-----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, UOH5rgE6pjLC14BNcMqsk45wBNsYRZjQttEFwdD7ZVyz5tTozMTjfx153pO49VCq xRMRrbEl7sTab0GKyU9WtA== /in/edgar/work/20000614/0001005477-00-004702/0001005477-00-004702.txt : 20000919 0001005477-00-004702.hdr.sgml : 20000919 ACCESSION NUMBER: 0001005477-00-004702 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000430 FILED AS OF DATE: 20000614 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED NATURAL FOODS INC CENTRAL INDEX KEY: 0001020859 STANDARD INDUSTRIAL CLASSIFICATION: [5141 ] IRS NUMBER: 050376157 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-15723 FILM NUMBER: 655065 BUSINESS ADDRESS: STREET 1: PO BOX 999 STREET 2: 260 LAKE RD CITY: DAYVILLE STATE: CT ZIP: 06241 BUSINESS PHONE: 8607792800 MAIL ADDRESS: STREET 1: PO BOX 999 STREET 2: 260 LAKE RD CITY: DAYVILLE STATE: CT ZIP: 06241 10-Q 1 0001.txt FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 30, 2000 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 000-21531 UNITED NATURAL FOODS, INC. (Exact name of Registrant as Specified in Its Charter) Delaware 05-0376157 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 260 Lake Road Dayville, CT 06241 (Address of Principal Executive Offices, Including Zip Code) Registrant's Telephone Number, Including Area Code: (860) 779-2800 ------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes X No --- --- As of June 12, 2000, there were 18,273,374 shares of the Registrant's Common Stock, $0.01 par value per share, outstanding. ================================================================================ UNITED NATURAL FOODS, INC. FORM 10-Q FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 2000 TABLE OF CONTENTS Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets as of April 30, 2000 and July 31, 1999 3 Consolidated Statements of Operations for the three and nine months ended April 30, 2000 and 1999 4 Consolidated Statements of Cash Flows for the nine months ended April 30, 2000 and 1999 5 Notes to Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-16 Item 3. Quantitative and Qualitative Disclosure About Market Risk 16 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 16 Signatures 17
PART I. FINANCIAL INFORMATION Item 1. Financial Statements UNITED NATURAL FOODS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(Unaudited) ----------- (In thousands, except per share amounts) APRIL 30, 2000 JULY 31, 1999 -------------- ------------- ASSETS Current assets: Cash $ 3,334 $ 2,845 Accounts receivable, net of allowance of $3,578 and $2,297, respectively 76,635 60,612 Notes receivable, trade 707 1,096 Inventories 101,919 90,725 Prepaid expenses 4,487 5,660 Deferred income taxes 2,406 1,765 Refundable income taxes 7,045 3,939 --------- --------- Total current assets 196,533 166,642 Property & equipment, net 47,952 43,784 Other assets: Notes receivable, trade, net 257 333 Goodwill, net 26,835 26,250 Covenants not to compete, net 212 328 Other, net 539 564 --------- --------- Total assets $ 272,328 $ 237,901 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable - line of credit $ 66,504 $ 41,154 Current installments of long-term debt 2,240 3,682 Current installment of obligations under capital leases 300 833 Accounts payable 48,102 33,442 Accrued expenses 13,052 13,706 --------- --------- Total current liabilities 130,198 92,817 Long-term debt, excluding current installments 23,906 24,370 Deferred income taxes 1,398 712 Obligations under capital leases, excluding current installments 1,804 1,421 --------- --------- Total liabilities 157,306 119,320 --------- --------- Stockholders' equity: Preferred stock, $.01 par value, authorized 5,000 shares, none issued and outstanding -- -- Common stock, $.01 par value, authorized 50,000 shares, issued and outstanding 18,264 at April 30, 2000; issued and outstanding 18,249 at July 31, 1999 183 182 Additional paid-in capital 67,839 67,740 Unallocated shares of ESOP (2,462) (2,584) Retained earnings 49,462 53,243 --------- --------- Total stockholders' equity 115,022 118,581 --------- --------- Total liabilities and stockholders' equity $ 272,328 $ 237,901 ========= =========
See notes to consolidated financial statements. 3 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
QUARTER ENDED NINE MONTHS ENDED APRIL 30, APRIL 30, --------- --------- (In thousands, except per share data) 2000 1999 2000 1999 ---- ---- ---- ---- Net sales $ 229,205 $ 226,892 $ 679,035 $ 642,529 Cost of sales 183,900 178,953 551,107 505,768 --------- --------- --------- --------- Gross profit 45,305 47,939 127,928 136,761 --------- --------- --------- --------- Operating expenses 40,561 36,893 126,736 105,133 Restructuring and asset impairment charges -- 1,538 2,420 2,243 Amortization of intangibles 278 245 828 844 --------- --------- --------- --------- Total operating expenses 40,839 38,676 129,984 108,220 --------- --------- --------- --------- Operating income (loss) 4,466 9,263 (2,056) 28,541 --------- --------- --------- --------- Other expense (income): Interest expense 1,666 1,401 4,573 4,470 Other, net (140) (1,488) (345) (1,847) --------- --------- --------- --------- Total other expense (income) 1,526 (87) 4,228 2,623 --------- --------- --------- --------- Income (loss) before income taxes (benefit) 2,940 9,350 (6,284) 25,918 Income taxes (benefit) 1,175 4,231 (2,503) 11,104 --------- --------- --------- --------- Net income (loss) $ 1,765 $ 5,119 $ (3,781) $ 14,814 ========= ========= ========= ========= Per share data (basic): Net income (loss) $ 0.10 $ 0.28 $ (0.21) $ 0.81 ========= ========= ========= ========= Weighted average shares of common stock 18,261 18,183 18,260 18,178 ========= ========= ========= ========= Per share data (diluted): Net income (loss) $ 0.10 $ 0.28 $ (0.21) $ 0.80 ========= ========= ========= ========= Weighted average shares of common stock 18,562 18,512 18,260 18,529 ========= ========= ========= =========
See notes to consolidated financial statements. 4 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED APRIL 30, --------------- (In thousands) 2000 1999 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $ (3,781) $ 14,814 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation and amortization 5,735 6,337 Gain on sale of business -- (1,397) Loss (gain) on disposals of property & equipment 1,970 (303) Deferred income tax expense (benefit) 45 (80) Provision for doubtful accounts 1,992 1,178 Changes in assets and liabilities, net of acquired companies: Accounts receivable (18,015) (10,146) Inventory (11,194) (8,708) Prepaid expenses 1,173 (2,029) Refundable income taxes (3,106) 50 Other assets 147 (386) Notes receivable, trade 465 49 Accounts payable 14,659 1,333 Accrued expenses (653) 2,684 Income taxes payable -- 2,463 -------- -------- Net cash (used in) provided by operating activities (10,563) 5,859 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Payments for purchases of subsidiaries, net of cash acquired (1,200) (8,888) Proceeds from sale of business -- 7,086 Proceeds from disposals of property and equipment 40 1,367 Capital expenditures (10,644) (5,155) -------- -------- Net cash used in investing activities (11,804) (5,590) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings under note payable 25,350 13,892 Repayments on long-term debt (3,172) (3,525) Proceeds from long-term debt 1,266 -- Principal payments of capital lease obligations (688) (473) Other 100 456 -------- -------- Net cash provided by financing activities 22,856 10,350 -------- -------- NET INCREASE IN CASH 489 10,619 Cash at beginning of period 2,845 1,393 -------- -------- Cash at end of period $ 3,334 $ 12,012 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 4,080 $ 4,306 ======== ======== Income taxes $ 740 $ 12,147 ======== ========
