UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-Q

xQuarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended January 15,April 8, 2012; or
  
oTransition 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.Street
Austin, Texas 78703
(Address of principal executive offices)

512-477-4455
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).
Large accelerated filer x
 
Accelerated filer o
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

The number of shares of the registrant’s common stock, no par value, outstanding as of February 17,May 11, 2012 was 182,367,819183,563,879 shares.



Whole Foods Market, Inc.
Form 10-Q
Table of Contents




 Page
Number
  
  
 
  
  
  
  
  
  
  
  
 
  
  
 


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Table of Contents

Part I. Financial Information
 
Item 1. Financial Statements

Whole Foods Market, Inc.
Consolidated Balance Sheets (unaudited)
January 15,April 8, 2012 and September 25, 2011
(In thousands)

Assets2012
 2011
2012
 2011
Current assets: 
  
 
  
Cash and cash equivalents$529,954
 $212,004
$175,375
 $212,004
Short-term investments — available-for-sale securities319,282
 442,320
Short-term investments - available-for-sale securities881,945
 442,320
Restricted cash92,343
 91,956
104,942
 91,956
Accounts receivable176,810
 175,310
189,717
 175,310
Merchandise inventories376,742
 336,799
365,619
 336,799
Prepaid expenses and other current assets56,543
 73,579
59,813
 73,579
Deferred income taxes125,413
 121,176
122,766
 121,176
Total current assets1,677,087
 1,453,144
1,900,177
 1,453,144
Property and equipment, net of accumulated depreciation and amortization2,002,382
 1,997,212
2,053,507
 1,997,212
Long-term investments — available-for-sale securities66,383
 52,815
Long-term investments - available-for-sale securities139,956
 52,815
Goodwill662,938
 662,938
662,938
 662,938
Intangible assets, net of accumulated amortization66,079
 67,234
66,047
 67,234
Deferred income taxes44,735
 50,148
43,047
 50,148
Other assets8,637
 8,584
8,447
 8,584
Total assets$4,528,241
 $4,292,075
$4,874,119
 $4,292,075
      
Liabilities and Shareholders’ Equity 
  
 
  
Current liabilities: 
  
 
  
Current installments of capital lease obligations$336
 $466
$346
 $466
Accounts payable224,939
 236,913
243,627
 236,913
Accrued payroll, bonus and other benefits due team members297,172
 281,587
300,501
 281,587
Dividends payable25,238
 17,827
25,610
 17,827
Other current liabilities349,287
 342,568
382,139
 342,568
Total current liabilities896,972
 879,361
952,223
 879,361
Long-term capital lease obligations, less current installments18,996
 17,439
18,882
 17,439
Deferred lease liabilities379,124
 353,776
395,881
 353,776
Other long-term liabilities50,402
 50,194
52,175
 50,194
Total liabilities1,345,494
 1,300,770
1,419,161
 1,300,770
      
Shareholders’ equity: 
  
 
  
Common stock, no par value, 300,000 shares authorized; 180,394 and 178,886 shares issued; 180,337 and 178,886 shares outstanding at 2012 and 2011, respectively2,222,589
 2,120,972
Common stock, no par value, 600,000 and 300,000 shares authorized;
182,980 and 178,886 shares issued; 182,923 and 178,886 shares outstanding
at 2012 and 2011, respectively
2,399,979
 2,120,972
Common stock in treasury, at cost(3,599) 
(3,599) 
Accumulated other comprehensive income (loss)171
 (164)2,932
 (164)
Retained earnings963,586
 870,497
1,055,646
 870,497
Total shareholders’ equity3,182,747
 2,991,305
3,454,958
 2,991,305
Commitments and contingencies

 



 

Total liabilities and shareholders’ equity$4,528,241
 $4,292,075
$4,874,119
 $4,292,075

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


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Table of Contents

Whole Foods Market, Inc.
Consolidated Statements of Operations (unaudited)
(In thousands, except per share amounts)

Sixteen weeks endedTwelve weeks ended Twenty-eight weeks ended
January 15,
2012
 January 16,
2011
April 8,
2012

April 10,
2011
 April 8,
2012
 April 10,
2011
Sales$3,390,940
 $3,003,655
$2,670,282
 $2,350,518
 $6,061,222
 $5,354,173
Cost of goods sold and occupancy costs2,212,823
 1,965,170
1,700,574
 1,513,446
 3,913,397
 3,478,616
Gross profit1,178,117
 1,038,485
969,708
 837,072
 2,147,825
 1,875,557
Direct store expenses870,925
 790,629
681,771
 608,737
 1,552,696
 1,399,366
General and administrative expenses103,516
 88,511
86,760
 75,661
 190,276
 164,172
Pre-opening expenses10,405
 8,640
10,496
 9,543
 20,901
 18,183
Relocation, store closure and lease termination costs2,933
 3,146
1,298
 1,003
 4,231
 4,149
Operating income190,338
 147,559
189,383
 142,128
 379,721
 289,687
Investment and other income, net of interest2,379
 319
2,254
 658
 4,633
 977
Income before income taxes192,717
 147,878
191,637
 142,786
 384,354
 290,664
Provision for income taxes74,390
 59,148
73,972
 52,851
 148,362
 111,999
Net income$118,327
 $88,730
$117,665
 $89,935
 $235,992
 $178,665
          
Basic earnings per share$0.66
 $0.51
$0.65
 $0.51
 $1.31
 $1.03
Weighted average shares outstanding179,512
 172,795
182,161
 174,686
 180,649
 173,606
          
Diluted earnings per share$0.65
 $0.51
$0.64
 $0.51
 $1.29
 $1.02
Weighted average shares outstanding, diluted basis181,517
 174,482
184,603
 177,124
 182,841
 175,614
          
Dividends declared per common share$0.14
 $0.10
$0.14
 $0.10
 $0.28
 $0.20

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


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Table of Contents

Whole Foods Market, Inc.
Consolidated Statements of Shareholders’ Equity and Comprehensive Income (unaudited)
SixteenTwenty-eight weeks ended January 15,April 8, 2012 and fiscal year ended September 25, 2011
(In thousands)

Shares
outstanding
Common
stock
Common
stock in
treasury
Accumulated
other
comprehensive
income (loss)
Retained
earnings
Total
shareholders’
equity
Shares
outstanding
Common
stock
Common
stock in
treasury
Accumulated
other
comprehensive
income (loss)
Retained
earnings
Total
shareholders’
equity
Balances at September 26, 2010172,033
$1,773,897
$
$791
$598,570
$2,373,258
172,033
$1,773,897
$
$791
$598,570
$2,373,258
Net income



342,612
342,612




342,612
342,612
Foreign currency translation adjustments


(1,209)
(1,209)


(1,209)
(1,209)
Reclassification adjustments for amounts included in income


245

245
Reclassification adjustments for amounts included in net income


245

245
Change in unrealized gains and losses, net of income taxes


9

9



9

9
Comprehensive income 
 
  
 
341,657
 
 
  
 
341,657
Dividends ($0.40 per common share)



(70,447)(70,447)



(70,447)(70,447)
Issuance of common stock pursuant to team member stock plans6,857
301,591



301,591
6,857
301,591



301,591
Excess tax benefit related to exercise of team member stock options
18,225



18,225

18,225



18,225
Share-based payment expense
27,259



27,259

27,259



27,259
Other(4)


(238)(238)(4)


(238)(238)
Balances at September 25, 2011178,886
2,120,972

(164)870,497
2,991,305
178,886
2,120,972

(164)870,497
2,991,305
Net income



118,327
118,327




235,992
235,992
Foreign currency translation adjustments


358

358



3,111

3,111
Change in unrealized gains and losses, net of income taxes


(23)
(23)


(15)
(15)
Comprehensive income 
 


 
 
118,662
 
 


 
 
239,088
Dividends ($0.14 per common share)



(25,238)(25,238)
Dividends ($0.28 per common share)



(50,843)(50,843)
Issuance of common stock pursuant to team member stock plans1,508
82,999



