FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 28, 1997
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 employment
incorporation) identification no.)
601 North Lamar Suite 300
Austin, Texas 78703
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
512-477-4455
Securities registered pursuant to Section 12(b)of the Act:
None
Securities registered pursuant to section 12(g)of the Act:
Common Stock, no par value
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on November 30, 1997 was approximately $1.1 billion.
The number of shares of the registrant's common stock, no par value, outstanding
as of November 30, 1997 was 24,756,852.
The following document is incorporated by reference into the part of this annual
report on Form 10-K as indicated: Portions of the registrant's definitive proxy
statement for the annual meeting of shareholders to be held on March 30, 1998
are incorporated into Part III to the extent indicated herein.
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PART I
Item 1. Business
Whole Foods Market, Inc. (the "Company" or "Whole Foods" or "Whole Foods
Market") owns and operates the country's largest chain of natural foods
supermarkets, featuring food made from natural ingredients free of unnecessary
additives. The Company opened its first store in Austin, Texas in 1980 and
operated 75 stores in seventeen states as of September 28, 1997. The Company's
stores average approximately 24,000 square feet and offer a broad selection of
foods at competitive prices with an emphasis on customer service. The Company
has designed its stores to attract quality-oriented consumers who are interested
in health, nutrition, food safety and preserving the environment. Stores offer a
selection of organic and high quality conventional produce; convenient and tasty
prepared foods; high quality natural and conventional meats; a variety of wild
and natural farm-raised seafood; a bakery featuring Whole Foods brand crusty
breads; choice selections of specialty cheeses, beer and wine; a mixture of
natural, organic, gourmet and ethnic grocery products; numerous value priced
items in the bulk department; and a nutrition area offering a complete
alternative pharmacy with holistic remedies, herbs, vitamins and supplements.
Amrion, a subsidiary of the Company acquired in September 1997, is engaged in
developing, producing and marketing innovative, safe, high quality
nutriceuticals and nutritional supplements. Amrion's products include
nutriceuticals, herbs, herbal formulas, vitamins, minerals and homeopathic
medicinals.
The Natural Foods Industry
Natural foods can be defined as foods which are minimally processed, largely or
completely free of artificial ingredients, preservatives and other non-naturally
occurring chemicals and in general are as near to their whole, natural state as
possible. According to a leading trade publication for the industry, natural
foods sales have grown at a compound annual rate of approximately 29% over the
last five years to approximately $11.5 billion in 1996. This growth is being
propelled by several factors, including increasing consumer concern over the
purity and safety of food due to the presence of pesticide residues, artificial
ingredients and other chemicals; environmental concerns due to the degradation
of water and soil quality; and healthier eating patterns due to a better
educated populace whose median age is increasing each year. While organic and
natural food products have higher costs of production, the Company believes that
due to changes in demographics and buying habits a significant segment of the
population now attributes added value to high-quality natural food and
accordingly is willing to pay higher prices for such food items.
According to a leading trade publication for the industry, there were 6,700
natural/health food stores in 1996 in the United States. While natural and
health food stores have historically provided only a limited selection of
products, the natural foods supermarket-size formats provide a complete grocery
shopping alternative to conventional supermarkets. The Company believes that
besides its own stores there are less than 100 other natural foods stores larger
than 10,000 square feet throughout the country. Whole Foods also believes that
the growth of larger supermarket-size natural foods stores has increased
consumer awareness of and demand for natural foods.
The Vitamin and Nutritional Supplements Industry
According to industry analysts' reports, the retail market for vitamin and
nutritional supplements has grown from $3.5 billion in 1991 to an estimated $6.5
billion in 1996 and is currently growing at an annual rate of approximately 13%
to 15%. By the year 2001, retail sales are expected to exceed $12 billion. This
growth has resulted from an increased national interest in preventative health
choices; favorable consumer attitude shifts toward natural health care;
increased consumer willingness toward self-care in resistance to rising health
care costs; and a rapidly growing demographic segment of the population over 40
years old concerned with aging and disease. Additionally, public awareness of
the positive effects of vitamins and other nutritional supplements on health has
been heightened by widely publicized reports of favorable research findings.
Recent estimates indicate that approximately 40% of the U.S. population use
nutritional supplements in some form.
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Strategy
In fiscal 1997, the Company had average store sales per gross square foot of
$638, which the Company believes is higher than most other traditional
supermarket or food retailers including competitors in the large-store segment
of the natural foods industry. The Company attributes these successful results
to its ability to differentiate itself from other retailers competing for
consumers' food dollars by tailoring its product mix, service standards and
store environment to satisfy the needs of the natural foods shopper and to
appeal to the broader market of quality-oriented consumers. The Company targets
consumers aged 25 to 50 who are better educated and more affluent than the
populace as a whole. Amrion's direct marketing programs utilize proprietary
information systems to capture, report and interpret buying patterns and
customer sales data to evaluate product and promotional activities.
Products
The Company offers its customers approximately 10,000 to 18,000 food and
non-food products. The broad product selection is designed to meet the needs of
natural foods shoppers as well as gourmet customers. The Company has been able
to expand the breadth of its product offerings by monitoring the market for new
products and by responding to customer input. In 1997, the Company introduced a
new line of private label products called "365 Every Day Value." The goal behind
"365" is to have high quality, natural products available to customers every day
of the year. Product integrity is not sacrificed in order to achieve low prices.
Each product meets the Company's quality goals and is free of any artificial
sweeteners, flavorings, colorings or preservatives. In addition, the Company
continues to add new products to its premium private label brand. Amrion's
products are dietary nutritional supplements, not pharmaceutical or medicinal
products. As such, the Company makes no specific claims of efficacy regarding
treatment of any condition or disease. Amrion's nutritional supplements have
been found effective by the Company's customers, and the Company markets its
products to satisfy the nutritional needs of those customers.
Quality Goals
The Company's objective is to sell its customers the highest quality foods
available. The Company defines quality in terms of nutrition, freshness,
appearance and taste and has the following product quality goals:
Whole Foods - The Company evaluates each and every product that is sold.
Natural - The Company features foods that are free from artificial
preservatives, colors, flavors and sweeteners.
Taste - The Company is passionate about great tasting food and the
pleasure of sharing it with others.
Freshness - The Company is committed to foods that are fresh, wholesome
and safe to eat.
Organic - The Company seeks out and promotes organically grown foods.
Wellness - The Company provides foods and nutritional products that
support health and well-being.
Store Operations
The Company has promoted a strong company culture featuring a team approach to
store operations which the Company believes is distinctly more empowering of
employees than that of the traditional supermarket. Each store employs between
65 and 231 people, organized into up to nine teams, each led by a team leader.
Each team is responsible for a different aspect of store operations, such as
produce; grocery; meat, poultry and seafood; prepared foods; bakery goods;
beer/wine/cheese; nutrition products (nutritional supplements, herbs and body
care); customer service; and the front-end section which runs the customer
check-out counters. The store teams have significant authority over the store
operations for which they are responsible. For example, many teams make buying
and pricing decisions for the products sold in their area, subject to general
guidelines established by the Company. Teams take collective responsibility for
hiring, achieving operational goals and making group decisions which might
impact team performance.
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The Company intends to create a company-wide consciousness of "shared fate" by
uniting the self-interests of team members as closely as possible to the
self-interests of customers and of shareholders. One way the Company reinforces
this concept is through its various gainsharing programs, under which team
members are rewarded bonuses based on achieving goals for team sales, team labor
productivity, and team profitability. There is also a team member incentive
program which currently rewards team members for sales increases of private
label products. The Company also reinforces the shared fate concept by offering
team members three programs which encourage stock ownership. Team members are
eligible for stock options under the Team Member Stock Option Plan either
through seniority or promotion. Team members can also purchase restricted stock
at a discount through payroll deductions under the Team Member Stock Purchase
Plan. In addition, since 1996 the Company has made its employer's match in the
Company's 401(k) plan in Company stock. The Company believes encouraging team
members to become shareholders aligns the interests of team members with the
interests of its shareholders for the betterment of both stakeholders.
The Company believes that it helps to inspire its team members by providing them
with a greater sense of purpose and mission in their work. For many Team
Members, their job is an extension of their personal philosophy and lifestyle.
Team Members can feel they are contributing to the good of others by selling
pure and nutritious foods, by contributing to long-term sustainable agriculture
and by promoting a pesticide-free and healthier environment. Additionally, the
Company has a program which provides paid time off to Team Members for working
with qualified community service organizations.
Because of the Company's decentralized management structure, an effective store
team leader (store manager) is critical to the success of the store. Store team
leaders are paid a salary plus a bonus based on store profit contribution. The
store team leader works closely with the associate store team leader, as well as
with all the team leaders, to operate the store as efficiently and profitably as
possible.
Purchasing and Distribution
The Company buyers purchase products for retail sale from regional wholesale
suppliers and vendors. Over the last few years, the Company has shifted some of
its purchasing operations from the store to the regional and national level. By
purchasing on a regional and national level, the Company is able to negotiate
better volume discounts with major vendors and distributors. The Company owns
and operates eight distribution centers across the country. The largest of the
Company's distribution centers, Texas Health Distributors in Austin, Texas,
distributes natural products to the Company's stores in Texas and Louisiana as
well as to other food retailers. The other seven distribution centers primarily
distribute produce and the Company's private label products to Company stores in
their prospective regions. In addition, the Company owns a seafood wharf, a
produce procurement center, and has established regional commissaries and
bakehouses, all of which distribute products to the Company's stores.
Amrion currently imports approximately 75% of its raw materials from various
foreign countries. Due to the increase in demand for Amrion's products from the
overall growth in the natural products industry, Amrion has developed strategic
partnerships with key domestic and international raw material suppliers. These
written supply contracts between Amrion and principal raw material suppliers are
negotiated each year and provide reasonable assurance that Amrion's supply of
raw materials will not be interrupted. However, alternative sources of Amrion's
materials are available in the event a supplier is unable to deliver as
specified in the written supply contract. The termination of supply by one or
more of its vendors could have a temporary adverse effect on Amrion's sales. The
cost incurred by Amrion for its raw materials could rise due in the event of a
deterioration of the value of the U.S. Dollar against the foreign currencies of
Amrion's suppliers. Further cost increases could result due to the increase in
demand relative to the supply of these products from the overall growth in the
natural products industry.
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Store Description
Each of the stores are generally located in high-traffic shopping areas and are
either freestanding or in strip centers. The Company has no prototype store.
Each store's layout is customized to the actual size and configuration of the
particular location. The Company emphasizes strong visual presentations in all
key traffic areas of its stores. Merchandising displays are changed frequently
and often incorporate seasonal themes. The stores also sponsor a variety of
organized in-store activities, such as store tours, samplings, taste fairs and
other special events. To further a sense of community and interaction with
customers, the stores typically include sit-down eating areas, customer comment
boards and centrally located information booths. In addition, many stores offer
special services, such as home delivery.
Expansion Strategy
The expansion strategy of the Company is to open or acquire stores in existing
regions and in metropolitan areas where the Company believes it can become a
leading natural foods supermarket retailer. During fiscal year 1992, the Company
acquired two stores operating as Wellspring Grocery in North Carolina, and the
Company opened a new store in Mill Valley, California. In fiscal 1993, the
Company opened new stores in Raleigh, North Carolina; Chicago, Illinois; San
Antonio, Texas and Ann Arbor, Michigan and acquired 13 stores as follows: In
October 1992, the Company acquired all of the outstanding stock of Bread &
Circus, Inc. ("Bread & Circus"), the largest natural foods supermarket retailer
in the Northeast, then operating six natural foods supermarkets located in
Massachusetts and Rhode Island. The consideration for the stock consisted of
approximately $20.0 million in cash and 691,770 shares of common stock. In
September 1993, the Company acquired all of the outstanding stock of Mrs.
Gooch's Natural Food Markets, Inc. ("Mrs. Gooch's"), which owned and operated
seven natural foods supermarkets in the Southern California area. The Company
issued 2,970,596 shares of its common stock in connection with the acquisition,
which was accounted for as a pooling-of-interests.
In fiscal 1994, the Company opened new stores in Houston, Texas; Cambridge,
Massachusetts; Los Gatos, California; Chicago, Illinois and Dallas, Texas.
In fiscal 1995, the Company closed its three existing stores in Austin and
replaced them with two larger, updated stores. Additionally, the Company opened
four new stores outside of Austin, one each in Plano, Texas; Boston,
Massachusetts; Tustin, California; and St. Paul, Minnesota. In February 1995,
the Company acquired substantially all assets and assumed certain liabilities of
Unicorn Village, Ltd. (Unicorn), a natural foods supermarket in Southern
Florida, in exchange for approximately $4.1 million in cash. Also in February
1995, the Company acquired the outstanding stock of Cana Foods, Inc., which
operated two natural foods supermarkets in Northern California, in exchange for
approximately $5 million in cash.
In fiscal 1996, the Company opened new stores in Sherman Oaks, CA; Washington,
DC; Lakeview, IL; Arlington, VA; Madison, WI and San Francisco, CA. In December
1995, the Company acquired the outstanding stock of Natural Merchants Exchange,
Inc. doing business as Oak Street Market, which operated a natural foods market
in Evanston, Illinois, in exchange for approximately 195,000 shares of newly
issued Company stock. The acquisition was accounted for using the
pooling-of-interests method. In August 1996, the Company acquired all of the
outstanding stock of Fresh Fields Market, Inc., which operated twenty-two
natural foods supermarkets, in exchange for approximately 4,750,000 shares of
newly issued Company stock. The acquisition was accounted for using the
pooling-of-interests method. Subsequent to the acquisition, three stores were
closed and two others were relocated pursuant to a plan to close or relocate
duplicate stores as a result of the acquisition.
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In fiscal 1997, the Company opened new stores in Vienna, VA; La Jolla, CA;
Philadelphia, PA; San Rafael, CA; Hillcrest, CA; and relocated the Fresh Fields
Naperville store to a new store in Wheaton, IL. In April 1997, the Company
acquired the outstanding stock of Bread of Life which owned and operated two
natural foods supermarket stores in Florida with a third store in development in
exchange for approximately 106,000 shares of newly issued Company stock. The
acquisition was accounted for using the pooling-of-interests method. In August
1997, the Company acquired the outstanding shares of The Granary Market which
operated a natural foods market in Monterey, CA in exchange for approximately
33,000 shares of newly issued Company stock. The acquisition was accounted for
using the pooling-of-interests method. This store will be relocated when the
Company's new store opens in Monterey, CA. In September 1997, the Company
acquired the outstanding stock of Amrion, Inc., a producer and marketer of
nutriceuticals and nutritional supplements, for approximately 4.7 million shares
of newly issued Company stock. The acquisition was accounted for using the
pooling-of-interests method.
In fiscal 1998, the Company intends to open approximately seven new stores and
relocate two existing stores. Subsequent to the end of fiscal 1997, the Company
signed a definitive agreement to merge with Merchant of Vino, which operates
four gourmet / natural foods stores and two specialty wine and gourmet food
shops in the Detroit area, in exchange for approximately 1 million shares of
newly issued Company stock. The merger transaction is intended to be accounted
for using the pooling-of-interests method. Subsequent to the end of fiscal 1997,
the Company also signed a definitive agreement to merge with Allegro Coffee
Company, a specialty coffee roaster and distributor based in Boulder, Colorado,
in exchange for approximately 175,000 shares of common stock. The merger
transaction is intended to be accounted for using the pooling-of-interests
method.
In selecting store locations, the Company uses an internally-developed model to
analyze potential markets on such criteria as income levels, population density
and educational levels. The Company believes that a metropolitan area with
population in excess of 200,000 is generally large enough to support a Whole
Foods Market. After the Company has selected a target site, it retains an
independent third party consultant to project sales. The Company intends to
cluster several stores in the larger metropolitan areas. Clustering stores
permits advantages such as increased purchasing power, specialized expertise in
all team areas, greater advancement opportunities for store staff and economies
of scale in promotion and advertising.
The Company typically opens a new store approximately twelve to eighteen months
after a store site is selected and the lease is signed. The Company estimates
that its cash requirements to open a new store will range (depending on the size
of the new store, geographic location, degree of work performed by the landlord,
and complexity of site development issues) from $3 million to $12 million,
excluding new store inventory (approximately $400,000). The Company usually
incurs on average $500,000 in pre-opening expenses which are expensed in the
quarter in which the store is opened.
Marketing
The Company spends less on advertising than traditional supermarkets, instead
relying primarily on word-of-mouth recommendations from its customers. The
Company allocates about half of its marketing budget to region-wide programs and
the remainder to the individual store's marketing efforts. The stores spend most
of their own marketing budgets on store events such as taste fairs, classes,
store tours and product samplings. Each store also has a separate budget for
making contributions to a variety of philanthropic and community activities,
creating goodwill and maintaining a high profile in the community. The Company
presently contributes approximately 5% of its after tax profits in the form of
cash or products to not-for-profit organizations.
Amrion utilizes direct mail of Company designed catalogs, brochures and
individual mail pieces which highlight product lines and current promotional
activities. Amrion complements its direct mail activities with print
advertising, free standing inserts and package insert programs. Additionally,
Amrion's retail and health care professional divisions, which target health food
stores, health care providers and mass merchandisers, utilize marketing
strategies which include direct mail, telemarketing contact, personal visits
from sales representatives, consumer and trade advertising, point of sale
materials, free standing inserts with coupons in newspapers and radio
advertising.
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Competition
The Company's natural foods competitors currently include other natural foods
supermarkets, traditional and specialty supermarkets, other natural foods stores
and small specialty stores. Although the Company historically has encountered
limited competition in its geographic markets with other stores operating in the
natural foods supermarket format, it has faced increased competition in recent
years from such stores, particularly in new markets, and expects to encounter
additional competition from such stores in its existing markets and in new
markets. When the Company faces such direct competition, there can be no
assurance that the Company will be able to compete effectively or that increased
competition will not adversely impact the Company's results of operations. In
addition, traditional and specialty supermarkets compete with the Company in one
or more product categories and may expand more aggressively in marketing a broad
range of natural foods and thereby compete more directly with the Company for
products, customers and locations. Some of the Company's competitors have been
in business longer or have greater financial or marketing resource than the
Company and may be able to devote greater resources to securing suitable
locations and to the sourcing, promotion and sale of their products.
The business of developing, manufacturing and marketing vitamins, minerals and
other nutritional supplements is highly competitive. It is not possible to
accurately assess the number and size of competitors, as the nutritional
supplement industry is composed of many small companies, many of which are
privately-held and do not publish sales and marketing figures. The Company
believes that Amrion's competitive pricing, quality of advertising,
comprehensive lines of quality products and customer service commitment enable
it to compete favorably with other vitamin and nutritional supplement companies.
Government Regulation
The stores are subject to various federal, state and local laws, regulations and
administrative practices affecting its business and must comply with provisions
regulating health and sanitation standards, food labeling, equal employment,
minimum wages and licensing for the sale of food and, in some stores, alcoholic
beverages. Difficulties or failures in obtaining or maintaining required
licenses or other required approvals could delay or prevent the opening of new
stores or adversely affect the operations of existing stores.
The manufacturing, processing, formulating, packaging, labeling and advertising
of products, particularly the nutriceutical and nutritional supplement products
developed, produced and marketed by Amrion, are subject to regulation by one or
more federal agencies, including the United States Food and Drug Administration
(the "FDA"), the Federal Trade Commission (the "FTC"), the Consumer Product
Safety Commission (the "CPSC"), the United States Department of Agriculture (the
"USDA") and the Environmental Protection Agency (the "EPA"). Amrion's activities
are also regulated by various agencies of the states, localities and foreign
countries to which Amrion's products are distributed and in which Amrion's
products are sold.
Employees
As of September 28, 1997, the Company had over 11,000 employees, including
approximately 9,459 full-time and 1,809 part-time employees. The Company
sponsors a partially self-insured health care benefits plan for participating
employees. The Company does not subscribe to any workers' compensation insurance
program with respect to its employees in Texas and instead maintains a reserve
for job-related injury claims. The employees of the Company are not represented
by a labor union or collective bargaining agreement. The Company stores in
Berkeley and Los Gatos, CA; St. Paul, MN; and Madison, WI were subjected to
informational pickets by the local retail clerks' and butchers' unions for a
period of approximately ten to eighteen months after their opening. The Company
store in Brentwood, CA has been under an informational picket by the local
retail union from its opening through the time of this printing.
Trademarks
The names "Whole Foods Market," "Wellspring," "Bread & Circus," "Mrs. Gooch's",
"Unicorn Village Market", "Fresh Fields Market", "Bread of Life", "Granary
Market", "Good for You Foods" and the Company's stylized logos are registered
service marks of the Company. The Company also owns common law trademarks and
trademark registrations on certain product names used by Amrion.
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Risk Factors
The Company wishes to caution readers that the following important factors,
among others, could cause the actual results of Whole Foods Market to differ
materially from those indicated by forward-looking statements made from time to
time in 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 the Company. Except for historical
information, the matters discussed in such oral and written communications are
forward- looking statements that involve risks and uncertainties, including but
not limited to general business conditions, the timely and successful
development and opening of new stores, the impact of competition and other risks
detailed below. "Forward-looking statements" within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended, can be identified by the use
of predictive, future-tense or forward-looking terminology, such as "believes,"
"anticipates," "expects," "estimates," "may," "will" or similar terms.
