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 ~~July 3, 2016;~~January 15, 2017; 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. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” 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 ~~July 29, 2016~~February 10, 2017 was ~~318,804,485~~318,564,535 shares.

Whole Foods Market, Inc.

Form 10-Q

Table of Contents



	Page

Part I. Financial Information

Item 1. Financial Statements.
Consolidated Balance Sheets (unaudited), ~~July 3, 2016~~January 15, 2017 and September ~~27, 2015~~25, 2016	1

Consolidated Statements of Operations (unaudited), for the ~~twelve and forty~~sixteen weeks ended ~~July 3,~~January 15, 2017 and January 17, 2016 ~~and July 5, 2015~~	2

Consolidated Statements of Comprehensive Income (unaudited), for the ~~twelve and forty~~sixteen weeks ended ~~July 3,~~January 15, 2017 and January 17, 2016 ~~and July 5, 2015~~	3

Consolidated Statements of Shareholders’ Equity (unaudited), for the ~~forty~~sixteen weeks ended ~~July 3, 2016~~January 15, 2017 and fiscal year ended September ~~27, 2015~~25, 2016	4

Consolidated Statements of Cash Flows (unaudited), for the ~~forty~~sixteen weeks ended ~~July 3,~~January 15, 2017 and January 17, 2016 ~~and July 5, 2015~~	5

Notes to Consolidated Financial Statements (unaudited)	6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	1519

Item 3. Quantitative and Qualitative Disclosures About Market Risk.	2328

Item 4. Controls and Procedures.	2428

Part II. Other Information

Item 1. Legal Proceedings.	2529

Item 1A. Risk Factors.	2529

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	2529

Item 6. Exhibits.	2630

Signature	2731

Table of Contents

Part I. Financial Information

Item 1. Financial Statements.

Whole Foods Market, Inc.

Consolidated Balance Sheets (unaudited)

(In millions)


Assets	July 3, 2016			September 27, 2015			January 15, 2017			September 25, 2016
Current assets:
Cash and cash equivalents	$	472		$	237		$	350		$	351
Short-term investments - available-for-sale securities	153			155			374			379
Restricted cash	123			127			125			122
Accounts receivable	319			218			251			242
Merchandise inventories	523			500			554			517
Prepaid expenses and other current assets	147			108			123			167
Deferred income taxes	188			199			210			197
Total current assets	1,925			1,544			1,987			1,975
Property and equipment, net of accumulated depreciation and amortization	3,376			3,163			3,460			3,442
Long-term investments - available-for-sale securities	—			63
Goodwill	710			710			710			710
Intangible assets, net of accumulated amortization	76			79			72			74
Deferred income taxes	143			144			111			100
Other assets	45			38			42			40
Total assets	$	6,275		$	5,741		$	6,382		$	6,341

Liabilities and Shareholders’ Equity
Current liabilities:
Current installments of long-term debt and capital lease obligations	$	3		$	3		$	3		$	3
Accounts payable	292			295			288			307
Accrued payroll, bonus and other benefits due team members	409			436			421			407
Dividends payable	43			45			45			43
Other current liabilities	577			473			543			581
Total current liabilities	1,324			1,252			1,300			1,341
Long-term debt and capital lease obligations, less current installments	1,049			62			1,048			1,048
Deferred lease liabilities	626			587			653			640
Other long-term liabilities	91			71			89			88
Total liabilities	3,090			1,972			3,090			3,117

Commitments and contingencies

Shareholders’ equity:
Common stock, no par value, 1,200 shares authorized; 377.0 and 377.1 shares issued; 318.8 and 348.9 shares outstanding at 2016 and 2015, respectively	2,924			2,904
Common stock in treasury, at cost, 58.2 and 28.2 shares at 2016 and 2015, respectively	(2,014		)	(1,124		)
Common stock, no par value, 1,200 shares authorized; 377.0 shares issued; 318.5 and 318.3 shares outstanding at 2017 and 2016, respectively							2,944			2,933
Common stock in treasury, at cost, 58.5 and 58.7 shares at 2017 and 2016, respectively							(2,018		)	(2,026		)
Accumulated other comprehensive loss	(29		)	(28		)	(33		)	(32		)
Retained earnings	2,304			2,017			2,399			2,349
Total shareholders’ equity	3,185			3,769			3,292			3,224
Total liabilities and shareholders’ equity	$	6,275		$	5,741		$	6,382		$	6,341

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

Whole Foods Market, Inc.

Consolidated Statements of Operations (unaudited)

(In millions, except per share amounts)


	Twelve weeks ended					Forty weeks ended					Sixteen weeks ended
	July 3, 2016			July 5, 2015		July 3, 2016			July 5, 2015		January 15, 2017			January 17, 2016
Sales	$	3,703		$	3,632	$	12,227		$	11,951	$	4,918		$	4,829
Cost of goods sold and occupancy costs	2,417			2,339		8,010			7,721		3,268			3,188
Gross profit	1,286			1,293		4,217			4,230		1,650			1,641
Selling, general and administrative expenses	1,057			1,032		3,458			3,392		1,417			1,373
Pre-opening expenses	18			12		49			53		21			13
Relocation, store closure and lease termination costs	2			2		8			12		41			3
Operating income	209			247		702			773		171			252
Interest expense	(12		)	—		(30		)	—		(15		)	(7		)
Investment and other income (expense)	(1		)	5		8			12
Investment and other income											—			4
Income before income taxes	196			252		680			785		156			249
Provision for income taxes	76			98		261			306		61			92
Net income	$	120		$	154	$	419		$	479	$	95		$	157

Basic earnings per share	$	0.37		$	0.43	$	1.27		$	1.33	$	0.30		$	0.47
Weighted average shares outstanding	320.6			358.5		328.4			359.6		318.2			337.0

Diluted earnings per share	$	0.37		$	0.43	$	1.27		$	1.32	$	0.30		$	0.46
Weighted average shares outstanding, diluted basis	321.2			360.5		329.3			362.2		318.7			338.2

Dividends declared per common share	$	0.135		$	0.130	$	0.405		$	0.390	$	0.140		$	0.135

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

Whole Foods Market, Inc.

Consolidated Statements of Comprehensive Income (unaudited)

(In millions)


	Twelve weeks ended					Forty weeks ended						Sixteen weeks ended
	July 3, 2016			July 5, 2015		July 3, 2016			July 5, 2015			January 15, 2017			January 17, 2016
Net income	$	120		$	154	$	419		$	479		$	95		$	157
Other comprehensive income (loss), net of tax:
Other comprehensive loss, net of tax:
Foreign currency translation adjustments	(1		)	3		(1		)	(15		)	(1		)	(10		)
Other comprehensive income (loss), net of tax	(1		)	3		(1		)	(15		)
Other comprehensive loss, net of tax												(1		)	(10		)
Comprehensive income	$	119		$	157	$	418		$	464		$	94		$	147

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

Whole Foods Market, Inc.

Consolidated Statements of Shareholders’ Equity (unaudited)

~~Forty~~Sixteen weeks ended ~~July 3, 2016~~January 15, 2017 and fiscal year ended September ~~27, 2015~~25, 2016

(In millions)


	Shares outstanding		Common stock			Common stock in treasury			Accumulated other comprehensive loss			Retained earnings			Total shareholders’ equity			Shares outstanding		Common stock			Common stock in treasury			Accumulated other comprehensive loss			Retained earnings			Total shareholders’ equity
Balances at September 28, 2014	360.4		$	2,863		$	(711	)	$	(7	)	$	1,668		$	3,813
Balances at September 27, 2015																		348.9		$	2,904		$	(1,124	)	$	(28	)	$	2,017		$	3,769
Net income	—		—			—			—			536			536			—		—			—			—			507			507
Other comprehensive loss, net of tax	—		—			—			(21		)	—			(21		)	—		—			—			(4		)	—			(4		)
Dividends ($0.52 per common share)	—		—			—			—			(186		)	(186		)
Dividends ($0.54 per common share)																		—		—			—			—			(174		)	(174		)
Issuance of common stock pursuant to team member stock plans	2.3		(34		)	100			—			—			66			1.1		(23		)	42			—			—			19
Purchase of treasury stock	(13.8	)	—			(513		)	—			—			(513		)	(31.7	)	—			(944		)	—			—			(944		)
Tax benefit related to exercise of team member stock options	—		11			—			—			—			11			—		3			—			—			—			3
Share-based payment expense	—		64			—			—			—			64			—		49			—			—			—			49
Other	—		—			—			—			(1		)	(1		)	—		—			—			—			(1		)	(1		)
Balances at September 27, 2015	348.9		2,904			(1,124		)	(28		)	2,017			3,769
Balances at September 25, 2016																		318.3		2,933			(2,026		)	(32		)	2,349			3,224
Net income	—		—			—			—			419			419			—		—			—			—			95			95
Other comprehensive loss, net of tax	—		—			—			(1		)	—			(1		)	—		—			—			(1		)	—			(1		)
Dividends ($0.405 per common share)	—		—			—			—			(131		)	(131		)
Dividends ($0.14 per common share)																		—		—			—			—			(45		)	(45		)
Issuance of common stock pursuant to team member stock plans	1.1		(22		)	39			—			—			17			0.2		(3		)	8			—			—			5
Purchase of treasury stock	(31.2	)	—			(929		)	—			—			(929		)
Tax benefit related to exercise of team member stock options	—		3			—			—			—			3
Share-based payment expense	—		39			—			—			—			39			—		14			—			—			—			14
Other	—		—			—			—			(1		)	(1		)
Balances at July 3, 2016	318.8		$	2,924		$	(2,014	)	$	(29	)	$	2,304		$	3,185
Balances at January 15, 2017																		318.5		$	2,944		$	(2,018	)	$	(33	)	$	2,399		$	3,292

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

Whole Foods Market, Inc.

Consolidated Statements of Cash Flows (unaudited)

(In millions)


	Forty weeks ended						Sixteen weeks ended
	July 3, 2016			July 5, 2015			January 15, 2017			January 17, 2016
Cash flows from operating activities
Net income	$	419		$	479		$	95		$	157
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	376			331			189			147
Share-based payment expense	39			51			14			16
LIFO expense	1			3			—			2
Deferred income tax expense	16			47			(24		)	(30		)
Excess tax benefit related to exercise of team member stock options	(4		)	(10		)	—			(1		)
Accretion of premium/discount on marketable securities	1			14			—			1
Deferred lease liabilities	31			24			18			8
Other	7			10			4			2
Net change in current assets and liabilities:
Accounts receivable	(100		)	(19		)	(9		)	6
Merchandise inventories	(25		)	(47		)	(37		)	(67		)
Prepaid expenses and other current assets	(39		)	(4		)	44			(7		)
Accounts payable	(2		)	16			(19		)	(16		)
Accrued payroll, bonus and other benefits due team members	(27		)	26			14			(25		)
Other current liabilities	57			72			(6		)	28
Net change in other long-term liabilities	14			4			1			11
Net cash provided by operating activities	764			997			284			232
Cash flows from investing activities
Development costs of new locations	(295		)	(411		)	(150		)	(91		)
Other property and equipment expenditures	(226		)	(268		)	(95		)	(88		)
Purchases of available-for-sale securities	(311		)	(458		)	(200		)	(133		)
Sales and maturities of available-for-sale securities	375			497			205			220
Decrease (increase) in restricted cash	3			(19		)
Payment for purchase of acquired entities, net of cash acquired	(11		)	(4		)	—			(11		)
Other investing activities	(12		)	(8		)	(4		)	(6		)
Net cash used in investing activities	(477		)	(671		)	(244		)	(109		)
Cash flows from financing activities
Purchases of treasury stock	(929		)	(188		)	—			(634		)
Common stock dividends paid	(133		)	(137		)	(43		)	(45		)
Issuance of common stock	17			61			5			7
Excess tax benefit related to exercise of team member stock options	4			10			—			1
Proceeds from long-term borrowings	999			—			—			999
Proceeds from revolving line of credit	300			—			—			300
Payments on long-term debt and capital lease obligations	(306		)	—			—			(302		)
Other financing activities	(9		)	(1		)	—			(7		)
Net cash used in financing activities	(57		)	(255		)
Net cash provided by (used in) financing activities							(38		)	319
Effect of exchange rate changes on cash and cash equivalents	5			(4		)	—			(1		)
Net change in cash and cash equivalents	235			67
Cash and cash equivalents at beginning of period	237			190
Cash and cash equivalents at end of period	$	472		$	257
Net change in cash, cash equivalents, and restricted cash							2			441
Cash, cash equivalents, and restricted cash at beginning of period							473			364
Cash, cash equivalents, and restricted cash at end of period							$	475		$	805

Supplemental disclosure of cash flow information:
Federal and state income taxes paid	$	357		$	263		$	76		$	137
Interest paid	$	27		$	—		$	26		$	—

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

Whole Foods Market, Inc.