In the nine months ended April 30, 2000 and 1999, the Company incurred $537 and $1,064, respectively of capital lease obligations. See notes to consolidated financial statements. 5 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS APRIL 30, 2000 (UNAUDITED) 1. BASIS OF PRESENTATION Our accompanying consolidated financial statements include the accounts of United Natural Foods, Inc. and our wholly owned subsidiaries. We are a distributor and retailer of natural foods and related products. The financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission for interim financial information, including the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally required in complete financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. In our opinion, these financial statements include all adjustments necessary for a fair presentation of the results of operations for the interim periods presented. The results of operations for interim periods, however, may not be indicative of the results that may be expected for a full year. 2. LINE OF CREDIT AGREEMENT We are a party to a line of credit agreement with Fleet Capital Corporation. An amendment to this agreement was entered into effective March 31, 2000 which revises a financial covenant through October 31, 2000 in exchange for a 1/4% increase in the interest rate we pay Fleet. We do not expect this increase to have a material impact on our results of operations or financial condition. 3. INTEREST RATE SWAP AGREEMENT In October 1998, we entered into an interest rate swap agreement. The agreement provides for us to pay interest for a five year period at a fixed rate of 5% on a notional principal amount of $60 million while receiving interest for the same period at the LIBOR rate on the same notional principal amount. The swap has been entered into as a hedge against LIBOR interest rate movements on current and anticipated variable rate indebtedness totaling $60 million at LIBOR plus 1.25%, thereby fixing our effective rate at 6.25%. The five year term of the swap agreement may be extended to seven years at the option of the counterparty. 4. RESTRUCTURING COSTS In connection with the consolidation of operations in the Eastern Region, we recorded employee severance expenses and employee retention expenses of $0.8 million and $0.7 million, respectively, and recorded incremental depreciation of $2.4 million for the year ended July 31, 1999. We recorded asset impairment charges of $1.5 million and additional employee severance and retention expenses of $0.3 million in the quarter ended January 31, 2000. Approximately $1.6 million of the retention and severance expenses had been paid as of April 30, 2000 with most of the remaining amounts expected to be paid during the remainder of fiscal 2000. The incremental depreciation was to reduce the book value of the Chesterfield, New Hampshire facility, which was being held for sale, to its estimated net realizable value. Due to continuing difficulties in the consolidation, our management decided in December 1999 to keep our Chesterfield facility open for the foreseeable future. We resumed depreciating the remaining net book value of the Chesterfield facility in December 1999. In connection with the consolidation of operations in the Central Region and the closing of our Chicago facility, we recorded restructuring and asset impairment charges of $0.3 million each in the quarter ended January 31, 2000. Substantially all of these restructuring expenses had been paid as of April 30, 2000. 6 5. EARNINGS PER SHARE Following is a reconciliation of the basic and diluted number of shares used in computing earnings per share:
Quarter Ended Nine Months Ended April 30, April 30, (In thousands) 2000 1999 2000 1999 ---- ---- ---- ---- Basic weighted average shares outstanding 18,261 18,183 18,260 18,178 Net effect of dilutive stock options based upon the treasury stock method 301 329 -- 351 ------ ------ ------ ------ Diluted weighted average shares outstanding 18,562 18,512 18,260 18,529 ====== ====== ====== ======
There were no dilutive stock options for the nine months ended April 30, 2000 because the Company reported a net loss. 6. BUSINESS SEGMENTS The Company has several operating segments aggregated under the distribution segment, which is the Company's only reportable segment. These operating segments have similar products and services, customer types, distribution methods and historical margins. The distribution segment is engaged in national distribution of natural foods and related products in the United States. Other operating segments include the retail segment, which engages in the sale of natural foods and related products to the general public through retail storefronts on the east coast of the United States, and a segment engaging in trading, roasting and packaging of nuts, seeds, dried fruit and snack items. These other operating segments do not meet the quantitative thresholds for reportable segments and are therefore included in an "other" caption in the segment information. The "other" caption also includes corporate expenses that are not allocated to operating segments. Following is business segment information for the periods indicated:
Distribution Other Eliminations Consolidated ------------ ----- ------------ ------------ Nine Months Ended April 30, 2000 Revenue $649,626 $42,754 $ (13,345) $679,035 Operating Income (loss) $ 2,125 $(4,261) $ 80 $ (2,056) Amortization and Depreciation $ 4,834 $ 901 $ -- $ 5,735 Capital Expenditures $ 10,052 $ 592 $ -- $ 10,644 Assets $400,558 $ 6,987 $(135,217) $272,328 Nine Months Ended April 30, 1999 Revenue $599,955 $60,201 $ (17,627) $642,529 Operating Income $ 29,787 $ 839 $ (2,085) $ 28,541 Amortization and Depreciation $ 5,215 $ 1,122 $ -- $ 6,337 Capital Expenditures $ 4,462 $ 693 $ -- $ 5,155 Assets $373,933 $21,005 $(141,008) $253,930
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview We are a leading national distributor of natural foods and related products in the United States. In recent years, our sales to existing and new customers have increased through the acquisition of or merger with natural products distributors, the expansion of existing distribution centers and the continued growth of the natural products industry in general. Through these efforts, we believe that we have been able to broaden our geographic penetration, expand our customer base, enhance and diversify our product selections and increase our market share. Our distribution operations are divided into four principal units: United Natural Foods in the Eastern Region (previously Cornucopia Natural Foods, Inc. and Stow Mills, Inc.), Rainbow Natural Foods, Inc. in the Central Region, Mountain People's Warehouse, Inc. in the Western Region and Albert's Organics in various markets in the United States. Through our subsidiary, the Natural Retail Group, we also own and operate a number of retail natural products stores located in the eastern United States. Our retail strategy is to selectively acquire existing natural products stores that meet our 7 strict criteria in areas such as sales growth, profitability, growth potential and store management. We believe our retail business serves as a natural complement to our distribution business enabling us to develop new marketing programs and improve customer service. We are 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, our 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 these expenses are incurred, over the long term, we expect to benefit from the increased absorption of our expenses over a larger sales base. We have made considerable capital expenditures and incurred considerable expenses in connection with the expansion of our facilities, including the relocation of our Denver, Colorado distribution center and the expansion of refrigerated and frozen space at our Auburn, California and Atlanta, Georgia facilities. Additionally, our Seattle, Washington facility was relocated to a larger facility in Auburn, Washington during the third quarter of fiscal 1999, and we are currently expanding our New Oxford, Pennsylvania facility. We have incurred considerable expenses in connection with the planned consolidation of operations in the Eastern Region, which was to have resulted in the closure of our Chesterfield, New