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 period ended January 17, 2010;

o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

~~Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the period ended July 5, 2009; or~~

~~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 St.

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

~~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 o No o

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 (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer x		Accelerated filer o

Non-accelerated filer o ~~(Do not check if a smaller reporting company)~~		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

oNo x

The number of shares of the registrant’s common stock, no par value, outstanding as of ~~July 5, 2009~~January 17, 2010 was ~~140,479,419~~170,356,811 shares.

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Whole Foods Market, Inc.

Form 10-Q

Table of Contents

	Page
	Number

Part I. Financial Information

Item 1. Financial Statements

Consolidated Balance Sheets (unaudited), ~~July 5, 2009~~January 17, 2010 and September ~~28, 2008~~27, 2009	3

Consolidated Statements of Operations (unaudited), for the ~~twelve and forty~~sixteen weeks ended ~~July 5,~~January 17, 2010 and January 18, 2009 ~~and July 6, 2008~~	4

Consolidated Statements of Shareholders’ Equity and Comprehensive Income (unaudited), for the ~~forty~~sixteen weeks ended ~~July 5, 2009~~January 17, 2010 and fiscal year ended September ~~28, 2008~~27, 2009	5

Consolidated Statements of Cash Flows (unaudited), for the ~~forty~~sixteen weeks ended ~~July 5,~~January 17, 2010 and January 18, 2009 ~~and July 6, 2008~~	6

Notes to Consolidated Financial Statements (unaudited)	7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1915

Item 3. Quantitative and Qualitative Disclosures About Market Risk	2620

Item 4. Controls and Procedures	2621

Part II. Other Information

Item 1. Legal Proceedings	2722

Item 6. Exhibits	2823

Signature	2924

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Part I. Financial Information

Item 1. Financial Statements

Whole Foods Market, Inc.

Consolidated Balance Sheets (unaudited)

~~July 5, 2009~~January 17, 2010 and September ~~28, 2008~~27, 2009

(In thousands)

	2009			2008		2010			2009
Assets
Current assets:
Cash and cash equivalents	$	377,035		$	30,534	$	241,412		$	430,130
Short-term investments — available-for-sale securities						240,953			—
Restricted cash	71,014			617		87,214			71,023
Accounts receivable	106,191			115,424		113,731			104,731
Merchandise inventories	314,510			327,452		323,400			310,602
Prepaid expenses and other current assets	43,429			68,150		43,374			51,137
Deferred income taxes	89,382			80,429		95,461			87,757
Total current assets	1,001,561			622,606		1,145,545			1,055,380
Property and equipment, net of accumulated depreciation and amortization	1,892,812			1,900,117		1,897,097			1,897,853
Long-term investments — available-for-sale securities						6,744			—
Goodwill	657,281			659,559		657,956			658,254
Intangible assets, net of accumulated amortization	74,186			78,499		71,664			73,035
Deferred income taxes	72,272			109,002		83,431			91,000
Other assets	7,569			10,953		9,186			7,866
Total assets	$	3,705,681		$	3,380,736	$	3,871,623		$	3,783,388

	2009			2008
Liabilities and Shareholders’ Equity
Current liabilities:
Current installments of long-term debt and capital lease obligations	$	378		$	380	$	398		$	389
Accounts payable	173,294			183,134		187,290			189,597
Accrued payroll, bonus and other benefits due team members	205,607			196,233		228,532			207,983
Dividends payable	472			—		—			8,217
Other current liabilities	254,753			286,430		270,550			277,838
Total current liabilities	634,504			666,177		686,770			684,024
Long-term debt and capital lease obligations, less current installments	741,796			928,790		733,667			738,848
Deferred lease liabilities	240,182			199,635		262,646			250,326
Other long-term liabilities	84,202			80,110		76,786			69,262
Total liabilities	1,700,684			1,874,712		1,759,869			1,742,460

Series A redeemable preferred stock, $0.01 par value, 425 and no shares authorized, issued and outstanding in 2009 and 2008, respectively	413,052			—
Series A redeemable preferred stock, $0.01 par value, 425 shares authorized, zero and 425 issued and outstanding in 2010 and 2009, respectively						—			413,052

Shareholders’ equity:
Common stock, no par value, 300,000 shares authorized, 140,479 and 140,286 shares issued and outstanding in 2009 and 2008, respectively	1,277,555			1,266,141
Accumulated other comprehensive income (loss)	(15,159		)	422
Common stock, no par value, 300,000 shares authorized, 170,357 and 140,542 shares issued and outstanding in 2010 and 2009, respectively						1,710,594			1,283,028
Accumulated other comprehensive loss						(6,732		)	(13,367		)
Retained earnings	329,549			239,461		407,892			358,215
Total shareholders’ equity	1,591,945			1,506,024		2,111,754			1,627,876
Commitments and contingencies						—			—
Total liabilities and shareholders’ equity	$	3,705,681		$	3,380,736	$	3,871,623		$	3,783,388

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

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Whole Foods Market, Inc.

Consolidated Statements of Operations (unaudited)

(In thousands, except per share amounts)

	Twelve weeks ended						Forty weeks ended						Sixteen weeks ended
	July 5,			July 6,			July 5,			July 6,			January 17,			January 18,
	2009			2008			2009			2008			2010			2009
Sales	$	1,878,338		$	1,841,242		$	6,202,391		$	6,164,993		$	2,639,158		$	2,466,503
Cost of goods sold and occupancy costs	1,218,029			1,208,495			4,074,047			4,054,290			1,732,942			1,643,785
Gross profit	660,309			632,747			2,128,344			2,110,703			906,216			822,718
Direct store expenses	499,830			490,188			1,654,196			1,631,466			702,806			653,974
General and administrative expenses	52,592			60,689			192,024			215,759			75,936			82,600
Pre-opening expenses	10,763			15,225			38,616			40,403			12,809			14,064
Relocation, store closure and lease termination costs	18,209			2,556			27,937			9,386			12,412			5,077
Operating income	78,915			64,089			215,571			213,689			102,253			67,003
Interest expense	(7,688		)	(8,094		)	(28,964		)	(28,113		)	(10,553		)	(13,580		)
Investment and other income	1,326			1,495			2,528			5,430			1,783			1,841
Income before income taxes	72,553			57,490			189,135			191,006			93,483			55,264
Provision for income taxes	29,746			23,571			78,741			77,984			38,328			22,935
Net income	42,807			33,919			110,394			113,022			55,155			32,329
Preferred stock dividends	7,839			—			20,306			—			5,478			4,533
Income available to common shareholders	$	34,968		$	33,919		$	90,088		$	113,022		$	49,677		$	27,796

Basic earnings per share	$	0.25		$	0.24		$	0.64		$	0.81		$	0.32		$	0.20
Weighted average shares outstanding	140,439			140,231			140,385			139,766			154,413			140,330

Diluted earnings per share	$	0.25		$	0.24		$	0.64		$	0.81		$	0.32		$	0.20
Weighted average shares outstanding, diluted basis	140,439			140,322			140,385			140,308			154,858			140,330

Dividends declared per common share	$	—		$	0.20		$	—		$	0.60

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

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Whole Foods Market, Inc.

Consolidated Statements of Shareholders’ Equity and Comprehensive Income (unaudited)

~~Forty~~Sixteen weeks ended ~~July 5, 2009~~January 17, 2010 and fiscal year ended September ~~28, 2008~~27, 2009

(In thousands)

	Shares Outstanding	Common Stock			Common Stock in Treasury			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total Shareholders’ Equity							Accumulated
Balances at September 30, 2007	139,240	$	1,232,845		$	(199,961	)	$	15,722		$	410,198		$	1,458,804
Net income	—	—			—			—			114,524			114,524
Foreign currency translation adjustments	—	—			—			(7,714		)	—			(7,714		)
Reclassification adjustments for amounts included in income, net of income taxes	—	—			—			2,302			—			2,302
Change in unrealized loss on cash flow hedge instruments, net of income taxes	—	—			—			(9,888		)	—			(9,888		)
Comprehensive income														99,224
Dividends ($0.60 per common share)	—	—			—			—			(84,012		)	(84,012		)
Issuance of common stock pursuant to team member stock plans	1,040	17,206			—			—			—			17,206
Retirement of treasury stock	—	—			199,961			—			(199,961		)	—
Excess tax benefit related to exercise of team member stock options	—	6,083			—			—			—			6,083
Share-based payments expense	—	10,505			—			—			—			10,505
Cumulative effect of new accounting standard adoption	—	—			—			—			(1,288		)	(1,288		)
Other	6	(498		)	—			—			—			(498		)
																					other						Total
																	Shares	Common			comprehensive			Retained			shareholders’
																	outstanding	stock			income (loss)			earnings			equity
Balances at September 28, 2008	140,286	1,266,141			—			422			239,461			1,506,024			140,286	$	1,266,141		$	422		$	239,461		$	1,506,024
Net income	—	—			—			—			110,394			110,394			—	—			—			146,804			146,804
Foreign currency translation adjustments	—	—			—			(9,588		)	—			(9,588		)	—	—			(8,748		)	—			(8,748		)
Reclassification adjustments for amounts included in income, net of income taxes	—	—			—			5,674			—			5,674			—	—			8,440			—			8,440
Change in unrealized loss on cash flow hedge instruments, net of income taxes	—	—			—			(11,667		)	—			(11,667		)	—	—			(13,481		)	—			(13,481		)
Comprehensive income														94,813													133,015
Redeemable preferred stock dividends	—	—			—			—			(20,306		)	(20,306		)	—	—			—			(28,050		)	(28,050		)
Issuance of common stock pursuant to team member stock plans	193	2,705			—			—			—			2,705			256	4,286			—			—			4,286
Excess tax benefit related to exercise of team member stock options	—	(1		)	—			—			—			(1		)	—	54			—			—			54
Share-based payments expense	—	8,829			—			—			—			8,829
Share-based payment expense																	—	12,795			—			—			12,795
Other	—	(119		)	—			—			—			(119		)	—	(248		)	—			—			(248		)
Balances at July 5, 2009	140,479	$	1,277,555		$	—		$	(15,159	)	$	329,549		$	1,591,945
Balances at September 27, 2009																	140,542	1,283,028			(13,367		)	358,215			1,627,876
Net income																	—	—			—			55,155			55,155
Foreign currency translation adjustments																	—	—			3,106			—			3,106
Reclassification adjustments for amounts included in income, net of income taxes																	—	—			3,979			—			3,979
Change in unrealized losses, net of income taxes																	—	—			(450		)	—			(450		)
Comprehensive income																											61,790
Redeemable preferred stock dividends																	358	5,195			—			(5,478		)	(283		)
Conversion of preferred stock																	29,311	413,052			—			—			413,052
Issuance of common stock pursuant to team member stock plans																	146	4,007			—			—			4,007
Excess tax benefit related to exercise of team member stock options																	—	71			—			—			71
Share-based payment expense																	—	5,241			—			—			5,241
Balances at January 17, 2010																	170,357	$	1,710,594		$	(6,732	)	$	407,892		$	2,111,754

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

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Whole Foods Market, Inc.

Consolidated Statements of Cash Flows (unaudited)

(In thousands)

							Sixteen weeks ended
	Forty weeks ended						January 17,			January 18,
	July 5, 2009			July 6, 2008			2010			2009
Cash flows from operating activities:
Net income	$	110,394		$	113,022		$	55,155		$	32,329
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	204,291			189,386			83,701			80,792
Loss on disposition of fixed assets	2,138			2,724			529			7
Impairment of long-lived assets	22,164			99			1,730			2,292
Share-based payments expense	8,829			7,599
LIFO charge (benefit)	(2,177		)	8,032
Deferred income tax expense (benefit)	32,488			(6,703		)
Share-based payment expense							5,241			3,789
LIFO expense							195			3,600
Deferred income tax benefit							(1,584		)	(1,839		)
Excess tax benefit related to exercise of team member stock options	—			(5,162		)	(81		)	—
Deferred lease liabilities	39,338			35,153			10,717			13,162
Other	5,141			(1,291		)	(3,100		)	5,544
Net change in current assets and liabilities:
Accounts receivable	8,912			(22,482		)	(8,812		)	4,378
Merchandise inventories	14,165			(36,263		)	(12,547		)	(15,888		)
Prepaid expenses and other current assets	24,711			4,724			10,041			29,432
Accounts payable	(9,495		)	(49,112		)	(2,619		)	(23,242		)
Accrued payroll, bonus and other benefits due team members	9,728			19,220			20,351			8,592
Other current liabilities	(270		)	17,152			(5,030		)	(389		)
Net change in other long-term liabilities	4,364			(4,719		)	7,590			(461		)
Net cash provided by operating activities	474,721			271,379			161,477			142,098
Cash flows from investing activities:
Development costs of new locations	(196,949		)	(284,025		)	(59,273		)	(82,086		)
Other property and equipment expenditures	(55,182		)	(110,813		)	(23,257		)	(28,209		)
Proceeds from hurricane insurance	—			1,500
Acquisition of intangible assets	(1,353		)	(1,567		)	(465		)	—
Purchase of available-for-sale securities	—			(194,316		)	(264,782		)	—
Sale of available-for-sale securities	—			194,316			17,205			—
Increase in restricted cash	(70,397		)	(57		)	(16,191		)	(3		)
Payment for purchase of acquired entities, net	—			(20,130		)
Proceeds received from divestiture, net	—			163,913
Other investing activities	469			(3,175		)	(10		)	(126		)
Net cash used in investing activities	(323,412		)	(254,354		)	(346,773		)	(110,424		)
Cash flows from financing activities:
Common stock dividends paid	—			(81,015		)
Preferred stock dividends paid	(19,833		)	—			(8,500		)	(2,833		)
Issuance of common stock	2,705			18,019			3,962			1,350
Excess tax benefit related to exercise of team member stock options	—			5,162			81			—
Proceeds from issuance of redeemable preferred stock, net	413,052			—			—			413,052
Proceeds from long-term borrowings	123,000			174,000			—			123,000
Payments on long-term debt and capital lease obligations	(320,980		)	(107,050		)	—			(320,715		)
Other financing activities	—			261			3			—
Net cash provided by financing activities	197,944			9,377
Net cash provided by (used in) financing activities							(4,454		)	213,854
Effect of exchange rate changes on cash and cash equivalents	(2,752		)	(1,485		)	1,032			(3,468		)
Net change in cash and cash equivalents	346,501			24,917			(188,718		)	242,060
Cash and cash equivalents at beginning of period	30,534			—			430,130			30,534
Cash and cash equivalents at end of period	$	377,035		$	24,917		$	241,412		$	272,594

Supplemental disclosures of cash flow information:
Interest paid	$	42,059		$	33,230		$	19,375		$	22,286
Federal and state income taxes paid	$	27,647		$	85,119		$	41,483		$	4,581
Non-cash transaction:
Conversion of redeemable preferred stock into common stock							$	418,247		$	—

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

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Whole Foods Market, Inc.