Notes to Consolidated Financial Statements (unaudited)

~~July 3, 2016~~January 15, 2017

(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 ~~27, 2015~~25, 2016. 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 ~~2016~~2017 and ~~2015~~2016 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:


	Twelve weeks ended				Forty weeks ended				Sixteen weeks ended
	July 3, 2016		July 5, 2015		July 3, 2016		July 5, 2015		January 15, 2017		January 17, 2016
Sales:
United States	96.9	%	96.9	%	97.1	%	96.9	%	97.1	%	97.1	%
Canada and United Kingdom	3.1		3.1		2.9		3.1		2.9		2.9
Total sales	100.0	%	100.0	%	100.0	%	100.0	%	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:


	July 3, 2016		September 27, 2015		January 15, 2017		September 25, 2016
Long-lived assets, net:
United States	97.5	%	97.4	%	97.5	%	97.5	%
Canada and United Kingdom	2.5		2.6		2.5		2.5
Total long-lived assets, net	100.0	%	100.0	%	100.0	%	100.0	%

(2) Summary of Significant Accounting Policies

Recent Accounting Pronouncements

Effective September ~~28, 2015,~~26, 2016, the Company early adopted the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update (“ASU”) No. ~~2015-03, “Interest – Imputation~~2016-18, “Statement of ~~Interest: Simplifying the Presentation of Debt Issuance Costs,”~~Cash Flows: Restricted Cash ,” which amends the Accounting Standards Codification ~~Subtopic 835-30.~~Topic 230. The amendments, which require that ~~debt issuance costs related to~~ a ~~recognized liability be presented~~statement of cash flows explain the change during the period in the ~~balance sheet~~total of cash, cash equivalents and amounts generally described as ~~a direct deduction from the carrying amount of the debt liability,~~restricted cash, were adopted on a retrospective basis. The adoption of these amendments did not have a significant effect on the Company’s financial statements.

The following table provides a brief description of recently issued accounting pronouncements that have not yet been adopted. Early adoption is permitted for all updates unless stated.



Standard	Description	Effective Date	Effect on financial statements and other significant matters
ASU No. 2017-04 Simplifying the Test for Goodwill Impairment (Topic 350)	The amendments eliminate Step 2 from the goodwill impairment test. Instead, an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value should be recognized; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss should also be considered, if applicable. The amendments should be applied on a prospective basis.	First quarter of fiscal year ending September 27, 2020	We are currently evaluating the impact that the adoption of these provisions will have on the Company’s consolidated financial statements.
ASU No. 2016-13 Measurement of Credit Losses on Financial Instruments(Topic 326)	The amendments guide on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. The amendments require a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected. The amendments also require that credit losses on available-for-sale debt securities be presented as an allowance. The amendments should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic.	First quarter of fiscal year ending September 29, 2021	We are currently evaluating the impact that the adoption of these provisions will have on the Company’s consolidated financial statements.
ASU No. 2016-09 Improvements to Employee Share-Based Payment Accounting (Topic 718)	The amendments aim to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, forfeitures, and certain classifications on the statement of cash flows. The amendments should be applied on either a prospective, retrospective, or modified-retrospective basis depending on the subtopic.	First quarter of fiscal year ending September 30, 2018	We are currently evaluating the impact that the adoption of these provisions will have on the Company’s consolidated financial statements.
ASU No. 2016-08 Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (Topic 606)	The amendments, which do not change the core principle of the guidance in Topic 606, clarify the implementation guidance on principal versus agent considerations, including how an entity should identify the unit of accounting (i.e., the specified good or service) for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements, such as service transactions. The amendments may be applied on either a full or modified retrospective basis.	First quarter of fiscal year ending September 29, 2019	We are currently evaluating the impact that the adoption of these provisions will have on the Company’s consolidated financial statements.
ASU No. 2016-07 Simplifying the Transition to the Equity Method of Accounting (Topic 323)	The amendments eliminate the requirement to retroactively apply the equity method of accounting when an investment qualifies for the use of the equity method due to an increase in the level of ownership interest or degree of influence. The amendments should be applied on a prospective basis.	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.



Standard	Description	Effective Date	Effect on financial statements and other significant matters
ASU No. 2016-04 Recognition of Breakage for Certain Prepaid Stored-Value Products (a consensus of the Emerging Issues Task Force) (Subtopic 405-20)	The amendments require entities to recognize liabilities related to the sale of prepaid stored-value products redeemable for goods, services or cash as financial liabilities in the scope of ASC 405. Additionally, the new guidance amends ASC 405-20 to include a narrow scope exception requiring entities to recognize breakage for these liabilities in a way that is consistent with how gift card breakage will be recognized under the new revenue recognition standard. The amendments may be applied on either a full or modified retrospective basis.	First quarter of fiscal year ending September 29, 2019	We are currently evaluating the impact that the adoption of these provisions will have on the Company’s consolidated financial statements.



~~Standard~~	~~Description~~	~~Effective Date~~	~~Effect on financial statements and other significant matters~~
ASU No. 2016-02 Leases (Topic 842)	The amendments require lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. The amendments also require certain quantitative and qualitative disclosures. Accounting guidance for lessors is largely unchanged. The amendments should be applied on a modified retrospective basis.	First quarter of fiscal year ending September 27, 2020	~~We are~~ The adoption of this ASU will result in a significant increase to the Company’s Consolidated Balance Sheets for lease liabilities and right-of-use assets, and the Company is currently evaluating the ~~impact that the~~other effects of adoption of ~~these provisions will have~~this ASU on ~~the Company’s consolidated financial statements.~~its Consolidated Financial Statements.
ASU No. 2016-01 Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10)	The amendments address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments should be applied by means of a cumulative-effect adjustment to the balance sheet in year of adoption. Early adoption is permitted for only certain amendments of the update.	First quarter of fiscal year ending September 29, 2019	We are currently evaluating the impact that the adoption of these provisions will have on the Company’s consolidated financial statements.
ASU No. 2015-17 Balance Sheet Classification of Deferred Taxes (Topic 740)	The amendments simplify the presentation of deferred income taxes by requiring that all deferred tax liabilities and assets be classified as noncurrent in the statement of financial position. The amendments may be applied on either a prospective or retrospective basis.	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.
ASU No. ~~2015-16~~ ~~Simplifying the Accounting for Measurement-Period Adjustments (Topic 805)~~	The amendments require that an acquirer recognize adjustments to provisional amounts identified during the measurement period in the reporting period in which the adjustments are determined and eliminate the requirement to retrospectively revise prior periods. Additionally, an acquirer should record in the same period the effects on earnings of any changes in the provisional accounts, calculated as if the accounting had been completed at the acquisition date. The amendments should be applied on a prospective basis.	~~First quarter of fiscal year ending September 24, 2017~~	~~We do not expect the adoption of these provisions to have a significant impact on the Company’s consolidated financial statements.~~
~~ASU No.~~ 2015-11 Simplifying the Measurement of Inventory (Topic 330)	The amendments, which apply to inventory that is measured using any method other than the last-in, first-out (LIFO) or retail inventory method, require that entities measure inventory at the lower of cost and net realizable value. The amendments should be applied on a prospective basis.	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.~~
~~ASU No. 2015-05~~ ~~Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (Topic 350)~~	The amendments provide guidance as to whether a cloud computing arrangement (e.g., software as a service, platform as a service, infrastructure as a service, and other similar hosting arrangements) includes a software license and, based on that determination, how to account for such arrangements. The amendments may be applied on either a prospective or retrospective basis.	~~First quarter of fiscal year ending September 24, 2017~~	~~We do not expect the adoption of these provisions to have a significant impact on the Company’s consolidated financial statements.~~



~~Standard~~	~~Description~~	~~Effective Date~~	~~Effect on financial statements and other significant matters~~
~~ASU No. 2015-02~~ ~~Amendments to the Consolidation Analysis (Topic 810)~~	The amendments revise the consolidation analysis related to limited partnerships and similar legal entities, variable interest entities, and certain investment funds. The amendments may be applied on either a full or modified retrospective basis.	~~First quarter of fiscal year ending September 24, 2017~~	We do not expect the adoption of these provisions to have a significant impact on the Company’s consolidated financial statements.
ASU No. 2014-09 Revenue from Contracts with Customers (Topic 606)	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 may be applied on either a full or modified retrospective basis.	First quarter of fiscal year ending September 29, 2019	We are currently evaluating the timing, method, and impact that the adoption of these provisions will have 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. Equity interests measured at fair value are based on quoted prices for similar assets in active markets.

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.

Assets Measured at Fair Value on a Recurring Basis

The Company held the following financial assets measured at fair value on a recurring basis based on the hierarchy levels indicated (in millions):


July 3, 2016	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total
January 15, 2017									Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total
Cash equivalents:
Money market fund	$	165	$	—	$	—	$	165	$	23	$	—	$	—	$	23
Commercial paper	—		46		—		46
Municipal bonds	—		18		—		18
Marketable securities - available-for-sale:
Municipal bonds	—		153		—		153		—		31		—		31
Other assets:
Equity interests	—		7		—		7
Variable-rate demand notes									—		343		—		343
Total	$	165	$	224	$	—	$	389	$	23	$	374	$	—	$	397


September 27, 2015	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total
September 25, 2016									Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total
Cash equivalents:
Money market fund	$	32	$	—	$	—	$	32	$	62	$	—	$	—	$	62
Commercial paper									—		30		—		30
Municipal bonds									—		46		—		46
Marketable securities - available-for-sale:
Asset-backed securities	—		13		—		13
Certificates of deposit	—		2		—		2
Corporate bonds	—		30		—		30
Commercial paper									—		30		—		30
Municipal bonds	—		173		—		173		—		26		—		26
Variable rate demand notes									—		323		—		323
Total	$	32	$	218	$	—	$	250	$	62	$	455	$	—	$	517

The estimated fair value of the Company’s long-term debt is included in Note 8 “Long-Term Debt.”

Assets Measured at Fair Value on a Nonrecurring Basis

During the sixteen weeks ended January 15, 2017, the Company recorded fair value adjustments, based on hierarchy level 3 inputs, totaling approximately $34 million related to certain locations for which asset value exceeded expected future cash flows, which were primarily included in the “Relocation, store closure and lease termination cost” line item on the Consolidated Statement of Operations. These impairment charges reduced the carrying value of related long-term assets to an immaterial fair value.

