-----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,
MNLmud6ZwreLsEZ6YhQoIxozVkL8Konov77GsQ2TEJT5/Zcm+JiLNlMQoNzUbMNE
l7Q9hsA0AjBpAVz2U7jttw==
FORM 10-Q Commission File Number: 000-21531 UNITED NATURAL FOODS, INC. 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 ý No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý No o Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý As of December 1, 2005 there were 41,435,785 shares of the Registrants Common Stock, $0.01 par value per share, outstanding. 2 The accompanying notes are an integral part of the condensed consolidated financial
statements. 3 The accompanying notes are an integral part of the condensed consolidated financial statements. 4 The accompanying notes are an integral part of the condensed consolidated financial statements. 5 1. BASIS OF PRESENTATION United Natural Foods, Inc. (the Company) is a
distributor and retailer of natural and organic products. The Company sells its
products throughout the United States. The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation. Certain prior year
amounts have been reclassified to conform to the current years presentation. Effective August 1, 2005, the Company changed the fiscal periods in
its fiscal year to end on the Saturday closest to July 31. As a result of this change,
the Companys fiscal quarters will end on the Saturday closest to the end of the
fiscal quarter. As such, the first quarter of fiscal 2006 ended on October 29, 2005
compared to the first quarter of fiscal 2005 which ended on October 31, 2004. This
change in quarter end did not have a material impact on the Companys operations. The accompanying unaudited condensed consolidated 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 accounting principles generally accepted in the United States of America 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. These financial statements should
be read in conjunction with the consolidated financial statements and footnotes thereto
included in the Companys Annual Report on Form 10-K for the year ended July 31,
2005. Net sales consist primarily of sales of natural and organic products
to retailers adjusted for customer volume discounts, returns and allowances. Net sales
also consist of amounts due to the Company from customers for shipping and handling and
fuel surcharges. The principal components of 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 Companys distribution facilities. Cost of sales also
includes amounts paid by the Company for shipping and handling, depreciation for
manufacturing equipment at the Companys manufacturing segment, Hershey Import
Company, Inc. (Hershey Imports), and consideration received from suppliers
in connection with the purchase or promotion of the suppliers products. Operating
expenses include salaries and wages, employee benefits (including payments under the
Companys Employee Stock Ownership Plan), warehousing and delivery, selling,
occupancy, insurance, administrative, and amortization expense. Operating expenses also
includes depreciation expense related to the wholesale and retail segments. Other
expenses (income) include interest on outstanding indebtedness, interest income, and
miscellaneous income and expenses. 2. SHARE-BASED COMPENSATION Prior to August 1, 2005, the Company accounted for its stock options
using the intrinsic value method of accounting provided under Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, (APB 25),
and related interpretations, as permitted by Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting
for Share-Based Compensation, (SFAS 123). The Company, applying the
intrinsic value method, did not record share-based compensation cost in net earnings
because the exercise price of its stock options equaled the market price of the
underlying stock on the date of grant. Accordingly, share-based compensation was
included as a pro forma disclosure in the financial statement footnotes and continues to
be provided for periods prior to August 1, 2005. Effective August 1, 2005, the Company adopted the fair value
recognition provisions of SFAS No. 123(R), Share-Based Payment, (SFAS
123(R)), using the modified-prospective transition method. Under this transition
method, compensation cost recognized in the first quarter of fiscal 2006 includes: (a)
compensation cost for all share-based payments granted through August 1, 2005, but for
which the requisite service period had not been completed as of August 1, 2005, based on
the grant date fair value estimated in accordance with the original provisions of SFAS
123, and (b) compensation cost for all share-based payments granted subsequent to August
1, 2005, based on the grant date fair value estimated in accordance with the provisions
of SFAS 123(R). Results for prior periods have not been restated. 6 As a result of the adoption of SFAS 123(R), the Companys income
before income taxes and net income for the three months ended October 29, 2005 are $2.1
million and $1.3 million lower, respectively, than if it had continued to account for
share-based compensation under APB 25. If the Company had not adopted SFAS 123(R), basic
and diluted earnings per share for the three months ended October 29, 2005 would have
been $0.22 and $0.21, respectively, compared to reported basic and diluted earnings per
share of $0.19 and $0.18, respectively. As of October 29, 2005, there was $2.8 million
of total unrecognized compensation cost related to outstanding share-based compensation
arrangements. That cost is expected to be recognized over a weighted-average period of
1.0 years. Prior to the adoption of SFAS 123(R), the Company presented all tax
benefits of deductions resulting from the exercise of stock options as operating cash
flows in the Consolidated Cash Flow statement. SFAS 123(R) requires the cash flows
resulting from tax deductions in excess of the compensation cost recognized for those
stock options (excess tax benefits) to be classified as financing cash flows. The $1.3
million excess tax benefit classified as a financing cash inflow for the three months
ended October 29, 2005 would have been classified as an operating cash inflow if
the Company had not adopted SFAS 123(R). The following table illustrates the effect on net income and earnings
per share as if the Company had applied the fair value recognition provisions of SFAS
123(R) for the three months ended October 31, 2004: For all of the Companys stock-based compensation plans, the
fair value of each grant was estimated at the date of grant using the Black-Scholes
option pricing model. Black-Scholes utilizes assumptions related to volatility, the
risk-free interest rate, the dividend yield and employee exercise behavior. Expected
volatilities utilized in the model are based on the historical volatility of the
Companys stock price. The risk-free interest rate is derived from the U.S.
Treasury yield curve in effect at the time of grant. The model incorporates exercise
and post-vesting forfeiture assumptions based on an analysis of historical data. The
expected life of the fiscal 2006 grants is derived from historical information and
other factors. The following summary presents the weighted average assumptions used
for grants in the first quarter of fiscal 2005 and fiscal 2004: 7 As of October 29, 2005, the Company had two stock option plans: the
