10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 29, 2006

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-21531

UNITED NATURAL FOODS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	05-0376157
(State or Other Jurisdiction of	(I.R.S. Employer Identification No.)
Incorporation or Organization)

260 Lake Road Dayville, CT		06241
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s Telephone Number, Including Area Code: (860) 779-2800

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

Yes x   No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer x   Accelerated Filer o   Non-accelerated Filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o   No x

As of June 1, 2006 there were 42,216,598 shares of the Registrant’s Common Stock, $0.01 par value per share, outstanding.

TABLE OF CONTENTS

Part I.	Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets (unaudited)	3
	Condensed Consolidated Statements of Income (unaudited)	4
	Condensed Consolidated Statements of Cash Flows (unaudited)	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	25
Item 4.	Controls and Procedures	25
Part II.	Other Information
Item 6.	Exhibits and Reports on Form 8-K	26
	Signatures	27

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

UNITED NATURAL FOODS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands, except per share amounts)

	April 29, 2006			July 31, 2005
ASSETS
Current assets:
Cash and cash equivalents	$	6,061		$	12,615
Accounts receivable, net		156,952			136,472
Notes receivable, trade, net		1,075			877
Inventories		260,496			235,700
Prepaid expenses and other current assets		15,218			9,811
Deferred income taxes		7,419			7,419
Total current assets		447,221			402,894
Property & equipment, net		163,167			167,909
Other assets:
Goodwill		76,962			73,808
Notes receivable, trade, net		2,367			1,802
Intangible assets, net		290			307
Other		7,119			4,538
Total assets	$	697,126		$	651,258
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	124,981		$	119,177
Notes payable		117,001			123,574
Accrued expenses and other current liabilities		30,222			34,915
Current portion of long-term debt		5,475			5,843
Total current liabilities		277,679			283,509
Long-term debt, excluding current portion		61,127			64,852
Deferred income taxes		7,493			6,904
Other long-term liabilities		1,638			474
Total liabilities		347,937			355,739
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, authorized 5,000 shares
at April 29, 2006 and July 31, 2005, respectively; none
issued and outstanding		—			—
Common stock, $0.01 par value, authorized 50,000 shares;
42,426 issued and 42,197 outstanding shares at April 29, 2006;
41,287 issued and outstanding shares at July 31, 2005		424			413
Additional paid-in capital		148,419			120,354
Unallocated shares of Employee Stock Ownership Plan		(1,482	)		(1,605	)
Accumulated other comprehensive income		962			—
Retained earnings		206,958			176,357
Treasury stock, at cost, 229 and 0 shares at April 29, 2006
and July 31, 2005, respectively		(6,092	)		—
Total stockholders’ equity		349,189			295,519
Total liabilities and stockholders’ equity	$	697,126		$	651,258

The accompanying notes are an integral part of the condensed consolidated financial statements.

3

UNITED NATURAL FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(In thousands, except per share data)

	Three months ended						Nine months ended
	April 29, 2006			April 30, 2005			April 29, 2006			April 30, 2005
Net sales	$	637,068		$	534,335		$	1,813,790		$	1,516,587
Cost of sales		516,904			432,387			1,466,955			1,226,872
Gross profit		120,164			101,948			346,835			289,715
Operating expenses		97,318			82,655			288,887			235,828
Restructuring charge		—			—			—			170
Amortization of intangibles		142			177			428			490
Total operating expenses		97,460			82,832			289,315			236,488
Operating income		22,704			19,116			57,520			53,227
Other expense (income):
Interest expense		2,747			1,877			8,310			4,887
Other, net		(162	)		(136	)		(426	)		(359	)
Total other expense		2,585			1,741			7,884			4,528
Income before income taxes		20,119			17,375			49,636			48,699
Provision for income taxes		7,819			6,689			19,035			18,906
Net income	$	12,300		$	10,686		$	30,601		$	29,793
Per share data (basic):
Net income	$	0.29		$	0.26		$	0.74		$	0.74
Weighted average shares of common stock		41,885			40,900			41,568			40,470
Per share data (diluted):
Net income	$	0.29		$	0.26		$	0.72		$	0.72
Weighted average shares of common stock		42,446			41,774			42,210			41,494

The accompanying notes are an integral part of the condensed consolidated financial statements.

4

UNITED NATURAL FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

	Nine months ended
	April 29, 2006			April 30, 2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	30,601		$	29,793
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		12,557			9,944
Gain on disposals of property and equipment		(25	)		(26	)
Provision for doubtful accounts		2,800			1,378
Share-based compensation		4,712			—
Changes in assets and liabilities, net of acquisitions:
Accounts receivable		(23,215	)		(29,151	)
Inventories		(24,479	)		(28,322	)
Prepaid expenses and other assets		1,067			(5,157	)
Notes receivable, trade		(763	)		(400	)
Accounts payable		5,599			20,557
Accrued expenses and other liabilities		(3,258	)		(4,131	)
Tax effect of stock option exercises		—			7,167
Net cash provided by operating activities		5,596			1,652
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(14,804	)		(41,197	)
Purchases of acquired businesses, net of cash acquired		(3,292	)		(6,219	)
Proceeds from disposals of property and equipment		57			248
Net cash used in investing activities		(18,039	)		(47,168	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options		17,879			8,403
Net (repayments) borrowings under note payable		(6,573	)		37,781
Purchases of treasury stock		(6,092	)		—
Tax effect of stock option exercises		5,485			—
Repayments of long-term debt		(4,401	)		(5,591	)
Principal payments of capital lease obligations		(409	)		(513	)
Net cash provided by financing activities		5,889			40,080
NET DECREASE IN CASH AND CASH EQUIVALENTS		(6,554	)		(5,436	)
Cash and cash equivalents at beginning of period		12,615			13,633
Cash and cash equivalents at end of period	$	6,061		$	8,197
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest paid, net of amounts capitalized	$	8,021		$	4,903
Federal and state income taxes paid, net of refunds	$	14,993		$	14,107

The accompanying notes are an integral part of the condensed consolidated financial statements.

5

UNITED NATURAL FOODS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

APRIL 29, 2006 (Unaudited)

1. BASIS OF PRESENTATION

United Natural Foods, Inc. (the “Company”) is a distributor and retailer of natural and organic products. The Company sells its products throughout the United States.

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year's presentation.

Effective August 1, 2005, the Company changed the fiscal periods in its fiscal year to end on the Saturday closest to July 31. As a result of this change, the Company’s fiscal quarters will end on the Saturday closest to the end of the fiscal quarter. As such, the third quarter of fiscal 2006 ended on April 29, 2006 compared to the third quarter of fiscal 2005, which ended on April 30, 2005. This change in quarter end did not have a material impact on the Company’s operations.

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission for interim financial information, including the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally required in complete financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. In our opinion, these financial statements include all adjustments necessary for a fair presentation of the results of operations for the interim periods presented. The results of operations for interim periods, however, may not be indicative of the results that may be expected for a full year. These financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended July 31, 2005.

Net sales consist primarily of sales of natural and organic products to retailers adjusted for customer volume discounts, returns and allowances. Net sales also consist of amounts due to the Company from customers for shipping and handling and fuel surcharges. The principal components of cost of sales include the amounts paid to manufacturers and growers for product sold, plus the cost of transportation necessary to bring the product to the Company’s distribution facilities. Cost of sales also includes amounts paid by the Company for shipping and handling, depreciation for manufacturing equipment at the Company’s manufacturing segment, Hershey Import Company, Inc. (“Hershey Imports”), and consideration received from suppliers in connection with the purchase or promotion of the suppliers’ products. Operating expenses include salaries and wages, employee benefits (including payments under the Company’s Employee Stock Ownership Plan), warehousing and delivery, selling, occupancy, insurance, administrative, and amortization expense. Operating expenses also includes depreciation expense related to the wholesale and retail segments. Other expenses (income) include interest on outstanding indebtedness, interest income, and miscellaneous income and expenses.

2. SHARE-BASED COMPENSATION

Prior to August 1, 2005, the Company accounted for its stock options using the intrinsic value method of accounting provided under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, (“APB 25”), and related interpretations, as permitted by Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Share-Based Compensation, (“SFAS 123”). The Company, applying the intrinsic value method, did not record share-based compensation cost in net earnings because the exercise price of its stock options equaled the market price of the underlying stock on the date of grant. Accordingly, share-based compensation was included as a pro forma disclosure in the financial statement footnotes and continues to be provided for periods prior to August 1, 2005.

Effective August 1, 2005, the Company adopted the fair value recognition provisions of SFAS No. 123(R), Share-Based Payment, (“SFAS 123(R)”), using the modified-prospective transition method. Under this transition method, compensation cost recognized in fiscal 2006 includes: (a) compensation cost for all share-based payments granted through August 1, 2005, but for which the requisite service period had not been completed as of August 1, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and (b) compensation cost for all share-based payments granted subsequent to August 1, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R). Results for prior periods have not been restated.

