Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCFinancial_Report.xls
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR9.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR25.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR29.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR39.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR33.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR42.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR37.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR43.htm
EX-32.3 - EX-32.3 - WHOLE FOODS MARKET INCwfmq12012ex323.htm
EX-31.2 - EX-31.2 - WHOLE FOODS MARKET INCwfmq12012ex312.htm
EX-32.1 - EX-32.1 - WHOLE FOODS MARKET INCwfmq12012ex321.htm
EX-31.3 - EX-31.3 - WHOLE FOODS MARKET INCwfmq12012ex313.htm
EX-31.1 - EX-31.1 - WHOLE FOODS MARKET INCwfmq12012ex311.htm
EX-32.2 - EX-32.2 - WHOLE FOODS MARKET INCwfmq12012ex322.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR1.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR4.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR3.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR6.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR8.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR5.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR2.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR7.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR18.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR32.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR19.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR12.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR20.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR11.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR28.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR21.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR26.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR17.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR41.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR23.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR30.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR40.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR38.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR14.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR36.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR31.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR24.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR35.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR27.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR34.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR16.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR15.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR10.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR13.htm
XML - IDEA: XBRL DOCUMENT - WHOLE FOODS MARKET INCR22.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-Q

x
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended January 15, 2012; or
 
 
o
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from __________ to __________.

Commission File Number:  0-19797
 
WHOLE FOODS MARKET, INC.
(Exact name of registrant as specified in its charter)
Texas
 
74-1989366
(State of
 
(IRS employer
incorporation)
 
identification no.)

550 Bowie St.
Austin, Texas 78703
(Address of principal executive offices)

512-477-4455
(Registrant’s telephone number, including area code)

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).
Large accelerated filer x
 
Accelerated filer o
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
 

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

The number of shares of the registrant’s common stock, no par value, outstanding as of February 17, 2012 was 182,367,819 shares.



Whole Foods Market, Inc.
Form 10-Q
Table of Contents




 
 
Page
 
 
Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2


Part I. Financial Information
 
Item 1. Financial Statements

Whole Foods Market, Inc.
Consolidated Balance Sheets (unaudited)
January 15, 2012 and September 25, 2011
(In thousands)

Assets
2012

 
2011

Current assets:
 

 
 

Cash and cash equivalents
$
529,954

 
$
212,004

Short-term investments — available-for-sale securities
319,282

 
442,320

Restricted cash
92,343

 
91,956

Accounts receivable
176,810

 
175,310

Merchandise inventories
376,742

 
336,799

Prepaid expenses and other current assets
56,543

 
73,579

Deferred income taxes
125,413

 
121,176

Total current assets
1,677,087

 
1,453,144

Property and equipment, net of accumulated depreciation and amortization
2,002,382

 
1,997,212

Long-term investments — available-for-sale securities
66,383

 
52,815

Goodwill
662,938

 
662,938

Intangible assets, net of accumulated amortization
66,079

 
67,234

Deferred income taxes
44,735

 
50,148

Other assets
8,637

 
8,584

Total assets
$
4,528,241

 
$
4,292,075

 
 
 
 
Liabilities and Shareholders’ Equity
 

 
 

Current liabilities:
 

 
 

Current installments of capital lease obligations
$
336

 
$
466

Accounts payable
224,939

 
236,913

Accrued payroll, bonus and other benefits due team members
297,172

 
281,587

Dividends payable
25,238

 
17,827

Other current liabilities
349,287

 
342,568

Total current liabilities
896,972

 
879,361

Long-term capital lease obligations, less current installments
18,996

 
17,439

Deferred lease liabilities
379,124

 
353,776

Other long-term liabilities
50,402

 
50,194

Total liabilities
1,345,494

 
1,300,770

 
 
 
 
Shareholders’ equity:
 

 
 

Common stock, no par value, 300,000 shares authorized; 180,394 and 178,886 shares issued; 180,337 and 178,886 shares outstanding at 2012 and 2011, respectively
2,222,589

 
2,120,972

Common stock in treasury, at cost
(3,599
)
 

Accumulated other comprehensive income (loss)
171

 
(164
)
Retained earnings
963,586

 
870,497

Total shareholders’ equity
3,182,747

 
2,991,305

Commitments and contingencies


 


Total liabilities and shareholders’ equity
$
4,528,241

 
$
4,292,075


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


3


Whole Foods Market, Inc.
Consolidated Statements of Operations (unaudited)
(In thousands, except per share amounts)

 
Sixteen weeks ended
 
January 15,
2012
 
January 16,
2011
Sales
$
3,390,940

 
$
3,003,655

Cost of goods sold and occupancy costs
2,212,823

 
1,965,170

Gross profit
1,178,117

 
1,038,485

Direct store expenses
870,925

 
790,629

General and administrative expenses
103,516

 
88,511

Pre-opening expenses
10,405

 
8,640

Relocation, store closure and lease termination costs
2,933

 
3,146

Operating income
190,338

 
147,559

Investment and other income, net of interest
2,379

 
319

Income before income taxes
192,717

 
147,878

Provision for income taxes
74,390

 
59,148

Net income
$
118,327

 
$
88,730

 
 
 
 
Basic earnings per share
$
0.66

 
$
0.51

Weighted average shares outstanding
179,512

 
172,795

 
 
 
 
Diluted earnings per share
$
0.65

 
$
0.51

Weighted average shares outstanding, diluted basis
181,517

 
174,482

 
 
 
 
Dividends declared per common share
$
0.14

 
$
0.10


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


4


Whole Foods Market, Inc.
Consolidated Statements of Shareholders’ Equity and Comprehensive Income (unaudited)
Sixteen weeks ended January 15, 2012 and fiscal year ended September 25, 2011
(In thousands)

 
Shares
outstanding
Common
stock
Common
stock in
treasury
Accumulated
other
comprehensive
income (loss)
Retained
earnings
Total
shareholders’
equity
Balances at September 26, 2010
172,033

$
1,773,897

$

$
791

$
598,570

$
2,373,258

Net income




342,612

342,612

Foreign currency translation adjustments



(1,209
)

(1,209
)
Reclassification adjustments for amounts included in income



245


245

Change in unrealized gains and losses, net of income taxes



9


9

Comprehensive income
 

 