Forward-looking statements also include projections of financial performance,
statements regarding management's plans and objectives and statements concerning
any assumptions relating to the foregoing. All subsequent written or oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified by these factors.
Growth Dependent on Expansion. The Company's strategy is to expand through a
combination of new store openings and acquisitions of existing stores as well as
the possible acquisition or development of businesses with complimentary product
lines and related lines of business. Successful implementation of this strategy
is contingent on numerous conditions, some of which are described below, and
there can be no assurance that the Company's expansion strategy can be
successfully executed.
Continued growth of Whole Foods will depend to a significant degree upon its
ability to open or acquire new stores in existing and new markets and to operate
these stores on a successful basis. Further, the Company's expansion strategy is
dependent on finding suitable locations, and Whole Foods faces intense
competition with other retailers for such sites. There can be no assurance that
Whole Foods will be able to open or acquire new stores in a timely manner and to
operate them on a successful basis. In addition, there can be no assurance that
Whole Foods can successfully hire and train new employees and integrate them
into the programs and policies of Whole Foods or adapt its distribution,
management information and other operating systems to the extent necessary to
operate new or acquired stores in a successful and profitable manner and
adequately supply natural foods products to these stores at competitive prices.
There can be no assurance that Whole Foods will continue to grow through
acquisitions. To the extent Whole Foods further expands by acquiring existing
businesses, there can be no assurance that Whole Foods can successfully
integrate the acquired businesses into its operations and support systems, and
that the operations of acquired businesses will not be adversely affected as the
Company's decentralized approach to operations is introduced.
Capital Needed for Expansion. The acquisition of existing stores, the opening of
new stores and the development of new production and distribution facilities
requires significant amounts of capital. In the past, the Company's growth has
been funded primarily through proceeds from public offerings, bank debt, private
placements of debt, and internally generated cash flow. These and other sources
of capital may not be available to Whole Foods in the future.
Quarterly Fluctuations. The Company's quarterly results of operations may
fluctuate significantly as the result of the timing of new store openings and
the range of operating results which may be generated from newly opened stores.
The Company expenses pre-opening costs associated with a new store opening
during the quarter in which the store is opened. Accordingly, quarter to quarter
comparisons of results of operations have been and will be materially impacted
by the timing of new store openings. In addition, the Company's quarterly
operating results could be adversely affected by losses from new stores,
variations in the mix of product sales, price changes in response to competitive
factors, increases in merchandise costs and possible supply shortages.
Competition. The Company's competitors include other natural foods stores, large
and small traditional and specialty supermarkets and grocery stores. These
stores compete with Whole Foods in one or more product categories. In addition,
traditional and specialty supermarkets are expanding more aggressively in
marketing a broad range of natural foods and thereby competing directly with
Whole Foods for products, customers and locations. Some of these potential
competitors have been in business longer or have greater financial or marketing
resources than Whole Foods and may be able to devote greater resources to the
sourcing, promotion and sale of their products. Increased competition may have
an adverse effect on profitability as the result of lower sales, lower gross
profits, and/or greater operating costs such as marketing.
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The sales of nutritional supplements, nutricueticals and other fitness and
health-related products are highly competitive, and the Company expects that
Amrion will face such continued competitive pressure in the future. Amrion's
nutritional supplement products, which are its largest source of revenue,
compete on a national and regional basis directly with other specialty health
retailers, nutritional supplement manufacturers and mass merchandisers such as
drug stores and supermarkets. Many of these competitors are substantially larger
and have greater resources than Whole Foods.
Personnel Matters. Whole Foods is dependent upon a number of key management and
other personnel. The loss of the services of a significant number of key
personnel within a short period of time could have a material adverse effect
upon Whole Foods. The Company's continued success is also dependent upon its
ability to attract and retain qualified employees to meet Whole Foods' future
needs. The Company faces intense competition for qualified personnel, many of
whom are subject to offers from competing employers, and there can be no
assurance that Whole Foods will be able to attract and retain such personnel.
Whole Foods does not maintain key person insurance on any employee.
Integration of Acquired Operations. By acquiring many new stores and certain
manufacturing type businesses in the last several years, the Company has
materially increased the scope of its operations by (i) increasing the number of
its stores and entering new markets and (ii) including the manufacturing of
nutriceuticals and nutritional supplements and the direct marketing of these.
There can be no assurance that comparable store sales of acquired stores will
increase to or be maintained at the level achieved by existing Whole Foods
stores. Additionally, there can be no assurance that the operations of acquired
stores will not be adversely affected as a result of the introduction of the
Company's team approach to store operations, or the response of customers to the
changes in operations and merchandising mix made by new ownership. With respect
to the Company's acquisition of manufacturing operations, there can be no
assurance that current retail stores which are customers of the acquired
companies will continue to do business with such companies after they become
subsidiaries of Whole Foods, nor can there be any assurance that Whole Foods can
realize the expected benefits from the acquisition of these companies. The
integration of acquired operations into Whole Foods will require the dedication
of management resources which may temporarily detract from attention to
day-to-day business of the Company.
Negative Impact of Litigation Possible. From time to time the Company is the
subject of various lawsuits arising in the ordinary course of business.
Additionally, like other retailers, distributors and manufacturers of products
that are ingested, the Company faces an inherent risk of exposure to product
liability claims in the event that the use of its products results in injury.
Although not currently anticipated by management, the Company's results could be
materially impacted by legal and settlement expenses related to such lawsuits.
Government Regulation. The manufacturing, processing, formulating, packaging,
labeling and advertising of products, particularly the nutriceutical and
nutritional supplement products developed, produced and marketed by Amrion, are
subject to regulation by one or more federal agencies, including the FDA, the
FTC, the CPSC, the USDA and the EPA. Amrion's activities are also regulated by
various agencies of the states, localities and foreign countries to which
Amrion's products are distributed and in which Amrion's products are sold.
The composition and labeling of nutritional supplements and nutricueticals,
which comprise a significant majority of Amrion's products, is most actively
regulated by the FDA under the provisions of the Federal Food, Drug, and
Cosmetic Act ("FFDC Act"). The FFDC Act has been revised in recent years by the
Nutrition Labeling and Education Act of 1990 ("NLEA") and by the Dietary
Supplement Health and Education Act of 1994 ("DSHEA"). While in the judgment of
Whole Foods Market these regulatory changes are generally favorable to the
nutritional supplements industry, there can be no assurance that Amrion will not
in the future be subject to additional laws or regulations administered by
various regulatory authorities. In addition, there can be no assurance that
existing laws and regulations will not be repealed or be subject to more
stringent or unfavorable interpretation by applicable regulatory authorities.
9
<PAGE>
Final rules establishing labeling and notification requirements for dietary
supplements were promulgated by the FDA on September 23, 1997. The labeling
portion of the regulations takes effect on March 23, 1999. Amrion is in the
process of implementing the labeling and notification provisions. Additionally,
on February 6, 1997, the FDA published an advance notice of proposed rulemaking
(ANPR) which seeks to establish current good manufacturing practice (CGMP)
regulations for dietary supplements. Final rules implementing CGMP regulations
will likely issue and take effect in late 1998 or early 1999. It is also
anticipated that the FTC will issue a guidance document for the dietary
supplement industry in the first half of 1998.
The Company cannot predict the nature of future laws, regulations,
interpretations or applications, nor can it determine what effect either
additional governmental regulations or administrative orders, when and if
promulgated, or disparate federal, state and local regulatory schemes would have
on its business in the future. They could, however, require the reformulation of
certain products to meet new standards, the recall or discontinuance of certain
products not able to be reformulated, additional record keeping, expanded
documentation of the properties of certain products, expanded or different
labeling and/or scientific substantiation. Any or all of such requirements could
have an adverse effect on the Company's results of operations and financial
condition.
Governmental regulations in foreign countries where the Amrion plans to expand
sales may prevent or delay entry into the market or prevent or delay the
introduction, or require the reformulation, of certain of Amrion's products.
Sales Concentrations of Major Products. Three product groups collectively
comprise a majority of Amrion's net sales. These product groups are known as
Coenzyme Q10, Ginkgo Biloba and Bilberry. Although historically sales of these
products have increased annually, there can be no assurance this trend will
continue or that current revenues attributed to the products will be maintained.
To the extent customer demand for these product groups declines, Amrion's sales
would be adversely affected. To reduce the potential adverse effect of a
decreased demand for any of these products, Amrion continually adds new products
to its existing line.
10
<PAGE>
Item 2. Properties
The Company owns the New Orleans store location. Amrion owns a 31,000 square
foot manufacturing, distribution and warehousing facility and a 64,500 square
foot adjacent lot near Boulder, Colorado. Amrion also owns a 20,000 square foot
office building in Boulder. All other stores, distribution centers, bakehouses
and administrative facilities are leased, with expiration dates ranging from 1
to 21 years. The Company has options to renew most of its leases with renewal
periods ranging from 5 to 50 years.
In 1995, the Company developed a project in Austin, Texas which houses one of
the new Austin stores (named Sixth and Lamar), the new corporate headquarters,
and a bookstore. The underlying property is leased from a third party under a
ground lease which has a base term of twenty years with ten options to renew for
five years each. The Company has entered into a lease with the bookstore which
has a base term of twenty years with two options to renew for five years each.
Certain officers of the Company are also shareholders of the bookstore in which
they own a combined 13.4% of the outstanding stock. The Company believes that
the terms of the lease between the Company and the bookstore are on terms no
less favorable to the Company than could have been negotiated with an
independently owned retailer. This is partially based on an appraisal of the
lease by an independent appraisal firm. The income from this lease is not
material to the operations of the Company.
Item 3. Legal Proceedings
From time to time, the Company is involved in lawsuits that the Company
considers to be in the normal course of its business which have not resulted in
any material losses to date.
Item 4. Submission of Matters to a Vote of Security Holders
On September 11, 1997, the Company held a Special Meeting of its Shareholders.
At the Special Meeting, the shareholders were asked to consider and act upon the
following:
Proposal (1) To consider and vote upon a proposal to issue approximately
4,680,000 shares of Common Stock, no par value of Whole Foods, upon the
consummation of the transactions contemplated by that certain Agreement and Plan
of Merger dated June 9, 1997, by and among Amrion, Inc., Whole Foods and a
subsidiary of Whole Foods, pursuant to which Amrion would become a wholly owned
subsidiary of Whole Foods, and each issued share of Common Stock of Amrion would
be converted into the right to receive .87 shares of Common Stock of Whole
Foods;
Proposal (2) To consider and act upon a proposed amendment to the 1992 Stock
Option Plan for Team Members to increase the number of shares of Common Stock of
Whole Foods issuable upon exercise of stock options under the Option Plan from 3
million to 4 million shares of Common Stock; and
Proposal (3) To consider and act upon a proposed amendment to the Option Plan to
limit the number of shares of Common Stock of Whole Foods underlying options
granted under the Option Plan which may be granted to any team member during any
fiscal year to not more than 100,000 shares.
The following indicates the number of shares voted for and against the proposals
as well as abstentions.
Proposal Votes For Votes Against Votes Abstained
(1) 11,969,787 67,845 53,817
(2) 9,859,945 2,156,671 74,833
(3) 15,625,762 72,293 71,236
11
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
The Company's Common Stock is traded on the NASDAQ Stock Market under the symbol
"WFM." The following sets forth the high and low last reported sales prices for
the Company's last two fiscal years.
High Low
Fiscal 1996
September 25, 1995 to January 14, 1996 $15.00 $10.94
January 15, 1996 to April 7, 1996 $18.50 $13.75
April 8, 1996 to June 30, 1996 $28.50 $17.75
July 1, 1996 to September 29, 1996 $35.88 $24.00
Fiscal 1997
September 30, 1996 to January 19, 1997 $27.75 $17.50
January 20, 1997 to April 13, 1997 $24.50 $17.50
April 14, 1997 to July 6, 1997 $33.75 $20.50
July 7, 1997 to September 28, 1997 $36.63 $32.38
The Company had approximately 1,359 record holders of its common stock as of
November 30, 1997.
The Company intends to retain any earnings for use in its business and therefore
does not anticipate paying any cash dividend in the foreseeable future. The
Company's present bank credit agreement contains certain restrictive covenants
that include the unavailability of the payment of dividends on common stock.
In fiscal year 1997 the Company issued the following unregistered securities:
(1) In April 1997, the Company issued 199,903 shares of Common Stock to the
former stockholders of Bread of Life, Inc. as consideration for the Company's
acquisition of Bread of Life.
(2) In August 1997, the Company issued 32,977 shares of Common Stock to the
former stockholder of Organic Merchants, Inc., doing business as Granary Market,
Inc., as consideration for the Company's acquisition of Organic Merchants, Inc.
In issuing such securities, the Company relied on the exemption from
registration and prospectus delivery requirements of the Securities Act of 1933,
as amended, provided by Section 4(2) of such Act.
12
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Whole Foods Market, Inc. and Subsidiaries
Summary Financial Information In thousands, except per share and operating data
<S> <C> <C> <C>
Sept 28 Sept 29 Sept 24 Sept 25 Sept 26
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
Consolidated Statements of Operations (1)
Sales $ 1,117,346 946,353 748,691 597,294 455,672
Cost of goods sold and occupancy costs 749,551 645,925 504,211 402,471 307,318
- -------------------------------------------------------------------------------------------------------------------
Gross profit 367,795 300,428 244,480 194,823 148,354
Selling, general and administrative expenses 312,703 266,107 225,755 177,850 140,086
Pre-opening and relocation costs 5,243 5,903 6,361 9,145 7,442
Merger and reorganization expenses 4,887 38,516 0 0 3,094
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 44,962 (10,098) 12,364 7,828 (2,268)
Interest expense (6,044) (4,671) (2,368) (127) (487)
Interest and other income 450 650 1,087 1,166 1,255
- -------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 39,368 (14,119) 11,083 8,867 (1,500)
Provision (credit) for income taxes 12,724 (1,404) 6,899 7,095 5,529
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 26,644 (12,715) 4,184 1,772 (7,029)
===================================================================================================================
Net income (loss) per share $ 1.05 (0.53) 0.18 0.08 (0.35)
===================================================================================================================
Weighted average shares outstanding 25,382 23,792 23,402 22,718 19,930
===================================================================================================================
Operating Data
Number of stores at end of period 75 68 61 49 42
Store sales per square foot $ 638 636 625 639 597
Average weekly sales per store $ 277,141 253,555 238,776 243,520 217,116
Comparable store sales increase (2) 8.3% 5.4% 6.2% 9.9% 11.6%
Consolidated Balance Sheet Data (End of Year)
Working capital $ 36,621 15,648 871 21,876 17,569
Total assets 399,678 340,819 290,414 221,510 176,921
Long-term debt (including current maturities) 93,844 85,291 53,721 8,389 5,607
Shareholders' equity 205,465 172,024 172,353 167,232 137,025
</TABLE>
(1) The combined financial information above for periods prior to the merger
with Amrion, accounted for as a pooling-of-interests, is based on the respective
historical financial statements and other financial information of the Company
and Amrion. For fiscal year 1997, Whole Foods Market financial information as of
and for the fiscal year ended September 28, 1997 has been combined with Amrion
information as of and for the twelve months ended September 28, 1997. For all
other years presented, Whole Foods Market financial information as of and for
the fiscal years ended in September as indicated above has been combined with
Amrion financial information as of and for the fiscal years ended December 31 of
the same year. Fiscal years 1997, 1995, 1994 and 1993 are 52-week years and
fiscal year 1996 is a 53-week year.
(2) For internal reporting purposes, the Company's fiscal year is comprised of
13 accounting periods generally consisting of four weeks each. Sales of a store
are deemed to be "comparable" commencing in the fifty-third full week during
which the store was open. The comparable store sales increase for fiscal 1997 is
based on comparable 52-week years.
13
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Whole Foods Market opened its first store in Texas in 1980 and has expanded its
operations to 75 stores as of September 28, 1997 both by opening new stores and
acquiring existing stores from third parties. The results of the Company's
operations have been and will continue to be materially affected by the timing
and number of new store openings. New stores may incur operating losses for the
first one or two years of operations. The Company's results of operations are
reported on a 52- or 53-week fiscal year ending on the last Sunday in September.
Fiscal years 1997 and 1995 are 52-week years and fiscal year 1996 is a 53-week
year. On September 11, 1997 the shareholders approved the pooling-of-interests
merger between Whole Foods Market and Amrion, Inc., a Boulder, Colorado-based
company engaged in developing, producing and marketing nutriceuticals and
nutritional supplements. The information contained herein has been restated to
present the combined results of operations for the years shown. For fiscal year
1997, Whole Foods Market financial information as of and for the fiscal year
ended September 28, 1997 has been combined with Amrion information as of and for
the twelve months ended September 28, 1997. For all other years presented, Whole
Foods Market financial information as of and for the fiscal years ended the last
Sunday in September has been combined with Amrion financial information as of
and for the same years ended December 31. On August 30, 1996 the shareholders
approved the pooling-of-interests merger between Whole Foods Market and Fresh
Fields Markets, Inc. Whole Foods Market financial information for fiscal years
1996 and prior was combined with Fresh Fields information in the same manner as
described for Amrion above.
Development Activity
The following is a schedule of stores opened, relocated, closed and acquired
during fiscal years 1997, 1996 and 1995:
Rockville Rockville, MD relocated 10/94
Plano Plano, TX opened 11/94
Symphony Cambridge, MA opened 1/95
Campbell Campbell, CA acquired 2/95
Cupertino Cupertino, CA acquired 2/95
relocated 8/96
Aventura Aventura, FL acquired 2/95
Greenwich Greenwich, CT opened 3/95
Wynnewood Wynnewood, NJ opened 4/95
Sixth and Gateway Austin, TX 3 stores relocated to 2
in April / May 95
St. Paul St. Paul, MN opened 5/95
Millburn Millburn, NJ opened 6/95
Montclair Montclair, NJ opened 6/95
Tustin Tustin, CA opened 7/95
Gaithersburg Gaithersburg, MD opened 9/95
closed 10/96
Reston Reston, VA opened 11/95
Oak Street Evanston, IL acquired 12/95
closed 9/96
Sherman Oaks West Sherman Oaks, CA opened 1/96
Tenley Washington, DC opened 1/96
Georgetown Washington, DC opened 1/96
Lakeview Lakeview, IL opened 2/96
Manhasset Munsey Park, NY opened 2/96
Arlington Arlington, VA opened 2/96
Durham Durham, NC relocated 2/96
Mt. Washington Baltimore, MD opened 5/96
Madison Madison, WI opened 6/96
West LA Los Angeles, CA relocated 7/96
Franklin San Francisco, CA opened 7/96
14
<PAGE>
Vienna Vienna, VA opened 11/96
LaJolla LaJolla, CA opened 11/96
Philadelphia Philadelphia, PA opened 1/97
Wheaton Wheaton, IL relocated 2/97
Hillcrest San Diego, CA opened 4/97
San Rafael San Rafael, CA opened 4/97
Federal Ft. Lauderdale, FL acquired 4/97
Plantation Plantation, FL acquired 4/97
Granary Monterey, CA acquired 8/97
Results of Operations
The following table sets forth the statement of operations data of Whole Foods
Market expressed as a percentage of sales for the fiscal years indicated:
<TABLE>
<S> <C> <C> <C>
Year Ended 1997 1996 1995
===================================================================================================================
Sales 100.0% 100.0% 100.0%
Cost of goods sold and occupancy costs 67.1 68.3 67.3
- -------------------------------------------------------------------------------------------------------------------
Gross profit 32.9 31.7 32.7
Selling, general and administrative expenses 28.0 28.1 30.2
Pre-opening and relocation costs 0.5 0.6 0.8
Merger and reorganization expenses 0.4 4.1 0.0
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 4.0 (1.1) 1.7
Interest expense (0.5) (0.5) (0.3)
Interest and other income 0.0 0.1 0.1
- -------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 3.5 (1.5) 1.5
Provision (credit) for income taxes 1.1 (0.1) 0.9
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) 2.4% (1.3)% 0.6%
===================================================================================================================
</TABLE>
Figures may not add due to rounding
Sales
Sales for all years shown reflect increases due to new stores opened and
acquired and comparable store sales increases of 8.3%, 5.4% and 6.2% for fiscal
years 1997, 1996 and 1995, respectively. Sales of a store are deemed to be
comparable commencing in the fifty-third full week after the store was opened or
acquired. Comparable store sales in Southern California in fiscal year 1997,
particularly the first three quarters, and the last quarter of fiscal 1996 were
negatively impacted by the July 1996 name change from Mrs. Gooch's to Whole
Foods Market. Comparable store sales increases generally resulted from an
increase in the number of customer transactions and slightly higher average
transaction amounts, reflecting an increase in market share as the stores mature
in a particular market. Additionally, net sales by Amrion increased over the
prior year by 25.5%, 40.0% and 53.5% for fiscal years 1997, 1996 and 1995,
respectively. Sales increases by Amrion resulted from improved customer
acquisition programs and expanded retail and mass market distribution programs.
The Company believes that historical sales trends may not necessarily be
indicative of future results of operations.