2002 Stock Incentive Plan and the 1996 Stock Option Plan (collectively, the Plans).
The Plans provide for grants of stock options to employees, officers, directors and
others. These options are intended to either qualify as incentive stock options within
the meaning of Section 422 of the Internal Revenue Code or be non-statutory stock
options. Vesting requirements for awards under the Plans are at the discretion of
the Companys Board of Directors and are typically four years for employees and two
years for non-employee directors. The maximum term of all incentive stock options
granted under the Plans, and non-statutory stock options granted under the 2002 Stock
Incentive Plan, is ten years. The maximum term for non-statutory stock options granted
under the 1996 Stock Option Plan is at the discretion of the Companys Board of
Directors, and all grants to date have had a term of ten years. As of October 29, 2005,
45,100 shares were available for grant under the 1996 Stock Option Plan and 644,771
shares were available for grant under the 2002 Stock Incentive Plan. The following summary presents information regarding outstanding stock
options as of October 29, 2005 and changes during the three months then ended with
regard to options under the Plans: The weighted average grant-date fair value of options granted during
the three months ended October 29, 2005 and October 31, 2004 was $10.29 and $8.11,
respectively. At October 29, 2005, the Company also had the 2004 Equity Incentive
Plan (the 2004 Plan). The 2004 Plan provides for the issuance of
equity-based compensation awards other than stock options, such as restricted shares and
units, performance shares and units, bonus shares and stock appreciation rights. The
Company had 25,000 nonvested (restricted) shares outstanding under the 2004 Plan as of
October 29, 2005. The weighted average grant date fair value of nonvested shares outstanding was $29.78 as of October 29, 2005. No nonvested shares were granted, vested or forfeited during the three months ended October
29, 2005. At October 29, 2005, 975,000 shares were available for grant under the 2004
Plan. 3. EARNINGS PER SHARE A reconciliation of the weighted average number of shares outstanding
used in the computation of the basic and diluted earnings per share for all periods
presented follows: 8 There were 5,200 and 5,550 anti-dilutive stock options excluded from
the diluted earnings per share calculation for the quarters ended October 29, 2005 and
October 31, 2004, respectively. 4. DERIVATIVE FINANCIAL INSTRUMENTS On August 1, 2005, the Company entered into an interest rate swap agreement
effective July 29, 2005. The agreement provides for the Company to pay interest
for a seven-year period at a fixed rate of 4.70% on a notional principal amount
of $50 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 variable rate indebtedness
totaling $50 million at LIBOR plus 1.00%, thereby fixing its effective rate on
the notional amount at 5.70%. The swap agreement qualified as an
effective hedge under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133). LIBOR was 4.09%
and 3.52% as of October 29, 2005 and July 31, 2005, respectively. The Company entered into commodity swap agreements to reduce price risk
associated with anticipated purchases of diesel fuel. The outstanding commodity
swap agreements hedge a portion of the Companys expected fuel usage for
the periods set forth in the agreements. The Company monitors the commodity
(NYMEX #2 Heating oil) used in its swap agreements to determine that the
correlation between the commodity and diesel fuel is deemed to be highly
effective. At October 29, 2005, the Company had two outstanding commodity
swap agreements which mature on June 30, 2006 and October 31, 2006. Interest rate swap and commodity swap agreements are designated as cash flow
hedges and are reflected at fair value in the Companys consolidated
balance sheet and related gains or losses, net of income taxes, are deferred in
stockholders equity as a component of other comprehensive income. 5. COMPREHENSIVE INCOME Total comprehensive income for the three-month period ended October 29, 2005
amounted to $7,880,000 as compared to $9,564,000 in the same period in the prior
year. Comprehensive income is comprised of net income plus the increase/decrease
in the fair value of the interest rate swap agreements and the commodity swap
agreements discussed in Note 4. The change in fair value of these derivative
financial instruments was $0.3 million pre-tax gain ($0.2 million after-tax) and
$0.5 million pre-tax loss ($0.3 million after-tax) for the three months ended
October 29, 2005 and October 31, 2004, respectively. 6. BUSINESS SEGMENTS The Company has several operating divisions aggregated under the wholesale
segment, which is the Companys only reportable segment. These operating
divisions have similar products and services, customer channels, distribution
methods and historical margins. The wholesale segment is engaged in national
distribution of natural and organic foods, produce and related products in the
United States. The Company has additional operating divisions that do not meet
the quantitative thresholds for reportable segments. Therefore, these operating
divisions are aggregated under the caption of Other with corporate
operating expenses that are not allocated to operating divisions. Non-operating
expenses that are not allocated to the operating divisions are under the caption
of Unallocated Expenses. Other includes a retail
division, 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 manufacturing division, which engages in importing, roasting and
packaging of nuts, seeds, dried fruit and snack items. Other also
includes corporate expenses, which consist of salaries, retainers, and other
related expenses of officers, directors, corporate finance (including
professional services), governance, human resources and internal audit that are
necessary to operate the Companys headquarters located in Dayville,
Connecticut. 9 Following is business segment information for the periods indicated: 7. NEW ACCOUNTING PRONOUNCEMENTS The Company has determined that there are no recently issued accounting
pronouncements that are expected to have a material impact on the Companys
consolidated financial position or results of operations. 8. SUBSEQUENT EVENT As of the end of fiscal November, the Company transitioned all remaining operations at its Auburn,
California facilities to the new Rocklin, California facility and, as a result, will reclassify the long-lived assets
related to the Auburn facilities as held for sale. 10 We are a leading national distributor of natural and organic foods and
related products in the United States. In recent years, our sales to existing
and new customers have increased through the continued growth of the natural and
organic products industry in general, increased market share through our high
quality service and a broader product selection, the acquisition of, or merger
with, natural products distributors, the expansion of our existing distribution
centers and the construction of new distribution centers. 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 estimated market share increased from 6.5% to 8.3% from
calendar 2003 to calendar 2004, based on industry data compiled by one of the
industrys leading trade publications, The Natural Foods
Merchandiser. We also own and operate 12 retail natural products stores,
located primarily in Florida, through our subsidiary, the Natural Retail Group,
Inc. We believe that our retail business serves as a natural complement to our
distribution business because it enables us to develop new marketing programs
and improve customer service. In addition, our subsidiary, Hershey Imports,
specializes in the international importing, roasting and packaging of nuts,
seeds, dried fruits and snack items. Our operations are comprised of three
principal divisions: In order to maintain our market leadership and improve our operating
efficiencies, we are continually: Our continued growth has created the need to open new facilities and expand
of existing facilities in order to achieve maximum operating efficiencies and to
assure adequate space for future needs. We have made significant capital
expenditures and incurred considerable expenses in connection with the opening
and expansion of facilities. In October 2005, we opened the new Rocklin,
California distribution center and moved our Auburn, California operations to
this facility. The Rocklin distribution center is 487,000 square feet and serves
as a distribution hub for customers in northern California and surrounding
states. The Rocklin distribution center is the largest facility in our
nationwide distribution network. We recently expanded our Midwest operations by
opening a new 311,000 square foot distribution center in Greenwood, Indiana in
August 2005, which will serve as a distribution hub for our customers in
Illinois, Indiana, Ohio and other Midwest states. In addition, we expanded our
facilities located in Iowa City, Iowa and Dayville, Connecticut during fiscal
2004. We expect the efficiencies created by opening the Greenwood facility and by
relocating from two facilities in Auburn, California to in the Rocklin
distribution center will take approximately six to nine months to fully manifest
themselves in the form of lower operating expenses relative to sales over the
long-term. With the opening of the Greenwood and Rocklin facilities, we have
added approximately 1,900,000 square feet to our distribution centers since
fiscal 2001, representing a 124% increase in our distribution capacity. Our
current capacity utilization is 68%. 11 Our net sales consist primarily of sales of natural and organic products to
retailers adjusted for customer volume discounts, returns and allowances. Net
sales also consist of amounts due to us from customers for shipping and handling
and fuel surcharges. The principal components of our cost of sales include the
amounts paid to manufacturers and growers for product sold, plus the cost of
transportation necessary to bring the product to our distribution facilities.
Cost of sales also includes amounts incurred by us for shipping and handling,
depreciation for manufacturing equipment at our manufacturing subsidiary,
Hershey Imports, and consideration received from suppliers in connection with
the purchase or promotion of the suppliers products. Total operating
expenses include salaries and wages, employee benefits (including payments under
our Employee Stock Ownership Plan), warehousing and delivery, selling,
occupancy, insurance, administrative, depreciation and amortization expense.
Other expenses (income) include interest on our outstanding indebtedness,
interest income, the change in fair value of financial instruments and
miscellaneous income and expenses. Our gross margin may not be comparable to
other similar companies within our industry that may include all costs related
to their distribution network in their costs of sales rather than as operating
expenses. We include purchasing and outbound transportation expenses within our
operating expenses rather than in our cost of sales. The preparation of our consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. The U.S. Securities and Exchange Commission has defined critical
accounting policies as those that are both most important to the portrayal of
our financial condition and results and require our most difficult, complex or
subjective judgments or estimates. Based on this definition, we believe our
critical accounting policies include the following: (i) determining our
allowance for doubtful accounts, (ii) determining our reserves for the
self-insured portions of our workers compensation and automobile
liabilities and (iii) valuing goodwill and intangible assets. For all financial
statement periods presented, there have been no material modifications to the
application of these critical accounting policies. Allowance for doubtful accounts We analyze customer
creditworthiness, accounts receivable balances, payment history, payment terms and
historical bad debt levels when evaluating the adequacy of our allowance for doubtful
accounts. In instances where a reserve has been recorded for a particular customer, future
sales to the customer are conducted using either cash-on-delivery terms, or the account is
closely monitored so that as agreed upon payments are received, orders are released; a
failure to pay results in held or cancelled orders. Our accounts receivable balance was
$153.5 million and $136.5 million, net of the allowance for doubtful accounts of $4.4
million and $4.3 million, as of October 29, 2005 and July 31, 2005, respectively. Our
notes receivable balances were $2.9 million and $2.7 million, net of the allowance of
doubtful accounts of $3.6 million and $5.1 million, as of October 29, 2005 and July 31,
2005, respectively. Insurance reserves It is our policy to record
the self-insured portions of our workers compensation and automobile liabilities
based upon actuarial methods of estimating the future cost of claims and related expenses
that have been reported but not settled, and that have been incurred but not yet reported.
