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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-21531
UNITED NATURAL FOODS, INC.
(Exact name of Registrant as Specified in Its Charter)
Delaware 05-0376157
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
260 Lake Road
Dayville, CT 06241
(Address of Principal Executive Offices, Including Zip Code)
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 December 11, 1997, there were 17,356,705 shares of the Registrant's Common
Stock, $0.01 par value per share, outstanding.
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UNITED NATURAL FOODS, INC.
FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 31, 1997
TABLE OF CONTENTS
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of July 31, 1997 and
October 31, 1997
Consolidated Statements of Income for the three months
ended October 31, 1996 and October 31, 1997
Consolidated Statements of Cash Flows for the three months
ended October 31, 1996 and October 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 2. Changes in Securities and Use of Proceeds
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JULY 31, 1997 OCTOBER 31, 1997
------------- ----------------
ASSETS
------
Current assets:
Cash $952,498 $510,529
Accounts receivable, net of allowance 42,952,127 48,761,073
Notes receivable, trade 866,160 901,209
Inventories 71,508,896 78,760,752
Prepaid expenses 4,109,945 3,176,573
Deferred income taxes 1,031,767 1,031,767
----------------- -----------------
Total current assets 121,421,393 133,141,903
----------------- -----------------
Property & equipment, net 32,412,128 32,263,488
----------------- -----------------
Other assets:
Notes receivable, trade 995,398 1,367,381
Goodwill, net 7,579,408 8,118,112
Covenants not to compete, net 591,665 603,547
Other, net 1,560,583 827,500
----------------- -----------------
Total assets $164,560,575 $176,321,931
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable $27,221,690 $34,461,765
Current installments of long-term debt 3,016,218 2,128,404
Current installment of obligations under capital leases 680,533 475,069
Accounts payable 30,535,786 38,706,515
Accrued expenses 6,298,682 9,041,738
Income taxes payable 377,322 1,288,796
Other 190,667 180,375
----------------- -----------------
Total current liabilities 68,320,898 86,282,662
Long-term debt, excluding current installments 26,453,762 15,147,634
Deferred income taxes 677,560 677,560
Obligations under capital leases, excluding current installments 1,235,928 886,048
----------------- -----------------
Total liabilities 96,688,148 102,993,904
----------------- -----------------
Stockholders' equity:
Common stock, $.01 par value, authorized 25,000,000 shares;
issued 17,377,110 and outstanding 17,356,705 173,771 173,771
Additional paid-in capital 45,702,244 51,745,341
Unallocated shares of ESOP (2,910,400) (2,869,600)
Retained earnings 24,951,266 24,322,969
Treasury stock, 20,405 shares at cost (44,454) (44,454)
----------------- -----------------
Total stockholders' equity 67,872,427 73,328,027
----------------- -----------------
----------------- -----------------
Total liabilities and stockholders' equity $164,560,575 $176,321,931
================= =================
See notes to consolidated financial statements.
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
OCTOBER 31,
-----------
1996 1997
---- ----
Net sales $146,302,981 $173,382,986
Cost of sales 116,656,617 139,193,855
------------ -------------
Gross profit 29,646,364 34,189,131
------------ -------------
Operating expenses 25,075,027 27,659,453
Merger expenses - 4,063,912
Amortization of intangibles 265,677 260,063
------------ -------------
Total operating expenses 25,340,704 31,983,428
------------ -------------
Operating income 4,305,660 2,205,703
------------ -------------
Other expense (income):
Interest expense 2,110,905 1,081,169
Other, net (148,374) (167,993)
------------ -------------
Total other expense 1,962,531 913,176
------------ -------------
Income before income taxes 2,343,129 1,292,527
Income taxes 1,053,905 1,920,824
------------ -------------
Net income (loss) $ 1,289,224 $ (628,297)
============ =============
Pro forma additional income tax expense (benefit) (35,880) 320,098
------------ -------------
Pro forma net income (loss) $ 1,325,104 $ (948,395)
============ =============
Supplemental pro forma net income (loss)
after contractual reduction of officer compensation $ 1,809,442 $ (492,167)
============ =============
Pro forma net income (loss) per share of common stock $ 0.09 $ (0.05)
============ =============
Supplemental pro forma net income (loss) per share
of common stock after contractual reduction of
officer compensation $ 0.12 $ (0.03)
============ =============
Weighted average shares of common stock 15,092,568 17,777,593
============ =============
See notes to consolidated financial statements.
