-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HgNn5+bmrjJraostguesF2VnCUlTEmyK5+WryclvnEw7kgtr9xOghJYmS/OpgYmj GvDITFBInjdDmIKudv5e5w== 0000899243-01-000479.txt : 20010307 0000899243-01-000479.hdr.sgml : 20010307 ACCESSION NUMBER: 0000899243-01-000479 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010114 FILED AS OF DATE: 20010228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WHOLE FOODS MARKET INC CENTRAL INDEX KEY: 0000865436 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 741989366 STATE OF INCORPORATION: TX FISCAL YEAR END: 0929 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19797 FILM NUMBER: 1557267 BUSINESS ADDRESS: STREET 1: 601 N LAMAR BLVD STREET 2: STE 300 CITY: AUSTIN STATE: TX ZIP: 78703 BUSINESS PHONE: 5124774455 MAIL ADDRESS: STREET 1: 601 N LAMAR BLVD STREET 2: STE 300 CITY: AUSTIN STATE: TX ZIP: 78703 10-Q 1 0001.txt FORM 10-Q FOR THE PERIOD ENDED 01/14/2001 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 January 14, 2001; or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _________________ to ________________. Commission File Number: 0-19797 WHOLE FOODS MARKET, INC. (Exact name of registrant as specified in its charter) TEXAS 74-1989366 (State of (IRS employer incorporation) identification no.) 601 N. LAMAR SUITE 300 Austin, Texas 78703 (Address of principal executive offices) (ZIP Code) Registrant's telephone number, including area code: 512-477-4455 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes X No --- --- The number of shares of the registrant's common stock, no par value, outstanding as of January 14, 2001 was 26,702,597 shares. Page 1 of 11 WHOLE FOODS MARKET, INC. AND SUBSIDIARIES FORM 10-Q TABLE OF CONTENTS Part I. Financial Information Page ---- Item 1. Financial Statements Condensed Consolidated Balance Sheets (Unaudited), 3 January 14, 2001 and September 24, 2000 Condensed Consolidated Income Statements (Unaudited), for the 16 weeks ended January 14, 2001 and January 16, 2000 4 Condensed Consolidated Statements of Cash Flows (Unaudited), for the 16 weeks ended January 14, 2001 and January 16, 2000 5 Notes to Condensed Consolidated Financial Statements (Unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk 10 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 10 Signature 11 Page 2 of 11 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS WHOLE FOODS MARKET, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCED SHEETS (UNAUDITED) In thousands January 14, 2001 and September 24, 2000
ASSETS 2001 2000 ------ ------ Current assets: Cash and cash equivalents $ 7,109 395 Trade accounts receivable 22,830 21,836 Merchandise inventories 101,673 93,858 Prepaid expenses and other current assets 37,353 35,632 -------- ------- Total current assets 168,965 151,721 Property and equipment, net of accumulated depreciation and amortization 503,963 468,678 Long-term investments 9,641 9,632 Acquired leasehold rights, net of accumulated amortization 13,451 13,753 Excess of cost over net assets acquired, net of accumulated amortization 69,102 69,867 Other assets, net of accumulated amortization 17,994 17,628 Net assets of discontinued operations 28,921 29,120 -------- ------- $812,037 760,399 ======== ======= LIABILITIES AND SHAREHOLDERS' EQUITY 2001 2000 ------ ------ Current liabilities: Current installments of long-term debt and capital lease obligations 7,890 7,884 Trade accounts payable 58,901 49,985 Accrued payroll, bonus and employee benefits 39,634 37,534 Other accrued expenses 40,389 47,238 -------- ------- Total current liabilities 146,814 142,641 Long-term debt and capital lease obligations, less current installments 324,310 298,070 Other long-term liabilities 12,649 12,531 -------- ------- Total liabilities 483,773 453,242 -------- ------- Shareholders' equity: Common stock, no par value, 100,000 shares authorized, 27,299 and 27,222 shares issued, 26,703 and 26,466 shares outstanding in 2001 and 2000, respectively 236,709 235,648 Common stock in treasury, at cost (18,686) (23,688) Retained earnings 110,241 95,197 -------- ------- Total shareholders' equity 328,264 307,157 -------- ------- Commitments and contingencies -------- ------- $812,037 760,399 ======== =======
See accompanying notes to condensed consolidated financial statements. Page 3 of 11 WHOLE FOODS MARKET, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED) In thousands, except per share data
