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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.
20549





FORM 10-Q





(Mark One)



|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ---------------------------------------------------------------------------------------

FOR THE QUARTERLY PERIOD ENDED DECEMBER 27, 2008

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 GROCERS, INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|California                                                     |  | 95-0615250                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

5200 Sheila Street, Commerce, CA 90040

(Address of principal executive offices) (Zip Code)

(323) 264-5200

(Registrants telephone number, including area code)





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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



|                                |  |                                  
|------------------------------- |  | ---------------------------------
|Large accelerated filer  [    ] |  | Accelerated filer  [    ]        
|Non-accelerated filer  [X]      |  | Smaller reporting company  [    ]

(Do not check if a smaller reporting company)

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

The number of shares outstanding of each
of the registrants classes of common stock, as of January 24, 2009, were as follows:

Class A: 180,600 shares;Class B:459,512
shares;Class C:15 shares;Class E:238,617 shares









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##### Table of Contents

Table of Contents



|           |  |                                                                                       |  |     
|---------- |  | ------------------------------------------------------------------------------------- |  | ----
|Item       |  |                                                                                       |  | Page
|PART I.    |  | FINANCIAL INFORMATION                                                                 |  |     
|           |  |                                                                                      
|Item 1.    |  | Financial Statements (Unaudited)                                                      |  | 3   
|           |  | Consolidated Condensed Balance Sheets                                                 |  | 3   
|           |  | Consolidated Condensed Statements of Earnings and Comprehensive Earnings              |  | 4   
|           |  | Consolidated Condensed Statements of Cash Flows                                       |  | 5   
|           |  | Notes to Consolidated Condensed Financial Statements                                  |  | 7   
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 16  
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 34  
|Item 4T.   |  | Controls and Procedures                                                               |  | 34  
|           |  |                                                                                      
|PART II.   |  | OTHER INFORMATION                                                                     |  |     
|           |  |                                                                                      
|Item 1.    |  | Legal Proceedings                                                                     |  | 35  
|Item 1A.   |  | Risk Factors                                                                          |  | 35  
|Item 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 35  
|Item 3.    |  | Defaults Upon Senior Securities                                                       |  | 35  
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  | 35  
|Item 5.    |  | Other Information                                                                     |  | 35  
|Item 6.    |  | Exhibits                                                                              |  | 36  
|           |  |                                                                                      
|Signatures |  |                                                                                       |  | 37  



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##### Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)





Unified Grocers, Inc. and Subsidiaries

Consolidated Condensed Balance Sheets  Unaudited

(dollars in thousands)



|                                                                                                                                                   |  |                  |         |   |                   |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                                                                                   |  | December 27,2008 |         |   | September 27,2008 |  
|Assets                                                                                                                                             |  |                  |         |   |                   |   |         |  
|                                                                                                                                                   |  |                 
|Current assets:                                                                                                                                    |  |                  |         |   |                   |   |         |  
|Cash and cash equivalents                                                                                                                          |  | $                | 13,021  |   |                   | $ | 15,849  |  
|Accounts and current portion of notes receivable, net of allowances of $2,500 and $2,600 at December 27, 2008 and September 27, 2008,
respectively |  |                  | 196,038 |   |                   |   | 199,744 |  
|Inventories                                                                                                                                        |  |                  | 257,895 |   |                   |   | 267,723 |  
|Prepaid expenses                                                                                                                                   |  |                  | 7,335   |   |                   |   | 7,860   |  
|Deferred income taxes                                                                                                                              |  |                  | 10,883  |   |                   |   | 12,258  |  
|                                                                                                                                                   | 
|Total current assets                                                                                                                               |  |                  | 485,172 |   |                   |   | 503,434 |  
|Properties, net                                                                                                                                    |  |                  | 202,810 |   |                   |   | 204,961 |  
|Investments                                                                                                                                        |  |                  | 82,408  |   |                   |   | 79,863  |  
|Notes receivable, less current portion and net of allowances of $100 at both December 27, 2008 and September 27,
2008                              |  |                  | 13,309  |   |                   |   | 13,892  |  
|Goodwill                                                                                                                                           |  |                  | 38,997  |   |                   |   | 38,997  |  
|Other assets, net                                                                                                                                  |  |                  | 54,580  |   |                   |   | 62,135  |  
|                                                                                                                                                   | 
|Total Assets                                                                                                                                       |  | $                | 877,276 |   |                   | $ | 903,282 |  
|                                                                                                                                                   | 
|Liabilities and Shareholders Equity                                                                                                               |  |                  |         |   |                   |   |         |  
|                                                                                                                                                   |  |                 
|Current liabilities:                                                                                                                               |  |                  |         |   |                   |   |         |  
|Accounts payable                                                                                                                                   |  | $                | 192,604 |   |                   | $ | 211,483 |  
|Accrued liabilities                                                                                                                                |  |                  | 64,427  |   |                   |   | 73,834  |  
|Current portion of notes payable                                                                                                                   |  |                  | 5,783   |   |                   |   | 1,347   |  
|Members deposits and estimated patronage dividends                                                                                                |  |                  | 21,675  |   |                   |   | 16,053  |  
|                                                                                                                                                   | 
|Total current liabilities                                                                                                                          |  |                  | 284,489 |   |                   |   | 302,717 |  
|Notes payable, less current portion                                                                                                                |  |                  | 241,414 |   |                   |   | 254,089 |  
|Long-term liabilities, other                                                                                                                       |  |                  | 139,504 |   |                   |   | 130,684 |  
|Member and Non-Members deposits                                                                                                                   |  |                  | 14,159  |   |                   |   | 12,207  |  
|Commitments and contingencies                                                                                                                      |  |                  |         |   |                   |   |         |  
|                                                                                                                                                   |  |                 
|Shareholders equity:                                                                                                                              |  |                  |         |   |                   |   |         |  
|Class A Shares: 500,000 shares authorized, 180,250 and 185,500 shares outstanding at December 27, 2008 and September 27, 2008,
respectively        |  |                  | 33,075  |   |                   |   | 34,011  |  
|Class B Shares: 2,000,000 shares authorized, 459,512 and 482,616 shares outstanding at December 27, 2008 and September 27, 2008,
respectively      |  |                  | 78,979  |   |                   |   | 82,759  |  
|Class E Shares: 2,000,000 shares authorized, 238,617 shares outstanding at both December 27, 2008 and September 27, 2008                           |  |                  | 23,862  |   |                   |   | 23,862  |  
|Retained earnings after elimination of accumulated deficit of $26,976 effective September 28, 2002                                                 |  |                  | 64,254  |   |                   |   | 66,275  |  
|Receivable from sale of Class A Shares to Members                                                                                                  |  |                  | (3,560  | ) |                   |   | (3,778  | )
|Accumulated other comprehensive earnings                                                                                                           |  |                  | 1,100   |   |                   |   | 456     |  
|                                                                                                                                                   | 
|Total shareholders equity                                                                                                                         |  |                  | 197,710 |   |                   |   | 203,585 |  
|                                                                                                                                                   | 
|Total Liabilities and Shareholders Equity                                                                                                         |  | $                | 877,276 |   |                   | $ | 903,282 |  
|                                                                                                                                                   | 

The accompanying notes are an integral part of these statements.



3



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Unified Grocers, Inc. and Subsidiaries

Consolidated Condensed Statements of Earnings

and Comprehensive
Earnings  Unaudited

(dollars in thousands)



|                                                               |  |                      |           |   |                  |   |           |  
|-------------------------------------------------------------- |  | -------------------- | --------- | - | ---------------- | - | --------- | -
|                                                               |  | Thirteen Weeks Ended |          
|                                                               |  | December 27,2008     |           |   | December 29,2007 |  
|                                                               | 
|Net sales                                                      |  | $                    | 1,045,219 |   |                  | $ | 1,052,557 |  
|Cost of sales                                                  |  |                      | 944,845   |   |                  |   | 954,923   |  
|Distribution, selling and administrative expenses              |  |                      | 80,599    |   |                  |   | 75,165    |  
|                                                               | 
|Operating income                                               |  |                      | 19,775    |   |                  |   | 22,469    |  
|Interest expense                                               |  |                      | (3,610    | ) |                  |   | (4,407    | )
|                                                               | 
|Earnings before estimated patronage dividends and income taxes |  |                      | 16,165    |   |                  |   | 18,062    |  
|Estimated patronage dividends                                  |  |                      | (9,988    | ) |                  |   | (8,364    | )
|                                                               | 
|Earnings before income taxes                                   |  |                      | 6,177     |   |                  |   | 9,698     |  
|Income taxes                                                   |  |                      | (2,317    | ) |                  |   | (3,528    | )
|                                                               | 
|Net earnings                                                   |  |                      | 3,860     |   |                  |   | 6,170     |  
|Other comprehensive earnings, net of income taxes:             |  |                      |           |   |                  |   |           |  
|Unrealized holding gain on investments                         |  |                      | 644       |   |                  |   | 692       |  
|                                                               | 
|Comprehensive earnings                                         |  | $                    | 4,504     |   |                  | $ | 6,862     |  
|                                                               | 

The accompanying notes are an integral part of these statements.



4



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Unified
Grocers, Inc. and Subsidiaries

Consolidated Condensed Statements of Cash Flows  Unaudited

(dollars in thousands)