(4) Investments

The Company holds investments primarily in marketable securities that are classified as ~~either short- or long-term~~short-term available-for-sale securities. The Company held the following investments at fair value as of the dates indicated (in millions):

July 3,
2016 September 27,
2015
Short-term marketable securities - available-for-sale:
Asset-backed securities $ —
$ 10
Certificates of deposit —
2
Corporate bonds —
15
Municipal bonds 153
128
Total short-term marketable securities $ 153
$ 155
Long-term marketable securities - available-for-sale:
Asset-backed securities $ —
$ 3
Corporate bonds —
15
Municipal bonds —
45
Total long-term marketable securities $ —
$ 63



	January 15, 2017		September 25, 2016
Short-term marketable securities - available-for-sale:
Commercial paper	$	—	$	30
Municipal bonds	31		26
Variable rate demand notes	343		323
Total short-term marketable securities	$	374	$	379

Gross unrealized holding gains and losses were not material at ~~July 3, 2016~~January 15, 2017 or September ~~27, 2015~~.25, 2016. There were no available-for-sale securities in an unrealized loss position at ~~July 3, 2016.~~January 15, 2017. Available-for-sale securities totaling approximately ~~$58~~$33 million were in unrealized loss positions at September ~~27, 2015~~.25, 2016. The aggregate value of available-for-sale securities in a continuous unrealized loss position for greater than 12 months was not material at September ~~27, 2015.~~25, 2016. The Company did not

recognize any other-than-temporary impairments during the ~~forty~~sixteen weeks ended ~~July 3, 2016~~January 15, 2017 or fiscal year ended September ~~27, 2015~~.25, 2016. The average effective maturity of the Company’s short-term available-for-sale securities was less than one month at ~~July 3, 2016~~January 15, 2017 and ~~approximately~~ ~~seven~~ ~~months at~~ September ~~27, 2015. The average effective maturity of the Company’s long-term available-for-sale securities was approximately 16 months at~~ ~~September 27, 2015~~.25, 2016.

At ~~July 3,~~January 15, 2017 and September 25, 2016, ~~and~~ ~~September 27, 2015~~, the Company held approximately ~~$14~~$23 million and $19 million in equity interests which were accounted for using the cost method of accounting. ~~In addition, the Company held approximately $7 million in equity interests which are measured at fair value at July 3, 2016.~~ Equity interests accounted for using the equity method were not material at ~~July 3, 2016~~January 15, 2017 or September ~~27, 2015.~~

25, 2016.

(5) Goodwill and Other Intangible Assets

There were no additions or adjustments to goodwill during the ~~forty~~sixteen weeks ended ~~July 3,~~January 15, 2017 or January 17, 2016. ~~Additions and adjustments to goodwill were not material during the forty weeks ended July 5, 2015.~~ Additions of other intangible assets were not material during the ~~forty~~sixteen weeks ended ~~July 3, 2016~~January 15, 2017 or the same period of the prior fiscal year. The components of intangible assets as of the dates indicated were as follows (in millions):


	July 3, 2016					September 27, 2015					January 15, 2017					September 25, 2016
	Gross carrying amount		Accumulated amortization			Gross carrying amount		Accumulated amortization			Gross carrying amount		Accumulated amortization			Gross carrying amount		Accumulated amortization
Definite-lived contract-based	$	122	$	(54	)	$	122	$	(50	)	$	120	$	(57	)	$	120	$	(55	)
Indefinite-lived contract-based	8					7					9					9
Total	$	130	$	(54	)	$	129	$	(50	)	$	129	$	(57	)	$	129	$	(55	)

Amortization expense associated with intangible assets was not material during the ~~twelve and forty~~sixteen weeks ended ~~July 3, 2016~~January 15, 2017 or the same ~~periods~~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 2016	$	1
Fiscal year 2017	6
Remainder of fiscal year 2017			$	4
Fiscal year 2018	5		5
Fiscal year 2019	5		5
Fiscal year 2020	5		5
Fiscal year 2021			4
Future fiscal years	46		40
Total	$	68	$	63

(6) Store and Facility Closures

~~(6) One-Time Termination Benefits~~

During ~~fiscal year 2015,~~the sixteen weeks ended January 15, 2017, the Company ~~communicated~~announced plans to ~~certain team members its plan of termination to reduce a number of positions through the first quarter of fiscal year 2016 as part of its ongoing commitment to lower prices for its customers~~close nine stores and ~~invest in technology upgrades while improving its cost structure.~~three commissary kitchens. The Company recorded ~~one-time termination benefits in~~non-cash charges of approximately $34 million to adjust the ~~fourth quarter~~long-lived assets of ~~fiscal year 2015 totaling $34 million,~~these locations to fair value. These charges are included in the ~~“Selling, general~~“Relocation, store closure and ~~administrative expenses”~~lease termination cost” line item on the Consolidated ~~Statements~~Statement of Operations. The ~~plan was substantially completed during~~Company expects to incur additional charges of approximately $30 million related to these closures in the ~~first~~second quarter of fiscal year ~~2016, and adjustments~~2017 largely relating to ~~the related restructuring charges were not material.~~

lease terminations.

(7) Reserves for Closed Properties

The following table provides a summary of activity in reserves for closed properties during the ~~forty~~sixteen weeks ended ~~July 3, 2016~~January 15, 2017 and fiscal year ended September ~~27, 2015~~25, 2016 (in millions):


	July 3, 2016			September 27, 2015			January 15, 2017			September 25, 2016
Beginning balance	$	28		$	31		$	26		$	28
Additions	4			9			1			6
Usage	(8		)	(13		)	(2		)	(10		)
Adjustments	2			1			1			2
Ending balance	$	26		$	28		$	26		$	26

(8) Long-Term Debt

Credit Agreement

OnThe Company’s revolving credit facility under a credit agreement dated as of November 2, 2015 ~~the Company entered into a credit facility~~ (the “Credit Agreement”) ~~that~~ provides for an unsecured revolving credit facility in the aggregate principal amount of $500 million, which may be increased from time to time by up to $250 ~~million in the aggregate pursuant to an expansion feature set forth in the Credit Agreement.~~million. The Credit Agreement also provides for a letter of credit subfacility of up to $250 ~~million and a swingline subfacility of up to $50~~ million. ~~The Credit Agreement is scheduled to mature, and the commitments thereunder will terminate, on November 2, 2020.~~

Under the Credit Agreement, Eurodollar borrowings bear interest at a variable rate equal to an adjusted London interbank offered rate (“Adjusted LIBO Rate”) for a one, two, three, or six month interest period, plus a margin between 1.125% to 1.750%. Other borrowings, including swingline loans, bear interest at a variable rate equal to the greatest of the Prime Rate, the Federal Funds Rate plus 0.5%, and the Adjusted LIBO Rate for a one-month interest period plus 1%, in each case plus a margin of 0.125% to 0.750%. For all borrowings, the applicable margin is based on the Company’s leverage ratio. Additionally,

At January 15, 2017, the Company ~~will pay a commitment fee ranging from 0.125% to 0.300%, based on the Company’s leverage ratio, on the average daily amount of the undrawn commitments~~had no amounts outstanding under the ~~Credit Agreement payable quarterly.~~

~~The Credit Agreement includes customary representations and warranties, certain affirmative covenants including~~credit facility. Commitment fees paid on undrawn amounts were not material during the ~~maintenance of certain financial ratios, certain negative covenants including limitations on additional indebtedness and payments as defined in~~sixteen weeks ended January 15, 2017. At January 15, 2017, the ~~agreement, and events of default. At July 3, 2016, we were~~Company was in compliance with all applicable debt covenants. ~~Subject to certain exceptions, obligations under the Credit Agreement are guaranteed by certain of the Company’s material domestic subsidiaries.~~

During the ~~first quarter of fiscal year~~sixteen weeks ended January 17, 2016, the Company borrowed and repaid $300 million under the Credit Agreement. ~~At July 3, 2016, the Company had no amounts outstanding. Commitment fees paid on undrawn amounts were not material during the forty weeks ended July 3, 2016.~~

Senior Notes

~~On December 3, 2015, the~~The Company ~~completed the offering of~~has outstanding $1.0 billion of ~~5.2%~~ senior notes ~~due 2025~~ (the “Notes”). The Notes were offered in the United States to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States pursuant to Regulation S under the Securities Act. The Notes have not been registered under the Securities Act or any state securities laws and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements or a transaction not subject to the registration requirements of the Securities Act or any state securities laws.

The Notes bear interest at a fixed rate equal to 5.2% per year, payable semiannually, and mature on December 3, 2025. The interest rate payable on the Notes is subject to adjustment upon the occurrence of certain credit rating events described in the indenture. The Notes are guaranteed on an unsecured, unsubordinated basis by certain subsidiaries of the Company.

The Notes are subject to customary covenants restricting the Company’s and its subsidiaries’ ability, subject to certain exceptions, to incur debt secured by liens or to enter into sale and leaseback transactions and restricting the Company’s ability to merge or consolidate with another entity or sell substantially all of its assets to another person. Prior to September 3, 2025, the Company may redeem the Notes at the Company’s option at any time either in whole or in part for a redemption price equal to 100% of the aggregate principal amount of the Notes to be redeemed plus the applicable make-whole premium, plus accrued and unpaid interest thereon. On or after September 3, 2025, the Company may redeem the Notes at the Company’s option at any time either in whole or in part for a redemption price equal to 100% of the aggregate principal amount of the Notes to be redeemed, plus accrued and unpaid interest thereon.

~~The components of long-term debt as of the dates indicated were as follows (in millions):~~

July 3,
2016 September 27,
2015
5.2% senior notes due 2025 $ 1,000
$ —
Less: unamortized discount and debt issuance costs related to senior notes (7 ) —
Carrying value of senior notes 993
—
Capital lease obligations 59
65
Total long-term debt and capital lease obligations 1,052
65
Less: current installments (3 ) (3 )
Total long-term debt and capital lease obligations, less current installments $ 1,049
$ 62

~~The Notes are recorded at cost net of discount and issuance costs.~~ The effective interest rate of the Notes, which includes interest on the Notes and amortization of discount and issuance costs, is approximately 5.28%. At January 15, 2017, the Company was in compliance with all applicable debt covenants. The estimated fair value of the Notes at ~~July 3, 2016,~~January 15, 2017, based on observable market prices (Level 2), exceeded the carrying value by approximately ~~$80~~$70 million.

The Senior Notes issued on December 3, 2015 and Credit Agreement are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis by certain wholly owned domestic subsidiaries of the Company (the “Guarantors”). For additional information regarding the Guarantors see Note 14, Guarantor Financial Statement Information. The components of long-term debt as of the dates indicated were as follows (in millions):



	January 15, 2017			September 25, 2016
5.2% senior notes due 2025	$	1,000		$	1,000
Less: unamortized discount and debt issuance costs related to senior notes	(7		)	(7		)
Carrying value of senior notes	993			993
Capital lease obligations	58			58
Total long-term debt and capital lease obligations	1,051			1,051
Less: current installments	(3		)	(3		)
Total long-term debt and capital lease obligations, less current installments	$	1,048		$	1,048

(9) Income Taxes

Income taxes resulted in an effective tax rate of approximately 39.0% ~~and 38.4%~~ for the ~~twelve and forty~~sixteen weeks ended ~~July 3, 2016, respectively,~~January 15, 2017 compared to approximately ~~39.0%~~37.0% for ~~each of~~ the same ~~periods~~period of the prior fiscal year. The lower effective tax rate for the ~~forty~~sixteen weeks ended ~~July 3,~~January 17, 2016 ~~compared to the prior fiscal year~~ is due to the recognition of an environmental tax credit related to the development of a new store.