Sixteen weeks ended January 14 January 16 2001 2000 ----------- ----------- Sales $643,435 532,626 Cost of goods sold and occupancy costs 422,917 353,034 -------- ------- Gross profit 220,518 179,592 Selling, general and administrative expenses 185,790 150,639 Amortization expense 1,749 1,565 Pre-opening and relocation costs 2,647 3,630 -------- ------- Operating income 30,332 23,758 Other income (expense): Interest expense (5,810) (3,477) Investment and other income 552 460 -------- ------- Income from continuing operation before income taxes and cumulative effect of change in accounting principle 25,074 20,741 Provision for income taxes 10,030 8,691 -------- ------- Income from continuing operations before cumulative effect of change in accounting principle 15,044 12,050 Discontinued operations: Loss from discontinued operations, net of income taxes - (218) -------- ------- Income before cumulative effect of change in accounting principle 15,044 11,832 Cumulative effect of change in accounting principle, net of income taxes - (375) -------- ------- Net income $ 15,044 11,457 ======== ======= Basic earnings per share: Income from continuing operations before cumulative effect of change in accounting principle $ 0.57 0.46 Loss from discontinued operations, net of income taxes - (0.01) Cumulative effect of change in accounting principle, net of income taxes - (0.01) -------- ------- Net income $ 0.57 0.44 ======== ======= Weighted average shares outstanding 26,569 26,025 ======== ======= Diluted earnings per share: Income from continuing operations before cumulative effect of change in accounting principle $ 0.54 0.45 Loss from discontinued operations, net of income taxes - (0.01) Cumulative effect of change in accounting principle, net of income taxes - (0.01) -------- ------- Net income $ 0.54 0.43 ======== ======= Weighted average shares outstanding, diluted basis 27,855 26,938 ======== =======
See accompanying notes to condensed consolidated financial statements. Page 4 of 11 WHOLE FOODS MARKET, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) In thousands
Sixteen weeks ended January 14 January 16 2001 2000 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Income from continuing operations $ 15,044 12,050 Adjustments to reconcile income from continuing operations to net cash flows provided by operating activities: Depreciation and amortization 21,796 17,924 Loss on disposal of fixed assets (390) (172) Rent differential 181 429 Change in LIFO reserve 600 459 Interest accretion on long-term debt 2,028 1,928 Tax benefit related to exercise of employee stock options 941 486 Net change in current assets (11,130) (13,160) Net change in current liabilities 1,889 12,990 -------- ------- Net cash provided by operating activities 30,959 32,934 -------- ------- Cash flows from investing activities Acquisition of property and equipment (54,720) (44,928) -------- ------- Net cash used in investing activities (54,720) (44,928) -------- ------- Cash flows from financing activities Net proceeds from long-term borrowings 25,000 28,000 Issuance of common stock 6,063 672 Payments on long-term debt and capital lease obligations (787) (193) Purchase of treasury stock - (13,534) -------- ------- Net cash provided by financing activities 30,276 14,945 -------- ------- Cash flows from discontinued operations Net cash provided by (used in) discontinued operations 199 (2,893) Net increase in cash and cash equivalents 6,714 58 Cash and cash equivalents at beginning of period 395 3,582 -------- ------- Cash and cash equivalents at end of period $ 7,109 3,640 ======== ======= Supplemental disclosures of cash flow information: Interest paid $ 2,468 1,220 ======== ======= Federal and state income taxes paid $ 7,258 1,680 ======== =======
See accompanying notes to condensed consolidated financial statements. Page 5 of 11 WHOLE FOODS MARKET, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) January 14, 2001 (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 24, 2000. 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):
Sixteen weeks ended January 14 January 16 2001 2000 ------ ------ Denominator for basic earnings per share: weighted average shares 26,569 26,025 Additional shares deemed outstanding from the assumed exercise of stock options 1,286 913 ------ ------ Denominator for diluted earnings per share: adjusted weighted average shares and assumed exercises 27,855 26,938 ====== ======
