-----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, Oba9siEIWig6ZSffRDJ4ytQ8DPh9SqMUr/RAPeSD5K/Zy8jp7wojjG8UcOaaf8cx VcEy0KWzT/EvHAdqGFq44Q== 0000927016-98-001680.txt : 19980430 0000927016-98-001680.hdr.sgml : 19980430 ACCESSION NUMBER: 0000927016-98-001680 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19980428 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980428 SROS: NASD 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: 8-K SEC ACT: SEC FILE NUMBER: 000-21531 FILM NUMBER: 98602474 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 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of Earliest Event Reported): April 28, 1998 -------------- United Natural Foods, Inc. ------------------------------------------------------------ (Exact Name of Registrant as Specified in its Charter) Delaware ------------------------------------------------------------ (State or Other Jurisdiction of Incorporation) 000-21531 05-0376157 - ------------------------ ------------------------------------ (Commission File Number) (I.R.S. Employer Identification No.) 260 Lake Road Dayville, CT 06241 - --------------------------------------- ------------ (Address of Principal Executive Offices) (Zip Code) (860) 779-2800 ------------------------------------------------------------ (Registrant's Telephone Number, Including Area Code) Not Applicable ------------------------------------------------------------ (Former Name or Former Address, if Changed Since Last Report) ITEM 5. OTHER EVENTS. On October 31, 1997, United Natural Foods, Inc. ("United Natural" or the "Company") acquired Stow Mills, Inc. and Subsidiary and Hendrickson Partners ("Stow Mills"). The merger with Stow Mills was accounted for as a pooling of interests. The Company's Computation of Net Earnings Per Share, Restated Financial Data Schedules, Selected Consolidated Financial Data, Management's Discussion and Analysis of Financial Condition and Results of Operations, Consolidated Financial Statements and Schedule II, which are filed as Exhibits 11, 27.1-27.3, 99.1, 99.2, 99.3 and 99.4, respectively, to this Current Report on Form 8-K and are incorporated herein by reference, have been prepared accounting for the Stow Mills acquisition using the pooling-of-interests method of accounting. Additionally, all financial statements have been restated in accordance with Statement of Financial Accounting Standards No. 128, "Earnings per Share." ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (c) EXHIBITS. 11 Computation of Net Earnings per Share for the year ended October 31, 1995, the nine months ended July 31, 1996, the year ended July 31, 1997 and the six months ended January 31, 1997 and 1998. 23 Consent of KPMG Peat Marwick LLP, independent auditors. 27.1 Restated Financial Data Schedules - six months ended January 31, 1998 and three months ended October 31, 1997. 27.2 Restated Financial Data Schedules - year ended July 31, 1997, nine months ended April 30, 1997 and six months ended January 31, 1997. 27.3 Restated Financial Data Schedules - three months ended October 31, 1996, nine months ended July 31, 1996 and year ended October 31, 1995. 99.1 Selected Consolidated Financial Data. 99.2 Management's Discussion and Analysis of Financial Condition and Results of Operations. 99.3 Consolidated Financial Statements of United Natural Foods, Inc. as of October 31, 1995, July 31, 1996 and 1997 and January 31, 1998 (unaudited) and for the year ended October 31, 1995, the nine months ended July 31, 1996, the year ended July 31, 1997 and the six months ended January 31, 1997 and 1998 (unaudited) and Reports of Independent Accountants thereon. 99.4 Schedule II - Valuation and Qualifying Accounts and Report of Independent Accountants thereon. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: April 28, 1998 UNITED NATURAL FOODS, INC. -------------------------- (Registrant) By: /s/ Robert T. Cirulnick ------------------------ Robert T. Cirulnick Chief Financial Officer and Principal Accounting Officer EXHIBIT INDEX Exhibit Number Description ------ ----------- 11 Computation of Net Earnings per Share for the year ended October 31, 1995, the nine months ended July 31, 1996, the year ended July 31, 1997 and the six months ended January 31, 1997 and 1998. 23 Consent of KPMG Peat Marwick LLP, independent auditors. 27.1 Restated Financial Data Schedules - six months ended January 31, 1998 and three months ended October 31, 1997. 27.2 Restated Financial Data Schedules - year ended July 31, 1997, nine months ended April 30, 1997 and six months ended January 31, 1997. 27.3 Restated Financial Data Schedules - three months ended October 31, 1996, nine months ended July 31, 1996 and year ended October 31, 1995. 99.1 Selected Consolidated Financial Data. 99.2 Management's Discussion and Analysis of Financial Condition and Results of Operations. 99.3 Consolidated Financial Statements of United Natural Foods, Inc. as of October 31, 1995, July 31, 1996 and 1997 and January 31, 1998 (unaudited) and for the year ended October 31, 1995, the nine months ended July 31, 1996, the year ended July 31, 1997 and the six months ended January 31, 1997 and 1998 (unaudited) and Reports of Independent Accountants thereon. 99.4 Schedule II - Valuation and Qualifying Accounts and Report of Independent Accountants thereon. EX-11 2 COMPUTATION OF NET EARNINGS PER SHARE EXHIBIT 11
YEAR NINE MONTHS YEAR SIX MONTHS ENDED ENDED ENDED ENDED OCTOBER 31, JULY 31, JULY 31, JANUARY 31, 1995 1996 1997 1997 1998 ------ ------ ------ ------ ------ (in thousands except per share data) Basic weighted average shares outstanding 13,691 13,687 16,367 15,394 17,357 Net effect of dilutive stock options based upon the treasury stock method using the average stock price 1,167 1,166 186 731 297 ------- ------- ------- ------- ------- Diluted weighted average shares outstanding 14,858 14,853 16,553 16,125 17,654 ======= ======= ======= ======= ======= Income before extraordinary item $ 2,817 $ 5,450 $10,400 $ 3,583 $ 3,572 Extraordinary item - loss on early extinguishment of debt, net of income tax benefit of $662 -- -- 933 933 -- ------- ------- ------- ------- ------- Net income $ 2,817 $ 5,450 $ 9,467 $ 2,650 $ 3,572 ======= ======= ======= ======= ======= Pro forma net income before extraordinary item (Unaudited) $ 2,742 $ 4,951 $ 9,999 $ 3,577 $ 3,252 ======= ======= ======= ======= ======= Basic Per Share Data: Income before extraordinary item $ 0.21 $ 0.40 $ 0.64 $ 0.23 $ 0.21 Extraordinary item - loss on early extinguishment of debt, net of income tax benefit of $662 $ -- $ -- $ 0.06 $ 0.06 $ -- ------- ------- ------- ------- ------- Net income $ 0.21 $ 0.40 $ 0.58 $ 0.17 $ 0.21 ======= ======= ======= ======= ======= Pro forma net income before extraordinary iten (Unaudited) $ 0.20 $ 0.36 $ 0.61 $ 0.23 $ 0.19 ======= ======= ======= ======= ======= Diluted Per Share Data: Income before extraordinary item $ 0.19 $ 0.37 $ 0.63 $ 0.22 $ 0.20 Extraordinary item - loss on early extinguishment of debt, net of income tax benefit of $662 $ -- $ -- $ 0.06 $ 0.06 $ -- ------- ------- ------- ------- ------- Net income $ 0.19 $ 0.37 $ 0.57 $ 0.16 $ 0.20 ======= ======= ======= ======= ======= Pro forma net income before extraordinary item (Unaudited) $ 0.18 $ 0.33 $ 0.60 $ 0.22 $ 0.18 ======= ======= ======= ======= =======
EX-23 3 CONSENT OF KPMG PEAT MARWICK LLP EXHIBIT 23 The Board of Directors United Natural Foods, Inc.: We consent to incorporation by reference in the Registration Statements (Nos. 333-19945, 333-19947, and 333-19949) on Form S-8 of United Natural Foods, Inc. of our reports dated April 15, 1998, relating to the consolidated balance sheets of United Natural Foods, Inc. and subsidiaries as of July 31, 1996 and 1997, and the related consolidated statements of income, stockholders' equity and cash flows for the year ended October 31, 1995, for the nine months ended July 31, 1996, and for the year ended July 31, 1997, and the related schedule, which reports appear in the current report on Form 8-K dated April 28, 1998 of United Natural Foods, Inc. KPMG Peat Marwick LLP Providence, Rhode Island April 27, 1998 EX-27.1 4 RESTATED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM CONSOLIDATED STATEMENTS OF INCOME AND THE CONSOLIDATED BALANCE SHEETS FOR ALL PERIODS PRESENTED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS 3-MOS JUL-31-1998 JUL-31-1998 JAN-31-1998 OCT-31-1997 3,458 511 0 0 51,698 51,304 2,117 2,543 78,035 78,761 136,582 133,142 54,657 53,283 21,936 21,020 180,337 176,322 79,174 86,283 22,916 16,034 0 0 0 0 174 174 77,395 73,154 180,337 176,322 351,359 173,383 351,359 173,383 280,862 139,194 280,862 139,194 0 0 704 132 2,273 1,081 8,427 1,293 4,855 1,921 3,572 (628) 0 0 0 0 0 0 3,572 (628) 0.21 (0.04) 0.20 (0.04)
EX-27.2 5 RESTATED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM CONSOLIDATED STATEMENTS OF INCOME AND THE CONSOLIDATED BALANCE SHEETS FOR ALL PERIODS PRESENTED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR 9-MOS 6-MOS JUL-31-1997 JUL-31-1997 JUL-31-1997 JUL-31-1997 APR-30-1997 JAN-31-1997 952 563 1,812 0 0 0 45,235 48,262 47,888 2,283 2,827 2,668 71,509 76,524 66,801 121,421 126,654 117,230 52,382 51,599 51,052 19,970 18,917 17,823 164,561 169,688 160,814 68,320 82,920 75,803 21,647 22,117 23,508 0 0 0 0 0 0 174 174 174 73,742 64,318 60,971 164,561 169,688 160,814 634,825 465,958 307,068 634,825 465,958 307,068 507,547 372,266 245,023 507,547 372,266 245,023 0 0 0 2,112 1,688 1,529 5,976 4,745 3,508 17,036 11,606 6,250 6,636 4,640 2,571 10,400 6,966 3,589 0 0 0 933 933 933 0 0 0 9,467 6,033 2,656 0.58 0.38 0.17 0.57 0.36 0.17
EX-27.3 6 RESTATED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM CONSOLIDATED STATEMENTS OF INCOME AND THE CONSOLIDATED BALANCE SHEETS FOR ALL PERIODS PRESENTED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS 9-MOS YEAR JUL-31-1997 JUL-31-1996 OCT-31-1995 OCT-31-1996 JUL-31-1996 OCT-31-1995 1,106 749 689 0 0 0 43,423 41,453 38,081 1,674 1,411 1,751 69,119 63,761 54,585 115,458 107,841 95,868 50,465 48,967 40,122 16,841 15,749 12,175 160,089 152,343 134,451 101,074 94,388 84,615 33,935 34,108 32,747 0 0 0 0 0 0 137 137 137 24,569 23,303 16,589 160,089 152,343 134,451 146,659 439,842 458,849 146,659 439,842 458,849 117,190 350,130 363,757 117,190 350,130 363,757 0 0 0 542 0 0 2,111 5,887 5,969 2,346 8,333 5,770 1,054 2,883 2,953 1,292 5,450 2,817 0 0 0 0 0 0 0 0 0 1,292 5,450 2,817 0.09 0.40 0.21 0.09 0.37 0.19
EX-99.1 7 SELECTED CONSOLIDATED FINANCIAL DATA EXHIBIT 99.1 SELECTED CONSOLIDATED FINANCIAL DATA(1) The following table sets forth selected consolidated financial data of the Company for the periods indicated. Effective November 1, 1995, the Company elected to change its fiscal year end from October 31 to July 31.