(10) Shareholders’ Equity

Dividends per Common Share

The following table provides a summary of dividends declared per common share during fiscal year ~~2016~~2017 to date and fiscal year ~~2015~~2016 (in millions, except per share amounts):

Date of declaration
Dividend per
common share
Date of record Date of payment Total amount
Fiscal year 2016:
November 4, 2015 $ 0.135
January 15, 2016 January 26, 2016 $ 44
March 9, 2016 0.135
April 8, 2016 April 19, 2016 44
June 7, 2016⁽¹⁾
0.135
July 1, 2016 July 12, 2016 43
Fiscal year 2015:
November 5, 2014 $ 0.130
January 16, 2015 January 27, 2015 $ 47
March 10, 2015 0.130
April 10, 2015 April 21, 2015 47
June 9, 2015 0.130
July 2, 2015 July 14, 2015 47
September 15, 2015 0.130
October 2, 2015 October 13, 2015 45



Date of declaration	Dividend per common share		Date of record	Date of payment	Total amount
Fiscal year 2017:
November 2, 2016⁽¹⁾	$	0.14	January 13, 2017	January 24, 2017	$	45
Fiscal year 2016:
November 4, 2015	$	0.135	January 15, 2016	January 26, 2016	$	44
March 9, 2016	0.135		April 8, 2016	April 19, 2016	44
June 7, 2016	0.135		July 1, 2016	July 12, 2016	43
September 22, 2016	0.135		October 3, 2016	October 14, 2016	43

⁽¹⁾ Dividend accrued at ~~July 3, 2016~~January 15, 2017

Treasury Stock

~~On November 4, 2015, a new~~As of January 15, 2017, one share repurchase program ~~was authorized pursuant to the authority of the Company’s Board of Directors (the “Board”) whereby the Company may make up to $1.0 billion~~remains in ~~stock repurchases of outstanding shares of the common stock of the Company.~~effect, with prior programs having been fully utilized, expired or cancelled. The following table outlines the share repurchase ~~programs~~program authorized by the Company’s Board of Directors (“Board”), and the related repurchase activity ~~and available authorization~~ as of ~~July 3, 2016~~January 15, 2017 (in millions):


Effective date	Expiration date	Amount authorized		Cost of repurchases		Authorization available		Expiration date	Amount authorized		Cost of repurchases		Authorization available
August 1, 2014	August 1, 2016	$	1,000	$	1,000	$	—
November 4, 2015	Not applicable	1,000		542		458		Not applicable	$	1,000	$	557	$	443

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 current repurchase program does not have an expiration date and 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.

Share repurchase activity for the ~~periods indicated~~sixteen weeks ended January 15, 2017 was immaterial. Share repurchase activity for the sixteen weeks ended January 17, 2016 was as follows (in millions, except per share amounts):


	Twelve weeks ended				Forty weeks ended
	July 3, 2016		July 5, 2015		July 3, 2016		July 5, 2015		January 17, 2016
Number of common shares acquired	6.5		2.1		31.2		3.9		21.2
Average price per common share acquired	$	30.01	$	45.98	$	29.85	$	48.29	$	29.96
Total cost of common shares acquired	$	195	$	98	$	929	$	188	$	634

The Company reissued approximately ~~1.1~~0.2 million treasury shares at cost of approximately ~~$39~~$8 million and approximately ~~2.1~~0.3 million treasury shares at cost of approximately ~~$90~~$11 million to satisfy the issuance of common stock pursuant to team member stock plans during the ~~forty~~sixteen weeks ended ~~July 3,~~January 15, 2017 and January 17, 2016, ~~and July 5, 2015,~~ respectively. At ~~July 3, 2016~~January 15, 2017 and September ~~27, 2015~~25, 2016, the Company held in treasury approximately ~~58.2~~58.5 million shares and ~~28.2~~58.7 million shares, respectively, totaling approximately $2.0 billion ~~and~~ .~~$1.1 billion, respectively.~~

(11) 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):


	Twelve weeks ended				Forty weeks ended				Sixteen weeks ended
	July 3, 2016		July 5, 2015		July 3, 2016		July 5, 2015		January 15, 2017		January 17, 2016
Net income (numerator for basic and diluted earnings per share)	$	120	$	154	$	419	$	479	$	95	$	157

Weighted average common shares outstanding (denominator for basic earnings per share)	320.6		358.5		328.4		359.6		318.2		337.0
Incremental common shares attributable to dilutive effect of share-based awards	0.6		2.0		0.9		2.6		0.5		1.2
Weighted average common shares outstanding and potential additional common shares outstanding (denominator for diluted earnings per share)	321.2		360.5		329.3		362.2		318.7		338.2

Basic earnings per share	$	0.37	$	0.43	$	1.27	$	1.33	$	0.30	$	0.47

Diluted earnings per share	$	0.37	$	0.43	$	1.27	$	1.32	$	0.30	$	0.46

The computation of diluted earnings per share for the ~~twelve and forty~~sixteen weeks ended ~~July 3,~~January 15, 2017 and January 17, 2016 does not include share-based awards to purchase approximately ~~23.6~~24.5 million shares and 20.8 million shares of common stock, respectively, due to their antidilutive effect. The computation of diluted earnings per share for the twelve and forty weeks ended July 5, 2015 does not include share-based awards to purchase approximately 13.8 million shares and 9.818.7 million shares of common stock, respectively, due to their antidilutive effect.

(12) Share-Based Payments

Share-based payment expense, primarily included in the “Selling, general and administrative expenses” line item on the Consolidated Statements of Operations, totaled approximately ~~$11~~$14 million ~~and $39 million, respectively,~~ during the ~~twelve and forty~~sixteen weeks ended ~~July 3, 2016,~~January 15, 2017, and totaled approximately ~~$14~~$16 million ~~and $51 million, respectively,~~ for the same ~~periods~~period of the prior fiscal year.

At ~~July 3, 2016~~January 15, 2017 and September ~~27, 2015,~~25, 2016, approximately ~~29.8~~30.3 million shares and ~~32.9~~29.8 millionshares of the Company’s common stock, respectively, were available for future stock incentive grants.

~~Stock Options~~

During the twelve and forty weeks ended July 3, 2016, the Company awarded approximately 4.9 million stock options and 5.0 million stock options, respectively, pursuant to the Whole Foods Market 2009 Stock Incentive Plan compared to approximately 4.8 million stock options and 5.3 million stock options, respectively, for the same periods of the prior fiscal year. The weighted average grant date fair value of options granted during the forty weeks ended July 3, 2016 and July 5, 2015 was $6.71 and $10.19, respectively.

The fair value of stock option grants during the forty weeks ended July 3, 2016 and July 5, 2015 has been estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

2016
2015
Expected dividend yield 1.73 % 1.00 %
Risk-free interest rate 1.08 % 1.20 %
Expected volatility 31.30 % 29.73 %
Expected life, in years 4.05
4.04

Total share-based payment expense related to vesting stock options totaled approximately $10 million and $37 million for the twelve and forty weeks ended July 3, 2016, respectively, and approximately $13 million and $48 million, respectively, for the same periods of the prior fiscal year. At ~~July 3, 2016~~January 15, 2017 and September ~~27, 2015,~~25, 2016, there was approximately ~~$82~~$61 million and ~~$95~~$73 million of unrecognized share-based payment expense, respectively, related to unvested stock options, net of estimated forfeitures, related to approximately ~~10.5~~10.3 million shares and ~~11.5~~10.5 million shares, respectively. The Company anticipates this expense to be recognized over a weighted average period of ~~3.1~~2.7 years.

(13) 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. From time to time we are a

party to legal proceedings including matters involving shareholder claims, personnel and employment issues, personal injury, product liability, protecting our intellectual property, regulatory practices, acquisitions and other proceedings arising in the ordinary course of business. These matters have not resulted in any material losses to date. Certain litigation cases have been certified as class or collective actions and may seek substantial damages.

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.

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, and is not currently a party to any legal proceeding that management believes could have a material adverse effect on our results of operations. 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.

(14) Guarantor Financial Statement Information

The Senior Notes issued on December 3, 2015 and Credit Agreement are fully and unconditionally guaranteed, jointly and severally, on an unsecured, unsubordinated basis by certain wholly owned domestic subsidiaries of the Company (the “Guarantors”). Supplemental condensed consolidating financial information of the Company, including such information for the Guarantors is presented below:

Consolidated Balance Sheets (unaudited)

(In millions)



	January 15, 2017
Assets	Parent/Issuer		Guarantor Subsidiaries		Non-guarantor Subsidiaries		Eliminations			Consolidated Total
Current assets:
Cash and cash equivalents	$	—	$	252	$	98	$	—		$	350
Short-term investments - available-for-sale securities	—		374		—		—			374
Restricted cash	—		118		7		—			125
Accounts receivable	—		229		22		—			251
Intercompany receivable	—		695		—		(695		)	—
Merchandise inventories	—		467		87		—			554
Prepaid expenses and other current assets	—		106		17		—			123
Deferred income taxes	—		210		—		—			210
Total current assets	—		2,451		231		(695		)	1,987
Property and equipment, net of accumulated depreciation and amortization	—		3,075		385		—			3,460
Investments in consolidated subsidiaries	4,695		105		474		(5,274		)	—
Goodwill	—		703		7		—			710
Intangible assets, net of accumulated amortization	1		62		9		—			72
Deferred income taxes	—		105		6		—			111
Other assets	—		15		27		—			42
Total assets	$	4,696	$	6,516	$	1,139	$	(5,969	)	$	6,382

Liabilities and Shareholders’ Equity
Current liabilities:
Current installments of long-term debt and capital lease obligations	$	—	$	3	$	—	$	—		$	3
Accounts payable	—		209		79		—			288
Intercompany payable	360		—		335		(695		)	—
Accrued payroll, bonus and other benefits due team members	—		395		26		—			421
Dividends payable	45		—		—		—			45
Other current liabilities	6		500		37		—			543
Total current liabilities	411		1,107		477		(695		)	1,300
Long-term debt and capital lease obligations, less current installments	993		48		7		—			1,048
Deferred lease liabilities	—		603		50		—			653
Other long-term liabilities	—		88		1		—			89
Total liabilities	1,404		1,846		535		(695		)	3,090

Commitments and contingencies

Total shareholders’ equity	3,292		4,670		604		(5,274		)	3,292
Total liabilities and shareholders’ equity	$	4,696	$	6,516	$	1,139	$	(5,969	)	$	6,382

Consolidated Balance Sheets (unaudited)

(In millions)



	September 25, 2016
Assets	Parent/Issuer		Guarantor Subsidiaries		Non-guarantor Subsidiaries		Eliminations			Consolidated Total
Current assets:
Cash and cash equivalents	$	—	$	254	$	97	$	—		$	351
Short-term investments - available-for-sale securities	—		379		—		—			379
Restricted cash	—		114		8		—			122
Accounts receivable	—		216		26		—			242
Intercompany receivable	—		649		—		(649		)	—
Merchandise inventories	—		441		76		—			517
Prepaid expenses and other current assets	—		150		17		—			167
Deferred income taxes	—		197		—		—			197
Total current assets	—		2,400		224		(649		)	1,975
Property and equipment, net of accumulated depreciation and amortization	—		3,063		379		—			3,442
Investments in consolidated subsidiaries	4,593		103		472		(5,168		)	—
Goodwill	—		702		8		—			710
Intangible assets, net of accumulated amortization	1		63		10		—			74
Deferred income taxes	—		94		6		—			100
Other assets	—		16		24		—			40
Total assets	$	4,594	$	6,441	$	1,123	$	(5,817	)	$	6,341

Liabilities and Shareholders’ Equity
Current liabilities:
Current installments of long-term debt and capital lease obligations	$	—	$	3	$	—	$	—		$	3
Accounts payable	—		227		80		—			307
Intercompany payable	317		—		333		(650		)	—
Accrued payroll, bonus and other benefits due team members	—		381		26		—			407
Dividends payable	43		—		—		—			43
Other current liabilities	17		536		28		—			581
Total current liabilities	377		1,147		467		(650		)	1,341
Long-term debt and capital lease obligations, less current installments	993		48		7		—			1,048
Deferred lease liabilities	—		592		48		—			640
Other long-term liabilities	—		87		1		—			88
Total liabilities	1,370		1,874		523		(650		)	3,117