Notes to Consolidated Financial Statements (unaudited)

~~July 5, 2009~~January 17, 2010

(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, the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September ~~28, 2008.~~27, 2009. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, considered necessary for a fair 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 fifty-two or fifty-three week fiscal year ending on the last Sunday in September. The first fiscal quarter is sixteen weeks, the second and third quarters each are twelve weeks, and the fourth quarter is twelve or thirteen weeks. Fiscal years ~~2009~~2010 and ~~2008~~2009 are fifty-two week fiscal years. We have one operating segment and a single reportable segment, natural and organic ~~food~~foods supermarkets. The following is a summary of percentage sales by geographic area:

	Sixteen weeks ended
	January 17,		January 18,
	2010		2009
Sales:
United States	97.0	%	97.3	%
Canada and United Kingdom	3.0	%	2.7	%
Total sales	100.0	%	100.0	%

The following is a summary of the percentage of net long-lived assets by geographic area:

	January 17,		September 27,
	2010		2009
Long-lived assets, net:
United States	96.4	%	96.5	%
Canada and United Kingdom	3.6	%	3.5	%
Total long-lived assets, net	100.0	%	100.0	%

(2) Summary of Significant Accounting Policies

~~Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of~~

We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. When the Company impairs assets related to an operating location, a charge to write down the related assets is included in the “Direct store expenses” line item on the Consolidated Statements of Operations. When the Company commits to relocate, close, or dispose of a location, a charge to write down the related assets to their estimated recoverable value is included in the “Relocation, store closure and lease termination costs” line item on the Consolidated Statements of Operations.

Fair Value Measurements

The Company records its financial assets and liabilities at fair value in accordance with the framework for measuring fair value in generally accepted accounting principles. This framework establishes a fair value hierarchy that prioritizes the inputs used to measure fair value:

·Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.

·Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

·Level 3: Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in management’s best estimate of ~~Financial Instruments~~fair value.

The Company holds money market fund investments that are classified as either cash equivalents or restricted cash and available-for-sale securities generally consisting of state and local government obligations that are measured at fair value on a recurring basis, based on quoted prices in active markets for identical assets. Investments are stated at fair value, based on quoted prices in active markets for identical assets, with unrealized gains and losses included as a component of shareholders’ equity until realized. The carrying amount of the Company’s interest rate swap agreement is measured at fair value on a recurring basis using a standard valuation model that incorporates inputs other than quoted prices that are ~~observable.~~observable, including interest rate curves. Declines in fair value below the Company’s carrying value deemed to be other than temporary are charged against net earnings. ~~Details on the fair value of the Company’s financial assets and liabilities are included in Note 3 to the consolidated financial statements, “Fair Value Measurements.”~~

The carrying amounts of trade and other accounts receivable, trade accounts payable, accrued payroll, bonuses and team member benefits, and other accrued expenses approximate fair value because of the short maturity of those instruments. Store closure reserves and estimated workers’ compensation claims are recorded at net present value to approximate fair value. The

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carrying amount of our five-year term loan approximates fair value because it has a variable interest rate which reflects market changes to interest ~~rates.~~

~~Derivative Instruments~~

~~The Company utilizes derivative financial instruments to hedge its exposure to changes in interest rates. All derivative financial instruments are recorded~~rates and contains variable risk premiums based on the balance sheet at their respective fair value. The Company does not use financial instruments or derivatives for any trading or other speculative purposes. Hedge effectiveness is measured by comparing the change in fair value of the hedged item with the change in fair value of the derivative instrument. The effective portion of the gain or loss of the hedge is recorded on the Consolidated Balance Sheets under the caption “Accumulated other comprehensive income (loss).” Any ineffective portion of the hedge, as well as amounts not included in the assessment of effectiveness, is recorded on the accompanying Consolidated Statements of Operations under the caption “Interest expense.”Company’s corporate ratings.

Effective ~~January 19,~~September 28, 2009, the Company adopted the provisions of ~~Statement of Financial~~ Accounting Standards Codification (“~~SFAS”~~ASC”) ~~SFAS No. 161, “Disclosures about Derivative Instruments~~820, “Fair Value Measurements and ~~Hedging Activities —~~Disclosures,” for nonfinancial assets and liabilities. Specifically, the Company measures certain property and equipment, and intangible assets at fair value, resulting from impairment as appropriate. The fair value is determined using management’s best estimate based on a discounted cash flow model based on future store operating results using internal projections. When the Company impairs assets related to an ~~amendment~~operating location a charge to write down the related assets to fair value is included in the “Direct store expenses” line item on the Consolidated Statements of ~~FASB Statement No. 133.” SFAS No. 161 amends~~Operations. When the Company commits to relocate, close, or dispose of a location a charge to write down the related assets is included in the “Relocation, store closure and ~~expands~~lease termination costs” line item on the ~~disclosure requirements~~Consolidated Statements of ~~SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” by establishing, among other things, the disclosure requirements for derivative~~Operations.

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~~instruments and hedging activities. This Statement requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about~~Details on the fair value ~~amounts~~ of ~~gains~~the Company’s assets and ~~losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements.~~

~~Derivative instruments~~liabilities recorded at fair value are ~~discussed further~~included in Note 93 to the consolidated financial statements, ~~“Derivatives.~~“Fair Value Measurements.”

~~Treasury Stock~~Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (“FASB”) issued new guidance within ASC 805, “Business Combinations,” which replaces previous guidance in this Topic and applies to all transactions or other events in which an entity obtains control of one or more businesses, including those sometimes referred to as “true mergers” or “mergers of equals” and combinations achieved without the transfer of consideration. The ~~Company currently maintains a stock repurchase program through November 8, 2009. Under this program,~~new provisions establish principles and requirements for how the ~~Company may repurchase shares~~acquirer recognizes and measures identifiable assets acquired, liabilities assumed, any noncontrolling interest and goodwill acquired, and also provide for disclosures to enable users of the Company’s common stock on the open market that are held in treasury at cost. The subsequent retirement of treasury stock is recorded as a reduction in retained earnings at cost, in accordance with Accounting Research Bulletin (“ARB”) 43, “Restatement and Revision of Accounting Research Bulletins,” as amended.

~~Earnings per Share~~

Basic earnings per share is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the fiscal period. Net income available to common shareholders in fiscal year 2009 is calculated using the two-class method, in accordance with Emerging Issue Task Force (“EITF”) Issue No. 03-06, “Participating Securities and the Two-Class Method under FASB Statement No. 128.” The application of the two-class method is required since the Company’s redeemable preferred shares contain a participation feature. See further discussion in Note 10 to the consolidated financial statements, “Redeemable Preferred Stock.”

Diluted earnings per share is based on the weighted average number of common shares outstanding plus, where applicable, the additional common shares that would have been outstanding as a result of the conversion of convertible debt, dilutive options, and redeemable preferred stock.

~~Reclassifications~~

~~Where appropriate, we have reclassified prior years’~~ financial statements to ~~conform to current year presentation. Specifically we have reclassified~~evaluate the ~~effect~~nature and financial effects of the ~~determination~~business combination. Additional amendments address the recognition and initial measurement, subsequent measurement, and disclosure of assets and liabilities arising from contingencies acquired as part of a business combination. The newly issued guidance is effective for fiscal years beginning after December 15, 2008 and is applied prospectively to ~~retire treasury shares in~~business combinations completed on or after that date. The provisions are effective for the Company’s fiscal year ending September 26, 2010. We will evaluate the impact, if any, that the adoption of these provisions could have on our consolidated financial statements.

In April 2008, ~~totaling approximately $200.0 million previously classified~~the FASB issued amendments to ASC 350, “Intangibles — Goodwill and Other.” These provisions amend the factors that should be considered in ~~“Common Stock”~~developing renewal or extension assumptions used to ~~“Retained Earnings” on~~determine the ~~consolidated balance sheet as~~useful life of ~~September 28, 2008.~~a recognized intangible asset. The ~~Company has determined that all or a portion~~intent of the ~~excess~~position is to improve the consistency between the determination of ~~purchase price over par or stated value associated with~~ the ~~retirement~~useful life of ~~treasury shares is required to be charged to retained earnings in accordance with ARB No. 43,~~a recognized intangible asset and ~~has elected to charge~~ the ~~entire excess to retained earnings. The Company’s common stock has no par value. The Company has made a corresponding adjustment to its consolidated statements~~period of ~~shareholders’ equity and comprehensive income to reflect the reclassification. There was no impact on previously reported statements of operations, earning per share amounts, statements of~~expected cash flows ~~or total shareholders’ equity as a result~~used to measure the fair value of ~~this reclassification. Additionally, this reclassification does not impact compliance with any applicable debt covenants in~~the asset. The amended guidance is effective for fiscal years beginning after December 15, 2008. These provisions are effective for the Company’s ~~credit agreements.~~fiscal year ending September 26, 2010. We will evaluate the impact, if any, that the adoption of these provisions could have on our consolidated financial statements.

In January 2010, the FASB issued ASU No. 2010-06, “Improving Disclosures about Fair Value Measurements,” which amends ASC 820, “Fair Value Measurements and Disclosures.” The amended guidance provides clarification related to the determination of a class of assets or liabilities for which separate fair value measurements should be disclosed and the need to disclose valuation techniques used to measure both recurring and nonrecurring Level 2 or Level 3 fair value measurements. The guidance also expands disclosure requirements to include required disclosures of significant transfers in and out of Level 1 and Level 2 fair value measurements and requires that the Level 3 fair value measurements reconciliation be presented on a gross basis. The guidance provided in ASU No. 2010-06 is effective for the first reporting period, including interim periods, beginning after December 15, 2009. ASU No. 2010-06 is effective for the Company’s second quarter of fiscal year ending September 26, 2010. We do not expect the adoption of ASU No. 2010-06 to have a significant effect on our future consolidated financial statements.

(3) Fair Value Measurements

~~The Company adopted SFAS No. 157, as amended, for its financial assets~~Assets and liabilities effective September 29, 2008. The provisions of FSP No. FAS 157-2, “Effective Date of FASB Statement No. 157,” are effective for the specified fair value measures of nonfinancial assets and liabilities for financial statements issued for fiscal years beginning after November 15, 2008 and interim periods within those fiscal years for items within scope. FSP No. FAS 157-2 is effective for the Company’s first quarter of fiscal year ending September 26, 2010. We are currently evaluating the impact, if any, the adoption of SFAS No. 157 as it relates to nonfinancial assets and liabilities will haveLiabilities Measured at Fair Value on ~~our consolidated financial statements.~~

~~SFAS No. 157 defines fair value, establishes~~ a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 also establishes a fair value hierarchy that prioritizes the inputs used to measure fair value:

·Recurring Basis~~Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.~~

·~~Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.~~

·~~Level 3: Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.~~

The Company holds money market fund investments that are classified as either cash equivalents or restricted cash and available-for-sale marketable securities generally consisting of state and local government obligations that are measured at fair value on a recurring basis, based on quoted prices in active markets for identical assets. We had cash equivalent investments and restricted cash investments totaling approximately $368.5 million and $70.4 million, respectively, at July 5, 2009.

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current market prices. The ~~carrying amount of the~~ Company’s interest rate swap agreement is measured at fair value on a recurring basis using a standard valuation model that incorporates ~~inputs other than quoted prices that are observable. The model discounts projected future cash flows to a present value using market-based observable inputs, including~~expected interest rate curves. ~~At July 5, 2009,~~

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The Company held the ~~carrying amount of the Company’s interest rate swap totaled approximately $23.4 million~~following financial assets and ~~is included~~liabilities at fair value, based on the ~~“Long-term debt and capital lease obligations, less current installments” line item~~hierarchy input levels indicated, on the Consolidated Balance Sheets. The Company had accumulated net derivative losses of approximately $13.6 million and $7.6 million, net of taxes, in accumulated other comprehensive income as of July 5, 2009a recurring basis, at January 17, 2010 and September ~~28, 2008, respectively, related to this cash flow hedge. Derivative instruments are discussed further in Note 9 to the consolidated financial statements, “Derivatives.”~~

~~(4) Property and Equipment~~

~~Balances of major classes of property and equipment are as follows~~27, 2009 (in thousands):

July 5,

September 28,

2009

2008

Land

$
51,436

$
51,436

Buildings and leasehold improvements

1,628,676

1,463,907

Capitalized real estate leases

24,874

24,874

Fixtures and equipment

1,204,951

1,157,086

Construction in progress and equipment not yet in service

122,644

197,026

3,032,581

2,894,329

Less accumulated depreciation and amortization

(1,139,769
)
(994,212
)

$
1,892,812

$
1,900,117

January 17, 2010	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total
Assets:
Money market fund investments	$	91,112	$	—	$	—	$	91,112
Marketable securities — available-for-sale	247,697		—		—		247,697
Total	$	338,809	$	—	$	—	$	338,809
Liabilities:
Interest rate swap	$	—	$	15,413	$	—	$	15,413

September 27, 2009	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total
Assets:
Money market fund investments	$	509,395	$	—	$	—	$	509,395
Liabilities:
Interest rate swap	$	—	$	20,588	$	—	$	20,588

~~Depreciation expense~~Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

During the sixteen weeks ended January 17, 2010, the Company recorded fair value adjustments totaling approximately $1.7 million, reducing the carrying value of related to property and equipment totaled approximately $59.2 million and $195.6 million for the twelve and forty weeks ended July 5, 2009, respectively. During the same periods of the prior fiscal year, total depreciation expense related to property and equipment totaled approximately $54.1 million and $177.3 million, respectively. Property and equipment included accumulated accelerated depreciation and other asset impairments totaling approximately $12.2 million and $16.5 million at July 5, 2009 and September 28, 2008, respectively.

~~Fixed asset impairment charges~~zero. Fair value adjustments were included in the following line items on the Consolidated Statements of Operations for the periods indicated (in thousands):

	Twelve weeks ended				Forty weeks ended				Sixteen weeks ended
	July 5,		July 6,		July 5,		July 6,		January 17,		January 18,
	2009		2008		2009		2008		2010		2009
Direct store expenses	$	125	$	—	$	14,494	$	—	$	946	$	1,425
Relocation, store closure and lease termination costs	5,782		—		6,483		99		784		619
Total impairment of fixed assets	$	5,907	$	—	$	20,997	$	99	$	1,730	$	2,044

(4) FTC Settlement Agreement

~~Total fixed asset impairment charges during the twelve and forty weeks ended July 5, 2009 included approximately $4.3 million related to locations included in the~~The Federal Trade Commission (“FTC”) ~~settlement. The FTC settlement is discussed further in Note 7 to the consolidated financial statements, “FTC Settlement Agreement.”~~

~~(5) Goodwill and Other Intangible Assets~~

Goodwill is reviewed for impairment annually on the first day of the fourth fiscal quarter, or more frequently if impairment indicators arise. We allocate goodwill to one reporting unit for goodwill impairment testing. During the forty weeks ended July 5, 2009 the Company recorded goodwill adjustments of approximately $2.3 million that related primarily to certain restructuring reserves. There were no impairments of goodwill during the forty weeks ended July 5, 2009 or July 6, 2008.

Indefinite-lived intangible assets are evaluated for impairment quarterly, or whenever events or changes in circumstances indicate the carrying amount may not be recoverable. During the twelve and forty weeks ended July 5, 2009 the Company impaired $0.4 million consisting of liquor licenses related to locations included in the FTC settlement. There were no impairments of indefinite-lived intangible assets during the forty weeks ended July 6, 2008.

