10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the period ended July 6, 2008; or

o 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.)

550 Bowie St.

Austin, Texas 78703

(Address of principal executive offices)

512-477-4455

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer x	Accelerated filer o
Non-accelerated filer  o  (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

Yes o No x

The number of shares of the registrant’s common stock, no par value, outstanding as of July 6, 2008 was 140,285,434 shares.

Whole Foods Market, Inc.

Form 10-Q

Table of Contents

	Page
	Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited), July 6, 2008 and September 30, 2007	3
Consolidated Statements of Operations (unaudited), for the twelve and forty weeks ended July 6, 2008 and July 1, 2007	4
Consolidated Statements of Shareholders’ Equity and Comprehensive Income (unaudited), for the forty weeks ended July 6, 2008 and fiscal year ended September 30, 2007	5
Consolidated Statements of Cash Flows (unaudited), for the forty weeks ended July 6, 2008 and July 1, 2007	6
Notes to Consolidated Financial Statements (unaudited)	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3. Quantitative and Qualitative Disclosures About Market Risk	30
Item 4. Controls and Procedures	30
Part II. Other Information
Item 1. Legal Proceedings	31
Item 5. Other Information	32
Item 6. Exhibits	34
Signature	35

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Part I. Financial Information

Item 1. Financial Statements

Whole Foods Market, Inc.

Consolidated Balance Sheets (unaudited)

July 6, 2008 and September 30, 2007

(In thousands)

	2008		2007
Assets
Current assets:
Cash and cash equivalents	$	24,917	$	—
Restricted cash	2,367		2,310
Accounts receivable	127,618		105,209
Proceeds receivable for divestiture	—		165,054
Merchandise inventories	316,086		288,112
Prepaid expenses and other current assets	35,538		40,402
Deferred income taxes	73,275		66,899
Total current assets	579,801		667,986
Property and equipment, net of accumulated depreciation and amortization	1,847,453		1,666,559
Goodwill	682,758		668,850
Intangible assets, net of accumulated amortization	82,297		97,683
Deferred income taxes	111,258		104,877
Other assets	10,439		7,173
Total assets	$	3,314,006	$	3,213,128

	2008		2007
Liabilities and Shareholders’ Equity
Current liabilities:
Current installments of long-term debt and capital lease obligations	$	372	$	24,781
Accounts payable	179,749		225,728
Accrued payroll, bonus and other benefits due team members	201,124		181,290
Dividends payable	28,057		25,060
Other current liabilities	305,189		315,491
Total current liabilities	714,491		772,350
Long-term debt and capital lease obligations, less current installments	840,093		736,087
Deferred lease liabilities	189,725		152,552
Other long-term liabilities	64,871		93,335
Total liabilities	1,809,180		1,754,324
Shareholders’ equity:
Common stock, no par value, 300,000 shares authorized, 140,286 and 143,787 shares issued, 140,285 and 139,240 shares outstanding in 2008 and 2007, respectively	1,062,546		1,232,845
Common stock in treasury, at cost	—		(199,961		)
Accumulated other comprehensive income	4,360		15,722
Retained earnings	437,920		410,198
Total shareholders’ equity	1,504,826		1,458,804
Commitments and contingencies
Total liabilities and shareholders’ equity	$	3,314,006	$	3,213,128

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

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Whole Foods Market, Inc.

Consolidated Statements of Operations (unaudited)

(In thousands, except per share amounts)

	Twelve weeks ended						Forty weeks ended
	July 6,			July 1,			July 6,			July 1,
	2008			2007			2008			2007
Sales	$	1,841,242		$	1,514,420		$	6,164,993		$	4,848,361
Cost of goods sold and occupancy costs	1,208,495			976,130			4,054,290			3,154,840
Gross profit	632,747			538,290			2,110,703			1,693,521
Direct store expenses	490,188			394,713			1,631,466			1,256,805
General and administrative expenses	60,689			49,003			215,759			150,591
Pre-opening and relocation costs	17,781			14,995			49,789			46,913
Operating income	64,089			79,579			213,689			239,212
Interest expense	(8,094		)	(24		)	(28,113		)	(31		)
Investment and other income	1,495			2,223			5,430			8,837
Income before income taxes	57,490			81,778			191,006			248,018
Provision for income taxes	23,571			32,711			77,984			99,207
Net income	$	33,919		$	49,067		$	113,022		$	148,811
Basic earnings per share	$	0.24		$	0.35		$	0.81		$	1.06
Weighted average shares outstanding	140,231			140,061			139,766			140,411
Diluted earnings per share	$	0.24		$	0.35		$	0.81		$	1.05
Weighted average shares outstanding, diluted basis	140,322			141,250			140,308			142,366
Dividends declared per share	$	0.20		$	0.18		$	0.60		$	0.69

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

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Whole Foods Market, Inc.

Consolidated Statements of Shareholders’ Equity and Comprehensive Income (unaudited)

Forty weeks ended July 6, 2008 and fiscal year ended September 30, 2007

(In thousands)

									Accumulated
						Common			Other						Total
	Shares		Common			Stock in			Comprehensive			Retained			Shareholders’
	Outstanding		Stock			Treasury			Income (Loss)			Earnings			Equity
Balances at September 24, 2006	139,607		$	1,147,872		$	(99,964	)	$	6,975		$	349,260		$	1,404,143
Net income	—		—			—			—			182,740			182,740
Foreign currency translation adjustments	—		—			—			8,824			—			8,824
Change in unrealized loss on investments, net of income taxes	—		—			—			(77		)	—			(77		)
Comprehensive income															191,487
Dividends ($0.87 per share)	—		—			—			—			(121,802		)	(121,802		)
Issuance of common stock pursuant to team member stock plans	1,961		52,925			—			—			—			52,925
Purchase of treasury stock	(2,542	)	—			(99,997		)	—			—			(99,997		)
Excess tax benefit related to exercise of team member stock options	—		13,187			—			—			—			13,187
Share-based payments expense	—		13,175			—			—			—			13,175
Conversion of subordinated debentures	214		5,686			—			—			—			5,686
Balances at September 30, 2007	139,240		1,232,845			(199,961		)	15,722			410,198			1,458,804
Net income	—		—			—			—			113,022			113,022
Foreign currency translation adjustments	—		—			—			(3,619		)	—			(3,619		)
Change in unrealized loss on cash flow hedge instruments, net of income taxes	—		—			—			(7,743		)	—			(7,743		)
Comprehensive income															101,660
Dividends ($0.60 per share)	—		—			—			—			(84,012		)	(84,012		)
Issuance of common stock pursuant to team member stock plans	1,039		17,206			—			—			—			17,206
Retirement of treasury stock	—		(199,961		)	199,961			—			—			—
Excess tax benefit related to exercise of team member stock options	—		4,442			—			—			—			4,442
Share-based payments expense	—		7,599			—			—			—			7,599
Cumulative effect of new accounting standard adoption (Note 8)	—		—			—			—			(1,288		)	(1,288		)
Other	6		415			—			—			—			415
Balances at July 6, 2008	140,285		$	1,062,546		$	—		$	4,360		$	437,920		$	1,504,826

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

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Whole Foods Market, Inc.

Consolidated Statements of Cash Flows (unaudited)

(In thousands)

	Forty weeks ended
	July 6,			July 1,
	2008			2007
Cash flows from operating activities:
Net income	$	113,022		$	148,811
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	189,386			137,643
Loss on disposition of fixed assets	2,823			3,562
Share-based payments expense	7,599			10,687
Deferred income tax benefit	(6,693		)	(13,553		)
Excess tax benefit related to exercise of team member stock options	(5,162		)	(11,609		)
Deferred lease liabilities	35,044			9,950
Other	6,240			6,507
Net change in current assets and liabilities:
Accounts receivable	(22,382		)	3,066
Merchandise inventories	(36,006		)	(42,278		)
Prepaid expense and other current assets	1,240			2,828
Accounts payable	(49,335		)	16,128
Accrued payroll, bonus and other benefits due team members	19,144			11,976
Other current liabilities	16,990			17,460
Net change in other long-term liabilities	(4,719		)	807
Net cash provided by operating activities	267,191			301,985
Cash flows from investing activities:
Development costs of new store locations	(282,529		)	(272,923		)
Other property and equipment expenditures	(109,671		)	(109,937		)
Proceeds from hurricane insurance	1,500			—
Acquisition of intangible assets	(1,502		)	(22,351		)
Purchase of available-for-sale securities	(194,316		)	(270,206		)
Sale of available-for-sale securities	194,316			440,818
Decrease (increase) in restricted cash	(57		)	57,785
Payment for purchase of acquired entities, net	(20,130		)	(3,841		)
Proceeds received from divestiture, net	163,913			—
Other investing activities	(3,175		)	(451		)
Net cash used in investing activities	(251,651		)	(181,106		)
Cash flows from financing activities:
Dividends paid	(81,015		)	(71,711		)
Issuance of common stock	18,019			47,742
Purchase of treasury stock	—			(99,997		)
Excess tax benefit related to exercise of team member stock options	5,162			11,609
Proceeds from long-term borrowings	174,000			—
Payments on long-term debt and capital lease obligations	(107,050		)	(65		)
Other financing activities	261			—
Net cash provided by (used in) financing activities	9,377			(112,422		)
Net change in cash and cash equivalents	24,917			8,457
Cash and cash equivalents at beginning of period	—			2,252
Cash and cash equivalents at end of period	$	24,917		$	10,709
Supplemental disclosures of cash flow information:
Interest paid	$	33,230		$	232
Federal and state income taxes paid	$	85,119		$	107,926
Non-cash transactions:
Conversion of convertible debentures into common stock, net of fees	$	154		$	5,686

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

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Whole Foods Market, Inc.

Notes to Consolidated Financial Statements (unaudited)

July 6, 2008

(1) Basis of Presentation

The accompanying unaudited consolidated financial statements of Whole Foods Market, Inc. and its consolidated subsidiaries (collectively “Whole Foods Market,” “Company,” or “We”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The information included in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis, the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2007. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation. Interim results are not necessarily indicative of results for any other interim period or for a full fiscal year. The Company reports its results of operations on a 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. Fiscal year 2008 is a fifty-two week and fiscal year 2007 was a fifty-three week fiscal year. We operate in one reportable segment, natural and organic food supermarkets. Where appropriate, we have reclassified prior year financial statements to conform to current year presentation.

(2) Summary of Significant Accounting Policies

Derivative Instruments

The Company accounts for derivatives pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of SFAS No. 133.” SFAS No. 133 and SFAS No. 138 require that all derivative financial instruments are recorded on the balance sheet at their respective fair value.

The Company currently utilizes an interest rate swap agreement to manage well-defined interest rate risks. The Company does not use financial instruments or derivatives for any trading or other speculative purposes.

Income Taxes

On October 1, 2007, the Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, as amended, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income tax positions recognized in the financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” Under FIN 48, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance on measurement, classification, interest and penalties associated with tax positions, and income tax disclosures.  See Note 8 to the consolidated financial statements, “Income Taxes,” for further discussion of the impact of adopting FIN 48.

(3) Business Combination

Effective August 28, 2007, the Company completed the acquisition of Wild Oats Markets, Inc. (“Wild Oats”), a leading natural and organic foods retailer in North America, in a cash tender offer of $18.50 per share, or approximately $565 million plus the assumption of approximately $148 million in existing debt. At the date of acquisition, Wild Oats had 109 stores in 23 states and British Columbia, Canada operating under four banners: Wild Oats Marketplace nationwide, Henry’s Farmers Market (“Henry’s”) in Southern California, Sun Harvest in Texas and Capers Community Market in British Columbia. To fund the transaction, we entered into a five-year $700 million senior term loan agreement. We also signed a new five-year $250 million revolving credit agreement that was increased to $350 million during the third quarter of fiscal year 2008, which replaced our existing $200 million revolver. Wild Oats results of operations are included in our consolidated financial statements for the period beginning August 28, 2007 through July 6, 2008. In connection with the acquisition of Wild Oats, the Company separately entered into an agreement to sell certain assets and liabilities, consisting primarily of fixed assets, inventories and operating leases, related to all 35 Henry’s and Sun Harvest stores and a related distribution center in Riverside, CA to a wholly owned subsidiary of Smart & Final, Inc., a Los Angeles-based food retailer for approximately $165 million. This sale was completed effective September 30, 2007. During fiscal year 2008, the Company finalized the sale price, which effectively reduced total proceeds by approximately $1.1 million.  Regarding the other 74 Wild Oats and Capers banner stores the Company acquired in the Wild Oats Markets transaction, the Company has closed 17 stores, and currently

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intends to close one additional store and relocate an additional five stores as existing Whole Foods Market sites in development open through fiscal year 2010.