Gross Profit
Gross profit consists of sales less cost of goods sold and occupancy costs, plus
contribution from non-retail grocery distribution and food preparation
operations. The Company's consolidated gross profit in fiscal year 1997
increased as a percentage of sales to 32.9% from 31.7% in fiscal year 1996. This
increase reflects improved gross margins in the former Fresh Fields stores,
increased national buying and private label initiatives which continue to lower
the cost of product purchased on a national basis, and continued improvement by
new stores with respect to product procurement and merchandising and controlling
spoilage. Gross profit in fiscal 1996 decreased as a percentage of sales from
32.7% in fiscal 1995 due primarily to a price reduction strategy which
negatively impacted gross margin in the Fresh Fields stores prior to the merger
with Whole Foods Market. In all years, gross profit margins were positively
affected by margin improvements as stores mature. Relative to other stores in a
region, gross profit margins tend to be lower for new stores and increase as
stores mature, reflecting increasing experience levels and operational
efficiencies of the store teams. Additionally, gross profit margins were
positively affected in all years by the increased percentage of sales in certain
regions and in departments such as prepared foods where the Company achieves
higher gross profits, and by continued reductions in product costs at Amrion
resulting from increased in-house manufacturing and improved materials
procurement.
15
<PAGE>
Selling, General and Administrative Expenses
Selling, general and administrative expenses in fiscal 1997 decreased as a
percentage of sales to 28.0% from 28.1% in fiscal 1996 and 30.2% in fiscal 1995.
In fiscal 1997, direct store expenses as a percentage of sales increased
slightly over the prior year due to the growth of the Company's retail
operations in regions where the Company experiences higher operating costs,
offset by reduced direct store expenses as a percentage of sales for new stores
as compared to historical new store results. In 1996 direct store expenses as a
percentage of sales decreased from the prior year, reflecting the impact of
reductions in labor and other costs in the Fresh Fields stores related to the
above mentioned price reduction strategy. For all years, the decreases in
selling, general and administrative expenses as a percentage of sales reflect
increases in store sales without comparable increases in administrative staff,
These decreases were offset by increased market development costs and increased
administrative staff at Amrion. Whole Foods Market has historically been able to
expand without a significant increase in general and administrative costs.
However, in certain circumstances the Company has increased the number of
administrative and support personnel at the regional and national levels in
connection with the implementation of new management information systems and to
support current and planned growth.
Pre-opening and Relocation Costs
Whole Foods Market developed and opened five new stores in fiscal 1997, nine new
stores in fiscal 1996, and ten new stores in fiscal 1995. The Company relocated
a store in the Chicago area to a new, larger location in fiscal 1997, three
stores and the Fresh Fields corporate office in fiscal 1996, and three stores
and its national corporate office in fiscal 1995. In fiscal 1997, the Company
also recognized estimated costs to close a store in San Antonio in connection
with the relocation of that store in the first quarter of fiscal 1998.
Pre-opening and relocation costs in fiscal 1997, 1996 and 1995 were
approximately $5.2 million, $5.9 million and $6.4 million, respectively.
Pre-opening costs include hiring and training personnel, supplies and certain
occupancy and miscellaneous costs related to new store openings, and are
expensed in the quarter of store opening. Pre-opening costs are generally higher
in locations which are some distance from an existing base of operations due to
higher training, travel and moving costs. Relocation costs consist of losses on
dispositions of fixed assets and inventories, remaining lease payments and other
costs of holding replaced facilities and other related expenses.
Merger and Reorganization Expenses
Merger expenses in fiscal 1997 include transaction expenses associated with the
acquisition of Amrion, Inc. Merger and reorganization expenses in fiscal 1996
include severance, transaction expenses, duplicate system disposal costs and
conforming accounting adjustments associated with the acquisition of Fresh
Fields, and severance and other costs associated with the restructuring of the
Southern California region. Additionally, fiscal 1996 expenses include losses on
the disposition of store assets, remaining rent and lease termination costs
recognized pursuant to a plan initiated at the time of the Fresh Fields
acquisition to close or relocate duplicate stores. Specifically, the plan
included the following store changes: (1) the Fresh Fields Elston store in the
Chicago area was closed in September 1996 and sales of the nearby Whole Foods
Market Lincoln Park and Lakeview stores increased in fiscal 1997 as a result of
the transfer of customers to those stores; (2) the Whole Foods Market Oak Street
store in the Chicago area was closed in September 1996 and sales of the nearby
Fresh Fields Evanston store increased as a result of the transfer of customers
to that store; (3) the Fresh Fields Gaithersburg store in the Washington DC area
was closed in November 1996 just prior to the opening of the Whole Foods Market
Vienna store. The Company believes that the initial sales of the Vienna store
were positively impacted by the transfer of customers from the Gaithersburg
store; and, (4) the Fresh Fields Naperville and Evanston stores in the Chicago
area have been relocated in fiscal 1997 and early fiscal 1998, respectively, to
two nearby Whole Foods Market stores. The Company believes that the two new
stores service a trade area which overlaps with the trade area of the two Fresh
Fields stores, and that the new stores will experience greater sales and profits
as a result of the closing of these stores. At September 28, 1997, the Company
has lease termination provisions remaining under the plan totaling approximately
$9.1 million. The Company does not expect the ultimate payment of these
liabilities to materially affect its liquidity.
Interest Expense
From the time of the Whole Foods Market initial public offering in 1992 until
1995, new store development and acquisitions were financed primarily through
equity offerings and with funds generated from operations. In fiscal 1995, the
Company began drawing on its $75 million bank line of credit to fund expansion
needs which exceeded cash flow from operations. In 1996, the Company continued
to draw on that line of credit and refinanced a portion of the outstanding
balance with $40 million in newly issued senior notes. In 1997 the Company
amended and increased its bank line of credit to $100 million. Interest expense
related to the Company's borrowings was approximately $6.0 million in fiscal
1997, $4.7 million in fiscal 1996, and $2.4 million in fiscal 1995, net of
capitalized interest associated with stores under development.
16
<PAGE>
Income Taxes
The Company's effective tax rate was 32.3% and 62.2% in fiscal 1997 and 1995,
respectively, and a credit of 10.0% in fiscal 1996. The income tax rate for
fiscal 1997 reflects the utilization of approximately $3.9 million of net
operating loss carryforwards acquired in the Fresh Fields merger on which a
valuation allowance had previously been provided. As of September 28, 1997, the
Company has remaining net operating loss carryforwards of approximately $17.8
million related to net operating losses incurred by Fresh Fields from its
inception until the fiscal 1996 acquisition by Whole Foods Market which are
available to offset certain future taxable income. The fiscal 1996 effective tax
rate reflects the non-deductibility for federal income tax purposes of certain
merger transaction costs that were expensed for financial accounting and
reporting purposes in that year. The income tax provision for fiscal 1995 is the
expense associated with the Company's income before taxes excluding the
operating losses of Fresh Fields, which could not be utilized for income tax
purposes to offset the Company's taxable income in that year. As of September
28, 1997, the Company does not consider it more likely than not that all net
operating loss carryforwards will be utilized based on the limitations due to
the application of certain tax laws. A valuation allowance has been recorded for
the portion of the net operating loss carryforwards which the Company does not
currently consider recognizable.
Business Combinations
On September 11, 1997, the Company completed the merger with Amrion, Inc. in
exchange for approximately 4.7 million shares of common stock, plus the
assumption of approximately 330,000 outstanding options to purchase shares of
common stock. The merger has been accounted for using the pooling-of-interests
method. In August 1997, the Company completed the acquisition of Organic
Merchants, Inc., doing business as Granary Market, which operated a natural
foods market in Monterey, California, in exchange for approximately 33,000
shares of common stock. The acquisition was accounted for using the
pooling-of-interests method. Due to the immateriality of Granary financial
statements to the Company's consolidated financial statements, financial
information for the periods prior to the combination has not been restated. In
April 1997, the Company completed the acquisition of Bread of Life, Inc., which
operated two natural foods markets in South Florida, in exchange for
approximately 200,000 shares of common stock. The acquisition was accounted for
using the pooling-of-interests method. Due to the immateriality of Bread of Life
financial statements to the Company's consolidated financial statements,
financial information for the periods prior to the combination has not been
restated. On August 30, 1996, the Company completed the merger with Fresh Fields
Markets, Inc., which operated 22 natural foods supermarkets in exchange for
approximately 4.8 million shares of common stock, plus the assumption of
approximately 549,000 outstanding options to purchase shares of common stock.
This merger was accounted for using the pooling-of-interests method. In December
1995, the Company completed the acquisition of Natural Merchants Exchange, Inc.
doing business as Oak Street Market which operated a natural foods market in
Evanston, Illinois, in exchange for approximately 195,000 shares of common
stock. This acquisition was accounted for using the pooling-of-interests method.
Due to the immateriality of Oak Street financial statements to the Company's
consolidated financial statements, financial information for the periods prior
to the combination was not restated. In February 1995, the Company acquired the
outstanding stock of Cana Foods, Inc., which operated two natural foods
supermarkets in Northern California, in exchange for approximately $5 million in
cash. Also in February 1995, the Company acquired substantially all assets and
assumed certain liabilities of Unicorn Village, Ltd., a natural foods
supermarket in South Florida, in exchange for approximately $4.1 million in
cash. Both of these acquisitions were accounted for using the purchase method,
and the results of operations of the two entities were consolidated with the
results of operations of the Company from the dates of acquisition.
Subsequent to the end of fiscal 1997, the Company signed a definitive agreement
to merge with Merchant of Vino, which operates four gourmet / natural foods
stores and two specialty wine and gourmet food shops in the Detroit area, in
exchange for approximately 1 million shares of newly issued Company stock. The
merger transaction is intended to be accounted for using the
pooling-of-interests method and is expected to be completed in December 1997.
Subsequent to the end of fiscal 1997, the Company also signed a definitive
agreement to merge with Allegro Coffee Company, a specialty coffee roaster and
distributor based in Boulder, Colorado, in exchange for approximately 175,000
shares of common stock. The merger transaction is intended to be accounted for
using the pooling-of-interests method. Due to the immateriality of Merchant of
Vino and Allegro financial statements to the Company's consolidated financial
statements, financial information for the periods prior to these combinations
will not be restated.
17
<PAGE>
Quarterly Results
The first quarter consists of 16 weeks, the second and third quarters each
consist of 12 weeks and the fourth quarter consists of 12 or 13 weeks. Fiscal
year 1997 is a 52-week year with the fourth quarter consisting of 12 weeks.
Fiscal year 1996 is a 53-week year with the fourth quarter consisting of 13
weeks. Because the first quarter is longer than the remaining quarters and
contains both the Thanksgiving and Christmas holidays, it typically represents a
larger share of the Company's annual sales from existing stores.
Quarter-to-quarter comparisons of results of operations may be materially
impacted by the number and timing of new store openings for which related costs
are deferred as incurred and expensed in the quarter the store is opened. The
Company believes that the historical pattern of quarterly sales and income as a
percentage of the annual total may not be indicative of the pattern in future
years. The following table sets forth selected quarterly unaudited financial
information for the fiscal years ended September 28, 1997 and September 29, 1996
(in thousands except per share data):
<TABLE>
<S> <C> <C> <C>
1st 2nd 3rd 4th
1997 Quarter Quarter Quarter Quarter
===================================================================================================================
Sales $ 312,584 259,800 274,510 270,452
Gross profit 99,447 85,284 92,021 91,043
Pre-opening and relocation costs 1,604 1,129 0 2,510
Merger and reorganization expenses 0 0 0 4,887
Income from operations 10,778 12,597 14,188 7,399
Income before income taxes 9,195 11,179 12,922 6,072
Net income 5,988 7,218 8,283 5,155
Net income per share $ 0.24 0.29 0.32 0.20
Weighted average shares outstanding 24,984 24,996 25,733 25,946
===================================================================================================================
1st 2nd 3rd 4th
1996 Quarter Quarter Quarter Quarter
===================================================================================================================
Sales $ 258,368 215,783 227,466 244,736
Gross profit 80,764 70,949 73,831 74,884
Pre-opening and relocation costs 998 2,712 609 1,584
Merger and reorganization expenses 0 1,984 0 36,532
Income (loss) from operations 4,604 4,647 9,507 (28,855)
Income (loss) before income taxes 3,897 3,954 8,776 (30,745)
Net income (loss) 964 2,692 5,818 (22,188)
Net income (loss) per share $ 0.04 0.11 0.24 (0.93)
Weighted average shares outstanding 23,641 23,871 24,608 23,792
===================================================================================================================
</TABLE>
As a result of the pooling-of-interests merger with Amrion in the fourth quarter
of fiscal 1997, the amounts reported above differ from those previously reported
in the applicable Whole Foods Market, Inc. quarterly reports on Form 10-Q.
Quarterly results for fiscal year 1997 combine Whole Foods Market and Amrion
results for each fiscal quarter. Quarterly results for fiscal year 1996 combine
Whole Foods Market historical results for each fiscal quarter with Amrion
historical results for each calendar quarter of that year.
18
<PAGE>
Liquidity and Capital Resources
At September 28, 1997 and September 29, 1996, the Company's working capital was
approximately $36.6 million and $15.6 million, respectively, and the ratio of
current assets to current liabilities was 1.47 to 1.0 and 1.26 to 1,
respectively. Net cash flow from operating activities was approximately $54.0
million, $28.8 million and $36.2 million in fiscal 1997, 1996 and 1995,
respectively. Whole Foods Market maintains a bank credit agreement which
provides for a revolving line of credit of up to $100 million. The amounts
borrowed under this agreement are convertible into a four year term loan upon
the expiration of the revolving credit term on June 30, 1999. Principal payments
are to be made in quarterly installments beginning September 30, 1999. This
credit agreement contains certain restrictive covenants, including restrictions
upon the payment of dividends on common stock. The credit agreement also
contains certain affirmative covenants, including the maintenance of certain
financial ratios as defined in the agreement. All outstanding amounts borrowed
under this agreement bear interest at the Company's option of either a defined
base rate or the Eurodollar rate plus a premium. At September 28, 1997 and
September 29, 1996 approximately $52.1 million and $44.1 million, respectively,
was drawn under the Company's line of credit agreement. In May 1996 the Company
issued $40 million of senior unsecured notes, bearing interest at 7.29% and
payable in seven equal annual installments beginning May 16, 2000. The notes
contain certain affirmative and negative covenants, including maintenance of
certain financial ratios. Net cash flow from financing activities was
approximately $11.8 million, $38.9 million and $44.1 million in fiscal 1997,
1996 and 1995, respectively. Whole Foods Market's principal capital requirements
have been the funding of the development or acquisition of new stores and, to a
lesser extent, the resultant increase in working capital requirements. The
Company estimates 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 $400,000, a
substantial portion of which is financed by the vendors of Whole Foods Market.
In fiscal 1998, Whole Foods Market plans to open approximately seven new stores,
relocate two existing stores and will have under development additional stores
that will open in fiscal 1999. The Company will incur additional capital
expenditures in fiscal 1998 in connection with ongoing equipment upgrades and
resets at its existing stores, development of new production, distribution and
office facilities for Amrion and continued development of its management
information systems. Net cash flow used by investing activities was
approximately $56.4 million, $73.2 million and $93.0 million in fiscal 1997,
1996 and 1995, respectively. The Company expects that cash generated from
operations and bank borrowings will be sufficient to fund planned store openings
and other cash needs through the end of fiscal 1998, absent any material cash
acquisitions.
Adoption of Accounting Standards
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128 (SFAS No. 128), "Earnings per Share" which is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods. Earlier application is not permitted. Effective
September 29, 1997, the Company will adopt on a retroactive basis SFAS No. 128,
which establishes standards for computing and presenting earnings per share
(EPS). This statement requires dual presentation of basic and diluted EPS on the
face of the income statement for entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
Basic EPS excludes the effect of potentially dilutive securities while diluted
EPS reflects the potential dilution that would have occurred if securities or
other contracts to issue common stock had been exercised, converted, or resulted
in the issuance of common stock. The Company has not determined the impact of
adoption of SFAS No. 128 on previously disclosed EPS.
The Financial Accounting Standards Board has also issued Statement of Financial
Accounting Standards No. 131 (SFAS No. 131), "Disclosures about Segments of an
Enterprise and Related Information," which is effective for financial statements
issued for periods beginning after December 15, 1997. The Company plans to adopt
SFAS No. 131 in fiscal year 1999. This statement establishes standards for
reporting information about operating segments in annual financial statements
and requires selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
Under SFAS No. 131, operating segments are to be determined consistent with the
way that management organizes and evaluates financial information internally for
making operating decisions and assessing performance. The Company has not
determined the impact of the adoption of this new accounting standard on its
consolidated financial statements.
Disclaimer on Forward Looking Statements
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 the
other risks detailed from time to time in the Company's filings with the
Securities and Exchange Commission.
19
<PAGE>
Item 7(a) Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
See Item 14 (a).
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
A brief description of each executive officer and director of the Company is
provided below. Directors hold office until the next annual meeting of the
shareholders or until their successors are elected and qualified. All officers
serve at the discretion of the Board of Directors.
John Mackey, 44, a co-founder of the Company, has served as a director of the
Company, Chairman of the Board and Chief Executive Officer since 1980.
Peter Roy, 41, has served as the President of the Company since August 1993. He
served as President of the Northern California Region from 1988 to 1993.
Glenda Flanagan, 44, has served as Vice President and Chief Financial Officer of
the Company since December 1988.
James P. Sud, 45, became Vice-President of Operations in March 1997. He had been
President of MPS Production Company, an independent oil and gas company engaged
in exploration, production and oil field equipment services since 1977. In
addition, he served as a director of the Company from 1980 to March 1997.
Carl Morris, 47, has been the Chief Information Officer of the Company since
January 1994. For the four prior years, Mr. Morris was the President and
co-founder of American Innovations, Inc., a company which developed and sold
technology products to the electric utility industry.
Mark S. Crossen, 48, has been the President of Amrion since 1991. The Company
acquired Amrion in September 1997.
Rich Cundiff, 40, became President of the Southern California Region in January
1996. He has held various positions with the Company since 1988, including
President and Vice President of the Southwest Region and store team leader.
A.C. Gallo, 44, became President of the Northeast Region in July 1996. He had
previously served as Vice President of that region since July 1994. Prior to
1994, he has held various positions with the Company and with Bread & Circus,
Inc., which was acquired by the Company in October 1992, including Vice
President of Perishables and produce coordinator.
Chris Hitt, 48, became President of the newly formed Mid-Atlantic Region in
August 1996. He had previously served as President of the Northeast Region since
October 1992 and has been with the Company since 1985.
Don Moffitt, 42, has served as President of the Southeast Region since October
1992 and has been with the Company since 1981.
Walter Robb, 44, has served as President of the Northern California Region since
August 1993. Prior to becoming Regional President he served as store team leader
since joining the Company in December 1991.
20
<PAGE>
Dan Rodenberg, 42, became President of the Midwest Region in January 1997. He
has held various positions with the Company since 1989, including Vice President
of the Mid-Atlantic Region, Vice President of the Midwest Region and store team
leader.
Dr. Cristina G. Banks, 45, has served as a director of the Company since July
1992. Dr. Banks is a principal and co-owner of Terranova Consulting Group, a
full service management consulting firm which was started in December 1996. She
has served as Senior Lecturer on the faculty at the Walter A. Haas School of
Business in Berkeley, California since 1985.
David W. Dupree, 44, is a Managing Director of The Carlyle Group, a Washington,
D.C. based merchant banking concern, where he has been employed since 1992. Mr.
Dupree is also a director of Care Systems, Inc.
Dr. John B. Elstrott, 49, has served as a director of the Company since February
1995. Dr. Elstrott is a founding director of the Levy Rosenblum Institute for
Entrepreneurship at Tulane University's A.B. Freeman School of Business which
was started in 1991. He has been on the faculty at Tulane since 1982.
Avram J. Goldberg, 67, has been the Chairman of the Board of AVCAR Group, Ltd.,
a consulting firm specializing in the retail industry, since 1989. Mr. Goldberg
also serves as a director of Ekco Group, Inc.
Mr. Fred "Chico" Lager, 43, is a trustee of Fenimore Asset Management Trust, a
mutual fund company. He was General Manager and Treasurer of Ben & Jerry's
Homemade, Inc. from 1982 to 1988, and the company's President and CEO from 1988
to 1991. He also served as a member of Ben & Jerry's Homemade, Inc. Board of
Directors.
Linda A. Mason, 43, has served as a director of the Company since July 1992. She
is the co-founder of Bright Horizons Children's Centers, Inc., which operates
work-site childcare centers, and has served as its President since 1982.
Dr. Ralph Z. Sorenson, 64, is currently Professor Emeritus of business
administration at the University of Colorado, Boulder and has served in various
capacities at the University of Colorado since July 1992, including Dean of the
College of Business and Graduate School of Business Administration. Dr. Sorenson
serves as a director of the Polaroid Corporation, Houghton Mifflin Company,
Eaton Vance Incorporated, Exabyte Corporation, Sweetwater, Inc. and Xenometrix,
Inc.
