Whole Foods 2011 Annual Report Download

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AMERICA’S HEALTHIEST GROCERY STORE®
2011 Annual Report

Table of contents

  • Page 1
    AMERICA'S HEALTHIEST GROCERY STORE® 2011 Annual Report

  • Page 2
    ...and Delighting Our Customers Supporting Team Member Happiness and Excellence Creating Wealth through Profits and Growth Caring about Our Communities and Our Environment Creating Ongoing Win-Win Partnerships with Our Suppliers Promoting the Health of Our Stakeholders through Healthy Eating Education

  • Page 3
    ... $47 Leases Signed Total New Lease Square Footage (in Millions) & New 32 28 20 1.3 14 1.0 0.6 4 0.1 0.7 2007 2008 2009 2010 2011 Capital Expenditures 2007 2008 2009 2010 2011 Operating Cash Flows Stock Option Proceeds New Lease Total S.F. New Leases Signed

  • Page 4
    ... bar and further differentiate the Whole Foods Market shopping experience. Our internal research shows we have a healthy combination of loyal core customers and new customers discovering us for the first time. We believe our initiatives in areas such as value, animal welfare, *Net operating profits...

  • Page 5
    ... well positioned to maintain a healthy cash balance and internally fund our accelerated new store growth, in November our Board of Directors increased our quarterly dividend by 40% to $0.14 per share and authorized a $200 million share repurchase program. We walk our talk when it comes to our core...

  • Page 6
    ... and minimize their healthcare costs. As America's Healthiest Grocery Store, we are uniquely positioned to benefit from this major demographic evolution. We are not yet saturated in any major metro area, and our flexibility on new store size has opened up additional market opportunities. In addition...

  • Page 7
    ... YEAR ENDED SEPTEMBER 25, 2011 COMMISSION FILE NUMBER: 0-19797 WHOLE FOODS MARKET, INC. (Exact name of registrant as specified in its charter) Texas (State of incorporation) 74-1989366 (IRS Employer Identification No.) 550 Bowie Street Austin, Texas 78703 (Address of principal executive offices...

  • Page 8
    ... with Accountants on Accounting and Financial Disclosure. Controls and Procedures. Other Information. PART III Item 10. Item 11. Item 12. Item 13. Item 14. Directors, Executive Officers and Corporate Governance. Executive Compensation. Security Ownership of Certain Beneficial Owners and Management...

  • Page 9
    ... 2010 sales rankings from Progressive Grocer. As of September 25, 2011, we operated 311 stores in the United States, Canada, and the United Kingdom. Our stores average 38,000 square feet in size and 10 years in age, and are supported by our Austin headquarters, regional offices, distribution centers...

  • Page 10
    ... growth; Caring about our communities and our environment; Creating ongoing win-win partnerships with our suppliers; and Promoting the health of our stakeholders through healthy eating education. Differentiated Product Offering We offer a broad and differentiated selection of high-quality natural...

  • Page 11
    ... departments, promoted our regional "Madness Sales," and focused on stronger customer education. We also have continued our national The Whole Deal campaign, launched in fiscal year 2008, which includes our printed value guide available in all U.S. stores. Health Starts Here® We are offering...

  • Page 12
    ... identical store sales growth, acquisitions and new store openings from approximately $92.5 million in fiscal year 1991, excluding the effect of pooling-of-interests transactions completed since 1991, to approximately $10.11 billion in fiscal year 2011, a 20-year compounded annual growth rate of...

  • Page 13
    ... an internal Economic Value Added ("EVA®") hurdle return, based on our internal weighted-average cost of capital, which for new stores generally is expected to be cumulative positive EVA in five years or less. In its simplest definition, EVA is equivalent to net operating profits after taxes minus...

  • Page 14
    ...leader works closely with one or more associate store team leaders, as well as with all of the department team leaders, to operate the store as efficiently and profitably as possible. Team members are involved at all levels of our business. We strive to create a company-wide consciousness of "shared...

  • Page 15
    ...company-wide benefits vote every three years. Under the current plan voted on by team members, Whole Foods Market provides health care at no cost to full-time team members who work 30 or more hours per week and have worked a minimum of 10,000 service hours. In addition, the Company provides personal...

