<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the period ended April 9, 2000; or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _________________ to
_________________.
Commission File Number: 0-19797
WHOLE FOODS MARKET, INC.
(Exact name of registrant as specified in its charter)
Texas 74-1989366
(State of (IRS employer
incorporation) identification no.)
601 N. Lamar
Suite 300
Austin, Texas 78703
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code:
512-477-4455
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No ___
---
The number of shares of the registrant's common stock, no par value,
outstanding as of April 9, 2000 was 26,075,126 shares.
Page 1 of 14
<PAGE>
WHOLE FOODS MARKET, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
Part I. Financial Information
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets (Unaudited), 3
April 9, 2000 and September 26, 1999
Condensed Consolidated Income Statements (Unaudited),
for the 12 and 28 weeks ended April 9, 2000 and April 11, 1999 4
Condensed Consolidated Statements of Cash Flows (Unaudited),
for the 12 and 28 weeks ended April 9, 2000 and April 11, 1999 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
</TABLE>
Page 2 of 14
<PAGE>
Part 1. Financial Information
Item 1. Financial Statements
Whole Foods Market, Inc. and Subsidiaries
April 9, 2000 and September 26, 1999
<TABLE>
<CAPTION>
Assets
2000 1999
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,731 9,019
Trade accounts receivable 21,531 19,578
Merchandise inventories 85,920 93,452
Prepaid expenses and other current assets 20,262 18,576
- ----------------------------------------------------------------------------------------------
Total current assets 129,444 140,625
Property and equipment, net of accumulated depreciation and amortization 443,601 407,204
Long-term investment in marketable securities - 3,600
Long-term investments in preferred stock 56,137 20,000
Acquired leasehold rights, net of accumulated amortization 13,685 14,150
Excess of cost over net assets acquired, net of accumulated amortization 70,938 49,288
Other assets, net of accumulated amortization 31,708 24,868
- ----------------------------------------------------------------------------------------------
$745,513 659,735
- ----------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
2000 1999
- ----------------------------------------------------------------------------------------------
Current liabilities:
Current installments of long-term debt and capital lease obligations 6,518 6,655
Trade accounts payable 55,118 49,038
Accrued payroll, bonus and employee benefits 33,902 29,638
Other accrued expenses 41,609 36,024
- ----------------------------------------------------------------------------------------------
Total current liabilities 137,147 121,355
Long-term debt and capital lease obligations, less current installments 269,922 208,862
Other long-term liabilities 13,565 18,298
- ----------------------------------------------------------------------------------------------
Total liabilities 420,634 348,515
- ----------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, no par value, 100,000 shares authorized,
27,047 and 26,986 shares issued, 26,075 and 26,378
shares outstanding in 2000 and 1999, respectively 231,097 230,131
Common stock in treasury, at cost (30,442) (18,939)
Retained earnings 124,224 100,028
- ----------------------------------------------------------------------------------------------
Total shareholders' equity 324,879 311,220
- ----------------------------------------------------------------------------------------------
Commitments and contingencies
- ----------------------------------------------------------------------------------------------
$745,513 659,735
- ----------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
</TABLE>
Page 3 of 14
<PAGE>
Whole Foods Market, Inc. and Subsidiaries
Condensed Consolidated Income Statements (Unaudited) In thousands, except per
share data
<TABLE>
<CAPTION>
Twelve weeks ended Twenty-eight weeks ended
April 9 April 11 April 9 April 11
2000 1999 2000 1999
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $425,113 358,872 977,673 815,111
Cost of goods sold and occupancy costs 277,571 234,748 642,121 537,661
- -------------------------------------------------------------------------------------------------------------------------
Gross profit 147,542 124,124 335,552 277,450
Selling, general and administrative expenses 119,898 101,368 280,699 231,789
Pre-opening and relocation costs 2,440 2,243 6,179 2,243
- -------------------------------------------------------------------------------------------------------------------------
Income from operations 25,204 20,513 48,674 43,418
Other income (expense):