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
OCTOBER 31,
-----------
1996 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $1,289,224 $ (628,297)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,638,148 1,380,372
Gain on disposals of property & equipment (1,000) (11,786)
Accretion of original issue discount 152,847 -
Provision for doubtful accounts 541,610 131,528
Increase in accounts receivable (3,174,703) (5,940,474)
Increase in inventory (7,179,711) (6,917,372)
Decrease in prepaid expenses 197,345 933,372
(Increase) decrease in other assets (145,546) 874,239
(Increase) decrease in notes receivable, trade 23,622 (407,032)
Increase in accounts payable 7,043,811 8,170,729
Increase (decrease) in accrued expenses (162,566) 2,732,767
Increase in income taxes payable 399,433 911,474
------------ ------------
Net cash provided by operating activities 622,514 1,229,520
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of a new business - (1,359,484)
Proceeds from disposals of property and equipment 1,000 124,875
Capital expenditures (1,183,972) [970,766]
------------ ------------
Net cash used in investing activities (1,182,972) (2,205,375)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under note payable 1,215,029 7,240,075
Repayments on long-term debt (919,055) (6,150,845)
Proceeds from long-term debt 587,741 -
Principal payments of capital lease obligations (148,397) (555,344)
Stock issuance expenses (381,639) -
Cash distributions to partners 30,000 -
------------ ------------
Net cash provided by financing activities 383,679 533,886
------------ ------------
NET DECREASE IN CASH (176,779) (441,969)
Cash at beginning of period 1,282,471 952,498
------------ ------------
Cash at end of period $1,105,692 $ 510,529
============ ============
Supplemental disclosures of cash flow information:
- --------------------------------------------------
Cash paid during the period for:
Interest $1,954,462 $1,115,246
============ ============
Income taxes $583,497 $892,355
============ ============
See notes to consolidated financial statements.
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED OCTOBER 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.
On October 31, 1997, a subsidiary of the Company completed its merger with Stow
Mills, Inc. ("Stow") wherein Stow became a wholly owned subsidiary of the
Company. The merger with Stow 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. Net sales for the quarter
ended October 31, 1996 and 1997 for United Natural Foods, Inc. (pre merger) were
approximately $99.1 million and $116.5 million, respectively. Net income for the
quarter ended October 31, 1996 and 1997 for United Natural Foods, Inc. was $1.4
million and $1.2 million, respectively. Net sales for the quarter ended October
31, 1996 and 1997 for Stow were $47.2 million and $56.9 million, respectively.
Net losses for the quarter ended October 31, 1996 and 1997 for Stow were $(0.1)
million and $(1.8) million, respectively.
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. 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 fiscal 1997 balances have been reclassified to conform to the fiscal
1998 presentation.
2. 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
$2,411,379 at July 31, 1997 and $2,542,907 at October 31, 1997.
3. PRO FORMA AND SUPPLEMENTAL PRO FORMA NET INCOME (LOSS)
Stow was subject to taxation as an S corporation until the merger on October 31,
1997. For pro forma disclosure purposes, income tax adjustments were assumed in
order to reflect results as if Stow had been subject to taxation as a C
corporation.
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(continued)
In addition, for supplemental pro forma disclosure purposes, adjustments were
made to reflect the contractual reduction of officer compensation. The
adjustments totaled $749,000 and $654,000 for the quarter ended October 31, 1996
and 1997, respectively.
4. NOTE PAYABLE
In October 1997, the Company amended its credit agreement with its bank to
increase the amount of the facility from $50 million to $100 million, to
increase the limit on inventory advances to $50 million and the advance rate to
60%, to establish a term loan of $6.6 million and to increase the aggregate
amount of real estate acquisition loans and real estate term loans to $20
million. The agreement also provides for the bank to syndicate the credit
facility to other banks and lending institutions. The credit facility will be
used to repay existing indebtedness of Stow owing to the Company's bank and for
general operating capital needs. Interest under the facility, except the
portion related to the mortgage commitments, accrues at the Company's option at
the 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 October 31,
1997, the Company's outstanding borrowings under the credit agreement totaled
$34.5 million. The credit agreement expires on July 31, 2002.