NINE MONTHS ENDED TWELVE MONTHS ENDED SIX MONTHS ENDED YEAR ENDED OCTOBER 31, JULY 31, JULY 31, JANUARY 31, ---------------------------- ------------------ -------------------- ------------------ 1993 1994 1995 1995 1996 1996 1997 1997 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF INCOME DATA: Net sales............... $290,990 $359,881 $458,849 $318,642 $439,842 $ 580,049 $ 634,825 $306,575 $351,359 Cost of sales........... 230,758 285,339 363,757 251,381 350,130 462,506 507,547 244,536 280,862 -------- -------- -------- -------- -------- --------- --------- -------- -------- Gross profit........... 60,232 74,542 95,092 67,261 89,712 117,543 127,278 62,039 70,497 Operating expenses...... 54,789 65,080 81,355 57,154 75,059 99,261 103,885 52,148 55,577 Merger expenses......... -- -- -- -- -- -- -- -- 4,064 Amortization of intangibles............ 199 538 2,426 602 793 2,616 1,060 530 505 -------- -------- -------- -------- -------- --------- --------- -------- -------- Total operating ex- penses................ 54,988 65,618 83,781 57,756 75,852 101,877 104,945 52,678 60,146 -------- -------- -------- -------- -------- --------- --------- -------- -------- Operating income....... 5,244 8,924 11,311 9,505 13,860 15,666 22,333 9,361 10,351 Interest expense........ 2,663 4,391 5,969 4,127 5,887 7,730 5,976 3,508 2,273 Other, net.............. (210) (226) (428) (377) (360) (411) (679) (301) (349) -------- -------- -------- -------- -------- --------- --------- -------- -------- Total other expense.... 2,453 4,165 5,541 3,750 5,527 7,319 5,297 3,207 1,924 -------- -------- -------- -------- -------- --------- --------- -------- -------- Income before income taxes and extraordi- nary item............. 2,791 4,759 5,770 5,755 8,333 8,347 17,036 6,154 8,427 Income taxes............ 1,617 2,022 2,953 2,185 2,883 3,652 6,636 2,571 4,855 Income before extraordinary item..... 1,174 2,737 2,817 3,570 5,450 4,695 10,400 3,583 3,572 Extraordinary item...... -- -- -- -- -- -- 933 933 -- -------- -------- -------- -------- -------- --------- --------- -------- -------- Net income............. $ 1,174 $ 2,737 $ 2,817 $ 3,570 $ 5,450 $ 4,695 $ 9,467 $ 2,650 $ 3,572 ======== ======== ======== ======== ======== ========= ========= ======== ======== PER SHARE DATA (BA- SIC)(2): Income before extraordi- nary item.............. $ 0.09 $ 0.20 $ 0.21 $ 0.26 $ 0.40 $ 0.34 $ 0.64 $ 0.23 $ 0.21 Extraordinary item...... -- -- -- -- -- -- 0.06 0.06 -- -------- -------- -------- -------- -------- --------- --------- -------- -------- Net income............. $ 0.09 $ 0.20 $ 0.21 $ 0.26 $ 0.40 $ 0.34 $ 0.58 $ 0.17 $ 0.21 ======== ======== ======== ======== ======== ========= ========= ======== ======== Weighted average basic shares of common stock.................. 13,691 13,691 13,691 13,691 13,687 13,688 16,367 15,394 17,357 ======== ======== ======== ======== ======== ========= ========= ======== ======== PER SHARE DATA (DILUT- ED)(2): Income before extraordi- nary item.............. $ 0.09 $ 0.18 $ 0.19 $ 0.24 $ 0.37 $ 0.32 $ 0.63 $ 0.22 $ 0.20 Extraordinary item...... -- -- -- -- -- -- 0.06 0.06 -- -------- -------- -------- -------- -------- --------- --------- -------- -------- Net income............. $ 0.09 $ 0.18 $ 0.19 $ 0.24 $ 0.37 $ 0.32 $ 0.57 $ 0.16 $ 0.20 ======== ======== ======== ======== ======== ========= ========= ======== ======== Weighted average diluted shares of common stock.................. 13,691 14,804 14,858 14,858 14,853 14,855 16,553 16,125 17,654 ======== ======== ======== ======== ======== ========= ========= ======== ========
AS OF AS OF OCTOBER 31, AS OF JULY 31, JANUARY 31, -------------------------- ----------------- ----------- 1993 1994 1995 1996 1997 1998 BALANCE SHEET DATA (IN THOUSANDS): Working capital......... $ 22,044 $ 24,713 $ 26,983 $ 13,453 $ 53,101 $ 57,408 Total assets............ 81,960 91,442 134,508 152,343 164,561 180,337 Total long term debt and capital leases.......... 35,024 34,327 48,890 34,108 21,647 22,916 Total stockholders' equity.................. 8,894 14,266 17,117 23,440 73,916 77,569
- --------------------- (1) Selected consolidated financial data for the year ended October 31, 1995, nine months ended July 31, 1996 and year ended July 31, 1997 were derived from financial statements of the Company which were audited by KPMG Peat Marwick LLP, independent certified public accountants, whose report appears elsewhere herein. Selected consolidated financial data should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other financial information included elsewhere herein. Selected consolidated financial data for the years ended October 31, 1993 and 1994, nine months ended July 31, 1995, twelve months ended July 31, 1996 and six months ended January 31, 1997 and 1998 were derived from unaudited financial statements of the Company. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations have been included in such unaudited financial statements. Such results may not be indicative of the results expected for a full year. The Stow Mills merger has been accounted for as a pooling of interests and therefore the financial data of the Company are presented as if United Natural and Stow Mills had been combined for all periods presented. Stow Mills' results of operations for its fiscal years ended December 31, 1993, 1994 and 1995, its nine months ended September 29, 1995 and September 27, 1996, its twelve months ended September 29, 1996 and July 31, 1997 and its six months ended January 31, 1997 and 1998 have been combined with United Natural's results of operations for the respective periods indicated herein. Stow Mills' financial position as of December 31, 1993, 1994 and 1995, September 27, 1996, July 31, 1997 and January 31, 1998 has been combined with United Natural's financial position for the respective periods indicated herein. (2) All per share and share data have been restated to reflect the adoption of Statement of Financial Accounting Standards No. 128. See Note 1 of Notes to the Company's Consolidated Financial Statements. EX-99.2 8 MANAGEMENT'S DISCUSSION & ANALYSIS EXHIBIT 99.2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW United Natural Foods, Inc. is the leading independent national distributor of natural foods and related products in the United States. In recent years, the Company has increased sales to existing and new customers through the acquisition of or merger with natural products distributors, the opening of distribution centers in new geographic areas, the expansion of existing distribution centers and the continued growth of the natural products industry in general. Through these efforts, management believes that the Company has been able to broaden its geographic penetration, expand its customer base, enhance and diversify its product selections and increase its market share. The Company's distribution operations are divided into three principal regions: Cornucopia Natural Foods, Inc. ("Cornucopia") and Stow Mills in the Eastern Region, Rainbow Natural Foods, Inc. ("Rainbow") in the Central Region and Mountain People's Warehouse Incorporated ("Mountain People's") in the Western Region. Through its Natural Retail Group ("NRG"), the Company also owns and operates 16 retail natural products stores located in the eastern United States. The Company's retail strategy for NRG is to selectively acquire existing natural products stores that meet the Company's strict criteria in areas such as sales growth, profitability, growth potential and store management. Management believes the Company's retail business serves as a natural complement to its distribution business. The Company is continually integrating certain operating functions in order to improve operating efficiencies, including: (i) integrating administrative and accounting functions; (ii) expanding marketing and customer service programs across the three regions; (iii) expanding national purchasing opportunities; (iv) consolidating systems applications between physical locations and regions; and (v) reducing geographic overlap between regions. In addition, the Company's continued growth has created the need for expansion of existing facilities to achieve maximum operating efficiencies and to assure adequate space for future needs. While operating margins may be affected in periods in which expenses are incurred, over the long term, the Company expects to benefit from the increased absorption of its expenses over a larger sales base. In recent years, the Company has made considerable expenditures in connection with the expansion of its facilities, including the expansion of its distribution center and headquarters in Dayville, Connecticut, the relocation of its Denver, Colorado distribution center and the expansion of refrigerated and frozen space at its Auburn, California and Atlanta, Georgia facilities. The Company's net sales consist primarily of sales of natural products to retailers adjusted for customer volume discounts, returns and allowances and, to a lesser extent, sales from its natural products stores. The principal components of the Company's cost of sales include the amount paid to manufacturers and growers for product sold, plus the cost of transportation necessary to bring the product to the Company's distribution facilities. Operating expenses include salaries and wages, employee benefits (including payments under the Company's Employee Stock Ownership Plan), warehousing and delivery, selling, occupancy, administrative, depreciation, merger expenses and amortization expense. Other expenses include interest payments on outstanding indebtedness, miscellaneous expenses, interest income and miscellaneous income. RECENT ACQUISITIONS The mergers of the Company with Mountain People's and Stow Mills have each been accounted for as a pooling of interests and, accordingly, all information included herein is reported as though United Natural, Mountain People's and Stow Mills had been combined for all periods reported. On May 22, 1995, prior to its merger with United Natural, Mountain People's acquired Nutrasource, Inc. ("Nutrasource"), and on July 29, 1995 the Company acquired Rainbow. The acquisitions of Nutrasource and Rainbow were each accounted for under the purchase method of accounting and, accordingly, all financial information for Nutrasource and Rainbow has been included since the respective dates of acquisition. The acquisition of Hershey will also be accounted for under the purchase method of accounting but, as the acquisition was not consummated until after January 31, 1998, financial information for Hershey will be included in all periods after the date of acquisition. The excess of the purchase price over the net assets acquired in each of these acquisitions has been recorded as goodwill and is being amortized by the Company over various useful lives, not exceeding 40 years. RESULTS OF OPERATIONS The following table presents, for the periods indicated, certain income and expense items expressed as a percentage of net sales:
NINE MONTHS TWELVE MONTHS SIX MONTHS ENDED JULY 31, ENDED JULY 31, ENDED JANUARY 31, ---------------- ---------------- ----------------- 1995 1996 1996 1997 1997 1998 Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales........... 78.9 79.6 79.7 80.0 79.8 79.9 ------- ------- ------- ------- -------- -------- Gross profit.......... 21.1 20.4 20.3 20.0 20.2 20.1 ------- ------- ------- ------- -------- -------- Operating expenses...... 17.9 17.0 17.1 16.3 17.0 15.8 Merger expenses......... -- -- -- -- -- 1.2 Amortization of intangi- bles................... 0.2 0.2 0.5 0.2 0.2 0.1 ------- ------- ------- ------- -------- -------- Total operating ex- penses................ 18.1 17.2 17.6 16.5 17.2 17.1 ------- ------- ------- ------- -------- -------- Operating income....... 3.0 3.2 2.7 3.5 3.0 3.0 ------- ------- ------- ------- -------- -------- Other expense (income): Interest expense...... 1.3 1.4 1.4 0.9 1.1 0.7 Other, net............ (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) ------- ------- ------- ------- -------- -------- Total other expense, net.................. 1.2 1.3 1.3 0.8 1.0 0.6 ------- ------- ------- ------- -------- -------- Income before income taxes and extraordi- nary item............. 1.8 1.9 1.4 2.7 2.0 2.4 Income taxes........... 0.7 0.7 0.6 1.0 0.8 1.4 ------- ------- ------- ------- -------- -------- Income before extraor- dinary item........... 1.1 1.2 0.8 1.7 1.2 1.0 Extraordinary item--loss on early extinguishment of debt, net of income tax benefit............ -- -- -- 0.2 0.3 -- ------- ------- ------- ------- -------- -------- Net income............. 1.1% 1.2% 0.8% 1.5% 0.9% 1.0% ======= ======= ======= ======= ======== ========
