<PAGE>
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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 October 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 000-1020859
UNITED NATURAL FOODS, INC.
(Exact name of Registrant as Specified in Its Charter)
Delaware 05-0376157
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
260 Lake Road
Dayville, CT 06241
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (860) 779-2800
-------------------
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 No X
--- ---
As of December 11, 1996, there were 12,378,425 shares of the Registrant's Common
Stock, $0.01 par value per share, outstanding.
================================================================================
<PAGE>
UNITED NATURAL FOODS, INC.
FORM 10-Q
FOR THE THREE MONTHS ENDED OCTOBER 31, 1996
TABLE OF CONTENTS
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of October 31, 1996 and
July 31, 1996
Consolidated Statements of Income for the three months
ended October 31, 1996 and October 31, 1995
Consolidated Statements of Cash Flows for the three months
ended October 31, 1996 and October 31, 1995
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
JULY 31, 1996 OCTOBER 31, 1996
------------- ----------------
ASSETS
------
<S> <C> <C>
Current assets:
Cash $51,255 $26,930
Accounts receivable, net of allowance 25,657,156 28,220,741
Notes receivable, trade 360,137 746,124
Inventories 38,667,548 42,176,142
Prepaid expenses 1,691,548 1,494,203
Deferred income taxes 796,216 855,281
-------------- --------------
Total current assets 67,223,860 73,519,421
-------------- --------------
-------------- --------------
Property & equipment, net 20,603,663 21,062,661
-------------- --------------
Other assets:
Notes receivable, trade 1,067,697 658,088
Goodwill, net 7,491,999 7,279,057
Covenants not to compete, net 1,721,630 1,536,180
Other, net 635,290 1,129,485
-------------- --------------
Total assets $98,744,139 $105,184,892
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
Current liabilities:
Notes payable $30,112,868 $30,384,637
Current installments of long-term debt 4,086,795 4,214,381
Current installment of obligations under capital leases 357,404 345,153
Accounts payable 17,139,406 22,345,228
Accrued expenses 4,978,331 4,215,901
Income taxes payable 303,513 702,946
Other 158,149 73,337
-------------- --------------
Total current liabilities 57,136,466 62,281,583
Long-term debt, excluding current installments 22,170,855 21,768,077
Deferred income taxes 407,346 374,395
Obligations under capital leases, excluding current installments 847,918 1,151,448
-------------- --------------
Total liabilities 80,562,585 85,575,503
-------------- --------------
Stockholders' equity:
Common stock, $.01 par value, authorized 25,000,000 shares;
issued 8,713,100 and outstanding 8,692,695 shares 87,131 87,131
Additional paid-in capital 1,383,511 1,383,511
Stock warrants 3,200,000 3,200,000
Unallocated shares of ESOP (3,073,600) (3,032,800)
Retained earnings 16,628,966 18,016,001
Treasury stock, 20,405 shares at cost (44,454) (44,454)
-------------- --------------
Total stockholders' equity 18,181,554 19,609,389
-------------- --------------
-------------- --------------
Total liabilities and stockholders' equity $98,744,139 $105,184,892
============== ==============
</TABLE>
See notes to consolidated fianancial statements.
<PAGE>
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(UNAUDITED)
-----------
THREE MONTHS ENDED
OCTOBER 31,
-----------
1995 1996
---- ----
<S> <C> <C>
Net sales $94,821,978 $99,500,710
Cost of sales 75,776,200 78,908,777
----------- -----------
Gross profit 19,045,778 20,591,933
----------- -----------
Operating expenses 15,914,539 16,506,831
Amortization of intangibles 1,822,946 265,677
----------- -----------
Total operating expenses 17,737,485 16,772,508
----------- -----------
Operating income 1,308,293 3,819,425
----------- -----------
Other expense (income):
Interest expense 1,218,664 1,441,828
Other, net (48,833) (70,520)
----------- -----------
Total other expense 1,169,831 1,371,308
----------- -----------
Income before income taxes 138,462 2,448,117
Income taxes 768,989 1,061,081
------------ -----------
Net income (loss) ($630,527) $1,387,036
============ ===========
Net income (loss) per share of common stock ($0.06) $0.14
============ ===========
Weighted average shares of common stock 10,134,693 10,114,288
=========== ===========
See notes to consolidated fianancial statements.
