-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ML+MaXMaE/Fb6RmEgGtgBE64MFK1nEiIIiTYhe36PqKBQ67YdmAB8FS7u+JfBOXj +zvCtEu7I0ZMxEXGJ3M/bQ== 0000927016-98-001001.txt : 19980318 0000927016-98-001001.hdr.sgml : 19980318 ACCESSION NUMBER: 0000927016-98-001001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980131 FILED AS OF DATE: 19980317 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED NATURAL FOODS INC CENTRAL INDEX KEY: 0001020859 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & GENERAL LINE [5141] IRS NUMBER: 050376157 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21531 FILM NUMBER: 98567247 BUSINESS ADDRESS: STREET 1: PO BOX 999 STREET 2: 260 LAKE RD CITY: DAYVILLE STATE: CT ZIP: 06241 BUSINESS PHONE: 8607792800 MAIL ADDRESS: STREET 1: PO BOX 999 STREET 2: 260 LAKE RD CITY: DAYVILLE STATE: CT ZIP: 06241 10-Q 1 FORM 10-Q ================================================================================ 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, 1998 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 March 13, 1998, there were 17,356,705 shares of the Registrant's Common Stock, $0.01 par value per share, outstanding. ================================================================================ UNITED NATURAL FOODS, INC. FORM 10-Q FOR THE QUARTER ENDED JANUARY 31, 1998 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of July 31, 1997 and January 31, 1998 Consolidated Statements of Income for the three months and six months ended January 31, 1997 and January 31, 1998 Consolidated Statements of Cash Flows for the six months ended January 31, 1997 and January 31, 1998 Notes to Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders Item 6. Exhibits and Reports on Form 8-K Signatures PART I. FINANCIAL INFORMATION Item 1. Financial Statements UNITED NATURAL FOODS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(UNAUDITED) JULY 31, 1997 JANUARY 31, 1998 ------------- ---------------- ASSETS ------ Current assets: Cash and cash equivalents $ 952,498 $ 3,457,686 Accounts receivable, net of allowance 42,952,127 49,580,967 Notes receivable, trade 866,160 908,043 Inventories 71,508,896 78,034,786 Prepaid expenses 4,109,945 3,568,397 Deferred income taxes 1,031,767 1,031,767 -------------- --------------------- Total current assets 121,421,393 136,581,646 -------------- --------------------- Property & equipment, net 32,412,128 32,722,554 -------------- --------------------- Other assets: Notes receivable, trade 995,398 1,274,486 Goodwill, net 7,579,408 8,453,358 Covenants not to compete, net 591,665 511,930 Other, net 1,560,583 792,937 -------------- --------------------- Total assets $ 164,560,575 $ 180,336,911 ============== ===================== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Notes payable $ 27,221,690 $ 38,602,765 Current installments of long-term debt 3,016,218 1,425,549 Current installment of obligations under capital leases 680,533 151,002 Accounts payable 30,535,786 31,961,690 Accrued expenses 6,298,682 6,296,402 Income taxes payable 377,322 419,047 Other 190,667 318,150 -------------- --------------------- Total current liabilities 68,320,898 79,174,605 Long-term debt, excluding current installments 26,453,762 21,802,750 Deferred income taxes 677,560 677,560 Obligations under capital leases, excluding current installments 1,235,928 1,112,987 -------------- --------------------- Total liabilities 96,688,148 102,767,902 -------------- --------------------- 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 51,745,339 Unallocated shares of ESOP (2,910,400) (2,828,800) Retained earnings 24,951,266 28,523,153 Treasury stock, 20,405 shares at cost (44,454) (44,454) -------------- --------------------- Total stockholders' equity 67,872,427 77,569,009 -------------- --------------------- Total liabilities and stockholders' equity $ 164,560,575 $ 180,336,911 =============== =====================
See notes to consolidated fianancial statements. UNITED NATURAL FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JANUARY 31, JANUARY 31, ----------- ----------- 1997 1998 1997 1998 ---- ---- ---- ---- Net sales $ 160,272,203 $ 177,975,654 $ 306,575,184 $ 351,358,640 Cost of sales 127,879,281 141,667,506 244,535,898 280,861,361 ---------------- -------------- --------------- -------------- Gross profit 32,392,922 36,308,148 62,039,286 70,497,279 ---------------- -------------- --------------- -------------- Operating expenses 27,073,200 27,917,446 52,148,227 55,576,899 Merger expenses - - - 4,063,912 Amortization of intangibles 264,679 244,956 530,356 505,019 ---------------- -------------- --------------- -------------- Total operating expenses 27,337,879 28,162,402 52,678,583 60,145,830 ---------------- -------------- --------------- -------------- Operating income 5,055,043 8,145,746 9,360,703 10,351,449 ---------------- -------------- --------------- -------------- Other expense (income): Interest expense 1,397,311 1,191,968 3,508,216 2,273,137 Other, net (153,252) (180,467) (301,626) (348,460) ---------------- -------------- --------------- -------------- Total other expense 1,244,059 1,011,501 3,206,590 1,924,677 ---------------- -------------- --------------- -------------- Income before income taxes and extraordinary item 3,810,984 7,134,245 6,154,113 8,426,772 Income taxes 1,516,949 2,934,061 2,570,854 4,854,885 ---------------- -------------- --------------- -------------- Income before extraordinary item 2,294,035 4,200,184 3,583,259 3,571,887 Extraordinary item - loss on early extinguishment of debt, net of income tax benefit of $661,822 932,929 - 932,929 - ---------------- -------------- --------------- -------------- Net income $ 1,361,106 $ 4,200,184 $ 2,650,330 $ 3,571,887 ================ ============== =============== ============== Pro forma additional income tax expense 42,257 - 6,377 320,098 ---------------- -------------- --------------- -------------- Pro forma net income before extraordinary item $ 2,251,778 $ 4,200,184 $ 3,576,882 $ 3,251,789 ================ ============== =============== ============== Per share data (basic): Income before extraordinary item $ 0.13 $ 0.24 $ 0.23 $ 0.21 Extraordinary item - loss on early extinguishment of debt, net of income tax benefit of $661,822 0.05 $ - $ 0.06 $ - ---------------- -------------- --------------- -------------- Net income $ 0.08 $ 0.24 $ 0.17 $ 0.21 ================ ============== =============== ============== Pro forma net income before extraordinary item $ 0.13 $ 0.24 $ 0.23 $ 0.19 ================ ============== =============== ============== Weighted average basic shares of common stock 17,116,331 17,356,705 15,393,653 17,356,705 ================ ============== =============== ============== Per share data (diluted): Income before extraordinary item $ 0.13 $ 0.24 $ 0.23 $ 0.20 Extraordinary item - loss on early extinguishment of debt, net of income tax benefit of $661,822 0.05 - 0.06 - ---------------- -------------- --------------- -------------- Net income $ 0.08 $ 0.24 $ 0.17 $ 0.20 ================ ============== =============== ============== Pro forma net income before extraordinary item $ 0.13 $ 0.24 $ 0.23 $ 0.19 ================ ============== =============== ============== Weighted average diluted shares of common stock 17,389,505 17,797,639 15,657,943 17,787,612 ================ ============== =============== ==============
See notes to consolidated financial statements. Pro forma income tax expense to reflect Stow as though it were C corporation for all periods presented is calculated as follows: Total income tax expense plus Stow pretax income multiplied by 35% (note fiscal 1998 adds back merger expenses as well before calculating tax expense for Stow since merger expenses are nondeductible for tax purposes). UNITED NATURAL FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JANUARY 31, ----------- 1997 1998 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,650,330 $ 3,571,887 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 2,995,949 2,956,708 Loss (gain) on disposals of property & equipment 5,946 (1,042) Accretion of original issue discount 152,847 - Deferred income tax benefit (100,597) - Provision for doubtful accounts 1,528,950 704,032 Increase in accounts receivable (6,897,585) (7,954,381) Increase in inventory (4,858,312) (6,014,629) Decrease in prepaid expenses 32,793 541,549 Increase in refundable income taxes (305,803) - (Increase) decrease in other assets (207,266) 96,658 Decrease (increase) in notes receivable, trade 37,553 (320,971) Increase in accounts payable 5,490,954 1,074,507 (Decrease) increase in accrued expenses (1,882,764) 379,467 Increase (decrease) in income taxes payable 358,309 (551,607) Net cash used in operating activities ------------- -------------- (65,767) (5,517,822) ------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of new businesses - (2,697,261) Proceeds from disposals of property and equipment 71,531 258,685 Capital expenditures (2,460,783) (2,022,165) Net cash used in investing activities ------------- -------------- (2,389,252) (4,460,741) ------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (repayments) borrowings under note payable (17,033,148) 11,381,075 Repayments on long-term debt (16,160,308) (6,798,584) Proceeds from long-term debt 804,807 8,584,408 Principal payments of capital lease obligations (251,174) (683,148) Proceeds from issuance of common stock, net 35,509,500 - Net borrowings on Stow Mills stockholder loans 560,529 - Dividends paid to Stow Mills stockholders (25,470) - Cash distributions to Hendrickson partners (420,000) - Net cash provided by financing activities ------------- -------------- 2,984,736 12,483,751 ------------- -------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 529,717 2,505,188 Cash and cash equivalents at beginning of period 1,282,471 952,498 ------------- -------------- Cash and cash equivalents at end of period $ 1,812,188 $ 3,457,686 ============= ============== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 3,406,282 $ 2,298,333 ============= ============== Income taxes $ 2,502,825 $ 4,612,289 ============= ==============