SIX MONTHS ENDED JANUARY 31, 1998 COMPARED TO SIX MONTHS ENDED JANUARY 31, 1997 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 13.6%, or $8.5 million, to $70.5 million for the six months ended January 31, 1998 from $62.0 million for the six months ended January 31, 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 20.2% 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 Mills' operations in the first quarter of fiscal 1998. 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 of Stow Mills in the second quarter of fiscal 1998. Operating Expenses. The Company's total operating expenses increased approximately 14.2%, 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 for the six months ended January 31, 1998 would have been $56.0 million, or 16.0% of net sales, representing an increase of $3.3 million, or 6.5%, 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 acquisitions. Additionally, because of the October 31, 1997 effective date of the Stow Mills merger, resulting operational efficiencies were not realized in the first quarter of fiscal 1998. Excluding merger costs of $4.1 million, operating expenses for the six months ended January 31, 1998 and 1997 would have been $56.1 million, or 16.0% of net sales, and $52.7 million, or 17.2% 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% in each of the six months ended January 31, 1998 and 1997. Excluding the merger costs noted above, operating income for the six months ended January 31, 1998 would have been $14.4 million (representing an increase of 54.0% over the prior period), or 4.1% of net sales. Other (Income)/Expense. The $1.3 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 Mills' 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 57.6% and 41.8% 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, partially offset by the fact that Stow Mills was an S Corporation prior to the merger and, as such, had no federal tax expense. 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 (net of taxes) in merger costs in fiscal 1998 and $0.9 million extraordinary item (net of taxes) related to the early extinguishment of debt in fiscal 1997, net income would have been $7.6 million (representing an increase of 113.1% over the prior period), 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. TWELVE MONTHS ENDED JULY 31, 1997 COMPARED TO TWELVE MONTHS ENDED JULY 31, 1996 Net Sales. The Company's net sales increased approximately 9.4%, or $54.8 million, to $634.8 million for the twelve months ended July 31, 1997 from $580.0 million for the twelve months ended July 31, 1996. Net sales for Stow Mills during the period increased at a lower rate than net sales for the Company's other regions. The increase in net sales was primarily attributable to increased sales by the Company to its existing customers, sales to new customers, increased sales attributable to the introduction of new products not formerly offered by the Company and increased market penetration in existing geographic territories. Gross Profit. The Company's gross profit increased approximately 8.3%, or $9.8 million, to $127.3 million for the twelve months ended July 31, 1997 from $117.5 million for the twelve months ended July 31, 1996. The Company's gross profit as a percentage of net sales decreased to 20.0% for the twelve months ended July 31, 1997 from 20.3% for the twelve months ended July 31, 1996. The decrease in gross profit as a percentage of net sales resulted primarily from increased sales to existing customers that earned greater discounts under the Company's volume discount program. Operating Expenses. The Company's total operating expenses increased approximately 3.0%, or $3.0 million, to $104.9 million for the twelve months ended July 31, 1997 from $101.9 million for the twelve months ended July 31, 1996. However, as a percentage of net sales, operating expenses decreased to 16.5% for the twelve months ended July 31, 1997 from 17.6% for the twelve months ended July 31, 1996. Operating expenses for the twelve months ended July 31, 1996 included $1.6 million representing the write-down of intangible assets, $0.5 million for costs associated with the merger with Mountain People's and $1.1 million for costs associated with the grant of stock options under the Company's 1996 Stock Option Plan. Excluding this charge, the Company's total operating expenses for the twelve months ended July 31, 1996 would have been $98.8 million, or 17.0% of net sales. The decrease in total operating expenses as a percentage of net sales was attributable to the Company's absorption of fixed expenses and overhead over a larger sales base. Operating Income. Operating income increased $6.6 million, or approximately 42.6%, to $22.3 million for the twelve months ended July 31, 1997 from $15.7 million for the twelve months ended July 31, 1996. As a percentage of net sales, operating income increased to 3.5% for the twelve months ended July 31, 1997 from 2.7% for the twelve months ended July 31, 1996. Excluding the charges discussed above, operating income for the twelve months ended July 31, 1996 would have been $18.8 million, or 3.2% of net sales. Other (Income)/Expense. Total other expense, net, decreased by $2.0 million, or approximately 27.6%, to $5.3 million for the twelve months ended July 31, 1997 from $7.3 million for the twelve months ended July 31, 1996. The decrease was primarily attributable to lower interest payments for the twelve months ended July 31, 1997 resulting from the use of the proceeds of the Company's initial public offering to repay debt. As a result, interest expense decreased to $6.0 million for the twelve months ended July 31, 1997 from $7.7 million for the twelve months ended July 31, 1996. Income Taxes. The Company's effective income tax rate was 39.0% and 43.8% for the twelve months ended July 31, 1997 and 1996, respectively. Stow Mills was taxed as an S Corporation prior to the merger with the Company. Had Stow Mills been a C corporation, the Company's effective tax rates would have been 41.3% and 49.6% for the twelve months ended July 31, 1997 and 1996, respectively. The effective rates were higher than the federal statutory rate primarily due to nondeductible amortization, especially the write-off of the intangible assets in the twelve months ended July 31, 1996, as well as the impact of state and local income taxes. Net Income. As a result of the foregoing, the Company's income before extraordinary item for the twelve months ended July 31, 1997 was $10.4 million. In November 1996, the Company completed its initial public offering of stock, the net proceeds of which were used to repay debt. In connection with the Company's early repayment of debt from the proceeds of its initial public offering, the Company recorded an extraordinary loss of $1.6 million ($0.9 million net of taxes) for the twelve months ended July 31, 1997. Net income for the twelve months ended July 31, 1997 was $9.5 million. Net income for the twelve months ended July 31, 1996 was $4.7 million. Net income for the year included a charge of $1.3 million net of taxes. NINE MONTHS ENDED JULY 31, 1996 COMPARED TO NINE MONTHS ENDED JULY 31, 1995 Net Sales. The Company's net sales increased 38.0%, or $121.2 million, to $439.8 million for the nine months ended July 31, 1996 from $318.6 million for the nine months ended July 31, 1995. The increase in net sales was primarily due to additional sales of $74.5 million attributable to Nutrasource and Rainbow, whose operations were included for the entire nine-month period in 1996. Sales of $6.5 million were attributable to two months of operations of Nutrasource during the comparable 1995 period. The remainder of the increase was also attributable to increased sales by the Company to existing customers, including net sales attributable to new products offered by the Company and net sales to new customers in existing geographic distribution areas as well as new geographic areas not formerly served by the Company. Gross Profit. The Company's gross profit increased 33.4%, or $22.4 million, to $89.7 million for the nine months ended July 31, 1996 from $67.3 million for the nine months ended July 31, 1995. The Company's gross profit as a percentage of net sales decreased to 20.4% for the nine months ended July 31, 1996 from 21.1% for the nine months ended July 31, 1995. The decrease in the gross profit as a percentage of net sales was primarily due to the lower- margin business of the Company's recently acquired distributors and to the increase in net sales during fiscal 1996 attributable to super natural chains, which tend to buy in larger quantities and to qualify for greater volume discounts. Operating Expenses. The Company's total operating expenses increased 31.3%, or $18.1 million, to $75.9 million for the nine months ended July 31, 1996 from $57.8 million for the nine months ended July 31, 1995. As a percentage of net sales, operating expenses decreased to 17.2% for the nine months ended July 31, 1996 from 18.1% for the nine months ended July 31, 1995. Total operating expenses for the nine months ended July 31, 1996 included a non-cash charge of $1.1 million related to the grant of options under the Company's 1996 Stock Option Plan and a charge of $0.5 million representing costs associated with the Mountain People's merger. Excluding the charges discussed above, the Company's total operating expenses would have been $74.4 million, or 16.9% of net sales, for the nine months ended July 31, 1996. The decrease in total operating expenses as a percentage of net sales was primarily attributable to the Company's increased absorption of overhead and fixed expenses over a larger sales base. In addition, the Company achieved increased operating efficiencies through the implementation of new information and warehouse management systems in its Connecticut and Georgia facilities. Operating Income. Operating income increased $4.4 million, or 45.8%, to $13.9 million for the nine months ended July 31, 1996 from $9.5 million for the nine months ended July 31, 1995. As a percentage of net sales, operating income increased to 3.2% for the nine months ended July 31, 1996 from 3.0% in the nine months ended July 31, 1995. Excluding the charges discussed above, operating income would have been $15.4 million, or 3.5% of net sales, for the nine months ended July 31, 1996. Other Income/(Expense). The $1.8 million increase in interest expense for the nine months ended July 31, 1996 compared to the nine months ended July 31, 1995 was primarily attributable to the indebtedness incurred in connection with the purchase of the Company's Connecticut facility in August 1995 and the acquisitions of Nutrasource and Rainbow, along with an increase in borrowings under the Company's revolving lines of credit to fund increasing inventory and accounts receivable balances related to the Company's increased operating volume. Income Taxes. The Company's effective income tax rates were 34.6% and 38.0% for the nine months ended July 31, 1996 and 1995, respectively. Stow Mills was taxed as an S Corporation prior to the merger with the Company. Had Stow Mills been a C corporation, the Company's effective tax rates would have been 40.6% and 40.0% for the nine months ended July 31, 1996 and 1995, respectively. The effective rates were higher than the federal statutory rate due to nondeductible costs associated with the merger with Mountain People's and state and local income taxes. Net Income. As a result of the foregoing, the Company's net income increased by 52.7%, or $1.9 million, to $5.5 million for the nine months ended July 31, 1996 from $3.6 million for the nine months ended July 31, 1995. Excluding the $1.1 million of charges (net of taxes) related to the granting of options under the 1996 Stock Option Plan and the costs associated with the Mountain People's merger, net income would have been $7.1 million, or 1.6% of net sales, for the nine months ended July 31, 1996. 