<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): June 9, 1997
WHOLE FOODS MARKET, INC.
(Exact name of registrant as specified in its charter)
TEXAS 0-19797 74-1989366
(State of (Commission File (IRS employment
incorporation) Number) identification no.)
601 NORTH LAMAR BLVD.
SUITE 300
AUSTIN, TEXAS 78703
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 512-477-4455
<PAGE>
ITEM 5. OTHER EVENTS.
The registrant, Whole Foods Market, Inc. (the "Company" or "Whole Foods
Market") entered into an Agreement and Plan of Merger (the "Merger Agreement")
with Amrion, Inc. ("Amrion"). Pursuant to the Merger Agreement, a wholly owned
subsidiary of the Company will merge with and into Amrion, resulting in Amrion's
becoming a wholly owned subsidiary of Whole Foods Market. As a result of the
merger, each outstanding share of Amrion common stock will be converted into .87
shares of the Company's common stock. Consummation of the merger with Amrion is
subject to approval of the transaction by the shareholders of each of the
Company and Amrion and certain other customary closing conditions. Whole Foods
Market anticipates the closing will occur in the last quarter of fiscal 1997.
Because the merger is a stock for stock transaction and the parties intend to
account for the transaction as a pooling-of-interests, the merger is not
expected to materially impact Whole Foods Market's financial condition or
liquidity. Whole Foods Market believes that the transaction will be non-
dilutive to its results of operations for fiscal 1997 and accretive in fiscal
1998.
Amrion is engaged in developing, producing and marketing nutriceuticals and
nutritional supplements. Amrion's products include nutriceuticals, herbs,
herbal formulas, vitamins, minerals and homeopathic medicinals. Amrion
currently markets and sells approximately 670 items under Amrion-owned
trademarks through four principal divisions, utilizing five distribution
channels which include direct marketing, specialty retail and mass
merchandising, health care professionals and international sales. Amrion
operates in one segment with four separate marketing divisions. Each division
employs a combination of marketing strategies which may include catalog and
direct mailings, print advertising, free standing inserts, package insert
programs, retail merchandising, radio, television, coupons, point of sale
materials and customer service calls.
Set forth on pages 5 through 35 of this report are (i) consolidated
financial statements of Amrion at December 31, 1995 and 1996, and for each of
the three years in the period ended December 31, 1996, accompanied by the report
of BDO Seidman, LLP thereon; (ii) unaudited consolidated financial statements of
Amrion at March 31, 1997, and for the three months ended March 31, 1997; (iii)
the pro forma combined condensed balance sheet which combines WFM's April 13,
1997 unaudited condensed consolidated balance sheet with Amrion's March 31, 1997
unaudited condensed balance sheet; and (iv) the pro forma combined condensed
statements of operations which combine WFM's historical condensed consolidated
statements of operations for the fiscal years ended September 29, 1996,
September 24, 1995 and September 25, 1994 and the unaudited 28-week periods
ended April 13, 1997 and April 7, 1996 with the corresponding Amrion historical
condensed statements of operations for the three fiscal years ended December 31,
1996, 1995 and 1994 and the unaudited estimated 28-week period ended April 13,
1997 and the unaudited six-month period ended June 30, 1996, respectively.
-2-
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) EXHIBITS.
2.1 Agreement and Plan of Merger, dated as of June 9, 1997, by and among Whole
Foods Market, Inc., Nutrient Acquisition Corp. and Amrion, Inc.(filed as
Exhibit 2.1 to Form S-4, Reg. No. 333-31269, and incorporated herein by
reference)
-3-
<PAGE>
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 hereunto duly authorized.
WHOLE FOODS MARKET, INC.
Date: July 25, 1997 By: /s/ Glenda Flanagan
------------------------------------
Glenda Flanagan
Vice President and Chief Financial
Officer
-4-
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Amrion, Inc. and Subsidiary
Boulder, Colorado
We have audited the accompanying consolidated balance sheets of Amrion, Inc. and
subsidiary as of December 31, 1996 and 1995 and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1996. We have also audited the schedule
listed in the accompanying index. These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedule. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedule. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Amrion, Inc. and
subsidiary at December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.
Also, in our opinion, the schedule presents fairly, in all material respects,
the information set forth therein.
BDO SEIDMAN, LLP
Denver, Colorado
March 14, 1997
-5-
<PAGE>
AMRION, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1996 1995
- ----------------------------------------------------------------------------
ASSETS
<S> <C> <C>
CURRENT:
Cash and cash equivalents $ 2,277,469 $ 831,544
Accounts receivable, less allowance of
$28,000 and $48,000 for possible losses (Note 4) 1,991,772 624,006
Inventories (Notes 1 and 4) 7,727,315 5,035,872
Mail supplies 893,268 1,026,463
Deferred promotional mailing costs, net 1,375,625 1,103,987
Other 811,997 393,273
- ----------------------------------------------------------------------------
Total current assets 15,077,446 9,015,145
- ----------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation (Notes 2 and 4) 5,272,940 4,368,672
- ----------------------------------------------------------------------------
OTHER ASSETS:
Marketable securities available for sale (Note 3) 6,895,214 7,934,514
Mailing lists, net of accumulated amortization
of $1,797,810 and $1,083,229 2,876,748 2,111,556
Intangible assets, net of accumulated amortization
of $114,291 and $72,945 92,917 170,429
- ----------------------------------------------------------------------------
Total other assets 9,864,879 10,216,499
- ----------------------------------------------------------------------------
$30,215,265 $23,600,316
============================================================================
</TABLE>
See accompanying summary of accounting policies and notes
to consolidated financial statements.