</TABLE>
<PAGE>
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
OCTOBER 31,
-----------
1995 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($630,527) $1,387,036
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation, amortization and write-off of intangibles 2,771,472 1,298,308
Gain on disposals of property & equipment (27,123) (1,000)
Accretion of original issue discount 132,501 152,847
Provision for doubtful accounts 332,287 541,610
Increase in accounts receivable (2,658,670) (3,105,195)
Increase in inventory (4,896,410) (3,508,594)
Decrease in prepaid expenses 557,765 197,345
(Increase) decrease in other assets 72,094 (182,989)
Decrease in notes receivable, trade 3,227 23,622
Increase in accounts payable 5,188,362 5,205,822
Decrease in accrued expenses (77,939) (834,878)
Increase (decrease) in income taxes payable (25,245) 399,433
-------------- --------------
Net cash provided by operating activities 741,794 1,573,367
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposals of property and equipment 46,750 1,000
Capital expenditures (8,377,532) (919,238)
-------------- --------------
Net cash used in investing activities (8,330,782) (918,238)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under note payable 956,658 271,769
Repayments on long-term debt (572,927) (704,357)
Proceeds from long-term debt 7,245,313 283,170
Principal payments of capital lease obligations (97,507) (148,397)
Stock issuance expenses 0 (381,639)
-------------- --------------
Net cash provided by (used in) financing activities 7,531,537 (679,454)
-------------- --------------
NET DECREASE IN CASH (57,451) (24,325)
Cash at beginning of period 286,242 51,255
-------------- --------------
Cash at end of period $228,791 $26,930
============== ==============
Supplemental disclosures of cash flow information:
- --------------------------------------------------
Cash paid during the period for:
Interest $1,150,169 $1,515,813
============== ==============
Income taxes $847,400 $570,791
============== ==============
</TABLE>
See notes to consolidated fianancial statements.
<PAGE>
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements ("financial statements")
include the accounts of United Natural Foods, Inc. and its wholly owned
subsidiaries (the "Company"). The Company is a distributor and retailer of
natural foods and related products.
The financial statements have been prepared pursuant to rules and regulations of
the Securities and Exchange Commission for interim financial information,
including the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, certain information and footnote disclosures normally required in
complete financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The balance sheet as of
July 31, 1996 has been derived from the audited financial statements as of and
for the nine months ended July 31, 1996. Effective November 1, 1995, the
Company elected to change its fiscal year end from October 31 to July 31.
Operating results for fiscal 1995 have been presented for interim periods that
coincide with the new fiscal year. In the opinion of management, these
financial statements include all adjustments necessary for a fair presentation
of the results of operations for the interim periods presented. The results of
operations for interim periods, however, may not be indicative of the results
that may be expected for a full year.
2. EFFECTIVE DATE OF PUBLIC OFFERING
The Company completed an initial public offering of its common stock (the
"Offering") on November 6, 1996 at a price of $13.50 per share. The Company's
Common Stock began trading on November 1, 1996 on the Nasdaq National Market
under the ticker symbol "UNFI."
The proceeds received by the Company from the Offering totaled $35,509,500 after
deducting underwriting discounts and commissions and estimated offering
expenses. The Company used the proceeds to repay certain indebtedness
consisting of (i) $20,836,918 due to Fleet Capital Corporation under a revolving
line of credit that would have matured on July 31, 1998 and bore interest at a
rate of 0.25% over New York Prime or 2.25% over LIBOR; (ii) $6,504,059 due to
Triumph Connecticut Limited Partnership (Triumph) (including the remaining
original issue discount of approximately $1.8 million ($1.0 million net of tax)
which will be recorded as an extraordinary expense in the second quarter) under
a Senior Note (the "Triumph Note") that would have matured on October 31, 1998
and immediately before repayment bore interest at a rate of 10%; (iii)
$4,469,556 due to Fleet Capital Corporation under a term loan that would have
matured on July 31, 1998 and bore interest at a rate of 0.25% over New York
Prime; (iv)
<PAGE>
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
$2,846,069 due to Prem Mark, Inc. under a term note issued in connection with
the Rainbow Natural Foods, Inc. acquisition that would have matured on July 1998
and bore interest at a rate of 10%; and (v) $852,898 due under certain notes
that would have matured between 1998 and 2002 and bore interest at rates ranging
from 0.5% to 1.0% over New York Prime issued by Natural Retail Group in
connection with the acquisition of certain retail natural products stores.
