UNITED NATURAL FOODS INC (UNFI)
10-K
Annual report pursuant to section 13 and 15(d)
Filed on 09/26/2012
Filed Period 07/28/2012
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 28, 2012
or
For the transition period from to
Commission File Number: 0-21531
UNITED NATURAL FOODS, INC.
(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.)
313 Iron Horse Way, Providence, RI 02908
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code:
(401) 528-8634
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.01 per share
Name of each exchange on which registered
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý
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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large
accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ý
Non-accelerated Filer o (Do not check if a smaller reporting company)
Accelerated Filer o
Smaller Reporting Company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ý
The aggregate market value of the common stock held by non-affiliates of the registrant was $2,172,850,421 based upon the closing price of the registrant's common stock on the Nasdaq
Global Select Market® on January 27, 2012. The number of shares of the registrant's common stock, par value $0.01 per share, outstanding as of September 6, 2012 was 49,015,833.
Table of Contents
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on December 12, 2012 are incorporated herein by
reference into Part III of this Annual Report on Form 10-K.
UNITED NATURAL FOODS, INC.
FORM 10-K
TABLE OF CONTENTS
Section
Part I
Item 1.
Business
Executive Officers of the Registrant
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
Part II
Item 5.
Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Item 6.
Selected Financial Data
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Part IV
Item 15. Exhibits and Financial Statement Schedules
Signatures
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ITEM 1. BUSINESS
PART I.
Unless otherwise specified, references to "United Natural Foods," "we," "us," "our" or "the Company" in this Annual Report on Form 10-K ("Annual
Report" or "Report") mean United Natural Foods, Inc. and all entities included in our consolidated financial statements. See the consolidated financial
statements and notes thereto included in "Item 8. Financial Statements and Supplementary Data" of this Report for information regarding our financial
performance.
Overview
We believe we are the leading distributor based on sales of natural, organic and specialty foods and non-food products in the United States and Canada,
and that our twenty-six distribution centers, representing approximately 6.2 million square feet of warehouse space, provide us with the largest capacity of any
North American-based distributor in the natural, organic and specialty products industry. We offer more than 65,000 high-quality natural, organic and
specialty foods and non-food products, consisting of national, regional and private label brands in six product categories: grocery and general merchandise,
produce, perishables and frozen foods, nutritional supplements and sports nutrition, bulk and foodservice products and personal care items. We serve more
than 23,000 customer locations primarily located across the United States and Canada which can be classified as follows:
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independently owned natural products retailers, which include buying clubs;
supernatural chains, which consist solely of Whole Foods Market, Inc. ("Whole Foods Market");
conventional supermarkets and mass market chains; and
other, which includes foodservice and international customers outside of Canada.
We were the first organic food distribution network in the United States designated as a "Certified Organic Distributor" by Quality Assurance
International, Inc. ("QAI"), an organic certifying agency accredited by the United States Department of Agriculture ("USDA"). This process involved a
comprehensive review by QAI of our operating and purchasing systems and procedures. This certification covers all of our broadline distribution centers in
the United States, except our primarily specialty products distribution center in Leicester, Massachusetts. Four of our Canadian distribution centers are
certified organic by either QAI or Ecocert Canada, while the remaining Canadian distribution center sells only Kosher foods and is therefore not certified
organic.
Since the formation of our predecessor in 1976, we have grown our business both organically and through acquisitions which have expanded our
distribution network, product selection and customer base. Since fiscal 2002, our net sales have increased at a compounded annual growth rate ("CAGR") of
16.1%. 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; our efforts to increase the number of conventional supermarket customers to whom we distribute products; increased market share through our high-
quality service and broader product selection, including specialty products, and the acquisition of, or merger with, natural organic, and specialty product
distributors; the expansion of our existing distribution centers; the construction of new distribution centers; the introduction of new products and the
development of our own line of natural and organic branded products. Through these efforts, we believe that we have broadened our geographic penetration,
expanded our customer base, enhanced and diversified our product selection and increased our market share.
We have been the primary distributor to Whole Foods Market for more than fourteen years. Effective June 2010, we amended our distribution agreement
with Whole Foods Market to extend the term of the agreement for an additional seven years. Under the terms of the amended agreement, we will continue to
serve as the primary wholesale natural grocery distributor to Whole Foods Market in
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its United States regions where we were serving as the primary distributor at the time of the amendment. The amendment extended the expiration date of the
agreement from September 25, 2013 to September 25, 2020. On July 28, 2010, we announced that we had entered into an asset purchase agreement under
which we agreed to acquire certain assets of Whole Foods Market Distribution, Inc. ("Whole Foods Distribution"), a wholly owned subsidiary of Whole
Foods Market, previously used for their self-distribution of non-perishables in their Rocky Mountain and Southwest regions, and to become the primary
distributor in these regions. We closed this transaction in late September 2010 in the case of the Southwest region and early October 2010 in the case of the
Rocky Mountain region. We now serve as the primary distributor to Whole Foods Market in all of its regions in the United States, and have amended our
distribution agreement with Whole Foods Market effective October 11, 2010 to include these regions.
In June 2010, we acquired certain Canadian food distribution assets (the "SDG assets") of the SunOpta Distribution Group business ("SDG") of
SunOpta Inc. ("SunOpta"), through our wholly-owned subsidiary, UNFI Canada, Inc. ("UNFI Canada") for cash consideration of $65.8 million. With the
acquisition, we became the largest distributor of natural, organic and specialty foods, including kosher foods, in Canada. This was a strategic acquisition as
UNFI Canada provided us with an immediate platform for growth in the Canadian market. During fiscal 2012, we utilized our UNFI Canada platform to
further expand in the Canadian market, including through our acquisition of substantially all of the assets of a specialty food distribution business in the
Ontario market in November 2011.
The ability to distribute specialty food items (including ethnic, kosher and gourmet) has accelerated our expansion into a number of high-growth business
markets and allowed us to establish immediate market share in the fast-growing specialty foods market. We have now integrated specialty food products and
natural and organic specialty non-food items into most of our broadline distribution centers across the United States and Canada. Due to our expansion into
specialty foods, over the past three fiscal years we have been awarded new business with a number of conventional supermarkets that previously had not done
business with us because we did not distribute specialty products. We believe that the distribution of these products enhances our conventional supermarket
business channel and that our complementary product lines continue to present opportunities for cross-selling.
On June 9, 2011, we entered into an asset purchase agreement with L&R Distributors, Inc. ("L&R Distributors") pursuant to which we agreed to sell our
conventional non-foods and general merchandise lines of business, including certain inventory related to these product lines. This divestiture was completed
in the first quarter of fiscal 2012 and has allowed us to concentrate on our core business of the distribution of natural, organic, and specialty foods and non-
food products. As a result of this divestiture, we recognized a non-cash impairment charge of $5.8 million related to land, building and equipment at our
Harrison, Arkansas facility during the fourth quarter of fiscal 2011. During fiscal 2012, we recognized severance and other expenses related to this divestiture
of approximately $5.1 million. In the fourth quarter of fiscal 2012, we sold the Harrison, Arkansas facility to a third party. See "Our Operating Structure—
Wholesale Division" for further information regarding our distribution business.
We operate thirteen natural products retail stores within the United States, located primarily in Florida (with two locations in Maryland and one in
Massachusetts), through our subsidiary doing business as Earth Origins Market ("Earth Origins"). We also operate one natural products retail store, Drive
Organics, in Vancouver, British Columbia. 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 doing business as Woodstock Farms Manufacturing
specializes in the international importation, roasting, packaging and distribution of nuts, dried fruit, seeds, trail mixes, granola, natural and organic snack
items and confections.
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We are a Delaware corporation based in Providence, Rhode Island, and we conduct business through our various wholly owned subsidiaries. We
operated twenty-six distribution centers at 2012 fiscal year end, and we believe that our approximately 6.2 million square feet of distribution space provide us
with the largest capacity of any distributor of natural, organic and specialty products in the United States or Canada. In April 2012, we entered into a lease for
a new 535,000 square foot facility in Aurora, Colorado to replace our two existing broadline distribution centers and an Albert's Organics, Inc. ("Albert's")
distribution center.
The Natural Products Industry
The natural products industry encompasses a wide range of products including organic and non-organic foods, nutritional, herbal and sports supplements,
toiletries and personal care items, naturally-based cosmetics, natural/homeopathic medicines, pet products and cleaning agents. According to The Natural
Foods Merchandiser, a leading natural products industry trade publication, sales for all types of natural products were $90.8 billion in calendar 2011, a growth
of $8.2 billion or approximately 9.9% from 2010. According to the National Association for the Specialty Food Trade, a leading specialty food industry trade
publication, sales in calendar 2011 were $75.1 billion. We believe the growth rate of the natural products industry has outpaced the growth of the overall
food-at-home industry as a result of the increasing demand by consumers for a healthy lifestyle, food safety and environmental sustainability.
Our Operating Structure
Our operations are comprised of three principal operating divisions. These operating divisions are:
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our wholesale division, which includes our broadline natural, organic and specialty distribution business in the United States; UNFI Canada,
which is our natural, organic and specialty business in Canada; Albert's, which is a leading distributor within the United States of organically
grown produce and non-produce perishable items; and Select Nutrition, which distributes vitamins, minerals and supplements;
our retail division, consisting of Earth Origins, which operates our thirteen natural products retail stores within the United States; and
our manufacturing division, consisting of Woodstock Farms Manufacturing, which specializes in the international importation, roasting,
packaging and distribution of nuts, dried fruit, seeds, trail mixes, granola, natural and organic snack items and confections, and our Blue Marble
Brands product lines.
Wholesale Division
Our broadline distribution business is organized into three regions—our Eastern Region, our Western Region and our Canadian region. We distribute
natural, organic and specialty products in all of our product categories to customers in the Eastern and Midwestern portions of the United States through our
Eastern Region and to customers in the Western and Central portions of the United States through our Western Region. Our Canadian Region distributes
natural, organic and specialty products in all of our product categories to all of our customers in Canada. As of our 2012 fiscal year end, our Eastern Region
operated eight distribution centers, which provided approximately 3.1 million square feet of warehouse space, our Western Region operated nine distribution
centers, which provided approximately 2.5 million square feet of warehouse space and our Canadian Region operated five distribution centers, which
provided approximately 0.3 million square feet of warehouse space.
Through Albert's, we distribute organically grown produce and non-produce perishables, such as organic milk, dressings, eggs, juices, poultry and
various other refrigerated specialty items. Albert's
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operates out of seven distribution centers providing approximately 0.2 million square feet of warehouse space, strategically located in all regions of the United
States, and is designated as a "Certified Organic Distributor" by QAI.
Through Select Nutrition, we distribute more than 14,000 health and beauty aids, vitamins, minerals and supplements from distribution centers in
Pennsylvania and California.
Certain of our distribution centers are shared by multiple operations within our wholesale division.
Retail Division
We operate thirteen natural products retail stores through Earth Origins within the United States, nine of which are located in Florida, two in Maryland
and one in Massachusetts. We also operate a natural products retail store in Vancouver, British Columbia that is reflected within our wholesale division. 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.
We believe our natural products retail stores have a number of advantages over their competitors, including our financial strength and marketing
expertise, the purchasing power resulting from group purchasing by stores within Earth Origins and the breadth of our product selection.
We believe that we benefit from certain advantages in acting as a distributor to our natural products retail stores, including our ability to:
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control the purchases made by these stores;
expand the number of high-growth, high-margin product categories, such as produce and prepared foods, within these stores; and
stay abreast of the trends in the retail marketplace, which enables us to better anticipate and serve the needs of our wholesale customers.
Additionally, as the primary natural products distributor to our retail locations, we realize significant economies of scale and operating and buying
efficiencies. As an operator of natural products retail stores, we also have the ability to test market select products prior to offering them nationally. We can
then evaluate consumer reaction to the product without incurring significant inventory risk. We also are able to test new marketing and promotional programs
within our stores prior to offering them to our wholesale customer base.
Manufacturing Division
Our subsidiary, Woodstock Farms Manufacturing, specializes in the international importation, roasting, packaging and distribution of nuts, dried fruit,
seeds, trail mixes, granola, natural and organic snack items and confections. We sell these items in bulk and through private label packaging arrangements
with large health food, supermarket and convenience store chains and independent owners. We operate an organic (USDA and QAI) and kosher (Circle
K) certified packaging, roasting, and processing facility in New Jersey.
Our Blue Marble Brands product lines address certain needs or preferences of customers of our wholesale division, which are not otherwise being met by
other suppliers. We carry over 15 brand names, representing over 600 unique products. Our Blue Marble Brands products are sold through our wholesale
division, through third-party distributors in the natural, organic and specialty industry and directly to retailers. Our Field Day® brand is only sold to customers
in our independent natural products retailer channel (or "independent retailers"), and is meant to serve as a private label brand for independent retailers to
allow them to compete with conventional supermarkets which often have their own private label store brands.
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Our Competitive Strengths
We believe we distinguish ourselves from our competitors through the following strengths:
We are the market leader with a nationwide presence in the United States and Canada.
We believe that we are the largest distributor of natural, organic and specialty foods and non-food products by sales in the United States and Canada, and
one of the few distributors capable of meeting the natural, organic and specialty product needs of local and regional customers, conventional supermarket
chains, and the rapidly growing supernatural chain. The opening of our facility in Lancaster, Texas in September 2010 marked the extension of our
distribution presence to a nation-wide level. We believe that our network of twenty-six distribution centers (including five in Canada) creates significant
advantages over smaller and regional distributors. Our nationwide presence across the United States and Canada allows us to offer marketing and customer
service programs across regions, offer a broader product selection and provide operational excellence with high service levels and same day or next day on-
time deliveries.
We are an efficient distributor.
We believe that our scale affords us significant benefits within a highly fragmented industry including volume purchasing opportunities and warehouse
and distribution efficiencies. Our continued growth has allowed us to expand our existing facilities and open new facilities as we seek to achieve maximum
operating efficiencies, including reduced fuel and other transportation costs, and has created sufficient capacity for future growth. Recent efficiency
improvements include the centralization of general and administrative functions, the consolidation of systems applications among physical locations and
regions and the optimization of customer distribution routes, all of which reduced expenses. We have made significant investments in our people, facilities,
equipment and technology to broaden our footprint and enhance the efficiency of our operations. Key examples in the last three years include the following:
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In September 2009, we commenced operations of a new facility in Charlotte, North Carolina serving Albert's customers in North Carolina, South
Carolina, Georgia, Tennessee and Virginia.
In connection with the acquisition of the SDG assets in June 2010, we acquired five distribution centers which provided a nationwide presence in
Canada with approximately 286,000 square feet of distribution space and the ability to serve all major markets in Canada.
In September 2010, we commenced operations at a new facility in Lancaster, Texas serving customers throughout the Southwestern United
States, including Texas, Oklahoma, New Mexico, Arkansas and Louisiana.
In October 2010 we began operating the former Whole Foods Distribution center in Aurora, Colorado.
During July 2011 we completed the integration of specialty food products into our nationwide platform.
Finally, in April 2012 we signed the lease for a new 535,000 square foot facility in Aurora, Colorado in order to consolidate all Aurora operations
into one building, which is expected to become operational in the summer of 2013.
We have extensive and long-standing customer relationships and provide superior service.
Throughout the 36 years of our, and our predecessors' operations, we have developed long-standing customer relationships, which we believe are among
the strongest in our industry. In particular, we have been the primary supplier of natural and organic products to the largest
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supernatural chain in the United States, Whole Foods Market, for more than 14 years. A key driver of our strong customer loyalty is our superior service
levels, which include accurate fulfillment of orders, timely product delivery, competitive prices and a high level of product marketing support. Our average
distribution in-stock service level for fiscal 2012, measured as the percentage of items ordered by customers that are delivered by the requested delivery date
(excluding manufacturer out-of-stocks and discontinued items), was approximately 98%. We believe that our high distribution service levels are attributable
to our experienced purchasing departments and sophisticated warehousing, inventory control and distribution systems. Furthermore, we offer next-day
delivery service to a majority of our active customers and offer multiple deliveries each week to our largest customers, which we believe differentiates us
from many of our competitors.
We have an experienced, motivated management team and employee base.
Our management team has extensive experience in the retail and distribution business, including the natural, organic and specialty product industries. On
average, each of our eleven executive officers has over nineteen years of experience in the retail, natural products or food distribution industry. In addition, we
believe our employee base is highly motivated as our Employee Stock Ownership Trust beneficially owns approximately 4.2% of our outstanding common
stock. Furthermore, a significant portion of our management-level employees' compensation is equity based or performance based, and, therefore, there is a
substantial incentive to continue to generate strong growth in operating results in the future.
Our Growth Strategy
We seek to maintain and enhance our position within the natural and organic industry in the United States and Canada and to increase our market share
in the specialty products industry. Since our formation, we have grown our business organically and through the acquisition of a number of distributors and
suppliers, which has expanded our distribution network, product selection and customer base. For example, we acquired our Albert's, Earth Origins,
Woodstock Farms Manufacturing, and specialty businesses, and during fiscal 2010, we acquired the assets that comprise UNFI Canada.
Beginning in fiscal 2009, our strategic plan has focused on increasing market share, particularly in our conventional supermarket channel. This channel
typically generates lower gross margins than our independent retailer channel, but also typically has lower operating expenses. Our strategic plan also includes
the roll-out of a national warehouse management and procurement system upgrade, which was launched in our Lancaster, Texas distribution center in
September 2010 and subsequently implemented in our Ridgefield, Washington distribution center in July 2012. We expect this system to be rolled out in all of
our distribution centers by the end of fiscal 2015. These steps and others are intended to promote operational efficiencies and further reduce our operating
expenses to offset the lower gross margins associated with increased sales to the conventional supermarket and supernatural channels.
To implement our growth strategy, we intend to continue increasing our leading market share of the growing natural and organic products industry by
expanding our customer base, increasing our share of existing customers' business and continuing to expand and further penetrate new distribution territories.
We plan to expand our presence within the specialty industry by offering new and existing customers a single wholesale distributor capable of meeting their
specialty and natural and organic product needs on a national or regional basis. Key elements of our strategy include:
Expanding Our Customer Base
As of July 28, 2012, we served more than 23,000 customer locations primarily in the United States and Canada. We plan to expand our coverage of the
highly fragmented natural and organic and specialty products industry by cultivating new customer relationships within the industry and by further
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developing our existing channels of distribution, such as independent natural products retailers, conventional supermarkets, mass market outlets, institutional
foodservice providers, buying clubs and gourmet stores. With the coordinated distribution of our specialty products with our natural and organic products,
which commenced with the integration of our York, Pennsylvania facility in April 2009, we believe that we have the opportunity to continue gaining market
share in the conventional supermarket channel as the result of our ability to offer an integrated and efficient distribution solution for our customers. In fiscal
2010 we gained new business from a number of conventional supermarket customers, including Giant-Landover, Shop-Rite and Kings, partially as a result of
our complementary product selection. In part as a result of our product breadth, in fiscal 2011 we were awarded new business from several other conventional
supermarket customers, including Giant Eagle and Safeway. We began shipping to Safeway nationally in October 2011.
Increasing Our Market Share of Existing Customers' Business
We believe that we are the primary distributor of natural and organic products to the majority of our natural products customer base, including to Whole
Foods Market, our largest customer. We intend to maintain our position as the primary supplier for a majority of our customers, and to add to the number of
customers for which we serve as primary supplier by offering the broadest product selection in our industry at competitive prices. With the expansion of
specialty product offerings, we believe that we have the ability to further meet our existing customers' needs for specialty foods and non-food products,
representing an opportunity to accelerate our sales growth within the conventional supermarket, supernatural and independent channels.
Continuing to Improve the Efficiency of Our Nationwide Distribution Network
We have invested approximately $211 million in our distribution network and infrastructure over the past five fiscal years. We achieved a nationwide
footprint in September 2010 with the opening of our facility in Lancaster, Texas. Our Lancaster facility was the first facility to use our national supply chain
platform and warehouse management system and our Ridgefield, Washington facility began using this system in July 2012. We plan to implement this system
throughout our network by the end of fiscal 2015 which we believe will further enhance the efficiency of our network. Although our distribution network
services all markets in the United States and Canada, we intend to continue to selectively evaluate opportunities to build or lease new facilities or to acquire
distributors to better serve existing markets, such as our new lease for a 535,000 square foot facility in Aurora, Colorado which is expected to become
operational in the summer of 2013 and will consolidate three existing distribution centers.
Further, we will strive to continue to maintain our focus on realizing efficiencies and economies of scale in purchasing, warehousing, transportation and
general and administrative functions, which, combined with incremental fixed cost leverage, should lead to continued improvements in our operating margin.
Expanding into Other Distribution Channels and Geographic Markets
We believe that we will be successful in expanding into the foodservice channel as well as further enhancing our presence outside of the United States
and Canada. We will continue to seek to develop regional relationships and alliances with companies such as Aramark Corporation, the Compass Group
North America, and Sodexho Inc. in the foodservice channel and seek other alliances outside the United States and Canada.
Continuing to Selectively Pursue Opportunistic Acquisitions
Throughout our history, we have successfully identified, consummated and integrated multiple acquisitions. Since 2000, we have successfully completed
ten acquisitions of distributors, manufacturers
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and suppliers, two acquisitions of natural products retail stores and eleven acquisitions of branded product lines as of July 28, 2012. Subsequent to the end of
the 2012 fiscal year, we completed three additional acquisitions of small distributors, which will be folded into our existing operations. We intend to continue
to selectively pursue opportunistic acquisitions to expand the breadth of our distribution network, increase our efficiency or add additional products and
capabilities.
Continuing to Provide the Leading Distribution Solution
We believe that we provide the leading distribution solution to the natural, organic and specialty products industry through our national presence,
regional preferences, focus on customer service and breadth of product offerings. Our service levels, which we believe to be the highest in our industry, are
attributable to our experienced purchasing departments and our sophisticated warehousing, inventory control and distribution systems. See "—Our Focus on
Technology" below for more information regarding our use of technology in our warehousing, inventory control and distribution systems.
We also offer our customers a selection of inventory management, merchandising, marketing, promotional and event management services designed to
increase sales and enhance customer satisfaction. These marketing services, which primarily are utilized by customers in our independently owned natural
products retailers channel and many of which are co-sponsored with suppliers, include monthly and thematic circular programs, in-store signage and
assistance in product display.
Our Customers
We maintain long-standing customer relationships with independently-owned natural products retailers, supernatural chains and supermarket chains. In
addition, we emphasize our relationships with new customers, such as conventional supermarkets, mass market outlets and gourmet stores, which are
continually increasing their natural product offerings. The following were included among our wholesale customers for fiscal 2012:
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Whole Foods Market, the largest supernatural chain in the United States and Canada; and
conventional supermarket chains, including Safeway, Kroger, Wegmans, Haggen, Stop & Shop, Giant-Landover, Giant Eagle, Hannaford, Food
Lion, Bashas', Shop-Rite, Rainbow, Lowe's, Kings, Publix and Fred Meyer.
Whole Foods Market is our only customer that represented more than 10% of total net sales in fiscal 2012, and accounted for approximately 36% of our
net sales. In October 2006, we announced a seven-year distribution agreement with Whole Foods Market, which commenced on September 26, 2006. In June
2010 we amended our distribution agreement with Whole Foods Market to extend the term of the agreement for an additional seven years. Under the terms of
the amended agreement, we will continue to serve as the primary wholesale natural grocery distributor to Whole Foods Market in its United States regions
where we currently serve as the primary distributor. The amendment extended the expiration date of the agreement from September 25, 2013 to September 25,
2020.
On July 28, 2010, we announced that we had entered into an asset purchase agreement under which we agreed to acquire certain assets of Whole Foods
Distribution previously used for their self-distribution of non-perishables in their Rocky Mountain and Southwest regions, and to become the primary
distributor in these regions. We closed this transaction in late September 2010 in the case of the Southwest region and early October 2010 in the case of the
Rocky Mountain region. We now serve as the primary distributor to Whole Foods Market in all of its regions in the United States, and have amended our
distribution agreement with Whole Foods Market effective October 11, 2010 to include these regions.
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The following table lists the percentage of sales by customer type for the fiscal years ended July 28, 2012, July 30, 2011 and July 31, 2010:
Customer Type
Independently owned natural products retailers
Supernatural chains
Conventional supermarkets and mass market chains
Other
Percentage of Net Sales
2012
2011
2010
35%
36%
24%
5%
37%
36%
22%
5%
40%
35%
21%
4%
We distribute natural, organic and specialty foods and non-food products to customers located in the United States and Canada, as well as to customers
located in other foreign countries. Our total international sales, including those by UNFI Canada, represented approximately five percent of our business in
both fiscal 2012 and 2011. We believe that our sales outside the United States, as a percentage of our total sales, will expand as we seek to grow our Canadian
operations.
Our Marketing Services
We offer a variety of marketing services designed to increase sales for our customers and suppliers, including consumer and trade marketing programs,
as well as programs to support suppliers in understanding our markets. Trade and consumer marketing programs are supplier-sponsored programs which cater
to a broad range of retail formats. These programs are designed to educate consumers, profile suppliers and increase sales for retailers, many of which do not
have the resources necessary to conduct such marketing programs independently.
Our consumer marketing programs include:
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multiple monthly, region-specific, consumer circular programs, which feature the logo and address of the participating retailer imprinted on a
circular that advertises products sold by the retailer to its customers. The monthly circular programs are structured to pass through the benefit of
our negotiated discounts and advertising allowances to the retailer, and also provide retailers with posters and shelf tags to coincide with each
month's promotions. We also offer a web-based tool which retailers can use to produce highly customized circulars and other marketing materials
for their stores.
quarterly coupon programs featuring supplier sponsored coupons, for display and distribution by participating retailers.
themed "Celebration" sales and educational brochures to drive sales and educate consumers. Brochures are imprinted with participating retailers'
store logo and information.
a truck advertising program that allows our suppliers to purchase ad space on the sides of our hundreds of trailers traveling throughout the United
States and Canada, increasing brand exposure to consumers.
Our trade marketing programs include:
•
•
•
•
wholesale tri-annual catalogs, which serve as a primary reference guide and ordering tool for retailers.
a website for retailers with category management tools, retail staff development resources and other resources designed to help our customers
succeed.
a variety of programs designed to feature suppliers and generate volume sales.
monthly specials catalogs that highlight promotions and new product introductions.
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•
specialized catalogs for holiday promotions and to serve other customer needs.
Our supplier marketing programs include:
•
•
•
SIS, an information-sharing program that helps our suppliers better understand our customers' businesses, in order to generate mutually beneficial
incremental sales in an efficient manner.
ClearVue, an information sharing program designed to improve the transparency of information and drive efficiency within the supply chain.
With the availability of in-depth data and tailored reporting tools, participants are able to reduce inventory balances with the elimination of
forward buys, while improving service levels.
Growth Incentive programs, supplier-focused high-level sales and marketing support for selected brands, which foster our partnership by
building incremental, mutually profitable sales for suppliers and us.
We keep current with the latest trends in the industry. Periodically, we conduct focus group sessions with certain key retailers and suppliers to ascertain
their needs and allow us to better service them. We also:
•
•
•
•
•
•
•
•
produce a quarterly report of trends in the natural and organic industry;
offer in-store signage and promotional materials, including shopping bags and end-cap displays;
provide assistance with planning and setting up product displays;
provide shelf tags for products;
provide assistance with store layout designs; new store design and equipment procurement;
provide planogramming, shelf and category management support;
provide product data information such as best seller lists, store usage reports and easy-to-use product catalogs; and
provide a website on which retailers can access various individual retailer-specific reports and product information.
Our Products
Our extensive selection of high-quality natural, organic and specialty foods and non-food products enables us to provide a primary source of supply to a
diverse base of customers whose product needs vary significantly. We offer more than 65,000 high-quality natural, organic and specialty foods and non-food
products, consisting of national brand, regional brand, private label and master distribution products, in six product categories: grocery and general
merchandise, produce, perishables and frozen foods, nutritional supplements and sports nutrition, bulk and food service products and personal care items. Our
branded product lines address certain needs or preferences of our customers, which in certain cases are not otherwise being met by other suppliers.
We continuously evaluate potential new private branded and other products based on both existing and anticipated trends in consumer preferences and
buying patterns. Our buyers regularly attend regional and national natural, organic, specialty, ethnic and gourmet product shows to review the latest products
that are likely to be of interest to retailers and consumers. We also actively solicit suggestions for new products from our customers. We make the majority of
our new product decisions at the regional level. We believe that our purchasing practices allow our regional buyers to react quickly to changing consumer
preferences and to evaluate new products and new product categories regionally. Additionally, many of the new products that we offer are marketed on a
regional basis or in our own natural products retail stores prior to being offered nationally, which enables us to evaluate local
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consumer reaction to the products without incurring significant inventory risk. Furthermore, by exchanging regional product sales information between our
regions, we are able to make more informed and timely new product decisions in each region.
We maintain a comprehensive quality assurance program. All of the products we sell that are represented as "organic" are required to be certified as such
by an independent third-party agency. We maintain current certification affidavits on all organic commodities and produce in order to verify the authenticity
of the product. All potential suppliers of organic products are required to provide such third-party certifications to us before they are approved as suppliers.
Our Suppliers
We purchase our products from more than 4,800 suppliers. The majority of our suppliers are based in the United States and Canada, but we also source
products from suppliers throughout Europe, Asia, Central America, South America, Africa and Australia. We believe suppliers of natural and organic
products seek to distribute their products through us because we provide access to a large and growing customer base across the United States and Canada,
distribute the majority of the suppliers' products and offer a wide variety of marketing programs to our customers to help sell the suppliers' products.
Substantially all product categories that we distribute are available from a number of suppliers and, therefore, we are not dependent on any single source of
supply for any product category. Our largest supplier, Hain Celestial Group, Inc. ("Hain"), accounted for approximately 6% of our total purchases in fiscal
2012. However, the product categories we purchase from Hain can be purchased from a number of other suppliers. In addition, although we have exclusive
distribution arrangements and vendor support programs with several suppliers, none of our suppliers account for more than 10% of our total purchases.
We have positioned ourselves as the largest purchaser of organically grown bulk products in the natural and organic products industry by centralizing our
purchase of nuts, seeds, grains, flours and dried foods. As a result, we are able to negotiate purchases from suppliers on the basis of volume and other
considerations that may include discounted pricing or prompt payment discounts. Furthermore, many of our purchase arrangements include the right of return
to the supplier with respect to products that we do not sell in a certain period of time. As described under "Our Products" above, each region is responsible for
placing its own orders and can select the products that it believes will most appeal to its customers, although each region is able to participate in our company-
wide purchasing programs. Our outstanding commitments for the purchase of inventory were approximately $24.0 million as of July 28, 2012.
Our Distribution System
We have carefully chosen the sites for our distribution centers to provide direct access to our regional markets. This proximity allows us to reduce our
transportation costs relative to those of our competitors that seek to service these customers from locations that are often several hundreds of miles away. The
opening of our Lancaster, Texas distribution center significantly reduced the miles driven associated with servicing the customers of that facility as many of
those customers were previously serviced from our Aurora, Colorado facility. We believe that we incur lower inbound freight expense than our regional
competitors, because our scale allows us to buy full and partial truckloads of products. When financially advantageous, we backhaul between our distribution
centers and satellite, staging facilities using our own trucks. Additionally, we generally can redistribute overstocks and inventory imbalances between
distribution centers if needed, which helps ensure products are sold prior to their expiration date.
Products are delivered to our distribution centers primarily by our fleet of leased trucks, contract carriers and the suppliers themselves. We lease our
trucks from national leasing companies such as
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Ryder Truck Leasing and Penske Truck Leasing, which in some cases maintain facilities on our premises for the maintenance and service of these vehicles.
Other trucks are leased from regional firms that offer competitive services.
We ship certain orders for supplements or for items that are destined for areas outside of regular delivery routes through United Parcel Service and other
independent carriers. Deliveries to areas outside the continental United States and Canada are typically shipped by ocean-going containers on a weekly basis.
Our Focus on Technology
We have made a significant investment in distribution, financial, information and warehouse management systems. We continually evaluate and upgrade
our management information systems at our regional operations based on the best practices in the distribution industry to make the systems more efficient,
cost-effective and responsive to customer needs. These systems include functionality in radio frequency inventory control, pick-to-voice systems, pick-to-light
systems, computer-assisted order processing and slot locator/retrieval assignment systems. At our receiving docks, warehouse associates attach computer-
generated, preprinted locator tags to inbound products. These tags contain the expiration date, locations, quantity, lot number and other information about the
products in bar code format. Customer returns are processed by scanning the UPC bar codes. We also employ a management information system that enables
us to lower our inbound transportation costs by making optimum use of our own fleet of trucks or by consolidating deliveries into full truckloads. Orders from
multiple suppliers and multiple distribution centers are consolidated into single truckloads for efficient use of available vehicle capacity and return-haul trips.
In addition, we utilize route efficiency software that assists us in developing the most efficient routes for our trucks. We will continue the roll-out of our new
national supply chain platform and warehouse management system, which was first launched in our new Lancaster, Texas facility and is now being
implemented distribution center by distribution center. Most recently, we launched our national supply chain platform and warehouse management system in
our Ridgefield, Washington facility in July 2012. We expect to complete this roll-out by the end of fiscal 2015.
Intellectual Property
We do not own or have the right to use any patent, trademark, trade name, license, franchise, or concession which upon loss would have a material
adverse effect on our results of operations or financial condition.
Competition
Our largest competition comes from direct distribution, whereby a customer reaches a product volume level that justifies distribution directly from the
manufacturer. Our major wholesale distribution competitor in both the United States and Canada is KeHE Distributors, LLC ("Kehe"), which acquired Tree of
Life Distribution, Inc. ("Tree of Life") in January 2010. In addition to its natural and organic products, Kehe distributes specialty food products and markets
its own private label program. Kehe's subsidiary, Tree of Life has also earned QAI certification. We also compete in the United States with over 200 smaller
regional and local distributors of natural, ethnic, kosher, gourmet and other specialty foods that focus on niche or regional markets, and with national, regional
and local distributors of conventional groceries and companies that distribute to their own retail facilities.
