<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): October 31, 1997
----------------
United Natural Foods, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation)
000-21531 05-0376157
- ------------------------ ------------------------------------
(Commission File Number) (I.R.S. Employer Identification No.)
260 Lake Road, Dayville, Connecticut 06241
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(860) 779-2800
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Not Applicable
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
------------------------------------
On October 31, 1997 (the "Effective Time"), United Natural Foods, Inc. (the
"Company") completed its acquisition of Stow Mills, Inc. ("Stow") pursuant to an
Agreement and Plan of Reorganization, dated as of June 23, 1997, and as amended
and restated as of August 8, 1997 (the "Merger Agreement"), among the Company,
Stow, GEM Acquisition Corp., a wholly owned subsidiary of the Company (the
"Merger Subsidiary"), Barclay McFadden and Richard S. Youngman.
Pursuant to the Merger Agreement, the Merger Subsidiary was merged with and
into Stow (the "Merger") at the Effective Time, whereupon Stow became a wholly
owned subsidiary of the Company. At that time, each outstanding share of capital
stock (the "Stow Stock") was converted into 2,711.4817 shares of Common Stock of
the Company, or an aggregate of 4,978,280 shares of Common Stock.
Based upon the capitalization of the Company as of the Effective Time, the
4,978,280 shares of Common Stock of the Company issued to the holders of Stow
Stock represent approximately 26.7% of the outstanding shares of Common Stock of
the Company. On October 31, 1997, the last reported sale price per share of the
Common Stock of the Company on the Nasdaq National Market was $21.00.
Prior to the Merger, Stow distributed natural foods and related products to
independent natural products stores, natural products supermarket chains and
conventional supermarkets in New England, New York State and the Mid-Atlantic
and Mid-West regions of the United States. The Company currently intends to
continue Stow's business substantially in the manner conducted by Stow
immediately prior to the Merger.
The issuance of shares of Common Stock of the Company in connection with
the Merger was approved by the Board of Directors and the stockholders of the
Company, and the Merger Agreement and the Merger were approved by the Board of
Directors and the stockholders of Stow. The terms of the Merger Agreement and
the Merger were determined on the basis of arm's-length negotiations. Prior to
the execution of the Merger Agreement, neither the Company nor any of its
affiliates, nor any director or officer of the Company or any associate of any
such director or officer, had any material relationship with Stow.
The foregoing description of the Merger Agreement does not purport to be
complete and is qualified in its entirety by reference to the full text of the
Merger Agreement which is filed as Exhibit 2 to this Current Report on Form 8-K
and incorporated herein by reference.
-2-
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
------------------------------------------------------------------
(a) Financial Statements of Businesses Acquired:
-------------------------------------------
The financial statements of Stow contained on pages F-27 through F-44 of
the Company's Proxy Statement, dated October 15, 1997, relating to the issuance
of Common Stock in connection with the Merger (the "Merger Proxy Statement") are
hereby incorporated by reference and attached as Exhibit 99.2 pursuant to Rule
12b-23(a)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
(b) Pro Forma Financial Information:
-------------------------------
The pro forma financial information contained on pages 68 through 76 of
the Merger Proxy Statement are hereby incorporated by reference and attached
hereto as Exhibit 99.3 pursuant to Rule 12b-23(a)(3) of the Exchange Act.
(c) Exhibits:
--------
See Exhibit Index attached hereto.
-3-
<PAGE>
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 hereunto duly authorized.
Date: November 12, 1997 UNITED NATURAL FOODS, INC.
(Registrant)
/s/ Norman A. Cloutier
--------------------------------------------------
By: Norman A. Cloutier
Chairman of the Board and
Chief Executive Officer
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- -------- -----------
<S> <C>
2* Agreement and Plan of Reorganization, dated as of June 23, 1997,
and as amended and restated as of August 8, 1997, among the
Company, Stow, the Merger Subsidiary, Barclay McFadden and
Richard S. Youngman.
23 Consent of Independent Public Accountants.
99.1 Press Release issued October 31, 1997.
99.2 Combined Financial Statements of Stow and Subsidiary and
Hendrickson Partners.
99.3 Unaudited Pro Forma Condensed Combined Financial Statements
of the Company and Stow.
</TABLE>
- ------------------------------
* Incorporated herein by reference to Annex A to the Company's Proxy
Statement, dated October 15, 1997, relating to the issuance of shares of Common
Stock in connection with the Merger.
<PAGE>
Exhibit 23
------- --
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Form 8-K of United Natural Foods, Inc. of our report dated
March 14, 1997 with respect to the December 31, 1996 combined financial
statements of Stow Mills, Inc. and subsidiary and Hendrickson Partners included
in the Proxy Statement dated October 15, 1997 of United Natural Foods, Inc. It
should be noted that we have not audited any financial statements of the
combined entities subsequent to December 31, 1996 or performed any audit
procedures subsequent to the date of our report.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
October 31, 1997
<PAGE>
Exhibit 99.1
------- ----
FOR IMMEDIATE RELEASE
October 31, 1997
UNITED NATURAL FOODS, INC. COMPLETES
------------------------------------
ACQUISITION OF STOW MILLS, INC.
-------------------------------
Dayville, Connecticut -- October 31, 1997 -- United Natural Foods, Inc. (Nasdaq:
UNFI) announced today that its shareholders have approved the merger of United
Natural Foods and Stow Mills, Inc., and that Stow Mills has become a wholly
owned subsidiary of United Natural Foods.
United Natural Foods' shareholders approved the issuance of 5.0 million shares
of its Common Stock to effect the merger, representing a transaction equity
value of approximately $107.5 million, based upon United Natural Foods' October
30, 1997 closing stock price of $21.50 per share. The merger has been structured
as a tax-free transaction and will be accounted for as a pooling of interests.
The combined company had revenues of approximately $605 million in fiscal 1996
(assuming the companies had been combined for the entire year) and combined
revenues for the nine months ended April 30, 1997 of $466 million. The merger is
expected to be accretive to earnings per share in the first fiscal year of
combined operations prior to the realization of any cost-saving synergies.
Stow Mills, based in Chesterfield, New Hampshire, is a leading distributor of
natural foods and related products in the Northeastern, Mid-Atlantic and Mid-
Western regions of the United States. Stow Mills distributes a line of over
12,000 natural products including groceries, vitamins and nutritional
supplements, refrigerated foods, frozen foods, bulk foods and personal care
items. Stow Mills' sales and operating income have increased in each of the last
three fiscal years.
