FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the period ended April 8, 2001; 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.)
601 N. Lamar
Suite 300
Austin, Texas 78703
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code:
512-477-4455
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
--- ---
The number of shares of the registrant's common stock, no par value,
outstanding as of April 8, 2001 was 53,548,734 shares (post-split).
Page 1 of 12
WHOLE FOODS MARKET, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
Part I. Financial Information
Page
----
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets (unaudited), April 8, 2001 and September 24, 2000 3
Condensed Consolidated Income Statements (unaudited), for the twelve and twenty-eight weeks
ended April 8, 2001 and April 9, 2000 4
Condensed Consolidated Statements of Cash Flows (unaudited), for the twenty-eight weeks
ended April 8, 2001 and April 9, 2000 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
Page 2 of 12
Part 1. Financial Information
Item 1. Financial Statements
Whole Foods Market, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(unaudited, in thousands)
April 8, 2001 and September 24, 2000
Assets 2001 2000
- ------------------------------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 1,948 395
Trade accounts receivable 24,669 21,836
Merchandise inventories 101,409 93,858
Prepaid expenses and other current assets 20,216 35,632
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 148,242 151,721
Property and equipment, net of accumulated depreciation and amortization 525,078 468,678
Long-term investments 9,506 9,632
Acquired leasehold rights, net of accumulated amortization 15,832 13,753
Excess of cost over net assets acquired, net of accumulated amortization 68,487 69,867
Other assets, net of accumulated amortization 37,749 17,628
Net assets of discontinued operations 42,822 29,120
- -----------------------------------------------------------------------------------------------------------------------
$847,716 760,399
- -----------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity 2001 2000
- -----------------------------------------------------------------------------------------------------------------------
Current liabilities:
Current installments of long-term debt and capital lease obligations $ 7,263 7,884
Trade accounts payable 52,955 49,985
Accrued payroll, bonus and employee benefits 40,634 37,534
Other accrued expenses 48,266 47,238
- -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 149,118 142,641
Long-term debt and capital lease obligations, less current installments 325,160 298,070
Other long-term liabilities 12,584 12,531
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities 486,862 453,242
- -----------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, no par value, 200,000 shares authorized,
54,642 and 54,444 shares issued, 53,549 and 52,932
shares outstanding in 2001 and 2000, respectively 240,503 235,648
Common stock in treasury, at cost (17,113) (23,688)
Retained earnings 137,464 95,197
- -----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 360,854 307,157
- -----------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
- -----------------------------------------------------------------------------------------------------------------------
$847,716 760,399
- -----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 3 of 12
Whole Foods Market, Inc. and Subsidiaries
Condensed Consolidated Income Statements
(unaudited, in thousands except per share amounts)
Twelve weeks ended Twenty-eight weeks ended
April 8 April 9 April 8 April 9
2001 2000 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------------
Sales $ 516,660 425,113 1,160,095 957,739
Cost of goods sold and occupancy costs 336,139 277,571 759,056 630,605
- ----------------------------------------------------------------------------------------------------------------------------------
Gross profit 180,521 147,542 401,039 327,134
Selling, general and administrative expenses 147,758 118,614 333,548 269,253
Amortization expense 1,593 1,284 3,342 2,849
Pre-opening and relocation costs 2,012 2,440 4,659 6,070
- ----------------------------------------------------------------------------------------------------------------------------------
Operating income 29,158 25,204 59,490 48,962
Other income (expense):
Interest expense (4,488) (3,678) (10,298) (7,155)
Investment and other income 405 437 957 897
- ----------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes
and cumulative effect of change in accounting principle 25,075 21,963 50,149 42,704
Provision for income taxes 10,030 9,224 20,060 17,915
Equity in losses of unconsolidated affiliate 126 - 126 -
- ----------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before cumulative
effect of change in accounting principle 14,919 12,739 29,963 24,789
Discontinued operations:
Income (loss) from discontinued operations,
net of income taxes - - - (218)
Gain (loss) on disposal, net of income taxes 12,304 - 12,304 -
- ----------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of change in
accounting principle 27,223 12,739 42,267 24,571
Cumulative effect of change in accounting principle,