We believe that distributors in the natural and specialty products industries primarily compete on distribution service levels, product quality, depth of
inventory selection, price and quality of customer service. We believe that we currently compete effectively with respect to each of these factors.
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Our natural products retail stores compete against other natural products outlets, conventional supermarkets and specialty stores. We believe that retailers
of natural products compete principally on product quality and selection, price, customer service, knowledge of personnel and convenience of location. We
believe that we currently compete effectively with respect to each of these factors.
Government Regulation
Our operations and many of the products that we distribute in the United States are subject to regulation by state and local health departments, the USDA
and the United States Food and Drug Administration, which generally impose standards for product quality and sanitation and are responsible for the
administration of bioterrorism legislation. In the United States, our facilities generally are inspected at least once annually by state or federal authorities.
The Surface Transportation Board and the Federal Highway Administration regulate our trucking operations. In addition, interstate motor carrier
operations are subject to safety requirements prescribed by the United States Department of Transportation and other relevant federal and state agencies. Such
matters as weight and dimension of equipment are also subject to federal and state regulations.
Our operations do not generally subject us to federal, provincial, state and local environmental laws and regulations. However, certain of our distribution
centers have above-ground storage tanks for hydrogen fuel, diesel fuel and other petroleum products, which are subject to laws regulating such storage tanks.
We believe that we are in material compliance with all federal, provincial, state and local laws applicable to our operations.
Employees
As of July 28, 2012, we had approximately 7,000 full and part-time employees, 434 of whom (approximately 6.2%) are covered by collective bargaining
agreements at our Edison, New Jersey, Leicester, Massachusetts, Iowa City, Iowa and Dayville, Connecticut facilities. The Edison, New Jersey, Leicester,
Massachusetts, Iowa City, Iowa and Dayville, Connecticut agreements expire in June 2014, March 2014, June 2014 and July 2014, respectively. We are
currently in mediation with our Auburn, Washington employees in an effort to enter into a new collective bargaining agreement. The employees in this
location have authorized a work stoppage in the event we are unable to come to an agreement; however, we are unable to predict whether or not a work
stoppage will occur. We have never experienced a work stoppage by our unionized employees, and we believe that our relations with our employees are good,
despite the current lack of an agreement with employees in our Auburn, Washington facility.
Seasonality
Generally, we do not experience any material seasonality. However, our sales and operating results may vary significantly from quarter to quarter due to
factors such as changes in our operating expenses, management's ability to execute our operating and growth strategies, personnel changes, demand for
natural products, supply shortages and general economic conditions.
Available Information
Our internet address is http://www.unfi.com. The contents of our website are not part of this Annual Report on Form 10-K, and our internet address is
included in this document as an inactive textual reference only. We make our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K and all amendments to those reports filed or furnished pursuant to
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Section 13(a) or 15(d) of the Exchange Act available free of charge through our website as soon as reasonably practicable after we file such reports with, or
furnish such reports to, the Securities and Exchange Commission.
We have adopted a code of conduct and ethics for certain employees pursuant to Section 406 of the Sarbanes-Oxley Act of 2002. A copy of our code of
conduct and ethics is posted on our website, and is available free of charge by writing to United Natural Foods, Inc., 313 Iron Horse Way, Providence, Rhode
Island, 02908, Attn: Investor Relations.
Executive Officers of the Registrant
Our executive officers are elected on an annual basis and serve at the discretion of our Board of Directors. Our executive officers and their ages as of
September 26, 2012 are listed below:
Position
Age
52 President and Chief Executive Officer
43 Senior Vice President, Chief Financial Officer and Treasurer
61 Senior Vice President, General Counsel, Chief Compliance Officer and Corporate Secretary
53 Senior Vice President, Group President, Supply Chain, Distribution and National Sales
51 Senior Vice President and Chief Information Officer
51 Senior Vice President, Chief Human Resource and Sustainability Officer
53 President of the Eastern Region
57 President of the Western Region
47 Senior Vice President, National Sales and President of UNFI International
56 President of Select Nutrition Distributors and Earth Origins Market
42 President of Blue Marble Brands and Woodstock Farms Manufacturing
Name
Steven L. Spinner
Mark E. Shamber
Joseph J. Traficanti
Sean Griffin
Eric A. Dorne
Thomas A. Dziki
Craig H. Smith
Donald P. McIntyre
David A. Matthews
Thomas Grillea
Christopher P. Testa
Steven L. Spinner has served as our President and Chief Executive Officer and as a member of our Board of Directors since September 2008.
Mr. Spinner served as the Interim President of our Eastern Region, after David Matthews became President of UNFI International in September 2010 and
prior to the hiring of Craig H. Smith in December 2010. Prior to joining us in September 2008, Mr. Spinner served as a director and as Chief Executive
Officer of Performance Food Group Company ("PFG") from October 2006 to May 2008, when PFG was acquired by affiliates of The Blackstone Group and
Wellspring Capital Management. Mr. Spinner previously had served as PFG's President and Chief Operating Officer beginning in May 2005. Mr. Spinner
served as PFG's Senior Vice President and Chief Executive Officer—Broadline Division from February 2002 to May 2005 and as PFG's Broadline Division
President from August 2001 to February 2002.
Mark E. Shamber has served as Senior Vice President, Chief Financial Officer and Treasurer since October 2006. Mr. Shamber previously served as our
Vice President, Chief Accounting Officer and Acting Chief Financial Officer and Treasurer from January 2006 until October 2006, as Vice President and
Corporate Controller from August 2005 to October 2006 and as our Corporate Controller from June 2003 until August 2005. From February 1995 until June
2003, Mr. Shamber served in various positions of increasing responsibility up to and including senior manager within the assurance and advisory business
systems practice at the international accounting firm of Ernst & Young LLP.
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Joseph J. Traficanti has served as our Senior Vice President, General Counsel, Chief Compliance Officer and Corporate Secretary since April 2009.
Prior to joining us, Mr. Traficanti served as Senior Vice President, General Counsel, Chief Compliance Officer and Corporate Secretary of PFG from
November 2004 until April 2009.
Sean Griffin has served as our Senior Vice President, Group President for Supply Chain, Distribution and National Sales since June 2012, and as our
Senior Vice President, National Distribution from January 2010 to June 2012. Prior to joining us, Mr. Griffin was East Region Broadline President of PFG. In
this role he managed over ten divisions and $2 billion in sales. Previously he served as President of PFG—Springfield, MA from 2003 until 2008. He began
his career with Sysco Corporation in 1986 and has held various leadership positions in the foodservice distribution industry with U.S. Foodservice, Alliant
Foodservice and Sysco Corporation.
Eric Dorne has served as our Senior Vice President and Chief Information Officer since September 2011. Prior to joining us, Mr. Dorne was Senior Vice
President and Chief Information Officer for The Great Atlantic & Pacific Tea Company, Inc., the parent company of the A&P, Pathmark, SuperFresh, Food
Emporium and Waldbaum's supermarket chains located in the Eastern United States from January 2011 to August 2011, and Vice President and Chief
Information Officer from August 2005 to January 2011. In his more than thirty years at The Great Atlantic & Pacific Tea Company, Mr. Dorne held various
executive positions including Vice President of Enterprise IT Application Management and Development, Vice President of Store Operations Systems and
Director of Retail Support Services.
Thomas A. Dziki has served as our Senior Vice President, Chief Human Resource and Sustainability Officer since August 2010. Prior to August 2010,
Mr. Dziki served as our Senior Vice President of Sustainable Development since January 2010, as our Vice President of Sustainable Development since June
2009, and as National Vice President of Real Estate and Construction since August 2006. Prior to that time, Mr. Dziki had served as President of Woodstock
Farms Manufacturing and Select Nutrition from December 2004 until August 2006, Corporate Vice President of Special Projects from December 2003 to
November 2004 and as our Manager of Special Projects from May 2002 to December 2003. Prior to joining us, Mr. Dziki served as a private consultant to our
company, our subsidiaries, Woodstock Farms Manufacturing, Earth Origins, Albert's, and our predecessor company, Cornucopia Natural Foods, Inc., from
1995 to May 2002.
Craig H. Smith has served as our President of the Eastern Region since December 2010. Prior to joining us, Mr. Smith was Atlantic Region President of
U.S. Foodservice, a leading broadline foodservice distributor of national, private label, and signature brand items in the United States from May 2008 to
December 2010. In his seventeen years at U.S. Foodservice, Mr. Smith held various executive positions including SVP Street Sales, North Region Zone
President, Detroit Market President and Boston Market President. Prior to U.S. Foodservice, Mr. Smith held several positions at food service industry
manufacturer and distributor Rykoff-Sexton, Inc. from 1982 until 1993.
Donald P. McIntyre has served as our President of the Western Region since July 2012. Prior to joining us, Mr. McIntyre served as President and CEO
of Claridge Foods from March 2006 to January 2012. Mr. McIntyre also held several senior positions within subsidiaries of Sara Lee Corporation, including
President and CEO of Sara Lee Coffee & Tea from April 2004 to March 2006, and CFO of Sara Lee Coffee & Tea from August 2002 to March 2004.
David A. Matthews has served as our Senior Vice President, National Sales since July 2012, and President of UNFI International with responsibility for
our Canadian and other international operations since September 2010. From June 2009 to September 2010 he was our President of the Eastern Region. Prior
to joining us, Mr. Matthews served as President and CEO of Progressive Group Alliance ("ProGroup"), a wholly owned subsidiary of PFG from January 2007
to May 2009, as Chief Financial Officer of ProGroup from December 2004 to January 2007, and as Senior Vice President of Finance and Technology of
ProGroup from July 2000 to December 2004.
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Thomas Grillea has served as our President of Earth Origins Market since May 2008 and President of Select Nutrition Distributors since September
2007. Mr. Grillea also served as our President of Woodstock Farms Manufacturing from May 2009 to September 2012. Mr. Grillea served as our General
Manager for Select Nutrition Distributors from September 2006 to September 2007. Prior to joining us, Mr. Grillea served in a management capacity for
Whole Foods Market from 2004 through 2005, and in various management capacities for American Health and Diet Centers and the Vitamin Shoppe from
1998 through 2003.
Christopher P. Testa has served as our President of Woodstock Farms Manufacturing since September 2012 and President of Blue Marble Brands since
August 2009. Prior to joining us, Mr. Testa served as Vice President of Marketing for Cadbury Schweppes Americas Beverages from August 2002 to May
2005 and as CEO of Wild Waters, Inc. from May 2005 to August 2009.
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ITEM 1A. RISK FACTORS
Our business, financial condition and results of operations are subject to various risks and uncertainties, including those described below and elsewhere
in this Annual Report on Form 10-K. This section discusses factors that, individually or in the aggregate, we think could cause our actual results to differ
materially from expected and historical results. Our business, financial condition or results of operations could be materially adversely affected by any of
these risks.
We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. You should understand that it is not possible to
predict or identify all such factors. Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties
applicable to our business. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Forward-Looking
Statements."
We depend heavily on our principal customer and our success is heavily dependent on our principal customer's ability to grow its business.
Whole Foods Market accounted for approximately 36% of our net sales in fiscal 2012. We serve as the primary distributor of natural, organic and
specialty non-perishable products to Whole Foods Market in all of its regions in the United States under the terms of our amended distribution agreement
which expires on September 25, 2020. Our ability to maintain a close mutually beneficial relationship with Whole Foods Market is an important element to
our continued growth.
The loss or cancellation of business from Whole Foods Market, including from increased distribution to their own facilities or closures of stores, could
materially and adversely affect our business, financial condition or results of operations. Similarly, if Whole Foods Market is not able to grow its business,
including as a result of a reduction in the level of discretionary spending by its customers, our business, financial condition or results of operations may be
materially and adversely affected.
Our operations are sensitive to economic downturns.
The grocery industry is sensitive to national and regional economic conditions and the demand for the products that we distribute, particularly our
specialty products, may be adversely affected from time to time by economic downturns that impact consumer spending, including discretionary spending.
Future economic conditions such as employment levels, business conditions, interest rates, inflation rates, energy and fuel costs and tax rates could reduce
consumer spending or change consumer purchasing habits. Among these changes could be a reduction in the number of natural and organic products that
consumers purchase where there are non-organic, which we refer to as conventional, alternatives, given that many natural and organic products, and
particularly natural and organic foods, often have higher retail prices than do their conventional counterparts.
Our business is a low margin business and our profit margins may decrease due to consolidation in the grocery industry.
The grocery distribution industry generally is characterized by relatively high volume of sales 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 suppliers and retailers. Over the last two fiscal years, we have increased our
sales to our supernatural chain and conventional supermarket customers in relation to our total sales. In the fourth quarter of fiscal 2011, we announced that
we had entered into a three-year distribution arrangement to supply Safeway with nonproprietary natural, organic and specialty products, which will further
increase the percentage of our total sales to conventional supermarkets. Sales to these customers within our supernatural chain and conventional
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supermarket channels generate a lower gross margin than do sales to our independent customers. Many of these customers, including our largest customer,
have agreements with us that include volume discounts. As the amounts these customers purchase from us increase, the price that they pay for the products
they purchase is reduced, putting downward pressure on our gross margins on these sales. To compensate for these lower gross margins, we must reduce the
expenses we incur to service these customers. If we are unable to reduce our expenses, including our expenses related to servicing this lower gross margin
business, our business, financial condition or results of operations could be adversely impacted.
Our business may be sensitive to inflationary and deflationary pressures.
Many of our sales are at prices that are based on our product cost plus a percentage markup. As a result, volatile food costs have a direct impact upon our
profitability. Prolonged periods of product cost inflation may have a negative impact on our profit margins and results of operations to the extent that we are
unable to pass on all or a portion of such product cost increases to our customers. In addition, product cost inflation may negatively impact the consumer
discretionary spending trends of our customers' customers, which could adversely affect our sales. Conversely, because many of our sales are at prices that are
based upon product cost plus a percentage markup, our profit levels may be negatively impacted during periods of product cost deflation even though our
gross profit as a percentage of net sales may remain relatively constant. To compensate for lower gross margins, we, in turn, must reduce expenses that we
incur to service our customers.
Our customers generally are not obligated to continue purchasing products from us.
Many of our customers buy from us under purchase orders, and we generally do not have agreements with or commitments from these 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. Decreases in our customers' sales volumes or orders for products supplied by us may have a
material adverse effect on our business, financial condition or results of operations.
We have significant competition from a variety of sources.
We operate in competitive markets and our future success will be largely dependent on our ability to provide quality products and services at competitive
prices. Bidding for contracts or arrangements with customers, particularly within the supernatural chain and conventional supermarket channels, is highly
competitive and distributors may market their services to a particular customer over a long period of time before they are invited to bid. Our competition
comes from a variety of sources, including other distributors of natural products as well as specialty grocery and mass market grocery distributors and retail
customers that have their own distribution channels. We cannot assure you that mass market grocery distributors will not increase their emphasis on natural
products and more directly compete with us including through self-distribution of particular items or purchases of particular items directly from suppliers or
that new competitors will not enter the market. These distributors may have been in business longer than we have, may have substantially greater financial
and other resources than we have and may be better established in their markets. We cannot assure you that our current or potential competitors will not
provide products or 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 and adversely affect our business, financial condition or results of operations.
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We cannot assure you that we will be able to compete effectively against current and future competitors.
Our investment in information technology may not result in the anticipated benefits.
Much of our sales growth is occurring in our lower gross margin supernatural and conventional supermarket channels. In our attempt to reduce operating
expenses and increase operating efficiencies, we have aggressively invested in the development and implementation of new information technology.
Following the start-up inefficiencies associated with the initial implementation of our technological initiatives in our Lancaster, Texas distribution center
during fiscal 2011, we revised the timeline for the broader implementation of our proposed technological developments and now expect to complete the roll-
out by the end of fiscal 2015. While we currently believe this revised timeline will be met, we may not be able to implement these technological changes in
the time frame that we have planned and delays in implementation could negatively impact our business, financial condition or results of operations. In
addition, the costs to make these changes may exceed our estimates and will exceed the benefits during the early stages of implementation. Even if we are
able to implement the changes in accordance with our revised plans, and within our current cost estimates, we may not be able to achieve the expected
efficiencies and cost savings from this investment, which could have an adverse effect on our business, financial condition or results of operations.
Failure by us to develop and operate a reliable technology platform could negatively impact our business.
Our ability to decrease costs and increase profits, as well as our ability to serve customers most effectively, depends on the reliability of our technology
platform. We use software and other technology systems, among other things, to generate and select orders, to load and route trucks and to monitor and
manage our business on a day-to-day basis. Any disruption to these computer systems could adversely impact our customer service, decrease the volume of
our business and result in increased costs negatively affecting our business, financial condition or results of operations.
We have experienced losses due to the uncollectability of accounts receivable in the past and could experience increases in such losses in the future if
our customers are unable to timely pay their debts to us.
Certain of our customers have from time to time experienced bankruptcy, insolvency and/or an inability to pay their debts to us as they come due. If our
customers suffer significant financial difficulty, they may be unable to pay their debts to us timely or at all, which could have a material adverse effect on our
results of operations. It is possible that customers may reject their contractual obligations to us under bankruptcy laws or otherwise. Significant customer
bankruptcies could further adversely affect our revenues and increase our operating expenses by requiring larger provisions for bad debt. In addition, even
when our contracts with these customers are not rejected, if customers are unable to meet their obligations on a timely basis, it could adversely affect our
ability to collect receivables. Further, we may have to negotiate significant discounts and/or extended financing terms with these customers in such a situation,
each of which could have material adverse effect on our business, financial condition, results of operations or cash flows. During periods of economic
weakness, like those we experienced during fiscal 2009 and the first half of fiscal 2010, small to medium-sized businesses, like many of our independently
owned natural products retailer customers, may be impacted more severely and more quickly than larger businesses. Consequently, the ability of such
businesses to repay their obligations to us may deteriorate, and in some cases this deterioration may occur quickly, which could adversely impact our
business, financial condition or results of operations.
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Our acquisition strategy may adversely affect our business.
A significant portion of our past growth has been achieved through acquisitions of, or mergers with, other distributors of natural, organic and specialty
products. We also continually evaluate opportunities to acquire other companies. We believe that there are risks related to acquiring companies, including an
inability to successfully identify suitable acquisition candidates or consummate such potential acquisitions. To the extent that our future growth includes
acquisitions, we cannot assure you that we will not overpay for acquisitions, lose key employees of acquired companies, or fail to achieve potential synergies
or expansion into new markets as a result of our acquisitions. Therefore, future acquisitions, if any, may have a material adverse effect on our results of
operations, particularly in periods immediately following the consummation of those transactions while the operations of the acquired business are being
integrated with our operations. Achieving the benefits of acquisitions depends on timely, efficient and successful execution of a number of post-acquisition
events, including, among other things:
•
•
•
•
maintaining the customer and supplier base;
optimizing delivery routes;
coordinating administrative, distribution and finance functions; and
integrating management information systems and personnel.
The integration process could divert the attention of management and any difficulties or problems encountered in the transition process could have a
material adverse effect on our business, financial condition or results of operations. In particular, the integration process may temporarily redirect resources
previously focused on reducing product cost, resulting in lower gross profits in relation to sales. In addition, the process of combining companies 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.
In connection with acquisitions of businesses in the future, if any, we may decide to consolidate the operations of any acquired business with our existing
operations or make other changes with respect to the acquired business, which could result in special charges or other expenses. Our results of operations also
may be adversely affected by expenses we incur in making acquisitions, by amortization of acquisition-related intangible assets with definite lives and by
additional depreciation attributable to acquired assets. Any of the businesses we acquire may also have liabilities or adverse operating issues, including some
that we fail to discover before the acquisition, and our indemnity for such liabilities may also be limited. Additionally, our ability to make any future
acquisitions may depend upon obtaining additional financing. We may not be able to obtain additional financing on acceptable terms or at all. To the extent
that we seek to acquire other businesses in exchange for our common stock, fluctuations in our stock price could have a material adverse effect on our ability
to complete acquisitions.
We may have difficulty 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 may be limited by our inability to acquire new distribution centers or expand our existing distribution centers, make acquisitions, successfully
integrate acquired entities or significant new customers, implement information systems initiatives or adequately manage our personnel. Our future growth is
limited in part by the size and location of our distribution centers. As we near maximum utilization of a given facility or maximize our processing capacity,
operations may be constrained and inefficiencies have been and may be created, which could adversely affect our results of operations unless the facility is
expanded, volume is shifted to another facility or additional processing capacity is added. Conversely, as we add additional facilities or expand existing
operations or facilities, excess capacity may be created. Any excess capacity may also
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create inefficiencies and adversely affect our results of operations. We cannot assure you that we will be able to successfully expand our existing distribution
centers or open new distribution centers in new or existing markets as needed to accommodate or facilitate growth. Even if we are able to expand our
distribution network, 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. We cannot assure
you that our existing personnel, systems, procedures and controls will be adequate to support the future growth of our operations. Our inability to manage our
growth effectively could have a material adverse effect on our business, financial condition or results of operations.
Increased fuel costs may adversely affect our results of operations.
Increased fuel costs may have a negative impact on our results of operations. The high cost of diesel fuel can 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 have in the past periodically entered, and may in the future 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 are not party to any commodity swap agreements and, as a result, our exposure to
volatility in the price of diesel fuel has increased relative to our exposure to volatility in prior periods in which we had outstanding heating oil derivative
contracts. We do not enter into fuel hedge contracts for speculative purposes. We have in the past, and may in the future, periodically enter into forward
purchase commitments for a portion of our projected monthly diesel fuel requirements at fixed prices. As of July 28, 2012, we had forward diesel fuel
commitments totaling approximately $16 million through July 2013. Our commitments through July 2013 were entered into at prevailing rates during June
2012. If fuel prices decrease significantly, these forward purchases may prove ineffective and result in us paying higher than the then market costs for a
portion of our diesel fuel. We also maintain a fuel surcharge program which allows us to pass some of our higher fuel costs through to our customers. We
cannot guarantee that we will continue to be able to pass a comparable proportion or any of our higher fuel costs to our customers in the future, which may
adversely affect our business, financial condition or results of operations.
Disruption of our distribution network could adversely affect our business.
Damage or disruption to our distribution capabilities due to weather, natural disaster, fire, terrorism, pandemic, strikes, the financial and/or operational
instability of key suppliers, or other reasons could impair our ability to distribute our products. To the extent that we are unable, or it is not financially
feasible, to mitigate the likelihood or potential impact of such events, or to manage effectively such events if they occur, there could be an adverse effect on
our business financial condition or results of operations.
The cost of the capital available to us and any limitations on our ability to access additional capital may have a material adverse effect on our business,
financial condition or results of operations.
In May 2012, we amended and restated our revolving credit facility pursuant to which we now have a $500 million secured revolving credit facility
which matures on May 24, 2017; of which up to $450.0 million is available to our U.S. subsidiaries and up to $50.0 million is available to UNFI Canada. The
borrowings of the US portion of the credit facility accrue interest, at our option, at either (i) a base rate (generally defined as the highest of (x) the Bank of
America Business Capital prime rate, (y) the average overnight federal funds effective rate plus one-half percent (0.50%) per annum and (z) one-month
LIBOR plus one percent (1%) per annum plus an initial margin of 0.50%, or (ii) the London Interbank Offered Rate ("LIBOR") for one, two, three or six
months or, if approved by all
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affected lenders, nine months plus an initial margin of 1.50%. The borrowings on the Canadian portion of the credit facility for Canadian swing-line loans,
Canadian over advance loans or Canadian protective advances accrue interest, at our option, at either (i) a prime rate (generally defined as the highest of
(x) 0.50% over 30-day Reuters Canadian Deposit Offering Rate for bankers' acceptances, (y) the prime rate of Bank of America, N.A.'s Canada branch, and
(z) a bankers' acceptance equivalent rate for a one month interest period plus 1.00% plus an initial margin of 0.50%, or (ii) a bankers' acceptance equivalent
rate of the rate of interest per annum equal to the annual rates applicable to Canadian Dollar bankers' acceptances on the "CDOR Page" of Reuter Monitor
Money Rates Service, plus five basis points, and an initial margin of 1.50% (the "CDOR rate"). All other borrowings on the Canadian portion of the credit
facility must exclusively accrue interest under the CDOR rate plus the applicable margin.
As of July 28, 2012, our borrowing base, based on accounts receivable and inventory levels and described more completely below under "Management's
Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Revenues," was $483.7 million, with remaining availability
of $341.8 million. During fiscal 2012, we used borrowings under our amended and restated revolving credit facility to pay off our term loan and refinance
existing indebtedness under the predecessor revolving credit facility.
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 up front to purchase products that we will sell over a multi-month time period. In the event that our cost of capital
increases, such as during a period in which we are not in compliance with the fixed charge coverage ratio covenants under our revolving credit facility, 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 debt agreements contain restrictive covenants that may limit our operating flexibility.
Our debt agreements contain financial covenants and other restrictions that limit our operating flexibility, limit our flexibility in planning for or reacting
to changes in our business and make us more vulnerable to economic downturns and competitive pressures. Our indebtedness could have significant negative
consequences, including:
•
•
•
•
increasing our vulnerability to general adverse economic and industry conditions;
limiting our ability to obtain additional financing;
limiting our flexibility in planning for or reacting to changes in our business and the industry in which we compete; and
placing us at a competitive disadvantage compared to competitors with less leverage or better access to capital resources.
In addition, our revolving credit facility requires that we comply with various financial tests and imposes certain restrictions on us, including among
other things, restrictions on our ability to incur additional indebtedness, create liens on assets, make loans or investments or pay dividends. Failure to comply
with these covenants could have an adverse effect on our business, financial condition or results of operations.
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Our operating results are subject to significant fluctuations.
Our operating results may vary significantly from period to period due to:
•
•
•
•
•
•
•
•
•
•
•
demand for our products; including as a result of seasonal fluctuations;
changes in our operating expenses, including fuel and insurance expenses;
management's ability to execute our business and growth strategies;
changes in customer preferences, including levels of enthusiasm for health, fitness and environmental issues;
public perception of the benefits of natural and organic products when compared to similar conventional products;
fluctuation of natural product prices due to competitive pressures;
personnel changes;
general economic conditions including inflation;
supply shortages, including a lack of an adequate supply of high-quality agricultural products due to poor growing conditions, water shortages,
natural disasters or otherwise;
volatility in prices of high-quality agricultural products resulting from poor growing conditions, water shortages, 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.
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.
Conditions beyond our control can interrupt our supplies and increase our product costs.
We offer more than 65,000 high-quality natural, organic and specialty foods and non-food products, which we purchase from more than 4,800 suppliers.
The majority of our suppliers are based in the United States and Canada, but we also source products from suppliers throughout Europe, Asia, Central
America, South America, Africa and Australia. For the most part, we do not have long-term contracts with our suppliers committing them to provide products
to us. Although our purchasing volume can provide benefits when dealing with suppliers, suppliers may not provide the products needed by us in the
quantities and at the prices requested. We are also subject to delays caused by interruption in production and increases in product costs based on conditions
outside of our control. These conditions include work slowdowns, work interruptions, strikes or other job actions by employees of suppliers, short-term
weather conditions or more prolonged climate change, crop conditions, product recalls, water shortages, transportation interruptions, unavailability of fuel or
increases in fuel costs, competitive demands and natural disasters or other catastrophic events (including, but not limited to food-borne illnesses). Further,
increased frequency or duration of extreme weather conditions could also impair production capabilities, disrupt our supply chain or impact demand for our
products. In the summer months of 2012, certain agricultural areas of the United States and Mexico have experienced severe drought. The impact of this
drought is uncertain and could result in volatile input costs. Input costs could increase at any point in time for a large portion of the products that we sell for a
prolonged period. Our inability to obtain adequate products as a result of any of the foregoing factors or otherwise could mean that we could not fulfill our
obligations to customers, and customers may turn to other distributors.
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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 products that we distribute in the United States are subject to inspection by the United States Food and Drug Administration;
our warehouse and distribution centers are subject to inspection by the USDA and state health authorities; and
the United States Department of Transportation and the United States Federal Highway Administration regulate our United States trucking
operations.
Our Canadian operations are similarly subject to extensive regulation, including the English and French dual labeling requirements applicable to products
that we distribute in Canada. 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. In addition, as a distributor and manufacturer of natural, organic, and specialty foods, we are subject to increasing governmental scrutiny of and
public awareness regarding food safety and the sale, packaging and marketing of natural and organic products. Compliance with these laws may impose a
significant burden on our operations. If we were to manufacture or distribute foods that are or are perceived to be contaminated, any resulting product recalls
could have an adverse effect on our business, financial condition or results of operations. Additionally, concern over climate change, including the impact of
global warming, has led to significant United States and international legislative and regulatory efforts to limit greenhouse gas emissions. Increased regulation
regarding greenhouse gas emissions, especially diesel engine emissions, could impose substantial costs on us. These costs include an increase in the cost of
the fuel and other energy we purchase and capital costs associated with updating or replacing our vehicles prematurely. Until the timing, scope and extent of
such regulation becomes known, we cannot predict its effect on our results of operations. It is reasonably possible, however, that it could impose material
costs on us which we may be unable to pass on to our customers.
Product liability claims could have an adverse effect on our business.
We face an inherent risk of exposure to product liability claims if the products we manufacture or sell cause injury or illness. We may be subject to
liability, which could be substantial, because of actual or alleged contamination in products manufactured or sold by us, including products sold by companies
before we acquired them. We have, and the companies we have acquired have had, liability insurance with respect to product liability claims. This insurance
may not continue to be available at a reasonable cost or at all, and may not be adequate to cover product liability claims against us or against companies we
have acquired. We generally seek contractual indemnification from manufacturers, but any such indemnification is limited, as a practical matter, to the
creditworthiness of the indemnifying party. If we or any of our acquired companies do not have adequate insurance or contractual indemnification available,
product liability claims and costs associated with product recalls, including a loss of business, could have a material adverse effect on our business, financial
condition or results of operations.
We are dependent on a number of key executives.
Management of our business is substantially dependent upon the services of certain 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.
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Union-organizing activities could cause labor relations difficulties.
As of July 28, 2012 we had approximately 7,000 full and part-time employees, 434 of whom (approximately 6.2%) are covered by collective bargaining
agreements at our Edison, New Jersey, Auburn, Washington, Leicester, Massachusetts, Iowa City, Iowa and Dayville, Connecticut facilities. The Edison, New
Jersey, Leicester, Massachusetts, Iowa City, Iowa and Dayville, Connecticut agreements expire in June 2014, March 2014, June 2014 and July 2014,
respectively. We have in the past been the focus of union-organizing efforts, and it is likely that we will be the focus of similar efforts in the future.
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 or we are not
successful in reaching agreement with our union employees when their agreements expire (like is the case currently in our Auburn, Washington location), we
could be subject to work stoppages and increases in labor costs, either of which could have a material adverse effect on our business, financial condition or
results of operations.
Our collective bargaining agreement with our employees at our Auburn, Washington facility expired in August 2012, and to date we have been
unsuccessful in negotiating a new agreement with these employees, despite employing the services of the Federal Mediation Service. If we are unable to reach
an agreement with these employees, it is possible that the employees could strike as the union employees have authorized a work stoppage. In that event, it
would be necessary for us to hire replacement workers to continue to meet our obligations to our customers. The costs to hire replacement workers would
negatively impact the profitability of our Auburn, Washington facility, and depending on the length of time that we are required to employ replacement
workers these costs could be significant.
We may fail to establish sufficient insurance reserves and adequately estimate for future workers' compensation and automobile liabilities.
We are primarily self-insured for workers' compensation and automobile liability insurance. We believe that our workers' compensation and automobile
insurance coverage is customary for businesses of our size and type. However, there are types of losses we may incur that cannot be insured against or that we
believe are not commercially reasonable to insure. These losses, should they occur, could have a material and adverse effect on our business, financial
condition or results of operations. In addition, the cost of workers' compensation insurance and automobile insurance fluctuates based upon our historical
trends, market conditions and availability.
Any projection of losses concerning workers' compensation and automobile insurance 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 losses
incurred are greater than those anticipated, our reserves may be insufficient and additional costs could be recorded in our consolidated financial statements. If
we suffer a substantial loss that is not covered by our self-insurance reserves, the loss and attendant expenses could harm our business and operating results.
We have purchased stop loss coverage from third parties, which limits our exposure above the amounts we have self-insured.
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The market price for our common stock may be volatile.
At times, there has been significant volatility in the market price of our common stock. In addition, the market price of our common stock could fluctuate
substantially in the future in response to a number of factors, including the following:
•
•
•
•
•
•
•
•
•
•
•
our quarterly operating results or the operating results of other distributors of organic or natural food and non-food products and of supernatural
chains and conventional supermarkets and other of our customers;
changes in general conditions in the economy, the financial markets or the organic or natural food and non-food product distribution industries;
changes in financial estimates or recommendations by stock market analysts regarding us or our competitors;
announcements by us or our competitors of significant acquisitions;
increases in labor, energy, fuel costs or the costs of food products;
natural disasters, severe weather conditions or other developments affecting us or our competitors;
publication of research reports about us, the benefits of organic and natural products, or the organic or natural food and non-food product
distribution industries generally;
changes in market valuations of similar companies;
additions or departures of key management personnel;
actions by institutional stockholders; and
speculation in the press or investment community.
In addition, in recent years the stock market has experienced extreme price and volume fluctuations. This volatility has had a significant effect on the
market prices of securities issued by many companies for reasons unrelated to their operating performance. These broad market fluctuations may materially
adversely affect our stock price, regardless of our operating results.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We maintained twenty-six distribution centers at July 28, 2012 which were utilized by our wholesale division. These facilities, including offsite storage
space, consisted of an aggregate of approximately 6.2 million square feet of storage space, which we believe represents the largest capacity of any distributor
within the United States in the natural, organic and specialty products industry.
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Set forth below for each of our distribution centers is its location and the expiration of leases as of July 28, 2012 for those distribution centers that we do
not own.