Norman Cloutier, Chairman and Chief Executive Officer of United Natural Foods,
stated, "The merger brings together two leading natural products distributors
with similar business strategies. Importantly, the combined company will allow
United Natural Foods to realize synergies that both strengthen the Company's
operations and reduce costs. The addition of Stow allows us to enhance
penetration in the Mid-West market as well as in the Northeastern and Mid-
Atlantic regions. In addition, as a combined company we will be well positioned
to take advantage of better buying terms and we will be able to provide our
customers with an improved merchandise mix, enhanced marketing and customer
service programs and improved distribution logistics, which should result in
better support for our customers."
<PAGE>
"Through the integration of the two businesses, we also expect to capture a
number of important cost saving synergies including reduced selling,
operational, general and administrative expenses as a percentage of combined
revenues by eliminating redundancies and leveraging certain functions over a
larger revenue base," concluded Mr. Cloutier.
Stow Mills' President Mr. Richard S. Youngman, will serve as President of the
Company's Eastern Region. Mr. Barclay McFadden, former Chief Executive of Stow
Mills, will not be involved in the management of the Stow Mills subsidiary
beyond the end of 1997. Both Mr. Youngman and Mr. McFadden have been nominated
to serve as members of United Natural Foods' Board of Directors.
United Natural Foods is one of only two national distributors of natural foods
and related products in the United States. With the merger of Stow Mills, United
Natural Foods currently serves a national base of approximately 6,500 customers
in 46 states. United Natural Foods distributes more than 26,000 high-quality,
national, regional and private label products spanning six categories including
groceries and general merchandise, nutritional supplements, bulk and foodservice
products, personal care items, perishables and frozen foods.
For more information on United Natural Foods, Inc., via fax at no charge,
please dial 1-800-PRO-INFO and enter the Company's ticker symbol UNFI.
FOR ADDITIONAL INFORMATION CONTACT:
<TABLE>
<CAPTION>
AT THE COMPANY: AT THE FINANCIAL RELATIONS BOARD:
- -----------------------------------------------------------------
<S> <C> <C>
Steven Townsend Laurie Berman Lynn Sawyer-Landau
Chief Financial Officer General Information Analyst Information
(860) 779-2800 (212) 661-8030 (212) 661-8030
</TABLE>
This press release contains forward-looking statements. Actual results may
differ materially from those projected in the forward-looking statements.
Additional information concerning factors that could cause actual results to
materially differ from those in the forward-looking statements is contained in
the Company's SEC filings, including its periodic reports filed under the
Securities Exchange Act of 1934, as amended (copies of which are available upon
request from the Company's investor relations department).
<PAGE>
Exhibit 99.2
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Stow Mills, Inc.:
We have audited the accompanying combined balance sheets of Stow Mills, Inc. (a
Vermont corporation) and subsidiary and Hendrickson Partners as of December 31,
1996 and 1995, and the related combined statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These combined financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial positions of Stow
Mills, Inc. and subsidiary and Hendrickson Partners as of December 31, 1996 and
1995, and the results of their combined operations and their combined cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Manchester, New Hampshire
March 14, 1997
1
<PAGE>
STOW MILLS, INC. AND SUBSIDIARY
AND HENDRICKSON PARTNERS
COMBINED BALANCE SHEETS--DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash $ 412,017 $ 387,199
Accounts receivable, less reserves of $143,000 and
$133,000 in 1996 and 1995, respectively 14,171,382 12,748,188
Inventory 26,465,143 19,736,603
Prepaid expenses 521,815 263,673
--------------- ---------------
Total current assets 41,570,357 33,135,663
--------------- ---------------
PROPERTY AND EQUIPMENT, AT COST
Land and improvements 702,752 702,752
Building 7,489,894 7,490,179
Rental property 1,554,683 1,554,683
Motor vehicles 21,454 21,454
Office equipment, furniture and fixtures 9,047,966 7,871,256
Equipment under capital leases 767,032 413,219
Construction-in-progress 66,707 -
--------------- ---------------
19,650,488 18,053,543
Less--Accumulated depreciation and amortization 7,363,252 5,936,491
--------------- ---------------
12,287,236 12,117,052
--------------- ---------------
OTHER ASSETS, NET 521,464 492,860
--------------- ---------------
Total assets $ 54,379,057 $ 45,745,575
=============== ===============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of capitalized lease obligations and
long-term debt $ 940,808 $ 1,190,166
Accounts and drafts payable 12,514,514 12,134,897
Accrued expenses 1,448,266 1,372,576
Demand notes payable to officers/stockholders 583,226 320,740
--------------- ---------------
Total current liabilities 15,486,814 15,018,379
--------------- ---------------
LONG-TERM REVOLVING LINE OF CREDIT 23,193,244 15,631,159
--------------- ---------------
LONG-TERM DEBT, LESS CURRENT PORTION 5,283,161 5,650,096
--------------- ---------------
CAPITALIZED LEASE OBLIGATIONS, LESS CURRENT PORTION 358,664 249,324
--------------- ---------------
NOTES PAYABLE TO OFFICERS/STOCKHOLDERS 6,043,097 5,482,568
--------------- ---------------
COMMITMENTS AND CONTINGENCIES (Notes 5 and 7)
STOCKHOLDERS' EQUITY:
Common stock, $1 par value-
Voting-
Authorized--8,502 shares
Issued and outstanding--200 shares 200 200
Nonvoting-
Authorized, issued and outstanding--1,498 shares 1,498 1,498
Additional paid-in capital 299,641 299,641
Retained earnings/partners' capital 3,712,738 3,412,710
--------------- ---------------
Total stockholders' equity 4,014,077 3,714,049
--------------- ---------------
Total liabilities and stockholders' equity $ 54,379,057 $ 45,745,575
=============== ===============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
2
<PAGE>
STOW MILLS, INC. AND SUBSIDIARY
AND HENDRICKSON PARTNERS
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
NET SALES $ 207,611,669 $ 175,526,583 $ 159,265,056
COST OF SALES 167,508,947 140,594,013 129,294,938
----------------- ----------------- -----------------
Gross profit 40,102,722 34,932,570 29,970,118
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 36,533,088 32,702,263 28,885,256
----------------- ----------------- -----------------
Income from operations 3,569,634 2,230,307 1,084,862
OTHER INCOME 305,510 254,584 348,144
INTEREST EXPENSE 2,700,892 2,566,262 2,116,255
----------------- ----------------- -----------------
Net income (loss) before provision for income taxes 1,174,252 (81,371) (683,249)
PROVISION FOR INCOME TAXES 148,754 24,305 50,614