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 of debt and equity securities. Primary uses of capital have been acquisitions, expansion of plant and equipment and investment in accounts receivable and inventory. Net cash (used in) provided by operations was $(5.5) million, $1.9 million and $(0.5) million for the six months ended January 31, 1998, the year ended July 31, 1997 and the nine months ended July 31, 1996, respectively. The Company's increase in cash used in operations for the six months ended January 31, 1998 related to increased investments in accounts receivable and inventory and a decrease in accounts payable, all in the ordinary course of business. The recent increases in inventory levels relate to supporting increased sales with wider product assortment combined with the Company's ability to capture purchasing efficiency opportunities in excess of total carrying costs. 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 the first six months of 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, $3.8 million and $8.6 million for the six months ended January 31, 1998, the year ended July 31, 1997 and the nine months ended July 31, 1996, respectively. Investing activities included primarily capital expenditures related to the purchase of material handling equipment and the continued upgrade of existing management information systems. During the nine months ended July 31, 1996, the Company also used capital to purchase and expand its Connecticut distribution facility. The Company's capital expenditures were primarily funded from senior bank indebtedness, including term loans. Cash provided by financing activities was $12.5 million, $2.0 million and $9.3 million for the six months ended January 31, 1998, the year ended July 31, 1997 and the nine months ended July 31, 1996, respectively. During fiscal 1997, the Company issued 2.9 million shares of its common stock in its initial public offering, which resulted in net proceeds to the Company of $35.5 million. The proceeds were used to repay indebtedness of the Company. The Company also utilized proceeds from long-term debt of $8.6 million, $12.5 million and $6.5 million for the six months ended January 31, 1998, the year ended July 31, 1997 and the nine months ended July 31, 1996, respectively. 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 Mills 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. 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 update its material handling equipment. Included in this amount are $3 to $5 million in capital expenditures in the 1998 and 1999 calendar years for the Company's Year 2000 upgrade and new warehouse management system, including new hardware and installation. Management believes that the Company will have adequate capital resources and liquidity to meet its borrowing obligations, fund all required capital expenditures and pursue its business strategy, with the exception of any major acquisitions which may be made by the Company, through fiscal 2000. The Company's capital resources and liquidity are expected to be provided by cash flow from operations and borrowings under the credit facility and capital and operating leases. 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. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS The Financial Accounting Standards Board recently issued Statement of Financial Accounting Standards ("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 that 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. The Financial Accounting Standards Board recently issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." This statement standardizes disclosure requirements for pensions and other postretirement benefits, and is effective for fiscal years beginning after December 15, 1997. This statement does not apply to the Company as the Company does not currently sponsor any defined benefit plans. YEAR 2000 ISSUES 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 operational business systems to ensure Year 2000 compliance and to enhance its business systems functionality to achieve operating efficiencies and customer service improvements. The Company plans to purchase packaged software to address Year 2000 issues when available. The Company expects to incur $3 to $5 million in expenditures in the 1998 and 1999 calendar years for its Year 2000 upgrade and new warehouse management systems, 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 a material adverse effect on the Company's business, financial condition or results of operations. EX-99.3 9 CONSOLIDATED FINANCIAL STATEMENTS EXHIBIT 99.3 UNITED NATURAL FOODS, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE UNITED NATURAL FOODS, INC. AND SUBSIDIARIES: Independent Auditors' Report........................................... F-2 Consolidated Balance Sheets............................................ F-3 Consolidated Statements of Income...................................... F-4 Consolidated Statements of Stockholders' Equity........................ F-5 Consolidated Statements of Cash Flows.................................. F-6 Notes to Consolidated Financial Statements............................. F-8 F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors United Natural Foods, Inc.: We have audited the accompanying consolidated balance sheets of United Natural Foods, Inc. and subsidiaries as of July 31, 1996 and 1997 and the related consolidated statements of income, stockholders' equity and cash flows for the year ended October 31, 1995, for the nine months ended July 31, 1996, and for the year ended July 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of United Natural Foods, Inc. and subsidiaries as of July 31, 1996 and 1997 and the results of their operations and their cash flows for the year ended October 31, 1995, for the nine months ended July 31, 1996, and for the year ended July 31, 1997 in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Providence, Rhode Island April 15, 1998 F-2 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
JULY 31, 1996 JULY 31, 1997 JANUARY 31, 1998 ------------- ------------- ---------------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) ASSETS Current assets: Cash and cash equivalents....... $ 749 $ 952 $ 3,458 Accounts receivable, net of allowance of $1,411 and $2,283 for 1996 and 1997, respectively................... 40,042 42,952 49,581 Notes receivable, trade......... 360 866 908 Inventories..................... 63,761 71,509 78,035 Prepaid expenses................ 2,133 4,110 3,568 Deferred income taxes........... 796 1,032 1,032 -------- -------- -------- Total current assets........ 107,841 121,421 136,582 -------- -------- -------- Property and equipment, net....... 33,218 32,412 32,723 -------- -------- -------- Other assets: Notes receivable, trade, net.... 1,068 995 1,274 Goodwill, net of accumulated amortization of $556 and $791 for 1996 and 1997, respectively................... 8,096 7,579 8,453 Covenants not to compete, net of accumulated amortization of $711 and $1,552 for 1996 and 1997, respectively............. 1,117 592 512 Other, net...................... 1,003 1,562 793 -------- -------- -------- Total assets................ $152,343 $164,561 $180,337 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQ- UITY Current liabilities: Notes payable................... $ 50,251 $ 27,222 $ 38,603 Current installments of long- term debt...................... 5,102 3,016 1,426 Current installments of obligations under capital leases......................... 526 681 151 Accounts payable................ 30,013 30,536 31,962 Accrued expenses................ 8,192 6,488 6,613 Income taxes payable............ 304 377 419 -------- -------- -------- Total current liabilities... 94,388 68,320 79,174 Long-term debt, excluding current installments..................... 27,374 20,411 21,803 Notes payable to Stow officers/stockholders............ 5,483 -- -- Deferred income taxes............. 407 678 678 Obligations under capital leases, excluding current installments... 1,251 1,236 1,113 -------- -------- -------- Total liabilities........... 128,903 90,645 102,768 -------- -------- -------- Stockholders' equity: Preferred stock, $.01 par value: authorized 5,000 shares; none issued or outstanding .... -- -- -- Common stock, $.01 par value: authorized 25,000 shares; issued 13,691 and outstanding 13,671 in 1996; issued 17,377 and outstanding 17,357 in 1997;................ 137 174 174 Additional paid-in capital...... 6,592 51,842 50,007 Stock warrants.................. 3,200 -- -- Unallocated shares of Employee Stock Ownership Plan (ESOP).... (3,074) (2,910) (2,829) Retained earnings............... 16,629 24,854 30,261 Treasury stock, 20 shares at cost........................... (44) (44) (44) -------- -------- -------- Total stockholders' equity.. 23,440 73,916 77,569 -------- -------- -------- Total liabilities and stockholders' equity....... $152,343 $164,561 $180,337 ======== ======== ========
See notes to consolidated financial statements. F-3 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JANUARY 31, NINE YEAR ENDED MONTHS ENDED YEAR ENDED OCTOBER 31, JULY 31, JULY 31, 1995 1996 1997 1997 1998 ----------- ------------ ---------- -------- -------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) Net sales............... $458,849 $439,842 $634,825 $306,575 $351,359 Cost of sales........... 363,757 350,130 507,547 244,536 280,862 -------- -------- -------- -------- -------- Gross profit........... 95,092 89,712 127,278 62,039 70,497 -------- -------- -------- -------- -------- Operating expenses...... 81,355 75,059 103,885 52,148 55,577 Merger expenses......... -- -- -- -- 4,064 Amortization of intangibles............ 2,426 793 1,060 530 505 -------- -------- -------- -------- -------- Total operating expenses.............. 83,781 75,852 104,945 52,678 60,146 -------- -------- -------- -------- -------- Operating income....... 11,311 13,860 22,333 9,361 10,351 -------- -------- -------- -------- -------- Other expense (income): Interest expense....... 5,462 5,524 5,481 3,268 2,273 Interest expense on notes payable to Stow officers/stockholders.. 507 363 495 240 - Other, net............. (428) (360) (679) (301) (349) -------- -------- -------- -------- -------- Total other expense.... 5,541 5,527 5,297 3,207 1,924 -------- -------- -------- -------- -------- Income before income taxes and extraordinary item.... 5,770 8,333 17,036 6,154 8,427 Income taxes............ 2,953 2,883 6,636 2,571 4,855 -------- -------- -------- -------- -------- Income before extraordinary item.... 2,817 5,450 10,400 3,583 3,572 Extraordinary item--loss on early extinguishment of debt, net of income tax benefit of $662 -- -- 933 933 -- -------- -------- -------- -------- -------- Net income............. $ 2,817 $ 5,450 $ 9,467 $ 2,650 $ 3,572 ======== ======== ======== ======== ======== Pro forma additional income tax expense (Unaudited)............ 75 499 401 6 320 -------- -------- -------- -------- -------- Pro forma income before extraordinary item (Unaudited)............ $ 2,742 $ 4,951 $ 9,999 $ 3,577 $ 3,252 ======== ======== ======== ======== ======== Per share data (Basic): Income before extraordinary item..... $ 0.21 $ 0.40 $ 0.64 $ 0.23 $ 0.21 Extraordinary item, net of income tax benefit.. -- -- 0.06 0.06 -- -------- -------- -------- -------- -------- Net income............. $ 0.21 $ 0.40 $ 0.58 $ 0.17 $ 0.21 ======== ======== ======== ======== ======== Pro forma income before extraordinary item (Unaudited)............ $ 0.20 $ 0.36 $ 0.61 $ 0.23 $ 0.19 ======== ======== ======== ======== ======== Weighted average basic shares of common stock.................. 13,691 13,687 16,367 15,394 17,357 ======== ======== ======== ======== ======== Per share data (Diluted): Income before extraordinary item..... $ 0.19 $ 0.37 $ 0.63 $ 0.22 $ 0.20 Extraordinary item, net of income tax benefit.. -- -- 0.06 0.06 -- -------- -------- -------- -------- -------- Net income............. $ 0.19 $ 0.37 $ 0.57 $ 0.16 $ 0.20 ======== ======== ======== ======== ======== Pro forma income before extraordinary item (Unaudited)............ $ 0.18 $ 0.33 $ 0.60 $ 0.22 $ 0.18 ======== ======== ======== ======== ======== Weighted average diluted shares of common stock.................. 14,858 14,853 16,553 16,125 17,654 ======== ======== ======== ======== ========