6

The Company recognized share-based compensation expense of $1.2 million, or $0.02 per diluted share, for the three months ended April 29, 2006. In the nine months ended April 29, 2006, the Company recognized $4.7 million, or $0.07 per diluted share, of share-based compensation expense, of which $1.0 million related to the accelerated vesting of certain options pursuant to the employment transition agreement the Company entered into during the first quarter of fiscal 2006 with Steven H. Townsend, former President and Chief Executive Officer.

As of April 29, 2006, there was $6.4 million of total unrecognized compensation cost related to outstanding share-based compensation arrangements (including stock option and nonvested share awards). This cost is expected to be recognized over a weighted-average period of 1.5 years.

Prior to the adoption of SFAS 123(R), the Company presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the Condensed Consolidated Cash Flow statement. SFAS 123(R) requires the cash flows resulting from tax deductions in excess of the compensation cost recognized for those stock options (excess tax benefits) to be classified as financing cash flows.

The following table illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of SFAS 123 for the three and nine months ended April 30, 2005:

	Three months ended April 30, 2005	Nine months ended April 30, 2005
Net income – as reported	$10,686	$29,793
Deduct:
Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	(702)	(7,160)
Net income – pro forma	$9,984	$22,633
Basic earnings per share
As reported	$0.26	$0.74
Pro forma	$0.24	$0.56
Diluted earnings per share
As reported	$0.26	$0.72
Pro forma	$0.24	$0.55

For all of the Company’s stock-based compensation plans, the fair value of each grant was estimated at the date of grant using the Black-Scholes option pricing model. Black-Scholes utilizes assumptions related to volatility, the risk-free interest rate, the dividend yield and 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 life of the fiscal 2006 grants is derived from historical information and other factors.

7

The following summary presents the weighted average assumptions used for grants in fiscal 2006 and fiscal 2005:

	Three months ended		Nine months ended
	April 29, 2006	April 30, 2005	April 29, 2006	April 30, 2005
Expected volatility	36.7%	40.9%	36.7%	41.4%
Dividend yield	0.0%	0.0%	0.0%	0.0%
Risk free interest rate	4.6%	3.5%	4.4%	3.2%
Expected life	3.0 years	3.25 years	3.0 years	3.25 years

As of April 29, 2006, the Company had two stock option plans: the 2002 Stock Incentive Plan and the 1996 Stock Option Plan (collectively, the “Plans”). The Plans provide for grants of stock options to employees, officers, directors and others. These options are intended to either qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code or be “non-statutory stock options.” Vesting requirements for awards under the Plans are at the discretion of the Company’s Board of Directors and are typically four years with graded vesting for employees and two years with graded vesting for non-employee directors. The maximum term of all incentive stock options granted under the Plans, and non-statutory stock options granted under the 2002 Stock Incentive Plan, is ten years. The maximum term for non-statutory stock options granted under the 1996 Stock Option Plan is at the discretion of the Company’s Board of Directors, and all grants to date have had a term of ten years. There were 7,800,000 shares authorized for grant under the Plans. As of April 29, 2006, 9,850 shares were available for grant under the 1996 Stock Option Plan and 540,080 shares were available for grant under the 2002 Stock Incentive Plan. The Company has a policy of issuing new shares to satisfy stock option exercises.

The following summary presents information regarding outstanding stock options as of April 29, 2006 and changes during the nine months then ended with regard to options under the Plans:

	Number of Shares	Weighted Average Exercise Price	Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at August 1, 2005	2,546,125	$19.00
Granted	264,640	$25.83
Exercised	(1,013,321)	$17.78
Forfeited	(128,187)	$24.96
Outstanding at April 29, 2006	1,669,257	$20.45	7.1	$34,135,000
Exercisable at April 29, 2006	1,098,086	$20.31	6.4	$22,306,000

The weighted average grant-date fair value of options granted during the nine months ended April 29, 2006 and April 30, 2005 was $7.75 and $9.23, respectively.

At April 29, 2006, the Company also had the 2004 Equity Incentive Plan (the “2004 Plan”). The 2004 Plan provides for the issuance of up to 1,000,000 equity-based compensation awards other than stock options, such as restricted shares and units, performance shares and units, bonus shares and stock appreciation rights. Vesting requirements for restricted share awards under the Plans are at the discretion of the Company’s Board of Directors and are typically four years with graded vesting for employees and two years with graded vesting for non-employee directors. At April 29, 2006, 852,072 shares were available for grant under the 2004 Plan.

8

The following summary presents information regarding nonvested (restricted) share awards as of April 29, 2006 and changes during the nine months then ended with regard to nonvested share awards under the 2004 Plan:

	Number of Shares	Weighted Average Grant-Date Fair Value
Nonvested at August 1, 2005	25,000	$29.78
Granted	137,208	$26.11
Vested	(25,000)	$29.78
Forfeited	(14,280)	$25.37
Nonvested at April 29, 2006	122,928	$26.19

The total fair value of shares vested during the nine months ended April 29, 2006 was $0.7 million. No shares vested during the three months ended April 29, 2006.

3. EARNINGS PER SHARE

Following is a reconciliation of the basic and diluted number of shares used in computing earnings per share:

	Three months ended				Nine months ended
(In thousands)	April 29, 2006		April 30, 2005		April 29, 2006		April 30, 2005
Basic weighted average shares outstanding		41,885		40,900		41,568		40,470
Net effect of dilutive stock options based
upon the treasury stock method		561		874		642		1,024
Diluted weighted average shares outstanding		42,446		41,774		42,210		41,494

There were 6,700 and 6,350 anti-dilutive stock options for the quarters ended April 29, 2006 and April 30, 2005, respectively. For the nine months ended April 29, 2006 and April 30, 2005, there were 17,700 and 856,550 anti-dilutive stock options, respectively. These anti-dilutive stock options were excluded from the calculation of diluted earnings per share.

4. DERIVATIVE FINANCIAL INSTRUMENTS

On August 1, 2005, the Company entered into an interest rate swap agreement effective July 29, 2005. The agreement provides for the Company to pay interest for a seven-year period at a fixed rate of 4.70% on a notional principal amount of $50 million while receiving interest for the same period at the LIBOR rate on the same notional principal amount. The swap has been entered into as a hedge against LIBOR interest rate movements on current variable rate indebtedness totaling $50 million at LIBOR plus 1.00%, thereby fixing its effective rate on the notional amount at 5.70%. The swap agreement qualified as an “effective” hedge under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”). LIBOR was 5.04% and 3.52% as of April 29, 2006 and July 31, 2005, respectively.

The Company entered into commodity swap agreements to reduce price risk associated with anticipated purchases of diesel fuel. The outstanding commodity swap agreements hedge a portion of the Company’s expected fuel usage for the periods set forth in the agreements. The Company monitors the commodity (NYMEX #2 Heating oil) used in its swap agreements to determine that the correlation between the commodity and diesel fuel is deemed to be “highly effective.” At April 29, 2006, the Company had two outstanding commodity swap agreements which mature on June 30, 2006 and October 31, 2006.

9

Interest rate swap and commodity swap agreements are designated as cash flow hedges and are reflected at fair value in the Company’s consolidated balance sheet and related gains or losses, net of income taxes, are deferred in stockholders’ equity as a component of other comprehensive income.

5. COMPREHENSIVE INCOME

Total comprehensive income for the three months ended April 29, 2006 and April 30, 2005 amounted to $12,912,000 and $10,829,000, respectively. Total comprehensive income for the nine months ended April 29, 2006 and April 30, 2005 amounted to $31,563,000 and $29,850,000, respectively. Comprehensive income is comprised of net income plus the increase/decrease in the fair value of the interest rate swap agreements and the commodity swap agreements discussed in Note 4. For the three months ended April 29, 2006 and April 30, 2005, the change in fair value of these financial instruments was $1.0 million pre-tax gain ($0.6 million after-tax) and $0.2 million pre-tax gain ($0.1 million after-tax), respectively. The change in fair value of these derivative financial instruments was $1.6 million pre-tax gain ($1.0 million after-tax) and $0.1 million pre-tax gain ($0.1 million after-tax) for the nine months ended April 29, 2006 and April 30, 2005, respectively.

6. TREASURY STOCK

On December 1, 2004, the Company's 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, the Company purchased 228,800 shares of its common stock for its treasury during the nine months ended April 29, 2006 at an aggregate cost of approximately $6.1 million. All shares were purchased at prevailing market prices.

7. ASSET HELD FOR SALE

In November 2005, the Company transitioned all remaining operations at one of its Auburn, California facilities to its new Rocklin, California facility. As a result, the Company reclassified $7.4 million of long-lived assets related to its Auburn facility that were previously included in property and equipment as held for sale, which is included in prepaid expenses and other current assets in the consolidated balance sheet.