Whole Foods Market and Wild Oats have similar missions and core values, and the Company believes the synergies gained from this business combination will create long term value for our customers, vendors and shareholders as well as exciting opportunities for our new and existing team members by making us better positioned to compete in this rapidly changing food retailing environment. All of our 11 operating regions gained stores in the acquisition, with three of our smallest regions, the Florida, Rocky Mountain, and Pacific Northwest regions, gaining critical mass. The acquisition provided us with immediate entry into five new states: Arkansas, Indiana, Oklahoma, Tennessee and Utah, and 14 new markets: Bend, OR; Cincinnati, OH; Indianapolis, IN; Lexington, KY; Little Rock, AR; Memphis, TN; Naples, FL; Nashville, TN; Reno, NV; Salt Lake City, UT; Tampa, FL; Tucson, AZ; Tulsa, OK; and Westport, CT.

On July 29, 2008, the United States Court of Appeals for the District of Columbia Circuit reversed the August 16, 2007 decision of the United States District Court for the District of Columbia which had denied the Federal Trade Commission’s (“FTC”) motion for a preliminary injunction against the acquisition of Wild Oats Markets by Whole Foods Market, and remanded the case to the District Court for further proceedings consistent with the appellate decision.  On the same day, the Court of Appeals issued an Order directing the Clerk of the Court of Appeals to withhold issuance of the mandate in the case until seven days after disposition of any timely petition for rehearing or petition for rehearing en banc.  D.C. Circuit rules provide that any petition for rehearing or petition for rehearing en banc in this case be made within 45 days after entry of judgment, unless an order shortens or extends the time.  Further proceedings in the District Court cannot take place until after issuance of this mandate.   Whole Foods Market has not yet determined whether to file a petition for rehearing or petition for rehearing en banc.

On August 8, 2008, the FTC issued an Order rescinding the stay of its administrative proceeding against Whole Foods Market, requiring Whole Foods Market and Complaint Counsel to file a joint case management statement by August 14, 2008, and setting a scheduling conference for August 18, 2008.  The FTC had previously filed a complaint commencing its administrative proceeding on June 28, 2007.  This complaint included a notice of contemplated relief indicating that, should the FTC prevail in its administrative proceeding, it would seek relief against Whole Foods Market, which could include (i) an order directing Whole Foods Market to divest Wild Oats in a manner that restores Wild Oats as a viable independent competitor in specified markets, (ii) a prohibition against any transaction between Whole Foods Market and Wild Oats that combines their operations in specified markets except with prior FTC approval, (iii) a requirement that Whole Foods Market provide prior notice to the FTC of any contemplated acquisition, merger, consolidation or other business combination with a company operating premium and natural organic supermarkets, (iv) the filing by Whole Foods Market of periodic compliance reports with the FTC or (v) any other relief appropriate to remedy the anticompetitive effects of the transaction between Whole Foods Market and Wild Oats.  The FTC stayed its administrative proceeding on August 7, 2007 in light of the pendency of the federal court proceedings.

On August 12, 2008, the FTC issued an Order extending the time for submission of the joint case management statement to August 28, 2008 and rescheduling the proposed scheduling conference for September 8, 2008.   Whole Foods Market cannot at this time predict the likely outcome of these judicial and administrative proceedings or assess the financial implications of any judgment or order that may arise from them.

Direct Costs of the Acquisition

Direct costs of the acquisition include investment banking fees, legal and accounting fees and other external costs directly related to the acquisition.

At July 6, 2008, the Company had approximately $13.7 million accrued for legal and professional fees associated with the FTC proceedings.

Purchase Price Allocation

The purchase price of the acquired operations was comprised of (in thousands):

Cash payment to Wild Oats shareholders	$	564,726
Direct costs of the acquisition	51,642
Total purchase price	$	616,368

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The acquisition was accounted for under the purchase method of accounting with Whole Foods Market treated as the acquiring entity in accordance with SFAS No. 141, “Business Combinations.” Accordingly, the consideration paid by Whole Foods Market to complete the acquisition has been allocated to the assets and liabilities acquired based upon their estimated fair values as of the date of the acquisition. The excess of the purchase price over the estimated fair values of assets acquired and liabilities assumed was recorded as goodwill. Goodwill is non-amortizing for financial statement purposes and is not tax deductible.

The following summarizes the fair values of the assets acquired and liabilities assumed at the acquisition date, including purchase price adjustments since the initial purchase price allocation (in thousands):

	Initial					Purchase
	Purchase		Purchase			Price
	Price		Price			Allocation
	Allocation		Adjustments			at July 6, 2008
Current assets	$	52,094	$	(55	)	$	52,039
Property and equipment	77,107		(12,636		)	64,471
Goodwill	558,056		11,209			569,265
Intangible assets	40,607		(7,254		)	33,353
Deferred income taxes	67,793		2,416			70,209
Other assets	339		—			339
Assets held for sale	172,256		(1,141		)	171,115
Total assets acquired	968,252		(7,461		)	960,791
Current liabilities	145,666		483			146,149
Long-term debt	134,126		—			134,126
Other liabilities	82,321		(25,375		)	56,946
Liabilities held for sale	7,202		—			7,202
Total liabilities assumed	369,315		(24,892		)	344,423
Net assets acquired	$	598,937	$	17,431		$	616,368

The purchase price adjustments relate primarily to the completion of evaluations of the physical and market condition of acquired locations as of August 28, 2007 resulting in the Company’s decision to close seven additional Wild Oats store locations, and adjustments to the fair values of certain assets and store closure reserves. The store closure reserves related to Wild Oats locations were reduced by approximately $25.0 million as discussed in Note 5 to the consolidated financial statements, “Reserves for Closed Properties.” Additional adjustments to the purchase price allocation, totaling approximately $4.3 million, include changes in certain tax assets and liabilities primarily related to amounts finalized in connection with tax filings.

Estimated fair values of intangible assets acquired are as follows (in thousands):

			Weighted Average
	Estimated		Useful Lives
	Fair Value		(Years)
Non-amortizing:
Liquor licenses	$	1,165
Amortizing:
Trade and brand names	6,579		1
Favorable operating leases	25,609		18
Total amortizing	32,188		14
Total	$	33,353

Amortizing intangible assets are amortized on a straight-line basis over their remaining expected useful lives of approximately one to 33 years.

In connection with the acquisition, the Company recognized liabilities totaling approximately $8.4 million for estimated costs associated with plans to involuntarily terminate certain team members of Wild Oats, contract termination fees and other legal reserves totaling approximately $11.4 million, and estimated costs to close certain store locations totaling approximately $67.6 million. There have been no adjustments to date to the team member termination liabilities. Estimated contract termination fees and other legal reserves increased approximately $2.3 million during fiscal year 2008. As of July 6, 2008,

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team member termination liabilities and contract termination fee and other legal reserves were approximately $0.1 million and $8.4 million, respectively, as a result of adjustments and payments made during the fiscal year. We expect involuntary team member terminations and contract termination activities to be substantially completed by the end of fiscal year 2008. Store closure reserves are discussed further in Note 5 to the consolidated financial statements, “Reserves for Closed Properties.”

The Company assumed debt totaling approximately $148 million in the acquisition consisting primarily of convertible subordinated debentures and capital lease obligations. The estimated fair value of the debt assumed by the Company was approximately $134 million. Excluding capital lease obligations, all debt assumed as part of the Wild Oats acquisition was fully repaid by the end of the first quarter of fiscal year 2008.  Debt is discussed further in Note 6 to the consolidated financial statements, “Long-Term Debt.”

The estimated values of operating leases with unfavorable terms compared with current market conditions totaled approximately $1.2 million. These leases have an estimated weighted average life of approximately 14 years and are included in other liabilities.

Henry’s and Sun Harvest Divestiture

In connection with the acquisition of Wild Oats, the Company separately entered into an agreement to sell certain assets and liabilities, consisting primarily of fixed assets, inventories and operating leases, related to all 35 Henry’s and Sun Harvest stores and a related distribution center in Riverside, CA to a wholly owned subsidiary of Smart & Final, Inc., a Los Angeles-based food retailer for approximately $165 million. This sale was completed effective September 30, 2007. During the first quarter of fiscal year 2008, the Company received proceeds totaling approximately $165 million. As of September 30, 2007 the proceeds receivable are included on the accompanying Consolidated Balance Sheets under the caption “Proceeds receivable for divestiture.” As part of purchase accounting for the Wild Oats acquisition, the Henry’s and Sun Harvest net assets were adjusted to fair value and therefore no gain or loss was recognized related to this divestiture. During fiscal year 2008, the Company finalized the sale price, which effectively reduced total proceeds by approximately $1.1 million.

Transition Services Agreement

In connection with the sale of the Henry’s and Sun Harvest stores, Whole Foods Market entered into a transition services agreement (“TSA”) with Smart & Final under which Whole Foods Market has and will continue to provide certain general and administrative services for the 35 stores for up to two years. The TSA provides for payments to the Company calculated for each service area as a certain percentage of total monthly sales of the Henry’s and Sun Harvest locations, initially totaling 1.75% of total monthly sales for all services provided under the agreement. The Company anticipates that the revenue associated with the agreement will be approximately equal to its incremental cost of providing the support. During the forty weeks ended July 6, 2008, the Company earned approximately $3.4 million in TSA fees which are included on the accompanying Consolidated Statements of Operations under the caption “General and administrative expenses.” At the end of the third quarter of fiscal year 2008, all services related to the support agreement were substantially complete, except the licensure of the Wild Oats private label brand which will end no later than September 29, 2009.

Unaudited Pro Forma Financial Information

The following pro forma financial information presents the combined historical results of the operations of Whole Foods Market and Wild Oats as if the Wild Oats acquisition and the sale of the Henry’s and Sun Harvest stores had occurred at the beginning of fiscal year 2007. Certain adjustments have been made to reflect changes in depreciation, amortization and income taxes based on the Company’s preliminary estimates of fair values recognized in the application of purchase accounting, and interest expense on borrowings to finance the acquisition. These adjustments are subject to change as the initial estimates are refined over time.

Due to differences in accounting calendars, the third quarter of fiscal year 2007 pro forma results of operations combines the twelve weeks ended July 1, 2007 for Whole Foods Market with the thirteen weeks ended June 30, 2007 for Wild Oats and the year-to-date pro forma results of operations for fiscal year 2007 combines the forty weeks ended July 1, 2007 for Whole Foods Market with the thirteen weeks ended December 30, 2006 and the twenty-six weeks ended June 30, 2007 for Wild Oats.

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Pro forma results of operations are as follows (in thousands):

	Quarter-to-date		Year-to-date
	3rd Qtr 2007		3rd Qtr 2007
Sales	$	1,722,380	$	5,469,059
Net income	39,873		113,152
Earnings per share:
Basic	$	0.28	$	0.81
Diluted	$	0.28	$	0.79
Weighted average shares outstanding:
Basic	140,061		140,411
Diluted	141,250		142,366

This pro forma financial information is not intended to represent or be indicative of what would have occurred if the transactions had taken place on the dates presented and are not indicative of what Whole Foods Market’s actual results of operations would have been had the acquisition and sale been completed on the dates indicated above. Further, the pro forma combined results do not reflect one-time costs to fully merge and operate the combined organization more efficiently, or anticipated synergies expected to result from the combination and should not be relied upon as being indicative of the future results that Whole Foods Market will experience.

(4) Goodwill and Other Intangible Assets

Goodwill and indefinite-lived intangible assets are reviewed for impairment annually on the first day of the fourth fiscal quarter, or more frequently if impairment indicators arise. We allocate goodwill to one reporting unit for goodwill impairment testing. Given the challenging retail environment the Company is experiencing that appears to be negatively impacting our sales, goodwill and indefinite-lived intangible assets were evaluated for impairment during the third quarter of fiscal year 2008. There were no impairments of goodwill or indefinite-lived intangible assets during the forty week period ended July 6, 2008.

Definite-lived intangible assets are amortized over the useful life of the related agreement. We acquired definite-lived intangible assets totaling approximately $0.6 million, consisting primarily of debt origination fees, and approximately $1.5 million, consisting primarily of acquired leasehold rights and debt origination fees, during the twelve and forty week periods ended July 6, 2008, respectively.  During the twelve and forty week periods ended July 1, 2007, we acquired definite-lived intangibles, consisting primarily of acquired leasehold rights, totaling approximately $4.7 million and $22.3 million, respectively.  Amortization associated with intangible assets totaled approximately $3.0 million and $10.0 million for the twelve and forty week periods ended July 6, 2008, respectively, and approximately $0.4 million and $1.3 million, respectively, for the same periods of the prior fiscal year. The components of intangible assets were as follows (in thousands):

	July 6, 2008					September 30, 2007
	Gross carrying		Accumulated			Gross carrying		Accumulated
	amount		amortization			amount		amortization
Indefinite-lived contract-based	$	1,966	$	—		$	1,943	$	—
Definite-lived contract-based	95,524		(16,717		)	103,661		(14,650		)
Definite-lived marketing-related and other	8,319		(6,795		)	8,519		(1,790		)
	$	105,809	$	(23,512	)	$	114,123	$	(16,440	)

Amortization associated with the net carrying amount of intangible assets at July 6, 2008 is estimated to be $2.9 million for the remainder of fiscal year 2008, $6.4 million in fiscal year 2009, $6.3 million in fiscal year 2010, $6.2 million in fiscal year 2011, $6.1 million in fiscal year 2012 and $5.0 million in fiscal year 2013.