82,999
4,094
232,860



232,860
Purchase of treasury stock(57)
(3,599)

(3,599)(57)
(3,599)

(3,599)
Excess tax benefit related to exercise of team member stock options
7,401



7,401

26,388



26,388
Share-based payment expense
11,217



11,217

19,759



19,759
Balances at January 15, 2012180,337
$2,222,589
$(3,599)$171
$963,586
$3,182,747
Balances at April 08, 2012182,923
$2,399,979
$(3,599)$2,932
$1,055,646
$3,454,958

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 endedTwenty-eight weeks ended
January 15,
2012
 January 16,
2011
April 8,
2012
 April 10,
2011
Cash flows from operating activities 
  
 
  
Net income$118,327
 $88,730
$235,992
 $178,665
Adjustments to reconcile net income to net cash provided by operating activities: 
  
 
  
Depreciation and amortization92,653
 86,691
162,509
 152,903
Loss on disposition of fixed assets432
 548
1,103
 914
Share-based payment expense11,217
 7,359
19,759
 12,848
LIFO expense
 2,000
1,000
 3,000
Deferred income tax expense1,229
 14,969
5,624
 15,747
Excess tax benefit related to exercise of team member stock options(4,763) (2,728)(15,481) (9,251)
Deferred lease liabilities22,897
 9,470
37,429
 24,110
Other3,518
 499
4,780
 202
Net change in current assets and liabilities: 
  
 
  
Accounts receivable476
 (6,008)(18,816) (24,991)
Merchandise inventories(39,877) (20,195)(29,489) (20,474)
Prepaid expenses and other current assets16,918
 10,225
14,278
 (7,310)
Accounts payable(12,060) (1,902)6,334
 20,176
Accrued payroll, bonus and other benefits due team members15,543
 12,637
18,718
 9,580
Other current liabilities34,228
 42,401
71,101
 46,457
Net change in other long-term liabilities158
 8,289
1,840
 241
Net cash provided by operating activities260,896
 252,985
516,681
 402,817
Cash flows from investing activities 
  
 
  
Development costs of new locations(54,506) (45,561)(114,549) (89,451)
Other property and equipment expenditures(56,837) (45,436)(98,729) (80,130)
Purchase of available-for-sale securities(334,193) (497,560)(1,321,589) (780,154)
Sale of available-for-sale securities439,675
 409,081
789,432
 731,306
Decrease (increase) in restricted cash(387) 10
(12,986) 17
Other investing activities(715) (958)(1,614) (1,576)
Net cash used in investing activities(6,963) (180,424)(760,035) (219,988)
Cash flows from financing activities 
  
 
  
Common stock dividends paid(17,827) 
(43,057) (17,348)
Issuance of common stock80,234
 53,764
237,004
 153,067
Purchase of treasury stock(3,599) 
(3,599) 
Excess tax benefit related to exercise of team member stock options4,763
 2,728
15,481
 9,251
Payments on long-term debt and capital lease obligations(9) (100,000)(113) (300,123)
Other financing activities
 4
Net cash provided by (used in) financing activities63,562
 (43,504)205,716
 (155,153)
Effect of exchange rate changes on cash and cash equivalents455
 1,227
1,009
 2,431
Net change in cash and cash equivalents317,950
 30,284
(36,629) 30,107
Cash and cash equivalents at beginning of period212,004
 131,996
212,004
 131,996
Cash and cash equivalents at end of period$529,954
 $162,280
$175,375
 $162,103
      
Supplemental disclosures of cash flow information: 
  
 
  
Interest paid$973
 $11,342
$1,616
 $14,002
Federal and state income taxes paid$40,632
 $21,083
$91,172
 $109,611

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)
January 15,April 8, 2012

(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 25, 2011. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation. Where appropriate, we have reclassified prior years’ financial statements to conform to current year presentation. Interim results are not necessarily indicative of results for any other interim period or for a full fiscal year. The Company reports its results of operations on a 52- or 53-week fiscal year ending on the last Sunday in September. The first fiscal quarter is 16 weeks, the second and third quarters each are 12 weeks, and the fourth quarter is 12 or 13 weeks. Fiscal year 2012 is a 53-week year and fiscal year 2011 was a 52-week year. The Company has one operating segment and a single reportable segment, natural and organic foods supermarkets. The following is a summary of percentage sales by geographic area for the periods indicated:twelve and twenty-eight weeks ended:

Sixteen weeks ended
January 15,
2012
 January 16,
2011
April 8,
2012

April 10,
2011
Sales:      
United States96.8% 96.9%96.8% 96.9%
Canada and United Kingdom3.2
 3.1
3.2
 3.1
Total sales100.0% 100.0%100.0% 100.0%

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

January 15,
2012
 September 25,
2011
April 8,
2012
 September 25,
2011
Long-lived assets, net: 
   
  
United States95.8% 95.9%95.7% 95.9%
Canada and United Kingdom4.2
 4.1
4.3
 4.1
Total long-lived assets, net100.0% 100.0%100.0% 100.0%

(2) Recent Accounting Pronouncements
In December 2010, the Financial Accounting Standards Board (“FASB”) issued amended guidance within Accounting Standards Codification (“ASC”) 805, “Business Combinations,” which updates previous guidance on this topic and applies to all material transactions. The amendments specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) had occurred as of the beginning of the comparable prior annual reporting period only. Additional amendments expand supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The updated guidance is effective for fiscal years beginning after December 15, 2010 and is applied prospectively to business combinations completed on or after that date. The provisions are effective for the Company’s fiscal year ending September 30, 2012. We do not expect the adoption of these provisions to have a significant effect on our consolidated financial statements.

In MayJune 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,” which amends ASC 820, “Fair Value Measurement.” The amended guidance changes the wording used to describe many requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. Additionally, the amendments clarify the FASB’s intent about the application of existing fair value measurement requirements. The guidance provided in ASU No. 2011-04 is effective for interim and annual periods beginning after December 15, 2011 and is applied prospectively. The provisions are effective for the Company’s second quarter of fiscal year ending September 30, 2012. We do not expect the adoption of these provisions to have a significant effect on our consolidated financial statements.


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In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income,” which amends ASC 220, “Comprehensive Income.” The amended guidance requires that all nonowner changes in stockholders’ equity be presented in either a single statement of comprehensive income or two separate but consecutive statements. The objective of these amendments is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. In December 2011, the FASB issued ASU No. 2011-12, "Deferral“Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05," which defers the implementation requirement in ASU No. 2011-05 to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income. The amended guidance specifies that entities should continue to report reclassifications out of accumulated other comprehensive income consistent with

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presentation requirements in effect before ASU No. 2011-05. The guidance provided in ASU No. 2011-05 and ASU No. 2011-12 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The provisions are effective for the Company’s first quarter of the fiscal year ending September 29, 2013.

(3) Fair Value Measurements
Effective January 16, 2012, the Company adopted ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,” which amends ASC 820, “Fair Value Measurement.” The adoption of ASU No. 2011-04, which primarily consists of clarification and wording changes to existing fair value measurement and disclosure requirements, did not have an impact on the Company’s consolidated financial statements.

Assets and Liabilities Measured at Fair Value on a Recurring Basis
The Company holds money market fund investments that are classified as cash equivalents or restricted cash that are measured at fair value on a recurring basis based on quoted prices in active markets for identical assets. The Company also holds available-for-sale securities generally consisting of state and local municipal obligations and variable rate demand notes which hold high credit ratings. These instruments are valued using a series of multi-dimensional relational models and series of matrices with standard inputs obtained from readily available pricing sources and other observable market data, such as benchmark yields and base spread. Investments are stated at fair value with unrealized gains and losses, net of related tax effect, included as a component of shareholders’ equity until realized. Declines in fair value below the Company’s carrying value deemed to be other-than-temporary are charged against net earnings.