Hampshire facility. These expenses consist of the cost of moving inventory, as well as additional temporary expenses for information technology, inventory management and redundant staffing and transportation. Our operating results for the fourth quarter of fiscal 1999 and first three quarters of fiscal 2000 were negatively impacted by computer and related issues arising from the consolidation of Eastern Region operations. The consolidation resulted in increased operating expenses, a lower gross margin and lower sales than prior quarters in the Eastern Region. Due to the continuing difficulties in the consolidation, our management decided in December 1999 to keep our Chesterfield facility open for the foreseeable future. We expect that the lower gross margin and lower sales than prior quarters in the Eastern Region will continue throughout fiscal 2000. Additionally, we closed our Chicago facility during the third quarter of fiscal 2000. Most of our existing Chicago volume is now serviced from our Aurora, Colorado facility. We do not expect the closure of our Chicago facility to have material impact on our results of operations or financial condition. Our net sales consist primarily of sales of natural products to retailers adjusted for customer volume discounts, returns and allowances. The principal components of our 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 our distribution facilities. Operating expenses include salaries and wages, employee benefits (including payments under our Employee Stock Ownership Plan), warehousing and delivery, selling, occupancy, administrative, depreciation and amortization expense. Other expenses (income) include interest on outstanding indebtedness, interest income and miscellaneous income and expenses. Recent Acquisitions On September 30, 1998, we acquired substantially all of the outstanding stock of Albert's Organics, a business specializing in the purchase, sale and distribution of produce and other perishable items for $12 million, including $10.3 million of goodwill which we are amortizing over 40 years. Albert's had sales of $47.8 million for the fiscal year ended December 31, 1997 and provides us with additional expertise in the purchasing of produce and other perishable items. Albert's also enables us to avail ourselves of a number of cross-selling opportunities, which will be mutually beneficial to both businesses. The acquisition of Albert's has been accounted for as a purchase and, accordingly, all financial information has been included since the date of acquisition. 8 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 Quarter Ended Ended April 30, April 30, 2000 1999 2000 1999 --------------- --------------- Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 80.2% 78.9% 81.2% 78.7% ----- ----- ----- ----- Gross profit 19.8% 21.1% 18.8% 21.3% ----- ----- ----- ----- Operating expenses 17.7% 16.3% 18.7% 16.4% Restructuring and asset impairment charges -- 0.7% 0.4% 0.3% Amortization of intangibles 0.1% 0.1% 0.1% 0.1% ----- ----- ----- ----- Total operating expenses 17.8% 17.0% 19.1% 16.8% ----- ----- ----- ----- Operating income (loss) 1.9% 4.1% -0.3% 4.4% ----- ----- ----- ----- Other expense (income): Interest expense 0.7% 0.6% 0.7% 0.7% Other, net -0.1% -0.7% -0.1% -0.3% ----- ----- ----- ----- Total other expense 0.7% -- 0.6% 0.4% ----- ----- ----- ----- Income (loss) before income taxes (benefit) 1.3% 4.1% -0.9% 4.0% Income (benefit) taxes 0.5% 1.9% -0.4% 1.7% ----- ----- ----- ----- Net income (loss) 0.8% 2.3% -0.6% 2.3% ===== ===== ===== =====
Quarter Ended April 30, 2000 Compared To Quarter Ended April 30, 1999 Net Sales. Our net sales increased approximately 1.0%, or $2.3 million, to $229.2 million for the quarter ended April 30, 2000 from $226.9 million for the quarter ended April 30, 1999. The overall increase in net sales was attributable to increased sales to existing customers, the sale of new product offerings and sales to new customers. These increases were partially offset by a decrease in net sales from the Natural Retail Group due to the sale of four stores and the closing of one store in April 1999. Excluding the Natural Retail Group's third quarter of fiscal 1999 sales by the sold and closed stores, sales increased approximately 3.0% for the quarter ended April 30, 2000 over the comparable prior year period. These growth rates are lower than in past quarters. The major factor contributing to our lower growth rates was loss of volume in the Eastern Region to other suppliers due to difficulties encountered in the consolidation effort. Another contributing factor was the closure of our Chicago facility and the resulting inability to fully service this region from our Denver, CO and New Oxford, PA facilities, which resulted in approximately $1 million of lost sales. Gross Profit. Our gross profit decreased approximately 5.5%, or $2.6 million, to $45.3 million for the quarter ended April 30, 2000 from $47.9 million for the quarter ended April 30, 1999. Our gross profit as a percentage of net sales decreased to 19.8% for the quarter ended April 30, 2000 from 21.1% for the quarter ended April 30, 1999. The decrease in gross profit as a percentage of net sales resulted primarily from ongoing difficulties with the Eastern Region consolidation, as well as an increased percentage of sales to existing customers under our volume discount program and the divestiture of four retail stores, which have higher gross margins than our distribution business. Difficulties in the Eastern Region which impacted our margin include higher than normal levels of customer returns and allowances, pricing errors, inventory shrink and higher inbound transportation costs for expedited shipments. 9 Operating Expenses. Our total operating expenses increased approximately 5.6%, or $2.2 million, to $40.8 million for the quarter ended April 30, 2000 from $38.7 million for the quarter ended April 30, 1999. As a percentage of net sales, operating expenses increased to 17.8% for the quarter ended April 30, 2000 from 17.0% for the quarter ended April 30, 1999. The increase in operating expenses as a percentage of net sales was primarily due to increased costs in all regions for insurance and fuel and the continuing difficulties in the Eastern Region. Our company-wide insurance and fuel expenses have increased approximately $1.2 million compared to the comparable prior year period and temporary storage and rental equipment expense increased approximately $0.5 million over the prior year. Our operating expenses for the quarter ended April 30, 2000 were also impacted by approximately $0.4 million of non-recurring charges related to the closure of our Chicago facility. Our operating expenses for the quarter ended April 30, 1999 were impacted by approximately $1.5 million of non-recurring charges for depreciation on our Chesterfield facility. Excluding these non-recurring charges, operating expenses would have been $40.4 million, or 17.6% of net sales, for the quarter ended April 30, 2000 and $37.1 million, or 16.4% of net sales, for the quarter ended April 30, 1999. Excluding non-recurring charges, operating expenses would have increased $3.3 million, or 8.8%, in the quarter ended April 30, 2000 compared to the quarter ended April 30, 1999. Operating Income. Operating income decreased $4.8 million, or 51.8%, to $4.5 million for the quarter ended April 30, 2000 from $9.3 million for the quarter ended April 30, 1999. Excluding the non-recurring charges discussed above, operating income would have decreased $5.9 million, or 54.9%, to $4.9 million for the quarter ended April 30, 2000 from $10.8 million for the quarter ended April 30, 1999. Other (Income)/Expense. The $1.6 million increase in other expense in the quarter ended April 30, 2000 compared to the quarter ended April 30, 1999 was primarily attributable to a $1.4 million gain on the sale of retail stores in 1999 and slightly higher interest expense in 2000, reflecting a higher level of debt in the third quarter of fiscal 2000. Excluding the gain on sale of