<PAGE>
________________________________________________________________________________
===========================================================
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 January 31, 1997
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)
<TABLE>
<CAPTION>
<S> <C>
Delaware 05-0376157
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
</TABLE>
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 X No
--- ---
As of March 11, 1997, 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 JANUARY 31, 1997
TABLE OF CONTENTS
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of July 31, 1996 and
January 31, 1997
Consolidated Statements of Income for the three months
and six months ended January 31, 1996 and January 31, 1997
Consolidated Statements of Cash Flows for the six months
ended January 31, 1996 and January 31, 1997
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II. Other Information
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 JANUARY 31, 1997
------------- ----------------
ASSETS
------
<S> <C> <C>
Current assets:
Cash $51,255 $99,512
Accounts receivable, net of allowance 25,657,156 29,793,407
Notes receivable, trade 360,137 769,976
Inventories 38,667,548 41,543,462
Prepaid expenses 1,691,548 1,658,755
Refundable income taxes - 305,803
Deferred income taxes 796,216 847,361
-------------- -----------------
Total current assets 67,223,860 75,018,276
-------------- -----------------
Property & equipment, net 20,603,663 20,908,134
-------------- -----------------
Other assets:
Notes receivable, trade 1,067,697 620,305
Goodwill, net 7,977,316 7,698,255
Covenants not to compete, net 1,236,313 913,485
Other, net 635,290 715,969
-------------- -----------------
Total assets $98,744,139 $105,874,424
============== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable $30,112,868 $12,331,035
Current installments of long-term debt 4,086,795 1,370,095
Current installment of obligations under capital leases 357,404 376,418
Accounts payable 17,139,406 19,412,531
Accrued expenses 4,978,331 3,648,629
Income taxes payable 303,513 -
Other 158,149 72,437
-------------- -----------------
Total current liabilities 57,136,466 37,211,145
Long-term debt, excluding current installments 22,170,855 10,763,446
Deferred income taxes 407,346 357,894
Obligations under capital leases, excluding current installments 847,918 1,131,710
-------------- -----------------
Total liabilities 80,562,585 49,464,195
-------------- -----------------
Stockholders' equity:
Common stock, $.01 par value, authorized 25,000,000 shares; issued
8,713,100 and outstanding 8,692,695 shares for 1996 and issued
12,398,830 and outstanding 12,378,425 for 1997 87,131 123,988
Additional paid-in capital 1,383,511 40,056,154
Stock warrants 3,200,000 0
Unallocated shares of ESOP (3,073,600) (2,992,000)
Retained earnings 16,628,966 19,266,541
Treasury stock, 20,405 shares at cost (44,454) (44,454)
-------------- -----------------
Total stockholders' equity 18,181,554 56,410,229
-------------- -----------------
-------------- -----------------
Total liabilities and stockholders' equity $98,744,139 $105,874,424
============== =================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
----------- -----------
THREE MONTHS ENDED SIX MONTHS ENDED
JANUARY 31, JANUARY 31,
----------- -----------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $92,283,081 $103,405,227 $ 187,105,059 $202,905,937
Cost of sales 72,938,633 81,979,534 148,714,833 160,888,311
--------------- -------------- ---------------- --------------
Gross profit 19,344,448 21,425,693 38,390,226 42,017,626
--------------- -------------- ---------------- --------------
Operating expenses 15,988,149 16,938,256 31,902,688 33,445,088
Amortization of intangibles 255,850 264,679 2,078,796 530,356
--------------- -------------- ---------------- --------------
Total operating expenses 16,243,999 17,202,935 33,981,484 33,975,444
--------------- -------------- ---------------- --------------
Operating income 3,100,449 4,222,758 4,408,742 8,042,182
--------------- -------------- ---------------- --------------
Other expense (income):
Interest expense 1,340,372 602,728 2,559,036 2,044,556
Other, net (46,931) (71,840) (95,764) (142,359)
--------------- -------------- ---------------- --------------
Total other expense 1,293,441 530,888 2,463,272 1,902,197
--------------- -------------- ---------------- --------------
Income before income taxes
and extraordinary item 1,807,008 3,691,870 1,945,470 6,139,985