net of income taxes - - - (375)
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 27,223 12,739 42,267 24,196
- ----------------------------------------------------------------------------------------------------------------------------------
Basic earnings per share:
Income from continuing operations before cumulative
effect of change in accounting principle $ 0.28 0.24 0.56 0.48
Discontinued operations:
Income (loss) from discontinued operations,
net of income taxes - - - -
Gain (loss) on disposal, net of income taxes 0.23 - 0.23 -
Cumulative effect of change in accounting principle,
net of income taxes - - - (0.01)
- ----------------------------------------------------------------------------------------------------------------------------------
Basic earnings per share $ 0.51 0.24 0.79 0.46
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 53,487 52,049 53,280 52,055
- ----------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share:
Income from continuing operations before cumulative
effect of change in accounting principle $ 0.27 0.24 0.54 0.46
Discontinued operations:
Income (loss) from discontinued operations,
net of income taxes - - - -
Gain (loss) on disposal, net of income taxes 0.22 - 0.22 -
Cumulative effect of change in accounting principle,
net of income taxes - - - (0.01)
- ----------------------------------------------------------------------------------------------------------------------------------
Basic earnings per share $ 0.49 0.24 0.76 0.45
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 55,532 54,152 55,627 53,999
- ----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 4 of 12
Whole Foods Market, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands)
Twenty-eight weeks ended
April 8 April 9
2001 2000
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Income from continuing operations $ 29,963 24,789
Adjustment to reconcile income from continuing operations
to net cash provided by operating activities:
Depreciation and amortization 39,545 31,724
Net gain on disposal of fixed assets (28) (167)
Rent differential 315 891
Change in LIFO reserve 1,800 2,268
Interest accretion on long-term debt 3,565 3,392
Tax benefit related to exercise of employee stock options 3,358 1,019
Net change in current assets (16,863) (18,752)
Net change in current liabilities 13,644 13,747
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 75,299 58,911
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of property and equipment (91,880) (78,113)
Acquisition of intangible assets (4,894) (91)
Payments for purchase of acquired entities, net of cash acquired - (25,700)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (96,774) (103,904)
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net proceeds from long-term borrowings 25,000 57,000
Issuance of common stock 8,072 2,997
Payments on long-term debt and capital lease obligations (1,836) (428)
Purchase of treasury stock - (13,534)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 31,236 46,035
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from discontinued operations:
Net cash used in discontinued operations (8,208) (2,893)
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,553 (1,851)
Cash and cash equivalents at beginning of period 395 3,582
- -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,948 1,731
- -----------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Interest paid $ 5,719 3,181
- -----------------------------------------------------------------------------------------------------------------------------
Federal and state income taxes paid $ 13,922 10,526
- -----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 5 of 12
Whole Foods Market, Inc. And Subsidiaries
Notes To Condensed Consolidated Financial Statements
(unaudited)
April 8, 2001
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Whole
Foods Market, Inc. and subsidiaries (our "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
statements and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. In the opinion of management, all adjustments, consisting of normal
recurring accruals, considered necessary for a fair presentation have been
included. Certain information and footnote disclosure normally included in
annual financial statements prepared in conformity with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. For further information,
refer to the consolidated financial statements and footnotes thereto included in
our Annual Report on Form 10K for the fiscal year ended September 24, 2000.
Our fiscal year ends on the last Sunday in September. The first fiscal quarter
is sixteen weeks, the second and third fiscal quarters each are twelve weeks and
the fourth fiscal quarter is twelve or thirteen weeks.
(2) Stock Split
On May 10, 2001, our Board of Directors declared a 2-for-1 stock split of the
Company's common stock in the form of a 100% stock dividend to stockholders of
record as of May 21, 2001. The distribution of such dividend will occur on June
4, 2001. All applicable share and per share information has been retroactively
restated in the accompanying condensed consolidated financial statements to
reflect the stock split.
