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EX-10.1 - EXHIBIT 10.1 - WHOLE FOODS MARKET INCwfmq12015ex101.htm
EX-32.1 - EXHIBIT 32.1 - WHOLE FOODS MARKET INCwfmq12015ex321.htm
EX-31.2 - EXHIBIT 31.2 - WHOLE FOODS MARKET INCwfmq12015ex312.htm
EX-31.3 - EXHIBIT 31.3 - WHOLE FOODS MARKET INCwfmq12015ex313.htm
EX-32.2 - EXHIBIT 32.2 - WHOLE FOODS MARKET INCwfmq12015ex322.htm
EX-32.3 - EXHIBIT 32.3 - WHOLE FOODS MARKET INCwfmq12015ex323.htm
EX-31.1 - EXHIBIT 31.1 - WHOLE FOODS MARKET INCwfmq12015ex311.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 18, 2015; 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 Street
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 20, 2015 was 360,763,460 shares.



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

 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




Part I. Financial Information
 
Item 1. Financial Statements.

Whole Foods Market, Inc.
Consolidated Balance Sheets (unaudited)
(In millions)

Assets
January 18,
2015
 
September 28,
2014
Current assets:
 
 
 
Cash and cash equivalents
$
266

 
$
190

Short-term investments - available-for-sale securities
472

 
553

Restricted cash
129

 
109

Accounts receivable
204

 
198

Merchandise inventories
491

 
441

Prepaid expenses and other current assets
89

 
97

Deferred income taxes
168

 
168

Total current assets
1,819

 
1,756

Property and equipment, net of accumulated depreciation and amortization
3,019

 
2,923

Long-term investments - available-for-sale securities
164

 
120

Goodwill
710

 
708

Intangible assets, net of accumulated amortization
80

 
81

Deferred income taxes
134

 
132

Other assets
27

 
24

Total assets
$
5,953

 
$
5,744

 
 
 
 
Liabilities and Shareholders’ Equity
 
 
 
Current liabilities:
 
 
 
Current installments of capital lease obligations
$
3

 
$
2

Accounts payable
280

 
276

Accrued payroll, bonus and other benefits due team members
396

 
379

Dividends payable
47

 
43

Other current liabilities
613

 
557

Total current liabilities
1,339

 
1,257

Long-term capital lease obligations, less current installments
61

 
60

Deferred lease liabilities
561

 
548

Other long-term liabilities
66

 
66

Total liabilities
2,027

 
1,931

 
 
 
 
Commitments and contingencies


 


 
 
 
 
Shareholders’ equity:
 
 
 
Common stock, no par value, 600.0 shares authorized;
377.1 and 377.1 shares issued; 360.3 and 360.4 shares outstanding
at 2015 and 2014, respectively
2,876

 
2,863

Common stock in treasury, at cost, 16.8 and 16.7 shares at 2015 and 2014, respectively
(720
)
 
(711
)
Accumulated other comprehensive loss
(18
)
 
(7
)
Retained earnings
1,788

 
1,668

Total shareholders’ equity
3,926

 
3,813

Total liabilities and shareholders’ equity
$
5,953

 
$
5,744


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


1


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

 
Sixteen weeks ended
 
January 18,
2015

January 19,
2014
Sales
$
4,671

 
$
4,239

Cost of goods sold and occupancy costs
3,045

 
2,754

Gross profit
1,626

 
1,485

Selling, general and administrative expenses
1,330

 
1,209

Pre-opening expenses
21

 
16

Relocation, store closure and lease termination costs
4

 
5

Operating income
271

 
255

Investment and other income, net of interest expense
3

 
4

Income before income taxes
274

 
259

Provision for income taxes
107

 
101

Net income
$
167

 
$
158

 
 
 
 
Basic earnings per share
$
0.46

 
$
0.42

Weighted average shares outstanding
359.9

 
372.3

 
 
 
 
Diluted earnings per share
$
0.46

 
$
0.42

Weighted average shares outstanding, diluted basis
362.2

 
375.8

 
 
 
 
Dividends declared per common share
$
0.13

 
$
0.12


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


2


Whole Foods Market, Inc.
Consolidated Statements of Comprehensive Income (unaudited)
(In millions)

 
Sixteen weeks ended
 
January 18,
2015
 
January 19,
2014
Net income
$
167

 
$
158

Other comprehensive loss, net of tax:
 
 
 
Foreign currency translation adjustments
(11
)
 
(5
)
Other comprehensive loss, net of tax
(11
)
 
(5
)
Comprehensive income
$
156

 
$
153


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


3


Whole Foods Market, Inc.
Consolidated Statements of Shareholders’ Equity (unaudited)
Sixteen weeks ended January 18, 2015 and fiscal year ended September 28, 2014
(In millions)

 
Shares
outstanding
Common
stock
Common
stock in
treasury
Accumulated
other
comprehensive
income (loss)
Retained
earnings
Total
shareholders’
equity
Balances at September 29, 2013
372.4

$
2,765

$
(153
)
$
1

$
1,265

$
3,878

Net income




579

579

Other comprehensive loss, net of tax



(8
)

(8
)
Dividends ($0.48 per common share)




(176
)
(176
)
Issuance of common stock pursuant to team member stock plans
1.9

21

20



41

Purchase of treasury stock
(13.9
)

(578
)


(578
)
Tax benefit related to exercise of team member stock options

9




9

Share-based payment expense

68




68

Balances at September 28, 2014
360.4

2,863

(711
)
(7
)
1,668

3,813

Net income




167

167

Other comprehensive loss, net of tax



(11
)

(11
)
Dividends ($0.13 per common share)




(47
)
(47
)
Issuance of common stock pursuant to team member stock plans
0.8

(10
)
34



24

Purchase of treasury stock
(0.9
)