Any projection of losses concerning workers compensation and automobile liability is
subject to a considerable degree of variability. Among the causes of this variability are
unpredictable external factors affecting litigation trends, benefit level changes and
claim settlement patterns. If actual claims incurred are greater than those anticipated,
our reserves may be insufficient and additional costs could be recorded in the
consolidated financial statements. Valuation of goodwill and intangible assets Statement of Financial
Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible
Assets, requires that companies test goodwill for impairment at least annually and
between annual tests if events occur or circumstances change that would more likely than
not reduce the fair value of a reporting unit below its carrying amount. We have elected
to perform our annual tests for indications of goodwill impairment during the fourth
quarter of each year. Impairment losses are determined based upon the excess of carrying
amounts over discounted expected future cash flows of the underlying business. The
assessment of the recoverability of long-lived assets will be impacted if estimated future
cash flows are not achieved. For reporting units that indicated potential impairment, we
determined the implied fair value of that reporting unit using a discounted cash flow
analysis and compared such values to the respective reporting units carrying
amounts. Total goodwill as of October 29, 2005 and July 31, 2005, was $74.6 million and
$73.8 million, respectively. 12 The following table presents, for the periods indicated, certain income and
expense items expressed as a percentage of net sales:
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 29, 2005
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
05-0376157
(I.R.S. Employer
Identification No.)
260 Lake Road
Dayville, CT
(Address of principal executive offices)
06241
(Zip Code)
(860) 779-2800
(Registrants telephone number, including area code)TABLE OF CONTENTS
Part I.
Financial Information
Item 1.
Financial Statements
Condensed Consolidated Balance Sheets (unaudited)
3
Condensed Consolidated Statements of Income (unaudited)
4
Condensed Consolidated Statements of Cash Flows (unaudited)
5
Notes to Condensed Consolidated Financial Statements (unaudited)
6
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
11
Item 3.
Quantitative and Qualitative Disclosure About Market Risk
21
Item 4.
Controls and Procedures
22
Part II.
Other Information
Item 6.
Exhibits and Reports on Form 8-K
22
Signatures
23
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
UNITED NATURAL FOODS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except per share amounts)
October 29,
2005
July 31,
2005
ASSETS
Current assets:
Cash and cash equivalents
$ 9,906
$ 12,615
Accounts receivable, net
153,488
136,472
Notes receivable, trade, net
832
877
Inventories
270,449
235,700
Prepaid expenses and other current assets
10,023
9,811
Deferred income taxes
7,419
7,419
Total current assets
452,117
402,894
Property & equipment, net
171,971
167,909
Goodwill
74,552
73,808
Notes receivable, trade, net
2,093
1,802
Intangible assets, net
276
307
Other
5,277
4,538
Total assets
$ 706,286
$ 651,258
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$ 144,191
$ 119,177
Notes payable
138,975
123,574
Accrued expenses and other current liabilities
35,805
34,915
Current portion of long-term debt
5,657
5,843
Total current liabilities
324,628
283,509
Long-term debt, excluding current portion
63,907
64,852
Deferred income taxes
7,032
6,904
Other long-term liabilities
1,747
474
Total liabilities
397,314
355,739
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, authorized 5,000 shares;
none issued and outstanding
Common stock, $0.01 par value, authorized 50,000 shares;
issued and outstanding 41,436 and 41,287 at October 29, 2005
and July 31, 2005, respectively
414
413
Additional paid-in capital
125,885
120,354
Unallocated shares of Employee Stock Ownership Plan
(1,564
)
(1,605
)
Accumulated other comprehensive income
210
Retained earnings
184,027
176,357
Total stockholders' equity
308,972
295,519
Total liabilities and stockholders' equity
$ 706,286
$ 651,258
UNITED NATURAL FOODS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share data)
Three months ended
October 29,
2005
October 31,
2004
Net sales
$ 575,641
$ 477,542
Cost of sales (Note 1)
465,374
385,099
Gross profit
110,267
92,443
Operating expenses (includes $2,535 and $0 of share-based
compensation expense in 2005 and 2004, respectively)
95,513
74,597
Restructuring charge
170
Amortization of intangibles
145
141
Total operating expenses
95,658
74,908
Operating income
14,609
17,535
Other expense (income):
Interest expense
2,367
1,433
Other, net
(129
)
(101
)
Total other expense
2,238
1,332
Income before income taxes
12,371
16,203
Income taxes
4,701
6,319
Net income
$ 7,670
$ 9,884
Per share data (basic):
Net income
$ 0.19
$ 0.25
Weighted average shares of common stock
41,334
40,123
Per share data (diluted):
Net income
$ 0.18
$ 0.24
Weighted average shares of common stock
42,150
41,580
UNITED NATURAL FOODS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Three months ended
October 29,
2005
October 31,
2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
$ 7,670
$ 9,884
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization
3,754
3,092
(Gain) loss on disposals of property and equipment
(9
)
9
Provision for doubtful accounts
369
466
Share-based compensation
2,535
Changes in assets and liabilities, net of acquisitions:
Accounts receivable
(17,510
)
(27,227
)
Inventories
(34,749
)
(18,084
)
Prepaid expenses and other assets
(625
)
(1,876
)
Notes receivable, trade
(246
)
(384
)
Accounts payable
24,973
34,666
Accrued expenses and other liabilities
2,189
(841
)
Income taxes payable
5,021
Tax effect of stock options
74
Net cash (used in) provided by operating activities
(11,649
)
4,800
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures
(7,683
)
(3,590
)
Payments for acquisitions, net of cash acquired
(517
)
Proceeds from disposals of property and equipment
21
25
Net cash used in investing activities
(8,179
)
(3,565
)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under note payable
15,401
(7,866
)
Proceeds from exercise of stock options
1,713
205
Tax effect of stock options
1,284
Repayments of long-term debt
(1,131
)
(1,292
)
Principal payments of capital lease obligations
(148
)
(162
)
Net cash provided by (used in) financing activities
17,119
(9,115
)
NET DECREASE IN CASH AND CASH EQUIVALENTS
(2,709
)
(7,880
)
Cash and cash equivalents at beginning of period
12,615
13,633
Cash and cash equivalents at end of period
$ 9,906
$ 5,753
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest
$ 2,561
$ 1,377
Income taxes
$ 4,470
$ 1,166
UNITED NATURAL FOODS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 29, 2005 (Unaudited)
Three months
ended
October 31, 2004
Net income as reported
$
9,884
Deduct:
Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects
(889
)
Net income pro forma
$ 8,995
Basic earnings per share
As reported
$ 0.25
Pro forma
$ 0.23
Diluted earnings per share
As reported
$ 0.24
Pro forma
$ 0.22
Three months ended
October 29,
2005
October 31,
2004
Expected volatility
36.5
%
42.2
%
Dividend yield
0.0
%
0.0
%
Risk free interest rate
4.2
%
2.9
%
Expected life
3 years
3.25 years
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
Outstanding at August 1, 2005
2,546,125
$
19.00
Granted
1,200
$ 35.40
Exercised
(148,983
)
$ 11.50
$ 3,442,000
Forfeited
(4,688
)
$ 22.45
Outstanding at October 29, 2005
2,393,654
$ 19.47
7.7
$ 19,596,000
Exercisable at October 29, 2005
1,293,514
$ 22.59
8.0
$ 6,557,000
Three months ended
(In thousands)
October 29,
2005
October 31,
2004
Basic weighted average shares outstanding
41,334
40,123
Net effect of dilutive stock options based upon
the treasury stock method
816
1,457
Diluted weighted average shares outstanding
42,150
41,580
Wholesale
Other
Eliminations
Unallocated
Expenses
Consolidated
Three months ended October 29, 2005:
Net sales
$ 565,897
$ 18,927
$ (9,183
)
$ 575,641
Operating income (loss)
21,223
(6,338
)
(276
)
14,609
Interest expense
$ 2,367
2,367
Other, net
(129
)
(129
)
Income before income taxes
12,371
Depreciation and amortization
3,474
280
3,754
Capital expenditures
7,482
201
7,683
Total assets
835,486
78,193
(207,393
)
706,286
Three months ended October 31, 2004:
Net sales
$ 468,549
$ 17,739
$ (8,746
)
$ 477,542
Operating income (loss)
18,785
(1,241
)
(9
)
17,535
Interest expense
$ 1,433
1,433
Other, net
(101
)
(101
)
Income before income taxes
16,203
Depreciation and amortization
2,809
283
3,092
Capital expenditures
3,519
71
3,590
Total assets
699,530
38,547
(189,521
)
548,556
Item 2. Managements Discussion and Analysis ofFinancial Condition and Results
of Operations
Overview
Critical Accounting Policies
Results of Operations
Three months ended
October 29,
2005
October 31,
2004
Net sales
100.0
%
100.0
%
Cost of sales
80.8
%
80.6
%
Gross profit
19.2
%
19.4
%
Operating expenses
16.6
%
15.6
%
Restructuring charge
0.0
%
0.0
%
Amortization of intangibles
0.0
%
0.0
%
Total operating expenses
16.6
%
15.7
%*
Operating income
2.5
%
3.7
%
Other expense (income):
Interest expense
0.4
%
0.3
%
Other, net
0.0
%
0.0
%
Total other expense
0.4
%
0.3
%
Income before income taxes
2.1
%
3.4
%
Income taxes
0.8
%
1.3
%
Net income
1.3
%
2.1
%
* Total reflects rounding
Net Sales
Our net sales increased approximately 20.5%, or $98.1 million, to $575.6 million for the three months ended October 29, 2005 from $477.5 million for the three months ended October 31, 2004. This increase was due to organic growth in our wholesale division, excluding acquisitions, of 17.5% and the inclusion of sales related to our recent acquisitions of Select Nutrition and Roots & Fruits Cooperative Produce (Roots & Fruits) that were not included in the three months ended October 31, 2004. Our organic growth is due to the continued growth of the natural products industry in general, increased market share through our focus on service and added value services, and the opening of new, and expansion of existing, distribution centers, which allows us to carry a broader selection of products.