Commitments and contingencies

Total shareholders’ equity	3,224		4,567		600		(5,167		)	3,224
Total liabilities and shareholders’ equity	$	4,594	$	6,441	$	1,123	$	(5,817	)	$	6,341

Consolidated Statements of Operations (unaudited)

(In millions)



	Sixteen weeks ended January 15, 2017
	Parent/Issuer			Guarantor Subsidiaries		Non-guarantor Subsidiaries			Eliminations			Consolidated Total
Sales	$	—		$	4,672	$	314		$	(68	)	$	4,918
Cost of goods sold and occupancy costs	—			3,110		224			(66		)	3,268
Gross profit	—			1,562		90			(2		)	1,650
Selling, general and administrative expenses	—			1,337		80			—			1,417
Pre-opening expenses	—			18		3			—			21
Relocation, store closure and lease termination costs	—			40		1			—			41
Operating income	—			167		6			(2		)	171
Interest expense	(15		)	—		—			—			(15		)
Investment and other expense	—			—		(1		)	1			—
Equity in net income of subsidiaries	104			2		1			(107		)	—
Income before income taxes	89			169		6			(108		)	156
Provision for income taxes	(6		)	65		2			—			61
Net income	$	95		$	104	$	4		$	(108	)	$	95



	Sixteen weeks ended January 17, 2016
	Parent/Issuer			Guarantor Subsidiaries		Non-guarantor Subsidiaries			Eliminations			Consolidated Total
Sales	$	—		$	4,584	$	289		$	(44	)	$	4,829
Cost of goods sold and occupancy costs	—			3,029		202			(43		)	3,188
Gross profit	—			1,555		87			(1		)	1,641
Selling, general and administrative expenses	—			1,294		79			—			1,373
Pre-opening expenses	—			10		3			—			13
Relocation, store closure and lease termination costs	—			3		—			—			3
Operating income	—			248		5			(1		)	252
Interest expense	(7		)	—		—			—			(7		)
Investment and other income (expense)	—			5		(2		)	1			4
Equity in net income of subsidiaries	161			3		6			(170		)	—
Income before income taxes	154			256		9			(170		)	249
Provision for income taxes	(3		)	93		2			—			92
Net income	$	157		$	163	$	7		$	(170	)	$	157

Consolidated Statements of Comprehensive Income (unaudited)

(In millions)



	Sixteen weeks ended January 15, 2017
	Parent/Issuer		Guarantor Subsidiaries			Non-guarantor Subsidiaries		Eliminations			Consolidated Total
Net income	$	95	$	104		$	4	$	(108	)	$	95
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	—		(4		)	3		—			(1		)
Other comprehensive income (loss), net of tax	—		(4		)	3		—			(1		)
Comprehensive income	$	95	$	100		$	7	$	(108	)	$	94



	Sixteen weeks ended January 17, 2016
	Parent/Issuer		Guarantor Subsidiaries		Non-guarantor Subsidiaries			Eliminations			Consolidated Total
Net income	$	157	$	163	$	7		$	(170	)	$	157
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	—		4		(14		)	—			(10		)
Other comprehensive income (loss), net of tax	—		4		(14		)	—			(10		)
Comprehensive income (loss)	$	157	$	167	$	(7	)	$	(170	)	$	147

Condensed Consolidated Statements of Cash Flows (unaudited)

(In millions)



	January 15, 2017
	Parent/Issuer			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated Total
Net cash provided by (used in) operating activities	$	(26	)	$	293		$	17		$	—		$	284
Cash flows from investing activities
Purchases of property, plant and equipment	—			(226		)	(19		)	—			(245		)
Purchases of available-for-sale securities	—			(200		)	—			—			(200		)
Sales and maturities of available-for-sale securities	—			205			—			—			205
Payment for purchase of acquired entities, net of cash acquired	—			—			—			—			—
Intercompany activity	64			—			—			(64		)	—
Other investing activities	—			(4		)	—			—			(4		)
Net cash provided by (used in) investing activities	64			(225		)	(19		)	(64		)	(244		)
Cash flows from financing activities
Purchases of treasury stock	—			—			—			—			—
Common stock dividends paid	(43		)	—			—			—			(43		)
Issuance of common stock	5			—			—			—			5
Excess tax benefit related to exercise of team member stock options	—			—			—			—			—
Proceeds from long-term borrowings	—			—			—			—			—
Proceed for revolving line of credit	—			—			—			—			—
Payments on long-term debt and capital lease obligations	—			—			—			—			—
Intercompany activity	—			(66		)	2			64			—
Other financing activities	—			—			—			—			—
Net cash provided by (used in) financing activities	(38		)	(66		)	2			64			(38		)
Effect of exchange rate changes on cash and cash equivalents	—			—			—			—			—
Net change in cash, cash equivalents, and restricted cash	—			2			—			—			2
Cash, cash equivalents, and restricted cash at beginning of period	—			368			105			—			473
Cash, cash equivalents, and restricted cash at end of period	$	—		$	370		$	105		$	—		$	475

Condensed Consolidated Statements of Cash Flows (unaudited)

(In millions)



	January 17, 2016
	Parent/Issuer			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated Total
Net cash provided by operating activities	$	—		$	219		$	13		$	—		$	232
Cash flows from investing activities
Purchases of property, plant and equipment	—			(156		)	(23		)	—			(179		)
Purchases of available-for-sale securities	—			(133		)	—			—			(133		)
Sales and maturities of available-for-sale securities	—			220			—			—			220
Payment for purchase of acquired entities, net of cash acquired	—			—			(11		)	—			(11		)
Intercompany activity	(319		)	—			—			319			—
Other investing activities	—			(6		)	—			—			(6		)
Net cash used in investing activities	(319		)	(75		)	(34		)	319			(109		)
Cash flows from financing activities
Purchases of treasury stock	(634		)	—			—			—			(634		)
Common stock dividends paid	(45		)	—			—			—			(45		)
Issuance of common stock	7			—			—			—			7
Excess tax benefit related to exercise of team member stock options	1			—			—			—			1
Proceeds from long-term borrowings	999			—			—			—			999
Proceeds from revolving line of credit	300			—			—			—			300
Payments on long-term debt and capital lease obligations	(302		)	—			—			—			(302		)
Intercompany activity	—			305			14			(319		)	—
Other financing activities	(7		)	—			—			—			(7		)
Net cash provided by financing activities	319			305			14			(319		)	319
Effect of exchange rate changes on cash and cash equivalents	—			—			(1		)	—			(1		)
Net change in cash, cash equivalents, and restricted cash	—			449			(8		)	—			441
Cash, cash equivalents, and restricted cash at beginning of period	—			261			103			—			364
Cash, cash equivalents, and restricted cash at end of period	$	—		$	710		$	95		$	—		$	805

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,” “intend,” “estimate,” “expect,” “see,” “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, 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 ~~27, 2015~~25, 2016 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 ~~27, 2015~~25, 2016.

Overview

Whole Foods Market is the leading natural and organic foods supermarket, the first national “Certified Organic” grocer, and uniquely positioned as America’s Healthiest Grocery Store™. We are a mission-driven company that aims to set the standards of excellence in food retailing. Our success is measured by customer satisfaction, team member happiness and excellence, return on invested capital, active environmental stewardship, service in our local and global communities, and win-win supplier partnerships, among other things. 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 ~~July 3, 2016,~~January 15, 2017, operated ~~452~~467 stores: ~~432~~446 stores in 42 U.S. states and the District of Columbia; 1112 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 typically 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 or acquired. The calculation of comparable store sales excludes sales from relocated and remodeled stores with square footage changes greater than 20% to reduce the impact of square footage changes on the comparison. Stores closed for eight or more days are excluded from the comparable store base from the first fiscal week of closure until re-opened for a full fiscal week. Comparable store sales growth is calculated on a same-calendar-week to same-calendar-week constant currency basis. Companies define comparable store sales differently; thus growth rates across companies may not be comparable.

The Company reports its results of operations on a 52- or 53-week fiscal year ending on the last Sunday in September. Fiscal years ~~2016~~2017 and ~~2015~~2016 are 52-week years.

Economic and Industry Factors

Food retailing is a large, intensely competitive industry and is evolving at an incredibly fast pace. Consumers have more options than ever before. 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, restaurants and home delivery, and meal solution companies, each of which competes with us on the basis of store ambiance and experience, product selection and quality, customer service, price, convenience or a combination of these factors.

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. Our groundbreaking quality standards ban hundreds of ingredients commonly found in products sold by other ~~stores~~retailers, as well as ~~numerous~~products grown or produced by manufacturing, farming, fishing and ranching practices that don’t measure up.

~~Third~~First Quarter of Fiscal Year ~~2016~~2017 Summary

Record ~~total~~ sales of ~~$3.7~~$4.9 billion, a 1.9% increase over the prior year

Comparable store sales decrease of ~~2.6%~~2.4%

Net income of ~~$120~~$95 million, or ~~3.2%~~1.9% of sales

Diluted earnings per share of ~~$0.37~~$0.30

EBITDA of ~~$326~~$360 million, or ~~8.8%~~7.3% of sales

~~Adjusted~~ Return on Invested Capital (“ROIC”) of ~~13.0%~~11.0%

Results include a non-cash charge of $34 million, or $0.06 per diluted share, related to store and facility closures and a charge of $13 million, or $0.03 per diluted share, associated with Mr. Robb’s separation agreement. Excluding these charges, net income was $123 million, or 2.5% of sales; diluted earnings per share were $0.39; EBITDA margin was 7.6%; and ROIC was 11.7%. Please refer to the reconciliation of GAAP measures to non-GAAP measures included in this Management’s Discussion and Analysis. During the ~~twelve~~sixteen weeks ended ~~July 3, 2016,~~January 15, 2017, we produced approximately ~~$189~~$284 million in cash flows from

operations and returned approximately ~~$44~~$43 million in quarterly dividends to common ~~shareholders and repurchased approximately $195 million of our common stock, or approximately 6.5 million shares.~~shareholders. At ~~July 3, 2016,~~January 15, 2017, we had approximately $1.1 billion in total debt and approximately ~~$1.1~~$1.2 billion in total available capital.

~~Fourth Quarter of~~ Fiscal Year ~~2016~~2017 Updated Outlook

~~If comparable~~The Company is updating its outlook primarily to reflect lower expected sales growth and new costs associated with accelerating the implementation of category management. In the first quarter of fiscal year 2017, the Company incurred a charge of approximately $47 million, or $0.09 per diluted share, related to Mr. Robb’s separation agreement as well as store and facility closures. In the second quarter of fiscal year 2017, the Company expects to incur an additional charge related to these closures of approximately $30 million, or $0.06 per diluted share. The Company’s outlook excludes these charges and potential share repurchases. The Company remains focused on the metrics it believes are key to the long-term health of its business and for fiscal year 2017 is targeting:

Sales growth of 1.5% of greater

Comps of approximately -2.5% or better

Ending square footage growth of approximately 5% net of closures, reflecting approximately 30 new stores, including up to six relocations and three 365 stores

Diluted EPS of $1.33 or greater

EBITDA margin of approximately 8%

Capital expenditures of approximately 4% of sales

ROIC of approximately 11%

The Company has updated its sales outlook primarily to reflect year-to-date sales trends and lost sales related to the store closures. While the Company remains hopeful that comps improve as sales-building initiatives gain traction and comparisons get easier, the competitive landscape continues to be very dynamic, two-year comps have continued to moderate, and it is uncertain how long the deflationary environment will continue.