8. 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 foods, produce and related products in the United States. The Company has additional operating divisions that do not meet the quantitative thresholds for reportable segments. Therefore, these operating divisions are aggregated under the caption of “Other” with corporate operating expenses that are not allocated to operating divisions. “Other” includes a retail division, which engages in the sale of natural foods and related products to the general public through retail storefronts on the east coast of the United States, and a manufacturing division, which engages in importing, roasting and packaging of nuts, seeds, dried fruit and snack items. “Other” also includes corporate expenses, which consist of salaries, retainers, and other related expenses of officers, directors, corporate finance (including professional services), governance, human resources and internal audit that are necessary to operate the Company’s headquarters located in Dayville, Connecticut. Non-operating expenses that are not allocated to the operating divisions are under the caption of “Unallocated Expenses.”

10

Following is business segment information for the periods indicated:

	Wholesale	Other	Eliminations	Unallocated Expenses	Consolidated
Three months ended April 29, 2006:
Net sales	$625,823	$19,969	$(8,724)		$637,068
Operating income (loss)	26,368	(3,653)	(11)		22,704
Interest expense				$2,747	2,747
Other, net				(162)	(162)
Income before income taxes					20,119
Depreciation and amortization	4,324	246	-		4,570
Capital expenditures	2,926	104	-		3,030
Total assets	650,469	49,617	(2,960)		697,126
Three months ended April 30, 2005:
Net sales	$523,833	$18,849	$(8,347)		$534,335
Operating income (loss)	20,820	(1,740)	36		19,116
Interest expense				$1,877	1,877
Other, net				(136)	(136)
Income before income taxes					17,375
Depreciation and amortization	3,246	255	-		3,501
Capital expenditures	31,230	128	-		31,358
Total assets	573,014	43,652	(2,970)		613,696

	Wholesale	Other	Eliminations	Unallocated Expenses	Consolidated
Nine months ended April 29, 2006:
Net sales	$1,782,519	$57,421	$ (26,150)		$1,813,790
Operating income (loss)	71,957	(14,243)	(194)		57,520
Interest expense				$8,310	8,310
Other, net				(426)	(426)
Income before income taxes					49,636
Depreciation and amortization	11,747	810	-		12,557
Capital expenditures	14,408	396	-		14,804
Total assets	650,469	49,617	(2,960)		697,126
Nine months ended April 30, 2005:
Net sales	$1,486,908	$54,085	$ (24,406)		$1,516,587
Operating income (loss)	57,327	(3,906)	(194)		53,227
Interest expense				$4,887	4,887
Other, net				(359)	(359)
Income before income taxes					48,699
Depreciation and amortization	9,118	826	-		9,944
Capital expenditures	40,776	421	-		41,197
Total assets	573,014	43,652	(2,970)		613,696

9. NEW ACCOUNTING PRONOUNCEMENTS

The Company has determined that there are no recently issued accounting pronouncements that are expected to have a material impact on the Company’s consolidated financial position or results of operations.

11

Item 2. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations

Overview

We are a leading national distributor of natural and organic foods and related products in the United States. In recent years, our sales to existing and new customers have increased through the continued growth of the natural and organic products industry in general, increased market share through our high quality service and a broader product selection, the acquisition of, or merger with, natural products distributors, the expansion of our existing distribution centers and the construction of new distribution centers. Through these efforts, we believe that we have been able to broaden our geographic penetration, expand our customer base, enhance and diversify our product selections and increase our market share. Our estimated market share increased from 6.5% to 8.3% from calendar 2003 to calendar 2004, based on industry data compiled by one of the industry’s leading trade publications, The Natural Foods Merchandiser. We also own and operate 12 retail natural products stores, located primarily in Florida, through our subsidiary, the Natural Retail Group, Inc. We believe that our retail business serves as a natural complement to our distribution business because it enables us to develop new marketing programs and improve customer service. In addition, our subsidiary, Hershey Imports, specializes in the international importing, roasting and packaging of nuts, seeds, dried fruits and snack items. Our operations are comprised of three principal divisions:

• our wholesale division, which includes our Broadline Distribution, Albert’s Organics, Inc. and Select Nutrition Distributors, Inc. (“Select Nutrition”);
• our retail division, which consists of our 12 retail stores; and
• our manufacturing division, which is comprised of Hershey Imports.

In order to maintain our market leadership and improve our operating efficiencies, we are continually:

• expanding our marketing and customer service programs across regions;
• expanding our national purchasing opportunities;
• offering a broader product selection;
• consolidating systems applications among physical locations and regions;
• increasing our investment in people, facilities, equipment and technology;
• integrating administrative and accounting functions; and
• reducing geographic overlap between regions.

Our continued growth has created the need to open new facilities and expand existing facilities in order to achieve maximum operating efficiencies and to assure adequate space for future needs. We have made significant capital expenditures and incurred considerable expenses in connection with the opening and expansion of facilities. In October 2005, we opened the new Rocklin, California distribution center and moved our Auburn, California operations to this facility. The Rocklin distribution center is 487,000 square feet and serves as a distribution hub for customers in northern California and surrounding states. The Rocklin distribution center is the largest facility in our nationwide distribution network. We recently expanded our Midwest operations by opening a new 311,000 square foot distribution center in Greenwood, Indiana in August 2005, which serves as a distribution hub for our customers in Illinois, Indiana, Ohio and other Midwest states. In addition, we expanded our facilities located in Iowa City, Iowa and Dayville, Connecticut during fiscal 2004.

We expect the efficiencies created by opening the Greenwood facility and by relocating from two facilities in Auburn, California into the Rocklin facility to continue to lower operating expenses relative to sales over the long-term. With the opening of the Greenwood and Rocklin facilities, we have added approximately 1,900,000 square feet to our distribution centers since fiscal 2001, representing a 124% increase in our distribution capacity. Our current capacity utilization is approximately 70%.

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Our net sales consist primarily of sales of natural and organic products to retailers adjusted for customer volume discounts, returns and allowances. Net sales also consist of amounts due to us from customers for shipping and handling and fuel surcharges. The principal components of our cost of sales include the amounts paid to manufacturers and growers for product sold, plus the cost of transportation necessary to bring the product to our distribution facilities. Cost of sales also includes amounts incurred by us for shipping and handling, depreciation for manufacturing equipment at our manufacturing subsidiary, Hershey Imports, and consideration received from suppliers in connection with the purchase or promotion of the suppliers’ products. Total operating expenses include salaries and wages, employee benefits (including payments under our Employee Stock Ownership Plan), warehousing and delivery, selling, occupancy, insurance, administrative, depreciation and amortization expense. Other expenses (income) include interest on our outstanding indebtedness, interest income, the change in fair value of certain financial instruments and miscellaneous income and expenses. Our gross margin may not be comparable to other similar companies within our industry that may include all costs related to their distribution network in their costs of sales rather than as operating expenses. We include purchasing and outbound transportation expenses within our operating expenses rather than in our cost of sales.

Critical Accounting Policies

The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The U.S. Securities and Exchange Commission has defined critical accounting policies as those that are both most important to the portrayal of our financial condition and results and require our most difficult, complex or subjective judgments or estimates. Based on this definition, we believe our critical accounting policies include the following: (i) determining our allowance for doubtful accounts, (ii) determining our reserves for the self-insured portions of our workers’ compensation and automobile liabilities and (iii) valuing goodwill and intangible assets. For all financial statement periods presented, there have been no material modifications to the application of these critical accounting policies.

     Allowance for doubtful accounts

          We analyze customer creditworthiness, accounts receivable balances, payment history, payment terms and historical bad debt levels when evaluating the adequacy of our allowance for doubtful accounts. In instances where a reserve has been recorded for a particular customer, future sales to the customer are conducted using either cash-on-delivery terms, or the account is closely monitored so that as agreed upon payments are received, orders are released; a failure to pay results in held or cancelled orders. Our accounts receivable balance was $157.0 million and $136.5 million, net of the allowance for doubtful accounts of $6.1 million and $4.3 million, as of April 29, 2006 and July 31, 2005, respectively. Our notes receivable balances were $3.4 million and $2.7 million, net of the allowance for doubtful accounts of $3.7 million and $5.1 million, as of April 29, 2006 and July 31, 2005, respectively.

     Insurance reserves

          It is our policy to record the self-insured portions of our workers’ compensation and automobile liabilities based upon actuarial methods of estimating the future cost of claims and related expenses that have been reported but not settled, and that have been incurred but not yet reported. Any projection of losses concerning workers’ compensation and automobile liability is subject to a considerable degree of variability. Among the causes of this variability are unpredictable external factors affecting litigation trends, benefit level changes and claim settlement patterns. If actual claims incurred are greater than those anticipated, our reserves may be insufficient and additional costs could be recorded in the consolidated financial statements.

     Valuation of goodwill

          Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets, requires that companies test goodwill for impairment at least annually and between annual tests if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. We have elected to perform our annual tests for indications of goodwill impairment during the fourth quarter of each year. Impairment losses are determined based upon the excess of carrying amounts over discounted expected future cash flows of the underlying business. The assessment of the recoverability of goodwill will be impacted if estimated future cash flows are not achieved. For reporting units that indicated potential impairment, we determined the implied fair value of that reporting unit using a discounted cash flow analysis and compared such values to the respective reporting units’ carrying amounts. Total goodwill as of April 29, 2006 and July 31, 2005, was $77.0 million and $73.8 million, respectively.