Interest expense (3,678) (1,923) (7,218) (4,603)
Investment and other income 437 504 907 1,517
- -------------------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect
of change in accounting principle 21,963 19,094 42,363 40,332
Provision for income taxes 9,224 7,447 17,792 15,730
- -------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of change in
accounting principle 12,739 11,647 24,571 24,602
Cumulative effect of change in accounting principle,
net of $272 of income taxes - - (375) -
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 12,739 11,647 24,196 24,602
- -------------------------------------------------------------------------------------------------------------------------
Basic earnings per share:
Income before cumulative effect of change in
accounting principle $ 0.49 0.44 0.94 0.93
Cumulative effect of change in accounting principle,
net of income taxes - - (0.01) -
- -------------------------------------------------------------------------------------------------------------------------
Basic earnings per share $ 0.49 0.44 0.93 0.93
- -------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 26,024 26,339 26,027 26,461
- -------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share:
Income before cumulative effect of change in
accounting principle $ 0.47 0.43 0.91 0.90
Cumulative effect of change in accounting principle,
net of income taxes - - (0.01) -
- -------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share $ 0.47 0.43 0.90 0.90
- -------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 27,076 27,156 27,000 27,464
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 4 of 14
<PAGE>
Whole Foods Market, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited) In thousands
<TABLE>
<CAPTION>
Twenty-eight weeks ended
April 9 April 11
2000 1999
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net cash provided by operating activities $ 63,811 48,702
- --------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of property and equipment (86,865) (67,037)
Acquisition of leasehold rights (91) (3,592)
Payments for purchase of acquired entities, net of cash acquired (25,700) -
Cash contributed to WholePeople.com (4,478) -
Proceeds from sale of marketable securities - 18,500
Purchase of marketable securities available for sale - (475)
- --------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (117,134) (52,604)
- --------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net proceeds from long-term borrowings 57,000 -
Issuance of common stock 2,997 3,457
Payments on long-term debt and capital lease obligations (428) (157)
Purchase of treasury stock (13,534) (18,939)
- --------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 46,035 (15,639)
- --------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (7,288) (19,541)
Cash and cash equivalents at beginning of period 9,019 36,674
- --------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,731 17,133
- --------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Interest paid $ 3,181 1,244
- --------------------------------------------------------------------------------------------------------------
Federal and state income taxes paid $ 10,526 6,066
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Non-cash investing and financing activities:
Effective January 14, 2000, the Company contributed its Amrion, Inc. and
WholeFoods.com, inc. subsidiaries to WholePeople.com, Inc., a newly formed
Delaware corporation in exchange for 14,530,000 shares of convertible preferred
stock of WholePeople.com. Net assets of the contributed subsidiaries totaled
approximately $46.1 million, including cash of approximately $4.5 million. See
note 5.
See accompanying notes to condensed consolidated financial statements.
Page 5 of 14
<PAGE>
Whole Foods Market, Inc. And Subsidiaries
Notes To Condensed Consolidated Financial Statements (Unaudited)
April 9, 2000
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Whole
Foods Market, Inc. and subsidiaries ("Company") have been prepared in accordance
with generally accepted accounting principles for interim financial statements
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the
opinion of management, all adjustments, consisting of normal recurring accruals,
considered necessary for a fair presentation have been included. Certain
information and footnote disclosure normally included in annual financial
statements prepared in conformity with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10K for the fiscal year ended September 26,
1999.
The Company's fiscal year ends on the last Sunday in September. The first fiscal
quarter is sixteen weeks, the second and third quarters each are twelve weeks
and the fourth quarter is twelve or thirteen weeks.