Each non-employee director of the Company receives $3,000 for each Board of
Directors meeting he or she attends and $500 for each telephone meeting called
by the Company which is greater than one hour in length and in which a majority
of directors participate. Each non-employee committee chair receives an annual
retainer of $1,500. Each non-employee director receives $500 for each committee
meeting attended (excluding the Nominating Committee meetings). Each
non-employee director who is a member of the Nominating Committee receives
$2,500 for each new director recruited. In addition, directors are reimbursed
for reasonable expenses incurred in attending Board of Directors meetings.
Directors who are employees of the Company are not paid any separate fees for
serving as directors.
The Board of Directors held five meetings in fiscal 1997. No director attended
fewer than 75% of the meetings of the Board (and any committees thereof) which
they were required to attend.
21
<PAGE>
Item 11. Executive Compensation
The following table sets forth information concerning compensation paid or
accrued by the Company during the three-year period ended September 28, 1997 to
or for the Company's Chief Executive Officer and the four other highest
compensated executive officers of the Company whose total compensation exceeded
$100,000.
<TABLE>
<S> <C> <C>
Summary Compensation Table
--------------------------
Company
Other Annual Stock
Name and Principal Position Year Salary(1) Bonus Compensation(2) Options
- --------------------------- ---- -------- -------- -------------- -------
Mr. Mackey 1997 $170,000 $ 93,000 $500 8,000
CEO 1996 145,000 52,500 500 9,000
1995 130,000 0 250 4,000
Mr. Roy 1997 $150,000 $103,000 $500 4,000
President 1996 130,000 67,900 500 19,000
1995 120,000 0 250 4,000
Ms. Flanagan 1997 $135,000 $105,000 $500 4,000
CFO 1996 115,000 78,700 500 9,000
1995 105,000 0 250 4,000
Mr. Morris 1997 $130,000 $ 92,000 $500 4,000
CIO 1996 110,000 47,700 500 9,000
1995 95,000 0 250 4,000
Mr. Cundiff (3) 1997 $145,000 $ 75,000 $500 4,000
Regional President 1996 135,000 62,800 500 29,000
</TABLE>
(1) The Company has a policy that limits the cash compensation paid in any one
year to any officer to ten times the average full time salary of all Team
Members. Amounts earned in excess of the salary limitation may be deferred
to the next year, subject to certain restrictions.
(2) Except as otherwise indicated, the amounts indicated reflect the Company's
contributions on behalf of the persons indicated to the Whole Foods Market,
Inc. Savings Plan and Trust. In 1996 and 1997, the Company's contribution
was a maximum of $500 paid in shares of the Company's common stock.
(3) Mr. Cundiff was not an executive officer prior to fiscal 1995 and did not
earn more than $100,000 prior to fiscal year 1996.
22
<PAGE>
Option Plans
The following table sets forth certain information with respect to the options
granted during the fiscal year ended September 28, 1997 to each executive
officer of the Company listed in the Summary Compensation Table set forth under
the caption "Executive Compensation."
<TABLE>
<S> <C> <C> <C>
Option Grants in Fiscal Year 1997
---------------------------------
Percent of
Total
Options Potential Realizable Value
Granted to Expiration or at Assumed Annual Rates of
Number of Employees in Base Price Stock Price Appreciation
Options Fiscal Dollars per Expiration for Option Term (1)
Name Granted Year Share (3) Date 5% 10%
- ---- ------------- --------------- --------------- ------------------ --------------------------------
Mr. Mackey 4,000 $22.00 03/25/04 $35,825 $83,487
4,000 $17.63 01/15/04 $28,701 $66,885
-----
8,000 1.3%
Mr. Roy 4,000 (2) $22.00 03/25/04 $35,825 $83,487
Ms. Flanagan 4,000 (2) $22.00 03/25/04 $35,825 $83,487
Mr. Morris 4,000 (2) $22.00 03/25/04 $35,825 $83,487
Mr. Cundiff 4,000 (2) $22.00 03/25/04 $35,825 $83,487
</TABLE>
(1) The 5% and 10% assumed annual rates of appreciation are mandated by the
rules of the Securities and Exchange Commission and do not reflect the
Company's estimates or projections of future prices of the shares of the
Company's common stock. There can be no assurance that the amounts
reflected in this table will be achieved.
(2) Less than 1%.
(3) Closing price at date of grant.
The following table sets forth certain information with respect to the options
exercised by the executive officers named above during the year ended September
28, 1997 or held by such persons at September 28, 1997. The number of options
held at September 28, 1997 includes options granted under the 1992 Option Plan
for Team Members and under the 1987 Option and Incentive Plan (the "1987 Plan").
The 1987 Plan was terminated by the Company in 1992, except as to options
previously granted.
<TABLE>
<S> <C> <C> <C>
Aggregated Option Exercises in Fiscal Year 1997 and Fiscal Year End Option Values
---------------------------------------------------------------------------------
Number of Value of Unexercised
Shares Unexercised Options In-the-Money Options (2)
Acquired Value at September 28, 1997 at September 28, 1997
Name on Exercise Realized (1) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------ ----------- ------------- ----------- -------------
Mr. Mackey 0 0 70,450 24,550 $1,987,538 $371,438
Mr. Roy 0 0 33,950 31,050 $ 497,906 $441,719
Ms. Flanagan 0 0 51,450 19,550 $1,394,913 $285,188
Mr. Morris 6,950 $70,856 8,900 21,150 $ 133,606 $305,488
Mr. Cundiff 4,000 $80,500 30,250 36,250 $ 717,381 $700,869
</TABLE>
(1) Based upon the sale price received for the underlying shares of common stock
of Whole Foods.
(2) Based upon the closing price of the common stock of Whole Foods on September
26, 1997, which was $34.875 per share.
23
<PAGE>
Employment Agreement
The Company has entered into an employment agreement with Mark Crossen, an
executive officer of Amrion. Mr. Crossen's employment agreement provides that
Mr. Crossen will continue to serve as Chief Executive Officer of Amrion and will
receive a base salary of $170,000 per year subject to increases determined by
the Company Board of Directors, and, in any event, not less than the base salary
of the Company's Chief Executive Officer as well as bonuses, stock option grants
and other benefits in the same manner and amount comparable to the senior
executive officers of the Company. The term of Mr. Crossen's employment
agreement began at the date of merger with Amrion and will generally be
terminated three years from the date of merger. In consideration for certain
non-competition provisions, the Company agreed to pay Mr. Crossen the sum of
$300,000 on each of the first, second and third anniversaries of the date of
merger, $350,000 on each of the fourth and fifth anniversary of the date of
merger and $400,000 on the sixth anniversary of the date of merger (provided Mr.
Crossen is not in default under certain non-disclosure and non-competition
provisions of the employment agreement).
Retention Agreements
Since November 1991, the Company has entered into Retention Agreements with the
executive officers of the Company or its subsidiaries which provide for certain
benefits upon an involuntary termination of employment other than for cause
after a "Triggering Event." A Triggering Event includes a merger of the Company
with and into an unaffiliated corporation if the Company is not the surviving
corporation or the sale of all or substantially all of the Company's assets. The
benefits to be received by the executive officer whose employment is terminated
after a Triggering Event occurs include receipt of his or her annual salary
through the one-year period following the date of the termination of employment
and the immediate vesting of any outstanding stock options granted to such
executive officer.
Compensation Committee Interlocks and Insider Participation
No executive officer of the Company served as a member of the Compensation
Committee (or other board committee performing similar functions or, in the
absence of any such committee, the entire board of directors) of another
corporation, one of whose executive officers served on the Compensation
Committee. No executive officer of the Company served as a director of another
corporation, one of whose executive officers served on the Compensation
Committee. No executive officer of the Company served as a member of the
Compensation Committee (or other board committee performing equivalent functions
or, in the absence of any such committee, the entire board of directors) of
another corporation, one of whose executive officers served as a director of the
Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Under the securities laws of the United States, the Company's directors and
executive officers, and persons who own more than 10% of the Company's common
stock, are required to report their initial ownership of the Company's common
stock and any subsequent changes in that ownership to the Securities and
Exchange Commission. Specific due dates have been established for these reports,
and the Company is required to disclose in this proxy statement any failure to
file by these dates. Based solely upon a review of Forms 3, 4 and 5 furnished to
the Company, the Company believes that all of its directors, officers and
applicable shareholders timely filed these reports.
Other information required by this item is set forth in the definitive proxy
statement for the annual meeting of shareholders to be held on March 30, 1998
and is hereby incorporated by reference into this Form 10-K.
24
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial
ownership of the Company's common stock as of November 30, 1997 for (i) each
person who is known by the Company to own beneficially more than 5% of the
outstanding shares of common stock, (ii) each director of the Company, (iii)
each executive officer of the Company listed in the Summary Compensation Table
set forth under the caption "Executive Compensation," and (iv) all of the
directors and officers of the Company as a group. Except pursuant to applicable
community property laws and except as otherwise indicated, each shareholder
identified in the table possesses sole voting and investment power with respect
to its or his shares.
Shares Owned (1)
Name Number Percent
- ---- ------- -------
FMR Corp. (2) 2,217,800 8.8%
Pilgrim Baxter & Assoc. (2) 1,753,600 6.9%
Dr. Cristina G. Banks (3) 17,500 *
Richard Cundiff (4) 38,500 *
David W. Dupree 3,469 *
Dr. John B. Elstrott (5) 8,100 *
Glenda Flanagan (6) 54,250 *
Avram J. Goldberg (7) 10,300 *
Fred "Chico" Lager (8) 6,200 *
John P. Mackey (9) 305,250 1.2%
Linda A. Mason (10) 14,900 *
Carl Morris (11) 8,900 *
Peter Roy (12) 78,000 *
Dr. Ralph Z. Sorenson (13) 6,500 *
All directors and officers
as a group (21 persons) 1,336,452 5.3%
* Less than one percent
(1) Includes shares issuable upon exercise of stock options which are vested or
will be vested prior to February 10, 1998
(2) Based on information contained in the September 1997 Quarter-End Schedule
13(F).
(3) Includes options to purchase 17,500 shares of common stock.
(4) Includes options to purchase 38,500 shares of common stock.
(5) Includes options to purchase 4,500 shares of common stock.
(6) Includes options to purchase 54,250 shares of common stock.
(7) Includes options to purchase 7,300 shares of common stock.
(8) Includes options to purchase 5,000 shares of common stock.
(9) Includes options to purchase 74,500 shares of common stock.
(10) Includes options to purchase 14,900 shares of common stock.
(11) Includes options to purchase 8,100 shares of common stock.
(12) Includes options to purchase 38,000 shares of common stock.
(13) Includes options to purchase 5,300 shares of common stock.
25
<PAGE>
Item 13. Certain Relationships and Related Transactions
John Mackey, Peter Roy and Glenda Flanagan, executive officers of the Company,
own approximately 13.4% in the aggregate of BookPeople, Inc. which leases
facilities from the Company. The lease is for a period of 20 years and provides
for aggregate annual minimum rent of approximately $582,000, with increases
every 5 years. In fiscal 1997, the Company received approximately $582,000 in
rental income from this lease.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) and (2) Financial Statements and Schedules.
Reference is made to the listing on page 27 of all financial statements
filed as a part of this report. No schedules are required.
(b) Reports on Form 8-K
The registrant filed on September 23, 1997 a Form 8-K reporting on the
consummation of the merger agreement with Amrion. Financial statements were
incorporated from Form S-4 (File No. 333-31269).
(c) (3) Exhibits
Reference is made to the Exhibit Index on page 49 for a list of all
exhibits filed as a part of this report.
26
<PAGE>
<TABLE>
<CAPTION>
Whole Foods Market, Inc. and Subsidiaries
Index to Consolidated Financial Statements
<S> <C> <C>
Page
Number
------
Independent Auditors' Report 28
Consolidated Balance Sheets at September 28, 1997 and September 29, 1996 29
Consolidated Statements of Operations for the fiscal years ended September 28, 1997,
September 29, 1996 and September 24, 1995 30
Consolidated Statements of Shareholders' Equity for the fiscal years ended
September 28, 1997, September 29, 1996 and September 24, 1995 31
Consolidated Statements of Cash Flows for the fiscal years ended September 28, 1997,
September 29, 1996 and September 24, 1995 32
Notes to Consolidated Financial Statements 34
</TABLE>
27
<PAGE>
Whole Foods Market, Inc. and Subsidiaries
Independent Auditors' Report
The Board of Directors
Whole Foods Market, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Whole Foods
Market, Inc. and subsidiaries ("Company") as of September 28, 1997 and September
29, 1996 and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the fiscal years in the three-year period
ended September 28, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Whole Foods Market,
Inc. and subsidiaries as of September 28, 1997 and September 29, 1996, and the
results of their operations and their cash flows for each of the fiscal years in
the three-year period ended September 28, 1997, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Austin, Texas
November 14, 1997
28
<PAGE>
<TABLE>
Whole Foods Market, Inc. and Subsidiaries
Consolidated Balance Sheets In thousands, except share data
September 28, 1997 and September 29, 1996
<CAPTION>
<S> <C> <C> <C>
Assets
1997 1996
===================================================================================================================
Current assets:
Cash and cash equivalents $ 13,395 3,997
Marketable securities 1,089 0
Trade accounts receivable 11,468 6,698
Merchandise inventories 64,838 45,804
Prepaid expenses and other current assets 8,945 8,412
Deferred income taxes 14,158 11,794
- -------------------------------------------------------------------------------------------------------------------
Total current assets 113,893 76,705
Property and equipment, net of accumulated depreciation and amortization 228,215 202,451
Marketable securities 0 6,895
Acquired leasehold rights, net of accumulated amortization 11,418 6,991
Excess of cost over net assets acquired, net of accumulated amortization 35,577 36,722
Other assets, net of accumulated amortization 10,575 11,055
- -------------------------------------------------------------------------------------------------------------------
$ 399,678 340,819
===================================================================================================================
Liabilities and Shareholders' Equity
1997 1996
===================================================================================================================
Current liabilities:
Current installments of long-term debt and capital lease obligations $ 1,171 1,014
Trade accounts payable 30,900 25,849
Accrued payroll, bonus and employee benefits 21,722 11,973
Other accrued expenses 23,479 22,221
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 77,272 61,057
Long-term debt and capital lease obligations, less current installments 92,673 84,277
Deferred rent liability 6,407 5,607
Other long-term liabilities 10,091 10,861
Deferred income taxes 7,770 6,993
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 194,213 168,795
- -------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, no par value, 50,000,000 shares authorized; 24,453,000 and
23,792,000 shares issued and outstanding in 1997 and 1996, respectively 192,514 183,305
Unrealized loss on securities available for sale (125) (217)
Retained earnings (deficit) 13,076 (11,064)
- -------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 205,465 172,024
- -------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
$ 399,678 340,819
===================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
<TABLE>
<CAPTION>
Whole Foods Market, Inc. and Subsidiaries
Consolidated Statements of Operations In thousands, except per share data Fiscal
years ended September 28, 1997, September 29, 1996 and September 24, 1995
<S> <C> <C> <C>
1997 1996 1995
===================================================================================================================
Sales $ 1,117,346 946,353 748,691
Cost of goods sold and occupancy costs 749,551 645,925 504,211
- -------------------------------------------------------------------------------------------------------------------
Gross profit 367,795 300,428 244,480
Selling, general and administrative expenses 312,703 266,107 225,755
Pre-opening and relocation costs 5,243 5,903 6,361
Merger and reorganization expenses 4,887 38,516 0
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 44,962 (10,098) 12,364
Other income (expense):
Interest expense (6,044) (4,671) (2,368)
Interest and other income 450 650 1,087
- -------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 39,368 (14,119) 11,083
Provision (credit) for income taxes 12,724 (1,404) 6,899
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 26,644 (12,715) 4,184
===================================================================================================================
Net income (loss) per common share $ 1.05 (0.53) 0.18
===================================================================================================================
Weighted average shares outstanding 25,382 23,792 23,402
===================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE>
<TABLE>
<CAPTION>
Whole Foods Market, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity In thousands Fiscal years ended
September 28, 1997, September 29, 1996 and September 24, 1995
<S> <C> <C> <C>
Unrealized
Gain (Loss)
on Securities Retained Total
Shares Common Available Earnings Shareholders'
Issued Stock for Sale (Deficit) Equity
------ ------ ------------- -------- -------------
Balance at September 25, 1994, as
previously reported 18,356 $ 162,413 0 (11,309) 151,104
Adjustments for 1997 pooling-of-interests
combination 4,334 11,632 (484) 4,980 16,128
- -------------------------------------------------------------------------------------------------------------------
Balance at September 25, 1994, as restated 22,690 174,045 (484) (6,329) 167,232
- -------------------------------------------------------------------------------------------------------------------
Issuance of common stock 100 618 0 0 618
Change in market value of securities
available for sale 0 0 319 0 319
Net income 0 0 0 4,184 4,184
- -------------------------------------------------------------------------------------------------------------------
Balance at September 24, 1995 22,790 174,663 (165) (2,145) 172,353
- -------------------------------------------------------------------------------------------------------------------
Adjustment to conform fiscal year
of pooled entity 0 0 0 3,491 3,491
Other acquisition 195 8 0 305 313
Issuance of common stock 807 7,575 0 0 7,575
Tax benefit related to exercise of
employee stock options 0 1,059 0 0 1,059
Change in market value of securities
available for sale 0 0 (52) 0 (52)
Net loss 0 0 0 (12,715) (12,715)
- -------------------------------------------------------------------------------------------------------------------
Balance at September 29, 1996 23,792 183,305 (217) (11,064) 172,024
- -------------------------------------------------------------------------------------------------------------------
Adjustment to conform fiscal year of
pooled entity 0 0 0 (1,268) (1,268)
Other acquisitions 244 2,200 0 (1,236) 964
Issuance of common stock 514 7,907 0 0 7,907
Common stock purchased and retired (97) (2,187) 0 0 (2,187)
Tax benefit related to exercise of
employee stock options 0 1,289 0 0 1,289
Change in market value of securities
available for sale 0 0 92 0 92
Net income 0 0 0 26,644 26,644
- -------------------------------------------------------------------------------------------------------------------
Balance at September 28, 1997 24,453 $ 192,514 (125) 13,076 205,465
===================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE>
<TABLE>
<CAPTION>
Whole Foods Market, Inc. and Subsidiaries
Consolidated Statements of Cash Flows In thousands
Fiscal years ended September 28, 1997, September 29, 1996 and September 24, 1995
<S> <C> <C> <C>
1997 1996 1995
===================================================================================================================
Cash flow from operating activities
Net income (loss) $ 26,644 (12,715) 4,184
Adjustments to reconcile net income (loss) to net cash flow
from operating activities:
Depreciation and amortization 34,456 26,953 20,957
Loss on disposal of fixed assets 523 1,163 615
Deferred income taxes (benefit) (1,390) (7,118) 1,705
Change in LIFO reserve 800 746 517
Rent differential 800 882 397
Loss provision on disposal of fixed assets 1,422 12,477 0
Loss provision on disposal of other assets 923 4,124 0
Lease termination and other closing cost provisions 165 10,476 1,106
Adjustment to conform fiscal year of pooled entity (1,268) 3,491 0
Lease termination and other merger accrual payments (2,956) 0 0
Other 449 (5) (441)
Net change in current assets and liabilities:
Trade accounts receivable (4,681) (3,117) (902)
Merchandise inventories (18,694) (11,191) (7,919)
Prepaid expenses and other current assets (510) (2,635) 2,188
Trade accounts payable 3,934 5,768 2,783
Accrued payroll, bonus and employee benefits 9,671 (3,919) 4,049
Other accrued expenses 3,753 3,467 6,930
- -------------------------------------------------------------------------------------------------------------------
Net cash flow from operating activities 54,041 28,847 36,169
- -------------------------------------------------------------------------------------------------------------------
Cash flow from investing activities
Acquisition of property and equipment (31,062) (19,812) (40,732)
Development costs of new store locations (24,566) (50,288) (36,483)
Acquisition of mail lists and other intangible assets (6,693) (1,583) (4,511)
Purchase of marketable securities 0 0 (120)
Proceeds from sale of marketable securities 5,899 988 0
Payment for purchase of acquired entities, net of cash acquired 0 0 (8,947)
Issuance of note receivable 0 0 (2,568)
Other investing activities 0 (2,480) 383
- -------------------------------------------------------------------------------------------------------------------
Net cash flow used in investing activities (56,422) (73,175) (92,978)
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. (continued)
32
<PAGE>
Whole Foods Market, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Continued) In thousands Fiscal years
ended September 28, 1997, September 29, 1996 and September 24, 1995
1997 1996 1995
===================================================================================================================
Cash flow from financing activities
Net proceeds from long-term borrowings $ 24,336 80,000 45,509
Payments on long-term debt and capital lease obligations (18,277) (48,711) (2,082)
Issuance of common stock 7,907 7,575 618
Purchase and retirement of treasury stock (2,187) 0 0
Minority interest contributions 0 33 89
- -------------------------------------------------------------------------------------------------------------------
Net cash flow from financing activities 11,779 38,897 44,134
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 9,398 (5,431) (12,675)
Cash and cash equivalents at beginning of year 3,997 9,428 22,103
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 13,395 3,997 9,428
===================================================================================================================
Supplemental disclosure of cash flow information Interest and income taxes paid:
Interest $ 6,733 3,649 1,827
===================================================================================================================
Federal and state income taxes $ 11,221 5,426 4,048
===================================================================================================================
Supplemental disclosure of non-cash financing activities
The Company acquired Unicorn Village, Ltd. and Cana Foods during fiscal 1995. In connection with the acquisitions,
liabilities were assumed as follows:
Fair value of assets acquired $ 0 0 11,237
Cash paid 0 0 (9,109)
- -------------------------------------------------------------------------------------------------------------------
Liabilities assumed $ 0 0 2,128
===================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
33
<PAGE>
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Fiscal years ended September 28, 1997, September 29, 1996 and September 24, 1995
(1) Corporate Organization
The consolidated financial statements include the accounts of Whole Foods
Market, Inc. and its wholly-owned subsidiaries (Company). All significant
intercompany accounts and transactions are eliminated upon consolidation. Where
appropriate, prior years' financial statements have been reclassified to conform
with the 1997 presentation.