In the three months ended October 29, 2005, Whole Foods Market, Inc. (Whole Foods Market) comprised approximately 25% of net sales and Wild Oats Markets, Inc. (Wild Oats Markets) comprised approximately 10% of net sales. In the three months ended October 31, 2004, Whole Foods Market comprised approximately 26% of net sales and Wild Oats Markets comprised approximately 12% of net sales.
13
The following table lists the percentage of sales by customer type for the quarters ended October 29, 2005 and October 31, 2004:
Customer type |
Percentage of Net Sales |
|||||||
---|---|---|---|---|---|---|---|---|
2005 |
2004 | |||||||
Independently owned natural products retailers | 46 | % | 45 | % | ||||
Supernatural chains | 36 | % | 37 | % | ||||
Conventional supermarkets | 14 | % | 13 | % | ||||
Other | 4 | % | 5 | % |
Gross Profit
Our gross profit increased approximately 19.3%, or $17.8 million, to $110.3 million for the three months ended October 29, 2005 from $92.4 million for the three months ended October 31, 2004. Our gross profit as a percentage of net sales was 19.2% and 19.4% for the three months ended October 29, 2005 and October 31, 2004, respectively. The decrease in gross profit as a percentage of net sales was primarily due to fuel surcharges paid to vendors as we were not able to pass all the increased fuel surcharge costs along to our customers due to the rapid increase in these surcharge costs during the quarter.
Operating Expenses
Our total operating expenses, excluding special items, increased approximately 22.0%, or $16.5 million, to $91.4 million for the three months ended October 29, 2005 from $74.9 million for the three months ended October 31, 2004. Total operating expenses, including special items, increased approximately 27.7%, or $20.8 million, to $95.7 million for the three months ended October 29, 2005 from $74.9 million for the three months ended October 31, 2004. Special items are discussed below under Special Items. The increase in total operating expenses, excluding special items, for the three months ended October 29, 2005 was due to the increase in our infrastructure to support our continued sales growth, share-based compensation expense, an increase in fuel costs as a percentage of net sales of 12 basis points and the inclusion of operating expenses related to Select Nutrition and Roots & Fruits, our recent acquisitions, that were not included in the three months ended October 31, 2004. The first quarter of fiscal 2006 includes share-based compensation cost, excluding special items of $1.5 million, resulting from the adoption of SFAS 123(R) (See Note 2 to the condensed consolidated financial statements). Total operating expenses in the first three months of fiscal 2005 included a $0.2 million restructuring charge related to severance costs, which resulted from our reduced operations at our Mounds View, Minnesota facility.
As a percentage of net sales, total operating expenses, excluding special items, increased to approximately 15.9% for the three months ended October 29, 2005, from approximately 15.7% for the three months ended October 31, 2004. As a percentage of net sales, total operating expenses, including special items, increased to approximately 16.6% for the three months ended October 29, 2005, from approximately 15.7% for the three months ended October 31, 2004. The increase in operating expenses as a percentage of net sales was primarily attributable to share-based compensation expense of $2.5 million, of which $1.5 million related to the expense for share-based payment awards and $1.0 million related to the accelerated vesting of certain options pursuant to the employment transition agreement we entered into during the first quarter of fiscal 2006 with Steven H. Townsend, our former President and Chief Executive Officer.
We estimate that incremental share-based compensation cost for fiscal 2006 will be approximately $6.0 million to $8.2 million, on a pre-tax basis, or $0.08 to $0.11 per diluted share after tax, excluding special items.
Total operating expenses for the three months ended October 29, 2005 included special items related to incremental and redundant costs incurred during the transition from our former warehouses and outside storage facility in Auburn, California into our new larger facility in Rocklin, California of $0.7 million, certain incremental costs associated with the opening of our new Greenwood, Indiana facility of $92 thousand and certain cash and non-cash expenses incurred in accordance with the employment transition agreement we entered into during the first quarter of fiscal 2006 with Steven H. Townsend of $3.5 million. There were no special items in the three months ended October 31, 2004.
14
Operating Income
Operating income, excluding the special items discussed below under Special Items, increased approximately 7.7%, or $1.4 million, to $18.9 million for the three months ended October 29, 2005 from $17.5 million for the three months ended October 31, 2004. As a percentage of net sales, operating income, excluding special items, was 3.3% for the three months ended October 29, 2005 compared to the 3.7% for the three months ended October 31, 2004. Excluding special items, the impact of share-based compensation and the operating losses at our recent acquisitions, our operating margin would have been approximately 3.9%. Operating income, including special items, decreased approximately 16.7%, or $2.9 million, to $14.6 million, or 2.5% of net sales, for the three months ended October 29, 2005 from $17.5 million, or 3.7% of net sales, for the three months ended October 31, 2004.
Other Expense (Income)
Other expense (income) increased $0.9 million to $2.2 million for the three months ended October 29, 2005 from $1.3 million for the three months ended October 31, 2004. Interest expense for the three months ended October 29, 2005 increased to $2.4 million from $1.4 million in the three months ended October 31, 2004. The increase in interest expense was due to an increase in our short-term and long-term borrowings and effective interest rates.
Income Taxes
Our effective income tax rate was 38.0% and 39.0% for the three months ended October 29, 2005 and October 31, 2004, respectively. The effective rate was higher than the federal statutory rate primarily due to state and local income taxes.
Net Income
Net income, excluding special items, increased $0.4 million to $10.3 million, or $0.24 per diluted share, for the three months ended October 29, 2005, compared to $9.9 million, or $0.24 per diluted share, for the three months ended October 31, 2004. Net income, including special items, decreased $2.2 million to $7.7 million, or $0.18 per diluted share, for the three months ended October 29, 2005, compared to $9.9 million, or $0.24 per diluted share, for the three months ended October 31, 2004.
Special Items
Special items for three months ended October 29, 2005 included: (i) incremental and redundant costs incurred during the transition from our former warehouses and outside storage facility in Auburn, California into our new facility in Rocklin, California, (ii) certain costs associated with opening the new Greenwood, Indiana facility, and (iii) non-recurring cash and non-cash expenses incurred in accordance with the employment transition agreement we entered into during the quarter with Steven H. Townsend. There were no special items in the three months ended October 31, 2004.