The computations of diluted earnings per share for the sixteen week periods ended January 14, 2001 and January 16, 2000 do not include options to purchase approximately 1,108,000 shares and 1,395,000 shares, respectively, of common stock because to do so would be antidilutive. The computations of diluted earnings per share for both 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 11 (3) DISCONTINUED OPERATIONS In November 2000, the Company adopted a formal plan to sell the NatureSmart (formerly Amrion, Inc.) business of manufacturing and direct marketing of nutritional supplements. The NatureSmart business has been segregated from continuing operations and reported as discontinued operations in the accompanying consolidated financial statements. The loss on disposition of the NatureSmart business reported at September 24, 2000 included the writedown to estimated net realizable value of the business being discontinued, costs associated with the planned disposal and the estimated loss from operations of the discontinued business through the expected date of disposition. For the sixteen weeks ended January 14, 2001, the NatureSmart discontinued operations had no impact on the Company's income statement. For the sixteen weeks ended January 16, 2000, the loss from NatureSmart discontinued operations totaled approximately $218,000, net of income taxes of approximately $123,000. The assets and liabilities of NatureSmart, which have been reflected on a net basis on the consolidated balance sheets, are summarized as follows (in thousands):
January 14 September 24 2001 2000 ---------- ------------ Current assets $10,895 11,392 Long-term assets 29,187 29,187 ------- ------ Total assets 40,082 40,579 ------- ------ Current liabilities 11,161 11,459 Long-term liabilities - - ------- ------ Total liabilities 11,161 11,459 ------- ------ Net assets of discontinued operations $28,921 29,120 ======= ======
(4) ADOPTION OF ACCOUNTING STANDARDS The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133") in June 1998 as amended by SFAS No. 138, which was issued in June 2000. SFAS No. 133 establishes reporting standards for derivative instruments and hedging activities that require an entity to recognize all derivatives as assets or liabilities measured at fair value and is effective for financial statements issued for all fiscal quarters of fiscal years beginning after June 15, 2000. If certain conditions are met, a derivative may be specifically designated as a hedge of the exposure to changes in the fair value, variable cash flow, or foreign currency of a recognized asset or liability or certain other transactions and firm commitments. We adopted SFAS No. 133 in the first quarter of fiscal year 2001. The adoption of SFAS No. 133 did not have any impact on the Company's consolidated financial statements. Page 7 of 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - Sixteen weeks ended January 14, 2001 compared to the same period 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:
Sixteen weeks ended January 14 January 16 2001 2000 ---------- -------- Sales 100.0% 100.0% Cost of goods sold and occupancy costs 65.7 66.3 ----- ----- Gross profit 34.3 33.7 Selling, general and administrative expenses 28.9 28.3 Amortization expense 0.3 0.3 Pre-opening and relocation costs 0.4 0.7 ----- ----- Operating income 4.7 4.5 Other income (expense): Interest expense (0.9) (0.7) Investment and other income 0.1 0.1 ----- ----- Income from continuing operations before income taxes and cumulative effect of change in accounting principle 3.9 3.9 Provision for income taxes 1.6 1.6 ----- ----- Income from continuing operations before cumulative effect of change in accounting principle 2.3 2.3 Discontinued operations: Loss from discontinued operations, net of income taxes 0.0 0.0 ----- ----- Income before cumulative effect of change in accounting principle 2.3 2.2 Cumulative effect of change in accounting principle, net of of income taxes 0.0 (0.1) ----- ----- Net income 2.3% 2.2% ===== =====
Figures may not add due to rounding. SALES Sales from continuing operations totaled approximately $643 million for the sixteen weeks ended January 14, 2001. This increase of approximately 21% over sales of approximately $533 million for the same period of the prior year is due to the addition of eighteen new and acquired stores to the store base over the last year and comparable store sales increases of approximately 7.3%. Comparable store sales increases for the first quarter of the prior fiscal year were approximately 9.7%. Comparable store sales were negatively impacted by tougher than expected holiday comparisons. Through the eleventh week of the quarter, comparable store sales were averaging 8.6%, but only averaged 4.2% for the four- week period around the Christmas and New Year's Eve holidays. In the prior year, comparable store sales averaged 12.5% for that same four-week period. Sales of a store are deemed to be comparable commencing in the fifty-third full week after the store was opened or acquired. Sales in identical stores, which excludes relocations, increased approximately 6.5%. 