|                                                                                               |  |                      |         |   |                  |   |         |  
|---------------------------------------------------------------------------------------------- |  | -------------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                               |  | Thirteen Weeks Ended |        
|                                                                                               |  | December 27,2008     |         |   | December 29,2007 |  
|Cash flows from operating activities:                                                          |  |                      |         |   |                  |   |         |  
|Net earnings                                                                                   |  | $                    | 3,860   |   |                  | $ | 6,170   |  
|Adjustments to reconcile net earnings to net cash provided (utilized) by operating activities: |  |                      |         |   |                  |   |         |  
|Depreciation and amortization                                                                  |  |                      | 5,698   |   |                  |   | 5,013   |  
|Provision for doubtful accounts                                                                |  |                      | (47     | ) |                  |   | 77      |  
|Loss (gain) on sale of properties                                                              |  |                      | 82      |   |                  |   | (19     | )
|Deferred income taxes                                                                          |  |                      | 1,420   |   |                  |   | (67     | )
|(Increase) decrease in assets:                                                                 |  |                      |         |   |                  |   |         |  
|Accounts receivable                                                                            |  |                      | 3,337   |   |                  |   | (47,098 | )
|Inventories                                                                                    |  |                      | 9,828   |   |                  |   | 18,723  |  
|Prepaid expenses                                                                               |  |                      | 525     |   |                  |   | 1,170   |  
|Increase (decrease) in liabilities:                                                            |  |                      |         |   |                  |   |         |  
|Accounts payable                                                                               |  |                      | (19,102 | ) |                  |   | (5,436  | )
|Accrued liabilities                                                                            |  |                      | (9,537  | ) |                  |   | 2,222   |  
|Long-term liabilities, other                                                                   |  |                      | 7,792   |   |                  |   | (51     | )
|                                                                                               | 
|Net cash provided (utilized) by operating activities                                           |  |                      | 3,856   |   |                  |   | (19,296 | )
|                                                                                               | 
|Cash flows from investing activities:                                                          |  |                      |         |   |                  |   |         |  
|Purchases of properties                                                                        |  |                      | (2,075  | ) |                  |   | (4,105  | )
|Purchases of securities and other investments                                                  |  |                      | (5,263  | ) |                  |   | (14,753 | )
|Proceeds from maturities or sales of securities and other investments                          |  |                      | 4,246   |   |                  |   | 13,699  |  
|Origination of notes receivable                                                                |  |                      | (498    | ) |                  |   | (1,363  | )
|Collection of notes receivable                                                                 |  |                      | 1,497   |   |                  |   | 805     |  
|Proceeds from sales of properties                                                              |  |                      |        |   |                  |   | 1       |  
|Decrease in other assets                                                                       |  |                      | 3,842   |   |                  |   | 4,226   |  
|Acquisition of net assets from Associated Grocers, Incorporated                                |  |                      |        |   |                  |   | (39,973 | )
|                                                                                               | 
|Net cash provided (utilized) by investing activities                                           |  |                      | 1,749   |   |                  |   | (41,463 | )
|                                                                                               | 
|Cash flows from financing activities:                                                          |  |                      |         |   |                  |   |         |  
|Additions to long-term notes payable                                                           |  |                      |        |   |                  |   | 60,349  |  
|Reduction of short-term notes payable                                                          |  |                      | (941    | ) |                  |   | (5,745  | )
|Reduction of long-term notes payable                                                           |  |                      | (7,673  | ) |                  |   |        |  
|Payment of deferred financing fees                                                             |  |                      | (283    | ) |                  |   |        |  
|Increase in Members deposits and estimated patronage dividends                                |  |                      | 4,801   |   |                  |   | 3,167   |  
|Redemption of patronage dividend certificates                                                  |  |                      |        |   |                  |   | (3,141  | )
|Increase in Member and Non-Members deposits                                                   |  |                      | 1,952   |   |                  |   | 3,434   |  
|Decrease (increase) in receivable from sale of Class A Shares to Members                       |  |                      | 218     |   |                  |   | (74     | )
|Repurchase of shares from Members                                                              |  |                      | (6,699  | ) |                  |   | (4,932  | )
|Issuance of shares to Members                                                                  |  |                      | 192     |   |                  |   | 258     |  
|                                                                                               | 
|Net cash (utilized) provided by financing activities                                           |  |                      | (8,433  | ) |                  |   | 53,316  |  
|                                                                                               | 
|Net decrease in cash and cash equivalents                                                      |  |                      | (2,828  | ) |                  |   | (7,443  | )
|Cash and cash equivalents at beginning of period                                               |  |                      | 15,849  |   |                  |   | 19,719  |  
|                                                                                               | 
|Cash and cash equivalents at end of period                                                     |  | $                    | 13,021  |   |                  | $ | 12,276  |  
|                                                                                               | 

The accompanying notes are an integral part of these statements.



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Unified
Grocers, Inc. and Subsidiaries

Consolidated Condensed Statements of Cash Flows  Unaudited  Continued

(dollars in thousands)



|                                                                   |  |                      |       |                  |   |        |  
|------------------------------------------------------------------ |  | -------------------- | ----- | ---------------- | - | ------ | -
|                                                                   |  | Thirteen Weeks Ended |      
|                                                                   |  | December 27,2008     |       | December 29,2007 |  
|Supplemental disclosure of cash flow information:                  |  |                      |       |                  |   |        |  
|Cash paid during the period for:                                   |  |                      |       |                  |   |        |  
|Interest                                                           |  | $                    | 3,272 |                  | $ | 4,202  |  
|Income taxes                                                       |  | $                    | 2,306 |                  | $ | 278    |  
|                                                                   |  |                     
|Supplemental disclosure of non-cash investing and financing items: |  |                      |       |                  |   |        |  
|Capital leases                                                     |  | $                    | 424   |                  | $ | 438    |  
|Accrued Class E Share dividend                                     |  | $                    | 821   |                  | $ |       |  
|Accrued split-dollar life insurance liability  EITF 06-4 adoption |  | $                    | 3,269 |                  | $ |       |  
|                                                                   |  |                     
|Acquisition of net assets from Associated Grocers, Incorporated:   |  |                      |       |                  |   |        |  
|Working capital                                                    |  | $                    |      |                  | $ | 11,929 |  
|Properties                                                         |  |                      |      |                  |   | 4,871  |  
|Goodwill                                                           |  |                      |      |                  |   | 9,398  |  
|Other assets                                                       |  |                      |      |                  |   | 17,143 |  
|Long-term liabilities, other                                       |  |                      |      |                  |   | (3,368 | )
|                                                                   | 
|Acquisition of net assets from Associated Grocers, Incorporated    |  | $                    |      |                  | $ | 39,973 |  
|                                                                   | 
|                                                                   |  |                      |       |                  |   |        |  

The accompanying notes are an integral part of these statements.



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Unified Grocers, Inc. and Subsidiaries

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

1.    BASIS OF PRESENTATION

The consolidated condensed financial statements include the accounts of Unified
Grocers, Inc. and all its subsidiaries (the Company or Unified). Inter-company transactions and accounts with subsidiaries have been eliminated. The interim financial statements included herein have been prepared by the
Company without audit, pursuant to the rules and regulations promulgated by the Securities and Exchange Commission (the SEC). Certain information and note disclosures normally included in the financial statements prepared in accordance
with accounting principles generally accepted in the United States of America (U.S. GAAP) have been omitted pursuant to SEC rules and regulations; nevertheless, management believes that the disclosures are adequate to make the
information presented not misleading. These consolidated condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Companys latest Annual Report on Form 10-K for the
year ended September 27, 2008 filed with the SEC. The results of operations for the interim periods are not necessarily indicative of the results for the full year.

The accompanying consolidated condensed financial statements reflect all adjustments that, in the opinion of management, are both of a normal and recurring nature and necessary for the fair presentation of the results for the
interim periods presented. The preparation of the consolidated condensed financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated condensed financial
statements and accompanying notes. As a result, actual results could differ from those estimates.

The Companys banking arrangements allow the
Company to fund outstanding checks when presented for payment to the financial institutions utilized by the Company for disbursements. This cash management practice frequently results in total issued checks exceeding the available cash balance 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 December 27, 2008 and September 27, 2008, the Company had book overdrafts of $60.5
million and $51.3 million, respectively, classified in accounts payable.

Reclassifications  Based on the Companys review of
expected payments for workers compensation claims occurring beyond twelve months from the balance sheet date, the Company reclassified $3.6 million on its consolidated condensed statements of cash flows for the thirteen weeks ended
December 29, 2007, to conform to the current periods presentation.

In accordance with Financial Accounting Standards Board
(FASB) Statement No. 95, Statement of Cash Flows, the Company has modified its cash flow presentation to disclose the gross cash outflows for loans originated and gross cash inflows for payments on loans. The
Company reclassified $(1.4) million to origination of notes and $0.8 million to collection of notes receivable for the thirteen weeks ended December 29, 2007.

Supplemental Disclosure of Cash Flow Information  The Companys supplemental disclosure as of December 29, 2007 of the amounts comprising the Acquisition of net assets from Associated Grocers,
Incorporated included in the accompanying consolidated condensed statements of cash flows for the thirteen weeks ended December 27, 2008 and December 29, 2007 reflects preliminary information that was available to the Company as
presented in the Companys Quarterly Report on Form 10-Q for the thirteen weeks ended December 29, 2007. This information was subsequently finalized as presented in supplemental disclosures to the consolidated statements of cash flows
included in the Companys Annual Report on Form 10-K for the year ended September 27, 2008.

Fair Value Measurements  The
Company adopted in its first fiscal quarter of fiscal year-end 2009 Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS No. 157) and SFAS No. 159,
The Fair Value Option for Financial Assets and Financial Liabilities  Including an Amendment of FASB Statement No. 115 (SFAS No. 159), issued by the FASB. These two statements define and establish a
framework for measuring and disclosing fair value of assets and liabilities.



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Unified Grocers, Inc. and Subsidiaries

Notes to Consolidated Condensed Financial Statements (Unaudited)(Continued)



In February 2008, the FASB issued FASB Staff Position No. 157-2, Effective Date of Statement
157, which deferred for a one-year period (originally effective for fiscal years beginning after November 15, 2007 and presently effective for fiscal years beginning after November 15, 2008) the application of SFAS No. 157
to non-financial assets and liabilities. Therefore, the Company will be required to adopt SFAS No. 157 for its non-financial assets and liabilities effective with its first fiscal quarter of fiscal year-end 2010.

Additionally, the FASB issued FASB Staff Position No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not
Active (FSP No. 157-3), in October 2008 to provide guidance in determining fair value for assets that are in illiquid markets. The Company adopted FSP No. 157-3 in its first fiscal quarter of fiscal year-end 2009 in
conjunction with SFAS No. 157.

In February 2007, the FASB issued SFAS 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. The Company made no election to measure at fair value any financial instruments not currently required to be so measured; therefore, adoption of SFAS
No. 159 in the first fiscal quarter of fiscal year-end 2009 had no impact on the Companys financial statements.

SFAS No. 157
establishes a hierarchy for evaluating assets and liabilities valued at fair value as follows:



| | · |  | Level 1  Quoted prices (unadjusted) in active markets for identical assets or liabilities;
| | - |  | -------------------------------------------------------------------------------------------



| | · |  | Level 2  Inputs other than quoted prices included in Level 1 that are either directly or indirectly observable. These inputs include quoted prices for similar assets
or liabilities other than quoted prices in Level 1, quoted prices in markets that are not active, or other inputs that are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the
assets or liabilities;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Level 3  Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that
market participants would use in pricing.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company records marketable securities at fair value in accordance with SFAS
No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS No. 115). These assets are held by the Companys Insurance segment (see Note 3 for discussion). The Companys
Wholesale Distribution segment (see Note 3 for discussion) holds insurance contracts valued at fair value in support of certain employee benefits.

2.    FAIR VALUE OF FINANCIAL INSTRUMENTS

In accordance with SFAS No. 157, the following table represents
the Companys financial instruments recorded at fair value and the hierarchy of those assets as of December 27, 2008:



|                       |  |         |       |         |   |         |  |       |   |  |   |       
|---------------------- |  | ------- | ----- | ------- | - | ------- |  | ----- | - |  | - | ------
|(dollars in thousands) |  |         |       |         |   |         |  |      
|                       |  | Level 1 |       | Level 2 |   | Level 3 |  | Total
|Money Market           |  | $       | 1,502 |         | $ |        |  | $     |  |  | $ | 1,502 
|Corporate Securities   |  |         |      |         |   | 32,497  |  |       |  |  |   | 32,497
|Government Securities  |  |         |      |         |   | 36,373  |  |       |  |  |   | 36,373
|                      
|Total                  |  | $       | 1,502 |         | $ | 68,870  |  | $     |  |  | $ | 70,372
|                      

Corporate securities, consisting of high quality investment grade corporate bonds, and government
securities, consisting of U.S. government agency mortgage-backed securities and U.S. government treasury securities, are held by two of our insurance subsidiaries to fund loss reserves. These assets are valued based on information received from a
third party pricing service. For assets traded in inactive markets, the services pricing methodology uses observable inputs (such as bid/ask quotes) for identical or similar assets. Assets considered to be similar



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Unified Grocers, Inc. and Subsidiaries

Notes to Consolidated Condensed Financial Statements (Unaudited)(Continued)



will have similar characteristics, such as: duration, volatility, prepayment speed, interest rates, yield curves, and/or risk profile and other market corroborated
inputs (level 2 inputs). For assets traded in active markets, the assets are valued at quoted bond market prices (level 1 inputs). The Company determines the classification of financial asset groups within the fair value hierarchy based on the
lowest level of input into each groups asset valuation. The financial instruments included in the preceding table are included in investments in the Companys consolidated condensed balance sheets at December 27, 2008.