Definite-lived intangible assets are amortized over the useful life of the related agreement. We acquired definite-lived intangible assets totaling approximately $0.9 million and $1.4 million, primarily consisting of acquired leasehold rights, during the twelve and forty weeks ended July 5, 2009, respectively. During the twelve and forty weeks ended July 6, 2008, we acquired definite-lived intangible assets totaling approximately $0.6 million, consisting primarily of debt origination fees, and $1.5 million, consisting primarily of acquired leasehold rights, respectively. The Company recorded impairment charges totaling approximately $0.5 million and $0.8 million related to certain definite-lived intangible assets during the twelve and

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forty weeks ended July 5, 2009, respectively. Asset impairment charges of approximately $0.5 million were related to the FTC settlement and included in the “Relocation, store closure, and lease termination costs” line item, while approximately $0.3 million related to certain favorable lease assets was included in the “Direct store expenses” line item on the Consolidated Statements of Operations. There were no impairment charges to definite-lived intangible assets during the same periods of the prior fiscal year. Amortization associated with intangible assets totaled approximately $2.4 million and $6.1 million for the twelve and forty weeks ended July 5, 2009, respectively, and approximately $3.0 million and $10.0 million, respectively, for the same periods in the prior fiscal year.
~~The components of intangible assets were as follows (in thousands):~~

July 5, 2009

September 28, 2008

Gross carrying

Accumulated

Gross carrying

Accumulated

amount

amortization

amount

amortization

Indefinite-lived contract-based

$
1,566

$
—

$
1,966

$
—

Definite-lived contract-based

96,389

(23,838
)
95,424

(18,995
)
Definite-lived marketing-related and other

225

(156
)
8,319

(8,215
)

$
98,180

$
(23,994
)
$
105,709

$
(27,210
)
Amortization associated with the net carrying amount of intangible assets at July 5, 2009 is estimated to be $1.4 million for the remainder of fiscal year 2009, $6.0 million in fiscal year 2010, $5.9 million in fiscal year 2011, $5.9 million in fiscal year 2012, $5.1 million in fiscal year 2013 and $5.0 million in fiscal year 2014.
~~(6) Reserves for Closed Properties~~
The Company maintains reserves for retail stores and other properties that are no longer being utilized in current operations. The Company provides for closed property operating lease liabilities using a discount rate to calculate the present value of the remaining noncancelable lease payments and lease termination fees after the closing date, net of estimated subtenant income. The closed property lease liabilities are expected to be paid over the remaining lease terms, which generally range from one to 16 years. The Company estimates subtenant income and future cash flows based on existing economic conditions, information provided by outside real estate experts, the Company’s experience and knowledge of the market in which the closed property is located, and the Company’s previous efforts to dispose of similar assets.
~~Following is a summary of store closure reserves activity during the forty week period ended July 5, 2009 and fiscal year ended September 28, 2008 (in thousands):~~

July 5,

September 28,

2009

2008

Beginning balance

$
69,269

$
96,967

Additions

6,924

9,092

Usage

(14,616
)
(22,045
)
Adjustments

11,792

(14,745
)
Ending balance

$
73,369

$
69,269

Additions to store closure reserves relate to the accretion of interest on existing reserves and new closures. During the forty weeks ended July 5, 2009, the Company recorded reserves totaling approximately $2.7 million, related to five new closures. Adjustments to closed property reserves primarily relate to changes in existing economic conditions, subtenant income, actual exit costs differing from original estimates, or foreign currency translation adjustments. Adjustments are made for changes in estimates in the period in which the changes become known. During the twelve and forty weeks ended July 5, 2009, the Company recognized charges for adjustments of approximately $9.7 million and $13.5 million, respectively, related to increases in reserves primarily due to changes in certain subtenant income estimates related to the continued depression in the commercial real estate market, which are included on the accompanying Consolidated Statements of Operations under the caption “Relocation, store closure and lease termination costs.”During fiscal year 2008, the Company’s initial estimates of Wild Oats Markets store closure reserves were reduced by approximately $28.8 million as part of the final purchase price allocation. These purchase price adjustments related primarily to the completion of evaluations of the physical and market condition of acquired locations as of August 28, 2007, resulting in the Company’s decision to close seven additional Wild Oats store locations and adjustments to the fair values of certain assets and store closure reserves. Additionally, the Company recognized charges for adjustments of approximately $14.1 million related to the increases in reserves due to the downturn in the real estate market and the economy in general, during the fourth quarter of fiscal year 2008.
10

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~~(7) FTC Settlement Agreement~~
~~The FTC~~ had challenged the Company’s August 28, 2007 acquisition of Wild Oats Markets, Inc. Prior to completion of the Wild Oats acquisition, the FTC had filed a motion in the United States District Court for the District of Columbia seeking a preliminary injunction to enjoin the acquisition. The ~~FTC had also filed a complaint commencing an administrative proceeding challenging the acquisition.~~
On August 16, 2007, the United States District Court for the District of Columbia denied the FTC’s motion for a preliminary injunction. The FTC appealed denial of the preliminary injunction motion to the United States Court of Appeals for the District of Columbia Circuit and on July 29, 2008 the Court of Appeals reversed the District Court and remanded the case to the District Court for further proceedings. The Company’s motion for rehearing of the appeal en banc was denied on November 21, 2008. On remand, the FTC renewed its motion for preliminary injunctive relief pending resolution of the administrative action, specifically seeking a hold separate order, the rebranding of all former Wild Oats stores, and the appointment of a trustee or special master to establish an independent management team for the former Wild Oats assets and oversee Whole Foods Market’s compliance with the order. A hearing on the FTC’s renewed motion for a preliminary injunction was scheduled for February 17-18, 2009 but was removed from the Court’s calendar after the administrative case was removed from adjudication as discussed below.
On August 7, 2007 the FTC issued an Order on its own motion staying the administrative proceeding. On August 8, 2008, the FTC issued an Order lifting the stay of the administrative proceeding. The administrative proceeding was scheduled to commence on April 6, 2009. On January 28, 2009, the FTC issued an order granting the Company’s motion to withdraw the administrative case from adjudication for the purpose of considering a proposed consent agreement that would resolve the administrative proceeding. A further order dated February 4, 2009 extended the withdrawal through March 6, 2009.

~~On March 6, 2009, the~~ Company reached a settlement agreement with the ~~FTC.~~ ~~Pursuant to~~ FTC, ~~protocol, the settlement agreement was placed on public record for a 30-day comment period which ended April 6, 2009. The Company~~and received final approval of the settlement agreement by the FTC Commissioners on June 1, ~~2009.~~2009 after a 30-day public comment period. Under the terms of the agreement, a third-party divestiture trustee ~~has been~~was appointed to market for ~~sale:~~sale until September 8, 2009: leases and related assets for 19 non-operating former Wild Oats ~~stores, 10 of which were closed by Wild Oats prior to the merger and nine of which were closed by Whole Foods Market;~~stores; leases and related fixed assets (excluding inventory) for 12 operating acquired Wild Oats stores and one operating Whole Foods Market store; and Wild Oats trademarks and other intellectual property associated with the Wild Oats stores.

Pursuant to the settlement agreement, the divestiture ~~trustee~~period has ~~six months~~been extended by the FTC until March 8, 2010 to ~~market the assets to be divested. Any~~allow for good faith offers that ~~are~~have not been finalized ~~by September 6, 2009, may result in an extension of up to~~for six ~~months. This twelve-month~~operating and two non-operating former Wild Oats stores as well as Wild Oats trademarks and other intellectual property associated with the Wild Oats stores. The divestiture period for those eight stores may be extended further only to allow the FTC to approve any previously submitted purchase ~~agreements submitted within that time period. All~~agreements. The seven remaining ~~obligations imposed on~~operating stores may be retained by the Company bywithout further obligation to attempt to divest.

Pursuant to the ~~settlement agreement are in support~~FTC’s approval of the ~~divestiture trustee process.~~

~~During the twelve weeks ended July 5, 2009,~~final consent order, the Company recorded adjustments during the second half of fiscal year 2009 totaling approximately $4.8 million to measure long-lived assets and certain lease liabilities related to certain of the operating stores for which sale and transfer of the assets was determined to be probable or more likely than not at the lower of carrying amount or fair value less costs to sell. The total fair value associated with these locations at ~~July 5, 2009~~January 17, 2010 was approximately ~~$0.2~~$0.1 million. The Company has determined that these locations do not meet the conditions for reporting their results in discontinued operations. Cash expenses relating to legal and trustee fees are not expected to be material. No additional material charges are expected related to the potential sale of the six operating stores, the two non-operating properties for which a lease liability reserve is already recorded, or the trademarks which have been fully amortized.

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(5) Property and Equipment

Balances of major classes of property and equipment are as follows (in thousands):

	January 17,			September 27,
	2010			2009
Land	$	48,928		$	48,928
Buildings and leasehold improvements	1,753,981			1,687,103
Capitalized real estate leases	24,874			24,874
Fixtures and equipment	1,202,254			1,187,195
Construction in progress and equipment not yet in service	124,903			130,068
	3,154,940			3,078,168
Less accumulated depreciation and amortization	(1,257,843		)	(1,180,315		)
	$	1,897,097		$	1,897,853

Depreciation expense related to property and equipment totaled approximately $80.6 million for the sixteen weeks ended January 17, 2010. During the same period of the prior fiscal year, depreciation expense related to property and equipment totaled approximately $77.7 million. Property and equipment included accumulated accelerated depreciation and other asset impairments totaling approximately $11.8 million and $9.6 million at January 17, 2010 and September 27, 2009, respectively. Additionally, the Company held approximately $7.1 million and $4.8 million, net of accumulated depreciation, related to certain land, buildings, and equipment held for sale as of January 17, 2010 and September 27, 2009, respectively, in the “Prepaid expenses and other current assets” line item on the Consolidated Balance Sheets.

(6) Goodwill and Other Intangible Assets

Goodwill is reviewed for impairment annually at the beginning of the fourth fiscal quarter, or more frequently if impairment indicators arise. We allocate goodwill to one reporting unit for goodwill impairment testing. During the first quarter of fiscal year 2009, events or changes in circumstances occurred that indicated a reduction in fair value of our reporting unit below its carrying value could have occurred, including declines in our comparable store sales and market capitalization and downgrades to our corporate credit ratings. Accordingly, the Company performed an interim evaluation of goodwill for impairment as of January 18, 2009. No review was performed during the first quarter of fiscal year 2010 as no indicators of impairment existed at January 17, 2010. There were no impairments of goodwill during the sixteen weeks ended January 17, 2010 or January 18, 2009. During the sixteen weeks ended January 17, 2010 the Company recorded goodwill adjustments of approximately $0.3 million that related to actual exit costs of certain restructuring reserves related to the Wild Oats acquisition.

Definite-lived intangible assets are amortized over the useful life of the related agreement. We acquired definite-lived intangible assets totaling approximately $0.5 million, primarily consisting of acquired leasehold rights, during the sixteen weeks ended January 17, 2010. No definite-lived intangible assets were acquired during the sixteen weeks ended January 18, 2009. There were no impairments of definite-lived intangible assets during the sixteen weeks ended January 17, 2010. During the first quarter of fiscal year 2009, asset impairment charges of approximately $0.2 million related to certain favorable lease assets were included in the “Direct store expenses” line item on the Consolidated Statements of Operations. Amortization associated with intangible assets totaled approximately $1.9 million for the sixteen weeks ended January 17, 2010, and approximately $2.1 million for the same period in the prior fiscal year.

The components of intangible assets were as follows (in thousands):

	January 17, 2010					September 27, 2009
	Gross carrying		Accumulated			Gross carrying		Accumulated
	amount		amortization			amount		amortization
Indefinite-lived contract-based	$	1,566	$	—		$	1,566	$	—
Definite-lived contract-based	96,992		(26,939		)	96,515		(25,105		)
Definite-lived marketing-related and other	225		(180		)	225		(166		)
	$	98,783	$	(27,119	)	$	98,306	$	(25,271	)

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Amortization associated with the net carrying amount of intangible assets at January 17, 2010 is estimated to be $4.1 million for the remainder of fiscal year 2010, $5.9 million in fiscal year 2011, $5.9 million in fiscal year 2012, $5.0 million in fiscal year 2013, $4.9 million in fiscal year 2014, and $4.7 million in fiscal year 2015.

(7) Reserves for Closed Properties

Following is a summary of store closure reserves activity during the sixteen weeks ended January 17, 2010 and fiscal year ended September 27, 2009 (in thousands):

	January 17,			September 27,
	2010			2009
Beginning balance	$	69,228		$	69,269
Additions	1,592			8,276
Usage	(7,329		)	(17,841		)
Adjustments	9,839			9,524
Ending balance	$	73,330		$	69,228

Additions to store closure reserves relate to the accretion of interest on existing reserves and new closures. During the sixteen weeks ended January 17, 2010, the Company did not record any additional reserves related to new closures. Usage included approximately $3.6 million and $4.2 million in termination fees related to certain idle properties, and approximately $3.7 million and $13.7 million in ongoing cash rental payments during the sixteen weeks ended January 17, 2010 and fiscal year ended September 27, 2009, respectively. During the sixteen weeks ended January 17, 2010, the Company recognized charges for adjustments of approximately $10.1 million related to increases in reserves primarily due to changes in certain subtenant income estimates related to the continued depression in the commercial real estate market, which are included on the accompanying Consolidated Statements of Operations under the caption “Relocation, store closure and lease termination costs.” Additionally, during the sixteen weeks ended January 17, 2010 the Company recorded goodwill adjustments of approximately $0.3 million.

(8) Long-Term Debt

~~During fiscal year 2007, the~~The Company ~~entered into~~has outstanding a $700 million, five-year term loan agreement ~~to finance the acquisition of Wild Oats Markets.~~that expires in 2012. The loan bears interest at our option of the alternative base rate (“ABR”) plus an applicable margin, currently 0.75%, or LIBOR plus an applicable margin, currently 1.75%, based on the Company’s Moody’s and S&P rating. These applicable margins are currently the maximum allowed under these agreements. The interest period on LIBOR borrowings may range from one to six months at our option. ~~During the first quarter of fiscal year 2009, as a result of downgrades to our corporate credit ratings and as called for in the loan agreement, the~~The participating banks ~~obtained~~hold security interests in certain of the Company’s assets to collateralize amounts outstanding under the term loan. The term loan agreement contains certain affirmative covenants including maintenance of certain financial ratios and certain negative covenants including limitations on additional indebtedness and payments as defined in the agreement. ~~No further material restrictive covenants or limitations on additional indebtedness and payments have been imposed as a result of the downgrades to our corporate credit ratings.~~ At ~~July 5, 2009,~~January 17, 2010 we were in compliance with all applicable debt covenants.

The Company also has outstanding a $350 million revolving line of credit that extends to 2012. The credit agreement contains certain affirmative covenants including maintenance of certain financial ratios and certain negative covenants including limitations on additional indebtedness and payments as defined in the agreement. At July 5, 2009, we were in

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~~compliance with all applicable debt covenants.~~ All outstanding amounts borrowed under this agreement bear interest at our option of the ABR plus an applicable margin, currently 0.875%, or LIBOR plus an applicable margin, currently 1.875%, based on the Company’s Moody’s and S&P rating. These applicable margins are currently the maximum allowed under these agreements. ~~During the first quarter of fiscal year 2009, as a result of downgrades to our corporate credit ratings and as called for in the loan agreement, the~~The participating banks ~~obtained~~hold security interests in certain of the Company’s assets to collateralize amounts outstanding under the revolving credit facility. ~~No further material restrictive~~The credit agreement contains certain affirmative covenants orincluding maintenance of certain financial ratios and certain negative covenants including limitations on additional indebtedness and payments ~~have been imposed~~ as ~~a result of~~defined in the ~~downgrades to our corporate credit ratings.~~agreement. At January 17, 2010 we were in compliance with all applicable debt covenants. Commitment fees on the undrawn amount, reduced by outstanding letters of credit, are payable under this agreement. At ~~July 5, 2009~~January 17, 2010 and September ~~28, 2008~~27, 2009 the Company had ~~zero and $195 million~~no amounts drawn under this ~~agreement, respectively. During the first quarter of fiscal year 2009, the Company repaid all amounts outstanding and no amounts were drawn under this agreement at July 5, 2009.~~agreement. The amount available to the Company under the agreement was effectively reduced to ~~$334.8~~approximately $337.7 million and ~~$75.9~~$335.2 million by outstanding letters of credit totaling approximately ~~$15.2~~$12.3 million and ~~$79.1~~$14.8 million at ~~July 5, 2009~~January 17, 2010 and September ~~28, 2008,~~27, 2009, respectively. This decrease in outstanding letters of credit relates to approximately $70.4 million of cash deposited as collateral to support a portion of our workers’ compensation obligation that was previously held as a letter of credit.