(5) Reserves for Closed Properties

The Company maintains reserves for retail stores and other properties that are no longer being utilized in current operations. The Company provides for closed property operating lease liabilities using a discount rate to calculate the present value of the remaining noncancelable lease payments and lease termination fees after the closing date, net of estimated subtenant income. The closed property lease liabilities are expected to be paid over the remaining lease terms, which generally range from one to 17 years. The Company estimates subtenant income and future cash flows based on the Company’s experience and knowledge of the market in which the closed property is located, the Company’s previous efforts to dispose of similar assets, existing economic conditions and when necessary utilizes local real estate brokers. Adjustments to closed property reserves primarily

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relate to changes in estimated subtenant income or actual exit costs differing from original estimates. Adjustments are made for changes in estimates in the period in which the changes become known.

Following is a summary of store closure reserves during the forty week periods ended July 6, 2008 and July 1, 2007 (in thousands):

	2008			2007
Beginning balance	$	96,967		$	39
Additions	4,460			2,416
Usage	(18,562		)	(286		)
Adjustments	(24,867		)	(7		)
Ending Balance	$	57,998		$	2,162

The beginning balance of fiscal year 2008 includes approximately $92.7 million of store closure reserves for Wild Oats locations that were recorded in connection with the acquisition during the fourth quarter of fiscal year 2007. During the forty week period ended July 6, 2008, the Wild Oats store closure reserves were adjusted by approximately $25.0 million as part of the final purchase price allocation. The purchase price adjustments relate primarily to the completion of evaluations of the physical and market condition of acquired locations as of August 28, 2007, resulting in the Company’s decision to close seven additional Wild Oats store locations and adjustments to the fair values of certain assets and store closure reserves.

(6) Long-Term Debt

During fiscal year 2007, the Company entered into a $700 million, five-year term loan agreement to finance the acquisition of Wild Oats Markets. The loan bears interest at our option of the alternative base rate or the LIBOR rate plus an applicable margin, 1% as of July 6, 2008, based on the Company’s Moody’s and S&P rating. Subsequent to the end of the third quarter of fiscal year 2008, the LIBOR margin applicable to our term loan increased to 1.375% due to a downgrade in our corporate credit rating. Our term loan does not give rise to significant fair value risk because it is a variable interest rate loan with revolving maturities which reflect market changes to interest rates.

During fiscal year 2007, we also replaced our previous revolving credit facility with a new $250 million revolving line of credit that extends to 2012. During the third quarter of fiscal year 2008, the Company exercised the accordion feature available under the revolving credit facility to increase the aggregate commitment to $350 million and amend certain debt covenants contained in the agreement. All outstanding amounts borrowed under this agreement bear interest at our option of the alternative base rate or the LIBOR plus an applicable margin, 1.125% at July 6, 2008, based on the Company’s Moody’s and S&P rating. As of July 6, 2008 and September 30, 2007, the Company had $106 million and $17 million, respectively, drawn under the revolving credit facility. The amount available to the Company under the agreement was effectively reduced to $164.0 million by outstanding letters of credit totaling approximately $80.0 million and amounts drawn at July 6, 2008.  At July 6, 2008 and September 30, 2007, we were in compliance with all applicable debt covenants. Subsequent to the end of the third quarter of fiscal year 2008, the Company made additional draws on the line and currently has $136.0 million outstanding and approximately $134.7 million available on its revolving credit facility.  Additionally, the LIBOR margin applicable to our revolving credit facility increased to 1.5% due to a downgrade in our corporate credit rating.

During the forty week periods ended July 6, 2008 and July 1, 2007, approximately 250 and 10,000 of the Company’s zero coupon convertible subordinated debentures, respectively, were converted at the option of the holders to approximately 6,000 and 215,000 shares, respectively, of Company common stock. The Company assumed convertible debentures totaling approximately $115.0 million in the Wild Oats acquisition, of which approximately $21.8 million were outstanding at September 30, 2007 and were repaid during the first quarter of fiscal year 2008. The zero coupon convertible subordinated debentures had a carrying amount of approximately $2.7 million and $24.5 million at July 6, 2008 and September 30, 2007, respectively.

(7) Derivative Instruments

During the first quarter of fiscal year 2008, the Company entered into a three-year interest rate swap agreement with a notional amount of $490 million to effectively fix the interest rate on $490 million of the term loan at 4.718%, excluding the applicable margin and associated fees, to help manage exposure to interest rate fluctuations.

The Company had accumulated net derivative losses of approximately $7.7 million, net of taxes, in other comprehensive income as of July 6, 2008, related to this effective cash flow hedge.

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(8) Income Taxes

On October 1, 2007, the Company adopted FIN 48, which clarifies the accounting for uncertainty in income tax positions recognized in the financial statements in accordance with SFAS No. 109. Under FIN 48, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance on measurement, classification, interest and penalties associated with tax positions, and income tax disclosures.

The cumulative effect of applying FIN 48 has been recorded as a decrease of approximately $1.3 million to the Company’s fiscal 2008 opening retained earnings. The Company also recorded an increase of approximately $7.2 million to income tax assets, and increase to income taxes payable of approximately $8.4 million. As of the date of adoption the Company’s gross unrecognized tax benefits totaled approximately $20.6 million of which approximately $15.8 million, if recognized, would affect the effective tax rate.

The Company and its subsidiaries are subject to income tax in the U.S. federal jurisdiction, multiple state and local jurisdictions, Canada and the United Kingdom.  With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for fiscal years prior to 2003.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits within its global operations as a component of income tax expense. The total amount of interest and penalties accrued as of October 1, 2007 is approximately $3.6 million, which is included as a component of the $20.6 million gross unrecognized tax benefit noted above. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision.

We are currently under audit by various tax authorities.  During the third quarter of fiscal year 2008, we finalized certain state income tax examinations which resulted in a reduction of $1.1 million to the Company’s unrecognized tax benefits. However, with regard to the remaining open examinations, and the protocol of finalizing audits by the relevant tax authorities, which could include formal legal proceedings, it is not possible to estimate the impact of such changes, if any, to previously recorded uncertain tax positions.

(9) Shareholders’ Equity

Dividends

Following is a summary of dividends declared during the forty weeks ended July 6, 2008 and fiscal year 2007 (in thousands, except per share amounts):

Date of	Dividend		Date of	Date of	Total
Declaration	per Share		Record	Payment	Amount
Fiscal year 2008:
November 20, 2007	$	0.20	January 11, 2008	January 22, 2008	$	27,901
March 10, 2008	0.20		April 11, 2008	April 22, 2008	28,041
June 11, 2008	0.20		July 11, 2008	July 22, 2008	28,057		(1)
Fiscal year 2007:
September 27, 2006	$	0.15	October 13, 2006	October 23, 2006	$	20,971
November 2, 2006	0.18		January 12, 2007	January 22, 2007	25,303
March 5, 2007	0.18		April 13, 2007	April 24, 2007	25,448
June 5, 2007	0.18		July 13, 2007	July 24, 2007	25,019
September 20, 2007	0.18		October 12, 2007	October 23, 2007	25,071

(1)Dividend accrued at July 6, 2008

Subsequent to the end of the third quarter of fiscal year 2008, the Company’s Board of Directors suspended it quarterly cash dividend for the foreseeable future.

Treasury Stock

On July 31, 2008, the Company’s Board of Directors approved a $100 million increase in the Company’s stock repurchase program, bringing the total authorization to $400 million through November 8, 2009 and the current remaining authorization to approximately $200 million. At September 30, 2007, the Company held in treasury approximately 4.5 million shares of

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common stock.  The average price per share paid for shares held in treasury at September 30, 2007 was $43.98, for a total of approximately $200 million. During the first quarter of fiscal year 2008, the Company retired all shares held in treasury. The specific timing and repurchase of future amounts will vary based on market conditions, securities law limitations and other factors and will be made using the Company’s available resources. The repurchase program may be suspended or discontinued at any time without prior notice.

(10) Comprehensive Income

Our comprehensive income was comprised of net income, unrealized losses on marketable securities, unrealized losses on cash flow hedge instruments, and foreign currency translation adjustments, net of income taxes. Comprehensive income, net of related tax effects, was as follows (in thousands):

	Twelve weeks ended				Forty weeks ended
	July 6,		July 1,		July 6,			July 1,
	2008		2007		2008			2007
Net income	$	33,919	$	49,067	$	113,022		$	148,811
Foreign currency translation adjustment, net	352		4,989		(3,619		)	4,345
Unrealized gain (loss) on investments, net	—		9		—			(77		)
Unrealized gain (loss) on cash flow hedge instruments, net	7,031		—		(7,743		)	—
Comprehensive income	$	41,302	$	54,065	$	101,660		$	153,079

At July 6, 2008, accumulated other comprehensive income consisted of foreign currency translation adjustment gains of approximately $12.1 million and unrealized losses on cash flow hedge instruments of approximately $7.7 million, net of related income tax effect of approximately $4.9 million.

(11) 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 and the assumed conversion of zero coupon convertible subordinated debentures.

A reconciliation of the numerators and denominators of the basic and diluted earnings per share calculations follows (in thousands, except per share amounts):

	Twelve weeks ended				Forty weeks ended
	July 6,		July 1,		July 6,		July 1,
	2008		2007		2008		2007
Net income (numerator for basic earnings per share)	$	33,919	$	49,067	$	113,022	$	148,811
Interest on 5% zero coupon convertible subordinated debentures, net of income taxes	18		19		61		77
Adjusted net income (numerator for diluted earnings per share)	$	33,937	$	49,086	$	113,083	$	148,888
Weighted average common shares outstanding (denominator for basic earnings per share)	140,231		140,061		139,766		140,411
Potential common shares outstanding:
Assumed conversion of 5% zero coupon convertible subordinated debentures	91		97		92		122
Assumed exercise of stock options	—		1,092		450		1,833
Weighted average common shares outstanding and potential additional common shares outstanding (denominator for diluted earnings per share)	140,322		141,250		140,308		142,366
Basic earnings per share	$	0.24	$	0.35	$	0.81	$	1.06
Diluted earnings per share	$	0.24	$	0.35	$	0.81	$	1.05

The computations of diluted earnings per share for twelve and forty week periods ended July 6, 2008 does not include options to purchase approximately 13.6 million shares and 12.2 million shares of common stock, respectively, due to their antidilutive

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effect and approximately 10.5 million shares and 10.7 million shares, respectively, for the same periods of the prior fiscal year.

(12) Share-Based Payments

Our Company maintains several stock based incentive plans. We grant options to purchase common stock under our Whole Foods Market 2007 Stock Incentive Plan.  Under this plan, options are granted at an option price equal to the market value of the stock at the grant date and are generally exercisable ratably over a four-year period beginning one year from grant date and have a five-year term. The market value of the stock is determined as the closing stock price at the grant date.  On July 6, 2008 and September 30, 2007 there were approximately 4.2 million and 5.5 million shares, respectively, of our common stock available for future stock option grants.

As of July 6, 2008 there was approximately $32.3 million of unrecognized share-based payments expense related to nonvested stock options, net of estimated forfeitures, related to approximately 3.6 million shares.  We anticipate this expense to be recognized over a weighted average period of 2.05 years.  To the extent the forfeiture rate is different than what we have anticipated, share-based payments expense related to these awards will differ from our expectations.

Share-based payments expense recognized during the twelve and forty weeks ended July 6, 2008 totaled approximately $2.2 million and $7.6 million, respectively, and consisted entirely of stock option expense.  Share-based payments expense recognized during the twelve and forty weeks ended July 1, 2007 totaled approximately $4.2 million and $10.7 million, respectively. During the forty weeks ended July 1, 2007, share-based payments expense consisted of stock option expense of approximately $10.4 million and team member stock purchase plan discounts of $0.3 million.  Included in total share-based payments expense for the twelve and forty weeks ended July 1, 2007 is $2.0 million and $4.4 million, respectively, related to the acceleration of stock options in September 2005.

Share-based payments expense was included in the following line items on the Consolidated Statements of Operations for the periods indicated (in thousands):

	Twelve weeks ended				Forty weeks ended
	July 6,		July 1,		July 6,		July 1,
	2008		2007		2008		2007
Cost of goods sold and occupancy costs	$	49	$	209	$	148	$	424
Direct store expenses	982		2,339		3,899		5,790
General and administrative expenses	1,216		1,620		3,552		4,473
Share-based payments expense before income taxes	2,247		4,168		7,599		10,687
Income tax benefit	735		1,245		2,871		3,168
Net share-based payments expense	$	1,512	$	2,923	$	4,728	$	7,519

On May 23, 2008, the Company issued its annual grant of options to team members and directors.  The Company also issued 4,500 stock options to the Whole Planet Foundation.  Share-based payments expense of approximately $35,000 was recognized during the twelve and forty weeks ended July 6, 2008 for the grant to the Whole Planet Foundation which was included in the line item “General and administrative expenses” in the table above.  The following table summarizes option activity during the first three quarters of fiscal year 2008:

					Weighted
	Number		Weighted		Average	Aggregate
	of Options		Average		Remaining	Intrinsic
	Outstanding		Exercise Price		Contractual Life	Value
	(in thousands)				(in years)	(in thousands)
Outstanding options at September 30, 2007	17,211		$	49.80
Options granted	2,239		27.63
Options exercised	(973	)	15.73
Options forfeited	(128	)	47.21
Options expired	(695	)	55.71
Outstanding options at July 6, 2008	17,654		$	48.65	3.58	$	53
Options vested and expected to vest	17,143		$	49.06	3.55	$	53
Exercisable options at July 6, 2008	13,566		$	51.90	3.37	$	53

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The weighted average fair value of options granted during fiscal year 2008 was $6.44.  The aggregate intrinsic value of stock options at exercise, represented in the table above, was $20.9 million for the forty week period ended July 6, 2008.

