☒
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended January 31, 2009
|
|
OR
|
|
☐
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
Delaware
|
05-0376157
|
(State
or Other Jurisdiction of
|
(I.R.S.
Employer Identification No.)
|
Incorporation
or Organization)
|
260
Lake Road Dayville, CT
|
06241
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
Large
accelerated filer ☒
|
Accelerated
filer ☐
|
Non-accelerated
filer ☐
(Do not check if a smaller reporting company)
|
Smaller
reporting company ☐
|
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
|
13
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
23
|
Item
4.
|
Controls
and Procedures
|
23
|
Part
II.
|
Other
Information
|
|
Item
1.
|
Legal
Proceedings
|
23
|
Item
1A.
|
Risk
Factors
|
23
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
28
|
Item
3.
|
Defaults
upon Senior Securities
|
28
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
28
|
Item
5.
|
Other
Information
|
28
|
Item
6.
|
Exhibits
|
29
|
Signatures
|
30
|
January 31,
|
August 2,
|
|||||||
ASSETS
|
2009
|
2008
|
||||||
Current
assets:
|
||||||||
Cash and cash
equivalents
|
$ | 24,636 | $ | 25,333 | ||||
Accounts receivable, net of
allowance of $6,133 and $5,535, respectively
|
193,128 | 179,063 | ||||||
Notes receivable, trade, net of
allowance of $77 and $130, respectively
|
1,260 | 1,412 | ||||||
Inventories
|
406,594 | 394,364 | ||||||
Prepaid expenses and other current
assets
|
17,042 | 13,307 | ||||||
Deferred income
taxes
|
14,221 | 14,221 | ||||||
Total current
assets
|
656,881 | 627,700 | ||||||
Property & equipment,
net
|
239,334 | 234,115 | ||||||
Other
assets:
|
||||||||
Goodwill
|
166,471 | 170,609 | ||||||
Notes receivable, trade, net of
allowance of $1,462 and $1,423, respectively
|
2,388 | 2,349 | ||||||
Intangible assets, net of
accumulated amortization of $2,734 and $1,671,
respectively
|
40,199 | 33,689 | ||||||
Other
assets
|
18,655 | 16,021 | ||||||
Total
assets
|
$ | 1,123,928 | $ | 1,084,483 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Notes
payable
|
$ | 297,000 | $ | 288,050 | ||||
Accounts
payable
|
151,457 | 160,418 | ||||||
Accrued expenses and other current
liabilities
|
69,627 | 63,308 | ||||||
Current portion of long-term
debt
|
4,951 | 5,027 | ||||||
Total current
liabilities
|
523,035 | 516,803 | ||||||
Long-term debt, excluding current
portion
|
56,486 | 58,485 | ||||||
Deferred income
taxes
|
10,437 | 9,058 | ||||||
Other long-term
liabilities
|
24,513 | 20,087 | ||||||
Total
liabilities
|
614,471 | 604,433 | ||||||
Commitments and
contingencies
|
||||||||
Stockholders'
equity:
|
||||||||
Preferred stock, $0.01 par value,
authorized 5,000 shares; none issued or outstanding
|
- | - | ||||||
Common stock, $0.01 par value,
authorized 100,000 shares; 43,168 issued and 42,939 outstanding shares at
January 31, 2009; 43,100 issued and 42,871 outstanding shares at August 2,
2008
|
432 | 431 | ||||||
Additional paid-in
capital
|
172,832 | 169,238 | ||||||
Unallocated shares of Employee
Stock Ownership Plan
|
(958 | ) | (1,040 | ) | ||||
Treasury
stock
|
(6,092 | ) | (6,092 | ) | ||||
Accumulated other comprehensive
loss
|
(1,891 | ) | (753 | ) | ||||
Retained
earnings
|
345,134 | 318,266 | ||||||
Total stockholders'
equity
|
509,457 | 480,050 | ||||||
Total liabilities and
stockholders' equity
|
$ | 1,123,928 | $ | 1,084,483 |
Three months
ended
|
Six months
ended
|
|||||||||||||||
January 31,
|
January 26,
|
January 31,
|
January 26,
|
|||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Net sales
|
$ | 847,635 | $ | 830,656 | $ | 1,711,871 | $ | 1,567,045 | ||||||||