(43
)


(43
)
Tax benefit related to exercise of team member stock options

4




4

Share-based payment expense

19




19

Balances at January 18, 2015
360.3

$
2,876

$
(720
)
$
(18
)
$
1,788

$
3,926


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


4


Whole Foods Market, Inc.
Consolidated Statements of Cash Flows (unaudited)
(In millions)

 
Sixteen weeks ended
 
January 18,
2015
 
January 19,
2014
Cash flows from operating activities
 
 
 
Net income
$
167

 
$
158

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
125

 
111

Share-based payment expense
19

 
18

LIFO expense
3

 

Deferred income tax benefit
(2
)
 
(4
)
Excess tax benefit related to exercise of team member stock options
(4
)
 
(5
)
Accretion of premium/discount on marketable securities
6

 
9

Deferred lease liabilities
11

 
11

Other
3

 
6

Net change in current assets and liabilities:
 

 
 

Accounts receivable
(6
)
 
(15
)
Merchandise inventories
(53
)
 
(40
)
Prepaid expenses and other current assets
9

 
(16
)
Accounts payable
5

 
31

Accrued payroll, bonus and other benefits due team members
17

 
17

Other current liabilities
87

 
55

Net change in other long-term liabilities

 
1

Net cash provided by operating activities
387

 
337

Cash flows from investing activities
 
 
 
Development costs of new locations
(152
)
 
(122
)
Other property and equipment expenditures
(100
)
 
(97
)
Purchases of available-for-sale securities
(171
)
 
(339
)
Sales and maturities of available-for-sale securities
199

 
289

Increase in restricted cash
(21
)
 

Other investing activities
(6
)
 
(4
)
Net cash used in investing activities
(251
)
 
(273
)
Cash flows from financing activities
 
 
 
Common stock dividends paid
(43
)
 
(37
)
Issuance of common stock
23

 
16

Purchase of treasury stock
(43
)
 
(62
)
Excess tax benefit related to exercise of team member stock options
4

 
5

Net cash used in financing activities
(59
)
 
(78
)
Effect of exchange rate changes on cash and cash equivalents
(1
)
 
(5
)
Net change in cash and cash equivalents
76

 
(19
)
Cash and cash equivalents at beginning of period
190

 
290

Cash and cash equivalents at end of period
$
266

 
$
271

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Federal and state income taxes paid
$
77

 
$
89


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


5


Whole Foods Market, Inc.
Notes to Consolidated Financial Statements (unaudited)
January 18, 2015

(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 and the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 28, 2014. 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 year 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 years 2015 and 2014 are 52-week years. 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 18,
2015

January 19,
2014
Sales:
 
 
 
United States
96.7
%
 
96.7
%
Canada and United Kingdom
3.3

 
3.3

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 18,
2015
 
September 28,
2014
Long-lived assets, net:
 

 
 
United States
96.5
%
 
96.0
%
Canada and United Kingdom
3.5

 
4.0

Total long-lived assets, net
100.0
%
 
100.0
%

(2) Summary of Significant Accounting Policies
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of retail operational expenses, marketing, and corporate and regional administrative support costs. Advertising costs are charged to expense as incurred, except for certain production costs that are charged to expense when the advertising first takes place.

Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” which creates a new topic in the Accounting Standards Codification (“ASC”), topic 606, “Revenue from Contracts with Customers.” The core principle of the new guidance is that an entity will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, the guidance requires disclosures related to the nature, amount, timing, and uncertainty of revenue that is recognized. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2016 and may be applied on either a full or modified retrospective basis. The provisions are effective for the Company’s first quarter of fiscal year ending September 30, 2018. We do not expect the adoption of these provisions to have a significant impact on the Company’s consolidated financial statements.

In April 2014, the FASB issued ASU No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity,” which amends ASC 205, “Presentation of Financial Statements,” and ASC 360, “Property, Plant, and Equipment.” The amendments raise the threshold for reporting discontinued operations to only those disposals that represent a strategic shift or have a major impact on an entity’s financial results and operations. The amendments also expand related disclosure requirements. The amendments are effective for fiscal years, and interim periods within those years, beginning after

6


December 15, 2014 and should be applied on a prospective basis. The provisions are effective for the Company’s first quarter of fiscal year ending September 25, 2016. We do not expect the adoption of these provisions to have a significant impact on the Company’s consolidated financial statements.

Effective September 29, 2014, the Company adopted ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” which amends ASC 740, “Income Taxes.” The adoption, which provides guidance on the financial statement presentation of an unrecognized tax benefit, as either a reduction of a deferred tax asset or as a liability, when a net operating loss carryforward, similar tax loss, or a tax credit carryforward exists did not have a significant impact on the Company’s consolidated financial statements.

Effective September 29, 2014, the Company adopted ASU No. 2013-04, “Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (a consensus of the FASB Emerging Issues Task Force),” which amends ASC 405, “Liabilities.” The adoption, which provides guidance on the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements, including debt arrangements, other contractual obligations, and settled litigation and judicial rulings, for which the total amount of the obligation is fixed at the reporting date did not have a significant impact on the Company’s consolidated financial statements.

(3) Fair Value Measurements
The Company holds money market fund investments that are classified as cash equivalents that are measured at fair value on a recurring basis based on quoted prices in active markets for identical assets. The Company also holds available-for-sale securities that are valued using a series of multi-dimensional relational models and series of matrices with standard inputs obtained from readily available pricing sources and other observable market data, such as benchmark yields and base spread.

The carrying amounts of accrued payroll, bonuses and other benefits due team members, and other accrued expenses approximate fair value because of their short maturities. Store closure reserves and estimated workers’ compensation claims are recorded at net present value to approximate fair value.