 
 

 

341,657

Dividends ($0.40 per common share)




(70,447
)
(70,447
)
Issuance of common stock pursuant to team member stock plans
6,857

301,591




301,591

Excess tax benefit related to exercise of team member stock options

18,225




18,225

Share-based payment expense

27,259




27,259

Other
(4
)



(238
)
(238
)
Balances at September 25, 2011
178,886

2,120,972


(164
)
870,497

2,991,305

Net income




118,327

118,327

Foreign currency translation adjustments



358


358

Change in unrealized gains and losses, net of income taxes



(23
)

(23
)
Comprehensive income
 

 



 

 

118,662

Dividends ($0.14 per common share)




(25,238
)
(25,238
)
Issuance of common stock pursuant to team member stock plans
1,508

82,999




82,999

Purchase of treasury stock
(57
)

(3,599
)


(3,599
)
Excess tax benefit related to exercise of team member stock options

7,401




7,401

Share-based payment expense

11,217




11,217

Balances at January 15, 2012
180,337

$
2,222,589

$
(3,599
)
$
171

$
963,586

$
3,182,747


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


5


Whole Foods Market, Inc.
Consolidated Statements of Cash Flows (unaudited)
(In thousands)
 
Sixteen weeks ended
 
January 15,
2012
 
January 16,
2011
Cash flows from operating activities
 

 
 

Net income
$
118,327

 
$
88,730

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation and amortization
92,653

 
86,691

Loss on disposition of fixed assets
432

 
548

Share-based payment expense
11,217

 
7,359

LIFO expense

 
2,000

Deferred income tax expense
1,229

 
14,969

Excess tax benefit related to exercise of team member stock options
(4,763
)
 
(2,728
)
Deferred lease liabilities
22,897

 
9,470

Other
3,518

 
499

Net change in current assets and liabilities:
 

 
 

Accounts receivable
476

 
(6,008
)
Merchandise inventories
(39,877
)
 
(20,195
)
Prepaid expenses and other current assets
16,918

 
10,225

Accounts payable
(12,060
)
 
(1,902
)
Accrued payroll, bonus and other benefits due team members
15,543

 
12,637

Other current liabilities
34,228

 
42,401

Net change in other long-term liabilities
158

 
8,289

Net cash provided by operating activities
260,896

 
252,985

Cash flows from investing activities
 

 
 

Development costs of new locations
(54,506
)
 
(45,561
)
Other property and equipment expenditures
(56,837
)
 
(45,436
)
Purchase of available-for-sale securities
(334,193
)
 
(497,560
)
Sale of available-for-sale securities
439,675

 
409,081

Decrease (increase) in restricted cash
(387
)
 
10

Other investing activities
(715
)
 
(958
)
Net cash used in investing activities
(6,963
)
 
(180,424
)
Cash flows from financing activities
 

 
 

Common stock dividends paid
(17,827
)
 

Issuance of common stock
80,234

 
53,764

Purchase of treasury stock
(3,599
)
 

Excess tax benefit related to exercise of team member stock options
4,763

 
2,728

Payments on long-term debt and capital lease obligations
(9
)
 
(100,000
)
Other financing activities

 
4

Net cash provided by (used in) financing activities
63,562

 
(43,504
)
Effect of exchange rate changes on cash and cash equivalents
455

 
1,227

Net change in cash and cash equivalents
317,950

 
30,284

Cash and cash equivalents at beginning of period
212,004

 
131,996

Cash and cash equivalents at end of period
$
529,954

 
$
162,280

 
 
 
 
Supplemental disclosures of cash flow information:
 

 
 

Interest paid
$
973

 
$
11,342

Federal and state income taxes paid
$
40,632

 
$
21,083


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

6


Whole Foods Market, Inc.
Notes to Consolidated Financial Statements (unaudited)
January 15, 2012

(1) Basis of Presentation
The accompanying unaudited consolidated financial statements of Whole Foods Market, Inc. and its consolidated subsidiaries (collectively “Whole Foods Market,” “Company,” or “We”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The information included in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis, the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 25, 2011. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation. Where appropriate, we have reclassified prior years’ financial statements to conform to current year presentation. Interim results are not necessarily indicative of results for any other interim period or for a full fiscal year. The Company reports its results of operations on a 52- or 53-week fiscal year ending on the last Sunday in September. The first fiscal quarter is 16 weeks, the second and third quarters each are 12 weeks, and the fourth quarter is 12 or 13 weeks. Fiscal year 2012 is a 53-week year and fiscal year 2011 was a 52-week year. The Company has one operating segment and a single reportable segment, natural and organic foods supermarkets. The following is a summary of percentage sales by geographic area for the periods indicated:

 
Sixteen weeks ended
 
January 15,
2012
 
January 16,
2011
Sales:
 
 
 
United States
96.8
%
 
96.9
%
Canada and United Kingdom
3.2

 
3.1

Total sales
100.0
%
 
100.0
%

The following is a summary of the percentage of net long-lived assets by geographic area as of the dates indicated:

 
January 15,
2012
 
September 25,
2011
Long-lived assets, net:
 

 
 
United States
95.8
%
 
95.9
%
Canada and United Kingdom
4.2

 
4.1

Total long-lived assets, net
100.0
%
 
100.0
%

(2) Recent Accounting Pronouncements
In December 2010, the Financial Accounting Standards Board (“FASB”) issued amended guidance within Accounting Standards Codification (“ASC”) 805, “Business Combinations,” which updates previous guidance on this topic and applies to all material transactions. The amendments specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) had occurred as of the beginning of the comparable prior annual reporting period only. Additional amendments expand supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The updated guidance is effective for fiscal years beginning after December 15, 2010 and is applied prospectively to business combinations completed on or after that date. The provisions are effective for the Company’s fiscal year ending September 30, 2012. We do not expect the adoption of these provisions to have a significant effect on our consolidated financial statements.