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. Page 8 of 11 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 from continuing operations as a percentage of sales was approximately 34.3% for the sixteen weeks ended January 14, 2001 compared to approximately 33.7% for the same period of the prior fiscal year. This increase reflects increased national buying and private label initiatives which continue to lower the cost of product purchased on a national basis, increased percentage of sales in certain regions and departments where the Company achieves higher gross profits, and continued improvement in store execution with respect to product procurement, merchandising and controlling spoilage. Gross profit for the first quarter of fiscal year 2001 was negatively impacted by higher than expected utility costs, which increased approximately 15 basis points over the prior year. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses from continuing operations as a percentage of sales were approximately 28.9% for the sixteen weeks ended January 14, 2001 compared to approximately 28.3% for the same period of the prior fiscal year. This increase was due 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 sixteen weeks ended January 14, 2001 were consistent with the same period of the prior fiscal year. AMORTIZATION Amortization expense consists primarily of costs associated with the amortization of excess of cost over net assets acquired and non-competition agreements. Amortization expense from continuing operations as a percentage of sales was approximately 0.3% for both the sixteen week periods ended January 14, 2001 and January 16, 2000. PRE-OPENING AND RELOCATION COSTS Pre-opening costs include costs associated with hiring and training personnel, supplies and certain occupancy and miscellaneous costs related to new locations. The AICPA issued SOP 98-5, "Reporting on the Costs of Start-up Activities" in April 1998. SOP 98-5 requires costs of start-up activities and organization costs to be expensed as incurred. We adopted SOP 98-5 effective the beginning of the first quarter of fiscal year 2000. In accordance with SOP 98-5, in the first quarter of fiscal year 2000 we reported the cumulative effect of a change in accounting principle, a one-time charge totaling approximately $375,000, net of approximately $272,000 of taxes, representing start-up costs capitalized at September 26, 1999. The adoption of SOP 98-5 did not have a material impact on our consolidated financial statements. Relocation costs consist of moving costs, remaining lease payments, accelerated depreciation costs and other costs associated with replaced facilities and other related expenses. Pre-opening and relocation costs for the sixteen weeks ended January 14, 2001 consist primarily of costs associated with the openings of three new stores during the first quarter and development of nine new stores scheduled to open in future periods. In the prior year, pre-opening and relocation costs for the sixteen weeks were associated with the openings of five new stores during the quarter and two new stores opened subsequent to the end of the first 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 sixteen weeks ended January 14, 2001 totaled approximately $5.8 million compared to approximately $3.5 million for the same period of the prior fiscal year. These increases are due primarily to additional amounts outstanding under the Company's bank line of credit in fiscal 2001. Capitalized interest for the sixteen weeks ended January 14, 2001 totaled approximately $0.8 million compared to approximately $1.0 million for the same period of the prior fiscal year. INVESTMENT AND OTHER INCOME Investment and other income for the sixteen week periods ended January 14, 2001 and January 16, 200 totaled approximately $0.6 million and approximately $0.5 million, respectively. Investment and other income consists primarily of interest, rental and other income. Page 9 of 11 DISCONTINUED OPERATIONS In November 2000, the Company adopted a formal plan to sell the NatureSmart (formerly Amrion, Inc.) business of manufacturing and direct marketing of nutritional supplements. The NatureSmart business has been segregated from continuing operations and reported as discontinued operations in the accompanying consolidated financial statements. The loss on disposition of the NatureSmart business reported at September 24, 2000 included the writedown to estimated net realizable value of the business being discontinued, costs