The Company held the following financial assets measured at fair value on a recurring basis based on the hierarchy levels indicated (in millions):
January 18, 2015
Level 1 Inputs
 
Level 2 Inputs
 
Level 3 Inputs
 
Total
Cash equivalents:
 
 
 
 
 
 
 
Money market fund
$
57

 
$

 
$

 
$
57

Commercial paper

 
10

 

 
10

Marketable securities - available-for-sale:
 
 
 
 
 
 
 
Asset-backed securities

 
17

 

 
17

Commercial paper

 
3

 

 
3

Corporate bonds

 
109

 

 
109

Municipal bonds

 
507

 

 
507

Total
$
57

 
$
646

 
$

 
$
703


September 28, 2014
Level 1 Inputs
 
Level 2 Inputs
 
Level 3 Inputs
 
Total
Cash equivalents:
 
 
 
 
 
 
 
Money market fund
$
46

 
$

 
$

 
$
46

Treasury bills
4

 

 

 
4

Commercial paper

 
15

 

 
15

Marketable securities - available-for-sale:
 
 
 
 
 
 
 
Asset-backed securities

 
13

 

 
13

Commercial paper

 
33

 

 
33

Corporate bonds

 
97

 

 
97

Municipal bonds

 
530

 

 
530

Total
$
50

 
$
688

 
$

 
$
738



7


(4) Investments
The Company holds investments in marketable securities that are classified as either short- or long-term available-for-sale securities. The Company held the following investments at fair value as of the dates indicated (in millions):
 
January 18,
2015
 
September 28,
2014
Short-term marketable securities - available-for-sale:
 
 
 
Asset-backed securities
$
14

 
$
9

Commercial paper
3

 
33

Corporate bonds
87

 
56

Municipal bonds
368

 
455

Total short-term marketable securities
$
472

 
$
553

Long-term marketable securities - available-for-sale:
 
 
 
Asset-backed securities
$
3

 
$
4

Corporate bonds
22

 
41

Municipal bonds
139

 
75

Total long-term marketable securities
$
164

 
$
120


Gross unrealized holding gains and losses were not material at January 18, 2015 or September 28, 2014. Available-for-sale securities totaling approximately $225 million and $142 million were in unrealized loss positions at January 18, 2015 and September 28, 2014, respectively. There were no investments in a continuous unrealized loss position for greater than 12 months at January 18, 2015. The aggregate value of available-for-sale securities in a continuous unrealized loss position for greater than 12 months was not material at September 28, 2014. The Company did not recognize any other-than-temporary impairments during the sixteen weeks ended January 18, 2015 or fiscal year ended September 28, 2014. At January 18, 2015, the average effective maturity of the Company’s short- and long-term available-for-sale securities was approximately 6 months and 17 months, respectively, compared to approximately 6 months and 15 months, respectively, at September 28, 2014.

At January 18, 2015 and September 28, 2014, the Company held $10 million in equity interest that is accounted for using the cost method of accounting.

(5) Goodwill and Other Intangible Assets
Additions to goodwill and other intangible assets during the sixteen weeks ended January 18, 2015 and January 19, 2014 were not material. No adjustments to goodwill were recorded during the sixteen weeks ended January 18, 2015 or the same period of the prior fiscal year. The components of intangible assets as of the dates indicated were as follows (in millions):
 
January 18, 2015
 
September 28, 2014
 
Gross carrying
amount
 
Accumulated
amortization
 
Gross carrying
amount
 
Accumulated
amortization
Definite-lived contract-based
$
120

 
$
(47
)
 
$
120

 
$
(45
)
Definite-lived marketing-related and other
1

 
(1
)
 
1

 
(1
)
Indefinite-lived contract-based
7

 
 
 
6

 
 
Total
$
128

 
$
(48
)
 
$
127

 
$
(46
)

Amortization expense associated with intangible assets was not material during the sixteen weeks ended January 18, 2015 or the same period of the prior fiscal year. Future amortization expense associated with the net carrying amount of definite-lived intangible assets is estimated to be as follows (in millions):
Remainder of fiscal year 2015
$
4

Fiscal year 2016
5

Fiscal year 2017
5

Fiscal year 2018
5

Fiscal year 2019
5

Future fiscal years
49

Total
$
73



8


(6) Reserves for Closed Properties
The following table provides a summary of store closure reserve activity during the sixteen weeks ended January 18, 2015 and fiscal year ended September 28, 2014 (in millions):
 
January 18,
2015
 
September 28,
2014
Beginning balance
$
31

 
$
36

Additions
3

 
4

Usage
(4
)
 
(11
)
Adjustments
1

 
2

Ending balance
$
31

 
$
31


(7) Shareholders’ Equity
Dividends per Common Share
The following table provides a summary of dividends declared per common share during fiscal year 2015 to date and fiscal year 2014 (in millions, except per share amounts):
Date of declaration
Dividend per
common share
 
Date of record
 
Date of payment
 
Total amount
Fiscal year 2015:
 
 
 
 
 
 
 
November 5, 2014(1)
$
0.13

 
January 16, 2015
 
January 27, 2015
 
$
47

Fiscal year 2014:
 
 
 
 
 
 
 
November 1, 2013
$
0.12

 
January 17, 2014
 
January 28, 2014
 
$
45

February 24, 2014
0.12

 
April 11, 2014
 
April 22, 2014
 
44

June 12, 2014
0.12

 
July 3, 2014
 
July 15, 2014
 
44

September 11, 2014
0.12

 
September 26, 2014
 
October 7, 2014
 
43

(1) Dividend accrued at January 18, 2015

Treasury Stock
During fiscal year 2014, a new share repurchase program was authorized pursuant to the authority of the Company’s Board of Directors whereby the Company may make up to $1.0 billion in stock purchases of outstanding shares of the common stock of the Company through August 1, 2016. The following table outlines the share repurchase program authorized by the Company’s Board of Directors, and the related repurchase activity as of January 18, 2015 (in millions):
Effective date
Expiration date
 
Amount authorized
 
Cost of repurchases
 
Authorization available
August 1, 2014
August 1, 2016
 
$
1,000

 
$
143

 
$
857


Under the share repurchase program, purchases can be made from time to time using a variety of methods, which may include open market purchases. The specific timing, price and size of purchases will depend on prevailing stock prices, general economic and market conditions, and other considerations. Purchases may be made through a Rule 10b5-1 plan pursuant to pre-determined metrics set forth in such plan. The Board’s authorization of the share repurchase program does not obligate the Company to acquire any particular amount of common stock, and it may be suspended or discontinued at any time at the Company’s discretion.