See notes to consolidated financial statements. UNITED NATURAL FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 1998 (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 quarters ended January 31 and October 31, 1997 and for the six months ended January 31, 1997 for the Company excluding Stow were approximately $103.4 million, $116.5 million, and $202.9 million, respectively. Net income for the quarters ended January 31 and October 31, 1997 and for the six months ended January 31, 1997 for the Company excluding Stow was $1.3 million, $1.2 million and $2.6 million, respectively. Net sales for the quarters ended January 31 and October 31, 1997 and for the six months ended January 31, 1997 for Stow were $57.0 million, $56.9 million and $104.2 million, respectively. Net income (loss) for the quarters ended January 31 and October 31, 1997 for Stow was $0.1 million and $(1.8) million, respectively. Net income for the six months ended January 31, 1997 for Stow was less than $0.1 million. 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. 1. CASH EQUIVALENTS Cash equivalents consist of highly liquid investment instruments with original maturities of three months or less. 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 $2,116,801 at January 31, 1998. 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 was used to repay existing indebtedness of Stow owing to the Company's bank and will be used 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 January 31, 1998, the Company's outstanding borrowings under the credit agreement totaled $38.6 million. The credit agreement expires on July 31, 2002, and contains certain restrictive covenants. The Company was in compliance with its restrictive covenants at January 31, 1998. In connection with the amendment to the Company's credit agreement with its bank as above, 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, among other things, that the Company's primary bank will participate in this credit facility with the other banks. 5. PRO FORMA NET INCOME 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 for periods prior to the merger. 6. EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board released Statement of Financial Accounting Standards ("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 has calculated earnings per share under the standard for all periods presented. 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 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 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 Future Results" under this item for a discussion of these factors. QUARTER ENDED JANUARY 31, 1997 COMPARED TO QUARTER ENDED JANUARY 31, 1998 - ------------------------------------------------------------------------- The following table is derived from the Company's consolidated statements of income.
QUARTER ENDED JANUARY 31, (Dollars in millions) 1997 1998 ---- ---- % OF NET % OF NET $$$ SALES $$$ SALES -------- ---------- -------- --------- Net sales $160.3 100.0% $178.0 100.0% Cost of sales 127.9 79.8% 141.7 79.6% ----------- ----------- --------- ------------ Gross profit 32.4 20.2% 36.3 20.4% ----------- ----------- --------- ------------ Operating expenses 27.1 16.9% 27.9 15.7% Amortization of intangibles 0.2 0.1% 0.3 0.1% ----------- ----------- --------- ------------ Total operating expenses 27.3 17.0% 28.2 15.8% ----------- ----------- --------- ------------ Operating income 5.1 3.2% 8.1 4.6% ----------- ----------- --------- ------------ Other expense (income): Interest expense 1.4 1.0% 1.3 0.7% Other, net (0.1) (0.1%) (0.3) (0.1%) ----------- ----------- --------- ------------ Total other expense 1.3 0.9% 1.0 0.6% ----------- ----------- --------- ------------ Income before income taxes and extraordinary item 3.8 2.3% 7.1 4.0% Income taxes 1.5 0.9% 2.9 1.6% ----------- ----------- --------- ------------ Income before extraordinary item 2.3 1.4% 4.2 2.4% Extraordinary item - loss on early extinguishment of debt, net of income tax benefit 0.9 0.6% - - ----------- ----------- --------- ------------ Net income $ 1.4 0.8% $ 4.2 2.4% =========== =========== ========= ============
Net Sales. The Company's net sales increased approximately 11.0%, or $17.7 million, to $178.0 million for the quarter ended January 31, 1998 from $160.3 million for the quarter ended January 31, 1997. 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 previously offered by the Company. Historical information for Stow includes twelve and fourteen week periods for the quarters ended October 31, 1996 and January 31, 1997, respectively. Accordingly, net sales of approximately $4.2 million have been included in Stow's amounts for the quarter ended January 31, 1997 which would have been included in the quarter ended October 31, 1996 had Stow been on the Company's financial calendar at the time. Therefore, the increase in net sales for the quarter ended January 31, 1998 as adjusted to comparable weeks would have been 14.1%. The previously reported increase in net sales for the quarter ended October 31, 1997 of 18.5% would have been 15.2% subsequent to this adjustment. The increase in income before extraordinary item for the quarter ended January 31, 1998 as adjusted for the above-mentioned item would have been $2.0 million. The previously reported decrease in net income for the quarter ended October 31, 1997 would have been $2.0 million subsequent to this adjustment. Gross Profit. The Company's gross profit increased approximately 12.0%, or $3.9 million, to $36.3 million for the quarter ended January 31, 1998 from $32.4 million for the quarter ended January 31, 1997. The Company's gross profit as a percentage of net sales increased to 20.4% for the quarter ended January 31, 1998 from 20.2% for the quarter ended January 31, 1997. The increase in gross profit as a percentage of net sales resulted partially from greater purchasing efficiencies resulting from the integration of Stow, partially offset by increased sales to existing customers under the Company's volume discount program. Operating Expenses. The Company's total operating expenses increased approximately 3.3%, or $0.9 million, to $28.2 million for the quarter ended January 31, 1998 from $27.3 million for the quarter ended January 31, 1997. As a percentage of net sales, operating expenses decreased to 15.8% for the quarter ended January 31, 1998 from 17.0% for the quarter ended January 31, 1997. The decrease in total operating expenses as a percentage of net sales was primarily attributable to the Company's ability to leverage its overhead and realize synergies from recent acquisitions. Included in operating expenses for the quarter ended January 31, 1997 were Stow officer salaries totaling $1.0 million in excess of the contractual agreements entered into in connection with the merger with Stow. Excluding these excess amounts, operating expenses for the quarter ended January 31, 1997 would have been $26.3 million, or 16.4% of net sales. Operating Income. Operating income increased $3.0 million, or approximately 58.8%, to $8.1 million for the quarter ended January 31, 1998 from $5.1 million for the quarter ended January 31, 1997. As a percentage of net sales, operating income increased to 4.6% in the quarter ended January 31, 1998 from 3.2% in the quarter ended January 31, 1997. Other (Income)/Expense. The $0.3 million decrease in other expense in the quarter ended January 31, 1998 compared to the quarter ended January 31, 1997 was primarily attributable to the reduction in interest expense as a result of the debt consolidation related to the Stow merger. The Stow debt was repaid with proceeds from the Company's credit facility, which bears interest at a lower rate. Income Taxes. The Company's effective income tax rates were 41.1% and 39.8% for the quarters ended January 31, 1998 and 1997, respectively. The effective rates were higher than the federal statutory rate primarily due to state and local income taxes. The increase in the effective rate was primarily attributable to increased earnings in higher state tax jurisdictions. Net Income. As a result of the foregoing, the Company's income before extraordinary item increased by $1.9 million to $4.2 million, or 2.4% of net sales, for the quarter ended January 31, 1998 from $2.3 million, or 1.4% of net sales, in the quarter ended January 31, 1997. 9 SIX MONTHS ENDED JANUARY 31, 1997 COMPARED TO SIX MONTHS ENDED JANUARY 31, 1998 - ------------------------------------------------------------------------------- The following table is derived from the Company's consolidated statements of income.