In May 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,” which amends ASC 820, “Fair Value Measurement.” The amended guidance changes the wording used to describe many requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. Additionally, the amendments clarify the FASB’s intent about the application of existing fair value measurement requirements. The guidance provided in ASU No. 2011-04 is effective for interim and annual periods beginning after December 15, 2011 and is applied prospectively. The provisions are effective for the Company’s second quarter of fiscal year ending September 30, 2012. We do not expect the adoption of these provisions to have a significant effect on our consolidated financial statements.


7


In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income,” which amends ASC 220, “Comprehensive Income.” The amended guidance requires that all nonowner changes in stockholders’ equity be presented in either a single statement of comprehensive income or two separate but consecutive statements. The objective of these amendments is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. In December 2011, the FASB issued ASU No. 2011-12, "Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05," which defers the implementation requirement in ASU No. 2011-05 to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income. The amended guidance specifies that entities should continue to report reclassifications out of accumulated other comprehensive income consistent with presentation requirements in effect before ASU No. 2011-05. The guidance provided in ASU No. 2011-05 and ASU No. 2011-12 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The provisions are effective for the Company’s first quarter of the fiscal year ending September 29, 2013.

(3) Fair Value Measurements
Assets Measured at Fair Value on a Recurring Basis
The Company held the following financial assets at fair value, based on the hierarchy input levels indicated, on a recurring basis (in thousands):

January 15, 2012
Level 1 Inputs
 
Level 2 Inputs
 
Level 3 Inputs
 
Total
Cash equivalents:
 
 
 
 
 
 
 
Money market fund
$
407,578

 
$

 
$

 
$
407,578

Municipal bonds

 
12,458

 

 
12,458

Commercial paper

 
13,999

 

 
13,999

Restricted cash:
 
 
 
 
 
 
 
Money market fund
92,343

 

 

 
92,343

Marketable securities - available-for-sale:
 
 
 
 
 
 
 
Municipal bonds

 
367,914

 

 
367,914

Corporate bonds

 
5,279

 

 
5,279

Commercial paper

 
2,987

 

 
2,987

Variable rate demand notes

 
9,485

 

 
9,485

Total
$
499,921

 
$
412,122

 
$

 
$
912,043


September 25, 2011
Level 1 Inputs
 
Level 2 Inputs
 
Level 3 Inputs
 
Total
Cash equivalents:
 
 
 
 
 
 
 
Money market fund
$
59,157

 
$

 
$

 
$
59,157

Municipal bonds

 
3,791

 

 
3,791

Commercial paper

 
12,998

 

 
12,998

Restricted cash:
 
 
 
 
 
 
 
Money market fund
91,956

 

 

 
91,956

Marketable securities - available-for-sale:
 
 
 
 
 
 
 
Municipal bonds

 
316,662

 

 
316,662

Corporate bonds

 
5,361

 

 
5,361

Commercial paper

 
67,964

 

 
67,964

Variable rate demand notes

 
105,148

 

 
105,148

Total
$
151,113

 
$
511,924

 
$

 
$
663,037


At January 15, 2012, the average effective maturity of the Company’s short- and long-term investments was approximately 5 months and 18 months, respectively.



8


(4) Intangible Assets
The components of intangible assets were as follows (in thousands):

 
January 15, 2012
 
September 25, 2011
 
Gross carrying
amount
 
Accumulated
amortization
 
Gross carrying
amount
 
Accumulated
amortization
Definite-lived contract-based
$
95,500

 
$
(32,212
)
 
$
96,019

 
$
(31,660
)
Definite-lived marketing-related and other
1,547

 
(763
)
 
1,547

 
(420
)
Indefinite-lived contract-based
2,007

 


 
1,748

 


 
$
99,054

 
$
(32,975
)
 
$
99,314

 
$
(32,080
)

Amortization associated with intangible assets totaled approximately $1.8 million for both the sixteen weeks ended January 15, 2012 and the same period of the prior fiscal year. Future amortization associated with the net carrying amount of intangible assets is estimated to be approximately as follows (in thousands):

Remainder of fiscal year 2012
$
3,865

Fiscal year 2013
4,512

Fiscal year 2014
4,463

Fiscal year 2015
4,339

Fiscal year 2016
4,213

Future fiscal years
42,680

 
$
64,072


(5) Reserves for Closed Properties
Following is a summary of store closure reserve activity during the sixteen weeks ended January 15, 2012 and fiscal year ended September 25, 2011 (in thousands):

 
January 15,
2012
 
September 25,
2011
Beginning balance
$
44,702

 
$
59,298

Additions
1,237

 
4,706

Usage
(2,546
)
 
(17,805
)
Adjustments
1,415

 
(1,497
)
Ending balance
$
44,808

 
$
44,702


Additions to store closure reserves relate to the accretion of interest on existing reserves and new closures. Usage included approximately $2.5 million in ongoing cash rental payments during the sixteen weeks ended January 15, 2012. During the fiscal year ended September 25, 2011, usage included approximately $10.1 million in ongoing cash rental payments and approximately $7.7 million in termination fees related to certain idle properties. Additionally, the Company recorded reserve adjustments of approximately $3.7 million during the fiscal year ended September 25, 2011, offset to goodwill.

(6) Long-Term Debt
The Company has a $350 million revolving line of credit that extends to August 28, 2012. The Company’s obligations under the facility are secured by liens on certain of the Company’s assets, including stock of its subsidiaries. The credit agreement contains certain affirmative covenants including maintenance of certain financial ratios and certain negative covenants including limitations on additional indebtedness and payments as defined by the agreement. At January 15, 2012 the Company was in compliance with all applicable debt covenants. At January 15, 2012 and September 25, 2011 the Company had no amounts drawn under this agreement. The amount available to the Company under the agreement was effectively reduced to approximately $349.6 million and $348.6 million by outstanding letters of credit totaling approximately $0.4 million and $1.4 million at January 15, 2012 and September 25, 2011, respectively. The Company had outstanding a $700 million, five-year term loan agreement due in 2012, with an outstanding balance of $490 million at September 26, 2010. During the sixteen weeks ended January 16, 2011, the Company repaid $100 million on the term loan and repaid the remainder throughout fiscal year 2011.