Share repurchase activity for the periods indicated was as follows (in millions, except per share amounts):
 
Sixteen weeks ended
 
January 18,
2015
 
January 19,
2014
Number of common shares acquired
0.9

 
1.1

Average price per common share acquired
$
47.39

 
$
56.06

Total cost of common shares acquired
$
43

 
$
62


During the sixteen weeks ended January 18, 2015, the Company reissued approximately 0.8 million treasury shares at cost of approximately $34 million to satisfy the issuance of common stock pursuant to team member stock plans. At January 18, 2015 and September 28, 2014, the Company held in treasury approximately 16.8 million shares and 16.7 million shares, respectively, totaling approximately $720 million and $711 million, respectively.


9


(8) 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 and the dilutive effect of restricted stock awards. A reconciliation of the numerators and denominators of the basic and diluted earnings per share calculations follows (in millions, except per share amounts):
 
Sixteen weeks ended
 
January 18,
2015
 
January 19,
2014
Net income
(numerator for basic and diluted earnings per share)
$
167

 
$
158

 
 
 
 
Weighted average common shares outstanding
(denominator for basic earnings per share)
359.9

 
372.3

Incremental common shares attributable to dilutive effect of share-based awards
2.3

 
3.5

Weighted average common shares outstanding and
potential additional common shares outstanding
(denominator for diluted earnings per share)
362.2

 
375.8

 
 
 
 
Basic earnings per share
$
0.46

 
$
0.42

 
 
 
 
Diluted earnings per share
$
0.46

 
$
0.42


The computation of diluted earnings per share for the sixteen weeks ended January 18, 2015 and January 19, 2014 does not include share-based awards to purchase approximately 10.5 million shares and 3.9 million shares of common stock, respectively, due to their antidilutive effect.

(9) Share-Based Payments
Share-based payment expense before income taxes recognized during the sixteen weeks ended January 18, 2015 and January 19, 2014 totaled approximately $19 million and $18 million, respectively. Share-based payment expense was included in the following line items on the Consolidated Statements of Operations for the periods indicated (in millions):
 
Sixteen weeks ended
 
January 18,
2015
 
January 19,
2014
Cost of goods sold and occupancy costs
$
1

 
$
1

Selling, general and administrative expenses
18

 
17

Share-based payment expense before income taxes
19

 
18

Income tax benefit
(7
)
 
(7
)
Net share-based payment expense
$
12

 
$
11


At January 18, 2015 and September 28, 2014, approximately 37.6 million shares of the Company’s common stock were available for future stock incentive grants. At January 18, 2015 and September 28, 2014, there was approximately $90 million and $108 million of unrecognized share-based payment expense, respectively, related to unvested stock options, net of estimated forfeitures, related to approximately 11.8 million shares and 11.9 million shares, respectively. We anticipate this expense to be recognized over a weighted average period of approximately three years.

(10) 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. Additionally, the Company has retention agreements with certain members of Company management which provide for payments under certain circumstances including change of control. 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.


10


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.

(11) Related Party Transactions
The Company provides ongoing support to three independent nonprofit organizations: Whole Planet Foundation, Whole Kids Foundation, and Whole Cities Foundation (the “Foundations”). Whole Planet Foundation’s 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 dedicated to improving children’s nutrition through partnerships with schools, educators, and other organizations. Whole Cities Foundation is dedicated to supporting efforts to increase access to nutritious, fresh food and health education in underserved communities. The board of directors of each of the Foundations is principally comprised of members of the Company’s management. Additionally, the Company provides administrative support and covers all operating costs of the Foundations.


11


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

Disclaimer on Forward-looking Statements
Certain statements in this report and from time to time in other filings with the Securities and Exchange Commission, news releases, reports, and other written and oral communications made by us and our representatives, constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are often identified by words such as “anticipate,” “believe,” “estimate,” “expect,” “continue,” “could,” “can,” “may,” “will,” “likely,” “depend,” “should,” “would,” “plan,” “predict,” “target,” and similar expressions, and include references to assumptions and relate to our future prospects, developments and business strategies. Except for the historical information contained herein, the matters discussed in this analysis are forward-looking statements that involve risks and uncertainties that may cause our actual results to be materially different from such forward-looking statements and could materially adversely affect our business, financial condition, operating results and cash flows. These risks and uncertainties include 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, as well other risks listed in the Company’s Annual Report on Form 10-K for the fiscal year ended September 28, 2014 and risks and uncertainties not presently known to us or that we currently deem immaterial. We wish to caution you that you should not place undue reliance on such forward-looking statements, which speak only as of the date on which they were made. We do not undertake any obligation to update forward-looking statements.

This information should be read in conjunction with the consolidated financial statements and the accompanying notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and the Company’s Annual Report on Form 10-K for the fiscal year ended September 28, 2014.

