<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-KA
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
Date of Report: August 12, 1999
WILD OATS MARKETS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 0-21577 84-1100630
(State or other jurisdiction of Commission Files Number (I.R.S. Employer Identification
incorporation or organization) Number)
</TABLE>
3375 Mitchell Lane
Boulder, Colorado 80301
(Address of principal executive offices, including zip code)
(303) 440-5220
(Registrant's telephone number, including area code)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Item 2. Acquisition or Disposition of Assets. 3
Item 7. Financial Statements and Exhibits. 3
SIGNATURES 4
</TABLE>
2
<PAGE>
Item 2. Acquisition or Disposition of Assets
On May 29, 1999, Wild Oats Markets, Inc. (the "Company") acquired all of the
outstanding capital stock of Nature's Fresh Northwest, Inc. ("Nature's"), a
Delaware corporation, from General Nutrition, Incorporated ("GNI"). The capital
stock was acquired for a purchase price of $40.0 million in cash and the
assumption of a $17.0 million promissory note payable by Nature's to GNI. The
purchase price for the capital stock was based on several factors, including
purchase price as a multiple of 12-month gross sales, cash flows, and projected
store contribution to profit.
The cash portion of the purchase price was paid by a draw by the Company on an
existing $80.0 million revolving line of credit extended by certain lenders to
the Company.
As a result of the acquisition of the stock of Nature's, the Company acquired
seven operating natural foods grocery stores and two additional stores then
under construction (of which one was a relocation of an existing store) located
in the metropolitan Portland, Oregon area. The Company also acquired title to a
parcel of real property owned by Nature's and on which one of the operating
stores is located, and leasehold interests in one additional site on which a
store is currently under construction. This store is scheduled to open in the
first quarter of 2000. The Company intends to continue to operate all of the
existing stores and stores currently under development as natural foods grocery
stores. Immediately following the acquisition of the capital stock, Nature's was
merged into the Company.
Item 7. Financial Statements and Exhibits
The following financial statements, pro forma financial information and exhibits
are filed as a part of this report.
(a) Financial statements of the business acquired, prepared pursuant to Rule
3.05 of Regulation S-X:
<TABLE>
<CAPTION>
Item Page
- ---- ----
<S> <C>
Audited financial statements of Nature's Fresh Northwest, Inc.
Report of PricewaterhouseCoopers LLP, Independent Accountants 5
Statement of Operations for the Fiscal Year Ended February 6, 1999 6
Balance Sheet as of February 6, 1999 7
Statement of Changes in Stockholders' Equity for the Fiscal Year
Ended February 6, 1999 8
Statement of Cash Flows for the Fiscal Year Ended February 6, 1999 9
Notes to the Financial Statements 10-13
Unaudited interim financial statements of Nature's Fresh Northwest, Inc.
Statement of Operations for the Four Months Ended May 29, 1999 14
Balance Sheet as of May 29, 1999 15
Statement of Cash Flows for the Four Months Ended May 29, 1999 16
Notes to Unaudited Interim Financial Statements 17
</TABLE>
3
<PAGE>
(b) Pro forma financial information required pursuant to Article 11 of
Regulation S-X:
<TABLE>
<CAPTION>
Item Page
---- ----
<S> <C>
Wild Oats Markets, Inc. and Nature's Fresh Northwest, Inc. Pro Forma Combined
Condensed Financial Statements (Unaudited) 18
Pro Forma Combined Condensed Statement of Operations for the Fiscal
Year Ended January 2, 1999 19
Pro Forma Combined Condensed Statement of Operations for the Fiscal
Quarter Ended April 3, 1999 20
Pro Forma Combined Condensed Balance Sheet as of April 3, 1999 21
Notes to Pro Forma Combined Condensed Financial Statements 22
</TABLE>
(c) The following exhibits to this Form 8-KA are filed pursuant to the
requirements of Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Exhibit Number Description of Document
- -------------- -----------------------
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
2.1+ Stock Purchase Agreement between Nature's Fresh Northwest, Inc., General
Nutrition, Incorporated and Registrant dated April 22, 1999
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Previously filed.
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, on the 12th day of August, 1999.
Wild Oats Markets, Inc.