SIX MONTHS ENDED JANUARY 31, ---------------- (Dollars in millions) 1997 1998 ------- ------ % OF NET % OF NET $$$ SALES $$$ SALES ------------ --------- ---------- --------- Net sales $306.6 100.0% $351.4 100.0% Cost of sales 244.5 79.7% 280.9 79.9% ------------ --------- ---------- --------- Gross profit 62.1 20.3% 70.5 20.1% ------------ --------- ---------- --------- Operating expenses 52.1 17.0% 55.6 15.8% Merger expenses - - 4.1 1.2% Amortization of intangibles 0.6 0.2% 0.4 0.1% ------------ --------- ---------- --------- Total operating expenses 52.7 17.2% 60.1 17.1% ------------ --------- ---------- --------- Operating income 9.4 3.1% 10.4 3.0% ------------ --------- ---------- --------- Other expense (income): Interest expense 3.5 1.2% 2.3 0.7% Other, net (0.3) (0.1%) (0.3) (0.1%) ------------ --------- ---------- --------- Total other expense 3.2 1.1% 2.0 0.6% ------------ --------- ---------- --------- Income before income taxes and extraordinary item 6.2 2.0% 8.4 2.4% Income taxes 2.6 0.8% 4.8 1.4% ------------ --------- ---------- --------- Income before extraordinary item 3.6 1.2% 3.6 1.0% Extraordinary item - loss on early extinguishment of debt, net of income tax benefit 0.9 0.3% - - ------------ --------- ---------- --------- Net income $ 2.7 0.9% $ 3.6 1.0% ============ ========= ========== =========
Net Sales. The Company's net sales increased approximately 14.6%, or $44.8 million, to $351.4 million for the six months ended January 31, 1998 from $306.6 million for the six months ended January 31, 1997. 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 previously offered by the Company. Gross Profit. The Company's gross profit increased approximately 13.5%, or $8.4 million, to $70.5 million for the six months ended January 31, 1998 from $62.1 million for the six months ended January 31, 10 1997. The Company's gross profit as a percentage of net sales decreased to 20.1% for the six months ended January 31, 1998 from 20.3% for the six months ended January 31, 1997. The decrease in gross profit as a percentage of net sales resulted partially from the comparatively lower gross margin contribution from Stow's operations in the first quarter of fiscal 1998 prior to the effective date of the merger. Also, as in prior periods, increased sales to existing customers under the Company's volume discount program resulted in a further reduction in gross margin. These factors were partially offset by purchasing efficiencies gained with the integration with Stow in the second quarter of fiscal 1998. Operating Expenses. The Company's total operating expenses increased approximately 14.0%, or $7.4 million, to $60.1 million for the six months ended January 31, 1998 from $52.7 million for the six months ended January 31, 1997. As a percentage of net sales, operating expenses decreased to 17.1% for the six months ended January 31, 1998 from 17.2% for the six months ended January 31, 1997. Excluding merger costs of $4.1 million, the Company's total operating expenses during the first six months of the current fiscal year would have been $56.0 million, or 15.9% of net sales, representing an increase of $3.3 million, or 6.3% over the comparable prior period. The decrease in total operating expenses as a percentage of net sales was primarily attributable to the Company's ability to leverage its overhead and realize synergies from recent acqisitions. Additionally, because of the October 31, 1997 effective date of the Stow merger, resulting operational efficiencies were not realized in the first quarter of fiscal 1998. Included in operating expenses for the six months ended January 31, 1998 and 1997 were Stow officer salaries totaling $0.7 million and $1.8 million, respectively, in excess of the contractual agreements entered into in connection with the merger with Stow. Excluding these excess amounts, operating expenses for the six months ended January 31, 1998 and 1997 would have been $59.4 million, or 16.9% of net sales, and $50.9 million, or 16.6% of net sales, respectively. Operating Income. Operating income increased $1.0 million, or approximately 10.6%, to $10.4 million for the six months ended January 31, 1998 from $9.4 million for the six months ended January 31, 1997. As a percentage of net sales, operating income was 3.0% and 3.1% in the six months ended January 31, 1998 and 1997, respectively. Excluding the merger costs and Stow officer salaries noted above, operating income would have been $15.2 million, or 4.3% of net sales and $11.2 million, or 3.6% of net sales, for the six months ended January 31, 1998 and 1997, respectively. Other (Income)/Expense. The $1.2 million decrease in other expense in the six months ended January 31, 1998 compared to the six months ended January 31, 1997 was primarily attributable to the reduction in interest expense relating to the repayment of Stow debt with proceeds from the Company's credit facility, which bears interest at a lower rate. In addition, the proceeds from the Company's initial public offering were used to repay debt. Income Taxes. The Company's effective income tax rates were 57.1% and 41.9% for the six months ended January 31, 1998 and 1997, respectively. The effective rates were higher than the federal statutory rate primarily due to nondeductible merger costs incurred during the first quarter of fiscal 1998 and state and local income taxes. Net Income. As a result of the foregoing, the Company's net income increased by $0.9 million to $3.6 million for the six months ended January 31, 1998 from $2.7 million in the six months ended January 31, 1997. Excluding the $4.1 million in merger costs and $0.9 million extraordinary item (net of tax) related to the early extinguishment of debt, net income would have been $7.7 million, or 2.2% of net sales, and $3.6 million, or 1.2% of net sales, for the six months ended January 31, 1998 and 1997, respectively. 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 property and equipment and investment in accounts receivable and inventory. In connection with the consummation of the merger with Stow, the former Stow shareholders contributed to equity the promissory notes issued to them by Stow in exchange for shares of Stow stock. Net cash used in operations was $5.5 million and $0.1 million for the six months ended January 31, 1998 and 1997, respectively. The increase in cash used in operations relates to increased investments in accounts receivable and inventory and a decrease in accounts payable, all in the ordinary course of 11 business. The 19% increase in accounts receivable results from increased volume. The increase in inventory relates to supporting increased sales combined with gaining purchasing efficiencies. The decrease in accounts payable is the result of accelerating payments to capture early payment discounts in excess of the Company's cost of capital. Excluding the merger expenses, net cash used in operations for fiscal 1998 would have been $1.4 million. The Company's working capital at January 31, 1998 was $57.4 million. Net cash used in investing activities was $4.5 million and $2.4 million for the six months ended January 31, 1998 and 1997, respectively. Investing activities included primarily capital expenditures related to the purchase of material handling equipment and the continued upgrade of existing management information systems. In addition, investing activities in the six months ended January 31, 1998 included the acquisition of two natural foods retail stores. The capital expenditures were primarily funded from senior bank indebtedness, including term loans. Net cash provided by financing activities was $12.5 million and $3.0 million for the six months ended January 31, 1998 and 1997, respectively. The increase in net cash provided for the six months ended January 31, 1998 compared to the comparable prior period 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 was used to repay existing indebtedness of Stow owing to the Company's bank and will be used 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 rate for U.S Treasury Notes. The Company has pledged all of its assets as collateral for its obligations under the credit agreement. As of January 31, 1998, the Company's outstanding borrowings under the credit agreement totaled $38.6 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, among other things, that the Company's primary bank will participate in this credit facility with the other banks. The Company expects to spend approximately $25 million over the next five years 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. 12 NEW ACCOUNTING STANDARDS 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 is 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 reporting operating segments of publicly traded business enterprises in annual and interim financial statements and requires those enterprises report selected information about operating segments. 