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 Company held the following financial assets at fair value, based on the hierarchy input levels indicated, on a recurring basis (in thousands):

January 15, 2012Level 1 Inputs Level 2 Inputs Level 3 Inputs Total
April 8, 2012Level 1 Inputs Level 2 Inputs Level 3 Inputs Total
Cash equivalents:              
Money market fund$407,578
 $
 $
 $407,578
$20,078
 $
 $
 $20,078
Municipal bonds
 12,458
 
 12,458

 8,411
 
 8,411
Commercial paper
 13,999
 
 13,999
Restricted cash:              
Money market fund92,343
 
 
 92,343
104,942
 
 
 104,942
Marketable securities - available-for-sale:              
Municipal bonds
 367,914
 
 367,914

 458,317
 
 458,317
Corporate bonds
 5,279
 
 5,279

 5,309
 
 5,309
Commercial paper
 2,987
 
 2,987

 22,985
 
 22,985
Variable rate demand notes
 9,485
 
 9,485

 535,290
 
 535,290
Total$499,921
 $412,122
 $
 $912,043
$125,020
 $1,030,312
 $
 $1,155,332

September 25, 2011Level 1 Inputs Level 2 Inputs Level 3 Inputs Total
Cash equivalents:       
Money market fund$59,157
 $
 $
 $59,157
Municipal bonds
 3,791
 
 3,791
Commercial paper
 12,998
 
 12,998
Restricted cash:       
Money market fund91,956
 
 
 91,956
Marketable securities - available-for-sale:       
Municipal bonds
 316,662
 
 316,662
Corporate bonds
 5,361
 
 5,361
Commercial paper
 67,964
 
 67,964
Variable rate demand notes
 105,148
 
 105,148
Total$151,113
 $511,924
 $
 $663,037

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Assets Measured at Fair Value on a Nonrecurring Basis
The Company evaluates long-lived assets for impairment whenever events or changes in circumstances, such as unplanned negative cash flow or short lease life, 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 fair value. 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. Fair value adjustments, based on hierarchy input Level 3, reduced the carrying value of related property and equipment to zero and were included in the following line items on the Consolidated Statements of Operations for the periods indicated (in thousands):

 Twelve weeks ended Twenty-eight weeks ended
 April 8,
2012
 April 10,
2011
 April 8,
2012
 April 10,
2011
Direct store expenses$1
 $9
 $20
 $501
General and administrative expenses1,178
 
 1,178
 
Relocation, store closure and lease term costs
 13
 
 80
Total impairment of long-lived assets$1,179
 $22
 $1,198
 $581

(4) Investments
The Company holds investments in marketable securities, generally municipal bonds, corporate bonds, commercial paper and variable rate demand notes, that are classified as either short- or long-term available-for-sale securities. The Company held the following investments as of the dates indicated (in thousands):

April 8, 2012
Adjusted
cost
 
Unrealized
gains
 
Unrealized
losses
 
Fair
value
Short-term marketable securities - available-for-sale:       
Municipal bonds$323,559
 $165
 $(54) $323,670
Commercial paper22,975
 10
 
 22,985
Variable rate demand notes535,290
 
 
 535,290
Total short-term marketable securities$881,824
 $175
 $(54) $881,945
Long-term marketable securities - available-for-sale:       
Municipal bonds$134,506
 $167
 $(26) $134,647
Corporate bonds5,270
 39
 
 5,309
Total long-term marketable securities$139,776
 $206
 $(26) $139,956

September 25, 2011
Adjusted
cost
 
Unrealized
gains
 
Unrealized
losses
 
Fair
value
Short-term marketable securities - available-for-sale:       
Municipal bonds$268,945
 $279
 $(16) $269,208
Commercial paper67,950
 14
 
 67,964
Variable rate demand notes105,148
 
 
 105,148
Total short-term marketable securities$442,043
 $293
 $(16) $442,320
Long-term marketable securities - available-for-sale:       
Municipal bonds$47,387
 $77
 $(10) $47,454
Corporate bonds5,345
 16
 
 5,361
Total long-term marketable securities$52,732
 $93
 $(10) $52,815

At January 15,April 8, 2012 and September 25, 2011 available-for-sale securities totaling approximately $163.7 million and $74.5 million, respectively, were in unrealized loss positions.

At April 8, 2012, the average effective maturity of the Company’s short- and long-term investments was approximately 52 months and 1816 months, respectively.respectively, compared to approximately 4 months and 15 months, respectively at September 25, 2011.



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(4)(5) Intangible Assets
The components of intangible assets were as follows (in thousands):

January 15, 2012 September 25, 2011April 8, 2012 September 25, 2011
Gross carrying
amount
 
Accumulated
amortization
 
Gross carrying
amount
 
Accumulated
amortization
Gross carrying
amount
 
Accumulated
amortization
 
Gross carrying
amount
 
Accumulated
amortization
Definite-lived contract-based$95,500
 $(32,212) $96,019
 $(31,660)$96,758
 $(33,290) $96,019
 $(31,660)
Definite-lived marketing-related and other1,547
 (763) 1,547
 (420)1,547
 (1,019) 1,547
 (420)
Indefinite-lived contract-based2,007
 

 1,748
 

2,051
 

 1,748
 

$99,054
 $(32,975) $99,314
 $(32,080)$100,356
 $(34,309) $99,314
 $(32,080)

Amortization associated with intangible assets totaled approximately $1.81.3 million and $3.1 million for both the sixteentwelve and twenty-eight weeks ended January 15,April 8, 2012, respectively, and approximately $2.0 million and $3.8 million, respectively, for the same periodperiods of the prior fiscal year. Future amortization associated with the net carrying amount of intangible assets is estimated to be approximately as follows (in thousands):

Remainder of fiscal year 2012$3,865
$2,601
Fiscal year 20134,512
4,578
Fiscal year 20144,463
4,529
Fiscal year 20154,339
4,405
Fiscal year 20164,213
4,280
Future fiscal years42,680
43,603
$64,072
$63,996

(5)(6) Reserves for Closed Properties
Following is a summary of store closure reserve activity during the sixteentwenty-eight weeks ended January 15,April 8, 2012 and fiscal year ended September 25, 2011 (in thousands):

January 15,
2012
 September 25,
2011
April 8,
2012
 September 25,
2011
Beginning balance$44,702
 $59,298
$44,702
 $59,298
Additions1,237
 4,706
1,964
 4,706
Usage(2,546) (17,805)(5,154) (17,805)
Adjustments1,415
 (1,497)1,203
 (1,497)
Ending balance$44,808
 $44,702
$42,715
 $44,702

Additions to store closure reserves relate to the accretion of interest on existing reserves and new closures. Usage included approximately $2.55.2 million in ongoing cash rental payments during the sixteentwenty-eight weeks ended January 15,April 8, 2012. During the fiscal year ended September 25, 2011, usage included approximately $10.1 million in ongoing cash rental payments and approximately $7.7 million in termination fees related to certain idle properties. Additionally, the Company recorded reserve adjustments of approximately $3.7 million during the fiscal year ended September 25, 2011, offset to goodwill.

(6)(7) Long-Term Debt
The Company has a $350 million revolving line of credit that extends to August 28, 2012. The Company’s obligations under the facility are secured by liens on certain of the Company’s assets, including stock of its subsidiaries. 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 by the agreement. At January 15,April 8, 2012 the Company was in compliance with all applicable debt covenants. At January 15,April 8, 2012 and September 25, 2011 the Company had no amounts drawn under this agreement. The amount available to the Company under the agreement was $350 million at April 8, 2012. The amount available to the Company at September 25, 2011 was effectively reduced to approximately$349.6 million and $348.6 million by outstanding letters of credit totaling approximately $0.4 million and $1.4 million at January 15, 2012 and September 25, 2011, respectively.. The Company had outstanding a $700 million, five-year term loan agreement due in 2012, with an outstanding balance of $490 million at September 26, 2010. During the sixteentwenty-eight weeks ended January 16,April 10, 2011, the Company repaid $100300 million on the term loan and repaid the remainder throughout fiscal year 2011.