Location
Atlanta, Georgia
Auburn, California
Auburn, Washington
Aurora, Colorado
Aurora, Colorado
Aurora, Colorado
Bridgeport, New Jersey
Burnaby, British Columbia
Charlotte, North Carolina
Chesterfield, New Hampshire
Concord, Ontario
Dayville, Connecticut
Greenwood, Indiana
Iowa City, Iowa
Lancaster, Texas
Leicester, Massachusetts
Moreno Valley, California
Mounds View, Minnesota
New Oxford, Pennsylvania
Philadelphia, Pennsylvania
Richmond, British Columbia
Ridgefield, Washington
Rocklin, California
Sarasota, Florida
Scotstown, Quebec
St. Laurent, Quebec
Vernon, California
York, Pennsylvania
Lease Expiration
Owned
Owned
August 2019
October 2012
January 2013
July 2015
Owned
October 2013
September 2019
Owned
December 2014
Owned
Owned
Owned
July 2020
May 2013
July 2023
November 2015
Owned
January 2014
August 2022
Owned
Owned
July 2017
Owned
August 2012
Owned
May 2020
We lease facilities to operate thirteen natural products retail stores through our Earth Origins division in Florida, Maryland and Massachusetts and one
retail store through our UNFI Canada division, each with various lease expiration dates. We also lease a processing and manufacturing facility in Edison, New
Jersey with a lease expiration date of March 31, 2013.
We lease office space in Santa Cruz, California, Chesterfield, New Hampshire, Uniondale, New York, Richmond, Virginia, and Providence, Rhode
Island, the site of our corporate headquarters. Our leases have been entered into upon terms that we believe to be reasonable and customary. We own office
space in Dayville, Connecticut.
We also lease a warehouse facility in Minneapolis, Minnesota that we acquired in connection with our acquisition of Roots & Fruits Produce Cooperative
in 2005. This facility is currently being subleased under an agreement that expires concurrently with our lease termination in November 2016. We also lease
offsite storage space near certain of our distribution facilities. We have also entered into a lease that expires July 2028 for a property in Aurora, Colorado
which will become our new distribution center. We expect this distribution center to become operational in the summer of 2013.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are involved in routine litigation that arises in the ordinary course of our business. There are no pending material legal proceedings
to which we are a party or to which our property is subject.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
Our common stock is traded on the Nasdaq Global Select Market® under the symbol "UNFI." Our common stock began trading on the Nasdaq Stock
Market® on November 1, 1996.
The following table sets forth, for the fiscal periods indicated, the high and low sale prices per share of our common stock on the Nasdaq Global Select
Market®:
Fiscal 2012
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 2011
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
$
High
Low
$
$
42.53
44.68
50.37
55.86
37.48
39.85
46.05
45.34
35.07
32.83
43.81
47.98
32.65
34.78
36.71
39.52
On July 28, 2012, we had 86 stockholders of record. The number of record holders may not be representative of the number of beneficial holders of our
common stock because depositories, brokers or other nominees hold many shares.
We have never declared or paid any cash dividends on our capital stock. We anticipate that all of our earnings in the foreseeable future will be retained to
finance the continued growth and development of our business, and we have no current intention to pay cash dividends. Our future dividend policy will
depend on our earnings, capital requirements and financial condition, requirements of the financing agreements to which we are then a party and other factors
considered relevant by our Board of Directors. Additionally, the terms of our existing revolving credit facility restrict us from making any cash dividends
unless certain conditions and financial tests are met.
We did not repurchase any shares during the fourth quarter ended July 28, 2012.
Comparative Stock Performance
The graph below compares the cumulative total stockholder return on our common stock for the last five fiscal years with the cumulative total return on
(i) an index of Food Service Distributors and Grocery Wholesalers and (ii) The NASDAQ Composite Index. The comparison assumes the investment of $100
on July 28, 2007 in our common stock and in each of the indices and, in each case, assumes reinvestment of all dividends. The stock price performance shown
below is not necessarily indicative of future performance.
The index of Food Distributors and Wholesalers (referred to below as the "Peer Group") includes Nash Finch Company, SuperValu, Inc. and SYSCO
Corporation. PFG was removed from the Peer Group in 2008 following its acquisition by another company.
This performance graph shall not be deemed "soliciting material" or be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of
1934, as amended (the "Exchange Act") or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by
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reference into any of our filings under the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among United Natural Foods, Inc., the NASDAQ Composite Index,
and Index of Food Distributors and Wholesalers
*
$100 invested on 7/28/07 in stock or 7/31/07 in index, including reinvestment of dividends. Indexes calculated on month-end basis.
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ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below are derived from our consolidated financial statements, which have been audited by
KPMG LLP, our independent registered public accounting firm. The historical results are not necessarily indicative of results to be expected for any future
period. The following selected consolidated financial data should be read in conjunction with and is qualified by reference to "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and our Consolidated Financial Statements and Notes thereto included elsewhere
in this Annual Report on Form 10-K.
Consolidated Statement of Income Data:(1)
July 28,
2012
July 30,
2011
July 31,
2010
August 1,
2009
August 2,
2008
(53 weeks)
Net sales
Cost of sales
Gross profit
Operating expenses
Restructuring and asset impairment expense
Total operating expenses
Operating income
Other expense (income):
Interest expense
Interest income
Other, net
Total other expense
Income before income taxes
Provision for income taxes
Net income
$
(In thousands, except per share data)
$5,236,021 $4,530,015 $3,757,139 $3,454,900 $3,365,857
4,320,018 3,705,205 3,060,208 2,794,419 2,731,965
633,892
541,413
—
541,413
92,479
660,481
550,560
—
550,560
109,921
824,810
688,859
6,270
695,129
129,681
696,931
582,029
—
582,029
114,902
916,003
755,744
5,101
760,845
155,158
4,734
(715)
356
4,375
150,783
59,441
91,342 $
5,000
(1,226)
(528)
3,246
126,435
49,762
76,673 $
5,845
(247)
(2,698)
2,900
112,002
43,681
68,321 $
9,914
(450)
275
9,739
100,182
40,998
59,184 $
16,133
(768)
(82)
15,283
77,196
28,717
48,479
Per share data—Basic:
Net income
Weighted average basic shares of common
stock
Per share data—Diluted:
Net income
Weighted average diluted shares of common
stock
$
1.87 $
1.62 $
1.58 $
1.38 $
1.14
48,766
47,459
43,184
42,849
42,690
$
1.86 $
1.60 $
1.57 $
1.38 $
1.13
49,100
47,815
43,425
42,993
42,855
Consolidated Balance Sheet Data:
Working capital
Total assets
Total long-term debt and capital leases,
excluding current portion
Total stockholders' equity
July 28,
2012
July 30,
2011
July 31,
2010
(In thousands)
$ 612,700 $ 381,071 $ 194,190 $ 169,053 $ 110,897
1,493,946 1,400,988 1,250,799 1,058,550 1,084,483
August 1,
2009
August 2,
2008
635
58,485
$ 978,716 $ 869,667 $ 630,447 $ 544,472 $ 480,050
53,858
48,433
986
(1)
Includes the effect of acquisitions from the date of acquisition.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our consolidated financial statements and the notes thereto appearing
elsewhere in this Annual Report on Form 10-K.
Forward-Looking Statements
This Annual Report on Form 10-K and the documents incorporated by reference in this Annual Report on Form 10-K contain forward-looking statements
within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act 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," "plans," "seek,"
"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 positions or state other "forward-looking" information.
Forward-looking statements involve inherent uncertainty and may ultimately prove to be incorrect or false. You are cautioned not to place undue reliance
on forward-looking statements. Except as otherwise may be required by law, we undertake no obligation to update or revise forward-looking statements to
reflect changed assumptions, the occurrence of unanticipated events or actual operating results. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors, including, but not limited to:
•
•
•
•
•
•
•
•
•
•
•
our dependence on principal customers;
our sensitivity to general economic conditions, including the current economic environment, changes in disposable income levels and consumer
spending trends;
our ability to reduce our expenses in amounts sufficient to offset our increased focus on sales to conventional supermarkets and the resulting
lower gross margins on the sales;
our reliance on the continued growth in sales of natural and organic foods and non-food products in comparison to conventional products;
our ability to timely and successfully deploy our new warehouse management system throughout our distribution centers;
increased fuel costs;
our sensitivity to inflationary and deflationary pressures;
the relatively low margins and economic sensitivity of our business;
the potential for disruptions in our supply chain by circumstances beyond our control;
the ability to identify and successfully complete acquisitions of other natural, organic and specialty food and non-food products distributors; and
management's allocation of capital and the timing of capital expenditures.
This list of risks and uncertainties, however, is only a summary of some of the most important factors and is not intended to be exhaustive. You should
carefully review the risks described under "Part I. Item 1A. Risk Factors," as well as any other cautionary language in this Annual Report on Form 10-K, as
the occurrence of any of these events could have an adverse effect on our business, results of operation and financial condition.
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Overview
We believe we are the leading national distributor based on sales of natural, organic and specialty foods and non-food products in the United States and
Canada and that our twenty-six distribution centers, representing approximately 6.2 million square feet of warehouse space, provide us with the largest
capacity of any North American-based distributor in the natural, organic and specialty products industry. We offer more than 65,000 high-quality natural,
organic and specialty foods and non-food products, consisting of national brands, regional brands, private label and master distribution products, in six
product categories: grocery and general merchandise, produce, perishables and frozen foods, nutritional supplements and sports nutrition, bulk and food
service products and personal care items. We serve more than 23,000 customer locations primarily located across the United States and Canada, the majority
of which can be classified into one of the following categories: independently owned natural products retailers, which include buying clubs; supernatural
chains, which consist solely of Whole Foods Market; conventional supermarkets, which include mass market chains; and other which includes foodservice
and international customers outside of Canada.
Our operations are comprised of three principal operating divisions. These operating divisions are:
•
•
•
our wholesale division, which includes our broadline natural, organic and specialty distribution business in the United States, UNFI Canada,
which is our natural, organic and specialty distribution business in Canada, Albert's, which is a leading distributor of organically grown produce
and non-produce perishable items within the United States, and Select Nutrition, which distributes vitamins, minerals and supplements;
our retail division, consisting of Earth Origins, which operates our thirteen natural products retail stores within the United States; and
our manufacturing division, consisting of Woodstock Farms Manufacturing, which specializes in the international importation, roasting,
packaging and distribution of nuts, dried fruit, seeds, trail mixes, granola, natural and organic snack items, and confections, and our Blue Marble
Brands product lines.
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 as a result of our high quality service and a broader product selection, including specialty products, and the acquisition of, or
merger with, natural and specialty products distributors, the expansion of our existing distribution centers; the construction of new distribution centers; the
introduction of new products and the development of our own line of natural and organic branded products. 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.
We have been the primary distributor to Whole Foods Market for more than fourteen years. Effective June 2010, we amended our distribution agreement
with Whole Foods Market to extend the term of the agreement for an additional seven years. Under the terms of the amended agreement, we will continue to
serve as the primary wholesale natural grocery distributor to Whole Foods Market in its United States regions where we were serving as the primary
distributor at the time of the amendment. The amendment extended the expiration date of the agreement from September 25, 2013 to September 25, 2020. On
July 28, 2010, we announced that we had entered into an asset purchase agreement under which we agreed to acquire certain assets of Whole Foods
Distribution previously used for their self-distribution of non-perishables in their Rocky Mountain and Southwest regions and to become their primary
distributor in these regions. We closed this transaction in late September 2010 in the case of the Southwest region and early October 2010 in the case of the
Rocky Mountain region. We now serve as the primary distributor to Whole Foods Market in all of its regions in the United States and have amended our
distribution agreement with Whole Foods Market effective
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October 2010 to include these regions. Whole Foods Market accounted for approximately 36% of our net sales for the years ended July 28, 2012 and July 30,
2011.
In June 2010, we acquired the SDG assets of SunOpta through our wholly-owned subsidiary, UNFI Canada for cash consideration of $65.8 million. With
the acquisition, we became the largest distributor of natural, organic and specialty foods, including kosher foods, in Canada. This was a strategic acquisition
as UNFI Canada provides us with an immediate platform for growth in the Canadian market. During fiscal 2012, we utilized our UNFI Canada platform to
further expand in the Canadian market, including through our purchase of substantially all of the assets of a specialty food distribution business in the Ontario
market in November 2011.
The ability to distribute specialty food items (including ethnic, kosher and gourmet) has accelerated our expansion into a number of high-growth business
markets and allowed us to establish immediate market share in the fast-growing specialty foods market. We have now integrated specialty food products and
natural and organic specialty non-food products into most of our broadline distribution centers across the United States and Canada. Due to our expansion into
specialty foods, we were awarded new business with a number of conventional supermarkets since fiscal 2010 that we previously had not done business with
because we did not distribute specialty products. We believe that distribution of these products enhances our conventional supermarket business channel and
that our complementary product lines continue to present opportunities for cross-selling. On June 9, 2011, we entered into an asset purchase agreement with
L&R Distributors pursuant to which we agreed to sell our conventional non-foods and general merchandise lines of business, including certain inventory
related to these product lines. This divestiture was completed in the first quarter of fiscal 2012, and has allowed us to concentrate on our core business of the
distribution of natural, organic, and specialty foods and non-food products.
To maintain our market leadership and improve our operating efficiencies, we seek to continually:
•
•
•
•
•
•
•
•
•
expand our marketing and customer service programs across regions;
expand our national purchasing opportunities;
offer a broader product selection;
offer operational excellence with high service levels and a higher percentage of on-time deliveries than our competitors;
centralize general and administrative functions to reduce expenses;
consolidate systems applications among physical locations and regions;
increase our investment in people, facilities, equipment and technology;
integrate administrative and accounting functions; and
reduce the geographic overlap between regions.
Our continued growth has allowed us to expand our existing facilities and open new facilities in an effort to achieve increasing operating efficiencies. We
have made significant capital expenditures and incurred considerable expenses in connection with the opening and expansion of our facilities. At July 28,
2012, our distribution capacity totaled approximately 6.2 million square feet. In September 2009, we commenced operations of a new facility in Charlotte,
North Carolina serving Albert's customers in North Carolina, South Carolina, Georgia, Tennessee and Virginia. In connection with the acquisition of the SDG
assets in June 2010, we acquired five distribution centers which provided nationwide presence in Canada with approximately 286,000 square feet of
distribution space and the ability to serve all major markets in Canada. In September 2010, we began shipping products from our distribution center in
Lancaster, Texas, which serves customers throughout the Southwestern United
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States, including Texas, Oklahoma, New Mexico, Arkansas and Louisiana. In October 2010, in connection with the acquisition of the Rocky Mountain
distribution business of Whole Foods Distribution, we took over the operations, including the assumption of an operating lease at a distribution center in
Aurora, Colorado, augmenting our existing Aurora, Colorado distribution center, which was at capacity, in serving customers in Colorado, Utah, Arizona and
New Mexico. In April 2012, we leased a new 535,000 square foot distribution center in Aurora, Colorado which is expected to become operational in the
summer of 2013 and will replace our existing two broadline distribution centers, an Albert's distribution center and an off-site storage location.
Our net sales consist primarily of sales of natural, organic and specialty products to retailers, adjusted for customer volume discounts, returns and
allowances. Net sales also consist of amounts charged by us to 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 centers. Cost of sales also includes amounts incurred by us at our manufacturing subsidiary, Woodstock Farms Manufacturing, for inbound
transportation costs and depreciation for manufacturing equipment, offset by consideration received from suppliers in connection with the purchase or
promotion of the suppliers' products. 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. Total operating expenses include salaries and wages, employee benefits (including payments
under our Employee Stock Ownership Plan), warehousing and delivery, selling, occupancy, insurance, administrative, share-based compensation, depreciation
and amortization expense. Other expenses (income) include interest on our outstanding indebtedness, interest income and miscellaneous income and expenses.
Critical Accounting Policies and Estimates
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 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 are: (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 $305.2 million and $257.1 million, net of the allowance for doubtful accounts
of $6.2 million and $4.5 million, as of July 28, 2012 and July 30, 2011, respectively. Our notes receivable balances were $3.7 million and $5.0 million, net of
the allowance for doubtful accounts of $0.7 million and $1.3 million, as of July 28, 2012 and July 30, 2011, respectively.
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Insurance reserves
We are primarily self-insured for workers' compensation, and general and automobile liability insurance. 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 our consolidated financial statements. Accruals for workers' compensation and automobile liabilities totaled
$19.5 million and $17.5 million as of July 28, 2012 and July 30, 2011, respectively.
Valuation of goodwill and intangible assets
We are required to 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 fiscal year. We test for goodwill impairment at the reporting unit level, which are at or one level below the
operating segment level. Beginning in fiscal 2012, the first step in our annual assessment of each of our reporting units is a qualitative assessment as allowed
under ASU 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment ("ASU 2011-08"), unless we believe it is more likely
than not that a reporting unit's fair value is less than the carrying value. In order to qualify for an exclusion from the quantitative two-step goodwill test, the
thresholds used by the Company for this determination are that a reporting unit must (1) have passed its previous two-step test with a margin of calculated fair
value versus carrying value of at least 10%, (2) have had no significant changes to its working capital structure, and (3) have current year income streams
which are at least 85% of prior year amounts. For reporting units which do not meet this exclusion, the quantitative goodwill impairment analysis is a two-step
test. The first step, used to identify potential impairment, involves comparing each reporting unit's estimated fair value to its carrying value, including
goodwill. Each reporting unit regularly prepares discrete operating forecasts and uses these forecasts as the basis for the assumptions used in the discounted
cash flow analysis. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill is considered not to be impaired. If the carrying value
exceeds estimated fair value, there is an indication of potential impairment and the second step is performed to measure the amount of impairment. If required,
the second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated potential impairment. The
implied fair value of goodwill is determined in a manner similar to the amount of goodwill calculated in a business combination, by measuring the excess of
the estimated fair value of the reporting unit, as determined in the first step, over the aggregate estimated fair values of the individual assets, liabilities and
identifiable intangibles as if the reporting unit was being acquired in a business combination. If the implied fair value of goodwill exceeds the carrying value
of goodwill assigned to the reporting unit, there is no impairment. If the carrying value of goodwill assigned to a reporting unit exceeds the implied fair value
of the goodwill, an impairment charge is recorded for the excess.
During the first quarter of the 2011 fiscal year, we performed a test for goodwill impairment as a result of the expected change in future cash flows for
certain of our branded product lines within our Blue Marble Brands reporting unit, and determined that no impairment existed. As of July 28, 2012, our annual
assessment of each of our reporting units indicated that no impairment of goodwill existed. Approximately 91% of our goodwill is within our wholesale
reporting unit. Both our wholesale distribution reporting unit and our Earth Origins Market reporting unit were evaluated under the
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qualitative guidelines described above and did not require the quantitative two-step test. Our Blue Marble Brands and Woodstock Farms Manufacturing
reporting units were subject to the two-step quantitative test, and each exceeded their carrying values by more than 10%, and were not considered at risk of
failing the first step of the goodwill impairment test. We believe that these projected results are achievable, though these assumptions are based upon our
current business model and may be negatively affected if we attempt to dispose of any of our brands, stores or facilities or substantially change how we
market and sell our products. For all of our assessments, the weighted average cost of capital used in calculating the present value of future cash flows was
12.0%. Total goodwill as of July 28, 2012 and July 30, 2011 was $193.7 million and $191.9 million, respectively.
Intangible assets with indefinite lives are tested for impairment at least annually and between annual tests if events occur or circumstances change that
would indicate that the value of the asset may be impaired. Impairment is measured as the difference between the fair value of the asset and its carrying value.
As of our most recent annual impairment test, the fair value of our indefinite lived intangible assets was in excess of their carrying value. The fair value of our
indefinite-lived intangible assets related to our branded product lines was more than 100% in excess of its carrying value. During fiscal 2012, our long-term
plans related to the trade name of a portion of our Canadian wholesale distribution business evolved, and we decided to phase out this trade name. As a result,
we will begin amortizing this trade name over a period of ten years. As the underlying business will not be changing significantly but rather we will simply be
phasing out the trade name, it was not tested for impairment. The projections used in the impairment assessment for the branded product line asset group
assume sales growth of approximately 10% per year, with gross margin and operating expenses which on average approximate current levels as a percentage
of sales. We believe these projections are reasonable based on our historical trends and expectation of future results. Total indefinite lived intangible assets as
of July 28, 2012 and July 30, 2011 were $28.2 million and $28.9 million, respectively.
Intangible assets with finite lives are tested for impairment whenever events or changes in circumstances indicate that the carrying value may not be
recoverable. Cash flows expected to be generated by the related assets are estimated over the asset's useful life based on updated projections. If the evaluation
indicates that the carrying amount of the asset may not be recoverable, the potential impairment is measured based on a projected discounted cash flow model.
There have been no events or changes in circumstances indicating that the carrying value of our finite-lived intangibles are not recoverable during 2012. Total
finite-lived intangible assets as of July 28, 2012 and July 30, 2011 were $24.3 million and $29.5 million, respectively.
The assessment of the recoverability of goodwill and intangible assets will be impacted if estimated future cash flows are not achieved.
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Results of Operations
The following table presents, for the periods indicated, certain income and expense items expressed as a percentage of net sales:
Net sales
Cost of sales
Gross profit
Operating expenses
Restructuring and asset impairment expenses
Total operating expenses
Operating income
Other expense (income):
Interest expense
Interest income
Other, net
Total other expense
Income before income taxes
Provision for income taxes
Net income
July 28,
2012
Year ended
July 30,
2011
July 31,
2010
100.0%
82.5%
17.5%
14.4%
0.1%
14.5%
3.0%
0.1%
0.0%
0.0%
0.1%
2.9%
1.1%
1.8%
100.0%
81.8%
18.2%
15.2%
0.1%
15.3%
2.9%
0.1%
0.0%
0.0%
0.1%
2.8%
1.1%
1.7%
100.0%
81.5%
18.5%
15.4%
0.0%
15.4%
3.1%
0.2%
0.0%
(0.1%)
0.1%
3.0%
1.2%
1.8%
Fiscal year ended July 28, 2012 compared to fiscal year ended July 30, 2011
Net Sales
Our net sales for the fiscal year ended July 28, 2012 increased approximately 15.6%, or $706.0 million, to a record $5.2 billion for the year ended
July 28, 2012 from $4.5 billion for the year ended July 30, 2011. This increase was primarily due to growth in our wholesale segment of $702.8 million,
which includes net sales from a national conventional supermarket customer that began shipping in October 2011 and the strong performance of our UNFI
Canada division. Our organic growth (sales growth excluding the impact of acquisitions) is due to the continued growth of the natural and organic products
industry in general, increased market share as a result of our focus on service and value added services, and a broader selection of products, including
specialty foods. We believe that the integration of our specialty business has allowed us to attract customers that we would not have been able to attract
without that business as many customers seek a single source for their natural, organic and specialty products. Our net sales for the fiscal year ended July 28,
2012 were also favorably impacted by moderate price inflation.
In addition to net sales growth attributable to our organic growth, we also benefited from the inclusion of $25.4 million in incremental net sales resulting
from expanded distribution to Whole Foods Market during fiscal 2012 following the acquisition of Whole Foods Distributions's Southwest and Rocky
Mountain distribution business and expanded distribution agreement with Whole Foods Market in the first quarter of fiscal 2011 and approximately
$4.2 million in sales resulting from our acquisition of substantially all of the assets of a specialty food distribution business in the Ontario market in
November 2011.
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Our net sales by customer type for the years ended July 28, 2012 and July 30, 2011 were as follows (in millions):
Customer Type
Independently owned natural products retailers
Supernatural chains
Conventional supermarkets
Other
Total
2012
Net Sales
$ 1,847
1,883
1,246
260
$ 5,236
% of Total
Net Sales
2011
Net Sales
35% $ 1,693
1,627
36%
991
24%
219
5%
100% $ 4,530
% of Total
Net Sales
37%
36%
22%
5%
100%
Net sales to our independent retailer channel increased by approximately $154 million, or 9.1% during the year ended July 28, 2012 compared to the year
ended July 30, 2011. While net sales in this channel have increased, they have grown at a slower rate than net sales in our supernatural and conventional
supermarket channels, and therefore represent a lower percentage of our total net sales compared to the prior year.
Whole Foods Market is our only supernatural chain customer, and net sales to Whole Foods Market for the year ended July 28, 2012 increased by
approximately $256 million or 15.8% over the prior year and accounted for approximately 36% of our total net sales for the years ended July 28, 2012 and
July 30, 2011. The increase in sales to Whole Foods Market is primarily due to the increases in same-store sales, and to a lesser extent, the expanded primary
distribution agreement noted above.
Net sales to conventional supermarkets for the year ended July 28, 2012 increased by approximately $255 million, or 25.7% from fiscal 2011 and
represented approximately 24% of total net sales in fiscal 2012 compared to 22% in fiscal 2011. The increase in net sales to conventional supermarkets is
primarily due to a large national customer which we began servicing during the first quarter of fiscal 2012, as part of our strategy to be the sole supplier of
natural, organic and specialty products to our conventional supermarket customers.
Other net sales, which include sales to foodservice and sales from the United States to countries other than Canada, as well as sales through our retail
division, manufacturing division, and our branded product lines, increased by approximately $41 million or 18.7% during the fiscal year ended July 28, 2012
over the prior fiscal year and accounted for approximately 5% of total net sales in fiscal 2012 and fiscal 2011.
As we continue to aggressively pursue new customers and as economic conditions continue to stabilize, we expect net sales for fiscal 2013 to grow over
fiscal 2012. We believe that the integration of our specialty business into our national platform has allowed us to attract customers that we would not have
been able to attract without that business and will continue to allow us to pursue a broader array of customers as many customers seek a single source for their
natural, organic and specialty products. We believe that our projected sales growth will come from both sales to new customers and an increase in the number
of products that we sell to existing customers. We expect that most of this sales growth will occur in our lower gross margin supernatural and conventional
supermarket channels. Although sales to these customers typically generate lower gross margins than sales to customers within our independent retailer
channel, they also typically carry a lower average cost to serve than sales to our independent customers. We also believe that food price inflation similar to the
levels experienced in the second half of fiscal 2012 will contribute to our projected net sales growth in fiscal 2013.
Gross Profit
Our gross profit increased approximately 11.1%, or $91.2 million, to $916.0 million for the year ended July 28, 2012, from $824.8 million for the year
ended July 30, 2011. Our gross profit as a
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percentage of net sales was 17.5% for the year ended July 28, 2012 and 18.2% for the year ended July 30, 2011. The change in gross profit as a percentage of
net sales is primarily due to the change in the mix of net sales by channel that began during the second quarter of fiscal 2010 as well as higher inventory
shrink related to perishable items and improper storage of products in certain categories, and use of third parties for inbound freight during fiscal 2012,
partially offset by higher fuel surcharge revenue during the year ended July 28, 2012.
Our gross profits are generally higher on net sales to independently owned retailers and lower on net sales in the conventional supermarket and the
supernatural channels. For the year ended July 28, 2012 approximately $512 million of our total net sales growth of $706 million was from increased net sales
in the conventional supermarket and supernatural channels. As a result, approximately 60% of our total net sales in fiscal 2012 were to the conventional
supermarket and supernatural channels compared to approximately 58% in fiscal 2011. This change in sales mix from 2011 to 2012 resulted in lower gross
profits as a percentage of sales during fiscal 2012. We anticipate net sales growth in the conventional supermarket and supernatural channels will continue to
outpace growth in the independent and other channels.
We expect that our growth with Whole Foods Market and our opportunities in the conventional supermarket channel will continue to generate lower
gross profit percentages than our historical rates, particularly during the time period when we are on-boarding new business and incurring costs of hiring and
training additional associates and increasing inventory levels before a new customer has reached expected purchasing levels. We will seek to fully offset these
reductions in gross profit percentages by reducing our operating expenses as a percentage of net sales primarily through improved efficiencies in our supply
chain and improvements to our information technology infrastructure.
Operating Expenses
Our total operating expenses increased approximately 9.5%, or $65.7 million, to $760.8 million for the year ended July 28, 2012, from $695.1 million for
the year ended July 30, 2011. The increase in total operating expenses for the year ended July 28, 2012 was primarily due to higher sales volume, $5.1 million
of severance and other restructuring expenses associated with the divestiture of our conventional non-food and general merchandise lines of business and
$1.6 million in start-up expenses incurred in connection with onboarding a large national conventional supermarket customer. Operating expenses for the year
ended July 30, 2011 included $6.3 million in restructuring and asset impairment charges associated with the divestiture of our conventional non-foods and
general merchandise lines of business.
Total operating expenses for fiscal 2012 include share-based compensation expense of $11.4 million, compared to $9.2 million in fiscal 2011. Share-
based compensation expense for the years ended July 28, 2012 and July 30, 2011 includes approximately $1.7 million and $0.7 million, respectively, in
expense related to performance share-based awards granted to our Chief Executive Officer related to certain financial goals for those various periods ended
July 28, 2012 and July 30, 2011. During fiscal 2012, $0.4 million was recognized related to a new performance-based equity compensation arrangement with
a 2-year performance-based vesting component that was established for members of our executive leadership team. See Note 3 "Equity Plans" to our
Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
As a percentage of net sales, total operating expenses decreased to approximately 14.5% for the year ended July 28, 2012, from approximately 15.3% for
the year ended July 30, 2011. The decrease in total operating expenses as a percentage of net sales was primarily attributable to the growth in the supernatural
and conventional supermarket channels which in general have lower operating expenses, higher fixed cost coverage due to higher sales, as well as expense
control programs across all of our
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divisions. We were able to manage our fuel costs despite rising prices by locking in the price of a portion of our expected fuel usage, updating and revising
existing routes to reduce miles traveled, reducing idle times and other similar measures. Our expansion into Lancaster, Texas, where our facility began
servicing customers in late September 2010, has helped to further reduce our fuel costs as a percentage of net sales as we are able to reduce the number of
miles traveled to serve our customers in Texas, Oklahoma, New Mexico, Arkansas and Louisiana who were previously primarily served from our facility in
Denver, Colorado. These improvements in our operating expenses were offset in part by higher health insurance costs, higher workers' compensation costs
and the above described higher share-based compensation costs. We expect that we will be able to continue to reduce our operating expenses as we continue
the roll-out of our supply chain initiatives including a national warehouse management and procurement system, which was first launched in the Lancaster,
Texas facility in September 2010, launched in the Ridgefield, Washington facility in July 2012 and is expected to be rolled out in all of our distribution
centers by the end of fiscal 2015.
Operating Income
Operating income increased approximately 19.7%, or $25.5 million, to $155.2 million for the year ended July 28, 2012, from $129.7 million for the year
ended July 30, 2011. As a percentage of net sales, operating income was 3.0% for the year ended July 28, 2012 compared to 2.9% for the year ended July 30,
2011. The increase in operating income is primarily attributable to sales growth and lower operating expenses as a percentage of net sales during fiscal 2012
compared to fiscal 2011.
Other Expense (Income)
Other expense (income) increased $1.2 million to $4.4 million for the year ended July 28, 2012, from $3.2 million for the year ended July 30, 2011.
Interest expense for the year ended July 28, 2012 decreased to $4.7 million from $5.0 million in the year ended July 30, 2011, but was negatively impacted by
$0.3 million related to the settlement in the fourth quarter of fiscal 2012 of the interest rate swap that we entered into in July 2005 in connection with our term
loan that we paid off in May 2012. The decrease in interest expense was due primarily to lower average debt levels during the year. Interest income for the
year ended July 28, 2012 decreased to $0.7 million from $1.2 million in the year ended July 30, 2011, primarily as a result of lower average cash balances
during the year.
Provision for Income Taxes
Our effective income tax rate was 39.4% for the years ended July 28, 2012 and July 30, 2011. Our effective income tax rate in both fiscal years was
primarily affected by state taxes in the states in which we operate.
Net Income
Reflecting the factors described in more detail above, net income increased $14.7 million to $91.3 million, or $1.86 per diluted share, for the year ended
July 28, 2012, compared to $76.7 million, or $1.60 per diluted share on a lower share base, for the year ended July 30, 2011.
Fiscal year ended July 30, 2011 compared to fiscal year ended July 31, 2010
Net Sales
Our net sales for the fiscal year ended July 30, 2011 increased approximately 20.6%, or $772.9 million, to a record $4.5 billion for the year ended
July 30, 2011 from $3.8 billion for the year ended July 31, 2010. This increase was primarily due to growth in our wholesale segment of $774.3 million,
which includes the growth resulting from our entrance into the Canadian market in June 2010 and the expansion of our primary distribution agreement with
Whole Foods Market in
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October 2010. Our organic growth is due to the continued growth of the natural products industry in general, increased market share as a result of our focus on
service and value added services, and the breadth of our product selection. In addition, we believe that the integration of our specialty business has allowed us
to attract customers that we would not have been able to attract without that business as many customers seek a single source for their natural, organic and
specialty products. Our net sales for the fiscal year ended July 30, 2011 were also favorably impacted by moderate price inflation.
In addition to net sales growth attributable to our organic growth, we also benefited from the inclusion of $200.7 million in sales from UNFI Canada,
which includes the SDG assets acquired during the fourth quarter of fiscal 2010, and approximately $131.6 million in incremental sales to Whole Foods
Market due to the acquisition of Whole Foods Distribution's Southwest and Rocky Mountain distribution business in the first quarter of fiscal 2011 and our
expanded distribution agreement in October 2010.
Our net sales by customer type for the years ended July 30, 2011 and July 31, 2010 were as follows (in millions):
Customer Type
Independently owned natural products retailers
Supernatural chains
Conventional supermarkets
Other
Total
2011
Net Sales
$ 1,693
$ 1,627
991
$
$
219
$ 4,530
% of Total
Net Sales
2010
Net Sales
37% $ 1,506
36% $ 1,317
771
22% $
163
5% $
100% $ 3,757
% of Total
Net Sales
40%
35%
21%
4%
100%
Net sales to our independent retailer channel increased by approximately $187 million, or 12.4% during the year ended July 30, 2011 compared to the
year ended July 31, 2010. While net sales in this channel have increased, they have grown at a slower rate than net sales in our supernatural and conventional
supermarket channels, and therefore represent a lower percentage of our total net sales compared to the prior year.