3.    SEGMENT INFORMATION

Unified is
a retailer-owned, grocery wholesale cooperative serving supermarket, specialty and convenience store 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 products typically found in supermarkets. The Companys customers include its owners (Members) and non-owners (Non-Members). The Company sells
products through Unified or through its specialty food subsidiary (Market Centre) and international sales subsidiary (Unified International, Inc.). The Company reports all product sales in its Wholesale Distribution segment. The Company also
provides support services to its customers through the Wholesale Distribution segment, including retail technology, and through separate subsidiaries, including financing and insurance. Insurance activities are reported in Unifieds Insurance
segment while finance activities are grouped within Unifieds All Other business activities. The availability of specific products and services may vary by geographic region.

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



| | · |  | The Wholesale Distribution segment includes the results of operations from the sale of groceries and general merchandise products to both Members and Non-Members,
including a broad range of branded and corporate brand products in nearly all the 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. As of, and for the thirteen weeks ended, December 27, 2008, the Wholesale Distribution segment collectively represents approximately 99% of the Companys total sales and 88% of total assets.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | The Insurance segment includes the results of operations for the Companys three insurance subsidiaries (Unified Grocers Insurance Services, Springfield Insurance
Company and Springfield Insurance Company, Ltd.). These subsidiaries provide insurance and insurance-related products, including workers compensation and liability insurance policies, to both the Company and its Member and Non-Member
customers. As of, and for the thirteen weeks ended, December 27, 2008, the Companys Insurance segment collectively accounts for approximately 1% of the Companys total sales and 10% 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. Beginning in fiscal 2004, and continuing through the third fiscal quarter of fiscal 2008, the Companys
All Other category also included the consolidation of a variable interest entity as discussed in Note 3 to Notes to Consolidated Financial Statements in Part II, Item 8 of the Companys Annual Report on Form 10-K for the year
ended September 27, 2008. No future losses or returns related to this variable interest entity were expected, and as such, consolidation was no longer required as of September 27, 2008. Deconsolidating the variable interest entity had no
material impact on the Companys financial statements. As of, and for the thirteen weeks ended, December 27, 2008, the All Other category collectively accounts for less than 1% of the Companys total sales and 2% of total
assets.



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Unified Grocers, Inc. and Subsidiaries

Notes to Consolidated Condensed Financial Statements (Unaudited)(Continued)



Information about the Companys operating segments is summarized below.

(dollars in thousands)



|                                    |  |                      |           |   |                  |   |           |  
|----------------------------------- |  | -------------------- | --------- | - | ---------------- | - | --------- | -
|                                    |  | Thirteen Weeks Ended |          
|                                    |  | December 27,2008     |           |   | December 29,2007 |  
|Net sales                           |  |                      |           |   |                  |   |           |  
|Wholesale distribution              |  | $                    | 1,041,850 |   |                  | $ | 1,048,953 |  
|Insurance                           |  |                      | 6,464     |   |                  |   | 7,203     |  
|All other                           |  |                      | 302       |   |                  |   | 488       |  
|Inter-segment eliminations          |  |                      | (3,397    | ) |                  |   | (4,087    | )
|                                    | 
|Total net sales                     |  | $                    | 1,045,219 |   |                  | $ | 1,052,557 |  
|                                    | 
|Operating income                    |  |                      |           |   |                  |   |           |  
|Wholesale distribution              |  | $                    | 17,491    |   |                  | $ | 21,492    |  
|Insurance                           |  |                      | 2,264     |   |                  |   | 910       |  
|All other                           |  |                      | 20        |   |                  |   | 67        |  
|                                    | 
|Total operating income              |  |                      | 19,775    |   |                  |   | 22,469    |  
|                                    | 
|Interest expense                    |  |                      | (3,610    | ) |                  |   | (4,407    | )
|Estimated patronage dividends       |  |                      | (9,988    | ) |                  |   | (8,364    | )
|Income taxes                        |  |                      | (2,317    | ) |                  |   | (3,528    | )
|                                    | 
|Net earnings                        |  | $                    | 3,860     |   |                  | $ | 6,170     |  
|                                    | 
|Depreciation and amortization       |  |                      |           |   |                  |   |           |  
|Wholesale distribution              |  | $                    | 5,653     |   |                  | $ | 4,994     |  
|Insurance                           |  |                      | 43        |   |                  |   | 17        |  
|All other                           |  |                      | 2         |   |                  |   | 2         |  
|                                    | 
|Total depreciation and amortization |  | $                    | 5,698     |   |                  | $ | 5,013     |  
|                                    | 
|Capital expenditures                |  |                      |           |   |                  |   |           |  
|Wholesale distribution              |  | $                    | 2,075     |   |                  | $ | 4,105     |  
|Insurance                           |  |                      |          |   |                  |   |          |  
|All other                           |  |                      |          |   |                  |   |          |  
|                                    | 
|Total capital expenditures          |  | $                    | 2,075     |   |                  | $ | 4,105     |  
|                                    | 
|Identifiable assets                 |  |                      |           |   |                  |   |           |  
|Wholesale distribution              |  | $                    | 772,627   |   |                  | $ | 754,446   |  
|Insurance                           |  |                      | 85,744    |   |                  |   | 84,467    |  
|All other                           |  |                      | 18,905    |   |                  |   | 16,650    |  
|                                    | 
|Total identifiable assets           |  | $                    | 877,276   |   |                  | $ | 855,563   |  
|                                    | 

4.    SHAREHOLDERS EQUITY

During the thirteen week period ended December 27, 2008, the Company issued 700 Class A Shares with an issue value of $0.2 million and redeemed 5,950
Class A Shares with a redemption value of $1.5 million. The Company also redeemed 23,104 Class B Shares with a redemption value of $5.2 million.

On October 2, 2008, the Companys Board of Directors declared a 4% cash dividend (approximately $0.8 million) on the outstanding Class E Shares of the Company as of September 27, 2008. The dividend was accrued at
December 27, 2008 and was subsequently paid on January 5, 2009.



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Unified Grocers, Inc. and Subsidiaries

Notes to Consolidated Condensed Financial Statements (Unaudited)(Continued)



5.    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.

6.    PENSION AND OTHER POSTRETIREMENT BENEFITS

The Company sponsors a cash
balance plan (Unified Cash Balance Plan). The Unified Cash Balance Plan is a noncontributory defined benefit pension plan covering substantially all employees of the Company who are not subject to a collective bargaining agreement.
Benefits under the Unified Cash Balance Plan are provided through a trust and also through annuity contracts.

In association with the acquisition of
the operation of Associated Grocers, Incorporated and its subsidiaries of Seattle, Washington (the Acquisition) at the beginning of fiscal year 2008, the Company assumed the Cash Balance Retirement Plan for Employees of Associated
Grocers, Incorporated (AG Cash Balance Plan), which is a noncontributory defined benefit pension plan covering eligible employees of Associated Grocers, Incorporated who were not subject to a collective bargaining agreement. Benefits
under the AG Cash Balance Plan are provided through a trust and also through annuity contracts.

The Company also sponsors an Executive Salary
Protection Plan (ESPP) that provides supplemental post-termination retirement income based on each participants final salary and years of service as an officer of the Company. Funds are held in a rabbi trust for the ESPP consisting
primarily of life insurance policies reported at cash surrender value and mutual fund investments consisting of various publicly-traded mutual funds reported at estimated fair value based on quoted market prices. The cash surrender value of such
life insurance policies aggregated $12.2 million and $15.0 million at December 27, 2008 and September 27, 2008, respectively, and are included in other assets in the Companys consolidated condensed balance sheets. Mutual funds
reported at their estimated fair value of $1.9 million and $2.5 million at December 27, 2008 and September 27, 2008, respectively, and are included in other assets in the Companys consolidated condensed balance sheets. The related
accrued benefit cost (representing the Companys benefit obligation to participants) of $22.8 million and $21.9 million at December 27, 2008 and September 27, 2008, respectively, is recorded in long-term liabilities, other in the
Companys consolidated condensed balance sheets. Trust assets are excluded from ESPP plan assets as they do not qualify as plan assets under Statement of Financial Accounting Standards (SFAS) No. 87, Employers
Accounting for Pensions (SFAS 87). The assets held in the rabbi trust are not available for general corporate purposes. The rabbi trust is subject to creditor claims in the event of insolvency.

The Company sponsors other postretirement benefit plans that cover non-union employees and provide unused sick leave benefits for certain eligible non-union and
union employees. Those plans are not funded.

The Companys funding policy is to make contributions to the Unified Cash Balance Plan and the AG
Cash Balance Plan in amounts that are at least sufficient to meet the minimum funding requirements of applicable laws and regulations, but no more than amounts deductible for federal income tax purposes. The Company expects to make estimated
contributions to the Unified Cash Balance Plan totaling $4.7 million during fiscal 2009, which is comprised of $3.2 million for the 2009 plan year and $1.5 million for the 2008 plan year. In addition, the Company expects to make estimated
contributions to the AG Cash Balance Plan totaling $1.1 million in fiscal 2009, which is comprised of $0.8 million for the 2009 plan year and $0.3 million for the 2008 plan year. At its discretion, the Company may contribute in excess of these
amounts. The Company made no contributions to the Unified Cash Balance Plan or the AG Cash Balance Plan during the thirteen weeks ended December 27, 2008.

Additionally, the Company expects to contribute $0.7 million to the ESPP to fund projected benefit payments to participants for the 2009 plan year. The Company made no contributions to the ESPP during the thirteen weeks ended
December 27, 2008.



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Unified Grocers, Inc. and Subsidiaries

Notes to Consolidated Condensed Financial Statements (Unaudited)(Continued)



See Notes 12 and 13 to Notes to Consolidated Financial Statements in Part II, Item 8
Financial Statements and Supplementary Data of the Companys Annual Report on Form 10-K for the year ended September 27, 2008 for additional information regarding the Unified and AG Cash Balance Plans, the Companys
ESPP and the Companys postretirement benefit plans.

In September 2006, the FASB ratified Emerging Issues Task Force (EITF) Issue
No. 06-4, Accounting for Deferred Compensation and Postretirement Benefits Associated with Endorsement Split-Dollar Life Insurance Arrangements (EITF No. 06-4). 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 life insurance. The Company adopted EITF
No. 06-4 in its first fiscal quarter of fiscal year-end 2009. Pursuant to the adoption guidance of EITF No. 06-4, the Company recorded a liability for the future cost of life insurance provided on behalf of current and qualifying former
officers of the Company and recognized, as a change in accounting principle, a cumulative effect adjustment charge of $3.3 million to beginning retained earnings in its consolidated condensed statement of financial position as of the beginning of
the current fiscal year.

7.    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. Management believes such transactions are on terms that are generally consistent with terms available to other Members similarly situated.

During the course of its business, the Company enters into individually negotiated supply agreements with Member customers 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.

As of the date of this report, there have been no material changes to the related party transactions disclosed in Note 18 to Notes to Consolidated Financial Statements in Part II, Item 8 of the
Companys Annual Report on Form 10-K for the year ended September 27, 2008.