During the first quarter of fiscal year 2008, approximately 250 of the Company’s zero coupon convertible subordinated debentures were converted at the option of the holders to approximately 6,000 shares of Company common stock. The outstanding convertible subordinated debentures had a carrying amount of approximately $2.7 million at September 28, 2008. On December 8, 2008, the Company redeemed all remaining debentures at a redemption price equal to the issue price plus accrued original issue discount totaling approximately $2.7 million.

~~(9) Derivatives~~

During fiscal year 2008, the Company entered into ~~a three-year~~an interest rate swap agreement, which expires in October 2010, with a notional amount of $490 million to effectively fix the interest rate on $490 million of the term loan at 4.718%, excluding the applicable margin and associated fees, to help manage cash flow exposure related to interest rate fluctuations. The interest rate swap was designated as a cash flow hedge. Hedge ineffectiveness was not material during the ~~twelve and forty~~sixteen weeks ended ~~July 5, 2009~~January 17, 2010 or the same ~~periods~~period of the prior fiscal year.

The interest rate swap agreement does not contain a credit-risk-related contingent feature. ~~At July 5, 2009, the~~The carrying amount of the Company’s interest rate swap totaled approximately ~~$23.4~~$15.4 million and ~~is included on the “Long-term debt~~$20.6 million at January 17, 2010 and ~~capital lease obligations, less current installments” line item on the Consolidated Balance Sheets.~~September 27, 2009, respectively. The Company had accumulated net derivative losses of approximately ~~$13.6~~$9.1 million and ~~$7.6~~$12.6 million, net

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of taxes, in accumulated other comprehensive income as of ~~July 5, 2009~~January 17, 2010 and September ~~28, 2008,~~27, 2009, respectively, related to this cash flow hedge. These losses are being recognized as an adjustment to interest expense over the same period in which the interest costs on the related debt are recognized. During the ~~twelve and forty~~sixteen weeks ended ~~July 5,~~January 17, 2010 and January 18, 2009, the Company had reclassified approximately ~~$4.1~~$4.0 million and ~~$9.7~~$1.1 million, respectively, from accumulated other comprehensive income related to ongoing interest payments that was included in the “Interest expense” line item on the Consolidated Statements of Operations. The Company expects to reclass approximately ~~$19.3~~$15.4 million from accumulated other comprehensive income to interest expense inover the ~~next twelve months.~~remaining life of the agreement.

~~(10)~~(9) Redeemable Preferred Stock

~~On December 2, 2008,~~During the first quarter of fiscal year 2009, the Company issued 425,000 shares of Series A 8% Redeemable, Convertible Exchangeable Participating Preferred Stock, $0.01 par value per share (“Series A Preferred Stock”) to affiliates of Leonard Green & Partners, L.P., for approximately $413.1 million, net of approximately $11.9 million in closing and issuance costs. On April 12, 2009, the Company amended and restated the Statement of Designations governing the Series A Preferred Stock. This amendment limits the participation feature, as described below, of the Series A 8% Redeemable, Convertible Exchangeable Preferred Stock and provides for the mandatory payment of cash dividends in respect to the Series A Preferred Stock. The ~~amendment also restricts the Company’s ability to pay cash dividends on its common stock without the prior written consent of the holders representing at least a majority of the shares of~~ Series A Preferred Stock ~~then outstanding. Each share of Series A Preferred Stock has an initial liquidation preference of $1,000, subject to adjustment. Subject to limited exceptions,~~was classified as temporary shareholders’ equity at September 27, 2009 since the ~~outstanding~~ shares ~~may not be transferred outside~~were (i) redeemable at the option of the ~~initial investor group prior to~~holder and (ii) had conditions for redemption which are not solely within the ~~third anniversary~~control of ~~share issuance.~~

the Company. The holders of the Series A Preferred Stock ~~are~~were entitled to an 8% dividend, payable quarterly on the first day of each calendar quarter in cash. Beginning three years after issuance, the dividend will be reduced to (i) 6% if at any time the Company’s common stock closes at or above $17.75 per share for at least 20 consecutive trading days, or (ii) 4% if at any time the Company’s common stock closes at or above $23.13 per share for at least 20 consecutive trading days. Also, in the event a cash dividend or other distribution in cash is declared on the Company’s common stock in an amount equal to or greater than the Company’s stock price on the date of declaration, the holders of the Series A Preferred Stock will be entitled to receive an additional amount equal to the cash amount per share distributed or to be distributed in respect of the common stock. To the

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extent the Company fails to pay dividends on the Series A Preferred Stock in cash, an amount equal to 12% of the liquidation preference of each share of the Series A Preferred Stock will be added to the liquidation preference of such share of Series A Preferred Stock. During the twelve and forty weeks ended July 5, 2009, theThe Company paid cash dividends on the Series A Preferred Stock ~~of approximately~~totaling $8.5 million and ~~$19.8~~approximately $2.8 million during the sixteen weeks ended January 17, 2010 and January 18, 2009, respectively.

On October 23, 2009 the Company announced its intention to call all 425,000 outstanding shares of the Series A Preferred Stock for redemption on November 27, 2009 in accordance with the terms governing such Series A Preferred Stock. On November 26, 2009 the holders converted all 425,000 outstanding shares of the Series A Preferred Stock. The Series A Preferred Stock ~~is convertible, under certain circumstances,~~was converted to common stock based on the quotient of (i) the liquidation preference plus accrued dividends and (ii) 1,000, multiplied by the conversion rate ~~initially~~of 68.9655. ~~The~~At the conversion rate is subject to change based on certain customary antidilution provisions. The Series A Preferred Stock is convertible at any time, at the election of the holders, provided that at no time may any holder of the preferred shares beneficially own more than 19.99% of the Company’s voting securities as a result of such conversion. The Company has reserved, and will keep available out of its authorized and unissued common stock, such number of shares that would be issued upon conversion of all Series A Preferred Stock then outstanding. Shares converted to common stock may not be transferred outside of the initial investor group prior to the third anniversary of the initial Preferred Stock issuance.

~~The Company also has the option to exchange the Series A Preferred Stock for subordinated convertible notes having economic terms similar to the preferred stock under certain circumstances.~~

The Company may redeem the Series A Preferred Stock, in whole or in part, at any time after December 2, 2013, at a premium of 4%, declining ratably in annual increments to par on December 2, 2016, multiplied bydate, the liquidation preference plus accrued dividends. Additionally, at any time, the Company may, upon 30 days notice, redeem the Series A Preferred Stock at par if the common stock closes at or above $28.50 per share for at least 20 consecutive trading days.

~~The holders~~ of the Series A Preferred Stock ~~may require the Company to redeem their~~of $425 million and accrued dividends of approximately $5.2 million, converted into approximately 29.7 million shares of Series A Preferred Stock, in whole or in part, at 101% of the liquidation preference plus accrued dividends upon the occurrence of certain fundamental changes to the Company, including a change of control and certain bankruptcy events. In addition, the holders of the Series A Preferred Stock have the right to require the Company to redeem their shares of Series A Preferred Stock at par any time on or after December 2, 2020.

In the event of any liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary, holders of the Series A Preferred Stock will be entitled to receive for each share, out of the assets of the Company or proceeds thereof (whether capital or surplus) available for distribution to shareholders of the Company, and after satisfaction of all liabilities and obligations to creditors of the Company, before any distribution of such assets or proceeds is made to or set aside for the holders of common stock an amount equal to the greater of (i) the liquidation preference per share of Series A Preferred Stock plus accrued dividends and (ii) the per share amount of all cash and other property to be distributed in respect of the common stock such holder would have been entitled to had it converted such Series A Preferred Stock immediately prior to the date fixed for such liquidation, dissolution or winding up of the Company.

The holders of the Series A Preferred Stock, voting as a separate class, elected two members of the Board of Directors of the Company. On December 2, 2008, the Company announced that Jonathan A. Seiffer, partner, and Jonathan D. Sokoloff, managing partner, both of Leonard Green & Partners, L.P., had joined the Board. Representation on the Board of Directors of the Company will be reduced based on certain dilution percentages of the Company’s voting securities and will cease once the Series A Preferred Stock represents less than 7% of the Company’s voting securities. Additionally, the holders of the Series A Preferred Stock are entitled to designate one member to each of the committees of the Board of Directors and to appoint directors for election to the Board of Directors once the ability to elect directors ceases, subject to applicable government restrictions. The holders of Series A Preferred Stock also have the right to veto certain actions of the Company that might dilute, or alter the rights of, the Series A Preferred Stock. The Series A Preferred Stock will vote together with the common stock on an as-converted basis, but no holder of Series A Preferred Stock may vote more than the equivalent of 19.99% of the Company’s voting securities.

The Series A Preferred Stock is classified as temporary shareholders’ equity, since the shares are (i) redeemable at the option of the holder and (ii) have conditions for redemption which are not solely within the control of the Company.

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~~(11) Shareholders’ Equity~~

~~Dividends~~

~~Following is a summary of dividends declared per common share during fiscal year 2008 (in thousands, except per share amounts):~~

Date of

Dividend per

Date of

Date of

Total

Declaration

Common Share

Record

Payment

Amount

November 20, 2007

$
0.20

January 11, 2008

January 22, 2008

$
27,901

March 10, 2008

0.20

April 11, 2008

April 22, 2008

28,041

June 11, 2008

0.20

July 11, 2008

July 22, 2008

28,057

~~On August 5, 2008, the Company announced the suspension of its quarterly cash dividend to common shareholders for the foreseeable future.~~

~~Treasury Stock~~

During the first quarter of fiscal year 2008, the Company retired all shares held in treasury, totaling approximately $200.0 million. The Company’s remaining authorization under the stock repurchase program at July 5, 2009, is approximately $200.0 million through November 8, 2009. The specific timing and repurchase of future amounts will vary based on market conditions, securities law limitations and other factors and will be made using the Company’s available resources. The repurchase program may be suspended or discontinued at any time without prior notice.

~~(12)~~(10) Comprehensive Income

Our comprehensive income was comprised of net ~~income,~~income; unrealized losses on investments; unrealized losses on cash flow hedge instruments, including reclassification adjustments of unrealized losses to net income related to ongoing interest ~~payments,~~payments; and foreign currency translation adjustments, net of income taxes.

Comprehensive income, net of related tax effects, was as follows (in thousands):

	Twelve weeks ended					Forty weeks ended						Sixteen weeks ended
	July 5,			July 6,		July 5,			July 6,			January 17,			January 18,
	2009			2008		2009			2008			2010			2009
Net income	$	42,807		$	33,919	$	110,394		$	113,022		$	55,155		$	32,329
Foreign currency translation adjustment, net	6,113			352		(9,588		)	(3,619		)
Foreign currency translation adjustments, net												3,106			(15,211		)
Reclassification adjustments for amounts included in net income, net	2,391			1,353		5,674			1,150			3,979			1,094
Unrealized gain (loss) on cash flow hedge instruments, net	(1,669		)	5,678		(11,667		)	(8,893		)
Unrealized loss on cash flow hedge instruments, net												(446		)	(10,843		)
Unrealized loss on investments, net												(4		)	—
Comprehensive income	$	49,642		$	41,302	$	94,813		$	101,660		$	61,790		$	7,369

At ~~July 5, 2009,~~January 17, 2010, accumulated other comprehensive ~~income~~loss consisted of foreign currency translation adjustment ~~losses~~gains of approximately ~~$1.6~~$2.4 million and unrealized losses on cash flow hedge instruments and investments of approximately ~~$13.6~~$9.1 million, net of related income tax effect of approximately ~~$9.8~~$6.3 million.

~~(13)~~(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 for the sixteen weeks ended January 17, 2010 includes the dilutive effect of common stock equivalents consisting of incremental common shares deemed outstanding from the assumed exercise of stock options.

The computation of diluted earnings per share for the ~~twelve and forty~~sixteen weeks ended ~~July 5, 2009~~January 17, 2010 does not include options to purchase approximately ~~16.0 million shares and 16.7~~12.4 million shares of common stock ~~respectively,~~ or the conversion of Series A Preferred Stock to approximately ~~29.3 million shares and 22.5~~15.7 million shares of common stock ~~respectively,~~ due to their antidilutive effect. ~~The computation of diluted earnings per share in~~For the ~~twelve and forty~~sixteen weeks ended July 6, 2008, includes the dilutive effect of the assumed conversion of zero coupon convertible subordinated debentures. Additionally, the forty weeks ended July 6, 2008 includes the dilutive effect of common stock equivalents consisting of common shares deemed outstanding from the assumed exercise of stock options. For the twelve and forty weeks ended July 6, 2008,January 18, 2009, the computation of diluted earnings per share does not include options to purchase approximately ~~13.6 million shares and 12.2~~17.3 million shares of common stock ~~respectively,~~or the conversion of Series A Preferred Stock to approximately 12.3 million shares of common stock due to their antidilutive effect.

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A reconciliation of the numerators and denominators of the basic and diluted earnings per share calculations follows (in thousands, except per share amounts):

Twelve weeks ended

Forty weeks ended

July 5,
2009

July 6,
2008

July 5,
2009

July 6,
2008

Income available to common shareholders
(numerator for basic earnings per share)

$
34,968

$
33,919

$
90,088

$
113,022

Interest on 5% zero coupon convertible subordinated
debentures, net of income taxes

—

18

—

61

Adjusted income available to common shareholders
(numerator for diluted earnings per share)

$
34,968

$
33,937

$
90,088

$
113,083

Weighted average common shares outstanding
(denominator for basic earnings per share)

140,439

140,231

140,385

139,766

Potential common shares outstanding:

Assumed conversion of 5% zero coupon convertible
subordinated debentures

—

91

—

92

Incremental shares from assumed exercise of stock options

—

—

—

450

Weighted average common shares outstanding and
potential additional common shares outstanding
(denominator for diluted earnings per share)

140,439

140,322

140,385

140,308

Basic earnings per share

$
0.25

$
0.24

$
0.64

$
0.81

Diluted earnings per share

$
0.25

$
0.24

$
0.64

$
0.81

	Sixteen weeks ended
	January 17,		January 18,
	2010		2009
Income available to common shareholders (numerator for basic and diluted earnings per share)	$	49,677	$	27,796
Weighted average common shares outstanding (denominator for basic earnings per share)	154,413		140,330
Potential common shares outstanding:
Incremental shares from assumed exercise of stock options	445		—
Weighted average common shares outstanding and potential additional common shares outstanding (denominator for diluted earnings per share)	154,858		140,330
Basic earnings per share	$	0.32	$	0.20
Diluted earnings per share	$	0.32	$	0.20

~~(14)~~(12) Share-Based Payments

Our Company maintains several ~~stock-based~~stock based incentive plans. We grant options to purchase common stock under our Whole Foods Market 2009 Stock Incentive Plan. Under this plan, options are granted at an option price equal to the market value of the stock at the grant date and are generally exercisable ratably over a four-year period beginning one year from grant date and have a five or seven year term. The market value of the stock is determined as the closing stock price at the grant date. ~~On July 5, 2009~~At January 17, 2010 and September ~~28, 2008~~27, 2009 there were approximately ~~15.4~~15.7 million and ~~4.5~~15.4 million shares, respectively, of our common stock available for future stock option grants.