(7)

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(8) Income Taxes
Income taxes for both the sixteentwelve and twenty-eight weeks ended January 15,April 8, 2012 resulted in an effective tax rate of approximately 38.6%, compared to approximately 40.0%37.0% and 38.5%, respectively, for the same periodperiods of the prior fiscal year. The decline in the effective tax rate is primarily due to certain

9

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tax savings initiatives and investments. At January 15,April 8, 2012, income taxes payable totaled approximately $10.3 million compared to an income tax receivable of approximately $14.8 million at September 25, 2011.2011.

(8)(9) Shareholders’ Equity
Dividends per Common Share
During the sixteentwelve weeks ended January 15,April 8, 2012, the Company’s Board of Directors declared a cash dividend to shareholders of $0.14 per common share, payable on January 24,April 17, 2012 to shareholders of record on January 13,April 5, 2012. Approximately $25.225.6 million was included in the “Dividends payable” line item on the Consolidated Balance Sheets at January 15,April 8, 2012. During fiscal year 2011, the Company’s Board of Directors declared cash dividends to shareholders totaling $0.40 per common share resulting in dividend payments of approximately $70.4 million, of which approximately $17.8 million was included in the “Dividends payable” line item on the Consolidated Balance Sheets at September 25, 2011.

Common Stock
During the twelve weeks ended April 8, 2012, the Company approved an increase in the number of authorized shares of the Company’s common stock from 300 million to 600 million.

Treasury Stock
During the sixteen weeks ended January 15,first quarter of fiscal year 2012, the Company’s Board of Directors authorized a $200 million stock repurchase program through November 1, 2013. The Company repurchased 56,500 shares of Company common stock on the open market during the sixteen weeks ended January 15, 2012.first quarter of fiscal year 2012. The average price per share paid for shares held in treasury at January 15,April 8, 2012 was $63.70, for a total of approximately $3.6 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 at the Company'sCompany’s discretion.

Comprehensive Income
The Company’s comprehensive income was comprised of: net income; unrealized gains and losses on investments; unrealized gains and losses on cash flow hedge instruments, including reclassification adjustments of unrealized losses to net income related to ongoing interest payments; and foreign currency translation adjustments, net of income taxes. Comprehensive income was as follows (in thousands):

 Sixteen weeks ended
 January 15,
2012
 January 16,
2011
Net income$118,327
 $88,730
Foreign currency translation adjustments358
 2,250
Reclassification adjustments for amounts included in net income
 245
Change in unrealized gains and losses, net of income taxes(23) (256)
Comprehensive income$118,662
 $90,969

At January 15, 2012 and January 16, 2011 available-for-sale securities totaling approximately $86.2 million and $162.0 million, respectively, were in unrealized loss positions.
 Twelve weeks ended Twenty-eight weeks ended
 April 8,
2012
 April 10,
2011
 April 8,
2012
 April 10,
2011
Net income$117,665
 $89,935
 $235,992
 $178,665
Foreign currency translation adjustments2,753
 3,139
 3,111
 5,389
Reclassification adjustments for amounts
included in net income

 
 
 245
Change in unrealized gains and losses,
net of income taxes
8
 239
 (15) (17)
Comprehensive income$120,426
 $93,313
 $239,088
 $184,282

(9)(10) Earnings per Share
The computation of basic earnings per share is based on the number of weighted average common shares outstanding during the period. The computation of diluted earnings per share includes the dilutive effect of common stock equivalents consisting of incremental common shares deemed outstanding from the assumed exercise of stock options.

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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):

 Sixteen weeks ended
 January 15,
2012
 January 16,
2011
Net income$118,327
 $88,730
    
Weighted average common shares outstanding (denominator for basic earnings per share)179,512
 172,795
Potential common shares outstanding: 
  
Incremental shares from assumed exercise of stock options2,005
 1,687
Weighted average common shares outstanding and potential additional common shares outstanding (denominator for diluted earnings per share)181,517
 174,482
    
Basic earnings per share$0.66
 $0.51

   
Diluted earnings per share$0.65
 $0.51
 Twelve weeks ended Twenty-eight weeks ended
 April 8,
2012
 April 10,
2011
 April 8,
2012
 April 10,
2011
Net income
(numerator for basic and diluted earnings per share)
$117,665
 $89,935
 $235,992
 $178,665
        
Weighted average common shares outstanding
(denominator for basic earnings per share)
182,161
 174,686
 180,649
 173,606
Potential common shares outstanding: 
  
 

 

Incremental shares from assumed exercise of
stock options
2,442
 2,438
 2,192
 2,008
Weighted average common shares outstanding and
potential additional common shares outstanding
(denominator for diluted earnings per share)
184,603
 177,124
 182,841
 175,614
        
Basic earnings per share$0.65
 $0.51
 $1.31
 $1.03

    

 

Diluted earnings per share$0.64
 $0.51
 $1.29
 $1.02

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TableFor the twelve and twenty-eight weeks ended April 8, 2012 the number of Contents

stock options excluded from the computation of diluted earnings per share due to their antidilutive effect was not material. The computation of diluted earnings per share for the sixteentwelve and twenty-eight weeks ended January 16,April 10, 2011 does not include options to purchase approximately 8.34.9 million shares and 6.8 million shares of common stock due to their antidilutive effect.


(10)(11) Share-Based Payments
Total share-based payment expense before income taxes recognized during the sixteentwelve and twenty-eight weeks ended January 15,April 8, 2012 was approximately $8.5 million and January 16,$19.8 million, respectively. Share-based payment expense before income taxes recognized during the twelve and twenty-eight weeks ended April 10, 2011 was approximately $11.25.5 million and $7.412.8 million, respectively. 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 endedTwelve weeks ended Twenty-eight weeks ended
January 15,
2012
 January 16,
2011
April 8,
2012
 April 10,
2011
 April 8,
2012
 April 10,
2011
Cost of goods sold and occupancy costs$573
 $370
$372
 $288
 $945
 $658
Direct store expenses5,890
 3,725
4,473
 2,894
 10,363
 6,619
General and administrative expenses4,754
 3,264
3,697
 2,307
 8,451
 5,571
Share-based payment expense before income taxes11,217
 7,359
8,542
 5,489
 19,759
 12,848
Income tax benefit(4,218) (2,899)(3,236) (1,999) (7,454) (4,870)
Net share-based payment expense$6,999
 $4,460
$5,306
 $3,490
 $12,305
 $7,978

At January 15,April 8, 2012 and September 25, 2011, approximately 11.8 million shares and 11.7 million shares of the Company’s common stock, respectively, were available for future stock incentive grants. At January 15,April 8, 2012 and September 25, 2011, there was approximately $84.975.1 million and $97.4 million of unrecognized share-based payment expense, respectively, related to nonvested stock options, net of estimated forfeitures, related to approximately 6.4 million shares and 6.5 million shares.shares, respectively. We anticipate this expense to be recognized over a weighted average period of approximately three years.

(11)(12) Commitments and Contingencies
The Company is exposed to claims and litigation matters arising in the ordinary course of business and uses various methods to resolve these matters in a manner that we believe best serves the interests of our stakeholders. Our primary contingencies are associated with insurance and self-insurance obligations and litigation matters. Estimation of our insurance and self-insurance liabilities requires significant judgments, and actual claim settlements and associated expenses may differ from our current provisions for loss. We have exposures to loss contingencies arising from pending or threatened litigation for which assessing and estimating the outcomes of these matters involve substantial uncertainties.


12


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. During the sixteen weeks ended January 15,first quarter of fiscal year 2012, the federal district judge denied the plaintiff'splaintiff’s motion for class certification. Currently that decision is being appealed. The Company has not accrued any loss related to the outcome of this case as of January 15,April 8, 2012.

The Company evaluates contingencies on an ongoing basis and has established loss provisions for matters in which losses are probable and the amount of loss can be reasonably estimated. Insurance and legal settlement liabilities are included in the “Other current liabilities” line item on the Consolidated Balance Sheets. We believe the recorded reserves in our consolidated financial statements are adequate in light of the probable and estimable liabilities.