By /s/ Mary Beth Lewis
------------------------
Mary Beth Lewis
Executive Officer, Treasurer and Chief
Financial Officer
(Principal Financial and Accounting
Officer)
4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of Nature's Fresh Northwest, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in stockholder's equity and of cash flows present fairly,
in all material respects, the financial position of Nature's Fresh Northwest,
Inc. (the "Company") at February 6, 1999 and the results of its operations and
its cash flows for the year then ended, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Denver, Colorado
July 9, 1999
5
<PAGE>
NATURE'S FRESH NORTHWEST, INC.
STATEMENT OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
For the Fiscal Year Ended February 6,
1999
- ---------------------------------------------------------------------------
<S> <C>
Sales $58,324
Cost of goods sold and occupancy costs 39,123
-------
Gross profit 19,201
Operating expenses
Direct store expenses 12,654
Selling, general and administrative expenses 4,674
Pre-opening expenses 36
-------
Income from operations 1,837
Interest expense 1,482
-------
Income before income taxes 355
Income tax expense 146
-------
Net income $ 209
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
NATURE'S FRESH NORTHWEST, INC.
BALANCE SHEET
(In thousands, except share amounts)
<TABLE>
<CAPTION>
As of
February 6,
1999
- -----------------------------------------------------------------------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 756
Inventories, net 3,715
Accounts receivable 66
Prepaid expenses and other current assets 119
Deferred income taxes 106
-------
Total current assets 4,762
Property and equipment, net 25,171
Deposits and other assets 3
-------
$29,936
=======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 3,106
Accrued liabilities 1,876
Note payable to related party 21,207
Current portion of obligations under capital leases 513
-------
Total current liabilities 26,702
Obligations under capital leases 1,181
Deferred income taxes 888
Other long-term obligations 104
-------
28,875
-------
Commitments and contingencies (Note 7)
Stockholder's equity:
Common stock; no par value; 10,000,000
shares authorized; 1,421,053 issued and outstanding 260
Retained earnings 801
-------
Total stockholder's equity 1,061
-------
$29,936
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
NATURE'S FRESH NORTHWEST, INC.
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Total
Common Stock Retained Stockholder's
Shares Amount Earnings Equity
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 31, 1998 1,421,053 $260 $ 592 $ 852
Net income 209 209
--------- ---- ------ ------
Balance at February 6, 1999 1,421,053 $260 $ 801 $1,061
========= ==== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the Fiscal Year Ended February 6,
1999
- ---------------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 209
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,258
Loss on disposal of property and equipment 30
Deferred tax provision 450
Change in assets and liabilities:
Inventories (1,220)
Receivables and other assets 250
Accounts payable (843)
Accrued liabilities (81)
--------
Net cash provided by operating activities 215
--------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (12,877)
--------
Net cash used by investing activities (12,877)
--------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under note payable to related party 13,543
Principal payments under capitalized leases (245)
--------
Net cash provided by financing activities 13,298
--------
Net increase in cash and cash equivalents 636
Cash and cash equivalents at beginning of year 120
--------
Cash and cash equivalents at end of year $ 756
========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 146
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Organization
Nature's Fresh Northwest, Inc. ("Nature's" or the "Company"), a Delaware
corporation headquartered in Portland, Oregon, and a wholly-owned subsidiary of
General Nutrition, Incorporated ("GNI"), owns and operates retail grocery stores
specializing in natural foods. The Company also operates a kitchen and
warehouse that supply the retail stores. The Company's operations are
concentrated in one market segment--grocery stores--and are geographically
concentrated with five stores in the Portland metropolitan area and one store in
Vancouver, Washington. Management considers a downturn in this market segment
and geographic location to be unlikely.
Fiscal Year
The Company's fiscal year ends on the Saturday closest but not prior to January
31 of each year. The fiscal year consists of 52 or 53 weeks divided into four
quarters; the first three quarters contain 12 weeks and the last quarter
contains 16 weeks in a 52-week year and 17 weeks in a 53-week year. Fiscal year
1999 was a 53-week period.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Such cash equivalents
aggregated approximately $108,000 at February 6, 1999.
Inventories
Inventories consisting of products held for sale are stated at the lower of cost
(first-in, first-out) or market, as determined by the retail inventory method.
Depreciation and Amortization
Property and equipment are recorded at cost. Depreciation is computed on a
straight-line basis over the estimated useful lives of the respective assets
(three to ten years). Leasehold improvements are amortized on a straight-line
basis over the shorter of the useful life of the asset or the lease term.