See notes to consolidated financial statements. F-4 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
UNALLOCATED OUTSTANDING ADDITIONAL SHARES OF TOTAL NUMBER COMMON PAID-IN STOCK EMPLOYEE STOCK RETAINED TREASURY STOCKHOLDERS' OF SHARES STOCK CAPITAL WARRANTS OWNERSHIP PLAN EARNINGS STOCK EQUITY ----------- ------ ---------- -------- -------------- -------- -------- ------------- (IN THOUSANDS) Balances at October 31, 1994.................... 13,691 $137 $ 4,285 $3,200 $(3,359) $10,001 $-- $14,264 Allocation of shares to ESOP................... -- -- -- -- 163 -- -- 163 Distributions to Stow officers/stockholders.. -- -- -- -- -- (127) -- (127) Transfer of undistributed earnings of S Corporation to additional paid-in capital................ -- -- 87 -- -- (87) -- -- Net income.............. -- -- -- -- -- 2,817 -- 2,817 ------ ---- ------- ------ ------- ------- ---- ------- Balances at October 31, 1995.................... 13,691 137 4,372 3,200 (3,196) 12,604 -- 17,117 Allocation of shares to ESOP................... -- -- -- -- 122 -- -- 122 Purchase of treasury stock.................. (20) -- -- -- -- -- (44) (44) Stock options .......... -- -- 1,056 -- -- -- -- 1,056 Distributions to Stow officers/stockholders.. -- -- -- -- -- (261) -- (261) Transfer of undistributed earnings of S Corporation to additional paid-in capital................ -- -- 1,164 -- -- (1,164) -- -- Net income.............. -- -- -- -- -- 5,450 -- 5,450 ------ ---- ------- ------ ------- ------- ---- ------- Balances at July 31, 1996.................... 13,671 137 6,592 3,200 (3,074) 16,629 (44) 23,440 Issuance of common stock.................. 2,900 29 35,481 -- -- -- -- 35,510 Exercise of stock warrants............... 786 8 3,192 (3,200) -- -- -- -- Allocation of shares to ESOP................... -- -- -- -- 164 -- -- 164 Distributions to Stow officers/stockholders.. -- -- -- -- -- (611) -- (611) Capital contribution.... 6,043 -- -- -- 6,043 Effect of change in year end.................... -- -- -- -- -- (97) -- (97) Transfer of undistributed earnings of S Corporation to additional paid-in capital................ -- -- 534 -- -- (534) -- -- Net income.............. -- -- -- -- -- 9,467 -- 9,467 ------ ---- ------- ------ ------- ------- ---- ------- Balances at July 31, 1997.................... 17,357 174 51,842 -- (2,910) 24,854 (44) 73,916 Allocation of shares to ESOP (Unaudited)....... -- -- -- -- 81 -- -- 81 Transfer of undistributed loss of S Corporation to additional paid-in capital (Unaudited).... -- -- (1,835) -- -- 1,835 -- -- Net income (Unaudited).. -- -- -- -- -- 3,572 -- 3,572 ------ ---- ------- ------ ------- ------- ---- ------- Balances at January 31, 1998 (Unaudited)........ 17,357 $174 $50,007 $ -- $(2,829) $30,261 $(44) $77,569 ====== ==== ======= ====== ======= ======= ==== =======
See notes to consolidated financial statements. F-5 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JANUARY 31, NINE YEAR ENDED MONTHS ENDED YEAR ENDED OCTOBER 31, 1995 JULY 31, 1996 JULY 31, 1997 1997 1998 ---------------- ------------- ------------- -------- -------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) CASH FLOWS FROM OPERATING ACTIVITIES: Net income.............. $ 2,817 $5,450 $ 9,467 $ 2,650 $ 3,572 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Extraordinary loss on early extinguishment of debt, net of tax benefit............... -- -- 933 933 -- Depreciation, amortization and write-off of intangible assets..... 5,640 4,052 5,609 2,996 2,957 Loss (gain) on disposals of property and equipment......... (32) 34 9 6 (1) Accretion of original issue discount........ 530 459 153 153 -- Compensation expense related to stock options............... -- 1,056 -- -- -- Deferred income taxes.. 330 (270) (5) (101) -- Provision for doubtful accounts.............. 763 647 2,112 1,529 704 Changes in assets and liabilities, net of acquired companies: Accounts receivable.... (7,383) (4,073) (3,782) (6,898) (7,954) Inventory.............. (12,029) (8,181) (7,748) (4,858) (6,015) Prepaid expenses....... (240) (761) (1,977) 33 542 Refundable income taxes................. -- -- -- (306) -- Other assets........... 1,990 362 (1,299) (207) 97 Notes receivable, trade................. (265) (204) (434) 38 (321) Accounts payable....... 6,493 (1,694) 523 5,491 1,075 Accrued expenses....... 614 2,418 (1,704) (1,883) 379 Income taxes payable... (247) 195 73 358 (552) ------- ------ ------- -------- ------- Net cash provided (used in) by operating activities............ (1,019) (510) 1,930 (66) (5,517) ------- ------ ------- -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Payments for purchases of subsidiaries, net of cash acquired.......... (8,673) (900) -- -- (2,698) Proceeds from disposals of property and equipment.............. 161 53 111 72 259 Capital expenditures.... (10,348) (7,791) (3,875) (2,461) (2,022) ------- ------ ------- -------- ------- Net cash used in investing activities... (18,860) (8,638) (3,764) (2,389) (4,461) ------- ------ ------- -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (repayments) borrowings under note payable................ 15,305 9,429 (23,029) (17,033) 11,381 Repayments of long-term debt................... (2,861) (5,954) (22,276) (16,162) (6,798) Proceeds from long-term debt................... 9,604 6,490 12,529 805 8,584 Principal payments of capital lease obligations............ (252) (388) (646) (251) (683) Payment of financing costs.................. (321) -- -- -- -- Proceeds from issuance of common stock, net... -- -- 35,510 35,510 -- Purchase of treasury stock.................. -- (44) -- -- -- Net borrowings on notes payable to Stow officers/stockholders.. (1,574) 25 560 561 -- Cash distributions paid to Stow officers/stockholders.. (127) (277) (611) (445) -- ------- ------ ------- -------- ------- Net cash provided by financing activities... 19,774 9,281 2,037 2,985 12,484 ------- ------ ------- -------- ------- NET CHANGE IN CASH AND CASH EQUIVALENTS....... (105) 133 203 530 2,506 Cash and cash equivalents at beginning of period.... 721 616 749 1,282 952 ------- ------ ------- -------- ------- Cash and cash equivalents at end of period................. $ 616 $ 749 $ 952 $ 1,812 $ 3,458 ======= ====== ======= ======== =======
F-6 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest................................. $4,834 $ 4,073 $5,895 $3,406 $ 2,298 ====== ======= ====== ====== ======= Income taxes............................. $2,919 $ 2,544 $5,534 $2,503 $ 4,612 ====== ======= ====== ====== =======
Supplemental schedule of non-cash investing and financing activities: In 1995, the Company purchased substantially all of the assets of one retail store and one wholesale distributor, and the capital stock of another wholesale distributor for $6,725. In conjunction with these acquisitions, liabilities were assumed as follows: Fair value of assets acquired: $21,315 Cash paid: 6,725 ------- Liabilities assumed and debt issued: $14,590 =======
In 1996 and 1997, the Company incurred capital lease obligations of approximately $582 and $786, respectively. See notes to consolidated financial statements. F-7 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 1996 AND 1997 (INFORMATION AS OF JANUARY 31, 1998 AND FOR THE SIX MONTHS THEN ENDED IS UNAUDITED) (1) SIGNIFICANT ACCOUNTING POLICIES (A) NATURE OF BUSINESS United Natural Foods, Inc. and Subsidiaries (the Company) is a distributor and retailer of natural products. The Company sells its products throughout the United States. For purposes of segment reporting, the Company considers its operations to be within a single industry. (B) BASIS OF CONSOLIDATION The accompanying financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. (C) CASH EQUIVALENTS Cash equivalents at January 31, 1998 consist of highly liquid investment instruments with original maturities of three months or less. (D) INVENTORIES Inventories are stated at the lower of cost or market, with cost being determined using the first-in, first-out (FIFO) method. (E) PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Equipment under capital leases is stated at the present value of minimum lease payments at the inception of the lease. Depreciation and amortization are principally provided under the straight-line method over the estimated useful lives. (F) INCOME TAXES The Company accounts for income taxes under the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (G) INTANGIBLE ASSETS Intangible assets consist principally of goodwill and covenants not to compete. Goodwill represents the excess purchase price over fair value of net assets acquired in connection with purchase business combinations and is being amortized on the straight-line method not exceeding forty years. Covenants not to compete are stated at cost and are amortized using the straight-line method over the lives of the respective agreements, generally five years. The Company evaluates impairment of intangible assets annually, or more frequently if events or changes in circumstances indicate that carrying amounts may no longer be recoverable. Impairment losses are determined F-8 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) based upon the excess of carrying amounts over expected future cash flows (undiscounted) of the underlying business. The assessment of the recoverability of intangible assets will be impacted if estimated future cash flows are not achieved. In fiscal 1995, the Company wrote off approximately $1.6 million in intangible assets, primarily goodwill, upon evaluating impairment of the underlying business of certain of its retail operations. The impairment was indicated by projected cash flow losses caused by increased competition at one location and a change in demographics for the other affected location. This amount is included in "Amortization of Intangibles" in the 1995 Consolidated Statement of Income. (H) REVENUE RECOGNITION AND TRADE RECEIVABLES The Company records revenue upon shipment of products. Revenues are recorded net of applicable sales discounts. The Company's sales are with customers located throughout the United States. The Company had one customer in 1997, Whole Foods Market, Inc. that provided 10% or more of the Company's revenue, and no such customers in 1996 or 1995. Total sales to this customer were approximately $89 million in 1997. (I) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of the Company's financial instruments including cash, accounts receivable, accounts payable and accrued expenses approximate fair value due to the short-term nature of these instruments. The carrying value of notes receivable, long-term debt and capital lease obligations approximate fair value based on the instruments' interest rate, terms, maturity date, and collateral, if any, in comparison to the Company's incremental borrowing rate for similar financial instruments. (J) CHANGE IN FISCAL YEAR Effective November 1, 1995, the Company elected to change its fiscal year end from October 31 to July 31. The consolidated statements of income and cash flows for the nine months ended July 31, 1996 are not necessarily indicative of results that would be expected for a full year. On October 31, 1997, a subsidiary of the Company completed its merger with Stow Mills, Inc. and Subsidiary and Hendrickson Partners ("Stow"), wherein Stow became a wholly-owned subsidiary of the Company. Prior to this merger, Stow's fiscal year ended December 31. In recording this merger, Stow's combined financial statements for the fiscal year ended December 31, 1996 have been restated to the nine months ended September 27, 1996. As permitted by the rules and regulations of the Securities and Exchange Commission, Stow's nine months ended September 27, 1996 and fiscal year