Income taxes 697,948 1,508,400 1,466,937 2,569,481
--------------- -------------- ---------------- --------------
Income before extraordinary
item 1,109,060 2,183,470 478,533 3,570,504
Extraordinary item - loss on early
extinguishment of debt, net of income
tax benefit of $661,822 - 932,929 - 932,929
--------------- -------------- ---------------- --------------
Net income $1,109,060 $1,250,541 $478,533 $2,637,575
=============== ============== ================ ==============
Income per share of common stock
before extraordinary item $ 0.11 $ 0.18 $ 0.05 $ 0.33
=============== ============== ================ ==============
Extraordinary item $ - $ 0.08 $ - $ 0.08
=============== ============== ================ ==============
Net income per share of common stock $ 0.11 $ 0.10 $ 0.05 $ 0.25
=============== ============== ================ ==============
Weighted average shares of common stock 10,134,693 12,411,226 10,134,693 10,679,663
=============== ============== ================ ==============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
-----------
SIX MONTHS ENDED
JANUARY 31,
-----------
1996 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $478,533 $2,637,575
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Extraordinary loss on early extinguishment of debt, net of tax benefit - 932,929
Depreciation, amortization and write-off of intangibles 3,913,898 2,254,224
Loss on disposals of property & equipment 18,608 5,946
Accretion of original issue discount 285,348 152,847
Deferred income taxes (benefit) 105,201 (100,597)
Provision for doubtful accounts 879,091 1,528,950
Increase in accounts receivable (4,883,930) (5,665,201)
Increase in inventory (3,329,730) (2,875,914)
(Increase) decrease in prepaid expenses (152,889) 32,793
Increase in refundable income taxes - (305,803)
Increase in other assets (148,048) (80,679)
(Increase) decrease in notes receivable, trade (377,928) 37,553
Increase in accounts payable 2,723,720 2,273,125
Increase (decrease) in accrued expenses 1,737,323 (1,415,414)
Increase in income taxes payable 83,048 358,309
------------------ -----------------
Net cash provided by (used in) operating activities 1,332,245 (229,357)
------------------ -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposals of property and equipment 94,053 55,667
Capital expenditures (11,614,140) (2,018,419)
------------------ -----------------
Net cash used in investing activities (11,520,087) (1,962,752)
------------------ -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under note payable 3,625,491 (17,781,833)
Repayments on long-term debt (1,920,065) (15,736,363)
Proceeds from long-term debt 8,460,593 500,236
Principal payments of capital lease obligations (208,931) (251,174)
Proceeds from issuance of common stock, net - 35,509,500
------------------ -----------------
Net cash provided by financing activities 9,957,088 2,240,366
------------------ -----------------
NET INCREASE (DECREASE) IN CASH (230,754) 48,257
Cash at beginning of period 286,242 51,255
------------------ -----------------
Cash at end of period $55,488 $99,512
================== =================
Supplemental disclosures of cash flow information:
- -------------------------------------------------
Cash paid during the period for:
Interest $2,534,671 $2,286,971
================== =================
Income taxes $1,247,904 $2,427,367
================== =================
</TABLE>
See notes to consolidated fianancial statements.
<PAGE>
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997
(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.
Certain 1996 balances have been reclassified to conform to the 1997
presentation.
2. SALE OF COMMON STOCK
The Company completed an initial public offering of 2,900,000 shares 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 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 $1.6 million ($.9 million net of tax) which is
recorded as an extraordinary item 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) $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, Inc. in connection
<PAGE>
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. SALE OF COMMON STOCK (Continued)
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.
On November 6, 1996, in connection with the initial public offering, Triumph
exercised its warrant to purchase 1,166,660 shares of the Company's Common Stock
at an exercise price of $.01 per share. Based upon the provisions of the
Triumph Note, the Company then repurchased 380,930 of such shares at a purchase
price of $.01 per share.