Maintenance and repairs are expensed as incurred, and improvements are
capitalized.
Pre-Opening Expenses
Pre-opening expenses consist primarily of labor costs, rent, utilities,
supplies, and other expenses incurred in connection with the opening of a new
store. During fiscal 1999, pre-opening expenses were recognized as incurred.
Advertising
Advertising is expensed as incurred. Advertising expense was $770,000 for
fiscal 1999.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, including cash and
cash equivalents, short-term trade receivables and payables and long-term debt,
approximate their fair values.
Use of Estimates
The preparation of these financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
New Accounting Pronouncements
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("FAS") No. 131, Disclosure about Segments of an
Enterprise and Related Information. FAS No. 131 revises the current
requirements for reporting business segments by redefining such segments
according to management's disaggregation of the business for purposes of making
operating decisions and allocating internal resources. The Company adopted FAS
No. 131 in fiscal 1999. The adoption of FAS No. 131 did not affect results of
operations, financial position, or the disclosure of segment information as the
Company has one reportable segment, retail sales.
10
<PAGE>
2. Related Party Transactions
The Company has a note payable due to GNI, its parent company, in the amount of
$19.3 million as of February 6, 1999. The note is a senior secured multiple
advance note for borrowings up to $25.0 million to fund daily operations and new
store construction. See related discussion in Note 5.
During fiscal 1999, the Company paid approximately $357,000 in lease payments to
a landlord who is also a director of the Company. As of February 6, 1999, the
Company had a $327,000 liability for deferred rent due to this individual. The
amount was subsequently paid in full.
3. Property and Equipment
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
February 6,
Fiscal Year Ended 1999
- ----------------- -----------
<S> <C>
Machinery and equipment $ 7,829
Leasehold improvements 3,164
Land and building 12,900
Construction in progress 3,328
-------
27,221
Less accumulated depreciation
and amortization (2,050)
-------
$25,171
=======
</TABLE>
The amounts shown above include $2.5 million of machinery and equipment which
are accounted for as capitalized leases and which have accumulated amortization
of $906,000 at February 6, 1999.
4. Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
February 6,
Fiscal Year Ended 1999
- ----------------- -----------
<S> <C>
Accrued wages and employee costs $1,072
Deferred charges and other accruals 804
------
$1,876
======
</TABLE>
5. Note Payable and Long-Term Debt
Long-term debt outstanding consists of the following (in thousands):
<TABLE>
<CAPTION>
February 6,
1999
----
<S> <C>
Note payable to related party (see Note 2),
Principal due upon demand or upon default of any
obligation under the terms of the note, bearing interest
on unpaid principal at a variable rate per annum equal
to GNI's borrowing rate at its fiscal quarter-ends plus
0.125% per annum (rate at February 6, 1999 of 9.0%),
interest installments in arrears due quarterly with the first
of such fiscal quarters ending April 26, 1997, collaterized
by assets and a security interest $21,207
Capitalized leases 1,694
-------
22,901
Less current portion (21,720)
-------
$ 1,181
=======
</TABLE>
During fiscal 1999, all interest payments due under the terms of the note
totaled approximately $1.3 million and were added to the principal balance. On
May 29, 1999, the terms of this note were amended. See Note 8.
11
<PAGE>
Scheduled maturities of long-term debt as of February 6, 1999 are as follows (in
thousands):
<TABLE>
<S> <C>
2000 $21,928
2001 527
2002 343
2003 332
2004 19
Thereafter 7
-------
23,156
Less interest 255
-------
$22,901
=======
</TABLE>
6. Income Taxes
Income tax expense (benefit) consists of the following (in thousands):
<TABLE>
<CAPTION>
February 6,
Fiscal Year Ended 1999
- ----------------- --------
<S> <C>
Current: Federal $(257)
State (47)
----
(304)
----
Deferred: Federal 390
State 60
----
450
----
$146
====
</TABLE>
The differences between the U.S. federal statutory income tax rate and the
Company's effective tax rate are as follows:
<TABLE>
<CAPTION>
February 6,
Fiscal Year Ended 1999
- ----------------- -----------
<S> <C>
Statutory tax rate 35.0%
State income taxes, net of federal
income tax benefit 3.9
Other, net 2.1
----
Effective tax rate 41.0%
====
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are as follows (in
thousands):
<TABLE>
<CAPTION>
February 6,
Fiscal Year Ended 1999
- ----------------- -----------
<S> <C>
Deferred tax assets
Inventory related $ 47
Vacation accrual 49
Other accruals 209
------
Total deferred tax assets 305
------
Deferred tax liabilities
Property related (1,087)
------
Total deferred tax liabilities (1,087)
------
Net deferred tax liability $ (782)
======
</TABLE>
7. Commitments
The Company has several noncancelable operating leases related to facilities
occupied and store equipment. These leases generally contain renewal provisions
at the option of the Company. Total rental expense (consisting of minimum rent
and contingent rent) under these leases was $1.2 million during fiscal 1999.