Overview
Whole Foods Market, Inc. is the leading retailer of natural and organic foods, the first national “Certified Organic” grocer, and uniquely positioned as America’s Healthiest Grocery Store™. Our Company mission is to promote the vitality and well-being of all individuals by supplying the highest quality, most wholesome foods available. Since the purity of our food and the health of our bodies are directly related to the purity and health of our environment, our mission is devoted to the promotion of organically grown foods, healthy eating, and the sustainability of our entire ecosystem. We believe that much of our success to date is because we have remained a uniquely mission-driven company. 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. The Company incorporated in 1978, opened the first Whole Foods Market store in 1980, and as of January 18, 2015, operated 406 stores: 387 stores in 42 U.S. states and the District of Columbia; 10 stores in Canada; and 9 stores in the United Kingdom. We have one operating segment, natural and organic foods supermarkets.

Our continued growth depends on our ability to increase sales in our comparable stores and open new stores. Our growth strategy includes opening new stores in existing and new areas and operating those stores successfully. The Company’s average weekly sales and gross profit as a percentage of sales are typically highest in the second and third fiscal quarters, and lowest in the fourth fiscal quarter due to seasonally slower sales during the summer months. Gross profit as a percentage of sales is also lower in the first fiscal quarter due to the product mix of holiday sales.

Sales of a store are deemed to be comparable commencing in the fifty-seventh full week after the store was opened. Stores acquired in purchase acquisitions enter the comparable store base effective the fifty-seventh full week following the date of acquisition. Comparable store sales growth is calculated on a same-calendar-week to same-calendar-week basis. The methods used to calculate comparable store sales may differ between companies. As a result, our comparable store sales calculation may not be comparable to similar data provided by other companies.

The Company reports its results of operations on a 52- or 53-week fiscal year ending on the last Sunday in September. Fiscal years 2015 and 2014 are 52-week years.

Economic and Industry Factors
Food retailing is a large, intensely competitive industry. Our competition includes but is not limited to local, regional, national and international conventional and specialty supermarkets, natural foods stores, warehouse membership clubs, online retailers, smaller specialty stores, farmers’ markets and restaurants, each of which competes with us on the basis of store ambiance and experience, product selection and quality, customer service, price or a combination of these factors.


12


We offer the broadest selection of high-quality natural and organic products, with a strong emphasis on perishable foods. We believe our high quality standards differentiate our stores from other supermarkets and enable us to attract and maintain a broad base of loyal customers.

Highlights for the First Quarter of Fiscal Year 2015

Record total sales of $4.7 billion, a 10.2% increase over the prior year
Average weekly sales per store of $724,000, translating to sales per gross square foot of $990
Comparable store sales growth of 4.5%
Nine new store openings, translating to 9.4% ending square footage growth
EBITDA of $396 million, or 8.5% of sales
Diluted earnings per share of $0.46, a 10.0% increase over the prior year

During the sixteen weeks ended January 18, 2015, we produced approximately $387 million in cash flows from operations and invested approximately $252 million in capital expenditures, resulting in free cash flow of approximately $135 million. In addition, we returned approximately $43 million in quarterly dividends to common shareholders and repurchased approximately $43 million of our common stock, or approximately 0.9 million shares. At January 18, 2015, we had cash, restricted cash and investments totaling approximately $1.0 billion. Return on invested capital (“ROIC”) for the trailing four quarters was 14.8%.

Targets for Fiscal Year 2015
The Company’s targets for fiscal year 2015 are:

Sales growth over 9%
Comparable store sales growth in the low to middle single digits
Square footage growth of 9% to 10% based on 38 to 42 new stores, including five to six relocations
EBITDA margin of approximately 9%
ROIC greater than 14%

The Company expects to continue its value strategy and make additional investments in areas such as technology, marketing, and new and existing stores. The Company believes this is the right strategy to drive sales growth over the longer term. Reflecting its ongoing value efforts, the Company expects a greater decline in gross margin, excluding LIFO, in fiscal year 2015 than in fiscal year 2014. The Company expects to maintain expense discipline and improve its cost structure, with the biggest opportunities coming from internal distribution, coordinated purchasing and labor leverage. While quarterly results may fluctuate, the Company expects diluted earnings per share growth for the fiscal year to be in line with or slightly higher than sales growth.

The Company expects store openings to be spread fairly evenly throughout the rest of the fiscal year. For the six remaining former Dominick’s locations in Chicago, two are expected to open in each of the second, third and fourth quarters. The Company also notes that Easter will fall in the second quarter of fiscal year 2015 versus the third quarter of fiscal year 2014, positively impacting comparable store sales growth in the second quarter and negatively impacting comparable store sales growth in the third quarter by an estimated 50 to 60 basis points.



13


Results of Operations
The following table sets forth the Company’s consolidated statements of operations data expressed as a percentage of sales:
 
Sixteen weeks ended
 
January 18,
2015
 
January 19,
2014
Sales
100.0
%
 
100.0
%
Cost of goods sold and occupancy costs
65.2

 
65.0

Gross profit
34.8

 
35.0

Selling, general and administrative expenses
28.5

 
28.5

Pre-opening expenses
0.4

 
0.4

Relocation, store closure and lease termination costs
0.1

 
0.1

Operating income
5.8

 
6.0

Investment and other income, net of interest expense
0.1

 
0.1

Income before income taxes
5.9

 
6.1

Provision for income taxes
2.3

 
2.4

Net income
3.6
%
 
3.7
%
Figures may not sum due to rounding.

Sales for the sixteen weeks ended January 18, 2015 totaled approximately $4.7 billion, increasing 10.2% over the same period of the prior fiscal year. Average weekly sales per store for the sixteen weeks ended January 18, 2015 totaled approximately $724,000, translating to sales per gross square foot of approximately $990. Comparable store sales increased 4.5% and 5.5% during the sixteen weeks ended January 18, 2015 and January 19, 2014, respectively, and contributed approximately 93.7% and 94.6% to total sales during the sixteen weeks ended January 18, 2015 and January 19, 2014, respectively. As of January 18, 2015, there were 370 locations in the comparable store base as compared to 344 locations at January 19, 2014.