The following table summarizes the changes in stockholders' equity for the six
months ended January 31, 1997 and reflects 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. The net proceeds therefrom (after deducting the underwriting discounts
and commissions and offering expenses) were used to repay the indebtedness noted
above, including the remaining original issue discount of approximately $1.6
million ($.9 million net of tax) which has been recorded as an extraordinary
item in the quarter ended January 31, 1997.
<TABLE>
<CAPTION>
Unallocated
Shares of
Employee
Additional Stock
Common Paid-in Stock Ownership Retained Treasury Stockholders'
Stock Capital Warrants Plan Earnings Stock Equity
-------- ----------- ------------ ------------ ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at July 31, 1996 $ 87,131 $ 1,383,511 $ 3,200,000 $(3,073,600) $16,628,966 $(44,454) $18,181,554
Issuance of 2,900,000
shares of common stock
at $13.50 per share, net of
expenses of issuance 29,000 35,480,500 - - - - 35,509,500
Exercise of stock warrants 7,857 3,192,143 (3,200,000) - - - -
Allocation of shares to Employee
Stock Ownership Plan - - - 81,600 - - 81,600
Net income for the six
months ended January 31, 1997 - - - - 2,637,575 - 2,637,575
-------- ----------- --- ----------- ----------- -------- -------------
Balances at January 31, 1997 $123,988 $40,056,154 $0 $(2,992,000) $19,266,541 $(44,454) $56,410,229
======== =========== === =========== =========== ======== =============
</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 $2,406,705 at January 31, 1997.
<PAGE>
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 January 31,
1997.
The Company extended its $1 million leasing arrangement with Citizens Leasing
Corporation effective January 31, 1997 for a one-year period.
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 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 the daily weighted average per share 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 $1.6 million ($.9 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 six months ended January 31, 1997
would have been as follows:
<TABLE>
<S> <C>
Income per share of common stock before
extraordinary item $ 0.28
Extraordinary item (0.07)
-----------
Net income per share of common stock $ 0.21
===========
Supplementary weighted average shares of common stock 12,658,555
===========
</TABLE>
<PAGE>
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. NET INCOME PER SHARE OF COMMON STOCK (Continued)
No dividends were declared or paid during the six months ended January 31, 1997.
7. SUBSEQUENT EVENT
In March 1997, the Company amended its $50 million credit agreement with its
bank to provide for working capital, mortgages and term loans. In connection
with this facility, the Company has the ability to borrow up to $10 million for
acquisitions. Interest under the facility accrues at the Company's option at
New York Prime Rate or 1.00% above the bank's London Interbank Offered Rate
(LIBOR), and the Company has the option to fix the rate for all or a portion of
the debt for a period up to 180 days. Interest on the mortgage facility will
accrue at 1.25% above the bank's LIBOR rate, although the Company has the option
to fix the rate for a period of five years at a rate of 1.25% above the five-
year U.S Treasury Note rate. The Company has pledged all of its assets as
collateral for its obligations under the credit agreement. As of January 31,
1997, the Company's outstanding borrowings under the credit agreement totaled
$18.0 million. The credit agreement expires on July 31, 2002.
<PAGE>
Item 2
Management 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
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.
In February 1996, a subsidiary of the Company merged with and into Mountain
Peoples Warehouse, Inc. (Mountain Peoples) whereupon Mountain Peoples became a
wholly owned subsidiary of the Company. The merger with Mountain Peoples was
accounted for as a pooling of interests and, accordingly, all financial
information included is reported as though the companies had been combined for
all periods reported.
In May 1995, prior to its merger with the Company, Mountain Peoples
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.
Statements contained in this Form 10-Q that are not historical facts are
forward-looking statements that are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. The Company cautions
that a number of important factors could cause the Company's actual results for
fiscal 1997 and beyond to differ materially from those expressed in any forward-
looking statements made by, or on behalf of, the Company. Forward-looking
statements involve a number of risks and uncertainties including, but not
limited to, continued demand for current products, the success of new product
introductions, the success of the Company's acquisition strategy, competitive
pressures, general economic conditions, and possible regulatory matters. The
Company cannot assure that it will be able to anticipate or respond timely to
changes in any of the factors listed above, which could adversely affect the
operating results in one or more fiscal quarters. Results of operations in any
past period should not be considered indicative of the results to be expected
for future periods. Fluctuations in operating results may also result in
fluctuations in the price of the Company's common stock.