(3) 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 common shares deemed outstanding from the assumed exercise of
stock options. A reconciliation of the denominators of the basic and diluted
earnings per share calculations follows (in thousands):
Twelve weeks ended Twenty-eight weeks ended
April 8 April 9 April 8 April 9
2001 2000 2001 2000
- -----------------------------------------------------------------------------------------------------
Denominator for basic earnings per share:
weighted average shares 53,487 52,049 53,280 52,055
Additional shares deemed outstanding from the assumed
exercise of stock options 2,045 2,103 2,347 1,944
- -----------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share: adjusted
weighted average shares and assumed exercises 55,532 54,152 55,627 53,999
- -----------------------------------------------------------------------------------------------------
The computations of diluted earnings per share for the twelve and twenty-eight
week periods ended April 8, 2001 do not include options to purchase
approximately 2,287,000 shares and 2,246,000 shares, respectively, of common
stock because to do so would be antidilutive. The computations of diluted
earnings per share for the twelve and twenty-eight week periods ended April 9,
2000 do not include options to purchase approximately 2,697,000 shares and
2,750,000 shares, respectively, of common stock because to do so would be
antidilutive. The computations of diluted earnings per share for all periods
presented do not include approximately 3,286,000 shares of common stock related
to the zero coupon convertible subordinated debentures because to do so would be
antidilutive.
Page 6 of 12
(4) Discontinued Operations
In November 2000, the Company adopted a formal plan to sell the NatureSmart
(formerly Amrion, Inc.) business of manufacturing and direct marketing of
nutritional supplements. The NatureSmart business has been segregated from
continuing operations and reported as discontinued operations in the
accompanying consolidated financial statements. The loss on disposition of the
NatureSmart business reported at September 24, 2000 included the writedown to
estimated net realizable value of the business being discontinued, costs
associated with the planned disposal and the estimated loss from operations of
the discontinued business through the expected date of disposition.
Subsequent to the end of the second fiscal quarter of 2001, the Company sold all
of its interest in NatureSmart to NBTY, Inc. for approximately $28 million in
cash. Accordingly, we have re-evaluated our estimates used to determine the loss
on disposition of the NatureSmart business and have recorded an adjustment in
the second fiscal quarter of 2001 to reduce the loss on disposal by
approximately $12.3 million, net of income taxes of approximately $1.8 million.
At closing, NBTY also signed a short-term lease on the facility that was used by
NatureSmart, which is still held for sale by the Company.
The assets and liabilities of discontinued operations, which have been reflected
on a net basis on the consolidated balance sheets, are summarized as follows (in
thousands):
April 8 September 24
2001 2000
- ----------------------------------------------------------------------------
Current assets $15,828 11,392
Long-term assets 31,120 29,187
- ----------------------------------------------------------------------------
Total assets 46,948 40,579
- ----------------------------------------------------------------------------
Current liabilities 4,126 11,459
Long-term liabilities - -
- ----------------------------------------------------------------------------
Total liabilities 4,126 11,459
- ----------------------------------------------------------------------------
Net assets of discontinued operations $42,822 29,120
- ----------------------------------------------------------------------------
(5) Adoption of Accounting Standards
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133") in June 1998 as amended by SFAS No. 138, which was
issued in June 2000. SFAS No. 133 establishes reporting standards for derivative
instruments and hedging activities that require an entity to recognize all
derivatives as assets or liabilities measured at fair value and is effective for
financial statements issued for all fiscal quarters of fiscal years beginning
after June 15, 2000. If certain conditions are met, a derivative may be
specifically designated as a hedge of the exposure to changes in the fair value,
variable cash flow, or foreign currency of a recognized asset or liability or
certain other transactions and firm commitments. We adopted SFAS No. 133 in the
first quarter of fiscal year 2001. The adoption of SFAS No. 133 did not have any
impact on the Company's consolidated financial statements.
Page 7 of 12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations - Twelve and twenty-eight weeks ended April 8, 2001
compared to the same periods of the prior year.