The Company plans to reduce its cost structure this fiscal year but expects these savings to be more than offset by investments in marketing, value and technology, as well as higher occupancy, depreciation and other costs. In addition, the Company is estimating additional costs of approximately $14 million, or $0.03 per diluted share, related to its recent decision to accelerate the implementation of category management, the majority of which it expects to incur in the fourth quarter. Therefore, the Company now expects a decline in operating margin of up to approximately 85 basis points for the year, with greater declines of up to 115 basis points in the second and fourth quarters due in part to the negative Easter shift and higher year-over-year marketing expense in the second quarter, and to costs associated with category management in the fourth quarter. The Company also notes a LIFO credit of $9 million in the fourth quarter last year as compared to charges of fiscal year 2016 are in line with the 2.4% quarter-to-date decrease at July 27, 2016 and healthcare cost trends continue, the Company would expect sales growth of approximately 2% and diluted earnings per share of $0.23 to $0.24 for the quarter. While the Company is hopeful that comparable store sales will improve over the remainder of the quarter as comparisons get easier and sales-building initiatives gain traction, the Company expects some ongoing offsetting impact from its value strategy and disinflation. The Company has opened three new stores as of July 27, 2016 and expects to open two additional stores$2 million in the ~~fourth quarter.~~

first and second quarters and a credit of $2 million in the third quarter last year.

Results of Operations

The following table sets forth the Company’s consolidated statements of operations data expressed as a percentage of sales:


	Twelve weeks ended				Forty weeks ended				Sixteen weeks ended
	July 3, 2016		July 5, 2015		July 3, 2016		July 5, 2015		January 15, 2017		January 17, 2016
Sales	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold and occupancy costs	65.3		64.4		65.5		64.6		66.4		66.0
Gross profit	34.7		35.6		34.5		35.4		33.6		34.0
Selling, general and administrative expenses	28.5		28.4		28.3		28.4		28.8		28.4
Pre-opening expenses	0.5		0.3		0.4		0.4		0.4		0.3
Relocation, store closure and lease termination costs	0.1		0.1		0.1		0.1		0.8		0.1
Operating income	5.6		6.8		5.7		6.5		3.5		5.2
Interest expense	(0.3	)	—		(0.2	)	—		(0.3	)	(0.1	)
Investment and other income	—		0.1		0.1		0.1		—		0.1
Income before income taxes	5.3		6.9		5.6		6.6		3.2		5.2
Provision for income taxes	2.1		2.7		2.1		2.6		1.2		1.9
Net income	3.2	%	4.2	%	3.4	%	4.0	%	1.9	%	3.2	%

Figures may not sum due to rounding

Sales for the ~~twelve and forty~~sixteen weeks ended ~~July 3, 2016~~January 15, 2017 totaled approximately ~~$3.7~~$4.9 billion, ~~and $12.2 billion, respectively,~~ increasing 1.9% ~~and 2.3%, respectively,~~ over the same ~~periods~~period of the prior fiscal year. Comparable store sales during the ~~twelve and forty~~sixteen weeks ended ~~July 3, 2016~~January 15, 2017 and the same ~~periods~~period of the prior fiscal year are reflected in the table below.


	Twelve weeks ended				Forty weeks ended				Sixteen weeks ended
	July 3, 2016		July 5, 2015		July 3, 2016		July 5, 2015		January 15, 2017		January 17, 2016
Comparable store sales	(2.6	)%	1.3	%	(2.4	)%	3.3	%	(2.4	)%	(1.8	)%
Change in transactions	(2.7	)%	0.8	%	(2.1	)%	1.3	%	(3.9	)%	(1.6	)%
Change in basket size	0.1	%	0.5	%	(0.3	)%	2.0	%	1.5	%	(0.2	)%

~~The rapid expansion of natural and organic product offerings across many new, as well as existing, competitors has had a negative impact on~~We have seen stability in our ~~comparable store sales growth~~comps over the last ~~two years. While we continue to see a moderation in transaction count growth~~three quarters, with some modest traffic improvement from the ~~negative impact~~fourth quarter of ~~competitors and cannibalization on our comparable store sales growth over~~fiscal year 2016 to the ~~last~~first quarter of fiscal year

2017. During the quarter, we saw wide swings in comps on a ~~significant improvement~~weekly basis, as is frequently the case in ~~items per basket during~~ the ~~twelve~~first quarter due to weather and holiday shifts. After a strong start for the first five weeks, ~~ended July 3, 2016. The improvement~~comps dropped off sharply in ~~items per basket more than offset decreases in transactions~~the pre- and ~~average price per item. We expanded our produce price investments~~post-election weeks, and ~~launched weekly deep discount promotions in several categories. The combination of our value strategy, disinflation in some categories,~~then showed nice lifts over Thanksgiving and customers trading down to lower-priced items resulted in a year-over-year decline in average price per item. While our value strategy is continuing to negatively impact comparable store sales, we are seeing a broad-based lift in items per basket and are encouraged by improving traffic trends in certain key departments, particularly produce.Christmas weeks. Comparable stores contributed approximately ~~94.5% and 94.1%~~95.1% of total sales for the ~~twelve and forty~~sixteen weeks ended ~~July 3, 2016, respectively,~~January 15, 2017, compared to approximately ~~92.9% and 93.4%, respectively,~~93.7% for the same ~~periods~~period of the prior fiscal year. As of ~~July 3, 2016~~January 15, 2017, there were ~~420~~434 locations in the comparable store base as compared to ~~383~~404 locations at ~~July 5, 2015.~~January 17, 2016.

The Company’s gross profit as a percentage of sales for the ~~twelve and forty~~sixteen weeks ended ~~July 3, 2016~~January 15, 2017 was approximately ~~34.7% and 34.5%, respectively,~~33.6% compared to approximately ~~35.6% and 35.4%, respectively,~~34.0% for the same ~~periods~~period of the prior fiscal year. Gross ~~profit~~margin for the ~~forty~~sixteen weeks ended ~~July 5, 2015 included a supplier credit of approximately $9 million or 8~~January 15, 2017 declined 43 basis points to 33.6%, as ~~a percentage of sales. Excluding~~compared to the ~~impact of the supplier credit, gross profit declined 84 basis points year over year for the forty~~sixteen weeks ended ~~July 3,~~January 17, 2016, driven by ~~an increase~~increases in occupancy costs and cost of goods sold as a percentage of ~~sales, primarily reflecting our value efforts.~~sales.

Selling, general and administrative expenses as a percentage of sales were approximately ~~28.5% and 28.3%~~28.8% for the ~~twelve and forty~~sixteen weeks ended ~~July 3, 2016, respectively,~~January 15, 2017 compared to approximately 28.4% for the same ~~periods~~period of the prior fiscal year. During the ~~twelve and forty~~sixteen weeks ended ~~July 3, 2016,~~January 15, 2017, selling, general and administrative expenses included a charge of $13 million associated with the separation

agreement for Walter Robb, our former Co-Chief Executive Officer. Excluding this charge, selling, general and administrative expenses increased 12 basis points year over year for the sixteen weeks ended January 15, 2017 driven by an ~~82 basis point and 65 basis point improvement~~increase in ~~wages, respectively, that was more than offset by higher healthcare, depreciation,~~ marketing and ~~technology~~depreciation expenses as a percentage of sales. Higher-than-expected healthcare expenses were due to an increase in catastrophic claims and costs for certain prescription medicines, while technology and marketing investments were in line with our expectations. Technology expense and related depreciation increased during the twelve and forty weeks ended July 3, 2016 by approximately $10 million and $30 million, respectively, primarily due to costs associated with the rollout of our new unified point-of-sale system. Marketing expenses increased during the twelve weeks ended July 3, 2016 by approximately $8 million, primarily related to investments in paid media. The forty weeks ended July 5, 2015 included approximately $13 million associated with the Company’s national brand campaign.

Pre-opening expenses totaled approximately ~~$18 million and $49~~$21 million for the ~~twelve and forty~~sixteen weeks ended ~~July 3, 2016, respectively,~~January 15, 2017 compared to approximately ~~$12~~$13 million ~~and $53 million, respectively,~~ for the same ~~periods~~period of the prior fiscal year.

Relocation, store closure and lease termination costs totaled approximately ~~$2 million and $8~~$41 million for the ~~twelve and forty~~sixteen weeks ended ~~July 3, 2016~~January 15, 2017~~, respectively,~~ compared to approximately $2$3 million ~~and $12 million, respectively,~~ for the same ~~periods~~period of the prior fiscal year. Relocation, store closure and lease termination costs for the sixteen weeks ended January 15, 2017 includes approximately $34 million in charges related to the decision to close nine stores and three commissary kitchens.

The numbers of stores opened and relocated were as follows:


	Twelve weeks ended		Forty weeks ended		Sixteen weeks ended
	July 3, 2016	July 5, 2015	July 3, 2016	July 5, 2015	January 15, 2017	January 17, 2016
New stores	11	8	21	23	11	3
Relocated stores	1	—	2	5	2	—

Interest expense, primarily related to the Company’s $1.0 billion offering of 5.2% senior notes completed on December 3, 2015, totaled approximately ~~$12~~$15 million and ~~$30~~$7 million for the ~~twelve and forty~~sixteen weeks ended ~~July 3,~~January 15, 2017 and January 17, 2016, respectively. ~~Interest expense was not material for the twelve and forty weeks ended July 5, 2015.~~

~~Investment and other expense for the twelve weeks ended July 3, 2016 totaled approximately $1 million, primarily related to net investment losses partially offset by gift card breakage.~~ Investment and other income, which includes gift card breakage, interest income and investment gains and losses, ~~interest income,~~ and other income, ~~totaled~~was not material for the sixteen weeks ended January 15, 2017 compared to approximately $8$4 million for the ~~forty~~sixteen weeks ended ~~July 3, 2016 compared to approximately $5 million and $12 million, respectively, for the same periods of the prior fiscal year.~~January 17, 2015.

Income taxes resulted in an effective tax rate of approximately 39.0% ~~and 38.4%~~ for the ~~twelve and forty~~sixteen weeks ended ~~July 3, 2016~~January 15, 2017~~, respectively,~~ compared to approximately ~~39.0%~~37.0% for ~~each of~~ the same ~~periods~~period of the prior fiscal year. The lower effective tax rate for ~~the forty weeks ended July 3, 2016 compared to the prior~~ fiscal year is2016 was due to the recognition of an environmental tax credit related to the development of a new store. The effective tax rate for ~~the 2016~~ fiscal year 2017 is expected to be ~~38.5%~~39.0%.

Non-GAAP measures

In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, the Company provides information regarding adjusted diluted Earnings per Share (“EPS”), Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), adjusted EBITDA, Return on Invested Capital (“ROIC”) and adjusted 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. Management believes ROIC and adjusted ROIC are useful to investors and analysts because each measures how effectively we are deploying our assets.