retail stores in 1999, other expense increased $0.2 million. Income Taxes. Our effective income tax rates were 40.0% and 45.2% for the quarters ended April 30, 2000 and 1999, respectively. The effective rates were higher than the federal statutory rate primarily due to state and local income taxes. The effective rate for 1999 also increased due to the settlement of an audit with the Internal Revenue Service for $0.3 million. Net Income. As a result of the foregoing, net income decreased $3.4 million, or 65.5%, to $1.8 million for the quarter ended April 30, 2000, compared to $5.1 million in the quarter ended April 30, 1999. Excluding the non-recurring charges and gain discussed above, net income would have decreased $3.5 million, or 63.6%, to $2.0 million for the quarter ended April 30, 2000, from $5.5 million for the quarter ended April 30, 1999. Nine Months Ended April 30, 2000 Compared To Nine Months Ended April 30, 1999 Net Sales. Our net sales increased approximately 5.7%, or $36.5 million, to $679.0 million for the nine months ended April 30, 2000 from $642.5 million for the nine months ended April 30, 1999. The overall increase in net sales was attributable to increased sales to existing customers, the sale of new product offerings and sales to new customers, as well as an additional two months of sales from Albert's Organics in fiscal 2000. These increases were partially offset by a decrease in net sales from the Natural Retail Group due to the sale of four stores and the closing of one store in April 1999. Excluding the impact of the additional Albert's sales and the Natural Retail Group's first nine months of fiscal 1999 sales by the sold and closed stores, sales increased approximately 6.5% for the nine months ended April 30, 2000 over the comparable prior year period. These growth rates are lower than in the past. The major factors contributing to our lower growth rates were increased out of stocks in the Eastern Region and loss of volume in the Eastern Region to other suppliers due to difficulties encountered in the consolidation effort. Another contributing factor was the closure of our Chicago 10 facility and the resulting inability to fully service this region from our Denver, CO and New Oxford, PA facilities, which resulted in approximately $1 million in lost sales. Gross Profit. Our gross profit decreased approximately 6.5%, or $8.8 million, to $127.9 million for the nine months ended April 30, 2000 from $136.8 million for the nine months ended April 30, 1999. Our gross profit as a percentage of net sales decreased to 18.8% for the nine months ended April 30, 2000 from 21.3% for the nine months ended April 30, 1999. The decrease in gross profit as a percentage of net sales resulted primarily from ongoing difficulties with the Eastern Region consolidation, as well as an increased percentage of sales to existing customers under our volume discount program and the divestiture of four retail stores, which have higher gross margins than our distribution business. Difficulties in the Eastern Region which impacted our margin include higher than normal levels of customer returns and allowances, pricing errors, inventory shrink and higher inbound transportation costs for expedited shipments. Operating Expenses. Our total operating expenses increased approximately 20.1%, or $21.8 million, to $130.0 million for the nine months ended April 30, 2000 from $108.2 million for the nine months ended April 30, 1999. As a percentage of net sales, operating expenses increased to 19.1% for the nine months ended April 30, 2000 from 16.8% for the nine months ended April 30, 1999. The increase in operating expenses as a percentage of net sales was primarily due to the continuing difficulties in the Eastern Region and increased costs in all regions for insurance and fuel. We incurred approximately $6 million in the Eastern Region in redundant labor expenses and approximately $1.5 million in temporary storage and rental equipment expense. Our company-wide insurance and fuel expenses have increased approximately $3 million compared to the comparable prior year period. Our operating expenses for the nine months ended April 30, 2000 were also impacted by several non-recurring charges. These charges included approximately $3.4 million of severance costs and the write-off of current assets in the Eastern Region and Chicago and approximately $2.4 million of restructuring and asset impairment charges related to the write-off of certain Eastern Region fixed assets and the closing of our Chicago facility. Our operating expenses for the nine months ended April 30, 1999 included approximately $2.2 million of restructuring expenses related to the Eastern Region consolidation. Excluding these non-recurring charges, operating expenses would have been $124.1 million, or 18.3% of net sales, for the nine months ended April 30, 2000 and $106.0 million, or 16.5% of net sales, for the nine months ended April 30, 1999. Excluding non-recurring charges, operating expenses would have increased $18.2 million, or 17.1%, in the nine months ended April 30, 2000 compared to the nine months ended April 30, 1999. Operating (Loss) Income. Operating income decreased $30.6 million, to a loss of $(2.1) million for the nine months ended April 30, 2000 from income of $28.5 million for the nine months ended April 30, 1999. Excluding the non-recurring charges discussed above, operating income would have decreased $27.0 million to $3.8 million for the nine months ended April 30, 2000 from $30.8 million for the nine months ended April 30, 1999. Other (Income)/Expense. Other expense increased $1.6 million in the nine months ended April 30, 2000 compared to the nine months ended April 30, 1999 due primarily to a $1.4 million gain on the sale of retail stores in 1999 and a $0.1 million increase attributable to increased interest expense. Income (Benefit) Taxes. Our effective income (benefit) tax rates were (39.8)% and 42.8% for the nine months ended April 30, 2000 and 1999, respectively. The effective rates were higher than the federal statutory rate primarily due to state and local income taxes (benefit). Additionally, we recorded $0.3 million of incremental income taxes in 1999 related to the sale of the retail stores. 11 Net (Loss) Income. As a result of the foregoing, net income decreased $18.6 million to a loss of $(3.8) million for the nine months ended April 30, 2000, compared to net income of $14.8 million in the nine months ended April 30, 1999. Excluding the non-recurring charges discussed above, net income would have decreased $15.9 million to a loss of $(0.3) million for the nine months ended April 30, 2000 from income of $15.6 million for the nine months ended April 30, 1999. Liquidity and Capital Resources We have historically financed operations and growth primarily from cash flows from operations, borrowings under our credit facility, seller financing of acquisitions, operating and capital leases, trade payables, bank indebtedness and the sale of equity and debt securities. Primary uses of capital have been acquisitions, expansion of plant and equipment and investment in accounts receivable and inventory. Net cash used in operations was $10.6 million for the nine months ended April 30, 2000. Cash used in operations in the first nine months of fiscal 2000 related primarily to an increase in accounts receivable and investments in inventory in the ordinary course of business. Days sales outstanding at April 30, 2000 has increased to approximately 31 days from approximately 26 days at July 31, 1999. We are allocating additional resources to collection efforts to decrease our days sales outstanding. The increases in inventory levels relate to supporting increased sales with wider product assortment combined with our ability to capture purchasing efficiency opportunities in excess of total carrying costs. These items were partially offset by an increase in accounts payable. Cash provided by operations in the first nine months of fiscal 1999 was $5.9 million, due primarily to cash