-6-
<PAGE>
AMRION, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Accounts payable $ 3,093,739 $ 3,094,662
Accrued liabilities:
Payroll and payroll taxes 365,928 275,195
Income taxes - 193,255
Other 857,830 180,988
- ------------------------------------------------------------------------------
Total current liabilities 4,317,497 3,744,100
DEFERRED INCOME TAXES (NOTE 5) 280,000 104,000
- ------------------------------------------------------------------------------
Total liabilities 4,597,497 3,848,100
- ------------------------------------------------------------------------------
MINORITY INTEREST 41,973 32,865
COMMITMENTS (NOTE 7)
STOCKHOLDERS' EQUITY (Note 6):
Common stock, $.0011 par value - shares
authorized, 10,000,000; issued 5,326,814
and 5,026,813 5,860 5,529
Additional paid-in capital 13,176,747 11,788,856
Retained earnings 12,610,602 8,090,756
Marketable securities valuation allowance
(Note 3) (217,414) (165,790)
- ------------------------------------------------------------------------------
Total stockholders' equity 25,575,795 19,719,351
- ------------------------------------------------------------------------------
$30,215,265 $23,600,316
- ------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
-7-
<PAGE>
AMRION, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $54,255,321 $38,756,288 $25,244,237
- ---------------------------------------------------------------------------
COST OF SALES:
Cost of products 22,595,323 16,311,467 10,786,215
Cost of mailings 10,274,262 7,118,374 4,002,900
- ---------------------------------------------------------------------------
Cost of sales 32,869,585 23,429,841 14,789,115
- ---------------------------------------------------------------------------
Gross profit 21,385,736 15,326,447 10,455,122
- ---------------------------------------------------------------------------
OPERATING EXPENSES - selling,
general and administration 15,499,257 11,322,857 8,033,599
- ---------------------------------------------------------------------------
Income from operations 5,886,479 4,003,590 2,421,523
- ---------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
INTEREST INCOME 413,628 365,184 359,159
Other, net 202,667 229,861 326,663
- ---------------------------------------------------------------------------
Total other income 616,295 595,045 685,822
- ---------------------------------------------------------------------------
INCOME BEFORE TAXES ON INCOME
AND MINORITY INTEREST IN
LOSS OF SUBSIDIARY 6,502,774 4,598,635 3,107,345
Taxes on income (Note 5) 2,007,000 1,552,000 1,060,000
MINORITY INTEREST IN LOSS OF
SUBSIDIARY 24,072 64,637 89,319
- ---------------------------------------------------------------------------
NET INCOME $4,519,846 $3,111,272 $2,136,664
===========================================================================
NET INCOME PER COMMON AND
COMMON SHARE EQUIVALENT $ .86 $ .60 $ .42
===========================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES AND COMMON
SHARE EQUIVALENTS
OUTSTANDING 5,268,140 5,146,572 5,031,721
===========================================================================
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
-8-
<PAGE>
AMRION, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31, 1996, 1995 and 1994
Marketable
Common Stock Additional Securities Total
------------------ Paid-In Retained Treasury Valuation Stockholders'
Shares Amount Capital Earnings Stock Allowance Equity
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1994 4,930,915 $5,424 $11,626,968 $2,842,820 $(50,000) $ - $14,425,212
Marketable securities
valuation allowance - - - - - (484,388) (484,388)
Costs associated with prior
year public offering - - (35,050) - - - (35,050)
Sale of stock through options
exercised (Note 6) 50,181 55 84,963 - - - 85,018
Net income - - - 2,136,664 - - 2,136,664
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1994 4,981,096 5,479 11,676,881 4,979,484 (50,000) (484,388) 16,127,456
Marketable securities
valuation allowance - - - - - 318,598 318,598
Sale of stock through
options exercised (Note 6) 45,717 50 161,975 - - - 162,025
Retirement of Treasury
Stock (Note 6) - - (50,000) - 50,000 - -
Net income - - - 3,111,272 - - 3,111,272
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1995 5,026,813 5,529 11,788,856 8,090,756 - (165,790) 19,719,351
Marketable securities
valuation allowance - - - - - (51,624) (51,624)
Sale of stock through
options exercised (Note 6) 197,511 218 1,388,004 - - - 1,388,222
Exercise of warrants in
cashless exercise (Note 6) 102,490 113 (113) - - - -
Net income - - - 4,519,846 - - 4,519,846
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1996 5,326,814 $5,860 $13,176,747 $12,610,602 $ - $(217,414) $25,575,795
=========================================================================================================================
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
-9-
<PAGE>
AMRION, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
- -------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,519,846 $ 3,111,272 $ 2,136,664
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 1,427,757 934,456 558,623
Deferred tax expense (benefit) 264,000 50,000 (19,000)
Provision for losses on accounts
receivable - (12,000) 49,000
Minority interest share in loss
of subsidiary (24,072) (64,637) (89,319)
Changes in operating assets and
liabilities:
Accounts receivable (1,367,766) (72,705) (292,902)
Inventories (2,691,443) (331,101) (2,739,086)
Mailing supplies 133,195 (437,752) (163,199)
Deferred promotional mailing costs (271,638) (217,078) (670,811)
Other assets (482,392) (146,100) (224,809)
Accounts payable 254,817 542,670 1,673,688
Accrued liabilities 633,320 378,724 103,692
- ----------------------------------------------------------------------------------------
Cash provided by operating activities 2,395,624 3,735,749 322,541
- ----------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities available
for sale - (120,147) (2,074,482)
Proceeds from the sale of marketable securities
available for sale 987,676 - -
Purchase of property and equipment (1,576,087) (1,481,112) (2,338,115)
Purchase of mail lists and intangible assets (1,582,690) (1,674,723) (682,042)
- ----------------------------------------------------------------------------------------
Cash used in investing activities (2,171,101) (3,275,982) (5,094,639)
- ----------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common
stock - net 1,188,222 162,025 49,968
Minority interest contributions 33,180 88,821 98,000
- ----------------------------------------------------------------------------------------
Cash provided by financing
activities 1,221,402 250,846 147,968
- ----------------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 1,445,925 710,613 (4,624,130)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 831,544 120,931 4,745,061
- ----------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,277,469 $ 831,544 $ 120,931
========================================================================================
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
-10-
<PAGE>
AMRION, INC.