~~As of July 5, 2009 there was approximately $38.2 million of~~Total unrecognized share-based ~~payments~~payment expense related to nonvested stock options, net of estimated forfeitures, was approximately $29.1 million as of the end of the first quarter of fiscal year 2010 and related to approximately 4.7 million shares. We anticipate this expense to be recognized over a weighted average period of ~~3.12~~approximately three years. ~~To the extent the forfeiture rate is different than what we have anticipated, share-based payments expense related to these awards will differ from our expectations.~~

Share-based ~~payments~~payment expense recognized during the ~~twelve and forty~~sixteen weeks ended ~~July 5,~~January 17, 2010 and January 18, 2009 totaled approximately ~~$2.7~~$5.2 million and ~~$8.8~~$3.8 million, ~~respectively. Share-based payments expense recognized during the twelve~~respectively, and ~~forty weeks ended July 6, 2008 totaled approximately $2.2 million and $7.6 million, respectively. All share-based payments expense~~ consisted entirely of stock option expense. ~~The forty week period ended July 5, 2009 included a $0.5 million credit adjustment to the expense recognized for the acceleration of stock options in September 2005, to adjust for actual experience.~~ Share-based ~~payments~~payment expense was included in the following line items on the Consolidated Statements of Operations for the periods indicated (in thousands):

Twelve weeks ended

Forty weeks ended

July 5,
2009

July 6,
2008

July 5,
2009

July 6,
2008

Cost of goods sold and occupancy costs

$
102

$
49

$
274

$
148

Direct store expenses

1,416

982

4,883

3,899

General and administrative expenses

1,169

1,216

3,672

3,552

Share-based payments expense before income taxes

2,687

2,247

8,829

7,599

Income tax benefit

(1,121
)
(735
)
(3,612
)
(2,871
)
Net share-based payments expense

$
1,566

$
1,512

$
5,217

$
4,728

On May 22, 2009, the Company issued its annual grant of options to team members and directors. The Company also issued 11,750 stock options to the Whole Planet Foundation. Share-based payments expense of approximately $92,000 and $35,000

was recognized during the twelve weeks ended July 5, 2009 and July 6, 2008, respectively, for the grants to the Whole Planet Foundation, included in the line item “General and administrative expenses” in the table above. The following table summarizes option activity during the first three quarters of fiscal year 2009:

Weighted

Number

Average

Aggregate

of Options

Weighted

Remaining

Intrinsic

Outstanding

Average

Contractual Life

Value

(in thousands)

Exercise Price

(in years)

(in thousands)

Outstanding options at September 28, 2008

17,430

$
48.64

Options granted

2,706

18.70

Options exercised

(0
)
0.00

Options forfeited

(198
)
35.94

Options expired

(1,318
)
37.45

Outstanding options at July 5, 2009

18,620

$
45.21

3.27

$
480

Options vested and expected to vest

18,065

$
45.91

3.19

$
422

Exercisable options at July 5, 2009

13,321

$
52.40

2.54

$
—

The weighted average fair value of options granted during fiscal year 2009 was $7.74. There was no aggregate intrinsic value of stock options at exercise, represented in the table above, for the forty weeks ended July 5, 2009. The fair value of stock option grants has been estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

2009

2008

Expected dividend yield

0.00
%
2.90
%
Risk-free interest rate

1.56
%
2.32
%
Expected volatility

52.31
%
36.73
%
Expected life, in years

3.97

3.38

Risk-free interest rate is based on the US Treasury yield curve on the date of the grant for the time period equal to the expected term. Expected volatility is calculated using a ratio of implied volatility based on comparable Long-Term Equity Anticipation Securities (“LEAPS”) and four-year historical volatilities. The Company determined the use of both implied volatility and historical volatility represents a more consistent and accurate calculation of option fair value. Expected life is calculated in two tranches based on weighted average percentage of unexpired options and exercise-after-vesting information over the last four years. Unvested options are included in the term calculation using the “mid-point scenario” which assumes that unvested options will be exercised halfway between vest and expiration date. The assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and experience.

~~In addition to the above valuation assumptions,~~ SFAS No. 123R “Share-Based Payment” requires the Company to estimate an annual forfeiture rate for unvested options and true up fair value expense accordingly. The Company monitors actual forfeiture experience and adjusts the rate from time to time as necessary.

	Sixteen weeks ended
	January 17,			January 18,
	2010			2009
Cost of goods sold and occupancy costs	$	220		$	123
Direct store expenses	3,030			2,190
General and administrative expenses	1,991			1,476
Share-based payment expense before income taxes	5,241			3,789
Income tax benefit	(2,112		)	(1,431		)
Net share-based payment expense	$	3,129		$	2,358

~~(15) Recent Accounting Pronouncements~~

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations,” which replaces SFAS No. 141, “Business Combinations,” and applies to all transactions or other events in which an entity obtains control of one or more businesses, including those sometimes referred to as “true mergers” or “mergers of equals” and combinations achieved without the transfer of consideration. SFAS No. 141R establishes principles and requirements for how the acquirer recognizes and measures identifiable assets acquired, liabilities assumed, any noncontrolling interest and goodwill acquired. The Statement also provides for disclosures to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141R is amended by FSP No. FAS 141R-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies,” which addresses the recognition and initial measurement, subsequent measurement, and disclosure of assets and liabilities arising from contingencies acquired as part of a business combination. The provisions of SFAS No. 141R are effective for fiscal years beginning after December 15, 2008 and are applied prospectively to business combinations completed on or after that date. SFAS No. 141R is effective for the Company’s fiscal year ending September 26, 2010. We will evaluate the impact, if any, that the adoption of SFAS No. 141R could have on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51.” SFAS No. 160 establishes accounting and reporting standards for noncontrolling interests

(“minority interests”) in subsidiaries. Additionally, SFAS No. 160 amends certain consolidation procedures contained in Accounting Reporting Bulletin No. 51 “Consolidated Financial Statements” to make them consistent with the requirements of SFAS No. 141 “Business Combinations,” as revised. SFAS No. 160 clarifies that a noncontrolling interest in a subsidiary should be accounted for as a component of equity separate from the parent’s equity. The provisions of SFAS No. 160 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2008 and are applied prospectively, except for presentation and disclosure requirements, which will apply retrospectively. SFAS No. 160 is effective for the Company’s first quarter of fiscal year ending September 26, 2010. We are currently evaluating the impact, if any, that the adoption of SFAS No. 160 will have on our consolidated financial statements.

In April 2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets.” FSP No. FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets.” The intent of the position is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141R, and other U.S. generally accepted accounting principles. The provisions of FSP No. FAS 142-3 are effective for fiscal years beginning after December 15, 2008. FSP No. FAS 142-3 is effective for the Company’s fiscal year ending September 26, 2010. We will evaluate the impact, if any, that the adoption of FSP No. FAS 142-3 could have on our consolidated financial statements.

In May 2008, the FASB issued FSP No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).” FSP No. APB 14-1 clarifies that convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants” and specifies that such users should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. The provisions of FSP No. APB 14-1 are effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. FSP No. APB 14-1 is effective for the Company’s first quarter of fiscal year ending September 26, 2010. We are currently evaluating the impact, if any, that the adoption of FSP No. APB 14-1 will have on our consolidated financial statements.

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Heirarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162.” SFAS No. 168 establishes the Accounting Standards Codification as the source of authoritative accounting principles recognized by FASB for all nongovernmental entities in the preparation of financial statements in accordance with GAAP. For SEC registrants, rules and interpretive releases of the SEC under federal securities laws are also considered authoritative sources of GAAP. The provisions of SFAS No. 168 are effective for financial statements issued for interim and annual periods ending after September 15, 2009. SFAS No. 168 is effective for the Company’s fiscal year ending September 27, 2009. The Company does not expect this standard to have an impact on our financial condition or results of operation.

~~(16)~~(13) Commitments and Contingencies

The Company uses a combination of insurance and self-insurance plans to provide for the potential liabilities for workers’ compensation, general liability, property insurance, director and officers’ liability insurance, vehicle liability, and employee health care benefits. Liabilities associated with the risks that are retained by the Company are estimated, in part, by considering historical claims experience, demographic factors, severity factors and other actuarial assumptions. While we believe that our assumptions are appropriate, the estimated accruals for these liabilities could be significantly affected if future occurrences and claims differ from these assumptions and historical trends.

From time to time we are a party to legal proceedings including matters involving personnel and employment issues, personal injury, intellectual property, real estate and other proceedings arising in the ordinary course of business. The Company has established loss provisions for matters in which losses are probable and the amount of loss can be reasonably estimated. The Company does not believe that any of these proceedings arising in the ordinary course of business, either alone or in the aggregate, will have a material adverse effect on the Company’s results of operations, cash flows or financial condition. Although management does not expect that the outcome in these proceedings will have a material adverse effect on our

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financial condition or results of operations, litigation is inherently unpredictable. Therefore, we could incur judgments or enter into settlements of claims that could materially impact our results.

On October 27, 2008, Whole Foods Market was served with the complaint in Kottaras v. Whole Foods Market, Inc., a putative class action filed in the United States District Court for the District of Columbia, seeking treble damages, equitable, injunctive, and declaratory relief and alleging that the acquisition and merger between Whole Foods Market and Wild Oats violates various provisions of the federal antitrust laws. This case is in the preliminary stages. Whole Foods Market cannot at this time predict the likely outcome of this judicial proceeding or estimate the amount or range of loss or possible loss that

may arise from it. The Company has not accrued any loss related to the outcome of this case as of ~~July 5, 2009.~~January 17, 2010.

~~(17)~~(14) Subsequent Events

On February 1, 2010, the Company sold certain land and idle buildings that had been held for sale totaling approximately $4.8 million at January 17, 2010. Total proceeds, net of closing costs, were approximately $8.0 million, resulting in a gain on the sale of assets of approximately $3.2 million.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events.” SFAS No. 165 establishes general standards for the disclosure of events that occur after the balance sheet date but before the financial statements are issued or available to be issued, including the required disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. The Company adopted the provisions of SFAS No. 165 on April 13, 2009.

The Company evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements through ~~August 14, 2009,~~February 26, 2010, the date the financial statements were issued.

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

We wish to caution you that there are risks and uncertainties that could cause our actual results to be materially different from those indicated by forward-looking statements that we make from time to time in filings with the Securities and Exchange Commission (“SEC”), news releases, reports, proxy statements, registration statements and other written communications, as well as oral forward-looking statements made from time to time by representatives of our Company. These risks and uncertainties include those listed in the Company’s Annual Report on Form 10-K for the fiscal year ended September ~~28, 2008.~~27, 2009. These risks and uncertainties and additional risks and uncertainties not presently known to us or that we currently deem immaterial may cause our business, financial condition, operating results and cash flows to be materially adversely affected. Except for the historical information contained herein, the matters discussed in this analysis are forward-looking statements that involve risks and uncertainties, including ~~but not limited to~~ general business conditions, ~~the successful integration of acquired businesses into our operations,~~ changes in overall economic conditions that impact consumer spending, including fuel prices and housing market trends, the impact of competition, changes in the Company’s ability to access ~~to available~~additional capital, and other factors which are often beyond the control of the Company. The Company does not undertake any obligation to update forward-looking statements except as required by law.

General

Whole Foods Market, Inc. ~~and its consolidated subsidiaries own and operate~~is the ~~largest chain of~~leading natural and organic ~~food supermarkets.~~foods supermarket and America’s first national “Certified Organic” grocer. Our Company mission is to promote ~~the~~ vitality and well-being offor all individuals by supplying the highest quality, most wholesome foods available. 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. We opened our first store in Texas in 1980 and, as of ~~July 5, 2009,~~January 17, 2010, we operated ~~281~~289 stores: ~~270~~278 stores in 38 U.S. states and the District of Columbia; six stores in Canada; and five stores in the United Kingdom. We have one operating segment, natural and organic ~~food~~foods supermarkets.

~~The Company reports its~~Our results of operations ~~on a 52- or 53- week fiscal~~have been and may continue to be materially affected by the timing and number of new store openings. Stores typically open within two years after entering the store development pipeline. New stores generally become profitable during their first year ~~ending on~~of operation; although some new stores may incur operating losses for the ~~last Sunday~~first several years of operation. The Company historically has experienced lower average weekly sales in ~~September. The first fiscal quarter is sixteen weeks, the second and third quarters each are twelve weeks, and~~ the fourth quarter, ~~is twelve or thirteen weeks. Fiscal years 2009~~which typically results in lower gross profit and ~~2008 are 52-week years.~~higher direct store expenses as a percentage of sales.

Sales of a store are deemed to be comparable commencing in the fifty-third full week after the store was opened or acquired. Identical store sales exclude sales from relocated stores and remodeled stores with ~~expansions of~~changes in square footage greater than 20% ~~until the fifty-third full week after the store is relocated or remodeled~~ from the comparable calculation to reduce the impact of square footage growth on the comparison. Stores closed for eight or more days are excluded from the comparable and identical store base from the first fiscal week of closure until re-opened for a full fiscal week.

~~Management Overview~~The Company reports its results of operations on a 52- or 53-week fiscal year ending on the last Sunday in September. Fiscal years 2010 and 2009 are 52-week years.

Economic and Industry Factors

Food retailing is a large, intensely competitive industry. Our competition varies across the Company and includes but is not limited to local, regional, national and international conventional and specialty supermarkets, natural foods stores, warehouse membership clubs, smaller specialty stores, farmers’ markets, and restaurants, each of which competes with us on the basis of product selection, quality, customer service, price or a combination of these factors. Natural and organic food continues to be one of the fastest growing segments of food retailing today.

Early last year, we made the shift from being fairly reactionary on pricing to being much more strategic. We believe this strategy has been successful over the last several quarters, as we have produced strong year-over-year improvement in gross margin and comparable store sales. While many of our competitors have wavered on their pricing strategies, we are commited to our goal of offering competitive prices on known value items, day in and day out. Our internal benchmarking shows that we maintained our price competitiveness relative to our national competitors during the quarter. We remain focused on continuing to strike the right balance between driving sales, improving our value offerings, and ~~gross margin while exhibiting strong cost control, producing a 23% increase~~maintaining margin.

Outlook for Fiscal Year 2010

Based on first quarter results, the Company believes it is in ~~income from operations. During~~ the ~~third quarter~~early stages of recovery and expects some sales momentum to continue for the remainder of the year. Accordingly, the Company has raised its sales outlook for the full fiscal year ~~2009, we have been able~~2010 to ~~generate operating cash flows in excess of our capital expenditure requirements, and we are working to balance our long-term growth plans with our near-term focus on conserving capital and maintaining liquidity.~~

~~While some competitors appear to be pulling back on organic as they emphasize value more, we are refocusing on our core customers and expanding our organic offerings. Our~~ sales growth ~~in organic products is outpacing growth in natural products, driven in part by organic private label products. We recently announced that each~~ of our stores in the United States has been individually certified as compliant with the new stricter federal organic retailer certification requirements. While some certified organic retailers may have certified just a few departments and focus on shrink-wrapped organic produce, every department in our stores that handles organic food is certified. We believe continuing8.5% to ~~raise the bar in areas that matter to our customers will reinforce our leadership position in natural and organic foods, resulting in greater customer loyalty for many years to come.~~

We continue to re-evaluate our store development pipeline, with a focus on opening smaller stores with simpler décor designed with smaller, less-labor intensive perishable departments. During the third quarter of fiscal year 2009, the Company terminated two leases totaling approximately 121,000 square feet for stores previously scheduled to open in fiscal years 2012 and 2013.

Although these are challenging times for retailers, we are very pleased with our third quarter and year-to-date results. We believe we have made strategic decisions that have allowed us to maximize our short-term results in this period of slower sales, while renewing our focus on our core customers and staying true to our longer-term mission. We are hopeful that sales

are starting to move in the right direction. We are well-positioned to take advantage of a rebound in the economy and look forward to getting past this recession and back on an upward growth trajectory.