5. SUBSEQUENT EVENT
In connection with the amendment to the Company's credit agreement with its bank
as explained in Note 4, an Agency and Interlender Agreement was entered into by
the Company, its bank and two additional participating banks effective December
1, 1997. This agreement states that the Company's primary bank will participate
in this credit facility with the other banks.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Background And Other Information
United Natural Foods, Inc. (the "Company") is one of only two national
distributors of natural foods and related products in the United States. On
October 31, 1997, a subsidiary of the Company completed its merger with Stow
Mills, Inc. ("Stow"), whereupon Stow became a wholly owned subsidiary of the
Company. Upon consummation of the merger, Stow became subject to taxation as C
corporation. The merger with Stow was accounted for as a pooling of interests
and, accordingly, all financial information included herein is reported as
though the companies had been combined for all periods reported.
Statements contained in this Form 10-Q that are not historical facts are
forward-looking statements. 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. The Company cautions that a number of important factors could cause
the Company's actual results for fiscal 1998 and beyond to differ materially
from those expressed in any forward-looking statements made by, or on behalf of,
the Company. See "Certain Factors That May Affect Results."
Quarter Ended October 31, 1997 Compared to Quarter Ended October 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.
THREE MONTHS ENDED
OCTOBER 31,
1996 1997
---- ----
$$ % $$ %
-- -- -- --
Net sales $146.3 100.0% $173.4 100.0%
Cost of sales 116.7 79.7% 139.2 80.3%
------- -------- ------- -------
Gross profit 29.6 20.3% 34.2 19.7%
------- -------- ------- -------
Operating expenses 25.0 17.1% 27.6 16.0%
Merger expenses - - 4.1 2.3%
Amortization of intangibles 0.3 0.2% 0.3 0.1%
------- -------- ------- -------
Total operating expenses 25.3 17.3% 32.0 18.4%
------- -------- ------- -------
Operating income 4.3 3.0% 2.2 1.3%
------- -------- ------- -------
Other expense (income):
Interest expense 2.1 1.5% 1.1 0.7%
Other, net (0.1) -0.1% (0.2) -0.1%
------- -------- ------- -------
Total other expense 2.0 1.4% 0.9 0.6%
------- -------- ------- -------
Income before income taxes 2.3 1.6% 1.3 0.7%
Income taxes 1.0 0.7% 1.9 1.1%
------- -------- ------- -------
Net income (loss) $ 1.3 0.9% $ (0.6) -0.4%
======= ======== ======= =======
Net Sales. The Company's net sales increased approximately 18.5%, or
$27.1 million, to $173.4 million for the three months ended October 31, 1997
from $146.3 million for the three months ended October 31, 1996. The overall
increase in net sales was primarily attributable to increased sales to existing
customers, sales to new accounts in existing geographic areas and the
introduction of new products not formerly offered by the Company.
Gross Profit. The Company's gross profit increased approximately 15.3%,
or $4.6 million, to $34.2 million for the three months ended October 31, 1997
from $29.6 million for the three months ended October 31, 1996. The Company's
gross profit as a percentage
of net sales decreased to 19.7% for the three months ended October 31, 1997 from
20.3% for the three months ended October 31, 1996. The decrease in gross profit
as a percentage of net sales resulted partially from the comparatively lower
gross margin contribution from the Stow operation. Also, as in past periods,
increased sales to existing customers under the Company's volume discount
program resulted in a further reduction in gross margin.
Operating Expenses. The Company's total operating expenses increased
approximately 26.2%, or $6.7 million, to $32.0 million for the three months
ended October 31, 1997 from $25.3 million for the three months ended October 31,
1996. Operating expenses for the three months ended October 31, 1997 included
a charge of $4.1 million for expenses related to the merger with Stow, primarily
investment banking and other professional fees. As a percentage of net sales,
operating expenses increased to 18.4% for the three months ended October 31,
1997 from 17.3% for the three months ended October 31, 1996. Excluding the
merger charge, the Company's total operating expenses for the three months ended
October 31, 1997 would have been $27.9 million, or 16.1% of net sales. 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, as well as its continuing effort to implement
its "best practices" throughout its distribution regions. Best practices have
been implemented in distribution, technology and sales and marketing.