ended December 31, 1995 have been combined with the Company's nine months ended July 31, 1996 and fiscal year ended October 31, 1995, respectively. As a result, Stow's two-month period ended September 27, 1996, has been included in the consolidated financial statements in both the year ended July 31, 1997 and the nine months ended July 31, 1996. Stow's unaudited results of operations for this two-month period included net sales, operating income and net income of approximately $31.0 million, $0.5 million and $0.1 million, respectively. Stow did not pay any dividends during this two-month period. The consolidated statements of stockholders' equity include an adjustment in 1997 to reduce the Company's retained earnings for the net income of Stow for this two-month period. (K) ACCOUNTING CHANGES Effective November 1, 1995, the Company changed its method of accounting for certain inventories from the last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method. Due to a number of recent F-9 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) acquisitions, the Company's subsidiaries were accounting for inventories on varying methods (LIFO, FIFO) and using different calculation methodologies for LIFO. In order to conform all the Company's inventories to the same valuation method and to enhance the comparability of the Company's financial results with other publicly traded entities, the conforming change to FIFO was made, which was deemed preferable for these reasons. This change has been applied retroactively and financial statements of prior periods have been restated. (L) USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (M) NOTES RECEIVABLE, TRADE The Company issues notes receivable, trade to certain customers under two basic circumstances, inventory purchases for initial store openings and overdue accounts receivable. Initial store opening notes are generally receivable over a period not to exceed twelve months. The overdue accounts receivable notes may extend for periods greater than one year. All notes are issued at a market interest rate and contain certain guarantees and collateral assignments in favor of the Company. (N) EMPLOYEE BENEFIT PLANS The Company sponsors various defined contribution plans that cover substantially all employees. Pursuant to certain stock incentive plans, the Company has granted stock options to key employees and to non-employee directors. The Company accounts for stock option grants using the intrinsic value based method. (O) EARNINGS PER SHARE During fiscal 1998, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share". Under the provisions of SFAS No. 128, basic earnings per share replaces primary earnings per share and the dilutive effect of stock options are excluded from the calculation. Fully diluted earnings per share are replaced by diluted earnings per share, and included the dilutive effect of stock options using the treasury stock method. All earnings per share information included in these financial statements has been restated to conform to the requirements of SFAS No. 128. For purposes of the diluted earnings per share calculation, outstanding stock options and stock warrants are considered common stock equivalents, using the treasury stock method. The number of shares used in all calculations has been adjusted to reflect a fifty-five-for-one stock split effective August 30, 1996. A reconciliation of the weighted average number of shares outstanding used in the computation of the basic and diluted earnings per share for the year ended October 31, 1995, nine months ended July 31, 1996, the year ended July 31, 1997 and the six months ended January 31, 1998 is as follows:
NINE MONTHS SIX MONTHS SIX MONTHS YEAR ENDED ENDED YEAR ENDED ENDED ENDED OCTOBER 31, JULY 31, JULY 31, JANUARY 31, JANUARY 31, 1995 1996 1997 1997 1998 ----------- ----------- ---------- ----------- ----------- (in thousands) Weighted average basic shares of common stock 13,691 13,687 16,367 15,394 17,357 Effect of dilutive stock options 1,167 1,166 186 731 297 ------ ------ ------ ------ ------ Weighted average diluted shares of common stock 14,858 14,853 16,553 16,125 17,654 ====== ====== ====== ====== ======
F-10 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) In November 1996, the Company completed a public offering of its common stock. Proceeds from the sale of 2.9 million shares were used to repay outstanding bank indebtedness. Assuming the aforementioned sale of common stock and repayment of debt occurred effective August 1, 1996, unaudited supplementary income before extraordinary item per basic common and diluted common share for the year ended July 31, 1997 would have been $0.62 based upon 17.4 million and 17.5 million weighted average basic common and diluted common shares, respectively. (P) PRO FORMA ADDITIONAL INCOME TAX EXPENSE (UNAUDITED) Stow was organized as an S corporation for Federal income tax purposes prior to the merger. Pro forma income tax expense reflects Federal income tax applied to taxable income at a rate of 35% for Stow for all periods prior to the effective date of the merger. (2) ACQUISITIONS SUBSEQUENT EVENTS During February 1998, the Company acquired substantially all the assets of Hershey Import Co., Inc. ("Hershey"), a business specializing in the international trading, roasting and packaging of nuts, seeds, dried fruit and snack items, for approximately $7.5 million. Hershey had sales of $20.8 million for its most recent fiscal year ending June 30, 1997. On October 31, 1997, a subsidiary of the Company completed its merger with 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 presented. The Company issued 4,978,280 shares, which represented 29% of the Company's Common Stock after the merger in exchange for all of the outstanding common stock of Stow. Net sales for the year ended October 31, 1995, nine months ended July 31, 1996, year ended July 31, 1997, and quarter ended October 31, 1997 for the Company excluding Stow were approximately $283.3 million, $286.4 million, $421.7 million and $118.8 million (unaudited), respectively. Net income for the year ended October 31, 1995, nine months ended July 31, 1996, year ended July 31, 1997, and quarter ended October 31, 1997 for the Company excluding Stow was approximately $2.6 million, $4.0 million, $8.3 million and $1.4 million (unaudited), respectively. Net sales for the year ended October 31, 1995, nine months ended July 31, 1996, year ended July 31, 1997, and quarter ended October 31, 1997 for Stow were approximately $175.5 million, $153.4 million, $213.1 million and $56.9 million (unaudited), respectively. Net income (loss) for the year ended October 31, 1995, nine months ended July 31, 1996, year ended July 31, 1997, and quarter ended October 31, 1997 for Stow was approximately $.2 million, $1.4 million, $1.1 million and ($1.7) million (unaudited), respectively. FISCAL 1996 In February 1996, Cornucopia Natural Foods, Inc. (CNF) (predecessor company) and Mountain People's Warehouse, Inc. (MPW) merged in a business combination accounted for as a pooling of interests and CNF changed its name to United Natural Foods, Inc. CNF issued 3,213,100 shares, which represented approximately 37% of the common stock of CNF after the merger, in exchange for all of the outstanding common stock of MPW. The financial statements for all periods presented reflect the merger. Net sales for fiscal 1995 and the quarter ended January 31, 1996 for CNF were $145.6 million and $48.7 million (unaudited), respectively. Net income for fiscal 1995 and the quarter ended January 31, 1996 for CNF was $0.9 million and $1.0 million (unaudited), respectively. Net sales for fiscal 1995 and the quarter ended January 31, 1996 for MPW were $137.7 million and $43.6 million (unaudited), respectively. Net income for fiscal 1995 and the quarter ended January 31, 1996 for MPW $1.7 million and $0.1 million (unaudited), respectively. F-11 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) FISCAL 1995 During fiscal 1995, the Company acquired substantially all of the assets of one natural products retailer, SunSplash Market, Inc. (in April 1995), one wholesale distributor, Prem Mark, Inc. (the predecessor business to Rainbow Natural Foods, Inc.) (in July 1995) and the capital stock of another wholesale distributor, Nutrasource, Inc. (in May 1995), in business combinations accounted for as purchases. The results of operations of these acquisitions have been included in the accompanying financial statements since the dates of the acquisitions. The total cash paid and debt issued for these acquisitions was approximately $12.5 million, which exceeded the fair value of the net assets acquired by approximately $6.3 million. This excess of purchase price over the net assets acquired has been recorded as goodwill, and is being amortized over thirty years. In connection with these acquisitions, the Company executed covenants not to compete and consulting agreements totaling approximately $0.5 million to be amortized using the straight-line method over the lives of the respective agreements, generally five years. (3) STOCK OPTION PLAN The Company implemented Statement of Financial Accounting Standards No. 123, "Accounting for Stock- Based Compensation," during fiscal 1997. While SFAS No. 123 established financial accounting and reporting standards for stock-based employee compensation plans using a fair value method of accounting, it allows companies to continue to measure compensation using the intrinsic value method of accounting as prescribed in APB Opinion No. 25 (APB No. 25), "Accounting for Stock Issued to Employees." The Company will continue to use its present APB No. 25 accounting treatment for stock-based compensation. If the fair value method of accounting had been used, net income would have been $3.8 million and $9.3 million for 1996 and 1997, respectively, basic earnings per share would have been $0.28 and $0.57 for 1996 and 1997, respectively, and diluted earnings per share would have been $0.26 and $0.56 for 1996 and 1997, respectively. The weighted average grant date fair value of options granted during 1996 and 1997 was $6.47 and $5.84 per option, respectively. The fair value of each option grant was estimated using the Black-Sholes Option Pricing Model with the following weighted average assumptions for 1997 and 1996: a dividend yield of 0.0%, an expected volatility of 46.5%, a risk free interest rate of 6.07% and an expected life of 8 years. The effects of applying SFAS No. 123 in this pro forma disclosure are not indicative of future amounts. On July 29, 1996, the Board of Directors adopted, and on July 31, 1996 the stockholders approved, the 1996 Stock Option Plan which provides for grants of stock options to employees, officers, directors and others. These options are intended to qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code or options not intended to qualify as incentive stock options ("non-statutory stock options"). A total of 1,375,000 shares of common stock may be issued upon the exercise of options granted under the 1996 Stock Option Plan. In 1996, as consideration for their services on the Company's Board of Directors, four employee-directors were awarded non-statutory stock options to purchase an aggregate of 324,500 shares of common stock under the Company's 1996 Stock Option Plan at an exercise price of $6.38 per share, which vested immediately. In addition, one non-employee director was awarded a non- statutory stock option to purchase 16,500 shares of common stock under the 1996 Stock Option Plan at an exercise price of $9.64 per share which vests after three years. Incentive stock options to purchase an aggregate of 297,000 shares of common stock were also granted to several employees at not less than the fair value at the date of grant, with vesting at various rates generally over the next five years. Compensation expense of approximately $1.1 million was charged to operations in fiscal 1996 related to the employee-director stock options. F-12 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following table summarizes the stock option activity for the six months ended January 31, 1998, fiscal 1997 and fiscal 1996.