Quarter Ended January 31, 1997 Compared to Quarter Ended January 31, 1996
-------------------------------------------------------------------------
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.
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
JANUARY 31,
1996 1997
---- ----
$$$ % $$$ %
--- - --- -
<S> <C> <C> <C> <C>
Net sales $92.3 100.0% $103.4 100.0%
Cost of sales 73.0 79.0% 82.0 79.3%
-------- ---------- --------- -------
Gross profit 19.3 21.0% 21.4 20.7%
-------- ---------- --------- -------
Operating expenses 16.0 17.3% 16.9 16.3%
Amortization of intangibles 0.2 0.3% 0.3 0.3%
-------- ---------- --------- -------
Total operating expenses 16.2 17.6% 17.2 16.6%
-------- ---------- --------- -------
Operating income 3.1 3.4% 4.2 4.1%
-------- ---------- --------- -------
Other expense (income):
Interest expense 1.3 1.4% 0.6 0.6%
Other, net 0.0 0.0% (-0.1) (-0.1%)
-------- ---------- --------- -------
Total other expense 1.3 1.4% 0.5 0.5%
-------- ---------- --------- -------
Income before income taxes and
extraordinary item 1.8 2.0% 3.7 3.6%
Income taxes 0.7 0.8% 1.5 1.5%
-------- ---------- --------- -------
Income before extraordinary item 1.1 1.2% 2.2 2.1%
Extraordinary item - loss on early extinguishment of
debt, net of income tax benefit 0 0.0% 0.9 0.9%
-------- ---------- --------- -------
Net income $ 1.1 1.2% $ 1.3 1.2%
======== ========== ========= =======
</TABLE>
<PAGE>
Net Sales. The Company's net sales increased approximately 12.0%, or
$11.1 million, to $103.4 million for the three months ended January 31, 1997
from $92.3 million for the three months ended January 31, 1996. 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. The Company believes that
sales for the quarter were negatively impacted as result of extreme winter
storms in the Pacific Northwest region.
Gross Profit. The Company's gross profit increased approximately 10.9%,
or $2.1 million, to $21.4 million for the three months ended January 31, 1997
from $19.3 million for the three months ended January 31, 1996. The Company's
gross profit as a percentage of net sales decreased to 20.7% for the three
months ended January 31, 1997 from 21.0% for the three months ended January 31,
1996. The decrease in gross profit as a percentage of net sales was primarily
attributable to the Company's increased sales to existing customers which
resulted in greater discounts being earned by these customers through the
Company's volume discount program.
Operating Expenses. The Company's total operating expenses increased
approximately 6.2%, or $1.0 million, to $17.2 million for the three months ended
January 31, 1997 from $16.2 million for the three months ended January 31, 1996.
However, as a percentage of net sales, operating expenses decreased to 16.6% for
the three months ended January 31, 1997 from 17.6% for the three months ended
January 31, 1996.
The decrease in total operating expenses 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 continued integration of its recent
acquisitions.
Operating Income. Operating income increased $1.1 million, or
approximately 35.5%, to $4.2 million for the three months ended January 31,
1997 from $3.1 million for the three months ended January 31, 1996. As a
percentage of net sales, operating income increased to 4.1% in the three months
ended January 31, 1997 from 3.4% in the three months ended January 31, 1996.
Other Income/(Expense). Other Income/(Expense) decreased $0.8 million, or
approximately 61.5%, for the three months ended January 31, 1997 from $1.3
million for the three months ended January 31, 1996. The decrease was primarily
attributable to lower interest payments in the three months ended January 31,
1997 resulting from the use of the proceeds of the initial public offering to
repay debt.