----------------- ----------------- -----------------
Net income (loss) $ 1,025,498 $ (105,676) $ (733,863)
================= ================= =================
NET INCOME (LOSS) PER SHARE $603.94 $(62.24) $(432.19)
======= ======= ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 1,698 1,698 1,698
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
3
<PAGE>
STOW MILLS, INC. AND SUBSIDIARY
AND HENDRICKSON PARTNERS
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Common Stock Common Stock Retained
Voting Nonvoting Additional Earnings/ Total
Number of $1 Number of $1 Paid-in Partners' Stockholders'
Shares Par Value Shares Par Value Capital Capital Equity
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 200 $ 200 1,498 $ 1,498 $ 299,641 $ 4,726,209 $ 5,027,548
Net loss -- -- -- -- -- (733,863) (733,863)
Partner withdrawals -- -- -- -- -- (330,000) (330,000)
Dividends -- -- -- -- -- (16,980) (16,980)
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1994 200 200 1,498 1,498 299,641 3,645,366 3,946,705
Net loss -- -- -- -- -- (105,676) (105,676)
Partner withdrawals -- -- -- -- -- (110,000) (110,000)
Dividends -- -- -- -- -- (16,980) (16,980)
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1995 200 200 1,498 1,498 299,641 3,412,710 3,714,049
Net income -- -- -- -- -- 1,025,498 1,025,498
Partner withdrawals -- -- -- -- -- (700,000) (700,000)
Dividends -- -- -- -- -- (25,470) (25,470)
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1996 200 $ 200 1,498 $ 1,498 $ 299,641 $ 3,712,738 $ 4,014,077
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
4
<PAGE>
STOW MILLS, INC. AND SUBSIDIARY
AND HENDRICKSON PARTNERS
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,025,498 $ (105,676) $ (733,863)
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities-
Depreciation and amortization 1,455,346 1,367,000 1,262,911
Loss on sale of property and equipment 9,599 92,900 -
Changes in assets and liabilities, net of acquisition-
Accounts receivable, net (1,215,757) (1,838,805) (1,125,388)
Inventory (6,369,241) (1,720,474) 3,151,553
Prepaid expenses (207,024) (11,127) (91,977)
Other assets 8,463 23,238 (47,834)
Accounts and drafts payable (54,719) 2,003,862 (358,674)
Accrued expenses 58,214 110,775 114,925
Accrued income taxes payable 8,986 (26,460) 6,460
--------------- --------------- ---------------
Net cash provided by (used in) operating activities (5,280,635) (104,767) 2,178,113
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition, net of cash acquired (899,931) - -
Property and equipment additions (538,875) (413,873) (348,303)
Proceeds from sale of property and equipment 10,000 13,319 -
Increase in construction-in-progress (66,707) - -
Increase in cash surrender value (42,970) (58,686) (26,300)
--------------- --------------- ---------------
Net cash used in investing activities (1,538,483) (459,240) (374,603)
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 7,562,085 2,914,850 -
Payments of long-term debt and capitalized lease obligations (824,183) (813,728) (5,199,476)
Proceeds from notes payable to officers/stockholders 842,956 1,030,000 4,075,790
Payments on notes payable to officers/stockholders (19,942) (2,603,500) -
Dividends paid (16,980) (16,980) (16,980)
Cash distributions paid to partners (700,000) (110,000) (330,000)
--------------- --------------- ---------------
Net cash provided by (used in) financing activities 6,843,936 400,642 (1,470,666)
--------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH 24,818 (163,365) 332,844
CASH, BEGINNING OF YEAR 387,199 550,564 217,720
--------------- --------------- ---------------
CASH, END OF YEAR $ 412,017 $ 387,199 $ 550,564
=============== =============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 2,727,869 $ 2,195,501 $ 1,902,320
=============== =============== ===============
Cash paid for taxes $ 136,403 $ 80,577 $ 125,085
=============== =============== ===============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Reconciliation of assets acquired and liabilities assumed in acquisition-
Fair value of assets acquired $ 1,347,877 $ - $ -
Cash paid (900,881) - -
--------------- --------------- ---------------
Liabilities assumed $ 446,996 $ - $ -
=============== =============== ===============
Capital lease obligation $ 304,571 $ 458,104 $ -
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
5
<PAGE>
STOW MILLS, INC. AND SUBSIDIARY
AND HENDRICKSON PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Operations
The accompanying combined financial statements combine the
accounts of Stow Mills, Inc. (Stow), its wholly owned subsidiary,
R. B. Acquisition, LLC, and Hendrickson Partners. Stow Mills, Inc.
and subsidiary (the Company) is a distributor of health and
natural food products. The Company's distribution activities are
conducted from three warehouse locations through a fleet of leased
delivery vehicles. The Company's principal customer segments are
natural food stores, natural food store chains and supermarkets
throughout the Northeast, Mid-Atlantic and portions of the
Mid-West. Hendrickson Partners (the Partnership) is a real estate
partnership owned by the principal officers and stockholders of
the Company. The Partnership owns one of the Company's warehouse
operating facilities.
(b) Acquisition of Rainbow Distributing, Inc.
The Company formed R. B. Acquisition, LLC d/b/a Rainbow
Distributing, Inc. (Rainbow) in order to purchase substantially
all the assets and assume certain liabilities of Rainbow
Distributing, Inc. effective January 26, 1996. The purchase price
of $1,347,877 consisted of $900,881 cash paid to the sellers and
$446,996 in liabilities and closing costs assumed at closing.
Rainbow is a distributor of health and natural food products and
is located in Chicago, Illinois. The Company accounted for this
business combination as a purchase.
The following unaudited pro forma information presents the results
of operations of Stow, the Partnership and Rainbow for the year
ended December 31, 1995, with pro forma adjustments as if the
Rainbow transaction had been consummated as of the beginning of
that period. No pro forma results are presented for 1996 due to
the acquisition occurring near the beginning of the year. The pro
forma information does not purport to be indicative of what would
have occurred had the acquisition been made as of January 1, 1995
or of results that may occur in the future.
Pro forma information (unaudited) is as follows:
<TABLE>
<CAPTION>
1995
<S> <C>
Net sales $ 183,332,293
=================
Net loss $ (477,557)
=================
Net loss per share $(281.25)
========
</TABLE>
6
<PAGE>
STOW MILLS, INC. AND SUBSIDIARY
AND HENDRICKSON PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(d) Inventory
Inventory is stated at the lower of cost or market determined by
the last-in, first out (LIFO) method. The excess of current costs
determined by the first-in, first-out (FIFO) method over the
carrying values of LIFO inventories was $2,079,212 and $1,492,152
at December 31, 1996 and 1995, respectively.