collected from customers net of cash paid to vendors and partially offset by investments in accounts receivable and inventory in the ordinary course of business. Working capital at April 30, 2000 was $66.3 million. Net cash used in investing activities was $11.8 million and $5.6 million for the nine months ended April 30, 2000 and 1999, respectively. Investing activities in the nine months ended April 30, 2000 were primarily for capital expenditures. Investing activities in the nine months ended April 30, 1999 were primarily for the acquisition of new businesses and the continued upgrade of existing management information systems, partially offset by proceeds from the sale of certain retail stores. Net cash provided by financing activities was $22.9 million and $10.4 million for the nine months ended April 30, 2000 and 1999, respectively. We increased borrowings on our line of credit by $25.4 million and $13.9 million during the first nine months of fiscal 2000 and fiscal 1999, respectively, and repaid long-term obligations in the amount of $3.9 million and $4.0 million, respectively. In October 1998, we entered into an interest rate swap agreement. The agreement provides for us to pay interest for a five-year period at a fixed rate of 5% on a notional principal amount of $60 million while receiving interest for the same period at the LIBOR rate on the same notional principal amount. The swap has been entered into as a hedge against LIBOR interest rate movements on current and anticipated variable rate indebtedness totaling $60 million. The five-year term of the swap agreement may be extended to seven years at the option of the counterparty. IMPACT OF INFLATION Historically, we have been able to pass along inflation-related increases to our customers. Consequently, inflation has not had a material impact upon the results of our operations or profitability. We are currently assessing and implementing strategies to mitigate the impact rising fuel costs have on our results of operations. Continuing increases in the cost of fuel could have a material adverse impact on our results of operations and profitability if we are unable to pass along a significant portion of these increases. SEASONALITY Generally, we do not experience any material seasonality. However, our 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 our operating and growth strategies, personnel changes, demand for natural products, supply shortages and general economic conditions. 12 RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS The Financial Accounting Standards Board recently issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments, and is effective for fiscal quarters of fiscal years beginning after June 15, 2000. We believe this standard will not have a material impact on our financial statement presentation. In March 2000, the FASB issued Financial Accounting Standards Board Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation". The interpretation clarifies certain matters concerning the application of APB Opinion No. 25 and is generally effective beginning July 1, 2000. We believe this standard will not have a material impact on our financial statement presentation. Certain Factors That May Affect Future Results If any of the events described below actually occur, our business, financial condition, or results of operations could be materially adversely affected. This Form 10-Q contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of a variety of factors, including those set forth in the following risk factors and elsewhere in, or incorporated by reference into, this Form 10-Q. Our business could be adversely affected if we are unable to integrate our acquisitions and mergers A significant portion of our historical growth has been achieved through acquisitions of or mergers with other distributors of natural products. We merged with Stow Mills in October 1997. The successful integration of this merger is critical to our future operating and financial performance. The integration will require, among other things: o the optimization of delivery routes; o coordination of administrative, distribution and finance functions; and o the integration of personnel. The integration process has and could continue to divert the attention of management, and any further difficulties or problems encountered in the transition process could continue to have a material adverse effect on our business, financial condition or results of operations. In addition, the process of combining the companies has and could continue to cause the interruption of, or a loss of momentum in, the activities of the respective businesses, which could have an adverse effect on their combined operations. There can be no assurance that we will realize any of the anticipated benefits of the Stow Mills merger. We may have difficulty in managing our growth The growth in the size of our business and operations has placed and is expected to continue to place a significant strain on our management. Our future growth is limited in part by the size and location of our distribution centers. There can be no assurance that we will be able to successfully expand our existing distribution facilities or open new distribution facilities in new or existing markets to facilitate growth. In addition, our growth strategy to expand our market presence includes possible additional acquisitions. To the extent our future growth includes acquisitions, there can be no assurance that we will successfully identify suitable acquisition candidates, consummate and integrate such potential acquisitions or expand into new markets. Our ability to compete effectively and to manage future growth, if any, will depend on our ability to continue to implement and improve operational, financial and management information systems on a timely basis and to expand, train, motivate and manage our work force. There can be no assurance that our personnel, systems, procedures and controls will be adequate to support our operations. Our inability to manage our growth effectively could have a material adverse effect on our business, financial condition or results of operations. We have significant competition from a variety of sources We operate in highly competitive markets, and our future success will be largely dependent on our ability to provide quality products and services at competitive prices. Our competition comes from a variety of sources, including other distributors of natural products as well as specialty grocery and mass market grocery distributors. There can be no assurance that mass market grocery distributors will not increase their emphasis on natural products and more directly compete with us or that new competitors will not enter the market. These distributors may have been in 13 business longer than us, may have substantially greater financial and other resources than us and may be better established in their markets. There can be no assurance that our current or potential competitors will not provide services comparable or superior to those provided by us or adapt more quickly than United Natural to evolving industry trends or changing market requirements. It is also possible that alliances among competitors may develop and rapidly acquire significant market share or that certain of our customers will increase distribution to their own retail facilities. Increased competition may result in price reductions, reduced gross margins and loss of market share, any of which could materially adversely affect our business, financial condition or results of operations. There can be no assurance that we will be able to compete effectively against current and future competitors. We depend heavily on our principal customers Our ability to maintain close, mutually beneficial relationships with our top two customers, Whole Foods Market, Inc. and Wild Oats Markets, Inc., is important to the ongoing growth and profitability of our business. Whole Foods Market, Inc. and Wild Oats Markets, Inc. accounted for approximately 17% and 