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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:

	Three months ended		Nine months ended
	April 29,	April 30,	April 29,	April 30,
	2006	2005	2006	2005
Net sales	100.0%	100.0%	100.0%	100.0%
Cost of sales	81.1%	80.9%	80.9%	80.9%
Gross profit	18.9%	19.1%	19.1%	19.1%
Operating expenses	15.3%	15.5%	15.9%	15.5%
Restructuring charge	0.0%	0.0%	0.0%	0.0%
Amortization of intangibles	0.0%	0.0%	0.0%	0.0%
Total operating expenses	15.3%	15.5%	16.0%*	15.6%*
Operating income	3.6%	3.6%	3.2%*	3.5%
Other expense (income):
Interest expense	0.4%	0.4%	0.5%	0.3%
Other, net	0.0%	0.0%	0.0%	0.0%
Total other expense	0.4%	0.3%*	0.4%*	0.3%
Income before income taxes	3.2%	3.3%	2.7%	3.2%
Provision for income taxes	1.2%	1.3%	1.0%	1.2%
Net income	1.9%*	2.0%	1.7%	2.0%

* Total reflects rounding

Three Months Ended April 29, 2006 Compared To Three Months Ended April 30, 2005

Net Sales

Our net sales increased approximately 19.2%, or $102.7 million, to $637.1 million for the three months ended April 29, 2006 from $534.3 million for the three months ended April 30, 2005. This increase was primarily due to organic growth in our wholesale division, excluding acquisitions, of 18.8%. Our organic growth is due to the continued growth of the natural products industry in general, increased market share through our focus on service and added value services, and the opening of new, and expansion of existing, distribution centers, which allows us to carry a broader selection of products. In addition to our organic growth, we also benefited from the inclusion of sales related to our recent acquisitions of Roots & Fruits Cooperative Produce (“Roots & Fruits”) in July 2005 and Select Nutrition in December 2004.

In the three months ended April 29, 2006, Whole Foods Market, Inc. (“Whole Foods Market”) comprised approximately 26.6% of net sales and Wild Oats Markets, Inc. (“Wild Oats Markets”) comprised approximately 9.2% of net sales. In the three months ended April 30, 2005, Whole Foods Market comprised approximately 26.0% of net sales and Wild Oats Markets comprised approximately 11.3% of net sales.

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The following table lists the percentage of sales by customer type for the quarters ended April 29, 2006 and April 30, 2005:

Customer type	Percentage of Net Sales
	2006		2005
Independently owned natural products retailers		47%		46%
Supernatural chains		36%		37%
Conventional supermarkets		13%		13%
Other		4%		4%

Gross Profit

Our gross profit increased approximately 17.9%, or $18.2 million, to $120.2 million for the three months ended April 29, 2006 from $101.9 million for the three months ended April 30, 2005. Our gross profit as a percentage of net sales was 18.9 % and 19.1% for the three months ended April 29, 2006 and April 30, 2005, respectively. The decrease in gross profit as a percentage of net sales resulted from the loss of certain inventory purchase discounts as a result of the implementation of a module in our accounting software at our Eastern region. This issue was addressed and rectified during April 2006 and is not expected to impact future results.

Operating Expenses

Our total operating expenses, excluding special items, increased approximately 17.8%, or $14.7 million, to $97.5 million for the three months ended April 29, 2006 from $82.7 million for the three months ended April 30, 2005. Total operating expenses, including special items, increased approximately 17.7%, or $14.6 million, to $97.5 million for the three months ended April 29, 2006 from $82.8 million for the three months ended April 30, 2005. Special items are discussed below under “Special Items.” The increase in total operating expenses, excluding special items, for the three months ended April 29, 2006 was due to the increase in our infrastructure to support our continued sales growth, share-based compensation expense and the inclusion of operating expenses related to our recent acquisitions of Roots & Fruits and Select Nutrition. The three months ended April 29, 2006 includes share-based compensation cost of $1.2 million, resulting from the adoption of SFAS 123(R) (See Note 2 to the condensed consolidated financial statements).

As a percentage of net sales, total operating expenses decreased to approximately 15.3% for the three months ended April 29, 2006, from approximately 15.5% for the three months ended April 30, 2005. The decrease in operating expenses as a percentage of net sales was primarily attributable to increased efficiencies due to our recent distribution facility openings.

There were no special items for the three months ended April 29, 2006. Total operating expenses for the three months ended April 30, 2005 included special items related to costs associated with the opening of the Greenwood, Indiana facility and certain labor costs associated with the closing of the Mounds View, Minnesota facility, as discussed below under “Special Items”.

Operating Income

Operating income, excluding the special items discussed below under “Special Items,” increased approximately 18.1%, or $3.5 million, to $22.7 million for the three months ended April 29, 2006 from $19.2 million for the three months ended April 30, 2005. As a percentage of net sales, operating income, excluding special items, was 3.6% for each of the three months ended April 29, 2006 and April 30, 2005. Excluding the impact of share-based compensation, our operating margin would have been approximately 3.8% for the three months ended April 29, 2006. Operating income, including special items, increased approximately 18.8%, or $3.6 million, to $22.7 million, or 3.6% of net sales, for the three months ended April 29, 2006 from $19.1 million, or 3.6% of net sales, for the three months ended April 30, 2005.

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Other Expense (Income)

Other expense (income) increased $0.8 million to $2.6 million for the three months ended April 29, 2006 from $1.7 million for the three months ended April 30, 2005. Interest expense for the three months ended April 29, 2006 increased to $2.7 million from $1.9 million in the three months ended April 30, 2005. The increase in interest expense was due to an increase in our effective interest rates.

Provision for Income Taxes

Our effective income tax rate was 38.9% and 38.5% for the three months ended April 29, 2006 and April 30, 2005, respectively. The effective rate was higher than the federal statutory rate primarily due to state and local income taxes.

Net Income

Net income, excluding special items, increased $1.5 million to $12.3 million, or $0.29 per diluted share, for the three months ended April 29, 2006, compared to $10.8 million, or $0.26 per diluted share, for the three months ended April 30, 2005. Net income, including special items, increased $1.6 million to $12.3 million, or $0.29 per diluted share, for the three months ended April 29, 2006, compared to $10.7 million, or $0.26 per diluted share, for the three months ended April 30, 2005.

Special Items

There were no special items for three months ended April 29, 2006. Special items in the three months ended April 30, 2005 included special items related to costs associated with the opening of the Greenwood, Indiana facility and certain labor costs associated with the closing of the Mounds View, Minnesota facility.

The following table presents a reconciliation of net income and per share amounts, excluding special items (non-GAAP basis), to net income and per share amounts, including special items (GAAP basis), for the three months ended April 30, 2005:

Three months ended April 30, 2005 (in thousands, except per share data)	Pretax income	Net of tax	Per diluted share
Income, excluding special items:	$17,489	$10,756	$0.26
Special items – (Expense):
Related to the closing of the Mounds View, Minnesota facility (included in operating expenses)	(103)	(63)	(0.00)
Related to the opening of the Greenwood, Indiana facility (included in operating expenses)	(11)	(7)	(0.00)
Income, including special items:	$17,375	$10,686	$0.26

A description of our use of non-GAAP information is provided under “Use of Non-GAAP Results” below.

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Nine months Ended April 29, 2006 Compared To Nine months Ended April 30, 2005

Net Sales

Our net sales increased approximately 19.6%, or $297.2 million, to $1,814 million for the nine months ended April 29, 2006 from $1,517 million for the nine months ended April 30, 2005. This increase was primarily due to organic growth in our wholesale division, excluding acquisitions, of 18.0%. Our organic growth is due to the continued growth of the natural products industry in general, increased market share through our focus on service and added value services, and the opening of new, and expansion of existing, distribution centers, which allows us to carry a broader selection of products. In addition to our organic growth, we also benefited from the inclusion of sales related to our recent acquisitions of Roots & Fruits in July 2005 and Select Nutrition in December 2004.

In the nine months ended April 29, 2006, Whole Foods Market comprised approximately 26.5% of net sales and Wild Oats Markets comprised approximately 9.7% of net sales. In the nine months ended April 30, 2005, Whole Foods Market comprised approximately 26.0% of net sales and Wild Oats Markets comprised approximately 11.6% of net sales.