General
We report our 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 fiscal quarters each are twelve weeks and the fourth
fiscal quarter is twelve or thirteen weeks. The following table sets forth our
results of operations data expressed as a percentage of sales:
Twelve weeks ended Twenty-eight weeks ended
April 8 April 9 April 8 April 9
2001 2000 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
Sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold and occupancy costs 65.1 65.3 65.4 65.8
- -------------------------------------------------------------------------------------------------------------------------
Gross profit 34.9 34.7 34.6 34.2
Selling, general and administrative expenses 28.6 27.9 28.8 28.1
Amortization expense 0.3 0.3 0.3 0.3
Pre-opening and relocation costs 0.4 0.6 0.4 0.6
- -------------------------------------------------------------------------------------------------------------------------
Operating income 5.6 5.9 5.1 5.1
Other income (expense):
Interest expense (0.9) (0.9) (0.9) (0.8)
Investment and other income 0.1 0.1 0.1 0.1
- -------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes
and cumulative effect of change in accounting principle 4.9 5.2 4.3 4.5
Provision for income taxes 1.9 2.2 1.7 1.9
Equity in losses of unconsolidated affiliate - - - -
- -------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before cumulative
effect of change in accounting principle 2.9 3.0 2.6 2.6
Discontinued operations:
Income (loss) from discontinued operations,
net of income taxes - - - -
Gain (loss) on disposal, net of income taxes 2.4 - 1.1 -
- -------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of change in
accounting principle 5.3 3.0 3.6 2.6
Cumulative effect of change in accounting principle,
net of income taxes - - - -
- -------------------------------------------------------------------------------------------------------------------------
Net income 5.3% 3.0% 3.6% 2.5%
- -------------------------------------------------------------------------------------------------------------------------
Figures may not add due to rounding.
Sales
Sales from continuing operations increased 21.5% and 21.1% for the twelve and
twenty-eight weeks ended April 8, 2001, respectively, compared to the same
periods of the prior fiscal year. These increases reflect the addition of 11 new
and 3 relocated stores to the store base over the last year and comparable store
sales increases of approximately 9.6% and 8.5%, respectively. Sales in identical
stores, which excludes relocations, increased 8.2% and 7.2% for the twelve and
twenty-eight weeks ended April 8, 2001, respectively. Comparable and identical
store sales increases generally result from an increase in average transaction
amounts and in the number of customer transactions, reflecting an increase in
market share as the stores mature in a particular market.
Gross Profit
Gross profit from continuing operations consists of sales less cost of goods
sold and occupancy costs plus contribution from non-retail distribution and food
preparation operations. The Company's gross profit as a percentage of sales was
34.9% and 34.6% for the twelve and twenty-eight weeks ended April 8, 2001,
respectively, compared to 34.7% and 34.2%, respectively, for the same periods of
the prior fiscal year. These increases reflect increased national buying and
private label initiatives which continue to lower the cost of product purchased
on a national basis, increased percentage of sales in certain regions and
departments where the Company achieves higher gross profits, and continued
improvement in store execution with respect to product procurement,
merchandising and controlling spoilage. Gross profit for the twelve and twenty-
eight weeks ended April 8, 2001 was negatively impacted by higher than expected
utility costs, which increased approximately 30 basis points and 22 basis points
over the same periods of the prior year, respectively.
Page 8 of 12
Selling, General and Administrative Expenses
Selling, general and administrative expenses from continuing operations as a
percentage of sales were 28.6% and 28.8% for the twelve and twenty-eight weeks
ended April 8, 2001, respectively, compared to 27.9% and 28.1%, respectively,
for the same periods of the prior fiscal year. These increases reflect increased
wage costs, depreciation of additional investments in information systems and
higher direct store expenses as a percentage of sales at new and acquired stores
added over the last year. Direct store expenses as a percentage of sales at
existing stores for the twelve and twenty-eight weeks ended April 8, 2001 were
consistent with the same periods of the prior fiscal year.
Amortization Expense
Amortization expense from continuing operations as a percentage of sales was
approximately 0.3% for the twelve and twenty-eight weeks of both the current and
prior fiscal years. Amortization expense consists primarily of costs associated
with the amortization of excess of cost over net assets acquired and non-
competition agreements.
Pre-opening and Relocation Costs
Pre-opening costs include costs associated with hiring and training personnel,
supplies and certain occupancy and miscellaneous costs related to new locations.