The Company defines adjusted diluted EPS as net income plus charges for store and facility closures and Mr. Robb’s separation agreement divided by the weighted average shares outstanding and potential additional common shares outstanding. The following is a tabular reconciliation of the non-GAAP financial ~~measure~~measures adjusted diluted EPS to GAAP diluted EPS, which the Company believes is the most directly comparable GAAP financial measure. Adjusted diluted EPS was as follows (in millions):



	Sixteen weeks ended
Adjusted Diluted EPS	January 15, 2017		January 17, 2016
Net income	$	95	$	157
Store and facility closures, net of tax	20		—
Mr. Robb's separation agreement, net of tax	8		—
Adjusted Net income	$	123	$	157

Adjusted Diluted Earnings per Share	$	0.39	$	0.46
Weighted average shares outstanding	318.7		337.0

The Company defines adjusted EBITDA as EBITDA plus charges for Mr. Robb’s separation agreement. The following is a tabular reconciliation of the non-GAAP financial measures EBITDA to GAAP net income, which the Company believes is the most directly comparable GAAP financial measure. EBITDA was as follows (in millions):


	Twelve weeks ended					Forty weeks ended						Sixteen weeks ended
	July 3, 2016		July 5, 2015			July 3, 2016			July 5, 2015			January 15, 2017		January 17, 2016
Net income	$	120	$	154		$	419		$	479		$	95	$	157
Provision for income taxes	76		98			261			306			61		92
Interest expense	12		—			30			—			15		7
Investment and other income	1		(5		)	(8		)	(12		)	—		(4		)
Operating income	209		247			702			773			171		252
Depreciation and amortization	117		106			376			331			189		147
EBITDA	$	326	$	353		$	1,078		$	1,104		360		399
Mr. Robb’s separation agreement												13		—
Adjusted EBITDA												$	373	$	399

The Company defines ROIC as ROIC earnings divided by average invested capital. ROIC earnings and adjustments to ROIC earnings are defined in the following tabular reconciliation. Invested capital reflects a trailing four-quarter average. ROIC and adjusted ROIC were as follows (in millions):


	Fifty-two weeks ended						Fifty-two weeks ended
	July 3, 2016			July 5, 2015			January 15, 2017			January 17, 2016
Net income	$	475		$	607		$	445		$	525
Interest expense, net of tax	18			—			30			4
ROIC earnings	493			607			475			529
Total rent expense, net of tax ⁽¹⁾	279			258			289			268
Estimated depreciation on capitalized operating leases, net of tax ⁽²⁾	(186		)	(172		)	(193		)	(178		)
ROIC earnings, including the effect of capitalized operating leases	$	586		$	693		$	571		$	619

Average working capital, excluding current portion of long-term debt	$	598		$	525		$	695		$	529
Average property and equipment, net	3,240			2,999			3,355			3,121
Average other assets	1,016			1,090			967			1,075
Average other liabilities	(682		)	(620		)	(714		)	(651		)
Average invested capital	4,172			3,994			4,303			4,074
Average estimated asset base of capitalized operating leases⁽³⁾	3,632			3,378			3,816			3,486
Average invested capital, including the effect of capitalized operating leases	$	7,804		$	7,372		$	8,119		$	7,560

ROIC	11.8%			15.2%			11.0		%	13.0		%
ROIC, including the effect of capitalized operating leases	7.5%			9.4%			7.0		%	8.2		%


	Fifty-two weeks ended						Fifty-two weeks ended
	July 3, 2016			July 5, 2015			January 15, 2017			January 17, 2016
Net income	$	475		$	607		$	445		$	525
Interest expense, net of tax	18			—			30			4
Adjustments, net of tax ⁽⁴⁾	48			1			30			48
Adjusted ROIC earnings	541			608			505			577
Total rent expense, net of tax ⁽¹⁾	279			258			289			268
Estimated depreciation on capitalized operating leases, net of tax ⁽²⁾	(186		)	(172		)	(193		)	(178		)
Adjusted ROIC earnings, including the effect of capitalized operating leases	$	634		$	694		$	601		$	667

Average working capital, excluding current portion of long-term debt	$	598		$	525		$	695		$	529
Average property and equipment, net	3,240			2,999			3,355			3,121
Average other assets	1,016			1,090			967			1,075
Average other liabilities	(682		)	(620		)	(714		)	(651		)
Average invested capital	4,172			3,994			4,303			4,074
Average estimated asset base of capitalized operating leases⁽³⁾	3,632			3,378			3,816			3,486
Average invested capital, including the effect of capitalized operating leases	$	7,804		$	7,372		$	8,119		$	7,560

Adjusted ROIC	13.0%			15.2%			11.7		%	14.2		%
Adjusted ROIC, including the effect of capitalized operating leases	8.1%			9.4%			7.4		%	8.8		%

⁽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

⁽⁴⁾ Adjustments include ~~non-cash~~charges related to Mr. Robb’s separation agreement in Q1 2017, store and facility closures and asset ~~impairment charges and Q4 2015 restructuring charge~~impairments

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):


	July 3, 2016		September 27, 2015		January 15, 2017		September 25, 2016
Cash and cash equivalents	$	472	$	237	$	350	$	351
Short-term investments - available-for-sale securities	153		155		374		379
Total	$	625	$	392	$	724	$	730

Additionally, the Company had $500 million available under its revolving credit facility at ~~July 3, 2016 and held long-term investments in available-for-sale securities totaling approximately $63 million at~~ ~~September 27, 2015~~.January 15, 2017.

We generated cash flows from operating activities totaling approximately $~~764~~284 million during the ~~forty~~sixteen weeks ended ~~July 3, 2016~~January 15, 2017 compared to approximately $~~997~~232 million during the same period of the prior fiscal year. The ~~decrease~~increase in cash flows from operating activities resulted primarily from ~~lower net income plus~~increased non-cash expenses and changes in operating working capital. ~~During~~Depreciation and amortization was the ~~forty~~primary non-cash expense included in cash flows from operating activities totaling approximately $189 million and $147 million for the sixteen weeks ended ~~July 3, 2016, operating working capital included additional federal~~January 15, 2017 and state income tax payments of approximately $94 million, payment of restructuring charges totaling approximately $31 million, and interest payments totaling $27 million compared to the same period of the prior fiscal year.January 17, 2016.

Net cash used in investing activities totaled approximately $~~477~~244 million for the ~~forty~~sixteen weeks ended ~~July 3, 2016~~January 15, 2017 compared to approximately $~~671~~109 million for the same period of the prior fiscal year. Net sales and maturities of available-for-sale securities totaled approximately $645 million during the ~~forty~~sixteen weeks ended ~~July 3, 2016~~January 15, 2017 compared to approximately $3987 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, the acquisition of property and equipment for existing stores, and technology investments. 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 ~~forty~~sixteen weeks ended ~~July 3, 2016~~January 15, 2017 totaled approximately $~~521~~245 million, of which approximately $~~295~~150 million was for the development of new locations. Capital expenditures for the ~~forty~~sixteen weeks ended ~~July 5, 2015~~January 17, 2016 totaled approximately $~~679~~179 million, of which approximately $~~411~~91 million was for the development of new locations.

~~The~~ As of January 15, 2017 the Company ~~sees the potential for 1,200 Whole Foods Market~~has 93 stores, or 3.9 million square feet, in the United States, with the new 365 format expanding the growth opportunity beyond 1,200 stores. The following table provides additional information about the Company’s new and acquired stores and development pipeline for Whole Foods Market and 365 stores scheduled to open through fiscal year 2021:

New and acquired
stores during
fiscal year 2015

New stores during fiscal year 2016
as of
July 27, 2016
Leases signed as of July 27, 2016
WFM 365 Total
Number of stores (including relocations) 38
26
86
20
106
Number of relocations 6
2
17
—
17
Percentage in new markets 11%
23%
16%
25%
18%
Total square footage 1,653,000
1,104,000
3,972,000
522,000
4,494,000
development.

We believe we will produce operating cash flows in excess of the capital expenditures needed to open the ~~106~~93 stores in our current store development pipeline. 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 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 $5738 million for the ~~forty~~sixteen weeks ended ~~July 3, 2016~~January 15, 2017 compared to approximately $~~255~~319 million provided by financing activities for the same period of the prior fiscal year.

OnThe Company’s revolving credit facility under a credit agreement dated as of November 2, 2015 ~~the Company entered into~~ ~~new$500 million five-year~~(the “Credit Agreement”) provides for an unsecured revolving credit facility ~~(the “Credit Agreement”).~~in the aggregate principal amount of ~~The~~$500 million. For the sixteen weeks ended January 15, 2017, the Company had no amounts outstanding on the Credit ~~Agreement is scheduled to mature, and the commitments thereunder will terminate, on November 2, 2020.~~ Agreement. During the first quarter of fiscal year 2016, the Company borrowed and repaid $300 million under the Credit Agreement. At January 15, 2017, the Company was in compliance with all applicable debt covenants.

~~On December 3, 2015, the~~The Company ~~completed its offering of~~has outstanding $1.0 billion aggregate principal amount of its 5.2% senior notes due 2025 (the “Notes”). ~~In connection with the offering of the Notes, the Company~~entered into a registration rights agreement pursuant to which, among other things, the Company agreed to file with the Securities and Exchange Commission (the “SEC”) a registration statement (the “Exchange Offer Registration Statement”) relating to an offer to exchange (the "Exchange Offer") the Notes for new SEC-registered notes (the “Exchange Notes”) containing terms substantially identical to the Notes (except that the transfer restrictions on the Exchange Notes will be modified or eliminated and there will be no registration rights). In the event that the Company is not permitted to file the Exchange Offer Registration Statement or to consummate the Exchange Offer because the Exchange Offer is not permitted by applicable law or SEC policy or, in certain other circumstances, including if for any reason the Exchange Offer Registration Statement is not declared effective by the SEC on or prior to December 2, 2016, the Company will file with the SEC a shelf registration statement with respect to resales of the Notes by the holders thereof. Pursuant to the registration rights agreement, the interest rate on the Notes is subject to increase under certain circumstances during any period in which the Company is not in compliance with its obligations under the registration rights agreement. Although the Company intends to file the Exchange Offer Registration Statement and consummate the Exchange Offer in a manner consistent with the registration rights agreement, the Company can provide no assurances that the Exchange Offer will be consummated on the terms contemplated in the registration rights agreement or at all, or that the Company will not be subject to increased interest expense as a result of its non-compliance with the registration rights agreement.

The Notes will mature on December 3, 2025. ~~The~~At January 15, 2017, the Company ~~intends to use net proceeds from the offering for general corporate purposes, including stock repurchases and the repayment of indebtedness from time to time.~~

~~Additional information regarding the Credit Agreement and the Notes is included~~was in ~~Note 8 of the Notes to the Consolidated Financial Statements.~~compliance with all applicable debt covenants.

Share repurchase activity for the sixteen weeks ended January 15, 2017 was immaterial. Share repurchase activity for fiscal year 2016 ~~through~~ ~~July 3, 2016~~ ~~and fiscal year 2015~~ was as follows (in millions, except share per share amounts):


	Number of common shares acquired ⁽¹⁾	Average price per common share acquired		Total cost of common shares acquired		Number of common shares acquired ⁽¹⁾	Average price per common share acquired		Total cost of common shares acquired
Fiscal year 2016:
First Quarter	21.2	$	29.96	$	634	21.2	$	29.96	$	634
Second Quarter	3.5	28.88		100		3.5	28.88		100
Third Quarter	6.5	30.01		195		6.5	30.01		195
Fourth Quarter						0.5	27.98		15
Total fiscal year 2016	31.2	$	29.85	$	929	31.7	$	29.82	$	944
Fiscal year 2015:
First Quarter	0.9	$	47.39	$	43
Second Quarter	0.9	55.02		47
Third Quarter	2.1	45.98		98
Fourth Quarter	9.9	32.66		325
Total fiscal year 2015	13.8	$	37.06	$	513

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

~~During the first quarter~~As of ~~fiscal year 2016, a new~~January 15, 2017, one share repurchase program ~~was authorized pursuant to the authority of the Company’s Board of Directors (the “Board”) whereby the Company may make up to $1.0 billion~~remains in ~~stock repurchases of outstanding shares of the common stock of the Company.~~effect, with prior programs having been fully utilized, expired or cancelled. The following table outlines the share repurchase ~~programs~~program authorized by the Company’s Board of Directors (“Board”), and the related repurchase activity ~~and available authorization~~ as of ~~July 3, 2016~~January 15, 2017 (in millions):

Effective date Expiration date Amount authorized Cost of repurchases Authorization available
August 1, 2014 August 1, 2016 $ 1,000
$ 1,000
$ —
November 4, 2015 Not applicable 1,000
542
458



Effective date	Expiration date	Amount authorized		Cost of repurchases		Authorization available
November 4, 2015	Not applicable	$	1,000	$	557	$	443

During the first quarter of fiscal year ~~2016,~~2017, the Board increased the Company’s quarterly dividend to ~~$0.135~~$0.140 per common share from ~~$0.130~~$0.135 per common share. The following table provides a summary of dividends declared per common share during fiscal year ~~2016~~2017 to date and fiscal year ~~2015~~2016 (in millions, except per share amounts):



Date of declaration	Dividend per common share		Date of record	Date of payment	Total amount
Fiscal year 2017:
November 2, 2016⁽¹⁾	$	0.140	January 13, 2017	January 24, 2017	$	45
Fiscal year 2016:
November 4, 2015	$	0.135	January 15, 2016	January 26, 2016	$	44
March 9, 2016	0.135		April 8, 2016	April 19, 2016	44
June 7, 2016	0.135		July 1, 2016	July 12, 2016	43
September 22, 2016	0.135		October 3, 2016	October 14, 2016	43

⁽¹⁾ Dividend accrued at ~~July 3, 2016~~January 15, 2017

The Company will pay future dividends at the discretion of the Board. 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.