The following table lists the percentage of sales by customer type for the nine months ended April 29, 2006 and April 30, 2005:

Customer type	Percentage of Net Sales
	2006		2005
Independently owned natural products retailers		47%		45%
Supernatural chains		36%		38%
Conventional supermarkets		13%		13%
Other		4%		4%

Gross Profit

Our gross profit increased approximately 19.7%, or $57.1 million, to $346.8 million for the nine months ended April 29, 2006 from $289.7 million for the nine months ended April 30, 2005. Our gross profit as a percentage of net sales was 19.1% for the nine months ended April 29, 2006 and April 30, 2005. Overall, gross profit was affected by lost purchase discounts in the third quarter of fiscal 2006. This was offset by the full implementation of a fuel surcharge program which passes to our customers the increased product costs and fuel surcharges we pay to vendors and gross profit improvement experienced at Select Nutrition during the nine months ended April 29, 2006.

Operating Expenses

Our total operating expenses, excluding special items, increased approximately 20.7%, or $48.8 million, to $284.8 million for the nine months ended April 29, 2006 from $236.0 million for the nine months ended April 30, 2005. Total operating expenses, including special items, increased approximately 22.3%, or $52.8 million, to $289.3 million for the nine months ended April 29, 2006 from $236.5 million for the nine months ended April 30, 2005. Special items are discussed below under “Special Items.” The increase in total operating expenses, excluding special items, for the nine months ended April 29, 2006 was due to the increase in our infrastructure to support our continued sales growth, share-based compensation expense, and the inclusion of operating expenses related to our recent acquisitions of Roots & Fruits and Select Nutrition. The first nine months of fiscal 2006 includes share-based compensation expense, excluding special items of $3.7 million, resulting from the adoption of SFAS 123(R) (See Note 2 to the condensed consolidated financial statements). Total operating expenses in the first three months of fiscal 2005 included a $0.2 million restructuring charge related to severance costs, which resulted from our reduced operations at our Mounds View, Minnesota facility.

As a percentage of net sales, total operating expenses, excluding special items, increased to approximately 15.7% for the nine months ended April 29, 2006, from approximately 15.6% for the nine months ended April 30, 2005. As a percentage of net sales, total operating expenses, including special items, increased to approximately 16.0% for the nine months ended April 29, 2006, from approximately 15.6% for the nine months ended April 30, 2005. The increase in operating expenses as a percentage of net sales was primarily attributable to share-based compensation expense of $4.7 million, of which $3.7 million related to the expense for share-based payment awards and $1.0 million related to the accelerated vesting of certain options pursuant to the employment transition agreement we entered into during the first quarter of fiscal 2006 with Steven H. Townsend, our former President and Chief Executive Officer.

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We estimate that incremental share-based compensation cost for fiscal 2006 will be approximately $5.5 million to $6.2 million, on a pre-tax basis, or $0.08 to $0.09 per diluted share after tax.

Total operating expenses for the nine months ended April 29, 2006 included special items related to incremental and redundant costs incurred during the transition from our former warehouses and outside storage facility in Auburn, California into our new larger facility in Rocklin, California of $0.9 million, certain incremental costs associated with the opening of our new Greenwood, Indiana facility of $0.1 million and certain cash and non-cash expenses incurred in accordance with the employment transition agreement we entered into during the first quarter of fiscal 2006 with Steven H. Townsend of $3.5 million. Total operating expenses for the nine months ended April 30, 2005 included a special item of $0.5 million for certain labor costs associated with the closing of the Mounds View, Minnesota facility and costs related to the opening of the Greenwood, Indiana facility.

Operating Income

Operating income, excluding the special items discussed below under “Special Items,” increased approximately 15.6%, or $8.4 million, to $62.0 million for the nine months ended April 29, 2006 from $53.7 million for the nine months ended April 30, 2005. As a percentage of net sales, operating income, excluding special items, was 3.4% for the nine months ended April 29, 2006 compared to 3.5% for the nine months ended April 30, 2005. Excluding special items and the impact of share-based compensation, our operating margin would have been approximately 3.6% for the nine months ended April 29, 2006. Operating income, including special items, increased approximately 8.1%, or $4.3 million, to $57.5 million, or 3.2% of net sales, for the nine months ended April 29, 2006 from $53.2 million, or 3.5% of net sales, for the nine months ended April 30, 2005.

Other Expense (Income)

Other expense (income) increased $3.4 million to $7.9 million for the nine months ended April 29, 2006 from $4.5 million for the nine months ended April 30, 2005. Interest expense for the nine months ended April 29, 2006 increased to $8.3 million from $4.9 million in the nine months ended April 30, 2005. The increase in interest expense was due to an increase in our effective interest rates.

Provision for Income Taxes

Our effective income tax rate was 38.3% and 38.8% for the nine months ended April 29, 2006 and April 30, 2005, respectively. The effective rate was higher than the federal statutory rate primarily due to state and local income taxes.

Net Income

Net income, excluding special items, increased $3.3 million to $33.4 million, or $0.79 per diluted share, for the nine months ended April 29, 2006, compared to $30.1 million, or $0.72 per diluted share, for the nine months ended April 30, 2005. Net income, including special items, increased $0.8 million to $30.6 million, or $0.72 per diluted share, for the nine months ended April 29, 2006, compared to $29.8 million, or $0.72 per diluted share, for the nine months ended April 30, 2005.

Special Items

Special items for nine months ended April 29, 2006 included: (i) incremental and redundant costs incurred during the transition from our former warehouses and outside storage facility in Auburn, California into our new facility in Rocklin, California, (ii) certain costs associated with opening the new Greenwood, Indiana facility, and (iii) non-recurring cash and non-cash expenses incurred in accordance with the employment transition agreement we entered into during the first quarter of fiscal 2006 with Steven H. Townsend. The special item for the nine months ended April 30, 2005 included certain labor costs associated with the closing of the Mounds View, Minnesota facility and costs associated with opening the Greenwood, Indiana facility.

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The following table presents a reconciliation of net income and per share amounts, excluding special items (non-GAAP basis), to net income and per share amounts, including special items (GAAP basis), for the periods presented:

Nine months Ended April 29, 2006 (in thousands, except per share data)	Pretax Income	Net of Tax	Per diluted share
Income, excluding special items:	$54,162	$33,391	$0.79
Special items – (Expense):
Employment transition agreement costs (included in operating expenses)	(3,512)	(2,165)	(0.05)
Rocklin, CA facility relocation costs (included in operating expenses)	(925)	(570)	(0.01)
Greenwood, IN facility openings costs (included in operating expenses)	(90)	(55)	(0.00)
Income, including special items:	$49,636	$30,601	$0.72*

Nine months ended April 30, 2005 (in thousands, except per share data)	Pretax income	Net of tax	Per diluted share
Income, excluding special items:	$49,166	$30,079	$0.72
Special items – (Expense):
Related to the closing of the Mounds View, Minnesota facility (included in operating expenses)	(456)	(279)	(0.01)
Related to the opening of the Greenwood, Indiana facility (included in operating expenses)	(11)	(7)	(0.00)
Income, including special items:	$48,699	$29,793	$0.72*

* Total reflects rounding

A description of our use of non-GAAP information is provided under “Use of Non-GAAP Results” below.

Liquidity and Capital Resources

We finance operations and growth primarily with cash flows from operations, borrowings under our credit facility, operating leases, trade payables, bank indebtedness and the sale of equity and debt securities.

On April 30, 2004, we entered into an amended and restated four-year $250 million revolving credit facility with a bank group that was led by Bank of America Business Capital (formerly Fleet Capital Corporation) as the administrative agent. Our amended and restated credit facility provides for improved terms and conditions that provide us with more financial and operational flexibility, reduced costs and increased liquidity. The credit facility replaced an existing $150 million revolving credit facility. We amended this facility effective as of January 1, 2006, reducing the rate at which interest accrues on LIBOR borrowings from LIBOR plus 0.90% to LIBOR plus 0.75%. Our amended and restated credit facility, which matures on March 31, 2008, supports our working capital requirements in the ordinary course of business and provides capital to grow our business organically or through acquisitions. As of April 29, 2006, our borrowing base, based on accounts receivable and inventory levels, was $250.0 million, with remaining availability of $120.7 million.

In April 2003, we executed a term loan agreement in the principal amount of $30 million secured by the real property that was released in accordance with an amendment to the loan and security agreement related to the $150 million revolving credit facility. The $30 million term loan is repayable over seven years based on a fifteen-year amortization schedule. Interest on the term loan accrued at LIBOR plus 1.50%. In December 2003, we amended this term loan agreement by increasing the principal amount from $30 million to $40 million under the existing terms and conditions. On July 29, 2005, we entered into an amended term loan agreement which further increased the principal amount of this term loan from $40 million to up to $75 million and decreased the rate at which interest accrues to LIBOR plus 1.00%. As of April 29, 2006, $65 million was outstanding under the term loan agreement.

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We believe that our capital requirements for fiscal 2006 will be between $18 and $23 million, which is revised from our previous estimate of $30 to $35 million due to a shift in timing of our planned expansions. We will finance these requirements with cash generated from operations and the use of our existing credit facilities. These projects will provide both expanded facilities and technology that we believe will provide us with the capacity to continue to support the growth and expansion of our customers. We believe that our future capital requirements will be higher than our anticipated fiscal 2006 requirements, as a percentage of net sales, as we plan to continue to invest in our growth by upgrading our infrastructure and expanding our facilities. Future investments in acquisitions will be financed through either equity or long-term debt negotiated at the time of the potential acquisition.