8.    NEW ACCOUNTING PRONOUNCEMENTS

In December 2008, the FASB issued FSP FAS 132(R)-1, Employers Disclosures about Postretirement Benefit Plan Assets,
amending FASB Statement No. 132(R), Employers Disclosures about Pensions and Other Postretirement Benefits. FSP FAS 132(R)-1 requires an employer to disclose investment policies and strategies, categories, fair value
measurements, and significant concentration of risk among its postretirement benefit plan assets. FSP FAS 132(R)-1 is effective for fiscal years ending after December 15, 2009. Accordingly, FSP FAS 132(R)-1 will be adopted for the
Companys fiscal year-end 2010. The adoption of FSP FAS 132(R)-1 is not expected to have a significant impact on the Companys consolidated financial statements.

In September 2008, the FASB issued FASB Staff Position No. FAS 133-1 and FIN 45-4, Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB
Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161 (FSP 133-1 and FIN 45-4), which amends SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities (SFAS No. 133) to require the sellers of credit derivatives (particularly credit-default swaps), including credit derivatives embedded in hybrid instruments, to provide the same disclosures as required under
FASB Interpretation (FIN) No. 45, Guarantors Accounting and Disclosures Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN No. 45). Additionally, this
FSP amends FIN No. 45 to add a disclosure about the current status of the payment/performance risk of a guarantee. This FSP addresses concerns raised by investors that current



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Unified Grocers, Inc. and Subsidiaries

Notes to Consolidated Condensed Financial Statements (Unaudited)(Continued)



disclosure requirements do not provide enough information about the effect upon a swap seller of deterioration in the financial condition of the issuer of the
underlying instrument. FSP 133-1 and FIN 45-4 is effective for reporting periods (annual or interim) ending after November 15, 2008. Accordingly, the Company adopted FSP 133-1 and FIN 45-4 effective with its first quarter of fiscal year-end
2009. The adoption of FSP 133-1 and FIN 45-4 did not have an impact on the Companys consolidated condensed financial statements.

In May 2008,
the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS No 162). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the
principles to be used in the preparation of financial statements. SFAS No. 162 is effective 60 days following the SECs approval of the Public Company Accounting Oversight Board (PCAOB) amendments to AU Section 411,
The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The adoption of SFAS No. 162 is not expected to have an impact on the Companys consolidated condensed financial
statements.

In April 2008, the FASB issued FASB Staff Position No. FAS 142-3, Determination of the Useful Life of Intangible
Assets (FSP 142-3), which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill
and Other Intangible Assets(SFAS No. 142). FSP 142-3 was issued to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used
to measure the fair value of the asset under SFAS No. 141 (revised 2007), Business Combinations, and other U.S. GAAP. When determining the useful life of a recognized intangible asset, paragraph 11(d) of SFAS No. 142
precluded an entity from using its own assumptions about renewal or extension of an arrangement where there is likely to be substantial cost or material modifications. FSP 142-3 specifies that when entities develop assumptions about renewal or
extension, an entity shall consider its own historical experience in renewing or extending similar arrangements; however, these assumptions should be adjusted for the entity-specific factors in paragraph 11 of SFAS No. 142. In the absence of
that experience, an entity shall consider the assumptions that market participants would use about renewal or extension (consistent with the highest and best use of the asset by market participants), adjusted for the entity-specific factors in
paragraph 11 of SFAS No. 142.

FSP 142-3 requires entities to disclose information that enables users of financial statements to assess the
extent to which the expected future cash flows associated with the asset are affected by the entitys intent and/or ability to renew or extend the arrangement. FSP 142-3 is effective for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years. Early adoption is prohibited. FSP 142-3 is required to be applied prospectively to intangible assets acquired after the effective date. Accordingly, FSP 142-3 will be adopted commencing in the first quarter
for the Companys fiscal year-end 2010. The Company is currently assessing the impact this standard may have on its consolidated financial statements.

In December 2007, the FASB issued SFAS 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-end 2010. The Company is currently assessing the impact these standards may have on its consolidated financial statements.



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Unified Grocers, Inc. and Subsidiaries

Notes to Consolidated Condensed Financial Statements (Unaudited)(Continued)



In September 2006, the FASB ratified Emerging Issues Task Force (EITF) Issue 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, the Company adopted EITF No.s 06-4 and 06-10 effective with its first quarter of fiscal year-end 2009. Pursuant to the adoption guidance of EITF
No. 06-4, the Company recorded a liability for the future cost of life insurance provided on behalf of current and qualifying former officers of the Company and recognized, as a change in accounting principle, a cumulative effect adjustment
charge of $3.3 million to beginning retained earnings in its consolidated condensed statement of financial position as of the beginning of the current fiscal year (see Note 6). The adoption of EITF No. 06-10 had no impact on the Companys
consolidated condensed financial statements.

In February 2007, the FASB issued SFAS 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, the Company adopted SFAS No. 159 effective with its first quarter of fiscal year-end 2009. The adoption of SFAS No. 159 did not have an impact on the Companys consolidated condensed financial
statements (see Notes 1 and 2 for additional discussion related to the adoption of SFAS No. 159).

In September 2006, the FASB issued SFAS
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. Accordingly, the Company adopted SFAS No. 158 in the fourth quarter of its fiscal year ending September 29,
2007 (see Notes 1, 11 and 12 to Notes to Consolidated Financial Statements in Part II, Item 8 of the Companys Annual Report on Form 10-K for the year ended September 29, 2007). 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. Pursuant to the adoption criteria of SFAS No. 158, the Company anticipates that adoption of this portion of the standard will require an approximate $1.0  $2.0 million charge (net of income taxes) to beginning retained
earnings on the Companys consolidated year-end 2009 statement of financial position.

In September 2006, the FASB issued SFAS 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



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Unified Grocers, Inc. and Subsidiaries

Notes to Consolidated Condensed Financial Statements (Unaudited)(Continued)



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 157 for other non-financial assets and liabilities. Accordingly, the Company adopted SFAS No. 157, as modified above,
effective with its first quarter of fiscal year-end 2009. Other than implementation of additional disclosure requirements (see Notes 1 and 2), the adoption of SFAS No. 157 did not have an impact on the Companys consolidated condensed
financial statements.

In October 2008, the FASB issued FASB Staff Position No. FAS 157-3, Determining the Fair Value of a Financial Asset
When the Market for That Asset Is Not Active (FSP No. 157-3), which amends SFAS No. FAS 157, Fair Value Measurements, to clarify the guidance for applying fair value accounting in an inactive market and
provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is no longer active. The Company adopted FSP No. 157-3 effective with its first quarter of fiscal
year-end 2009, in conjunction with SFAS No. 157 (see Notes 1 and 2). The adoption of FSP No. 157-3 did not have an impact on the Companys consolidated condensed financial statements.

9.    SUBSEQUENT EVENTS

On
December 29, 2008, the Benefits Committee of Unified Grocers, Inc. approved a resolution authorizing the merger of the Cash Balance Retirement Plan for Employees of Associated Grocers, Incorporated with and into the Unified Grocers, Inc. Cash
Balance Plan, effective December 31, 2008.



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|ITEM 2. | 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 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

General

A California corporation organized in 1922 and incorporated in 1925, Unified Grocers, Inc. (referred to
in this Form 10-Q as Unified, the Company, our or we) is a retailer-owned, grocery wholesale cooperative serving supermarket, specialty and convenience store operators located primarily in the western
United States and in the South Pacific. Our customers range in size from single store operators to multiple store chains. The Company operates its business in two reportable business segments: (1) Wholesale Distribution, and (2) Insurance.
All remaining business activities are grouped into All Other (see Note 3 of Notes to Consolidated Condensed Financial Statements in Item 1 Financial Statements).

We sell a wide variety of products typically found in supermarkets. We report all product sales in our Wholesale Distribution segment, which represents
approximately 99% of our total sales. Our customers include our owners (Members) and non-owners (Non-Members). We also provide support services to our customers, including insurance, financing, promotional planning, retail
technology, equipment purchasing services and real estate services. Support services, other than insurance and financing, are reported in our Wholesale Distribution segment. Insurance activities account for approximately 1% of total sales and are
reported in our Insurance segment, while finance activities are grouped with our All Other business activities. The availability of specific products and services may vary by geographic region. We have three separate geographical and marketing
regions. The regions are Southern California, Northern California and the Pacific Northwest.

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 (AG) and its subsidiaries (the
Seattle Operations), a retailer-owned grocery cooperative headquartered in Seattle, Washington (the Acquisition). The Seattle Operations primarily serve retailers throughout Washington, Oregon, Alaska and the South Pacific.
This transaction provides 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.

Unified does business primarily with those customers that have been accepted as Members. Members are required to meet minimum purchase requirements and specific
capitalization requirements, which include capital stock ownership in the Company and may include required cash deposits. See Member Investments and Patronage Dividends discussed in Part II, Item 7 of the Companys
Annual Report on Form 10-K for the year ended



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September 27, 2008 for additional information. Additionally, see DESCRIPTION OF DEPOSIT ACCOUNTS in the Companys Registration Statement on
Form S-1 filed on December 31, 2008, with respect to the Companys offering of Partially Subordinated Patrons Deposit Accounts for further information. The membership requirements, including minimum purchase and capitalization
requirements, may be modified at any time 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 patronage dividends. The Company conducts patronage business with Members within the Wholesale Distribution
segment. Our 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. The Company
conducts business on a non-patronage basis in the Wholesale Distribution segment through its Cooperative Division, specialty food subsidiary (Market Centre) and international sales subsidiary (Unified International, Inc). These businesses sell
products to both Members and Non-Members. 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 Company does business
through its subsidiaries on a non-patronage basis. Earnings from the Companys subsidiaries and from business conducted with Non-Members (collectively, non-patronage business) are retained by the Company.

Facilities and Transportation

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

In conjunction with the Acquisition,
the Company began to review the overall logistics model for the Pacific Northwest region. The need to develop a new comprehensive logistics model was predicated on the fact that the lease on the main warehouse and office complex in Seattle (formerly
operated by AG) is short-term in nature and the configuration of this complex is not optimum. The objective of the review is to determine the size, configuration and location(s) for a distribution facility (facilities) in the Pacific Northwest to
best serve our customers in the region. The Company expects to complete its review of the overall logistics model by the end of fiscal 2009.

Customers may choose either of two delivery options for the distribution of our products. Customers may either elect to have the Company deliver orders to their stores or warehouse locations or may choose to pick their orders up from our
distribution centers. For delivered orders, we utilize either the Company-operated fleet of tractors and trailers or third party carriers.

INDUSTRY OVERVIEW AND THE COMPANYS OPERATING ENVIRONMENT

Competition

Unified competes 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 that provide a broad range of products and services to their customers. We also compete with many local and regional meat, produce, grocery, specialty, general food, bakery and dairy wholesalers and distributors. Unifieds customers
compete directly with vertically integrated regional and national chains. The growth or loss in market share of our customers will also impact the Companys sales and earnings. For more information about the competition Unified faces, please
refer to Risk Factors.

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, many of 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.



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To further enhance our strategy to help our customers differentiate themselves from the competition, we are focused
on helping our retailers understand consumer trends. 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 Market Centre, our specialty products subsidiary, which sells grocery products in four
categories: gourmet, 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.