(7) Income Taxes
Income taxes for the sixteen weeks ended January 15, 2012 resulted in an effective tax rate of approximately 38.6%, compared to approximately 40.0% for the same period of the prior fiscal year. The decline in the effective tax rate is primarily due to certain

9


tax savings initiatives and investments. At January 15, 2012, income taxes payable totaled approximately $10.3 million compared to an income tax receivable of approximately $14.8 million at September 25, 2011.

(8) Shareholders’ Equity
Dividends per Common Share
During the sixteen weeks ended January 15, 2012, the Company’s Board of Directors declared a cash dividend to shareholders of $0.14 per common share, payable on January 24, 2012 to shareholders of record on January 13, 2012. Approximately $25.2 million was included in the “Dividends payable” line item on the Consolidated Balance Sheets at January 15, 2012. During fiscal year 2011, the Company’s Board of Directors declared cash dividends to shareholders totaling $0.40 per common share resulting in dividend payments of approximately $70.4 million, of which approximately $17.8 million was included in the “Dividends payable” line item on the Consolidated Balance Sheets at September 25, 2011.

Treasury Stock
During the sixteen weeks ended January 15, 2012, the Company’s Board of Directors authorized a $200 million stock repurchase program through November 1, 2013. The Company repurchased 56,500 shares of Company common stock on the open market during the sixteen weeks ended January 15, 2012. The average price per share paid for shares held in treasury at January 15, 2012 was $63.70, for a total of approximately $3.6 million. The specific timing and repurchase of future amounts will vary based on market conditions, securities law limitations and other factors and will be made using the Company’s available resources. The repurchase program may be suspended or discontinued at any time at the Company's discretion.

Comprehensive Income
The Company’s comprehensive income was comprised of: net income; unrealized gains and losses on investments; unrealized gains and losses on cash flow hedge instruments, including reclassification adjustments of unrealized losses to net income related to ongoing interest payments; and foreign currency translation adjustments, net of income taxes. Comprehensive income was as follows (in thousands):

 
Sixteen weeks ended
 
January 15,
2012
 
January 16,
2011
Net income
$
118,327

 
$
88,730

Foreign currency translation adjustments
358

 
2,250

Reclassification adjustments for amounts included in net income

 
245

Change in unrealized gains and losses, net of income taxes
(23
)
 
(256
)
Comprehensive income
$
118,662

 
$
90,969


At January 15, 2012 and January 16, 2011 available-for-sale securities totaling approximately $86.2 million and $162.0 million, respectively, were in unrealized loss positions.

(9) Earnings per Share
The computation of basic earnings per share is based on the number of weighted average common shares outstanding during the period. The computation of diluted earnings per share includes the dilutive effect of common stock equivalents consisting of incremental common shares deemed outstanding from the assumed exercise of stock options. A reconciliation of the numerators and denominators of the basic and diluted earnings per share calculations follows (in thousands, except per share amounts):
 
Sixteen weeks ended
 
January 15,
2012
 
January 16,
2011
Net income
$
118,327

 
$
88,730

 
 
 
 
Weighted average common shares outstanding (denominator for basic earnings per share)
179,512

 
172,795

Potential common shares outstanding:
 

 
 

Incremental shares from assumed exercise of stock options
2,005

 
1,687

Weighted average common shares outstanding and potential additional common shares outstanding (denominator for diluted earnings per share)
181,517

 
174,482

 
 
 
 
Basic earnings per share
$
0.66

 
$
0.51


 
 
 
Diluted earnings per share
$
0.65

 
$
0.51


10


The computation of diluted earnings per share for the sixteen weeks ended January 16, 2011 does not include options to purchase approximately 8.3 million shares of common stock due to their antidilutive effect.

(10) Share-Based Payments
Total share-based payment expense before income taxes recognized during the sixteen weeks ended January 15, 2012 and January 16, 2011 was approximately $11.2 million and $7.4 million, respectively. Share-based payment expense was included in the following line items on the Consolidated Statements of Operations for the periods indicated (in thousands):

 
Sixteen weeks ended
 
January 15,
2012
 
January 16,
2011
Cost of goods sold and occupancy costs
$
573

 
$
370

Direct store expenses
5,890

 
3,725

General and administrative expenses
4,754

 
3,264

Share-based payment expense before income taxes
11,217

 
7,359

Income tax benefit
(4,218
)
 
(2,899
)
Net share-based payment expense
$
6,999

 
$
4,460


At January 15, 2012 and September 25, 2011, approximately 11.7 million shares of the Company’s common stock were available for future stock incentive grants. At January 15, 2012 and September 25, 2011, there was approximately $84.9 million and $97.4 million of unrecognized share-based payment expense, respectively, related to nonvested stock options, net of estimated forfeitures, related to approximately 6.5 million shares. We anticipate this expense to be recognized over a weighted average period of approximately three years.

(11) Commitments and Contingencies
The Company is exposed to claims and litigation matters arising in the ordinary course of business and uses various methods to resolve these matters in a manner that we believe best serves the interests of our stakeholders. Our primary contingencies are associated with insurance and self-insurance obligations and litigation matters. Estimation of our insurance and self-insurance liabilities requires significant judgments, and actual claim settlements and associated expenses may differ from our current provisions for loss. We have exposures to loss contingencies arising from pending or threatened litigation for which assessing and estimating the outcomes of these matters involve substantial uncertainties.

On October 27, 2008, Whole Foods Market was served with the complaint in Kottaras v. Whole Foods Market, Inc., a putative class action filed in the United States District Court for the District of Columbia, seeking treble damages, equitable, injunctive, and declaratory relief and alleging that the acquisition and merger between Whole Foods Market and Wild Oats violates various provisions of the federal antitrust laws. During the sixteen weeks ended January 15, 2012, the federal district judge denied the plaintiff's motion for class certification. Currently that decision is being appealed. The Company has not accrued any loss related to the outcome of this case as of January 15, 2012.

The Company evaluates contingencies on an ongoing basis and has established loss provisions for matters in which losses are probable and the amount of loss can be reasonably estimated. Insurance and legal settlement liabilities are included in the “Other current liabilities” line item on the Consolidated Balance Sheets. We believe the recorded reserves in our consolidated financial statements are adequate in light of the probable and estimable liabilities.