associated with the planned disposal and the estimated loss from operations of the discontinued business through the expected date of disposition. For the sixteen weeks ended January 14, 2001, the NatureSmart discontinued operations had no impact on the Company's income statement. For the sixteen weeks ended January 16, 2000, the loss from NatureSmart discontinued operations totaled approximately $218,000, net of income taxes of approximately $123,000. LIQUIDITY AND CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION At January 14, 2001 and September 24, 2000, our working capital was approximately $22 million and $9.1 million, respectively, and the ratio of current assets to current liabilities was approximately 1.15 to 1 and 1.06 to 1, respectively. Net cash provided by operating activities was approximately $31.0 million and $32.9 million and net cash provided by financing activities was approximately $30.3 million and $14.9 million for the sixteen weeks ended January 14, 2001 and January 16, 2000, respectively. Whole Foods Market's principal capital requirements have been the funding of the development or acquisition of new stores and to lesser extent, the resultant increase in working capital requirements. We estimate that cash requirements to open a new store will range from $3 million to $12 million (after giving effect to any landlord construction allowance). This excludes new store inventory of approximately $750,000, a portion of which is financed by our vendors. As of February 13, 2001 we had signed leases for 22 new stores averaging approximately 34,000 square feet in size. We expect to open or acquire 15 to 20 new stores per year, including relocations of existing stores, in each of the next two fiscal years. We will incur additional capital expenditures in the current fiscal year in connection with ongoing equipment upgrades and resets at existing stores and continued development of management information systems. Net cash used in investing activities was approximately $54.7 million and $44.9 million for the sixteen weeks ended January 14, 2001 and January 16, 2000, respectively. We expect that planned expansion and other anticipated working capital and capital expenditure requirements will be funded by cash generated from operations and long-term debt. We continually evaluate the need to establish other sources of working capital and will seek those considered appropriate based upon the Company's needs and market conditions. RISK FACTORS We wish to caution you that there are risks and uncertainties that could cause our actual results to be materially different from those indicated by forward- looking statements that we make from time to time in filings with the Securities and Exchange Commission, news releases, reports, proxy statements, registration statements and other written communications, as well as oral forward-looking statements made from time to time by representatives of our Company. These risks and uncertainties include, but are not limited to, those listed in the Company's Annual Report on Form 10-K for the year ended September 24, 2000. These risks and uncertainties and additional risks and uncertainties not presently known to us or that we currently deem immaterial may cause our business, financial condition, operating results and cash flows to be materially adversely affected. Except for the historical information contained herein, the matters discussed in this analysis are forward looking statements that involve risks and uncertainties, including but not limited to general business conditions, the timely development and opening of new stores, the impact of competition, our ability to dispose of the NatureSmart business through the sale of our ownership of its operating units and assets as planned and other factors which are often beyond the control of the Company. The Company does not undertake any obligation to update forward-looking statements except as required by law. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes in the Company's market risk exposures from those reported in our Annual Report on Form 10-K for the year ended September 24, 2000. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K The Company did not file any reports on Form 8-K during the fiscal quarter ended January 14, 2001. Page 10 of 11 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: February 27, 2001 By: /s/ Glenda Flanagan ------------------ ------------------- Glenda Flanagan Vice President and Chief Financial Officer (Duly authorized officer and principal financial officer) Page 11 of 11 -----END PRIVACY-ENHANCED MESSAGE-----