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 fiscal years beginning after December 15, 1997 and requires that comparative information for earlier years be restated. The Company has not yet determined what impact, if any, this standard will have on its financial statement presentation. YEAR 2000 ISSUES The Company's Western Region and a portion of its Central Region employ operating systems functioning on a Julian calendar thereby achieving Year 2000 compliance. In addition, the Company's financial accounting systems are Year 2000 compliant. The Company's Eastern Region and its Chicago facility are not currently Year 2000 compliant. The Company is currently reviewing its systems in order to ensure Year 2000 compliance and to enhance its business systems functionality to achieve operating efficiencies and customer service improvements. The Company will purchase packaged software to address Year 2000 issues when available. The Company expects to incur $3 - $5 million in cash expenditures in the 1998 and 1999 calendar years for its Year 2000 upgrade and new warehouse management system, including new hardware and installation. However, there can be no assurance that the systems of other companies on which the Company's systems rely also will be timely converted or that any such failure to convert by another company would not have an adverse effect on the Company's systems. 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. 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. 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. 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 13 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. 14 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Annual Meeting of Stockholders of the Company (the "Annual Meeting") held on December 19, 1997, the stockholders of the Company considered and voted upon two proposals: 1) That Barclay McFadden, III, Kevin T. Michel and Richard S. Youngman be elected as Class I directors for the ensuing three years and Thomas B. Simone be elected as a Class II director for the ensuing year. The results of the voting were as follows for each nominee: (i) 10,845,120 votes FOR, and (ii) 3,950 votes WITHHELD. There were no broker non-votes. 2) That the selection of KPMG Peat Marwick LLP as the Corporation's independent public accountants for the fiscal year ending July 31, 1998 be ratified. The results of the voting were as follows: (i) 10,847,170 votes FOR, (ii) 1,550 votes AGAINST and (iii) 350 votes ABSTAINING. There were no broker non-votes. The number of shares of Common Stock outstanding and entitled to vote at the Annual Meeting was 17,356,705, and 10,849,070 shares were represented in person or by proxy. 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. On November 12, 1997, the Company filed a Current Report on Form 8-K dated October 31, 1997 announcing under Item 2 (Acquisition or Disposition of Assets) the completion of its acquisition of Stow Mills, Inc. pursuant to an Agreement and Plan of Reorganization, and presenting under Item 7 (Financial Statements, Pro Forma Financial Information and Exhibits) the following information: Stow Mills, Inc. and Hendrickson Partners Combined Balance Sheets as of December 31, 1996 and 1995. Stow Mills, Inc. and Hendrickson Partners Combined Statements of Operations, Stockholders' Equity and Cash Flows for the Years Ended December 31, 1996, 1995 and 1994. United Natural Foods, Inc. Unaudited Pro Forma Condensed Combined Balance Sheet as of April 30, 1997. United Natural Foods, Inc. Unaudited Pro Forma Condensed Combined Statements of Operations for the Years Ended October 31, 1994 and 1995 and the Nine Months Ended July 31, 1996 and April 30, 1997. 15 EXHIBIT INDEX -------------
EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.29 Employment Agreement for Robert Cirulnick 10.30 Employment Agreement for Richard S. Youngman 10.31 Termination Agreement for Steven Townsend 10.32 Addendum to Incentive Stock Option Agreement for Steven H. Townsend 11 Computation of Earnings Per Share 27 Financial Data Schedule
EX-10.29 2 EXHIBIT 10.29 EXHIBIT 10.29 UNITED NATURAL FOODS, INC. 260 Lake Road Dayville, Connecticut 06241 February 3, 1998 Mr. Robert Cirulnick Dear Bob: We are pleased that you have accepted employment with UNITED NATURAL FOODS, INC. (the "Company") on the following terms and conditions: 1. Employment. Subject to the terms and conditions of this Agreement, ---------- the Company hereby agrees to employ you, and you accept such employment, as Chief Financial Officer of the Company and such of its subsidiaries and Affiliates as may be designated by the Company from time to time. You will serve in such other capacity or capacities as the Company and you may from time to time determine. 2. Duties. Consistent with Section 1 above, you shall have such duties ------ as the Chief Executive Officer of the Company may from time to time determine. You agree to perform faithfully, industriously and to the best of your ability, experience and talents, all of the duties that may be required by the terms of this Agreement, to the reasonable satisfaction of the Company. 3. Compensation. (a) As compensation for your services, the Company ------------ will pay you a base salary at an annual rate of Two Hundred Twenty Five Thousand Dollars ($225,000) (the "Base Salary"), payable in accordance with the Company's usual payroll procedures. The Board of Directors of the Company (or appropriate committee thereof) will review periodically and may increase your Base Salary in its discretion based upon the Company's performance and your particular contributions. (b) You shall be entitled to participate in all employee benefit plans, medical insurance plans, employee education plans, life insurance plans, disability plans and other benefit plans for which you are otherwise eligible and qualified, customarily made available by the Company from time to time to its employees generally. Such participation shall be subject to (i) the terms of the applicable plan documents and (ii) generally applicable policies of the Company, provided, however, initial eligibility requirements thereunder shall be waived to provide for coverage for you and your family, as appropriate, as of the date of this Agreement. (c) You shall be entitled to up to three (3) weeks paid vacation each year. Such vacation shall be taken at a time mutually convenient to the Company and you. (d) You shall be entitled to paid holidays in accordance with the Company's normal policies. (e) You shall be eligible to participate in all performance bonus plans and stock option plans available to senior executives of the Company in accordance with applicable terms and conditions. Subject in each case to your continued employment, (i) you will receive a performance bonus of Seventy Five Thousand Dollars ($75,000) for the period ending December 31, 1998, payable on or before February 1, 1999 and (ii) upon commencement of your employment, the Company will grant you Incentive Stock Options ("ISO") and Non-Statutory Options to acquire in the aggregate 100,000 shares of the Company's common stock in accordance with the Company's Amended and Restated 1996 Stock Option Plan (the "Plan") and the Company will enter into separate stock option agreements with you with the understanding that of such Options the maximum number shall be allocated to ISO's to the extent permitted by the Plan. Options with respect to one-third (1/3) of such shares shall vest on December 1, 1998 and options for the remaining shares shall vest on December 31, 1999, in each case subject to your continued employment through each such date. Options which have vested may be exercised in your discretion after the vesting date in accordance with the Plan. (f) Concurrently with the commencement of the Employment Period, the Company will reimburse you (including gross-up for applicable taxes) for the following relocation expenses: (i) up to $5,000 for travel and lodging expenses incurred in your house search; (ii) reasonable temporary living expenses for up to six (6) months in the aggregate; (iii) all closing and moving costs, including brokers' commissions and so-called "points", payable by you in connection with selling your current home and purchasing a new home; and (iv) reasonable packing, storage and moving expenses for your household goods and transportation of you and your family. 