The Company’s gross profit as a percentage of sales for the sixteen weeks ended January 18, 2015 was approximately 34.8% compared to approximately 35.0% for the same period of the prior fiscal year. Gross profit as a percentage of sales decreased 20 basis points for the sixteen weeks ended January 18, 2015 compared to the same period of the prior fiscal year, due primarily to an increase in cost of goods sold as a percentage of sales. Net LIFO inventory reserves increased approximately $3 million during the sixteen weeks ended January 18, 2015, due primarily to inflation in product cost, as compared to no charge for the same period of the prior fiscal year, resulting in a negative impact of six basis points year over year.

Selling, general and administrative expenses as a percentage of sales were approximately 28.5% for each of the sixteen weeks ended January 18, 2015 and the same period of the prior fiscal year. Improvement in selling, general and administrative expenses due to a decrease in salaries and benefits as a percentage of sales for the sixteen weeks ended January 18, 2015 was offset by approximately $13 million, or 28 basis points, of estimated incremental marketing costs related to the Company’s “Values Matter” national brand campaign.

Share-based payment expense included in selling, general and administrative expenses for the sixteen weeks ended January 18, 2015 totaled approximately $18 million and approximately $17 million for the same period of the prior fiscal year.

Pre-opening expenses totaled approximately $21 million for the sixteen weeks ended January 18, 2015 and approximately $16 million for the same period of the prior fiscal year.

Relocation, store closure and lease termination costs totaled approximately $4 million for the sixteen weeks ended January 18, 2015 and approximately $5 million for the same period of the prior fiscal year.

The numbers of stores opened and relocated were as follows:
 
Sixteen weeks ended
 
January 18,
2015
 
January 19,
2014
New stores
7

 
9

Relocated stores
2

 
1


Investment and other income, net of interest expense, which includes gift card breakage, interest income, investment gains and losses, and other income, totaled approximately $3 million for the sixteen weeks ended January 18, 2015 compared to approximately $4 million for the same period of the prior fiscal year.

14



Income taxes resulted in an effective tax rate of approximately 39.0% for each of the sixteen weeks ended January 18, 2015 and the same period of the prior fiscal year.

Non-GAAP measures
In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, the Company provides information regarding Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) margin, free cash flow and Return on Invested Capital (“ROIC”) as additional information about its operating results. These measures are not in accordance with, or an alternative to, GAAP. We believe that these presentations provide useful information to management, analysts and investors regarding certain additional financial and business trends relating to our results of operations and financial condition. In addition, management uses these measures for reviewing the financial results of the Company as well as a component of incentive compensation.

The following is a tabular reconciliation of the non-GAAP financial measure EBITDA margin to GAAP net income, which the Company believes is the most directly comparable GAAP financial measure. EBITDA margin was as follows (in millions):
 
Sixteen weeks ended
 
January 18,
2015
 
January 19,
2014
Net income
$
167

 
$
158

Provision for income taxes
107

 
101

Investment and other income, net of interest expense
(3
)
 
(4
)
Operating income
271

 
255

Depreciation and amortization
125

 
111

EBITDA
$
396

 
$
366

 
 
 
 
Sales
$
4,671

 
$
4,239

EBITDA margin
8.5%

 
8.6%


The Company defines free cash flow as net cash provided by operating activities less capital expenditures. The following is a tabular reconciliation of the non-GAAP financial measure free cash flow for the periods indicated (in millions):
 
Sixteen weeks ended
 
January 18,
2015
 
January 19,
2014
Net cash provided by operating activities
$
387

 
$
337

Development costs of new locations
(152
)
 
(122
)
Other property and equipment expenditures
(100
)
 
(97
)
Free cash flow
$
135

 
$
118



15


The Company defines ROIC as net income divided by average invested capital. Invested capital reflects a trailing four-quarter average. ROIC was as follows (in millions):
 
Fifty-two weeks ended
 
January 18,
2015
 
January 19,
2014
Net income
$
588

 
$
562

 
 
 
 
Total rent expense, net of tax (1)
251

 
226

Estimated depreciation on capitalized operating leases, net of tax (2)
(167
)
 
(150
)
Adjusted earnings, including interest related to operating leases
$
672

 
$
638

 
 
 
 
Average working capital, excluding current portion of long-term debt
$
662

 
$
891

Average property and equipment, net
2,789

 
2,348

Average other assets
1,105

 
1,080

Average other liabilities
(590
)
 
(531
)
Average invested capital
$
3,966

 
$
3,788

Average estimated asset base of capitalized operating leases (3)
3,278

 
2,932

Average invested capital, adjusted for capitalization of operating leases
$
7,244

 
$
6,720

 
 
 
 
ROIC
14.8%

 
14.8%

ROIC, adjusted for capitalization of operating leases
9.3%

 
9.5%

(1) Total rent includes minimum base rent of all tendered leases
(2) Estimated depreciation equals two-thirds of total rent expense
(3) Estimated asset base equals eight times total annualized rent expense

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 millions):
 
January 18,
2015
 
September 28,
2014
Cash and cash equivalents
$
266

 
$
190

Short-term investments - available-for-sale securities
472

 
553

Total
$
738

 
$
743


Additionally, the Company held long-term investments in available-for-sale securities totaling approximately $164 million and $120 million at January 18, 2015 and September 28, 2014, respectively.