The AICPA issued SOP 98-5, "Reporting on the Costs of Start-up Activities" in
April 1998. SOP 98-5 requires costs of start-up activities and organization
costs to be expensed as incurred. We adopted SOP 98-5 effective the beginning of
the first quarter of fiscal year 2000. In accordance with SOP 98-5, in the first
quarter of fiscal year 2000 we reported the cumulative effect of a change in
accounting principle, a one-time charge totaling approximately $375,000, net of
approximately $272,000 of taxes, representing start-up costs capitalized at
September 26, 1999. The adoption of SOP 98-5 did not have a material impact on
our consolidated financial statements. Relocation costs consist of moving costs,
remaining lease payments, accelerated depreciation costs and other costs
associated with replaced facilities and other related expenses. Pre-opening and
relocation costs for the twelve and twenty-eight weeks ended April 8, 2001
consist primarily of costs associated with our openings of three new stores
during the first fiscal quarter, two new stores and one relocated store during
the second fiscal quarter and one new store opened subsequent to the end of the
second fiscal quarter. In the prior year, pre-opening and relocation costs for
the twelve and twenty-eight weeks were associated with our openings of five new
stores during the first fiscal quarter, four new stores during the second fiscal
quarter and two new stores and one relocated store opened subsequent to the end
of the second fiscal quarter.
Interest Expense
Interest expense consists of costs related to the convertible subordinated
debentures, senior notes payable and bank line of credit, net of capitalized
interest associated with new store development. Interest expense net of
capitalized interest for the twelve and twenty-eight weeks ended April 8, 2001
totaled approximately $4.5 million and $10.3 million, respectively, compared to
approximately $3.7 million and $7.2 million, respectively, for the same periods
of the prior fiscal year. These increases are due primarily to additional
amounts outstanding under our bank line of credit in fiscal 2001. Capitalized
interest for the twelve and twenty-eight weeks ended April 8, 2001 totaled
approximately $0.5 million and $1.3 million, respectively, compared to
approximately $0.4 million and $1.4 million, respectively, for the same periods
of the prior fiscal year.
Investment and Other Income
Investment and other income for the twelve and twenty-eight weeks ended April 8,
2001 totaled approximately $0.4 million and $1.0 million, respectively, compared
to $0.4 million and $0.9 million, respectively, for the same periods of the
prior fiscal year. Investment and other income consists primarily of interest,
rental and other income.
Equity in Losses of Unconsolidated Affiliate
Equity in losses of unconsolidated affiliate represents the Company's net share
of losses of Gaiam.com, a subsidiary of Gaiam, Inc. in which we have a minority
common equity investment and commercial agreements for the sale of products on
co-branded sections of the Gaiam.com Web site. Our net share of equity-method
losses for the twelve and twenty-eight weeks ended April 8, 2001 totaled
approximately $126,000.
Page 9 of 12
Discontinued Operations
In November 2000, the Company adopted a formal plan to sell the NatureSmart
(formerly Amrion, Inc.) business of manufacturing and direct marketing of
nutritional supplements. The NatureSmart business has been segregated from
continuing operations and reported as discontinued operations in the
accompanying consolidated financial statements. The loss on disposition of the
NatureSmart business reported at September 24, 2000 included the writedown to
estimated net realizable value of the business being discontinued, costs
associated with the planned disposal and the estimated loss from operations of
the discontinued business through the expected date of disposition. Subsequent
to the end of the second fiscal quarter of 2001, the Company sold all of its
interest in NatureSmart to NBTY, Inc. for approximately $28 million in cash.
Accordingly, we have re-evaluated our estimates used to determine the loss on
disposition of the NatureSmart business and have recorded an adjustment in the
second fiscal quarter of 2001 to reduce the loss on disposal by approximately
$12.3 million, net of income taxes of approximately $1.8 million.
Economic Value Added (EVA(R))
Our goal is to improve long-term intrinsic value measured by improvement in EVA.
For the twelve and twenty-eight weeks ended April 8, 2001, the Company generated
negative EVA of approximately $6.9 million and $19.5 million, respectively,
compared to negative EVA of approximately $6.2 million and $19.0 million,
respectively, for the same periods of the prior fiscal year. Although our stores
produce very strong EVA on average, we currently have negative EVA due to the
capital charge on approximately $300 million of unrecorded implied goodwill
related to previous pooling acquisitions. Net operating profit after tax (NOPAT)
for the second fiscal quarter increased approximately 15% over prior year to
approximately $17.5 million, and year-to-date NOPAT increased approximately 21%
over prior year to approximately $35.9 million. Total capital at the end of the
period increased approximately 11% over prior year to approximately $968
million.