15%, respectively, of our net sales during the nine months ended April 30, 2000. As a result of this concentration of our customer base, the loss or cancellation of business from either of these customers, including from increased distribution to their own facilities, could materially and adversely affect our business, financial condition or results of operations. We sell products under purchase orders, and we generally have no agreements with or commitments from our customers for the purchase of products. No assurance can be given that our customers will maintain or increase their sales volumes or orders for the products supplied by us or that we will be able to maintain or add to our existing customer base. Our profit margins may decrease due to consolidation in the grocery industry The grocery distribution industry generally is characterized by relatively high volume with relatively low profit margins. The continuing consolidation of retailers in the natural products industry and the emergence of super natural chains may reduce our profit margins in the future as more customers qualify for greater volume discounts. Our industry is sensitive to economic downturns The grocery industry is also sensitive to national and regional economic conditions, and the demand for our products may be adversely affected from time to time by economic downturns. In addition, our operating results are particularly sensitive to, and may be materially adversely affected by: o difficulties with the collectibility of accounts receivable, o difficulties with inventory control, o competitive pricing pressures, and o unexpected increases in fuel or other transportation-related costs. There can be no assurance that one or more of such factors will not materially adversely affect our business, financial condition or results of operations. We are dependent on a number of key executives Management of our business is substantially dependent upon the services of Michael S. Funk, Chief Executive Officer, Richard S. Youngman, President, and other key management employees. Norman A. Cloutier, our former Chairman of the Board and Chief Executive Officer, resigned these positions on December 6, 1999. Loss of the services of any additional officers or any other key management employee could have a material adverse effect on our business, financial condition or results of operations. Our operating results are subject to significant fluctuations Our net sales and operating results may vary significantly from period to period due to: o changes in our operating expenses, o management's ability to execute our business and growth strategies, o personnel changes, 14 o demand for natural products, o supply shortages, o general economic conditions, o changes in customer preferences and demands for natural products, including levels of enthusiasm for health, fitness and environmental issues, o fluctuation of natural product prices due to competitive pressures, o lack of an adequate supply of high-quality agricultural products due to poor growing conditions, natural disasters or otherwise, o volatility in prices of high-quality agricultural products resulting from poor growing conditions, natural disasters or otherwise, and o future acquisitions, particularly in periods immediately following the consummation of such acquisition transactions while the operations of the acquired businesses are being integrated into our operations. Due to the foregoing factors, we believe that period-to-period comparisons of our operating results may not necessarily be meaningful and that such comparisons cannot be relied upon as indicators of future performance. We are subject to significant governmental regulation Our business is highly regulated at the federal, state and local levels and our products and distribution operations require various licenses, permits and approvals. In particular: o our products are subject to inspection by the U.S. Food and Drug Administration, o our warehouse and distribution facilities are subject to inspection by the U.S. Department of Agriculture and state health authorities, and o our trucking operations are regulated by the U.S. Department of Transportation and the U.S. Federal Highway Administration. The loss or revocation of any existing licenses, permits or approvals or the failure to obtain any additional licenses, permits or approvals in new jurisdictions where we intend to do business could have a material adverse effect on our business, financial condition or results of operations. Our officers and directors and the employee stock ownership trust have significant voting power As of April 30, 2000, our executive officers and directors, and their affiliates, and the United Natural Foods Employee Stock Ownership Trust beneficially owned in the aggregate approximately 30% of United Natural's common stock. Accordingly, these stockholders, if acting together, would have the ability to significantly influence the election of our directors and may have the ability to significantly influence the outcome of corporate actions requiring stockholder approval, irrespective of how other stockholders may vote. This concentration of ownership may have the effect of delaying, deferring or preventing a change in control of United Natural. Union-organizing activities could cause labor relations difficulties As of March 10, 2000, approximately 180 employees, representing approximately 7% of our approximately 2,700 employees, were union members. We have in the past been the focus of union-organizing efforts. As we increase our employee base and broaden our distribution operations to new geographic markets, our increased visibility could result in increased or expanded union-organizing efforts. Although we have not experienced a work stoppage to date, if additional employees were to unionize, we could be subject to work stoppages and increases in labor costs, either of which could materially adversely affect our business, financial condition or results of operations. 15 Access to capital and the cost of that capital In order to maintain our profit margins, we rely on strategic investment buying initiatives, such as discounted bulk purchases, which require spending significant amounts of working capital. In the event that capital market turmoil significantly increased our cost of capital or the ability to borrow funds or raise equity capital, we could suffer reduced profit margins and be unable to grow our business organically or through acquisitions, which could have a material adverse effect on our business, financial condition or results of operations. Item 3. Quantitative and Qualitative Disclosure About Market Risk We are exposed to market risk from interest rate fluctuations because we use variable rate debt to finance working capital requirements. We have entered into an interest rate swap agreement which manages that risk by fixing $60 million of our variable debt at a rate of 6.25% through October 2003. We do not believe that there is any material market risk exposure with respect to derivative or other financial instruments that would require further disclosure under this item. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a) Exhibits The exhibits listed in the Exhibit Index immediately preceding such exhibits are filed as part of this Quarterly Report on Form 10-Q. b) Reports on Form 8-K On March 2, 2000, we filed a Current Report on Form 8-K dated February 22, 2000 announcing under Item 5 (Other Events) a press release regarding the declaration of a dividend distribution of one preferred share purchase right for each outstanding share of our Common Stock, and presenting under Item 7 (Financial Statements, Pro-Forma Financial Information and Exhibits) the following information: 1. Rights Agreement, dated as of February 22, 2000, between United Natural Foods, Inc., and Continental Stock Transfer and Trust Company, as Rights Agent, including all exhibits thereto, incorporated therein by reference to Exhibit 1 to the Corporation's Registration Statement on Form 8-A, dated March 2, 2000. 2. Press Release of the Corporation, dated February 22, 2000, incorporated therein by reference to Exhibit 2 to the Corporation's Registration Statement on Form 8-A, dated March 2, 2000. Exhibit Index Exhibit No. Description Page - ----------- ----------- ---- 27 Financial Data Schedule 18 99 Fifth Amendment to Amended and Restated Loan Agreement with Fleet Capital Corporation 19-25 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. UNITED NATURAL FOODS, INC. /s/ Kevin T. Michel ----------------------------- Kevin T. Michel Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Dated: June 14, 2000 17 EX-27 2 0002.txt FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED APRIL 30, 2000 AND THE CONSOLIDATED BALANCE SHEET AS OF APRIL 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 9-MOS JUL-31-2000 JUL-31-1999 APR-30-2000 3,334 0 80,920 3,578 101,919 196,533 80,038 32,086 272,328 130,198 25,710 0 0 183 114,839 272,328 679,035 679,035 551,107 551,107 0 1,992 4,573 (6,284) (2,503) (3,781) 0 0 0 (3,781) (0.21) (0.21)