4. Business Expenses. The Company will reimburse you for all authorized ----------------- travel and out-of-pocket expenses reasonably incurred by you for the purposes of and in connection with performing your services to the Company hereunder. The Company will provide you with an automobile and you will be responsible for recording all business and non-business use and for the payment of any income taxes attributable to your non-business use of such automobile. 5. Non-Competition. During your employment and for a period of two years --------------- thereafter (the "Restriction Period"), you agree that you shall not, directly or indirectly, singly or with others, manage, operate or control or work for, as an employee or otherwise, any person, corporation or entity which (a) is in direct competition with the business of the Company or its Affiliates being conducted by the Company or its Affiliates in the United States or any foreign country in which the Company or its Affiliates is then conducting business (the "Restricted Territory"). In addition, during this restriction period, you agree not to recruit any employee of the Company or its Affiliates or encourage any employee of the Company or its Affiliates to terminate his or her employment with the Company or its Affiliates or directly or indirectly to counsel, advise, induce or attempt to influence any customer of the Company or its Affiliates to terminate any commercial or business relationship between such customer and the Company or its Affiliates. 6. Confidentiality. You acknowledge that in the course of employment, --------------- you will obtain information relating to legitimate, predictable business interests of the Company or its Affiliates, information concerning business operations, customer lists, patents, inventions, copyrights, methods of doing business, suppliers, and strategic plans (the "Confidential Information"). you agree that at all times, you will hold in strict confidence, will not use for your own account or for the benefit of any person other than the Company or its Affiliates, and will not publish or otherwise disclose to persons not under an obligation of secrecy or confidentiality to the Company no less restrictive than this Agreement, all Confidential Information disclosed or made available to you by the Company or its Affiliates, except for: Confidential Information which (a) was already known to you at the time such Confidential Information was disclosed to you; (b) is or becomes publicly known or publicly available through no violation of any of your obligations in this Agreement; (c) is or has been furnished to a third party by the Company without limitation on the third party's use or disclosure of such Confidential Information; or (d) is disclosed pursuant to a regulatory requirement or request of a governmental agency or in response to a valid subpoena or the like or an order, judgment or decree of a court of competent jurisdiction. 7. Enforcement. (a) If you violate or threaten to commit a breach of any ----------- of the provisions of Section 5 or 6 this Agreement (the "Restrictive Covenants"), the Company, in addition to, and not in lieu of, any other rights and remedies available to the Company at law or in equity, shall have the right and remedy to have the Restrictive Covenants specifically enforced by any court having equity jurisdiction and to have your breach or threatened breach of the Restrictive Covenants restricted by temporary restraining order, temporary or permanent injunction or the like, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and that monetary damages will not provide adequate remedy to the Company. (b) If any court of competent jurisdiction determines that any of the Restrictive Covenants or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full force and effect, without regard to the invalid parts or portions. If any such court determines that any of the Restrictive Covenants, or any part thereof, is unenforceable because of the duration or geographic scope of such provision, such court shall have the power to reduce the duration or scope of such provision, as the case may be, and in its reduced form such provision shall then be enforceable and shall be enforced. 8. Definition of Affiliate. The term "Affiliate" or "Affiliates" as used ----------------------- herein shall mean an entity controlled by the Company, under common control with the Company, controlling the Company or otherwise affiliated with the Company, directly or indirectly through stock ownership, and shall include (but not be limited to) each corporation a majority of the voting stock of which is owned by the Company or any such other majority-owned subsidiary (or chain thereof) of the Company. 9. Non-waiver of Rights. The failure to enforce at any time of the -------------------- provisions of this Agreement or to require at any time performance by the other party of any of the provisions hereof shall in no way be construed to be a waiver of such provisions or to affect either the validity of this Agreement, or any part hereof, or the right of either party thereafter to enforce each and every provision in accordance with the terms of this Agreement. 10. Term/Termination. (a) Your employment under this Agreement shall ---------------- commence February 3, 1998 and continue until terminated on not less than thirty (30) days written notice by either party, or immediately upon written notice by the Company at any time for cause. The term "cause" as used herein shall mean (i) gross or habitual neglect of duty, (ii) prolonged absence from duty without the consent of the Company other than from illness or disability and (iii) intentional or willful or serious misconduct. (b) In the event your employment is terminated by the Company for reasons other than for cause, the Company will continue to pay you Base Salary and provide the benefits described in Section 3(b) for a period of six (6) months or your earlier employment by a third party. 11. Indemnification and Related Insurance. The Company, at all times ------------------------------------- during the term of this Agreement, shall maintain officers and directors errors and omission insurance in amounts as are in force as of the date of this Agreement and you shall be covered by such insurance as an officer of the Company. In addition, as set forth in Article Ninth of the Certificate of Incorporation of the Company, the Company shall indemnify you to the full extent as so set forth in the Certificate of Incorporation in connection with the performance by you of your duties under this Agreement and as an officer of the Company. 12. Notices. All notices required or permitted under this Agreement shall ------- be in writing and shall be deemed delivered when delivered in person or deposited in the United States mail, postage paid, addressed as follows: to the Company: United Natural Foods, Inc. 260 Lake Road Dayville, CT 06241 ATTN: Norman A. Cloutier, Chairman and Chief Executive Officer to you at your address above. Such addresses may be changed from time to time by either party by providing written notice in the manner set forth above. 13. Entire Agreement. This Agreement contains the entire agreement of the ---------------- parties and there are no other promises or conditions in any other agreement whether oral or written. This Agreement supersedes any prior written or oral agreements between the parties. 14. Amendment. This Agreement may be modified or amended, if the --------- amendment is made in writing and is signed by both parties. 15. Severability. If any provisions of this Agreement shall be held to be ------------ invalid or unenforceable for any reason, the remaining provisions shall to be valid and enforceable. If a court finds that a provision of this Agreement is invalid or unenforceable, then such provision shall be deemed to be written, construed and enforced as so limited. 16. Applicable Law. This Agreement shall be governed by and contained in -------------- accordance with the laws of the State of Connecticut. 17. Binding Agreement. This Agreement shall bind and inure to the benefit ----------------- of the parties and their respective legal representatives, successors and assigns, except that you may not delegate any of your obligations under this Agreement or assign this Agreement. A successor to the Company shall be deemed to include any successor of any nature including a change of control of the Company whereunder any entity or person shall acquire, directly or indirectly, more than 50% of the voting power of all classes of stock of the Company. 18. Public Announcement. The Company will make no public announcement of ------------------- your employment prior to February 12, 1998 without your prior written permission. 