The fair value of stock option grants has been estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

	2008		2007
Expected dividend yield	2.90	%	1.80	%
Risk-free interest rate	2.32	%	4.75	%
Expected volatility	36.73	%	31.22	%
Expected life, in years	3.38		3.29

Risk-free interest rate is based on the US Treasury yield curve on the date of the grant for the time period equal to the expected term. Expected volatility is calculated using a ratio of implied volatility based on comparable Long-Term Equity Anticipation Securities (“LEAPS”) and four-year historical volatilities. The Company determined the use of both implied volatility and historical volatility represents a more consistent and accurate calculation of option fair value. Expected life is calculated in two tranches based on weighted average percentage of unexpired options and exercise-after-vesting information over the last four years. Unvested options are included in the term calculation using the “mid-point scenario” which assumes that unvested options will be exercised halfway between vest and expiration date. The assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and experience.

In addition to the above valuation assumptions, SFAS No. 123R “Share-Based Payment” requires the Company to estimate an annual forfeiture rate for unvested options and true up fair value expense accordingly.  The Company monitors actual forfeiture experience and adjusts the rate from time to time as necessary.

(13) Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” as amended. SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and requires additional disclosures about fair value measurements. SFAS No. 157 applies to fair value measurements that are already required or permitted by other accounting standards, except for measurements of share-based payments and measurements that are similar to, but not intended to be, fair value and does not change existing guidance as to whether or not an instrument is carried at fair value. SFAS No. 157 is amended by Financial Statement Position (“FSP”) No. FAS 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13,” which excludes from the scope of this provision arrangements accounted for under SFAS No. 13, “Accounting for Leases.” The provisions of SFAS No. 157, as amended by FSP No. 157-2 are effective for the specified fair value measures for financial statements issued for fiscal years beginning after November 15, 2008 and interim periods within those fiscal years for items within scope. SFAS No. 157 is effective for the Company’s first quarter of fiscal year ending September 27, 2009. We are currently evaluating the impact, if any, that the adoption of SFAS No. 157 will have on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value.  SFAS No. 159 applies to all entities that elect the fair value option.  However, the amendment to SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities” applies to all entities with available-for-sale and trading securities.  The provisions of SFAS No. 159 are effective for fiscal years beginning after November 15, 2007. SFAS No. 159 is effective for the Company’s fiscal year ending September 27, 2009. We are currently evaluating the impact, if any, that the adoption of SFAS No. 159 will have on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations,” which replaces SFAS No. 141, “Business Combinations,” and applies to all transactions or other events in which an entity obtains control of one or more businesses, including those sometimes referred to as “true mergers” or “mergers of equals” and combinations achieved without the transfer of consideration. SFAS No. 141R establishes principles and requirements for how the acquirer recognizes and measures identifiable assets acquired, liabilities assumed, any noncontrolling interest and goodwill acquired.  The Statement also provides for disclosures to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The provisions of SFAS No. 141R are effective for fiscal years beginning after December 15, 2008 and are applied prospectively to business combinations completed on or after that date.  SFAS No. 141R is effective for the Company’s fiscal year ending September 26, 2010.  We will evaluate the impact, if any, that the adoption of SFAS No. 141R could have on our consolidated financial statements.

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In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51.” SFAS No. 160 establishes accounting and reporting standards for noncontrolling interests (“minority interests”) in subsidiaries. Additionally, SFAS No. 160 amends certain consolidation procedures contained in Accounting Reporting Bulletin No. 51 “Consolidated Financial Statements” to make them consistent with the requirements of SFAS No. 141 “Business Combinations,” as revised. SFAS No. 160 clarifies that a noncontrolling interest in a subsidiary should be accounted for as a component of equity separate from the parent’s equity. The provisions of SFAS No. 160 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2008 and are applied prospectively, except for presentation and disclosure requirements, which will apply retrospectively.  SFAS No. 160 is effective for the Company’s first quarter of fiscal year ending September 26, 2010. We are currently evaluating the impact, if any, that the adoption of SFAS No. 160 will have on our consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133.”  SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” by establishing, among other things, the disclosure requirements for derivative instruments and hedging activities.  This Statement requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements.  The provisions of SFAS No. 161 are effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged.  SFAS No. 161 is effective for the Company’s second quarter of fiscal year ending September 27, 2009. We are currently evaluating the impact, if any, that the adoption of SFAS No. 161 will have on our consolidated financial statements.

In April 2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets.”  FSP No. FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets.”  The intent of the position is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141R, and other U.S. generally accepted accounting principles. The provisions of FSP No. FAS 142-3 are effective for fiscal years beginning after December 15, 2008.  FSP No. FAS 142-3 is effective for the Company’s fiscal year ending September 26, 2010. We will evaluate the impact, if any, that the adoption of FSP No. FAS 142-3 could have on our consolidated financial statements.

In May 2008, the FASB issued FSP No. APB 14-1, “Accounting for Convertible Deb Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).” FSP No. APB 14-1 clarifies that convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants” and specifies that such users should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. The provisions of FSP No. APB 14-1 are effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. FSP No. APB 14-1 is effective for the Company’s first quarter of fiscal year ending September 26, 2010. We are currently evaluating the impact, if any, that the adoption of FSP No. APB 14-1 will have on our consolidated financial statements.

(14) Commitments and Contingencies

From time to time we are a party to legal proceedings including matters involving personnel and employment issues, personal injury, intellectual property and other proceedings arising in the ordinary course of business which have not resulted in any material losses to date. Although management does not expect that the outcome in these proceedings will have a material adverse effect on our financial condition or results of operations, litigation is inherently unpredictable.  Therefore, we could incur judgments or enter into settlements of claims that could materially impact our results.

The Company has been contacted by the staff of the Securities and Exchange Commission advising the Company that it has concluded its inquiry related to online financial message board postings related to Whole Foods Market and Wild Oats Markets and that no enforcement action has been recommended against the Company or any individual.

On July 29, 2008, the United States Court of Appeals for the District of Columbia Circuit reversed the August 16, 2007 decision of the United States District Court for the District of Columbia which had denied the FTC motion for a preliminary injunction against the acquisition of Wild Oats Markets by Whole Foods Market, and remanded the case to the District Court for further proceedings consistent with the appellate decision. In addition, the FTC is currently pursuing an administrative proceeding concerning our recent acquisition of Wild Oats Markets. These proceedings are discussed in further detail in Note 3 to the consolidated financial statements, “Business Combination.” Whole Foods Market cannot at this time predict the likely

17

outcome of these judicial and administrative proceedings or assess the financial implications of any judgment or order that may arise from them.  The Company has not accrued any loss related to the outcome of these proceedings as of July 6, 2008.

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

General

Whole Foods Market, Inc. and its consolidated subsidiaries own and operate the largest chain of natural and organic foods supermarkets. Our Company mission is to promote vitality and well-being for all individuals by supplying the highest quality, most wholesome foods available. Through our growth, we have had a large and positive impact on the natural and organic foods movement throughout the United States, helping lead the industry to nationwide acceptance. We opened our first store in Texas in 1980 and, as of July 6, 2008, we operated 271 stores organized into 11 geographic operating regions: 259 stores in 37 U.S. states and the District of Columbia; six stores in Canada; and six stores in the United Kingdom. We operate in one reportable segment, natural and organic foods supermarkets.

Effective August 28, 2007, the Company completed the acquisition of Wild Oats Markets, Inc. (“Wild Oats”), a leading natural and organic foods retailer in North America, in a cash tender offer of $18.50 per share, or approximately $565 million plus the assumption of approximately $148 million in existing debt. At the date of acquisition, Wild Oats had 109 stores in 23 states and British Columbia, Canada operating under four banners: Wild Oats Marketplace nationwide, Henry’s Farmers Market (“Henry’s”) in Southern California, Sun Harvest in Texas, and Capers Community Market in British Columbia. In connection with the acquisition of Wild Oats, the Company separately entered into an agreement to sell certain assets and liabilities, consisting primarily of fixed assets, inventories and operating leases, related to all 35 Henry’s and Sun Harvest stores and a related distribution center. This sale was completed effective September 30, 2007 and the Company received net proceeds totaling approximately $164 million in fiscal year 2008. As of July 6, 2008, the Company has permanently closed 17 Wild Oats stores. The Company currently has 57 continuing Wild Oats stores. The Company is making investments to raise the Wild Oats stores up to our high standards, including investments in repairs and maintenance of the stores, lower prices, an expanded perishables offering and increased labor. Wild Oats results of operations are included in our Consolidated Statements of Operations for the forty weeks ended July 6, 2008 and are not included in our Consolidated Statements of Operations for the forty weeks ended July 1, 2007.

Our results of operations have been and may continue to be materially affected by the timing and number of new store openings. Stores typically open within 12 to 24 months after entering the store development pipeline. New stores generally become profitable during their first year of operation, although some new stores may incur operating losses for the first several years of operation.

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. Fiscal year 2008 is a fifty-two week year and fiscal year 2007 was a fifty-three week year.

Overview

Whole Foods Market is experiencing a challenging retail environment caused by a number of ongoing factors including the general economic environment in the United States. Consumer confidence measures in June 2008 hit their lowest levels in more than a decade. We believe American consumers are spending less as they are faced with more expensive fuel and food costs, lower home values and less available credit. Our growth in comparable stores and identical store sales was 2.6 percent and 1.9 percent, respectively, in the third quarter of fiscal year 2008. Our comparable store sales increase for the third quarter was almost entirely driven by increased average basket size with only a slight increase year over year in our transaction count. We believe that the economic hardships consumers are facing are impacting their behavior in various ways, from making fewer trips to making more conscious value decisions.

The Company’s business model has been highly successful, and we remain very confident in our growth prospects as the market for natural and organic products continues to grow and as our Company continues to evolve. However, the challenging current economic environment appears to be negatively impacting our sales. Current economic factors, combined with our commitment to maintaining financial flexibility and investing prudently in our long-term growth, have led the Company to take a more conservative approach to our growth and business strategy over the short term. The Company recently announced a conservative growth and fiscal strategy over the short term including the following key components:

·Reducing the number of stores expected to open in fiscal year 2009 to approximately 15 and reducing all discretionary capital expenditure budgets not related to new stores by 50%. The Company is committed to actively managing its capital expenditures and does not intend to access the capital markets for additional funding in the foreseeable future;

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·Implementing certain cost containment measures for the remainder of fiscal year 2008 and reducing expected general and administrative expenses to approximately 3.2% of sales in fiscal year 2009; and

·Suspending the Company’s quarterly cash dividend for the foreseeable future.

On July 29, 2008, the United States Court of Appeals for the District of Columbia Circuit reversed the August 16, 2007 decision of the United States District Court for the District of Columbia which had denied the Federal Trade Commission’s (“FTC”) motion for a preliminary injunction against the acquisition of Wild Oats Markets by Whole Foods Market, and remanded the case to the District Court for further proceedings consistent with the appellate decision.  On the same day, the Court of Appeals issued an Order directing the Clerk of the Court of Appeals to withhold issuance of the mandate in the case until seven days after disposition of any timely petition for rehearing or petition for rehearing en banc.  D.C. Circuit rules provide that any petition for rehearing or petition for rehearing en banc in this case be made within 45 days after entry of judgment, unless an order shortens or extends the time.  Further proceedings in the District Court cannot take place until after issuance of this mandate.   Whole Foods Market has not yet determined whether to file a petition for rehearing or petition for rehearing en banc.

On August 8, 2008, the FTC issued an Order rescinding the stay of its administrative proceeding against Whole Foods Market, requiring Whole Foods Market and Complaint Counsel to file a joint case management statement by August 14, 2008, and setting a scheduling conference for August 18, 2008.  The FTC had previously filed a complaint commencing its administrative proceeding on June 28, 2007.  This  complaint included a notice of contemplated relief indicating that, should the FTC prevail in its administrative proceeding, it would seek relief against Whole Foods Market, which could include (i) an order directing Whole Foods Market to divest Wild Oats in a manner that restores Wild Oats as a viable independent competitor in specified markets, (ii) a prohibition against any transaction between Whole Foods Market and Wild Oats that combines their operations in specified markets except with prior FTC approval, (iii) a requirement that Whole Foods Market provide prior notice to the FTC of any contemplated acquisition, merger, consolidation or other business combination with a company operating premium and natural organic supermarkets, (iv) the filing by Whole Foods Market of periodic compliance reports with the FTC or (v) any other relief appropriate to remedy the anticompetitive effects of the transaction between Whole Foods Market and Wild Oats.  The FTC stayed its administrative proceeding on August 7, 2007 in light of the pendency of the federal court proceedings.