EX-99 3 0003.txt FIFTH AMENDMENT TO LOAN AGREEMENT EXHIBIT 99 UNITED NATURAL FOODS, INC. 260 LAKE ROAD DAYVILLE, CONNECTICUT 06241 As of March 31, 2000 FLEET CAPITAL CORPORATION 200 Glastonbury Boulevard Glastonbury, Connecticut 06033 Re: Fifth Amendment to Amended and Restated Loan Agreement Ladies and Gentlemen: Reference is made to the Amended and Restated Loan and Security Agreement dated February 20, 1996 as amended ("Loan Agreement") and all promissory notes, mortgages, guaranties, agreements, documents and instruments entered into by United Natural Foods, Inc., Mountain People's Warehouse Incorporated, Natural Retail Group, Inc., Rainbow Natural Foods, Inc., Nutrasource, Inc., Stow Mills, Inc. and RB Acquisition L.L.C. (collectively, the "Borrowers") and any other person or obligor pursuant thereto (collectively, the "Loan Documents") with or for the benefit of Fleet Capital Corporation ("Agent" or "FCC") and the financial institutions identified under the caption "Lenders" on the signature page to that Agency and Interlender Agreement dated as of December 1, 1997, as amended (the "Interlender Agreement"). Except as otherwise defined herein, capitalized terms used herein shall have the meanings given them in the Loan Agreement. This Fifth Amendment to Loan Agreement is referred to as the "Fifth Amendment". Background. The Borrowers have requested that the Lenders waive the Borrowers' prior noncompliance with a certain covenant and amend that and certain other covenants. In addition, Borrowers and Lenders have agreed to certain adjustments relating to interest rates and to other changes to the Loan Agreement. Waiver. The Lenders waive Borrowers' non-compliance with Section 8.3.4. as at January 31, 2000 and for all periods prior thereto. Amendments to the Loan Agreement. Subject to the satisfaction of the terms and conditions hereof, Lenders and Borrowers agree that the Loan Agreement shall be amended as follows: Section 8.3.4 is deleted in its entirety and the following substituted therefor: "8.3.4. Cash Flow. Achieve Cash Flow of not less than the amount shown forth below at each fiscal quarter end for the period corresponding thereto: Period Amount ------ ------ Fiscal Quarter Ending April 30, 2000 $250,000 Two Fiscal Quarters Ending July 31, 2000 $500,000 Three Fiscal Quarters Ending October 31, 2000 $750,000 Four Fiscal Quarters Ending January 31, 2001 $1,000,000 Each Fiscal Quarter Ending Thereafter for the Prior Four Fiscal Quarters $1,000,000" 19 Section 8.3.2 is deleted in its entirety and the following is substituted therefor: "8.3.2 Minimum Adjusted Tangible Net Worth. Maintain at all times an Adjusted Net Worth (which for purposes of this Section 8.3.2 shall include the indebtedness evidenced by the ESOP Notes and the value of Inventory calculated on a first-in-first-out basis) of not less than the required amounts shown below for the period corresponding thereto:
Period Required Amount ------ --------------- Fiscal Year Ending July 31, 2000 $75,000,000 Fiscal Year Ending July 31, 2001 $75,000,000 plus 50% of the Borrowers' net income (determined in accordance with GAAP, but not less than $0) for the period from February 1, 2000 through July 31, 2000 Each Fiscal Year Ending Thereafter The required amount for this covenant for the prior fiscal year plus 50% of Borrowers' net income (determined in accordance with GAAP, but not less than $0) for the prior year."
Borrowers agree that affective on March 31, 2000, the interest rate on all EuroDollar Rate Loans shall be the EuroDollar Rate plus one and one quarter percent (1.25%) for the applicable EuroDollar Interest Period. Borrowers also agree that effective on March 31, 2000, clause (iii) of the definition of Fixed Rate shall be deleted and replaced with the following: "(iii) one and one-quarter percent (1.25%)" Borrowers agree that no Real Estate Acquisition Loans or Acquisition Loans will be made available to Borrowers unless all of the Lenders shall consent thereto in writing, acting in their reasonable business judgment, with such consent not to be unreasonably withheld. The definition of "Borrowing Base" in Appendix A is modified to delete clause (b) and to substitute the following therefor: "(b) the lesser of (1) $50,000,000 or (2) sixty percent (60%) of the value of Eligible Inventory (fifty-five percent (55%) of the value of intransit Eligible Inventory and subject to documentary Letters of Credit issued pursuant to the Agreement) at such date not including the Eligible Inventory of the New Subsidiaries, consisting of finished goods calculated on the basis of the lower of cost or market with the cost of finished goods calculated on a first in, first out basis." 20 Borrowers agree to cooperate fully with the Agent's next field audit and fixed asset appraisal which are scheduled to take place within the next 60 days, which shall be conducted at Borrower's expense. Borrowers further acknowledge and agree that Agent intends to conduct field audits on at least a semi-annual basis at Borrower's expense, and Borrowers acknowledge and agree to all adjustments that may be required to Eligible Accounts, Eligible Inventory and reserves that may result from such audits and appraisals. Borrower further acknowledge and agree that henceforth Schedules of Accounts will be provided to Agent on a weekly basis on the first business day of each week reporting the status of all Accounts as of the last business day of the prior week. Representations and Warranties. To induce Lenders to enter into this Fifth Amendment, each Borrower warrants, represents and covenants to the Lenders and Agent that: Organization and Qualification. Each Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation. Each Borrower is duly qualified or is authorized to do business and is in good standing as a foreign corporation or limited liability company in all states and jurisdictions in which the failure of such Borrower to be so qualified would have a material adverse effect on the financial condition, business or properties of such Borrower. Corporate Power and Authority. Each Borrower is duly authorized and empowered to enter into, execute, deliver and perform this Fifth Amendment and each of the Loan Documents to which it is a party. The execution, delivery and performance of this Fifth Amendment and each of the other Loan Documents have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of the shareholders or members of a Borrower; (ii) contravene any Borrower's charter, by-laws or operating agreement; (iii) violate, or cause Borrower to be in default under, any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award in effect having applicability to any Borrower; (iv) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which any Borrower is a party or by which Borrower's Properties may be bound or affected; or (v) result in, or require, the creation or imposition of any Lien (other than Permitted Liens) upon or with respect to any of the Properties now owned or hereafter