The following table presents a reconciliation of net income and per share amounts, excluding special items (non-GAAP basis), to net income and per share amounts, including special items (GAAP basis), for the three months ended October 29, 2005:
Three Months Ended October 29, 2005 (in thousands, except per share data) | Pretax Income |
Net of Tax |
Per diluted share |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Income, excluding special items: | $ | 16,646 | $ | 10,320 | $ | 0.24 | |||||
Special items (Expense) | |||||||||||
Employment transition agreement costs (included in | |||||||||||
operating expenses) | (3,512 | ) | (2,177 | ) | (0.05 | ) | |||||
Rocklin, CA facility relocation costs (included in | |||||||||||
operating expenses) | (672 | ) | (416 | ) | (0.01 | ) | |||||
Greenwood, IN facility openings costs (included in | |||||||||||
operating expenses) | (92 | ) | (57 | ) | (0.00 | ) | |||||
Income, including special items: | $ | 12,371 | * | $ | 7,670 | $ | 0.18 | ||||
A description of our use of non-GAAP information is provided under Use of Non-GAAP Results below.
15
We finance operations and growth primarily with cash flows from operations, borrowings under our credit facility, operating leases, trade payables, bank indebtedness and the sale of equity and debt securities.
On April 30, 2004, we entered into an amended and restated four-year $250 million revolving credit facility with a bank group that was led by Bank of America Business Capital (formerly Fleet Capital Corporation) as the administrative agent. Our amended and restated credit facility provides for improved terms and conditions that provide us with more financial and operational flexibility, reduced costs and increased liquidity. The credit facility replaced an existing $150 million revolving credit facility. Our amended and restated credit facility allows for borrowing up to $250 million, on which interest accrues at LIBOR plus 0.90%. Our amended and restated credit facility, which matures on March 31, 2008, supports our working capital requirements in the ordinary course of business and provides capital to grow our business organically or through acquisitions. As of October 29, 2005, our borrowing base, based on accounts receivable and inventory levels, was $250.0 million, with remaining availability of $98.9 million.
In April 2003, we executed a term loan agreement in the principal amount of $30 million secured by the real property that was released in accordance with an amendment to the loan and security agreement related to the $150 million revolving credit facility. The $30 million term loan is repayable over seven years based on a fifteen-year amortization schedule. Interest on the term loan accrued at LIBOR plus 1.50%. In December 2003, we amended this term loan agreement by increasing the principal amount from $30 million to $40 million under the existing terms and conditions. On July 29, 2005, we entered into an amended term loan agreement which further increased the principal amount of this term loan from $40 million to up to $75 million and decreased the rate at which interest accrues to LIBOR plus 1.00%. As of October 29, 2005, $65 million was outstanding under the term loan agreement.
We believe that our capital requirements for fiscal 2006 will be between $30 and $35 million, and that we will finance these requirements with cash generated from operations and the use of our existing credit facilities. These projects will provide both expanded facilities and technology that we believe will provide us with the capacity to continue to support the growth and expansion of our customers. We believe that our future capital requirements will be similar to our anticipated fiscal 2006 requirements, as a percentage of revenue, as we continue to invest in our growth by upgrading our infrastructure and expanding our facilities. Future investments in acquisitions will be financed through either equity or long-term debt negotiated at the time of the potential acquisition.
Net cash used in operations was $11.6 million for the three months ended October 29, 2005, which reflected a $34.7 million investment in inventory that was partially offset by net income and a change in cash paid to vendors, net of cash collected from customers. The increase in inventory levels primarily relate to preparing the Greenwood, Indiana and the Rocklin, California facilities for opening in August 2005 and October 2005, respectively, and supporting increased sales with wider product assortment and availability. Days in inventory increased to 50 days at October 29, 2005 compared to 49 days at October 31, 2004. Days sales outstanding improved to 23 days at October 29, 2005 compared to 24 days at October 31, 2004. Net cash provided by operations was $4.8 million for the three months ended October 31, 2004 and was primarily due to net income, a change in cash collected from customers net of cash paid to vendors and an $18.1 million investment in inventory as a result of increased sales. Working capital increased by $8.1 million, or 6.8%, to $127.5 million at October 29, 2005 compared to working capital of $119.4 million at July 31, 2005.
Net cash used in investing activities was $8.2 million for the three months ended October 29, 2005 compared to $3.6 million for the same period last year and was primarily due to capital expenditures related to opening the Rocklin, California facility.
Net cash provided by financing activities was $17.1 million for the three months ended October 29, 2005 primarily due to net borrowings under our amended and restated credit facility, proceeds from, and the tax benefit due to, the exercise of stock options, partially offset by repayments of long-term debt and capital lease obligations. Net cash used in financing activities was $9.1 million for the three months ended October 31, 2004, due to repayments of long-term debt and repayments on our amended and restated credit facility, partially offset by proceeds from the exercise of stock options.
16
In August 2005, we entered into an interest rate swap agreement effective July 29, 2005. This agreement provides for us to pay interest for a seven-year period at a fixed rate of 4.70% on a notional principal amount of $50 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 variable rate indebtedness totaling $50 million at LIBOR plus 1.00%, thereby fixing our effective rate on the notional amount at 5.70%. LIBOR was 4.09% as of October 29, 2005. The swap agreement qualifies as an effective hedge under SFAS 133.
We entered into commodity swap agreements to reduce price risk associated with anticipated purchases of diesel fuel. The outstanding commodity swap agreements hedge a portion of our expected fuel usage for the periods set forth in the agreements. We monitor the commodity (NYMEX #2 Heating oil) used in our swap agreements to determine that the correlation between the commodity and diesel fuel is deemed to be highly effective. At October 29, 2005, we had two outstanding commodity swap agreements which mature on June 30, 2006 and October 31, 2006.
There have been no material changes to our commitments and contingencies from those disclosed in our Annual Report on Form 10-K for the year ended July 31, 2005.
Historically, we have been able to pass along inflation-related increases to our customers, however, with the recent rapid increase in fuel surcharges paid to vendors, we were unable to pass along all of the increase in these surcharge costs to our customers during the three months ended October 29, 2005. Historically, inflation has not had a material impact upon the results of our operations or profitability.
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 our operating expenses, managements ability to execute our operating and growth strategies, personnel changes, demand for natural products, supply shortages and general economic conditions.
We have determined that there are no recently issued accounting standards that are expected to have a material impact on our consolidated financial position or results of operations.
Financial measures included in this Managements Discussion and Analysis of Financial Condition and Results of Operations that are not in accordance with generally accepted accounting principles in the United States of America (GAAP) are referred to as non-GAAP financial measures. To supplement its financial statements presented on a GAAP basis, the Company uses non-GAAP financial measures of operating results, net income and earnings per share adjusted to exclude special charges and/or share-based compensation. The Company believes that the use of these additional measures is appropriate to enhance an overall understanding of its past financial performance and also its prospects for the future as these special charges are not expected to be part of the Companys ongoing business, while the measures excluding share-based compensation provide comparability to the prior fiscal year. The adjustments to the Companys GAAP results are made with the intent of providing both management and investors with a more complete understanding of the underlying operational results and trends and its marketplace performance. For example, these adjusted non-GAAP results are among the primary indicators management uses as a basis for its planning and forecasting of future periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net earnings or diluted earnings per share prepared in accordance with GAAP. A comparison and reconciliation from non-GAAP to GAAP results is included in the table under Special Items above.
17
This Form 10-Q and the documents incorporated by reference in this Form 10-Q contain forward-looking statements that involve substantial risks and uncertainties. In some cases you can identify these statements by forward-looking words such as anticipate, believe, could, estimate, expect, intend, may, should, will, and would, or similar words. You should read statements that contain these words carefully because they discuss future expectations, contain projections of future results of operations or of financial position or state other forward-looking information. The important factors listed below as well as any cautionary language in this Form 10-Q provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations described in these forward-looking statements. You should be aware that the occurrence of the events described in the risk factors below and elsewhere in this Form 10-Q could have an adverse effect on our business, results of operations and financial position.