  • Page 16
    ... home-based businesses. Whole Foods Market covers all operating costs and the overhead budget for Whole Planet Foundation. Program grants are funded in part by the sale of products under the Company' s Whole Trade Guarantee Program, along with support from customers, vendors and team members...

  • Page 17
    ... limited to: "Whole Foods Market," "365 Everyday Value," "AFA," "Allegro Coffee Company," "America' s Healthiest Grocery Store," "ANDI," "Bread & Circus," "Capers Community Market," "Eco-Scale," "Fresh & Wild," "Fresh Fields," "Green Mission," "Harry' s Farmers Market," "Health Starts Here," "Ideal...

  • Page 18
    ...those team members into the programs and policies of the Company. We may not be able to adapt our distribution, management information and other operating systems to adequately supply products to new stores at competitive prices so that we can operate the stores in a successful and profitable manner...

  • Page 19
    ... times, experiences broad price fluctuations that may adversely affect the market price of our common stock. Adverse publicity may reduce our brand value and negatively impact our business. We believe our Company has built an excellent reputation as a food retailer, socially responsible corporation...

  • Page 20
    ... Company uses a combination of insurance and self-insurance plans to provide for the potential liabilities for workers' compensation, general liability, property insurance, director and officers' liability insurance, vehicle liability and team member health-care benefits. Liabilities associated with...

  • Page 21
    ...with our customers may be harmed. Any material interruption in our information systems may have a material adverse effect on our operating results. A failure of our internal control over financial reporting could materially impact our business or stock price. The Company' s management is responsible...

  • Page 22
    ... in current operations, of which 17 are related to Wild Oats. We are actively negotiating to sublease or terminate leases related to these locations. The following table shows the number of our stores by state, the District of Columbia, Canada and the United Kingdom as of September 25, 2011: Number...

  • Page 23
    ... Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Whole Foods Market' s common stock is traded on the NASDAQ Global Select Market. Effective May 6, 2011, the Company changed its trading symbol to "WFM" from "WFMI." The Company was added to Standard...

  • Page 24
    ... of Directors. The continuation of these payments, the amount of such dividends, and the form in which the 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...

  • Page 25
    ... share Consolidated Balance Sheets Data Net working capital Total assets Long-term debt (including current maturities) Shareholders' equity Operating Data Number of stores at end of fiscal year Average store size (gross square footage) Average weekly sales per store Comparable store sales increase2...

  • Page 26
    ... balance between rising product costs and our retail pricing based on our contracts, distribution, and tools to manage value. Highlights for Fiscal Year 2011 We are pleased to end fiscal year 2011 with strong sales growth, solid execution, and capital discipline. We believe our pleasurable store...

  • Page 27
    ... sales growth of 11% to 13% and earnings per share growth of 12% to 14%. 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 flows...

  • Page 28
    ... fiscal year 2011, our basket size increased 2.4% compared to the 1.1% increase for fiscal year 2010, primarily driven by higher average prices per item as we selectively passed through some product cost increases and continued to see signs of customers trading up. Gross Profit Gross profit totaled...

  • Page 29
    ... payment expense before income taxes Income tax benefit Net share-based payment expense $ $ $ $ $ The Company intends to keep its stock incentive 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...

  • Page 30
    ... tendered leases signed as of as of Nov. 2, 2011 Nov. 2, 20111 16 62 2 7 4 19 35,200 35,300 562,700 2,192,000 The following table provides information about the Company' s estimated store openings for fiscal years 2012 and 2013. Estimated openings 24 - 27 28 - 32 Average new store square footage 35...

  • Page 31
    ...issue price plus accrued original issue discount totaling approximately $2.7 million. On December 8, 2010, the Company' s Board of Directors reinstated a $0.10 quarterly cash dividend to shareholders. During fiscal year 2011 the Company made three quarterly dividend payments to shareholders totaling...

  • Page 32
    ... 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 decreases in cash and cash equivalents totaling approximately $0.6 million and $1.3 million for fiscal years 2011 and 2009...

  • Page 33
    ...Wild Oats Markets, at 4.718%, excluding the applicable margin and associated fess. The interest rate swap was designated as a cash flow hedge. The swap agreement expired during the first quarter of fiscal year 2011. Insurance and Self-Insurance Liabilities The Company uses a combination of insurance...