We generated cash flows from operating activities totaling approximately $387 million during the sixteen weeks ended January 18, 2015 compared to approximately $337 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 $251 million for the sixteen weeks ended January 18, 2015 compared to approximately $273 million for the same period of the prior fiscal year. Net sales and maturities of available-for-sale securities totaled approximately $28 million during the sixteen weeks ended January 18, 2015 compared to net purchases of approximately $50 million for 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 18, 2015 totaled approximately $252 million, of which approximately $152 million was for new store development. Capital expenditures for the sixteen weeks ended January 19, 2014 totaled approximately $219 million, of which approximately $122 million was for new store development.


16


The following table provides information about the Company’s store growth and development activities:
 
New and acquired
stores during
fiscal year 2014
 
New stores during fiscal year 2015
as of
February 11, 2015
 
Total leases
signed as of
February 11, 2015
Number of stores (including relocations)
38

 
12

 
116

Number of relocations
1

 
3

 
14

Percentage in new markets
55%

 
8%

 
20%

Average store size (gross square feet)
37,000

 
45,000

 
42,000

Total square footage
1,408,000

 
540,000

 
4,877,000

Average pre-opening expense per store (including rent)
$2 million

 
 
 
 
Average pre-opening rent per store
$1 million

 
 
 
 

We believe we will produce operating cash flows in excess of the capital expenditures needed to open the 116 stores in our current store development pipeline. As of February 11, 2015, the Company had 408 stores totaling approximately 15.6 million square feet and expects to cross the 500-store mark in fiscal year 2017. Longer term, the Company sees demand for 1,200 Whole Foods Market stores in the United States. We have a disciplined, opportunistic real estate strategy, opening stores in existing trade areas as well as new areas, including international locations. Our growth strategy is to expand primarily through new store openings, and while we may continue to pursue acquisitions of smaller chains that provide access to desirable geographic areas and experienced team members, such acquisitions are not expected to significantly impact our future store growth or financial results.

Net cash used in financing activities totaled approximately $59 million for the sixteen weeks ended January 18, 2015 compared to approximately $78 million for the same period of the prior fiscal year.

During the first quarter of fiscal year 2015, the Company’s Board of Directors increased the Company’s quarterly dividend to $0.13 per common share from $0.12 per common share. The following table provides a summary of dividends declared per common share during fiscal year 2015 to date and fiscal year 2014 (in millions, except per share amounts):
Date of declaration
Dividend per
common share
 
Date of record
 
Date of payment
 
Total amount
Fiscal year 2015:
 
 
 
 
 
 
 
November 5, 2014(1)
$
0.13

 
January 16, 2015
 
January 27, 2015
 
$
47

Fiscal year 2014:
 
 
 
 
 
 
 
November 1, 2013
$
0.12

 
January 17, 2014
 
January 28, 2014
 
$
45

February 24, 2014
0.12

 
April 11, 2014
 
April 22, 2014
 
44

June 12, 2014
0.12

 
July 3, 2014
 
July 15, 2014
 
44

September 11, 2014
0.12

 
September 26, 2014
 
October 7, 2014
 
43

(1) Dividend accrued at January 18, 2015

The Company will pay future dividends at the discretion of the Company’s 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.


17


Share repurchase activity for fiscal year 2015 through January 18, 2015 and fiscal year 2014 was as follows (in millions, except per share amounts):
 
Number of common shares acquired (1)
 
Average price per common share acquired
 
Total cost of common shares acquired
Fiscal year 2015:
 
 
 
 
 
First Quarter
0.9

 
$
47.39

 
$
43

Total fiscal year 2015
0.9

 
$
47.39

 
$
43

Fiscal year 2014:
 
 
 
 
 
First Quarter
1.1

 
$
56.06

 
$
62

Second Quarter
1.0

 
52.86

 
55

Third Quarter
9.1

 
39.45

 
361

Fourth Quarter
2.6

 
38.06

 
100

Total fiscal year 2014
13.9

 
$
41.51

 
$
578

(1) Number of shares may not sum due to rounding

Share repurchase activity prior to the fourth quarter of fiscal year 2014 was pursuant to various repurchase programs authorized by the Company’s Board of Directors. As of January 18, 2015, one share repurchase program remains in effect, with prior programs having expired or been cancelled.

The following table outlines the share repurchase program authorized by the Company’s Board of Directors, and the related repurchase activity as of January 18, 2015 (in millions):
Authorization date
Expiration date
 
Amount authorized
 
Cost of repurchases
 
Authorization available
August 1, 2014
August 1, 2016
 
$
1,000

 
$
143

 
$
857


Under the share repurchase program, purchases can be made from time to time using a variety of methods, which may include open market purchases. The specific timing, price and size of purchases will depend on prevailing stock prices, general economic and market conditions, and other considerations. Purchases may be made through a Rule 10b5-1 plan pursuant to pre-determined metrics set forth in such plan. The Board’s authorization of the share repurchase program does not obligate the Company to acquire any particular amount of common stock, and it may be suspended or discontinued at any time at the Company’s discretion.

Net proceeds to the Company from the exercise of stock options by team members for the sixteen weeks ended January 18, 2015 totaled approximately $23 million compared to approximately $16 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 18, 2015 and September 28, 2014, approximately 37.6 million shares of our common stock were available for future stock incentive grants.

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 18, 2015 (in millions):
 
Total
 
Less than 1
year
 
1-3
years
 
3-5
years
 
More than 5
years
Capital lease obligations (including interest)
$
97

 
$
6

 
$
11

 
$
9

 
$
71

Operating lease obligations (1)
8,434

 
411

 
958

 
1,006

 
6,059

Total
$
8,531

 
$
417

 
$
969

 
$
1,015

 
$
6,130

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

Gross unrecognized tax benefits and related interest and penalties at January 18, 2015 were not material. 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 18, 2015, the Company does not expect tax audit resolution will reduce its unrecognized tax benefits in the next 12 months.