(12) Related Party Transactions
The Company provides ongoing support to two non-profit organizations: Whole Planet Foundation and Whole Kids Foundation (the "Foundations"). Whole Planet Foundation is an independent, non-profit organization whose mission is to empower the poor through microcredit, with a focus on developing-world communities that supply the Company’s stores with product. Whole Kids Foundation is a non-profit organization dedicated to improving children's nutrition through partnerships with schools, educators, and other organizations. Members of the Company's management comprise the Board of Directors of each of the Foundations. Additionally, the Company provides administrative support and covers all operating costs and the overhead budget of the Foundations.


11


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

We wish to caution you that there are risks and uncertainties that could cause our actual results to be materially different from those indicated by forward-looking statements that we make from time to time in filings with the Securities and Exchange Commission ("SEC"), news releases, reports, proxy statements, registration statements and other written communications, as well as forward-looking statements made from time to time by representatives of our Company. These risks and uncertainties include those listed in the Company's Annual Report on Form 10-K for the fiscal year ended September 25, 2011. These risk and uncertainties and additional risks and uncertainties not presently known to us or that we currently deem immaterial may cause our business, financial condition, operating results and cash flows to be materially adversely affected. Except for the historical information contained herein, the matters discussed in this analysis are forward-looking statements that involve risk and uncertainties, including general business conditions, changes in overall economic conditions that impact consumer spending, including fuel prices and housing market trends, the impact of competition and other factors which are often beyond the control of the Company. The Company does not undertake any obligation to update forward-looking statements.

General
Whole Foods Market, Inc. is the world's leading retailer of natural and organic foods and America’s first national “Certified Organic” grocer. Our Company mission is to promote the vitality and well-being of all individuals by supplying the highest quality, most wholesome foods available. Through our growth, we have had a significant and positive impact on the natural and organic foods movement throughout the United States, helping lead the industry to nationwide acceptance. As of January 15, 2012, we operated 317 stores: 304 stores in 38 U.S. states and the District of Columbia; 7 stores in Canada; and 6 stores in the United Kingdom. We have one operating segment, natural and organic foods supermarkets.

Our results of operations may be impacted by the timing of new store openings, construction and pre-opening expense, store closures and relocations, and the range of operating results generated from newly opened stores. The Company’s average weekly sales and gross profit are typically highest in the second and third fiscal quarters, and lowest in the fourth fiscal quarter. Average weekly sales and gross profit are typically lower in the first fiscal quarter due to the product mix of holiday sales, and in the fourth fiscal quarter due to the seasonally slower sales during the summer months.

Sales of a store are deemed to be comparable commencing in the fifty-third full week after the store was opened or acquired. Identical store sales exclude sales from relocated stores and remodeled stores with changes in square footage greater than 20% from the comparable calculation to reduce the impact of square footage growth on the comparison. Stores closed for eight or more days are excluded from the comparable and identical store base from the first fiscal week of closure until re-opened for a full fiscal week.

The Company reports its results of operations on a 52- or 53-week fiscal year ending on the last Sunday in September. Fiscal year 2012 is a 53-week year and fiscal year 2011 was a 52-week year.

Economic and Industry Factors
Food retailing is a large, intensely competitive industry. Our competition varies across the Company and includes but is not limited to local, regional, national and international conventional and specialty supermarkets, natural foods stores, warehouse membership clubs, smaller specialty stores, farmers’ markets, and restaurants, each of which competes with us on the basis of store ambiance and experience, product selection, quality, customer service, price or a combination of these factors. Natural and organic food continues to be one of the fastest growing segments of food retailing today. Our commitment to natural and organic products, high quality standards, emphasis on perishable product sales, healthy eating products and education, range of choices based on price, and empowered team members who focus on unparalleled customer service differentiate us from the competition and have created a loyal customer base.

We have worked very hard over the last couple of years to successfully improve our price image, particularly in perishables, and we remain focused on maintaining our relative price positioning in the marketplace. We are hopeful we can continue to strike the right balance between rising product costs and our retail pricing based on our contracts, distribution, and tools to manage value.

Highlights for the First Quarter of Fiscal Year 2012
We continue to execute at a high level, delivering a great shopping experience for our customers while delivering great returns to our shareholders. For the sixteen weeks ended January 15, 2012:

Sales increased 12.9% over the same quarter of the prior year to $3.39 billion driven by an 8.7% comparable store sales increase. Identical store sales increased 8.2% over the prior year;

12


Operating income as a percentage of sales improved year-over-year for the eleventh consecutive quarter to 5.6%;
Diluted earnings per share increased 28.2% over the same quarter of the prior year to $0.65;
We produced $260.9 million in cash flow from operations and invested $111.3 million in capital expenditures;
The Company's Board of Directors announced a 40% increase in the Company's quarterly cash dividend to shareholders to $0.14 per common share and made a dividend payment to shareholders totaling $17.8 million; and
We had cash, restricted cash and investments totaling $1.01 billion.

Updated Outlook for Fiscal Year 2012
The following table provides additional information on the Company’s results through January 15, 2012 and expectations for the remainder of fiscal year 2012.

 
Sixteen weeks ended
January 15, 2012
 
Implied second
through fourth
quarter of
fiscal year 2012
 
Estimated
fiscal year 2012
Sales growth
12.9%
 
13.8% - 15.9%
 
13.5% - 15.0%
Identical store sales growth
8.2%
 
6.5% - 8.6%
 
7.0% - 8.5%
Diluted earnings per share
$0.65
 
$1.63 - $1.67
 
$2.28 - $2.32
Diluted earnings per share growth
28.2%
 
14.8% - 17.6%
 
18.0% - 20.0%

Fiscal year 2012 is a 53-week fiscal year, with the extra week falling in the fourth fiscal quarter. The Company estimates the impact on earnings from the extra week to be $0.06 per share. On a 52-week to 52-week basis, excluding the impact of the extra week in the fourth fiscal quarter, the Company expects total sales growth of 11% to 13% and earnings per share growth of 15% to 17%.

The Company expects ending square footage growth of 7% to 8% in fiscal year 2012. The Company expects capital expenditures for fiscal year 2012 to be in the range of approximately $410 million to $460 million, which includes the opening of 24 to 27 new stores. The Company is committed to producing cash flow from operations in excess of its capital expenditure requirements on an annual basis, including sufficient cash flow to fund the 69 stores in its current development pipeline.