(12)(13) Related Party Transactions
The Company provides ongoing support to two independent non-profit organizations: Whole Planet Foundation and Whole Kids Foundation (the "Foundations"“Foundations”). Whole Planet Foundation is an independent, non-profit organization whoseFoundation’s mission is to empower the poor through microcredit, with a focus on developing-world communities that supply the Company’s stores with product. Whole Kids Foundation is a non-profit organization dedicated to improving children'schildren’s nutrition through partnerships with schools, educators, and other organizations. Members of the Company'sCompany’s management comprise the Board of Directors of each of the Foundations. Additionally, the Company provides administrative support and covers all operating costs and the overhead budget of the Foundations.


1113


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

Forward-looking Statements
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"(“SEC”), news releases, reports, proxy statements, registration statements and other written communications, as well as forward-looking statements made from time to time by representatives of our Company. These risks and uncertainties include those listed in the Company'sCompany’s Annual Report on Form 10-K for the fiscal year ended September 25, 2011. These riskrisks 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 riskrisks and uncertainties, including general business conditions, changes in overall economic conditions that impact consumer spending, including fuel prices and housing market trends, the impact of competition and other factors which are often beyond the control of the Company. The Company does not undertake any obligation to update forward-looking statements.

This information should be read in conjunction with the consolidated financial statements and the accompanying notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and the Company’s Annual Report on Form 10-K for the fiscal year ended September 25, 2011.

General
Whole Foods Market, Inc. is the world'sworld’s leading retailer of natural and organic foods and America’s first national “Certified Organic” grocer. Our Company mission is to promote the vitality and well-being of all individuals by supplying the highest quality, most wholesome foods available. Through our growth, we have had a significant and positive impact on the natural and organic foods movement throughout the United States, helping lead the industry to nationwide acceptance. As of January 15,April 8, 2012, we operated 317320 stores: 304307 stores in 38 U.S. states and the District of Columbia; 7 stores in Canada; and 6 stores in the United Kingdom. We have one operating segment, natural and organic foods supermarkets.

Our results of operations may be impacted by the timing of new store openings, construction and pre-opening expense, store closures and relocations, and the range of operating results generated from newly opened stores. The Company’s average weekly sales and gross profit are typically highest in the second and third fiscal quarters, and lowest in the fourth fiscal quarter. Average weekly sales and gross profit are typically lower in the first fiscal quarter due to the product mix of holiday sales, and in the fourth fiscal quarter due to the seasonally slower sales during the summer months.

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 changes in square footage greater than 20% 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.

The Company reports its results of operations on a 52- or 53-week fiscal year ending on the last Sunday in September. Fiscal year 2012 is a 53-week year and fiscal year 2011 was a 52-week year.

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 store ambiance and experience, 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. Our commitment to natural and organic products, high quality standards, emphasis on perishable product sales, healthy eating products and education, range of choices based on price, and empowered team members who focus on unparalleled customer service differentiate us from the competition and have created a loyal customer base.

We have worked very hard over the last couple of years to successfully improve our price image, particularly in perishables, and we remainare focused on maintainingimproving our relative price positioning in the marketplace. We are hopeful we can continue to strike the right balance between rising product costs and our retail pricing based on our contracts, distribution, and tools to manage value.


14


Highlights for the FirstSecond Quarter of Fiscal Year 2012
We continueare pleased to execute at a high level, delivering a great shopping experience forreport another consistently strong quarter, producing the best results in our customers while delivering great returns to our shareholders.32-year history. For the sixteentwelve weeks ended January 15, 2012:April 8, 2012:

Sales increased 12.9%13.6% over the same quarterperiod of the prior year to $3.39$2.67 billion driven by an 8.7%a 9.5% comparable store sales increase. Identical store sales increased 8.2%9.0% over the prior year;

12

TableGross profit as a percentage of Contentssales increased to 36.3%, a new record;

Operating income as a percentage of sales improved year-over-year for the eleventhtwelfth consecutive quarter to 5.6%7.1%;
Diluted earnings per share increased 28.2%25.5% over the same quarterperiod of the prior year to $0.65;$0.64;
We produced $260.9$255.8 million in cash flow from operations and invested $111.3$101.9 million in capital expenditures;
The Company's Board of Directors announced a 40% increase in the Company's quarterly cash dividend to shareholders to $0.14 per common share andCompany made a dividend payment to shareholders totaling $17.8$25.2 million; and
We had cash, restricted cash and investments totaling $1.01$1.30 billion.

Updated Outlook for Fiscal Year 2012
Our exceptional results during the twenty-eight weeks ended April 8, 2012 have given us the confidence to significantly raise our guidance for the full year. We are confident that our sales momentum and operating disciplines will create continued positive results for our shareholders. The following table provides additional information on the Company’s results through January 15,April 8, 2012 and expectations for the remainder of fiscal year 2012.

Sixteen weeks ended
January 15, 2012
Implied second
through fourth
quarter of
fiscal year 2012
Estimated
fiscal year 2012
Sales growth12.9%13.8% - 15.9%13.5% - 15.0%
Identical store sales growth8.2%6.5% - 8.6%7.0% - 8.5%
Diluted earnings per share$0.65$1.63 - $1.67$2.28 - $2.32
Diluted earnings per share growth28.2%14.8% - 17.6%18.0% - 20.0%
 
Twenty-eight weeks
ended
April 8, 2012
 
Implied third and
fourth quarters of
fiscal year 2012
 
Estimated
fiscal year 2012
Sales growth13.2% 16.7% - 18.2% 14.8% - 15.6%
Comparable store sales growth9.0% 7.2% - 8.8% 8.2% - 8.9%
Identical store sales growth8.6% 7.0% - 8.6% 7.8% - 8.6%
General and administrative expenses3.1% 3.1% 3.1%
Diluted earnings per share$1.29 $1.15 - $1.18 $2.44 - $2.47
Diluted earnings per share growth26.9% 25.0% - 28.0% 26.0% - 28.0%

Fiscal year 2012 is a 53-week fiscal year, with the extra week falling in the fourth fiscal quarter. The Company estimates the impact on earnings from the extra week to be $0.06 per share. On a 52-week to 52-week basis, excluding the impact of the extra week in the fourth fiscal quarter, the Company expects total sales growth of 11% to 13% and earnings per share growth of 15%23% to 17%25%.

The Company expectscontinues to expect ending square footage growth of 7% to 8% in fiscal year 2012. The Company expects capital expenditures for fiscal year 2012 to be in the range of approximately $410 million to $460 million, which includes the opening of 24 to 27 new stores. The Company is committed to producing cash flow from operations in excess of its capital expenditure requirements on an annual basis, including sufficient cash flow to fund the 69 stores in its current development pipeline.


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

Sixteen weeks endedTwelve weeks ended Twenty-eight weeks ended
January 15,
2012
 January 16,
2011
April 8,
2012
 April 10,
2011
 April 8,
2012
 April 10,
2011
Sales100.0% 100.0%100.0% 100.0% 100.0% 100.0%
Cost of goods sold and occupancy costs65.3
 65.4
63.7
 64.4
 64.6
 65.0
Gross profit34.7
 34.6
36.3
 35.6
 35.4
 35.0
Direct store expenses25.7
 26.3
25.5
 25.9
 25.6
 26.1
General and administrative expenses3.1
 2.9
3.2
 3.2
 3.1
 3.1
Pre-opening expenses0.3
 0.3
0.4
 0.4
 0.3
 0.3
Relocation, store closure and lease termination costs0.1
 0.1

 
 0.1
 0.1
Operating income5.6
 4.9
7.1
 6.0
 6.3
 5.4
Investment and other income, net of interest0.1
 
0.1
 
 0.1
 
Income before income taxes5.7
 4.9
7.2
 6.1
 6.3
 5.4
Provision for income taxes2.2
 2.0
2.8
 2.2
 2.4
 2.1
Net income3.5% 3.0%4.4% 3.8% 3.9% 3.3%
Figures may not sum due to rounding.