Liquidity and Capital Resources and Changes in Financial Condition
For the twenty-eight weeks ended April 8, 2001 and April 9, 2000, net cash
provided by operating activities was approximately $75.3 million and $58.9
million, respectively, and net cash provided by financing activities was
approximately $31.3 million and $46.0 million, respectively.
Our principal historical capital requirements have been the funding of the
development or acquisition of new stores and to lesser extent, the resultant
increase in working capital requirements. We estimate that cash requirements to
open a new store will range from $3 million to $12 million (after giving effect
to any landlord construction allowance). This excludes new store inventory of
approximately $750,000, a portion of which is financed by our vendors. Net cash
used in investing activities was approximately $96.8 million and $103.9 million
for the twenty-eight weeks April 8, 2001 and April 9, 2000, respectively.
Subsequent to the end of the second fiscal quarter the Company has opened a new
store in Boca Raton, Florida. We plan to open one additional new store in the
third fiscal quarter and three to five new stores during the fourth fiscal
quarter. The Company has twenty-one stores currently under development that are
expected to open during the next three fiscal years. During the second quarter
of fiscal 2001, the Company negotiated an extended and expanded credit facility
of $220 million. Subsequent to the end of the second fiscal quarter of 2001, the
Company sold all of its interest in NatureSmart for approximately $28 million in
cash. At April 8, 2001 the Company had $162 million outstanding under the line
of credit. Subsequent to the end of the second fiscal quarter of 2001, we have
paid down our credit line by $27 million and currently have approximately $81
million available. We expect that cash generated from operations and cash
available under our existing credit facility will be sufficient to finance
planned expansion and other anticipated working capital and capital expenditure
requirements. We continually evaluate the need to establish other sources of
working capital and will seek those considered appropriate based upon the
Company's needs and market conditions.
Risk Factors
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, 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, but are not limited to, those listed in the Company's
Annual Report on Form 10-K for the fiscal year ended September 24, 2000. 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
timely development and opening of new stores, 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 except as
required by law.
Page 10 of 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the Company's market risk exposures from
those reported in our Annual Report on Form 10-K for the fiscal year ended
September 24, 2000.
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
On March 26, 2001, the Company held its annual meeting of shareholders at which
shareholders were asked the following:
(i) to elect to the Board of Directors two directors to serve a three-year
term expiring at the annual meeting of shareholders in 2003;
(ii) to approve an amendment to the Company's 1992 Incentive Stock Option Plan
for Team Members ("Team Member Plan") to increase the number of shares of
the Company's common stock reserved for issuance under the Team Member
Plan from 12.2 million to 14.4 million shares,
(iii) to approve an amendment to the Company's 1992 Stock Option Plan for
Outside Directors ("Director's Plan") to increase the number of shares of
the Company's common stock reserved for issuance under the Director's
Plan from 400,000 to 500,000 shares, and
(iv) to delete Section 17 of the Director's Plan which provided a plan
termination date of December 31, 2001
Voting results were as follows:
For Against Abstaining
---------- ---------- ----------
(i) Director elections:
John P. Mackey 48,771,008 6,838 439,690
David W. Dupree 48,716,734 61,112 439,690
(ii) Amendment to Team Member Plan 41,842,052 7,258,166 117,318
(iii) Amendment to Director's Plan 46,372,342 2,690,724 154,470
(iv) Deletion of Section 17 of the Director's Plan 47,494,482 1,539,274 183,780
Item 6. Exhibits and Reports on Form 8-K
The Company did not file any reports on Form 8-K during the fiscal quarter ended
April 8, 2001. Subsequent to the end of the second fiscal quarter, the Company
filed a report on Form 8-K dated April 12, 2001 announcing the appointment of
Ernst & Young LLP as the Company's independent accountants for the fiscal year
ending September 30, 2001.
Page 11 of 12
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.
------------------------
Registrant
Date: May 23, 2001 By: Glenda Flanagan
------------- ---------------
Glenda Flanagan
Vice President and
Chief Financial Officer
(Duly authorized officer and
principal financial officer)
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