Whole Foods Market is our only supernatural chain customer, and net sales to Whole Foods Market for the year ended July 30, 2011 increased by
approximately $310 million or 23.6% over the prior year and accounted for approximately 36% and 35% of our total net sales for the years ended July 30,
2011 and July 31, 2010, respectively. The increase in sales to Whole Foods Market is primarily due to the increases in same-store sales, as well as the
expanded primary distribution agreement noted above.
Net sales to conventional supermarkets for the year ended July 30, 2011 increased by approximately $220 million, or 28.5% from fiscal 2010 and
represented approximately 22% of total net sales in fiscal 2011 compared to 21% in fiscal 2010. The increase in net sales to conventional supermarkets is
primarily due to several large new customers won during the year based on our consolidated market strategy of natural, organic and specialty from one
supplier, as well as $92.5 million of net sales to conventional supermarkets by UNFI Canada.
Other net sales, which include sales to foodservice and sales from the United States to countries other than Canada, increased by approximately
$56 million or 34.3% during the fiscal year ended July 30, 2011 over the prior fiscal year and accounted for approximately 5% of total net sales in fiscal 2011
compared to 4% of total net sales for the fiscal year ended July 31, 2010.
The decrease in sales percentage to the independent channel is the result of the higher growth rate in our supernatural chain as a result of an increase in
Whole Foods Market business, and in our conventional supermarkets.
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Gross Profit
Our gross profit increased approximately 18.3%, or $127.9 million, to $824.8 million for the year ended July 30, 2011, from $696.9 million for the year
ended July 31, 2010. Our gross profit as a percentage of net sales was 18.2% for the year ended July 30, 2011 and 18.5% for the year ended July 31, 2010.
The change in gross profit as a percentage of net sales is primarily due to the change in the mix of net sales by channel that began during the second fiscal
quarter of 2010 and start up costs related to inventory issues and incremental freight and service costs incurred during the first half of fiscal 2011 in
connection with the initial period of operations of our Lancaster, Texas distribution center, partially offset by higher fuel surcharge revenue during the year
ended July 30, 2011.
Our gross profits are generally higher on net sales to independently owned retailers and lower on net sales in the conventional supermarket and the
supernatural channels. For the year ended July 30, 2011 approximately $530 million of our total net sales growth was from increased net sales in the
conventional supermarket and supernatural channels, while net sales growth from the independent and other channels was approximately $243 million. As a
result, approximately 58% of our total net sales in fiscal 2011 were to the conventional supermarket and supernatural channels compared to approximately
56% in fiscal 2010. This change in sales mix from 2010 to 2011 resulted in lower gross profits as a percentage of sales during fiscal 2011.
Operating Expenses
Our total operating expenses increased approximately 19.4%, or $113.1 million, to $695.1 million for the year ended July 30, 2011, from $582.0 million
for the year ended July 31, 2010. The increase in total operating expenses for the year ended July 30, 2011 was primarily due to higher sales volume including
sales through our UNFI Canada subsidiary, $4.4 million of labor and other expenses associated with the September 2010 opening of our Lancaster, Texas
facility and incremental start up inefficiencies which continued through January 2011, $0.6 million for severance payments for former executives and
$6.3 million in restructuring and asset impairment charges associated with the divestiture of our conventional non-foods and general merchandise lines of
business.
Unallocated corporate expenses have increased $2.0 million during the year ended July 30, 2011 compared to the year ended July 31, 2010, primarily due
to the continued development of a national platform across many functional areas including warehouse management, inbound logistics and category
management.
Total operating expenses for fiscal 2011 include share-based compensation expense of $9.2 million, compared to $8.1 million in fiscal 2010. Share-based
compensation expense for the years ended July 30, 2011 and July 31, 2010 includes approximately $0.7 million and $1.0 million, respectively, in expense
related to the performance share-based awards granted to our Chief Executive Officer related to certain financial goals for those various periods ended
July 30, 2011 and July 31, 2010. See Note 3 "Equity Plans" to our Consolidated Financial Statements included in "Item 8. Financial Statements and
Supplementary Data" of this Annual Report on Form 10-K.
As a percentage of net sales, total operating expenses decreased to approximately 15.3% for the year ended July 30, 2011, from approximately 15.5% for
the year ended July 31, 2010. The decrease in total operating expenses as a percentage of net sales was primarily attributable to the growth in the supernatural
and conventional supermarket channels which in general have lower operating expenses, as well as expense control programs across all of our divisions. We
were able to manage our fuel costs despite rising prices by locking in the price of a portion of our expected fuel usage, updating and revising existing routes to
reduce miles traveled, reducing idle times and other similar measures. Our expansion into Lancaster, Texas, where our new leased facility began servicing
customers in late September 2010, has helped to further reduce our fuel costs as a percentage of net sales as we are able to reduce the number of miles
traveled to serve our customers in Texas, Oklahoma, New Mexico,
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Arkansas and Louisiana who were previously primarily served from our facility in Denver, Colorado. These improvements in our operating expenses were
offset in part by higher health insurance costs, higher workers' compensation costs and the above described higher incentive compensation costs.
Operating Income
Operating income increased approximately 12.9%, or $14.8 million, to $129.7 million for the year ended July 30, 2011, from $114.9 million for the year
ended July 31, 2010. As a percentage of net sales, operating income was 2.9% for the year ended July 30, 2011 compared to 3.1% for the year ended July 31,
2010. The decrease in operating income is primarily attributable to the increase in total operating expenses during fiscal 2011, including the $6.3 million
recognized for restructuring and asset impairment expenses, compared to fiscal 2010.
Other Expense (Income)
Other expense (income) increased $0.3 million to $3.2 million for the year ended July 30, 2011, from $2.9 million for the year ended July 31, 2010.
Interest expense for the year ended July 30, 2011 decreased to $5.0 million from $5.8 million in the year ended July 31, 2010. The decrease in interest
expense was due primarily to lower average debt levels during the year as we used a portion of the $138.3 million in proceeds from our secondary public
offering completed in October 2010 to pay down our debt balances which had increased significantly in the fourth quarter of fiscal 2010 as we financed our
purchase of the SDG assets from SunOpta with borrowings under our revolving credit facility. In connection with the expected purchase of the SDG assets,
we entered into a forward contract to swap United States dollars for Canadian dollars. During the fourth quarter of fiscal 2010, we recognized a gain of
$2.8 million, which was recorded in other income, upon settlement of the contract. Interest income for the year ended July 30, 2011 increased to $1.2 million
from $0.2 million in the year ended July 31, 2010, primarily as a result of higher average cash balances during the year.
Provision for Income Taxes
Our effective income tax rate was 39.4% and 39.0% for the years ended July 30, 2011 and July 31, 2010, respectively. The increase in the effective
income tax rate for the year ended July 30, 2011 is primarily due to increases in effective state tax rates. Our effective income tax rate in both fiscal years was
also affected by share-based compensation for incentive stock options and the timing of disqualifying dispositions of certain share-based compensation
awards. Certain incentive stock option expenses are not deductible for tax purposes unless a disqualifying disposition occurs. A disqualifying disposition
occurs when the option holder sells shares within one year of exercising an incentive stock option and within two years of original grant. We receive a tax
benefit in the period that the disqualifying disposition occurs. Our effective income tax rate will continue to be effected by the tax impact related to incentive
stock options and the timing of tax benefits related to disqualifying dispositions.
Net Income
Reflecting the factors described in more detail above, net income increased $8.4 million to $76.7 million, or $1.60 per diluted share, for the year ended
July 30, 2011, compared to $68.3 million, or $1.57 per diluted share on a lower share base, for the year ended July 31, 2010.
Liquidity and Capital Resources
In October 2010, we completed a secondary public offering of our common stock. As a result, 4,427,500 shares of common stock, including shares
issued to cover the underwriters' overallotment option, were issued at a price of $33.00 per share. The net proceeds of approximately $138.3 million
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were used to repay a portion of our outstanding borrowings under our then existing revolving credit facility.
We finance our day to day operations and growth primarily with cash flows from operations, borrowings under our credit facility, operating leases, trade
payables and bank indebtedness. In addition, from time to time, we may issue equity and debt securities to finance our operations and acquisitions. We believe
that our cash on hand and available credit through our amended and restated revolving credit facility as discussed below is sufficient for our operations and
planned capital expenditures over the next twelve months. We expect to generate an average of $70 million to $100 million in cash flow from operations per
year for the 2013 and 2014 fiscal years. We intend to continue to utilize this cash generated from operations to pay down our debt levels, and fund working
capital and capital expenditure needs. We intend to manage capital expenditures to no more than approximately 1.3% of net sales for fiscal 2013.
In May 2012, we amended and restated our revolving credit facility, pursuant to which we now have a $500 million revolving credit facility which
matures on May 24, 2017, of which up to $450.0 million is available to the Company's U.S. subsidiaries and up to $50.0 million is available to UNFI Canada.
This credit facility also provides a one-time option, subject to approval by the lenders under the revolving credit facility, to increase the borrowing base by up
to an additional $100 million. The borrowings of the US portion of the credit facility accrue interest, at our option, at either (i) a base rate (generally defined
as the highest of (x) the Bank of America Business Capital prime rate, (y) the average overnight federal funds effective rate plus one-half percent (0.50%) per
annum and (z) one-month LIBOR plus one percent (1%) per annum plus an initial margin of 0.50%, or (ii) LIBOR for one, two, three or six months or, if
approved by all affected lenders, nine months plus an initial margin of 1.50%. The borrowings on the Canadian portion of the credit facility for Canadian
swing-line loans, Canadian overadvance loans or Canadian protective advances accrue interest, at our option, at either (i) a prime rate (generally defined as
the highest of (x) 0.50% over 30-day Reuters Canadian Deposit Offering Rate for bankers' acceptances, (y) the prime rate of Bank of America, N.A.'s Canada
branch, and (z) a bankers' acceptance equivalent rate for a one month interest period plus 1.00% plus an initial margin of 0.50%, or (ii) the CDOR rate, and an
initial margin of 1.50%. All other borrowings on the Canadian portion of the credit facility must exclusively accrue interest under the CDOR rate plus the
applicable margin. The revolving credit facility supports our working capital requirements in the ordinary course of business and provides capital to grow our
business organically or through acquisitions. Our borrowing base is determined as the lesser of (1) $500 million or (2) the fixed percentages of our previous
fiscal month-end eligible accounts receivable and inventory levels. As of July 28, 2012, our borrowing base, which was calculated based on our eligible
accounts receivable and inventory levels, was $483.7 million. As of July 28, 2012, we had $115.0 million outstanding under our credit facility, $24.0 million
in letter of credit commitments and $2.9 million in reserves which reduces our available borrowing capacity under our revolving credit facility on a dollar for
dollar basis. Our resulting remaining availability was $341.8 million as of July 28, 2012. The revolving credit facility, as amended and restated, subjects us to
a springing minimum fixed charge coverage ratio (as defined in the underlying credit agreement) of 1.0 to 1.0 calculated at the end of each of our fiscal
quarters on a rolling four quarter basis when aggregate availability (as defined in the underlying credit agreement) is less than the greater of (i) $35.0 million
and (ii) 10% of the aggregate borrowing base. We were not subject to fixed charge coverage ratio covenants as of the fiscal year ended July 28, 2012.
Our amended and restated revolving credit facility includes borrowing rates that are approximately 50 to 100 basis points higher than our prior revolving
credit facility, depending on remaining availability. However, we do not expect our overall interest expense to increase significantly if rates remain relatively
stable as we have terminated our higher fixed rate interest rate swap, which covered our term loan.
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In connection with the amended and restated revolving credit facility above, we used a portion of our availability to pay off our term loan agreement,
which was maturing on July 28, 2012. At that time, our interest rate swap entered into in July 2005 was settled concurrently with a payment of $0.3 million
which is reflected within interest expense during the fiscal year ended July 28, 2012.
Our capital expenditures for the 2012 fiscal year were $31.5 million, compared to $40.8 million for fiscal 2011. The decrease was partially due to a
decision to delay certain construction related projects until fiscal 2013. We believe that our capital requirements for fiscal 2013 will be between $70 and
$80 million. We expect to finance these requirements with cash generated from operations and borrowings under our revolving credit facility. Our planned
capital projects will provide both additional warehouse space (including through the build out of our new Aurora, Colorado facility) and technology that we
believe will provide us with increased efficiency and the capacity to continue to support the growth of our customer base. We believe that our future capital
requirements after fiscal 2013 will be marginally lower than our anticipated fiscal 2013 requirements, as a percentage of net sales, although we plan to
continue to invest in technology and expand our facilities. Future investments and acquisitions will be financed through our revolving credit facility, or with
the issuance of equity or long-term debt, negotiated at the time of the potential acquisition.
Net cash provided by operations was $66.2 million for the year ended July 28, 2012, an increase of $16.4 million from the $49.8 million provided by
operations for the year ended July 30, 2011. The primary reasons for the increase in cash flows from operations for the year ended July 28, 2012 were net
income of $91.3 million, partially offset by an increase in inventories of $62.8 million and an increase in accounts receivable of $51.2 million due to our sales
growth during the year, and in the case of accounts receivable, in part due to the longer credit terms typically granted to conventional supermarket and
Canadian customers. Net cash provided by operations of $66.1 million for the year ended July 31, 2010 was primarily the result of an increase in net income,
partially offset by changes in working capital. Days in inventory was 50 days at July 28, 2012, compared to 51 days at July 30, 2011. Days sales outstanding
remained at 22 days at July 28, 2012 and July 30, 2011. Working capital increased by $231.6 million, or 60.8%, to $612.7 million at July 28, 2012, compared
to working capital of $381.1 million at July 30, 2011, primarily as a result of the refinance of our revolving credit facility which is now reflected as a long-
term liability.
Net cash used in investing activities decreased $28.2 million to $34.5 million for the year ended July 28, 2012, compared to $62.7 million for the year
ended July 30, 2011. The decrease from the fiscal year ended July 30, 2011 was primarily due to the purchase of the Rocky Mountain and Southwest
distribution business of Whole Foods Distribution, a wholly owned subsidiary of Whole Foods Market, during the year ended July 30, 2011. Net cash used in
investing activities was $118.7 million for the year ended July 31, 2010, primarily as a result of the purchase of the SDG assets from SunOpta, as well as
capital expenditures related to our Lancaster, Texas facility including the supply chain initiatives related to warehouse management software which went live
with that facility.
Net cash used in financing activities was $32.8 million for the year ended July 28, 2012, primarily due to repayments on long-term debt of $47.4 million
as we paid off our term loan with availability under our amended and restated revolving credit facility. Net cash provided by financing activities was
$16.3 million for the year ended July 30, 2011, primarily due to net proceeds from our secondary equity offering of $138.3 million, partially offset by
repayments on borrowings on notes payable of $127.6 million. Net cash provided by financing activities was $56.0 million for the year ended July 31, 2010,
primarily due to borrowings under notes payable of $42.6 million.
On December 1, 2004, our Board of Directors authorized the repurchase of up to $50 million of common stock from time to time in the open market or in
privately negotiated transactions. As part of the stock repurchase program, we purchased 228,800 shares of our common stock for our treasury during the year
ended July 29, 2006 at an aggregate cost of approximately $6.1 million. All shares were
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purchased at prevailing market prices. No such purchases were made subsequent to the 2006 fiscal year, and the authorization to repurchase has expired. In an
effort to reduce the treasury share balance, we decided in the fourth quarter of fiscal 2010 to issue treasury shares to satisfy certain share requirements related
to exercises of stock options and vesting of restricted stock units and awards under our equity incentive plans. During the fiscal year ended July 31, 2010, we
reissued 201,814 shares from treasury related to stock option exercises and the vesting of restricted stock units and awards. During the fiscal year ended
July 28, 2012, we reissued 26,986 shares from treasury related to stock option exercises.
We may from time to time enter into commodity swap agreements to reduce price risk associated with our anticipated purchases of diesel fuel. These
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." During
the fiscal years ended July 28, 2012 and July 30, 2011, we had no outstanding commodity swap agreements.
In addition to the previously discussed interest rate and commodity swap agreements, from time-to-time we enter into fixed price fuel supply agreements.
As of July 28, 2012, we had entered into agreements which required us to purchase a total of approximately 4.3 million gallons of diesel fuel at prices ranging
from $3.33 to $3.91 per gallon through July 2013. As of July 30, 2011, we had not entered into any agreements requiring us to purchase diesel fuel. These
fixed price fuel agreements qualified for the "normal purchase" exception under ASC 815, Derivatives and Hedging as physical deliveries will occur rather
than net settlements, therefore the fuel purchases under these contracts will be expensed as incurred and included within operating expenses.
Commitments and Contingencies
The following schedule summarizes our contractual obligations and commercial commitments as of July 28, 2012:
Inventory purchase commitments
Diesel fuel purchase commitments
Notes payable
Long-term debt
Deferred compensation
Long-term non-capitalized leases
Total
Total
24,040 $
15,608
115,000
985
12,768
311,043
479,444 $
$
$
24,040
15,608
—
350 $
1,149
45,640
86,787 $
Less than
One Year
Payments Due by Period
1–3
Years
(in thousands)
—
3–5
Years
Thereafter
—
—
— $
635
2,579
78,569
81,783 $
115,000
—
2,444 $
63,926
181,370 $
—
—
6,596
122,908
129,504
The notes payable, long-term debt and long-term non-capitalized lease obligations shown above exclude interest payments due. The notes payable
obligations shown reflect the expiration of the credit facility, not necessarily the underlying individual borrowings. In addition, cash to be paid for income
taxes is excluded from the table above.
We had outstanding letters of credit of approximately $24.0 million at July 28, 2012.
Seasonality
Generally, we do not experience any material seasonality. However, our sales and operating results may vary significantly from quarter to quarter due to
factors such as changes in our operating expenses,
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management's ability to execute our operating and growth strategies, personnel changes, demand for natural products, supply shortages and general economic
conditions.
Recently Issued Financial Accounting Standards
In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2011-04, Fair Value Measurement
(Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting
Standards ("ASU 2011-04"). ASU 2011-04 provides a consistent definition of fair value and seeks to ensure that fair value measurements and disclosure
requirements are similar between U.S. GAAP and IFRS. This guidance changes certain fair value measurement principles and enhances the disclosure
requirements for fair value measurements. The amendments in this ASU are effective for interim and annual fiscal periods beginning after December 15, 2011
and are applied prospectively. Our adoption of ASU 2011-04 effective April 28, 2012 did not have a material impact on our consolidated financial statements.
In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income ("ASU 2011-05").
ASU 2011-05 increases the prominence of other comprehensive income in financial statements and provides an entity the option to present the components of
net income and comprehensive income in either one or two consecutive financial statements. ASU 2011-05 eliminates the option to present other
comprehensive income in the statement of changes in equity. ASU 2011-05 is effective retrospectively for fiscal years, and interim periods within those years,
beginning after December 15, 2011, with early adoption permitted. In December 2011 the FASB issued ASU 2011-12, Comprehensive Income (Topic 220),
whereby the effective date of those changes in ASU 2011-05 that relate to the presentation of reclassification adjustments in the income statement are deferred
to provide the FASB with more time to consider whether to present the effects of reclassifications out of accumulated other comprehensive income on the face
of the financial statements for all periods presented. We intend to adopt ASU 2011-05 effective July 29, 2012, which impacts only the presentation of our
consolidated financial statements.
In September 2011, the FASB issued ASU 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment ("ASU 2011-08").
ASU 2011-08 modifies the impairment test for goodwill and indefinite lived intangibles so that it is no longer required to calculate the fair value of a reporting
unit unless the company believes, based on qualitative factors, it is more likely than not that the reporting unit's or indefinite lived intangible asset's fair value
is less than the carrying value. ASU 2011-08 is effective for fiscal years that begin after December 15, 2011, with early adoption allowed. We have adopted
ASU 2011-08 effective July 30, 2011, see Valuation of goodwill and intangible assets for further information.
In September 2011, the FASB issued ASU 2011-09, Compensation—Retirement Benefits—Multiemployer Plans (Topic 715-80): Disclosures about an
Employer's Participation in a Multiemployer Plan ("ASU 2011-09"). ASU 2011-09 requires additional disclosures about employers' participation in
multiemployer pension plans including information about the plan's funded status if it is readily available. The ASU is effective retrospectively for annual
periods for fiscal years ending after December 15, 2011 for public entities, with early adoption permitted. We adopted ASU 2011-09 effective July 28, 2012,
which did not have a material effect on our consolidated financial statements.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are exposed to interest rate fluctuations on our borrowings. As more fully described in Note 8 "Fair Value Measurements" to the Consolidated
Financial Statements included in "Item 8. Financial Statements and Supplementary Data" of this Annual Report on Form 10-K, we have used interest rate
swap agreements to modify variable rate obligations to fixed rate obligations.
During the fiscal year ended July 28, 2012, we were a party to an interest rate swap agreement entered into in July 2005 (the "2005 swap"), which was
set to expire in July 2012 concurrent with the maturity of our term loan. The 2005 swap was terminated in connection with our repayment of all borrowings
under the term loan during the fourth quarter of fiscal 2012. The 2005 swap had an initial notional principal amount of $50 million and provided for us to pay
interest for a seven-year period at a fixed rate of 4.70% while receiving interest for the same period at one-month LIBOR on the same notional principal
amount. The 2005 swap had an amortizing notional amount which adjusted down on the dates payments were due on the underlying term loan. The 2005
swap had been entered into as a hedge against LIBOR movements on current variable rate indebtedness at one-month LIBOR plus 1.00%, thereby fixing our
effective rate on the notional amount at 5.70%. We accounted for the 2005 swap using hedge accounting treatment because the derivative has been determined
to be highly effective in achieving offsetting changes in cash flows of the hedged item. Under this method of accounting, we had recorded a liability of
$1.3 million representing the fair value of the swap as of July 30, 2011. There was no liability recorded as of July 28, 2012 due to the settlement of the swap
in conjunction with the payoff of the underlying term loan in May 2012. We do not enter into derivative agreements for trading purposes.
At July 28, 2012, we had long-term floating rate debt under our amended and restated revolving credit facility of $115.0 million and long-term fixed rate
debt of $1.0 million, representing 99% and 1%, respectively, of our long-term borrowings. At July 30, 2011, we had long-term floating rate debt of
$47.1 million and long-term fixed rate debt of $1.3 million, representing 97% and 3%, respectively, of our long-term borrowings. Holding other debt levels
constant, a 25 basis point decrease in interest rates would change the unrealized fair market value of the fixed rate debt by approximately $3,000 and $6,000 at
July 28, 2012 and July 30, 2011, respectively.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements listed below are filed as part of this Annual Report on Form 10-K.
INDEX TO FINANCIAL STATEMENTS
United Natural Foods, Inc. and Subsidiaries:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
50
52
53
54
55
56
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
United Natural Foods, Inc:
We have audited the accompanying consolidated balance sheets of United Natural Foods, Inc. and subsidiaries as of July 28, 2012 and July 30, 2011, and
the related consolidated statements of income, stockholders' equity, and cash flows for each of the fiscal years in the three-year period ended July 28, 2012.
We also have audited United Natural Foods, Inc.'s internal control over financial reporting as of July 28, 2012, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). United Natural Foods, Inc.'s
management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control
Over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company's internal
control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether
effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed 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. A company's internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
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In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of United Natural
Foods, Inc. and subsidiaries as of July 28, 2012 and July 30, 2011, and the results of their operations and their cash flows for each of the fiscal years in the
three-year period ended July 28, 2012, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of July 28, 2012, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Providence, Rhode Island
September 26, 2012
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UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
July 28,
2012
July 30,
2011
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowance of $6,249 and $4,545, respectively
Inventories
Deferred income taxes
Prepaid expenses and other current assets
Total current assets
Property & equipment, net
Goodwill
Intangible assets, net of accumulated amortization of $10,809 and $8,143, respectively
Other long-term assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
Notes payable
Accrued expenses and other current liabilities
Current portion of long-term debt
Total current liabilities
Notes payable
Deferred income taxes
Other long-term liabilities
Long-term debt, excluding current portion
Total liabilities
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; 49,011 issued and outstanding shares at
July 28, 2012; 48,520 issued and 48,493 outstanding shares at July 30, 2011
Additional paid-in capital
Treasury stock
Unallocated shares of Employee Stock Ownership Plan
Accumulated other comprehensive income
Retained earnings
Total stockholders' equity
Total liabilities and stockholders' equity
See accompanying notes to consolidated financial statements.
52
$
16,122 $
305,177
578,555
25,353
21,654
946,861
278,455
193,741
52,496
22,393
16,867
257,116
514,506
22,023
33,980
844,492
285,151
191,943
58,336
21,066
$1,493,946 $1,400,988
$ 242,179 $ 217,074
115,000
—
83,900
91,632
47,447
350
463,421
334,161
—
115,000
38,551
36,260
28,363
29,174
635
986
531,321
515,230
—
—
490
364,598
—
(89)
1,896
611,821
978,716
485
345,036
(708)
(542)
4,862
520,534
869,667
$1,493,946 $1,400,988
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UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Net sales
Cost of sales
Gross profit
Operating expenses
Restructuring and asset impairment expenses
Total operating expenses
Operating income
Other expense (income):
Interest expense
Interest income
Other, net
Total other expense
Income before income taxes
Provision for income taxes
Net income
Basic per share data:
Net income
Weighted average basic shares of common stock
Diluted per share data:
Net income
Weighted average diluted shares of common stock
July 28, 2012
Fiscal year ended
July 30, 2011
July 31, 2010
$
5,236,021 $
4,320,018
916,003
4,530,015 $
3,705,205
824,810
3,757,139
3,060,208
696,931
755,744
5,101
760,845
688,859
6,270
695,129
582,029
—
582,029
155,158
129,681
114,902
4,734
(715)
356
4,375
5,000
(1,226)
(528)
3,246
5,845
(247)
(2,698)
2,900
150,783
59,441
91,342 $
126,435
49,762
76,673 $
112,002
43,681
68,321
1.87 $
1.62 $
48,766
47,459
1.86 $
1.60 $
49,100
47,815
1.58
43,184
1.57
43,425
$
$
$
See accompanying notes to consolidated financial statements.
53
Table of Contents
(In thousands)
Balances at
August 1,
2009
Allocation of
shares to
ESOP
Stock option
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Treasury Stock
Shares Amount Shares Amount
Additional
Paid in
Capital
Unallocated
Shares of
ESOP
Accumulated
Other
Comprehensive
(Loss) Income
Retained
Earnings
Total
Stockholders'
Equity
43,237
432 229 (6,092) 175,182
(877)
(1,623) 377,450
544,472
164
164
321
3 (202) 5,384
3,666
(1,910)
7,143
8,057
1,822
8,057
1,822
128
340
68,321
68,789
128
340
68,321
27 $ (708)$188,727 $ (713)
$
(1,155)$443,861 $ 630,447
171
171
comprehensive
income
Balances at
July 31, 2010 43,558 $ 435
4,428
44
138,257
138,301
534
6
7,348
9,159
1,545
7,354
9,159
1,545
732
5,285
76,673
82,690
732
5,285
76,673
comprehensive
income
Balances at
July 30, 2011 48,520 $ 485
27 $ (708)$345,036 $ (542)
$
4,862 $520,534 $ 869,667
453
453
491
5
(27)
708
5,386
(55)
6,044
11,372
2,804
11,372
2,804
exercises and
restricted
stock vestings,
net
Share-based
compensation
Tax benefit
associated
with stock
plans
Fair value of
swap
agreement, net
of tax
Foreign currency
translation
Net income
Total
Allocation of
shares to
ESOP
Issuance of
common stock
pursuant to
secondary
offering, net of
direct offering
costs
Stock option
exercises and
restricted
stock vestings,
net
Share-based
compensation
Tax benefit
associated
with stock
plans
Fair value of
swap
agreements,
net of tax
Foreign currency
translation
Net income
Total
Allocation of
shares to
ESOP
Stock option
exercises and
restricted
stock vestings,
net
Share-based
compensation
Tax benefit
associated
with stock
plans
Fair value of
swap
agreements,
net of tax
Foreign currency
translation
Net income
Total
comprehensive
income
Balances at
July 28, 2012 49,011 $ 490 — $ — $364,598 $
763
(3,729)
91,342
763
(3,729)
91,342
88,376
(89)
$
1,896 $611,821 $ 978,716
See accompanying notes to consolidated financial statements.
54
Table of Contents
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating activites:
Depreciation and amortization
Deferred income tax (benefit) expense
Share-based compensation
Excess tax benefits from share-based payment arrangements
(Gain) loss on disposals of property and equipment
Impairment on long-term assets
Impairment on indefinite lived intangibles
Unrealized gain (loss) on foreign exchange
Realized gain on hedge related to Canadian acquisition
Provision for doubtful accounts
Changes in assets and liabilities, net of acquired companies:
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable
Accrued expenses
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures
Purchases of acquired businesses, net of cash acquired
Cash proceeds from hedge related to Canadian acquisition
Proceeds from disposals of property and equipment
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from common stock issuance
Net (repayments) borrowings under notes payable
Repayments of long-term debt
Increase in bank overdraft
Proceeds from exercise of stock options
Payment of employee restricted stock tax withholdings
Excess tax benefits from share-based payment arrangements
Capitalized debt issuance costs
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized
Federal and state income taxes, net of refunds
$
$
$
See accompanying notes to consolidated financial statements.
55
Years Ended
July 28, 2012 July 30, 2011 July 31, 2010
$
91,342 $
76,673 $
68,321
39,560
(6,115)
11,372
(2,804)
(313)
—
—
(468)
—
3,532
(51,193)
(62,822)
15,050
16,095
13,008
66,244
(31,492)
(3,297)
—
332
(34,457)
35,296
15,520
9,159
(1,545)
(42)
5,790
200
318
—
635
(39,791)
(66,283)
(12,283)
9,583
16,614
49,844
(40,778)
(22,061)
—
96
(62,743)
—
—
(47,447)
8,673
7,571
(1,526)
2,804
(2,905)
(32,830)
298
(745)
16,867
16,122 $
138,301
(127,570)
(5,033)
1,739
10,162
(2,808)
1,545
—
16,336
(372)
3,065
13,802
16,867 $
27,483
5,061
8,057
(1,822)
229
—
—
(61)
(2,814)
1,149
(21,599)
(55,803)
(3,284)
32,491
8,724
66,132
(55,109)
(66,556)
2,814
180
(118,671)
—
42,570
(5,412)
9,982
8,481
(1,338)
1,822
(68)
56,037
35
3,533
10,269
13,802
4,734 $
4,752 $
4,465
52,666 $
42,018 $
35,538
Table of Contents
UNITED NATURAL FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES
(a)
Nature of Business
United Natural Foods, Inc. and subsidiaries (the "Company") is a leading distributor and retailer of natural, organic and specialty products. The Company
sells its products primarily throughout the United States and Canada.
(b)
Basis of Presentation
The accompanying financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year's
presentation.
The fiscal year of the Company ends on the Saturday closest to July 31. Fiscal 2012, 2011 and 2010 ended on July 28, 2012, July 30, 2011, and July 31,
2010, respectively. Each of these fiscal years contained 52 weeks, and each of the Company's interim quarters consisted of 13 weeks.
Net sales consists primarily of sales of natural, organic and specialty products to retailers, adjusted for customer volume discounts, returns and
allowances. Net sales also includes amounts charged by the Company to 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
Company's distribution centers. Cost of sales also includes amounts incurred by the Company's manufacturing subsidiary, United Natural Trading Co., which
does business as Woodstock Farms Manufacturing, for inbound transportation costs and depreciation for manufacturing equipment offset by 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 Company's Employee Stock Ownership Plan), warehousing and delivery, selling, occupancy, insurance,
administrative, share-based compensation and amortization expense. Operating expenses also include depreciation expense related to the wholesale and retail
divisions. Other expense (income) includes interest on outstanding indebtedness, interest income and miscellaneous income and expenses. In fiscal 2010,
other expense (income) includes the gain recorded by the Company upon settlement of a forward contract entered into by the Company to swap United States
dollars for Canadian dollars.
(c)
Cash Equivalents
Cash equivalents consist of highly liquid investments with original maturities of three months or less.
(d)
Inventories and Cost of Sales
Inventories consist primarily of finished goods and are stated at the lower of cost or market, with cost being determined using the first-in, first-out (FIFO)
method. Allowances received from suppliers are recorded as reductions in cost of sales upon the sale of the related products.
(e)
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Equipment under capital leases is stated at the lower of the
present value of minimum lease payments at the inception of the lease or the fair value of the asset. Depreciation and amortization of property and equipment
is computed on a straight-line basis, over the estimated useful lives of the assets or, when applicable, the life of the lease, whichever is shorter. Applicable
interest charges incurred during the construction of new facilities may be capitalized as one of the elements of cost and amortized over
56
Table of Contents
the assets' estimated useful lives. There was no interest capitalized during the year ended July 28, 2012 and July 30, 2011. Interest capitalized for the year
ended July 31, 2010 was less than $0.1 million.
Property and equipment consisted of the following at July 28, 2012 and July 30, 2011:
Land
Buildings and improvements
Leasehold improvements
Warehouse equipment
Office equipment
Computer software
Motor vehicles
Construction in progress
Less accumulated depreciation and amortization
Net property and equipment
Original
Estimated
Useful Lives
(Years)
2012
(In thousands, except years)
$
20-40
5-20
3-30
3-10
3-7
3-7
$
13,311 $
160,940
85,648
104,310
68,674
50,998
4,562
12,072
500,515
222,060
278,455 $
2011
13,241
158,790
77,605
88,643
58,643
40,986
4,182
15,428
457,518
172,367
285,151
Depreciation expense amounted to $35.2 million, $31.1 million and $25.0 million for the fiscal years ended July 28, 2012, July 30, 2011 and July 31,
2010, respectively.
(f)
Income Taxes
The Company accounts for income taxes under the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. The Company includes interest and penalties related to unrecognized tax benefits as a component of
income tax expense.