Cost of
sales
|
685,570 | 675,984 | 1,382,217 | 1,276,902 | ||||||||||||
Gross
profit
|
162,065 | 154,672 | 329,654 | 290,143 | ||||||||||||
Operating
expenses
|
136,212 | 135,100 | 278,755 | 246,366 | ||||||||||||
Total operating
expenses
|
136,212 | 135,100 | 278,755 | 246,366 | ||||||||||||
Operating
income
|
25,853 | 19,572 | 50,899 | 43,777 | ||||||||||||
Other expense
(income):
|
||||||||||||||||
Interest
expense
|
3,200 | 5,059 | 6,611 | 7,950 | ||||||||||||
Interest
income
|
(92 | ) | (153 | ) | (343 | ) | (332 | ) | ||||||||
Other, net
|
196 | 6 | 147 | 75 | ||||||||||||
Total other
expense
|
3,304 | 4,912 | 6,415 | 7,693 | ||||||||||||
Income before income
taxes
|
22,549 | 14,660 | 44,484 | 36,084 | ||||||||||||
Provision for income
taxes
|
8,929 | 5,561 | 17,616 | 13,423 | ||||||||||||
Net income
|
$ | 13,620 | $ | 9,099 | $ | 26,868 | $ | 22,661 | ||||||||
Basic per share
data:
|
||||||||||||||||
Net income
|
$ | 0.32 | $ | 0.21 | $ | 0.63 | $ | 0.53 | ||||||||
Weighted average basic shares of
common stock
|
42,821 | 42,676 | 42,803 | 42,645 | ||||||||||||
Diluted per share
data:
|
||||||||||||||||
Net income
|
$ | 0.32 | $ | 0.21 | $ | 0.63 | $ | 0.53 | ||||||||
Weighted average diluted shares of
common stock
|
42,910 | 42,884 | 42,931 | 42,860 |
Six months
ended
|
||||||||
January
31,
|
January
26,
|
|||||||
2009
|
2008
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
income
|
$ | 26,868 | $ | 22,661 | ||||
Adjustments
to reconcile net income to net cash provided by (used in) operating
activites:
|
||||||||
Depreciation
and amortization
|
13,288 | 10,160 | ||||||
Loss
on disposals of property and equipment
|
68 | 8 | ||||||
Provision
for doubtful accounts
|
1,776 | 1,286 | ||||||
Share-based
compensation
|
3,312 | 2,387 | ||||||
Gain
on forgiveness of loan
|
- | (157 | ) | |||||
Changes
in assets and liabilities, net of acquired companies:
|
||||||||
Accounts
receivable
|
(15,102 | ) | (13,565 | ) | ||||
Inventories
|
(9,666 | ) | (57,392 | ) | ||||
Prepaid
expenses and other assets
|
(3,392 | ) | (5,727 | ) | ||||
Notes
receivable, trade
|
113 | (265 | ) | |||||
Accounts
payable
|
(9,078 | ) | (2,729 | ) | ||||
Accrued
expenses
|
8,370 | 4,371 | ||||||
Net
cash provided by (used in) operating activities
|
16,557 | (38,962 | ) | |||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Capital
expenditures
|
(17,012 | ) | (21,466 | ) | ||||
Purchases
of acquired businesses, net of cash acquired
|
(4,301 | ) | (107,235 | ) | ||||
Proceeds
from disposals of property and equipment
|
- | 165 | ||||||
Net
cash used in investing activities
|
(21,313 | ) | (128,536 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Net
borrowings under note payable
|
8,950 | 177,009 | ||||||
Repayments
of long-term debt
|
(2,075 | ) | (6,411 | ) | ||||
(Decrease)
increase in bank overdraft
|
(27 | ) | 4,102 | |||||
Payments
on life insurance policy loans
|
(3,072 | ) | - | |||||
Proceeds
from exercise of stock options
|
150 | 810 | ||||||
Tax
benefit from exercise of stock options
|
133 | 161 | ||||||
Net
cash provided by financing activities
|
4,059 | 175,671 | ||||||
NET
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
(697 | ) | 8,173 | |||||
Cash
and cash equivalents at beginning of period
|
25,333 | 17,010 | ||||||
Cash
and cash equivalents at end of period
|
$ | 24,636 | $ | 25,183 | ||||
Supplemental
disclosures of cash flow information:
|
||||||||
Cash
paid during the period for:
|
||||||||
Interest,
net of amounts capitalized
|
$ | 6,216 | $ | 7,146 | ||||
Federal
and state income taxes, net of refunds
|
$ | 17,621 | $ | 15,862 |
1.
