Whole Foods 2010 Annual Report Download

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2010 annual report
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Table of contents

  • Page 1
    2010 annual report

  • Page 2
    ... company. RXU core values VHOOLQJ the highest quality natural and organic products available VDWLVI\LQJ and delighting our customers VXSSRUWLQJ Team Member happiness and excellence FUHDWLQJ wealth through profits and growth FDULQJ about our communities and our environment FUHDWLQJ ongoing win-win...

  • Page 3
    ... to build and grow HSH as the Whole Foods Market brand for health and wellness. One example is our new HSH Wellness Clubs that will be piloted in five cities in 2011. Working with qualified doctors, these clubs will be designed to create dynamic healthy eating communities within our stores, offering...

  • Page 4
    ...smaller stores that reach profitability sooner should result in healthy returns over the long run. With the announcement of 20 new leases signed in 2010, we are well positioned to step up our growth beginning in 2012. In 2010, we delivered incremental operating margin improvement and earnings growth...

  • Page 5
    ...COSTS 63.7% NUMBER OF STORES SALES EARNINGS PER SHARE OPERATING CASH FLOW TEAM MEMBERS STOCK PRICE * 1991 results do not include the impact of sumsequent pooling transactions and accounting restatements. Stock price is split-adjusted IPO price in January 1992. *As a percentage of fiscal year 2010...

  • Page 6
    ...of Team Members, as well as strong leadership throughout the company, we have been highly successful, producing industry-leading comparable store sales growth, average weekly sales and sales per square foot. Our executive team has worked closely together since 2001. This year, with the promotions of...

  • Page 7
    ...550 Bowie St. Austin, Texas 78703 (Address of principal executive offices) Registrant's telephone number, including area code: 512-477-4455 Securities registered pursuant to section 12(b) of the Act: Common Stock, no par value Indicate by check mark if the registrant is a well-known seasoned issuer...

  • Page 8
    ...'s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Selected Financial Data. Management's Discussion and Analysis of Financial Condition and Results of Operations. Quantitative and Qualitative Disclosures About Market Risk. Financial Statements and Supplementary...

  • Page 9
    ..., natural and organic foods supermarkets. As of September 26, 2010 we operated 299 stores in the United States, Canada, and the United Kingdom. Our stores average 37,600 square feet in size and nine years in age, and are supported by our Austin headquarters, regional offices, distribution centers...

  • Page 10
    ...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. Products...

  • Page 11
    ...strategy, opening stores in existing trade areas as well as new areas, including international locations. Our new stores typically are located on premium real estate sites and range in size between 35,000 and 50,000 square feet which we believe is appropriate in most circumstances to maximize return...

  • Page 12
    ... offer special services such as massage, valet parking, personal shopping and home delivery. We believe our stores play a unique role as a third place, besides the home and office, where people can gather, interact and learn while at the same time discovering the many joys of eating and sharing food...

  • Page 13
    ... in labor productivity, something they can control, gives them a direct stake in the success of our business. We also encourage stock ownership among team members through our broad-based team member stock option plan, stock purchase plan and 401(k) plan. Team Members As of September 26, 2010, we had...

  • Page 14
    ...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 15
    ... home-based businesses. Whole Foods Market covers all operating costs and the overhead budget for Whole Planet Foundation, funded in part by the sale of products under the Company's Whole Trade Guarantee program as well as support from customers, vendors, and team members. As of September 26, 2010...

  • Page 16
    ... information about our Company, history, product offerings, and store locations, with hundreds of recipes and a library of information about environmental, legislative, health, food safety and product quality issues. In addition, access to the Company's corporate governance policies and SEC filings...

  • Page 17
    ... train new team members or integrate 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...

  • Page 18
    ...-acquisition, and stores closed due to relocation. Perishable Products We believe our stores more heavily emphasize perishable products than other supermarket stores. Perishable products accounted for approximately 66.5% of total sales at Whole Foods Market locations in fiscal year 2010. The Company...

  • Page 19
    ...condition or results of operations while we establish alternative distribution channels. Widespread Health Epidemic The Company's business could be severely impacted by a widespread regional, national or global health epidemic. Our stores are a place where customers come together, interact and learn...

  • Page 20
    ...by the determinations and expenses related to these and other proceedings by the IRS and other state and local taxing authorities. Information Systems We rely extensively on information systems for point-of-sale processing in our stores, supply chain, financial reporting, human resources and various...

  • Page 21
    ... v. Whole Foods Market, Inc., a putative class action filed in the United States District Court for the District of Columbia, seeking treble damages, equitable, injunctive, and declaratory relief and alleging that the acquisition and merger between Whole Foods Market and Wild Oats Markets violates...