(2) Earnings Per Share
The computation of basic earnings per share is based on the number of weighted
average common shares outstanding during the period. The computation of diluted
earnings per share includes the dilutive effect of common stock equivalents
consisting of common shares deemed outstanding from the assumed exercise of
stock options. A reconciliation of the denominators of the basic and diluted
earnings per share calculations follows (in thousands):
<TABLE>
<CAPTION>
Twelve weeks ended Twenty-eight weeks ended
April 9 April 11 April 9 April 11
2000 1999 2000 1999
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Denominator for basic earnings per share:
weighted average shares 26,024 26,339 26,027 26,461
Additional shares deemed outstanding from the assumed
exercise of stock options 1,052 817 973 1,003
- -----------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share: adjusted
weighted average shares and assumed exercises 27,076 27,156 27,000 27,464
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The computations of diluted earnings per share for the twelve and twenty-eight
week periods ended April 9, 2000 do not include options to purchase
approximately 1,349,000 shares and 1,375,000 shares, respectively, of common
stock because to do so would be antidilutive. The computations of diluted
earnings per share for the twelve and twenty-eight week periods ended April 11,
1999 do not include options to purchase approximately 1,577,000 shares and
1,551,000 shares, respectively, of common stock because to do so would be
antidilutive. The computations of diluted earnings per share for all periods
presented do not include approximately 1,643,000 shares of common stock related
to the zero coupon convertible subordinated debentures because to do so would be
antidilutive.
Page 6 of 14
<PAGE>
(3) Segment Information
In the first quarter of fiscal 1999, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information." This statement establishes standards for reporting
information about operating segments in interim and annual financial statements.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. In the second quarter of fiscal 2000, the Company
operated in one reportable segment, natural foods supermarkets. The natural
foods supermarkets segment includes the Company's stores and supporting
operations, including Allegro Coffee Company. In the first quarter of fiscal
2000, the Company operated in two reportable segments, the natural foods
supermarkets segment and the WholePeople.com segment. The WholePeople.com
segment consisted of the Company's direct marketing and Internet operations,
which merged operations into a single segment effective the beginning of the
first quarter of fiscal 2000. In the prior year, the direct marketing operations
were classified as a separate operating segment, and Internet operations were
classified with operations of Allegro Coffee Company as "Other." The
accompanying condensed consolidated financial statements reflect the results of
operations of WholePeople.com as a consolidated wholly-owned subsidiary through
the end of the first quarter in the current fiscal year and in all periods of
the prior fiscal year. Effective January 14, 2000, the Company has accounted for
its investment in WholePeople.com preferred stock using the equity method. In
applying the equity method, losses have been allocated to the stock classes in
accordance with the terms of the common and preferred stockholders' agreements.
Accordingly, operating results of WholePeople.com will not be reflected in the
Company's consolidated results of operations as long as positive common stock
equity is available in WholePeople.com and the Company's liquidation preference
on the preferred stock supports its carrying value. For the twelve weeks ended
April 9, 2000, WholePeople.com incurred losses from operations of approximately
$5.1 million. See note 5. Prior period information has been reclassified to
conform to the second quarter 2000 classification.
A reconciliation to consolidated sales follows (in thousands):
<TABLE>
<CAPTION>
Twelve weeks ended Twenty-eight weeks ended
April 9 April 11 April 9 April 11
2000 1999 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Natural foods supermarkets $425,113 341,371 957,022 773,578
Sales of unconsolidated equity investment included in
consolidated sales through end of first quarter 2000 - 17,501 20,651 41,533
- ---------------------------------------------------------------------------------------------------------------------------------
Consolidated sales $425,113 358,872 977,673 815,111
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A reconciliation to consolidated income from operations follows (in thousands):
<TABLE>
<CAPTION>
Twelve weeks ended Twenty-eight weeks ended
April 9 April 11 April 9 April 11
2000 1999 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Natural foods supermarkets $ 25,204 19,348 50,581 40,491
Income (loss) from operations of unconsolidated equity
investment included in consolidated income from
operations through end of first quarter 2000 - 1,165 (1,907) 2,927
- ---------------------------------------------------------------------------------------------------------------------------------
Consolidated income from operations $ 25,204 20,513 48,674 43,418
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 7 of 14