Accrued interest through the date of payment (i.e., November 6, 1996) is
included in the above amounts.
The following table sets forth the Company's actual capitalization at October
31, 1996 and as adjusted to reflect the issuance and sale by the Company of
2,900,000 shares of Common Stock at a public offering price of $13.50 per share
and the application of the net proceeds therefrom (including the remaining
original issue discount of approximately $1.8 million ($1.0 million net of tax)
which will be recorded as an extraordinary expense in the second quarter), after
deducting the underwriting discounts and commissions and estimated offering
expenses.
<TABLE>
<CAPTION>
October 31, 1996
------------------------
Actual As Adjusted
----------- -----------
<S> <C> <C>
Short-term debt $34,599,018 $11,678,410
----------- -----------
Long-term debt, excluding current 21,768,077 10,880,695
installments ----------- -----------
Total stockholders' equity 19,597,025 54,106,525
----------- -----------
Total capitalization (including
short-term debt) $75,964,120 $76,665,630
=========== ===========
</TABLE>
3. TRADE ACCOUNTS RECEIVABLE
An allowance for doubtful accounts is deducted from trade accounts receivable in
the accompanying financial statements. The allowance for doubtful accounts was
$1,277,755 at July 31, 1996 and $1,412,188 at October 31, 1996.
4. COMMITMENTS AND CONTINGENCIES
The Company entered into a $1 million leasing arrangement with Mellon US Leasing
effective October 1, 1996. The Company leased computer equipment with a cost of
approximately $447,000 under the lease line during the quarter ended October 31,
1996.
5. STOCK OPTIONS
The Company is required to adopt Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (Statement 123), effective July
31, 1997. Statement 123 requires financial statement disclosure about stock-
based employee
<PAGE>
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
compensation arrangements. As allowed by Statement 123, the Company intends to
continue to account for employee stock-based compensation using the "Intrinsic
Value Based Method." The Company does not believe the adoption of Statement 123
will have a material impact on its operating results.
6. NET INCOME PER SHARE OF COMMON STOCK
Net income per share of common stock is calculated using the weighted average
number of common shares outstanding during the period, and the net additional
number of shares which would be issuable upon the exercise of stock options,
assuming the Company used the proceeds received upon exercise of the options to
purchase shares at market value (treasury stock method). Pursuant to Securities
and Exchange Commission Staff Accounting Bulletin No. 83, common and common
equivalent shares issued during the twelve month period prior to the date of the
initial filing of the Company's Registration Statement on Form S-1 have been
included in the calculation, using the treasury stock method, as if they were
outstanding for all periods presented. Fair market value for the purpose of
this calculation was assumed to be $13.50 per share, the initial public offering
price of the Company's common stock. Accounting Principles Board Opinion 15
requires presentation of supplementary net income per share of common stock in
the event shares of common stock are sold for cash and a portion or all of the
proceeds are used to retire debt. Assuming that the Company's initial public
offering of common stock and repayment of debt with the proceeds thereof,
including the extraordinary expense of approximately $1.8 million ($1.0 million
net of tax) resulting from the charge-off of the remaining original issue
discount upon repayment of the Triumph Note as described in Note 2 above, had
occurred effective August 1, 1996, supplementary per share data for the three
months ended October 31, 1996 would have been as follows:
<TABLE>
<CAPTION>
<S> <C>
Earnings per share of common stock before
extraordinary item $0.14
Extraordinary item (0.08)
----
Net earnings per share of common stock $0.06
=====
Supplementary weighted average shares of common stock 12,633,358
===========
</TABLE>
No dividends were declared or paid during the three months ended October 31,
1996.
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BACKGROUND AND OTHER INFORMATION
- --------------------------------
United Natural Foods, Inc. (the "Company") is one of only two national
distributors of natural foods and related products in the United States. In
February 1996, a subsidiary of the Company merged with and into Mountain
People's Warehouse, Inc. ("Mountain People's") whereupon Mountain People's
became a wholly owned subsidiary of the Company. The merger with Mountain
People's was accounted for as a pooling of interests and, accordingly, all
financial information included herein is reported as though the companies had
been combined for all periods reported.