AND SUBSIDIARY
SUMMARY OF ACCOUNTING POLICIES
- -------------------------------------------------------------------------
ORGANIZATION AND The consolidated financial statements
BUSINESS include the accounts of Amrion, Inc. ("Amrion") and
those of its 93% owned subsidiary, Natrix International,
LLC ("Natrix"), a Colorado Limited Liability Corporation
(collectively the "Company"). Amrion markets nutritional
supplements principally throughout the United States,
with the balance to customers in the Far East, Europe
and Mexico, using a combination of direct mail,
telemarketing and space advertising. Natrix is engaged
in the marketing and distribution of proprietary herbal
based health maintenance products to food and drug
chains and discount mass merchandisers. The Company's
primary products are Coenzyme Q10, Bilberry and Ginkgo
Biloba which comprised 39% of the Company's net sales
for the year ended December 31, 1996.
PRINCIPLES OF All significant intercompany accounts and transactions
CONSOLIDATION have been eliminated in consolidation.
CONCENTRATIONS OF The Company's financial instruments exposed to
CREDIT RISK concentrations of credit risk consist primarily of
accounts receivable, cash equivalents and marketable
securities.
Concentrations of credit risk with respect to such
accounts receivable are limited due to the large number
of customers, generally short payment terms, and their
dispersion across geographic areas.
The Company's cash equivalents are high quality money
market accounts placed with major financial
institutions. Marketable securities consist primarily of
preferred stock and AAA rated tax-exempt municipal
bonds. The investment policy limits the Company's
exposure to concentrations of credit risk.
INVENTORIES Inventories are valued at the lower of cost or market.
Cost is determined using the standard cost method, which
approximates the weighted average cost method.
PROPERTY AND Property and equipment are stated at cost.
EQUIPMENT Depreciation is computed using the straight-line method
based on the estimated useful lives of related assets
generally 3 to 31.5 years. Maintenance and repair costs
are expensed as incurred.
-11-
<PAGE>
AMIRON, INC.
AND SUBSIDIARY
SUMMARY OF ACCOUNTING POLICIES
- -------------------------------------------------------------------------
MARKETABLE The Company accounts for marketable securities in
SECURITIES accordance with Statement of Financial Accounting
Standards No. 115 ("SFAS"), "Accounting for Certain
Investments in Debt and Equity Securities". All
marketable equity and debt securities have been
categorized as available for sale as the Company does
not have the positive intent to hold to maturity or does
not intend to trade actively. These securities are
stated at fair value with unrealized gains and losses
included as a component of stockholders' equity until
realized.
ADVERTISING The Company expenses the production costs of advertising
the first time the advertising takes place, except for
direct-response advertising, which is capitalized and
amortized over its expected period of future benefits.
Direct response advertising consists primarily of direct
mail advertising, including deferred promotional mailing
costs, of the Company's products. The capitalized costs
of mailed promotional materials are amortized over the
expected promotional benefit period of three months.
Advertising expense for the years ended December 31,
1996, 1995 and 1994 was $10,867,000, $7,702,000 and
$4,607,000.
INCOME TAXES The Company accounts for income taxes in accordance with
SFAS No. 109, "Accounting for Income Taxes" which
requires the use of the "liability method". Accordingly,
deferred tax liabilities and assets are determined based
on the temporary differences between the financial
statement and tax bases of assets and liabilities, using
enacted tax rates in effect for the year in which the
differences are expected to reverse.
INTANGIBLE ASSETS Purchased mailing lists, trademarks and copyrights are
amortized by the straight-line method over their
estimated useful lives which range from five to ten
years. On an ongoing basis the Company reviews the
recoverability and amortization periods of intangible
assets taking into consideration any events or
circumstances which could impair the assets carrying
value and records adjustments when necessary.
-12-
<PAGE>
AMRION, INC.
AND SUBSIDIARY
SUMMARY OF ACCOUNTING POLICIES
- -------------------------------------------------------------------------
INCOME PER Income per common and common share equivalent is based
COMMON AND on the weighted average number of common shares
COMMON SHARE outstanding during each of the periods presented.
EQUIVALENT Options to purchase stock are included as common share
equivalents when dilutive. In 1996, 1995 and 1994,
options representing common share equivalents of 88,781,
124,942 and 67,920 shares, respectively, are included in
the weighted average number of common shares and common
share equivalents outstanding.
CASH The Company considers cash and all highly liquid
EQUIVALENTS investments purchased with an original maturity of three
months or less to be cash equivalents.
USE OF The preparation of financial statements in conformity
ESTIMATES with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the
reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
REVENUE Revenue is recognized upon shipment of goods to the
RECOGNITION customer.
STOCK OPTION The Company applies APB Opinion 25, "Accounting for
PLANS Stock Issued to Employees", and related Interpretations
in accounting for all stock option plans. Under APB
Opinion 25, no compensation cost has been recognized for
stock options issued to employees as the exercise price
of the Company's stock options granted equals or exceeds
the market price of the underlying common stock on the
date of grant.
SFAS No. 123, "Accounting for Stock-Based Compensation",
requires the Company to provide pro forma information
regarding net income as if compensation cost for the
Company's stock option plans had been determined in
accordance with the fair value based method prescribed
in SFAS No. 123.
RECLASSIFICATIONS Certain items included in prior years financial
statements have been reclassified to conform to current
year presentation.
-13-
<PAGE>
AMRION, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------
1. INVENTORIES Inventories consisted of the following:
<TABLE>
<CAPTION>
December 31, 1996 1995
------------------------------------------
<S> <C> <C>
Finished goods $3,019,080 $2,071,756
Work in process 434,133 1,111,137
Raw materials 4,274,102 1,852,979
------------------------------------------
$7,727,315 $5,035,872
==========================================
</TABLE>
2. PROPERTY AND Property and equipment consisted of the following:
EQUIPMENT
<TABLE>
<CAPTION>
December 31, 1996 1995
-----------------------------------------------------------
<S> <C> <C>
Land $ 326,000 $ 326,000
Building and leasehold improvements 2,081,769 1,967,495
Computer equipment and software 1,981,424 1,218,686
Machinery and equipment 1,841,826 1,109,731
Furniture and equipment 390,770 293,263
Equipment not yet in service 432,904 563,431
-----------------------------------------------------------
7,054,693 5,478,606
Less accumulated depreciation 1,781,753 1,109,934
-----------------------------------------------------------
Net property and equipment $5,272,940 $4,368,672
===========================================================
</TABLE>
Depreciation expense for the years ended December 31,
1996, 1995 and 1994 was approximately $742,000, $446,000
and $322,000.
