Whole Foods 2012 Annual Report Download

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2012 Annual Report

Table of contents

  • Page 1
    2012 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
    ... 2012 $2.52 2008 2009 2010 2011 2012 $463 Earnings per Diluted Share Free Cash Flow* (in Millions) $390 $328 $273 $1.93 $1.43 $0.85 $0.82 $(194) 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 *The Company defines Free Cash Flow as net cash provided by operating activities less capital...

  • Page 4
    ...to sales per gross square foot of $932. We opened 25 new stores, expanding into eight new markets, and increased our ending square footage 8% to 12.7 million. We reported our eleventh consecutive quarter of comparable store sales growth of 7.8% or better, improved operating margin 94 basis points to...

  • Page 5
    ...generosity of customers, team members, suppliers and community donors, nearly 1,000 schools in the U.S. and Canada received school garden grants in 2012, and to date, more than 1,500 salad bars have been provided to schools around the country through the partnership between Whole Foods Market, Whole...

  • Page 6
    ... year 2013 reï¬,ects another year of healthy comparable store sales growth and incremental operating margin improvement. We have signed 45 new leases over the last 12 months and, based on our current development pipeline, are on track to accelerate our store openings and ending square footage growth...

  • Page 7
    ... 30, 2012 COMMISSION FILE NUMBER: 0-19797 WHOLE FOODS MARKET, INC. (Exact name of registrant as specified in its charter) Texas (State of incorporation) 550 Bowie Street, Austin, Texas (Address of principal executive offices) 74-1989366 (IRS Employer Identification No.) 78703 (Zip code) Registrant...

  • Page 8
    DOCUMENTS INCORPORATED BY REFERENCE The information required by Part III of this report, to the extent not set forth herein, is incorporated by reference from the Registrant's definitive Proxy Statement for the Annual Meeting of the Stockholders to be held March 15, 2013.

  • Page 9
    .... Executive Compensation. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Certain Relationships and Related Transactions, and Director Independence. Principal Accountant Fees and Services. PART IV Item 15. Exhibits, Financial Statement Schedules...

  • Page 10
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  • Page 11
    ... in 1980 and is based in Austin, Texas. We completed our initial public offering in January 1992, and our common stock trades on the NASDAQ Global Select Market under the symbol "WFM." Our Company mission is to promote the vitality and well-being of all individuals by supplying the highest quality...

  • Page 12
    ... 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; and Promoting the health of our stakeholders through healthy eating education...

  • Page 13
    ... is to help differentiate our product selection and provide more value offerings to our customers. In addition to our nationally driven programs, we have a number of store-made and regionally made fresh items sold under the Whole Foods Market label, and we offer specialty and organic coffee, tea and...

  • Page 14
    ...embody the Core Values of Whole Foods Market; they support social and environmental initiatives and are frequent shoppers who spend the largest proportion of their monthly grocery bill with us. Organics buy organically grown food as a way to maintain their personal health and for food safety reasons...

  • Page 15
    ... store growth or financial results. Our growth strategy is to expand primarily through new store openings. We have a disciplined, opportunistic real estate strategy, opening stores in existing trade areas as well as new areas, including international locations. We typically target stores located...

  • Page 16
    ... home and office, where people can gather, interact and learn while at the same time discovering the many joys of eating and sharing food. Most of our stores are located in high-traffic shopping areas on premier real estate sites and are either freestanding or in strip centers. We also have a number...

  • Page 17
    ... 2012, 82% of eligible team members cast a ballot to determine the Company's medical plan for 2013. Under this new plan, Whole Foods Market will provide health care coverage at no cost to full-time team members who work 30 or more hours per week and have worked a minimum of 20,000 service hours...

  • Page 18
    ... 8,300 team members in fiscal year 2011. Competition 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...

  • Page 19
    ... home-based businesses. Whole Foods Market covers all operating costs 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. As of September 30, 2012...

  • Page 20
    ...and Chief Financial Officer Executive Vice President of Growth and Business Development Executive Vice President of Operations Executive Vice President of Operations John Mackey, co-founder of the Company, has served as Co-Chief Executive Officer since May 2010, was the Chief Executive Officer from...

  • Page 21
    ... 2012 with a new look and focus on the local experience, including tools for stores to offer custom content to site visitors in their area. Our website averages approximately 138,000 visitors each day and provides detailed information about our Company, history, product offerings and store locations...

  • Page 22
    ... 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. Economic...

  • Page 23
    ...of our stores, distribution centers, bakehouses and administrative facilities are leased. We are subject to risks associated with our current and future real estate leases. Our costs could increase because of changes in the real estate markets and supply or demand for real estate sites. We generally...