<PAGE>
(4) Comprehensive Income
Comprehensive income is defined as the change in equity during a period from
transactions and other events and circumstances from nonowner sources. It
includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners. Comprehensive income is the
total of net income and other comprehensive income, which consists of foreign
currency items, minimum pension liability adjustments, and unrealized gains and
losses on certain investments in debt and equity securities. The Company's
comprehensive income was comprised of net income and unrealized gains and losses
on available for sale securities, net of tax. Comprehensive income, net of
related tax effects, was as follows (in thousands):
<TABLE>
<CAPTION>
Twelve weeks ended Twenty-eight weeks ended
April 9 April 11 April 9 April 11
2000 1999 2000 1999
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $12,739 11,647 24,196 24,602
Unrealized gain (loss), net - (24) - (138)
- ----------------------------------------------------------------------------
Comprehensive income $12,739 11,623 24,196 24,464
- ----------------------------------------------------------------------------
</TABLE>
(5) Investment in WholePeople.com
Effective January 14, 2000, the Company contributed its Amrion, Inc. and
WholeFoods.com, Inc. subsidiaries to WholePeople.com, Inc., a newly formed
Delaware corporation in exchange for 14,530,000 shares of convertible preferred
stock of WholePeople.com. Net assets of the contributed subsidiaries totaled
approximately $46.1 million. Concurrent with the preferred stock issuance,
WholePeople.com issued 3,125,732 shares of Class A common stock of
WholePeople.com to unaffiliated investors (the "Investors") at $6.3985 per
share, representing an aggregate purchase price of $20 million. The Investors
further committed to acquire an additional 2,344,268 shares of Class A common
stock at the same price, representing an additional aggregate purchase price of
$15 million, upon 20 business days' notice from WholePeople.com. The Investors
were granted the right to require WholePeople.com to issue such shares in the
event WholePeople.com fails to provide such notice prior to the earlier of
September 24, 2000 or the consummation of an initial public offering of
WholePeople.com. WholePeople.com has established a stock option plan pursuant to
which 5,000,000 shares of Class B common stock of WholePeople.com have been
reserved for issuance upon exercise of options granted thereunder.
In the event of a liquidation of WholePeople.com, the holders of WholePeople.com
preferred stock are entitled to receive a preference equal to the net book value
of the net assets contributed by the Company to WholePeople.com before any
amounts are distributed to the holders of Class A common stock or Class B common
stock. The shares of WholePeople.com preferred stock are convertible into Class
A common stock at any time at the sole option of the holder(s) of such shares.
At April 9, 2000, the Company owned approximately 78% of the voting capital
stock of WholePeople.com and the holders of Class A common stock owned
approximately 22%. Each share of WholePeople.com preferred stock is entitled to
10 votes per share, and each share of Class A common stock and Class B common
stock is entitled to one vote per share. Prior to an initial public offering,
WholePeople.com has granted certain substantive participating rights to the
holders of Class A common stock. In the event that WholePeople.com fails to
complete an initial public offering prior to January 14, 2003, the holders of
Class A common stock will be entitled to elect a majority of the board of
directors of WholePeople.com and to require other shareholders to participate
proportionately with the holders of Class A common stock in any bona fide, arms
length business combination proposed by the holders of Class A common stock and
involving WholePeople.com.
(continued)
Page 8 of 14
<PAGE>
(5) Investment in WholePeople.com, continued
Effective January 14, 2000, the Company has accounted for its investment in
WholePeople.com preferred stock using the equity method, whereby the initial
investment is equal to the net book value of the net assets contributed. In
applying the equity method, losses have been allocated to the stock classes in
accordance with the terms of the common and preferred stockholders' agreements.
Accordingly, effective January 14, 2000, the operating results of
WholePeople.com will not be reflected in the Company's consolidated results of
operations as long as positive common stock equity is available in
WholePeople.com and the Company's liquidation preference on the preferred stock
supports its carrying value. Common stock equity associated with shares issued
and committed to by the Investors totals $35 million. For the twelve weeks ended
April 9, 2000, WholePeople.com incurred losses from operations of approximately
$5.1 million and a net loss after taxes of approximately $4.1 million. The
accompanying condensed consolidated financial statements reflect the results of
operations of Amrion and WholeFoods.com as consolidated wholly-owned
subsidiaries through the end of the first quarter in the current fiscal year and
in all periods of the prior fiscal year, and reflect the financial position of
Amrion and WholeFoods.com as consolidated wholly-owned subsidiaries at September
26, 1999.