Net cash provided by operations was $5.6 million for the nine months ended April 29, 2006, an increase of $3.9 million from the same period last year. The increase was primarily due to an increase in net income, net of depreciation and amortization and share-based compensation. This increase was offset by an increase in inventory levels related to the opening of the Greenwood, Indiana and the Rocklin, California facilities in August 2005 and October 2005, respectively. This was also offset by certain tax benefits, which totaled $7.2 million for the nine months ended April 30, 2005, that have been classified as financing activities in fiscal 2006. Net cash provided by operations was $1.7 million for the nine months ended April 30, 2005 and was primarily due to net income and the change in cash collected from customers net of cash paid to vendors, offset by a $28.3 million investment in inventory as a result of increased sales. Days in inventory was 46.2 days at April 29, 2006 compared to 45.0 days at April 30, 2005. Days sales outstanding improved to 23.7 days at April 29, 2006 compared to 24.5 days at April 30, 2005. Working capital increased by $50.2 million, or 42.0%, to $169.5 million at April 29, 2006 compared to working capital of $119.4 million at July 31, 2005.

Net cash used in investing activities decreased $29.1 million to $18.0 million for the nine months ended April 29, 2006, compared to $47.2 million for the same period last year and was primarily due to the acquisition of Select Nutrition in December 2004, purchase of the Rocklin, California facility in the third quarter of fiscal 2005 and expenditures related to the opening of the Greenwood, Indiana facility, offset by capital expenditures related to opening the Rocklin, California facility in October 2005.

Net cash provided by financing activities was $5.9 million for the nine months ended April 29, 2006 primarily due to $23.4 million in proceeds from, and the tax benefit due to, the exercise of stock options, partially offset by purchases of treasury stock, repayments on our amended and restated credit facility and long-term debt. Net cash provided by financing activities was $40.1 million for the nine months ended April 30, 2005, primarily due to $37.8 million in borrowings under our amended and restated credit facility.

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 nine months ended April 29, 2006 at an aggregate cost of approximately $6.1 million. All shares were purchased at prevailing market prices. We may continue or, from time to time, suspend repurchases of shares under our stock repurchase program, depending on prevailing market conditions, alternate uses of capital and other factors. Whether and when to initiate and/or complete any purchase of common stock and the amount of common stock purchased will be determined in our complete discretion.

In August 2005, we entered into an interest rate swap agreement effective July 29, 2005. This agreement provides for us to pay interest for a seven-year period at a fixed rate of 4.70% on a notional principal amount of $50 million while receiving interest for the same period at the LIBOR rate on the same notional principal amount. The swap has been entered into as a hedge against LIBOR interest rate movements on current variable rate indebtedness totaling $50 million at LIBOR plus 1.00%, thereby fixing our effective rate on the notional amount at 5.70%. LIBOR was 5.04% as of April 29, 2006. The swap agreement qualifies as an “effective” hedge under SFAS 133.

We entered into commodity swap agreements to reduce price risk associated with anticipated purchases of diesel fuel. The outstanding commodity swap agreements hedge a portion of our expected fuel usage for the periods set forth in the agreements. We monitor the commodity (NYMEX #2 Heating oil) used in our swap agreements to determine that the correlation between the commodity and diesel fuel is deemed to be “highly effective.” At April 29, 2006, we had two outstanding commodity swap agreements which mature on June 30, 2006 and October 31, 2006.

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There have been no material changes to our commitments and contingencies from those disclosed in our Annual Report on Form 10-K for the year ended July 31, 2005.

IMPACT OF INFLATION

Historically, we have been able to pass along inflation-related increases to our customers. Consequently, inflation has not had a material impact upon the results of our operations or profitability.

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.

RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS

We have determined that there are no recently issued accounting standards that are expected to have a material impact on our consolidated financial position or results of operations.

Use of Non-GAAP Results

Financial measures included in this Management's Discussion and Analysis of Financial Condition and Results of Operations that are not in accordance with generally accepted accounting principles in the United States of America (“GAAP”) are referred to as non-GAAP financial measures. To supplement our financial statements presented on a GAAP basis, we use non-GAAP financial measures of operating results, net income and earnings per share adjusted to exclude special charges and/or share-based compensation. We believe that the use of these additional measures is appropriate to enhance an overall understanding of our past financial performance and also our prospects for the future as these special charges are not expected to be part of our ongoing business. The adjustments to our GAAP results are made with the intent of providing both management and investors with a more complete understanding of the underlying operational results and trends and our marketplace performance. For example, these adjusted non-GAAP results are among the primary indicators our management uses as a basis for our planning and forecasting of future periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net earnings or diluted earnings per share prepared in accordance with GAAP. A comparison and reconciliation from non-GAAP to GAAP results is included in the tables under “Special Items” above.

Certain Factors That May Affect Future Results

This Form 10-Q and the documents incorporated by reference in this Form 10-Q contain forward-looking statements that involve substantial risks and uncertainties. In some cases you can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” “will,” and “would,” or similar words. You should read statements that contain these words carefully because they discuss future expectations, contain projections of future results of operations or of financial position or state other “forward-looking” information. The important factors listed below as well as any cautionary language in this Form 10-Q provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations described in these forward-looking statements. You should be aware that the occurrence of the events described in the risk factors below and elsewhere in this Form 10-Q could have an adverse effect on our business, results of operations and financial position.

Any forward-looking statements in this Form 10-Q and the documents incorporated by reference in this Form 10-Q are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged by such forward-looking statements, possibly materially. We do not undertake to update any information in the foregoing reports until the effective date of our future reports required by applicable laws. Any projections of future results of operations should not be construed in any manner as a guarantee that such results will in fact occur. These projections are subject to change and could differ materially from final reported results. We may from time to time update these publicly announced projections, but we are not obligated to do so.

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          Acquisitions

We continually evaluate opportunities to acquire other companies. We believe that there are risks related to acquiring companies, including overpaying for acquisitions, losing key employees of acquired companies and failing to achieve potential synergies. Additionally, our business could be adversely affected if we are unable to integrate our acquisitions and mergers.

A significant portion of our historical growth has been achieved through acquisitions of or mergers with other distributors of natural products. Successful integration of mergers is critical to our future operating and financial performance. Integration requires, among other things:

• maintaining the customer base;
• optimizing of delivery routes;
• coordinating administrative, distribution and finance functions; and
• integrating management information systems and personnel.

The integration process has and could divert the attention of management and any difficulties or problems encountered in the transition process could have a material adverse effect on our business, financial condition or results of operations. In addition, the process of combining companies has and could cause the interruption of, or a loss of momentum in, the activities of the respective businesses, which could have an adverse effect on their combined operations. There can be no assurance that we will realize any of the anticipated benefits of mergers.

          We may have difficulty in managing our growth

The growth in the size of our business and operations has placed and is expected to continue to place a significant strain on our management. Our future growth is limited in part by the size and location of our distribution centers. There can be no assurance that we will be able to successfully expand our existing distribution facilities or open new distribution facilities in new or existing markets to facilitate growth. In addition, our growth strategy to expand our market presence includes possible additional acquisitions. To the extent our future growth includes acquisitions, there can be no assurance that we will successfully identify suitable acquisition candidates, consummate and integrate such potential acquisitions or expand into new markets. Our ability to compete effectively and to manage future growth, if any, will depend on our ability to continue to implement and improve operational, financial and management information systems on a timely basis and to expand, train, motivate and manage our work force. There can be no assurance that our personnel, systems, procedures and controls will be adequate to support our operations. Our inability to manage our growth effectively could have a material adverse effect on our business, financial condition or results of operations.

          Increased Fuel Costs

Increased fuel costs may have a negative impact on our results of operations. The high cost of diesel fuel can also increase the price we pay for products as well as the costs we incur to deliver products to our customers. These factors, in turn, may negatively impact our net sales, margins, operating expenses and operating results. To manage this risk, we may periodically enter into heating oil derivative contracts to hedge a portion of our projected diesel fuel requirements. Heating crude oil prices have a highly correlated relationship to fuel prices, making these derivatives effective in offsetting changes in the cost of diesel fuel. We do not enter into fuel hedge contracts for speculative purposes.

22

          We have significant competition from a variety of sources

We operate in competitive markets, and our future success will be largely dependent on our ability to provide quality products and services at competitive prices. Our competition comes from a variety of sources, including other distributors of natural products as well as specialty grocery and mass market grocery distributors. There can be no assurance that mass market grocery distributors will not increase their emphasis on natural products and more directly compete with us or that new competitors will not enter the market. These distributors may have been in business longer than us, may have substantially greater financial and other resources than us and may be better established in their markets. There can be no assurance that our current or potential competitors will not provide services comparable or superior to those provided by us or adapt more quickly than we do to evolving industry trends or changing market requirements. It is also possible that alliances among competitors may develop and rapidly acquire significant market share or that certain of our customers will increase distribution to their own retail facilities. Increased competition may result in price reductions, reduced gross margins and loss of market share, any of which could materially adversely affect our business, financial condition or results of operations. There can be no assurance that we will be able to compete effectively against current and future competitors.