Income Taxes. The Company's effective income tax rate was 40.4% and 38.6%
for the three months ended January 31, 1997 and January 31, 1996, respectively.
The effective rates were higher than the federal statutory rate primarily due to
state and local taxes for the three months ended January 31, 1997 and January
31, 1996, respectively.
<PAGE>
Net Income. As a result of the foregoing, the Company's net income
increased by $0.2 million to $1.3 million for the three months ended January 31,
1997 from $1.1 million in the three months ended January 31, 1996.
Excluding the $1.6 million loss ($0.9 million net of taxes) on early
extinquishment of debt, net income would have been $2.2 million for the three
months ended January 31, 1997.
Six Months Ended January 31, 1997 Compared to Six Months Ended January 31, 1996
- -------------------------------------------------------------------------------
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>
SIX MONTHS ENDED
JANUARY 31,
1996 1997
---- ----
$$$ % $$$ %
--- - --- -
<S> <C> <C> <C> <C>
Net sales $187.1 100.0% $202.9 100.0%
Cost of sales 148.7 79.5% 160.9 79.3%
--------- -------- -------- -------
Gross profit 38.4 20.5% 42.0 20.7%
--------- -------- -------- -------
Operating expenses 31.9 17.1% 33.5 16.5%
Amortization of intangibles 2.1 1.1% 0.5 0.3%
--------- -------- -------- -------
Total operating expenses 34.0 18.2% 34.0 16.8%
--------- -------- -------- -------
Operating income 4.4 2.3% 8.0 3.9%
--------- -------- -------- -------
Other expense (income):
Interest expense 2.6 1.4% 2.0 1.0%
Other, net (-0.1) (-0.1%) (-0.1) (-0.1%)
--------- -------- -------- -------
Total other expense 2.5 1.3% 1.9 0.9%
--------- -------- -------- -------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Income before income taxes and
extraordinary item 1.9 1.0% 6.1 3.0%
Income taxes 1.4 0.8% 2.6 1.3%
--------- -------- -------- -------
Income before extraordinary item 0.5 0.2% 3.5 1.7%
Extraordinary item - loss on early extinguishment of
debt, net of income tax benefit 0.0 0.0% 0.9 0.5%
--------- -------- -------- -------
Net income $ 0.5 0.2% $ 2.6 1.2%
========= ======== ======== =======
</TABLE>
Net Sales. The Company's net sales increased approximately 8.4%, or $15.8
million, to $202.9 million for the six months ended January 31, 1997 from $187.1
million for the six months ended January 31, 1996. The increase in net sales
was primarily attributable to increased volume 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.
Gross Profit. The Company's gross profit increased approximately 9.4%, or
$3.6 million, to $42.0 million for the six months ended January 31, 1997 from
$38.4 million for the six months ended January 31, 1996. The Company's gross
profit as a percentage of net sales increased to 20.7% for the six months ended
January 31, 1997 from 20.5% for the six months ended January 31, 1996. 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 expand its supplier sponsored marketing programs during fiscal 1997. The
increase in gross profit percentage for the six months ended January 31, 1997
was partially offset by greater discounts being earned by customers through the
Company's volume discount program.
Operating Expenses. The Company's total operating expenses remained
constant at $34.0 million for the six months ended January 31, 1997 which
equaled the total operating expenses for the six months ended January 31, 1996.
However, as a percentage of net sales, operating expenses decreased to 16.8% for
the six months ended January 31, 1997 from 18.2% for the six months ended
January 31, 1996.
Operating expenses for the six months ended January 31, 1997 included a
charge of $0.4 million 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.
Excluding this charge, operating expenses would have been $33.6 million or 16.6%
of net sales.
Operating expenses for the six months ended January 31, 1996 included a
non-recurring
<PAGE>
charge of $1.6 million 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 this non-recurring charge, the Company's total
operating expenses would have been $32.4 million, or 17.3% of net sales, for the
six months ended January 31, 1996.
The decrease in total operating expenses 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 continued integration of its recent
acquisitions.