(6) Business Combination
During the second quarter of fiscal 2000, the Company acquired substantially all
of the assets of Natural Abilities, Inc., which operated three natural foods
supermarkets in Sonoma County, California area, in exchange for approximately
$25.7 million in cash plus the assumption of certain liabilities. This
transaction was accounted for using the purchase method and, accordingly, the
purchase price has been allocated to net assets acquired based on their
estimated fair values at the date of acquisition. Total costs in excess of net
assets acquired will be amortized on a straight-line basis over 20 years. Pro
forma results of operations are not presented due to the immaterial effect of
the acquired company's results on consolidated results of operations.
(7) Adoption of Accounting Standards
The American Institute of Certified Public Accountants ("AICPA") issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" in March 1998. SOP 98-1 is
effective for fiscal years beginning after December 15, 1998 and establishes
criteria for capitalizing certain internal use software costs. The Company has
adopted SOP 98-1 effective the beginning of the first quarter of fiscal year
2000. The adoption of SOP 98-1 did not have a material impact on the Company's
consolidated financial statements.
The AICPA issued SOP 98-5, "Reporting on the Costs of Start-up Activities" in
April 1998. SOP 98-5 requires costs of start-up activities and organization
costs to be expensed as incurred and is effective for financial statements
issued for fiscal years beginning after December 15, 1998. The Company has
adopted SOP 98-5 effective the beginning of the first quarter of fiscal year
2000. In fiscal 1999 and prior years, the Company capitalized pre-opening costs
and expensed such amounts in the quarter of the location opening. In accordance
with SOP 98-5, in the first quarter of fiscal year 2000 the Company has reported
the cumulative effect of a change in accounting principle, a one-time charge
totaling approximately $375,000 after taxes, representing start-up costs
capitalized at September 26, 1999.
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133") in June 1998. SFAS No. 133 establishes reporting
standards for derivative instruments and hedging activities that require an
entity to recognize all derivatives as assets or liabilities measured at fair
value and is effective for financial statements issued for all fiscal quarters
of fiscal years beginning after June 15, 2000. If certain conditions are met, a
derivative may be specifically designated as a hedge of the exposure to changes
in the fair market value, variable cash flow, or foreign currency of a
recognized asset or liability or certain other transactions and firm
commitments. The Company will adopt SFAS No. 133 in fiscal year 2001. The
Company is evaluating the impact of SFAS No.133 on its consolidated financial
statements.
The FASB issued Interpretation No. 44, "Accounting for Certain Transactions
Involving Stock Compensation - an interpretation of APB Opinion No. 25" ("FIN
44"), in March 2000. This interpretation clarifies the application of APB
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and, among
other issues, addresses the definition of employee for purposes of applying APB
25, the criteria for determining whether a plan qualifies as a noncompensatory
plan, the accounting consequence of various modifications to the terms of
previously fixed stock options or awards and the accounting for an exchange of
stock compensation awards in a business combination. The provisions of FIN 44
affecting the Company are effective July 1, 2000 and will be applied on a
prospective basis. The Company is evaluating the impact of FIN 44 on its
consolidated financial statements.
Page 9 of 14
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations - Twelve and twenty-eight weeks ended April 9, 2000
compared to the same periods of the prior year.