In May 1995, prior to its merger with the Company, Mountain People's
acquired Nutrasource, Inc. ("Nutrasource"), a distributor of natural foods in
the Pacific Northwest region. In July 1995, the Company acquired Rainbow
Natural Foods Inc. ("Rainbow"), a distributor of natural foods in the Rocky
Mountains and Plains regions. These two acquisitions were accounted for under
the purchase method of accounting, and, accordingly, all the financial
information for Nutrasource and Rainbow have been included since their
respective dates of acquisition.
Quarter Ended October 31, 1996 Compared to Quarter Ended October 31, 1995
- -------------------------------------------------------------------------
The following table presents certain items from the Company's consolidated
statements of income, and such amounts as a percentage of net sales, for the
periods indicated in millions, except the percentages.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31,
1995 1996
---- ----
$$$ % $$$ %
--- - --- -
<S> <C> <C> <C> <C>
Net sales $94.8 100.0% $99.5 100.0%
Cost of sales 75.8 80.0% 78.9 79.3%
-------- -------- ------- --------
Gross profit 19.0 20.0% 20.6 20.7%
-------- -------- ------- --------
Operating expenses 15.9 16.8% 16.5 16.6%
Amortization of intangibles 1.8 1.9% 0.3 0.3%
-------- -------- ------- --------
Total operating expenses 17.7 18.7% 16.8 16.9%
-------- -------- ------- --------
Operating income 1.3 1.3% 3.8 3.8%
-------- -------- ------- --------
Interest expense 1.2 1.3% 1.4 1.4%
Other, net (0.1) (0.1%) (0.1) (0.1%)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
-------- -------- ------- --------
Other expense, net 1.1 1.2% 1.3 1.3%
-------- -------- ------- --------
Income before income taxes 0.2 0.1% 2.5 2.5%
Income taxes 0.8 0.8% 1.1 1.1%
-------- -------- ------- --------
Net income (loss) $(0.6) (0.7%) $ 1.4 1.4%
======== ======== ======= ========
</TABLE>
Net Sales. The Company's net sales increased approximately 4.9%, or $4.7
million, to $99.5 million for the three months ended October 31, 1996 from $94.8
million for the three months ended October 31, 1995. The increase in net sales
was primarily attributable to increased sales by the Company to existing
customers and the introduction of new products not formerly offered by the
Company. The Company also realized an increase in net sales as a result of
sales to new customers in existing geographic areas as well as new geographic
areas not formerly served by the Company.
Gross Profit. The Company's gross profit increased approximately 8.1%, or
$1.6 million, to $20.6 million for the three months ended October 31, 1996 from
$19.0 million for the three months ended October 31, 1995. The Company's gross
profit as a percentage of net sales increased to 20.7% for the three months
ended October 31, 1996 from 20.0% for the three months ended October 31, 1995.
The increase in gross profit as a percentage of net sales was primarily
attributable to the Company's ability to consolidate its purchasing with many of
its vendors and through the expansion of supplier-sponsored marketing programs.
Operating Expenses. The Company's total operating expenses decreased
approximately 5.4%, or $0.9 million, to $16.8 million for the three months ended
October 31, 1996 from $17.7 million for the three months ended October 31, 1995.
As a percentage of net sales, operating expenses decreased to 16.9% for the
three months ended October 31, 1996 from 18.7% for the three months ended
October 31, 1995.
Operating expenses for the three month period ended October 31, 1996
included a charge of approximately $400,000 related to the replenishment of the
Allowance for Doubtful Accounts resulting from the charge-off of a customer
receivable when that customer unexpectedly filed for Chapter 11 bankruptcy in
September 1996. This customer accounted for less than 1% of total Company sales
in fiscal 1996.
Operating expenses for the three month period ended October 31, 1995
included a non-recurring charge of approximately $1,600,000 representing the
write-down of intangible assets in connection with the Company's on-going
evaluation of intangible assets and in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of."
Excluding the charges discussed above, the Company's total operating
expense would have been $16.4 million, or 16.5% of net sales, for the three
months ended October 31, 1996 and $16.1 million, or 17.0% of net sales, for the
three months ended October 31, 1995. The decrease in total operating expense
as a percentage of net sales was primarily attributable to the Company's
increased absorption of fixed expenses and overhead over a larger sales base.
In addition, the Company achieved increased operating efficiencies through the
implementation of new warehouse productivity systems in its
<PAGE>
Connecticut and Georgia facilities.