12
<PAGE>
Future minimum lease payments under noncancelable operating leases as of
February 6, 1999 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal year ending
<S> <C>
2000 $ 1,187
2001 1,406
2002 1,440
2003 1,412
2004 1,373
Thereafter 12,926
-------
Total minimum lease payments $19,744
=======
</TABLE>
Minimum rentals for operating leases do not include contingent rentals which may
become due under certain lease terms which provide that rentals may be increased
based on a percentage of sales. The Company paid contingent rentals of $77,000
during fiscal 1999.
8. Subsequent Events
On May 29, 1999, the senior secured multiple advance note between the Company
and GNI was amended to provide that 20 percent of the outstanding principal
balance is due on or before May 28, 2000 with the remaining balance and all
accrued interest due on or before November 28, 2000. There is no penalty or
premium for early prepayment.
Also on May 29, 1999, Wild Oats Markets, Inc. ("Wild Oats") acquired all of the
outstanding capital stock of Nature's from GNI. The capital stock was acquired
for a purchase price of $40.0 million in cash and the assumption of a $17.0
million promissory note payable by Nature's to GNI. The Company also acquired
title to a parcel of real property owned by Nature's and on which one of the
operating stores is located, and leasehold interests in one additional site on
which a store is currently under construction. Wild Oats acquired seven
operating natural foods grocery stores owned by Nature's and two additional
stores then under construction (of which one was a relocation of an existing
store). Immediately following the acquisition of the capital stock, Nature's was
merged into Wild Oats. These financial statements do not give effect to this
transaction.
13
<PAGE>
NATURE'S FRESH NORTHWEST, INC.
STATEMENT OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
For the Four Months Ended May 29,
1999
(Unaudited)
- ----------------------------------------------------------------------
<S> <C>
Sales $20,502
Cost of goods sold and occupancy costs 13,352
-------
Gross profit 7,150
Operating expenses
Direct store expenses 4,826
Selling, general and administrative expenses 1,596
Pre-opening expenses 30
-------
Income from operations 698
Interest expense 514
-------
Income before income taxes 184
Income tax expense 75
-------
Net income $ 109
=======
</TABLE>
The accompanying notes are an integral part of these financial statements
(unaudited).
14
<PAGE>
NATURE'S FRESH NORTHWEST, INC.
BALANCE SHEET
(In thousands, except share amounts)
<TABLE>
<CAPTION>
As of
May 29,
1999
(Unaudited)
- ----------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 589
Inventories, net 4,099
Accounts receivable, net of allowance for doubtful accounts of $5 171
Prepaid expenses and other current assets 136
Deferred income taxes 125
-------
Total current assets 5,120
Property and equipment, net 27,328
Deposits and other assets 78
-------
$32,526
=======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 2,654
Accrued liabilities 1,875
Note payable to related party 3,400
Current portion of obligations under capital leases 593
-------
Total current liabilities 8,522
Obligations under capital leases 940
Non-current portion of note payable to related party 13,600
Deferred income taxes 1,182
Other long-term obligations 104
-------
24,348
-------
Stockholder's equity:
Common stock; no par value; 10,000,000
shares authorized; 1,421,053 issued and outstanding 260
Additional paid-in capital 7,008
Retained earnings 910
-------
Total stockholder's equity 8,178
-------
$32,526
=======
</TABLE>
The accompanying notes are an integral part of these financial statements
(unaudited).
15
<PAGE>
NATURE'S FRESH NORTHWEST, INC.
STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the Four Months Ended May 29,
1999
(Unaudited)
- ---------------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 109
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 529
Loss on disposal of property and equipment 33
Deferred tax provision 275
Change in assets and liabilities:
Inventories (384)
Receivables and other assets (197)
Accounts payable (452)
Accrued liabilities (1)
-------
Net cash used by operating activities (88)
-------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (2,719)
-------
Net cash used by investing activities (2,719)
-------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under note payable to related party 2,801
Principal payments under capitalized leases (161)
-------
Net cash provided by financing activities 2,640
-------
Net decrease in cash and cash equivalents (167)
Cash and cash equivalents at beginning of year 756
-------
Cash and cash equivalents at end of year $ 589
=======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 37
=======
</TABLE>
The accompanying notes are an integral part of these financial statements
(unaudited).
16
<PAGE>
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Organization
Nature's Fresh Northwest, Inc. ("Nature's" or the "Company"), a Delaware
corporation headquartered in Portland, Oregon, and a wholly-owned subsidiary of
General Nutrition, Incorporated ("GNI"), owns and operates retail grocery stores
specializing in natural foods. The Company also operates a kitchen and
warehouse that supply the retail stores. The Company's operations are
concentrated in one market segment--grocery stores--and are geographically
concentrated with six stores in the Portland metropolitan area and one store in
Vancouver, Washington. Management considers a downturn in this market segment
and geographic location to be unlikely.
The unaudited financial statements and related notes have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations. The
accompanying financial statements and related notes should be read in
conjunction with the audited financial statements of the Company, and notes
thereto, for the fiscal year ended February 6, 1999.
The unaudited interim financial statements reflect all adjustments which are, in
the opinion of management, necessary to a fair statement of the results for the
interim period presented.
Fiscal Year
The Company's fiscal year ends on the Saturday closest but not prior to January
31 of each year. The fiscal year consists of 52 or 53 weeks divided into four
quarters; the first three quarters contain 12 weeks, and the last quarter
contains 16 weeks in a 52-week year and 17 weeks in a 53-week year. Fiscal year
2000 is a 52-week period.
Use of Estimates
The preparation of these financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. Business Combination
On May 29, 1999, Wild Oats Markets, Inc. ("Wild Oats") acquired all of the
outstanding capital stock of Nature's from GNI. The capital stock was acquired
for a purchase price of $40.0 million in cash and the assumption of a $17.0
million promissory note payable by Nature's to GNI. The Company also acquired
title to a parcel of real property owned by Nature's and on which one of the
operating stores is located, and leasehold interests in one additional site on
which a store is currently under construction. Wild Oats acquired seven
operating natural foods grocery stores owned by Nature's and two additional
stores then under construction (of which one was a relocation of an existing
store). Immediately following the acquisition of the capital stock, Nature's was
merged into Wild Oats. These financial statements do not give effect to this
transaction.
3. Related Party Transactions
During the four months ended May 29, 1999, the Company paid approximately
$93,000 in lease payments to a landlord who is also a director of the Company.
The Company also paid this individual $225,000 of lease buy-out costs.
Subsequent to May 29, 1999, the Company paid this individual $327,000 of
deferred rent.
On May 29, 1999, the senior secured multiple advance note between the Company
and GNI was amended to reduce the principal balance of the note to $17.0
million. The note reduction was recorded as a capital contribution in
additional paid-in capital. Under the terms of the amendment, 20 percent of the
outstanding principal balance is due on or before May 28, 2000 with the
remaining balance and all accrued interest due on or before November 28, 2000.
There is no penalty or premium for early prepayment.
17
<PAGE>
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
On May 29, 1999, Wild Oats acquired all of the outstanding capital stock of
Nature's from GNI. The capital stock was acquired for a purchase price of $40.0
million in cash and the assumption of a $17.0 million promissory note payable by
Nature's to GNI. As part of the acquisition of the stock of Nature's, Wild Oats
acquired Nature's seven operating natural food grocery stores and two additional
stores then under constuction (of which one was a relocation of an existing
store) located in the metropolitan Portland, Oregon area. The Company also
acquired title to a parcel of real property owned by Nature's and on which one
of the operating stores is located, and leasehold interests in one additional
site on which a store is under construction. Immediately following the
acquisition of the capital stock, Nature's was merged into Wild Oats.