General
The Company reports its results of operations on a fifty-two or fifty-three week
fiscal year ending on the last Sunday in September. The first fiscal quarter is
sixteen weeks, the second and third quarters each are twelve weeks and the
fourth quarter is twelve or thirteen weeks. The following table sets forth the
Company's results of operations data expressed as a percentage of sales:
<TABLE>
<CAPTION>
Twelve weeks ended Twenty-eight weeks ended
April 9 April 11 April 9 April 11
2000 1999 2000 1999
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold and occupancy costs 65.3 65.4 65.7 66.0
- -----------------------------------------------------------------------------------------------------------------------
Gross profit 34.7 34.6 34.3 34.0
Selling, general and administrative expenses 28.2 28.3 28.7 28.4
Pre-opening and relocation costs 0.6 0.6 0.6 0.3
- -----------------------------------------------------------------------------------------------------------------------
Income from operations 5.9 5.7 5.0 5.3
Other income (expense):
Interest expense (0.9) (0.5) (0.7) (0.6)
Investment and other income 0.1 0.1 0.1 0.2
- -----------------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect of change in
accounting principle 5.2 5.3 4.3 5.0
Provision for income taxes 2.2 2.1 1.8 1.9
- -----------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of change in accounting principle 3.0 3.3 2.5 3.0
Cumulative effect of change in accounting principle, net of $272 of
income taxes - - - -
- -----------------------------------------------------------------------------------------------------------------------
Net income 3.0% 3.3% 2.5% 3.0%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Figures may not add due to rounding.
Sales
Sales increased 18.5% and 19.9% for the twelve and twenty-eight weeks ended
April 9, 2000, respectively, compared to the same periods of the prior fiscal
year. Core retail sales at natural foods supermarkets totaled $425 million and
$957 million for the twelve and twenty-eight weeks ended April 9, 2000,
respectively. This represents increases of 24.5% and 23.7% over the same periods
of the prior year due to the addition of twenty-two new and acquired stores to
the store base over the last year and comparable store sales increases of
approximately 7.5% and 8.6%, respectively. Sales in identical stores, which
excludes relocations, increased 5.6% and 7.6% for the twelve and twenty-eight
weeks ended April 9, 2000, respectively. Comparable and identical store sales
increases generally result from an increase in average transaction amounts and
in the number of customer transactions, reflecting an increase in market share
as the stores mature in a particular market.
Gross Profit
Gross profit consists of sales less cost of goods sold and occupancy costs plus
contribution from non-retail distribution and food preparation operations. The
Company's consolidated gross profit as a percentage of sales was 34.7% and 34.3%
for the twelve and twenty-eight weeks ended April 9, 2000, respectively,
compared to 34.6% and 34.0%, respectively, for the same periods of the prior
fiscal year. Core retail gross profit at natural foods supermarkets as a
percentage of sales was 34.7% and 34.2% for the twelve and twenty-eight weeks
ended April 9, 2000, respectively, compared to 33.9% and 33.3%, respectively,
for the same periods of the prior fiscal year. These increases reflect increased
national buying and private label initiatives which continue to lower the cost
of product purchased on a national basis, increased percentage of sales in
certain regions and departments where the Company achieves higher gross profits,
and continued improvement in store execution with respect to product
procurement, merchandising and controlling spoilage.
Page 10 of 14
<PAGE>
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of sales were 28.2%
and 28.7% for the twelve and twenty-eight weeks ended April 9, 2000,
respectively, compared to 28.3% and 28.4%, respectively, for the same periods of
the prior fiscal year. Core retail selling, general and administrative expenses
as a percentage of sales were 28.2% and 28.3% for the twelve and twenty-eight
weeks ended April 9, 2000, respectively, compared to 27.6% and 27.7%,
respectively, for the same periods of the prior fiscal year. These increases
were due entirely to higher direct store expenses as a percentage of sales at
new and acquired stores added over the last year. Direct store expenses as a
percentage of sales at existing stores for the twelve and twenty-eight weeks
ended April 9, 2000, were consistent with the same periods of the prior fiscal
year. Year-to-date consolidated selling, general and administrative expenses
include increases at WholePeople.com in the first fiscal quarter that were the
result of increased staffing and other costs associated with web site and
product category development costs.