(2) Summary of Significant Accounting Policies
Business
The Company engages in the sale of natural food and nutritional products,
primarily through its natural foods supermarkets and direct marketing of
nutritional supplements. As of September 28, 1997, the Company operated 75
stores, all of which are located in the United States and engaged in direct
marketing of nutritional supplements primarily in the United States.
Definition of Fiscal Year
The Company reports its results of operations on a 52- or 53-week fiscal year
ending on the last Sunday in September. Fiscal years 1997 and 1995 are 52-week
years, and fiscal year 1996 is a 53- week year.
Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid investments with an original maturity of 90 days or less to be
cash equivalents.
Marketable Securities
Marketable securities at September 28, 1997 and September 29, 1996 consist of
U.S. Treasury and agency securities. The Company classifies its debt and equity
securities as available-for-sale. Available-for-sale securities are recorded at
fair value. Unrealized holding gains and losses, net of the related tax effect,
on available-for-sale securities are excluded from earnings and are reported as
a separate component of stockholders' equity until realized. Realized gains and
losses from the sale of available-for-sale securities are determined on a
specific identification basis.
A decline in the fair value of any available-for-sale security below cost that
is deemed to be other than temporary results in a reduction in carrying amount
to fair value. The impairment is charged to earnings and a new cost basis of the
security is established. Dividend and interest income are recognized when
earned.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, trade accounts receivable,
trade accounts payable, accrued payroll, bonus and employee benefits, and other
accrued expenses approximate fair value because of the short maturity of those
instruments. Marketable securities are stated at fair value with unrealized
gains and losses included as a component of shareholders' equity until realized.
The carrying value of notes payable to banks approximates fair value due to
variable interest rates charged on these notes. The carrying value and fair
value of senior unsecured notes at September 28, 1997 was $40,000,000 and
approximately $40,405,000, respectively. The carrying value and fair value of
senior unsecured notes at September 29, 1996 was $40,000,000 and approximately
$39,340,000, respectively. The Company estimated the fair value of senior
unsecured notes by discounting the future cash flows at the rates currently
available to the Company for similar debt instruments of comparable maturities.
Inventories
Inventories, both retail and wholesale, are valued at the lower of cost or
market. Cost is principally determined by the last-in, first-out (LIFO) method.
The inventory of one subsidiary is determined by the first-in, first-out (FIFO)
method. The excess of estimated current costs over LIFO carrying value was
approximately $3,226,000 and $2,426,000 at September 28, 1997 and September 29,
1996, respectively.
(continued)
34
<PAGE>
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(2) Summary of Significant Accounting Policies, continued
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation and
amortization. Depreciation is provided over the estimated useful lives
(generally 5 to 15 years) using the straight-line method. Leasehold improvements
are amortized on the straight-line method over the shorter of the estimated
useful lives of the improvements or the terms of the related leases. Pre-opening
costs include hiring and training personnel, supplies and certain occupancy and
miscellaneous costs related to new store locations, and are expensed in the
quarter of store opening. Capitalized pre-opening costs related to stores not
yet open at September 28, 1997 and September 29, 1996 totaled $129,000 and
$658,000, respectively. Costs related to a projected site determined to be
unsatisfactory and general site selection costs which cannot be identified with
a specific store location are charged to operations currently. In 1997, the
Company recognized costs totaling $2,510,000 to close a store in San Antonio in
connection with the relocation of that store in that first quarter of fiscal
1998.
Other Assets
Acquired leasehold rights are amortized as rent expense over the remaining lease
term using the straight-line method. Accumulated amortization of acquired
leasehold rights at September 28, 1997 and September 29, 1996 is $1,461,000 and
$1,041,000, respectively. Excess of cost over net assets acquired is amortized
over 40 years using the straight-line method. Accumulated amortization of excess
of cost over net assets acquired at September 28, 1997 and September 29, 1996 is
$5,743,000 and $4,689,000, respectively. The carrying value of the excess of
cost over net assets acquired is evaluated periodically in relation to such
factors as the occurrence of a significant event, the operating performance of
each acquired subsidiary and the estimated future undiscounted cash flows of the
underlying business of each subsidiary. Other assets include non-competition
agreements and certain costs associated with the issuance of debt which are
capitalized and amortized over the life of the related agreement using the
straight-line method. Also included in other assets at September 28, 1997 and
September 29, 1996 is a note receivable of approximately $2,459,000. Accumulated
amortization of other assets at September 28, 1997 and September 29, 1996 is
$1,615,000 and $455,000, respectively.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
On September 30, 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards No. (SFAS No. 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. The adoption of SFAS
No. 121 did not have a material effect on the Company's financial statements.
Advertising
The Company expenses the production costs of advertising when the advertising
takes place, except for direct-response advertising which is capitalized and
amortized over its expected period of future benefit. Direct response
advertising consists primarily of direct mail advertising, including deferred
promotional mailing costs, of the Company's products. The capitalized costs of
mailed promotional materials are amortized over the expected promotional benefit
period of three months. Advertising expense for fiscal years 1997, 1996 and 1995
was approximately $13,140,000, $10,867,000 and $7,702,000, respectively.
Income Taxes
The Company uses the asset and liability approach which accounts for deferred
income taxes by applying statutory tax rates in effect at the balance sheet date
to differences between the book basis and the tax basis of assets and
liabilities. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The deferred tax assets and
liabilities are adjusted in income to reflect changes in tax laws or rates in
the period that includes the enactment date.
(continued)
35
<PAGE>
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(2) Summary of Significant Accounting Policies, continued
Net Income (Loss) per Common and Common Equivalent Share
Net income (loss) per common and common equivalent share is based on the
weighted average number of shares outstanding during the fiscal period. Common
stock options (whether or not exercisable) are common stock equivalents and have
been included in the computation of primary net income per common and common
equivalent share when they are dilutive. Fully diluted earnings per share are
not significantly different from primary earnings per share.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings per Share",
which is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. Earlier application is not
permitted. The statement, which establishes standards for computing and
presenting earnings per share (EPS), requires dual presentation of basic and
diluted EPS on the face of the income statement for entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. Basic EPS excludes the effect of potentially dilutive
securities while diluted EPS reflects the potential dilution that would have
occurred if securities or other contracts to issue common stock had been
exercised, converted, or resulted in the issuance of common stock. The Company
will adopt SFAS No. 128 effective September 29, 1997 on a retroactive basis, as
required by SFAS No. 128. The Company has not determined the impact of the
adoption of SFAS No. 128 on previously disclosed EPS.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the period reported. Actual results could differ
from those estimates. Estimates are used when accounting for depreciation and
amortization, employee benefit plans, taxes, restructuring reserves and
contingencies.
(3) Business Combinations
Amrion, Inc.
On June 4, 1997 the Board of Directors of the Company approved the merger with
Amrion, Inc. (Amrion), a Boulder, Colorado-based company engaged in developing,
producing and marketing nutriceuticals and nutritional supplements, in exchange
for approximately 4,680,000 shares of the Company's common stock plus the
assumption of approximately 330,000 outstanding options to purchase shares of
common stock. The merger was completed on September 11, 1997 and was accounted
for using the pooling-of-interests method.
Financial information for the periods prior to the business combination is
summarized below. The combined financial statement amounts are based on the
respective historical financial statements and the notes thereto. The combined
sales and net income (loss) summarized below combine the Company's historical
sales and net income (loss) for the fiscal years ended September 28, 1997,
September 29, 1996 and September 24, 1995, with Amrion's historical sales and
net income for the twelve months ended September 30, 1997, and the fiscal years
ended December 31, 1996 and December 31, 1995 (in thousands except per share
data).
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
===================================================================================================================
Sales
Whole Foods Market $ 1,049,283 892,098 709,935
Amrion 68,063 54,255 38,756
- -------------------------------------------------------------------------------------------------------------------
Combined $ 1,117,346 946,353 748,691
===================================================================================================================
Net income (loss)
Whole Foods Market $ 20,884 (17,234) 1,073
Amrion 5,760 4,519 3,111
- -------------------------------------------------------------------------------------------------------------------
Combined $ 26,644 (12,715) 4,184
===================================================================================================================
Combined net income (loss) per share $ 1.05 (0.53) 0.18
===================================================================================================================
(continued)
</TABLE>
36
<PAGE>
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(3) Business Combinations, continued
Statement of operations amounts for Amrion which are included in both the
September 28, 1997 and September 29, 1996 columns in the accompanying
consolidated statements of operations and shareholders' equity are for the
three-month period ended December 31, 1996, which is summarized as follows (in
thousands):
Revenues $ 14,939
Expenses 13,671
- -----------------------------------------------------------------
Net income $ 1,268
=================================================================
Granary Market
In August 1997, the Company completed the acquisition of Organic Merchants,
Inc., doing business as Granary Market (Granary), which operated a natural foods
market in Monterey, California in exchange for approximately 33,000 shares of
common stock. The acquisition was accounted for using the pooling-of-interests
method. Due to the immateriality of Granary financial statements to the
Company's consolidated financial statements, financial information for the
periods prior to the combination has not been restated. An adjustment to
increase retained earnings by approximately $346,000 has been recorded to
include results of Granary operations for the periods prior to the combination
in these financial statements. Revenue and results of operations of Granary for
the period from September 30, 1996 through the date of acquisition are not
material to the combined results.
Bread of Life
In April 1997, the Company completed the acquisition of Bread of Life, Inc.
(Bread of Life), which operated two natural foods markets in South Florida, in
exchange for approximately 200,000 shares of common stock. The acquisition was
accounted for using the pooling-of-interests method. Due to the immateriality of
Bread of Life financial statements to the Company's consolidated financial
statements, financial information for the periods prior to the combination has
not been restated. An adjustment to decrease retained earnings by approximately
$1,582,000 has been recorded to include results of Bread of Life operations for
the periods prior to the combination in these financial statements. Revenue and
results of operations of Bread of Life for the period from September 30, 1996
through the date of acquisition are not material to the combined results.
Fresh Fields Markets, Inc.
On June 13, 1996 the Board of Directors of the Company approved the merger with
Fresh Fields Markets, Inc. (Fresh Fields), which operated natural foods
supermarkets in Washington D.C., Chicago, Philadelphia and New York, in exchange
for approximately 4,750,000 shares of the Company's common stock plus the
assumption of approximately 549,000 outstanding options to purchase shares of
common stock. The merger was completed on August 30, 1996 and was accounted for
using the pooling-of-interests method.
Oak Street Market
In December 1995, the Company completed the acquisition of Natural Merchants
Exchange, Inc., doing business as Oak Street Market (Oak Street), which operated
a natural foods market in Evanston, Illinois, in exchange for approximately
195,000 shares of common stock. The acquisition was accounted for using the
pooling-of-interests method. Due to the immateriality of Oak Street financial
statements to the Company's consolidated financial statements, financial
information for the periods prior to the combination has not been restated. An
adjustment to decrease retained deficit by $305,000 was recorded to include
results of Oak Street operations for the periods prior to the combination in
these financial statements.
(continued)
37
<PAGE>
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(3) Business Combinations, continued
Cana Foods, Inc. and Unicorn Village, Ltd.
In February 1995, the Company acquired the outstanding stock of Cana Foods, Inc.
(Cana), which operated two natural foods supermarkets in Northern California, in
exchange for approximately $4,999,000 in cash. The acquisition was accounted for
using the purchase method, and the excess of cost over fair value of the net
assets acquired of approximately $4,393,000 was allocated to goodwill, which is
being amortized on a straight-line basis over 40 years. Also in February 1995,
the Company acquired substantially all assets and assumed certain liabilities of
Unicorn Village, Ltd. (Unicorn), a natural foods supermarket in South Florida.
Consideration for this acquisition was in the form of cash of approximately
$4,110,000 plus $125,000 a year for a five-year noncompetition agreement. The
acquisition was accounted for using the purchase method, and the excess of cost
over fair value of the net assets acquired of approximately $3,481,000 was
allocated to goodwill, which is being amortized on a straight-line basis over 40
years. The fair values of Cana's and Unicorn's assets and liabilities at the
date of acquisition are presented as follows (in thousands):
Cana Unicorn
Current assets $ 775 968
Property and equipment 623 478
Other assets 0 19
Goodwill 4,393 3,481
Current liabilities (781) (804)
Other liabilities (11) (32)
- ------------------------------------------------------------------------------
Net assets acquired $ 4,999 4,110
==============================================================================
Pro forma results of operations are not presented due to the immaterial effect
of the companies acquired on consolidated results of operations.
(4) Merger and Reorganization Expenses
Merger and reorganization expenses for fiscal year 1997 consist of transaction
and other merger-related costs associated with the acquisition of Amrion. Merger
and reorganization expenses for fiscal year 1996 consist primarily of
transaction and other merger-related costs associated with the acquisition of
Fresh Fields and with the reorganization of the Southern California region,
including severance costs and expenses related to changing the names of the
stores from Mrs. Gooch's to Whole Foods Market. Merger and reorganization
expenses are summarized as follows (in thousands):
1997 1996
================================================================================
Transaction and other merger-related costs $ 4,887 8,577
Store closing and relocation costs 0 20,907
Duplicate systems disposal costs and
other accounting adjustments 0 6,730
- --------------------------------------------------------------------------------
Total merger-related costs 4,887 36,214
Southern California reorganization costs 0 2,144
Other 0 158
- --------------------------------------------------------------------------------
Total merger and reorganization expenses $ 4,887 38,516
================================================================================
(continued)
38
<PAGE>
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(4) Merger and Reorganization Expenses, continued
Expenses including losses on the disposition of store assets and lease
termination costs were recognized in fiscal 1996 pursuant to a plan initiated at
the time of the Fresh Fields acquisition to close or relocate duplicate stores.
Specifically, the plan included the following store changes: (1) the Fresh
Fields Elston store in the Chicago area was closed in September 1996; (2) the
Whole Foods Market Oak Street store in the Chicago area was closed in September
1996; (3) the Fresh Fields Gaithersburg store in the Washington DC area was
closed in November 1996 just prior to the opening of the Whole Foods Market
Vienna store; (4) the Fresh Fields Naperville store in the Chicago area was
closed in January 1997 just prior to the opening of the Whole Foods Market
Wheaton store; and, (5) the Fresh Fields Evanston store in the Chicago area was
relocated subsequent to the end of fiscal 1997 to a nearby Whole Foods Market
store. Fiscal 1996 revenue and net operating income for these stores totaled
approximately $53,395,000 and $513,000, respectively. At September 28, 1997, the
final disposition of Evanston store assets and the termination of operating
leases remain under the plan. Liabilities totaling approximately $10,282,000 for
remaining rent and lease termination costs were recorded in fiscal 1996 as part
of store closing and relocation costs. These liabilities were reduced by
approximately $1,184,000 during fiscal 1997 as a result of cash payments for
rent and lease termination costs. Accounting adjustments totaling approximately
$2.7 million were made on a retroactive basis to the net assets of Fresh Fields
to conform its fixed asset and operating lease accounting policies to those of
Whole Foods Market in connection with the 1996 merger.
Costs recognized in fiscal 1996 associated with the reorganization of the
Southern California region included severance and relocation payments, costs
associated with changing the names of the stores from Mrs. Gooch's to Whole
Foods Market, systems and process conversion costs and other reorganization
expenses.
(5) Quarterly Results (unaudited)
For fiscal year 1997, the first quarter is 16 weeks and the remaining quarters
are each 12 weeks. For fiscal year 1996, the first quarter is 16 weeks, the
second and third quarters are each 12 weeks, and the fourth quarter is 13 weeks.
The following table sets forth selected quarterly unaudited financial
information for the fiscal years ended September 28, 1997 and September 29, 1996
(in thousands except per share data):
<TABLE>
<S> <C> <C> <C>
1st 2nd 3rd 4th
1997 Quarter Quarter Quarter Quarter
===================================================================================================================
Sales $ 312,584 259,800 274,510 270,452
Gross profit 99,447 85,284 92,021 91,043
Pre-opening and relocation costs 1,604 1,129 0 2,510
Merger and reorganization expenses 0 0 0 4,887
Income from operations 10,778 12,597 14,188 7,399
Income before income taxes 9,195 11,179 12,922 6,072
Net income 5,988 7,218 8,283 5,155
Net income per share $ 0.24 0.29 0.32 0.20
Weighted average shares outstanding 24,984 24,996 25,733 25,946
===================================================================================================================
1st 2nd 3rd 4th
1996 Quarter Quarter Quarter Quarter
===================================================================================================================
Sales $ 258,368 215,783 227,466 244,736
Gross profit 80,764 70,949 73,831 74,884
Pre-opening and relocation costs 998 2,712 609 1,584
Merger and reorganization expenses 0 1,984 0 36,532
Income (loss) from operations 4,604 4,647 9,507 (28,855)
Income (loss) before income taxes 3,897 3,954 8,776 (30,745)
Net income (loss) 964 2,692 5,818 (22,188)
Net income (loss) per share $ 0.04 0.11 0.24 (0.93)
Weighted average shares outstanding 23,641 23,871 24,608 23,792
===================================================================================================================
(continued)
</TABLE>
39
<PAGE>
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(5) Quarterly Results (unaudited), continued
As a result of the pooling-of-interests merger with Amrion in the fourth quarter
of fiscal 1997, the amounts reported above differ from those previously reported
in the applicable Whole Foods Market, Inc. quarterly reports on Form 10-Q.
Quarterly results for fiscal year 1997 combine Whole Foods Market and Amrion
results for each fiscal quarter. Quarterly results for fiscal year 1996 combine
Whole Foods Market historical results for each fiscal quarter with Amrion
historical results for each calendar quarter of that year.
Quarterly Results (unaudited)
A reconciliation of the amounts previously reported in Whole Foods Market
quarterly reports on Forms 10-Q to combined results reported above is as
follows:
<TABLE>
<S> <C> <C>
1st 2nd 3rd
1997 Quarter Quarter Quarter
=================================================================================================
Sales
As previously reported $ 297,646 241,443 257,634
Effect of Amrion pooling-of-interests 14,938 18,357 16,876
- -------------------------------------------------------------------------------------------------
As reported above 312,584 259,800 274,510
- -------------------------------------------------------------------------------------------------
Gross profit
As previously reported 93,315 78,051 84,608
Effect of Amrion pooling-of-interests 6,132 7,233 7,413
- -------------------------------------------------------------------------------------------------
As reported above 99,447 85,284 92,021
- -------------------------------------------------------------------------------------------------
Net income
As previously reported 4,721 5,584 6,952
Effect of Amrion pooling-of-interests 1,267 1,634 1,331
- -------------------------------------------------------------------------------------------------
As reported above $ 5,988 7,218 8,283
- -------------------------------------------------------------------------------------------------
1st 2nd 3rd
1996 Quarter Quarter Quarter
=================================================================================================
Sales
As previously reported $ 244,986 203,912 213,402
Effect of Amrion pooling-of-interests 13,382 11,871 14,064
- -------------------------------------------------------------------------------------------------
As reported above 258,368 215,783 227,466
- -------------------------------------------------------------------------------------------------
Gross profit
As previously reported 76,205 65,829 68,256
Effect of Amrion pooling-of-interests 4,559 5,120 5,575
- -------------------------------------------------------------------------------------------------
As reported above 80,764 70,949 73,831
- -------------------------------------------------------------------------------------------------
Net income
As previously reported 41 1,517 4,663
Effect of Amrion pooling-of-interests 923 1,175 1,155
- -------------------------------------------------------------------------------------------------
As reported above $ 964 2,692 5,818
- -------------------------------------------------------------------------------------------------
=================================================================================================
40
</TABLE>
<PAGE>
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(6) Property and Equipment
Balances of major classes of property and equipment are as follows (in
thousands):
<TABLE>
<S> <C>
1997 1996
=======================================================================================
Land $ 3,906 1,129
Buildings and leasehold improvements 158,729 135,934
Fixtures and equipment 152,014 119,048
Vehicles 359 492
Construction in progress and equipment not yet in service 12,475 14,686
- ---------------------------------------------------------------------------------------
327,483 271,289
Less accumulated depreciation and amortization 99,268 68,838
- ---------------------------------------------------------------------------------------
$ 228,215 202,451
=======================================================================================
</TABLE>
Depreciation and amortization expense related to property and equipment was
approximately $30,725,000, $24,375,000 and $18,558,000 for fiscal years 1997,
1996 and 1995, respectively. Leasehold improvements and construction in progress
include approximately $769,000, $1,183,000 and $809,000 of interest capitalized
during 1997, 1996 and 1995, respectively.