(g)
Long-Lived Assets
Management reviews long-lived assets, including finite-lived intangible assets, for indicators of impairment whenever events or changes in
circumstances indicate that the carrying value of the assets may not be recoverable. Cash flows expected to be generated by the related assets are estimated
over the assets' useful lives based on updated projections. If the evaluation indicates that the carrying amount of an asset may not be recoverable, the potential
impairment is measured based on a projected discounted cash flow model.
(h)
Goodwill and Intangible Assets
Goodwill represents the excess of cost over the fair value of net assets acquired in a business combination. Goodwill and other intangible assets with
indefinite lives are not amortized. Intangible assets with definite lives are amortized on a straight-line basis over the following lives:
Goodwill is assigned to the reporting units that are expected to benefit from the synergies of the business combination. The Company is required to test
goodwill for impairment at least annually, and between annual tests if events occur or circumstances change that would more likely than not reduce
Customer relationships
Trademarks and tradenames
7-10 years
4-10 years
57
Table of Contents
the fair value of a reporting unit below its carrying amount. During the first quarter of the 2011 fiscal year, the Company performed a test for goodwill
impairment as a result of the expected change in future cash flows for certain of its branded product lines, and determined that no impairment existed. The
Company has elected to perform its annual tests for indications of goodwill impairment during the fourth quarter of each fiscal year.
In accordance with ASU 2011-08, the Company is allowed to perform a qualitative assessment unless it believes it is more likely than not that a reporting
unit's fair value is less than the carrying value. The thresholds used by the Company for this determination in fiscal 2012 were for any reporting units that
(1) have passed their previous two-step test with a margin of calculated fair value versus carrying value of at least 10%, (2) have had no significant changes to
their working capital structure, and (3) have current year income streams which are at least 85% of prior year amounts. The Company's wholesale distribution
reporting unit and its Earth Origins Market reporting unit met this threshold. As each reporting unit's net income has not decreased more than 15% and their
working capital intensity has not increased significantly, no quantitative testing is required. For the remaining reporting units, the Company tests for goodwill
impairment at the reporting unit level based on future expected cash flows. The Company's reporting units are at or one level below the operating segment
level. Approximately 91% of the Company's goodwill is within its wholesale reporting unit. For those reporting units that did not meet the threshold above, or
that had significant changes to their cash flow profiles, the Company has performed a two-step goodwill impairment analysis. The first step, used to identify
potential impairment, involves comparing each reporting unit's estimated fair value to its carrying value, including goodwill. Each reporting unit regularly
prepares discrete operating forecasts and uses these forecasts as the basis for the assumptions used in the discounted cash flow analysis. If the estimated fair
value of a reporting unit exceeds its carrying value, goodwill is considered not to be impaired. If the carrying value exceeds estimated fair value, there is an
indication of potential impairment and the second step is performed to measure the amount of impairment. If required, the second step involves calculating an
implied fair value of goodwill for each reporting unit for which the first step indicated potential impairment. The implied fair value of goodwill is determined
in a manner similar to the amount of goodwill calculated in a business combination, by measuring the excess of the estimated fair value of the reporting unit,
as determined in the first step, over the aggregate estimated fair values of the individual assets, liabilities and identifiable. If the implied fair value of goodwill
exceeds the carrying value of goodwill assigned to the reporting unit, there is no impairment. If the carrying value of goodwill assigned to a reporting unit
exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess.
Intangible assets with indefinite lives are tested for impairment at least annually and between annual tests if events occur or circumstances change that
would indicate that the value of the asset may be impaired. Impairment is measured as the difference between the fair value of the asset and its carrying value.
As of July 28, 2012, the Company's annual assessment of goodwill for each of its reporting units and its indefinite lived intangible assets indicated that no
impairment existed.
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Table of Contents
The changes in the carrying amount of goodwill and the amount allocated by reportable segment for the years presented are as follows (in thousands):
Goodwill as of July 31, 2010
Goodwill adjustment for restructuring activities, net of tax of $179
Goodwill adjustment for prior year business combinations
Goodwill arising from fiscal 2011 business combinations
Change in foreign exchange rates
Goodwill as of July 30, 2011
Goodwill adjustment for prior year business combinations
Change in foreign exchange rates
Goodwill as of July 28, 2012
The following table presents the detail of the Company's other intangible assets (in thousands):
Total
—
—
—
—
(726)
1,210
2,743
1,791
Wholesale Other
$ 169,594 $ 17,331 $ 186,925
(726)
1,210
2,743
1,791
$ 174,612 $ 17,331 $ 191,943
3,057
(1,259)
$ 176,210 $ 17,531 $ 193,741
2,857
(1,259)
200
—
July 28, 2012
July 30, 2011
Gross
Carrying
Amount
Accumulated
Amortization Net
Gross
Carrying
Amount
Accumulated
Amortization Net
$ 32,120 $ 10,286 $21,834 $ 35,390 $ 7,856 $27,534
3,030
523 2,507
2,233
287 1,946
35,150
10,809 24,341
37,623
8,143 29,480
28,155
— 28,856
$ 63,305 $ 10,809 $52,496 $ 66,479 $ 8,143 $58,336
— 28,155
28,856
Amortizing
intangible
assets:
Customer
relationships
Trademarks and
tradenames
Total amortizing
intangible
assets
Indefinite lived
intangible
assets:
Trademarks and
tradenames
Total
Amortization expense was $4.3 million, $3.5 million and $1.9 million for the years ended July 28, 2012, July 30, 2011 and July 31, 2010, respectively.
The estimated future amortization expense for the next five fiscal years on finite lived intangible assets existing as of July 28, 2012 is shown below:
Fiscal Year:
2013
2014
2015
2016
2017
2018 and thereafter
(In thousands)
$
$
4,022
3,909
3,909
2,688
2,102
7,711
24,341
(i)
Revenue Recognition and Concentration of Credit Risk
The Company records revenue upon delivery of products. Revenues are recorded net of applicable sales discounts and estimated sales returns. Sales
incentives provided to customers are accounted for as reductions in revenue as the related revenue is recorded. The Company's sales are primarily to
customers located throughout the United States and Canada.
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Table of Contents
Whole Foods Market was the Company's largest customer in each fiscal year presented. Whole Foods Market accounted for approximately 36%, 36%,
and 35% of the Company's net sales for the years ended July 28, 2012, July 30, 2011 and July 31, 2010. There were no other customers that individually
generated 10% or more of the Company's net sales.
The Company analyzes customer creditworthiness, accounts receivable balances, payment history, payment terms and historical bad debt levels when
evaluating the adequacy of its 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.
(j)
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments including cash, accounts receivable, accounts payable and certain accrued expenses
approximate fair value due to the short-term nature of these instruments.
The following estimated fair value amounts have been determined by the Company using available market information and appropriate valuation
methodologies. Refer to footnote (8), Fair Value Measurements, for additional information regarding the fair value hierarchy. The fair value of notes payable
and long-term debt are based on the instruments' interest rate, terms, maturity date and collateral, if any, in comparison to the Company's incremental
borrowing rate for similar financial instruments. However, considerable judgment is required in interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange.
Assets:
Cash and cash equivalents
Accounts receivable
Notes receivable
Liabilities:
Accounts payable
Notes payable
Long-term debt, including current portion
Swap agreements:
Interest rate swap
(k)
Use of Estimates
July 28, 2012
July 30, 2011
Carrying Value
Fair Value
Carrying Value
Fair Value
(In thousands)
$
16,122 $
305,177
3,703
16,122
305,177
3,703
$
16,867 $
257,116
2,826
16,867
257,116
2,826
242,179
115,000
985
242,179
115,000
988
217,074
115,000
48,433
217,074
115,000
48,424
—
—
(1,259)
(1,259)
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual
results reported in future periods may be based on amounts that differ from those estimates.
(l)
Notes Receivable, Trade
The Company issues trade notes receivable to certain customers under two basic circumstances; inventory purchases for initial store openings and
overdue accounts receivable. Notes issued in connection with store openings are generally receivable over a period not to exceed twelve months. Notes issued
in connection with overdue accounts receivable may extend for periods greater than one year. All notes are issued at a market interest rate and contain certain
guarantees and collateral assignments in favor of the Company.
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Table of Contents
(m)
Share-Based Compensation
The Company adopted ASC 718, Stock Compensation ("ASC 718") effective August 1, 2005. ASC 718 requires the recognition of the fair value of
share-based compensation in net income. The Company has three share-based employee compensation plans, which are described more fully in Note 3.
Share-based compensation consists of stock options, restricted stock awards, restricted stock units, performance shares and performance units. Stock options
are granted to employees and directors at exercise prices equal to the fair market value of the Company's stock at the dates of grant. Generally, stock options,
restricted stock awards and restricted stock units granted to employees vest ratably over four years from the grant date and grants to its Board of Directors vest
ratably over two years with one third vesting immediately. Beginning in fiscal 2008, the Company's President and Chief Executive Officer has been granted
performance shares and performance units which have vested in accordance with the terms of the related Performance Share and Performance Unit
agreements. During fiscal 2012, the Company granted performance-based stock units to its executive officers that will vest if the Company achieves certain
performance metrics as of and for the year ended August 3, 2013. The Company recognizes share-based compensation expense on a straight-line basis over
the requisite service period of the individual grants, which generally equals the vesting period.
ASC 718 also requires that compensation expense be recognized for only the portion of share-based awards that are expected to vest. Therefore, we
apply estimated forfeiture rates that are derived from historical employee and director termination activity to reduce the amount of compensation expense
recognized. If the actual forfeitures differ from the estimate, additional adjustments to compensation expense may be required in future periods.
The Company receives an income tax deduction for restricted stock awards and restricted stock units when they vest and for non-qualified stock options
exercised by employees equal to the excess of the fair market value of its common stock on the vesting or exercise date over the exercised price. Excess tax
benefits (tax benefits resulting from tax deductions in excess of compensation cost recognized) are presented as a cash inflow provided by financing activities
in the accompanying consolidated statement of cash flows.
(n)
Earnings Per Share
Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted
earnings per share is calculated by adding the dilutive potential common shares to the weighted average number of common shares that were outstanding
during the period. For purposes of the diluted earnings per share calculation, outstanding stock options, restricted stock awards, restricted stock units and
performance-based awards, if applicable, are considered common stock equivalents, using the treasury stock method. 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:
Basic weighted average shares outstanding
Net effect of dilutive common stock equivalents based upon the treasury stock
method
Diluted weighted average shares outstanding
Potential anti-dilutive share-based payment awards excluded from the computation
above
61
July 28,
2012
Fiscal years ended
July 30,
2011
(In thousands)
48,766 47,459 43,184
July 31,
2010
334
241
49,100 47,815 43,425
356
88
99
791
Table of Contents
(o)
Comprehensive Income (Loss)
Comprehensive income (loss) is reported in accordance with ASC 200, Comprehensive Income, and includes net income and the change in other
comprehensive income (loss). Other comprehensive income (loss) is comprised of the net change in fair value of derivative instruments designated as cash
flow hedges, as well as foreign currency translation related to the translation of UNFI Canada from the functional currency of Canadian dollars to U.S. dollar
reporting currency. For all periods presented, the Company displays comprehensive income (loss) and its components as part of the consolidated statements of
stockholders' equity.
(p)
Derivative Financial Instruments
The Company is exposed to market risks arising from changes in interest rates, fuel costs, and with the creation and operation of UNFI Canada, foreign
currency exchange rates. The Company uses derivatives principally in the management of interest rate and fuel price exposure. However, during the fiscal
year ended July 31, 2010, the Company entered into a forward contract to exchange United States dollars for Canadian dollars in anticipation of the Canadian
dollars needed to fund the acquisition of the Canadian food distribution assets of SunOpta, Inc. The Company does not utilize derivatives that contain leverage
features. For derivative transactions accounted for as hedges, on the date the Company enters into the derivative transaction, the exposure is identified. The
Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for
undertaking the hedge transaction. In this documentation, the Company specifically identifies the asset, liability, firm commitment, forecasted transaction, or
net investment that has been designated as the hedged item and states how the hedging instrument is expected to reduce the risks related to the hedged item.
The Company measures effectiveness of its hedging relationships both at hedge inception and on an ongoing basis as needed. As of July 28, 2012, the
Company was not a party to any derivative financial instruments.
(q)
Shipping and Handling Fees and Costs
The Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with inbound freight are
generally recorded in cost of sales, whereas shipping and handling costs for selecting, quality assurance, and outbound transportation are recorded in operating
expenses. Outbound shipping and handling costs, which exclude employee benefit expenses which are not allocated, totaled $295.5 million, $266.7 million
and $222.0 million for the fiscal years ended July 28, 2012, July 30, 2011 and July 31, 2010, respectively.
(r)
Reserves for Self-Insurance
The Company is primarily self-insured for workers' compensation, and general and automobile liability insurance. It is the Company's policy to record
the self-insured portion of workers' compensation and automobile liabilities based upon actuarial methods to estimate 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.
(s)
Operating Lease Expenses
The Company records lease expense via the straight-line method. For leases with step rent provisions whereby the rental payments increase over the life
of the lease, and for leases where the Company receives rent-free periods, the Company recognizes expense based on a straight-line basis based on the total
minimum lease payments to be made over the expected lease term.
(t)
Recently Issued Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2011-04, Fair Value Measurement
(Topic 820): Amendments to Achieve Common Fair
62
Table of Contents
Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards("ASU 2011-04"). ASU 2011-04 provides a
consistent definition of fair value and seeks to ensure that fair value measurements and disclosure requirements are similar between U.S. GAAP and IFRS.
This guidance changes certain fair value measurement principles and enhances the disclosure requirements for fair value measurements. The amendments in
this ASU are effective for interim and annual fiscal periods beginning after December 15, 2011 and are applied prospectively. The Company's adoption of
ASU 2011-04 effective April 28, 2012 did not have a material impact on the Company's consolidated financial statements.
In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income ("ASU 2011-05").
ASU 2011-05 increases the prominence of other comprehensive income in financial statements and provides an entity the option to present the components of
net income and comprehensive income in either one or two consecutive financial statements. ASU 2011-05 eliminates the option to present other
comprehensive income in the statement of changes in stockholders' equity. ASU 2011-05 is effective retrospectively for fiscal years, and interim periods
within those years, beginning after December 15, 2011, with early adoption permitted. In December 2011 the FASB issued ASU 2011-12, Comprehensive
Income (Topic 220), whereby the effective date of those changes in ASU 2011-05 that relate to the presentation of reclassification adjustments in the income
statement are deferred to provide the FASB with more time to consider whether to present the effects of reclassifications out of accumulated other
comprehensive income on the face of the financial statements for all periods presented. The Company intends to adopt ASU 2011-05 effective July 29, 2012,
which impacts only the presentation of the Company's consolidated financial statements.
In September 2011, the FASB issued ASU 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment ("ASU 2011-08").
ASU 2011-08 modifies the impairment test for goodwill and indefinite lived intangibles so that it is no longer required to calculate the fair value of a reporting
unit unless it believes it is more likely than not that the reporting unit's fair value is less than the carrying value. ASU 2011-08 is effective for fiscal years that
begin after December 15, 2011, with early adoption permitted. The Company adopted ASU 2011-08 effective July 30, 2011, which did not have a material
effect on the Company's consolidated financial statements.
In September 2011, the FASB issued ASU 2011-09, Compensation—Retirement Benefits—Multiemployer Plans (Topic 715-80): Disclosures about an
Employer's Participation in a Multiemployer Plan ("ASU 2011-09"). ASU 2011-09 requires additional disclosures about employers' participation in
multiemployer pension plans including information about the plan's funded status if it is readily available. The ASU is effective for annual periods for fiscal
years ending after December 15, 2011 for public entities, with early adoption permitted. An entity is required to apply the ASU retrospectively for all periods
presented. The Company adopted ASU 2011-09 effective July 28, 2012, which did not have a material effect on the Company's consolidated financial
statements.
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(2) ACQUISITIONS
Wholesale Segment
Canadian expansion. During the second quarter of fiscal 2012, through its wholly-owned subsidiary, UNFI Canada, the Company acquired
substantially all of the assets of a private specialty food distribution business located in Ontario, Canada. Total cash consideration paid in connection with this
acquisition was $3.0 million. In addition, the asset purchase agreement provides for potential earn-outs of up to $1.95 million from November 2011 through
November 2014. This acquisition was financed through borrowings under the Company's then existing revolving credit facility. The fair value assigned to an
identifiable intangible asset acquired was determined by using an income approach. The identifiable intangible asset recorded based on the provisional
valuation includes a customer list of $0.8 million, which is being amortized on a straight-line basis over an estimated useful life of approximately 9.7 years.
Significant assumptions utilized in the income approach were based on company-specific information and projections, which are not observable in the market
and are considered Level 3 measurements as defined by authoritative guidance. The Company is still completing the final valuation of the acquired intangible
and therefore the Company's estimates and assumptions are subject to change within the measurement period. Acquisition costs related to this purchase are
insignificant, and have been expensed as incurred and are included within "Operating Expenses" in the Consolidated Statements of Income. Net sales resulting
from the acquisition have been included in the Company's results since November 15, 2011, however, neither these sales nor the increase in total assets
related to this acquisition were significant compared to the Company's consolidated amounts.
Whole Foods Distribution. During the first quarter of fiscal 2012, the Company finalized its valuation of the customer relationship intangible asset
related to the first quarter fiscal 2011 acquisition of the Rocky Mountain and Southwest distribution business of Whole Foods Market Distribution, Inc.
("Whole Foods Distribution"), a wholly owned subsidiary of Whole Foods Market, Inc., whereby the Company (i) acquired inventory at Whole Foods
Distribution's Aurora, Colorado and Austin, Texas distribution centers; (ii) acquired substantially all of Whole Foods Distribution's assets, other than the
inventory, at the Aurora, Colorado distribution center; (iii) assumed Whole Foods Distribution's obligations under the existing lease agreement related to the
Aurora, Colorado distribution center; and (iv) hired substantially all of Whole Foods Distribution's employees working at the Aurora, Colorado distribution
center. Incremental net sales resulting from the transaction totaled approximately $25.4 million and $131.6 million for the years ended July 28, 2012 and
July 30, 2011, respectively. The Company does not record the expenses for this business separately from the rest of its broadline distribution business, and
therefore it is impracticable for the Company to provide complete financial results for this business.
The following table summarizes the consideration paid for the acquisition and the amounts of assets acquired and liabilities assumed recognized at the
acquisition date:
Inventory
Property & equipment
Customer relationships and other intangible assets
Goodwill
Total assets
Liabilities
Cash consideration paid
64
(In thousands)
$
6,911
1,500
7,900
5,600
21,911
—
21,911
$
$
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SunOpta Distribution Group. On June 11, 2010, the Company acquired the Canadian food distribution assets of the SunOpta Distribution Group
business ("SDG") of SunOpta, through its wholly-owned subsidiary, UNFI Canada. Total cash consideration paid in connection with the acquisition was
$65.8 million. This acquisition was financed through borrowings under the Company's then existing revolving credit facility.
The following table summarizes the consideration paid for the acquisition and the amounts of assets acquired and liabilities assumed recognized at the
acquisition date:
Total current assets
Property & equipment
Customer relationships and other intangible assets
Goodwill
Total assets
Liabilities
Cash consideration paid
(In thousands)
$
34,604
7,512
12,443
24,603
79,162
13,385
65,777
$
$
The translation of the consideration paid and the asset allocations above from the functional currency of Canadian dollars to US dollars were performed
utilizing the June 11, 2010 spot rate of $0.9673. The fair value assigned to identifiable intangible assets acquired was determined primarily by using an
income approach. Identifiable intangible assets include customer relationships of $11.6 million and the Aux Milles tradename of approximately $0.8 million.
The customer relationships intangible asset is being amortized on a straight-line basis over an estimated useful life of 10.1 years. During the year ended
July 28, 2012, the tradename was converted from indefinite lived to being amortized on a straight-line basis over an estimated useful life of 10 years as the
Company has changed its expectations regarding future use of the tradename. Significant assumptions utilized in the income approach were based on
company-specific information and projections, which are not observable in the market and are therefore considered Level 3 measurements as defined by
authoritative guidance. With this acquisition, the Company became the largest distributor of natural, organic and specialty foods, including kosher foods, in
Canada with an immediate platform for further growth in the Canadian market. The goodwill of $24.6 million represents the future economic benefits
expected to arise that could not be individually identified and separately recognized, including expansion of the Company's sales into the Canadian market
and expanded vendor relationships. Of the total amount of goodwill recorded, approximately $19.0 million is deductible for tax purposes.
Acquisition costs related to the establishment of UNFI Canada and the subsequent purchase of SDG were approximately $1.0 million during fiscal 2010,
and were expensed as incurred and are included within "Operating Expenses" in the Consolidated Statements of Income. Net sales for UNFI Canada,
excluding the net sales resulting from the Canadian acquisition during fiscal 2012, totaled $233.5 million and $200.7 million for the years ended July 28, 2012
and July 30, 2011, respectively. Total assets of UNFI Canada were approximately $94.7 million and $93.8 million as of July 28, 2012 and July 30, 2011,
respectively.
Other Segment
The Company recorded an increase of $0.1 million to its intangible assets during the years ended July 28, 2012 and July 30, 2011 in recognition of
ongoing contingent consideration payments in the form of royalties ranging between 2-4% of net sales (as defined in the applicable purchase agreement)
related to two of its acquisitions of assets of branded product companies during fiscal 2009. The acquisition of assets of a third branded product company
during fiscal 2009 requires ongoing contingent consideration payments in the form of earn-outs over a period of five years from the acquisition date of
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November 2008. These earn-outs are based on tiers of net sales for the trailing twelve months, and $0.2 million was paid during the year ended July 28, 2012.
(3) EQUITY PLANS
The Company recognized total share-based compensation expense of $11.4 million for the fiscal year ended July 28, 2012, compared to share-based
compensation expense of $9.2 million and $8.1 million for the fiscal years ended July 30, 2011 and July 31, 2010, respectively. The share-based
compensation expense related to performance-based share awards, including the two-year long-term incentive plan created during fiscal 2012, was
$2.1 million, $0.7 million and $1.0 million for the fiscal years ended July 28, 2012, July 30, 2011 and July 31, 2010, respectively.
As of July 28, 2012, there was $14.6 million of total unrecognized compensation cost related to outstanding share-based compensation arrangements
(including stock options, restricted stock, restricted stock units and performance-based restricted shares and units). This cost is expected to be recognized over
a weighted-average period of 2.6 years.
For stock options, 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 expected life. Expected volatilities utilized in the model are based on the
historical volatility of the Company's 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 term is derived from historical
information and other factors. The fair value of restricted stock awards, restricted stock units, and performance share units are determined based on the
number of shares or units, as applicable, granted and the quoted price of the Company's common stock as of the grant date.
The following summary presents the weighted average assumptions used for stock options granted in fiscal 2012, 2011 and 2010:
Expected volatility
Dividend yield
Risk free interest rate
Expected term (in years)
July 28,
2012
Year ended
July 30,
2011
July 31,
2010
39.3%
0.0%
0.4%
3.0
44.7%
0.0%
0.9%
3.0
45.2%
0.0%
1.4%
3.0
The Company has three equity incentive plans that provided for the issuance of stock options: the 1996 Stock Option Plan (the "1996 Plan"), the 2002
Stock Incentive Plan (the "2002 Plan"), and effective with an amendment approved by the Company's stockholders during the 2010 Annual Meeting, the 2004
Equity Incentive Plan (the "2004 Plan") (collectively, the "Plans"). The Plans provide for grants of stock options to employees, officers, directors and others.
Stock options granted 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." Beginning with the Company's fiscal 2010 grants, non-qualified stock options are being granted in place of incentive stock options to
decrease the variability in income taxes due to the timing of tax benefits from disqualifying dispositions. Vesting requirements for awards under the Plans are
at the discretion of the Company's Board of Directors, or Compensation Committee of the Board of Directors. Typically options granted to employees vest
ratably over four years, while options granted to non-employee directors vest one third immediately with the remainder vesting ratably over two years. The
maximum term of all incentive stock options granted under the Plans and non-statutory stock options granted under the 2002 Plan and the 2004 Plan, is ten
years. The maximum term for non-statutory stock options granted under the 1996 Stock Option Plan was at the discretion of the Company's Board of
Directors, and all grants have a term of
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ten years. There were 7,800,000 shares authorized for grant under the 1996 Plan and 2002 Plan. There were 1,054,267 remaining shares authorized for grant
under the 2004 Plan as of December 16, 2010, the effective date when the 2004 Plan was amended to allow for the award of stock options. These shares may
be used to issue stock options, restricted stock, restricted stock units or performance based awards. As of July 28, 2012, 49,047 and 655,574 shares were
available for grant under the 2002 Plan and 2004 Plan, respectively, and the authorization for new grants under the 1996 Plan has expired. During fiscal 2010
and fiscal 2012, the Company issued shares from treasury in addition to issuing new shares to satisfy stock option exercises and restricted stock vestings.
The following summary presents the weighted-average remaining contractual term of options outstanding at July 28, 2012 by range of exercise prices.
Exercise Price Range
$12.00 - $24.00
$24.01 - $32.00
$32.01 - $40.00
$40.01 - $48.00
Number of
Options
Outstanding
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Number of
Shares
Exercisable
Weighted
Average
Exercise Price
8,050 $
196,464 $
231,138 $
5,180 $
440,832 $
16.56
25.64
36.21
44.47
31.24
2.7
5.6
7.6
9.2
6.6
7,300
115,959
87,006
1,516
211,781
$
$
$
$
$
16.59
26.33
36.06
44.80
30.12
The following summary presents information regarding outstanding stock options as of July 28, 2012 and changes during the fiscal year then ended with
regard to options under the Plans:
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Number
of Options
Aggregate
Intrinsic
Value
Outstanding at beginning of year
Granted
Exercised
Forfeited
Cancelled
Outstanding at end of year
Exercisable at end of year
664,048
93,800
(277,977)
(35,289)
(3,750)
440,832
211,781
$
$
$
$
$
$
$
28.40
38.07
27.24
27.83
28.16
31.24
30.12
6.6 years $
10,306,862
5.0 years $
5,188,171
The weighted average grant-date fair value of options granted during the fiscal years ended July 28, 2012, July 30, 2011, and July 31, 2010 was $10.27,
$10.64 and $7.73, respectively. The aggregate intrinsic value of options exercised during the fiscal years ended July 28, 2012, July 30, 2011, and July 31,
2010, was $5.2 million, $3.9 million and $4.6 million, respectively.
The 2004 Plan was amended during fiscal 2009 to provide for the issuance of up to 2,500,000 equity-based compensation awards, and during fiscal 2011
was further amended to provide for the issuance of stock options in addition to restricted shares and units, performance shares and units, bonus shares and
stock appreciation rights. Vesting requirements for the awards under the 2004 Plan are at the discretion of the Company's Board of Directors, or the
Compensation Committee thereof, and are typically four equal annual installments for employees and three equal annual installments with one third vesting
immediately for non-employee directors. The performance units granted to the Company's President and Chief Executive Officer upon hire during fiscal 2009
vested as of July 31, 2010, those granted during March 2011 vested as of July 30, 2011 and those granted during September 2011 vested
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as of July 28, 2012, each in accordance with the terms of the related Performance Unit and Performance Share agreements. At July 28, 2012, a total of
655,574 shares were available for grant under the 2004 Plan.
The following summary presents information regarding restricted stock awards, restricted stock units, performance shares and performance units under
the 2004 Plan as of July 28, 2012 and changes during the fiscal year then ended:
Outstanding at July 30, 2011
Granted
Vested
Forfeited
Outstanding at July 28, 2012
Number
of Shares
702,143
484,361
(303,465)
(139,048)
743,991
Weighted Average
Grant-Date
Fair Value
$
$
$
$
$
29.57
38.42
30.19
32.14
34.59
The total intrinsic value of restricted stock awards and restricted stock units vested was $14.2 million, $9.1 million and $6.2 million during the fiscal
years ended July 28, 2012, July 30, 2011 and July 31, 2010, respectively. The total intrinsic value of performance share awards and performance units vested
was $1.7 million, $0.7 million and $1.0 million during the fiscal years ended July 28, 2012, July 30, 2011 and July 31, 2010, respectively.
During the year ended July 28, 2012, 25,000 performance shares and 12,500 performance units were granted (in each case subject to the issuance of an
additional 25,000 shares and 12,500 units if the Company's performance exceeded specified targeted levels) to the Company's President and CEO, the vesting
of which was contingent on the attainment of specific levels of earnings before interest and taxes and return on invested capital. The per share grant-date fair
value of these grants was $37.82. Effective July 28, 2012, an additional 6,610 units were granted and a total of 44,110 performance shares and units vested
with a corresponding intrinsic value and fair value of $1.7 million and $2.4 million, respectively.
During the year ended July 28, 2012, the Company created a new performance-based equity compensation arrangement with a 2-year performance-based
vesting component that was established for members of the Company's executive leadership team. Under this arrangement, the executives are eligible for
performance-based stock units equal to a grant-date fair value of approximately 33% of the sum of 125% of their annual base salary and 50% of their cash-
based performance award for fiscal 2012. Similar to the performance awards granted to the Company's President and CEO, if the Company's performance
exceeds specified targeted levels, the grants may be increased up to an additional 100%. These performance-based stock units vest at the end of fiscal 2013 if
the Company's performance as measured by its return on invested capital and increases in its stock price relative to a selected group of distributors meets or
exceeds targeted levels.
During the year ended July 30, 2011, 25,000 performance shares and 12,500 performance units were granted (in each case subject to the issuance of an
additional 25,000 shares and 12,500 units if the Company's performance exceeded specified targeted levels) to the Company's President and CEO, the vesting
of which was contingent on the attainment of specific levels of earnings before interest and taxes and return on invested capital. The per share grant-date fair
value of these grants was $42.03. Effective July 30, 2011, 18,924 performance shares vested with a corresponding intrinsic value and fair value of
$0.8 million. The remainder of the performance shares were forfeited, and no shares were issued for the performance units.
During the year ended July 31, 2010, 175 units, in addition to the 50,000 units granted during fiscal 2009, were granted to the Company's President and
CEO in connection with the related Performance Unit Agreement awarded on November 5, 2008. The grant-date fair value of these grants was $19.99.
Effective July 31, 2010, 50,175 units vested, with a corresponding intrinsic value and fair value of $1.0 million and $1.7 million respectively.
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(4) ALLOWANCE FOR DOUBTFUL ACCOUNTS AND NOTES RECEIVABLE
The allowance for doubtful accounts and notes receivable consists of the following:
Balance at beginning of year
Additions charged to costs and expenses
Deductions
Charged to Other Accounts(a)
Balance at end of year
(a)
Relates to acquisitions.
Fiscal year
ended
July 28, 2012
Fiscal year
ended
July 30, 2011
(In thousands)
Fiscal year
ended
July 31, 2010
$
$
5,854
3,532
(2,430)
0
6,956
$
$
7,692
635
(2,473)
0
5,854
$
$
8,876
1,149
(3,399)
1,066
7,692
The Company analyzes the details of specific transactions, overall customer creditworthiness, current accounts receivable aging, payment history, and
any available industry information when determining whether to charge off an account. In instances where a balance has been charged off, 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.
(5) RESTRUCTURING ACTIVITIES
In June 2011, the Company entered into an asset purchase agreement with L&R Distributors, Inc. ("L&R Distributors"), a leading national distributor of
non-food products and general merchandise, to divest the Company's conventional non-foods and general merchandise lines of business. The Company
entered the conventional non-foods and general merchandise businesses, which includes cosmetics, seasonal products, conventional health & beauty products
and hard goods, as part of its acquisition of Distribution Holdings, Inc. in November 2007. This strategic transaction will allow the Company to concentrate
on its core business of the distribution of natural, organic, and specialty foods and products.
In connection with this divestiture, the Company planned to cease operations at its Harrison, Arkansas distribution center and during the fourth quarter of
fiscal 2011, the Company recognized a non-cash impairment charge on long-lived assets including land, building and equipment of $5.8 million. In addition,
the Company incurred $0.5 million during the fourth quarter of fiscal 2011 to transition the specialty food line of business into the Company's other
distribution centers. Upon the closure of the Harrison, Arkansas distribution center during the first quarter of fiscal 2012, the carrying value of $2.6 million in
long-term property and equipment was reclassified to assets held for sale. During the first quarter of fiscal 2012, the Company recognized $5.1 million in
severance and other expenses related to the completion of the divestiture. During the fourth quarter of fiscal 2012, the land, buildings and equipment was sold
to a third party, resulting in a nominal gain.
(6) NOTES PAYABLE
In May 2012, the Company amended and restated its revolving credit facility, pursuant to which the Company has a $500 million secured revolving
credit facility which now matures on May 24, 2017, of which up to $450.0 million is available to the Company's U.S. subsidiaries and up to $50.0 million is
available to UNFI Canada. This credit facility also provides a one-time option, subject to approval by the lenders under the revolving credit facility, to
increase the borrowing base by up to an additional $100 million. The borrowings of the US portion of the credit facility accrue interest, at the Company's
option, at either (i) a base rate (generally defined as the highest of (x) the Bank of America Business Capital prime rate, (y) the average overnight federal
funds effective rate plus one-half percent (0.50%)
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per annum and (z) one-month LIBOR plus one percent (1%) per annum) plus an initial margin of 0.50%, or (ii) the London Interbank Offered Rate
("LIBOR") for one, two, three or six months or, if approved by all affected lenders, nine months plus an initial margin of 1.50%. The borrowings on the
Canadian portion of the credit facility for Canadian swing-line loans, Canadian overadvance loans or Canadian protective advances accrue interest, at the
Company's option, at either (i) a prime rate (generally defined as the highest of (x) 0.50% over 30-day Reuters Canadian Deposit Offering Rate for bankers'
acceptances, (y) the prime rate of Bank of America, N.A.'s Canada branch, and (z) a bankers' acceptance equivalent rate for a one month interest period plus
1.00%) plus an initial margin of 0.50%, or (ii) a bankers' acceptance equivalent rate of the rate of interest per annum equal to the annual rates applicable to
Canadian Dollar bankers' acceptances on the "CDOR Page" of Reuter Monitor Money Rates Service, plus five basis points (the "CDOR rate"), and an initial
margin of 1.50%. All other borrowings on the Canadian portion of the credit facility must exclusively accrue interest under the CDOR rate plus the applicable
margin. An annual commitment fee in the amount of 0.30% if the average daily balance of amounts actually used (other than swing-line loans) is less than
40% of the aggregate commitments, or 0.25% if such average daily balance is 40% or more of the aggregate commitments.