Net proceeds to the Company from the exercise of stock options by team members for the ~~forty~~sixteen weeks ended ~~July 3, 2016~~January 15, 2017 totaled approximately $175 million compared to approximately $617 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 ~~July 3, 2016~~January 15, 2017 and September ~~27, 2015~~25, 2016, approximately ~~29.8~~30.3 million shares and ~~32.9~~29.8 million shares of our common stock, respectively, were available for future stock incentive grants.

In addition to the Company’s debt obligations referenced above, 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 ~~July 3, 2016~~January 15, 2017 (in millions):


	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years		Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Senior notes	$	1,000	$	—	$	—	$	—	$	1,000
Estimated interest on senior notes	520		52		104		104		260
Capital lease obligations (including interest)	93		6		10		10		67		$	91	$	6	$	10	$	10	$	65
Operating lease obligations ⁽¹⁾	9,048		440		1,067		1,116		6,425		9,223		315		1,070		1,153		6,685
Total	$	10,661	$	498	$	1,181	$	1,230	$	7,752	$	9,314	$	321	$	1,080	$	1,163	$	6,750

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

Gross unrecognized tax benefits and related interest and penalties at ~~July 3, 2016~~January 15, 2017 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 ~~July 3, 2016~~January 15, 2017, the Company does not expect tax audit resolution will reduce its unrecognized tax benefits in the next 12 months.

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.

The Company intends to maintain an investment-grade profile and a balance sheet that provides the financial flexibility to pursue its strategic growth initiatives. 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 ~~July 3, 2016~~January 15, 2017 consist of operating leases disclosed in the above contractual obligations table, as well as the Credit Agreement discussed above. Additionally, we enter into forward purchase agreements for certain products in the ordinary course of business. Purchase commitments do not exceed anticipated use within an operating cycle. 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.

~~We are exposed~~Our direct exposure to ~~interest rate changes and changes in market values on our investments and long-term debt. We do not use~~ financial ~~instruments for trading or other speculative purposes. We are also exposed to foreign exchange fluctuations on our foreign subsidiaries.~~

~~The analysis presented for each of our~~ market risk ~~sensitive instruments is based on a 10% change~~results from fluctuations in interest or currency exchange rates. These changes are hypothetical scenarios used to calibrate potential risk and do not represent our view of future market changes. As the hypothetical figures discussed below indicate, changes in fair value based on the assumed change in rates generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. The effect of a variation in a particular assumption is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which may magnify or counteract the sensitivities.

~~Interest Rate Risk~~

~~We seek to minimize the risks from interest rate fluctuations through ongoing evaluation of the composition of our investments.~~

The Company holds short-term investments that are classified as cash equivalents. We had cash equivalent investments totaling approximately $229 million and $32 million at July 3, 2016 and September 27, 2015, respectively. The Company also holds available-for-sale securities generally consisting of state and local municipal obligations and corporate bonds and commercial paper which hold high credit ratings. We had short-term investments totaling approximately $153 million at July 3, 2016 compared to short-term and long-term investments of approximately $155 million and $63 million, respectively, at September 27, 2015.

These investments are recorded at fair value and are generally short term in nature, and therefore changes in interest rates would not have a material impact on the valuation of these investments. During the twelve weeks ended July 3, 2016 and July 5, 2015, a hypothetical 10% increase or decrease in interest rates would not have materially affected interest income earned on these investments.

We have outstanding $1.0 billion aggregate principal amount of senior notes due 2025 (the “Notes”). The Notes bear interest at a fixed rate equal to 5.2% per year, payable semiannually. The interest rate payable on the Notes is subject to adjustment upon the occurrence of certain credit rating events described in the agreement. A downgrade in credit rating from either Moody’s or S&P would not materially affect annual interest payments.

We also have outstanding a $500 million revolving line of credit (the “Credit Agreement”) that extends to 2020, which may be increased from time to time by up to $250 million in the aggregate pursuant to an expansion feature set forth in the Credit Agreement. At July 3, 2016, the Company had no amounts outstanding.

~~Additional information on the Notes and Credit Agreement as of July 3, 2016 are as follows (in millions):~~

July 3,
2016
Senior notes:
Outstanding balance $ 1,000
Fixed interest rate 5.200 %

Line of credit:
Outstanding balance $ —
Variable interest rate n/a
Applicable margin 0.125 %

The Notes and Credit Agreement were entered into during the first quarter of fiscal year 2016. No debt was outstanding as of September 27, 2015. The nature and amount of our long-term debt may vary as a result of future business requirements, market conditions, and other factors. Fluctuations in interest rates may affect the fair value of the fixed-rate debt. The estimated fair value of the Company’s long-term debt is included in Note 8 of the Notes to the Consolidated Financial Statements.

~~Foreign Currency Risk~~

~~The Company is exposed to~~ foreign currency exchange ~~risk. We own~~rates and ~~operate 11 stores~~interest rates. There have been no material changes to our market risks as disclosed in ~~Canada and 9 stores in~~our Annual Report on Form 10-K, for the U.K. Sales made from stores in Canada and the U.K. are made in exchange for Canadian dollars and Great Britain pounds sterling, respectively. The Company does not currently hedge against the risk of exchange rate fluctuations.

At July 3, 2016, a hypothetical 10% change in value of the U.S. dollar relative to the Canadian dollar or Great Britain pound sterling would not have materially affected our consolidated financial statements.fiscal year ended September 25, 2016.

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 Securities Exchange Act of 1934, as amended (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~~Chief Executive ~~Officers~~Officer (principal executive ~~officers)~~officer) 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~~Chief Executive ~~Officers~~Officer 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 Exchange Act) as of the end of the period covered by this report. Based on such evaluation, the Company’s ~~Co-Chief~~Chief Executive ~~Officers~~Officer 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.

We are in the process of implementing a new unified point of sale system. This implementation is 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 have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings.

Information related to the Company’s legal proceedings is discussed in Note 13 of the Notes to Consolidated Financial Statements in Part I of this report.

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 ~~27, 2015.~~25, 2016.

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 ~~twelve~~sixteen weeks ended ~~July 3, 2016~~January 15, 2017.

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⁾
April 11, 2016 - May 8, 2016 2,465,996
$ 28.79
2,465,996
$ 582,200,252
May 9, 2016 - June 5, 2016 4,039,713
30.76
4,039,713
457,947,710
June 6, 2016 - July 3, 2016 —
—
—
457,947,710
Total 6,505,709
$ 30.01
6,505,709



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 26, 2016 - October 23, 2016	—	$	—	—	$	443,504,390
October 24, 2016 - November 20, 2016	16,200	27.95		16,200	443,051,523
November 21, 2016 - December 18, 2016	—	—		—	443,051,523
December 19, 2016 - January 15, 2017	—	—			443,051,523
Total	16,200	$	27.95	16,200


⁽¹⁾	Periodic information is presented by reference to our fiscal periods during the ~~third~~first quarter of fiscal year ~~2016.~~2017.

⁽²⁾

On November 4, 2015, the Board authorized a share repurchase program whereby the Company may make up to $1.0 billion in stock purchases of outstanding shares of common stock of the Company. The repurchase program does not have an expiration date. Under the share repurchase programs, 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 6. Exhibits.



3.1	Amended and Restated Articles of Incorporation of the Registrant, dated September 15, 2015 (1)
3.2	Amended and Restated Bylaws of the Registrant adopted June 26, 2015 (2)
4.1	Amended and Restated Indenture, dated ~~December 3, 2015,~~as of September 8, 2016, between the Registrant and U.S. Bank National Association, as Trustee (3)
4.2	First Supplemental Indenture, dated December 3, 2015, among the Registrant, the Guarantors, and U.S. Bank National Association ~~(3)~~(4)
4.3	Form of ~~5.200%~~5.2000% Senior Notes due 2025 (included in Exhibit 4.2) ~~(3)~~(4)
10.1	Separation, Advisory, and Noncompetition Agreement, dated as of November 2, 2016, by and between Whole Foods Market, Inc. and Walter Robb (5)
10.2	Amendment to the Whole Foods Executive Retention Plan and Non-Compete Arrangement, dated as of November 2, 2016, by and between Whole Foods Market Services, Inc. and Walter Robb (5)
31.1	Certification of ~~Co-Chief~~Chief Executive Officer Pursuant to 17 CFR 240.13a -14(a) ~~(4)~~(6)
31.2	~~Certification of Co-Chief Executive Officer Pursuant to 17 CFR 240.13a - 14(a) (4)~~
~~31.3~~	Certification of Chief Financial Officer Pursuant to 17 CFR 240.13a - 14(a) ~~(4)~~(6)
32.1	Certification of ~~Co-Chief~~Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 ~~(5)~~(7)
32.2	~~Certification of Co-Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 (5)~~
~~32.3~~	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 ~~(5)~~(7)
101	The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended ~~July 3, 2016~~January 15, 2017 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 ~~(4)~~(5)



	(1)	Filed as an exhibit to Registrant’s Form 10-K for the period ended September 27, 2015 filed November 13, ~~2015~~2016 and incorporated herein by reference.
	(2)	Filed as an exhibit to Registrant’s Form 8-K filed June 29, 2015 and incorporated herein by reference.
	(3)	Filed as an exhibit to Registrant’s Form 8-K filed September 9, 2016 and incorporated herein by reference.
	(4)	Filed as an exhibit to Registrant’s Form 8-K filed December 4, 2015 and incorporated herein by reference.
	~~(4)~~(5)	Filed as an exhibit to Registrant’s Form 8-K filed November 2, 2016 and incorporated herein by reference.
	(6)	Filed herewith.
	~~(5)~~(7)	Furnished herewith.

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:	~~August 5, 2016~~February 16, 2017	By:	/s/ Glenda Flanagan
			Glenda Flanagan
			Executive Vice President and Chief Financial Officer
			(Duly authorized officer and principal financial officer)

2731



	2016		2015
Expected dividend yield	1.73	%	1.00	%
Risk-free interest rate	1.08	%	1.20	%
Expected volatility	31.30	%	29.73	%
Expected life, in years	4.05		4.04



	New and acquired stores during fiscal year 2015	New stores during fiscal year 2016 as of July 27, 2016	Leases signed as of July 27, 2016
	New and acquired stores during fiscal year 2015	New stores during fiscal year 2016 as of July 27, 2016	WFM	365	Total
Number of stores (including relocations)	38	26	86	20	106
Number of relocations	6	2	17	—	17
Percentage in new markets	11%	23%	16%	25%	18%
Total square footage	1,653,000	1,104,000	3,972,000	522,000	4,494,000



	July 3, 2016
Senior notes:
Outstanding balance	$	1,000
Fixed interest rate	5.200		%

Line of credit:
Outstanding balance	$	—
Variable interest rate	n/a
Applicable margin	0.125		%