Whole Foods 2007 Annual Report Download - page 59

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Summary Henry’s and Sun Harvest results of operations for the period beginning August 28, 2007 and ending September 30,
2007 are as follows (in thousands):
Sales $ 40,357
Cost of goods sold and occupancy costs 29,354
Gross profit 11,003
Operating expenses 8,304
Income before income taxes $ 2,699
Transition Services Agreement
In connection with the sale of the Henry’s and Sun Harvest stores, Whole Foods Market entered into a transition services
agreement with Smart & Final under which Whole Foods Market will continue to provide certain general and administrative
services for the 35 stores for up to two years. The transition services agreement provides for payments to the Company
calculated for each service area as a certain percentage of total monthly sales of the Henry’s and Sun Harvest locations,
initially totaling 1.75% of total monthly sales for all services provided under the agreement. The Company currently
anticipates that the revenue associated with the agreement will be approximately equal to its incremental cost of providing
the support.
Unaudited Pro Forma Financial Information
The following pro forma financial information presents the combined historical results of the operations of Whole Foods
Market and Wild Oats as if the Wild Oats acquisition and the sale of the Henry’s and Sun Harvest stores had occurred at the
beginning of fiscal years 2007 and 2006, respectively. Certain adjustments have been made to reflect changes in
depreciation, amortization and income taxes based on the Company’s preliminary estimates of fair values recognized in the
application of purchase accounting, and interest expense on borrowings to finance the acquisition. These adjustments are
subject to change as the initial estimates are refined over time.
Due to differences in accounting calendars, the pro forma results of operations for the fiscal year ended September 30, 2007
combines the fifty-three weeks ended September 30, 2007 for Whole Foods Market with the fifty-two weeks ended
September 30, 2007 for Wild Oats. The Wild Oats pro forma results of operations include approximately 47 weeks of Wild
Oats results and approximately five weeks of actual results beginning August 25, 2007 which are included in Company’s
Consolidated Statements of Operations. The pro forma results of operations for the fiscal year ended September 24, 2006
combines the fifty-two weeks of Whole Foods Market’s fiscal year ended September 24, 2006 with the fifty-two weeks of
Wild Oats’ fiscal year ended December 30, 2006. Pro forma results of operations are as follows (in thousands):
2007 2006
Sales $ 7,295,384 $ 6,417,076
Net income 142,788 168,198
Earnings per share:
Basic $ 1.02 $ 1.21
Diluted 1.01 1.16
Weighted average shares outstanding:
Basic 140,088 139,328
Diluted 141,836 145,082
This pro forma financial information is not intended to represent or be indicative of what would have occurred if the
transactions had taken place on the dates presented and are not indicative of what Whole Foods Market’s actual results of
operations would have been had the acquisition and sale been completed on the dates indicated above. Further, the pro forma
combined results do not reflect one-time costs to fully merge and operate the combined organization more efficiently, or
anticipated synergies expected to result from the combination and should not be relied upon as being indicative of the future
results that Whole Foods Market will experience.
(4) Natural Disaster Costs
The Company has two stores in the New Orleans area which were damaged by and closed due to Hurricane Katrina during
the fourth quarter of fiscal year 2005, and accordingly the Company recorded expenses totaling approximately $16.5 million
for related estimated net losses. The main components of the $16.5 million expense were estimated impaired assets totaling
approximately $12.2 million, estimated inventory losses totaling approximately $2.5 million, salaries and relocation
allowances for displaced Team Members and other costs totaling approximately $3.4 million, and a $1.0 million special