Depreciation expense increased approximately $0.1 million for the three
months ended October 31, 1996 from $0.8 million in the three months ended
October 31, 1995. The increase was primarily due to the Company's purchase of
its distribution center and headquarters in Connecticut in August 1995.
Operating Income. Operating income increased $2.5 million, or
approximately 191.9 %, to $3.8 million for the three months ended October 31,
1996 from $1.3 million for the three months ended October 31, 1995. As a
percentage of net sales, operating income increased to 3.8% in the three months
ended October 31, 1996 from 1.3% in the three months ended October 31, 1995.
Excluding the $400,000 charge discussed above for the three months ended
October 31, 1996 and the $1,600,000 non-recurring charge for the three months
ended October 31, 1995, operating income would have been $4.2 million, or 4.2%
of net sales, for the three months ended October 31, 1996, and $2.9 million, or
3.1 % of net sales, for the three months ended October 31, 1995.
Other Income/(Expense). The $0.2 million increase in interest expense in
the three months ended October 31, 1996 compared to the three months ended
October 31, 1995 was primarily attributable to the indebtedness incurred in
connection with the purchase of the Connecticut facility in August 1995 and an
increase in borrowings under the Company's revolving line of credit due to
increased inventory and account receivable balances related to the Company's
increased sales.
Income Taxes. The Company's effective income tax rate was 43.3% and 555.4%
for the three months ended October 31, 1996 and 1995, respectively. The
effective rates were higher than the federal statutory rate primarily due to
nondeductible goodwill amortization, especially the write-off of the intangible
assets in the quarter ended October 31, 1995, as well as state and local income
taxes.
Net Income. As a result of the foregoing, the Company's net income
increased by $2.0 million to $1.4 million for the three months ended October 31,
1996 from a net loss of $0.6 million in the three months ended October 31, 1995.
Excluding the $400,000 charge discussed above for the quarter ended October 31,
1996 and the $1,600,000 non-recurring charge for the quarter ended October 31,
1995, net income would have been $1.6 million, or 1.6% of net sales, for the
quarter ending October 31, 1996 and $0.4 million, or 0.4 % of net sales, for the
quarter ended October 31, 1995.
Liquidity and Capital Resources
- -------------------------------
In November 1996, the Company sold 2,900,000 shares of Common Stock in an
initial public offering which generated $35.5 million of net cash proceeds to
the Company. The Company used the proceeds to reduce its long-term debt and
other amounts owed under its revolving line of credit.
Historically, the Company has financed its operations and growth primarily
with cash flows generated from operations, borrowings under its credit facility,
seller financing of acquisitions, operating and capital leases and normal trade
credit terms. The Company finances its investment in inventory and accounts
receivable principally with its credit facility and trade accounts payable.
The Company's cash provided by operations was $ 1.6 million and $0.7
million for the three months ended October 31, 1996 and October 31, 1995,
respectively. The increase in cash generated from operations in the three
months ended October 31, 1996 was primarily attributable to the increase in net
income. At October 31, 1996, the Company had working capital of $11.3 million.
<PAGE>
Cash used in investing activities decreased from $8.3 million for the three
months ended October 31, 1995, to $1.0 million for the three months ended
October 31, 1996. The 1995 period includes the acquisition of the Company's
Connecticut distribution facility and the related purchase of material handling
equipment. The 1996 period includes amounts necessary to fund the purchase of
material handling equipment, tractors and trailers and the development and
implementation of new management information systems. The capital expenditures
were primarily funded from senior bank indebtedness, term loans and cash
provided from operating activities.
The Company's cash flows generated from financing activities decreased from
$7.5 million for the three months ended October 31, 1995, to ($0.7 million) for
the three months ended October 31, 1996. During the three months ended October
31, 1995, net cash provided by financing activities included proceeds from the
long-term debt used to purchase the Connecticut distribution facility. During
the three months ended October 31, 1996, a reduction in cash from investing
activities resulted from the normal repayments of long-term debt and the
expenses associated with the initial public offering.
The Company had aggregate indebtedness of $57.9 million at October 31,
1996 including senior bank financing, seller financing on recent acquisitions
and capital leases. In February 1996, the Company entered into a credit
agreement with its bank to provide a $50 million facility for working capital,
term loans and a mortgage on its Connecticut facility. As of October 31, 1996,
the Company's outstanding indebtedness under the credit agreement totalled $30.4
million. On November 6, 1996, approximately $20.9 million in debt was retired
using proceeds from the initial public offering.