Operating Income. Operating income decreased $2.1 million, or
approximately 48.8%, to $2.2 million for the three months ended October 31, 1997
from $4.3 million for the three months ended October 31, 1996. As a percentage
of net sales, operating income decreased to 1.3% in the three months ended
October 31, 1997 from 3.0% in the three months ended October 31, 1996.
Excluding the $4.1 million in merger-related expenses incurred during the
three months ending October 31, 1997, operating income would have been $6.3
million, or 3.6% of net sales, for the three months ending October 31, 1997.
Other Income/(Expense). The $1.0 million decrease in interest expense in
the three months ended October 31, 1997 compared to the three months ended
October 31, 1996 was primarily attributable to the Company's initial public
offering in November 1996, the net proceeds of which were used by the Company to
repay existing indebtedness.
Income Taxes. The Company's effective income tax rate was 148.6% and 45.0%
for the three months ended October 31, 1997 and 1996, respectively. The
effective rates were higher than the federal statutory rate primarily due to
nondeductible expenses of $4.1 million associated with the merger with Stow in
the three months ended October 31, 1997, as well as state and local income
taxes.
Net Income. As a result of the foregoing, the Company's net income
decreased by $1.9 million to $(0.6) million for the three months ended October
31, 1997 from $1.3 million in the three months ended October 31, 1996.
Excluding the $4.1 million in merger expenses mentioned above, net income would
have been $3.4 million, or 2.0% of net sales, for the three months ended October
31, 1997.
Liquidity and Capital Resources
The Company historically has financed its operations and growth primarily
from cash flows from operations, borrowings under its credit facility, seller
financing of
acquisitions, operating and capital leases, trade payables, bank indebtedness
and the sale or exchange of equity securities. Primary uses of capital have been
acquisitions, expansion of plant and equipment and investment in accounts
receivable and inventory.
Net cash provided by operations was $1.2 million and $0.6 million for the
three months ended October 31, 1997 and 1996, respectively. Net income
decreased in fiscal 1998 as compared with fiscal 1997 primarily as a result of
the above-mentioned merger expenses. Excluding the merger expenses, net cash
provided from operations for fiscal 1998 would have been $5.3 million. The
Company's working capital at October 31, 1997 was $46.9 million.
Net cash used in investing activities was $2.2 million and $1.2 million for
the three months ended October 31, 1997 and 1996, respectively. Investing
activities included primarily expenditures related to the purchase of a retail
store, material handling equipment, tractors and trailers and the continued
upgrade of existing management information systems. The capital expenditures
were primarily funded from senior bank indebtedness, including term loans.
Net cash provided by financing activities was $0.5 million and $0.4 million
for the three months ended October 31, 1997 and 1996, respectively, and resulted
primarily from proceeds from borrowings under the Company's credit facility and
from long-term debt.
In October 1997, the Company amended its credit agreement with its bank to
increase the amount of the facility from $50 million to $100 million, to
increase the limit on inventory advances to $50 million and the advance rate to
60%, to establish a term loan of $6.6 million and to increase the aggregate
amount of real estate acquisition loans and real estate term loans to $20
million. The agreement also provides for the bank to syndicate the credit
facility to other banks and lending institutions. The credit facility will be
used to repay existing indebtedness of Stow owing to the Company's bank and for
general operating capital needs. Interest under the facility, except the
portion related to the mortgage commitments, accrues at the Company's option at
the 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 October 31,
1997, the Company's outstanding borrowings under the credit agreement totaled
$34.5 million. The credit agreement expires on July 31, 2002.
In connection with this amendment, an Agency and Interlender Agreement was
entered into by the Company, its bank and two additional participating banks
effective December 1, 1997. This agreement states that the Company's primary
bank will participate in this credit facility with the other banks.
The Company expects to spend an aggregate of $7 million for fiscal 1997 and
1998 in capital expenditures to fund the expansion of existing facilities,
upgrade information systems and technology and to update its material handling
equipment. Management believes that it will have adequate capital resources and
liquidity to meets its debt obligations and to fund its planned capital
expenditures and operate its business for the foreseeable future.