(e) Property and Equipment
Property and equipment are recorded at cost. Expenditures for
maintenance, repairs and renewals of minor items are generally
charged to expense as incurred. Depreciation and amortization of
plant and equipment are provided for by using the straight-line
method over the following estimated useful lives:
<TABLE>
<CAPTION>
Estimated
Asset Classification Useful Lives
<S> <C>
Building and improvements 20-30 years
Equipment 5-20 years
Motor vehicles 3-5 years
Office equipment, data processing equipment
and furniture and fixtures 5-10 years
</TABLE>
Depreciation and amortization expense for the years ended December
31, 1996, 1995 and 1994 was $1,455,346, $1,367,000 and $1,262,911,
respectively.
7
<PAGE>
STOW MILLS, INC. AND SUBSIDIARY
AND HENDRICKSON PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
(f) Significant Customers
The Company had one customer in 1996 and two customers in 1995 and
1994 who provided 10% or more of the Company's revenue. Total
sales to these customers were approximately $83,595,000,
$66,864,000 and $57,009,000 for December 31, 1996, 1995 and 1994,
respectively.
(g) Rental Income
The Company leases its former operating facility to a lessee under
noncancelable operating leases expiring January 31, 1999. The
combined rental income from these leases was approximately
$273,000, $314,000 and $307,000 in 1996, 1995 and 1994,
respectively. The cost of the rental property is included in
property and equipment.
(h) Income Taxes
The Company has elected to be treated as an S corporation for
federal income tax purposes, and as such, the stockholders of the
Company are responsible for reporting their proportionate share of
the Company's federal taxable income to the Internal Revenue
Service. Therefore, the Company does not provide for federal
income taxes.
The Company follows the liability method of accounting for state
income taxes. Under the liability method, deferred taxes are
recognized for the future tax consequences of the differences
between financial statement and tax bases of assets and
liabilities using enacted tax rates. Deferred income tax expense
(benefit) is based on the changes in the assets or liabilities
from period to period. These deferred tax assets/liabilities were
immaterial to the Company's financial position at December 31,
1996 and 1995.
(i) Disclosure About Fair Value of Financial Instruments
Effective December 31, 1995, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 107, Disclosures About
Fair Value of Financial Instruments, which requires that the
Company disclose estimated fair values for certain financial
instruments. The Company's financial instruments consist primarily
of cash, accounts receivable, lines of credit, accounts and drafts
payable and long-term debt. The carrying amounts of these
financial instruments approximate their fair values.
8
<PAGE>
STOW MILLS, INC. AND SUBSIDIARY
AND HENDRICKSON PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
(j) Accounting for the Impairment of Long-Lived Assets
The Company and the Partnership adopted SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
To Be Disposed Of, effective January 1, 1996. SFAS No. 121
addresses the accounting for impairment of long-lived assets and
certain identifiable intangibles to be held and used by an entity,
as well as long-lived assets and certain identifiable intangibles
to be disposed of. The adoption of SFAS No. 121 did not have a
significant impact on the financial position or results of
operations of the Company or the Partnership.
(2) BORROWINGS
(a) Line of Credit
At December 31, 1996, the Company had a revolving line of credit
with a bank to borrow up to $25,000,000 due June 30, 1999. The
agreement has provisions to increase the line to $28,000,000 at
July 1, 1997 and $33,000,000 at July 1, 1998. Borrowings under the
line are limited to qualified accounts receivable and inventory,
as defined. The maximum borrowing base available at December 31,
1996 was $24,090,970, which is limited by the letters of credit of
approximately $708,000 (see Notes 5 and 7). The Company had
$189,874 available under the line on December 31, 1996. This line
of credit bears interest at the bank's prime rate (8.25% at
December 31, 1996) plus 0% to 3/4% dependent upon certain
conditions, or the London Interbank Offered Rate (5.7813% at
December 31, 1996) plus 200 to 300 basis points or some
combination thereof, as defined, and is secured by substantially
all of the assets of Stow. At December 31, 1996 and 1995, the
weighted average interest rate on the line of credit was 7.93% and
8.38%, respectively.
Under the terms of the line of credit, the Company is required to,
among other things, maintain certain financial covenants, as
defined. In addition, the agreement contains certain restrictions
on the sale or disposition of Company assets. At December 31,
1996, the Company was either in compliance with such covenants or
such events of noncompliance were waived by the bank.
9
<PAGE>
STOW MILLS, INC. AND SUBSIDIARY
AND HENDRICKSON PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(2) BORROWINGS (Continued)
(b) Long-Term Debt
Long-term debt consists of the following at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Mortgage note payable $ 4,378,592 $ 4,446,075
Term note payable to a bank maturing December 31, 1998. Payments are
due in monthly installments of $43,842, with interest at the bank's
prime rate (8.25% at December 31, 1996) plus .5% and secured by
substantially all assets of the Company 1,096,052 1,622,158
Notes payable to a bank, due in 1996, payable in monthly installments
of $6,855 carrying interest at 7.25% and secured by a mortgage deed and
equipment - 344,968
Notes payable to a bank, due in 2001, payable in monthly installments of
$6,005 carrying interest at the bank's prime rate (8.25% at December 31,
1996) plus .5% and secured by a mortgage deed 290,993 -
Note payable to Brattleboro Development Credit Corporation, payable in
monthly installments of $661 carrying interest at 12%, maturing in 2001
and secured by land and building 26,288 30,765
Note payable to Vermont 503, due in 2007, payable in monthly installments
of $1,904 carrying interest at 10.57% and secured by land and building 145,564 152,618
Note payable to the U.S. Small Business Administration, due in 2001,
payable in monthly installments of $2,557 carrying interest at 8.25% and
secured by land and building 114,316 134,649
--------------- ---------------
6,051,805 6,731,233
Less--Current portion 768,644 1,081,137
--------------- ---------------
$ 5,283,161 $ 5,650,096
=============== ===============
</TABLE>
The mortgage note is payable in equal monthly principal and interest
payments of $38,837 over 25 years and carries interest at the bank's
prime rate (8.25% at December 31, 1996) plus 3/4%, adjustable
quarterly.