On August 12, 2008, the FTC issued an Order extending the time for submission of the joint case management statement to August 28, 2008 and rescheduling the proposed scheduling conference for September 8, 2008.   Whole Foods Market cannot at this time predict the likely outcome of these judicial and administrative proceedings or assess the financial implications of any judgment or order that may arise from them. The Company has not accrued any loss related to the outcome of these proceedings as of July 6, 2008.

Executive Summary

Sales for the third quarter of fiscal year 2008 increased approximately 21.6% to approximately $1.8 billion over approximately $1.5 billion for the same period of the prior fiscal year. Comparable store sales growth was 2.6%. Sales in identical stores increased approximately 1.9% for the twelve weeks ended July 6, 2008 over the same period of the prior fiscal year. Identical store sales exclude two relocated stores and two major store expansions from the comparable calculation to reduce the impact of square footage growth on the comparison.

General and administrative expenses as a percentage of sales increased to 3.3% in the third quarter of fiscal year 2008 over 3.2% for the same period of the prior fiscal year. This increase was largely due to the costs of integrating and supporting the Wild Oats stores, as well as front-loaded general and administrative expenditures to support future growth.

Net income for the third quarter totaled approximately $33.9 million and diluted earnings per share was $0.24.

Our capital expenditures for the quarter totaled approximately $124.9 million, of which approximately $109.9 million was for new store development and approximately $15.0 million was for remodels and other additions. During the third quarter, we opened four new stores in Hillsboro, OR; Orlando, FL; St. Louis, MO and Reno, NV and re-opened a remodeled Wild Oats store in Medford, MA. We closed five Wild Oats stores during the third quarter, including two in connection with the opening of new Whole Foods Market stores. We ended the quarter with 271 stores totaling approximately 9.6 million square feet. Subsequent to the end of the quarter, the Company opened two new stores in New York City, NY and Naperville, IL and relocated one store in Rochester Hills, MI.

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At the end of the third quarter of fiscal year 2008, the Company had total debt of approximately $840.5 million, including $106 million in borrowings on the Company’s revolving line of credit.

On June 11, 2008, the Company’s Board of Directors approved a quarterly dividend of $0.20 per share, totaling approximately $28.1 million that was paid subsequent to the end of the third quarter on July 22, 2008 to shareholders of record on July 11, 2008.

Effective August 28, 2007, the Company completed the acquisition of Wild Oats, a leading natural and organic foods retailer in North America. Sales at the Wild Oats stores in operation during the third quarter were $168.3 million, or 9.1% of total sales, and comparable store sales increased 5.4%. The Company closed five Wild Oats stores during the quarter, two of which were in connection with the opening of new Whole Foods Market stores, and re-opened one Wild Oats store that had been closed for a major renovation. Sales for the 57 continuing stores were $164.2 million in the third quarter, and comparable store sales growth was 5.4%. In the 38 stores we have rebranded thus far, sales growth has increased from 6% before rebranding to 12% after.

Results of Operations

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

	Twelve weeks ended				Forty weeks ended
	July 6,		July 1,		July 6,		July 1,
	2008		2007		2008		2007
Sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold and occupancy costs	65.6		64.5		65.8		65.1
Gross profit	34.4		35.5		34.2		34.9
Direct store expenses	26.6		26.1		26.5		25.9
General and administrative expenses	3.3		3.2		3.5		3.1
Pre-opening and relocation costs	1.0		1.0		0.8		1.0
Operating income	3.5		5.3		3.5		4.9
Interest expense	(0.4	)	—		(0.5	)	—
Investment and other income	0.1		0.1		0.1		0.2
Income before income taxes	3.1		5.4		3.1		5.1
Provision for income taxes	1.3		2.2		1.3		2.0
Net income	1.8	%	3.2	%	1.8	%	3.1	%

Figures may not add due to rounding.

Sales increased approximately 21.6% and 27.2% for the twelve and forty weeks ended July 6, 2008, respectively, over the same periods of the prior fiscal year. Comparable store sales increased approximately 2.6% and 6.4% for the twelve and forty weeks ended July 6, 2008, respectively. Perishable product sales accounted for approximately 67% of our total retail sales during the third quarter of fiscal year 2008. Acquired stores will enter the comparable store sales base in the fifty-third full week following the date of the merger. As of July 6, 2008, there were 195 locations in the comparable store base. Identical store sales for the twelve weeks ended July 6, 2008, which exclude two relocated stores and two major expansions, increased approximately 1.9%. Identical store sales for the forty weeks ended July 6, 2008, which exclude five relocated stores and three major expansions, increased approximately 4.9%. The sales increase contributed by stores open less than fifty-two weeks totaled approximately $139.4 million and $549.8 million for the twelve and forty weeks ended July 6, 2008. Sales at Wild Oats stores totaled approximately $168.3 million and $582.5 million for the twelve and forty weeks ended July 6, 2008. For the first four weeks of the fourth quarter of fiscal year 2008, comparable store sales increased 1.5% and identical store sales increased 0.9%. Comparable sales at the 57 continuing Wild Oats stores increased 7.2% over the same period. If the Company’s comparable store sales growth for the fourth quarter is in line with or slightly below these results, comparable store sales growth for fiscal year 2008 would be approximately 5%. Total sales growth, on a 52-week to 52-week basis, would be approximately 12% for the fourth quarter and approximately 23% for fiscal year 2008. Sales in the fourth quarter of fiscal year 2007 included five weeks of the continuing Wild Oats stores, all subsequently closed Wild Oats stores, and divested Henry’s and Sun Harvest stores.

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 gross profit as a percentage of sales for the twelve and forty weeks ended July 6, 2008 was approximately 34.4% and 34.2%, respectively, compared to approximately 35.5% and 34.9%, respectively for the same periods of the prior fiscal year. Factors contributing to these decreases in gross profit for the twelve and forty weeks ended July 6, 2008 compared to the same periods of the prior fiscal year include some delays in passing on higher commodity

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costs to consumers, higher utility costs and increased promotional activity year over year. We are continuing to make selective price investments.  We believe that strengthening our price image on commodity-type branded products to broaden our appeal is not only the right long-term strategy, but the right short-term strategy particularly in today’s market.  We are fortunate that we continue to find many opportunities to lower our cost of goods sold to help offset these price investments and minimize the gross margin impact. Additionally, our gross profit may increase or decrease slightly depending on the mix of sales from new stores, seasonality, the impact of weather or a host of other factors, including inflation. Due to seasonality, the Company’s gross profit margin is typically lower in the first quarter than the remaining three quarters of the fiscal year. Gross profit margins tend to be lower for new stores and increase as stores mature, reflecting lower shrink as volumes increase, as well as increasing experience levels and operational efficiencies of the store teams.

Direct store expenses as a percentage of sales were approximately 26.6% and 26.5% for the twelve and forty weeks ended July 6, 2008, respectively, compared to approximately 26.1% and 25.9%, respectively, for the same periods of the prior fiscal year. Factors contributing to these increases in direct store expenses for the twelve and forty weeks ended July 6, 2008 compared to the same periods of the prior fiscal year include relatively higher percentages of sales from new and acquired stores, which have a lower contribution than existing stores, investments in labor and benefits at the acquired stores and increases in health care costs as a percentage of sales. Direct store expenses as a percentage of sales tend to be higher for new and acquired stores and decrease as stores mature, reflecting increasing operational productivity of the store teams.

General and administrative expenses as a percentage of sales were approximately 3.3% and 3.5% for the twelve and forty weeks ended July 6, 2008, respectively, compared to approximately 3.2% and 3.1%, respectively, for the same periods of the prior fiscal year. This year-over-year increase is due mainly to the costs of integrating and supporting the Wild Oats stores, including an increase in headcount in the global and regional offices related primarily to the cost of fully staffing the Company’s three smallest regions which gained the greatest number of stores in the merger as a percentage of their existing store base; and an increase in legal and professional fees as a percentage of sales. In connection with the Company’s recently announced conservative growth and fiscal strategy over the short term, the Company has implemented certain cost containment measures for the remainder of fiscal year 2008 and reducing expected general and administrative expenses to approximately 3.2% of sales in fiscal year 2009.

Pre-opening costs include rent expense incurred during construction of new stores and other costs related to new store openings, which include costs associated with hiring and training personnel, supplies and other miscellaneous costs. Rent expense is generally incurred for six to 12 months prior to a store’s opening date. Other pre-opening costs are incurred primarily in the 30 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 stores or facilities. Store closure costs, including interest accretion related to store closing reserves of approximately $1.0 million and $4.2 million for the twelve and forty weeks ended July 6, 2008, respectively, are also included in relocation costs. Pre-opening and relocation costs as a percentage of sales were approximately 1.0% and 0.8% for the twelve and forty weeks ended July 6, 2008, respectively, compared to approximately 1.0% for each of the same periods of the prior fiscal year. The numbers of stores opened and relocated were as follows:

	Twelve weeks ended		Forty weeks ended
	July 6,	July 1,	July 6,	July 1,
	2008	2007	2008	2007
New stores	4	2	12	10
Relocated stores	—	1	—	3

Interest expense for the twelve and forty weeks ended July 6, 2008 increased approximately $8.1 million and $28.1 million, respectively, over the same periods of the prior fiscal year due primarily to interest expense related to the $700 million term loan to finance the acquisition of Wild Oats Markets and increased borrowings on the Company’s revolving line of credit. Investment and other income for the twelve and forty weeks ended July 6, 2008 totaled approximately $1.5 million and $5.4 million, respectively, compared to approximately $2.2 million and $8.8 million, respectively, for the same periods of the prior fiscal year.

Share-based payments expense recognized during the twelve and forty weeks ended July 6, 2008 totaled approximately $2.2 million and $7.6 million, respectively compared to approximately $4.2 million and $10.7 million respectively, for the same periods of the prior fiscal year. Included in total share-based payments expense during the forty weeks ended July 1, 2007 is a $4.4 million charge related to the acceleration of stock options in September 2005 to adjust for actual experience.

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Share-based payments expense was included in the following line items on the Consolidated Statements of Operations for the periods indicated (in thousands):

	Twelve weeks ended				Forty weeks ended
	July 6,		July 1,		July 6,		July 1,
	2008		2007		2008		2007
Cost of goods sold and occupancy costs	$	49	$	209	$	148	$	424
Direct store expenses	982		2,339		3,899		5,790
General and administrative expenses	1,216		1,620		3,552		4,473
Share-based payments expense before income taxes	2,247		4,168		7,599		10,687
Income tax benefit	735		1,245		2,871		3,168
Net share-based payments expense	$	1,512	$	2,923	$	4,728	$	7,519

The Company expects share-based payments expense of approximately $3 million to $4 million in the fourth quarter of fiscal year 2008.

The Company intends to keep its broad-based stock option program in place, but also intends to limit the number of shares granted in any one year so that annual earnings per share dilution from share-based payments expense will not exceed 10%. The Company believes this strategy is best aligned with its stakeholder philosophy because it limits future earnings per share dilution from options and at the same time retains the broad-based stock option plan, which the Company believes is important to team member morale, its unique corporate culture and its success.

Liquidity and Capital Resources and Changes in Financial Condition

We generated cash flows from operating activities totaling approximately $267.2 million during the forty weeks ended July 6, 2008 compared to approximately $302.0 million during the same period of the prior fiscal year. Cash flows from operating activities resulted primarily from our net income plus non-cash expenses and changes in operating working capital. During the forty weeks ended July 6, 2008, cash flows from operating activities were driven by a decline net income, offset by higher non-cash expenses and changes in operating working capital.

Net cash used in investing activities was approximately $251.7 million for the forty weeks ended July 6, 2008 compared to approximately $181.1 million for the same period of the prior fiscal year. During the forty weeks ended July 6, 2008 the Company received net proceeds totaling approximately $163.9 million from the sale of certain assets and liabilities related to the 35 Henry’s and Sun Harvest stores and a related distribution center in Riverside, CA acquired in the purchase of Wild Oats. Our principal historical capital requirements have been the funding of the development or acquisition of new stores and acquisition of property and equipment for existing stores. The required cash investment for new stores varies depending on the size of the new store, geographic location, degree of work performed by the landlord and complexity of site development issues. Capital expenditures for the forty weeks ended July 6, 2008 totaled approximately $392.2 million, of which approximately $282.5 million was for new store development and approximately $109.7 million was for remodels and other additions. Capital expenditures for the forty weeks ended July 1, 2007 totaled approximately $382.9 million, of which approximately $272.9 million was for new store development and approximately $110.0 million was for remodels and other additions. The Company expects capital expenditures in the range of $160 million to $165 million in the fourth quarter of fiscal year 2008, resulting in a range of $552 million to $557 million for the full fiscal year, below the Company’s prior full-year estimated range of $575 million to $625 million due primarily to certain measures implemented in the third quarter to reduce discretionary capital expenditures not related to new stores. In connection with the Company’s recently announced conservative growth and fiscal strategy over the short term, the Company is reducing the number of stores expected to open in fiscal year 2009 to approximately 15 and reducing all discretionary capital expenditure budgets not related to new stores by 50%. The Company is committed to actively managing its capital expenditures and does not intend to access the capital markets for additional funding in the foreseeable future.