As of July 28, 2012, the Company's borrowing base, based on eligible accounts receivable and inventory levels, was $483.7 million. As of July 28, 2012,
the Company had $115.0 million outstanding under the Company's credit facility, $24.0 million in letter of credit commitments and $2.9 million in reserves
which generally reduces the Company's available borrowing capacity under its revolving credit facility on a dollar for dollar basis. The Company's resulting
remaining availability was $341.8 million as of July 28, 2012. During fiscal 2012, the Company used borrowings under the revolving credit facility to pay off
its term loan.
The revolving credit facility, as amended and restated, subjects the Company to a springing minimum fixed charge coverage ratio (as defined in the
underlying credit agreement) of 1.0 to 1.0 calculated at the end of each of its fiscal quarters on a rolling four quarter basis when aggregate availability (as
defined in the underlying credit agreement) is less than the greater of (i) $35.0 million and (ii) 10% of the aggregate borrowing base. The Company was not
subject to the fixed charge coverage ratio covenants as of the fiscal year ended July 28, 2012.
The credit facility also allows for the lenders thereunder to syndicate the credit facility to other banks and lending institutions. The Company has pledged
the majority of its accounts receivable and inventory for its obligations under the amended and restated credit facility.
(7) LONG-TERM DEBT
During the year ended July 28, 2012, the Company used the availability under its amended and restated revolving credit facility to pay off its term loan
agreement which accrued interest at 30 day LIBOR plus 1.0% and was to mature in July 2012.
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As of July 28, 2012 and July 30, 2011, the Company's long-term debt consisted of the following:
Term loan payable to bank, secured by real estate, due monthly, and maturing in July 2012, at an interest rate
of 30 day LIBOR plus 1.00% (1.19% at July 30, 2011)
Real estate and equipment term loans payable to bank, secured by building and other assets, due monthly and
maturing in June 2015, at an interest rate of 8.60%
Term loan for employee stock ownership plan, secured by common stock of the Company, due monthly and
maturing in May 2015, at an interest rate of 1.33%
Less: current installments
Long-term debt, excluding current installments
Aggregate maturities of long-term debt for the next five years and thereafter are as follows at July 28, 2012:
July 30,
July 28,
2012
(In thousands)
2011
— $47,111
598
771
387
551
$ 985 $48,433
350 47,447
986
$ 635 $
Year
2013
2014
2015
2016
2017
2018 and thereafter
(8) FAIR VALUE MEASUREMENTS
(In thousands)
$
$
350
371
264
—
—
—
985
As of August 2, 2009, the Company had fully adopted ASC 820, Fair Value Measurements and Disclosures("ASC 820"), for financial assets and
liabilities and for non-financial assets and liabilities that are recognized or disclosed at fair value on at least an annual basis. ASC 820 defines fair value as the
price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the
principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or
liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 820 establishes a fair value hierarchy that requires an entity to maximize
the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes three levels of inputs that may be
used to measure fair value:
•
•
•
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
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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.
Interest Rate Swap Agreement
On August 1, 2005, the Company entered into an interest rate swap agreement effective July 29, 2005. The agreement provided for the Company to pay
interest for a seven-year period at a fixed rate of 4.70% on an initial amortizing notional principal amount of $50.0 million while receiving interest for the
same period at the one-month London Interbank Offered Rate ("LIBOR") on the same notional principal amount. The swap was entered into as a hedge
against LIBOR movements on current variable rate indebtedness at one-month 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 FASB ASC 815, Derivatives and Hedging ("ASC 815"). Concurrent with the payoff of
the underlying term loan, this swap was settled during the fourth quarter of fiscal 2012, with a payment of $0.3 million included within interest expense.
Interest rate swap agreements are entered into for periods consistent with related underlying exposures and do not constitute positions independent of
those exposures. The Company's interest rate swap agreement was designated as a cash flow hedge at July 30, 2011 and at that date was reflected at fair value
in the Company's consolidated balance sheet as a component of other long-term liabilities. The related gains or losses on this contract were generally deferred
in stockholders' equity as a component of other comprehensive income. However, to the extent that the swap agreement was not considered to be effective in
offsetting the change in the value of the item being hedged, any change in fair value relating to the ineffective portion of the swap agreement is immediately
recognized in income. For the periods presented, the Company did not have any ineffectiveness requiring current income recognition.
Fuel Supply Agreements
From time to time the Company is a party to fixed price fuel supply agreements. During the years ended July 28, 2012 and July 30, 2011, the Company
entered into several agreements which required it to purchase a portion of its diesel fuel each month at fixed prices through July 2013 and 2012, respectively.
These fixed price fuel agreements qualify for the "normal purchase" exception under ASC 815; therefore, the fuel purchases under these contracts are
expensed as incurred and included within operating expenses.
Exchange Rate Forward Contract
In anticipation of the Canadian dollars needed to fund the acquisition of the SDG assets of SunOpta, the Company entered into a forward contract to
exchange United States dollars for Canadian dollars. Upon settlement of the contract in June 2010, the Company recorded a gain of $2.8 million in "other
expense (income)" within the fiscal 2010 Consolidated Statement of Income.
The following tables provide the fair values hierarchy for financial assets and liabilities measured on a recurring basis as of July 30, 2011. With the
settlement of the interest rate swap during fiscal
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2012, there were no financial assets and liabilities measured on a recurring basis as of the fiscal year ended July 28, 2012.
Description
Liabilities
Interest Rate Swap
Total
Level 1
Fair Value at July 30, 2011
Level 2
(In thousands)
Level 3
—
—
$
$
1,259
1,259
—
—
The Company's determination of the fair value of its interest rate swap was calculated using a discounted cash flow analysis based on the terms of the
swap contract and the observable interest rate curve. The Company does not enter into derivative agreements for trading purposes.
The fair value of the Company's other financial instruments including cash, cash equivalents, accounts receivable, notes receivable, accounts payable and
certain accrued expenses are derived using Level 2 inputs and approximate carrying amounts due to the short-term nature of these instruments. The fair value
of notes payable approximate carrying amounts as they are variable rate instruments.
The following estimated fair value amounts have been determined by the Company using available market information and appropriate valuation
methodologies taking into account the instruments' interest rate, terms, maturity date and collateral, if any, in comparison to the Company's incremental
borrowing rate for similar financial instruments and are therefore deemed Level 2 inputs. However, considerable judgment is required in interpreting market
data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange.
Liabilities
The following table provides the fair value hierarchy for non-financial assets and liabilities measured on a nonrecurring basis for fiscal 2011. There were
no non-financial assets and liabilities measured on a non-recurring basis as of the end of fiscal 2012.
Long term debt, including current portion
$
985
$
988
$
48,433 $ 48,424
July 28, 2012
July 30, 2011
Carrying Value Fair Value Carrying Value Fair Value
(In thousands)
Description
Assets
Property and Equipment, net
Intangible Assets, net
Total
Fair Value at July 30, 2011
Level 1
Level 2
Level 3
(In thousands)
Total
Losses
— $
—
— $
285,151
— $
285,151 $
— $
58,336
58,336 $
5,790
200
5,990
In accordance with the provisions of the Impairment or Disposal of Long-Lived Assets Subsections of FASB ASC 360-10, long-lived assets held and
used with a carrying amount of $290.9 million were written down to their fair value of $285.2 million, resulting in an impairment charge of $5.8 million
included in earnings for the fiscal year ended July 30, 2011. The assets which corresponded to the impairment during fiscal 2011 were sold during fiscal 2012.
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In accordance with the provisions of the Intangibles—Goodwill and Other Subsections of FASB ASC 350-30, indefinite lived intangible assets with a
carrying amount of $58.5 million were written down to their fair value of $58.3 million, resulting in an impairment charge of $0.2 million included in earnings
for the fiscal year ended July 30, 2011. There were no impairments recognized on intangible assets during fiscal 2012.
(9) TREASURY STOCK
On December 1, 2004, the Company's Board of Directors authorized the repurchase of up to $50 million of common stock through February 2008 in the
open market or in privately negotiated transactions. As part of the stock repurchase program, the Company purchased 228,800 shares of its common stock for
its treasury during the year ended July 29, 2006 at an aggregate cost of approximately $6.1 million. All shares were purchased at prevailing market prices.
There were no other purchases made during the authorization period.
The Company, in an effort to reduce the treasury share balance, decided in the fourth quarter of fiscal 2010 to issue treasury shares to satisfy certain
share requirements related to exercises of stock options and vesting of restricted stock units and awards under its equity incentive plans. The Company issued
201,814 and 26,986 treasury shares during fiscal 2010 and 2012, respectively, related to stock option exercises and the vesting of restricted stock units and
awards.
(10) SECONDARY COMMON STOCK OFFERING
During the first quarter of fiscal 2011, the Company completed a secondary common stock offering. This offering resulted in an issuance of 4,427,500
shares of common stock, including shares issued to cover the underwriters' overallotment option, at a price of $33.00 per share. The net proceeds of
approximately $138.3 million were used to repay a portion of the Company's outstanding borrowings under its revolving credit facility, which had increased
during the fourth quarter of fiscal 2010 as the Company financed its purchase of the SDG assets with borrowings under its revolving credit facility. The
Company also utilized a portion of the additional borrowing capacity under its revolving credit facility resulting from the common stock offering to fund its
acquisition of the Rocky Mountain and Southwest distribution businesses of Whole Foods Distribution.
(11) COMMITMENTS AND CONTINGENCIES
The Company leases various facilities and equipment under operating lease agreements with varying terms. Most of the leases contain renewal options
and purchase options at several specific dates throughout the terms of the leases.
Rent and other lease expense for the fiscal years ended July 28, 2012, July 30, 2011 and July 31, 2010 totaled approximately $56.4 million, $48.4 million
and $45.2 million, respectively.
Future minimum annual fixed payments required under non-cancelable operating leases having an original term of more than one year as of July 28,
2012 are as follows:
Fiscal Year:
2013
2014
2015
2016
2017
2018 and thereafter
(In thousands)
$
$
45,640
41,511
37,059
33,616
30,309
122,908
311,043
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As of July 28, 2012, outstanding commitments for the purchase of inventory were approximately $24.0 million. The Company had outstanding letters of
credit of approximately $24.0 million at July 28, 2012.
As of July 28, 2012, outstanding commitments for the purchase of diesel fuel through fiscal 2013 were approximately $15.6 million.
Assets mortgaged at July 28, 2012 were not material. The decrease from assets mortgaged of $84.3 million at July 30, 2011 is due to the payoff of the
Company's term loan in May 2012.
The Company may from time to time be involved in various claims and legal actions arising in the ordinary course of business. In the opinion of
management, amounts accrued, as well as the total amount of reasonably possible losses with respect to such matters, individually and in the aggregate, are
not deemed to be material to the Company's consolidated financial position or results of operations. Legal expenses incurred in connection with claims and
legal actions are expensed as incurred.
(12) RETIREMENT PLANS
Retirement Plan
The Company has a defined contribution retirement plan under Section 401(k) of the Internal Revenue Code, the United Natural Foods, Inc. Retirement
Plan (the "Retirement Plan"). In order to become a participant in the Retirement Plan, employees must meet certain eligibility requirements as described in the
Retirement Plan document. In addition to amounts contributed to the Retirement Plan by employees, the Company makes contributions to the Retirement Plan
on behalf of the employees. The Company also has the Millbrook Distribution Services Union Retirement Plan, which was assumed as part of an acquisition
during fiscal 2008. The Company's contributions to these plans were approximately $4.4 million, $3.9 million, and $3.2 million for the fiscal years ended
July 28, 2012, July 30, 2011 and July 31, 2010, respectively.
Deferred Compensation and Supplemental Retirement Plans
The Company's non-employee directors and certain of its employees are eligible to participate in the United Natural Foods Deferred Compensation Plan
and the United Natural Foods Deferred Stock Plan (collectively the "Deferral Plans"). The Deferral Plans are nonqualified deferred compensation plans
which are administered by the Company's Compensation Committee of the Board of Directors. The Deferral Plans were established to provide participants
with the opportunity to defer the receipt of all or a portion of their compensation to a non-qualified retirement plan in amounts greater than the amount
permitted to be deferred under the Company's 401(k) Plan. The Company believes that this is an appropriate benefit because (i) it operates to place employees
and non-employee directors in the same position as other employees who are not affected by Internal Revenue Code limits placed on plans such as the
Company's 401(k) Plan; (ii) does not substantially increase the Company's financial obligations to its employees and directors (there are no employer
matching contributions, only a crediting of deemed earnings); and (iii) provides additional incentives to the Company's employees and directors, since
amounts set aside by the employees and directors are subject to the claims of the Company's creditors until paid. Under the Deferral Plans, only the payment
of the compensation earned by the participant is deferred and there is no deferral of the expense in the Company's financial statements related to the
participants' earnings; the Company records the related compensation expense in the year in which the compensation is earned by the participants.
Under the Deferred Stock Plan, which was frozen to new deferrals effective January 1, 2007, each eligible participant could elect to defer between 0%
and 100% of restricted stock awards granted during the election calendar year. Effective January 1, 2007, each participant may elect to defer up to 100% of
their restricted share unit awards, performance shares and performance units under the Deferred Compensation Plan. Under the Deferred Compensation Plan,
each participant may also elect to defer a minimum of $1,000 and a maximum of 90% of base salary and 100% of director fees,
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employee bonuses and commissions, as applicable, earned by the participants for the calendar year. From January 1, 2009 to July 31, 2010, participants' cash-
derived deferrals under the Deferred Compensation Plan earned interest at the 5-year certificate of deposit annual yield taken from the Wall Street Journal
Market Data Center (as captured on the first and last business date of each calendar quarter and averaged) plus 3% credited and compounded quarterly.
Beginning August 1, 2010, participants' cash-derived deferrals accrue earnings and appreciation based on the performance of mutual funds selected by the
participant. The value of equity-based awards deferred under the Deferred Compensation and Deferred Stock Plans are based upon the performance of the
Company's common stock.
The Millbrook Deferred Compensation Plan and the Millbrook Supplemental Retirement Plan were assumed by the Company as part of an acquisition
during fiscal 2008. Deferred compensation relates to a compensation arrangement implemented in 1984 by a predecessor of the acquired company in the form
of a non-qualified defined benefit plan and a supplemental retirement plan which permitted former officers and certain management employees, at the time, to
defer portions of their compensation to earn specified maximum benefits upon retirement. The future obligations, which are fixed in accordance with the
plans, have been recorded at a discount rate of 5.7%. These plans do not allow new participants, and there are no active employees subject to these plans.
In an effort to provide for the benefits associated with these plans, the acquired company's predecessor purchased whole-life insurance contracts on the
plan participants. The cash surrender value of these policies included in Other Assets in the Consolidated Balance Sheet was $10.1 million and $9.5 million at
July 28, 2012 and July 30, 2011, respectively. At July 28, 2012, total future obligations including interest, assuming commencement of payments at an
individual's retirement age, as defined under the deferred compensation arrangement, were as follows:
Year
2013
2014
2015
2016
2017
2018 and thereafter
(In thousands)
$
$
1,149
1,294
1,285
1,278
1,166
6,596
12,768
(13) EMPLOYEE STOCK OWNERSHIP PLAN
The Company adopted the UNFI Employee Stock Ownership Plan (the "ESOP") for the purpose of acquiring outstanding shares of the Company for the
benefit of eligible employees. The ESOP was effective as of November 1, 1988 and has received notice of qualification by the Internal Revenue Service.
In connection with the adoption of the ESOP, a Trust was established to hold the shares acquired. On November 1, 1988, the Trust purchased 40% of the
then outstanding common stock of the Company at a price of $4.1 million. The trustees funded this purchase by issuing promissory notes to the initial
stockholders, with the Trust shares pledged as collateral. These notes bear interest at 1.33% as of July 28, 2012 and July 30, 2011, and are payable through
May 2015. As the debt is repaid, shares are released from collateral and allocated to active employees, based on the proportion of principal and interest paid in
the year.
All shares held by the ESOP were purchased prior to December 31, 1992. As a result, the Company considers unreleased shares of the ESOP to be
outstanding for purposes of calculating both basic and diluted earnings per share, whether or not the shares have been committed to be released. The debt of
the ESOP is recorded as debt and the shares pledged as collateral are reported as unearned ESOP shares in the consolidated balance sheets. During the fiscal
years ended July 28, 2012, July 30, 2011, and July 31, 2010, contributions totaling approximately $0.2 million each fiscal year were made to the Trust. Of
these contributions, less than $0.1 million in each fiscal year represented interest.
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The ESOP shares were classified as follows:
Total ESOP shares—beginning of year
Shares distributed to employees
Total ESOP shares—end of year
Allocated shares
Unreleased shares
Total ESOP shares
July 28,
2012
July 30,
2011
(In thousands)
2,199
(146)
2,053
1,955
98
2,053
2,419
(220)
2,199
1,657
542
2,199
During the fiscal years ended July 28, 2012 and July 30, 2011, 42,171 and 165,436 shares were released for allocation based on note payments,
respectively. During fiscal 2012, the Company also allocated 402,285 shares to correct an operational error in prior years as elected in a Voluntary Correction
Program filed with the IRS. In connection with this allocation, the Company recorded compensation expense of approximately $0.3 million during the fourth
quarter of fiscal 2012. The fair value of unreleased shares was approximately $5.3 million and $22.6 million at July 28, 2012 and July 30, 2011, respectively.
(14) INCOME TAXES
For the fiscal year July 28, 2012, income before income taxes consisted of $142.2 million from U.S. operations and $8.6 million from foreign operations.
For the fiscal year ended July 30, 2011, income before income taxes consists of $118.5 million from U.S. operations and $7.9 million from foreign operations.
For the fiscal year ended July 31, 2010, income (loss) before income taxes consists of $112.9 million from U.S. operations and ($0.9) million from foreign
operations.
Total federal and state income tax (benefit) expense consists of the following:
Fiscal year ended July 28, 2012:
U.S. Federal
State & Local
Foreign
Fiscal year ended July 30, 2011:
U.S. Federal
State & Local
Foreign
Fiscal year ended July 31, 2010:
U.S. Federal
State & Local
Foreign
Current
Deferred
(In thousands)
Total
$
$
$
$
$
$
55,083 $
9,002
1,471
65,556 $
24,971 $
7,091
2,180
34,242 $
31,818 $
7,147
(345)
38,620 $
(7,506) $
462
929
(6,115) $
14,273 $
1,207
40
15,520 $
5,488 $
(427)
—
5,061 $
47,577
9,464
2,400
59,441
39,244
8,298
2,220
49,762
37,306
6,720
(345)
43,681
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Total income tax expense (benefit) was different than the amounts computed using the United States statutory income tax rate (35%) applied to income
before income taxes as a result of the following:
Computed "expected" tax expense
State and local income tax, net of Federal income tax benefit
Non-deductible expenses
Tax effect of share-based compensation
General business credits
Other, net
Total income tax expense
July 31,
2010
July 28,
2012
Fiscal year ended
July 30,
2011
(In thousands)
$ 52,774 $ 44,252 $ 39,201
4,368
872
78
(215)
(623)
$ 59,441 $ 49,762 $ 43,681
5,394
1,111
(440)
(1,021)
466
6,152
1,260
(140)
(231)
(374)
Total income tax expense (benefit) for the years ended July 28, 2012, July 30, 2011 and July 31, 2010 was allocated as follows:
Income tax expense
Stockholders' equity, difference between compensation expense for tax purposes
and amounts recognized for financial statement purposes
Other comprehensive income
July 28,
2012
July 30,
2011
(In thousands)
$59,441 $49,762 $43,681
July 31,
2010
(2,804) (1,545) (1,822)
97
495
502
78
$57,132 $48,719 $41,956
Table of Contents
The tax effects of temporary differences that give rise to significant portions of the net deferred tax assets and deferred tax liabilities at July 28, 2012 and
July 30, 2011 are presented below:
2012
2011
(In thousands)
Deferred tax assets:
Inventories, principally due to additional costs inventoried for tax purposes
Compensation and benefits related
Accounts receivable, principally due to allowances for uncollectible accounts
Accrued expenses
Other comprehensive income
Net operating loss carryforwards
Other deferred tax assets
Total gross deferred tax assets
Less valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Plant and equipment, principally due to differences in depreciation
Intangible assets
Other
Total deferred tax liabilities
Net deferred tax liabilities
Current deferred income tax assets
Non-current deferred income tax liabilities
$
6,431 $
18,471
2,817
8,294
—
2,778
221
39,012
990
5,638
16,701
2,286
7,037
495
7,381
71
39,609
5,071
$ 38,022 $ 34,538
$ 23,828 $ 30,333
20,530
203
51,066
24,825
276
48,929
$ (10,907) $ (16,528)
$ 25,353 $ 22,023
(38,551)
$ (10,907) $ (16,528)
(36,260)
The net increase (decrease) in total valuation allowance in fiscal year 2012, 2011, and 2010 was $(4,081), $19 and $(86), respectively. The net decrease
in fiscal 2012 did not have an impact on net income as it relates to expired unutilized tax attributes for which a valuation allowance was previously recorded
in prior fiscal years.
At July 28, 2012, the Company had net operating loss carryforwards of approximately $4.3 million for federal income tax purposes. The federal
carryforwards are subject to an annual limitation of approximately $0.3 million under Internal Revenue Code Section 382. The carryforwards expire at various
times between fiscal years 2017 and 2027. In addition, the Company had net operating loss carryforwards of approximately $25.8 million for state income tax
purposes that expire in fiscal years 2013 through 2031.
In assessing the recoverability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. Due to the fact that the Company has sufficient taxable income in the federal carryback period and anticipates sufficient future
taxable income over the periods in which the deferred tax assets are deductible, the ultimate realization of deferred tax assets for federal and state tax purposes
appears more likely than not at July 28, 2012, with the exception of certain state deferred tax assets. Valuation allowances were established against
approximately $1.0 million of state deferred tax assets. The subsequent release of this valuation allowance, if such release occurs, will reduce income tax
expense.
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The Company records interest and penalties related to unrecognized tax benefits as a component of income tax expense. The Company believes it is
reasonably possible that certain statutes of limitations and tax examinations will expire or may be concluded within the next twelve months, and that
unrecognized tax benefits, including potential interest and penalties, may decrease by up to approximately $4.5 million, which would be recorded as a tax
benefit in the statement of income. These unrecognized tax benefits primarily relate to tax attributes acquired in a prior business combination. For the fiscal
years ended July 28, 2012 and July 30, 2011, the Company did not have any other significant unrecognized tax benefits and thus, no significant interest and
penalties related to unrecognized tax benefits were recognized.
The Company and its subsidiaries file income tax returns in the United States federal jurisdiction and in various state jurisdictions. Following the
acquisition of the SDG assets from SunOpta, UNFI Canada files income tax returns in Canada and certain of its provinces. The Company is currently
undergoing an income tax audit of fiscal 2010 and 2011 by the U.S. Internal Revenue Service (the "IRS"). The Company is no longer subject to U.S. federal
tax examinations for years before fiscal 2010, and with limited exception, the tax years that remain subject to examination by state jurisdictions range from
the Company's fiscal 2009 to fiscal 2012.
(15) BUSINESS SEGMENTS
The Company has several operating divisions aggregated under the wholesale segment, which is the Company's 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, organic and specialty foods, produce and related products in the United States and Canada. The Company has additional
operating divisions that do not meet the quantitative thresholds for reportable segments and are therefore aggregated under the caption of "Other". "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, a manufacturing division, which engages in importing, roasting and packaging of nuts, seeds, dried fruit and snack items, and the Company's
branded product lines. "Other" also includes certain corporate operating expenses that are not allocated to operating divisions, which consist of depreciation,
salaries, retainers, and other related expenses of officers, directors, corporate finance (including professional services), information technology, governance,
legal, human resources and internal audit that are necessary to operate the Company's headquarters located in Providence, Rhode Island. As the Company
continues to expand its business and serve its customers through a new national platform, these corporate expense amounts have increased, which is the
primary driver behind the increasing operating losses within the "Other" category below. Non-operating expenses that are not allocated to the operating
divisions are under the caption of "Unallocated Expenses". The Company does not record its revenues for financial reporting purposes by product group, and
it is therefore impracticable for the Company to report them accordingly.
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Following is business segment information for the periods indicated:
Wholesale
Other
Eliminations
(In thousands)
Unallocated
Expenses
Consolidated
Fiscal year ended July 28, 2012
Net sales
Operating income (loss)
Interest expense
Interest income
Other, net
Income before income taxes
Depreciation and amortization
Capital expenditures
Goodwill
Total assets
Fiscal year ended July 30, 2011
Net sales
Operating income (loss)
Interest expense
Interest income
Other, net
Income before income taxes
Depreciation and amortization
Capital expenditures
Goodwill
Total assets
Fiscal year ended July 31, 2010
Net sales
Operating income (loss)
Interest expense
Interest income
Other, net
Income before income taxes
Depreciation and amortization
Capital expenditures
Goodwill
Total assets
$ 5,175,445 $ 163,278 $ (102,702)
(1,168)
190,787
(34,461)
$
36,333
29,824
176,210
3,227
1,668
17,531
1,357,988 144,637
(8,679)
$ 4,472,694 $ 162,731 $ (105,410)
(966)
161,952
(31,305)
$
33,520
38,035
174,612
1,776
2,743
17,331
1,258,783 150,151
(7,946)
$ 3,698,349 $ 171,841 $ (113,051)
646
152,364
(38,108)
$
24,744
51,495
169,594
2,739
3,614
17,331
1,099,962 159,814
81
(8,977)
4,734
(715)
356
$ 5,236,021
155,158
4,734
(715)
356
150,783
39,560
31,492
193,741
1,493,946
5,000
(1,226)
(528)
$ 4,530,015
129,681
5,000
(1,226)
(528)
126,435
35,296
40,778
191,943
1,400,988
5,845
(247)
(2,698)
$ 3,757,139
114,902
5,845
(247)
(2,698)
112,002
27,483
55,109
186,925
1,250,799
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(16) QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth certain key interim financial information for the years ended July 28, 2012 and July 30, 2011:
2012
Net sales
Gross profit
Income before income taxes
Net income
Per common share income
Basic:
Diluted:
Weighted average basic
Shares outstanding
Weighted average diluted
Shares outstanding
Market Price
High
Low
*
Total reflects rounding
2011
Net sales
Gross profit
Income before income taxes
Net income
Per common share income
Basic:
Diluted:
Weighted average basic
Shares outstanding
Weighted average diluted
Shares outstanding
Market Price
High
Low
First
Quarter
Second
Quarter
Third
Quarter
(In thousands except per share data)
Fourth
Quarter
Full Year
$ 1,217,428 $ 1,286,910 $ 1,388,023 $ 1,343,660 $ 5,236,021
916,003
150,783
91,342
231,212
41,541
25,142
223,147
36,323
22,011
244,531
47,908
29,032
217,113
25,011
15,157
$
$
$
$
0.31 $
0.31 $
0.45 $
0.45 $
0.59 $
0.59 $
0.51 $
0.51 $
1.87*
1.86
48,594
48,774
48,848
48,951
48,766
48,889
49,019
49,207
49,368
49,100
42.53 $
35.07 $
44.68 $
32.83 $
50.37 $
43.81 $
55.86 $
47.98 $
55.86
32.83
First
Quarter
Second
Quarter
Third
Quarter
(In thousands except per share data)
Fourth
Quarter
Full Year
$ 1,052,967 $ 1,114,449 $ 1,203,983 $ 1,158,616 $ 4,530,015
824,810
126,435
76,673
198,632
30,703
18,729
215,302
28,264
17,178
218,544
38,937
23,362
192,332
28,531
17,404
$
$
$
$
0.39 $
0.39 $
0.39 $
0.39 $
0.48 $
0.48 $
0.35 $
0.35 $
1.62
1.60
44,771
48,232
48,406
48,484
47,459
45,101
48,538
48,793
48,888
47,815
37.48 $
32.65 $
39.85 $
34.78 $
82
46.05 $
36.71 $
45.34 $
39.52 $
46.05
32.65
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
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 (the "Exchange Act")) as of the end of the period covered by this Annual Report on Form 10-K (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.
Management's Annual Report on Internal Control Over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial
reporting is defined in Rules 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal
executive and principal financial officers and effected by our Board of Directors, management and other personnel, 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 and includes those policies and procedures that:
•
•
•
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our
management and directors; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could
have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Our management, including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial
reporting as of July 28, 2012. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on its assessment, our management concluded that, as of July 28, 2012, our
internal control over financial reporting was effective based on those criteria at the reasonable assurance level.
Report of the Independent Registered Public Accounting Firm.
The effectiveness of our internal control over financial reporting as of July 28, 2012 has been audited by KPMG LLP, an independent registered public
accounting firm, as stated in its report which
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is included in "Item 8. Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
Changes in Internal Controls Over Financial Reporting
No change in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)or 15d-15(f)) occurred during the
fiscal quarter ended July 28, 2012 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III.
The information required by this item will be contained, in part, in our Definitive Proxy Statement on Schedule 14A for our Annual Meeting of
Stockholders to be held on December 12, 2012 (the "2012 Proxy Statement") under the captions "Directors and Nominees for Director," "Section 16(a)
Beneficial Ownership Reporting Compliance," and "Committees of the Board of Directors—Audit Committee" and is incorporated herein by this reference.
Pursuant to Item 401(b) of Regulation S-K, our executive officers are reported under the caption "Executive Officers of the Registrant" in Part I, Item I of this
Annual Report on Form 10-K.
We have adopted a code of ethics that applies to our Chief Executive Officer, Chief Financial Officer, Corporate Controller, and employees within our
finance, purchasing, operations, and sales departments. Our code of ethics is publicly available on our website at www.unfi.com. If we make any substantive
amendments to our code of ethics or grant any waiver, including any implicit waiver, from a provision of the code of ethics to our Chief Executive Officer,
Chief Financial Officer or Corporate Controller, we will disclose the nature of such amendment or waiver on our website or in a Current Report on Form 8-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be contained in the 2012 Proxy Statement under the captions "Non-employee Director Compensation,"
"Executive Compensation", "Compensation Discussion and Analysis", "Compensation Committee Interlocks and Insider Participation" and "Report of the
Compensation Committee" and is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The information required by this item will be contained, in part, in the 2012 Proxy Statement under the caption "Stock Ownership of Certain Beneficial
Owners and Management", and is incorporated herein by this reference.
The following table provides certain information with respect to equity awards under our equity compensation plans as of July 28, 2012.
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
Number of securities remaining
available for future issuance
under equity compensation
plans (excluding securities
reflected in the second column)
1,184,823(1)
104,725(3)
1,289,548
$
$
31.24(1)
—(3)
31.24
704,621(2)
—
704,621
Plan Category
Plans approved by
stockholders
Plans not approved by
stockholders
Total
(1)
Includes 690,602 restricted stock units under the 2004 Equity Incentive Plan (the "2004 Plan"), 53,389 performance-based restricted
stock units outstanding under the 2004 Plan, 22,960 stock options under the 2004 Plan, 398,572 stock options under the 2002 Stock
Incentive Plan (the "2002 Plan") and 19,300 stock options under the 1996 Stock Option Plan (the "1996 Plan"). Restricted stock units
and performance stock units do not have an exercise price because their value is dependent upon continued employment over a period
of time or the achievement of certain performance goals, and are to be settled for shares of common stock. Accordingly, they have been
disregarded for purposes of computing the weighted-average exercise price.
85
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(2)
(3)
Of these shares, 49,047 shares were available for issuance under the 2002 Plan and 655,574 shares were available for issuance under
the 2004 Plan. The 2004 Plan authorizes grants in the form of stock options, stock appreciation rights, restricted stock, restricted stock
units, performance shares, performance units or a combination thereof. The 2002 Plan authorizes grants solely in the form of stock
options. The number of shares remaining available for future issuances assumes that, with respect to outstanding performance-based
restricted stock units, the vesting criteria will be achieved at the target level.
Consists of 104,725 phantom stock units outstanding under the United Natural Foods Inc. Deferred Compensation Plan. Phantom stock
units do not have an exercise price because the units may be settled only for shares of common stock on a one-for-one basis at a future
date as outlined in the plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item will be contained in the 2012 Proxy Statement under the caption "Certain Relationships and Related Transactions"
and "Director Independence" and is incorporated herein by this reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item will be contained in the 2012 Proxy Statement under the caption "Fees Paid to KPMG LLP" and is incorporated
herein by this reference.
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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
Documents filed as a part of this Annual Report on Form 10-K.
PART IV.
1.
2.
3.
Financial Statements. The Financial Statements listed in the Index to Financial Statements in Item 8 hereof are filed as part of this Annual
Report on Form 10-K.
Financial Statement Schedules. All schedules have been omitted because they are either not required or the information required is included in
our consolidated financial statements or the notes thereto included in Item 8 hereof.
Exhibits. The Exhibits listed in the Exhibit Index immediately preceding such Exhibits are filed as part of this Annual Report on Form 10-K.
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Table of Contents
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SIGNATURES
UNITED NATURAL FOODS, INC.