15


Sales for the sixteentwelve and twenty-eight weeks ended April 8, 2012totaled approximately $3.392.67 billion and $6.06 billion, respectively, increasing 12.9%13.6% and 13.2%, respectively, over the same periodperiods of the prior fiscal year. Comparable store sales increased 8.7%9.5% and 9.0% during the sixteentwelve and twenty-eight weeks ended January 15,April 8, 2012, and identical store sales increased 8.2%.respectively. As of January 15,April 8, 2012, there were 302304 locations in the comparable store base. Identical store sales, forexcluding six relocations and two expansions, increased 9.0% during the sixteentwelve weeks ended January 15,April 8, 2012 exclude. During the sixtwenty-eight relocated storesweeks ended April 8, 2012, identical store sales increased 8.6% and two majorexcluded six relocations and three expansions. Relocations and expansions are removed from the comparable calculation to reduce the impact of square footage growth on the comparison. Comparable and identical store sales for the twelve and twenty-eight weeks ended April 8, 2012 include a positive impact of 55 basis points and 25 basis points, respectively, resulting from the shift of Easter from the third fiscal quarter of the prior year to the second fiscal quarter of the current year. At January 15,April 8, 2012, there were 21 stores that were opened or acquired fifty-two weeks or less which contributed approximately $174.7128.8 million and $275.6 million to total sales during the sixteentwelve and twenty-eight weeks ended January 15,April 8, 2012. We are pleased with, respectively. During the twelve weeks ended April 8, 2012, our transaction count in identical stores accelerated to 7.3% and our sales momentum which continues to be broad-based across regions, departments, and store age classes.

13


classes. With the moderation in inflation, we are seeing our comparable store sales breakout return to the pattern of approximately 80% transaction count and 20% basket size that we were reporting before the sharp increase in inflation in the second half of fiscal year 2011. During the sixteen weeks ended January 15, 2012, our transaction count in comparable stores increased 6.6%, on top of the 7.3% increase we experienced in the sixteen weeks ended January 16, 2011. During the sixteen weeks ended January 15, 2012, our basket size increased 2.0% on top of the 1.6% increase for the sixteen weeks ended January 16, 2011, driven by higher average prices per item, offset slightly by a decrease in items per transaction, as we selectively passed through some product cost increases and continued to see signs of customers trading up.

The Company’s gross profit as a percentage of sales for the sixteentwelve and twenty-eight weeks ended January 15,April 8, 2012 was approximately 34.7%36.3% and 35.4%, respectively, compared to approximately 34.6%35.6% and 35.0%, respectively, for the same periodperiods of the prior fiscal year. Gross margin increased70 basis points and 41 basis points for the twelve and twenty-eight weeks ended April 8, 2012, respectively, compared to the same periods of the prior fiscal year. The Company recognized no LIFO charges for the sixteen weeks ended January 15, 2012, compared to LIFO charges totaling approximately $2.0 million for the same period of the prior fiscal year. Excluding the impact of LIFO,increase in gross margin increased10 basis points for the sixteen weeks ended January 15, 2012 compared to the same period of the prior fiscal year driven by an improvement in occupancy costsprofit as a percentage of sales. We did not seesales for the twelve weeks ended April 8, 2012 was driven by equal improvements in occupancy costs and cost of goods sold leverage as a percentage of sales, while the increase in the twenty-eight weeks ended April 8, 2012 was primarily driven by occupancy costs. Occupancy costs continue to be leveraged through strong disciplines through lease negotiation and were benefited by a milder winter through much of the United States during the second fiscal quarter. Improved cost of goods sold during the twelve weeks ended April 8, 2012 reflect a focus on stronger buying and inventory management, including better shrink control and lower days inventory is on hand. While we remained focused on balancing rising product costs with maintainingare very proud to have produced record margin results during the twelve weeks ended April 8, 2012, our relative value positionlonger term strategy has not changed, and while we have confidence that we can continue to drive sales over the longer term. We believe with the moderation in inflation, we will have additional flexibilitydeliver excellent results, our goal remains to consistently deliver gross marginprofit on an annual basis within our historical range of 34% to 35% while maintaining our sales momentum..

Direct store expenses as a percentage of sales for the sixteentwelve and twenty-eight weeks ended January 15,April 8, 2012 were approximately 25.7%25.5% and 25.6%, respectively, compared to approximately 26.3%25.9% and 26.1%, respectively, for the same periodperiods of the prior fiscal year. The 6437 basis point and 52 basis point decrease in direct store expenses as a percentage of sales for the sixteentwelve and twenty-eight weeks ended January 15,April 8, 2012, respectively, primarily reflects leverage of 33 basis points in wages and 14 basis points in depreciation expense.

General and administrative expenses as a percentage of sales were consistent for the sixteentwelve and twenty-eight weeks ended January 15,April 8, 2012 were approximately 3.1% compared to approximately 2.9% for the same periodperiods of the prior fiscal year. Theyear at approximately increase3.2% in general and administrative expenses as a percentage of sales for the sixteen3.1% weeks ended January 15, 2012 was primarily driven by higher wages, including wage costs associated with new strategic initiatives, totaling five basis points as a percentage of sales. Share-based payment expenses included in general and administrative expenses also increased three basis points as a percentage of sales over the same period in the prior fiscal year., respectively.

Pre-opening expenses as a percentage of sales weretotaled approximately 0.3%$10.5 million and $20.9 million for the sixteentwelve and twenty-eight weeks ended January 15,April 8, 2012, respectively, and approximately $9.5 million and $18.2 million, respectively, the same period of the prior fiscal year. The Company opened six new store locations, including two new markets, during the sixteen weeks ended January 15, 2012 compared to three new store openings in the same periodperiods of the prior fiscal year.

Relocation, store closure and lease termination costs totaled approximately $2.91.3 million and $4.2 million for the sixteentwelve and twenty-eight weeks ended January 15,April 8, 2012, respectively, compared to approximately $3.11.0 million and $4.1 million, respectively, for the same periodperiods of the prior fiscal year.

The numbers of stores opened and relocated were as follows:

 Twelve weeks ended Twenty-eight weeks ended
 April 8,
2012
 April 10,
2011
 April 8,
2012
 April 10,
2011
New stores3
 2
 9
 5
Relocated stores
 1
 
 1

Investment and other income, net of interest expense, which includes interest income, investment gains and losses, rental income and other income, totaled approximately $2.42.3 million and $4.6 million for the sixteentwelve and twenty-eight weeks ended January 15,April 8, 2012, respectively, compared to approximately $0.30.7 million and $1.0 million, respectively, for the same periodperiods of the prior fiscal year. The increase is primarily related to a $2.3 million reduction in interest expense due to the repayment of our term loan in fiscal year 2011.


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Income taxes for the sixteentwelve and twenty-eight weeks ended January 15,April 8, 2012 resulted in an effective tax rate of approximately 38.6% compared to approximately 40.0%37.0% and 38.5%, respectively, for the same periodperiods of the prior fiscal year. The decline in the effective tax rate is primarily due to certain tax savings initiatives and investments.


14


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 endedTwelve weeks ended Twenty-eight weeks ended
January 15,
2012
 January 16,
2011
April 8,
2012
 April 10,
2011
 April 8,
2012
 April 10,
2011
Cost of goods sold and occupancy costs$573
 $370
$372
 $288
 $945
 $658
Direct store expenses5,890
 3,725
4,473
 2,894
 10,363
 6,619
General and administrative expenses4,754
 3,264
3,697
 2,307
 8,451
 5,571
Share-based payment expense before income taxes11,217
 7,359
8,542
 5,489
 19,759
 12,848
Income tax benefit(4,218) (2,899)(3,236) (1,999) (7,454) (4,870)
Net share-based payment expense$6,999
 $4,460
$5,306
 $3,490
 $12,305
 $7,978


Liquidity and Capital Resources and Changes in Financial Condition
The following table summarizes the Company’s cash and short-term investments as of the dates indicated (in thousands):

January 15,
2012
 September 25,
2011
April 8,
2012
 September 25,
2011
Cash and cash equivalents$529,954
 $212,004
$175,375
 $212,004
Short-term investments - available-for-sale securities319,282
 442,320
881,945
 442,320
Restricted cash92,343
 91,956
104,942
 91,956
Total$941,579
 $746,280
$1,162,262
 $746,280

Additionally, the Company had long-term investments in available-for-sale securities totaling approximately $66.4140.0 million and $52.8 million at January 15,April 8, 2012 and September 25, 2011, respectively.

