows:

1. Section 1.2 of the Plan is hereby amended by adding two new definitions of “AGI Acquisition” and “Former AGI Employee” to read as follows:

“‘AGI Acquisition’ shall mean the acquisition of Associated Grocers, Inc. by the Company.”

“‘Former AGI Employee’ shall mean any Employee whose employment with Associated Grocers, Inc. terminated immediately prior to the closing of the AGI Acquisition, and who immediately after such closing accepted and commenced employment with the Company.”

2. Section 2.1(a) of the Plan is hereby amended in its entirety to read as follows:

“(a) Each Employee shall become eligible to participate in the Plan on the Entry Date coincident with or next following the one-year anniversary of such Employee’s Employment Commencement Date, provided that he or she is still an Employee on such date. Despite the foregoing, each United Employee shall become eligible to participate in the Plan on the Entry Date that is the second month following his or her Employment Commencement Date, provided that he or she is still a United Employee on such Entry Date, and each Former AGI Employee shall become eligible to participate in the Plan on November 1, 2007, provided that he or she is an Employee on such date.”

3. Section 3.6(b) of the Plan is hereby amended in its entirety to read as follows:

“(b) Rollover Contributions. A Participant’s Rollover Contributions shall be paid directly to the Trustee. The Trustee may commingle such contributions with the Company’s contributions. However, the Committee shall keep separate records of each Participant’s Rollover Contributions (and the income, gains and losses on them). The Trustee shall invest a Participant’s Rollover Contributions in the same manner as provided for with the investment of the Company’s contributions. Notwithstanding the foregoing, a Former AGI Employee may make a Rollover Contribution to the Plan in accordance with this Section 3.6(b) whether or not he or she is then a Participant, provided that (i) any asset (including a loan note) so contributed or transferred is

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acceptable to the Committee and the Trustee, and (ii) such Rollover Contribution is completed within 31 days of the AGI Acquisition.”

* * * * *

The Company has caused this Amendment No. 7 to be signed on the date indicated below, to be effective as indicated above.

	“Company”
	UNIFIED WESTERN GROCERS, INC.
Dated: September 26, 2007	By:	/s/ Robert M. Ling Jr.
		Its: Executive Vice President & General Counsel

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EX-21

EXHIBIT 21

SUBSIDIARIES OF THE REGISTRANT

As of September 29, 2007 the Company’s subsidiaries, all wholly-owned and incorporated in California (except where noted otherwise) were:

	Banner Marketing, Inc.
	Certified Grocers of California, Ltd.
(4)	United Grocers, Inc.
	Grocers and Merchants Insurance Service, Inc.
	Grocers Capital Company
	Grocers Specialty Company
	Grocers Development Center, Inc.
	Preferred Public Storage Company
	Crown Grocers, Inc.
	Grocers General Merchandise Company
(1)	Unified International, Inc.
(2)	Grocers and Merchants Management Company
(2)	Springfield Insurance Company
(3)	SavMax Foods, Inc.
(4)	Northwest Process, Inc.
(4)	R&R Liquidating Corporation
(4)	U.G. Resources, Inc.
(4)	United Resources, Inc.
(4)	Western Security Services, Ltd.
(4)	Western Passage Express, Ltd.
(2), (5)	Springfield Insurance Company Limited

(1) Incorporated in Delaware

(2) Outstanding capital shares are owned by Grocers and Merchants Insurance Services, Inc.

(3) Outstanding capital shares are owned by Crown Grocers, Inc.

(4) Incorporated in Oregon

(5) Incorporated in Bermuda

EX-31.1

EXHIBIT 31.1

Certifications

I, Alfred A. Plamann, certify that:

1. I have reviewed this Annual Report on Form 10-K of Unified Western Grocers, Inc. (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c. Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Dated:     December 13, 2007

/S/    ALFRED A. PLAMANN        

Alfred A. Plamann

President and Chief Executive Officer

(Principal executive officer)

EX-31.2

EXHIBIT 31.2

Certifications

I, Richard J. Martin, certify that:

1. I have reviewed this Annual Report on Form 10-K of Unified Western Grocers, Inc. (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c. Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Dated:     December 13, 2007

/S/    RICHARD J. MARTIN        

Richard J. Martin

Executive Vice President, Finance and

Administration and Chief Financial Officer

(Principal financial and accounting officer)

EX-32.1

EXHIBIT 32.1

Certification Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report on Form 10-K of Unified Western Grocers Inc. (the “Company”) for the fiscal year ended September 29, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Alfred A. Plamann, President and Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Report.

Date:     December 13, 2007

/S/    ALFRED A. PLAMANN        

Alfred A. Plamann

President and Chief Executive Officer

(Principal executive officer)

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

Certification Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report on Form 10-K of Unified Western Grocers Inc. (the “Company”) for the fiscal year ended September 29, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard J. Martin, Executive Vice President, Finance and Administration and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Report.

Date:     December 13, 2007

/S/    RICHARD J. MARTIN        

Richard J. Martin

Executive Vice President, Finance and

Administration and Chief Financial Officer

(Principal financial and accounting officer)

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.