/s/ MARK E. SHAMBER
Mark E. Shamber
Senior Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
Dated: September 26, 2012
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name
/s/ STEVEN L. SPINNER
Title
President, Chief Executive Officer and Director (Principal Executive
Officer)
Date
September 26, 2012
Steven L. Spinner
/s/ MICHAEL S. FUNK
Chair of the Board
September 26, 2012
Michael S. Funk
/s/ MARK E. SHAMBER
Senior Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
September 26, 2012
Mark E. Shamber
/s/ MARY ELIZABETH BURTON
Director
September 26, 2012
Mary Elizabeth Burton
/s/ JOSEPH M. CIANCIOLO
Director
September 26, 2012
Joseph M. Cianciolo
/s/ GAIL A. GRAHAM
Director
September 26, 2012
Gail A. Graham
/s/ JAMES P. HEFFERNAN
Director
September 26, 2012
James P. Heffernan
/s/ RICHARD J. SCHNIEDERS
Director
September 26, 2012
Richard J. Schnieders
88
Table of Contents
EXHIBIT INDEX
Exhibit No.
2.1
Description
Merger Agreement, dated October 5, 2007, by and among the Registrant, UNFI Merger Sub, Inc.,
Distribution Holdings, Inc. and Millbrook Distribution Services Inc. (incorporated by reference to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended October 27, 2007).
(Pursuant to Item 601(b)(2) of Regulation S-K, the schedules and exhibits have been omitted from
this filing.)
2.2
2.3
3.1
3.2
3.3
3.4
4.1
10.1**
10.2
10.3
10.4
Asset Purchase Agreement, dated May 10, 2010, by and among UNFI Canada, Inc., a subsidiary
of the Registrant, with SunOpta Inc. and its wholly owned subsidiary, Drive Organics Corp.
(incorporated by reference to the Registrant's Current Report on Form 8-K, filed on May 11,
2010). (Pursuant to Item 601(b)(2) of Regulation S-K, the schedules and exhibits have been
omitted from this filing.)
Amendment No 1., dated June 4, 2010, to the Asset Purchase Agreement dated May 10, 2010, by
and among UNFI Canada, Inc., a subsidiary of the Registrant, with SunOpta Inc. and its wholly
owned subsidiary, Drive Organics Corp. (incorporated by reference to the Registrant's Current
Report on Form 8-K, filed on June 10, 2010).
Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended January 31, 2005).
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the
Registrant (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended January 31, 2005).
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the
Registrant (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended January 28, 2006).
Amended and Restated Bylaws of the Registrant, as amended on September 13, 2007
(incorporated by reference to the Registrant's Current Report on Form 8-K, filed on September 19,
2007).
Specimen Certificate for shares of Common Stock, $0.01 par value, of the Registrant
(incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended
August 1, 2009).
Amended and Restated Employee Stock Ownership Plan, effective March 1, 2004 (incorporated
by reference to the Registrant's Annual Report on Form 10-K for the year ended July 31, 2004).
Employee Stock Ownership Trust Loan Agreement among Norman Cloutier, Steven Townsend,
Daniel Atwood, Theodore Cloutier and the Employee Stock Ownership Plan and Trust, dated
November 1, 1988 (incorporated by reference to the Registrant's Registration Statement on
Form S-1 (File No. 333-11349)).
Stock Pledge Agreement between the Employee Stock Ownership Trust and Steven Townsend,
Trustee for Norman Cloutier, Steven Townsend, Daniel Atwood and Theodore Cloutier, dated
November 1, 1988 (incorporated by reference to the Registrant's Registration Statement on
Form S-1 (File No. 333-11349)).
Trust Agreement among Norman Cloutier, Steven Townsend, Daniel Atwood, Theodore Cloutier
and Steven Townsend as Trustee, dated November 1, 1988 (incorporated by reference to the
Registrant's Registration Statement on Form S-1 (File No. 333-11349)).
Table of Contents
Exhibit No.
10.5
Guaranty Agreement between the Registrant and Steven Townsend as Trustee for Norman
Cloutier, Steven Townsend, Daniel Atwood and Theodore Cloutier, dated November 1, 1988
(incorporated by reference to the Registrant's Registration Statement on Form S-1 (File
No. 333-11349)).
Description
10.6**
Amended and Restated 1996 Stock Option Plan (incorporated by reference to the Registrant's
Definitive Proxy Statement for the year ended July 31, 2000).
10.7**
Amendment No. 1 to Amended and Restated 1996 Stock Option Plan (incorporated by reference
to the Registrant's Definitive Proxy Statement for the year ended July 31, 2000).
10.8**
Amendment No. 2 to Amended and Restated 1996 Stock Option Plan (incorporated by reference
to the Registrant's Definitive Proxy Statement for the year ended July 31, 2000).
10.9**
2002 Stock Incentive Plan (incorporated by reference to the Registrant's Annual Report on
Form 10-K for the year ended July 31, 2003).
10.10**
United Natural Foods, Inc. Amended and Restated 2004 Equity Incentive Plan (incorporated by
reference to the Registrant's Current Report on Form 8-K, filed on December 21, 2010).
10.11**
10.12**
10.13**
10.14**
10.15**
10.16**
10.17* **
10.18* **
10.19* **
10.20* **
10.21* **
Form of Restricted Stock Agreement, pursuant to the 2004 Equity Incentive Plan (incorporated by
reference to the Registrant's Registration Statement on Form S-8 POS (File No. 333-123462)).
Form of Restricted Unit Award Agreement, pursuant to the Amended and Restated 2004 Equity
Incentive Plan (incorporated by reference to the Registrant's Annual Report on Form 10-K for the
year ended July 31, 2010).
Form of Non-Statutory Stock Option Award Agreement, pursuant to the Amended and Restated
2004 Equity Incentive Plan (incorporated by reference to the Registrant's Annual Report on
Form 10-K for the year ended July 31, 2010).
Form of Performance Share Agreement, pursuant to the Amended and Restated 2004 Equity
Incentive Plan (incorporated by reference to the Registrant's Current Report on Form 8-K, filed on
March 18, 2011).
Form of Performance Share Award Agreement, pursuant to the Amended and Restated 2004
Equity Incentive Plan (incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended July 30, 2011).
Form of Performance Unit Award Agreement, pursuant to the Amended and Restated 2004
Equity Incentive Plan (incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended July 30, 2011).
Form of Restricted Stock Unit Award Agreement, pursuant to the Amended and Restated 2004
Equity Incentive Plan (Employee).
Form of Restricted Stock Unit Award Agreement, pursuant to the Amended and Restated 2004
Equity Incentive Plan (Director).
Form of Non-Statutory Stock Option Award Agreement, pursuant to the 2002 Stock Incentive
Plan (Employee).
Form of Non-Statutory Stock Option Award Agreement, pursuant to the Amended and Restated
2004 Equity Incentive Plan (Director).
Form of Non-Statutory Stock Option Award Agreement, pursuant to the Amended and Restated
2004 Equity Incentive Plan (Employee).
Table of Contents
Exhibit No.
10.22**
Fiscal 2012 Senior Management Cash Incentive Plan (incorporated by reference to the
Registrant's Annual Report on Form 10-K for the year ended July 30, 2011).
Description
10.23* **
Fiscal 2013 Senior Management Cash Incentive Plan.
10.24**
United Natural Foods, Inc. Deferred Compensation Plan (incorporated by reference to the
Registrant's Annual Report on Form 10-K for the year ended July 30, 2011).
10.25**
United Natural Foods, Inc. Deferred Stock Plan (incorporated by reference to the Registrant's
Annual Report on Form 10-K for the year ended July 30, 2011).
10.26**
10.27**
10.28**
10.29
10.30**
10.31**
10.32**
Offer Letter between Steven L. Spinner, President and CEO, and the Registrant, dated August 27,
2008 (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the year
ended November 1, 2008).
Amendment to Offer Letter between Steven L. Spinner, President and CEO, and the Registrant,
dated August 27, 2008 to include application of Incentive Compensation Recoupment Policy of
UNFI (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended October 31, 2009).
Severance Agreement between Steven L. Spinner, President and CEO, and the Registrant,
effective as of September 16, 2008 (included within Exhibit 10.26, which is incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q for the year ended November 1,
2008).
Form Indemnification Agreement for Directors and Officers (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended May 2, 2009).
Form of Change in Control Agreement between the Registrant and each of Mark Shamber and
Joseph J. Traficanti (incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended July 31, 2010).
Form of Change in Control Agreement between the Registrant and each of Eric Dorne, Thomas
Dziki, Sean Griffin, Thomas Grillea, David Matthews, Craig Smith, Christopher Testa and
Donald McIntyre (incorporated by reference to the Registrant's Annual Report on Form 10-K for
the year ended July 31, 2010).
Severance Agreement between the Registrant and each of Eric Dorne, Michael Funk, Thomas
Dziki, Sean Griffin, Thomas Grillea, David Matthews, Craig Smith, Christopher Testa, Donald
McIntyre, Mark Shamber and Joseph J. Traficanti (incorporated by reference to the Registrant's
Current Report on Form 8-K, filed on April 7, 2008).
10.33**
Employment Separation Agreement and Release between the Registrant and John Stern, dated
September 22, 2011 (incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended July 30, 2011).
10.34
Real Estate Term Notes between the Registrant and City National Bank, dated April 28, 2000
(incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended
July 31, 2000).
10.35+
Distribution Agreement between the Registrant and Whole Foods Market Distribution, Inc.,
effective September 26, 2006 (incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended October 28, 2006).
10.36+
Amendment to Distribution Agreement between the Registrant and Whole Foods Market
Distribution, Inc., effective June 2, 2010 (incorporated by reference to the Registrant's Annual
Report on Form 10-K for the year ended July 31, 2010).
Table of Contents
Exhibit No.
10.37+
10.38+
21*
23.1*
31.1*
31.2*
32.1*
Amendment to Distribution Agreement between the Registrant and Whole Foods Distribution
effective October 11, 2010 (incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended October 30, 2010).
Description
Second Amended and Restated Loan and Security Agreement dated May 24, 2012, by and among
United Natural Foods, Inc., United Natural Foods West, Inc., United Natural Trading Co. and
UNFI Canada, Inc. as Borrowers, the Lenders party thereto, Bank of America, N.A. as
Administrative Agent for the Lenders, Bank of America, N.A. (acting through its Canada branch),
as Canadian Agent for the Lenders and the other parties thereto (incorporated by reference to the
Registrant's Current Report on Form 8-K, filed on May 31, 2012).
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm.
Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2*
Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
101*†
The following materials from the United Natural Foods, Inc.'s Annual Report on Form 10-K for
the fiscal year ended July 28, 2012, formatted in XBRL (eXtensible Business Reporting
Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements
of Income, (iii) Condensed Consolidated Statement of Stockholders' Equity, (iv) Condensed
Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial
Statements.
*
Filed herewith.
**
Denotes a management contract or compensatory plan or arrangement.
+
†
Certain confidential portions of this exhibit were omitted by means of redacting a portion of the text. This exhibit has been filed
separately with the Securities and Exchange Commission accompanied by a confidential treatment request pursuant to Rule 24b-2 of
the Securities Exchange Act of 1934, as amended.
Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration
statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes
of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
UNITED NATURAL FOODS, INC.
Terms and Conditions of Grant of Restricted Units to Employee
2004 Equity Incentive Plan
Exhibit 10.17
These Terms and Conditions of Grant of Restricted Units to Employee (these "Terms and Conditions"), shall apply
to the grant by United Natural Foods, Inc., a Delaware corporation (the "Company"), to the Participant of an award of Restricted
Units, pursuant to the Company's Amended and Restated 2004 Equity Incentive Plan (as amended from time to time, the "Plan").
Except in the preceding sentence and where the context otherwise requires, the term "Company" shall include the Company and all
present and future Subsidiaries. All capitalized terms that are used in these Terms and Conditions without definition shall have the
meanings set forth in the Plan.
1. Definitions.
(a) Communication of Award means the communication delivered by an authorized representative of the
Company to the Participant identifying that an award has been granted together with the details of the
award (including the identity of the Participant, the Grant Date, and the number of Restricted Units that
were awarded to the Participant) set forth in the award summary portion of the online award acceptance
process used in connection with electronic administration of awards under the Plan.
(b) Grant Agreement has the meaning set forth in Section 2 of these Terms and Conditions.
(c) Grant Date means the date on which the Restricted Units were granted as set forth in the Communication
of Award.
(d) Participant, solely for purposes of this Grant Agreement, means the individual identified in the
Communication of Award.
(e) Restricted Unit means a right to receive payment in Shares following the expiration of the Restriction
Period.
(f) Restriction Period with respect to Restricted Units means the period commencing upon the Grant Date
and ending on the dates provided under Section 3 of the Grant Agreement.
(g) Shares means Shares, as defined in Section 2 of the Plan, issued pursuant to the Grant Agreement.
2. Grant of Restricted Units.
Restricted Units, which have a cash value equal to the Fair Market Value of an equivalent number of Shares. A Restricted Unit
Effective on the Grant Date and subject to these Terms and Conditions, the Company has granted to Participant the
does not represent an equity interest in the Company and carries no voting or dividend rights. The information contained in the
Communication of Award with respect to Participant and the Restricted Units is incorporated herein by reference and together with
these Terms and Conditions shall constitute an Agreement (the "Grant Agreement") for purposes of the Plan. By accepting the award
of Restricted Units and acknowledging these Terms and Conditions, the Participant agrees to be bound by these Terms and Conditions
with respect to the Restricted Units. Acceptance of the award of Restricted Units and acknowledgment of these Terms and Conditions
may be made in a writing signed by the Participant or through the online award acceptance process used in connection with electronic
administration of awards under the Plan.
3. Restriction Period.
(a) The Restriction Period shall expire with respect to twenty-five percent (25%) of the Restricted Units on the
first anniversary of the Grant Date and with respect to an additional twenty-five percent (25%) on each succeeding anniversary of the
Grant Date so as to be expired with regard to all Restricted Units on the fourth anniversary of the Grant Date, conditioned on each
such date on Participant maintaining employment with the Company. Notwithstanding the foregoing, the Restriction Period shall
expire with respect to all Restricted Units upon the death or disability (as defined in Section 15(a) of the Plan) of the Participant.
(b) The Restriction Period shall be deemed to expire for all Restricted Units if, within twelve months after the
Company obtains actual knowledge that a Change in Control has occurred, a Participant's employment with the Company ceases for
any reason.
(c) If the Participant ceases to be employed by the Company or otherwise separates from service under
circumstances not described in Sections 3(a) or 3(b), all Restricted Units as to which the Restriction Period has not expired shall be
canceled immediately, and shall not be payable, except to the extent the Committee decides otherwise.
4. Payment. No later than 2½ months after the end of the calendar year in which the Restriction Period expires with
respect to Restricted Units, the Company shall issue to the Participant or his Beneficiary (as applicable) one Share for each Restricted
Unit for which the Restriction Period expired.
5. Withholding. The Company's obligation to deliver the Shares upon the expiration of the Restriction Period shall be
subject to the Participant's satisfaction of any applicable withholding obligations or withholding taxes ("Withholding Taxes") as set
forth by Internal Revenue Service guidelines, including any employer minimum statutory withholding, and Participant shall pay the
amount of any such Withholding Taxes to the Company as set forth in this Section 5. The Participant may satisfy his or her obligation
to pay the Withholding Taxes by (i) making a cash payment to the Company in an amount equal to the Withholding Taxes; (ii) having
the Company withhold Shares otherwise deliverable to the Participant in connection with the expiration of the
Restriction Period; or (iii) delivering to the Company shares of Common Stock already owned by the Participant; provided that in the
case of (ii) or (iii) such Shares withheld or shares of Common Stock delivered shall have a Fair Market Value (on the date that such
withholding or delivery occurs) equal to the amount of the Withholding Taxes. The Participant acknowledges and agrees that the
Company has the right to deduct from payments of any kind otherwise due to the Participant an amount equal to the Withholding
Taxes.
6. Amendment. The Committee may in its sole discretion amend, modify, or terminate the Grant Agreement,
including, but not limited to, substituting therefor another Award of the same or a different type or changing the Restriction Period.
Except as otherwise provided in the Plan or in the Grant Agreement or as necessary to conform the Grant Agreement to mandatory
provisions of applicable federal or state laws, regulations, or rulings, or section 409A of the Code, the Committee shall obtain the
Participant's consent before it amends the Grant Agreement in a manner that significantly reduces the Participant's rights or benefits
under the Grant Agreement.
7. Determinations by Committee. Determinations by the Committee shall be final, binding and conclusive with
respect to the interpretation of the Plan and the Grant Agreement.
8. Provisions of the Plan. This grant is subject to the provisions of the Plan, which is incorporated into the Grant
Agreement by reference and a copy of which is furnished to the Participant with the Grant Agreement.
9. Notices and Payments. Any notice required or permitted to be given to the Participant under the Grant Agreement
shall be in writing and shall be deemed effective upon personal delivery or upon deposit in the United States mail with postage and
fees prepaid. Any notice or communication required or permitted to be given to the Company under the Grant Agreement shall be in
writing and shall be deemed effective only upon receipt by the Secretary of the Company at the Company's principal office.
10. Waiver. The waiver by the Company of any provision of the Grant Agreement at any time or for any purpose shall
not operate as or be construed to be a waiver of the same or any other provision of the Grant Agreement at any subsequent time or for
any other purpose.
11. Governing Law. The validity and construction of the Grant Agreement shall be governed by the laws of the State
of Delaware, excluding any conflicts or choice of law rules or principles that might otherwise refer construction or interpretation of
any provision of this Grant Agreement to the substantive law of another jurisdiction.
12. Electronic Communication. The Company may, in its sole discretion, decide to deliver any document related to
current or future participation in the Plan by electronic means. The Participant hereby consents to receive such documents by
electronic delivery and agrees to participate in the Plan through an online or electronic
system established and maintained by the Company or a third party designated by the Company.
UNITED NATURAL FOODS, INC.
Terms and Conditions of Grant of Restricted Units to Director
2004 Equity Incentive Plan
Exhibit 10.18
These Terms and Conditions of Grant of Restricted Units to Director (these "Terms and Conditions"), shall apply to
the grant by United Natural Foods, Inc., a Delaware corporation (the "Company"), to the Participant of an award of Restricted Units,
pursuant to the Company's Amended and Restated 2004 Equity Incentive Plan (as amended from time to time, the "Plan"). Except in
the preceding sentence and where the context otherwise requires, the term "Company" shall include the Company and all present and
future Subsidiaries. All capitalized terms that are used in these Terms and Conditions without definition shall have the meanings set
forth in the Plan.
1. Definitions.
(a) Communication of Award means the communication delivered by an authorized representative of the
Company to the Participant identifying that an award has been granted together with the details of the
award (including the identity of the Participant, the Grant Date, and the number of Restricted Units that
were awarded to the Participant) set forth in the award summary portion of the online award acceptance
process used in connection with electronic administration of awards under the Plan.
(b) Grant Agreement has the meaning set forth in Section 2 of these Terms and Conditions.
(c) Grant Date means the date on which the Restricted Units were granted as set forth in the Communication
of Award.
(d) Participant, solely for purposes of this Grant Agreement, means the individual identified in the
Communication of Award.
(e) Restricted Unit means a right to receive payment in Shares following the expiration of the Restriction
Period.
(f) Restriction Period with respect to Restricted Units means the period commencing upon the Grant Date
and ending on the dates provided under Section 3 of the Grant Agreement.
(g) Shares means Shares, as defined in Section 2 of the Plan, issued pursuant to the Grant Agreement.
2. Grant of Restricted Units.
Restricted Units, which have a cash value equal to the Fair Market Value of an equivalent number of Shares. A Restricted Unit
Effective on the Grant Date and subject to these Terms and Conditions, the Company has granted to Participant the
does not represent an equity interest in the Company and carries no voting or dividend rights. The information contained in the
Communication of Award with respect to Participant and the Restricted Units is incorporated herein by reference and together with
these Terms and Conditions shall constitute an Agreement (the "Grant Agreement") for purposes of the Plan. By accepting the award
of Restricted Units and acknowledging these Terms and Conditions, the Participant agrees to be bound by these Terms and Conditions
with respect to the Restricted Units. Acceptance of the award of Restricted Units and acknowledgment of these Terms and Conditions
may be made in a writing signed by the Participant or through the online award acceptance process used in connection with electronic
administration of awards under the Plan.
3. Restriction Period.
(a) The Restriction Period shall expire with respect to thirty-three and one-third percent (33 1/3% of the
Restricted Units on the Grant Date and with respect to an additional thirty-three and one-third percent (33 1/3%) on each succeeding
anniversary of the Grant Date so as to be expired with regard to all Restricted Units on the second anniversary of the Grant Date,
conditioned on each such date on Participant maintaining status as a member of the Board of Directors of the Company.
Notwithstanding the foregoing, the Restriction Period shall expire with respect to all Restricted Units upon the death or disability (as
defined in Section 15(a) of the Plan) of the Participant.
(b) The Restriction Period shall be deemed to expire for all Restricted Units if, within twelve months after the
Company obtains actual knowledge that a Change in Control has occurred, a Participant ceases to be a member of the Board of
Directors for any reason.
(c) If the Participant ceases to be a member of the Board of Directors under circumstances not described in
Sections 3(a) or 3(b), all Restricted Units as to which the Restriction Period has not expired shall be canceled immediately, and shall
not be payable, except to the extent the Committee decides otherwise.
4. Payment. No later than 2½ months after the end of the calendar year in which the Restriction Period expires with
respect to Restricted Units, the Company shall issue to the Participant or his Beneficiary (as applicable) one Share for each Restricted
Unit for which the Restriction Period expired.
5. Amendment. The Committee may in its sole discretion amend, modify, or terminate the Grant Agreement,
including, but not limited to, substituting therefor another Award of the same or a different type or changing the Restriction Period.
Except as otherwise provided in the Plan or in the Grant Agreement or as necessary to conform the Grant Agreement to mandatory
provisions of applicable federal or state laws, regulations, or rulings, or section 409A of the Code, the Committee shall obtain the
Participant's consent before it amends the Grant Agreement in a manner that significantly reduces the Participant's rights or benefits
under the Grant Agreement.
6. Determinations by Committee. Determinations by the Committee shall be final, binding and conclusive with
respect to the interpretation of the Plan and the Grant Agreement.
7. Provisions of the Plan. This grant is subject to the provisions of the Plan, which is incorporated into the Grant
Agreement by reference and a copy of which is furnished to the Participant with the Grant Agreement.
8. Notices and Payments. Any notice required or permitted to be given to the Participant under the Grant Agreement
shall be in writing and shall be deemed effective upon personal delivery or upon deposit in the United States mail with postage and
fees prepaid. Any notice or communication required or permitted to be given to the Company under the Grant Agreement shall be in
writing and shall be deemed effective only upon receipt by the Secretary of the Company at the Company's principal office.
9. Waiver. The waiver by the Company of any provision of the Grant Agreement at any time or for any purpose shall
not operate as or be construed to be a waiver of the same or any other provision of the Grant Agreement at any subsequent time or for
any other purpose.
10. Governing Law. The validity and construction of the Grant Agreement shall be governed by the laws of the State
of Delaware, excluding any conflicts or choice of law rules or principles that might otherwise refer construction or interpretation of
any provision of this Grant Agreement to the substantive law of another jurisdiction.
11. Electronic Communication. The Company may, in its sole discretion, decide to deliver any document related to
current or future participation in the Plan by electronic means. The Participant hereby consents to receive such documents by
electronic delivery and agrees to participate in the Plan through an online or electronic system established and maintained by the
Company or a third party designated by the Company.
UNITED NATURAL FOODS, INC.
NON-STATUTORY STOCK OPTION AGREEMENT
Exhibit 10.19
1. Grant of Option. United Natural Foods, Inc., a Delaware corporation (the "Company"), hereby grants to
(the "Grantee") an option, pursuant to the Company's 2002 Stock Incentive Plan (the "Plan"), to purchase an
aggregate of shares of Common Stock, par value $0.01 per share ("Common Stock"), of the Company at a price
of $ per share, purchasable as set forth in and subject to the terms and conditions of this option and the Plan. Except in the
preceding sentence and where the context otherwise requires, the term "Company" shall include the parent and all present and future
subsidiaries of the Company as defined in Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as amended or replaced
from time to time (the "Code"). All capitalized terms that are used in this Agreement without definition, shall have the meanings set
forth in the Plan.
2. Non-Statutory Stock Option. This option is not intended to qualify as an incentive stock option within the
meaning of Section 422 of the Code.
3. Exercise of Option and Provisions for Termination.
(a) Vesting Schedule. Except as otherwise provided in this Agreement, this option may be exercised prior to
the tenth anniversary of the date of grant (hereinafter the "Expiration Date") in installments as to not more than the number of shares
set forth in the table below during the respective installment periods set forth in the table below.
Number of
Shares as to which
Option is Exercisable
0
Exercise Period
On or after September 12, 2011
but prior to September 12, 2012
On or after September 12, 2012
but prior to September 12, 2013
On or after September 12, 2013
but prior to September 12, 2014
On or after September 12, 2014
but prior to September 12, 2015
On or after September 12, 2015
The right of exercise shall be cumulative so that if the option is not exercised to the maximum extent permissible during any exercise
period, it shall be exercisable, in whole or in part, with respect to all shares not so purchased at any time prior to the Expiration Date
or the earlier termination of this option. This option may not be exercised at any
time on or after the Expiration Date, except as otherwise provided in Sections 3(d) and (e) below.
(b) Exercise Procedure. Subject to the conditions set forth in this Agreement, this option shall be exercised by
the Grantee's delivery of written notice of exercise to the Treasurer of the Company, specifying the number of shares to be purchased
and the purchase price to be paid therefor and accompanied by payment in full in accordance with Section 4. Such exercise shall be
effective upon receipt by the Treasurer of the Company of such written notice together with the required payment. The Grantee may
purchase less than the number of shares covered hereby, provided that no partial exercise of this option may be for any fractional share
or for fewer than ten whole shares.
(c) Continuous Employment Required. Except as otherwise provided in this Section 3, this option may not be
exercised unless the Grantee, at the time he or she exercises this option, is, and has been at all times since the date of grant of this
option, an employee of the Company. For all purposes of this option, (i) "employment" shall be defined in accordance with the
provisions of Section 1.421-1(h) of the Income Tax Regulations or any successor regulations, and (ii) if this option shall be assumed
or a new option substituted therefor in a transaction to which Section 424(a) of the Code applies, employment by such assuming or
substituting corporation (hereinafter called the "Successor Corporation") shall be considered for all purposes of this option to be
employment by the Company.
(d) Exercise Period Upon Termination of Employment. If the Grantee ceases to be employed by the Company
for any reason, then, except as provided in paragraphs (e) and (f) below, the right to exercise this option shall terminate 90 days after
such cessation (but in no event after the Expiration Date); provided that this option shall be exercisable only to the extent that the
Grantee was entitled to exercise this option on the date of such cessation. Notwithstanding the foregoing, if the Grantee, prior to the
Expiration Date, materially violates the non-competition or confidentiality provisions of any employment contract, confidentiality and
nondisclosure agreement or other agreement between the Grantee and the Company, the right to exercise this option shall terminate
immediately upon written notice to the Grantee from the Company describing such violation.
(e) Exercise Period Upon Death or Disability. If the Grantee dies or becomes disabled (within the meaning of
Section 22(e)(3) of the Code) prior to the Expiration Date while he or she is an employee of the Company, or if the Grantee dies
within 90 days after the Grantee ceases to be an employee of the Company (other than as the result of a discharge for "cause" as
specified in paragraph (f) below), this option shall be exercisable, within the period of three years following the date of death or
disability of the Grantee (but in no event after the Expiration Date), by the Grantee or by the person to whom this option is transferred
by will or the laws of descent and distribution, provided that this option shall be exercisable only to the extent that this option was
exercisable by the Grantee on the date of his or her death or disability. Except as otherwise indicated by the context, the term
"Grantee", as used in this option, shall be deemed to include the
estate of the Grantee or any person who acquires the right to exercise this option by bequest or inheritance or otherwise by reason of
the death of the Grantee.
(f) Discharge for Cause. If the Grantee, prior to the Expiration Date, is discharged by the Company for
"cause" (as defined below), the right to exercise this option shall terminate immediately upon such cessation of employment. "Cause"
shall mean willful misconduct in connection with the Grantee's employment or willful failure to perform his or her employment
responsibilities in the best interests of the Company (including, without limitation, breach by the Grantee of any provision of any
employment, nondisclosure, non-competition or other similar agreement between the Grantee and the Company), as determined by the
Company, which determination shall be conclusive. The Grantee shall be considered to have been discharged "for cause" if the
Company determines, within 30 days after the Grantee's resignation, that discharge for cause was warranted.
(g) Termination of Employment After a Change in Control. Notwithstanding the provisions of paragraphs (d),
(e) and (f) above, if, within three months after the Company obtains actual knowledge that a Change in Control (as defined in the
Plan) has occurred, the Grantee's employment with the Company ceases for any reason, the Grantee may exercise this option in full,
notwithstanding any limitation on the exercise of this option, at any time within three months after such cessation of employment.
4. Payment of Purchase Price. The payment of the purchase price for shares of Common Stock purchased upon
exercise of this option shall be made in accordance with one or more of the following permissible methods:
(a) by money order, cashier's check, or certified check;
(b) by the Grantee's (a) irrevocable instructions to the Company to deliver the Shares issuable upon exercise of
the Option promptly to the broker for the Grantee's account and (b) irrevocable instruction letter to the broker to sell Shares sufficient
to pay the exercise price and upon such sale to deliver the exercise price to the Company, provided that at the time of such exercise,
such exercise would not subject the Grantee to liability under Section 16(b) of the Exchange Act, or would be exempt pursuant to
Rule 16b-3 promulgated under the Exchange Act or any other exemption from such liability. The Company shall deliver an
acknowledgment to the broker upon receipt of instructions to deliver the Shares. The Company shall deliver the Shares to the broker
upon the settlement date. The broker shall deliver to the Company cash sale proceeds sufficient to cover the exercise price upon
receipt of the Shares from the Company.
(c) by the tender of Shares already owned by the Grantee to the Company, or by the attestation to the
ownership of the Shares that otherwise would be tendered to the Company in exchange for the Company's reducing the number of
Shares that it issues to the Grantee by the number of Shares necessary for payment in full of the exercise price for the Shares so
purchased;
1. Shares tendered or attested to in exchange for Shares issued under the Plan must be held by the
Grantee for at least six months prior to their tender or their attestation to the Company. The
Committee shall determine acceptable methods for tendering or attesting to Shares to exercise an
Option under the Plan, and may impose such limitations and prohibitions on the use of Shares to
exercise Options as it deems appropriate. For purposes of determining the amount of the exercise
price satisfied by tendering or attesting to Shares, such Shares shall be valued at their Fair Market
Value on the date of tender or attestation, as applicable. Except as provided in this paragraph, the
date of exercise shall be deemed to be the date that the notice of exercise and payment of the
exercise price are received by the Committee. For exercise pursuant to Section 10(a)(2)(iv) of the
Plan, the date of exercise shall be deemed to be the date that the notice of exercise is received by the
Committee.
(d) Or a combination of the above.
5. Delivery of Shares; Compliance With Securities Laws, Etc.
(a) General. The Company shall, upon payment of the option price for the number of shares purchased and
paid for, make prompt delivery of such shares to the Grantee, provided that if any law or regulation requires the Company to take any
action with respect to such shares before the issuance thereof, then the date of delivery of such shares shall be extended for the period
necessary to complete such action.
(b) Listing, Qualification, Etc. This option shall be subject to the requirement that if, at any time, counsel to
the Company shall determine that the listing, registration or qualification of the shares subject hereto upon any securities exchange or
under any state or federal law, or the consent or approval of any governmental or regulatory body, or that the disclosure of non-public
information or the satisfaction of any other condition is necessary as a condition of, or in connection with, the issuance or purchase of
shares hereunder, this option may not be exercised, in whole or in part, unless such listing, registration, qualification, consent or
approval, disclosure or satisfaction of such other condition shall have been effected or obtained on terms acceptable to the Board of
Directors. Nothing herein shall be deemed to require the Company to apply for, effect or obtain such listing, registration, qualification
or disclosure, or to satisfy such other condition.
6. Nontransferability of Option. This option is personal and no rights granted hereunder may be transferred,
assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) nor shall any such rights be subject to
execution, attachment or similar process, other than in accordance with the terms of the Plan. Upon any attempt to transfer, assign,
pledge, hypothecate or otherwise dispose of this option or of such rights contrary to the provisions of the Plan, or upon the levy of any
attachment or similar process upon this option or such rights, this option and such rights shall, at the election of the Company, become
null and void.
7. No Special Employment Rights. Nothing contained in the Plan or this option shall be construed or deemed by
any person under any circumstances to bind the Company to continue the employment of the Grantee for the period within which this
option may be exercised.
8. Rights as a Stockholder. The Grantee shall have no rights as a stockholder with respect to any shares which
may be purchased by exercise of this option (including, without limitation, any rights to receive dividends or non-cash distributions
with respect to such shares) unless and until a certificate representing such shares is duly issued and delivered to the Grantee. No
adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued.
9. Withholding Taxes. The Company's obligation to deliver shares upon the exercise of this option shall be
subject to the Grantee's satisfaction of all applicable federal, state and local income and employment tax withholding requirements.
10. Miscellaneous.
(a) Subject to the restrictions contained in the Plan, the Committee may waive any conditions or rights under,
amend any terms of, or alter, suspend, discontinue, cancel or terminate, this option, prospectively or retroactively; provided that any
such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would adversely affect the rights of
the Grantee shall not to that extent be effective without the consent of the Grantee.
(b) All notices under this option shall be mailed or delivered by hand to the parties at their respective
addresses set forth beneath their names below or at such other address as may be designated in writing by either of the parties to one
another.
(c) The Grantee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms
and provisions thereof. The terms of this Agreement are governed by the terms of the Plan, and in the case of any inconsistency
between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall govern.
(d) This option shall be governed by and construed in accordance with the laws of the State of Delaware,
excluding any conflicts or choice of law, rules or principals that might otherwise refer construction or interpretation of any provisions
of this Agreement to the substantive law of any other jurisdiction.
(e) Any dispute or disagreement which may arise under, or as a result of, or in any way related to, the
interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made
hereunder shall be final, binding and conclusive on the Grantee and the Company for all purposes.