As previously announced on June 1, 2009, the Federal Trade Commission (“FTC”) approved a final consent order of the settlement agreement resolving its antitrust challenge to the Company’s acquisition of Wild Oats Markets, Inc. Under the terms of the agreement, a third-party divestiture trustee has been appointed to market for sale: leases and related assets for 19 non-operating former Wild Oats stores, 10 of which were closed by Wild Oats prior to the merger and nine of which were closed by Whole Foods Market; leases and related fixed assets for 12 operating acquired Wild Oats stores and one operating Whole Foods Market store; and Wild Oats trademarks and other intellectual property associated with the Wild Oats stores.

Pursuant to the settlement agreement, the divestiture trustee has six months to market the assets to be divested. Any good faith offers that are not finalized by September 6, 2009, may result in an extension of up to six months. This twelve-month period may be extended further to allow the FTC to approve any purchase agreements submitted within that time period. All remaining obligations imposed on the Company by the settlement agreement are in support of the divestiture trustee process.

During the twelve weeks ended July 5, 2009, the Company recorded adjustments totaling approximately $4.8 million to measure long-lived assets and certain lease liabilities related to certain of the operating stores for which sale and transfer of the assets was determined to be probable or more likely than not at the lower of carrying amount or fair value less costs to sell. The total fair value associated with these locations at July 5, 2009 was approximately $0.2 million. The Company has determined that these locations do not meet the conditions for reporting their results in discontinued operations.

~~Fiscal year 2009 third quarter~~

Sales totaled approximately $1.9 billion for the twelve weeks ended July 5, 2009, increasing 2.0% over the prior year. Comparable store sales decreased 2.5% compared to a 2.6% increase in the prior year. Identical store sales, excluding nine relocations and two major expansions, decreased 3.8% compared to a 1.9% increase in the prior year. Excluding the negative impact of foreign currency translation,10.5%, comparable store sales ~~decreased 2.0% and identical store sales decreased 3.3%.~~

~~Income available~~growth of 3.5% to common shareholders was approximately $35.0 million, and diluted earnings per share was $0.25. These results included a LIFO credit of $5.8 million, or $0.02 per diluted share, versus a $2.7 million charge last year and approximately $6.8 million, or $0.03 per diluted share, in non-cash asset impairment charges primarily related to the FTC settlement agreement.

Cash flows from operations were $159.6 million and capital expenditures were $66.9 million, of which $54.5 million related to new stores. In addition, the Company paid a cash dividend to preferred stockholders of $8.5 million.

~~Cash and cash equivalents, including restricted cash, increased to $448.0 million, and total debt was $742.2 million. At July 5, 2009, the Company hadapproximately$334.8 million available on its credit line, net of $15.2 million in outstanding letters of credit. The Company continues to be in compliance with all applicable covenants in its credit agreements.~~

~~Fiscal year 2009 year-to-date~~

For the forty weeks ended July 5, 2009, sales increased 0.6% to approximately $6.2 billion. Comparable store sales decreased 3.8% versus a 6.4% increase in the prior year, and identical store sales, excluding twelve relocations and three major expansions, decreased 4.9% versus a 4.9% increase in the prior year. Excluding the negative impact of foreign currency translation, comparable store sales decreased 3.1% and identical store sales decreased 4.2%.

Income available to common shareholders was approximately $90.1 million, and diluted earnings per share was $0.64. These results included approximately $14.2 million, or $0.06 per diluted share, of legal costs related to the FTC lawsuit and approximately $22.2 million, or $0.09 per diluted share, of non-cash asset impairment charges.

Cash flows from operations were $474.7 million and capital expenditures were $252.1 million, of which $196.9 million related to new stores. In addition, the Company paid cash dividends to preferred stockholders of approximately $19.8 million.

~~Fiscal year 2009 outlook~~

~~For the first four weeks of the fourth fiscal quarter ended August 2, 2009, comparable store sales decreased 1.1%~~5.5%, and identical store sales ~~decreased 2.7%~~growth of 2.9% to 4.9%. ~~Excluding~~

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The Company expects operating margin of 4.3% to 4.5% for fiscal year 2010. For the ~~impact~~second through fourth quarters, the Company does not expect to generate the 57 basis point year-over-year improvement in gross margin, excluding LIFO charges, that it produced on average over the last three quarters. That higher level of ~~foreign currency, comparable stores decreased 0.7%, and identical store sales decreased 2.4%. We are pleased with~~improvement will be difficult to sustain once the ~~trends we are seeing but want to emphasize~~Company anniversaries the shift in its pricing strategy that ~~we will have eight new stores enter the identical store base~~occurred in the ~~fourth quarter, cycling over their strong opening sales~~first half of last year. In addition, ~~further deflation~~the Company has been taking advantage of product purchasing opportunities to pass through values to its customers, but it is difficult to predict to what extent those opportunities will continue. The Company is committed to maintaining its relative price positioning, which may require higher levels of price investments going forward. The Company expects general and administrative expenses for the full fiscal year 2010 as a percentage of sales to be in line with the Company’s fiscal year 2009 and first quarter fiscal year 2010 results of 2.9% excluding FTC-related legal fees.

The Company expects pre-opening and relocation costs for the full fiscal year 2010 to be in the range of $65 million to $70 million. Capital expenditures for the fiscal year are expected to be in the range of $350 million to $400 million. Of this amount, approximately 60% to 65% relates to new stores opening in fiscal year 2010 and beyond. The Company expects to open 16 new stores this year, six of which have already opened, translating to a 6% increase in ending square footage. The Company expects to produce cash flows from operations in excess of its capital expenditure requirements on an annual basis, including sufficient cash flow to fund the 51 stores in its current development pipeline.

The Company expects diluted earnings per share to range from $1.20 to $1.25 for fiscal year 2010.

Results of Operations

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

	Sixteen weeks ended
	January 17,		January 18,
	2010		2009
Sales	100.0	%	100.0	%
Cost of goods sold and occupancy costs	65.7		66.6
Gross profit	34.3		33.4
Direct store expenses	26.6		26.5
General and administrative expenses	2.9		3.3
Pre-opening expenses	0.5		0.6
Relocation, store closure and lease termination costs	0.5		0.2
Operating income	3.9		2.7
Interest expense	(0.4	)	(0.6	)
Investment and other income	0.1		0.1
Income before income taxes	3.5		2.2
Provision for income taxes	1.5		0.9
Net income	2.1		1.3
Preferred stock dividends	0.2		0.2
Income available to common shareholders	1.9	%	1.1	%

Figures may not sum due to rounding.

Sales for the sixteen weeks ended January 17, 2010 totaled approximately $2.6 billion, increasing 7.0% over the same period of the prior fiscal year. Comparable store sales increased 3.5% during the sixteen weeks ended January 17, 2010. Identical store sales, which exclude five relocated stores and two major store expansions from the comparable calculation, increased 2.5% during the sixteen weeks ended January 17, 2010. As of January 17, 2010, there were 278 locations in the comparable store base. The sales increase contributed by stores open less than 52 weeks totaled approximately $145.6 million for the sixteen weeks ended January 17, 2010.

The Company’s gross profit as a percentage of sales for the sixteen weeks ended January 17, 2010 was approximately 34.3% compared to approximately 33.4% for the same period of the prior fiscal year due to lower cost of goods sold driven by better purchasing and distribution disciplines as well as ~~increased price investments could negatively~~improved store-level execution, particularly in terms of shrink control and inventory management. For the second quarter in a row, total Company inventory levels declined approximately five percent year over year, which drove improvements in inventory turns. Year over year, gross margin improvements more than offset slightly higher occupancy costs as a percentage of sales. Our gross profit may increase or decrease slightly depending on the mix of sales from new stores, seasonality, the impact our sales. If our comparable and identical store sales in the fourth quarter remain in line with our first four week results, our total sales growth would be approximately 2.9% for the quarter and approximately 1.1% for the year.of weather or a host of other factors, including inflation.

2016

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~~Year to date, sales have averaged approximately $154 million per week, a level at which the Company has demonstrated strong disciplines around gross margin, direct~~

Direct store expenses ~~and general and administrative expenses, disciplines~~as a percentage of sales were approximately 26.6% for the ~~Company hopes~~sixteen weeks ended January 17, 2010 compared to ~~maintain. However,~~approximately 26.5% for the ~~Company historically has experienced lower average weekly sales~~same period of the prior fiscal year. This increase in ~~the fourth quarter, which typically results in lower gross profit and higher~~ direct store expenses as a percentage of ~~sales. In addition,~~sales was driven by an increase in health care costs, which was partially offset by a decrease in workers compensation expense.

General and administrative expenses as a percentage of sales decreased to approximately 2.9% for the sixteen weeks ended January 17, 2010 compared to approximately 3.3% for the same period of the prior fiscal year, primarily due to a decrease in FTC-related legal costs incurred during the sixteen weeks ended January 17, 2010 to approximately $0.7 million from approximately $11.0 million for the same period of the prior fiscal year. While the Company ~~has implemented further price investments~~continues to maintain the cost-containment disciplines that have been in place over the last two years, we expect increases in certain general and ~~is starting to compare against many~~administrative costs over the remainder of the ~~cost disciplines put into effect last~~fiscal year in areas where spending has been very restricted or deferred.

Pre-opening expenses as a percentage of sales were approximately 0.5% for the sixteen weeks ended January 17, 2010 compared to approximately 0.6% for the same period of the prior fiscal year. Currently, rent expense is generally incurred beginning approximately nine months prior to a store’s opening date as compared to 10 months during the same period of the prior fiscal year.

Relocation, store closure and lease termination costs as a percentage of sales were approximately 0.5% for the sixteen weeks ended January 17, 2010 compared to approximately 0.2% for the same period of the prior fiscal year. Relocation, store closure and lease termination costs include charges totaling approximately $10.1 million and $1.9 million for the sixteen weeks ended January 17, 2010 and January 18, 2009, respectively, for increases in reserves for closed properties due to revisions to estimates of income from subtenants driven by the outlook for commercial real estate markets.

The numbers of stores opened and relocated were as follows:

	Sixteen weeks ended
	January 17,	January 18,
	2010	2009
New stores	6	5
Relocated stores	—	2

Interest expense for the sixteen weeks ended January 17, 2010 decreased to approximately $10.6 million from approximately $13.6 million for the same period of the prior fiscal year due primarily to interest expense related to amounts outstanding on the Company’s revolving line of credit during the sixteen weeks ended January 18, 2009. The Company had no amounts outstanding on its revolving line of credit during the sixteen weeks ended January 17, 2010.

Investment and other income, which includes investment gains and losses, interest income, rental income and other income, totaled approximately $1.8 million for each of the sixteen week periods ended January 17, 2010 and January 18, 2009.

Income taxes for the sixteen weeks ended January 17, 2010 resulted in an effective tax rate of approximately 41.0% compared to approximately 41.5% for the same period of the prior fiscal year.

Share-based payment expense recognized during the sixteen weeks ended January 17, 2010 totaled approximately $5.2 million compared to approximately $3.8 million for the same period of the prior fiscal year. Share-based payment expense was included in the following line items on the Consolidated Statements of Operations for the periods indicated (in thousands):

	Sixteen weeks ended
	January 17,			January 18,
	2010			2009
Cost of goods sold and occupancy costs	$	220		$	123
Direct store expenses	3,030			2,190
General and administrative expenses	1,991			1,476
Share-based payment expense before income taxes	5,241			3,789
Income tax benefit	(2,112		)	(1,431		)
Net share-based payment expense	$	3,129		$	2,358

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Liquidity and Capital Resources and Changes in Financial Condition

The following table summarizes the Company’s cash and liquid investments (in thousands):

	January 17,		September 27,
	2010		2009
Cash and cash equivalents	$	241,412	$	430,130
Short-term investments	240,953		—
Restricted cash	87,214		71,023
Total	$	569,579	$	501,153

We ~~are committed~~generated cash flows from operating activities totaling approximately $161.5 million during the sixteen weeks ended January 17, 2010 compared to ~~producing~~approximately $142.1 million during the same period of the prior fiscal year. Cash flows from operating activities resulted primarily from our net income plus non-cash expenses and changes in operating working capital. During the sixteen weeks ended January 17, 2010, increased cash flows from operating activities were driven by increased net income and an increase in cash provided by changes in operating working capital.

Net cash used in investing activities totaled approximately $346.8 million for the sixteen weeks ended January 17, 2010 compared to approximately $110.4 million for the same period of the prior fiscal year. During the sixteen weeks ended January 17, 2010, the Company invested in available-for-sale securities and at January 17, 2010 had short-term investments totaling approximately $241.0 million and long-term investments totaling approximately $6.7 million. Our principal historical capital requirements have been the funding of the development or acquisition of new stores and acquisition of property and equipment for existing stores. The required cash investment for new stores varies depending on the size of the new store, geographic location, degree of work performed by the landlord and complexity of site development issues. Capital expenditures for the sixteen weeks ended January 17, 2010 totaled approximately $82.5 million, of which approximately $59.3 million was for new store development and approximately $23.2 million was for remodels and other additions. Capital expenditures for the sixteen weeks ended January 18, 2009 totaled approximately $110.3 million, of which approximately $82.1 million was for new store development and approximately $28.2 million was for remodels and other additions. The Company currently expects to open an additional 10 stores in fiscal year 2010.

The following table provides information about the Company’s store development activities during fiscal year 2009 and fiscal year-to-date through February 16, 2010:

					Properties	Total
	Stores opened		Stores opened		tendered	leases signed
	during Fiscal		during Fiscal		as of	as of
	Year 2009		Year 2010		February 16, 2010	February 16, 2010(1)
Number of stores (including relocations)	15		6		17	51
Number of relocations	6		—		1	9
Number of lease acquisitions, ground leases and owned properties	4		—		4	4
New areas	1		2		3	6
Average store size (gross square feet)	53,500		35,300		43,900	44,500
Total square footage	801,800		211,500		746,700	2,303,700
Average tender period in months	12.6		8.5
Average pre-opening expense per store(2)	$	3.0 million	$	2.6 million
Average pre-opening rent per store	$	1.3 million	$	0.8 million

(1) Includes leases for properties tendered

(2) Includes rent

The following table provides additional information about the Company’s estimated store openings for the remainder of fiscal year 2010 through 2013 based on the Company’s current development pipeline. We believe we will produce operating cash ~~flow~~flows in excess of the capital expenditures needed to open the 5551 stores in our store development ~~pipeline over the next five years.~~pipeline. We believe the investments we are making in our new, acquired and existing stores will result in substantial earnings growth in the near future.