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, the cost of ingredients for our
manufactured breads and processed fluid milk, and the cost of packaged goods purchased from other manufacturers. The Companys pricing programs are designed to pass these costs on to our customers; however, the Company may not always be able to
pass such changes to customers on a timely basis. Any delay may result in a less than full recovery of price increases.

The majority of
Unifieds investments (approximately 84%) are held by two of our insurance subsidiaries, and include U.S. government agency mortgage-backed securities, high quality investment grade corporate bonds, and U.S. government treasury securities.
These investments are not actively traded and are valued based upon inputs including quoted prices for identical or similar assets. Collectively, these investments have experienced an increase in market value since the beginning of our fiscal year.
Approximately 11% of Unifieds investments are held by our Wholesale Business, which consists primarily of Western Family Holding Company (Western Family) common stock. Western Family is a private cooperative located in Oregon from
which the Company purchases food and related general merchandise products. Approximately 5% of our investments are held by our other support businesses and consists of an investment by the Companys finance subsidiary in a third party bank. The
third party bank operates as a cooperative and therefore its borrowers are required to own its Class B stock.

Life insurance assets with values tied
to the equity markets have been negatively impacted by the market decline that took place during fiscal year 2008 as well as the thirteen weeks ended December 27, 2008, although such impact is deemed by management to be temporary in nature.

External factors continue to drive volatility in costs associated with fuel. Our pricing includes a fuel surcharge on product shipments to recover
excess fuel costs over a specified index. The surcharge is reviewed and adjusted monthly.

Additionally, wage increases occur as a result of
negotiated labor contracts and adjustments for non-represented employees. Costs associated with our workers compensation coverage in California have significantly declined and stabilized after several years of cost increases. 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

Technological improvements have been an important part of Unifieds strategy to improve service
to our customers and lower costs. Unifieds customers benefit from our substantial investment in supply-chain technology, including improvements in our vendor management activities through new item introductions, promotions and payment support
activities.



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Technological improvements in Unifieds distribution systems have been an area of concentration for the Company. Over the past several years, we have upgraded our
warehouse and enterprise reporting systems to improve efficiencies, order fulfillment accuracy and internal management reporting capabilities. As a result, four of our five main facilities have been upgraded. This process has been instrumental in
helping drive efficiencies. We expect to see additional warehouse improvements and order fulfillment accuracy as each facility fully realizes the benefits of the upgrade.

Additionally, we continue to make improvements to better support our interactions with vendors and customers. We provide network connectivity, data exchange, and a portfolio of applications to our
customers. Improving these tools allows independent retailers with varying formats and needs to benefit from standardization while making use of business applications best suited to their unique needs. Our retail support efforts centered most
recently on 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.

Sales Activities and Recent Developments

We experienced an overall sales decrease of $7.3 million, or 0.7%, for the thirteen weeks ended December 27, 2008 (the 2009 Period) as compared to
the thirteen week period ended December 29, 2007 (the 2008 Period). Our Wholesale Distribution segment decreased $7.1 million in the 2009 Period compared to the 2008 Period. This decrease includes sales to one former customer of AG
(AG customer) as it transitioned to another wholesaler during the 2008 Period. Sales to the transitioned AG customer were $27.1 million in the 2008 Period. Excluding the impact of this transition customer, wholesale sales increased $20.0
million, or 2.0%.

Sales in our Insurance segment decreased $0.2 million in the 2009 Period versus the 2008 Period due to the insurance climate
becoming more competitive and premium rates declining over the prior year. In addition, due to the competitive climate, we experienced a decline in our policy renewals compared to the prior year. Sales in our All Other business activities were
consistent in the 2009 Period and 2008 Period.

RESULTS OF OPERATIONS

The following discussion of the Companys financial condition and results of operations should be read in conjunction with the consolidated condensed financial statements and notes to the
consolidated condensed financial statements, specifically Note 3 to Notes to Consolidated Condensed Financial Statements, Segment Information, 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 and the percentage increase or decrease in such items over the prior period.



|                                                  |  |                      |   |  |                        |   |  |       |   
|------------------------------------------------- |  | -------------------- | - |  | ---------------------- | - |  | ----- | --
|                                                  |  | Thirteen Weeks Ended |   |  | % Change ThirteenWeeks |  
|Fiscal Period Ended                               |  | December 27,2008     |   |  | December 29,2007       |   | 
|Net sales                                         |  | 100.0                | % |  | 100.0                  | % |  | (0.7  | )%
|Cost of sales                                     |  | 90.4                 |   |  | 90.7                   |   |  | (1.1  | ) 
|Distribution, selling and administrative expenses |  | 7.7                  |   |  | 7.2                    |   |  | 7.2   |   
|Operating income                                  |  | 1.9                  |   |  | 2.1                    |   |  | (12.0 | ) 
|Interest expense                                  |  | (0.3                 | ) |  | (0.4                   | ) |  | (18.1 | ) 
|Estimated patronage dividends                     |  | (1.0                 | ) |  | (0.8                   | ) |  | 19.4  |   
|Income taxes                                      |  | (0.2                 | ) |  | (0.3                   | ) |  | (34.3 | ) 
|Net earnings                                      |  | 0.4                  | % |  | 0.6                    | % |  | (37.4 | )%
|                                                  | 



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##### Table of Contents

THIRTEEN WEEK PERIOD ENDED DECEMBER 27, 2008 (2009 PERIOD) COMPARED TO THE THIRTEEN WEEK PERIOD
ENDED DECEMBER 29, 2007 (2008 PERIOD)

Overview of the 2009 Period.Our consolidated operating
income decreased $2.7 million to $19.8 million in the 2009 Period compared to $22.5 million in the 2008 Period.

The 2009 Period included a
combination of offsetting factors that contributed to the change in operating income. Operating income was negatively impacted by a decrease in the cash surrender value of our life insurance policy assets as a result of the general decline in
underlying market conditions. Partially offsetting this decrease was a reduction in loss reserves related to improved claims loss experience for earlier periods and lower cost of sales due to inventory holding gains (realized upon sale) from vendor
price increases.

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



| | · |  | Wholesale Distribution Segment:The Wholesale Distribution segments operating income decreased $4.0 million to
$17.5 million in the 2009 Period compared to $21.5 million in the 2008 Period. The decrease in operating income was due, in large part, to increased distribution, sales and administrative expenses due to increases in costs associated with life
insurance and medical benefits, and a net change in our reserves for workers compensation. Other factors include decreased sales due primarily to our no longer serving a former AG customer that has transitioned to another wholesaler during the
2008 Period.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Insurance Segment:Operating income increased $1.4 million in our Insurance segment to $2.3 million in the 2009 Period
compared to $0.9 million in the 2008 Period. The improvement in the 2009 Period resulted primarily from lowering loss reserves based on improved claims loss experience for earlier periods.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | All Other:    All Other business activities primarily consist of activities conducted through our finance subsidiary.
Beginning in fiscal 2004, and continuing through the third fiscal quarter of fiscal 2008, the Companys All Other category also included the consolidation of a variable interest entity as discussed in Note 3 to Notes to
Consolidated Financial Statements in Part II, Item 8 Financial Statements and Supplementary Dataof the Companys Annual Report on Form 10-K for the year ended September 27, 2008. No future losses or
returns related to this variable interest entity were expected, and as such, consolidation was no longer required as of September 27, 2008. Deconsolidating the variable interest entity had no material impact on our financial statements.
Operating income was zero for the 2009 Period and $0.1 million for the 2008 Period.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following tables summarize the performance
of each business segment for the 2009 and 2008 Periods.

Wholesale Distribution Segment

(dollars in thousands)



|                                                  |  |                                        |           |                     |                                        |   |                 |   |                     |  |       |            |  |   |        |  
|------------------------------------------------- |  | -------------------------------------- | --------- | ------------------- | -------------------------------------- | - | --------------- | - | ------------------- |  | ----- | ---------- |  | - | ------ | -
|                                                  |  | Thirteen Weeks Ended December 27, 2008 |           |                     | Thirteen Weeks Ended December 29, 2007 |   |                 |   |                    
|                                                  |  | Amounts in000s                        |           | Percent toNet Sales |                                        |   | Amounts in000s |   | Percent toNet Sales |  |       | Difference | 
|Gross sales                                       |  | $                                      | 1,041,850 |                     |                                       |   |                 | $ | 1,048,953           |  |      |            |  | $ | (7,103 | )
|Inter-segment eliminations                        |  |                                        |          |                     |                                       |   |                 |   |                    |  |      |            |  |   |       |  
|                                                  | 
|Net sales                                         |  |                                        | 1,041,850 |                     | 100.0                                  | % |                 |   | 1,048,953           |  | 100.0 | %          |  |   | (7,103 | )
|Cost of sales                                     |  |                                        | 945,559   |                     | 90.7                                   |   |                 |   | 954,179             |  | 91.0  |            |  |   | (8,620 | )
|Distribution, selling and administrative expenses |  |                                        | 78,800    |                     | 7.6                                    |   |                 |   | 73,282              |  | 7.0   |            |  |   | 5,518  |  
|                                                  | 
|Operating income                                  |  | $                                      | 17,491    |                     | 1.7                                    | % |                 | $ | 21,492              |  | 2.0   | %          |  | $ | (4,001 | )
|                                                  | 



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##### Table of Contents

Insurance Segment

(dollars in thousands)



|                                      |  |                                        |        |   |                                        |       |   |                 |   |        |                     |  |       |            |  |   |        |  
|------------------------------------- |  | -------------------------------------- | ------ | - | -------------------------------------- | ----- | - | --------------- | - | ------ | ------------------- |  | ----- | ---------- |  | - | ------ | -
|                                      |  | Thirteen Weeks Ended December 27, 2008 |        |   | Thirteen Weeks Ended December 29, 2007 |       |   |                 |  
|                                      |  | Amounts in000s                        |        |   | Percent toNet Sales                    |       |   | Amounts in000s |   |        | Percent toNet Sales |  |       | Difference | 
|Gross sales  premiums earned         |  | $                                      | 6,464  |   |                                        |      |   |                 | $ | 7,203  |                     |  |      |            |  | $ | (739   | )
|Inter-segment eliminations            |  |                                        | (3,299 | ) |                                        |      |   |                 |   | (3,836 | )                   |  |      |            |  |   | 537    |  
|                                      | 
|Net sales  premiums earned           |  |                                        | 3,165  |   |                                        | 100.0 | % |                 |   | 3,367  |                     |  | 100.0 | %          |  |   | (202   | )
|Cost of sales  underwriting expenses |  |                                        | (714   | ) |                                        | (22.5 | ) |                 |   | 744    |                     |  | 22.1  |            |  |   | (1,458 | )
|Selling and administrative expenses   |  |                                        | 1,615  |   |                                        | 51.0  |   |                 |   | 1,713  |                     |  | 50.9  |            |  |   | (98    | )
|                                      | 
|Operating income                      |  | $                                      | 2,264  |   |                                        | 71.5  | % |                 | $ | 910    |                     |  | 27.0  | %          |  | $ | 1,354  |  
|                                      | 