10
<PAGE>
STOW MILLS, INC. AND SUBSIDIARY
AND HENDRICKSON PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(2) BORROWINGS (Continued)
(b) Long-Term Debt (Continued)
Under the terms of the mortgage note, the Company is required to,
among other things, maintain certain levels of tangible
debt-to-net worth ratios and current ratios. In addition, the
mortgage note agreement places certain limitations on salaries,
dividends and capital expenditures. At December 31, 1996, the
Company was either in compliance with such covenants or such
events of noncompliance were waived by the bank. The mortgage note
is secured by the Company's principal operating facility, its
truck maintenance facility and its land.
The terms of the U.S. Small Business Administration note
agreement, among other things, place restrictions on dividends,
capital distributions, capital expenditures and officer
compensation. Also, under the terms of the U.S. Small Business
Administration note agreement, the Company is required to maintain
positive net income after taxes and a minimum debt-to-equity
ratio. The Company was not in compliance with all of the various
covenants of the note agreement as of December 31, 1996, and such
covenants were not waived by the lenders. Accordingly, the amount
outstanding under the agreement is callable and has been
classified as current in the accompanying combined balance sheet
at December 31, 1996.
The annual principal requirements for long-term debt are as
follows as of December 31, 1996:
<TABLE>
<CAPTION>
Amount
December 31,
<S> <C>
1997 $ 768,644
1998 710,892
1999 154,499
2000 169,363
2001 179,828
Thereafter 4,068,579
---------------
$ 6,051,805
===============
</TABLE>
(3) STOCKHOLDERS' EQUITY
Total stockholders' equity consists of the combined equity of the
Company and the Partnership. At December 31, 1996 and 1995, the
Company had equity of $2,065,806 and $1,233,096, respectively, and
the Partnership had equity of $1,948,271 and $2,480,953,
respectively.
11
<PAGE>
STOW MILLS, INC. AND SUBSIDIARY
AND HENDRICKSON PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(4) RELATED-PARTY TRANSACTIONS
(a) Notes Payable to Officers/Stockholders
Notes payable to officers/stockholders, totaling $6,626,323 and
$5,803,308 at December 31, 1996 and 1995, respectively, are due on
demand and carry interest at 8.25% and 9.25%, respectively. The
noteholders have waived rights to collect $6,043,097 of these
notes through December 31, 1997, and accordingly, that portion of
the notes has been classified as long-term in the accompanying
combined balance sheets. These long-term notes are subordinated to
all bank debt. The accompanying combined statements of operations
includes approximately $483,000, $507,000 and $359,000 in 1996,
1995 and 1994, respectively, of interest expense relating to the
notes.
(b) Other Related-Party Transactions
The principal stockholder of the Company formerly owned a 67%
interest in a food processing company. During 1994, the food
processing company was sold to an unrelated party. Purchases from
this food processing company were approximately $2,337,000 in 1994
prior to the sale. Sales to this company were approximately
$17,000 in 1994 prior to the sale. In addition, the principal
stockholders of the Company own retail operations that sell
products distributed by the Company. Sales to these companies
amounted to approximately $230,000, $287,000 and $348,000 in 1996,
1995 and 1994, respectively, of which approximately $10,000 and
$28,000 is included in accounts receivable in the accompanying
combined balance sheets as of December 31, 1996 and 1995,
respectively.
(5) LEASE OBLIGATIONS
The Company leases certain warehouse and computer equipment under capital
leases. Additionally, the Company leases a warehouse, vehicles and
equipment under noncancelable and cancelable operating leases that expire
through October 2001. In 1993, the Company entered into a noncancelable
10-year lease agreement for a warehouse facility located in Pennsylvania.
Rental expense under the noncancelable operating leases was approximately
$744,000, $468,000 and $530,000 in 1996, 1995
12
<PAGE>
STOW MILLS, INC. AND SUBSIDIARY
AND HENDRICKSON PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(5) LEASE OBLIGATIONS (Continued)
and 1994, respectively. The future minimum lease payments under
noncancelable operating and capital leases at December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
<S> <C> <C>
December 31,
1997 $ 772,418 $ 212,250
1998 426,268 211,552
1999 424,118 86,269
2000 417,666 74,880
2001 413,864 43,680
Thereafter 577,791 -
--------------- ------------
$ 3,032,125 628,631
===============
Less--Amount representing interest 97,803
------------
Present value of minimum lease payments 530,828
Less--Current portion 172,164
------------
$ 358,664
============
</TABLE>
The 10-year Pennsylvania warehouse lease includes a fixed-price purchase
option exercisable by the Partnership at the end of years seven through
ten. The annual rent is fixed at approximately $408,000 for years one
through five, with escalation in years six through ten based on the
one-year treasury note rate. The Company has issued a letter of credit of
approximately $408,000, which expires in June 1997, as security for
performance under the terms of the lease agreement.
(6) EMPLOYEE BENEFIT PLAN
The Company maintains a defined-contribution retirement plan that
qualifies under Section 401(k) of the Internal Revenue Code. The plan
allows eligible employees to contribute up to 10% of their compensation;
the first 6% contributed is matched by the Company to the extent of 55%
of an employee's contribution. Company contributions to the plan in 1996,
1995 and 1994 amounted to approximately $210,000, $164,000 and $156,000,
respectively.
13
<PAGE>
STOW MILLS, INC. AND SUBSIDIARY
AND HENDRICKSON PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(7) CONTINGENCIES
The Company self-insures medical benefits provided to employees.
Northwest National Life acts as the administrator of the medical benefits
plan. The Company maintains stop-loss insurance coverage on a claims-made
basis for the plan year ending May 30, 1997. The stop-loss coverage
limits maximum annual payments for employee health insurance to
$1,217,546 in the aggregate and $60,000 per employee. The Company accrues
for claims based on historical claim amounts and activity and historical
lag times.
On August 1, 1995, the Company converted its workers' compensation
coverage provided to employees to a fully insured, premium-based plan.
Prior to August 1, the Company was self-insured with respect to workers'
compensation. Liberty Mutual acted as administrator of the plan.
Litigation
The Company is involved in litigation arising in the ordinary course of
business. After consultation with legal counsel, management believes that
these matters will be resolved without material adverse effect on the
Company's future financial position or results of operations.