-14-
<PAGE>
AMRION, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------
3. MARKETABLE Marketable securities consisted of the following:
SECURITIES
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1996:
Debt Securities -
Municipal securities $ 5,922,292 $ 5,336 $ (139,776) $ 5,787,852
Equity Securities -
Preferred stock 1,190,336 5,274 (88,248) 1,107,362
---------------------------------------------------------------------------
$ 7,112,628 $ 10,610 $ (228,024) $ 6,895,214
===========================================================================
December 31, 1995:
Debt Securities -
Municipal securities $ 7,052,722 $ 27,605 $ (144,768) $ 6,935,559
Equity Securities -
Preferred stock 1,047,582 3,361 (51,988) 998,955
---------------------------------------------------------------------------
$ 8,100,304 $ 30,966 $ (196,756) $ 7,934,514
===========================================================================
</TABLE>
Contractual maturities of debt securities available for
sale at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
<S> <C> <C>
---------------------------------------------------------------------------
Maturities within one year $2,401,272 $2,339,359
Maturities after one year and within five years 3,521,020 3,448,493
---------------------------------------------------------------------------
$5,922,292 $5,787,852
===========================================================================
</TABLE>
-15-
<PAGE>
AMRION, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------
4. FINANCING The Company has a $650,000 line-of-credit agreement
AGREEMENT with a bank. The line bears interest at 1% over the
bank's prime lending rate (9.25% at December 31, 1996).
The line expires in June 1997 and is secured by
inventories, accounts receivable, furniture, fixtures,
and equipment. There were no amounts outstanding under
the line of credit at December 31, 1996 and 1995.
5. TAXES ON Taxes on income consisted of the following components:
INCOME
<TABLE>
<CAPTION>
Year Ended December 31, 1996 1995 1994
------------------------------------------------------------
<S> <C> <C> <C>
CURRENT:
Federal $1,502,000 $1,286,000 $ 922,000
State 241,000 216,000 157,000
------------------------------------------------------------
1,743,000 1,502,000 1,079,000
------------------------------------------------------------
Deferred (reduction):
Federal 243,000 46,000 (17,000)
State 21,000 4,000 (2,000)
------------------------------------------------------------
264,000 50,000 (19,000)
------------------------------------------------------------
$2,007,000 $1,552,000 $1,060,000
============================================================
</TABLE>
The components of the net deferred tax assets and
liabilities are shown below.
<TABLE>
<CAPTION>
December 31, 1996 1995
---------------------------------------------------------
<S> <C> <C>
Accumulated depreciation and
amortization $(280,000) $(105,000)
Marketable securities net
unrealized loss 81,000 62,000
Allowance for product returns 41,000 39,000
Accrued payroll costs 21,000 21,000
Other, net 40,000 (10,000)
---------------------------------------------------------
(97,000) 7,000
---------------------------------------------------------
Valuation allowance (81,000) (62,000)
---------------------------------------------------------
Net deferred income tax
liabilities $(178,000) $ (55,000)
=========================================================
</TABLE>
-16-
<PAGE>
AMRION, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------
Deferred tax assets of $102,000 and $49,000 as of
December 31, 1996 and 1995 are included in other current
assets.
At December 31, 1996 and 1995, the Company recorded a
valuation allowance equal to the deferred tax effects of
the marketable securities net unrealized loss as
management of the Company has not been able to determine
that it is more likely than not that the net unrealized
capital loss will be realized.
A reconciliation of the effective tax rates with the
federal statutory rate is shown below:
<TABLE>
<CAPTION>
Year Ended December 31, 1996 1995 1994
---------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax computed
at statutory rate $2,219,000 $1,585,000 $1,057,000
State income taxes, net of
federal benefit 159,000 135,000 104,000
Tax-exempt interest income (99,000) (131,000) (97,000)
Other (272,000) (37,000) (4,000)
---------------------------------------------------------------
Taxes on income $2,007,000 $1,552,000 $1,060,000
===============================================================
</TABLE>
6. STOCKHOLDERS' Stock Options
EQUITY -------------
At December, 1996, the Company has two stock option
plans, which are described below. The Company applies
APB Opinion 25, "Accounting for Stock Issued to
Employees", and related Interpretations accounting for
the plans. Under APB Opinion 25, because the exercise
price of the Company's employee stock options equals the
market price of the underlying stock on the date of
grant, no compensation cost has been recognized.
-17-
<PAGE>
AMRION, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------
Non-Qualified Stock Option Plan
-------------------------------
The Company has a Non-Qualified Stock Option Plan (the
"Plan"), expiring December 30, 1999, reserving for
issuance 511,000 shares of the Company's common stock.
The Plan provides for grants to either employees,
officers or employee directors, at the discretion of the
compensation committee of the Board of Directors, stock
options to purchase common stock of the Company at a
price not less than 80% of the fair market value, as
defined, on the date of grant. Options granted primarily
vest ratably on an annual basis over a five year period.
Any options granted under the Plan must be exercised
within five years of the date they were granted.
Non-Employee Director Stock Option Plan
---------------------------------------
The Company has a Non-Employee Director Stock Option
Plan (the "Director Plan"), expiring January 13, 2000,
reserving for issuance 70,000 shares of the Company's
common stock. The Director Plan provides that each
person who was a non-employee director of the Company on
December 31, 1994 and who is a non-employee director of
the Company on December 31st of each succeeding year
shall be granted, each year, a five-year option to
purchase up to 3,000 shares of common stock of the
Company at an exercise price based upon the fair market
value, as defined, on the date of grant. Options issued
under the Director Plan are fully exercisable on the
date of grant. Any options granted under the Director
Plan must be exercised within five years of the date
they were granted.
Other Stock Options
-------------------
During 1996, 1995 and 1994, the Company granted various
options to purchase shares of its common stock to
directors and employees for services rendered. Under the
terms of the options, employees and directors may
exercise their options at prices ranging from $3.33 to
$13.50 (which approximated the fair market value at the
date of grant) per share over a four to six year period
beginning on the grant date, provided they remain
directors or employees of the Company.