Any forward-looking statements in this Form 10-Q and the documents incorporated by reference in this Form 10-Q are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged by such forward-looking statements, possibly materially. We do not undertake to update any information in the foregoing reports until the effective date of our future reports required by applicable laws. Any projections of future results of operations should not be construed in any manner as a guarantee that such results will in fact occur. These projections are subject to change and could differ materially from final reported results. We may from time to time update these publicly announced projections, but we are not obligated to do so.
Acquisitions
We continually evaluate opportunities to acquire other companies. We believe that there are risks related to acquiring companies, including overpaying for acquisitions, losing key employees of acquired companies and failing to achieve potential synergies. Additionally, 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. Successful integration of mergers is critical to our future operating and financial performance. Integration requires, among other things:
The integration process has and could divert the attention of management and any difficulties or problems encountered in the transition process could have a material adverse effect on our business, financial condition or results of operations. In addition, the process of combining companies has and could 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 mergers.
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.
18
We have significant competition from a variety of sources
We operate in 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 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 we do 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 two largest customers, Whole Foods Market and Wild Oats Markets, is an important element to our continued growth. In December 2004, we announced a definitive three-year distribution agreement with Whole Foods Market, which commenced on January 1, 2005, under which we will continue to serve as the primary U.S. distributor to it in the regions where we previously served. Whole Foods Market accounted for approximately 25% and 26% of our net sales during the three months ended October 29, 2005 and October 31, 2004, respectively. In January 2004, we entered into a five-year distribution agreement, as primary distributor, with Wild Oats Markets. For the three months ended October 29, 2005 and October 31, 2004, Wild Oats Markets accounted for approximately 10% and 12% of our net sales, respectively. 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. We cannot assure you 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 growth of supernatural chains may reduce our profit margins in the future as more customers qualify for greater volume discounts, and we experience pricing pressures from both ends of the supply chain.
Our operations are 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:
We cannot assure you that one or more of such factors will not materially adversely affect our business, financial condition or results of operations.
19
Increased Fuel Costs
Increased fuel costs may have a negative impact on our results of operations. The high cost of diesel fuel can also increase the price we pay for products as well as the costs we incur to deliver products to our customers. These factors, in turn, may negatively impact our net sales, margins, operating expenses and operating results. To manage this risk, we periodically enter into heating oil derivative contracts to hedge a portion of our projected diesel fuel requirements. Heating crude oil prices have a highly correlated relationship to fuel prices, making these derivatives effective in offsetting changes in the cost of diesel fuel. We do not enter into fuel hedge contracts for speculative purposes.
We are dependent on a number of key executives
Management of our business is substantially dependent upon the services of Richard Antonelli (President of United Distribution), Daniel V. Atwood (Senior Vice President of Marketing and Secretary), Michael D. Beaudry (Vice President of Distribution), Thomas A. Dziki (Division President), Michael S. Funk (President and Chief Executive Officer), Gary A. Glenn (Vice President of Information Technology), Barclay Hope (President of Alberts Organics), Rick D. Puckett (Vice President, Chief Financial Officer and Treasurer), Mark E. Shamber (Vice President and Corporate Controller), and other key management employees. Loss of the services of any 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:
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.
20
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:
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.
Union-organizing activities could cause labor relations difficulties
As of October 29, 2005, we had approximately 4,380 full and part-time employees. An aggregate of 7.6% of total employees, or 330 of the employees at our Auburn, Washington, Iowa City, Iowa and Edison, New Jersey facilities are covered by collective bargaining agreements. These agreements expire in March 2006, June 2006 and June 2008, respectively. 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.
Access to capital and the cost of that capital
We have an amended and restated secured revolving credit facility, with available credit under it of $250 million at an interest rate of LIBOR plus 0.90% maturing on March 31, 2008. As of October 29, 2005, our borrowing base, based on accounts receivable and inventory levels, was $250 million, with remaining availability of $98.9 million. In April 2003, we executed a term loan agreement in the principal amount of $30 million secured by the real property that was released in accordance with an amendment to the loan and security agreement related to the amended and restated credit facility. The $30 million term loan was repayable over seven years based on a fifteen-year amortization schedule. Interest on the term loan accrues at LIBOR plus 1.50%. In December 2003, we amended this term loan agreement by increasing the principal amount from $30 million to $40 million under the existing terms and conditions. On July 28, 2005, we amended the term loan agreement, which further increased the principal amount from $40 million to a maximum of up to $75 million. The amended term loan accrues interest at LIBOR plus 1.00%, and is repayable over seven years based on a fifteen-year amortization schedule, with all other terms and conditions remaining unchanged. As of October 29, 2005, $65 million was outstanding under the term loan agreement.
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 our cost of capital increases or our ability to borrow funds or raise equity capital is limited, 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.
Our exposure to market risks results primarily from fluctuations in interest rates on our borrowings. As more fully described in the notes to the condensed consolidated financial statements, we use interest rate swap agreements to modify variable rate obligations to fixed rate obligations for a portion of our debt. There have been no material changes to our exposure to market risks from those disclosed in our Annual Report on Form 10-K for the year ended July 31, 2005.
21
(a) | Evaluation of disclosure controls and procedures. We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this quarterly report on Form 10-Q (the Evaluation Date). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in timely reporting material information required to be included in our periodic reports filed with the Securities and Exchange Commission. |
(b) | Changes in internal controls. There has been no change in the our internal control over financial reporting that occurred during the first fiscal quarter of 2006 that has materially affected, or is reasonably likely to materially affect, the our internal control over financial reporting. |
Items 1, 2, 3, 4 and 5 are not applicable and have been omitted.
Exhibit No. | Description | |||
10.1 | Employment Transition Agreement and Mutual Release | |||
31.1 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - CEO | |||
31.2 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - CFO | |||
32.1 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - CEO | |||
32.2 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - CFO | |||
August 4, 2005 | The Company entered into severance agreements with certain of its executive officers. |
September 2, 2005 | The Company announced its financial results for the fiscal year ended July 31, 2005. |
October 27, 2005 | The Company announced the retirement and resignation of Mr. Townsend as the
Company's President and Chief Executive Officer, and the appointment of Michael S.
Funk, as the Company's new President and Chief Executive Officer. * * * |
We would be pleased to furnish a copy of this Form 10-Q to any stockholder who requests it by writing to:
United Natural Foods, Inc.
Investor Relations
260 Lake Road
Dayville, CT 06241
22
UNITED NATURAL FOODS, INC.