18


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

Our principal historical sources of liquidity have included cash generated by operations, available cash and cash equivalents, and short-term investments. Absent any significant change in market conditions, we expect planned expansion and other anticipated working capital and capital expenditure requirements for the next 12 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 other sources of capital will be available to us in the future.

Off-Balance Sheet Arrangements
Our off-balance sheet arrangements at January 18, 2015 consist of operating leases disclosed in the above contractual obligations table. 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 of the Notes to Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

For quantitative and qualitative disclosures about market risk, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the fiscal year ended September 28, 2014. Our exposures to market risk have not changed materially since September 28, 2014.

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 as of the end of the period covered by this report.

During the first quarter we implemented a new human resource management system. This implementation was not in response to an identified control deficiency or weakness, but has resulted in changes to our business processes and related internal controls over financial reporting. Management has taken the necessary steps to update the design and documentation of internal control processes and procedures relating to the system implementation to supplement and complement existing internal controls. Management will continue to monitor, evaluate and update the related processes and internal controls as necessary during the post-implementation period to ensure adequate internal control over financial reporting.

Other than as described above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most recently completed fiscal quarter that materially affected or are reasonably likely to materially affect internal control over financial reporting.


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Part II. Other Information

Item 1. Legal Proceedings.

From time to time we are a party to legal proceedings including matters involving personnel and employment issues, personal injury, product liability, protecting our intellectual property, acquisitions and other proceedings arising in the ordinary course of business which have not resulted in any material losses to date. Although management does not expect that the outcome in these proceedings will have a material adverse effect on our financial condition or results of operations, litigation is inherently unpredictable. Therefore, we could incur judgments or enter into settlements of claims that could materially impact our results.

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.

Item 1A. Risk Factors.

There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended September 28, 2014.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table provides information about the Company’s share repurchase activity during the sixteen weeks ended January 18, 2015.
Period (1)
Total number of shares purchased
 
Average price paid per share
 
Total number of shares purchased as part of publicly announced plans or programs (2)
 
Approximate dollar value of shares that may yet be purchased under the plans or programs (2)
September 29, 2014 - October 26, 2014

 
$

 

 
$
900,000,009

October 27, 2014 - November 23, 2014
907,428

 
47.39

 
907,428

 
857,000,027

November 24, 2014 - December 21, 2014

 

 

 
857,000,027

December 22, 2014 - January 18, 2015

 

 

 
857,000,027

Total
907,428

 
$
47.39

 
907,428

 
 

(1) 
Periodic information is presented by reference to our fiscal periods during the first quarter of fiscal year 2015.
(2) 
Effective August 1, 2014, a share repurchase program was authorized pursuant to the authority of the Company’s Board of Directors whereby the Company may make up to $1.0 billion in purchases of outstanding shares of common stock of the Company through August 1, 2016. Under the share repurchase program, purchases can be made from time to time using a variety of methods, which may include open market purchases. The specific timing, price and size of purchases will depend on prevailing stock prices, general economic and market conditions, and other considerations. Purchases may be made through a Rule 10b5-1 plan pursuant to pre-determined metrics set forth in such plan. The Board’s authorization of the share repurchase program does not obligate the Company to acquire any particular amount of common stock, and the program may be suspended or discontinued at any time at the Company’s discretion.

Item 5. Other Information.

The Company has changed the planned date of its 2015 Annual Meeting of Shareholders (“Annual Meeting”) originally scheduled for March 10, 2015. The 2015 Annual Meeting is now scheduled for September 15, 2015.

The expected meeting date for the 2015 Annual Meeting represents a change of more than thirty days from the anniversary of the Company’s 2014 Annual Meeting. Accordingly, the Company has set a new deadline for the receipt of shareholder proposals submitted pursuant to Rule 14a-8 under the Securities Exchange Act of 1934 (“Exchange Act”) for inclusion in the Company’s proxy materials for the 2015 Annual Meeting. In order to be considered timely, such proposals must be submitted to the Corporate Secretary at our principal executive offices no later than April 6, 2015.


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Additionally, under the Company’s bylaws, the deadline for the receipt of notice by a shareholder of a proposal submitted for consideration at the 2015 Annual Meeting but not submitted for inclusion in our Proxy Statement for our 2015 Annual Meeting pursuant to Rule 14a-8 under the Exchange Act, including shareholder nominations for candidates for election as directors, is the 10th calendar day following public announcement of the meeting date. Accordingly, in order to be considered timely, such notice must be submitted to the Corporate Secretary at our principal executive offices no later than March 9, 2015.

Item 6. Exhibits.

Exhibit  10.1 (1)
Form of Restricted Share Award Agreement under the 2009 Stock Incentive Plan
Exhibit  31.1 (1)
Certification of Co-Chief Executive Officer Pursuant to 17 CFR 240.13a -14(a)
Exhibit  31.2 (1)
Certification of Co-Chief Executive Officer Pursuant to 17 CFR 240.13a - 14(a)
Exhibit  31.3 (1)
Certification of Chief Financial Officer Pursuant to 17 CFR 240.13a - 14(a)
Exhibit  32.1 (2)
Certification of Co-Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
Exhibit  32.2 (2)
Certification of Co-Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
Exhibit  32.3 (2)
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
Exhibit  101 (1)
The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended January 18, 2015 formatted in eXtensible Business Reporting Language: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Shareholders’ Equity, (v) Consolidated Statements of Cash Flows, (vi) Notes to Consolidated Financial Statements

(1) 
Filed herewith.
(2) 
Furnished herewith.

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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 27, 2015
 
By:
/s/ Glenda Flanagan
 
 
 
 
Glenda Flanagan
 
 
 
 
Executive Vice President and Chief Financial Officer
 
 
 
 
(Duly authorized officer and principal financial officer)

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