  • Page 24
    ... of key management and other team members. If we were to lose the services of a significant number of key team members within a short period of time, this could have a material adverse effect on our operations. We do not maintain key person insurance on any team member. Our continued success also is...

  • Page 25
    ... control over financial reporting could materially impact our business or stock price. The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting. An internal control system, no matter how well designed and operated, can provide only...

  • Page 26
    ... utilized in current operations, of which 20 are related to our acquisition of Wild Oats Markets in August 2007. 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...

  • Page 27
    ...'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 is a member of the Standard...

  • Page 28
    ... 2013. 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...

  • Page 29
    ... Dividends declared per common 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...

  • Page 30
    ... 2012 with strong sales growth and record fourth quarter results, delivering the best year in our Company's 32-year history. The pace of new store openings and lease signings continues to increase, and our accelerated growth plans are on track. Our commitment to natural and organic products, local...

  • Page 31
    ... provides guidance for fiscal year 2013: Sales growth Comparable store sales growth Identical store sales growth General and administrative expenses as a percentage of sales Operating income as a percentage of sales Diluted earnings per share Diluted earnings per share growth Tax rate Ending square...

  • Page 32
    ... 2010 by taking advantage of buying opportunities and improving our distribution, shrink control and inventory management. We have maintained our commitment to offering highly competitive prices on known value items in addition to implementing targeted pricing and promotional strategies. The success...

  • Page 33
    ...line items on the Consolidated Statements of Operations for the periods indicated (in thousands): Cost of goods sold and occupancy costs Direct store expenses General and administrative expenses Share-based payment expense before income taxes Income tax benefit Net share-based payment expense $ 2012...

  • Page 34
    ... Annualized adjusted earnings, including interest related to operating leases Average working capital, excluding current portion of long-term debt Average property and equipment, net Average other assets Average other liabilities Average invested capital Average estimated asset base of capitalized...

  • Page 35
    ..., 2012 transaction closing date. The Company plans to remodel and reopen the locations as Whole Foods Market stores before the end of September 2013. The leases related to this transaction are included in the current development pipeline in the tables above. We believe we will produce operating cash...

  • Page 36
    ... 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...

  • Page 37
    ... million shares of common stock of the Company. During fiscal year 2010, the Company paid cash dividends on the Series A Preferred Stock totaling $8.5 million. The Company is committed under certain capital leases for rental of certain equipment, buildings and land, and certain operating leases for...

  • Page 38
    ... cash flow model based on future store operating results using internal projections or based on a review of the future benefit the Company anticipates receiving from the related assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell...

  • Page 39
    ... period. The tax savings resulting from tax deductions in excess of expense reflected 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...

  • Page 40
    ... 2012 and 2011, 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 and local...

  • Page 41
    ... Data. Whole Foods Market, Inc. Index to Consolidated Financial Statements Page Number Report of Independent Registered Public Accounting Firm Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting Consolidated Balance Sheets at September 30, 2012 and...

  • Page 42
    ... 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 30, 2012 and September 25, 2011, and the related consolidated statements of operations...

  • Page 43
    ... management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal...

  • Page 44
    Whole Foods Market, Inc. Consolidated Balance Sheets (In thousands) September 30, 2012 and September 25, 2011 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 45
    ... Gross profit Direct store expenses General and administrative expenses Pre-opening expenses Relocation, 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...

  • Page 46
    ...net of income taxes Comprehensive income Dividends ($0.56 per common share) Issuance of common stock pursuant to team member stock plans Purchase of treasury stock Excess tax benefit related to exercise of team member stock options Share-based payment expense Balances at September 30, 2012 - 63,392...

  • Page 47
    ... stock dividends paid Issuance of common stock Purchase of treasury stock Excess tax benefit related to exercise of team member stock options Payments on long-term debt and capital lease obligations Net cash provided by (used in) financing activities Effect of exchange rate changes on cash and cash...

  • Page 48
    ... own and operate the largest chain of natural and organic foods supermarkets. The Company's 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...

  • Page 49
    ...debt issuance costs. The Company amortizes definite-lived intangible assets on a straight-line basis over the period the intangible asset is expected to generate cash flows, generally the life of the related agreement. Currently, the weighted average life is approximately 17 years for contract-based...

  • Page 50
    ... cash flow model based on future store operating results using internal projections or based on a review of the future benefit the Company anticipates receiving from the related assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell...

  • Page 51
    ... Natural Foods, Inc., accounted for approximately 31%, 31% and 27% of our total purchases in fiscal years 2012, 2011 and 2010, respectively Direct Store Expenses Direct store expenses consist of store-level expenses such as salaries and benefits costs, supplies, depreciation, community marketing...