~~Results of Operations~~18

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

Twelve weeks ended

Forty weeks ended

July 5,

July 6,

July 5,

July 6,

2009

2008

2009

2008

Sales

100.0
%
100.0
%
100.0
%
100.0
%
Cost of goods sold and occupancy costs

64.8

65.6

65.7

65.8

Gross profit

35.2

34.4

34.3

34.2

Direct store expenses

26.6

26.6

26.7

26.5

General and administrative expenses

2.8

3.3

3.1

3.5

Pre-opening expenses

0.6

0.8

0.6

0.7

Relocation, store closure and lease termination costs

1.0

0.1

0.5

0.2

Operating income

4.2

3.5

3.5

3.5

Interest expense

(0.4
)
(0.4
)
(0.5
)
(0.5
)
Investment and other income

0.1

0.1

—

0.1

Income before income taxes

3.9

3.1

3.0

3.1

Provision for income taxes

1.6

1.3

1.3

1.3

Net income

2.3

1.8

1.8

1.8

Preferred stock dividends

0.4

—

0.3

—

Income available to common shareholders

1.9
%
1.8
%
1.5
%
1.8
%

~~Figures may not sum due to rounding.~~

Sales for the twelve and forty weeks ended July 5, 2009 totaled approximately $1.9 billion and $6.2 billion, respectively, increasing approximately 2.0% and 0.6%, respectively, over the same periods of the prior fiscal year. Excluding the negative impact of foreign currency translation, comparable store sales decreased 2.0% and 3.1% for the twelve and forty weeks ended July 5, 2009, respectively, and identical store sales decreased 3.3% and 4.2%, respectively. As of July 5, 2009, there were 269 locations in the comparable store base. Identical store sales for the twelve weeks ended July 5, 2009 exclude nine relocated stores and two major expansions from the comparable calculation. Identical store sales for the forty weeks ended July 5, 2009 exclude twelve relocated stores and three major expansions from the comparable calculation. The number of stores open fifty-two weeks or less equaled 20 at July 5, 2009. The sales increase contributed by stores open less than fifty-two weeks totaled approximately $130.4 million and $331.2 million for the twelve and forty weeks ended July 5, 2009, respectively. The Company believes that negative comparable and identical store sales reflect the results of the current uncertain economic environment and its effects on consumers’ spending. Competition continues to be a factor as retailers fight over fewer food dollars being spent.

The Company’s gross profit as a percentage of sales for the twelve and forty weeks ended July 5, 2009 was approximately 35.2% and 34.3%, respectively, compared to approximately 34.4% and 34.2%, respectively, for the same periods of the prior fiscal year. For the third quarter of fiscal year 2009, the LIFO adjustment was a $5.8 million credit versus a $2.7 million charge last year, a positive impact of 45 basis points as a percentage of sales. Excluding LIFO, gross profit increased 33 basis points, with an improvement in cost of goods sold more than offsetting higher occupancy costs as a percentage of sales. We are seeing lower cost of goods sold as a result of better purchasing disciplines as well as improved store-level execution, particularly in terms of shrink control and inventory management. To the extent changes in costs are not reflected in changes in retail prices or changes in retail prices are delayed, our gross profit will be affected. Our gross profit may vary throughout the year depending on seasonality, the level of price investments, the mix of sales from new stores, the impact of weather or a host of other factors, including inflation. Due to seasonality, the Company’s gross profit margin is typically lower in the first quarter due to the product mix of holiday sales and in the summer months through September, during which we have

historically experienced lower average weekly sales. Gross profit margins tend to be lower for new stores and increase as stores mature, reflecting lower shrink as volumes increase, as well as increasing experience levels and operational efficiencies of the store teams.

Direct store expenses as a percentage of sales for the twelve and forty weeks ended July 5, 2009 were approximately 26.6% and 26.7%, respectively, compared to approximately 26.6% and 26.5%, respectively, for the same periods of the prior fiscal year. During the twelve and forty weeks ended July 5, 2009, the Company recorded fixed asset impairment charges included in direct store expenses related to operating locations totaling approximately $0.1 million and $14.5 million, respectively. These charges were primarily offset by an improvement in labor costs as a percentage of sales of the forty weeks ended July 5, 2009. Direct store expenses as a percentage of sales tend to be higher for new and acquired stores and decrease as stores mature, reflecting increasing operational productivity of the store teams.

General and administrative expenses as a percentage of sales for the twelve and forty weeks ended July 5, 2009 were approximately 2.8% and 3.1%, respectively, compared to approximately 3.3% and 3.5%, respectively, for the same periods of the prior fiscal year. These decreases were primarily due to cost-containment measures implemented at the Company’s global and regional offices in the fourth quarter of the prior fiscal year. FTC-related legal costs incurred during the twelve and forty weeks ended July 5, 2009 totaled approximately $0.4 million and $14.2 million, respectively.

Pre-opening expenses as a percentage of sales for each of the twelve and forty weeks ended July 5, 2009 were approximately 0.6% compared to approximately 0.8% and 0.7%, respectively, for the same periods of the prior fiscal year. Pre-opening expenses include rent expense incurred during construction of new stores and other costs related to new store openings, including costs associated with hiring and training personnel, supplies and other miscellaneous costs. Rent expense is generally incurred beginning approximately 13 months prior to a store’s opening date. Other pre-opening expenses are incurred primarily in the 30 days prior to a new store opening.

Relocation, store closure and lease termination costs as a percentage of sales for the twelve and forty weeks ended July 5, 2009 were approximately 1.0% and 0.5%, respectively, compared to approximately 0.1% and 0.2%, respectively, for the same periods of the prior fiscal year. Relocation costs consist of moving costs, estimated remaining net lease payments, accelerated depreciation costs, related asset impairment, and other costs associated with replaced facilities. Store closure costs consist of estimated remaining net lease payments, accelerated depreciation costs, related asset impairment, and other costs associated with closed facilities. Lease termination costs consist of estimated remaining net lease payments for terminated leases and idle properties and associated asset impairments. During the twelve and forty weeks ended July 5, 2009, the Company recorded non-cash asset impairment charges included in store closure costs totaling approximately $6.7 million and $7.4 million, including approximately $5.2 million during the third quarter related to the potential sale of certain operating store assets under the FTC settlement agreement. The Company also recorded additional lease termination costs totaling approximately $9.7 million and $13.5 million during the same twelve and forty weeks ended July 5, 2009, respectively, to increase reserves for closed properties due to the downturn in the real estate market and actual exit costs.

~~The number of stores opened and relocated were as follows:~~

Twelve weeks ended

Forty weeks ended

July 5,

July 6,

July 5,

July 6,

2009

2008

2009

2008

New stores

1

4

6

12

Relocated stores

3

—

6

—

Income taxes for twelve and forty weeks ended July 5, 2009 resulted in an effective tax rate of approximately 41.0% and 41.6%, respectively, compared to approximately 41.0% and 40.8%, respectively, for the same periods of the prior fiscal year.

~~Share-based payments expense was included in the following line items on the Consolidated Statements of Operations for the periods indicated (in thousands):~~

Twelve weeks ended

Forty weeks ended

July 5,

July 6,

July 5,

July 6,

2009

2008

2009

2008

Cost of goods sold and occupancy costs

$
102

$
49

$
274

$
148

Direct store expenses

1,416

982

4,883

3,899

General and administrative expenses

1,169

1,216

3,672

3,552

Share-based payments expense before income taxes

2,687

2,247

8,829

7,599

Income tax benefit

(1,121
)
(735
)
(3,612
)
(2,871
)
Net share-based payments expense

$
1,566

$
1,512

$
5,217

$
4,728

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These openings reflect estimated tender dates which are subject to change and do not incorporate any potential new leases, terminations or square footage reductions:

			Average		Ending
			new store	Ending	square
	Total		square	square	footage
	openings	Relocations	footage	footage(1)	growth
Fiscal year 2010 remaining stores in development	10	—	46,300	11,207,000	6.1	%
Fiscal year 2011 stores in development	17	4	39,200	11,803,200	5.3	%
Fiscal year 2012 stores in development	17	3	46,600	12,421,300	5.2	%
Fiscal year 2013 stores in development	7	2	49,800	12,705,900	2.3	%
Total(1)	51	9	44,500

(1) Includes year-to-date store openings and closures in fiscal year 2010 and one major expansion in development in 2011.

Net cash used in financing activities totaled approximately $4.5 million for the sixteen weeks ended January 17, 2010 compared to net cash provided by financing activities of approximately $213.9 million for the same period of the prior fiscal year.

On December 2, 2008, the Company issued 425,000 shares of Series A 8% Redeemable, Convertible Exchangeable Participating Preferred Stock, $0.01 par value per share (“Series A Preferred Stock”) to affiliates of Leonard Green & Partners, L.P., for approximately $413.1 million, net of approximately $11.9 million in closing and issuance costs. On October 23, 2009 the Company announced its intention to call all 425,000 outstanding shares of the Series A Preferred Stock for redemption in accordance with the terms governing such Series A Preferred Stock. Subject to conversion of the Series A Preferred Stock by its holders, the Company planned to redeem such Series A Preferred Stock on November 27, 2009 at a price per share equal to $1,000 plus accrued and unpaid dividends. In accordance with the terms governing the Series A Preferred Stock, at any time prior to the redemption date, the Series A Preferred Stock could be converted by the holders thereof. On November 26, 2009 the holders converted all 425,000 outstanding shares of Series A Preferred Stock into approximately 29.7 million shares of common stock of the Company. The Company paid cash dividends on the Series A Preferred Stock totaling $8.5 million during the sixteen weeks ended January 17, 2010.

The Company has outstanding a $700 million, five-year term loan agreement due in 2012. The term loan, which is secured by a pledge of substantially all of the stock in our subsidiaries, contains certain affirmative covenants including maintenance of certain financial ratios and certain negative covenants including limitations on additional indebtedness and payments as defined in the agreement. At January 17, 2010, we were in compliance with all applicable debt covenants. The Company also has outstanding a $350 million revolving line of credit, secured by a pledge of substantially all of the stock in our subsidiaries, that extends to 2012. The credit agreement contains certain affirmative covenants including maintenance of certain financial ratios and certain negative covenants including limitations on additional indebtedness and payments as defined in the agreement. At January 17, 2010, we were in compliance with all applicable debt covenants. During the sixteen weeks ended January 18, 2009 the Company repaid all amounts outstanding under the line of credit agreement and no amounts were drawn under the agreement at January 17, 2010. The amount available to the Company under the agreement at January 17, 2010 was effectively reduced to approximately $337.7 million by outstanding letters of credit totaling approximately $12.3 million. Standard & Poor’s credit rating agency currently rates the Company’s term loan and line of credit BB- with a positive rating outlook, and Moody’s credit rating agency currently rates the Company’s term loan and line of credit Ba3 with a stable rating outlook.

Net proceeds to the Company from team members’ stock plans for the sixteen weeks ended January 17, 2010 totaled approximately $4.0 million compared to approximately $1.4 million for the same period of the prior fiscal year. At January 17, 2010 and September 27, 2009 there were approximately 15.7 million and 15.4 million shares, respectively, of our common stock available for future grants. The Company intends to keep its broad-based stock option program in place, but also intends to limit the number of shares granted in any one year so that annual earnings per share dilution from share-based payments expense will not exceed 10%. The Company believes this strategy is best aligned with its stakeholder philosophy because it limits future earnings per share 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.

~~Liquidity and Capital Resources and Changes in Financial Condition~~

~~The Company had cash and cash equivalents totaling approximately $377.0~~On July 31, 2008, the Company’s Board of Directors approved a $100 million ~~and $30.5 million and restricted cash totaling approximately $71.0 million and $0.6 million at July 5, 2009 and September 28, 2008, respectively. The~~ increase in ~~restricted cash at July 5, 2009 primarily relates~~the Company’s stock repurchase program, bringing the total authorization to ~~cash deposited as collateral to support a portion of our projected workers’ compensation obligations that were previously collateralized by an outstanding letter of credit.~~

~~We generated cash flows from operating activities totaling approximately $474.7~~$400 million ~~during the forty weeks ended July 5, 2009 compared to approximately $271.4 million during the same period of the prior~~through November 8, 2009. During fiscal year. Cash flows from operating activities resulted primarily from our net income plus non-cash expenses and changes in operating working capital. During the forty weeks ended July 5, 2009, increased cash flows from operating activities principally were driven by increases in cash provided by changes in operating working capital.

Net cash used in investing activities totaled approximately $323.4 million for the forty weeks ended July 5, 2009 compared to approximately $254.4 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 and acquisition of property and equipment for existing stores. The required cash investment for new stores varies depending on the size of the new store, geographic location, degree of work performed by the landlord and complexity of site development issues. Capital expenditures for the forty weeks ended July 5, 2009 totaled approximately $252.1 million, of which approximately $196.9 million was for new store development and approximately $55.2 million was for remodels and other additions. Capital expenditures for the forty weeks ended July 6, 2008 totaled approximately $394.8 million, of which approximately $284.0 million was for new store development and approximately $110.8 million was for remodels and other additions. The Company has opened one store during the fourth quarter of fiscal year ~~2009 and currently expects to open two additional stores during the fourth quarter. During the forty weeks ended July 6,~~ 2008, the Company ~~received net proceeds totaling~~retired approximately ~~$163.9~~4.5 million ~~from~~shares held in treasury that had been repurchased for a total of approximately $200 million. The Company’s remaining authorization under the ~~sale of certain assets and liabilities of~~stock repurchase program at September 27, 2009 was approximately $200 million. On November 8, 2009, the ~~35 Henry’s and Sun Harvest stores and a related distribution center acquired~~Company’s stock repurchase program expired in ~~the purchase of Wild Oats.~~accordance with its terms.

~~The following table provides information about the Company’s store development activities during fiscal year 2008 and fiscal year-to-date through August 4, 2009:~~

Properties

Total

Stores Opened

Stores Opened

Tendered

Leases Signed

During Fiscal

During Fiscal

as of

as of

Year 2008

Year 2009

August 4, 2009

August 4, 2009(1)

Number of stores (including relocations)

20

13

19

55

Number of relocations

6

6

1

7

Number of lease acquisitions, ground leases and owned properties

4

4

4

4

New areas

3

1

4

8

Average store size (gross square feet)

53,000

52,400

42,100

45,700

As a percentage of existing store average size

146
%
142
%
114
%
123
%
Total square footage

1,060,700

681,600

800,000

2,546,800

As a percentage of existing square footage

11
%
7
%
8
%
24
%
Average tender period in months

9.7

13.2

Average pre-opening expense per store

$2.5 million

$3.0 million
(2)

Average pre-opening rent per store

$1.1 million

$1.1 million
(2)

Average development cost

$15.8 million

Average development cost per square foot

$297

~~(1)Includes leases for properties tendered.~~

~~(2)For stores opened during quarter 1 through 3 of fiscal year 2009~~

The following table provides additional information about the Company’s estimated store openings for the remainder of fiscal year 2009 through 2013 based on the Company’s current development pipeline. We believe we will produce operating cash flows in excess of the capital expenditures needed to open the 55 stores in our store development pipeline over the next

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five years. We believe the investments we are making in our new, acquired and existing stores will result in substantial earnings growth in the near future. These openings reflect estimated tender dates which are subject to change and do not incorporate any potential new leases, terminations or square footage reductions:

Total

Average

New Store

New Store

Total

New

Square

Square

Openings

Relocations

Areas

Footage

Footage

Fiscal year 2009 remaining stores in development

2

—

—

120,000

60,000

Fiscal year 2010 stores in development

16

—

4

664,700

41,500

Fiscal year 2011 stores in development

18

3

—

789,400

43,900

Fiscal year 2012 stores in development

12

2

1

580,400

48,400

Fiscal year 2013 stores in development

7

2

3

358,000

51,100

Total

55

7

8

2,512,500

45,700

Net cash provided by financing activities was approximately $197.9 million for the forty weeks ended July 5, 2009 compared to approximately $9.4 million for the same period of the prior fiscal year. Net proceeds from the issuance of redeemable preferred stock for the forty weeks ended July 5, 2009 totaled approximately $413.1 million. Proceeds from long-term borrowings totaled $123.0 million for the forty weeks ended July 5, 2009 compared to $174.0 million for the same period of the prior fiscal year. Payments on long-term debt and capital lease obligations totaled approximately $321.0 million for the for the forty weeks ended July 5, 2009 compared to approximately $107.1 million for the same period of the prior fiscal year. Net proceeds to the Company from team members’ stock plans for the forty weeks ended July 5, 2009 totaled approximately $2.7 million compared to approximately $18.0 million for the same period of the prior fiscal year.