  • Page 22
    ...Purchases of Equity Securities. Whole Foods Market's common stock is traded on the NASDAQ Global Select Market under the symbol "WFMI." The Company was added to Standard & Poor's S&P 500 index in December 2005. The following sets forth the intra-day quarterly high and low sale prices of the Company...

  • Page 23
    ... 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 24
    ... Analysis of Financial Condition and Results of Operations. Overview Whole Foods Market, Inc. is the leading natural and organic foods supermarket and America's first national "Certified Organic" grocer. Our Company mission is to promote vitality and well-being for all individuals by supplying the...

  • Page 25
    ... growth in promotional and store-branded items; however, national-branded product sales growth is outpacing store-branded sales growth, and customers are selectively trading up to higher-priced items in certain areas. Comparable store sales increased approximately 7.1% and 4.9% in fiscal years 2010...

  • Page 26
    ...respectively. The Company relocated or closed 1, 6 and 21 store locations during fiscal years 2010, 2009 and 2008, respectively. Fiscal year 2008 store closures primarily relate to the acquisition of Wild Oats Markets. Relocation, store closure and lease termination costs for fiscal years 2010, 2009...

  • Page 27
    ... 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 fiscal years 2010...

  • Page 28
    ... of fiscal years 2011 through 2014 based on the Company's current development pipeline. These openings reflect estimated tender dates which are subject to change and do not incorporate any potential new leases, terminations or square footage reductions: Average new store square footage 41,400...

  • Page 29
    ...Total Long term debt obligations $ 490,000 Estimated interest on long term debt obligations 14,602 Capital lease obligations (including interest) 37,142 6,006,492 Operating lease obligations1 Total $ 6,548,236 1 Amounts exclude taxes, insurance and other related expenses. At September 26, 2010, the...

  • Page 30
    ..., "Long-Term Debt," in "Item 8. Financial Statements and Supplementary Data." 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. Critical Accounting...

  • Page 31
    ... of $490 million to effectively fix the interest rate on $490 million of the term loan at 4.718%, excluding the applicable margin and associated fees. The interest rate swap was designated as a cash flow hedge. Hedge effectiveness is measured by comparing the change in fair value of the hedge item...

  • Page 32
    ... Statements of Operations. 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...

  • Page 33
    ... to update forward-looking statements. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. We are exposed to interest rate changes and changes in market values of our investments and long-term debt. We do not use financial instruments for trading or other speculative purposes...

  • Page 34
    ... at our option of the ABR plus an applicable margin or LIBOR plus an applicable margin, based on the Company's Moody's and S&P ratings. At September 26, 2010 and September 27, 2009 no amounts were drawn. We believe our line of credit borrowings do not give rise to significant fair value risk because...

  • Page 35
    ... Market, Inc. Index to Consolidated Financial Statements Page Number 30 31 32 33 34 35 36 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 26, 2010...

  • Page 36
    ... balance sheets of Whole Foods Market, Inc. as of September 26, 2010 and September 27, 2009, and the related consolidated statements of operations, shareholders' equity and comprehensive income, and cash flows for each of the three fiscal years in the period ended September 26, 2010. These financial...

  • Page 37
    ...of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Whole Foods Market, Inc. as of September 26, 2010 and September 27, 2009, and the related consolidated statements of operations, shareholders' equity and comprehensive income, and cash flows for each...

  • Page 38
    ...Deferred income taxes Other assets Total assets Liabilities and Shareholders' Equity Current liabilities: Current installments of long-term debt and capital lease obligations Accounts payable Accrued payroll, bonus and other benefits due team members Dividends payable Other current liabilities Total...

  • Page 39
    ... 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 40
    ...to team member stock plans 1,822 47,020 Excess tax benefit related to exercise of team member stock options 2,708 Share-based payment expense 22,894 Balances at September 26, 2010 172,033 $ 1,773,897 $ $ 791 $ The accompanying notes are an integral part of these consolidated financial statements. 34...

  • Page 41
    ... and other current assets Accounts payable Accrued payroll, bonus and other 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...

  • Page 42
    ... (collectively "Whole Foods Market," "Company," or "We") own and operate the largest chain of natural and organic foods supermarkets. Our Company mission is to promote vitality and well-being for all individuals by supplying the highest quality, most wholesome foods available. Through our growth, we...

  • Page 43
    ... are certain management judgments and estimates which could impact the ending inventory valuation at cost as well as the resulting gross margins. Our largest supplier, United Natural Foods, Inc., accounted for approximately 27%, 28% and 32% of our total purchases in fiscal years 2010, 2009 and...

  • Page 44
    ... or fair value less costs to sell. When the Company impairs assets related to an operating location, a charge to write down the related assets is included in the "Direct store expenses" line item on the Consolidated Statements of Operations. When the Company commits to relocate, close, or dispose...

  • Page 45
    ... management's best estimate based on a discounted cash flow model based on future store operating results using internal projections. When the Company determines assets related to an operating location are impaired, a charge to write down the related assets to fair value is included in the "Direct...