Operating Income. Operating income increased $3.6 million, or approximately
81.8%, to $8.0 million for the six months ended January 31, 1997 from $4.4
million for the six months ended January 31, 1996. As a percentage of net sales,
operating income increased to 3.9% for the six months ended January 31, 1997
from 2.3% for the six months ended January 31, 1996.
Excluding the $0.4 million charge discussed above for the six months ended
January 31, 1997 and the $1.6 million non-recurring charge for the six months
ended January 31, 1996, operating income would have been $8.4 million, or 4.1%
of net sales, for the six months ended January 31, 1997, and $6.0 million, or
3.2% of net sales, for the six months ended January 31, 1996.
Other Income/(Expense). Other Income/(Expense) decreased $0.6 million, or
approximately 23%, to $1.9 million for the six months ended January 31, 1997
from $2.5 million for the six months ended January 31, 1996. The decrease was
primarily attributable to lower interest payments in the six months ended
January 31, 1997 resulting from the use of the proceeds of the initial public
offering to re-pay debt.
Income Taxes. The Company's effective income tax rate was 42.0% and 75.4%
for the six months ended January 31, 1997 and 1996, respectively. The effective
rate at January 31, 1997 was higher than the federal statutory rate primarily
due to state and local taxes. The effective rate at January 31, 1996 was higher
than the federal statutory rate primarily due to nondeductible goodwill
amortization, especially the write-off of the intangible assets in the six
months ended January 31, 1996, as well as state and local income taxes.
Net Income. As a result of the foregoing, the Company's net income
increased by $2.1 million to $2.6 million for the six months ended January 31,
1997 from $0.5 million for the six months ended January 31, 1996. Excluding the
$2.0 million ($1.2 million net of taxes) in non-recurring charges discussed
above for the six months ended January 31, 1997 and the $1.6 million ($1.3
million net of taxes) non-recurring charge for the six months ended January 31,
1996, net income would have been $3.8 million for the six months ended January
31, 1997 and $1.8 million for the six months ended January 31, 1996.
<PAGE>
Liquidity and Capital Resources
- -------------------------------
In November 1996, the Company sold 2,900,000 shares of Common Stock in an
initial public offering which generated net proceeds of $36.4 million prior to
offering expenses. The Company used the net proceeds to reduce its long term
debt and amounts owed under its revolving line of credit.
In March 1997, the Company amended its $50 million credit agreement with
its bank to provide for working capital, mortgages and term loans. In connection
with this facility, the Company has the ability to borrow up to $10 million for
acquisitions. Interest under the credit facility accrues at the Company's
option at New York Prime Rate or 1.00% above the bank's London Interbank Offered
Rate (LIBOR), and the Company has the option to fix the rate for all or a
portion of the debt for a period of up to 180 days. Interest on the mortgage
facility will accrue at 1.25% above the bank's LIBOR rate, although the Company
has the option to fix the rate for a period of five years at a rate of 1.25%
above the five-year U.S. Treasury Note. The Company has pledged all of its
assets as collateral for its obligations under the credit agreement. As of
January 31, 1997, the Company's outstanding borrowings under the credit
agreement totaled $18.0 million. The credit agreement expires on July 31,
2002.
Historically, the Company has financed its operations and growth primarily
with cash flows generated from operations, borrowings under its credit facility,
seller financing from 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 (used in)/provided by operations was ($0.2 million) and
$1.3 million for the six months ended January 31, 1997 and January 31, 1996,
respectively. The decrease in cash generated from operations for the six months
ended January 31, 1997 relates primarily to the increases in inventory and
accounts receivable necessary to support sales growth and changes in accrued
expense. On January 31, 1997, the Company had working capital of $37.8 million.
Cash used in investing activities was $2.0 million and $11.5 million for
the six months ended January 31, 1997 and January 31, 1996, respectively. The
1997 period includes the purchase of material handling equipment, tractors and
trailers and the development and implementation of new management information
systems. The 1996 period includes the purchase of the Company's Connecticut
distribution facility and the related purchase of material handling equipment.