|
BASIS
OF PRESENTATION
|
2.
|
SHARE-BASED
COMPENSATION
|
Three
months ended
|
Six
months ended
|
||||
January
31,
2009
|
January
26,
2008
|
January
31,
2009
|
January
26,
2008
|
||
Expected
volatility
|
-
|
32.7%
|
38.1%
|
32.7%
|
|
Dividend
yield
|
-
|
0.0%
|
0.0%
|
0.0%
|
|
Risk
free interest rate
|
-
|
3.1%
|
2.1%
|
3.1%
|
|
Expected
life
|
-
|
3.0
years
|
3.0
years
|
3.0
years
|
3.
|
ACQUISITIONS
|
4.
|
EARNINGS
PER SHARE
|
Three
months ended
|
Six
months ended
|
||||||
(In
thousands)
|
January
31,
2009
|
January
26,
2008
|
January
31,
2009
|
January
26,
2008
|
|||
Basic
weighted average shares outstanding
|
42,821
|
42,676
|
42,803
|
42,645
|
|||
Net
effect of dilutive stock awards based upon the treasury stock
method
|
89
|
|
208
|
128
|
215
|
||
Diluted
weighted average shares outstanding
|
42,910
|
42,884
|
42,931
|
42,860
|
5.
|
FAIR
VALUE MEASUREMENTS OF FINANCIAL
INSTRUMENTS
|
•
|
Level 1 Inputs – Unadjusted quoted prices in
active markets for identical assets or liabilities.
|
•
|
Level 2 Inputs – Inputs other than quoted prices included in
Level 1 that are either directly or indirectly observable through
correlation with market data. These include quoted prices for similar
assets or liabilities in active markets; quoted prices for identical or
similar assets or liabilities in markets that are
not active; and inputs to valuation models or other pricing methodologies
that do not require significant judgment because the inputs used in the
model, such as interest rates and volatility, can be corroborated by
readily observable market
data.
|
•
|
Level 3 Inputs – One or more significant inputs
that are unobservable and supported by little or no market activity, and
that reflect the use of significant management judgment. Level 3 assets
and liabilities include those whose fair value measurements
are determined using pricing models, discounted cash flow methodologies or
similar valuation techniques, and significant management judgment or
estimation.
|
Fair
Value at January 31, 2009
|
|||
Level
1
|
Level
2
|
Level
3
|
|
Description
|
|||
Liabilities
|
|||
Interest
Rate Swap
|
-
|
$3.1
|
-
|
Total
|
-
|
$3.1
|
-
|
6.
|
COMPREHENSIVE
INCOME
|
7.
|
BUSINESS
SEGMENTS
|
Wholesale
|
Other
|
Eliminations
|
Unallocated
Expenses
|
Consolidated
|
||||||||||||||||
Three
months ended January 31, 2009:
|
||||||||||||||||||||
Net
sales
|
$ | 833,223 | $ | 32,459 | $ | (18,047 | ) | $ | 847,635 | |||||||||||
Operating
income (loss)
|
28,907 | (5,000 | ) | 1,946 | 25,853 | |||||||||||||||
Interest
expense
|
$ | 3,200 | 3,200 | |||||||||||||||||
Interest
income
|
(92 | ) | (92 | ) | ||||||||||||||||
Other,
net
|
196 | 196 | ||||||||||||||||||
Income
before income taxes
|
22,549 | |||||||||||||||||||
Depreciation
and amortization
|
6,178 | 741 | 6,919 | |||||||||||||||||
Capital
expenditures
|
5,011 | 586 | 5,597 | |||||||||||||||||
Goodwill
|
149,982 | 16,489 | 166,471 | |||||||||||||||||
Total
assets
|
995,859 | 135,168 | (7,099 | ) | 1,123,928 | |||||||||||||||
Three
months ended January 26, 2008:
|
||||||||||||||||||||
Net
sales
|
$ | 819,278 | $ | 31,122 | $ | (19,744 | ) | $ | 830,656 | |||||||||||
Operating
income (loss)
|
20,333 | (433 | ) | (328 | ) | 19,572 | ||||||||||||||