19. Liquidated Damages. You expressly acknowledge that the Company has ------------------ incurred significant expenses in connection with the negotiation of your employment, including the payment of fees to Korn/Ferry International, and that the Company has relied on your agreements set forth above. Accordingly, in the event that you fail to report for employment with the Company on February 3, 1998, except by reason of death or disability or delays not exceeding five (5) business days on account of weather or similar events, you agree to pay the Company, on demand, One Hundred Thousand Dollars ($100,000) as liquidated damages. Please confirm your agreement to the foregoing by signing in the space below. Sincerely, UNITED NATURAL FOODS, INC. By: /s/ Norman A. Cloutier ---------------------- Norman A. Cloutier Chief Executive Officer Agreement confirmed: /s/ Robert Cirulnick - -------------------- Robert Cirulnick February 3, 1998 EX-10.30 3 EMPLOYMENT AGREEMENT EXHIBIT 10.30 EMPLOYMENT AGREEMENT -------------------- THIS AGREEMENT ("Agreement") is made and entered into this 31st day of October, 1997, by and between UNITED NATURAL FOODS, INC., a Delaware corporation (the "Company"), and RICHARD S. YOUNGMAN of P.O. Box 88, Foley Road, Chesterfield, New Hampshire 03443 ("Executive"). WITNESSETH: ---------- WHEREAS, each of the Company and Stow Mills, Inc. a Vermont corporation ("Stow Mills"), are engaged in the wholesale distribution of natural foods and related products (the "Company Business"); WHEREAS, Stow Mills has become a wholly-owned subsidiary of the Company effective the date hereof; WHEREAS, Executive has heretofore been employed by Stow Mills for a number of years and possesses significant knowledge and information respecting the Company Business, which knowledge and information will be increased, developed and enhanced by his continued employment; WHEREAS, Executive is a key employee of Stow Mills familiar with and responsible for the success of the Company Business; and WHEREAS, the parties hereto desire to enter into this Agreement as to the Company's employment of Executive on the terms and conditions set forth in this Agreement; NOW, THEREFORE, for and in consideration of the mutual covenants and agreements contained herein, the parties agree as follows: 1. Employment and Term. Subject to the terms and conditions of this ------------------- Agreement, the Company hereby employs Executive, and Executive hereby accepts employment by the Company as President and Chief Executive Officer of Stow Mills and President and Chief Executive Officer of the Company's Eastern Region which includes the business operations of Stow Mills and the Company's Cornucopia Natural Foods division (the "Eastern Region"). Additionally, during the term hereof, Executive shall serve as one of two Directors of Stow Mills. In such capacity Executive shall have full management responsibility for the business and operations of the Company's Eastern Region, which responsibilities shall include, without limitation, integration of Stow Mills into the Company's Eastern Region operations. The Executive shall report to the Chairman and Chief Executive officer of the Company. Executive's employment under this Agreement shall be for an initial term (the "Initial Term") terminating on the second anniversary of the date hereof. On such date and on each anniversary of such date (the "Renewal Date"), Executive's employment hereunder shall automatically be extended for an additional one-year term ("Renewal Term"), unless either party shall notify the other party in writing not less than ninety (90) days prior to any such Renewal Date of his or its election to terminate Executive's employment with the Company upon the expiration of the then current term. Executive and the Company agree that any relocation of Executive shall only be by mutual agreement of the parties. In the event of any such relocation, the Company shall pay all reasonable and necessary moving expenses to relocate the Executive and his immediate family. 2. Duties. Executive hereby agrees that during the term of this ------ Agreement he will devote his full time, attention and energies to the diligent performance of his duties as an employee of the Company, provided that Executive may engage in any venture or activity which (a) is not competitive with or adverse to the business of the Company or any subsidiary or affiliate of the Company (other than the ownership of not more than five percent (5%) of the stock or other equity interest of any publicly traded corporation or other entity), and (b) does not interfere with Executive's performance of his duties hereunder. 3. Compensation. In consideration of Executive's services hereunder, the ------------ Company shall pay to Executive during the term of his employment with the Company a salary at the rate of not less than One Hundred Thirty Thousand Dollars ($130,000) per annum, in equal installments at such times as the Company shall make payments of salary and wages to its employees generally. Executive's salary will be reviewed by the Compensation Committee of the Board of Directors of the Company at the beginning of each of its fiscal years and, in the sole discretion of the Compensation Committee of the Board of Directors of the Company, may be increased, but not decreased, for such year. 4. Other Benefits. The Company will furnish Executive with four (4) -------------- weeks paid vacation each year; an automobile allowance sufficient to allow him to retain his current, or a comparable, automobile; and reimbursement of reasonable and necessary out-of-pocket expenses incurred in the course of performing his duties hereunder. Executive shall further be entitled to other employee benefits substantially equivalent to those generally provided by the Company to its senior executive employees similarly situated for so long as the Company provides or offers such benefits, and to bonuses and stock options as determined by the Compensation Committee of the Company's Board of Directors and substantially equivalent to those provided to other Senior Executive Officers of the Company and its subsidiaries. 5. Termination. ----------- (a) The Executive may terminate this Agreement at any time during the Initial Term or any Renewal Term, without cause, upon ninety (90) days prior written notice to the Company. (b) Following the Initial Term, the Company may terminate this Agreement at any time, without cause, upon ninety (90) days prior written notice to the Executive. (c) The Executive shall have the right to terminate this Agreement upon thirty (30) days prior written notice to the Company, unless the grounds for termination have been eliminated during such notice period, if (i) the Company fails to make any salary or other payment due to Executive hereunder, (ii) the Company removes or demotes Executive from his position as President and Chief Executive Officer of Stow Mills or from his position as President and Chief Executive Officer of the Eastern Region or otherwise materially reduces the scope of Executive's title, duties or authority, or (iii) the Company otherwise breaches any material covenant, obligation or agreement hereunder. (d) The Company shall have the right to terminate this Agreement for cause upon thirty (30) days prior written notice to the Executive, unless the grounds for termination have been eliminated during such notice period, and provided the Executive has been given an opportunity to be heard by the Board of Directors, if any of the following occurs: (i) conviction of Executive for commission of a felony involving an act of dishonesty; (ii) the willful and continued failure by Executive to substantially perform his duties hereunder (other than any such failure resulting from Executive's incapacity due to physical or mental illness); or (iii) Executive shall have given aid to a competitor of the Company or any of its subsidiaries to the material detriment of the Company. (e) The Company may terminate this Agreement in the event that Executive shall fail, because of illness, physical or mental disability or other incapacity for an aggregate of one hundred twenty (120) days in any 365-day period, to render the services provided for by this Agreement and as provided immediately prior to the onset of such illness, disability or incapacity. The effective date of termination based on disability shall be the date that is thirty (30) days after the date that the Company gives the Executive notice of termination based on disability. If any controversy should arise as to whether such a disability exists, the Executive shall be examined by a physician or physicians mutually selected by the parties and the determination of such physician(s) shall be binding. (f) This Agreement shall terminate on the date of death of the Executive. (g) If this Agreement is terminated pursuant to paragraphs (a), (b), (d), (e) or (f) above, the Executive shall receive the compensation and