We generated cash flows from operating activities totaling approximately $260.9516.7 million during the sixteentwenty-eight weeks ended January 15,April 8, 2012 compared to approximately $253.0402.8 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.

Net cash used in investing activities totaled approximately $7.0760.0 million for the sixteentwenty-eight weeks ended January 15,April 8, 2012 compared to approximately $180.4220.0 million for the same period of the prior fiscal year. Net salespurchases of available-for-sale securities totaled approximately $105.5532.2 million during the sixteentwenty-eight weeks ended January 15,April 8, 2012 as compared to net purchases of available-for-sale securities totaling approximately $88.548.8 million in 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 sixteentwenty-eight weeks ended January 15,April 8, 2012 totaled approximately $111.3213.3 million, of which approximately $54.5114.5 million was for new store development and approximately $56.898.7 million was for remodels and other additions. Capital expenditures for the sixteentwenty-eight weeks ended January 16,April 10, 2011 totaled approximately $91.0169.6 million, of which approximately $45.689.5 million was for new store development and approximately $45.480.1 million was for remodels and other additions.


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The following table provides information about the Company’s store development activities:

Stores
opened
during fiscal
year 2011
 
Stores
opened
during fiscal
year 2012
 
Properties
tendered as of
February 8,
2012
 
Total leases
signed as of
February 8,
2012 (1)
Stores
opened
during fiscal
year 2011
 
Stores
opened
during fiscal
year 2012
 
Properties
tendered as of
May 2, 2012
 
Total leases
signed as of
May 2, 2012 (1)
Number of stores (including relocations)18
 6
 17
 69
18
 13
 18
 70
Number of relocations6
 
 2
 7
6
 
 3
 9
New markets
 2
 5
 21

 4
 7
 21
Average store size (gross square feet)39,400
 35,800
 35,300
 35,000
39,400
 34,900
 34,000
 35,400
Total square footage708,700
 215,000
 600,700
 2,439,600
708,700
 454,200
 612,700
 2,499,500
Average tender period in months12.5
 6.7
  
  
12.5
 7.5
  
  
Average pre-opening expense per store$2.5 million
  
  
  
$2.5 million
  
  
  
Average pre-opening rent per store$1.2 million
  
  
  
$1.2 million
  
  
  
(1) Includes leases for properties tendered

The Company expects to open 1915 to 18 additional stores, including one relocation,to two relocations, during the remainder of fiscal year 2012. We believe we will produce operating cash flows in excess of the capital expenditures needed to open the 6970 stores in our store development pipeline. The following table provides information about the Company’s estimated store openings for the next two fiscal years:

 
Estimated
openings
 Relocations 
Average
new store
square footage
 
Ending square
footage growth
Fiscal year 201224 - 27 1 - 2 35,000 7% - 8%
Fiscal year 201328 - 32 2 - 3 35,000 7% - 8%

Over the long term, the Company considers 1,000 stores to be a reasonable indication of its market opportunity in the United States as the Whole Foods Market brand continues to strengthen, consumer demand for natural and organic products continues to increase, and the Company’s flexibility on new store size opens up additional market opportunities. The Company believes significant opportunities exist in Canada and the United Kingdom as well.

Net cash provided by financing activities was approximately $63.6205.7 million for the sixteentwenty-eight weeks ended January 15,April 8, 2012 compared to net cash used in financing activities of approximately $43.5155.2 million for the same period of the prior fiscal year.

Net proceeds to the Company from team members’ stock plans for the sixteentwenty-eight weeks ended January 15,April 8, 2012 totaled approximately $80.2237.0 million compared to approximately $53.8153.1 million for the same period of the prior fiscal year. The Company intends to keep its broad-based stock option program in place, but also intends to limit the number of shares granted in any one year so that annual earnings dilution from share-based payment expense will not exceed 10%. The Company believes this strategy is best aligned with its stakeholder philosophy because it limits future earnings dilution from options and at the same time retains the broad-based stock option plan, which the Company believes is important to team member morale, its unique corporate culture and its success. At January 15,April 8, 2012 and September 25, 2011, approximately 11.8 million shares and 11.7 million shares of our common stock, respectively, were available for future stock incentive grants.


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During the first quarter of fiscal year 2011,2012, the Company’s Board of Directors reinstated a quarterly cash dividend to shareholders. During the sixteen weeks ended January 15, 2012, the Company's Board of Directors announced a 40% increase in the quarterly dividend to $0.14 per common share.

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Following is a summary of dividends declared per common share during fiscal years 2012 and 2011 (in thousands, except per share amounts):

Date of declaration 
Dividend per
common share
 Date of record Date of payment Total amount
Dividend per
common share
 Date of record Date of payment Total amount
Fiscal year 2012:       
November 2, 2011 (1)
 $0.14
 January 13, 2012 January 24, 2012 $25,238
$0.14
 January 13, 2012 January 24, 2012 $25,230
March 9, 2012 (1)
0.14
 April 5, 2012 April 17, 2012 25,610
Fiscal year 2011:       
December 8, 2010 $0.10
 January 10, 2011 January 20, 2011 $17,348
$0.10
 January 10, 2011 January 20, 2011 $17,348
February 27, 2011 0.10
 April 12, 2011 April 22, 2011 17,572
0.10
 April 12, 2011 April 22, 2011 17,572
June 7, 2011 0.10
 June 24, 2011 July 5, 2011 17,700
0.10
 June 24, 2011 July 5, 2011 17,700
September 8, 2011 0.10
 September 19, 2011 September 29, 2011 17,827
0.10
 September 19, 2011 September 29, 2011 17,827
(1) Dividend accrued at January 15,April 8, 2012

The Company will pay future dividends at the discretion of the Board of Directors. The continuation of these payments, the amount of such dividends, and the form in which dividends are paid (cash or stock) depend on many factors, including the results of operations and the financial condition of the Company. Subject to these qualifications, the Company currently expects to pay dividends on a quarterly basis.

On November 2, 2011,During the Company'sfirst quarter of fiscal year 2012, the Company’s Board of Directors authorized a share repurchase program in the amount of $200 million through November 1, 2013. During the sixteen weeks ended January 15,first quarter of fiscal year 2012, the Company repurchased 56,500 shares of Company common stock on the open market for a total of approximately $3.6 million. No additional repurchases of shares was made during the twelve weeks ended April 8, 2012, however we have committed to additional share repurchases through the remainder of fiscal year 2012. 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'sCompany’s available resources. The repurchase program may be suspended or discontinued at any time at the Company'sCompany’s discretion.

The Company has outstanding a $350 million revolving line of credit that extends to August 28, 2012. The Company’s obligations under the facility are secured by liens on certain of the Company’s assets, including stock of its subsidiaries. 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 by the agreement. At January 15,April 8, 2012 the Company was in compliance with all applicable debt covenants. At January 15,April 8, 2012 and September 25, 2011 the Company had no amounts drawn under this agreement. The amount available to the Company under the agreement was $350 million at April 8, 2012. The amount available to the Company at September 25, 2011 was effectively reduced to approximately$349.6 million and $348.6 million by outstanding letters of credit totaling approximately $0.4 million and $1.4 million at January 15, 2012 and September 25, 2011, respectively.. The Company had outstanding a $700 million, five-yearfive-year term loan agreement due in 2012, with an outstanding balance of $490 million at September 26, 2010. During the sixteentwenty-eight weeks ended January 16,April 10, 2011, the Company repaid $100$300 million on the term loan and repaid the remainder throughout fiscal year 2011.

The Company is committed under certain capital leases for rental of certain equipment, buildings and land, and certain operating leases for rental of facilities and equipment. These leases expire or become subject to renewal clauses at various dates through 2054.