Interest
expense
|
$ | 5,059 | 5,059 | |||||||||||||||||
Interest
income
|
(153 | ) | (153 | ) | ||||||||||||||||
Other,
net
|
6 | 6 | ||||||||||||||||||
Income
before income taxes
|
14,660 | |||||||||||||||||||
Depreciation
and amortization
|
5,196 | 286 | 5,482 | |||||||||||||||||
Capital
expenditures
|
8,700 | 142 | 8,842 | |||||||||||||||||
Goodwill
|
164,098 | 15,871 | 179,969 | |||||||||||||||||
Total
assets
|
943,336 | 129,962 | (8,669 | ) | 1,064,629 |
Wholesale
|
Other
|
Eliminations
|
Unallocated
Expenses
|
Consolidated
|
||||||||||||||||
Six
months ended January 31, 2009:
|
||||||||||||||||||||
Net
sales
|
$ | 1,682,948 | $ | 68,478 | $ | (39,555 | ) | $ | 1,711,871 | |||||||||||
Operating
income (loss)
|
57,677 | (7,737 | ) | 959 | 50,899 | |||||||||||||||
Interest
expense
|
$ | 6,611 | 6,611 | |||||||||||||||||
Interest
income
|
(343 | ) | (343 | ) | ||||||||||||||||
Other,
net
|
147 | 147 | ||||||||||||||||||
Income
before income taxes
|
44,484 | |||||||||||||||||||
Depreciation
and amortization
|
12,201 | 1,087 | 13,288 | |||||||||||||||||
Capital
expenditures
|
15,020 | 1,992 | 17,012 | |||||||||||||||||
Goodwill
|
149,982 | 16,489 | 166,471 | |||||||||||||||||
Total
assets
|
995,859 | 135,168 | (7,099 | ) | 1,123,928 | |||||||||||||||
Six
months ended January 26, 2008:
|
||||||||||||||||||||
Net
sales
|
$ | 1,544,007 | $ | 62,900 | $ | (39,862 | ) | $ | 1,567,045 | |||||||||||
Operating
income (loss)
|
43,393 | 841 | (457 | ) | 43,777 | |||||||||||||||
Interest
expense
|
$ | 7,950 | 7,950 | |||||||||||||||||
Interest
income
|
(332 | ) | (332 | ) | ||||||||||||||||
Other,
net
|
75 | 75 | ||||||||||||||||||
Income
before income taxes
|
36,084 | |||||||||||||||||||
Depreciation
and amortization
|
9,578 | 582 | 10,160 | |||||||||||||||||
Capital
expenditures
|
21,048 | 418 | 21,466 | |||||||||||||||||
Goodwill
|
164,098 | 15,871 | 179,969 | |||||||||||||||||
Total
assets
|
943,336 | 129,962 | (8,669 | ) | 1,064,629 |
8.
|
NEW
ACCOUNTING PRONOUNCEMENTS
|
|
·
|
our
wholesale division, which includes our broadline natural and organic
distribution business, our specialty distribution business, Albert’s
Organics, Inc., which is a leading distributor of organically grown
produce and perishable items, and Select Nutrition, which distributes
vitamins, minerals and supplements;
|
|
·
|
our
retail division, consisting of the Natural Retail Group, which operates
our 13 natural products retail stores;
and
|
|
·
|
our
manufacturing division, which is comprised of Hershey Import Company, Inc.
(“Hershey Imports”), which specializes in the international importation,
roasting and packaging of nuts, dried fruit, seeds, trail mixes, natural
and organic products, and confections, and our Blue Marble branded product
lines.
|
|
·
|
expand
our marketing and customer service programs across
regions;
|
|
·
|
expand
our national purchasing
opportunities;
|
|
·
|
offer
a broader product selection;
|
|
·
|
consolidate
systems applications among physical locations and
regions;
|
|
·
|
increase
our investment in people, facilities, equipment and
technology;
|
|
·
|
integrate
administrative and accounting functions;
and
|
|
·
|
reduce
geographic overlap between regions.