-18-
<PAGE>
AMRION, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------
FASB Statement 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), requires the Company to
provide pro forma information regarding net loss and net
loss per share as if compensation costs for the
Company's stock option plans and other stock awards had
been determined in accordance with the fair value based
method prescribed in SFAS No. 123. The Company estimates
the fair value of each stock award at the grant date by
using the Black-Scholes option-pricing model with the
following weighted-average assumptions used
respectively: dividend yield of 0 percent for all years;
expected volatility of 42 to 54 percent; risk-free
interest rates of 6.43 to 7.66 percent; and expected
lives of one year.
Under the accounting provisions for SFAS No. 123, the
Company's net income per share would have been decreased
by the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
----------------------------------------------
<S> <C> <C>
Net income
As reported $4,519,846 $3,111,272
Pro forma $4,241,008 $2,832,880
Net income per share
As reported $ .86 $ .60
Pro forma $ .81 $ .55
</TABLE>
During the initial phase-in period of SFAS 123, the
effect on pro forma results are not likely to be
representative of the effects on pro forma results in
future years since options vest over several years and
additional awards could be made each year.
-19-
<PAGE>
AMRION, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------
A summary of the status of the Company's stock option plans and outstanding
warrants as of December 31, 1996, 1995 and 1994 and changes during the years
ending on those date is presented below:
<TABLE>
<CAPTION>
1996 1995
------------------- ------------------------
Weighted
Average
Range of Exercise Range of Exercise
Shares Price Shares Prices
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 644,961 $ 6.17 686,476 $1.47 - 6.20
Granted 42,800 13.02 25,500 7.00 - 10.88
Cancelled (127,750) 6.20 (21,298) 1.47 - 6.20
Exercised (197,511) 6.00 (45,717) 1.47 - 6.20
- -------------------------------------------------------------------------------
Outstanding, end of year 362,500 $ 7.07 644,961 $1.47 - 10.88
===============================================================================
Options exercisable, end of year 144,200 $ 8.18 246,961 $1.47 - 10.88
===============================================================================
Weighted average fair value of
options granted during the year $ 7.59 $ 3.23
===============================================================================
</TABLE>
The following table summarizes information about stock options and warrants
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------- ---------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/96 Life Price at 12/31/96 Price
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 3.33 - 6.20 302,700 7.9 years $ 6.16 93,200 $ 5.90
6.80 - 9.00 21,000 3.2 8.01 21,000 8.01
9.13 - 13.50 29,800 5.5 11.03 21,000 11.67
22.40 9,000 5.0 22.40 9,000 22.40
</TABLE>
-20-
<PAGE>
AMRION, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------
Warrants
--------
In connection with the 1993 public offering, the Company
had issued to the underwriter a five-year warrant to
purchase 190,000 shares of common stock at an exercise
price of $8.10. During August 1996, the underwriter in a
cash-less exercise exchanged outstanding warrants to
purchase 87,510 shares of common stock to effect the
exercise of warrants for 102,490 shares of common stock.
Treasury Stock
--------------
In 1995 the Company retired its treasury stock as a
result of a change in the Colorado Business Corporation
Act.
7. COMMITMENTS Self-Insurance
--------------
The Company is partially self insured for employee
medical liabilities which covers risk up to $12,500 per
individual covered under the plan. The Company has
purchased excess medical liability coverage for
individual claims in excess of $12,500 and aggregate
claims in excess of approximately $250,000 annually with
a national medical insurance carrier. Premiums and claim
expenses associated with the medical self insurance
program are included in the accompanying statements of
income.
Supplier Agreements
-------------------
The Company has agreements to purchase certain raw
materials from vendors through December 31, 1997. The
maximum commitment by the Company is $1,725,000.
The Company currently imports approximately 75% of its
product ingredients from various foreign countries.
While the Company does not have supply contracts with
all of its vendors, alternative sources of the Company's
materials are available. The termination of supply by
one or more of its vendors could have a temporary
adverse effect on the Company's sales.
-21-
<PAGE>
AMRION, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------
Lease Agreements
----------------
The Company leases office and warehouse space under
various operating leases. As of December 31, 1996,
remaining minimum annual rental commitments under
noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
Year ended December 31, Total
--------------------------------------------------
<S> <C>
1997 $ 153,000
1998 125,000
1999 5,000
--------------------------------------------------
$ 283,000
==================================================
</TABLE>
Rent expense for the years ended December 31, 1996 and
1995 was approximately $39,000 and $3,000. There was no
rent expense for the year ended December 31, 1994.
8. SUBSEQUENT In March 1997, the Company began a stock buy-back
EVENTS the Board of Directors. Through March 19, 1997, the
Company repurchased 111,800 shares at a cost of
approximately $2,184,000.