Impact of Inflation
Historically, the Company has been able to pass along inflation-related
increases. Consequently, inflation has not had a material impact upon the
results of the Company's operations or profitability.
Seasonality
Generally, the Company does not experience any material seasonality.
However, the Company's sales and operating results may vary significantly from
quarter to quarter due to factors such as changes in the Company's operating
expenses, management's ability to execute the Company's operating and growth
strategies, personnel changes, demand for natural products, supply shortages and
general economic conditions.
New Accounting Standards
In February 1997, the Financial Accounting Standards Board released SFAS
No. 128, "Earnings per Share." This statement establishes standards for
computing and presenting earnings per share (EPS) and applies to entities with
publicly held common stock or potential common stock. The statement replaces
the presentation of primary EPS with a presentation of basic EPS. The statement
also requires a dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. This statement is effective for periods ending
after December 15, 1997. The Company will calculate earnings per share under
the standard for the quarter ending January 31, 1998 and does not believe it
will have a material impact on the Company's earnings per share presentation.
The Financial Accounting Standards Board recently issued SFAS No. 129,
"Disclosure of Information about Capital Structure." This statement establishes
standards for disclosing information about an entity's capital structure. This
statement is effective for periods ending after December 15, 1997. The Company
believes it is already substantially in compliance with this standard.
The Financial Accounting Standards Board recently issued SFAS No. 130,
"Reporting Comprehensive Income." This statement establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. This statement is effective for fiscal
years beginning after December 15, 1997 and requires reclassification of
financial statements for earlier periods provided for comparative purposes. The
Company will comply with the required presentation in fiscal 1999.
The Financial Accounting Standards Board recently issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. This statement
supersedes SFAS No. 14, "Financial Reporting for Segments of a Business," but
retains the requirement to report information about major customers. This
statement also amends SFAS No. 94, "Consolidation of All Majority-Owned
Subsidiaries." SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997 and requires that comparative information for
earlier years be restated. The Company will comply with the required
presentation in fiscal 1999.
Certain Factors That May Affect 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.
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 government 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 four large regional distributors of
natural products. The successful and timely integration of these acquisitions
and mergers is critical to future operating and financial performance of the
Company. While the integration of these acquisitions and mergers with the
Company's existing operations has begun, the Company believes that the
integration will not be substantially completed until the end of calendar 1998.
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 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 it 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.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On October 31, 1997 (the "Effective Time"), the Company completed its
acquisition of 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 at the Effective Time, whereupon Stow became a wholly owned subsidiary of
the Company. At that time, each outstanding share of capital stock of Stow was
converted into 2,711.4817 shares of Common Stock of the Company, or an aggregate
of 4,978,280 shares of Common Stock (the "Shares"). The Company issued the
Shares to the eight stockholders of Stow.
The Company offered and sold the Shares in reliance on the exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended, which
relates to sales by an issuer not involving any public offering. No
underwriters were involved in the offer and sale of the Shares.
Item 4. Submission of Matters to a Vote of Security Holders
At a Special Meeting of Stockholders of the Company (the "Special Meeting") held
on October 30, 1997, the stockholders of the Company considered and voted upon a
proposal to approve the issuance of up to 5,000,000 shares of Common Stock in
order to effect the proposed acquisition of Stow. The number of shares of
Common Stock outstanding and entitled to vote at the Special Meeting was
12,378,425, and 9,168,894 shares were represented in person or by proxy. The
results of the voting were as follows: (i) 9,165,634 votes FOR, (ii) 1,010
votes AGAINST and (iii) 2,250 votes ABSTAINING. There were no broker non-votes.
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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED NATURAL FOODS, INC.
/s/ Steven Townsend
-----------------------------------
Steven Townsend
Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: December 12, 1997
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
Third Amendment to Amended and Restated Loan
Agreement between United Natural Foods, Inc. and
10.1 Fleet Capital Corporation, dated October 31, 1997
Agency and Interlender Agreement between United
Natural Foods, Inc. and Fleet Capital Corporation,
First Union National Bank and Nationsbank, N.A.,
10.2 dated December 1, 1997
11 Computation of Earnings Per Share
27 Financial Data Schedule