          We depend heavily on our principal customers

Our ability to maintain close, mutually beneficial relationships with our two largest customers, Whole Foods Market and Wild Oats Markets, is an important element to our continued growth. In December 2004, we announced a definitive three-year distribution agreement with Whole Foods Market, which commenced on January 1, 2005, under which we will continue to serve as the primary U.S. distributor to Whole Foods Market in the regions where we previously served. Whole Foods Market accounted for approximately 26.6% and 26.0% of our net sales during the three months ended April 29, 2006 and April 30, 2005, respectively, and 26.5% and 26.0% of our net sales for the nine months ended April 29, 2006 and April 30, 2005, respectively. In January 2004, we entered into a five-year distribution agreement, as primary distributor, with Wild Oats Markets. Wild Oats Markets accounted for approximately 9.2% and 11.3% of our net sales during the three months ended April 29, 2006 and April 30, 2005, respectively, and 9.7% and 11.6% of our net sales for the nine months ended April 29, 2006 and April 30, 2005, respectively. As a result of this concentration of our customer base, the loss or cancellation of business from either of these customers including from increased distribution to their own facilities, could materially and adversely affect our business, financial condition or results of operations. We sell products under purchase orders, and we generally have no agreements with or commitments from our customers for the purchase of products. We cannot assure you that our customers will maintain or increase their sales volumes or orders for the products supplied by us or that we will be able to maintain or add to our existing customer base.

          Our profit margins may decrease due to consolidation in the grocery industry

The grocery distribution industry generally is characterized by relatively high volume with relatively low profit margins. The continuing consolidation of retailers in the natural products industry and the growth of supernatural chains may reduce our profit margins in the future as more customers qualify for greater volume discounts, and we experience pricing pressures from both ends of the supply chain.

          Our operations are sensitive to economic downturns

The grocery industry is also sensitive to national and regional economic conditions and the demand for our products may be adversely affected from time to time by economic downturns. In addition, our operating results are particularly sensitive to, and may be materially adversely affected by:

• difficulties with the collectibility of accounts receivable;
• difficulties with inventory control;
• competitive pricing pressures; and
• unexpected increases in fuel or other transportation-related costs.

We cannot assure you that one or more of such factors will not materially adversely affect our business, financial condition or results of operations.

23

          We are dependent on a number of key executives

Management of our business is substantially dependent upon the services of Richard Antonelli (Executive Vice President, Chief Operating Officer and President of Distribution), Daniel V. Atwood (Executive Vice President, Chief Marketing Officer, and President of United Natural Brands), Michael D. Beaudry (President of the Eastern Region), Thomas A. Dziki (Division President), Michael S. Funk (President and Chief Executive Officer), Gary A. Glenn (Vice President of Information Technology), Barclay Hope (President of Albert’s Organics), Randle Lindberg (President of the Western Region), Mark E. Shamber (Vice President, Chief Accounting Officer and Acting Chief Financial Officer and Treasurer), and other key management employees. Loss of the services of any officers or any other key management employee could have a material adverse effect on our business, financial condition or results of operations.

Our operating results are subject to significant fluctuations

Our net sales and operating results may vary significantly from period to period due to:

• demand for natural products;
• changes in our operating expenses, including in fuel and insurance;
• management’s ability to execute our business and growth strategies;
• changes in customer preferences and demands for natural products, including levels of enthusiasm for health, fitness and environmental issues;
• fluctuation of natural product prices due to competitive pressures;
• personnel changes;
• supply shortages;
• general economic conditions;
• lack of an adequate supply of high-quality agricultural products due to poor growing conditions, natural disasters or otherwise;
• volatility in prices of high-quality agricultural products resulting from poor growing conditions, natural disasters or otherwise; and
• future acquisitions, particularly in periods immediately following the consummation of such acquisition transactions while the operations of the acquired businesses are being integrated into our operations.

Due to the foregoing factors, we believe that period-to-period comparisons of our operating results may not necessarily be meaningful and that such comparisons cannot be relied upon as indicators of future performance.

          We are subject to significant governmental regulation

Our business is highly regulated at the federal, state and local levels and our products and distribution operations require various licenses, permits and approvals. In particular:

• our products are subject to inspection by the U.S. Food and Drug Administration;
• our warehouse and distribution facilities are subject to inspection by the U.S. Department of Agriculture and state health authorities; and

24

• the U.S. Department of Transportation and the U.S. Federal Highway Administration regulate our trucking operations.

The loss or revocation of any existing licenses, permits or approvals or the failure to obtain any additional licenses, permits or approvals in new jurisdictions where we intend to do business could have a material adverse effect on our business, financial condition or results of operations.

          Union-organizing activities could cause labor relations difficulties

As of April 29, 2006, we had approximately 4,420 full and part-time employees. An aggregate of 7.7% of total employees, or 342 of the employees at our Auburn, Washington, Iowa City, Iowa and Edison, New Jersey facilities are covered by collective bargaining agreements. These agreements expire in March 2006, June 2006 and June 2008, respectively. We are currently in negotiations with our Auburn, Washington and Iowa City, Iowa employees. We have in the past been the focus of union-organizing efforts. As we increase our employee base and broaden our distribution operations to new geographic markets, our increased visibility could result in increased or expanded union-organizing efforts. Although we have not experienced a work stoppage to date, if additional employees were to unionize, we could be subject to work stoppages and increases in labor costs, either of which could materially adversely affect our business, financial condition or results of operations.

          Access to capital and the cost of that capital

We have an amended and restated secured revolving credit facility, with available credit under it of $250 million at an interest rate of LIBOR plus 0.75% maturing on March 31, 2008. As of April 29, 2006, our borrowing base, based on accounts receivable and inventory levels, was $250 million, with remaining availability of $120.7 million. In April 2003, we executed a term loan agreement in the principal amount of $30 million secured by the real property that was released in accordance with an amendment to the loan and security agreement related to the amended and restated credit facility. The $30 million term loan was repayable over seven years based on a fifteen-year amortization schedule. Interest on the term loan accrues at LIBOR plus 1.50%. In December 2003, we amended this term loan agreement by increasing the principal amount from $30 million to $40 million under the existing terms and conditions. On July 28, 2005, we amended the term loan agreement, which further increased the principal amount from $40 million to a maximum of up to $75 million. The amended term loan accrues interest at LIBOR plus 1.00%, and is repayable over seven years based on a fifteen-year amortization schedule, with all other terms and conditions remaining unchanged. As of April 29, 2006, $65 million was outstanding under the term loan agreement.

In order to maintain our profit margins, we rely on strategic investment buying initiatives, such as discounted bulk purchases, which require spending significant amounts of working capital. In the event that our cost of capital increases or our ability to borrow funds or raise equity capital is limited, we could suffer reduced profit margins and be unable to grow our business organically or through acquisitions, which could have a material adverse effect on our business, financial condition or results of operations.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Our exposure to market risks results primarily from fluctuations in interest rates on our borrowings. As more fully described in the notes to the condensed consolidated financial statements, we use interest rate swap agreements to modify variable rate obligations to fixed rate obligations for a portion of our debt. There have been no material changes to our exposure to market risks from those disclosed in our Annual Report on Form 10-K for the year ended July 31, 2005.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures. We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Acting Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this quarterly report on Form 10-Q (the “Evaluation Date”). Based on this evaluation, our Chief Executive Officer and Acting Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in timely reporting material information required to be included in our periodic reports filed with the Securities and Exchange Commission.

(b) Changes in internal controls. There has been no change in the our internal control over financial reporting that occurred during the third fiscal quarter of 2006 that has materially affected, or is reasonably likely to materially affect, the our internal control over financial reporting.

25

PART II. OTHER INFORMATION

Items 1, 2, 3, 4 and 5 are not applicable and have been omitted.

Item 6. Exhibits and Reports on Form 8-K

Exhibits

Exhibit No.	Description
10.1	Second Amendment to Amended and Restated Loan and Security Agreement as of January 1, 2004
31.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – CEO
31.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – CFO
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – CEO
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – CFO

Reports on Form 8-K

March 1, 2006 The Company announced its financial results for the fiscal quarter and six months ended January 29, 2006.

* * *

We would be pleased to furnish a copy of this Form 10-Q to any stockholder who requests it by writing to:

United Natural Foods, Inc.

Investor Relations

260 Lake Road

Dayville, CT 06241

26

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

UNITED NATURAL FOODS, INC.