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 were $2.2
million and $10.0 million for the six months ended January 31, 1997 and January
31, 1996, respectively. During the six months ended January 31, 1997, cash from
financing activities consisted of the proceeds from the issuance of common
stock, a portion of which was used to repay long-term debt and the expenses
associated with the initial public offering. During the six months ended January
31, 1996, net cash provided by financing activities included proceeds from the
long-
<PAGE>
term debt used to purchase the Connecticut distribution facility.
On October 1 1996, the Company entered into a $1 million leasing
arrangement with Mellon Bank/US Leasing. The leasing facility will be used for
the purchase of management information systems and material handling equipment.
As of January 31, 1997, the Company's outstanding balance under the capital
lease totaled $447,000.
On January 31, 1997 the Company extended its $1 million leasing arrangement
with Citizens Leasing Corporation for a one-year period. The leasing facility
will be used for the purchase of management information systems and material
handling equipment. As of January 31, 1997, the Company had not drawn down on
this facility.
The Company currently expects to make aggregate capital expenditures of
approximately $13.0 million for fiscal 1997 and 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
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,
product 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 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
<PAGE>
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 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: March 14, 1997
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- ------------
<S> <C>
11 Computation of Earnings Per Share
27 Financial Data Schedule
</TABLE>
<PAGE>
Exhibit 11 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JANUARY 31, JANUARY 31,
----------- -----------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary:
Weighted average shares outstanding 8,713,100 12,138,051 8,713,100 10,415,373
Net effect of dilutive stock options and stock
warrants based upon the treasury stock method
using the initial public offering price for 1996
periods and average stock price for 1997 periods 1,421,593 273,174 1,421,593 264,290
------------ ------------ ------------ ------------
Total 10,134,693 12,411,226 10,134,693 10,679,663
============ ============ ============ ============
Net Income $1,109,060 $1,250,541 $478,533 $2,637,575
============ ============ ============ ============
Per share amount $0.11 $0.10 $0.05 $0.25
============ ============ ============ ============
Fully diluted:
Weighted average shares outstanding 8,713,100 12,138,051 8,713,100 10,415,373
Net effect of dilutive stock options and stock
warrants based upon the treasury stock method
using the initial public offering price for 1996
periods and period end stock price if higher
than average stock price for 1997 periods 1,421,593 273,174 1,421,593 264,290
------------ ------------ ------------ ------------
Total 10,134,693 12,411,226 10,134,693 10,679,663
============ ============ ============ ============
Net Income $1,109,060 $1,250,541 $478,533 $2,637,575
============ ============ ============ ============
Per share amount $0.11 $0.10 $0.05 $0.25
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM
CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED JANUARY 31, 1997 AND
THE CONSOLIDATED BALANCE SHEET AS OF JANUARY 31, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 99,512
<SECURITIES> 0
<RECEIVABLES> 32,970,088
<ALLOWANCES> 2,406,705
<INVENTORY> 41,543,462
<CURRENT-ASSETS> 75,018,276
<PP&E> 31,243,524
<DEPRECIATION> 10,335,390
<TOTAL-ASSETS> 105,874,424
<CURRENT-LIABILITIES> 37,211,145
<BONDS> 11,895,156
0
0
<COMMON> 123,988
<OTHER-SE> 56,286,241
<TOTAL-LIABILITY-AND-EQUITY> 105,874,424
<SALES> 202,905,937<F1>
<TOTAL-REVENUES> 202,905,937
<CGS> 160,888,311
<TOTAL-COSTS> 160,888,311
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,528,950
<INTEREST-EXPENSE> 2,044,556
<INCOME-PRETAX> 6,139,985
<INCOME-TAX> 2,569,481
<INCOME-CONTINUING> 2,637,575
<DISCONTINUED> 0
<EXTRAORDINARY> 932,929
<CHANGES> 0
<NET-INCOME> 2,637,575
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
<FN>
<F1>SIX MONTHS ENDED JANUARY 31, 1997
</FN>
</TABLE>