-22-
<PAGE>
AMRION, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
9. SELECTED 1st 2nd 3rd 4th
QUARTERLY ------------------------------------------------------------------------
FINANCIAL DATA <S> <C> <C> <C> <C>
(UNAUDITED) Year ended December 31, 1996:
Net sales $13,381,956 $11,871,331 $14,063,408 $14,938,626
Gross profit 4,559,119 5,119,968 5,574,394 6,132,255
Income from operations 1,174,701 1,387,307 1,679,842 1,644,629
Net income 923,090 1,174,613 1,154,682 1,267,461
Net income per common
and common equivalent
share .18 .22 .22 .24
Year ended December 31, 1995:
Net sales 10,131,780 8,810,143 10,738,458 9,075,907
Gross profit 3,741,886 3,282,684 4,043,192 4,258,685
Income from operations 1,101,483 507,333 1,153,365 1,241,409
Net income 793,129 492,982 865,077 960,084
Net income per common
and common equivalent
share .16 .10 .17 .17
</TABLE>
<TABLE>
<CAPTION>
10. SUPPLEMENTAL Year Ended December 31, 1996 1995 1994
DISCLOSURES OF -------------------------------------------------------
CASH FLOW <S> <C> <C> <C>
INFORMATION Cash paid during
the period for:
Income taxes $1,594,000 $1,207,000 $1,032,000
=======================================================
Interest $ 2,000 $ 6,000 $ 19,000
=======================================================
</TABLE>
-23-
<PAGE>
AMRION, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
- -------------------------------------------------------------------------
ACCOUNTS RECEIVABLE - ALLOWANCE FOR POSSIBLE LOSSES
<TABLE>
<CAPTION>
Additions
Balance Charged to Balance
at Beginning Costs and at End
of Period Expenses Deductions of Period
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996 $48,000 $ - $20,000 $28,000
Year Ended December 31, 1995 60,000 59,754 71,754 48,000
Year Ended December 31, 1994 39,000 34,968 13,968 60,000
==============================================================================
</TABLE>
-24-
<PAGE>
AMRION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF MARCH 31, 1997 AND DECEMBER 31, 1996
------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
(Unaudited) (Audited)
----------- ------------
<S> <C> <C>
ASSETS
------
CURRENT:
Cash and cash equivalents $ 419,474 $ 2,277,469
Accounts receivable, less allowance
of $26,000 and $28,000
for possible losses 2,158,140 1,991,772
Inventories 11,164,347 7,727,315
Mail supplies 1,176,784 893,268
Deferred promotional mailing costs, net 1,365,028 1,375,625
Other 932,842 811,997
----------- -----------
Total current assets 17,216,615 15,077,446
----------- -----------
PROPERTY AND EQUIPMENT, net 6,981,397 5,272,940
----------- -----------
OTHER ASSETS:
Marketable securities available for sale 6,346,183 6,895,214
Mailing lists, net 2,849,280 2,876,748
Intangible assets, net 85,763 92,917
----------- -----------
Total other assets 9,281,226 9,864,879
----------- -----------
Total assets $33,479,238 $30,215,265
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements
-25-
<PAGE>
AMRION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF MARCH 31, 1997 AND DECEMBER 31, 1996
------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
(Unaudited) (Audited)
----------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT:
Accounts payable $ 5,382,296 $ 3,093,739
Accrued liabilities 1,707,584 1,223,758
Income taxes payable 810,000 -
----------- -----------
Total current liabilities 7,899,880 4,317,497
DEFERRED INCOME TAXES 280,000 280,000
----------- -----------
Total liabilities 8,179,880 4,597,497
----------- -----------
MINORITY INTEREST 33,889 41,973
STOCKHOLDERS' EQUITY:
Common stock, $.0011 par value -
shares authorized, 10,000,000;
issued 5,251,514 and 5,326,814 5,777 5,860
Additional paid-in capital 11,209,029 13,176,747
Retained earnings 14,244,474 12,610,602
Marketable securities valuation
allowance (193,811) (217,414)
----------- -----------
Total stockholders' equity 25,265,469 25,575,795
----------- -----------
$33,479,238 $30,215,265
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements
-26-
<PAGE>
AMRION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
FOR THE THREE MONTH PERIODS ENDED MARCH 31,1997 AND 1996
--------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
------------------------
1997 1996
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
NET SALES $18,356,744 $13,381,956
----------- -----------
COSTS OF SALES:
Cost of products 7,682,688 5,939,529
Cost of mailings 3,441,433 2,883,308
----------- -----------
Cost of sales 11,124,121 8,822,837
----------- -----------
Gross profit 7,232,623 4,559,119
OPERATING EXPENSES - selling, general
and administration 4,870,416 3,384,418
----------- -----------
Income from operations 2,362,207 1,174,701
----------- -----------
Other income, net 91,665 159,138
----------- -----------
INCOME BEFORE TAXES ON INCOME 2,453,872 1,333,839
TAXES ON INCOME 820,000 410,749
----------- -----------
NET INCOME $ 1,633,872 $ 923,090
=========== ===========
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE $ .30 $ .18
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND COMMON SHARES EQUIVALENTS OUTSTANDING 5,392,115 5,204,489
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements
-27-
<PAGE>
AMRION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
--------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
1997 1996
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 1,633,872 $ 923,090
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 466,713 299,793
Provision for losses on accounts receivable (2,000)
Minority interest share in loss of subsidiary (8,084)
Changes in operating assets and liabilities:
Accounts receivable (164,368) (71,464)
Inventories (3,437,032) (2,922,440)
Mailing supplies (283,516) 167,342
Deferred promotional mailing costs 10,597 456,814
Other assets (120,845) (31,139)
Accounts payable 2,288,557 1,364,175
Accrued liabilities 483,825 17,390
Income taxes payable 810,000 237,857
----------- -----------
Cash provided by operating activities 1,677,719 441,418
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds of marketable securities
available for sale 572,634 191,313
Purchase of property and equipment (1,946,312) (217,589)
Purchase of mailing lists and intangible assets (194,235) (341,976)
----------- -----------
Cash used in investing activities (1,567,913) (368,252)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock - net 229,595 53,025
Purchase of company stock (2,187,396) -
----------- -----------
Cash provided (used) by financing activities (1,967,801) 53,025
----------- -----------
Net increase (decrease) in cash and cash
equivalents (1,857,995) 126,191
CASH AND CASH equivalents, at beginning of period 2,277,469 831,544
----------- -----------
CASH AND CASH equivalents, at end of period $ 419,474 $ 957,735
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements
-28-
<PAGE>
AMRION, INC. AND SUBSIDIARY
Summary of Accounting Policies
------------------------------
ORGANIZATION AND BUSINESS
The consolidated financial statements include the accounts of Amrion, Inc.
("Amrion") and those of its 94% owned subsidiary, Natrix International, LLC
("Natrix"), a Colorado Limited Liability Corporation (collectively the
"Company"). Amrion markets nutritional supplements principally throughout the
United States, with the balance to customers in the Far East, Europe and Mexico,
using a combination of direct mail, telemarketing and print advertising. Natrix
is engaged in the marketing and distribution of proprietary herbal based health
maintenance products to food and drug chains and discount mass merchandisers.
The Company's primary products are Coenzyme Q10, Bilberry and Gingko Biloba
which comprised 39% of the Company's net sales for the quarter ended March 31,
1997.