All Other

(dollars in thousands)



|                                    |  |                                        |     |   |                                        |       |   |                 |   |      |                     |  |       |            |  |   |      |  
|----------------------------------- |  | -------------------------------------- | --- | - | -------------------------------------- | ----- | - | --------------- | - | ---- | ------------------- |  | ----- | ---------- |  | - | ---- | -
|                                    |  | Thirteen Weeks Ended December 27, 2008 |     |   | Thirteen Weeks Ended December 29, 2007 |       |   |                 |  
|                                    |  | Amounts in000s                        |     |   | Percent toNet Sales                    |       |   | Amounts in000s |   |      | Percent toNet Sales |  |       | Difference | 
|Gross sales                         |  | $                                      | 302 |   |                                        |      |   |                 | $ | 488  |                     |  |      |            |  | $ | (186 | )
|Inter-segment eliminations          |  |                                        | (98 | ) |                                        |      |   |                 |   | (251 | )                   |  |      |            |  |   | 153  |  
|                                    | 
|Net sales                           |  |                                        | 204 |   |                                        | 100.0 | % |                 |   | 237  |                     |  | 100.0 | %          |  |   | (33  | )
|Selling and administrative expenses |  |                                        | 184 |   |                                        | 90.2  |   |                 |   | 170  |                     |  | 71.7  |            |  |   | 14   |  
|                                    | 
|Operating income                    |  | $                                      | 20  |   |                                        | 9.8   | % |                 | $ | 67   |                     |  | 28.3  | %          |  | $ | (47  | )
|                                    | 

Net sales.Consolidated net sales decreased $7.3 million, or 0.7%, to
$1.045 billion in the 2009 Period compared to $1.053 billion for the 2008 Period.



| | · |  | Wholesale Distribution Segment:Net Wholesale Distribution sales decreased $7.1 million to $1.042 billion in the 2009
Period compared to $1.049 billion for the 2008 Period. This decrease includes $29.7 million in sales during the 2008 Period that transitioned to other wholesalers, including $27.1 million in sales to a former AG customer as it transitioned to
another wholesaler. Excluding the impact of the former AG customer, wholesale sales increased $20.0 million, or 2.0%. The increase was achieved through adding new customers, new store openings by our existing customers and growth in sales of
products that help our customers differentiate their stores from the competition, as well as inflationary effects from vendor price increases recognized upon sale of product.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Continuing Customer Sales Growth



| | · |  | Primarily driven by our customers continued growth, as well as inflationary effects, sales increased by approximately $11.9 million. The growth includes a $7.2
million increase in our Market Centre specialty foods subsidiary.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Customer Changes



| | · |  | During the 2009 Period, we began supplying customers that were previously served by competitors, resulting in a $10.7 million increase in sales.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Sales to customers in the 2008 Period that discontinued business with us and began purchasing their products from competitors were $29.7 million. This includes sales to a
former AG customer as it emerged from bankruptcy and transitioned to another wholesaler during the 2008 Period. Sales to the transitioned AG customer were $27.1 million in the 2008 Period.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Insurance Segment:Net sales, consisting principally of premium revenues, decreased $0.2 million to $3.2 million in the
2009 Period compared to $3.4 million for the 2008 Period. The insurance climate has
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| | become more competitive and premium rates have declined over the prior year. In addition, due to the competitive climate, we experienced a decline in our policy
renewals compared to the prior year. The decline in our California workers compensation policy activity was partially offset by a growth in premiums related to liability coverage.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | All Other:Net sales were consistent at $0.2 million in the 2009 and 2008 Periods.
| | - |  | ---------------------------------------------------------------------------------

Cost of sales (including underwriting expenses).Consolidated cost of sales was $944.8 million for the 2009 Period and
$954.9 million for the 2008 Period and comprised 90.4% and 90.7% of consolidated net sales for the 2009 and 2008 Periods, respectively.



| | · |  | Wholesale Distribution Segment:    Cost of sales decreased by $8.6 million to $945.6 million in the 2009 Period compared to $954.2
million in the 2008 Period. As a percentage of net wholesale sales, cost of sales was 90.7% and 91.0% for the 2009 and 2008 Periods, respectively.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | The change in product and customer sales mix associated with the Seattle Operations, acquired in early fiscal 2008, contributed to a 0.3% increase in cost of sales as a
percent of net wholesale sales. This change is due primarily to seventy-five customers from the AG Acquisition becoming Members and converting to Member pricing, which resulted in lower margins.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Vendor related activity contributed to a 0.6% decrease in cost of sales as a percent of net wholesale sales. The change is primarily driven by an increase in inventory
holding gains (realized upon sale) from vendor price increases. 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 Critical Accounting Policies and Estimates  Vendor Funds discussed in Part II, Item 7 Managements Discussion and Analysis of Financial Condition and Results of
Operationsof the Companys Annual Report on Form 10-K for the year ended September 27, 2008.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | 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, decreased $1.5 million from $0.7 million in the 2008 Period to a credit of $0.7 million in the 2009 Period. The decline in cost of sales in the 2009 Period resulted from lowering
loss reserves based on improving loss experience for earlier periods. The reduction in reserves for losses and loss adjustment expense was greater than the accrual of new reserves plus paid losses and loss adjustment expenses in the 2009 Period.
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.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Distribution, selling and administrative expenses.Consolidated distribution, selling and administrative expenses were $80.6 million in the 2009 Period compared to
$75.2 million in the 2008 Period, and comprised 7.7% and 7.2% of net sales for the 2009 and 2008 Periods, respectively.



| | · |  | Wholesale Distribution Segment:Distribution, selling and administrative expenses were $78.8 million in the 2009 Period compared to
$73.3 million in the 2008 Period, and comprised 7.6% and 7.0% of net wholesale sales for the 2009 and 2008 Periods, respectively. As discussed in further detail below, workers compensation, life insurance and medical benefits expenses
increased $6.0 million, or 0.6% as a percent of net wholesale sales (due to the leveraging effect of the increased sales  see Net Sales  Wholesale Distribution segment) and was partially offset by a decrease in other
expenses of $0.5 million.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Workers Compensation Expense:Our workers compensation expenses increased by $2.0 million, or 0.2% as a percent of net wholesale
sales. From October 1, 2001 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. After December 31, 2006, the Wholesale Distribution segment is fully insured up to $1.0
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| | million with stop loss coverage provided by our Insurance segment and third party coverage over that amount. Effective upon renewal of its policy on January 1,
2009, the Wholesale Distribution segments stop loss coverage from our Insurance segment increased up to $2.0 million. Loss accruals up to the stop loss coverage are made based on actuarially developed loss estimates. Our workers
compensation expenses increased primarily due to changes in our actuarially developed loss estimates. Our loss estimates changed for both the 2009 and 2008 Periods. The changes resulted in claims loss reserve reductions of $1.5 million and $3.5
million for the 2009 and 2008 Periods, respectively. Future expenses may significantly change depending on the cost of providing health care and the results of legislative action.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Insurance Expense (other than Workers Compensation):    During the 2009 Period, we experienced life insurance expense increases of $2.5
million, or 0.2% as a percent of net wholesale sales. This increase is primarily due to a decrease in the cash surrender value of our life insurance policy assets as a result of a decline in the fair value of the underlying securities (reflecting
the general decline in market conditions), which are highly concentrated in U.S. equity markets and priced based on readily determinable market values.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Medical Benefits:During the 2009 Period, we experienced medical benefits expense increases of $1.5 million, or 0.2% as a percent of net
wholesale sales. This increase was due in part to an increase of approximately $0.8 million in the cost of medical insurance premiums for employees covered under collective bargaining agreements. The remaining increase of $0.7 million is
attributable to costs associated with non-union employees.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Other Expense Changes:    General expenses decreased $0.5 million, but were consistent as a percent of net wholesale sales.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| | · |  | Insurance Segment:Selling and administrative expenses for the Insurance segment decreased $0.1 million from $1.7 million in the 2008
Period to $1.6 million in the 2009 Period.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | All Other:    Selling and administrative expenses for our All Other business activities were consistent at $0.2 million in the 2008 and
2009 Periods.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

Interest.    Interest expense decreased $0.8 million to $3.6 million in the 2009
Period compared to $4.4 million in the 2008 Period and comprised 0.3% and 0.4% of consolidated net sales for the 2009 and 2008 Periods, respectively. Factors impacting interest expense are as follows:



|· |  | Interest expense on our primary debt instruments (as described below) decreased $0.6 million to $3.3 million in the 2009 Period compared to $3.9 million in the 2008
Period.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Weighted Average Borrowings:    Interest expense increased $0.5 million from the 2008 Period due to an increase in our weighted average
borrowings. Weighted average borrowings increased by $30.5 million primarily due to amounts needed to finance the increase in products purchased for resale.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Interest Rates:    Interest expense decreased $1.1 million from the 2008 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 4.9% and 6.6% for the 2009 and 2008 Periods, respectively. Consistent with the overall market interest rate change, the base
borrowing rate on the revolving line of credit decreased over the 2008 Period.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 period would have resulted in a $0.1 million increase or decrease in corresponding interest expense.



|· |  | Interest expense on our other debt instruments was $0.3 million in the 2009 Period, a decrease of $0.2 million compared to $0.5 million in the 2008 Period. The decrease is
primarily due to lower interest on Members excess deposits as the prime rate decreased and subordinated patronage dividend certificates that were paid in full in December 2007. See Note 10 to Notes to Consolidated Financial
Statements in Part II, Item 8 Financial Statements and Supplementary Data of the Companys Annual Report on Form 10-K for the year ended September 27, 2008 regarding the subordinated patronage dividend
certificates.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Estimated patronage dividends.Estimated patronage dividends for the 2009
Period were $10.0 million, compared to $8.4 million in the 2008 Period, an increase of 19.4%. Patronage dividends for the 2009 and 2008



23



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##### Table of Contents

Periods 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 2009 and 2008 Periods, respectively, the Company had patronage earnings of $2.5 million and $2.6 million in the Southern California Dairy Division, $0.4 million and $0.2 million in the Pacific
Northwest Dairy Division and $7.1 million and $5.6 million in the Cooperative Division. Our growth in patronage earnings was due to lower cost of sales related to an increase in inventory holding gains from vendor price increases recognized upon
sale of product and lower interest expense, partially offset by increased costs associated with medical benefits and workers compensation.

Income taxes.The Companys effective income tax rate was 37.5% for the 2009 Period compared to 36.4% for the 2008 Period.

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 capital and other 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, and available lines of credit will be sufficient to service its debt, redeem Members capital shares, make income tax payments and meet its anticipated needs for working capital and capital expenditures
(including facility expansion and renovation projects discussed in Facilities and Transportation) through at least the next three fiscal years.

CASH FLOW

The Company generated positive cash flow from operating and investing activities during the thirteen week 2009
Period. Cash from operations and investing was used for financing activities, including redemption of Members capital shares and investing in the Companys infrastructure. The Company also reinvested proceeds from maturing investments.

As a result of these activities, net cash, consisting of cash and cash equivalents, decreased by $2.8 million to $13.0 million for the thirteen week
2009 Period ended December 27, 2008 compared to $15.8 million as of the fiscal year ended September 27, 2008.