14
<PAGE>
STOW MILLS, INC. AND SUBSIDIARY
AND HENDRICKSON PARTNERS
COMBINED BALANCE SHEETS--APRIL 25, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
ASSETS
April 25, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 542,840 $ 412,017
Accounts receivable, net 14,979,938 14,171,382
Inventory 27,429,491 26,465,143
Prepaid expenses 612,608 521,815
--------------- ---------------
Total current assets 43,564,877 41,570,357
--------------- ---------------
PROPERTY AND EQUIPMENT, NET 12,049,010 12,287,236
--------------- ---------------
OTHER ASSETS, NET 521,464 521,464
--------------- ---------------
Total assets $ 56,135,351 $ 54,379,057
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capitalized lease obligations and long-term debt $ 936,431 $ 940,808
Accounts and drafts payable 15,885,214 12,514,514
Accrued expenses 2,240,061 1,448,266
Demand notes payable to officers/stockholders 583,226 583,226
--------------- ---------------
Total current liabilities 19,644,932 15,486,814
--------------- ---------------
LONG-TERM REVOLVING LINE OF CREDIT 20,522,307 23,193,244
--------------- ---------------
LONG-TERM DEBT, LESS CURRENT PORTION 5,064,250 5,283,161
--------------- ---------------
CAPITALIZED LEASE OBLIGATIONS, LESS CURRENT PORTION 295,184 358,664
--------------- ---------------
NOTES PAYABLE TO OFFICERS/STOCKHOLDERS 6,043,097 6,043,097
--------------- ---------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par value-
Voting-
Authorized--8,502 shares
Issued and outstanding--200 shares 200 200
Nonvoting-
Authorized, issued and outstanding--1,498 shares 1,498 1,498
Additional paid-in capital 299,641 299,641
Retained earnings/partners' capital 4,264,242 3,712,738
--------------- ---------------
Total stockholders' equity 4,565,581 4,014,077
--------------- ---------------
Total liabilities and stockholders' equity $ 56,135,351 $ 54,379,057
=============== ===============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
15
<PAGE>
STOW MILLS, INC. AND SUBSIDIARY
AND HENDRICKSON PARTNERS
COMBINED STATEMENTS OF OPERATIONS
FOR THE FOUR MONTHS ENDED
<TABLE>
<CAPTION>
April 25, 1997 April 26, 1996
(Unaudited)
<S> <C> <C>
NET SALES $ 69,699,795 $ 66,372,744
COST OF SALES 56,675,933 53,140,828
--------------- ---------------
Gross profit 13,023,862 13,231,916
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 11,450,995 11,546,479
--------------- ---------------
Income from operations 1,572,867 1,685,437
OTHER INCOME 132,278 93,688
INTEREST EXPENSE 977,496 815,579
--------------- ---------------
Net income before provision for income taxes 727,649 963,546
PROVISION FOR INCOME TAXES 106,145 48,722
--------------- ---------------
Net income $ 621,504 $ 914,824
=============== ===============
Net income per share $366.02 $538.77
======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
16
<PAGE>
STOW MILLS, INC. AND SUBSIDIARY
AND HENDRICKSON PARTNERS
COMBINED STATEMENTS OF CASH FLOWS
FOR THE FOUR MONTHS ENDED
<TABLE>
<CAPTION>
April 25, 1997 April 26, 1996
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 621,504 $ 914,824
Adjustments to reconcile net income to net cash provided by (used in) operating
activities-
Depreciation and amortization 442,114 458,553
Loss on sale disposal of property and equipment - 9,599
Changes in assets and liabilities, net of acquisition-
Accounts receivable, net (808,556) (370,982)
Inventory (964,348) (3,480,059)
Prepaid expenses (90,793) (24,583)
Other assets - (9,911)
Accounts and drafts payable 3,370,700 (2,572,836)
Accrued expenses 817,265 3,729,824
--------------- ---------------
Net cash provided by (used in) operating activities 3,387,886 (1,345,571)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition, net of cash acquired - (899,931)
Property and equipment additions (203,888) (51,265)
--------------- ---------------
Net cash used in investing activities (203,888) (951,196)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit (2,670,937) 2,866,747
Payments of long-term debt and capitalized lease obligations (286,768) (230,386)
Proceeds from notes payable to officers/stockholders - 25,928
Dividends paid (25,470) (16,980)
Cash distributions paid to partners (70,000) (60,000)
--------------- ---------------
Net cash provided by (used in) financing activities (3,053,175) 2,585,309
--------------- ---------------
NET INCREASE IN CASH 130,823 288,542
CASH, BEGINNING OF YEAR 412,017 387,199
--------------- ---------------
CASH, END OF YEAR $ 542,840 $ 675,741
=============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 786,853 $ 955,183
=============== ===============
Cash paid for taxes $ 10,000 $ 18,722
=============== ===============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Reconciliation of assets acquired and liabilities assumed in acquisition-
Fair value of assets acquired $ - $ 1,347,877
Cash paid - (900,881)
--------------- ---------------
Liabilities assumed $ - $ 446,996
=============== ===============
Capital lease obligation $ - $ 304,571
=============== ===============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
17
<PAGE>
STOW MILLS, INC. AND SUBSIDIARY
AND HENDRICKSON PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying unaudited combined financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation
of the financial statements, primarily consisting of normal recurring
adjustments, have been included. Operating results for the four months
ended April 25, 1997 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1997.
These statements should be read in conjunction with the consolidated
financial statements, notes and other information included in the
Company's December 31, 1996 financial statements.
(2) SUBSEQUENT EVENTS
Effective June 23, 1997, the Company signed an agreement to merge with
United Natural Foods, Inc. (United), a natural foods distributor
headquartered in Connecticut. The merger agreement requires that each
share of the Company's common stock be converted to 2,880.18 shares of
United's common stock, subject to certain adjustments, up to a maximum of
5,000,000 shares.
Effective June 20, 1997, the partners of Hendrickson Partners
(Hendrickson) assigned their ownership interests in Hendrickson to Stow
Mills, Inc. (Stow Mills). Stow Mills then dissolved the partnership and
issued 19 shares to each of the partners as consideration for
Hendrickson. The number of shares to be issued by Stow was determined by
dividing the book value of Hendrickson by the fair value of Stow's common
stock.
(3) STUB PERIODS PRESENTED
During interim periods, Stow Mills closes its books using a 13-week
quarter, which results in two four-week months and one five-week month in
a quarter.
(4) DEBT COVENANTS
The Company's line of credit and certain long-term debt agreements
contain financial and nonfinancial covenants. At April 30, 1997, the
Company was either in compliance with such covenants or such events of
noncompliance were waived by the banks.
18
<PAGE>
Exhibit 99.3
------- ----
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Combined Financial Statements (the "Pro
Forma Financial Statements") should be read in conjunction with the Consolidated
Financial Statements of United Natural and Stow appearing elsewhere in this
Proxy Statement. The Pro Forma Financial Statements are presented for
comparative purposes only and are not intended to be indicative of actual
results had the transactions occurred as of the dates indicated above or of
results which may be attained in the future.