WEIGHTED AVERAGE SHARES EXERCISE PRICE ------- ---------------- 1996 Outstanding at beginning of year.................... -- -- Granted............................................. 638,000 $ 8.11 Exercised........................................... -- -- Canceled............................................ -- -- ------- ------ Outstanding at end of year.......................... 638,000 $ 8.11 ======= ====== Options exercisable at year end..................... 353,739 $ 6.61 ======= ====== 1997 Outstanding at beginning of year.................... 638,000 $ 8.11 Granted............................................. 16,500 $ 9.64 Exercised........................................... -- -- Canceled............................................ -- -- ------- ------ Outstanding at end of year.......................... 654,500 $ 8.14 ======= ====== Options exercisable at year end..................... 382,978 $ 6.80 ======= ====== 1998 (UNAUDITED) Outstanding at beginning of period.................. 654,500 $ 8.14 Granted............................................. 247,346 $20.59 Exercised........................................... -- -- Canceled............................................ -- -- ------- ------ Outstanding at end of period........................ 901,846 $11.56 ======= ====== Options exercisable at period end................... 393,987 $ 7.17 ======= ======
The option to purchase 901,846 shares of common stock outstanding at January 31, 1998 had exercise prices and remaining contractual lives as follows:
REMAINING EXERCISE PRICE SHARES CONTRACTUAL LIFE $6.38....................................... 324,500 9 Years $9.64....................................... 247,500 9 Years $10.60...................................... 82,500 4 Years (Unaudited) $20.25.......................... 205,807 10 Years (Unaudited) $22.28.......................... 41,539 5 Years
(4) NOTES PAYABLE The Company entered into a line of credit and term loan agreement (see note 5) with a bank effective February 20, 1996. The agreement has had three subsequent amendments effective March 1997, July 1997 and October 1997. In October 1997, the Company amended the 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 F-13 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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 at the date of the merger and is 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 (8.25% and 8.50% at July 31, 1996 and 1997, respectively) 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. At July 31, 1996 and 1997, the weighted average interest rate on the line of credit was 7.84% and 6.98%, respectively. The Company has pledged all of its assets as collateral for its obligations under the credit agreement. As of July 31, 1997, the Company's outstanding borrowings under the credit agreement totaled $6.3 million. The credit agreement expires on July 31, 2002 and contains certain restrictive covenants. The Company was in compliance with its restrictive covenants at July 31, 1997. In connection with the amendment to the Company's credit agreement with its bank as noted 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. At July 31, 1996, Stow had a revolving line of credit with a bank to borrow up to $25 million due June 30, 1999. The line was increased, per the terms of the agreement, to $28 million at July 1, 1997. Borrowings under the line were limited to qualified accounts receivable and inventory, as defined. The maximum borrowing base available at July 31, 1997 was approximately $24 million which was limited by the letters of credit of approximately $0.7 million. The Company had approximately $2.4 million available under the line on July 31, 1997. This line of credit bore interest at the bank's prime rate (8.50% at July 31, 1997), or the London Interbank Offered Rate (5.6875% at July 31, 1997) plus 150 to 200 basis points or some combination thereof, as defined, and was secured by substantially all of the assets of Stow. At July 31, 1996 and 1997, the weighted average interest rate on the line of credit was 7.93% and 7.98%, respectively. Under the terms of the line of credit, the Company was required to, among other things, maintain certain financial covenants, as defined. In addition, the agreement contained certain restrictions on the sale or disposition of Company assets. At July 31, 1996 and 1997, the Company was either in compliance with such covenants or such events of noncompliance were waived by the bank. This line of credit was repaid in full and canceled as of October 31, 1997. Notes payable to Stow officers/stockholders totaling $5.5 million at July 31, 1996 were due on demand and carried interest at 8.25%. The noteholders waived rights to collect these notes through December 31, 1997, and accordingly, that portion of the notes has been classified as long-term in the accompanying combined balance sheets. These long-term notes were subordinated to all bank debt. The total outstanding balance of the notes was contributed to capital as of June 30, 1997. (5) LONG-TERM DEBT Long-term debt consisted of the following: (dollars in thousands)
JULY 31, JULY 31, 1996 1997 -------- -------- Note payable to limited partnership, secured, with inter- est ranging from 8% to 12% per annum payable quarterly, repaid in November 1996................................. $4,744 -- Term loan for employee stock ownership plan, secured by stock of the Company, due $14 monthly plus interest at 10%, balance due May 1, 2015............................ 3,074 $2,910
F-14 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, JULY 31, 1996 1997 -------- -------- Real estate term loan payable to bank, secured by land and building, refinanced in July 1997................... 5,775 25 Term loan payable to former owners of acquired business, secured by substantially all assets of subsidiary, re- paid in November 1996................................... 2,785 -- Term loan payable to bank, secured by substantially all assets of the Company, with monthly principal payments of $50 through July 2002 and the remaining principal due on July 31, 2002, interest at bank's prime plus 0.25% or at 2.25% above the LIBOR rate........................... 4,702 12,000 Installment notes secured by equipment, payable in monthly installments through 2002 at interest rates ranging from 7.43% to 11.82%............................ 1,958 2,320 Other notes payable to former owners of acquired busi- nesses and former stockholders of subsidiaries, maturing at various dates through February 2002 at interest rates ranging from 6% to 10%.................................. 3,165 528 Notes payable to bank, secured by automobiles, including interest ranging from 6.25% to 7.25%, primarily due over three years............................................. 54 34 Note payable to bank, secured by mortgage, payable in monthly installments through 2001 of $6, carrying inter- est at bank's prime plus 0.5%........................... 301 263 Note payable to bank, secured by mortgage, payable in monthly installments of $39, carrying interest at bank's prime plus 0.75%, due October 2017...................... 4,397 4,336 Note payable to agency, secured by land and building, payable in monthly installments of $3, carrying interest at 8.25%, due October 2001.............................. 120 102 Note payable to agency, secured by land and building, payable in monthly installments of $1, carrying interest at 12%, due March 2001.................................. 27 23 Note payable to agency, secured by land and building, payable in monthly installments of $2, carrying interest at 10.57%, due September 2007........................... 146 141 Term note payable to bank, secured by substantially all assets of Stow, payable in monthly installments of $44, carrying interest at bank's prime plus 0.5%, due Decem- ber 1998................................................ 1,228 745 ------- ------- 32,476 23,427 Less: current installments............................... 5,102 3,016 ------- ------- Long-term debt, excluding current installments........... $27,374 $20,411 ======= =======
The Company entered into a Note and Warrant Purchase Agreement (the Agreement) with a limited partnership (the Purchaser) on November 17, 1993. Under the Agreement, the Company issued to the Purchaser a Senior Note in the principal amount of $6.5 million and a Common Stock Purchase Warrant for 1,166,660 shares of the common stock of the Company. The Senior Note was repaid in full in November 1996 upon receipt of the proceeds from the initial public offering. The loss on the early retirement of debt has been reflected as an extraordinary item of $933, net of the income tax benefit of $662. This loss represents the charge off of the remaining original issue discount at the date of repayment. The Purchaser exercised stock warrants to purchase 785,730 shares of common stock during fiscal 1997 at a price of $.01 per share, with the remaining stock warrants repurchased by the Company. Interest on the Senior Note ranged from 8% to 12% per annum. Certain debt agreements contain restrictive covenants. At July 31, 1997, the Company was either in compliance with such covenants or such events of noncompliance were waived by the counterparty. F-15 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Aggregate maturities of long-term debt for the next five years and thereafter are as follows at July 31, 1997:
(DOLLARS IN THOUSANDS) 1998.................. $ 3,016 1999.................. 1,814 2000.................. 1,403 2001.................. 1,209 2002.................. 9,930 Thereafter............ 6,055 ------- $23,427 =======
(6) PROPERTY AND EQUIPMENT Property and equipment consisted of the following at July 31, 1996 and 1997:
ESTIMATED USEFUL LIVES (YEARS) 1996 1997 ------------- ----------- ----------- (DOLLARS IN THOUSANDS) Land................................. $ 1,070 $ 1,070 Building............................. 20-40 18,441 18,642 Leasehold improvements............... 5-30 4,776 5,894 Warehouse equipment.................. 5-20 10,363 10,625 Office equipment..................... 3-10 6,945 7,439 Motor vehicles....................... 3-5 4,691 5,217 Equipment under capital leases....... 5 2,344 3,299 Construction in progress............. 337 196 ----------- ----------- 48,967 52,382 Less accumulated depreciation and amortization........................ 15,749 19,970 ----------- ----------- Net property and equipment......... $ 33,218 $ 32,412 =========== ===========
(7) CAPITAL LEASES The Company leases computer, office and warehouse equipment under capital leases expiring in various years through 2002. The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the assets. The assets are depreciated over the lower of their related lease terms or their estimated productive lives. Minimum future lease payments under capital leases as of July 31, 1997 for each of the next five fiscal years and in the aggregate are:
YEAR ENDED JULY 31 AMOUNT (IN THOUSANDS) 1998...................... $ 813 1999...................... 616 2000...................... 498 2001...................... 146 2002 and thereafter....... 120 ------ Total minimum lease payments............... 2,193 Less: Amount representing interest................. 276 ------ Present value of net minimum lease payments............... 1,917 Less: current installments............. 681 ------ Capital lease obligations, excluding current installments... $1,236 ======
F-16 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (8) COMMITMENTS AND CONTINGENCIES The Company leases various facilities under operating lease agreements with varying terms. Most of the leases contain renewal options and purchase options at several specific dates throughout the terms of the leases. The Company also leases equipment under master lease agreements. Payment under these agreements will continue for a period of four years. The equipment lease agreements contain covenants concerning the maintenance of certain financial ratios. The Company was in compliance with its covenants at July 31, 1997. Future minimum annual fixed payments required under non-cancelable operating leases having an original term of more than one year as of July 31, 1997 are as follows:
(IN THOUSANDS) 1998.......................... $ 4,228 1999.......................... 3,676 2000.......................... 3,036 2001.......................... 1,988 2002.......................... 1,821 ------- $14,749 =======