The following table
summarizes the impact of operating, investing and financing activities on the Companys cash flows for the thirteen week 2009 and 2008 Periods:

(dollars in thousands)



|                                                       |  |      |        |   |      |   |         |            |  |   |         |  
|------------------------------------------------------ |  | ---- | ------ | - | ---- | - | ------- | ---------- |  | - | ------- | -
|Summary of Net (Decrease) Increase in Total Cash Flows |  | 2009 |        |   | 2008 |   |         | Difference | 
|Cash provided (utilized) by operating activities       |  | $    | 3,856  |   |      | $ | (19,296 | )          |  | $ | 23,152  |  
|Cash provided (utilized) by investing activities       |  |      | 1,749  |   |      |   | (41,463 | )          |  |   | 43,212  |  
|Cash (utilized) provided by financing activities       |  |      | (8,433 | ) |      |   | 53,316  |            |  |   | (61,749 | )
|                                                       | 
|Total increase (decrease) in cash flows                |  | $    | (2,828 | ) |      | $ | (7,443  | )          |  | $ | 4,615   |  
|                                                       | 

Net cash from operating, investing and financing activities increased by $4.6 million to a decrease of $2.8
million for the 2009 Period compared to a decrease of $7.4 million for the 2008 Period. The decrease in net cash for the 2009 Period consisted of cash used in financing activities of $8.4 million offset by amounts provided from operating activities
of $3.8 million and investing activities of $1.8 million. The primary factors contributing to the changes in cash flow are discussed below. At December 27, 2008 and September 27, 2008, working capital was $200.7 million for both periods,
and the current ratio was 1.7 for both periods.

Operating Activities:    Net cash provided by operating activities
increased by $23.1 million to $3.8 million provided in the 2009 Period compared to $19.3 million used in the 2008 Period. The increase in cash provided by operating activities compared to the 2008 Period was attributable primarily to a $3.3 million
reduction in accounts receivable in the 2009 Period compared to a $47.1 million increase in accounts receivable in the 2008 Period. As contemplated in the structure of the original purchase transaction, the initial build up of accounts receivable
arising from customers gained as a result of the Acquisition was funded through operating activities in the 2008 Period. We also experienced an increase in long-term liabilities between the periods of $7.8 million that was primarily



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attributable to an increase in pension and postretirement liabilities. The foregoing decreases of $58.2 million in cash provided were partially offset by cash used as
a result of increases between the periods in cash used to pay accounts payable and accrued liabilities of $25.4 million, an increase in cash used for the purchase of inventories of $8.9 million, and an increase in cash used for the payment of
prepaid expenses of $0.6 million. In addition, net cash of $0.2 million was used by other operating activities.

Investing
Activities:    Net cash provided by investing activities increased by $43.2 million to $1.8 million provided for the 2009 Period compared to $41.4 million utilized in the 2008 Period. The increase in cash provided by
investing activities during the 2009 Period as compared to the 2008 Period was due mainly to (1) the Acquisition of the Seattle Operations of $40.0 million during the 2008 Period, (2) decreases in capital expenditures of $2.0 million, as
the 2008 Period included expenditures for a building renovation and purchases of warehouse and computer equipment, and (3) a reduction in net notes receivable of $1.6 million, reflecting normal fluctuation in loan activity to Members for their
inventory and equipment financing. The foregoing decreases of $43.6 million in cash provided were offset by increases in other assets of $0.4 million. Spending on investing activities is expected to be funded by existing cash balances, cash
generated from operations or additional borrowings.

Financing Activities:    Net cash utilized by financing
activities was approximately $8.4 million for the 2009 Period compared to $53.3 million provided in the 2008 Period. The net decrease of $61.7 million in cash utilized by financing activities for the 2009 Period as compared to the 2008 Period was
due primarily to changes in the Companys long-term and short-term notes payable and deferred financing fees, representing a decrease of $63.5 million resulting from lower borrowings in the 2009 Period, as the 2008 Period included higher
borrowings primarily associated with the Acquisition of the Seattle Operations ($39.8 million), the redemption of Class A and Class B Shares ($4.9 million), and the redemption of subordinated patronage dividend certificates ($3.1 million). In
addition, the Companys cash provided from Member investment and share activity decreased by $1.8 million. Future cash used by financing activities to meet capital spending requirements is expected to be funded by the Companys continuing
operating cash flow.

Credit Facilities

On
December 17, 2008, the Company entered into an amendment entitled First Amendment to Amended and Restated Credit Agreement, that exercises a provision of its revolving credit agreement, entitled Amended and Restated Credit Agreement dated as of
December 5, 2006 (the Credit Agreement), to expand the existing revolving credit facility by $25 million, thereby increasing the total committed funds available to the Company from $225 million to $250 million. The credit facility
expires on January 31, 2012, and is intended to finance capital expenditures, to finance working capital needs, to finance certain acquisitions and for general corporate purposes. The revolving Credit Agreement contains an option to increase
the total committed funds available to the Company under the Credit Agreement to a maximum amount of $300 million, either through any of the existing lenders increasing their commitment or by means of the addition of new lenders. See
Outstanding Debt and Other Financing Arrangements discussed in Part II, Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operationsof the Companys Annual Report
on Form 10-K for the year ended September 27, 2008 and the Companys Current Report on Form 8-K dated December 17, 2008 for additional information.

The Company had outstanding borrowings of $154.1 million under the facility as of December 27, 2008, with access to a sufficient amount of capital available under this facility (based on the amounts indicated above) to
fund the Companys continuing operations and capital spending requirements for the foreseeable future.

Off-Balance Sheet Arrangements

As of the date of this report, 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 contractually narrow or limited purposes.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

There have been no material changes in the Companys contractual obligations and commercial commitments outside the ordinary course of the Companys business during the thirteen week period ending December 27,



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2008. See Contractual Obligations and Commercial Commitments discussed in Part II, Item 7 Managements Discussion and Analysis of
Financial Condition and Results of Operationsof the Companys Annual Report on Form 10-K for the year ended September 27, 2008 for additional information.

OUTSTANDING DEBT AND OTHER FINANCING ARRANGEMENTS

At December 27, 2008 and September 27,
2008, respectively, the Company had a total of $90.6 million and $90.7 million outstanding in senior secured notes to certain insurance companies and pension funds (referred to collectively as John Hancock Life Insurance Company, or
Hancock) under a note purchase agreement dated September 29, 1999 (as amended, the Senior Note Agreement) as amended and restated effective January 6, 2006.

The Companys borrowings under its revolving credit facility decreased to $154.1 million at December 27, 2008 from $162.4 million at September 27, 2008.

On December 17, 2008, the Company entered into a First Amendment to Amended and Restated Credit Agreement (the Amendment), among the
Company, other credit parties as identified therein, Bank of Montreal, Chicago Branch, as Administrative Agent, Union Bank of California, N.A., and Bank of the West. The Amendment exercises a provision in the Companys Credit Agreement to
increase the total committed funds available to the Company from $225 million to $250 million. Borrowings under the Credit Agreement may be made as revolving loans, swing line loans or letters of credit. See the Companys Current Report on Form
8-K filed on December 23, 2008 for additional information.

Other than the foregoing discussion, there have been no material changes in the
Companys outstanding debt and other financing arrangements outside the ordinary course of the Companys business during the thirteen week period ending December 27, 2008. See Outstanding Debt and Other financing
Arrangements discussed in Part II, Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations of the Companys Annual Report on Form 10-K for the year ended
September 27, 2008 for additional information.

MEMBER INVESTMENTS AND PATRONAGE DIVIDENDS

Members are required to meet specific capitalization requirements, which include capital stock ownership and may include required cash deposits (Required
Deposits). In addition, each Member must meet minimum purchase requirements that may be modified at the discretion of the Companys Board. Member and Non-Member customers may be required to provide a non-subordinated credit deposit in
order to purchase products on credit terms established by the Company.

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). See Part I, Item 1 Business  Capital Sharesof the Companys Annual Report on Form 10-K for the
year ended September 27, 2008 for additional information.

Unified currently requires each Member to own 350 Class A Shares. In addition,
Unified currently requires each Member to hold Class B Shares having an issuance value equal to approximately twice the Members average weekly purchases from the Cooperative Division, except for meat and produce which are approximately one
times the Members average weekly purchases from the Cooperative Division (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.

Members may also maintain deposits with Unified in excess of 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. See Member Investments and Patronage Dividends discussed
in Part II, Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operationsof the Companys Annual Report on Form 10-K for the year ended September 27, 2008 for additional
information. Additionally, see DESCRIPTION OF DEPOSIT ACCOUNTS  General, DESCRIPTION OF DEPOSIT



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ACCOUNTS  Patronage Dividends and Tax Matters and DESCRIPTION OF DEPOSIT ACCOUNTS  Subordinationin the Companys
Registration Statement on Form S-1 filed on December 31, 2008, with respect to the Companys offering of Partially Subordinated Patrons Deposit Accounts for further information.

Members Required Deposits and all patronage dividend certificates are contractually subordinated and subject to the prior payment in full of senior
indebtedness of the Company. See DESCRIPTION OF DEPOSIT ACCOUNTS  Subordinationin the Companys Registration Statement on Form S-1 filed on December 31, 2008, with respect to the Companys offering of
Partially Subordinated Patrons Deposit Accounts for additional information. 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 condensed balance sheets. Excess Deposits are not subordinated to Unifieds other obligations and are reported as short-term liabilities on Unifieds
consolidated condensed balance sheets. At December 27, 2008 and September 27, 2008, Unified had $14.2 million and $12.2 million, respectively, in Member and Non-Members deposits and $21.7 million and $16.1 million,
respectively, in Members deposits and estimated patronage dividends (of which $12.6 million and $12.7 million, respectively, represented Excess Deposits as previously defined).

REDEMPTION OF CAPITAL STOCK

On October 2, 2008, the
Board authorized the repurchase on October 7, 2008 of 3,500 shares of the Companys Class A Shares that had been tendered and were pending redemption. The Company paid approximately $0.9 million to redeem the shares. On
December 10, 2008, the Board authorized the repurchase on or before December 27, 2008 of 2,450 shares of the Companys Class A Shares with an approximate redemption value of $0.7 million and 23,104 Class B Shares with an
approximate redemption value of $5.2 million. On December 19, 2008 and December 22, 2008, respectively, the Company redeemed 2,450 of the Companys Class A Shares and 23,104 of the Companys Class B Shares with approximate
redemption values of $0.7 million and $5.2 million, respectively.

See Redemption of Capital Stock discussed in Part II,
Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations of the Companys Annual Report on Form 10-K for the year ended September 27, 2008 for additional information.

PENSION AND POSTRETIREMENT BENEFIT PLANS

The Company sponsors a cash balance plan (Unified Cash Balance Plan). In association with the Acquisition of the operation of Associated Grocers, Incorporated and its subsidiaries of Seattle, Washington (the
Acquisition) at the beginning of fiscal year 2008, the Company assumed the Cash Balance Retirement Plan for Employees of Associated Grocers, Incorporated (AG Cash Balance Plan). The Companys funding policy is to make
contributions to the Unified Cash Balance Plan and the AG Cash Balance Plan in amounts that are at least sufficient to meet the minimum funding requirements of applicable laws and regulations, but no more than amounts deductible for federal income
tax purposes. On December 29, 2008, the Companys Benefits Committee approved a resolution authorizing the merger of the AG Cash Balance Plan with and into the Unified Cash Balance Plan, effective December 31, 2008. The Company also
sponsors an Executive Salary Protection Plan (ESPP) that provides supplemental post-termination retirement income based on each participants final salary and years of service as an officer of the Company. Funds are held in a rabbi
trust for the ESPP consisting primarily of life insurance policies tied to underlying investments in the equity market and reported at cash surrender value and mutual fund investments consisting of various publicly-traded mutual funds reported at
estimated fair value based on quoted market prices.

The Companys net periodic benefit cost for its combined pension and other postretirement
benefits was approximately $2.6 million for the thirteen week period ended December 27, 2008 compared to $2.1 million for the thirteen week period ended December 29, 2007.