The unaudited consolidated financial statements and related notes have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and regulations.
The accompanying financial statements and related notes should be read in
conjunction with the audited financial statements of the Company, and notes
thereto, for the year ended December 31, 1996.
The financial statements reflect all adjustments which are, in the opinion of
management, necessary for a fair statement of the results for the periods
presented.
PRINCIPLES OF CONSOLIDATION
All significant intercompany accounts and transactions have been eliminated in
consolidation.
CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments exposed to concentrations of credit risk
consist primarily of accounts receivable, cash equivalents and marketable
securities.
Concentrations of credit risk with respect to such accounts receivable are
limited due to the large number of customers, generally short payment terms, and
customer dispersion across geographic areas.
The Company's cash equivalents are high quality money market accounts placed
with major financial institutions. Marketable securities consist primarily of
preferred stock and AAA rated tax-exempt municipal bonds. The investment policy
limits the Company's exposure to concentrations of credit risk.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined using
the standard cost method, which approximates the weighted average cost method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method based on the estimated useful lives of related assets,
generally 3 to 31.5 years. Maintenance and repair costs are expensed as
incurred.
-29-
<PAGE>
MARKETABLE SECURITIES
The Company accounts for marketable securities in accordance with Statement of
Financial Accounting Standards No. 115 ("SFAS"), "Accounting for Certain
Investments in Debt and Equity Securities." All marketable equity and debt
securities have been categorized as available for sale as the Company does not
have the positive intent to hold to maturity or does not intend to trade
actively. These securities are stated at fair value with unrealized gains and
losses included as a component of stockholders' equity until realized.
ADVERTISING
The Company expenses the production costs of advertising the first time the
advertising takes place, except for direct-response advertising, which is
capitalized and amortized over its expected period of future benefits.
Direct response advertising consists primarily of direct mail advertising,
including deferred promotional mailing costs, of the Company's products. The
capitalized costs of mailed promotional materials are amortized over the
expected promotional benefit period of three months.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS N. 109,
"Accounting for Income Taxes" which requires the use of the "liability method."
Accordingly, deferred tax liabilities and assets are determined based on the
temporary differences between the financial statements and tax bases of assets
and liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse.
INTANGIBLE ASSETS
Purchased mailing lists, trademarks and copyrights are amortized by the
straight-line method over their estimated useful lives which range from five to
ten years. On an ongoing basis the Company reviews the recoverability and
amortization periods of intangible assets taking into consideration any events
or circumstances which could impair the assets' carrying value and records
adjustments when necessary.
INCOME PER COMMON AND COMMON SHARE EQUIVALENT
Income per common and common share equivalent is based on the weighted average
number of common shares outstanding during each of the periods presented.
Options to purchase stock are included as common share equivalents when
dilutive.
-30-
<PAGE>
CASH EQUIVALENTS
The Company considers cash and all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from the estimates.
REVENUE RECOGNITION
Revenue is recognized upon shipments of goods to the customer.
STOCK OPTION PLANS
The Company applies APB Opinion 25, "Accounting for Stock Issued to Employees,"
and related Interpretations in accounting for all stock option plans. Under APB
Opinion 25, no compensation cost has been recognized for stock options issued to
employees as the exercise price of the company's stock options granted equals or
exceeds the market price of the underlying common stock on the date of the
grant.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the Company to
provide pro forma information regarding net income as if compensation cost for
the Company's stock option plans had been determined in accordance with the fair
value based method prescribed in SFAS No. 123.
RECLASSIFICATIONS
Certain items included in prior years financial statements have been
reclassified to conform to current year presentation.
NEW ACCOUNTING PRONOUNCEMENTS
On March 3, 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS
No. 128). This pronouncement provides a different method of calculating
earnings per share than is currently used in accordance with Accounting Board
Opinion (APB) No. 15, "Earnings Per Share." SFAS 128 provides for the
calculation of "Basic" and "Diluted" earnings per share. Basic earnings per
share includes no dilution and is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of an entity, similar to fully
diluted earnings per share. The Company will adopt SFAS No. 128 in 1997 and its
implementation is not expected to have a material effect on the consolidated
financial statements.
-31-
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial statements
assume a business combination between WFM and Amrion accounted for on a
pooling-of-interests basis. The pro forma combined condensed financial
statements are based on the respective historical financial statements and the
notes thereto, which are incorporated by reference or included elsewhere
herein. The pro forma combined condensed balance sheet combines WFM's April
13, 1997 unaudited condensed consolidated balance sheet with Amrion's March
31, 1997 unaudited condensed balance sheet. The pro forma combined condensed
statements of operations combine WFM's historical condensed consolidated
statements of operations for the fiscal years ended September 29, 1996,
September 24, 1995 and September 25, 1994 and the unaudited twenty-eight week
periods ended April 13, 1997 and April 7, 1996 with the corresponding Amrion
historical condensed statements of operations for the three fiscal years ended
December 31, 1996, 1995 and 1994 and the unaudited estimated twenty-eight week
period ended April 13, 1997 and the unaudited six-month period ended June 30,
1996, respectively. The amounts included as Amrion historical amounts have
been reclassified to conform to classifications used by WFM.
The pro forma information is presented for illustrative purposes only and is
not, in the opinion of WFM's management, necessarily indicative of the
operating results or financial position that would have occurred if the
business combination had been consummated at the beginning of the periods
presented. Nor is the pro forma financial information necessarily indicative
of future operating results or financial position.
These pro forma combined condensed financial statements and the related
notes should be read in conjunction with the consolidated historical financial
statements and the related notes thereto of WFM, which have been incorporated
by reference, and the historical financial statements and the related notes
thereto of Amrion, which have been incorporated by reference herein.