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The following table provides additional information about the Company’s store openings in fiscal year 2007 and fiscal year-to-date through August 5, 2008, leases currently tendered but not opened, and total leases signed for stores scheduled to open through fiscal year 2012:

	Stores		Stores		Leases		Total Leases
	Opened		Opened		Tendered		Signed
	During		Through		as of		as of
	Fiscal Year		August 5,		August 5,		August 5,
	2007		2008		2008		2008(1)
Number of stores (including relocations)	21		14		20		80
Number of relocations	5		—		5		18
Number of lease acquisitions, ground leases, and acquired properties	4		4		7		10
New markets	3		—		4		14
Average store size (gross square feet)	56,500		54,400		47,600		51,000
As a percentage of existing store average size	167	%	153	%	134	%	143	%
Total square footage	1,185,800		761,500		952,000		4,135,000
As a percentage of existing square footage	13	%	8	%	10	%	43	%
Average tender period, in months	8.8		10.0
Average pre-opening expense per store (incl. rent)	$2.6 million	(2)
Average pre-opening rent per store	$0.9 million	(2)
Average development cost (excl. pre-opening)	$15.1 million	(2)
Average development cost per square foot	$278	(2)

(1) Includes leases tendered

(2) Pre-opening and development costs exclude Kensington in London, England.

The Company expects total pre-opening and relocation costs for the fourth quarter of fiscal year 2008 to be in the range of $20 million to $22 million.

Net cash provided by financing activities was approximately $9.4 million for the forty weeks ended July 6, 2008 compared to net cash used in financing activities totaling approximately $112.4 million for the same period of the prior fiscal year. Proceeds from long-term borrowings during the forty weeks ended July 6, 2008 totaled $174.0 million. Payments on long-term debt and capital lease obligations totaled approximately $107.1 million for the forty weeks ended July 6, 2008. Repurchases of Company common stock into treasury totaled approximately $100.0 million for the forty weeks ended July 1, 2007. Net proceeds to the Company from the exercise of team members’ stock options for the forty weeks ended July 6, 2008 totaled approximately $18.0 million compared to approximately $47.7 million for the same period of the prior fiscal year.

During fiscal year 2007, the Company entered into a $700 million, five-year term loan agreement to finance the acquisition of Wild Oats Markets. The loan bears interest at our option of the alternative base rate or the LIBOR rate plus an applicable margin, 1% as of July 6, 2008, based on the Company’s Moody’s and S&P corporate credit rating. Subsequent to the end of the third quarter of fiscal year 2008, the LIBOR margin applicable to our term loan increased to 1.375% due to a downgrade in our corporate credit rating. Our term loan does not give rise to significant fair value risk because it is a variable interest rate loan with revolving maturities which reflect market changes to interest rates. During the first quarter of fiscal year 2008, the Company entered into a three-year interest rate swap agreement with a notional amount of $490 million to fix the interest rate at 4.718%, excluding the applicable margin and associated fees, to help manage our exposure to interest rate fluctuations.

During fiscal year 2007, we also replaced our previous revolving credit facility with a new $250 million revolving line of credit that extends to 2012. During the third quarter of fiscal year 2008, the Company exercised the accordion feature available under the revolving credit facility to increase the aggregate commitment to $350 million and amend certain debt covenants contained in the agreement. All outstanding amounts borrowed under this agreement bear interest at our option of the alternative base rate or the LIBOR plus an applicable margin, 1.125% at July 6, 2008, based on the Company’s Moody’s and S&P corporate credit rating. Subsequent to the end of the third quarter of fiscal year 2008, the LIBOR margin applicable to our revolving credit facility increased to 1.5% due to a downgrade in our corporate credit rating. At July 6, 2008 and September 30, 2007, the Company had $106 million and $17 million, respectively, drawn under the revolving credit facility. The amount available to the Company under the agreement was effectively reduced to approximately $164.0 million by outstanding letters of credit totaling approximately $80.0 million and amounts drawn at July 6, 2008. At July 6, 2008 and September 30, 2007, we were in compliance with all applicable debt covenants.  Subsequent to the end of the third quarter of

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fiscal year 2008, the Company made additional draws on the line and currently has $136.0 million outstanding and approximately $134.7 million available on its revolving credit facility.

During the forty week periods ended July 6, 2008 and July 1, 2007, approximately 250 and 10,000 of the Company’s zero coupon convertible subordinated debentures, respectively, were converted at the option of the holders to approximately 6,000 and 215,000 shares, respectively, of Company common stock. The zero coupon convertible subordinated debentures had a carrying amount of approximately $2.7 million and $24.5 million at July 6, 2008 and September 30, 2007, respectively. The Company assumed convertible debentures totaling approximately $115.0 million in the Wild Oats acquisition, of which approximately $21.8 million were outstanding at September 30, 2007 and were repaid during the first quarter of fiscal year 2008.

The Company is committed under certain capital leases for rental of certain equipment, buildings and land. These leases expire or become subject to renewal clauses at various dates through 2028.

The Company expects interest expense, net of investment and other income, in the range of $8 million to $9 million in the fourth quarter of fiscal year 2008.

Following is a summary of dividends declared during the forty weeks ended July 6, 2008 and fiscal year 2007 (in thousands, except per share amounts):

Date of	Dividend		Date of	Date of	Total
Declaration	per Share		Record	Payment	Amount
Fiscal year 2008:
November 20, 2007	$	0.20	January 11, 2008	January 22, 2008	$	27,901
March 10, 2008	0.20		April 11, 2008	April 22, 2008	28,041
June 11, 2008	0.20		July 11, 2008	July 22, 2008	28,057		(1)
Fiscal year 2007:
September 27, 2006	$	0.15	October 13, 2006	October 23, 2006	$	20,971
November 2, 2006	0.18		January 12, 2007	January 22, 2007	25,303
March 5, 2007	0.18		April 13, 2007	April 24, 2007	25,448
June 5, 2007	0.18		July 13, 2007	July 24, 2007	25,019
September 20, 2007	0.18		October 12, 2007	October 23, 2007	25,071

(1)Dividend accrued at July 6, 2008

Subsequent to the end of the third quarter of fiscal year 2008, the Company’s Board of Directors suspended the quarterly cash dividend for the foreseeable future.

On July 31, 2008, the Company’s Board of Directors approved a $100 million increase in the Company’s stock repurchase program, bringing the total authorization to $400 million through November 8, 2009 and the current remaining authorization to approximately $200 million. At September 30, 2007, the Company held in treasury approximately 4.5 million shares of common stock.  The average price per share paid for shares held in treasury at September 30, 2007 was $43.98, for a total of approximately $200 million. During the first quarter of fiscal year 2008, the Company retired all shares held in treasury. The specific timing and repurchase of future amounts will vary based on market conditions, securities law limitations and other factors and will be made using the Company’s available resources. The repurchase program may be suspended or discontinued at any time without prior notice.

Our principal historical sources of liquidity have been cash generated by operations, available unrestricted cash and cash equivalents, short term investments, and amounts available under our revolving line of credit. There can be no assurance, however, that we will continue to generate cash flows at or above current levels or that our revolving line of credit or other sources of capital will be available to us in the future. 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. Absent any significant cash acquisition or significant change in market condition, we expect planned expansion and other anticipated working capital, capital expenditure, and debt service requirements for the next twelve months will be funded by these sources.

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Contractual Obligations

The following table shows payments due by period on contractual obligations as of July 6, 2008 (in thousands):

			Less than 1		1-3		3-5		More than 5
	Total		Year		Years		Years		Years
Long term debt obligations	$	808,667	$	—	$	—	$	808,667	$	—
Estimated interest on long term debt obligations	164,415		43,174		79,685		41,556		—
Capital lease obligations (including interest)	41,620		2,087		4,178		4,186		31,169
Operating lease obligations (1)	6,268,637		260,205		645,623		660,603		4,702,206
Total	$	7,283,339	$	305,466	$	729,486	$	1,515,012	$	4,733,375

(1) Amounts exclude taxes, insurance and other related expense

The Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”) on October 1, 2007, the first day of fiscal year 2008. The amount of gross unrecognized tax benefits and related interest at July 6, 2008 was approximately $20.6 million. These amounts have been excluded from the contractual obligations table because a reasonably reliable estimate of the period of cash settlement with the respective taxing authorities cannot be determined due to the high degree of uncertainty regarding the timing of future cash outflows associated with these liabilities.

We periodically make other commitments and become subject to other contractual obligations that we believe to be routine in nature and incidental to the operation of the business. Management believes that such routine commitments and contractual obligations do not have a material impact on our business, financial condition or results of operations.

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements at July 6, 2008 consist of operating leases disclosed in the above contractual obligations table and outstanding letters of credit discussed in Note 6 to the consolidated financial statements, “Long-Term Debt.” We have no other off-balance sheet arrangements that have had, or are reasonably likely to have, a material current or future effect on our consolidated financial statements or financial condition.

Critical Accounting Policies

The preparation of our financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures of contingent assets and liabilities. Actual amounts may differ from these estimates. We base our estimates on historical experience and on various other assumptions and factors that we believe to be reasonable under the circumstances. On an ongoing basis, we evaluate the continued appropriateness of our accounting policies and resulting estimates to make adjustments we consider appropriate under the facts and circumstances.

We have chosen accounting policies that we believe are appropriate to report accurately and fairly our operating results and financial position, and we apply those accounting policies in a consistent manner. Our significant accounting policies are summarized in Item 8. “Financial Statements and Supplementary Data” Note 2 to the consolidated financial statements of the Company’s Annual Report on Form 10-K for the year ended September 30, 2007. We believe that the following accounting policies are the most critical in the preparation of our financial statements because they involve the most difficult, subjective or complex judgments about the effect of matters that are inherently uncertain.

Insurance and Self-Insurance Liabilities

The Company uses a combination of insurance and self-insurance plans to provide for the potential liabilities for workers’ compensation, general liability, property insurance, director and officers’ liability insurance, vehicle liability and employee health care benefits. Liabilities associated with the risks that are retained by the Company are estimated, in part, by considering historical claims experience, demographic factors, severity factors and other actuarial assumptions. While we believe that our assumptions are appropriate, the estimated accruals for these liabilities could be significantly affected if future occurrences and claims differ from these assumptions and historical trends.

We have not made any material changes in the accounting methodology used to establish our insurance and self-insured liabilities during the past three fiscal years.

We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate our insurance and self-insured liabilities. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material. A 10% change in our insurance and self-insured

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liabilities at July 6, 2008, would have affected the Wild Oats purchase price allocation by approximately $1.2 million and would have affected net income by approximately $4.5 million for the forty weeks ended July 6, 2008.

Reserves for Closed Properties

The Company maintains reserves for retail stores and other properties that are no longer being utilized in current operations. The Company provides for closed property operating lease liabilities using a discount rate to calculate the present value of the remaining noncancelable lease payments and lease termination fees after the closing date, net of estimated subtenant income. The closed property lease liabilities are expected to be paid over the remaining lease terms, which generally range from one to 17 years. The Company estimates subtenant income and future cash flows based on the Company’s experience and knowledge of the market in which the closed property is located, the Company’s previous efforts to dispose of similar assets, existing economic conditions and when necessary utilizes local real estate brokers.

Adjustments to closed property reserves primarily relate to changes in estimated subtenant income or actual exit costs differing from original estimates. Adjustments are made for changes in estimates in the period in which the changes become known.

We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate our closed property reserves. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to adjustments that could be material. A 10% change in our closed property reserves at July 6, 2008, would have affected the Wild Oats purchase price allocation by approximately $5.7 million and would not have a material effect on net income for the forty weeks ended July 6, 2008.

Inventory Valuation

We value our inventories at the lower of cost or market. Cost was determined using the last-in, first-out (“LIFO”) method for approximately 94.2% and 81.7% of inventories at July 6, 2008 and September 30, 2007, respectively. Under the LIFO method, the cost assigned to items sold is based on the cost of the most recent items purchased. As a result, the costs of the first items purchased remain in inventory and are used to value ending inventory. The excess of estimated current costs over LIFO carrying value, or LIFO reserve, was approximately $28.0 million and $20.0 million at July 6, 2008 and September 30, 2007, respectively.  Costs for remaining inventories are determined by the first-in, first-out (“FIFO”) method. Cost was determined using the retail method and the item cost method for inventories in fiscal years 2008 and 2007. Under the retail method, the valuation of inventories at cost and the resulting gross margins are determined by counting each item in inventory, then applying a cost-to-retail ratio for various groupings of similar items to the retail value of inventories. Inherent in the retail inventory method calculations are certain management judgments and estimates which could impact the ending inventory valuation at cost as well as the resulting gross margins. The item cost method involves counting each item in inventory, assigning costs to each of these items based on the actual purchase costs (net of vendor allowances) of each item and recording the actual cost of items sold. The item cost method of accounting enables management to more precisely manage inventory and purchasing levels when compared to the retail method of accounting.