The Company expects to make estimated contributions to the Unified Cash Balance Plan totaling $4.7 million in fiscal 2009, which is comprised of $3.2 million for the 2009 plan year and $1.5 million for the
2008 plan year. In addition, the Company expects to make estimated contributions to the AG Cash Balance Plan totaling $1.1 million in fiscal 2009, which is comprised of $0.8 million for the 2009 plan year and $0.3 million for the 2008 plan year. At
its discretion, the Company may contribute in excess of these amounts. The Company made no contributions to the Unified Cash Balance Plan or the AG Cash Balance Plan during the thirteen weeks ended December 27, 2008.



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Additionally, the Company expects to contribute $0.7 million to the ESPP to fund projected benefit payments to
participants for the 2009 plan year. The Company made no contributions to the ESPP during the thirteen weeks ended December 27, 2008.

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-Q 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 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 ten largest Member and Non-Member customers
constituted approximately 41% of total sales for the thirteen week period ended December 27, 2008. No single Member or Non-Member customer accounted for ten percent or more of total sales for the thirteen week period ended December 27,
2008. 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.



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We are vulnerable to changes in general economic conditions.    The Company is
affected by certain economic factors that are beyond its control, including changes in the overall economic environment. In recent periods, the Company has experienced significant volatility in the cost of certain commodities, the cost of
ingredients for our manufactured breads and processed fluid milk, and the cost of packaged goods purchased from other manufacturers. An inflationary economic period could impact 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 economic downturn. 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. The Company does not currently hold any equity investments in its Members.

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 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



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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. For policies with inception
dates after September 1, 2008, the coverage amount assumed per incident has increased to $2,000,000. 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 December 27, 2008, 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 January 31, 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.

The value of our benefit plan
assets and liabilities is based on estimates and assumptions, which may prove inaccurate.    The Companys non-union employees participate in Company sponsored defined-benefit pension and postretirement benefit
plans. Certain eligible union and non-union employees participate in separate plans providing payouts for unused sick leave. Officers of the Company also participate in a Company sponsored Executive Salary Protection Plan (ESPP), 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 benefit plans provide medical benefits for retired non-union employees, life
insurance benefits for retired non-union employees for which active non-union employees are no longer eligible, and lump-sum payouts for unused sick days covering certain eligible union and non-union employees. Liabilities for the ESPP and
postretirement plans are not funded. 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.



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The credit and liquidity crisis in the United States and throughout the global financial system triggered
substantial volatility in the world financial markets and banking system. As a result, the investment portfolios of the Companys defined benefit pension plans have incurred a significant decline in fair value since December 27, 2008.
However, because the values of the plans individual investments have and will fluctuate in response to changing market conditions, the amount of losses that will be recognized in subsequent periods, if any, cannot be determined.

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 Part I, Item 1, Business  Capital Sharesof the Companys Annual Report on Form 10-K
for the year ended September 27, 2008), 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. The Company has developed business resumption plans which include procedures to ensure the continuation of business operations in
response to the risk of damage from energy blackouts, natural disasters, terrorism, war and telecommunication failures. 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.

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



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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 60% of Unifieds employees are covered by collective bargaining
agreements that have various expiration dates ranging through 2012.

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 performed an evaluation of the Companys internal controls over financial reporting, and beginning in fiscal year 2010, 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. Although the Company believes its internal controls are operating effectively, the Company cannot guarantee that it will not have any material
weaknesses in the future. In addition, any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm the Companys operating results or cause the Company to fail to meet its
reporting obligations.

Our managements certification regarding the effectiveness of our internal control over financial reporting as of
September 27, 2008 excluded the operations acquired in the Acquisition (the Seattle Operations). If we are not able to integrate the Seattle Operations into our internal control over financial reporting, our internal control over
financial reporting will not be effective.    Section 404 requires us to furnish in this Annual Report our managements certification and, beginning in our Annual Report for fiscal year 2010, our independent
registered public accounting firms attestation regarding the effectiveness of our internal control over financial reporting. As a public company, we are required to report, among other things, control deficiencies that constitute a
material weakness or changes in internal control that materially affect, or are reasonably likely to materially affect, internal control over financial reporting. A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the registrants annual or interim financial statements will not be prevented or detected on a timely basis.

Compliance with Section 404 is time consuming and costly. Prior to the Acquisition, the Seattle Operations were part of AG, which was not
required to comply with Section 404. The integration of the Seattle Operations into our internal control over financial reporting will require additional time and resources from our management and other personnel and may increase compliance
costs. Therefore, our managements certification regarding the effectiveness of our internal control over financial reporting as of September 27, 2008 excluded the Seattle Operations.

Failure to comply with Section 404, including a delay in or failure to successfully integrate the Seattle Operations into our internal control over financial
reporting, or the report by us of a material weakness may cause vendors, creditors and others to lose confidence in our consolidated financial statements, and our access to the capital markets and other products and services may be restricted.

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.



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A failure to successfully integrate the Seattle Operations could reduce our
profitability.A failure to successfully integrate the Acquisition into our existing operations may cause the Companys results to not meet anticipated levels. The Company structured the 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 the
Seattle Operations into our information technology systems and management processes. If we are unsuccessful in integrating the 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.

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of the Companys consolidated condensed 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 condensed financial statements, the disclosure of contingent assets and liabilities as of the date of the consolidated condensed financial statements and reported amounts
of revenues and expenses during the year. The Company believes its estimates and assumptions are reasonable; however, future results could differ from those estimates under different assumptions or conditions.

The Companys discussion and analysis of its financial condition and results of operations is based upon its consolidated condensed financial statements. On
an ongoing basis, we evaluate our estimates, including those related to allowances for doubtful accounts, lease loss reserves, inventories, investments, goodwill and intangible assets, long-lived assets, income taxes, insurance reserves, pension and
postretirement benefits and contingencies and litigation. We base our estimates on historical experience and on various other assumptions and factors that we believe to be reasonable under the circumstances. Based on our ongoing review, we make
adjustments we consider appropriate under the facts and circumstances. We have discussed the development, selection and disclosure of these estimates with the Audit Committee. The accompanying consolidated condensed financial statements are prepared
using the same critical accounting policies and estimates discussed in Part II, Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operationsof the Companys Annual Report on Form
10-K for the fiscal year ended September 27, 2008.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Refer to Note 8 to Notes to Consolidated Condensed Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for managements
discussion of recently issued accounting pronouncements and their expected impact, if any, on the Companys consolidated condensed financial statements.

AVAILABILITY OF SEC FILINGS

Unified makes available, free of charge, through its website (http://www.unifiedgrocers.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 electronically filed with the Securities and Exchange Commission (the
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 web site at http://www.sec.gov.



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|ITEM 3. | 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 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 December 27, 2008 and the current market condition, a one percent change in the applicable interest
rates would impact the Companys annual cash flow and pretax earnings by approximately $1.6 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 receivables 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.

The majority of the
Companys investments are held primarily by two of its insurance subsidiaries, and include U.S. government agency mortgage-backed securities, high quality investment grade corporate bonds, and U.S. government treasury securities. These
investments are not actively traded and are valued based upon inputs including quoted prices for identical or similar assets. Collectively, these investments have experienced an increase in market value since the beginning of the Companys
current fiscal year.

Life insurance assets with values tied to the equity markets have been negatively impacted by the market decline that took
place during fiscal year 2008 as well as the thirteen weeks ended December 27, 2008, although such impact is deemed by management to be temporary in nature.



|ITEM 4T. | 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 Securities Exchange Act of 1934, such as
this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. Disclosure controls are also designed to reasonably assure that such information is accumulated and
communicated to our management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) of the Company, 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 CEO and CFO,
carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Our CEO and CFO 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 CEO and CFO of the Company, has evaluated any changes in the Companys internal control over financial reporting that occurred during
the most recent fiscal quarter. Based on that evaluation, management, the CEO and the CFO 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 quarter ended December 27, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



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PART II. OTHER INFORMATION



|ITEM 1. | 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 1A. | RISK FACTORS
|-------- | ------------

There are no material changes
from risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended September 27, 2008, filed on December 12, 2008. Refer to Risk Factors in Part I, Item 2 of this Quarterly Report
on Form 10-Q for discussion of the Companys risk factors.



|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

COMPANY PURCHASES OF EQUITY SECURITIES



|                                      |  |                                  |  |                             |       
|------------------------------------- |  | -------------------------------- |  | --------------------------- | ------
|Period                                |  | Total Number of Shares Purchased |  | Average Price PaidPer Share
|September 28, 2008  October 25, 2008 |  | 3,500 Class A Shares             |  | $                           | 245.79
|November 23, 2008  December 27, 2008 |  | 2,450 Class A Shares             |  | $                           | 273.97
|November 23, 2008  December 27, 2008 |  | 23,104 Class B Shares            |  | $                           | 223.64
|                                     
|Total                                 |  | 29,054 Shares                    |  | $                           | 230.55
|                                     

Refer to Redemption of Capital Stock in Part I, Item 2 of this Quarterly Report on
Form 10-Q for discussion of the Companys share redemptions.



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------

None.



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

None.



|ITEM 5. | OTHER INFORMATION
|------- | -----------------

None.



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|ITEM 6. | EXHIBITS
|------- | --------



|             |  |                                                                                                                                                                                                                                                   
|------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a)          |  | Exhibits                                                                                                                                                                                                                                          
|             | 
|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
quarterly period ended on March 29, 2008, filed on May 13, 2008).
|             | 
|3.2          |  | Bylaws of the Registrant, as amended (incorporated by reference to Exhibit 3.2 to the Registrants Annual Report on Form 10-K for the fiscal year ended September 29, 2007,
filed on December 14, 2007).                                          
|             | 
|10.3.1       |  | First Amendment to Amended and Restated Credit Agreement, dated as of December 17, 2008 (incorporated by reference to Exhibit 99.1 to the Registrants Current Report on Form
8-K filed on December 23, 2008).                                    
|             | 
|10.38.6*(**) |  | Amended and Restated Unified Grocers, Inc. Cash Balance Plan, effective January 1, 2009, as amended.                                                                                                                                              
|             | 
|10.39.8*(**) |  | Amendment No. 8 to the Unified Grocers, Inc. Employee Savings Plan, effective as of January 1, 2008.                                                                                                                                              
|             | 
|10.40.9*(**) |  | Amendment No. 9 to the Unified Grocers, Inc. Employees Sheltered Savings Plan, effective as of January 1, 2008.                                                                                                                                  
|             | 
|10.41.3*(**) |  | Amended and Restated Cash Balance Retirement Plan for Employees of Associated Grocers, Inc. (predecessor-in-interest to the Registrant), effective December 31,
2008.                                                                             
|             | 
|31.1*        |  | Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                  
|             | 
|31.2*        |  | Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                  
|             | 
|32.1*        |  | Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                  
|             | 
|32.2*        |  | Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                  



|* |  | Filed herein.
|- |  | -------------

|** |  | Management contract or compensatory plan or arrangement.
|-- |  | --------------------------------------------------------



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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 GROCERS, INC.By

/s/    ALFRED A.
PLAMANNAlfred A. Plamann President and Chief Executive Officer (Principal Executive Officer)By

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

/s/    RANDALL G.
SCOVILLERandall G. Scoville Vice President, Accounting and Chief Accounting Officer


Dated: February 10, 2009



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