The Company has outstanding a $700 million, five-year term loan agreement due in August 2012 that was executed to finance the acquisition of Wild Oats Markets, Inc. The loan bears interest at our option of the alternative base rate (“ABR”) plus an applicable margin, currently 0.75%, or LIBOR plus an applicable margin, currently 1.75%, based on the Company’s Moody’s and S&P rating. These applicable margins are currently the maximum allowed under these agreements. The interest period on LIBOR borrowings may range from one to six months at our option. During the first quarter of fiscal year 2009, as a result of downgrades to our corporate credit ratings and as called for in the loan agreement, the participating banks obtained security interests in certain of the Company’s assets to collateralize amounts outstanding under the term loan. The term loan agreement contains certain affirmative covenants including maintenance of certain financial ratios and certain negative covenants including limitations on additional indebtedness and payments as defined in the agreement. No further material restrictive covenants or limitations on additional indebtedness and payments have been imposed as a result of the downgrades to our corporate credit ratings. At July 5, 2009, we were in compliance with all applicable debt covenants. During the first quarter of fiscal year 2008, the Company entered into a three-year interest rate swap agreement with a notional amount of $490 million to effectively fix the interest rate on $490 million of the term loan at 4.718%, excluding the applicable margin and associated fees, to help manage cash flow exposure related to interest rate fluctuations. The Company had accumulated net derivative losses of approximately $13.6 million and $7.6 million, net of taxes, in accumulated other comprehensive income as of July 5, 2009 and September 28, 2008, respectively, related to this cash flow hedge. These losses are being recognized as an adjustment to interest expense over the same period in which the interest costs on the related debt are recognized. During the twelve and forty weeks ended July 5, 2009, the Company recognized additional interest expense totaling approximately $4.1 million and $9.7 million, respectively, related to amounts previously included in accumulated other comprehensive income.

The Company also has outstanding a $350 million revolving line of credit that extends to August 2012. The credit agreement contains certain affirmative covenants including maintenance of certain financial ratios and certain negative covenants including limitations on additional indebtedness and payments as defined in the agreement. At July 5, 2009, we were in compliance with all applicable debt covenants. All outstanding amounts borrowed under this agreement bear interest at our option of the ABR plus an applicable margin, currently 0.875%, or LIBOR plus an applicable margin, currently 1.875%, based on the Company’s Moody’s and S&P rating. These applicable margins are currently the maximum allowed under these agreements. During the first quarter of fiscal year 2009, as a result of downgrades to our corporate credit ratings and as called for in the loan agreement, the participating banks obtained security interests in certain of the Company’s assets to collateralize amounts outstanding under the revolving credit facility. No further material restrictive covenants or limitations on additional indebtedness and payments have been imposed as a result of the downgrades to our corporate credit ratings. Commitment fees on the undrawn amount, reduced by outstanding letters of credit, are payable under this agreement. At July 5, 2009 and September 28, 2008 the Company had zero and $195 million drawn under this agreement. During the first quarter of fiscal year 2009, the Company repaid all amounts outstanding and no amounts were drawn under this agreement at July 5, 2009. The amount available to the Company under the agreement was effectively reduced to $334.8 million and $75.9

~~Table of Contents~~

~~million by outstanding letters of credit totaling approximately $15.2 million and $79.1 million at July 5, 2009 and September 28, 2008, respectively.~~

During the first quarter of fiscal year 2008, approximately 250 of the Company’s zero coupon convertible subordinated debentures were converted at the option of the holders to approximately 6,000 shares of Company common stock. The outstanding convertible subordinated debentures had a carrying amount of approximately $2.7 million at September 28, 2008. On December 8, 2008, the Company redeemed all remaining debentures at a redemption prices equal to the issue price plus accrued original issue discount totaling approximately $2.7 million.

The Company is committed under certain capital leases for rental of certain equipment, buildings and land. These leases expire or become subject to renewal clauses at various dates through ~~2029.~~

On December 2, 2008, the Company issued 425,000 shares of Series A 8% Redeemable, Convertible Exchangeable Participating Preferred Stock, $0.01 par value per share (“Series A Preferred Stock”) to affiliates of Leonard Green & Partners, L.P., for net proceeds totaling approximately $413.1 million. Each share of Series A Preferred Stock has an initial liquidation preference of $1,000, subject to adjustment. The holder of the Series A Preferred Stock is entitled to an 8% dividend, payable quarterly in cash or by increasing the liquidation preference, at the option of the Company, and will be convertible, under certain circumstances, to common stock at an initial conversion rate of 68.9655 per $1,000 of the liquidation preference, or an initial conversion price of $14.50 per common share. Shares converted to common stock may not be transferred outside of the initial investor group prior to the third anniversary of the initial Preferred Stock issuance. On April 12, 2009, the Company amended and restated the Statement of Designations governing the Series A Preferred Stock. The amendment limits the participation feature of the Series A 8% Redeemable, Convertible Exchangeable Preferred Stock and provides for the mandatory payment of cash dividends in respect to the Series A Preferred Stock. In the event a cash dividend or other distribution in cash is declared on the Company’s common stock in an amount equal to or greater than the Company’s stock price on the date of declaration, the holder of the Series A Preferred Stock will be entitled to receive an additional amount equal to the cash amount per share distributed or to be distributed in respect of the common stock.

Beginning three years after issuance, the dividend will be reduced to: (i) 6% if at any time the common stock closes at or above $17.75 per share for at least 20 consecutive trading days, or (ii) 4% if at any time the common stock closes at or above $23.13 per share for at least 20 consecutive trading days. The Company may redeem the Series A Preferred Stock, in whole or in part, at any time after December 2, 2013, at a premium of 4%, declining ratably in annual increments to par on December 2, 2016, multiplied by the liquidation preference plus accrued dividends. Additionally, at any time, the Company may, upon 30 days notice, redeem the Series A Preferred Stock if the common stock closes at or above $28.50 per share for at least 20 consecutive trading days. The Company also has the option to exchange the Series A Preferred Stock for subordinated convertible notes having economic terms similar to the preferred stock under certain circumstances. During the forty weeks ended July 5, 2009, the Company paid cash dividends on the Series A Preferred Stock totaling approximately $19.8 million.

The Company paid dividends to common shareholders totaling approximately $81.0 million during the forty weeks ended July 6, 2008. On August 5, 2008, the Company announced the suspension of its quarterly cash dividend to common shareholders for the foreseeable future.

On July 31, 2008, the Company’s Board of Directors approved a $100 million increase in the Company’s stock repurchase program, bringing the total authorization to $400 million through November 8, 2009 and the current remaining authorization to approximately $200 million. The specific timing and repurchase of future amounts will vary based on market conditions, securities law limitations and other factors and will be made using the Company’s available resources. The repurchase program may be suspended or discontinued at any time without prior notice.2054.

The effect of exchange rate changes on cash included in the Consolidated Statements of Cash Flows resulted in ~~a decrease~~an increase in cash and cash equivalents totaling approximately ~~$2.8~~$1.0 million for the ~~forty~~sixteen weeks ended ~~July 5, 2009~~January 17, 2010 compared to a decrease totaling approximately ~~$1.5~~$3.5 million for the same period of the prior fiscal year. These ~~decreases~~changes reflect the relative strengthening or weakening of the Canadian and United Kingdom currencies compared to the U.S. dollar during these ~~periods.~~periods, respectively.

Our principal historical sources of liquidity have been cash generated by operations, available cash and cash equivalents, short-term investments and amounts available under our revolving line of credit. Absent any significant change in market condition, we expect planned expansion and other anticipated working capital and capital expenditure requirements for the next twelve months will be funded by these sources. There can be no assurance, however, that the Company will continue to generate cash flows at or above current levels or that our revolving line of credit and other sources of capital will be available to us in the future. Absent any significant change in market condition, we expect planned expansion and other anticipated working capital, capital expenditure, and debt service requirements for the next twelve months will be funded by these sources.

~~Table of Contents~~

Contractual Obligations

The following table shows payments due by period on contractual obligations as of July 5, 2009January 17, 2010 (in thousands):

Less than 1

1-3

3-5

More than 5

Total

Year

Years

Years

Years

Long-term debt obligations

$
700,000

$
—

$
—

$
700,000

$
—

Estimated interest on long-term debt obligations

74,548

36,056

35,190

3,302

—

Capital lease obligations (including interest)

39,417

2,008

4,067

4,203

29,139

Operating lease obligations(1)

5,635,151

247,739

582,367

613,073

4,191,972

FIN 48 income tax liabilities

7,723

7,723

—

—

—

Total

$
6,456,839

$
293,526

$
621,624

$
1,320,578

$
4,221,111

			Less than 1		1-3		3-5		More than 5
	Total		year		years		years		years
Long-term debt obligations	$	700,000	$	—	$	700,000	$	—	$	—
Estimated interest on long-term debt obligations	55,474		31,274		24,200		—		—
Capital lease obligations (including interest)	38,484		2,069		4,164		4,157		28,094
Operating lease obligations(1)	5,885,576		273,280		614,802		640,863		4,356,631
Total	$	6,679,534	$	306,623	$	1,343,166	$	645,020	$	4,384,725

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

Gross unrecognized tax benefits and related interest and penalties at ~~July 5, 2009~~January 17, 2010 were approximately ~~$22.5~~$17.8 million. These ~~amounts include approximately $7.7 million to be paid in the fourth quarter of fiscal year 2009. The remaining~~ amounts have been excluded from the contractual obligations table because a reasonably reliable estimate of the period of cash settlement with the respective taxing authorities cannot be determined due to the high degree of uncertainty regarding the timing of future cash outflows associated with these liabilities.

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.

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements at ~~July 5, 2009~~January 17, 2010 consist of operating leases disclosed in the above contractual obligations table and outstanding letters of credit discussed in Note 8 to the consolidated financial statements, “Long-Term Debt.” 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 Part I. Item 1. Note 152 to the consolidated financial statements, ~~“Recent~~“Summary of Significant Accounting ~~Pronouncements.”~~Policies”

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

The Company holds money market fund investments that are classified as cash equivalents and restricted cash. ~~These~~Additionally, the Company holds available-for-sale securities generally consisting of state and local government obligations. We had cash equivalent investments and restricted cash investments totaling approximately $3.9 million and $87.2 million at January 17, 2010, respectively. We had short-term investments totaling approximately $241.0 million and long-term investments totaling approximately $6.7 million at January 17, 2010. The Company had no available-for-sale securities at September 27, 2009. Interest rate fluctuations would affect the amount of interest income earned on these investments. All 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. Interest rate fluctuations would affect the amount of interest income earned on these investments. We had cash equivalent investments and restricted cash investments totaling approximately $368.5 million and $70.4 million at July 5, 2009, respectively.

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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 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 Chief Executive Officer (principal executive 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 Chief Executive 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective of the end of the period covered by this report.

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 recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II. Other Information

Item 1. Legal Proceedings

From time to time we are a party to legal proceedings including matters involving personnel and employment issues, personal injury, intellectual property and other proceedings arising in the ordinary course of business which have not resulted in any material losses to date. Although management does not expect that the outcome in these proceedings will have a material adverse effect on our financial condition or results of operations, litigation is inherently unpredictable. Therefore, we could incur judgments or enter into settlements of claims that could materially impact our results.

The Federal Trade Commission (“FTC”) had challenged the Company’s August 28, 2007 acquisition of Wild Oats Markets, Inc. Prior to completion of the Wild Oats acquisition, the FTC had filed a motion in the United States District Court for the District of Columbia seeking a preliminary injunction to enjoin the acquisition. The ~~FTC had also filed a complaint commencing an administrative proceeding challenging the acquisition.~~

On August 16, 2007, the United States District Court for the District of Columbia denied the FTC’s motion for a preliminary injunction. The FTC appealed denial of the preliminary injunction motion to the United States Court of Appeals for the District of Columbia Circuit and on July 29, 2008 the Court of Appeals reversed the District Court and remanded the case to the District Court for further proceedings. The Company’s motion for rehearing of the appeal en banc was denied on November 21, 2008. On remand, the FTC renewed its motion for preliminary injunctive relief pending resolution of the administrative action, specifically seeking a hold separate order, the rebranding of all former Wild Oats stores, and the appointment of a trustee or special master to establish an independent management team for the former Wild Oats assets and oversee Whole Foods Market’s compliance with the order. A hearing on the FTC’s renewed motion for a preliminary injunction was scheduled for February 17-18, 2009 but was removed from the Court’s calendar after the administrative case was removed from adjudication as discussed below.

On August 7, 2007 the FTC issued an Order on its own motion staying the administrative proceeding. On August 8, 2008, the FTC issued an Order lifting the stay of the administrative proceeding. The administrative proceeding was scheduled to commence on April 6, 2009. On January 28, 2009, the FTC issued an order granting the Company’s motion to withdraw the administrative case from adjudication for the purpose of considering a proposed consent agreement that would resolve the administrative proceeding. A further order dated February 4, 2009 extended the withdrawal through March 6, 2009.

Pursuant to the ~~settlement agreement are in support~~FTC’s approval of the ~~divestiture trustee process.~~

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Item 6. Exhibits

Exhibit	3.1		Amended and Restated Bylaws of the Registrant adopted December 23, 2009
Exhibit	31.1		Certification of Chief Executive Officer Pursuant to 17 CFR 240.13a -— 14(a)
Exhibit		31.2		Certification of Chief Financial Officer Pursuant to 17 CFR 240.13a -— 14(a)
Exhibit		32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
Exhibit		32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350

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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 14, 2009~~February 26, 2010	By:	/s/ Glenda Chamberlain
					Glenda Chamberlain
				Executive Vice President and Chief Financial Officer
					(Duly authorized officer and
			principal financial officer)

2924

	July 5,			September 28,
	2009			2008
Land	$	51,436		$	51,436
Buildings and leasehold improvements	1,628,676			1,463,907
Capitalized real estate leases	24,874			24,874
Fixtures and equipment	1,204,951			1,157,086
Construction in progress and equipment not yet in service	122,644			197,026
	3,032,581			2,894,329
Less accumulated depreciation and amortization	(1,139,769		)	(994,212		)
	$	1,892,812		$	1,900,117

	July 5, 2009					September 28, 2008
	Gross carrying		Accumulated			Gross carrying		Accumulated
	amount		amortization			amount		amortization
Indefinite-lived contract-based	$	1,566	$	—		$	1,966	$	—
Definite-lived contract-based	96,389		(23,838		)	95,424		(18,995		)
Definite-lived marketing-related and other	225		(156		)	8,319		(8,215		)
	$	98,180	$	(23,994	)	$	105,709	$	(27,210	)

Date of	Dividend per		Date of	Date of	Total
Declaration	Common Share		Record	Payment	Amount
November 20, 2007	$	0.20	January 11, 2008	January 22, 2008	$	27,901
March 10, 2008	0.20		April 11, 2008	April 22, 2008	28,041
June 11, 2008	0.20		July 11, 2008	July 22, 2008	28,057

					Weighted
	Number				Average	Aggregate
	of Options		Weighted		Remaining	Intrinsic
	Outstanding		Average		Contractual Life	Value
	(in thousands)		Exercise Price		(in years)	(in thousands)
Outstanding options at September 28, 2008	17,430		$	48.64
Options granted	2,706		18.70
Options exercised	(0	)	0.00
Options forfeited	(198	)	35.94
Options expired	(1,318	)	37.45
Outstanding options at July 5, 2009	18,620		$	45.21	3.27	$	480
Options vested and expected to vest	18,065		$	45.91	3.19	$	422
Exercisable options at July 5, 2009	13,321		$	52.40	2.54	$	—

	2009		2008
Expected dividend yield	0.00	%	2.90	%
Risk-free interest rate	1.56	%	2.32	%
Expected volatility	52.31	%	36.73	%
Expected life, in years	3.97		3.38