Our cost-to-retail ratios contain uncertainties because the calculation requires management to make assumptions and to apply judgment regarding inventory mix, inventory spoilage and inventory shrink. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our cost-to-retail ratios. However, if estimates are inaccurate, we may be exposed to losses or gains that could be material. A 10% difference in our cost-to-retail ratios at July 6, 2008, would have affected net income by approximately $3.4 million for the forty weeks ended July 6, 2008.

Goodwill and Intangible Assets

Goodwill consists of the excess of cost of acquired enterprises over the sum of the amounts assigned to identifiable assets acquired less liabilities assumed. Goodwill is reviewed for impairment annually at the beginning of the Company’s fourth fiscal quarter, or more frequently if impairment indicators arise, on a reporting unit level. We allocate goodwill to one reporting unit for goodwill impairment testing. We determine fair value utilizing both a market value method and discounted projected future cash flows compared to our carrying value for the purpose of identifying impairment. Our annual impairment review requires extensive use of accounting judgment and financial estimates. Application of alternative assumptions and definitions, such as reviewing goodwill for impairment at a different organizational level, could produce significantly different results. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to test for impairment losses on goodwill and other intangible assets. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to an impairment charge that could be material.

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Income Taxes

We recognize deferred income tax assets and liabilities 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 reverse. Deferred tax assets and liabilities are adjusted to reflect changes in tax laws or rates in the period that includes the enactment date. Significant accounting judgment is required in determining the provision for income taxes and related accruals, deferred tax assets and liabilities. In the ordinary course of business, there are transactions and calculations where the ultimate tax outcome is uncertain. In addition, we are subject to periodic audits and examinations by the IRS and other state and local taxing authorities. Although we believe that our estimates are reasonable, actual results could differ from these estimates.

On October 1, 2007, the Company adopted FIN 48, which clarifies the accounting for uncertainty in income tax positions recognized in the financial statements in accordance with Statement of Financial Accounting Standard (“SFAS”) No. 109. Under FIN 48, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance on measurement, classification, interest and penalties associated with tax positions, and income tax disclosures.

To the extent we prevail in matters for which reserves have been established, or are required to pay amounts in excess of our reserves, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement would require use of our cash and would result in an increase in our effective income tax rate in the period of resolution. A favorable tax settlement would be recognized as a reduction in our effective income tax rate in the period of resolution.

Share-Based Payments

Our Company maintains several stock based incentive plans. We grant options to purchase common stock under our Whole Foods Market 2007 Stock Incentive Plan. Options are granted at an option price equal to the market value of the stock at the grant date and are generally exercisable ratably over a four-year period beginning one year from grant date and have a five-year term. The grant date is established once the Company’s Board of Directors approves the grant and all key terms have been determined. The exercise prices of our stock option grants are the closing price on the grant date. Stock option grant terms and conditions are communicated to team members within a relatively short period of time. Our Company generally approves one primary stock option grant annually, occurring during a trading window.

Our Company offers a team member stock purchase plan to all full-time team members with a minimum of 400 hours of service. Participating team members may purchase our common stock through payroll deductions.  At our 2007 annual meeting, shareholders approved a new Team Member Stock Purchase Plan (“TMSPP”) which became effective on April 1, 2007. The TMSPP replaces all previous stock purchase plans and provides for a 5% discount on the shares purchase date market value which meets the “Safe Harbor” provisions of SFAS No. 123R, “Share-Based Payment” and therefore is non-compensatory. Under the previous plans, participating team members could elect to purchase unrestricted shares at 100% of market value or restricted shares at 85% of market value on the purchase date.

Effective the beginning of the first quarter of fiscal year 2006, the Company adopted the provisions of SFAS No. 123R using the modified prospective transition method. Under this method, prior periods were not restated. The Company uses the Black-Scholes multiple option pricing model which requires extensive use of accounting judgment and financial estimates, including estimates of the expected term team members will retain their vested stock options before exercising them, the estimated volatility of the Company’s common stock price over the expected term, and the number of options that will be forfeited prior to the completion of their vesting requirements. The related share-based payments expense is recognized on a straight-line basis over the vesting period. Application of alternative assumptions could produce significantly different estimates of the fair value of share-based payments and consequently, the related amounts recognized in the Consolidated Statements of Operations. The provisions of SFAS No. 123R apply to new stock options and stock options outstanding, but not yet vested, on the effective date.

SFAS No. 123R requires the Company to value unvested stock options granted prior to its adoption of SFAS No. 123 under the fair value method and expense these amounts in the income statement over the stock option’s remaining vesting period. In the fourth quarter of fiscal year 2005, the Company accelerated the vesting of all outstanding stock options, except options held by the members of the executive team and certain options held by team members in the United Kingdom, in order to prevent past option grants from having an impact on future results. The Company intends to keep its broad-based stock option

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program in place, but also intends to limit the number of shares granted in any one year so that annual earnings per share dilution from share-based payments expense will not exceed 10%.

Prior to the adoption of SFAS No. 123R, the Company presented the tax savings resulting from tax deductions resulting from the exercise of stock options as an operating cash flow, in accordance with Emerging Issues Task Force (“EITF”) Issue No. 00-15, “Classification in the Statement of Cash Flows of the Income Tax Benefit Received by a Company upon Exercise of a Nonqualified Employee Stock Option.” SFAS No. 123R requires the Company to reflect the tax savings resulting from tax deductions in excess of expense reflected in its financial statements as a financing cash flow.

In November 2005, the FASB issued Staff Position No. FAS 123R-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards” (“FSP FAS 123R-3”). The Company has elected to adopt the transition guidance for the additional paid-in-capital pool (“APIC pool”) in paragraph 81 of SFAS No. 123R. The prescribed transition method is a detailed method to establish the beginning balance of the APIC pool related to the tax effects of share-based payments, and to determine the subsequent impact on the APIC pool and Consolidated Statement of Cash Flows of the tax effects of share-based payment awards that are outstanding upon adoption of SFAS No. 123R.

We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to determine share-based payments expense. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to changes in share-based payments expense that could be material.

If actual results are not consistent with the assumptions used, the share-based payments expense reported in our financial statements may not be representative of the actual economic cost of the share-based payments. A 10% change in our share-based payments expense for the forty weeks ended July 6, 2008, would have affected net income by approximately $0.5 million.

Recent Accounting Pronouncements

Recent accounting pronouncements are included in Part I. Item 1. Note 13 “Recent Accounting Pronouncements” to the consolidated financial statements.

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 (“SEC”), news releases, reports, proxy statements, registration statements and other written communications, as well as oral forward-looking statements made from time to time by representatives of our Company. These risks and uncertainties include, but are not limited to, those listed in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2007. 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 successful integration of acquired businesses into our operations, changes in overall economic conditions that impact consumer spending, the impact of competition, the ability to access additional capital as needed, the successful resolution of ongoing FTC matters, 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.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

During fiscal year 2007, the Company entered into a $700 million, five-year term loan agreement to finance the acquisition of Wild Oats Markets. The loan bears interest at our option of the alternative base rate or the LIBOR rate plus an applicable margin based on the Company’s Moody’s and S&P rating. Our term loan does not give rise to significant fair value risk because it is a variable interest rate loan with revolving maturities which reflect market changes to interest rates. During the first quarter of fiscal year 2008, the Company entered into a three-year interest rate swap agreement with a notional amount of $490 million to fix the interest rate at 4.718%, excluding the applicable margin and associated fees, to help manage our exposure to interest rate fluctuations.  As of July 6, 2008 the interest rate swap had a negative fair value of approximately $12.7 million.

Subsequent to the end of the third quarter of fiscal year 2008, the LIBOR margin applicable to our term loan and revolving credit facility increased to 1.375% and 1.5%, respectively, due to a downgrade in our corporate credit rating.

Item 4. Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), to allow timely decisions regarding required disclosure. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective of the end of the period covered by this report.

There have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II. Other Information

Item 1. Legal Proceedings

From time to time we are a party to legal proceedings including matters involving personnel and employment issues, personal injury, intellectual property and other proceedings arising in the ordinary course of business which have not resulted in any material losses to date. Although management does not expect that the outcome in these proceedings will have a material adverse effect on our financial condition or results of operations, litigation is inherently unpredictable.  Therefore, we could incur judgments or enter into settlements of claims that could materially impact our results.

The Company has been contacted by the staff of the Securities and Exchange Commission (“SEC”) advising the Company that it has concluded its inquiry related to online financial message board postings related to Whole Foods Market and Wild Oats Markets and that no enforcement action has been recommended against the Company or any individual.

On July 29, 2008, the United States Court of Appeals for the District of Columbia Circuit reversed the August 16, 2007 decision of the United States District Court for the District of Columbia which had denied the Federal Trade Commission’s (“FTC”) motion for a preliminary injunction against the acquisition of Wild Oats Markets by Whole Foods Market, and remanded the case to the District Court for further proceedings consistent with the appellate decision.  On the same day, the Court of Appeals issued an Order directing the Clerk of the Court of Appeals to withhold issuance of the mandate in the case until seven days after disposition of any timely petition for rehearing or petition for rehearing en banc.  D.C. Circuit rules provide that any petition for rehearing or petition for rehearing en banc in this case be made within 45 days after entry of judgment, unless an order shortens or extends the time.  Further proceedings in the District Court cannot take place until after issuance of this mandate.   Whole Foods Market has not yet determined whether to file a petition for rehearing or petition for rehearing en banc.

On August 8, 2008, the FTC issued an Order rescinding the stay of its administrative proceeding against Whole Foods Market, requiring Whole Foods Market and Complaint Counsel to file a joint case management statement by August 14, 2008, and setting a scheduling conference for August 18, 2008.  The FTC had previously filed a complaint commencing its administrative proceeding on June 28, 2007.  This  complaint included a notice of contemplated relief indicating that, should the FTC prevail in its administrative proceeding, it would seek relief against Whole Foods Market, which could include (i) an order directing Whole Foods Market to divest Wild Oats in a manner that restores Wild Oats as a viable independent competitor in specified markets, (ii) a prohibition against any transaction between Whole Foods Market and Wild Oats that combines their operations in specified markets except with prior FTC approval, (iii) a requirement that Whole Foods Market provide prior notice to the FTC of any contemplated acquisition, merger, consolidation or other business combination with a company operating premium and natural organic supermarkets, (iv) the filing by Whole Foods Market of periodic compliance reports with the FTC or (v) any other relief appropriate to remedy the anticompetitive effects of the transaction between Whole Foods Market and Wild Oats.  The FTC stayed its administrative proceeding on August 7, 2007 in light of the pendency of the federal court proceedings.

On August 12, 2008, the FTC issued an Order extending the time for submission of the joint case management statement to August 28, 2008 and rescheduling the proposed scheduling conference for September 8, 2008.   Whole Foods Market cannot at this time predict the likely outcome of these judicial and administrative proceedings or assess the financial implications of any judgment or order that may arise from them. The Company has not accrued any loss related to the outcome of these proceedings as of July 6, 2008. During the third quarter of fiscal year 2008, the Company accrued approximately $13.7 million for legal and professional fees associated with these matters.

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Item 5. Other Information

(a)        The following recent developments are reported in this Form 10-Q:

Code of Business Conduct

On August 13, 2008, the Company’s Board of Directors amended our Code of Business Conduct in the following principal respects:

·To expand the scope of the “Gifts and Entertainment” section,

·To make the “Financial Interest in a Competitor” and “Media Inquiries” sections consistent with policies applicable to our Directors,

·To clarify and add additional restrictions relating to the “Donations and Other Payments” section, and

·To provide greater specificity to the “Online Forum” section.

A copy of our Code of Business Conduct, as amended, is publicly available on our Company website at www.wholefoodsmarket.com/investor/corporategovernance.

Amendment to Bylaws

On August 13, 2008, the Board of Directors approved certain amendments to the Company’s Bylaws, which are effective as of August 13, 2008.  The principal features of the amendments are as follows:

Advance Notice

The Bylaws were amended to modify Sections 3, 12 and 13 of Article II and to add a new Section 14 to Article II.  The amendments clarify the applicability of the Bylaws’ advance notice provisions to all shareholder nominations or recommendations and proposals of business (whether in respect of annual meetings or special meetings) and specify that these Bylaws are the exclusive means for a shareholder to submit business at a meeting, other than proposals governed by Rule 14a-8 of the federal proxy rules (which provide its own procedural requirements).

The procedures by which shareholders can nominate directors for election have been revised to provide that at special meetings at which the nomination of directors is on the meeting agenda, the shareholder seeking to nominate a director will be required to provide advance written notice of the nomination.  Notice would be required to be given not less than 120 calendar days prior to the date of the special meeting; however, if the first public announcement of the date of a special meeting is less than 130 days prior to the date of such special meeting, notice by the shareholder will be required to be so provided not later than 10 days following the day of the first public announcement of the special meeting.