  • Page 46
    ...impairments. Share-Based Payments The Company maintains several share-based incentive plans. We grant both options to purchase common stock and restricted common stock under our Whole Foods Market 2009 Stock Incentive Plan. All options outstanding are governed by the original terms and conditions of...

  • Page 47
    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 48
    ... Effective August 28, 2007, the Company completed the acquisition of Wild Oats Markets, Inc. ("Wild Oats") in a cash tender offer totaling approximately $565 million plus the assumption of debt. At the date of acquisition, Wild Oats had 109 stores in 23 states and British Columbia, Canada, operating...

  • Page 49
    ...or fair value less costs to sell. Additionally, the Company recorded adjustments totaling $3.0 million during fiscal year 2010 to measure the disposed assets and liabilities at fair value. (5) Investments The Company had money market fund investments that are classified as short-term cash equivalent...

  • Page 50
    ... and other current assets" line item on the Consolidated Balance Sheets. During fiscal year 2010, the Company recorded a gain of approximately $3.2 million related to the sale of a non-operating property, which was included in the "Relocation, store closure and lease termination costs" line item on...

  • Page 51
    ...market, which are included on the accompanying Consolidated Statements of Operations under the caption "Relocation, store closure and lease termination costs." Additionally, the Company recorded goodwill adjustments of approximately $2.6 million during fiscal years 2010 and 2009. (10) Long-Term Debt...

  • Page 52
    ..."Long-term debt and capital lease obligations, less current installments" line item on the Consolidated Balance Sheets. These losses are being recognized as an adjustment to interest expense over the same period in which the interest costs on the related debt are recognized. During fiscal years 2010...

  • Page 53
    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 2010, 2009 and 2008, we paid contingent rentals totaling approximately $9.5 ...

  • Page 54
    ... operations are as follows (in thousands): 2010 Deferred tax assets: Compensation-related costs Insurance-related costs Inventories Lease and other termination accruals Rent differential Deferred taxes associated with unrecognized tax benefit Cash flow hedge instrument Tax basis of fixed assets...

  • Page 55
    ... returns in Canada and the United Kingdom. The Internal Revenue Service ("IRS") of the United States completed its examination of the Company's federal tax returns for its fiscal years 2005 and 2006 during the fourth quarter of fiscal year 2010. The Company has been notified that the IRS will open...

  • Page 56
    ... fiscal year 2010. (16) 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 2010 and 2008 include the dilutive effect of common stock...

  • Page 57
    ... Total share-based payment expense before income taxes recognized during fiscal years 2010, 2009 and 2008 was approximately $22.9 million, $12.8 million and $10.5 million, respectively. Share-based payment expense was included in the following line items on the Consolidated Statements of Operations...

  • Page 58
    ....74 66.81 73.14 Share-based payment expense related to vesting stock options recognized during fiscal years 2010, 2009 and 2008 totaled approximately $18.7 million, $13.3 million and $10.5 million, respectively. The fair value of stock option grants has been estimated at the date of grant using the...

  • Page 59
    ... Company recorded approximately $4.2 million of share-based payment expense related to this transaction during fiscal year 2010, 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...

  • Page 60
    ... Fiscal Year 2010 Sales Cost of goods sold and occupancy costs 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...

  • Page 61
    ... 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 62
    ... 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 26, 2010. The Company's independent registered public accounting...

  • Page 63
    ... 10. Directors, Executive Officers and Corporate Governance. The information required by this item about our Company's Executive Officers is included in Part I, "Item 1. Business" of this Report on Form 10-K under the caption "Executive Officers of the Registrant." All other information required by...

  • Page 64
    ... the Whole Foods Market 2007 Stock Incentive Plan (5) 2009 Stock Incentive Plan (12) 2007 Team Member Stock Purchase Plan (11) Form of Executive Retention Plan and Non-Compete Arrangement by and between the executive leadership team of the Registrant and the Registrant (7) Form of Director & Officer...

  • Page 65
    ... Business Reporting Language: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Shareholders' Equity and Comprehensive Income, (iv) Consolidated Statements of Cash Flows, (v) Notes to Consolidated Financial Statements (13) (14) Filed...

  • Page 66
    ... duly authorized. WHOLE FOODS MARKET, INC. Date: November 24, 2010 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...

  • Page 67
    ... Store David W. Dupree Director Emeritus Avram J. Goldberg Director Emeritus Linda A. Mason Director Emeritus 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...

  • Page 68
    ... great tasting food and the pleasure of sharing it with others. ZHDUHFRPPLWWHG to foods that are fresh, wholesome and safe to eat. ZHVHHNRXW and promote organically grown foods. ZHSURYLGH food and nutritional products that support health and well-being. ©2011 Whole Foods Market IP, L.P. All...