benefits owing to him hereunder, pro-rated to the date of termination. If however, the Executive terminates this Agreement during the Initial Term pursuant to paragraph (c) above, or if the Company terminates this Agreement other than pursuant to paragraphs (d), (e) or (f) above prior to the expiration of the Initial Term, the Executive shall be entitled to full compensation and benefits provided hereunder through the end of the Initial Term. 6. Non-Competition. --------------- (a) For a period of one (1) year following (i) the voluntary termination or non-renewal of this Agreement by Executive, other than pursuant to Section 5(c) or (ii) termination of this Agreement by the Company pursuant to Section 5(d), Executive shall not, directly or indirectly, either as an employee, employer consultant, agent, principal, partner, stockholder, corporate officer, director, or in any other individual or representative capacity, engage or participate in (x) any wholesale distribution business that is in competition with the wholesale distribution business of the Company or any of its subsidiaries or affiliates as now conducted or in the future during the Initial Term or any Renewal Term conducted or planned, or (y) any retail business that is in competition with any retail operations of the Company or its subsidiaries as now conducted or in the future during the Initial Term or any Renewal Term conducted or planned and has a location within twenty- five (25) miles from a retail store now owned by the Company or its subsidiaries or planned or acquired during the Initial Term or any Renewal Term, provided, -------- however, that Executive's ownership of not more than five percent (5%) of the - ------- shares or other equity interest of any publicly traded corporation or other entity engaged in any such business shall not be deemed a breach of this covenant. For purposes hereof, "affiliate" means a company controlling, controlled by or under common control with the Company. (b) During the Initial Term and any Renewal Term, Executive shall not divert, take away, interfere with or attempt to take away, interfere with or attempt to take away any present or future employee or customer of the company or Stow Mills or any of their respective subsidiaries or affiliates. (c) In the event that the provisions of this Section 6 shall ever be deemed to exceed the time or geographic limitations or any other limitations permitted by applicable law, then such provision shall be deemed reformed to he maximum permitted by applicable law. Executive acknowledges and agrees that the foregoing covenant is an essential element of this Agreement and that, but for the agreement of Executive to comply with the covenant, the Company would not have entered into this Agreement, and that the remedy at law for any breach of the covenant will be inadequate and the Company, in addition to any other relief available to it, shall be entitled to temporary and permanent injunctive relief without the necessity of proving actual damage. 7. Confidential Information. ------------------------ (a) The parties acknowledge and agree that during the Initial Term and any Renewal Term and in the course of the discharge of his duties hereunder, Executive shall have access to and become acquainted with information concerning the operation of the Company and Stow Mills, including without limitation, customer lists, patents, inventions, copyrights, methods or doing business, and proprietary information that is owned by the Company or Stow Mills and regularly used in the operation of the Company's or Stow Mills' business and that this information constitutes the Company's or Stow Mills' trade secrets. (b) Executive agrees that he shall not disclose any such trade secrets, directly or indirectly, to any other person or use them in any way, during the Initial Term, any Renewal Term and for a period of one (1) year following the voluntary termination or non-renewal of this Agreement by Executive (other than pursuant to Section 5(c)) or termination of this Agreement by the Company pursuant to Section 5(d), except as is (i) required in the course of his employment with the Company or Stow Mills; (ii) in the public domain; (iii) acquired prior to the discussions concerning the acquisition of Stow Mills by the Company; (iv) required to be disclosed in litigation or to governmental authorities; or (v) acquired from third parties without knowledge or any confidentiality obligation. (c) Execute specifically acknowledges and agrees that the remedy at law for any breach of the foregoing shall be inadequate and that the Company or Stow Mills, in addition to any other relief available to them, shall be entitled to temporary and permanent injunctive relief without the necessity of proving actual damage. 8. Return of Company Documents and Equipment. Upon the termination or ----------------------------------------- expiration of his employment hereunder, Executive agrees to deliver promptly to the Company all Company files, customer lists, catalogs, price lists, management reports, memoranda, research, Company forms, financial data and reports and other documents supplied to or created by him in connection with his employment hereunder (including all copies of the foregoing) in his possession or control and all of the Company's equipment and other materials in his possession or control. 9. Provisions Severable. If any provision or covenant of this Agreement, -------------------- or any part thereof, should be held by any court to be invalid, illegal or unenforceable, either in whole or in part, the invalidity, legality or enforceability of any such provisions shall not affect the remaining provisions or covenants of this Agreement, or any part thereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provisions were omitted. 10. Waiver. Failure of either party to insist, in one or more instances, ------ on performance by the other in strict accordance with the terms and conditions of this Agreement shall not be deemed a waiver or relinquishment of any right granted in this Agreement or of the future performance of any such term or condition or of any other term or condition of this Agreement, unless such waiver is contained in a writing signed by the party making the waiver. 11. Amendments and Modifications. This Agreement may be amended or ---------------------------- modified only by a writing signed by both parties hereto. 12. Governing Law. The validity and effect of this Agreement shall be ------------- governed by and construed and enforced in accordance with the laws of the State of Delaware. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. /s/ Richard S. Youngman ----------------------- Richard S. Youngman UNITED NATURAL FOODS, INC. By: /s/ Norman A. Cloutier ---------------------- Norman A. Cloutier Chairman of the Board EX-10.31 4 PERSONAL AND CONFIDENTIAL EXHIBIT 10.31 UNITED NATURAL FOODS, INC. 260 LAKE ROAD DAYVILLE, CT 06241 October 31, 1997 PERSONAL AND CONFIDENTIAL Mr. Steven Townsend 169 Barrett Hill Road Brooklyn, CT 06234 Dear Steve: On behalf of United Natural Foods, Inc. (the "Company") and the other members of its Board of Directors (the "Board"), and in acknowledgement of your extraordinary efforts extended over your fourteen years of service to the Company as well as your efforts in connection with the successful initial public offering by the Company of its stock and the general business good fortunes of the Company accomplished in no small part as a result of your efforts, and consistent with your stated personal career objectives and your desire to undertake new business opportunities outside of the wholesale distribution of natural foods business, the Company is pleased to undertake the following: 1. You will remain employed by the Company and serve in your officer capacity as Vice President-Finance and Administration and Chief Financial Officer until December 1, 1997 or such earlier date as we mutually agree in the event the Company has hired your successor. You agree that you will assist the Company in retaining your successor. 2. Your compensation and benefits currently payable by the Company will continue until December 1, 1997 or such earlier date as referenced in Section 1 above. 3. The Company will provide a salary continuation benefit to you such that on December 1, 1997, it will pay you $30,000, on March 1, 1998 it will pay you $30,000 and on August 1, 1998 it will pay $60,000, all subject to necessary withholdings. In addition, the Company will provide, at its expense, health insurance benefits as are currently made available to you and your family to August 31, 1998. You will pay your normal share of premiums for such health insurance through August 31, 1998. Subsequent to August 31, 1998, you will have the right to continue such insurance benefits under COBRA. 