/s/ Mark E. Shamber
	Mark E. Shamber
		Acting Chief Financial Officer
		(Principal Financial and Accounting Officer)

Dated: June 8, 2006

27

EX-10.1

Exhibit 10.1

as of January 31, 2006

United Natural Foods, Inc.

as Agent and Representative

of the Borrowers

260 Lake Road

Dayville, CT 06241

RE: Second Amendment to Amended and Restated Loan and Security Agreement

Ladies and Gentlemen:

Reference is made to the Amended and Restated Loan and Security Agreement dated as of April 30, 2004, as amended (“Loan Agreement”) among United Natural Foods, Inc. (“UNF”), United Natural Foods West, Inc. (f/k/a/ Mountain People’s Warehouse Incorporated) (“UNFW”), United Northeast LLC (“UNLLC”) and United Natural Trading Co. (“UNT” and together with UNF, UNFW and UNLLC, collectively, the “Borrowers”) each of the Lenders identified under the caption “Lenders” on the signature pages thereto and Bank of America, N.A. (as successor to Fleet Capital Corporation) as administrative and collateral agent for the Lenders (the “Agent”), Citizens Bank of Massachusetts (the “Syndication Agent”), U.S. Bank National Association (the “Documentation Agent”) and Fleet Capital Corporation (the “Arranger”). Capitalized terms not defined herein shall have the meanings ascribed thereto in the Loan Agreement.

Background. Borrowers have requested that the Lenders agree to amend the Applicable Libor Margin and Applicable Base Rate Margin and the Lenders have agreed thereto, subject to the terms and conditions set forth herein.

Accordingly, the parties hereto hereby agree as follows:

1. Amendment.

a.Effective on January 1, 2006, the definition of “Applicable Base Rate Margin; Applicable LIBOR Margin” in Appendix A to the Loan Agreement is deleted in its entirety and replaced with the following:

“Applicable Base Rate Margin; Applicable LIBOR Margin – the Applicable LIBOR Margin and Applicable Base Rate Margin shall be as follows:

Applicable LIBOR Margin	Applicable Base Rate Margin
.75%	0.00%

2.Representations and Warranties. The Borrowers hereby represent and warrant as follows:

a.Power, Authority, Etc. The Borrowers have the power and authority for the making and performing of this Second Amendment. This Second Amendment has been duly executed and delivered by or on behalf of the Borrowers pursuant to authority legally adequate therefor, and this Second Amendment is in full force and effect and is a legal, valid and binding obligation of the Borrowers enforceable in accordance with its terms subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws and equitable principles affecting the enforcement of creditors’ rights generally.

b.Incorporation of Representations and Warranties. The representations and warranties of the Borrowers contained in the Loan Agreement, after giving effect to the amendments thereto contemplated hereby, and except for any changes resulting only from the passage of time which do not otherwise constitute a Default or an Event of Default, are true and correct on and as of the date hereof as though made on and as of the date hereof and such representations and warranties are hereto incorporated in this Second Amendment as though fully set forth herein.

c.Permitted Mergers. Borrowers represent and warrant that effective as of January 1, 2006 (i) NutraSource, Inc. and Rainbow Natural Foods, Inc., each a Borrower under the Loan Agreement and each a Subsidiary of UNFW, were merged into UNFW as permitted under and in compliance with Section 9.2.1 of the Loan Agreement, and (ii) Stow Mills, Inc. and United Natural Foods Pennsylvania, Inc., each a Borrower under the Loan Agreement and each a Subsidiary of UNF, and Select Nutrition Distributors, Inc., a Subsidiary of UNF, were merged into UNF as permitted under and in compliance with Section 9.2.1 of the Loan Agreement.

3.Conditions Precedent. This Second Amendment and the Lenders’ obligations hereunder shall not be effective until each of the following conditions are satisfied (the “Amendment Effective Date”):

a.Borrowers shall have duly executed and delivered this Second Amendment;

b.All requisite corporate action and proceedings of the Borrowers in connection with this Second Amendment and all documentation and certificates required by Agent and/or its counsel in connection therewith shall be satisfactory in form and substance to Agent;

c.	No Default or Event of Default shall exist; and
d.	All the Lenders shall have executed this Second Amendment.

- 2 -

4. Miscellaneous.

a.Counterparts. This Second Amendment may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Second Amendment by signing any such counterpart.

b.Force and Effect. The Loan Agreement and each other Loan Document, as amended or modified by this Second Amendment, are hereby ratified, confirmed and approved and shall continue in full force or effect.

c.Loan Document. This Second Amendment and all other documents executed in connection herewith are “Loan Documents” as such term is defined in the Loan Agreement. This Second Amendment shall be governed by the laws of the State of Connecticut. This Second Amendment and the other documents executed and delivered in connection herewith set forth the entire agreement of the parties with respect to the subject matter thereof and supersede any prior agreement and contemporaneous oral agreements of the parties concerning their subject matter.

[remainder of page intentionally left blank]

- 3 -

Signature Page to Second Amendment to Amended and Restated Loan and Security Agreement

IN WITNESS WHEREOF, the parties have executed this SecondAmendment as of the date first above written.

BORROWERS: UNITED NATURAL FOODS, INC.

By:		/s/ Mark E. Shamber
	Name:		Mark E. Shamber
	Title:		Vice President and acting CFO

UNITED NATURAL FOODS WEST, INC.

By:		/s/ Mark E. Shamber
	Name:			Mark E. Shamber
	Title:		Vice President and acting CFO

UNITED NORTHEAST LLC

By:   /s/ Mark E. Shamber
	Name:	Mark E. Shamber
	Title:	Vice President and acting CFO

UNITED NATURAL TRADING CO.

By:		/s/ Mark E. Shamber
	Name:		Mark E. Shamber
	Title:		Vice President and acting CFO

GUARANTORS: NATURAL RETAIL GROUP, INC.

By:		/s/ Mark E. Shamber
	Name:		Mark E. Shamber
	Title:		Vice President and acting CFO

ALBERT’S ORGANICS, INC.

By:		/s/ Mark E. Shamber
	Name:		Mark E. Shamber
	Title:		Vice President and acting CFO

AGENT:	BANK OF AMERICA, N.A.,
		as Administrative Agent

By:			/s/ Kim B. Bushey
	Name:			Kim B. Bushey
		Title:			Senior Vice President

LENDERS:  

BANK OF AMERICA, N.A., as a

Lender

By:		/s/ Kim B. Bushey
	Name: Kim B. Bushey
	Title:		Senior Vice President

CITIZENS BANK OF MASSACHUSETTS, as

a Lender

By:		/s/ Peter Coates
	Name: Peter Coates

Title: Vice President

U.S. BANK NATIONAL ASSOCIATION, as a

Lender

By:		/s/ John W. Ball
	Name: John W. Ball

Title: Vice President

PNC BANK, NATIONAL ASSOCIATION, a

Lender

By:		/s/ Brian Conway
	Name: Brian Conway

Title: Vice President

- 5 -

FIRST PIONEER FARM CREDIT, ACA, a

Lender

By:		/s/ Carol L. Sobson
	Name: Carol L. Sobson

Title: Vice President

WEBSTER BANK, a Lender

By:		/s/ John H. Frost
	Name: John H. Frost

Title: Vice President

ISRAEL DISCOUNT BANK

OF NEW YORK, a Lender

By:		/s/ Kevin Lord
	Name: Kevin Lord

Title: FVP

By:		/s/ Stephen Shapiro
	Name: Stephen Shapiro
	Title: SVP

ROYAL BANK OF CANADA, a Lender

By:			/s/ Gordon MacArthur
		Name: Gordon MacArthur
	Title: Authorized Signatory

HARRIS TRUST AND SAVINGS BANK,

a Lender

By:			/s/ C. Scott Place
	Name: C. Scott Place
		Title: Director

- 6 -

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, Michael S. Funk, hereby certify that:

1. I have reviewed this quarterly report on Form 10-Q of the Company;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this quarterly report.

4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and we have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

(d) disclosed in this quarterly report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

/s/ Michael S. Funk                                   

Michael S. Funk

Chief Executive Officer

June 8, 2006

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.

EX-31.2 4 ex31-2.htm

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, Mark E. Shamber, hereby certify that:

1. I have reviewed this quarterly report on Form 10-Q of the Company;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this quarterly report.

4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and we have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

(d) disclosed in this quarterly report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

/s/ Mark E. Shamber                                                 

Mark E. Shamber

Acting Chief Financial Officer

June 8, 2006

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.

EX-32.1 5 ex32-1.htm

Exhibit 32.1

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 Quarterly Report of the Company on Form 10-Q for the period ended April 29, 2006 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of the Company.

/s/ Michael S. Funk      
Michael S. Funk
Chief Executive Officer

June 8, 2006

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.

EX-32.2 6 ex32-2.htm

Exhibit 32.2

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 Quarterly Report of the Company on Form 10-Q for the period ended April 29, 2006 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of the Company.

/s/ Mark E. Shamber      
Mark E. Shamber
Acting Chief Financial Officer

June 8, 2006

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.

-----END PRIVACY-ENHANCED MESSAGE-----

EX-31.2

EX-32.1

EX-32.2