Store Contribution
Store contribution consists of core retail gross profit less direct store
expenses. Store contribution as a percentage of core retail sales was 9.9% and
9.4% for the twelve and twenty-eight weeks ended April 9, 2000, respectively,
compared to 9.8% and 9.0%, respectively, for the same periods of the prior
fiscal year.
Pre-opening and Relocation Costs
Pre-opening costs include hiring and training personnel, supplies, and certain
occupancy and miscellaneous costs related to new store and facility openings and
are incurred primarily in the thirty days prior to a new store opening.
Relocation costs consist of moving costs, remaining lease payments, accelerated
depreciation costs and other costs associated with replaced facilities and other
related expenses. SOP 98-5 requires costs of start-up activities and
organization costs to be expensed as incurred and is effective for financial
statements issued for fiscal years beginning after December 15, 1998. The
Company has adopted SOP 98-5 effective the beginning of the first quarter of
fiscal year 2000. In fiscal 1999 and prior years, the Company capitalized pre-
opening costs as incurred and subsequently expensed such amounts in the quarter
of the location opening. Pre-opening and relocation costs for the twelve and
twenty-eight weeks ended April 9, 2000 consist primarily of costs associated
with the openings of five new stores during the first quarter, four new stores
during the second quarter and two new stores and one relocated store opened
subsequent to the end of the second quarter. In the prior year, pre-opening and
relocation costs for the twelve and twenty-eight weeks were associated with the
opening of one new store and the relocation of one store in the second quarter.
Interest Expense
Interest expense consists of costs related to the convertible subordinated
debentures, senior notes payable and bank line of credit, net of capitalized
interest associated with new store development. Net interest expense for the
twelve and twenty-eight weeks ended April 9, 2000 totaled approximately $3.7
million and $7.2 million, respectively, compared to approximately $1.9 million
and $4.6 million, respectively, for the same periods of the prior fiscal year.
These increases are due primarily to additional amounts outstanding under the
Company's bank line of credit in fiscal 2000. Capitalized interest for the
twelve and twenty-eight weeks ended April 9, 2000 totaled approximately $0.4
million and $1.4 million, respectively, compared to approximately $0.3 million
and $0.6 million, respectively, for the same periods of the prior fiscal year.
Investment and Other Income
Investment and other income for the twelve and twenty-eight weeks ended April 9,
2000 totaled approximately $0.4 million and $0.9 million, respectively, compared
to $0.5 million and $1.5 million, respectively, for the same periods of the
prior fiscal year. These decreases are primarily due to a decline in interest
income earned through the second quarter of the prior year on investments in
available for sale securities.
Cumulative Effect of Change in Accounting Principle
In accordance with SOP 98-5, in the first quarter of fiscal year 2000 the
Company reported the cumulative effect of a change in accounting principle, a
one-time charge totaling approximately $375,000 after taxes, representing start-
up costs capitalized at September 26, 1999.
Page 11 of 14
<PAGE>
Liquidity and Capital Resources and Changes in Financial Condition
During the first quarter of fiscal 2000, the Company repurchased 429,000 shares
of its common stock for approximately $13.5 million. During the second quarter
of fiscal year 2000, the Company acquired substantially all of the assets of
Natural Abilities, Inc. in exchange for approximately $25.7 million in cash plus
the assumption of certain liabilities.
Whole Foods Market's principal historical capital requirements have been the
funding of the development or acquisition of new stores, expansions and
improvements in existing stores and increases in overall 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
$750,000, a substantial portion of which is financed by the vendors of Whole
Foods Market. Subsequent to the end of the second quarter the Company has opened
two new stores and relocated one store, and five additional stores are expected
to open during the fourth fiscal quarter. The Company has twenty-three stores
currently under development that are expected to open during the next three
fiscal years. During the second quarter of fiscal 2000, the Company expanded its
current credit facility to $160 million. At April 9, 2000 the Company had $107
million outstanding under the line of credit. The Company expects that cash
generated from operations and cash available under its existing credit facility
and the anticipated expansion of its line of credit will be sufficient to
finance planned expansion and other anticipated working capital and capital
expenditure requirements.