The Pro Forma Balance Sheet combines United Natural's April 30, 1997
consolidated balance sheet with Stow's April 25, 1997 consolidated balance sheet
appearing elsewhere herein. Pursuant to the terms of the Merger, holders of
Stow Common Stock will be entitled to receive 2,880.18 shares of United Natural
Common Stock for each share of Stow Common Stock, subject to adjustment. The
following Pro Forma Statements of Income for the fiscal years ended October 31,
1994 and 1995 and the nine months ended July 31, 1996 and April 30, 1997
illustrate the effect of the Merger as if the Merger had occurred as of the
beginning of the earliest period presented. The Pro Forma Statements of Income
combine United Natural's historical results for each of the fiscal years ended
October 31, 1994 and 1995 and each of the nine months ended July 31, 1996 and
April 30, 1997 with the corresponding Stow results for each of the fiscal years
ended December 31, 1994 and 1995 and each of the nine months ended September 27,
1996 and April 25, 1997, respectively.
<PAGE>
Unaudited Pro Forma Condensed Combined Balance Sheet
April 30, 1997
(in thousands)
<TABLE>
<CAPTION>
Historical
------------------------------- Pro Forma Pro Forma
United Natural Stow Adjustments/1/ Combined
--------------- ----------- ---------------- ----------
<S> <C> <C> <C> <C>
Assets
Cash $ 21 $ 543 $ $ 564
Accounts receivable, net allowance 30,455 14,980 45,435
Notes receivable, trade 675 - 675
Inventories 48,619 27,429 475/3/ 76,523
Prepaid expenses 1,794 613 2,407
Deferred income taxes 1,003 -- 1,003
--------------- ----------- ---------------- ----------
Total current assets 82,567 43,565 475 126,607
Property & equipment, net 20,511 12,049 32,560
Goodwill, net 7,627 -- 7,627
Other, net 2,319 521 2,840
--------------- ----------- ---------------- ----------
Total Assets $113,024 $56,135 $ 475 $169,634
=============== =========== ================ ==========
Liabilities
Notes payable $ 15,525 $ 1,520 $ $ 17,045
Accounts payable 19,382 15,885 35,267
Accrued expenses 7,911 2,240 10,151
--------------- ----------- ---------------- ----------
Total current liabilities 42,818 19,645 62,463
Long-term debt 9,770 25,586 35,356
Long-term liabilities 1,103 295 190/3/ 1,588
Notes payable to
officers/stockholders -- 6,043 (6,043)/4/ --
Common stock 124 2 -- 126
Additional paid-in-capital 40,056 300 10,307/4,7/ 50,663
Other equity (2,995) - (2,995)
Retained earnings 22,148 4,264 (3,979)/3,7/ 22,433
--------------- ----------- ---------------- ----------
Total stockholders' equity 59,333 4,566 6,328 70,227
--------------- ----------- ---------------- ----------
Total liabilities and stockholders'
equity $113,024 $56,135 $ 475 $169,634
=============== =========== ================ ==========
</TABLE>
<PAGE>
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Fiscal Year Ended October 31, 1994
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Historical
------------------------------- Pro Forma Pro Forma
United Natural Stow/1/ Adjustments Combined
--------------- ----------- ---------------- ------------
<S> <C> <C> <C> <C>
Net sales $200,616 $159,265 $ -- $359,881
Cost of sales 156,498 129,295 (454)/3/ 285,339
--------------- ----------- ---------------- ------------
Gross profit 44,118 29,970 454 74,542
Operating expenses 36,733 28,885 -- 65,618
--------------- ----------- ---------------- ------------
Operating income 7,385 1,085 454 8,924
Interest and other expense 2,397 1,768 -- 4,165
--------------- ----------- ---------------- ------------
Income (loss) before income
taxes 4,988 (683) 454 4,759
Income taxes 1,971 51 (143)/5/ 1,879
--------------- ----------- ---------------- ------------
Net income (loss) $3,017 $(734) $597 $2,880
=============== =========== ================ ============
Net income (loss) per share/2/ $0.30 $0.19
=============== =========== ================ ============
Weighted average shares of
common
stock and common stock
equivalents/2/ 10,094,036 1,698 5,000,000 15,094,036
</TABLE>
<PAGE>
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Fiscal Year Ended October 31, 1995
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Historical
------------------------------- Pro Forma Pro Forma
United Natural Stow/1/ Adjustments Combined
--------------- ----------- ---------------- ------------
<S> <C> <C> <C> <C>
Net sales $283,323 $175,526 $ -- $458,849
Cost of sales 223,482 140,594 (319)/3/ 363,757
--------------- ----------- ---------------- ------------
Gross profit 59,841 34,932 319 95,092
Operating expenses 51,079 32,702 -- 83,781
--------------- ----------- ---------------- ------------
Operating income 8,762 2,230 319 11,311
Interest and other expense 3,230 2,312 -- 5,542
--------------- ----------- ---------------- ------------
Income (loss) before income
taxes 5,532 (82) 319 5,769
Income taxes 2,929 24 (71)/5/ 3,024
--------------- ----------- ---------------- ------------
Net income (loss) $2,603 $(106) $248 $2,745
=============== =========== ================ ============
Net income (loss) per share/2/ $0.26 $0.18
=============== =========== ================ ============
Weighted average shares of
common
stock and common stock
equivalents/2/ 10,148,374 1,698 5,000,000 15,148,374
</TABLE>
<PAGE>
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Nine Months Ended July 31, 1996
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Historical
------------------------------- Pro Forma Pro Forma
United Natural Stow/1/ Adjustments Combined
--------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales $286,448 $153,394 $ -- $439,842
Cost of sales 226,482 123,273 (33)/3/ 349,722
--------------- ----------- ----------- ------------
Gross profit 59,966 30,121 33 90,120
Operating expenses 49,357 26,903 -- 76,260
Operating income 10,609 3,218 33 13,860
--------------- ----------- ----------- ------------
Interest and other expense 3,806 1,721 -- 5,527
Income before income taxes 6,803 1,497 33 8,333
--------------- ----------- ----------- ------------
Income taxes 2,778 105 507/5/ 3,390
Net income $4,025 $1,392 $ (474) $4,943
--------------- ----------- ----------- ------------
Net income per share/2/ $0.40 $0.33
=============== =========== =========== ============
Supplemental pro forma
adjustment to
compensation expense:
Contractual reduction to
be made in officers'
salaries/6/ 1,700
Related income taxes (680)
------------
Supplemental pro forma net
income after contractual
reduction to be made in
officers' salaries/6/ $5,963
============
Supplemental pro forma net
income per share after
contractual reduction to
be made in officers'
salaries/2,6/ -- -- $0.39
============
Weighted average shares of
common stock and common
stock equivalents/2/ 10,143,809 1,698 5,000,000 15,143,809
</TABLE>
<PAGE>
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Nine Months Ended April 30, 1997
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Historical
------------------------------- Pro Forma Pro Forma
United Natural Stow/1/ Adjustments Combined