The following unaudited pro forma financial information supplements financial
information with respect to Wild Oats Markets, Inc. ("Wild Oats" or the
"Company") contained in the Company's Annual Report on Form 10-K for the fiscal
year ended January 2, 1999, and should be read in conjunction with the
consolidated historical financial statements and the related notes thereto of
Wild Oats, which have been incorporated by reference, and the historical
financial statements and the related notes thereto of Nature's, which are
included herein. The unaudited pro forma combined condensed statement of
operations for the fiscal year ended January 2, 1999 gives effect to the
acquisition of Nature's by Wild Oats as if the acquisition, accounted for as a
purchase, had occurred December 28, 1997. Similarly, the unaudited pro forma
combined condensed financial statements as of and for the fiscal quarter ended
April 3, 1999 should be read in conjunction with the consolidated historical
financial statements and the related notes thereto of Wild Oats contained in the
Company's Form 10-Q for the fiscal quarter ended April 3, 1999, which have been
incorporated by reference, and the unaudited financial statements and the
related notes thereto of Nature's for the four months ended May 29, 1999, which
are included herein. The unaudited pro forma combined condensed financial
statements as of and for the fiscal quarter ended April 3, 1999 give effect to
the acquisition of Nature's by Wild Oats as if the acquisition, accounted for as
a purchase, had occurred January 3, 1999. The unaudited pro forma combined
condensed financial statements are based on the respective historical financial
statements and the notes thereto, which are incorporated by reference or
included elsewhere herein. The pro forma combined condensed financial
statements do not give effect to other acquisitions which both individually and
in the aggregate were immaterial.
In the opinion of the Company, all adjustments necessary to present fairly such
pro forma combined condensed financial statements have been made. These
unaudited pro forma combined condensed financial statements are presented for
informational purposes only and are not necessarily indicative of what actual
results would have been had the transactions occurred at the beginning of the
applicable periods nor does it purport to indicate the future operating results
or financial position of the Company.
18
<PAGE>
Wild Oats Markets, Inc.
Pro Forma Combined Condensed Statement of Operations (Unaudited)
(In thousands, except per-share amounts)
<TABLE>
<CAPTION>
Historical
-------------------------
Wild Oats Nature's Year Ended January 2, 1999
Year Ended Year Ended ------------------------------
January 2, February 6, Pro Forma Pro Forma
1999 1999 Adjustments Combined
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Sales $398,857 $58,324 $457,181
Costs of goods sold
and occupancy costs 274,780 39,123 $ (593) (a) 313,310
-------- ------- ------- --------
Gross profit 124,077 19,201 593 143,871
Direct store expenses 87,035 12,654 99,689
Selling, general and
administrative expenses 14,687 4,674 986 (b) 20,347
Pre-opening expenses 3,277 36 3,313
Non-recurring expenses 393 393
-------- ------- ------- --------
Income from
operations 18,685 1,837 (393) 20,129
Interest income
(expense), net 688 (1,482) (2,400) (c) (3,194)
-------- ------- ------- --------
Income (loss) before
income taxes 19,373 355 (2,793) 16,935
Income tax expense
(benefit) 7,725 146 (721) (d) 7,150
-------- ------- ------- --------
Net income (loss) $ 11,648 $ 209 $(2,072) $ 9,785
======== ======= ======= ========
Unaudited pro forma basic
net income per share $ 0.90 $ 0.75
======== ========
Unaudited pro forma
weighted average number
of common shares
outstanding 12,967 12,967
======== ========
Unaudited pro forma diluted
net income per share $ 0.87 $ 0.73
======== ========
Unaudited pro forma
weighted average number
of common shares
outstanding 13,393 13,393
======== ========
</TABLE>
The accompanying notes are an integral part of the pro forma combined condensed
statement of operations (unaudited).
19
<PAGE>
Wild Oats Markets, Inc.