  • Page 34
    ...in the Company' s financial statements are reflected as a financing cash flow. 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 per share dilution from share-based payment expense...

  • Page 35
    ... year 2011 and 2010, a hypothetical 10% increase or decrease in interest rates would not have materially affected our consolidated financial statements. The Company also holds available-for-sale securities that are classified as short-term and long-term investments generally consisting of state...

  • Page 36
    ... Data. Whole Foods Market, Inc. Index to Consolidated Financial Statements Page Number 31 32 33 34 35 36 37 Report of Independent Registered Public Accounting Firm Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting Consolidated Balance Sheets at...

  • Page 37
    ...Foods Market, Inc. Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Whole Foods Market, Inc. We have audited the accompanying consolidated balance sheets of Whole Foods Market, Inc. as of September 25, 2011 and September 26, 2010, and the related...

  • Page 38
    ...of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Whole Foods Market, Inc. as of September 25, 2011 and September 26, 2010, and the related consolidated statements of operations, shareholders' equity and comprehensive income, and cash flows for each...

  • Page 39
    Whole Foods Market, Inc. Consolidated Balance Sheets (In thousands) September 25, 2011 and September 26, 2010 Assets Current assets: Cash and cash equivalents Short-term investments - available-for-sale securities Restricted cash Accounts receivable Merchandise inventories Prepaid expenses and other...

  • Page 40
    ..., store closure and lease termination costs Operating income Interest expense Investment and other income Income before income taxes Provision for income taxes Net income Preferred stock dividends Income available to common shareholders Basic earnings per share Weighted average shares outstanding...

  • Page 41
    ... of income taxes Comprehensive income Dividends ($0.40 per common share) Issuance of common stock pursuant to team member stock plans Excess tax benefit related to exercise of team member stock options Share-based payment expense Other Balances at September 25, 2011 Shares outstanding 140,286 256...

  • Page 42
    ... benefits due team members Other current liabilities Net change in other long-term liabilities Net cash provided by operating activities Cash flows from investing activities Development costs of new locations Other property and equipment expenditures Purchase of available-for-sale securities Sale...

  • Page 43
    .... The Company has one operating segment and a single reportable segment, natural and organic foods supermarkets. The following is a summary of annual percentage sales and net long-lived assets by geographic area: 2011 Sales: United States Canada and United Kingdom Total sales Long-lived assets, net...

  • Page 44
    ...-line method. Costs related to a projected site determined to be unsatisfactory and general site selection costs that cannot be identified with a specific store location are charged to operations currently. The Company recognizes a liability for the fair value of a conditional asset retirement...

  • Page 45
    ... to relocate, close, or dispose of a location, a charge to write down the related assets to their estimated recoverable value is included in the "Relocation, store closure and lease termination costs" line item on the Consolidated Statements of Operations. Fair Value of Financial Instruments The...

  • Page 46
    ... cash flows based on its experience and knowledge of the area in which the closed property is located and, when necessary, utilizes local real estate brokers. Revenue Recognition We recognize revenue for sales of our products at the point of sale. Discounts provided to customers at the point of sale...

  • Page 47
    ... cash flow. All full-time team members with a minimum of 400 hours of service may purchase our common stock through payroll deductions under the Company' s Team Member Stock Purchase Plan ("TMSPP"). The TMSPP provides for a 5% discount on the shares' purchase date market value which meets the share...

  • Page 48
    ... basis (in thousands): September 25, 2011 Cash equivalents: Money market fund Municipal bonds Commercial paper Restricted cash: Money market fund Marketable securities - available-for-sale: Municipal bonds Corporate bonds Commercial paper Variable rate demand notes Total Level 1 Inputs $ 59,157 91...

  • Page 49
    ... the following line items on the Consolidated Statements of Operations for the fiscal years indicated (in thousands): 2011 1,161 156 1,317 2010 1,261 976 2,237 2009 14,827 9,681 24,508 Direct store expenses Relocation, store closure and lease termination costs Total impairment of long-lived assets...

  • Page 50
    ... Statements of Operations under the caption "Relocation, store closure and lease termination costs." Additionally, the Company recorded reserve adjustments of approximately $3.7 million and $2.6 million during fiscal years 2011 and 2010, respectively, offset to goodwill. (8) Long-Term Debt...