(7) Long-Term Debt
The Company has long-term debt and obligations under capital leases as follows
(in thousands):
<TABLE>
<S> <C>
1997 1996
=======================================================================================
Obligations under capital lease agreements for equipment,
due in monthly installments through 1999 $ 1,196 1,139
Notes payable to banks 52,436 44,100
Senior unsecured notes 40,000 40,000
Other notes payable 212 52
- ---------------------------------------------------------------------------------------
93,844 85,291
Less current installments 1,171 1,014
- --------------------------------------------------------------------------------------
$ 92,673 84,277
=======================================================================================
</TABLE>
The Company maintains a bank credit agreement which provides for a revolving
line of credit of up to $100,000,000. The amounts borrowed under this agreement
are convertible into a four-year term loan upon the expiration of the revolving
credit term on June 30, 1999. Principal payments are to be made in quarterly
installments beginning September 30, 1999. This credit agreement contains
certain restrictive covenants, including the unavailability of the payment of
dividends on common stock. The credit agreement also contains certain
affirmative covenants including maintenance of certain financial ratios as
defined in the agreement. All outstanding amounts borrowed under this agreement
bear interest at the Company's option of either a defined base rate or the
Eurodollar rate plus a premium. The average interest rate on amounts outstanding
under this agreement was approximately 6.62% at September 28, 1997. Commitment
fees ranging from 0.1875% to 0.25% of the undrawn amount are payable under this
agreement. At September 28, 1997 and September 29, 1996, approximately
$52,100,000 and $44,100,000, respectively, was drawn under this agreement and
the Company was in compliance with the debt covenants.
In May 1996, the Company issued $40,000,000 of senior unsecured notes payable to
refinance existing indebtedness. The notes bear interest at 7.29% and are
payable in seven equal installments beginning May 16, 2000. The notes contain
certain affirmative and negative covenants, including maintenance of certain
financial ratios as defined in the agreement. At September 28, 1997 and
September 29, 1996, the Company was in compliance with the debt covenants.
41
<PAGE>
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(8) Leases
The Company and its subsidiaries are committed under certain capital leases for
rental of equipment and certain operating leases for rental of facilities and
equipment. These leases expire or become subject to renewal at various dates
from 1998 to 2028. Rental expense charged to operations under operating leases
for fiscal years 1997, 1996 and 1995 totaled approximately $29,153,000,
$24,683,000 and $19,303,000, respectively. Minimum rental commitments required
by all noncancelable leases are approximately as follows (in thousands):
Capital Operating
- --------------------------------------------------------------------------------
1998 $ 788 30,817
1999 275 35,252
2000 302 35,473
2001 10 35,512
2002 0 35,205
Future years 0 335,356
- -----------------------------------------------------------------
1,375
Less amounts representing interest 179
- -----------------------------------------------------------------
1,196
Less current installments 695
- -----------------------------------------------------------------
$ 501
================================================================================
Minimum rentals for operating leases do not include certain amounts of
contingent rentals which may become due under the provisions of leases for
retail space. These agreements provide that minimum rentals may be increased
based on a percent of annual sales from the retail space. During fiscal 1997,
1996 and 1995, the Company paid contingent rentals of approximately $1,200,000,
$981,000 and $587,000, respectively. Certain officers of the Company own
approximately 13.4% of a business which leases facilities from the Company under
a 20-year lease that commenced in fiscal 1995. The Company's rental income from
this lease totaled approximately $582,000 in fiscal years 1997 and 1996 and
$96,000 in fiscal year 1995.
(9) Income Taxes
Components of total income tax expense (credit) are as follows (in thousands):
1997 1996 1995
================================================================================
Current federal income tax $ 11,556 4,548 3,973
Current state income tax 2,558 1,166 1,221
- --------------------------------------------------------------------------------
Total current tax 14,114 5,714 5,194
Deferred federal income tax 271 (6,842) 1,404
Deferred state income tax (1,661) (276) 301
- --------------------------------------------------------------------------------
Total deferred tax (1,390) (7,118) 1,705
- --------------------------------------------------------------------------------
Total income tax expense (credit) $ 12,724 (1,404) 6,899
================================================================================
(continued)
42
<PAGE>
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(9) Income Taxes, continued
Actual income tax expense (credit) differed from the amount computed by applying
statutory corporate income tax rates to income before taxes as follows (in
thousands):
<TABLE>
<S> <C> <C> <C> <C>
1997 1996 1995
===================================================================================================================
Federal tax based on statutory rates $ 13,779 (4,907) 3,768
Increase (reduction) in income taxes resulting from:
Tax exempt interest (102) (99) (131)
Net loss of pooled entity 0 768 2,465
Non-deductible merger transaction costs 646 1,682 0
Non-deductible amortization of cost in excess
of net assets acquired 354 348 327
Utilization of net operating loss not previously recognized (1,364) 0 0
Other, net (591) 337 (511)
Deductible state income taxes (895) (319) (457)
- -------------------------------------------------------------------------------------------------------------------
Total federal taxes 11,827 (2,190) 5,461
State income taxes 897 786 1,438
- -------------------------------------------------------------------------------------------------------------------
Total income tax expense (credit) $ 12,724 (1,404) 6,899
===================================================================================================================
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are as follows (in
thousands):
Deferred tax assets 1997 1996
===================================================================================================================
Compensated absences, principally due to financial reporting accrual $ 3,303 1,011
Rent differential, principally due to financial reporting pro-rata expense 2,158 838
Estimated buyout of capital leases not currently deductible for tax purposes 147 341
Estimated difference between fair market value of store
operating leases and actual amounts paid 210 270
Lease termination and other merger accruals 8,781 8,623
Inventories, principally due to additional costs inventoried
for tax purposes pursuant to the Tax Reform Act of 1986 808 530
Alternative minimum tax credit 106 1,543
Acquired net operating loss carryforwards 6,878 10,765
Other 756 535
- -------------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 23,147 24,456
Valuation allowance (7,760) (10,846)
- -------------------------------------------------------------------------------------------------------------------
Total net deferred tax assets $ 15,387 13,610
===================================================================================================================
(continued)
</TABLE>
43
<PAGE>
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
<TABLE>
<CAPTION>
(9) Income Taxes, continued
<S> <C> <C>
Deferred tax liabilities 1997 1996
======================================================================================================
Financial basis of fixed assets in excess of tax basis $ (8,427) (8,016)
Capitalized acquisition costs expensed for tax purposes 0 (580)
Other (572) (213)
- ------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities (8,999) (8,809)
- ------------------------------------------------------------------------------------------------------
Net deferred tax asset (liability) $ 6,388 4,801
======================================================================================================
</TABLE>
The valuation allowance decreased by approximately $3,086,000 and $1,676,000 in
fiscal 1997 and 1996, respectively. During fiscal 1997, the Company implemented
certain tax-planning strategies designed to utilize the acquired net operating
loss carryforwards and other deductible temporary differences. Management
believes that it is more likely than not that the Company will fully realize the
total net deferred tax assets after consideration of the valuation allowance
based on the nature of these deductible temporary differences and a history of
profitable operations.
As of September 28, 1997, the Company has net operating loss carryforwards
totaling approximately $17,766,000 that will begin to expire in 2003 and are
subject to certain limitations on use.
(10) Employee Benefit Plans
Employee Stock Option Plans
The Company grants options to purchase common stock under its 1992 Stock Option
Plans, as amended. Under these plans, options are granted at an option price
equal to the market value of the stock at the date of grant and are generally
exercisable ratably over a four-year period beginning one year from date of
grant. Options granted in fiscal years 1997 and 1996 expire seven years from
date of grant. The Company has, in connection with certain of its business
combinations, assumed the stock option plans of the acquired companies. All
options outstanding under the Company's previous plans and plans assumed in
business combinations continue to be governed by the terms and conditions of
those grants. At September 28, 1997 and September 29, 1996, approximately
1,570,000 and 1,169,000 shares of common stock were available for option grants.
The following table summarizes option activity (in thousands, except per share
amounts):
Weighted
Number average
of options exercise
outstanding price
================================================================================
Balance at September 24, 1995 1,893 $12.78
Options granted 679 20.71
Options assumed 549 24.58
Options exercised (334) 11.51
Options canceled (99) 16.97
- --------------------------------------------------------------------------------
Balance at September 29, 1996 2,688 17.19
- --------------------------------------------------------------------------------
Options granted 665 22.48
Options assumed 330 9.28
Options exercised (413) 16.13
Options canceled (165) 22.26
- --------------------------------------------------------------------------------
Balance at September 28, 1997 3,105 $17.36
================================================================================
(continued)
44
<PAGE>
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
<TABLE>
<CAPTION>
(10) Employee Benefit Plans, continued
A summary of options outstanding and exercisable at September 28, 1997 follows
(in thousands, except per share amounts):
<S> <C> <C> <C> <C>
Options Outstanding Options Exercisable
Range of Weighted average Weighted Weighted
exercise prices Number remaining average Number average
From To outstanding life (in years) exercise price exercisable exercise price
====================================================================================================================
$0.90 $7.13 490 5.24 $ 5.19 296 $ 3.92
7.82 13.50 478 6.23 12.22 253 11.51
14.25 16.50 278 5.48 14.99 148 14.95
17.38 17.38 385 5.41 17.38 79 17.38
17.63 21.88 392 5.65 19.92 226 20.18
22.00 22.00 585 6.47 22.00 2 22.00
22.51 27.63 380 4.43 26.44 258 26.20
33.50 35.13 117 6.16 33.59 20 33.50
----------------------------------------------------------------------------------------------------------------
Total 3,105 5.66 $17.36 1,282 $15.36
================================================================================================================
</TABLE>
The Company adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based
Compensation," in fiscal 1997. In accordance with SFAS No. 123, the Company
continues to apply Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and related interpretations in accounting for its
stock option grants. Accordingly, no compensation expense has been recognized
for option grants. As required by SFAS No. 123, the Company has determined pro
forma net income and net income per common share as if compensation costs had
been recognized beginning in fiscal year 1996 based on the fair value of the
options granted. The fair value of stock option grants has been estimated at the
date of grant using the Black-Scholes multiple option pricing model with the
following weighted average assumptions:
1997 1996
===============================================================================
Expected dividend yield 0.00% 0.00%
Risk-free interest rate 6.79% 6.27%
Expected volatility 54.28% 54.83%
Expected life, in years 1.28 1.28
The weighted average estimated fair values at grant date of employee stock
options granted during fiscal years 1997 and 1996 were $10.46 and $9.41,
respectively. The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
the Company's opinion the existing available models do not necessarily provide a
reliable single measure of the fair value of the Company's employee stock
options.
(continued)
45
<PAGE>
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(10) Employee Benefit Plans, continued
Had the Company recognized compensation cost based on the fair value of stock
options granted at grant date as determined using the Black-Scholes option
valuation model described above consistent with SFAS No. 123, net income and net
income per common share would have been reduced to the pro forma amounts shown
below (in thousands, except per share amounts):
1997 1996
==============================================================================
Net income (loss):
As reported $26,644 (12,715)
Proforma 23,660 (13,639)
==============================================================================
Net income (loss) per common share:
As reported $1.05 (0.53)
Proforma 0.93 (0.57)
==============================================================================
The above pro forma disclosures reflect only options granted in fiscal years
1997 and 1996. Therefore, these disclosures are not likely to be representative
of the effects on net income and net income per common share in future years
because they do not take into consideration pro forma compensation expense
related to grants awarded prior to fiscal year 1996.
Employee Stock Purchase Plan
The Company offers an employee stock purchase plan to all full-time employees
with a minimum of 400 hours of service. Under this plan, participating employees
may purchase common stock of the Company each fiscal quarter through payroll
deductions. Participants in the plan may elect to purchase unrestricted shares
of stock at 100 percent of its market value or restricted shares at 85 percent
of its market value on the purchase date. Participants are required to hold
restricted shares for two years before selling them. Approximately 8,700 and
9,100 shares were issued by the Company under this plan in fiscal 1997 and 1996,
respectively.
Employee 401(k) Plan
The Company offers an employee 401(k) plan to all employees with a minimum of
one year of service and 1,000 service hours in the plan year. Company matching
contributions under this plan, determined at the Company's discretion, were
approximately $436,000, $267,000 and $231,000 in fiscal 1997, 1996 and 1995,
respectively.
(11) Subsequent Events
In November 1997, the Company signed a definitive agreement to merge with
Merchant of Vino, which operates four gourmet/natural foods stores and two
specialty wine and gourmet food shops in the greater Detroit metropolitan area,
in exchange for approximately 1 million shares of newly issued Company stock.
The merger transaction is intended to be accounted for using the
pooling-of-interests method and is expected to be completed in December 1997.
Due to the immateriality of Merchant of Vino financial statements to the
Company's consolidated financial statements, financial information for the
periods prior to the combination will not be restated.
In December 1997, the Company signed a definitive agreement to merge with
Allegro Coffee Company, a specialty coffee roaster and distributor based in
Boulder, Colorado, in exchange for approximately 175,000 shares of common stock.
The merger transaction is intended to be accounted for using the
pooling-of-interests method. Due to the immateriality of Allegro financial
statements to the Company's consolidated financial statements, financial
information for the periods prior to the combination will not be restated.
46
<PAGE>
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(12) Commitments and Contingencies
The Company provides partially self-insured, voluntary employee benefits plans
which provide, among other benefits, health care benefits to participating
employees. The plans are designed to provide specified levels of coverage, with
excess insurance coverage provided by a commercial insurer. The Company's
exposure related to claims associated with unreported cases or underestimated
future costs associated with known cases for which the Company is partially
self-insured at September 28, 1997 has been estimated based on management's
review of claims outstanding at fiscal year end, claims reported subsequent to
fiscal year end and management's knowledge of the typical length of time from
date of occurrence to date of reported claim.
The Company is a party to certain legal proceedings arising in the ordinary
course of business. After consultation with counsel and a review of available
facts, management believes that damages, if any, arising from litigation will
not be material to the Company's financial position or results of operations.
47
<PAGE>
SIGNATURES
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 hereunto duly authorized.
WHOLE FOODS MARKET, INC.
Date: December 23, 1997 By: /s/ Glenda Flanagan
-------------------
Glenda Flanagan, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on December 23, 1997.
Name Title
/s/ John Mackey Chairman of the Board, Chief Executive Officer
- --------------------------- and Director (Principal Executive Officer)
John Mackey
/s/ Glenda Flanagan Chief Financial Officer (Principal Financial
- --------------------------- and Accounting Officer)
Glenda Flanagan
/s/ Dr. Cristina G. Banks
- ---------------------------
Dr. Cristina G. Banks Director
/s/ David W. Dupree
- ---------------------------
David W. Dupree Director
/s/ Dr. John B. Elstrott
- ---------------------------
Dr. John B. Elstrott Director
/s/ Avram J. Goldberg
- --------------------------
Avram J. Goldberg Director
/s/ Fred Lager
- --------------------------
Fred Lager Director
/s/ Linda A. Mason
- --------------------------
Linda A. Mason Director
/s/ Dr. Ralph Z. Sorenson
- --------------------------
Dr. Ralph Z. Sorenson Director
48
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
<S> <C>
2.1 Agreement and Plan of Merger, dated June 9, 1997, among the Registrant, Nutrient
Acquisition Corp. and Amrion, Inc. (4)
3.1 Restated Articles of Incorporation of the Registrant, as amended (2)
3.2 By-laws of the Registrant adopted May 23, 1995 (7)
10.1 1987 Stock Option and Incentive Plan for Employees (3)
10.2 1987 Stock Option Plan for Outside Directors (3)
10.3 1993 Team Member Stock Ownership Plan (1)
10.5 Form of Retention Agreement between the executive officers of the Registrant
and the Registrant (3)
10.6 Form of amendment to Retention Agreement (1)
10.7 Amended and Restated Loan Agreement, dated December 27, 1994,by
and among the Registrant, the subsidiaries of the Registrant and
Texas Commerce Bank National Association (7)
10.8 First Amendment dated May 16, 1996 to Amended and Restated Loan
Agreement, dated December 27, 1994, by and among Registrant, the
subsidiaries of the Registrant and Texas Commerce Bank National
Association (8)
10.9 Second Amendment dated December 24, 1996 to Amended and Restated
Loan Agreement, dated December 27, 1994, by and among Registrant,
the subsidiaries of the Registrant and Texas Commerce Bank
National Association (10)
10.10 Third Amendment dated March 24, 1997 to Amended and Restated Loan
Agreement, dated December 27, 1994, by and among Registrant, the
subsidiaries of the Registrant and Texas Commerce Bank National
Association (10)
10.11 Fourth Amendment dated September 2, 1997 to Amended and Restated
Loan Agreement, dated December 27, 1994, by and among Registrant,
the subsidiaries of the Registrant and Texas Commerce Bank
National Association (10)
10.12 1992 Stock Option Plan for Team Members, as amended (1)
10.13 1992 Stock Option Plan for Outside Directors (1)
10.14 1993 Team Member Stock Purchase Plan (1)
10.15 Second Amended and Restated 1991 Stock Incentive Plan of Fresh
Fields Markets, Inc. with amendments thereto (5)
10.16 1994 Director Stock Option Plan with amendments thereto (5)
10.17 Non-Qualified Stock Option Plan of Amrion, Inc. (6)
10.18 1994 Non-Employee Director Stock Option Plan of Amrion, Inc. (6)
21.1 Subsidiaries of the Registrant (10)
23.1 Consent of KPMG Peat Marwick LLP (10)
27.1 Financial Data Schedule (10)
99.1 Proxy Statement for Annual Meeting of Shareholders to be held on March 30, 1998 (9)
(1) Filed as an exhibit to Registration Statement on Form S-4 (No. 33-63824)
and incorporated herein by reference.
(2) Filed as an exhibit to Registration Statement on Form S-3 (No.33-69362)
and incorporated herein by reference.
(3) Filed as an exhibit to Registration Statement on Form S-1 (No. 33-44214)
and incorporated herein by reference.
(4) Filed as an exhibit to Registration Statement on Form S-4 (No. 33-31269)
and incorporated herein by reference.
(5) Filed as an exhibit to Registration Statement on Form S-8 (No. 33-11273)
and incorporated herein by reference.
(6) Filed as an exhibit to Registration Statement on Form S-8 (No. 33-35809)
and incorporated herein by reference.
(7) Filed as an exhibit to Registrant's Form 10-K for year ended September
24, 1995 and incorporated herein by reference.
(8) Filed as an exhibit to Registrant's Form 10-K for year ended September
29, 1996 and incorporated herein by reference.
(9) To be filed with the Securities and Exchange Commission and incorporated
herein by reference
(10) Filed herewith
</TABLE>
49
<PAGE>
Exhibit 10.9
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT ("Second Amendment"), dated as of
December 24, 1996, is made and entered into by and among WHOLE FOODS MARKET,
INC. (the "Company"), a Texas corporation, the banking institutions from time to
time a party to the Credit Agreement (as hereinafter defined), as amended by
this First Amendment (each, together with its successors and assigns, a "Bank"
and collectively, the "Banks"), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as
agent for the Banks (in such capacity, together with its successors in such
capacity, the "Agent").
RECITALS:
WHEREAS, the Company, the Agent and certain Banks are parties to a Credit
Agreement dated as of December 27, 1994, as amended by that certain First
Amendment to Credit Agreement dated as of May 16, 1996, by and among the
Company, the Agent and the Banks (said Credit Agreement, as previously amended,
being hereinafter referred to as the "Credit Agreement"); and
WHEREAS, the Company, the Agent and the Banks have agreed, on the terms and
conditions herein set forth, that the Credit Agreement be amended in certain
respects.
AGREEMENTS:
NOW, THEREFORE, in consideration of the premises and the mutual agreements,
representations and warranties herein set forth, and for other good and valuable
consideration, the receipt and sufficiency which are hereby acknowledged and
confessed, the Company, the Agent and the Banks do hereby agree as follows:
Section I.. General Definitions. Except as expressly modified by this First
Amendment, capitalized terms used herein which are defined in the Credit
Agreement shall have the same meanings when used herein.
Section II.. Amendments to Existing Definitions.
1. The following definitions contained in Section 1 of the Credit
Agreement are hereby amended and restated in their entirety to
hereafter be and read as follows:
<PAGE>
EBIT shall mean for any period for which EBIT is calculated,
Net Income of the Company and its Subsidiaries on a consolidated
basis for such period plus (a) non-recurring, non-cash charges of
the Company and its Subsidiaries on a consolidated basis for such
period, (b) taxes of the Company and its Subsidiaries on a
consolidated basis for such period and (c) interest expense of
the Company and its Subsidiaries on a consolidated basis for such
period. Additionally, for any calculation of EBIT in which the
last fiscal quarter of the Company's 1996 fiscal year will be
included in such calculation, in addition to the above-described
items to be added to Net Income of the Company and its
subsidiaries on a consolidated basis for such period, the
non-recurring, cash charges incurred by the Company and its
Subsidiaries on a consolidated basis during the last fiscal
quarter of the Company's 1996 fiscal year shall also be added to
Net Income of the Company and its Subsidiaries on a consolidated
basis for purposes of calculating EBIT for any such applicable
period. All components of EBIT shall be determined in accordance
with Generally Accepted Accounting Principles, consistently
applied.