Risk Factors
The Company wishes to caution readers that inherent risks and uncertainties
including those listed in the Company's Annual Report on Form 10-K for the year
ended September 26, 1999, among others, could cause the actual results of Whole
Foods Market to differ materially from those indicated by forward-looking
statements made in this Quarterly Report on Form 10-Q. "Forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 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. Except for historical information, the matters discussed in this
report 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 or relocated stores, the impact of
competition, and other factors which are often beyond the control of the
Company. Additionally, effective January 14, 2000, the operating results of
WholePeople.com will not be reflected in the Company's consolidated results of
operations as long as positive common stock equity is available in
WholePeople.com and the Company's liquidation preference on the preferred stock
supports its carrying value. Common stock equity associated with shares issued
and committed to by the Investors totals $35 million. There can be no assurance
that WholePeople.com will be able to operate profitably or obtain additional
public or private financing, and therefore if positive common stock equity is no
longer available in WholePeople.com or the Company's liquidation preference on
the preferred stock no longer supports its carrying value, the Company's future
consolidated results of operations may include results of WholePeople.com. The
Company does not undertake any obligation to update forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the Company's market risk exposures from
those reported in the Company's Annual Report on Form 10-K for the year ended
September 26, 1999.
Page 12 of 14
<PAGE>
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
On March 27, 2000, the Company held its annual meeting of shareholders at which
shareholders were asked (i) to elect to the Board of Directors three directors
to serve a three-year term expiring at the annual meeting of shareholders in
2003; (ii) to consider and act upon a proposed amendment to the Company's 1992
Incentive Stock Option Plan for Team Members (the "Plan") to increase the number
of shares of the Company's common stock reserved for issuance under the Plan
from 5.3 million to 6.1 million shares and to delete Section 19 of the Plan,
which provided a plan termination date of December 31, 2001; and (iii) to
consider and act upon a shareholder proposal to hire a proxy advisory firm for
one year, to be chosen by shareholder vote. Voting results were as follows:
For Against Abstaining
---------- ---------- ----------
(i) Director elections:
Dr. John B. Elstrott 21,460,063 9,610 1,396,442
Avram J. Goldberg 21,344,020 125,653 1,395,666
Dr. Ralph Z. Sorenson 21,569,472 204,093 1,396,442
(ii) Amendment to Stock Option Plan 12,877,558 3,072,945 161,248
(iii) Shareholder proposal 1,408,077 14,379,671 322,247
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibit is filed with this report:
Exhibit 27 Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the fiscal quarter
ended April 9, 2000.
Page 13 of 14
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Whole Foods Market, Inc.
------------------------
Registrant
Date: May 23, 2000 By: Glenda Flanagan
------------- ---------------
Glenda Flanagan
Vice President and
Chief Financial Officer
(Duly authorized officer and
principal financial officer)
Page 14 of 14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE WHOLE
FOODS MARKET APRIL 9, 2000 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 7-MOS
<FISCAL-YEAR-END> SEP-24-2000
<PERIOD-END> APR-09-2000
<CASH> 1,731
<SECURITIES> 0
<RECEIVABLES> 21,531
<ALLOWANCES> 0
<INVENTORY> 85,920
<CURRENT-ASSETS> 129,444
<PP&E> 443,601
<DEPRECIATION> 0
<TOTAL-ASSETS> 745,513
<CURRENT-LIABILITIES> 137,147
<BONDS> 0
0
0
<COMMON> 200,655
<OTHER-SE> 124,224
<TOTAL-LIABILITY-AND-EQUITY> 745,513
<SALES> 977,673
<TOTAL-REVENUES> 977,673
<CGS> 642,121
<TOTAL-COSTS> 642,121
<OTHER-EXPENSES> 285,971
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,218
<INCOME-PRETAX> 42,363
<INCOME-TAX> 17,792
<INCOME-CONTINUING> 24,571
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 375
<NET-INCOME> 24,196
<EPS-BASIC> 0.93
<EPS-DILUTED> 0.90
</TABLE>