Rent and other lease expense for the year ended October 31, 1995, the nine months ended July 31, 1996 and the year ended July 31, 1997 totaled approximately $5.8 million, $5.2 million and $7.1 million, respectively. Outstanding commitments as of July 31, 1997 for the purchase of inventory were approximately $9.5 million. The Company had outstanding letters of credit of approximately $1.1 million at July 31, 1997. The Company may from time to time be involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial position or results of operations. (9) SALARY REDUCTION/PROFIT SHARING PLANS The Company has several salary reduction/profit sharing plans, generally called "401(k) Plans" (the Plans), covering various employee groups. Under these types of Plans the employees may choose to reduce their compensation and have these amounts contributed to the Plans on their behalf. In order to become a participant in the Plans, employees must meet certain eligibility requirements as described in the respective Plan's document. In addition to amounts contributed to the Plans by employees, the Company makes contributions to the Plans on behalf of the employees. The Company contributions to the Plans were approximately $0.4 million, $0.4 million and $0.6 million for the year ended October 31, 1995, for the nine months ended July 31, 1996 and for the year ended July 31, 1997, respectively. F-17 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (10) INCOME TAXES Total Federal and state income tax expense consists of the following:
CURRENT DEFERRED TOTAL ------- -------- ------ (IN THOUSANDS) Fiscal year ended October 31, 1995: U.S. Federal..................................... $2,079 $ 302 $2,381 State and local.................................. 544 28 572 ------ ----- ------ $2,623 $ 330 $2,953 ====== ===== ====== Nine months ended July 31, 1996: U.S. Federal..................................... $2,428 $(255) $2,173 State and local.................................. 725 (15) 710 ------ ----- ------ $3,153 $(270) $2,883 ====== ===== ====== Fiscal year ended July 31, 1997: From continuing operations U.S. Federal................................... $4,839 $ 19 $4,858 State and local................................ 1,802 (24) 1,778 ------ ----- ------ 6,641 (5) 6,636 ------ ----- ------ Extraordinary item U.S. Federal................................... (542) -- (542) State and local................................ (120) -- (120) ------ ----- ------ (662) -- (662) ------ ----- ------ $5,979 $ (5) $5,974 ====== ===== ======
Total income tax expense was different than the amounts computed using the United States statutory income tax rate (approximately 34% for 1995 and 1996 and 35% for fiscal 1997) applied to income before income taxes and extraordinary item as a result of the following:
YEAR ENDED NINE MONTHS ENDED YEAR ENDED OCTOBER 31, JULY 31, JULY 31, 1995 1996 1997 ----------- ----------------- ---------- (IN THOUSANDS) Computed "expected" tax expense... $1,964 $2,849 $5,405 State and local income tax, net of Federal income tax benefit....... 377 467 1,078 Effect of entities not taxed for Federal income tax............... (75) (499) (401) Merger related expenses........... -- 156 -- Non-deductible expenses........... 20 70 42 Non-deductible amortization....... 479 5 16 Other, net........................ 188 (165) (166) ------ ------ ------ $2,953 $2,883 $5,974 ====== ====== ======
F-18 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The tax effects of temporary differences that give rise to significant portions of the net deferred tax assets and deferred tax liabilities at July 31, 1996 and 1997 are presented below:
1996 1997 ------- ------- (IN THOUSANDS) Deferred tax assets: Inventories, principally due to additional costs inven- toried for tax purposes................................ $ 421 $ 460 Rents deducted for book purposes in excess of tax....... 28 22 Financing costs......................................... 25 25 Intangible assets....................................... 221 301 Deferred compensation................................... 401 411 Accrued vacation........................................ 59 77 Accounts receivable, principally due to allowances for uncollectible accounts................................. 281 202 Other................................................... 165 -- ------ ------- Total gross deferred tax assets....................... 1,601 1,498 Less valuation allowance.................................. -- -- ------ ------- Net deferred tax assets............................... 1,601 1,498 ------ ------- Deferred tax liabilities: Plant and equipment, principally due to differences in depreciation........................................... 537 571 Reserve for LIFO inventory method....................... 675 523 Other................................................... -- 50 ------ ------- Total deferred tax liabilities........................ 1,212 1,144 ------ ------- Net deferred tax assets................................... $ 389 $ 354 ====== ======= Current deferred income tax assets........................ $ 796 $ 1,032 Non-current deferred income tax liabilities............... (407) (678) ------ ------- $ 389 $ 354 ====== =======
In assessing the recoverability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Due to the fact that the Company has sufficient taxable income in the federal carryback period and anticipates sufficient future taxable income over the periods which the deferred tax assets are deductible, the ultimate realization of deferred tax assets for Federal and state tax purposes appears more likely than not. (11) EMPLOYEE STOCK OWNERSHIP PLAN The Company adopted the CNF Employee Stock Ownership Plan (the Plan) for the purpose of acquiring outstanding shares of the Company for the benefit of eligible employees. The Plan was effective as of November 1, 1988 and has received notice of qualification by the Internal Revenue Service. In connection with the adoption of the Plan, a Trust was established to hold the shares acquired. On November 1, 1988, the Trust purchased 40% of the outstanding Common Stock of the Company at a price of $4,080,000. The trustees funded this purchase by issuing promissory notes to the initial stockholders, with the ESOT shares pledged as collateral. These notes bear interest at 10% and are payable through May 2015. As the debt is repaid, shares are released from collateral and allocated to active employees, based on the proportion of debt service paid in the year. The Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position 93-6, "Employers' Accounting for Employee Stock Ownership Plans," in F-19 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) November 1993. The statement provides guidance on employers' accounting for ESOPs and is required to be applied to shares purchased by ESOPs after December 31, 1992, that have not been committed to be released as of the beginning of the year of adoption. In accordance with SOP 93-6, the Company elected not to adopt the guidance in SOP 93-6 for the shares held by the ESOP, all of which were purchased prior to December 31, 1992. The debt of the ESOP is recorded as debt and the shares pledged as collateral are reported as unearned ESOP shares in the Supplemental Consolidated Balance Sheets. During 1995, 1996 and 1997 contributions totaling approximately $0.5 million, $0.4 million and $0.5 million, respectively, were made to the Trust. Of these contributions, approximately $0.3 million, $0.2 million and $0.3 million, respectively, represented interest. The ESOP shares were classified as follows:
JULY 31, JULY 31, 1996 1997 -------- -------- (IN THOUSANDS) Allocated shares........................................... 484 550 Shares released for allocation............................. 66 88 Shares distributed to employees............................ (20) (88) Unreleased shares.......................................... 1,650 1,562 ----- ----- Total ESOP shares........................................ 2,180 2,112 ===== =====
The fair value of unreleased shares was approximately $37.5 million at July 31, 1997. Employees have the option of putting their shares back to the Company upon leaving employment. This option will remain available until the shares held by the Trust are registered. (12) STOCK SPLIT In connection with the Company's initial public offering of shares of common stock, on August 30, 1996, the Board of Directors adopted, and the stockholders approved, an amendment to the Company's certificate of incorporation increasing the number of authorized shares of common stock from 0.2 million to 25.0 million and stating the par value of such shares as $0.01, and the Company effected a fifty-five-for-one split of its issued and outstanding common stock. All share, option and warrant and per share data presented in the accompanying consolidated financial statements have been restated to reflect the increased number of authorized and outstanding shares of common stock. F-20 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (13) QUARTERLY FINANCIAL DATA (UNAUDITED) Following is a summary of quarterly operating results and share data. Quarterly information shown below has been adjusted from amounts reported on any Form 10-Q previously filed by the Company to reflect the acquisition of Stow. There were no dividends paid or declared by the Company during fiscal year 1996, the twelve months ended 1997 and the six months ended January 31, 1998 and the Company anticipates that it will continue to retain earnings for use in its business and not pay cash dividends in the foreseeable future. The comparable fiscal year 1996 information has been created by combining actual fiscal 1996 results with the fourth quarter results for fiscal 1995.
FIRST SECOND THIRD FOURTH FULL YEAR -------- -------- -------- -------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 Net sales................... $140,207 $142,560 $149,053 $148,229 $580,049 Gross profit................ 27,831 29,334 30,287 30,091 117,543 Income before income taxes.. 14 2,659 3,323 2,351 8,347 Net income (loss)........... (755) 1,940 2,054 1,456 4,695 Per common share Income (Loss) Basic..................... $ (0.06) $ 0.14 $ 0.15 $ 0.11 $ 0.34 Diluted................... $ (0.05) $ 0.13 $ 0.14 $ 0.10 $ 0.32 Weighted average basic shares outstanding......... 13,691 13,691 13,691 13,678 13,687 Weighted average diluted shares outstanding......... 14,858 14,858 14,858 14,844 14,855 1997 Net sales................... $146,659 $160,409 $158,890 $168,867 $634,825 Gross profit................ 29,649 32,396 31,647 33,586 127,278 Income before income taxes and extraordinary item..... 2,346 3,814 5,446 5,430 17,036 Extraordinary item.......... -- 933 -- -- 933 Net income.................. 1,292 1,364 3,377 3,434 9,467 Per common share Income before extraordinary item Basic..................... $ 0.09 $ 0.13 $ 0.19 $ 0.20 $ 0.64 Diluted................... $ 0.09 $ 0.13 $ 0.19 $ 0.20 $ 0.63 Weighted average basic shares outstanding......... 13,671 17,116 17,357 17,357 16,367 Weighted average diluted shares outstanding......... 14,976 17,274 17,539 17,601 16,553
SIX FIRST SECOND MONTHS 1998 -------- -------- -------- Net sales....................................... $173,383 $177,976 $351,359 Gross profit.................................... 34,189 36,308 70,497 Income before income taxes...................... 1,293 7,134 8,427 Net income(loss)................................ (628) 4,200 3,572 Per common share Income (loss) Basic........................................ $ (0.04) $ 0.24 $ 0.21 Diluted...................................... $ (0.04) $ 0.24 $ 0.20 Weighted average basic shares outstanding....... 17,357 17,357 17,357 Weighted average diluted shares outstanding..... 17,649 17,659 17,654
F-21 EX-99.4 10 SCHEDULE II-VALUATION & QUALIFYING ACCOUNTS EXHIBIT 99.4 INDEPENDENT AUDITORS' REPORT The Board of Directors United Natural Foods, Inc.: Under date of April 15, 1998, we reported on the consolidated balance sheets of United Natural Foods, Inc. and subsidiaries as of July 31, 1996 and 1997 and the related consolidated statements of income, stockholders' equity and cash flows for the year ended October 31, 1995, for the nine months ended July 31, 1996, and for the year ended July 31, 1997, included herein. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedule. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG Peat Marwick LLP Providence, Rhode Island April 15, 1998 SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS ADDITIONS ----------------------------------------- BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COST AND OTHER END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(1) DEDUCTIONS PERIOD ----------- --------- -------- ---------- ---------- ------- (in thousands) Bad Debt Allowance Year ended July 31, 1997 $1,411 $2,191 - $1,319 $2,283 Nine months ended July 31, 1996 1,408 740 - 737 1,411 Year ended October 31, 1995 708 858 $83 241 1,408
(1) Represents the beginning bad debt allowance for Nutrasource, Inc. and Prem Mark, Inc. -----END PRIVACY-ENHANCED MESSAGE-----