EBITDA shall mean for any period for which EBITDA is
calculated, Net Income of the Company and its Subsidiaries on a
consolidated basis for such period plus (a) taxes of the Company
and its Subsidiaries on a consolidated basis for such period
<PAGE>
(calculated after excluding any gain or loss attributable to
Discontinued Operations as of such day), (b) depreciation,
depletion, obsolescence and amortization of Property of the
Company and its Subsidiaries on a consolidated basis for such
period (calculated after excluding any depreciation, depletion,
obsolescence and amortization applicable to Discontinued
Operations as of such day), (c) interest expense of the Company
and its Subsidiaries on a consolidated basis for such period
(calculated after excluding any interest expense paid in
connection with Discontinued Operations as of such day), and (d)
non-recurring, non-cash charges of the Company and its
Subsidiaries on a consolidated basis for such period. All
components of EBITDA shall be determined in accordance with
Generally Accepted Accounting Principles, consistently applied.
Section III.. Modification of Addresses for Notices. Section 9.2 is hereby
modified to cause the "Address for Notices" referenced therein for each of the
Company, the Agent and the Banks to hereafter be the "Address for Notices"
specified below the name of the applicable entity on the signature pages of this
Second Amendment.
Section IV.. Representations and Warranties. The Company represents and
warrants to the Agent and the Banks that the representations and warranties
contained in Section 4 of the Credit Agreement and in all of the other Loan
Documents are true and correct in all material respects on and as of the
effective date hereof as though made on and as of such effective date. The
Company hereby certifies that no event has occurred and is continuing which
constitutes a Default or an Event of Default under the Credit Agreement or
which, upon the giving of notice or the lapse of time, or both, would constitute
a Default or an Event of Default. Additionally, the Company hereby represents
and warrants to the Agent and the Banks that the resolutions of the Board of
Directors of the Company and its Subsidiaries which are set out in the following
described Secretary's Certificates remain in full force and effect as of the
effective date hereof and have not been modified, amended, superseded or
revoked:
1. That certain Secretary's Certificate dated December 21, 1994,
executed and delivered to the Agent by the Secretary of Whole Foods Market,
Inc. in connection with the Credit Agreement;
<PAGE>
2. That certain Secretary's Certificate dated December 21, 1994,
executed and delivered to the Agent by the Secretary of Bread & Circus,
Inc., Mrs. Gooch's Natural Foods Market, Inc., The Sourdough: A European
Bakery, Inc., Wellspring Grocery, Inc., WFM Beverage Corp., Whole Foods
Company, Inc., Whole Foods Market California, Inc. and Whole Foods Market
Southwest, Inc. in connection with the Credit Agreement;
3. That certain Secretary's Certificate dated April 5, 1995, executed
and delivered to the Agent by the Secretary of Whole Foods Market Southwest
I, Inc. in connection with that certain Joinder Agreement dated effective
March 27, 1995, executed and delivered to the Agent by Whole Foods Market
Midwest, Inc., Whole Foods Market Services, Inc., Whole Foods Market
Southwest I, Inc., Whole Foods Market Southwest Investments, Inc. and Whole
Foods Market Southwest, L.P.; and
4. That certain Secretary's Certificate dated April 5, 1995, executed
and delivered to the Agent by the Secretary of Whole Foods Market Midwest,
Inc., Whole Foods Market Services, Inc., and Whole Foods Market Southwest
Investments, Inc., in connection with the above-described Joinder
Agreement.
Section V.. Limitations. The amendments set forth herein are limited
precisely as written and shall not be deemed to (a) be a consent to, or waiver
or modification of, any other term or condition of the Credit Agreement or any
of the other Loan Documents, or (b) except as expressly set forth herein,
prejudice any right or rights which the Banks may now have or may have in the
future under or in connection with the Credit Agreement, the Loan Documents or
any of the other documents referred to therein. Except as expressly modified
hereby or by express written amendments thereof, the terms and provisions of the
Credit Agreement, the Notes and any other Loan Documents or any other documents
or instruments executed in connection with any of the foregoing are and shall
remain in full force and effect. In the event of a conflict between this Second
Amendment and any of the foregoing documents, the terms of this Second Amendment
shall be controlling.
Section VI.. Payment of Expenses. The Company agrees, whether or not the
transactions hereby contemplated shall be consummated, to reimburse and save the
Agent and each of the Banks harmless from and against liability for the payment
of all reasonable substantiated out-of-pocket costs and expenses arising in
connection with the preparation, execution, delivery, amendment, modification,
waiver and enforcement of, or the preservation of any rights under this Second
Amendment, including, without limitation, the reasonable fees and expenses of
counsel for the Agent and other charges which may be payable in respect of, or
in respect of any modification of, the Credit Agreement and the Loan Documents.
The provisions of this Section shall survive the termination of the Credit
Agreement and the repayment of the Loans.
Section VII.. Descriptive Headings, etc. The descriptive headings of the
several Sections of this Second Amendment are inserted for convenience only and
shall not be deemed to affect the meaning or construction of any of the
provisions hereof.
<PAGE>
Section VIII.. Entire Agreement. This Second Amendment and the documents
referred to herein represent the entire understanding of the parties hereto
regarding the subject matter hereof and supersede all prior and contemporaneous
oral and written agreements of the parties hereto with respect to the subject
matter hereof, including, without limitation, any commitment letters regarding
the transactions contemplated by this Second Amendment.
Section IX.. Counterparts. This Second Amendment may be executed in any
number of counterparts and by different parties on separate counterparts and all
of such counterparts shall together constitute one and the same instrument.
Complete sets of counterparts shall be lodged with the Company and the Agent.
Section X.. References to Credit Agreement. As used in the Credit Agreement
(including all Exhibits thereto) and all other Loan Documents, on and subsequent
to the effective date hereof, the term "Agreement" shall mean the Credit
Agreement, as amended by this Second Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to
be duly executed and delivered by their respective duly authorized offices as of
the date first above written.
NOTICE PURSUANT TO TEX. BUS. & COMM. CODE ss.26.02
THIS SECOND AMENDMENT AND ALL OTHER LOAN DOCUMENTS EXECUTED BY ANY OF THE
PARTIES BEFORE OR SUBSTANTIALLY CONTEMPORANEOUSLY WITH THE EXECUTION HEREOF
TOGETHER CONSTITUTE A WRITTEN CREDIT AGREEMENT AND REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
WHOLE FOODS MARKET, INC.
a Texas corporation
By: /s/ Glenda Flanagan
Glenda Flanagan
Secretary
Address for Notices:
Whole Foods Market, Inc.
601 N. Lamar Blvd., Suite 300
Austin, Texas 78703-5413
Attention: Ms. Glenda Flanagan
<PAGE>
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, individually
and as Agent
By:
Name:
Title:
Address for Notices:
Texas Commerce Bank National Association
700 Lavaca, 2nd Floor
Post Office Box 550
Austin, Texas 78789
Attention: Manager/Metropolitan Lending Group
With a copy to:
Texas Commerce Bank National Association
1111 Fannin, 9th Floor
Houston, Texas 77002
Attention: Manager/Loan Syndication Services
<PAGE>
WELLS FARGO BANK (TEXAS), N.A.
By:
Name:
Title:
Address for Notices:
Wells Fargo Bank (Texas), N.A.
100 Congress Avenue, Suite 150
Austin, Texas 78701
Attention: Ms. Susan L. Coulter
<PAGE>
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By:
Name:
Title:
Address for Notices:
First Union National Bank of North Carolina
One First Union Center TW-10
301 South College Street
Charlotte, North Carolina 28288
Attention: Mr. David Hall
<PAGE>
THE FIRST NATIONAL BANK OF BOSTON
By:
Name:
Title:
Address for Notices:
The First National Bank of Boston
100 Federal Street
01-09-05
Boston, Massachusetts 02106
Attention: Ms. Bethann Halligan
<PAGE>
The undersigned Guarantors (a) acknowledge and consent to the execution of
the foregoing First Amendment, (b) confirm that the Guaranties previously
executed or joined in by each of the undersigned Guarantors apply and shall
continue to apply to all Indebtedness evidenced by or arising pursuant to the
Credit Agreement or any other Loan Documents, notwithstanding the execution and
delivery of this First Amendment by the Company, the Agent and each of the
Banks, and (c) acknowledge that without this consent and confirmation, the Banks
and the Agent would not agree to the modifications of the Credit Agreement which
are evidenced by the foregoing First Amendment.
WHOLE FOOD COMPANY, INC.,
a Louisiana corporation
WHOLE FOODS MARKET CALIFORNIA,INC.,
a California corporation
WELLSPRING GROCERY, INC.,
a North Carolina corporation
BREAD & CIRCUS,INC.,
a Massachusetts corporation
MRS. GOOCH'S NATURAL FOOD MARKETS, INC.,
a California corporation
WFM BEVERAGE CORP.,
a Texas corporation
THE SOURDOUGH: A EUROPEAN BAKERY, INC.,
a Texas corporation
WHOLE FOODS MARKET MIDWEST, INC.,
a Delaware corporation
WHOLE FOODS MARKET SERVICES, INC.,
a Delaware corporation
WHOLE FOODS MARKET SOUTHWEST
INVESTMENTS, INC.,
a Delaware corporation
WHOLE FOODS MARKET SOUTHWEST I, INC.,
a Delaware corporation
WHOLE FOODS MARKET GROUP, INC.,
a Delaware corporation
By: /s/ Glenda Flanagan
--------------------
Glenda Flanagan
Secretary
<PAGE>
WHOLE FOODS MARKET SOUTHWEST, L.P.,
a Texas limited partnership
By: Whole Foods Market Southwest I, Inc.,
a Delaware corporation
General Partner
By: /s/ Glenda Flanagan
--------------------
Glenda Flanagan
Secretary
<PAGE>
Exhibit 10.10
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT ("Third Amendment"), dated as of
March 24, 1997, is made and entered into by and among WHOLE FOODS MARKET, INC.
(the "Company"), a Texas corporation, the banking institutions from time to time
a party to the Credit Agreement (as hereinafter defined), as amended by this
Third Amendment (each, together with its successors and assigns, a "Bank" and
collectively, the "Banks"), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as
agent for the Banks (in such capacity, together with its successors in such
capacity, the "Agent").
RECITALS:
WHEREAS, the Company, the Agent and certain Banks are parties to a Credit
Agreement dated as of December 27, 1994, as amended by that certain First
Amendment to Credit Agreement dated as of May 16, 1996, by and among the
Company, the Agent and the Banks, and that certain Second Amendment to Credit
Agreement dated as of December 24, 1996, by and among the Company, the Agent and
the Banks (said Credit Agreement, as previously amended, being hereinafter
referred to as the "Credit Agreement"); and
WHEREAS, in connection with an increase in the amount of each Bank's
Commitment and a resulting increase in the Aggregate Commitment under the Credit
Agreement, the Company, the Agent and the Banks have agreed, on the terms and
conditions herein set forth, that the Credit Agreement be further amended in
certain respects.
AGREEMENTS:
NOW, THEREFORE, in consideration of the premises and the mutual agreements,
representations and warranties herein set forth, and for other good and valuable
consideration, the receipt and sufficiency which are hereby acknowledged and
confessed, the Company, the Agent and the Banks do hereby agree as follows:
Section I.. General Definitions. Except as expressly modified by this Third
Amendment, capitalized terms used herein which are defined in the Credit
Agreement shall have the same meanings when used herein.
Section II.. Amendments to Existing Definitions. The following definitions
contained in Section 1 of the Credit Agreement are hereby amended and restated
in their entirety to hereafter be and read as follows:
<PAGE>
Commitment shall mean, as to any Bank, the obligation of such Bank to
make Loans and incur liability for the Letter of Credit Exposure Amount in
an aggregate principal amount at any one time outstanding up to, but not
exceeding, the amount set forth as such Bank's "Commitment" (as the same
may be reduced from time to time pursuant to Section 2.2 hereof) opposite
such Bank's name on the signature pages of that certain Third Amendment to
Credit Agreement dated as of March 20, 1997, by and among the Company, the
Agent and the Banks.
PermittedInvestment SecuritiesInvestment SecuritiesSecurities shall
mean: (1) readily marketable securities issued or fully guaranteed by the
United States of America or any agency or wholly owned corporation thereof;
(2) commercial paper rated "Prime 1" by Moody's Investors Service, Inc. or
A-1 by Standard and Poor's Corporation with maturities of not more than one
hundred eighty (180) days and short term notes payable of any Business
Entity where said notes are rated at least "Prime 1" by Moody's Investors
Service, Inc. or "A-1" by Standard and Poor's Corporation with maturities
of not more than ninety (90) days; (3) certificates of deposit or
repurchase certificates issued by any Bank or any other financial
institution acceptable to the Agent, all of the foregoing not having a
maturity of more than one (1) year from the date of issuance thereof; (4)
securities issued by municipalities rated AA or better by Standard and
Poor's Corporation not having a maturity of more than one (1) year from the
date of issuance thereof; and (5) money market mutual funds having capital
surplus of at least $1,000,000,000 and deemed acceptable by the Agent,
substantially all of the assets of which are comprised of securities,
commercial paper, certificates of deposit or repurchase certificates of the
type described in subclauses (1) through (4) above.
Section III.. Limited Waiver of Required Length of Eurodollar Interest
Periods. Notwithstanding any provision to the contrary contained in the
definition of "Eurodollar Interest Period" set forth in Section 1 of the Credit
Agreement, in Section 2.11 of the Credit Agreement or in any other provision of
the Credit Agreement, the Eurodollar Interest Periods selected by the Company to
apply to the two (2) additional Eurodollar Rate Borrowings to be effective as of
the effective date of this Third Amendment are not required to end on the
corresponding day one, two, three or six months after such effective date of
such Eurodollar Rate Borrowings, so long as the Company shall elect to have such
Eurodollar Interest Periods end on or before September 2, 1997. Such waiver of
the required length of Eurodollar Interest Periods shall only apply to the
initial Eurodollar Interest Periods selected by the Company to apply to the two
(2) additional Eurodollar Rate Borrowings to be effective as of the effective
date of this Third Amendment, and such waiver shall not apply to any subsequent
Eurodollar Interest Periods which are selected by the Company after the
effective date of this Third Amendment to apply to any and all Loans which are
now or hereafter outstanding under the Credit Agreement, as amended hereby.
<PAGE>
Section IV.. Limited Waiver of Pro-Rata Treatment for Each Borrowing.
Notwithstanding any provision to the contrary contained in Section 2.9 or any
other provision of the Credit Agreement, the Agent and the Banks acknowledge
that as of the effective date of this Third Amendment, each Bank's corresponding
portion of each of the two (2) Eurodollar Rate Borrowings outstanding prior to
the effective date of this Third Amendment, as well as each of the two (2)
additional Eurodollar Rate Borrowings to be effective as of the effective date
of this Third Amendment, is not held on a pro-rata basis when compared to each
Bank's Commitment Percentage, but that each Bank's aggregate portion of all of
such Eurodollar Rate Borrowings taken as a whole is held pro-rata based on each
Bank's Commitment Percentage. Accordingly, each of the Banks, the Agent and the
Company agree that each payment by the Company of principal of or interest on
such Eurodollar Rate Borrowings shall be made to the Agent for the account of
the Banks, and applied by the Agent against such Eurodollar Rate Borrowings, on
an aggregate pro-rata basis, when comparing the respective Current Sum of each
Bank as of the date that any such payment is received by the Agent. Such
cumulative or aggregate pro-rata treatment shall only apply to the four (4)
above-described Eurodollar Rate Borrowings until the respective Eurodollar
Interest Periods which are in effect for such borrowings as of the effective
date of this Third Amendment have lapsed or expired. Thereafter, the terms and
provisions of Section 2.9 of the Credit Agreement shall apply to any and all
borrowings by the Company from the Banks and payments by the Company of
principal of or interest on Loans which are now or hereafter outstanding under
the Credit Agreement, as amended hereby.
Section V.. Modification of Capital Expenditure Negative Covenant. Section
6.13 of the Credit Agreement is hereby amended and restated in its entirety to
hereafter read as follows:
6.13 Capital Expenditures. Make expenditures for fixed or capital
assets on a consolidated basis during any fiscal year of the Company
(beginning with its 1997 fiscal year and continuing until and
including the fiscal year ending in the calendar year in which the
Maturity Date occurs) in excess of $70,000,000 in the aggregate
(provided, that, in calculating said amount for any applicable fiscal
year (i) cash expenditures for acquisitions otherwise permitted for
the applicable fiscal year by Section 6.4(f) hereof shall not be
included, (ii) expenditures for fixed or capital assets made by
Subsidiaries of the Company, which were acquired during such fiscal
year and accounted for as a pooling of interest, shall not be included
to the extent that such expenditures were made prior to the time of
acquisition, and (iii) up to $10,000,000 in the aggregate of
expenditures incurred in the applicable fiscal year for the buy-out of
leases and other related expenses in connection with the opening of
one or more new store locations by the Company or any of its
Subsidiaries shall not be included).
Section VI.. Modification of Addresses for Notices. Section 9.2 is hereby
modified to cause the "Address for Notices" referenced therein for each of the
Company, the Agent and the Banks to hereafter be the "Address for Notices"
specified below the name of the applicable entity on the signature pages of this
Third Amendment.
Section VII.. Representations and Warranties. The Company represents and
warrants to the Agent and the Banks that the representations and warranties
contained in Section 4 of the Credit Agreement and in all of the other Loan
Documents are true and correct in all material respects on and as of the
effective date hereof as though made on and as of such effective date. The
Company hereby certifies that no event has occurred and is continuing which
constitutes a Default or an Event of Default under the Credit Agreement or
which, upon the giving of notice or the lapse of time, or both, would constitute
a Default or an Event of Default. Additionally, the Company hereby represents
and warrants to the Agent and the Banks that the resolutions of the Board of
Directors of the Company and its Subsidiaries which are set out in the following
described Secretary's Certificates remain in full force and effect as of the
effective date hereof and have not been modified, amended, superseded or
revoked:
<PAGE>
1. That certain Secretary's Certificate dated December 21,
1994, executed and delivered to the Agent by the Secretary of Whole
Foods Market, Inc. in connection with the Credit Agreement;
2. That certain Secretary's Certificate dated December 21,
1994, executed and delivered to the Agent by the Secretary of Bread &
Circus, Inc., Mrs. Gooch's Natural Foods Market, Inc., The Sourdough: A
European Bakery, Inc., Wellspring Grocery, Inc., WFM Beverage Corp.,
Whole Foods Company, Inc., Whole Foods Market California, Inc. and
Whole Foods Market Southwest, Inc. in connection with the Credit
Agreement;
3. That certain Secretary's Certificate dated April 5, 1995,
executed and delivered to the Agent by the Secretary of Whole Foods
Market Southwest I, Inc. in connection with that certain Joinder
Agreement dated effective March 27, 1995, executed and delivered to the
Agent by Whole Foods Market Midwest, Inc., Whole Foods Market Services,
Inc., Whole Foods Market Southwest I, Inc., Whole Foods Market
Southwest Investments, Inc. and Whole Foods Market Southwest, L.P.;
4. That certain Secretary's Certificate dated April 5, 1995,
executed and delivered to the Agent by the Secretary of Whole Foods
Market Midwest, Inc., Whole Foods Market Services, Inc., and Whole
Foods Market Southwest Investments, Inc., in connection with the
above-described Joinder Agreement dated effective March 27, 1995; and
5. That certain Secretary's Certificate dated December 19,
1996, executed and delivered to the Agent by the Secretary of Whole
Foods Market Group, Inc., in connection with that certain Joinder
Agreement dated effective December 19, 1996, executed and delivered to
the Agent by Whole Foods Market Group, Inc.
Section VIII.. Conditions. This Third Amendment shall not become effective
until the Company shall have delivered to the Agent each of the following in
Proper Form: (a) a certificate of the Secretary or any Assistant Secretary of
the Company, dated as of the date hereof, as to the resolutions of the Board of
Directors of the Company authorizing the increase in the Aggregate Commitment
evidenced by this Third Amendment (a copy of such certificate to state that said
copy is a true and correct copy of such resolutions and that such resolutions
were duly adopted and have not been amended, superseded, revoked or modified in
any respect and remain in full force and effect as of the date of such
certificate); (b) each of the Notes of even effective date herewith, executed by
the Company, payable to the order of the respective Banks in the amount of the
respective Bank's Commitment (as increased by this Third Amendment); and (c) a
legal opinion from Crouch & Hallett, L.L.P., the independent counsel for the
Company and the Subsidiaries, acceptable to the Agent in its sole and absolute
discretion.