The following table shows payments due by period on contractual obligations as of January 15,April 8, 2012 (in thousands):

Total 
Less than 1
year
 
1-3
years
 
3-5
years
 
More than 5
years
Total 
Less than 1
year
 
1-3
years
 
3-5
years
 
More than 5
years
Capital lease obligations (including interest)$40,090
 $2,095
 $4,201
 $4,142
 $29,652
$39,617
 $2,104
 $4,250
 $4,125
 $29,138
Operating lease obligations (1)
6,188,794
 307,995
 692,446
 718,154
 4,470,199
6,298,605
 310,126
 708,653
 736,551
 4,543,275
Total$6,228,884
 $310,090
 $696,647
 $722,296
 $4,499,851
$6,338,222
 $312,230
 $712,903
 $740,676
 $4,572,413
(1) Amounts exclude taxes, insurance and other related expense


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Gross unrecognized tax benefits and related interest and penalties at January 15,April 8, 2012 were approximately approximately$$10.410.5 million. Although a reasonably reliable estimate of the period of cash settlement with respective taxing authorities cannot be determined due to the high degree of uncertainty regarding the timing of future cash outflows associated with the Company'sCompany’s unrecognized tax benefits, as of January 15,April 8, 2012, the Company does not expect tax audit resolution will reduce its unrecognized tax benefits in the next 12 months.

We periodically make other commitments and become subject to other contractual obligations that we believe to be routine in nature and incidental to the operation of the business. Management believes that such routine commitments and contractual

17


obligations do not have a material impact on our business, financial condition or results of operations.

The effect of exchange rate changes on cash included in the Consolidated Statements of Cash Flows resulted in an increase in cash and cash equivalents totaling approximately $0.51.0 million for the sixteentwenty-eight weeks ended January 15,April 8, 2012 compared to an increase of approximately $1.22.4 million for the same period of the prior fiscal year. These changes principally reflect the relative strengthening of the Canadian dollar and pound sterling compared to the U.S. dollar during these periods.

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.

Off-Balance Sheet Arrangements
Our off-balance sheet arrangements at January 15,April 8, 2012 consist of operating leases disclosed in the above contractual obligations table and outstanding letters of credit discussed in Note 67 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 Note 2 to the consolidated financial statements, “Recent Accounting Pronouncements.”

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 Co-Chief Executive Officers (principal executive officers) and Chief Financial Officer (principal financial officer), to allow timely decisions regarding required disclosure. The Company’s management, with the participation of the Company’s Co-Chief Executive Officers 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 Co-Chief Executive Officers and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

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

The Company is exposed to claims and litigation matters arising in the ordinary course of business and uses various methods to resolve these matters in a manner that we believe best serves the interests of our stakeholders. We have exposures to loss contingencies arising from pending or threatened litigation for which assessing and estimating the outcomes of these matters involve substantial uncertainties.

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. During the sixteen weeks ended January 15,first quarter of fiscal year 2012, the federal district judge denied the plaintiff'splaintiff’s motion for class certification. Currently that decision is being appealed. The Company has not accrued any loss related to the outcome of this case as of January 15,April 8, 2012.

The Company evaluates contingencies on an ongoing basis and has established loss provisions for matters in which losses are probable and the amount of loss can be reasonably estimated. Legal settlement liabilities are included in the “Other current liabilities” line item on the Consolidated Balance Sheets. We believe the recorded reserves in our consolidated financial statements are adequate in light of the probable and estimable liabilities. However, resolution of contingencies resulting in amounts that vary materially from the Company’s current estimates could have a material adverse effect on the Company’s results of operations, cash flows, or financial condition.

Item 5. Other Information

Amendment to Whole Foods Executive Retention Plan and Non-Compete Arrangement

Plan Description and 2010 Agreements
During fiscal year 2010, the Company entered into agreements (the “2010 Agreements”) pursuant to its Executive Retention Plan and Non-Compete Arrangement (the “Plan”) with certain members of the Company’s management. In keeping with his voluntary decision in 2007 to reduce his annual salary to $1 and forgo earning any future cash compensation, stock awards and options awards, John Mackey, Co-Chief Executive Officer, opted not to execute such agreement.

Pursuant to the Plan and the 2010 Agreements, if a covered person’s employment is terminated (a) by the Company other than for “cause” (as defined in the Plan) or (b) by the covered person, and, within 45 days of termination, the covered person signs a release, then, subject to the covered person’s continued compliance with the confidentiality, non-compete, non-solicitation, non-disparagement and other restrictions of the Plan, the covered person will receive certain non-compete benefits from the Company, including: (i) immediate vesting of all restricted stock, stock options and other similar awards and (ii) up to a designated non-compete payment for a maximum of five years, paid in equal, semiannual installments; provided, that if the covered person voluntarily terminates employment for a reason other than “good reason” (as defined in the Plan), “disability” (as defined in the Plan) or death, then, unless the covered person has held his or her current position or one of several other designated positions with the Company for 15 years or more, such payment will be reduced by 20% for each year below 15 years of employment in a designated position.

Additionally, for the two-year period following a change of control, the Plan and 2010 Agreements provide the covered person with guaranteed compensation and participation in benefit plans and, if the covered person is terminated other than for “cause” (as defined in the Plan) or terminates employment with “good reason” (as defined in the Plan) during that period, a lump sum payment equal to three times the covered person’s annual compensation.

The 2010 Agreements with Walter Robb, A.C. Gallo, Glenda Flanagan and Jim Sud also provide that if the covered person voluntarily terminates employment for a reason other than a “good reason” (as defined in the Plan), “disability” (as defined in the Plan) or death, the non-compete benefits described two paragraphs above shall not be automatically set, but instead are subject to future negotiation.


21


Amendments to Plan and 2010 Agreements / Promotions of New Executive Vice Presidents
On May 16, 2012, the Board of Directors approved the following amendments to the Plan and the 2010 Agreements with Walter Robb, A.C. Gallo, Glenda Flanagan and Jim Sud to provide: (i) the minimum non-compete payment that may be negotiated following a voluntary termination is a percentage of the maximum non-compete payment (that percentage is 0% until October 1, 2012, becomes 20% on October 1, 2012, and increases by an additional 20% on each anniversary of October 1, 2012 until October 1, 2016) and (ii) the maximum potential non-compete payment would not be reduced based on the length of time the person has been in his or her current position or another designated position.

On May 16, 2012, the Board of Directors also approved amendments to the 2010 Agreements with David Lannon and Ken Meyer, based on their recent promotions, (the “Promotion Agreements”) to increase the amount of the maximum semi-annual non-compete payment for each of them to $400,000, adjusted to reflect the increase, if any, in the Consumer Price Index. To make the Promotion Agreements consistent with the 2010 Agreements of our other Executive Team Members, the Promotion Agreements also include the provisions described in the preceding paragraph and provide that if the covered person voluntarily terminates employment for a reason other than a “good reason” (as defined in the Plan), “disability” (as defined in the Plan) or death, the non-compete benefits shall not be automatically set, but instead are subject to future negotiation.

Item 6. Exhibits

Exhibit   3.1Amended and Restated Articles of Incorporation of the Registrant, dated March 9, 2012
Exhibit  31.1Certification of Co-Chief Executive Officer Pursuant to 17 CFR 240.13a -14(a)
Exhibit  31.2Certification of Co-Chief Executive Officer Pursuant to 17 CFR 240.13a - 14(a)
Exhibit  31.3Certification of Chief Financial Officer Pursuant to 17 CFR 240.13a - 14(a)
Exhibit  32.1Certification of Co-Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
Exhibit  32.2Certification of Co-Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
Exhibit  32.3Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
Exhibit  101
The following financial information from the Company’s Quarterly Report on Form 10-Q, for the period ended January 15,April 8, 2012, formatted in eXtensible Business Reporting Language: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Shareholders’ Equity, (iv) Consolidated Statements of Cash Flows, (v) Notes to Consolidated Financial Statements (1)

(1)
Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.


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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:February 24,May 17, 2012 By:/s/ Glenda Flanagan
   Glenda Flanagan
   Executive Vice President and Chief Financial Officer
   (Duly authorized officer and principal financial officer)

2023