Results of Operations
The following table sets forth the Company’s statements of operations data expressed as a percentage of sales:

 
Sixteen weeks ended
 
January 15,
2012
 
January 16,
2011
Sales
100.0
%
 
100.0
%
Cost of goods sold and occupancy costs
65.3

 
65.4

Gross profit
34.7

 
34.6

Direct store expenses
25.7

 
26.3

General and administrative expenses
3.1

 
2.9

Pre-opening expenses
0.3

 
0.3

Relocation, store closure and lease termination costs
0.1

 
0.1

Operating income
5.6

 
4.9

Investment and other income, net of interest
0.1

 

Income before income taxes
5.7

 
4.9

Provision for income taxes
2.2

 
2.0

Net income
3.5
%
 
3.0
%
Figures may not sum due to rounding.

Sales for the sixteen weeks ended totaled approximately $3.39 billion, increasing 12.9% over the same period of the prior fiscal year. Comparable store sales increased 8.7% during the sixteen weeks ended January 15, 2012, and identical store sales increased 8.2%. As of January 15, 2012, there were 302 locations in the comparable store base. Identical store sales for the sixteen weeks ended January 15, 2012 exclude six relocated stores and two major expansions from the comparable calculation to reduce the impact of square footage growth on the comparison. At January 15, 2012, there were 21 stores that were opened or acquired fifty-two weeks or less which contributed approximately $174.7 million to total sales during the sixteen weeks ended January 15, 2012. We are pleased with our sales momentum, which continues to be broad-based across regions, departments, and store age

13


classes. With the moderation in inflation, we are seeing our comparable store sales breakout return to the pattern of approximately 80% transaction count and 20% basket size that we were reporting before the sharp increase in inflation in the second half of fiscal year 2011. During the sixteen weeks ended January 15, 2012, our transaction count in comparable stores increased 6.6%, on top of the 7.3% increase we experienced in the sixteen weeks ended January 16, 2011. During the sixteen weeks ended January 15, 2012, our basket size increased 2.0% on top of the 1.6% increase for the sixteen weeks ended January 16, 2011, driven by higher average prices per item, offset slightly by a decrease in items per transaction, as we selectively passed through some product cost increases and continued to see signs of customers trading up.

The Company’s gross profit as a percentage of sales for the sixteen weeks ended January 15, 2012 was approximately 34.7% compared to approximately 34.6% for the same period of the prior fiscal year. The Company recognized no LIFO charges for the sixteen weeks ended January 15, 2012, compared to LIFO charges totaling approximately $2.0 million for the same period of the prior fiscal year. Excluding the impact of LIFO, gross margin increased 10 basis points for the sixteen weeks ended January 15, 2012 compared to the same period of the prior fiscal year driven by an improvement in occupancy costs as a percentage of sales. We did not see cost of goods sold leverage as we remained focused on balancing rising product costs with maintaining our relative value position to drive sales over the longer term. We believe with the moderation in inflation, we will have additional flexibility to consistently deliver gross margin on an annual basis within our historical range of 34% to 35% while maintaining our sales momentum.

Direct store expenses as a percentage of sales for the sixteen weeks ended January 15, 2012 were approximately 25.7% compared to approximately 26.3% for the same period of the prior fiscal year. The 64 basis point decrease in direct store expenses as a percentage of sales for the sixteen weeks ended January 15, 2012 primarily reflects leverage of 33 basis points in wages and 14 basis points in depreciation expense.

General and administrative expenses as a percentage of sales for the sixteen weeks ended January 15, 2012 were approximately 3.1% compared to approximately 2.9% for the same period of the prior fiscal year. The increase in general and administrative expenses as a percentage of sales for the sixteen weeks ended January 15, 2012 was primarily driven by higher wages, including wage costs associated with new strategic initiatives, totaling five basis points as a percentage of sales. Share-based payment expenses included in general and administrative expenses also increased three basis points as a percentage of sales over the same period in the prior fiscal year.

Pre-opening expenses as a percentage of sales were approximately 0.3% for the sixteen weeks ended January 15, 2012 and the same period of the prior fiscal year. The Company opened six new store locations, including two new markets, during the sixteen weeks ended January 15, 2012 compared to three new store openings in the same period of the prior fiscal year.

Relocation, store closure and lease termination costs totaled approximately $2.9 million for the sixteen weeks ended January 15, 2012 compared to approximately $3.1 million for the same period of the prior fiscal year.

Investment and other income, net of interest expense, which includes interest income, investment gains and losses, rental income and other income, totaled approximately $2.4 million for the sixteen weeks ended January 15, 2012 compared to approximately $0.3 million for the same period of the prior fiscal year. The increase is primarily related to a $2.3 million reduction in interest expense due to the repayment of our term loan in fiscal year 2011.

Income taxes for the sixteen weeks ended January 15, 2012 resulted in an effective tax rate of approximately 38.6% compared to approximately 40.0% for the same period of the prior fiscal year. The decline in the effective tax rate is primarily due to certain tax savings initiatives and investments.


14


Share-based payment expense was included in the following line items on the Consolidated Statements of Operations for the periods indicated (in thousands):

 
Sixteen weeks ended
 
January 15,
2012
 
January 16,
2011
Cost of goods sold and occupancy costs
$
573

 
$
370

Direct store expenses
5,890

 
3,725

General and administrative expenses
4,754

 
3,264

Share-based payment expense before income taxes
11,217

 
7,359

Income tax benefit
(4,218
)
 
(2,899
)
Net share-based payment expense
$
6,999

 
$
4,460



Liquidity and Capital Resources and Changes in Financial Condition
The following table summarizes the Company’s cash and short-term investments as of the dates indicated (in thousands):

 
January 15,
2012
 
September 25,
2011
Cash and cash equivalents
$
529,954

 
$
212,004

Short-term investments - available-for-sale securities
319,282

 
442,320

Restricted cash
92,343

 
91,956

Total
$
941,579

 
$
746,280


Additionally, the Company had long-term investments in available-for-sale securities totaling approximately $66.4 million and $52.8 million at January 15, 2012 and September 25, 2011, respectively.