--------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $311,038 $154,920 $ -- $465,958
Cost of sales 246,622 125,963 (30)/3/ 372,555
--------------- ----------- ----------- ----------
Gross profit 64,416 28,957 30 93,403
Operating expenses 50,997 26,525 -- 77,522
--------------- ----------- ----------- ----------
Operating income 13,419 2,432 30 15,881
Interest and other expense 2,361 1,914 4,275
--------------- ----------- ----------- ----------
Income before income taxes and
extraordinary item 11,058 518 30 11,606
Income taxes 4,606 35 184/5/ 4,825
--------------- ----------- ----------- ----------
Income before extraordinary
item $ 6,452 $ 483 $ (154) $ 6,781
=============== =========== =========== ==========
Income per share of common
stock
before extraordinary item/2/ $ 0.57 $ 0.42
=============== ==========
Supplemental pro forma
adjustment
to compensation expense:
Contractual reduction to
be made in officers'
salaries/6/ 2,268
Related income taxes (907)
Supplemental pro forma income
before
extraordinary item, after
contractual reduction to
be made in officers'
salaries/6/ $8,142
==========
Supplemental pro forma income
before
extraordinary item, per
share after contractual
reduction to be made in
officers' salaries/2,6/ -- -- $0.50
==========
Weighted average shares of
common
stock and common stock
equivalents/2/ 11,331,810 1,698 5,000,000 16,331,810
</TABLE>
<PAGE>
Notes to Unaudited Pro Forma Condensed
Combined Financial Statements
Note 1 Basis of Presentation
The unaudited pro forma condensed combined balance sheet combines United
Natural's consolidated condensed balance sheet as of April 30, 1997 and Stow's
consolidated condensed balance sheet as of April 25, 1997, giving effect to the
Merger as if it had occurred on April 30, 1997. There have been no adjustments
for income taxes (as if Stow had not been a Subchapter S corporation) and the
contractual change in compensation made in the unaudited pro forma condensed
combined balance sheet.
Except for converting Stow's financial information from the LIFO method of
accounting for inventories to the FIFO method and conforming the method of
inventory capitalization, no adjustments have been made in these pro forma
condensed combined financial statements to conform the accounting policies of
the combining companies. The nature and extent of other such adjustments, if
any, are not expected to be significant.
Stow's two-month period ended September 27, 1996 has been included twice in
the unaudited pro forma condensed combined statements of operations. Stow's net
sales, profit from operations and net income were $31,002,682, $507,382 and
$90,643, respectively, for this period. Stow did not pay dividends during this
period.
The calculation of pro forma income per common share uses the weighted
average number of common shares outstanding, including common share equivalents,
and 38 shares of Stow Common Stock issued in June 1997 in exchange for the
partnership interests of Hendrickson Partners, which were owned by the two
Principal Stow Stockholders in equal proportions. Stow paid dividends of $10.00
per share in each of 1995 and 1996 and $15.00 per share in 1997.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the Merger had been consummated at the beginning of the
earliest period presented, nor is it necessarily indicative of future operating
results or the future financial position of United Natural.
Note 2 Pro Forma Number of Shares Outstanding
The number of shares of United Natural Common Stock that will be issued in
the Merger in exchange for the outstanding shares of Stow Common Stock assumes
an exchange ratio of 2,880.18 shares of United Natural Common Stock.
<PAGE>
The following table sets forth the pro forma number of shares to be
outstanding after completion of the Merger based on the number of shares of
United Natural Common Stock outstanding as of June 20, 1997:
<TABLE>
<S> <C>
Number of shares of Stow common stock outstanding as of June 20, 1997............ 1,736
Exchange ratio................................................................... 2,880.18
------------
Number of shares of United Natural common stock issued in the merger............. 5,000,000
Number of shares of United Natural common stock outstanding as of
June 20, 1997.................................................................... 12,378,425
------------
Number of shares of United Natural common stock outstanding after completion
of the merger.................................................................... 17,378,425
============
</TABLE>
Note 3 Inventories and Cost of Sales
Stow's inventories were increased by $475,000 at April 30, 1997 to reflect
United Natural's intention to conform Stow's accounting treatment for
inventories (LIFO) to that of United Natural's (FIFO) and to standardize the
methods of inventory capitalization. The tax effect of the change is reflected
in deferred income tax liability.
Stow's cost of sales has been decreased by $454,000, $319,000, $33,000 and
$30,000 for the fiscal years ended October 31, 1994 and 1995 and the nine months
ended July 31, 1996 and April 30, 1997, respectively.
Note 4 Contribution of Demand Promissory Notes to Capital
All demand promissory notes of Stow to its stockholders, together with
unpaid accrued interest thereon, are being contributed to the capital of Stow in
accordance with the provisions of the Merger Agreement.
Note 5 S Corporation Status of Stow
Stow has been an S corporation and therefore was not subject to federal
corporate income taxes. The unaudited pro forma condensed combined statements
of operations give effect principally to federal income taxes as though Stow had
been subject to federal income taxes for all periods presented. The combined
federal and state tax rate utilized for all periods presented is approximately
40%.
Note 6 Contractual Reduction in Officers' Salaries
Represents adjustment of officers' salaries based on a proposed employment
contract with one of the stockholders who will remain with the combined
enterprise. The stockholder's duties and responsibilities will not be diminished
with the result that other costs will be incurred that offset the pro forma
adjustment to compensation expense. These adjustments have been reflected for
the most recent year and interim period as this information is necessary for
investors to realistically assess the impact of the combination.
<PAGE>
Note 7 Common Stock
Common Stock was increased by approximately $50,000 to record the United
Natural Common Stock that will be issued in the Merger and was decreased by
approximately $2,000 to record the retirement of the Stow Common Stock.
In addition, the retained earnings of Stow, an S corporation, have been
reclassified as additional paid-in capital.
Note 8 Costs of Merger
It is estimated that Merger-related fees and expenses, consisting primarily
of transaction costs for fees of investment bankers, attorneys and accountants,
will be approximately $3 million. The impact of these fees and expenses are not
reflected in the pro forma combined financial data.