  • Page 52
    ...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-based payment...

  • Page 53
    ...losses associated with our United Kingdom operations are excluded from the determination of net income since these transactions are considered long-term investments in nature. Assets and liabilities are translated at exchange rates in effect at the balance sheet date. Income and expense accounts are...

  • Page 54
    ... impaired. Fair value adjustments, based on hierarchy input Level 3, reduced the carrying value of related long-lived assets to zero and were included in the following line items on the Consolidated Statements of Operations for the periods indicated (in thousands): Direct store expenses General and...

  • Page 55
    ... and September 25, 2011, available-for-sale securities totaling approximately $382.5 million and $74.5 million, respectively, were in unrealized loss positions. At September 30, 2012, the average effective maturity of the Company's short- and long-term investments was approximately 5 months and 15...

  • Page 56
    ..., the Company repaid the $490 million outstanding balance on the term loan. The Company also had outstanding a $350 million revolving line of credit that expired August 2012. The Company's obligations under the facility were secured by liens on certain of the Company's assets, including stock of its...

  • Page 57
    ... in income taxes resulting from: Tax-exempt interest Share-based payment expense Excess charitable contributions Federal income tax credits Other, net Total federal income taxes State income taxes, net of federal income tax benefit Tax impact of foreign operations Total income tax expense $ 2012 263...

  • Page 58
    ...): 2012 Deferred tax assets: Compensation-related costs Insurance-related costs Inventories Lease and other termination accruals Rent differential Deferred taxes associated with unrecognized tax benefit Tax basis of fixed assets in excess of book basis Net domestic and international operating loss...

  • Page 59
    ... tax rate if recognized. In addition, associated penalties and interest previously recognized would also benefit the effective tax rate. The Company recognizes accrued interest and penalties related to unrecognized tax benefits within its global operations as a component of income tax expense...

  • Page 60
    ...-1 trading plan, all in accordance with Securities and Exchange Commission and other applicable legal requirements. The specific timing, price and size of purchases will depend on prevailing stock prices, general economic and market conditions, and other considerations. The repurchase programs do...

  • Page 61
    ... line items on the Consolidated Statements of Operations for the fiscal years indicated (in thousands): Cost of goods sold and occupancy costs Direct store expenses General and administrative expenses Share-based payment expense before income taxes Income tax benefit Net share-based payment expense...

  • Page 62
    ... common stock pursuant to the Whole Foods Market 2009 Stock Incentive Plan. Fair value of the restricted share issuance on grant date totaled approximately $0.4 million and vests over a three-year term. The Company recorded approximately $0.1 million of share-based payment expense related to...

  • Page 63
    ..., it typically represents a larger share of our annual sales from existing stores. Quarter-to-quarter comparisons of results of operations have been and may be materially impacted by the timing of new store openings. The Company believes that the following information reflects all normal recurring...

  • Page 64
    ... 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...

  • Page 65
    ... supervision and with the participation of the Company's management, including our principal executive officers and principal financial officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on criteria established in the framework in...

  • Page 66
    ... Owners and Management and Related Stockholder Matters. The following table summarizes information about the Company's equity compensation plans by type as of September 30, 2012 (in thousands, except per share amounts): Options outstanding 9,982 - 9,982 Weighted average exercise price $ 60.33...

  • Page 67
    ... Plan and Non-Compete Arrangement by and between the executive leadership team of the Registrant and the Registrant (16) Form of Director & Officer Indemnification Agreement (3) Agreement for Distribution of Products by and between Whole Foods Market Distribution, Inc. and United Natural Foods...

  • Page 68
    ... by Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (16) The following financial information from the Company's Report on Form 10-K, for the period ended September 30, 2012, formatted in eXtensible Business Reporting Language: (i) Consolidated Balance Sheets, (ii) Consolidated Statements...

  • Page 69
    ...duly authorized. WHOLE FOODS MARKET, INC. Date: November 21, 2012 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 of...

  • Page 70
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  • Page 71
    ... company's website at http://www.wholefoodsmarket.com, at http://sec.gov, or by making a request to Investor Relations via the address or phone number listed below. Whole Foods Market 550 Bowie Street Austin, TX 78703 512.542.0801 EXECUTIVE TEAM John Mackey Co-Founder and Co-Chief Executive Officer...

  • Page 72
    ... carefully evaluate HYDROGENATED each and every product we sell. FATS. committed & We are to foods that wholesome are fresh, safe to eat. We provide food health & w el l- be in g. � nutr ition al products that support great tasting food sharing it with others. ©2013 Whole Foods Market...