We generated cash flows from operating activities totaling approximately $260.9 million during the sixteen weeks ended January 15, 2012 compared to approximately $253.0 million during the same period of the prior fiscal year. Cash flows from operating activities resulted primarily from our net income plus non-cash expenses and changes in operating working capital.

Net cash used in investing activities totaled approximately $7.0 million for the sixteen weeks ended January 15, 2012 compared to approximately $180.4 million for the same period of the prior fiscal year. Net sales of available-for-sale securities totaled approximately $105.5 million during the sixteen weeks ended January 15, 2012 as compared to net purchases of available-for-sale securities totaling approximately $88.5 million in the same period of the prior fiscal year. Our principal historical capital requirements have been the funding of the development or acquisition of new stores and acquisition of property and equipment for existing stores. The required cash investment for new stores varies depending on the size of the new store, geographic location, degree of work performed by the landlord and complexity of site development issues. Capital expenditures for the sixteen weeks ended January 15, 2012 totaled approximately $111.3 million, of which approximately $54.5 million was for new store development and approximately $56.8 million was for remodels and other additions. Capital expenditures for the sixteen weeks ended January 16, 2011 totaled approximately $91.0 million, of which approximately $45.6 million was for new store development and approximately $45.4 million was for remodels and other additions.


15


The following table provides information about the Company’s store development activities:

 
Stores
opened
during fiscal
year 2011
 
Stores
opened
during fiscal
year 2012
 
Properties
tendered as of
February 8,
2012
 
Total leases
signed as of
February 8,
2012 (1)
Number of stores (including relocations)
18

 
6

 
17

 
69

Number of relocations
6

 

 
2

 
7

New markets

 
2

 
5

 
21

Average store size (gross square feet)
39,400

 
35,800

 
35,300

 
35,000

Total square footage
708,700

 
215,000

 
600,700

 
2,439,600

Average tender period in months
12.5

 
6.7

 
 

 
 

Average pre-opening expense per store
$2.5 million

 
 

 
 

 
 

Average pre-opening rent per store
$1.2 million

 
 

 
 

 
 

(1) Includes leases for properties tendered

The Company expects to open 19 additional stores, including one relocation, during the remainder of fiscal year 2012. We believe we will produce operating cash flows in excess of the capital expenditures needed to open the 69 stores in our store development pipeline. The following table provides information about the Company’s estimated store openings for the next two fiscal years:

 
Estimated
openings
 
Relocations
 
Average new store
square footage
 
Ending square
footage growth
Fiscal year 2012
24 - 27
 
1 - 2
 
35,000
 
7% - 8%
Fiscal year 2013
28 - 32
 
2 - 3
 
35,000
 
7% - 8%

Over the long term, the Company considers 1,000 stores to be a reasonable indication of its market opportunity in the United States as the Whole Foods Market brand continues to strengthen, consumer demand for natural and organic products continues to increase, and the Company’s flexibility on new store size opens up additional market opportunities. The Company believes significant opportunities exist in Canada and the United Kingdom as well.

Net cash provided by financing activities was approximately $63.6 million for the sixteen weeks ended January 15, 2012 compared to net cash used in financing activities of approximately $43.5 million for the same period of the prior fiscal year.

Net proceeds to the Company from team members’ stock plans for the sixteen weeks ended January 15, 2012 totaled approximately $80.2 million compared to approximately $53.8 million for the same period of the prior fiscal year. The Company intends to keep its broad-based stock option program in place, but also intends to limit the number of shares granted in any one year so that annual earnings dilution from share-based payment expense will not exceed 10%. The Company believes this strategy is best aligned with its stakeholder philosophy because it limits future earnings dilution from options and at the same time retains the broad-based stock option plan, which the Company believes is important to team member morale, its unique corporate culture and its success. At January 15, 2012 and September 25, 2011, approximately 11.7 million shares of our common stock were available for future stock incentive grants.

During the first quarter of fiscal year 2011, the Company’s Board of Directors reinstated a quarterly cash dividend to shareholders. During the sixteen weeks ended January 15, 2012, the Company's Board of Directors announced a 40% increase in the quarterly dividend to $0.14 per common share.

16


Following is a summary of dividends declared per common share during fiscal years 2012 and 2011 (in thousands, except per share amounts):

Date of declaration
 
Dividend per
common share
 
Date of record
 
Date of payment
 
Total amount
Fiscal year 2012:
 
 
 
 
 
 
 
 
November 2, 2011 (1)
 
$
0.14

 
January 13, 2012
 
January 24, 2012
 
$
25,238

Fiscal year 2011:
 
 
 
 
 
 
 
 
December 8, 2010
 
$
0.10

 
January 10, 2011
 
January 20, 2011
 
$
17,348

February 27, 2011
 
0.10

 
April 12, 2011
 
April 22, 2011
 
17,572

June 7, 2011
 
0.10

 
June 24, 2011
 
July 5, 2011
 
17,700

September 8, 2011
 
0.10

 
September 19, 2011
 
September 29, 2011
 
17,827

(1) Dividend accrued at January 15, 2012

The Company will pay future dividends at the discretion of the Board of Directors. The continuation of these payments, the amount of such dividends, and the form in which dividends are paid (cash or stock) depend on many factors, including the results of operations and the financial condition of the Company. Subject to these qualifications, the Company currently expects to pay dividends on a quarterly basis.

On November 2, 2011, the Company's Board of Directors authorized a share repurchase program in the amount of $200 million through November 1, 2013. During the sixteen weeks ended January 15, 2012, the Company repurchased 56,500 shares of Company common stock on the open market for a total of approximately $3.6 million. The specific timing and repurchase of future amounts will vary based on market conditions, securities law limitations, and other factors and will be made using the Company's available resources. The repurchase program may be suspended or discontinued at any time at the Company's discretion.