<PAGE>
Section IX.. Limitations. The amendments set forth herein are limited
precisely as written and shall not be deemed to (a) be a consent to, or waiver
or modification of, any other term or condition of the Credit Agreement or any
of the other Loan Documents, or (b) except as expressly set forth herein,
prejudice any right or rights which the Banks may now have or may have in the
future under or in connection with the Credit Agreement, the Loan Documents or
any of the other documents referred to therein. Except as expressly modified
hereby or by express written amendments thereof, the terms and provisions of the
Credit Agreement, the Notes and any other Loan Documents or any other documents
or instruments executed in connection with any of the foregoing are and shall
remain in full force and effect. In the event of a conflict between this Third
Amendment and any of the foregoing documents, the terms of this Third Amendment
shall be controlling.
Section X.. Payment of Expenses. The Company agrees, whether or not the
transactions hereby contemplated shall be consummated, to reimburse and save the
Agent and each of the Banks harmless from and against liability for the payment
of all reasonable substantiated out-of-pocket costs and expenses arising in
connection with the preparation, execution, delivery, amendment, modification,
waiver and enforcement of, or the preservation of any rights under this Third
Amendment, including, without limitation, the reasonable fees and expenses of
counsel for the Agent and other charges which may be payable in respect of, or
in respect of any modification of, the Credit Agreement and the Loan Documents.
The provisions of this Section shall survive the termination of the Credit
Agreement and the repayment of the Loans.
Section XI.. Descriptive Headings, etc. The descriptive headings of the
several Sections of this Third Amendment are inserted for convenience only and
shall not be deemed to affect the meaning or construction of any of the
provisions hereof.
Section XII.. Entire Agreement. This Third Amendment and the documents
referred to herein represent the entire understanding of the parties hereto
regarding the subject matter hereof and supersede all prior and contemporaneous
oral and written agreements of the parties hereto with respect to the subject
matter hereof, including, without limitation, any commitment letters regarding
the transactions contemplated by this Third Amendment.
Section XIII.. Counterparts. This Third Amendment may be executed in any
number of counterparts and by different parties on separate counterparts and all
of such counterparts shall together constitute one and the same instrument.
Complete sets of counterparts shall be lodged with the Company and the Agent.
Section XIV.. References to Credit Agreement. As used in the Credit
Agreement (including all Exhibits thereto) and all other Loan Documents, on and
subsequent to the effective date hereof, the term "Agreement" shall mean the
Credit Agreement, as amended by this Third Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to
be duly executed and delivered by their respective duly authorized offices as of
the date first above written.
NOTICE PURSUANT TO TEX. BUS. & COMM. CODE ss.26.02
<PAGE>
THIS THIRD AMENDMENT AND ALL OTHER LOAN DOCUMENTS EXECUTED BY ANY OF THE PARTIES
BEFORE OR SUBSTANTIALLY CONTEMPORANEOUSLY WITH THE EXECUTION HEREOF TOGETHER
CONSTITUTE A WRITTEN CREDIT AGREEMENT AND REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
WHOLE FOODS MARKET, INC.
a Texas corporation
By: /s/ Glenda Flanagan
Glenda Flanagan
Secretary
Address for Notices:
Whole Foods Market, Inc.
601 N. Lamar Blvd., Suite 300
Austin, Texas 78703-5413
Attention: Ms. Glenda Flanagan
<PAGE>
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, individually
Commitment: and as Agent
$34,000,000
By:
Name:
Title:
Address for Notices:
Texas Commerce Bank National Association
700 Lavaca, 2nd Floor
Post Office Box 550
Austin, Texas 78789
Attention: Manager/Metropolitan Lending Group
With a copy to:
Texas Commerce Bank National Association
1111 Fannin, 9th Floor
Houston, Texas 77002
Attention: Manager/Loan Syndication Services
<PAGE>
Commitment: WELLS FARGO BANK (TEXAS), N.A.
$22,000,000
By:
Name:
Title:
Address for Notices:
Wells Fargo Bank (Texas), N.A.
100 Congress Avenue, Suite 150
Austin, Texas 78701
Attention: Ms. Susan L. Coulter
<PAGE>
FIRST UNION NATIONAL BANK OF NORTH
Commitment: CAROLINA
$22,000,000
By:
Name:
Title:
Address for Notices:
First Union National Bank of North Carolina
One First Union Center DC-5
301 South College Street
Charlotte, North Carolina 28288
Attention: Mr. David Hall
<PAGE>
Commitment: THE FIRST NATIONAL BANK OF BOSTON
$22,000,000
By:
Name:
Title:
Address for Notices:
The First National Bank of Boston
100 Federal Street
01-09-05
Boston, Massachusetts 02106
Attention: Ms. Judith C. E. Kelly
<PAGE>
The undersigned Guarantors (a) acknowledge and consent to the execution of
the foregoing Third Amendment, (b) confirm that the Guaranties previously
executed or joined in by each of the undersigned Guarantors apply and shall
continue to apply to all Indebtedness evidenced by or arising pursuant to the
Credit Agreement or any other Loan Documents, notwithstanding the execution and
delivery of this Third Amendment by the Company, the Agent and each of the
Banks, and (c) acknowledge that without this consent and confirmation, the Banks
and the Agent would not agree to the modifications of the Credit Agreement which
are evidenced by the foregoing Third Amendment.
WHOLE FOOD COMPANY, INC.,
a Louisiana corporation
WHOLE FOODS MARKETCALIFORNIA,INC.,
a California corporation
MRS. GOOCH'S NATURAL FOOD MARKETS, INC.,
a California corporation
WFM BEVERAGE CORP.,
a Texas corporation
THE SOURDOUGH:A EUROPEAN BAKERY, INC.,
a Texas corporation
WHOLE FOODS MARKET SERVICES, INC.,
a Delaware corporation
WHOLE FOODS MARKET SOUTHWEST
INVESTMENTS, INC.,
a Delaware corporation
WHOLE FOODS MARKET SOUTHWEST I,INC.,
a Delaware corporation
WHOLE FOODS MARKET GROUP, INC., a
Delaware corporation
By: /s/ Glenda Flanagan
--------------------
Glenda Flanagan
Secretary
WHOLE FOODS MARKET SOUTHWEST, L.P.,
a Texas limited partnership
By: Whole Foods Market Southwest I, Inc.,
a Delaware corporation
General Partner
By: /s/ Glenda Flanagan
--------------------
Glenda Flanagan
Secretary
<PAGE>
Exhibit 10.11
FOURTH AMENDMENT TO CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT ("Fourth Amendment"), dated as of
September 2, 1997, is made and entered into by and among WHOLE FOODS MARKET,
INC. (the "Company"), a Texas corporation, the banking institutions from time to
time a party to the Credit Agreement (as hereinafter defined), as amended by
this Fourth Amendment (each, together with its successors and assigns, a "Bank"
and collectively, the "Banks"), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as
agent for the Banks (in such capacity, together with its successors in such
capacity, the "Agent").
RECITALS:
WHEREAS, the Company, the Agent and certain Banks are parties to a Credit
Agreement dated as of December 27, 1994, as amended by that certain First
Amendment to Credit Agreement dated as of May 16, 1996, by and among the
Company, the Agent and the Banks, that certain Second Amendment to Credit
Agreement dated as of December 24, 1996, by and among the Company, the Agent and
the Banks, and that certain Third Amendment to Credit Agreement dated as of
March 24, 1997, by and among the Company, the Agent and the Banks (said Credit
Agreement, as previously amended, being hereinafter referred to as the "Credit
Agreement"); and
WHEREAS, in connection with a modification in the definition of Eurodollar
Interbank Rate under the Credit Agreement, the Company, the Agent and the Banks
have agreed, on the terms and conditions herein set forth, that the Credit
Agreement be further amended in certain respects.
AGREEMENTS:
NOW, THEREFORE, in consideration of the premises and the mutual agreements,
representations and warranties herein set forth, and for other good and valuable
consideration, the receipt and sufficiency which are hereby acknowledged and
confessed, the Company, the Agent and the Banks do hereby agree as follows:
Section I.. General Definitions. Except as expressly modified by this Third
Amendment, capitalized terms used herein which are defined in the Credit
Agreement shall have the same meanings when used herein.
Section II.. Amendment to Existing Definitions. The following definition
contained in Section 1 of the Credit Agreement is hereby amended and restated in
its entirety to hereafter be and read as follows:
<PAGE>
Eurodollar Interbank RateInterbank RateRate shall mean, for each
Eurodollar Interest Period, the rate of interest per annum, rounded, if
necessary, to the next highest whole multiple of one-sixteenth percent
(1/16%), determined by the Agent based upon rates quoted at or before 10:00
a.m. in such Eurodollar interbank market (or as soon thereafter as
practicable), on the date two (2) Eurodollar Business Days prior to the
first day of such Eurodollar Interest Period, for the offering to the
Reference Bank by leading dealers in whatever eurodollar interbank market
may be selected by the Agent in its sole discretion, acting in good faith,
at the time of determination and in accordance with the then existing
practice in such market, of deposits in United States dollars for delivery
on the first day of such Eurodollar Interest Period and having a maturity
equal to the length of such Eurodollar Interest Period and in an amount
equal (or as nearly equal as may be) to the Eurodollar Rate Borrowing to
which such Eurodollar Interest Period relates. Each determination by the
Agent of the Eurodollar Interbank Rate shall be conclusive and binding,
absent manifest error, and may be computed using any reasonable averaging
and attribution method.
Section III.. Modification of Addresses for Notices. Section 9.2 is hereby
modified to cause the "Address for Notices" referenced therein for each of the
Company, the Agent and the Banks to hereafter be the "Address for Notices"
specified below the name of the applicable entity on the signature pages of this
Fourth Amendment.
Section IV.. Representations and Warranties. The Company represents and
warrants to the Agent and the Banks that the representations and warranties
contained in Section 4 of the Credit Agreement and in all of the other Loan
Documents are true and correct in all material respects on and as of the
effective date hereof as though made on and as of such effective date. The
Company hereby certifies that no event has occurred and is continuing which
constitutes a Default or an Event of Default under the Credit Agreement or
which, upon the giving of notice or the lapse of time, or both, would constitute
a Default or an Event of Default. Additionally, the Company hereby represents
and warrants to the Agent and the Banks that the resolutions of the Board of
Directors of the Company and its Subsidiaries which are set out in the following
described Secretary's Certificates remain in full force and effect as of the
effective date hereof and have not been modified, amended, superseded or
revoked:
1. That certain Secretary's Certificate dated December 21, 1994,
executed and delivered to the Agent by the Secretary of Whole Foods Market,
Inc. in connection with the Credit Agreement;
2. That certain Secretary's Certificate dated December 21, 1994,
executed and delivered to the Agent by the Secretary of Bread & Circus,
Inc., Mrs. Gooch's Natural Foods Market, Inc., The Sourdough: A European
Bakery, Inc., Wellspring Grocery, Inc., WFM Beverage Corp., Whole Foods
Company, Inc., Whole Foods Market California, Inc. and Whole Foods Market
Southwest, Inc. in connection with the Credit Agreement;
3. That certain Secretary's Certificate dated April 5, 1995, executed
and delivered to the Agent by the Secretary of Whole Foods Market Southwest
I, Inc. in connection with that certain Joinder Agreement dated effective
March 27, 1995, executed and delivered to the Agent by Whole Foods Market
Midwest, Inc., Whole Foods Market Services, Inc., Whole Foods Market
Southwest I, Inc., Whole Foods Market Southwest Investments, Inc. and Whole
Foods Market Southwest, L.P.;
<PAGE>
4. That certain Secretary's Certificate dated April 5, 1995, executed
and delivered to the Agent by the Secretary of Whole Foods Market Midwest,
Inc., Whole Foods Market Services, Inc., and Whole Foods Market Southwest
Investments, Inc., in connection with the above-described Joinder Agreement
dated effective March 27, 1995;
5. That certain Secretary's Certificate dated December 19, 1996,
executed and delivered to the Agent by the Secretary of Whole Foods Market
Group, Inc., in connection with that certain Joinder Agreement dated
effective December 19, 1996, executed and delivered to the Agent by Whole
Foods Market Group, Inc.; and
6. That certain Secretary's Certificate dated March 24, 1997, executed
and delivered to the Agent by the Secretary of Whole Foods Market, Inc. in
connection with the Third Amendment of the Credit Agreement.
Section V.. Limitations. The amendments set forth herein are limited
precisely as written and shall not be deemed to (a) be a consent to, or waiver
or modification of, any other term or condition of the Credit Agreement or any
of the other Loan Documents, or (b) except as expressly set forth herein,
prejudice any right or rights which the Banks may now have or may have in the
future under or in connection with the Credit Agreement, the Loan Documents or
any of the other documents referred to therein. Except as expressly modified
hereby or by express written amendments thereof, the terms and provisions of the
Credit Agreement, the Notes and any other Loan Documents or any other documents
or instruments executed in connection with any of the foregoing are and shall
remain in full force and effect. In the event of a conflict between this Fourth
Amendment and any of the foregoing documents, the terms of this Fourth Amendment
shall be controlling.
Section VI.. Payment of Expenses. The Company agrees, whether or not the
transactions hereby contemplated shall be consummated, to reimburse and save the
Agent and each of the Banks harmless from and against liability for the payment
of all reasonable substantiated out-of-pocket costs and expenses arising in
connection with the preparation, execution, delivery, amendment, modification,
waiver and enforcement of, or the preservation of any rights under this Fourth
Amendment, including, without limitation, the reasonable fees and expenses of
counsel for the Agent and other charges which may be payable in respect of, or
in respect of any modification of, the Credit Agreement and the Loan Documents.
The provisions of this Section shall survive the termination of the Credit
Agreement and the repayment of the Loans.
Section VII.. Descriptive Headings, etc. The descriptive headings of the
several Sections of this Fourth Amendment are inserted for convenience only and
shall not be deemed to affect the meaning or construction of any of the
provisions hereof.
Section VIII.. Entire Agreement. This Fourth Amendment and the documents
referred to herein represent the entire understanding of the parties hereto
regarding the subject matter hereof and supersede all prior and contemporaneous
oral and written agreements of the parties hereto with respect to the subject
matter hereof, including, without limitation, any commitment letters regarding
the transactions contemplated by this Fourth Amendment.
<PAGE>
Section IX.. Counterparts. This Fourth Amendment may be executed in any
number of counterparts and by different parties on separate counterparts and all
of such counterparts shall together constitute one and the same instrument.
Complete sets of counterparts shall be lodged with the Company and the Agent.
Section X.. References to Credit Agreement. As used in the Credit Agreement
(including all Exhibits thereto) and all other Loan Documents, on and subsequent
to the effective date hereof, the term "Agreement" shall mean the Credit
Agreement, as amended by this Fourth Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment to
be duly executed and delivered by their respective duly authorized offices as of
the date first above written.
NOTICE PURSUANT TO TEX. BUS. & COMM. CODE ss.26.02
THIS FOURTH AMENDMENT AND ALL OTHER LOAN DOCUMENTS EXECUTED BY ANY OF THE
PARTIES BEFORE OR SUBSTANTIALLY CONTEMPORANEOUSLY WITH THE EXECUTION HEREOF
TOGETHER CONSTITUTE A WRITTEN CREDIT AGREEMENT AND REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
WHOLE FOODS MARKET, INC.
a Texas corporation
By: /s/ Glenda Flanagan
--------------------
Glenda Flanagan
Secretary
Address for Notices:
Whole Foods Market, Inc.
601 N. Lamar Blvd., Suite 300
Austin, Texas 78703-5413
Attention: Ms. Glenda Flanagan
<PAGE>
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, individually
and as Agent
By:
Name:
Title:
Address for Notices:
Texas Commerce Bank National Association
700 Lavaca, 2nd Floor
Post Office Box 550
Austin, Texas 78789
Attention: Manager/Metropolitan Lending Group
With a copy to:
Texas Commerce Bank National Association
1111 Fannin, 9th Floor
Houston, Texas 77002
Attention: Manager/Loan Syndication Services
<PAGE>
WELLS FARGO BANK (TEXAS), N.A.
By:
Name:
Title:
Address for Notices:
Wells Fargo Bank (Texas), N.A.
100 Congress Avenue, Suite 150
Austin, Texas 78701
Attention: Ms. Susan L. Coulter
<PAGE>
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By:
Name:
Title:
Address for Notices:
First Union National Bank of North Carolina
One First Union Center DC-5
301 South College Street
Charlotte, North Carolina 28288
Attention: Mr. David Hall
<PAGE>
BANKBOSTON, N.A.
By:
Name:
Title:
Address for Notices:
BankBoston, N.A.
100 Federal Street
01-09-05
Boston, Massachusetts 02106
Attention: Ms. Judith C. E. Kelly
<PAGE>
The undersigned Guarantors (a) acknowledge and consent to the execution of
the foregoing Fourth Amendment, (b) confirm that the Guaranties previously
executed or joined in by each of the undersigned Guarantors apply and shall
continue to apply to all Indebtedness evidenced by or arising pursuant to the
Credit Agreement or any other Loan Documents, notwithstanding the execution and
delivery of this Fourth Amendment by the Company, the Agent and each of the
Banks, and (c) acknowledge that without this consent and confirmation, the Banks
and the Agent would not agree to the modifications of the Credit Agreement which
are evidenced by the foregoing Fourth Amendment.
WHOLE FOOD COMPANY, INC.,
a Louisiana corporation
WHOLE FOODS MARKET
CALIFORNIA, INC.,
a California corporation
MRS. GOOCH'S NATURAL FOOD MARKETS, INC.,
a California corporation
WFM BEVERAGE CORP., a Texas corporation
THE SOURDOUGH: A EUROPEAN BAKERY, INC.,
a Texas corporation
WHOLE FOODS MARKET SERVICES, INC., a
Delaware corporation
WHOLE FOODS MARKET SOUTHWEST INVESTMENTS, INC.,
a Delaware corporation
WHOLE FOODS MARKET SOUTHWEST I,INC.,
a Delaware corporation
WHOLE FOODS MARKET GROUP,INC.,
a Delaware corporation
By: /s/ Glenda Flanagan
---------------------
Glenda Flanagan
Secretary
WHOLE FOODS MARKET SOUTHWEST, L.P.,
a Texas limited partnership
By: Whole Foods Market Southwest I, Inc.,
a Delaware corporation
General Partner
By: /s/ Glenda Flanagan
--------------------
Glenda Flanagan
Secretary
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF WHOLE FOODS MARKET, INC.
<TABLE>
<S> <C>
Name State of Incorporation or Organization
Whole Foods Market Services, Inc. Delaware
WFM Beverage Corp. Texas
Whole Foods Market Southwest I, Inc. Delaware
Whole Foods Market Southwest Investments, Inc. Delaware
Whole Foods Market California, Inc. California
Mrs. Gooch's Natural Foods Markets, Inc. California
Amrion, Inc. Colorado
Whole Foods Market Group, Inc. Delaware
SUBSIDIARIES OF WHOLE FOODS MARKET SERVICES, INC.
Name State of Incorporation or Organization
Whole Foods Market Brand 365, LLC (52% member) California
SUBSIDIARIES OF AMRION, INC.
Name State of Incorporation or Organization
Natrix International, LLC (90% member) Colorado
SUBSIDIARIES OF WHOLE FOODS MARKET SOUTHWEST I, INC.
Name State of Incorporation or Organization
Whole Foods Market Southwest, L.P. (1% GP) Texas
SUBSIDIARIES OF WHOLE FOODS MARKET SOUTHWEST INVESTMENTS, INC.
Name State of Incorporation or Organization
Whole Foods Market Southwest, L.P. (99% LP) Texas
Whole Food Company, Inc. (100%) Louisiana
The Sourdough: A European Bakery (83.33%) Texas
Also Doing Business As Sourdough
</TABLE>
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Whole Foods Market, Inc.:
We consent to incorporation by reference in the registration statements (No.
333-11271, No. 333-11273 and No. 333-35809) on Form S-8 and the registration
statements (No. 333-968 and No. 333-22745) on Form S-3 of Whole Foods Market,
Inc. of our report dated November 14, 1997, relating to the consolidated balance
sheets of Whole Foods Market, Inc. and subsidiaries as of September 28, 1997 and
September 29, 1996, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the fiscal years in the three
fiscal-year period ended September 28, 1997, which report appears in the
September 28, 1997 annual report on Form 10-K of Whole Foods Market, Inc.
Austin, Texas
December 23, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE WHOLE FOODS MARKET FISCAL 1997
FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-28-1997
<PERIOD-END> SEP-28-1997
<EXCHANGE-RATE> 1
<CASH> 13,395
<SECURITIES> 1,089
<RECEIVABLES> 11,468
<ALLOWANCES> 0
<INVENTORY> 64,838
<CURRENT-ASSETS> 113,898
<PP&E> 327,483
<DEPRECIATION> (99,268)
<TOTAL-ASSETS> 399,678
<CURRENT-LIABILITIES> 77,272
<BONDS> 0
0
0
<COMMON> 192,514
<OTHER-SE> 12,951
<TOTAL-LIABILITY-AND-EQUITY> 399,678
<SALES> 1,117,346
<TOTAL-REVENUES> 1,117,346
<CGS> 749,551
<TOTAL-COSTS> 749,551
<OTHER-EXPENSES> 322,383
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,044
<INCOME-PRETAX> 39,368
<INCOME-TAX> 12,724
<INCOME-CONTINUING> 26,644
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,644
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
</TABLE>