  • Page 51
    ... of the Company' s interest rate swap totaled approximately $0.4 million at September 26, 2010 and was included in the "Long-term debt and capital lease obligations, less current installments" line item on the Consolidated Balance Sheets. During fiscal years 2011 and 2010, the Company reclassified...

  • Page 52
    ...Long-term capital lease obligations, less current installments $ 17,439 The present values of future minimum obligations for capital leases shown above are calculated based on interest rates determined at the inception of the lease, or upon acquisition of the original lease. During fiscal years 2011...

  • Page 53
    ... indefinite life. The Company provided a valuation allowance totaling approximately $23.0 million for deferred tax assets associated with international operating loss carryforwards, federal credit carryforwards, and deferred tax assets associated with unrecognized tax benefits, for which management...

  • Page 54
    ... was not renewed. Subsequent to fiscal year 2011, the Company' s Board of Directors authorized a new $200 million stock repurchase program through November 1, 2013. The specific timing and repurchase of future amounts will vary based on market conditions, securities law limitations and other factors...

  • Page 55
    ... loss positions. (13) 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 for fiscal years 2011 and 2010 includes the dilutive effect of common stock...

  • Page 56
    ...Weighted Number average exercisable exercise price 1,204 $ 22.98 978 40.16 1,335 54.30 3,068 66.81 6,585 $ 52.30 From $ 11.12 28.03 44.99 62.49 66.81 Total To $ 27.62 40.83 60.43 62.49 66.81 Share-based payment expense related to vesting stock options recognized during fiscal years 2011, 2010 and...

  • Page 57
    ... payment expense related to this transaction during fiscal years 2011 and 2010, respectively, included in the "General and administrative expenses" line item on the Consolidated Statements of Operations. Team Member Stock Purchase Plan Under the Team Member Stock Purchase Plan, the Company issued...

  • Page 58
    ... selected unaudited quarterly Consolidated Statements of Operations information for the fiscal years ended September 25, 2011 and September 26, 2010 (in thousands except per share amounts): First Quarter Fiscal Year 2011 Sales Cost of goods sold and occupancy costs Gross profit Direct store expenses...

  • Page 59
    ... that any of these proceedings arising in the ordinary course of business, either alone or in the aggregate, will have a material adverse effect on the Company' s results of operations, cash flows or financial condition. Although management does not expect that the outcome in these proceedings will...

  • Page 60
    ... Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, the Company' s management concluded that its internal control over financial reporting was effective as of September 25, 2011. The Company' s independent registered public accounting...

  • Page 61
    ...s definitive Proxy Statement for the Annual Meeting of Shareholders. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The following table summarizes information about the Company' s equity compensation plans by type as of September 25, 2011 (in...

  • Page 62
    ... the Whole Foods Market 2007 Stock Incentive Plan (6) 2009 Stock Incentive Plan (14) 2007 Team Member Stock Purchase Plan (13) Form of Executive Retention Plan and Non-Compete Arrangement by and between the executive leadership team of the Registrant and the Registrant (8) Form of Director & Officer...

  • Page 63
    ... Financial Officer pursuant to 18 U.S.C. Section 1350 (15) The following financial information from the Company' s Annual Report on Form 10-K, for the period ended September 25, 2011, formatted in eXtensible Business Reporting Language: (i) Consolidated Balance Sheets, (ii) Consolidated Statements...

  • Page 64
    ... duly authorized. WHOLE FOODS MARKET, INC. Date: November 23, 2011 By: /s/ Glenda Flanagan Glenda Flanagan Executive Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf...

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  • Page 67
    ... Standards and Public Affairs ORDERING FINANCIAL STATEMENTS A copy of our Annual Report and Form 10-K may be obtained by written or phone request to: SHAREHOLDER SERVICES Whole Foods Market, Inc. 550 Bowie Street Austin, TX 78703 512.542.0801 ANNUAL MEETING March 9, 2012 9:00 a.m. local time Hotel...

  • Page 68
    ... great tasting food and the pleasure of sharing it with others. We are committed to foods that are fresh, wholesome and safe to eat. We seek out and promote organically grown foods. We provide food and nutritional products that support health and well-being. ©2012 Whole Foods Market IP, L.P. All...