On October 1, 1996, the Company entered into a $1 million leasing
arrangement with Mellon US Leasing. The leasing facility will be used for
the purchase of management information systems and material handling equipment.
As of October 31, 1996, the Company's outstanding balance under the capital
lease totalled $447,000.
The Company currently expects to make aggregate capital expenditures of
approximately $13.0 million in fiscal 1997 and fiscal 1998 to fund the expansion
of its existing facilities, to upgrade its management information systems and to
update its material handling equipment.
Management believes that the Company will have adequate capital resources,
including the proceeds of its initial public offering, and liquidity to meet its
borrowing obligations, fund all required capital expenditures and to operate its
business through fiscal 1998.
Seasonality
- -----------
Generally, the Company's operating results have not reflected any material
seasonal variations, although the Company's sales and operating results may vary
significantly from quarter to quarter due to factors such as changes in the
Company's operating expenses, management's ability to execute the Company's
operating and growth strategies, personnel changes, demand for natural products,
supply shortages and general economic conditions.
Certain Factors That May Effect Future Results
- ----------------------------------------------
The following important factors, among others, could cause actual results
to differ materially from those indicated by forward-looking statements made in
this Quarterly Report on Form 10-Q and presented elsewhere by management from
time to time. Any statements contained herein (including
<PAGE>
without limitations statements to the effect that the Company or its management
"believes", "expects", "anticipates", "plans", and similar expressions) that are
not statements of historical fact should be considered forward-looking
statements.
A number of uncertainties exist that could affect the Company's future
operating results, including, without limitation, continued demand for current
products offered by the Company, the success of the Company's acquisition
strategy, competitive pressures, general economic conditions, the success of new
product introductions and governmental regulation.
A significant portion of the Company's historical growth has been achieved
through acquisitions of or mergers with other distributors of natural products.
The Company recently acquired or merged with three large regional distributors
of natural products. The successful and timely integration of these
acquisitions and merger is critical to the future operating and financial
performance of the Company. While the integration of these acquisitions and
merger with the Company's existing operations has begun, the Company believes
that the integration will not be substantially completed until the end of
calendar 1997. The integration will require, among other things, coordination
of administrative, sales and marketing, distribution, and accounting and finance
functions and expansion of information and warehouse management systems among
the Company's regional operations. The integration process could divert the
attention of management, and any difficulties or problems encountered in the
transition process could have a material adverse effect on the Company's
business, financial condition or results of operations. In addition, the
process of combining the companies could cause the interruption of, or a loss of
momentum in, the activities of the respective businesses, which could have an
adverse effect on their combined operations.
The Company is currently experiencing a period of growth which could place
a significant strain on its management and other resources. The Company's
business has grown significantly in size and complexity over the past several
years. The growth in the size of the Company's business and operations has
placed and is expected to continue to place a significant strain on the
Company's management. The Company's future growth is limited in part by the
size and location of its distribution centers. There can be no assurance that
the Company will be able to successfully expand its existing distribution
facilities or open new distribution facilities in new or existing markets to
facilitate growth. In addition, the Company's growth strategy to expand its
market presence includes possible additional acquisitions. To the extent the
Company's future growth includes acquisitions, there can be no assurance that
the Company will successfully identify suitable acquisition candidates,
consummate and integrate such potential acquisitions or expand into new markets.
The Company operates in highly competitive markets, and its future success
will be largely dependent on its ability to provide quality products and
services at competitive prices. The Company's competition comes from a variety
of sources, including other distributors of natural products as well as
specialty grocery and mass market grocery distributors. There can be no
assurance that the mass market grocery distributors will not increase their
emphasis on natural products and more directly compete with the Company or that
new competitors will not enter the market.
The grocery distribution industry generally is characterized by relatively
high volume with relatively low profit margins. The continuing consolidation of
retailers in the natural products industry and the emergence of natural products
supermarket chains may have an adverse effect on the Company's profit margins in
the future as more customers qualify for greater volume discounts offered by the
Company. The grocery industry is also sensitive to national and regional
economic conditions, and the demand for product supply may be adversely affected
from time to time by economic downturns.