Dated: December 7, 2005
23
Exhibit 10.1
United Natural Foods, Inc., a Delaware corporation (the "Company") and Steven H. Townsend ("Mr. Townsend") hereby agree as follows:
1. | a. Mr. Townsend hereby resigns as an employee of the Company, effective December 31, 2005 (the "Resignation Date"). |
b. Mr. Townsend hereby resigns as Chairman of the Board of the Company, and as a Board member, effective upon the conclusion of the Companys Annual Meeting of Shareholders to be held on December 8, 2005. Mr. Townsend may if he wishes act as Chair of such Annual Meeting. |
c. Except as set forth in Paragraphs (a) and (b) above, Mr. Townsend hereby resigns as: (i) an employee, officer and director of all direct and indirect subsidiaries and other affiliates of the Company (collectively, unless the context is otherwise, the Company), including the offices of President and Chief Executive Officer of United Natural Foods, Inc., and (ii) trustee of any Company benefit plans, all effective October 21, 2005. |
c. Upon the expiration of the Revocation Period (as hereinafter defined), all rights and obligations of the parties under that certain Employment Agreement dated as of January 1, 2003 are hereby terminated and of no further force and effect. |
2. | On the Resignation Date, the Company will pay Mr. Townsend for any unused vacation time earned by him through the Resignation Date. Upon the expiration of the Revocation Period: |
a. The Company shall be obligated to continue to pay Mr. Townsends annual base salary, which is $700,000, for a period of two years from the Resignation Date, payable in accordance with the Companys standard payroll practices, provided, however that the Company shall make no payments under this Paragraph until July 1, 2006, at which time the Company shall pay Mr. Townsend $350,000; the Company shall thereafter pay the balance of $1,050,000 over the remaining eighteen months of this period in accordance with its standard payroll practices. |
b. The Company shall pay Mr. Townsend a bonus payment of $700,000 on October 1, 2006. |
c. The above amounts shall be subject to all federal and state income tax and other required deductions. |
d. For the period beginning January 1, 2006, through and including December 31, 2007, Mr. Townsend agrees to be generally available to consult with the Companys Chief Executive Officer or his designees, such consulting not to exceed ten hours per month. In exchange for this consulting assistance, the Company shall pay Mr. Townsend a monthly consulting fee of $8,333.33 per month, beginning January 1, 2006. Consulting fees paid by the Company shall be reported on IRS Form 1099. While Mr. Townsend will make reasonable efforts to be available, the parties agree that such availability shall not materially interfere with Mr. Townsends employment or other material obligations he may have. The parties acknowledge and agree that the Company shall not be entitled to assert any breach or alleged breach by Mr. Townsend under this paragraph as a basis for, or as a means of offsetting or reducing, in any way, nonpayment of the Companys obligations, monetary or otherwise, under the other paragraphs of this Agreement. |
3. | Upon the expiration of the Revocation Period: |
a. The Company shall be obligated to continue to provide Mr. Townsend and his family, at its expense, not less than the medical, dental and other health insurance coverage provided to the Companys senior executive officers as of the Resignation Date until December 31, 2007, subject to no applicable benefits deductions such as co-pay contributions. Thereafter, the Company shall respect Mr. Townsends rights (and his dependents rights), if any, to continued medical coverage at his own expense under the Consolidated Omnibus Budget Reconciliation Act (COBRA). |
b. The Company will provide Mr. Townsend, at its expense, with executive outplacement assistance at Right Associates or other comparable executive outplacement provider of substantially equal cost until the earlier of his resumption of full-time employment or December 31, 2006. |
c. Mr. Townsend shall be entitled, at Company expense, to tax planning and preparation assistance for tax returns for calendar years 2005, 2006, 2007 and 2008. Mr. Townsend may continue to use his current service provider. This amount shall not exceed $25,000 in the aggregate and the Company shall not be obligated to pay or reimburse any such amounts before July 1, 2006. |
d. Mr. Townsend shall be entitled to continue to use his personal laptop computer, cellular phone and blackberry, which the Company is providing to Mr. Townsend to facilitate the consulting services provided hereunder. Mr. Townsend shall be responsible for transferring the cellular phone service to his name. |
2
e. The Company shall pay Mr. Townsends reasonable attorneys fees incurred as a result of his resignation, including the negotiation of this Agreement and the preparation of applicable filings with the Securities Exchange Commission. The Company shall not be obligated to pay or reimburse any such amounts before July 1, 2006. |
f. The Company shall provide Mr. Townsend, or his designated representatives, reasonable access, under supervision and with reasonable advance notice, to such records or other information as Mr. Townsend may reasonably request in order for Mr. Townsend to comply with one or more personal obligations, such as preparation of tax returns and insurance claims. |
4. | a. As of the Resignation Date, Mr. Townsend shall no longer be eligible to receive long-term disability benefits or to participate in the Companys 401(k) and Profit Sharing Plan. The Company will promptly notify Mr. Townsend in writing concerning his options with regard to his 401(k) account. |
b. The Company acknowledges that it is currently obligated to indemnify Mr. Townsend in his capacity as a Director and officer of the Company in accordance with the General Corporation Law of the State of Delaware, the Companys Certificate of Incorporation and the Companys By-laws (collectively, Indemnification Obligations), and that the Company maintains so-called Officers and Directors liability insurance to secure, in part, the Companys Indemnification Obligations. The Company shall continue to indemnify Mr. Townsend with respect to its Indemnification Obligations for claims made prior to December 31, 2015, and shall continue to maintain Officers and Directors liability insurance in an amount and coverage not less than that provided for other Directors and senior officers of the Company through December 31, 2015. In the event Mr. Townsend becomes, directly or indirectly, subject to litigation or other adversary proceedings for which the Indemnification Obligations apply, and Mr. Townsend receives written advice from counsel (and delivers a copy of such written advice to the Company) that, under the circumstances, Mr. Townsend should retain separate counsel, Mr. Townsend may so retain separate counsel, and the Company shall promptly reimburse Mr. Townsend for reasonable fees and costs of such counsel. |
c. In consideration for the release set forth below, the Company hereby releases and forever discharges Mr. Townsend and his successors, heirs and assigns from any and all liabilities, causes of action, debts, claims and demands including, without limitation, claims and demands for monetary payments, both in law and in equity, known or unknown, fixed or contingent, which it may have or claim to have based upon or in any way related to Mr. Townsends actions or omissions as a Director, officer or employee of the Company and hereby covenants not to file a lawsuit or charge to assert such claims. |
3
5. | a. Schedule 5a attached hereto sets forth the options to purchase the Companys Common Stock granted to Mr. Townsend as of the Resignation Date (collectively, the Stock Options). Schedule 5a also sets forth the Restricted Stock granted to Mr. Townsend as of the Resignation Date (the Restricted Stock). Notwithstanding the terms of any stock option or restricted stock agreements or other written documentation evidencing such grant of Stock Options or Restricted Stock to Mr. Townsend, all of the Stock Options and Restricted Stock shall be deemed to (i) have been fully vested and (ii) with respect to Stock Options shall be subject to no other contingency on behalf of or to be performed by Mr. Townsend (including that he remain an employee or Director of the Company), except for the payment of the applicable exercise price for the Stock Options. |
b. Mr. Townsend may at any time exercise his rights under the Companys Employee Stock Ownership Plan (ESOP) to effect the distribution and sale, if he so elects, of shares of the Companys Common Stock allocated to him, in accordance with the provisions of the ESOP. |
6. | a. In consideration of the foregoing, which Mr. Townsend acknowledges includes rights he may not otherwise be entitled to, Mr. Townsend hereby releases and forever discharges the Company, its present and former directors, officers, employees, agents, subsidiaries, shareholders, successors and assigns from any and all liabilities, causes of action, debts, claims and demands (including without limitation claims and demands for monetary payment) both in law and in equity, known or unknown, fixed or contingent, which he may have or claim to have based upon or in any way related to employment (as an officer, director or employee), rights or entitlements related thereto or termination of such employment by the Company and hereby covenants not to file a lawsuit or charge to assert such claims. This includes but is not limited to claims arising under the Federal Age Discrimination in Employment Act, and any other federal, state or local laws prohibiting employment discrimination or claims growing out of any legal restrictions on the Companys right to terminate its employees, provided, however, that the foregoing shall not release or otherwise limit the Companys obligations set forth in this Agreement. |
b. Mr. Townsend understands that various State and Federal laws prohibit employment discrimination based on age, sex, race, color, national origin, religion, handicap or veteran status. These laws are enforced through the Equal Employment Opportunity Commission (EEOC), Department of Labor and State Human Rights Agencies. Mr. Townsend acknowledges that he has been advised by the Company to discuss this Agreement with his attorney and has been encouraged to take this Agreement home for up to twenty-one (21) days so that he can thoroughly review it and understand the effect of this Agreement before acting on it. |
4
7. | Mr. Townsend acknowledges that all payments and benefits payable to him under this Agreement (other than earned wages and vested vacation time) are contingent upon his compliance with the provisions of this Paragraph 7, that the availability of such payments and benefits is sufficient consideration for the release set forth in paragraph 6(a), and that termination of such payments and benefits due to his non-compliance shall not affect the release set forth in Paragraph 6(a). Mr Townsend covenants with the Company as follows: |