acquired by Borrower. Legally Enforceable Agreement. This Fifth Amendment and each of the other Loan Documents when delivered under this Fifth Amendment will be, a legal, valid and binding obligation of each Borrower, enforceable against each Borrower in accordance with its respective terms. No Material Adverse Change. Since the date of the last financial statements provided by the Borrowers to the Lenders, there has been no material adverse change in the condition, financial or otherwise, of any Borrower as shown on the Consolidated balance sheet as of such date and no change in the aggregate value of the Collateral, except changes in the ordinary course of business, none of which individually or in the aggregate has been materially adverse. Continuous Nature of Representations and Warranties. Each representation and warranty contained in the Loan Agreement and the other Loan Documents remains accurate, complete and not misleading in any material respect on the date of this Fifth Amendment, except for representations and warranties that explicitly relate to an earlier date and changes in the nature of any Borrower's business or operations that would render the information in any exhibit attached thereto either inaccurate, incomplete or misleading, so long as such changes are disclosed in the 21 amended Exhibits attached hereto or Lenders have consented to such changes or such changes are expressly permitted by the Loan Agreement. Conditions Precedent. Notwithstanding any other provision of this Fifth Amendment or any of the other Loan Documents, and without affecting in any manner the rights of Lenders under the other sections of this Fifth Amendment, this Fifth Amendment shall not be effective as to Lenders unless and until each of the following conditions has been and continues to be satisfied (the "Fifth Amendment Closing Date"): Documentation. Lenders shall have received, in form and substance satisfactory to Lenders and their counsel, a duly executed copy of this Fifth Amendment, together with such additional documents, instruments, opinions of Borrowers' counsel and certificates as FCC and its counsel shall require in connection therewith, all in form and substance satisfactory to Lenders and their counsel. No Default. No Default or Event of Default shall exist except as previously disclosed to and consented to by Lenders. No Litigation. Except as previously disclosed to and consented to by Lender, no action, proceeding, investigation, regulation or legislation shall have been instituted, threatened or proposed before any court, governmental agency or legislative body to enjoin, restrain or prohibit, or to obtain damages in respect of, or which is related to or arises out of the Loan Agreement or this Fifth Amendment or the consummation of the transactions contemplated thereby or hereby. Acknowledgment of Obligations. Each Borrower hereby (1) reaffirms and ratifies all of the promises, agreements, covenants and obligations to Lenders under or in respect of the Loan Agreement and other Loan Documents as amended hereby and (2) acknowledges that it is unconditionally liable for the punctual and full payment of all Obligations, including, without limitation, all charges, fees, expenses and costs (including reasonable attorneys' fees and expenses) under the Loan Documents, as amended hereby, and that it has no defenses, counterclaims or setoffs with respect to full, complete and timely payment and performance of all Obligations. Confirmation of Liens. Each Borrower acknowledges, confirms and agrees that the Loan Documents, as amended hereby, are effective to grant to Agent and to Lenders duly perfected, valid and enforceable first priority security interests and liens in the Collateral described therein and that the locations for such Collateral specified in the Loan Documents have not changed. Each Borrower further acknowledges and agrees that all Obligations of such Borrower are and shall be secured by the Collateral. Miscellaneous. Except as set forth herein, the undersigned confirms and agrees that the Loan Documents remain in full force and effect without amendment or modification of any kind, except that the Fourth Amendment is modified to correct an error in paragraph 3 thereof by inserting "Section 8.3.4 of" after the word "that" in the first sentence thereof. Each Borrower hereby acknowledges its obligation to pay to Lenders' and Agent's reasonable attorneys' fees and costs incurred in connection with this Fifth Amendment, as set forth in the Loan Agreement. The execution and delivery of this Fifth Amendment by Lenders and Agent shall not be construed as 22 a waiver by Lenders of any Default or Event of Default under the Loan Documents. This Fifth Amendment, together with the Loan Agreement and other Loan Documents, constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior dealings, correspondence, conversations or communications between the parties with respect to the subject matter hereof. This Fifth Amendment and the transactions hereunder shall be deemed to be consummated in the State of Connecticut and shall be governed by and interpreted in accordance with the laws of that state. This Fifth Amendment and the agreements, instruments and documents entered into pursuant hereto or in connection herewith shall be "Loan Documents" under and as defined in the Loan Agreement. EACH BORROWER HEREBY WAIVES SUCH RIGHTS AS IT MAY HAVE TO NOTICE AND/OR HEARING UNDER ANY APPLICABLE FEDERAL OR STATE LAWS INCLUDING, WITHOUT LIMITATION, CONNECTICUT GENERAL STATUTES SECTIONS 52-278A, ET-SEQ., AS AMENDED, PERTAINING TO THE EXERCISE BY AGENT AND/OR LENDERS OF SUCH RIGHTS AS THE AGENT AND/OR LENDERS MAY HAVE INCLUDING, BUT NOT LIMITED TO, THE RIGHT TO SEEK PREJUDGMENT REMEDIES AND/OR DEPRIVE BORROWERS OF OR AFFECT THE USE OF OR POSSESSION OR ENJOYMENT OF BORROWERS' PROPERTY PRIOR TO THE RENDITION OF A FINAL JUDGMENT AGAINST A BORROWER. EACH BORROWER FURTHER WAIVES ANY RIGHT IT MAY HAVE TO REQUIRE AGENT AND/OR LENDERS TO PROVIDE A BOND OR OTHER SECURITY AS A PRECONDITION TO OR IN CONNECTION WITH ANY PREJUDGMENT REMEDY SOUGHT BY AGENT AND/OR LENDERS. [remainder of page left intentionally blank] 23 Executed under seal on the date set forth above. ATTEST: UNITED NATURAL FOODS, INC. By: - ---------------------------------- ----------------------------------- Name: ------------------------------ Title: ----------------------------- ATTEST: MOUNTAIN PEOPLE'S WAREHOUSE, INC. By: - ---------------------------------- ----------------------------------- Name: ------------------------------ Title: ----------------------------- ATTEST: NATURAL RETAIL GROUP, INC. By: - ---------------------------------- ----------------------------------- Name: ------------------------------ Title: ----------------------------- ATTEST: NUTRASOURCE, INC. By: - ---------------------------------- ----------------------------------- Name: ------------------------------ Title: ----------------------------- ATTEST: RAINBOW NATURAL FOODS, INC. By: - ---------------------------------- ----------------------------------- Name: ------------------------------ Title: ----------------------------- ATTEST: STOW MILLS, INC. By: - ---------------------------------- ----------------------------------- Name: ------------------------------ Title: ----------------------------- 24 ATTEST: RB ACQUISITION, L.L.C. By: - ---------------------------------- ----------------------------------- Name: ------------------------------ Title: ----------------------------- Accepted in Glastonbury, Connecticut on _____________ ___, 2000 FLEET CAPITAL CORPORATION, as Agent and as a Lender By: ------------------------------- Name: ------------------------ Title: ----------------------- FIRST UNION NATIONAL BANK OF CONNECTICUT, as a Lender By: ------------------------------- Name: ------------------------ Title: ----------------------- NATIONS BANK, N.A., as a Lender By: ------------------------------- Name: ------------------------ Title: ----------------------- 25 -----END PRIVACY-ENHANCED MESSAGE-----