The Company has outstanding a $350 million revolving line of credit that extends to August 28, 2012. The Company’s obligations under the facility are secured by liens on certain of the Company’s assets, including stock of its subsidiaries. At January 15, 2012 the Company was in compliance with all applicable debt covenants. At January 15, 2012 and September 25, 2011 the Company had no amounts drawn under this agreement. The amount available to the Company under the agreement was effectively reduced to approximately $349.6 million and $348.6 million by outstanding letters of credit totaling approximately $0.4 million and $1.4 million at January 15, 2012 and September 25, 2011, respectively. The Company had outstanding a $700 million, five-year term loan agreement due in 2012, with an outstanding balance of $490 million at September 26, 2010. During the sixteen weeks ended January 16, 2011, the Company repaid $100 million on the term loan and repaid the remainder throughout fiscal year 2011.

The Company is committed under certain capital leases for rental of certain equipment, buildings and land, and certain operating leases for rental of facilities and equipment. These leases expire or become subject to renewal clauses at various dates through 2054.

The following table shows payments due by period on contractual obligations as of January 15, 2012 (in thousands):

 
Total
 
Less than 1
year
 
1-3
years
 
3-5
years
 
More than 5
years
Capital lease obligations (including interest)
$
40,090

 
$
2,095

 
$
4,201

 
$
4,142

 
$
29,652

Operating lease obligations (1)
6,188,794

 
307,995

 
692,446

 
718,154

 
4,470,199

Total
$
6,228,884

 
$
310,090

 
$
696,647

 
$
722,296

 
$
4,499,851

(1) Amounts exclude taxes, insurance and other related expense

Gross unrecognized tax benefits and related interest and penalties at January 15, 2012 were approximately $10.4 million. Although a reasonably reliable estimate of the period of cash settlement with respective taxing authorities cannot be determined due to the high degree of uncertainty regarding the timing of future cash outflows associated with the Company's unrecognized tax benefits, as of January 15, 2012, the Company does not expect tax audit resolution will reduce its unrecognized tax benefits in the next 12 months.

We periodically make other commitments and become subject to other contractual obligations that we believe to be routine in nature and incidental to the operation of the business. Management believes that such routine commitments and contractual

17


obligations do not have a material impact on our business, financial condition or results of operations.

The effect of exchange rate changes on cash included in the Consolidated Statements of Cash Flows resulted in an increase in cash and cash equivalents totaling approximately $0.5 million for the sixteen weeks ended January 15, 2012 compared to an increase of approximately $1.2 million for the same period of the prior fiscal year. These changes principally reflect the relative strengthening of the Canadian dollar compared to the U.S. dollar during these periods.

Our principal historical sources of liquidity have been cash generated by operations, available cash and cash equivalents, short-term investments, and amounts available under our revolving line of credit. Absent any significant change in market condition, we expect planned expansion and other anticipated working capital and capital expenditure requirements for the next twelve months will be funded by these sources. There can be no assurance, however, that the Company will continue to generate cash flows at or above current levels or that our revolving line of credit and other sources of capital will be available to us in the future.

Off-Balance Sheet Arrangements
Our off-balance sheet arrangements at January 15, 2012 consist of operating leases disclosed in the above contractual obligations table and outstanding letters of credit discussed in Note 6 to the consolidated financial statements, “Long-Term Debt.” We have no other off-balance sheet arrangements that have had, or are reasonably likely to have, a material current or future effect on our consolidated financial statements or financial condition.

Recent Accounting Pronouncements
Recent accounting pronouncements are included in Note 2 to the consolidated financial statements, “Recent Accounting Pronouncements.”

Item 4. Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Co-Chief Executive Officers (principal executive officers) and Chief Financial Officer (principal financial officer), to allow timely decisions regarding required disclosure. The Company’s management, with the participation of the Company’s Co-Chief Executive Officers and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Co-Chief Executive Officers and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective of the end of the period covered by this report.

There have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


18


Part II. Other Information

Item 1. Legal Proceedings

The Company is exposed to claims and litigation matters arising in the ordinary course of business and uses various methods to resolve these matters in a manner that we believe best serves the interests of our stakeholders. We have exposures to loss contingencies arising from pending or threatened litigation for which assessing and estimating the outcomes of these matters involve substantial uncertainties.

On October 27, 2008, Whole Foods Market was served with the complaint in Kottaras v. Whole Foods Market, Inc., a putative class action filed in the United States District Court for the District of Columbia, seeking treble damages, equitable, injunctive, and declaratory relief and alleging that the acquisition and merger between Whole Foods Market and Wild Oats violates various provisions of the federal antitrust laws. During the sixteen weeks ended January 15, 2012, the federal district judge denied the plaintiff's motion for class certification. Currently that decision is being appealed. The Company has not accrued any loss related to the outcome of this case as of January 15, 2012.

The Company evaluates contingencies on an ongoing basis and has established loss provisions for matters in which losses are probable and the amount of loss can be reasonably estimated. Legal settlement liabilities are included in the “Other current liabilities” line item on the Consolidated Balance Sheets. We believe the recorded reserves in our consolidated financial statements are adequate in light of the probable and estimable liabilities. However, resolution of contingencies resulting in amounts that vary materially from the Company’s current estimates could have a material adverse effect on the Company’s results of operations, cash flows, or financial condition.

Item 6. Exhibits

Exhibit  31.1
Certification of Co-Chief Executive Officer Pursuant to 17 CFR 240.13a -14(a)
Exhibit  31.2
Certification of Co-Chief Executive Officer Pursuant to 17 CFR 240.13a - 14(a)
Exhibit  31.3
Certification of Chief Financial Officer Pursuant to 17 CFR 240.13a - 14(a)
Exhibit  32.1
Certification of Co-Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
Exhibit  32.2
Certification of Co-Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
Exhibit  32.3
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
Exhibit  101
The following financial information from the Company’s Quarterly Report on Form 10-Q, for the period ended January 15, 2012, formatted in eXtensible Business Reporting Language: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Shareholders’ Equity, (iv) Consolidated Statements of Cash Flows, (v) Notes to Consolidated Financial Statements (1)

(1) 
Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.


19


SIGNATURE

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.

 
 
 
WHOLE FOODS MARKET, INC.
 
 
 
 
 
Date:
February 24, 2012
 
By:
/s/ Glenda Flanagan
 
 
 
Glenda Flanagan
 
 
 
Executive Vice President and Chief Financial Officer
 
 
 
(Duly authorized officer and principal financial officer)

20