Pro Forma Combined Condensed Statement of Operations (Unaudited)
(In thousands, except per-share amounts)
<TABLE>
<CAPTION>
Historical
------------------------------
Wild Oats Nature's Quarter Ended April 3, 1999
Quarter Ended Quarter Ended -----------------------------
April 3, May 1, Pro Forma Pro Forma
1999 1999 Adjustments Combined
-------------- ------------- ------------ ----------
<S> <C> <C> <C> <C>
Sales $122,508 15,244 137,752
Costs of goods sold
and occupancy costs 84,858 9,954 $(148) (a) 94,664
-------- ------- ----- --------
Gross profit 37,650 5,290 148 43,088
Direct store expenses 27,107 3,447 30,554
Selling, general and
administrative expenses 4,378 1,203 246 (b) 5,827
Pre-opening expenses 663 24 687
Non-recurring expenses 10,894 10,894
-------- ------- ----- --------
Income (loss) from
operations (5,392) 616 (98) (4,874)
Interest expense, net 90 514 600 (c) 1,204
-------- ------- ----- --------
Income (loss) before
income taxes (5,482) 102 (698) (6,078)
Income tax
expense (benefit) (2,465) 42 (203) (d) (2,626)
-------- ------- ----- --------
Net income (loss) (3,017) 60 (495) (3,452)
Cumulative effect of
change in accounting
principle, net of tax 281 281
-------- ------- ----- --------
Net income (loss) $ (3,298) $ 60 $(495) $ (3,733)
======== ======= ===== ========
Unaudited pro forma basic
net income (loss)
per share $ (0.25) $ (0.29)
======== ========
Unaudited pro forma
weighted average number
of common shares
outstanding 13,091 13,091
======== ========
Unaudited pro forma diluted
net income per share $ (0.25) $ (0.29)
======== ========
Unaudited pro forma
weighted average number
of common shares
outstanding 13,091 13,091
======== ========
</TABLE>
The accompanying notes are an integral part of the pro forma combined condensed
statement of operations (unaudited).
20
<PAGE>
Wild Oats Markets, Inc.
Pro Forma Combined Condensed Balance Sheet (Unaudited)
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Historical
----------------------
Wild Oats Nature's As of April 3, 1999
As of As of ------------------------------
April 3, May 1, Pro Forma Pro Forma
1999 1999 Adjustments Combined
--------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 9,066 $ 38 $ 9,104
Inventories, net 30,834 3,676 34,510
Accounts receivable 1,662 268 1,930
Prepaid expenses and
current assets 1,159 121 1,280
Deferred income taxes 1,539 125 1,664
-------- ------- -------
Total current assets 44,260 4,228 48,488
Property and equipment, net 97,585 26,612 $(2,966) (e) 121,231
Intangible assets, net 71,618 39,437 (e) 111,055
Deposits and other assets 1,261 28 1,289
-------- ------- ------- ---------
$214,724 $30,868 $36,471 $282,063
======== ======= ======= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 27,275 $ 2,514 29,789
Accrued liabilities 13,223 1,864 15,087
Note payable 21,216 21,216
Current portion of long-term debt 593 593
-------- ------- ---------
Total current liabilities 40,498 26,187 66,685
Long-term debt 22,300 1,020 $40,000 (g) 63,320
Non-current portion of
long-term debt
Deferred income taxes 2,016 1,182 (1,154) (e) 2,044
Other long-term liabilities 1,649 104 1,753
-------- ------- ------- ---------
66,463 28,493 38,846 133,802
-------- ------- ------- ---------
Stockholders' equity:
Preferred stock; 5,000,000 shares
authorized; none issued and
outstanding
Common stock; $.001 par value;
20,000,000 shares authorized;
13,077,884 issued and
outstanding 13 260 (260) (f) 13
Additional paid-in capital 141,228 1,254 (1,254) (f) 141,228
Retained earnings 6,964 861 (861) (f) 6,964
Accumulated other
comprehensive income 56 56
-------- ------- ------- ---------
Total stockholders' equity 148,261 2,375 (2,375) 148,261
-------- ------- ------- ---------
$214,724 $30,868 $36,471 $282,063
======== ======= ======= =========
</TABLE>
The accompanying notes are an integral part of the pro forma combined condensed
balance sheet (unaudited).
21
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands)
(a) Reduction of depreciation related to adjustment of Nature's assets to
fair value; such assets were depreciated over a five-year life on a
straight-line basis.
(b) Amortization of the incremental excess of the acquisition cost over the
related fair value of assets acquired and liabilities assumed, over 40
years on a straight-line basis.
(c) Increase in interest expense associated with $40.0 million draw on the
Company's line of credit to partially fund the Nature's acquisition.
(d) Tax effect of pro forma adjustments.
(e) Adjustment to record assets and liabilities at fair value and goodwill from
Nature's acquisition under purchase accounting.
(f) Elimination of the stockholder's equity accounts of Nature's.
(g) Increase in amounts due under non-current line of credit totaling $40.0
million.
22