4. The Company anticipates granting Non-Statutory Stock Options to certain of its employees as well as to those Board of Directors who are not employed by the Company (the "Outside Directors") and for purposes of the 1997-1998 grant of non-statutory options under the Company Non-Statutory Stock Option Plan, the Company will grant non-statutory to you to purchase 5,333 shares of the Company common stock as of the date the Board of Directors takes action to issue such options to its employees and to its Outside Directors, it being agreed that such options when granted to you for such 5,333 shares will be fully vested as of the date of the grant. If upon the expiration of your current term as a Director of the Company you are re-elected as a Director, then during your re-elected term or terms, you shall be granted options for such number of shares as shall equal the number of shares it will grant to its other Outside Directors. The Non-Statutory Stock Option Agreement with respect to those options to be granted to you during you re- elected term(s) shall provide for vesting at the rate of 1/3 of the amount of the grant per year for three (3) years while you shall serve as Director. 5. The Company will provide to potential future employers its letter of recommendation in the form attached hereto and all inquiries from future employers will be directed to the undersigned who will respond directly on behalf of the Company. 6. Subsequent to December 1, 1997, you may be called upon by the Company to render consulting services from time to time and the Company and you will separately agree to mutual terms and conditions with respect thereto including consulting fees. 7. You will continue to serve on the Board of Directors of the Company through the remainder of your current elected term and, if requested by the Board, will agree to stand for re-election at the end of that term. 8. You agree that will not without prior written consent of the Company disclose to any other party any trade secrets or confidential and/or proprietary information of the Company obtained during your employment by the Company which trade secrets and confidential information shall mean any and all confidential and proprietary information not otherwise in the public domain including, without limitation, financial information, projected budgets, marketing strategies, customer lists, pricing policies, operational methods, marketing plans and strategies, product development techniques or plans, business acquisition plans, inventions and/or research projects and other business affairs of the Company which are proprietary and are confidential. You further agree that until August 31, 1998, you shall not at any time, directly or indirectly, induce, persuade, solicit or attempt to induce, persuade or solicit any employee of the Company or its subsidiaries to terminate his or her employment by the Company or its subsidiaries or to otherwise, directly or indirectly, or through any other person, firm or entity induce, persuade or solicit or attempt to induce, persuade or solicit any such employee to become employed by you, or any other firm, person or entity with whom you may be affiliated. Please confirm your understanding as to the foregoing be signing this and a copy of this letter and returning the same to the undersigned. All of the employees of the Company join me in wishing you nothing but the best with regard to your future business undertakings. Very truly yours, UNITED NATURAL FOODS, INC. By: /s/ Norman A. Cloutier ------------------------ Norman A. Cloutier Chairman of the Board Read and Agreed to as of October 31, 1997 /s/ Steven Townsend - ------------------- Steven Townsend EX-10.32 5 PERSONAL AND CONFIDENTIAL EXHIBIT 10.32 UNITED NATURAL FOODS, INC. 260 LAKE ROAD DAYVILLE, CT 06241 January 31, 1998 PERSONAL AND CONFIDENTIAL Mr. Steven H. Townsend 169 Barrett Hill Road Brooklyn, CT 06234 Dear Steve: On behalf of United Natural Foods, Inc. (the "Company") and the other members of its Board of Directors (the "Board"), and in further acknowledgement of your extraordinary efforts extended over your fourteen years of service to the company as well as your efforts in connection with the successful initial public offering by the Company of its stock and the general business good fortunes of the Company accomplished in no small part as a result of your efforts, and consistent with your stated personal career objectives and your desire to undertake new business opportunities outside of the wholesale distribution of natural foods business, and in addition to the agreements set forth in a letter between the Company and you dated October 31, 1997, the Company is pleased to undertake the following: With reference to the Incentive Stock Option Agreement between you and the Company dated July 31, 1996 (the "ISO Agreement"), the Company agrees that effective as of the date of this letter, the options for 6,754 shares otherwise not vested under the ISO Agreement be, and hereby are, vested such that as of this date the number of shares of Company common stock as to which you may exercise options under the ISO Agreement and the Plan referenced therein. With reference to the Non-Statutory Stock Option Agreement dated July 31, 1996, your option to purchase 68,750 shares of Company common stock thereunder were fully vested as of July 31, 1996 and remain vested. Please confirm your understanding as to the foregoing by signing this and copy of this letter and returning the same to the undersigned. Very truly yours, UNITED NATURAL FOODS, INC. By: /s/ Norman A. Cloutier ------------------------ Norman A. Cloutier Chairman of the Board Read and agreed to as of January 31, 1998 /s/ Steven H. Townsend - ---------------------- Steven H. Townsend EX-11 6 COMPUTUTION OF EARNINGS PER SHARE EXHIBIT 11 UNITED NATURAL FOODS, INC.C COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS ENDED SIX MONTHS ENDED JANUARY 31, JANUARY 31, ----------- ----------- 1997 1998 1997 1998 ---- ---- ---- ---- Basic weighted average shares outstanding 17,116,331 17,356,705 15,393,653 17,356,705 Net effect of dilutive stock options based upon the treasury stock method using the average stock price 273,174 440,934 264,290 430,907 ----------- ----------- ----------- ----------- Diluted weighted average shares outstanding 17,389,505 17,797,639 15,657,943 17,787,611 =========== =========== =========== =========== Income before extraordinary item $ 2,294,035 $ 4,200,184 $ 3,583,259 $ 3,571,887 Extraordinary item - loss on early extinguishment of debt, net of income tax benefit of $661,822 932,929 - 932,929 - ------------ ------------ ------------ ----------- Net income $ 1,361,106 $ 4,200,184 $ 2,650,330 $ 3,571,887 ============ ============ ============ =========== Pro forma net income before extraordinary item $ 2,251,778 $ 4,200,184 $ 3,576,882 $ 3,251,789 ============ ============ ============ =========== Basic Per Share Data: Income before extraordinary item $ 0.13 $ 0.24 $ 0.23 $ 0.21 Extraordinary item - loss on early extinguishment of debt, net of income tax benefit of $661,822 $ 0.05 $ - $ 0.06 $ - ------------ ------------ ------------ ----------- Net income $ 0.08 $ 0.24 $ 0.17 $ 0.21 ============ ============ ============ =========== Pro forma net income before extraordinary item $ 0.13 $ 0.24 $ 0.23 $ 0.19 ============ ============ ============ =========== Diluted Per Share Data: Income before extraordinary item $ 0.13 $ 0.24 $ 0.23 $ 0.20 Extraordinary item - loss on early extinguishment of debt, net of income tax benefit of $661,822 $ 0.05 $ - $ 0.06 $ - ------------ ------------ ------------ ----------- Net income $ 0.08 $ 0.24 $ 0.17 $ 0.20 ============ ============ ============ =========== Pro forma net income before extraordinary item $ 0.13 $ 0.24 $ 0.23 $ 0.19 ============ ============ ============ ===========
Pro forma income tax expense to reflect Stow as though it were a C corporation for the entire period is calculated as follows: Total income tax expense plus Stow pretax income multiplied by 35% (note fiscal 1998 adds back merger expenses as well before calculating tax expense for Stow since merger expenses are nondeductible for tax purposes). EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED JANUARY 31, 1998 AND THE CONSOLIDATED BALANCE SHEET AS OF JANUARY 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS JUL-31-1998 JAN-31-1998 3,457,686 0 52,605,812 2,116,801 78,034,786 136,581,646 54,656,739 21,934,185 180,336,911 79,174,605 22,915,737 0 0 173,771 77,395,238 180,336,911 351,358,640 351,358,640 280,861,361 280,861,361 0 704,032 2,273,137 8,426,772 4,854,885 3,571,887 0 0 0 3,571,887 0.21 0.20
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