32
<PAGE>
WHOLE FOODS MARKET, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
APRIL 13, 1997
(in thousands, except share data)
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents.......................................... $ 5,848
Trade accounts receivable.......................................... 28,181
Merchandise inventories............................................ 55,137
Prepaid expenses and other current assets.......................... 3,475
--------
Total current assets............................................. 92,641
Net property and equipment......................................... 219,653
Excess of costs over net assets acquired, net of accumulated amor-
tization.......................................................... 36,111
Marketable securities available for sale........................... 6,346
Mailing lists, net of accumulated amortization..................... 2,849
Other assets, net of accumulated amortization...................... 22,870
--------
Total assets..................................................... $380,470
========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current installments of long-term debt and capital lease obliga-
tions............................................................. $ 838
Trade accounts payable............................................. 29,734
Accrued payroll, bonus and employee benefits....................... 40,596
Other accrued items................................................ 810
--------
Total current liabilities........................................ 71,978
Long-term debt and capital lease obligations....................... 102,000
Other long-term liabilities........................................ 23,205
Deferred income taxes.............................................. 280
--------
Total liabilities................................................ 197,463
Minority interest................................................ 34
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value; 5,000,000 shares authorized; none
outstanding....................................................... --
Common stock, no par value; 50,000,000 shares authorized;
23,747,817 shares issued and outstanding.......................... 171,084
Retained earnings.................................................. 12,083
Marketable securities valuation allowance.......................... (194)
--------
Total shareholders' equity....................................... 182,973
--------
$380,470
========
</TABLE>
33
<PAGE>
WHOLE FOODS MARKET, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
TWENTY-EIGHT WEEKS ENDED APRIL 13, 1997 AND APRIL 7, 1996 AND
FISCAL YEARS ENDED SEPTEMBER 29, 1996, SEPTEMBER 24, 1995 AND SEPTEMBER 25,
1994
(in thousands except for per share data)
<TABLE>
<CAPTION>
FOR THE 28 FOR THE 28
WEEKS ENDED WEEKS ENDED
APRIL 13, APRIL 7, SEPT. 29, SEPT. 24, SEPT. 25,
1997 1996 1996 1995 1994
----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Sales................... $575,213 $474,151 $946,353 $748,691 $597,294
Cost of goods sold and
occupancy costs........ 389,294 322,438 645,925 504,211 402,471
-------- -------- -------- -------- --------
Gross profit.......... 185,919 151,713 300,428 244,480 194,823
Direct store expenses... 131,280 111,582 217,048 183,655 144,383
General and administra-
tive expenses.......... 28,102 25,187 49,058 42,100 33,185
Pre-opening costs....... 2,733 3,710 3,964 4,029 3,387
Store relocation costs.. -- -- 1,939 2,332 5,758
Restructuring expenses.. -- 1,984 -- -- --
Non-recurring expenses.. -- -- 38,516 -- 282
-------- -------- -------- -------- --------
Income (loss) from op-
erations............. 23,804 9,250 (10,097) 12,364 7,828
Other income (expense):
Interest expense........ (3,266) (1,726) (4,671) (2,368) (127)
Interest and other in-
come................... 253 326 626 1,022 1,077
-------- -------- -------- -------- --------
Income (loss) before in-
come taxes............. 20,791 7,850 (14,142) 11,018 8,778
Minority interest in
loss of subsidiary..... 24 -- 24 65 89
Provision (credit) for
income taxes........... 7,327 4,194 (1,404) 6,899 7,095
-------- -------- -------- -------- --------
Net income (loss)....... $ 13,488 $ 3,656 $(12,714) $ 4,184 $ 1,772
======== ======== ======== ======== ========
Income (loss) per common
and common equivalent
share:................. $ 0.55 $ 0.15 $ (0.54) $ 0.18 $ 0.08
======== ======== ======== ======== ========
Shares/weighted average
shares outstanding..... 24,621 23,808 23,762 23,402 22,734
======== ======== ======== ======== ========
</TABLE>
34
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The unaudited pro forma combined condensed financial statements give effect
to the business combination between WFM and Amrion accounted for on a pooling-
of-interests basis. The pro forma combined condensed financial statements are
based on the respective historical financial statements and the notes thereto.
The pro forma combined condensed balance sheet combines WFM's April 13, 1997
unaudited condensed balance sheet with Amrion's March 31, 1997 unaudited
condensed balance sheet. The pro forma combined condensed statements of
operations combine WFM's historical condensed consolidated statements of
operations for the three fiscal years ended September 29, 1996, September 24,
1995 and September 25, 1994 and the unaudited twenty-eight week periods ended
April 13, 1997 and April 7, 1996 with Amrion's corresponding historical
condensed statements of operations for the three years ended December 31,
1996, 1995 and 1994 and the unaudited estimated twenty-eight week period ended
April 13, 1997 and the unaudited six month period ended June 30, 1996,
respectively. The amounts included as Amrion's historical amounts have been
reclassified to conform to classifications used by WFM.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the business combination had been consummated at the
beginning of the periods presented nor is it necessarily indicative of future
operating results or financial position.
These pro forma combined condensed financial statements should be read in
conjunction with the historical financial statements and the related notes
thereto of WFM and Amrion included or incorporated elsewhere herein.
Adjustments to the pro forma combined condensed balance sheet and statements
of operation assume the merger of WFM and Amrion was consummated on September
27, 1993. The transaction has been accounted for using the pooling-of-
interests method of accounting. The following adjustments have been provided
in connection with the merger in accordance with Accounting Principles Board
Opinion No. 16:
(1) Reclassifying additional paid-in capital of Amrion to common stock of
WFM.
(2) Reflecting the estimated number of shares of WFM Common Stock to be
issued in exchange for all common stock of Amrion on the conversion ratio
of .87 new shares of WFM for every existing share of Amrion Common Stock,
or 4,568,817 shares of WFM Common Stock for 5,251,514 shares of Amrion
common equivalent shares assumed to be outstanding at the date of the
Merger.
(3) Prior to the combination, Amrion's fiscal year ended on December 31.
In recording the pooling-of-interests combination, Amrion's December 31,
1996, 1995 and 1994 financial statements were combined with WFM's September
29, 1996, September 24, 1995 and September 25, 1994 financial statements,
respectively.
(4) The estimated merger transaction expenses of approximately $3 to $5
million have not been recorded in the accompanying proforma combined
condensed financial statements. Such expenses will be deferred when
incurred and charged to expense upon consummation of the transaction.
35