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
A unanimous written consent of the Company's stockholders, dated September 3,
1996, approved the Second Certificate of Amendment (the "Second Certificate of
Amendment") to the Company's Certificate of Incorporation. The Second
Certificate of Amendment increased the Company's authorized shares of Common
Stock from 200,000 to 25,000,000 and established a par value of $.01 per share
for the Common Stock.
A unanimous written consent of the Company's stockholders, dated October 28,
1996, approved the Company's Amended and Restated Certificate of Incorporation
(providing for, among other things, the authorization of 5,000,000 shares of
blank check Preferred Stock which can be issued by the Company's Board of
Directors), Amended and Restated By-laws, an Amended and Restated 1996 Stock
Option Plan and the Company's 1996 Employee Stock Purchase Plan. In addition,
pursuant to the October 28, 1996 written consent of stockholders, the following
members of the Company's Board of Directors were elected:
<TABLE>
<S> <C>
Class I Directors: Daniel V. Atwood
(term expiring in 1997) Kevin T. Michel
Thomas B. Simone
Class II Directors: Steven H. Townsend
(term expiring in 1998) Andrea R. Hendricks
Class III Directors: Norman A. Cloutier
(term expiring in 1999) Michael S. Funk
Richard J. Williams
</TABLE>
In both of the above written consents all of the Company's 8,692,695 shares of
Common Stock outstanding at the time of the consents were voted in favor of all
of the proposals.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
The exhibits listed in the Exhibit Index immediately preceding such Exhibits are
filed as part of this Quarterly Report on Form 10-Q.
b) Reports on Form 8-K.
The Company did not file any Current Reports on Form 8-K during the quarter
covered by this Report.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED NATURAL FOODS, INC.
/s/ Steven Townsend
-----------------------------
Steven Townsend
Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: December 16, 1996
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1* Amended and Restated Certificate of Incorporation
of the Registrant.
3.2* Amended and Restated By-Laws of the Registrant.
4* Specimen Certificate for shares of Common Stock,
$.01 par value, of the Registrant.
10.1* 1996 Stock Option Plan
10.2* 1996 Employee Stock Purchase Plan
10.3* Amended and Restated Employee Stock Ownership Plan
11 Computation of Earnings Per Share
27 Financial Data Schedule
</TABLE>
* Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (File No. 333-11349).
<PAGE>
Exhibit 11 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31,
----------
1995 1996
---- ----
<S> <C> <C>
Primary:
Weighted average shares outstanding 8,713,100 8,692,695
Net effect of dilutive stock options and stock warrants
based upon the treasury stock method using the
initial public offering price 1,421,593 1,421,593
---------- ----------
Total 10,134,693 10,114,288
========== ==========
Net Income ($630,527) $1,387,036
========== ==========
Per share amount ($0.06) $0.14
========== ==========
Fully diluted:
Weighted average shares outstanding 8,713,100 8,692,695
Net effect of dilutive stock options and stock warrants
based upon the treasury stock method using the
initial public offering price 1,421,593 1,421,593
---------- ----------
Total 10,134,693 10,114,288
========== ==========
Net Income ($630,527) $1,387,036
========== ==========
Per share amount ($0.06) $0.14
========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM
CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED OCTOBER 31, 1996 AND
THE CONSOLIDATED BALANCE SHEET AS OF OCTOBER 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> OCT-31-1996
<CASH> 26,930
<SECURITIES> 0
<RECEIVABLES> 29,632,929
<ALLOWANCES> (1,412,188)
<INVENTORY> 42,176,142
<CURRENT-ASSETS> 73,519,421
<PP&E> 30,789,415
<DEPRECIATION> (9,726,754)
<TOTAL-ASSETS> 105,184,892
<CURRENT-LIABILITIES> 62,281,583
<BONDS> 22,919,525
0
0
<COMMON> 87,131
<OTHER-SE> 19,522,258
<TOTAL-LIABILITY-AND-EQUITY> 105,184,892
<SALES> 99,500,710<F1>
<TOTAL-REVENUES> 99,500,710
<CGS> 78,908,777
<TOTAL-COSTS> 78,908,777
<OTHER-EXPENSES> 16,506,831
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,441,828
<INCOME-PRETAX> 2,448,117
<INCOME-TAX> 1,061,081
<INCOME-CONTINUING> 1,387,036
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,387,036
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
<FN>
<F1>Three months ended October 31, 1996.
</FN>
</TABLE>