|
Three
months ended
|
Six
months ended
|
||||||
January
31,
|
January
26,
|
January
31,
|
January
26,
|
||||
2009
|
2008
|
2009
|
2008
|
||||
Net
sales
|
100.0%
|
100.0%
|
100.0%
|
100.0%
|
|||
Cost
of sales
|
80.9%
|
81.4%
|
80.7%
|
81.5%
|
|||
Gross
profit
|
19.1%
|
18.6%
|
19.3%
|
18.5%
|
|||
Operating
expenses
|
16.0%
|
16.3%
|
16.2%
|
15.7%
|
|||
Amortization
of intangible assets
|
0.1%
|
0.0%
|
0.1%
|
0.0%
|
|||
Total
operating expenses
|
16.1%
|
16.3%
|
16.3%
|
15.7%
|
|||
Operating
income
|
3.1%*
|
2.4%*
|
3.0%
|
2.8%
|
|||
Other
expense (income):
|
|||||||
Interest
expense
|
0.4%
|
0.6%
|
0.4%
|
0.5%
|
|||
Interest
income
|
0.0%
|
0.0%
|
0.0%
|
0.0%
|
|||
Other,
net
|
0.0%
|
0.0%
|
0.0%
|
0.0%
|
|||
Total
other expense
|
0.4%
|
0.6%
|
0.4%
|
0.5%
|
|||
Income
before income taxes
|
2.7%
|
1.8%
|
2.6%
|
2.3%
|
|||
Provision
for income taxes
|
1.1%
|
0.7%
|
1.0%
|
0.9%
|
|||
Net
income
|
1.6%
|
1.1%
|
1.6%
|
1.4%
|
Customer
type
|
Percentage of Net
Sales
|
|
2009
|
2008
|
|
Independently
owned natural products retailers
|
41%
|
41%
|
Supernatural
chains
|
34%
|
33%
|
Conventional
supermarkets
|
20%
|
22%
|
Other
|
5%
|
4%
|
Customer
type
|
Percentage of Net
Sales
|
|
2009
|
2008
|
|
Independently
owned natural products retailers
|
42%
|
42%
|
Supernatural
chains
|
33%
|
34%
|
Conventional
supermarkets
|
20%
|
20%
|
Other
|
5%
|
4%
|
(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.
|
(b)
|
Changes in internal
controls. There has been no change in our internal
control over financial reporting that occurred during the first fiscal
quarter of 2009 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial
reporting.
|
|
·
|
difficulties
with the collectability of accounts
receivable;
|
|
·
|
difficulties
with inventory control;
|
|
·
|
competitive
pricing pressures; and
|
|
·
|
unexpected
increases in fuel or other transportation-related
costs.
|
|
·
|
maintaining
the customer base;
|
|
·
|
optimizing
delivery routes;
|
|
·
|
coordinating
administrative, distribution and finance functions;
and
|
|
·
|
integrating
management information systems and
personnel.
|
|
·
|
demand
for natural products;
|
|
·
|
changes
in our operating expenses, including in fuel and insurance
expenses;
|
|
·
|
management’s
ability to execute our business and growth
strategies;
|
|
·
|
general
economic conditions;
|
|
·
|
changes
in customer preferences, including levels of enthusiasm for health,
fitness and environmental issues;
|
|
·
|
fluctuation
of natural product prices due to competitive
pressures;
|
|
·
|
personnel
changes;
|
|
·
|
supply
shortages, including a lack of an adequate supply of high-quality
agricultural products due to poor growing conditions, natural disasters or
otherwise;
|
|
·
|
volatility
in prices of high-quality agricultural products resulting from poor
growing conditions, natural disasters or otherwise;
and
|
|
·
|
future
acquisitions, particularly in periods immediately following the
consummation of such acquisition transactions while the operations of the
acquired businesses are being integrated into our
operations.
|
|
·
|
our
products are subject to inspection by the U.S. Food and Drug
Administration;
|
|
·
|
our
warehouse and distribution facilities are subject to inspection by the
U.S. Department of Agriculture and state health authorities;
and
|
|
·
|
our
trucking operations are regulated by the U.S. Department of Transportation
and the U.S. Federal Highway
Administration.
|
Name
|
Votes
“FOR”
|
Votes
“WITHHELD”
|
Michael
S. Funk
|
36,857,023
|
1,912,181
|
James
P. Heffernan
|
38,018,977
|
750,227
|
Steven
L. Spinner
|
36,283,378
|
2,485,826
|
Exhibit No.
|
Description
|
10.62*
|
Performance
Unit Agreement between Steven L. Spinner and the Registrant, effective
November 5, 2008.
|
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
|
UNITED
NATURAL FOODS, INC.
|
|
/s/ Mark E.
Shamber
|
|
Mark
E. Shamber
|
|
Chief
Financial Officer
|
|
(Principal
Financial and Accounting Officer)
|