a. Mr. Townsend shall not knowingly use for his own benefit or disclose or reveal to any unauthorized person, any trade secret or other confidential information relating to the Company, or to any of the businesses operated by it, including, without limitation, any customer lists, customer needs, price and performance information, processes, specifications, hardware, software, devices, supply sources and characteristics, business opportunities, potential business interests, marketing, promotional pricing and financing techniques, or other information relating to the business of the Company, and Mr. Townsend confirms that such information constitutes the exclusive property of the Company. Such restriction on confidential information shall remain in effect until such time as the confidential information is (i) generally available in the industry, (ii) disclosed in published literature or (iii) obtained by Mr. Townsend from a third party with the prior right to make such disclosure. Mr. Townsend agrees that he will return to the Company any physical embodiment of such confidential information upon the Resignation Date. |
b. during the period commencing on the date of this Agreement and ending December 31, 2006, Mr. Townsend shall not engage, directly or indirectly (which includes, without limitation, owning, managing, operating, controlling, being employed by, giving financial assistance to, participating in or being connected in any material way with any person or entity), anywhere in the United States in the wholesale distribution of natural foods; provided, however, that: Mr. Townsends ownership as a passive investor of less than two percent (2%) of the issued and outstanding stock of a publicly held corporation so engaged, shall not by itself be deemed to constitute such competition. Further, during such period Mr. Townsend shall not act to induce any of the Companys vendors, customers or employees to take action which might be disadvantageous to the Company. |
c. Mr. Townsend hereby acknowledges that he will treat as for the Companys sole benefit, and fully and promptly disclose and assign to the Company without additional compensation, all ideas, information, discoveries, inventions and improvements which are based upon or related to any confidential information protected under Paragraph 7(a) herein, and which are made, conceived or reduced to practice by him at any time up to and including December 31, 2005. The provisions of this Paragraph 7(c) shall apply whether such ideas, discoveries, inventions, improvements or knowledge are conceived, made or gained by him alone or with others, whether during or after usual working hours, either on or off the job, to matters directly or indirectly related to the Companys business interests (including potential business interests), and whether or not within the realm of his duties. |
5
d. Mr. Townsend shall, upon request of the Company, but at no expense to Mr. Townsend, sign all instruments and documents and cooperate in such other acts reasonably required of him to protect rights to the ideas, discoveries, inventions, improvements and knowledge referred to above, including applying for, obtaining and enforcing patents and copyrights thereon in any and all countries. Mr. Townsend shall promptly return to the Company any Company property in his possession. |
e. Mr. Townsend shall make himself available in any third party claims, investigations, litigation or similar proceedings to answer any questions relating to his employment or actions as an employee, officer or director of the Company, including without limitation attendance at any deposition or similar proceeding. The Company shall pay Mr. Townsends expenses and shall be obligated to compensate him at a per diem rate of $2,500 for time actually expended. |
8. | Mr. Townsend shall at no time make any derogatory or disparaging comments regarding the Company, its business, or its present or past directors, officers or employees. The Company shall at no time make any derogatory or disparaging comments regarding Mr. Townsend. |
9. | The execution of this Agreement shall not be construed as an admission of a violation of any statute or law or breach of any duty or obligation by either the Company or Mr. Townsend. |
10. | No party to this Agreement shall cause, discuss, cooperate or otherwise aid in the preparation of any press release or other publicity other than filings required by the securities laws, concerning any other party to this Agreement or the Agreements operation without prior approval of such other party, unless required by law, in which case notice of such requirement shall be given to the other party. |
11. | The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid and unenforceable provisions were omitted. |
12. | This Agreement is personal to Mr. Townsend and may not be assigned by him. However, in the event of Mr. Townsends death, all the rights of Mr. Townsend set forth in this Agreement shall accrue to his spouse, if she is living; otherwise, to his heirs. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Company. |
6
13. | This Agreement is made pursuant to and shall be governed by the laws of the State of Connecticut, without regard to its rules regarding conflict of laws. The parties agree that the courts of the State of Connecticut, and the Federal Courts located therein, shall have exclusive jurisdiction over all matters arising from this Agreement. Mr. Townsend and the Company hereby agree that service of process by certified mail, return receipt requested, shall be deemed appropriate service of process. |
14. | Except as otherwise indicated, this Agreement contains the entire understanding between Mr. Townsend and the Company, supersedes all prior agreements, oral or written, regarding the subject matter hereof, and may not be changed orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. Mr. Townsend acknowledges that he has not relied upon any representation or statement, written or oral, not set forth in this Agreement. |
15. | Mr. Townsend may revoke this Agreement at any time during the seven-day period following the date of his signature below (the Revocation Period) by delivering written notice of his revocation to the Companys attention at 260 Lake Road, Dayville, Connecticut 06241; Attention: Rick D. Puckett. This Agreement shall become effective upon the expiration of the Revocation Period. |
16. | All notices required or contemplated by this Agreement shall be deemed effective if written and delivered in person or if sent by certified mail, return receipt requested, to the Company at the address shown in Paragraph 15 above, to the attention of Michael S. Funk, Acting Chief Executive Officer of the Company, with a copy to E. Colby Cameron, Esq., Cameron & Mittleman LLP, 56 Exchange Terrace, Providence, RI 02903 and to Mr. Townsend at 169 Barrett Hill Road, Brooklyn, CT 06234, with a copy to: Stanford N. Goldman, Jr., Esq., Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., One Financial Center, Boston, MA 02111, or such other persons or addresses as may hereafter be designated by the respective parties. |
[signature lines appear on the next page]
7
IN WITNESS WHEREOF, the parties have executed this Agreement on the date set forth below.
United Natural Foods, Inc.
By: /s/ Rick D. Puckett Rick D. Puckett Vice President, Chief Financial Officer and Treasurer Date: 10/23/05 /s/ Steven H. Townsend Steven H. Townsend Date: 10/23/05 |
Witness:
/s/ Jeanne Puckett Witness: /s/ Jeanne Puckett | |
8
Grant Date | Grant Type |
Option Price |
Options Vesting |
Original Vesting | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
12/3/2002 | Non-Qualified | $ | 12.55 | 62,032 | on 12/3/2006 | |||||||||
12/3/2002 | Incentive | $ | 12.55 | 7,968 | on 12/3/2006 | |||||||||
12/3/2003 | Non-Qualified | $ | 18.66 | 15,000 | on 12/3/2006 | |||||||||
12/3/2003 | Non-Qualified | $ | 18.66 | 9,640 | on 12/3/2007 | |||||||||
12/3/2003 | Incentive | $ | 18.66 | 5,360 | on 12/3/2007 | |||||||||
12/3/2003 | Non-Qualified | $ | 18.66 | 5,000 | on 12/3/2006 | |||||||||
12/3/2003 | Non-Qualified | $ | 18.66 | 5,000 | on 12/3/2007 | |||||||||
Optionee Totals | 110,000 |
9
Exhibit 31.1
I, Michael S. Funk, hereby certify that:
1. | I have reviewed this quarterly report on Form 10-Q of the Company; |
2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and |
3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this quarterly report. |
4. | The Companys other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and we have: |
(a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
(b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | evaluated the effectiveness of the Companys disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and |
(d) | disclosed in this quarterly report any change in the Companys internal control over financial reporting that occurred during the Companys most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting. |
5. | The Companys other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Companys auditors and the audit committee of the Companys board of directors (or persons performing the equivalent functions): |
(a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Companys ability to record, process, summarize and report financial information; and |
(b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the Companys internal control over financial reporting. |
Note: | A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. |
Exhibit 31.2
I, Rick D. Puckett, hereby certify that:
1. | I have reviewed this quarterly report on Form 10-Q of the Company; |
2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and |
3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this quarterly report. |
4. | The Companys other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and we have: |
(a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
(b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | evaluated the effectiveness of the Companys disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and |
(d) | disclosed in this quarterly report any change in the Companys internal control over financial reporting that occurred during the Companys most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting. |
5. | The Companys other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Companys auditors and the audit committee of the Companys board of directors (or persons performing the equivalent functions): |
(a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Companys ability to record, process, summarize and report financial information; and |
(b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the Companys internal control over financial reporting. |
Note: | A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. |
Exhibit 32.1
The undersigned, in his capacity as the Chief Executive Officer of United Natural Foods, Inc., a Delaware corporation (the Company), hereby certifies that the Quarterly Report of the Company on Form 10-Q for the period ended October 29, 2005 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of the Company.
Note: | A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. |
Exhibit 32.2
The undersigned, in his capacity as the Chief Financial Officer of United Natural Foods, Inc., a Delaware corporation (the Company), hereby certifies that the Quarterly Report of the Company on Form 10-Q for the period ended October 29, 2005 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of the Company.
Note: | A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. |