(f) This Agreement shall inure to the benefit of and be binding upon any successor to the Company. This
Agreement shall inure to the benefit of the Grantee's legal representative. All obligations imposed upon the Grantee and all rights
granted to the Company under this Agreement shall be binding upon the Grantee's heirs, executors, administrator and successors.
(g) The Company may, in its sole discretion, decide to deliver any document related to current or future
participation in the Plan by electronic means. The Participant hereby consents to receive such documents by electronic delivery and
agrees to participate in the Plan through an online or electronic system established and maintained by the Company or a third party
designated by the Company.
[Signature Page Follows]
AGREED AND ACCEPTED:
UNITED NATURAL FOODS, INC.
By:
Mark E. Shamber
SVP, CFO and Treasurer
313 Iron Horse Way
Providence RI 02908
Grantee's Acceptance:
The undersigned hereby accepts the foregoing option and agrees to the terms and conditions thereof. The undersigned hereby
acknowledges receipt of a copy of the Company's 2002 Stock Incentive Plan.
GRANTEE:
Address:
UNITED NATURAL FOODS, INC.
Terms and Conditions of Grant of Non-Statutory Stock Options to Director
2004 Equity Incentive Plan
Exhibit 10.20
These Terms and Conditions of Grant of Non-Statutory Stock Options to Director (these "Terms and Conditions"), shall
apply to the grant by United Natural Foods, Inc., a Delaware corporation (the "Company"), to the Grantee of an award of options to
purchase shares of the Company's common stock, par value $0.01 per share (the "Common Stock"), pursuant to the Company's
Amended and Restated 2004 Equity Incentive Plan (as amended from time to time, the "Plan"). Except in the preceding sentence and
where the context otherwise requires, the term "Company" shall include the Company and all present and future Subsidiaries.
All capitalized terms that are used in these Terms and Conditions without definition shall have the meanings set forth in the
Plan.
1. Grant of Option. Effective on the grant date specified in the communication of award (the "Grant Date") and
subject to these Terms and Conditions, the Company has granted to the individual identified in the communication of award (the
"Grantee") the option to purchase Shares (the right to purchase any one Share, an "Option") from the Company during the period
commencing on the Grant Date and ending on the tenth anniversary of the Grant Date (the "Expiration Date") at the Option Price per
Share set forth in the communication of award. The communication of award consists of a communication delivered by an authorized
representative of the Company to the Grantee identifying that an award has been granted together with the details of the award set
forth in the award summary portion of the online award acceptance process used in connection with electronic administration of
awards under the Plan. The information contained in the communication of award with respect to Grantee and the terms of award is
incorporated herein by reference and together with these Terms and Conditions shall constitute an Agreement (the "Grant
Agreement") for purposes of the Plan. By accepting the award of Options and acknowledging these Terms and Conditions, the
Grantee agrees to be bound by these Terms and Conditions with respect to the Options. Acceptance of the award of Options and
acknowledgment of these Terms and Conditions may be made in a writing signed by the Grantee and delivered to the Company or
through the online award acceptance process used in connection with electronic administration of awards under the Plan.
2. Exercise of Option and Provisions for Termination.
(a) Vesting Schedule. The Options shall vest on the Grant Date as to thirty-three and one-third percent (33
1/3%) of the Shares and as to an additional thirty-three and one-third percent (33 1/3%) on each succeeding anniversary of the Grant
Date so as to be 100% vested on the second anniversary of the Grant Date, conditioned on each such date on Grantee maintaining
status as a member of the Board of Directors of the Company. Except as otherwise provided in these Terms and Conditions, the
Options may not be exercised at any time on or after the Expiration Date.
(b) Exercise Procedure. Subject to these Terms and Conditions, the Options shall be exercised by the
Grantee's delivery of written notice of exercise to the Treasurer of the Company, specifying the number of Shares to be purchased and
the purchase price to be paid therefor and accompanied by payment in full in accordance with Section 3 of these Terms and
Conditions. Such exercise shall be effective upon receipt by the Treasurer of the Company of such written notice together with
payment in full of the Option Price per Share. The Grantee may purchase less than the number of Shares covered hereby, provided
that no partial exercise of the Options may be for any fractional share or for fewer than ten whole Shares.
(c) Continued Service Required. Except as otherwise provided in this Section 2, Options may not be
exercised unless at the time of exercise Grantee is, and has been at all times since the Grant Date, a member of the Board of Directors
of the Company. If the Options shall be assumed or a new option substituted therefor in a transaction to which Section 424(a) of the
Code applies, service on the board of directors (or comparable body) of such assuming or substituting corporation shall be considered
for all purposes of the Options to be service on the Board of Directors of the Company.
(d) Exercise Period Upon Termination of Service. If the Grantee ceases to be a member of the Board of
Directors of the Company for any reason, then, except as provided in paragraphs (e) and (f) below, the Grantee's right to exercise
Options shall terminate on the earlier to occur of 90 days after such cessation or the Expiration Date; provided that unless otherwise
determined by the Committee, Options shall be exercisable only to the extent that the Grantee was entitled to exercise such Options on
the date of such cessation. Notwithstanding the foregoing, if the Grantee, prior to the Expiration Date, materially violates the non-
competition or confidentiality provisions of any confidentiality and nondisclosure agreement or other agreement between the Grantee
and the Company, the right to exercise the Options shall terminate immediately upon written notice to the Grantee from the Company
describing such violation.
(e) Exercise Period Upon Death or Disability. If the Grantee dies or becomes disabled (within the meaning of
Section 15(a) of the Plan) prior to the Expiration Date while he or she is a member of the Board of Directors of the Company, or if the
Grantee dies within 90 days after the Grantee ceases to be a member of the Board of Directors of the Company, the Options shall be
exercisable at any time on or before the earlier to occur of one year after such cessation or the Expiration Date, provided that the
Options shall be exercisable only to the extent that the Options were exercisable by the Grantee on the date of his or her death or
disability. Except as otherwise indicated by the context, the term "Grantee", as used in these Terms and Conditions, shall be deemed
to include the estate of the Grantee or any person who acquires the right to exercise the Options by bequest or inheritance or otherwise
by reason of the death of the Grantee.
(e) above, if, within twelve months after the Company obtains actual knowledge that a Change in Control (as defined in the
(f) Termination of Service after a Change in Control. Notwithstanding the provisions of paragraphs (d) and
Plan) has occurred, Grantee ceases to serve as a member of the Board of Directors of the Company, all unvested Options shall become
fully vested, and thereafter the Grantee may exercise all the unexercised Options in full at any time within three months after such
cessation of service.
3. Payment of Purchase Price. The payment of the purchase price for Shares purchased upon exercise of Options
shall be made in accordance with one or more of the following permissible methods:
(a) by cash or cash equivalents, including money order, cashier's check, or certified check;
(b) by transfer, either actually or by attestation, of such number of unencumbered shares of Common Stock
previously acquired by the Grantee equal to the Option Price when valued at the Fair Market Value of such shares on the date of
exercise of the Options (or next succeeding trading date, if the date of exercise is not a trading date);
(c) by a combination of such cash (or cash equivalents) and delivery of shares of Common Stock;
(d) by the Grantee delivering a notice of exercise of the Options and simultaneously selling the Shares thereby
acquired, pursuant to a brokerage or similar agreement approved in advance by proper officers of the Company, using the proceeds of
such sale as payment of the Option Price; or
Fair Market Value at the time of exercise equal to the total Option Price.
(e) by withholding Shares otherwise deliverable to the Grantee pursuant to the Option having an aggregate
4. Delivery of Shares; Compliance with Securities Laws, Etc.
(a) General. The Company shall, upon payment of the Option Price for the number of Shares purchased and
paid for, make prompt delivery of such Shares to the Grantee (whether by delivery of certificates or book entry), provided that if any
law or regulation requires the Company to take any action with respect to such Shares before the issuance thereof, then the date of
delivery of such Shares shall be extended for the period necessary to complete such action.
(b) Listing, Qualification, Etc. The Options shall be subject to the requirement that if, at any time, counsel to
the Company shall determine that the listing, registration or qualification of the Shares subject to these Terms and Conditions upon
any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, or that
the disclosure of non-public information or the satisfaction of any other condition is necessary as a condition of, or in connection with,
the issuance or purchase of Shares hereunder, the Options may not be exercised, in whole or in part, unless such listing, registration,
qualification, consent or approval, disclosure or satisfaction of such other condition shall have been effected or obtained on terms
acceptable to the Board of Directors. Nothing herein shall be deemed to require the Company to apply for, effect or obtain such
listing, registration, qualification or disclosure, or to satisfy such other condition.
5. Nontransferability of Option. The Options are personal and, except as described herein in connection with the
death of the Grantee, no rights granted hereunder may be transferred, assigned, pledged or hypothecated in any way (whether by
operation of law or otherwise) nor shall any such rights be subject to execution, attachment or similar process, other than in
accordance with the terms of the Plan. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of the Options
or of such rights contrary to the provisions of the Plan, or upon the levy of any attachment or similar process upon the Options or such
rights, the Options and such rights shall, at the election of the Company, become null and void.
6. No Guarantee of Continued Service. Nothing in this Grant Agreement or in the Plan shall confer upon the
Grantee any right to continue to serve as a member of the Board of Directors of the Company or the right to be employed by the
Company or any Subsidiary, or shall interfere with or restrict in any way the rights of the Company and its Subsidiaries.
7. Rights as a Stockholder. The Grantee shall have no rights as a stockholder with respect to any Shares which
may be purchased by exercise of the Options (including, without limitation, any rights to receive dividends or non-cash distributions
with respect to such Shares) unless and until the Shares have been issued to Grantee. No adjustment shall be made for dividends or
other rights for which the record date is prior to the date such Shares are issued.
8. Miscellaneous.
(a) Subject to the restrictions contained in the Plan, the Committee may waive any conditions or rights under,
amend any terms of, or alter, suspend, discontinue, cancel or terminate, the Options, prospectively or retroactively; provided that any
such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would adversely affect the rights of
the Grantee shall not to that extent be effective without the consent of the Grantee.
(b) All notices under the Grant Agreement shall be mailed or delivered by hand to the Company at its
corporate headquarters, 313 Iron Horse Way, Providence, RI 02908, attention: Chief Financial Officer and Treasurer, and if to
Grantee, at such address as the Company may have on file for the Grantee, or in either case as may be designated in writing by either
of the parties to one another.
(c) The Grantee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms
and provisions thereof. The Grant Agreement is governed by the terms of the Plan, and in the case of any inconsistency between the
Grant Agreement and the terms of the Plan, the terms of the Plan shall govern.
(d) Except to the extent that such laws may be superseded by any Federal law, the Grant Agreement and terms
of the Options, shall be construed and its provisions enforced and administered in accordance with the laws of the State of Delaware,
excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation to the substantive
law of another jurisdiction.
(e) Any dispute or disagreement which may arise under, or as a result of, or in any way related to, the
interpretation, construction or application of the Grant Agreement shall be determined by the Committee. Any determination made
hereunder shall be final, binding and conclusive on the Grantee and the Company for all purposes.
(f) The Grant Agreement shall inure to the benefit of and be binding upon any successor to the Company and
shall inure to the benefit of the Grantee's legal representative. All obligations imposed upon the Grantee and all rights granted to the
Company under the Grant Agreement shall be binding upon the Grantee's heirs, executors, administrator and successors.
the Code.
(g) The Options are not intended to qualify as incentive stock options within the meaning of Section 422 of
(h) The Company may, in its sole discretion, decide to deliver any document related to current or future
participation in the Plan by electronic means. The Grantee hereby consents to receive such documents by electronic delivery and
agrees to participate in the Plan through an online or electronic system established and maintained by the Company or a third party
designated by the Company.
UNITED NATURAL FOODS, INC.
Terms and Conditions of Grant of Non-Statutory Stock Options to Employee
2004 Equity Incentive Plan
Exhibit 10.21
These Terms and Conditions of Grant of Non-Statutory Stock Options to Employee (these "Terms and Conditions"), shall
apply to the grant by United Natural Foods, Inc., a Delaware corporation (the "Company"), to the Grantee of an award of options to
purchase shares of the Company's common stock, par value $0.01 per share (the "Common Stock"), pursuant to the Company's
Amended and Restated 2004 Equity Incentive Plan (as amended from time to time, the "Plan"). Except in the preceding sentence and
where the context otherwise requires, the term "Company" shall include the Company and all present and future Subsidiaries.
All capitalized terms that are used in these Terms and Conditions without definition shall have the meanings set forth in the
Plan.
1. Grant of Option. Effective on the grant date specified in the communication of award (the "Grant Date") and
subject to these Terms and Conditions, the Company has granted to the individual identified in the communication of award (the
"Grantee") the option to purchase Shares (the right to purchase any one Share, an "Option") from the Company during the period
commencing on the Grant Date and ending on the tenth anniversary of the Grant Date (the "Expiration Date") at the Option Price per
Share set forth in the communication of award. The communication of award consists of a communication delivered by an authorized
representative of the Company to the Grantee identifying that an award has been granted together with the details of the award set
forth in the award summary portion of the online award acceptance process used in connection with electronic administration of
awards under the Plan. The information contained in the communication of award with respect to Grantee and the terms of award is
incorporated herein by reference and together with these Terms and Conditions shall constitute an Agreement (the "Grant
Agreement") for purposes of the Plan. By accepting the award of Options and acknowledging these Terms and Conditions, the
Grantee agrees to be bound by these Terms and Conditions with respect to the Options. Acceptance of the award of Options and
acknowledgment of these Terms and Conditions may be made in a writing signed by the Grantee and delivered to the Company or
through the online award acceptance process used in connection with electronic administration of awards under the Plan.
2. Exercise of Option and Provisions for Termination.
(a) Vesting Schedule. The Options shall vest as to twenty-five percent (25%) of the Shares on the first
anniversary of the Grant Date and as to an additional twenty-five percent (25%) on each succeeding anniversary of the Grant Date so
as to be 100% vested on the fourth anniversary of the Grant Date, conditioned on each such date on Grantee maintaining employment
with the Company. Except as otherwise provided in these Terms and Conditions, the Options may not be exercised at any time on or
after the Expiration Date.
(b) Exercise Procedure. Subject to these Terms and Conditions, the Options shall be exercised by the
Grantee's delivery of written notice of exercise to the Treasurer of the Company, specifying the number of Shares to be purchased and
the purchase price to be paid therefor and accompanied by payment in full in accordance with Section 3 of these Terms and
Conditions. Such exercise shall be effective upon receipt by the Treasurer of the Company of such written notice together with
payment in full of the Option Price per Share. The Grantee may purchase less than the number of Shares covered hereby, provided
that no partial exercise of the Options may be for any fractional share or for fewer than ten whole Shares.
(c) Continued Employment Required. Except as otherwise provided in this Section 2, Options may not be
exercised unless at the time of exercise Grantee is, and has been at all times since the Grant Date, employed by the Company. If the
Options shall be assumed or a new option substituted therefor in a transaction to which Section 424(a) of the Code applies,
employment by such assuming or substituting corporation shall be considered for all purposes of the Options to be employment by the
Company.
(d) Exercise Period Upon Termination of Employment. If the Grantee ceases to be employed by the Company
for any reason, then, except as provided in paragraphs (e) and (f) below, the Grantee's right to exercise Options shall terminate on the
earlier to occur of 90 days after such cessation or the Expiration Date; provided that unless otherwise determined by the Committee
Options shall be exercisable only to the extent that the Grantee was entitled to exercise such Options on the date of such cessation.
Notwithstanding the foregoing, if the Grantee, prior to the Expiration Date, materially violates the non-competition or confidentiality
provisions of any employment, confidentiality and nondisclosure, or other agreement between the Grantee and the Company, the right
to exercise the Options shall terminate immediately upon written notice to the Grantee from the Company describing such violation.
(e) Exercise Period Upon Death or Disability. If the Grantee dies or becomes disabled (within the meaning of
Section 15(a) of the Plan) prior to the Expiration Date while he or she is an employee of the Company, or if the Grantee dies within 90
days after the Grantee ceases to be employed by the Company (other than as the result of a discharge for "cause" as specified in
paragraph (f) below), the Options shall be exercisable at any time on or before the earlier to occur of one year after such cessation or
the Expiration Date, provided that the Options shall be exercisable only to the extent that the Options were exercisable by the Grantee
on the date of his or her death or disability. Except as otherwise indicated by the context, the term "Grantee", as used in these Terms
and Conditions, shall be deemed to include the estate of the Grantee or any person who acquires the right to exercise the Options by
bequest or inheritance or otherwise by reason of the death of the Grantee.
(f) Discharge for Cause. If the Grantee, prior to the Expiration Date, ceases to be an employee of the
Company as a result of "cause" (as defined below), the right to exercise the Options shall terminate immediately upon such cessation
of employment. "Cause" shall mean willful misconduct in connection with the Grantee's
provision of services as an employee or willful failure to perform his or her responsibilities as an employee, in the best interests of the
Company (including, without limitation, breach by the Grantee of any provision of any employment, nondisclosure, non-competition
or other similar agreement between the Grantee and the Company), as determined by the Committee, which determination shall be
conclusive. The Grantee shall be considered to have ceased to be an employee "for cause" if the Committee determines, within 30
days after the Grantee's cessation of employment, that discharge for cause was warranted.
(g) Termination of Employment after a Change in Control. Notwithstanding the provisions of paragraphs (d),
(e) and (f) above, if, within twelve months after the Company obtains actual knowledge that a Change in Control (as defined in the
Plan) has occurred, the Grantee's employment with the Company ceases for any reason, all unvested Options shall become fully
vested, and thereafter the Grantee may exercise all the unexercised Options in full at any time within three months after such cessation
of employment.
3. Payment of Purchase Price. The payment of the purchase price for Shares purchased upon exercise of Options
shall be made in accordance with one or more of the following permissible methods:
(a) by cash or cash equivalents, including money order, cashier's check, or certified check;
(b) by transfer, either actually or by attestation, of such number of unencumbered shares of Common Stock
previously acquired by the Grantee equal to the Option Price when valued at the Fair Market Value of such shares on the date of
exercise of the Options (or next succeeding trading date, if the date of exercise is not a trading date);
(c) by a combination of such cash (or cash equivalents) and delivery of shares of Common Stock;
(d) by the Grantee delivering a notice of exercise of the Options and simultaneously selling the Shares thereby
acquired, pursuant to a brokerage or similar agreement approved in advance by proper officers of the Company, using the proceeds of
such sale as payment of the Option Price; or
Fair Market Value at the time of exercise equal to the total Option Price.
(e) by withholding Shares otherwise deliverable to the Grantee pursuant to the Option having an aggregate
4. Delivery of Shares; Compliance with Securities Laws, Etc.
(a) General. The Company shall, upon payment of the Option Price for the number of Shares purchased and
paid for, make prompt delivery of such Shares to the Grantee (whether by delivery of certificates or book entry), provided that if any
law or regulation requires the Company to take any action with respect to such Shares before
the issuance thereof, then the date of delivery of such Shares shall be extended for the period necessary to complete such action.
(b) Listing, Qualification, Etc. The Options shall be subject to the requirement that if, at any time, counsel to
the Company shall determine that the listing, registration or qualification of the Shares subject to these Terms and Conditions upon
any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, or that
the disclosure of non-public information or the satisfaction of any other condition is necessary as a condition of, or in connection with,
the issuance or purchase of Shares hereunder, the Options may not be exercised, in whole or in part, unless such listing, registration,
qualification, consent or approval, disclosure or satisfaction of such other condition shall have been effected or obtained on terms
acceptable to the Board of Directors. Nothing herein shall be deemed to require the Company to apply for, effect or obtain such
listing, registration, qualification or disclosure, or to satisfy such other condition.
5. Nontransferability of Option. The Options are personal and, except as described herein in connection with the
death of the Grantee, no rights granted hereunder may be transferred, assigned, pledged or hypothecated in any way (whether by
operation of law or otherwise) nor shall any such rights be subject to execution, attachment or similar process, other than in
accordance with the terms of the Plan. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of the Options
or of such rights contrary to the provisions of the Plan, or upon the levy of any attachment or similar process upon the Options or such
rights, the Options and such rights shall, at the election of the Company, become null and void.
6. No Guarantee of Employment. Nothing in the Grant Agreement or in the Plan shall confer upon the Grantee
any right to continue the employ of the Company or any Subsidiary, or shall interfere with or restrict in any way the rights of the
Company and its Subsidiaries, which are hereby expressly reserved, to discharge the Grantee at any time for any reason whatsoever,
with or without cause.
7. Rights as a Stockholder. The Grantee shall have no rights as a stockholder with respect to any Shares which
may be purchased by exercise of the Options (including, without limitation, any rights to receive dividends or non-cash distributions
with respect to such Shares) unless and until the Shares have been issued to Grantee. No adjustment shall be made for dividends or
other rights for which the record date is prior to the date such Shares are issued.
8. Withholding Taxes. The Company's obligation to deliver the Shares upon the exercise of Options shall be
subject to the Grantee's satisfaction of any applicable withholding obligations or withholding taxes ("Withholding Taxes") as set forth
by Internal Revenue Service guidelines, including any employer minimum statutory withholding, and Grantee shall pay the amount of
any such Withholding Taxes to the Company as set forth in this Section 8. The Grantee may satisfy his or her obligation to pay the
Withholding Taxes by (i) making a cash payment to the Company in an amount equal to the Withholding Taxes; (ii) having the
Company withhold Shares otherwise
deliverable to the Grantee in connection with the exercise of the Option; or (iii) delivering to the Company shares of Common Stock
already owned by the Grantee; provided that in the case of (ii) or (iii) such Shares withheld or shares of Common Stock delivered shall
have a Fair Market Value (on the date that such withholding or delivery occurs) equal to the amount of the Withholding Taxes. The
Grantee acknowledges and agrees that the Company has the right to deduct from payments of any kind otherwise due to the Grantee
an amount equal to the Withholding Taxes.
9. Miscellaneous.
(a) Subject to the restrictions contained in the Plan, the Committee may waive any conditions or rights under,
amend any terms of, or alter, suspend, discontinue, cancel or terminate, the Options, prospectively or retroactively; provided that any
such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would adversely affect the rights of
the Grantee shall not to that extent be effective without the consent of the Grantee.
(b) All notices under the Grant Agreement shall be mailed or delivered by hand to the Company at its
corporate headquarters, 313 Iron Horse Way, Providence, RI 02908, attention: Chief Financial Officer and Treasurer, and if to
Grantee, at such address as the Company may have on file for the Grantee, or in either case as may be designated in writing by either
of the parties to one another.
(c) The Grantee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms
and provisions thereof. The Grant Agreement is governed by the terms of the Plan, and in the case of any inconsistency between the
Grant Agreement and the terms of the Plan, the terms of the Plan shall govern.
(d) Except to the extent that such laws may be superseded by any Federal law, the Grant Agreement, and
terms of the Options, shall be construed and its provisions enforced and administered in accordance with the laws of the State of
Delaware, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation to the
substantive law of another jurisdiction.
(e) Any dispute or disagreement which may arise under, or as a result of, or in any way related to, the
interpretation, construction or application of the Grant Agreement shall be determined by the Committee. Any determination made
hereunder shall be final, binding and conclusive on the Grantee and the Company for all purposes.
(f) The Grant Agreement shall inure to the benefit of and be binding upon any successor to the Company and
shall inure to the benefit of the Grantee's legal representative. All obligations imposed upon the Grantee and all rights granted to the
Company under the Grant Agreement shall be binding upon the Grantee's heirs, executors, administrator and successors.
Code.
(g) The Options are not intended to qualify as incentive stock options within the meaning of Section 422 of the
(h) The Company may, in its sole discretion, decide to deliver any document related to current or future
participation in the Plan by electronic means. The Grantee hereby consents to receive such documents by electronic delivery and
agrees to participate in the Plan through an online or electronic system established and maintained by the Company or a third party
designated by the Company.
Exhibit 10.23
United Natural Foods
Senior Management Cash
Incentive Plan
Effective for FY2013
I. Administration of Incentive Plan
The Senior Management Cash Incentive Plan (the "Incentive Plan") is based on the 2013 fiscal year, July 29, 2012 — August 3, 2013
for United Natural Foods, Inc. (the "Company"). This Inventive Plan shall be administered pursuant to the Company's 2004 Equity
Incentive Plan; it is the intention of the Company that all awards hereunder to Covered Executives shall qualify for the "performance-
based exception" to the deduction limitation imposed by Section 162(m) of the Code. All provisions hereof shall be interpreted
accordingly. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Company's 2004 Equity Incentive
Plan. All incentive payouts will be calculated and paid by the Company on a date selected by the Company in its sole discretion that
is not later than the later of i) the 15th day of the third month following the end of the Company's 2013 fiscal year; or (ii) March 15 of
the calendar year following the calendar year in which the bonus is earned; provided that no payment will be made prior to the end of
the Company's 2013 fiscal year. All Incentive Plan payouts are subject to required local, state and federal taxes deductions.
The Incentive Plan shall be administered by the Compensation Committee of the Company's Board of Directors (the "Compensation
Committee"). The Compensation Committee may delegate to certain associates the authority to manage the day-to-day administrative
operations of the Incentive Plan as it may deem advisable.
The Compensation Committee reserves the right to amend, modify, or terminate the Incentive Plan at any time in its sole discretion.
The Compensation Committee shall have the authority to modify the terms of any award under the Incentive Plan that has been
granted, to determine the time when awards under the Incentive Plan will be made, the amount of any payments pursuant to such
awards, and the performance period to which they relate, to establish performance objectives in respect of such performance periods
and to determine whether such performance objectives were attained. The Committee is authorized to interpret the Plan, to establish,
amend and rescind any rules and regulations relating to the Incentive Plan, and to make any other determinations that it deems
necessary or desirable for the administration of the Incentive Plan. The Compensation Committee may correct any defect or omission
or reconcile any inconsistency in the Incentive Plan in the manner and to the extent the Compensation Committee deems necessary or
desirable. Any decision of the Compensation Committee in the interpretation and administration of the Incentive Plan, as described
herein, shall lie within its sole and absolute discretion and shall be final, conclusive and binding on all parties concerned.
Determinations made by the Compensation Committee under the Incentive Plan need not be uniform and may be made selectively
among participants in the Incentive Plan, whether or not such participants are similarly situated. Any and all changes will be
communicated to those executives participating in the Incentive Plan that are affected by the changes.
II. Incentive Plan Eligibility
The Compensation Committee shall determine the executive officers and other members of the Company's senior management
eligible for participation in the Incentive Plan.
Participants in the Incentive Plan hired or promoted from July 29, 2012 through January 31, 2013 will be eligible for a prorated payout
at the end of the fiscal year if he or she achieves the required performance metrics of his or her individual program. Such prorated
payout shall be made in accordance with the payment provisions of Section I above. Participants in the Incentive Plan hired or
promoted from February 1, 2012 through August 3, 2013 will not be eligible to participate in the Incentive Plan for the 2013 fiscal
year. Additionally, if any participant receives a change in base salary during the performance period, the bonus payout earned by the
participant, if any, will be prorated accordingly.
All Incentive Plan participants must accept the commitment and responsibility to perform all duties in compliance with the Company's
Standards of Conduct. Any participant who manipulates or attempts to manipulate the
2
Incentive Plan for personal gain at the expense of customers, other associates, or Company objectives will be subject to appropriate
disciplinary actions.
Participants must not divulge to any outsider any non-public information regarding this Incentive Plan or any specific performance
metrics applicable to the participant.
Participation in the Incentive Plan does not constitute a contract or promise of employment between the Company and any participant
in the Incentive Plan. Any promise or representations, oral or written, which are inconsistent with or different from the terms of the
Incentive Plan are invalid.
III. Termination Provisions
Any participant whose employment is terminated for any reason (e.g., voluntary separation or termination due to misconduct) prior to
the end of the 2013 fiscal year will not be eligible for distribution of awards under the Incentive Plan. A participant whose
employment is terminated for any reason following the end of the 2013 fiscal year but prior to the payout of awards under the
Incentive Plan shall remain entitled to receive the award earned by such participant. If a participant becomes disabled during the 2013
fiscal year or is granted a leave of absence during that time, a pro rata share of the participant's award based on the period of actual
participation may, in the Compensation Committee's sole discretion, be paid to the participant after the end of the performance period
if it would have become earned and payable had the participant's employment status not changed.
IV. Performance Measures
Participants in the Incentive Plan may receive a cash award upon the attainment of performance goals which may be corporate and/or
individual goals. The percentage of any award payable pursuant to the Incentive Plan shall be based on the weights assigned to the
applicable performance goal. Each participant's incentive award is based on a designated percentage of the participant's base pay and
is established by the Compensation Committee.
Each participant in the Incentive Plan will be eligible for a bonus payout conditioned on the achievement of performance measures
outlined in an Incentive Plan Grid approved by the Compensation Committee.
The Compensation Committee shall determine whether and to what extent each performance goal has been met. In determining
whether and to what extent a performance goal has been met for participants other than the Chief Executive Officer of the Company,
the Compensation Committee shall consider the recommendation of the Chief Executive Officer and may consider such other matters
as the Compensation Committee deems appropriate.
V. Miscellaneous Provisions
Notwithstanding anything to the contrary herein, the Compensation Committee, in its sole discretion, may reduce any amounts
otherwise payable to a participant hereunder in order to satisfy any liabilities owed to the Company or any of its subsidiaries by the
participant.
In the event of any material change in the business assets, liabilities or prospects of the Company, any division or any subsidiary, the
Compensation Committee in its sole discretion and without liability to any person may make such adjustments, if any, as it deems to
be equitable as to any affected terms of outstanding awards.
The Company is the sponsor and legal obligor under the Incentive Plan and shall make all payments hereunder, other than any
payments to be made by any of the subsidiaries (in which case payment shall be made by such subsidiary, as appropriate). The
Company shall not be required to establish any special or separate fund or to make any other segregation of assets to ensure the
payment of any amounts under the Incentive Plan, and the participant's rights to the payment hereunder shall be not greater than the
rights of the Company's (or subsidiary's) unsecured creditors. All expenses involved in administering the Incentive Plan shall be borne
by the Company.
3
The Incentive Plan shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts
made and to be performed in the State of Delaware.
Each participant agrees that payouts under this Incentive Plan are subject to the Company's Recoupment Policy for performance-based
incentive compensation and also further agrees to return to the Company, if the Company shall so request, all or a portion of any
incentive amounts paid to such participant pursuant to this Incentive Plan based upon financial information or performance metrics
later found to be materially inaccurate. The amount to be recovered shall be equal to the excess amount paid out over the amount that
would have been paid out had such financial information or performance metric been fairly stated at the time the payout was made.
Notwithstanding anything herein to the contrary, the Compensation Committee, in its sole discretion, may make payments (including
pro rata payments) to participants who do not meet the eligibility requirements of the Incentive Plan, including, but not limited to, the
length of service requirements described in Section II above if the Plan Committee determines that such payments are in the best
interest of the Company.
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SUBSIDIARIES OF THE REGISTRANT
Exhibit 21
NAME
Albert's Organics, Inc.
Natural Retail Group, Inc.
d/b/a Earth Origins Market
United Natural Foods West, Inc.
United Natural Trading Co.
d/b/a Woodstock Farms
Blue Marble Brands, LLC
United Natural Trading, LLC
d/b/a Woodstock Farms Manufacturing
United Natural Transportation, Inc.
Springfield Development Corp LLC
Distribution Holdings, Inc.
Millbrook Distribution Services, Inc.
d/b/a UNFI Specialty Distribution Services
Mt. Vikos, Inc.
Fantastic Foods, Inc.
UNFI Canada, Inc.
JURISDICTION OF
INCORPORATION/FORMATION
California
Delaware
California
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
California
Canada
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Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
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The Board of Directors
United Natural Foods, Inc. and subsidiaries:
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the registration statements (Nos. 333-161845, 333-161884, 333-19947, 333-19949, 333-71673,
333-56652, 333-106217, and 333-123462) on Form S-8 of United Natural Foods, Inc. of our report dated September 26, 2012, with respect to the consolidated
balance sheets of United Natural Foods, Inc. and subsidiaries as of July 28, 2012 and July 30, 2011, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the fiscal years in the three-year period ended July 28, 2012, and the effectiveness of internal control over
financial reporting as of July 28, 2012, which report appears in the July 28, 2012 annual report on Form 10-K of United Natural Foods, Inc.
Exhibit 23.1
Providence, Rhode Island
September 26, 2012
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Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
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Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Steven L. Spinner certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of United Natural Foods, Inc.;
Based on my knowledge, this 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
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
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 registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
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;
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
(b)
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 registrant's ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
September 26, 2012
/s/ STEVEN L. SPINNER
Steven L. Spinner
Chief Executive Officer
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.
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Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
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Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mark E. Shamber certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of United Natural Foods, Inc.;
Based on my knowledge, this 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
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
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 registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
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;
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
(b)
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 registrant's ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
September 26, 2012
/s/ MARK E. SHAMBER
Mark E. Shamber
Chief Financial Officer
Note:
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.
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Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
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CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, in his capacity as the Chief Executive Officer of United Natural Foods, Inc., a Delaware corporation (the "Company"), hereby certifies
that the Annual Report of the Company on Form 10-K for the period ended July 28, 2012 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 Annual Report on Form 10-K fairly presents in all material respects the financial
condition and results of operations of the Company.
Exhibit 32.1
/s/ STEVEN L. SPINNER
Steven L. Spinner
Chief Executive Officer
September 26, 2012
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.
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Exhibit 32.1
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
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CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, in his capacity as the Chief Financial Officer of United Natural Foods, Inc., a Delaware corporation (the "Company"), hereby certifies
that the Annual Report of the Company on Form 10-K for the period ended July 28, 2012 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 Annual Report on Form 10-K fairly presents in all material respects the financial
condition and results of operations of the Company.
Exhibit 32.2
/s/ MARK E. SHAMBER
Mark E. Shamber
Chief Financial Officer
September 26, 2012
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.
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Exhibit 32.2
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002