In addition, the advance notice requirements with respect to annual and special meetings have been amended to require certain additional disclosures regarding the shareholders making proposals, nominations or recommendations, including disclosures of all ownership interests (including derivative interests) and rights to vote any shares of any security of the Company.  The amended Bylaws also require disclosures regarding the business proposed, or in the case of a nomination or recommendation of a director, all information that would be required to be disclosed in a proxy filing in a contested election, any compensation, agreements, arrangements and understandings between the nominee and the proposing shareholder, and a signed nominee questionnaire.  The amended Bylaws require that a shareholder making a director nomination or bringing other business at a shareholder meeting must not only be a shareholder at the time of notice, but also at the time of the meeting.

Written Consent Procedures

Under the Company’s Articles of Incorporation, shareholders may take corporate action by written consent.  Article II, Section 6 of the Bylaws sets forth procedures for fixing record dates for taking corporate action by written consent.  The Bylaw has been amended to require that (i) shareholders to act by written consent must request that the Company’s Board of Directors set a record date for shareholders entitled to consent, and (ii) the shareholder request must contain all information that the shareholder would be required to provide if the shareholder had been making a nomination or proposing business to be considered at a meeting of shareholders.  The Board of Directors is required to set a record date within 10 days of receiving a request.  If the Board of Directors does not set a record date within 10 days of receiving a request, the record date would be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Company.  In addition, Article II, Section 10 of the Bylaws has been amended to provide for the engagement of nationally recognized independent inspectors of election upon delivery to the Company of written consent(s).

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Removal of Directors

Article III, Section 2 of the Bylaws, which pertains to vacancies occurring in the Board of Directors and removal of directors, has been amended to provide that shareholders holding a majority of shares entitled to vote at an election of directors may remove directors for cause only, as defined.

Indemnification

Article VII, Section 1 of the Bylaws, which pertains to the Company’s indemnification of officers, directors and other employees and agents, has been amended to clarify that the Company is permitted to advance expenses to an indemnified person in advance of the final disposition of a proceeding to the maximum extent permitted by Texas law.  In addition, the Bylaw has been amended to clarify that the rights to indemnification and advancement are contractual rights between the Company and each covered officer, director, employee or agent that vest upon the commencement of the covered person’s service to the Company, and that the indemnification and advancement provisions of the Bylaws may not be retroactively amended to adversely affect the rights of covered persons.

Amendment

Article IX of the Bylaws has been amended to provide that, in order for shareholders to approve an amendment to, or a Bylaw inconsistent with, certain Bylaw provisions, the amendment or inconsistent Bylaw must be approved by the affirmative vote of 75% of the outstanding shares.  This supermajority requirement applies to the advance notice bylaws, written consent procedures bylaws and vacancies bylaws, as described above, Article III, Section 1 of the Bylaws which pertains to the composition of the Board of Directors, Article VII of the Bylaws which pertains to indemnification, and Article IX of the Bylaws which pertains to bylaw amendments.

The foregoing description of the Bylaw amendments is qualified in its entirety by reference to the full text of the Company’s Bylaws, as amended, which are attached hereto as Exhibit 3.1 and are incorporated herein by reference.

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Item 6. Exhibits

Exhibit	3.1	Amended and Restated Bylaws of the Registrant adopted August 13, 2008
Exhibit	10.1	First Amendment, dated June 2, 2008, of Revolving Credit Agreement dated August 28, 2007 by and among Registrant, JP Morgan Chase Bank, N.A.; Royal Bank of Canada; Wells Fargo Bank, N.A.; J.P. Morgan Securities Inc.; and RBC Capital Markets (Portions of this Agreement have been omitted pursuant to a request for Confidential Treatment filed with the Securities and Exchange Commission.)
Exhibit	10.2	Amendment No. One to the Whole Foods Market 2007 Stock Incentive Plan
Exhibit	14.1	Code of Business Conduct of the Registrant, as amended August 13, 2008
Exhibit	31.1	Certification of Chief Executive Officer Pursuant to 17 CFR 240.13a – 14(a)
Exhibit	31.2	Certification of Chief Financial Officer Pursuant to 17 CFR 240.13a – 14(a)
Exhibit	32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
Exhibit	32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		WHOLE FOODS MARKET, INC.
Date:	August 15, 2008	By:	/s/ Glenda Chamberlain
		Glenda Chamberlain
		Executive Vice President and
		Chief Financial Officer
		(Duly authorized officer and
		principal financial officer)

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EX-3.1

Exhibit 3.1

AMENDED AND RESTATED BYLAWS

OF

WHOLE FOODS MARKET, INC.

(A TEXAS CORPORATION)

(As amended through August 13, 2008)

ARTICLE I

OFFICES

Section 1.        Registered Office and Agent. The registered office and registered agent of the Corporation shall be as designated from time to time by the appropriate filing by the Corporation in the office of the Secretary of State of Texas.

Section 2.        Principal Office. The principal office of the Corporation shall be in Travis County, Texas, or such other county as the Board of Directors may from time to time designate.

Section 3.        Other Offices. The Corporation may also have offices at such other places both within and without the State of Texas as the Board of Directors may from time to time determine or the business of the Corporation may require.

ARTICLE II

SHAREHOLDERS

Section 1.        Time and Place of Meetings. Meetings of the shareholders shall be held at such time and at such place, within or without the State of Texas, as shall be determined by the Board of Directors.

Section 2.        Annual Meetings. Annual meetings of shareholders shall be held on such date and at such time as shall be determined by the Board of Directors. At each annual meeting the shareholders shall elect a Board of Directors and transact such other business as may properly be brought before the meeting.

Section 3.        Special Meetings. All special meetings of the shareholders shall be held at such location, within or without the State of Texas, as may be designated, and may be called at any time, by the Chief Executive Officer, President or the Board of Directors, or as may be stated in the notice of the meeting or in a duly executed waiver of notice thereof, and shall be called by the Chief Executive Officer, President or the Secretary at the request in proper form of the holders of not less than 10% of the voting power represented by all the shares issued, outstanding and entitled to be voted at the proposed special meeting. To be in proper form, such request must be in writing,  state the purpose or purposes of the proposed meeting and  include all information that would be required to be delivered pursuant to Article II, Section 13(c) of these Bylaws. Business transacted at special meetings shall be confined to the purposes stated in the notice of the meeting or in any supplemental notice delivered by the Corporation. The Board of Directors may determine that a meeting may be held solely by means of remote communication in accordance with Texas law.

Section 4.        Notice. Written or printed notice stating the place, day and hour of any shareholders’ meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, the means of any remote communications by which shareholders may be considered present and may vote at the meeting, shall be delivered not less than ten (10) days nor more than sixty (60) days before the date of the meeting, either personally, by electronic transmission or by mail, by or at the direction of the Chief Executive Officer, President,

Secretary or the officer or person calling the meeting, to each shareholder entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, addressed to the shareholder at his address as it appears on the share transfer records of the Corporation.

Section 5.        Closing of Share Transfer Records and Fixing Record Dates for Matters  Other than Consents to Action. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to receive payment of any distribution or share dividend, or in order to make a determination of shareholders for any other proper purpose (other than determining shareholders entitled to consent to action by shareholders proposed to be taken without a meeting of shareholders), the Board of Directors of the Corporation may provide that the share transfer records shall be closed for a stated period but not to exceed, in any case, 60 days. If the share transfer records shall be closed for the purpose of determining shareholders, such records shall be closed for at least ten days immediately preceding such meeting. In lieu of closing the share transfer records, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than 60 days and, in the case of a meeting of shareholders, not less than ten days prior to the date on which the particular action requiring such determination of shareholders is to be taken. If the share transfer records are not closed and no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a distribution (other than a distribution involving a purchase or redemption by the Corporation of any of its own shares) or share dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such distribution or share dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof except where the determination has been made through the closing of share transfer records and the stated period of closing has expired.

Section 6.        Fixing Record Dates for Consents to Action. In order that the Corporation may determine the shareholders entitled to consent to corporate action in writing without a meeting, whenever action by shareholders is proposed to be taken by consent in writing without a meeting of shareholders, the Board of Directors may fix a record date for the purpose of determining shareholders entitled to consent to that action, which record date shall not precede, and shall not be more than ten days after, the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any shareholder of record seeking to have the shareholders take action by consent in writing without a meeting of shareholders shall, by written notice to the Secretary, request the Board of Directors to fix a record date, which written notice shall include all information that would be required to be delivered pursuant to Article II, Section 13(c) of these Bylaws if the shareholder had been making a nomination or proposing business to be considered at an annual or special meeting of shareholders. The Board of Directors shall promptly, but in all events within 10 days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within 10 days of the date on which such a request is received and the prior action of the Board of Directors is not required by the Texas Business Corporation Act (herein called the “Act”), the record date for determining shareholders entitled to consent to action in writing

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without a meeting shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office, its principal place of business, or an officer or agent of the Corporation having custody of the records in which proceedings of meetings of shareholders are recorded. Delivery shall be by hand or by certified or registered mail, return receipt requested. Delivery to the Corporation’s principal place of business shall be addressed to the President or the Chief Executive Officer of the Corporation. If no record date shall have been fixed by the Board of Directors and prior action of the Board of Directors is required by the Act, the record date for determining shareholders entitled to consent to action in writing without a meeting shall be at the close of business on the date on which the Board of Directors adopts a resolution taking such prior action.

Section 7.        List of Shareholders. The officer or agent of the Corporation having charge of the share transfer records for shares of the Corporation shall make, at least ten days before each meeting of the shareholders, a complete list of the shareholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, with the address of and the number of voting shares held by each, which list, for a period of ten days prior to such meeting, shall be kept on file at the registered office or principal place of business of the Corporation and shall be subject to inspection by any shareholder at any time during the usual business hours of the Corporation. Alternatively, the list of the shareholders may be kept on a reasonably accessible electronic network, if the information required to gain access to the list is provided with the notice of the meeting. This Section does not require the Corporation to include any electronic contact information of any shareholder on the list. If the Corporation elects to make the list available on an electronic network, the Corporation shall take reasonable steps to ensure that the information is available only to shareholders of the Corporation. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. If the meeting is held by means of remote communication, the list must be open to the examination of any shareholder for the duration of the meeting on a reasonably accessible electronic network, and the information required to access the list must be provided to shareholders with the notice of the meeting. The original share transfer records shall be prima facie evidence as to who are the shareholders entitled to examine such list or transfer records or to vote at any meeting of shareholders. Failure to comply with the requirements of this Section shall not affect the validity of any action taken at such meeting.

Section 8.        Quorum. A quorum shall be present at a meeting of shareholders if the holders of shares having a majority of the voting power represented by all issued and outstanding shares entitled to vote at the meeting are present in person or represented by proxy at such meeting, unless otherwise provided by the Articles of Incorporation in accordance with the Act. Once a quorum is present at a meeting of shareholders, the shareholders represented in person or by proxy at the meeting may conduct such business as may properly be brought before the meeting until it is adjourned, and the subsequent withdrawal from the meeting of any shareholder or the refusal of any shareholder represented in person or by proxy to vote shall not affect the presence of a quorum at the meeting. If, however, a quorum shall not be present at any meeting of shareholders, the shareholders entitled to vote, present in person or represented by proxy, shall have power to adjourn the meeting, without notice (other than announcement at the meeting at which the adjournment is taken of the time and place of the adjourned meeting), until such time and to such place as may be determined by a vote of the holders of a majority of the shares

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represented in person or by proxy at such meeting until a quorum shall be present. At such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally noticed.

Section 9.        Voting. When a quorum is present at any meeting, the vote of the holders of a majority of the shares entitled to vote, present in person or represented by proxy at such meeting, shall decide any matter brought before such meeting, other than the election of Directors or a matter for which the affirmative vote of the holders of a specified portion of the shares entitled to vote is required by the Act, and shall be the act of the shareholders, unless otherwise provided by the Articles of Incorporation, these Bylaws or by resolution of the Board of Directors in accordance with the Act.

Unless otherwise provided in the Articles of Incorporation or these Bylaws in accordance with the Act, directors of the Corporation in a contested election (i.e., where the number of nominees for director exceeds the number of directors to be elected) shall be elected by a plurality of the votes cast by the holders of shares present and entitled to vote in the election of directors at a meeting of shareholders at which a quorum is present. However, in an uncontested election (i.e., where the number of nominees for director is the same as the number of directors to be elected), directors shall be elected by a majority of the votes cast by the holders of shares present and entitled to vote in the election of directors at a meeting of shareholders at which a quorum is present. In the event that a nominee for re-election as a director fails to receive the requisite majority vote at an annual or special meeting held for the purpose of electing directors where the election is uncontested such director must, promptly following certification of the shareholder vote, tender his or her resignation to the Board of Directors. The Nominating and Governance Committee of the Board of Directors, or such other group of independent members of the Board of Directors as is determined by the entire Board of Directors (excluding the director who tendered the resignation) will evaluate any such resignation in light of the best interests of the Corporation and its shareholders and will make a recommendation to the entire Board of Directors as to whether to accept or reject the resignation, or whether other action should be taken. In reaching its decision, the Board of Directors may consider any factors it deems relevant, including the director’s qualifications, the director’s past and expected future contributions to the Corporation, the overall composition of the Board of Directors and whether accepting the tendered resignation would cause the Corporation to fail to meet any applicable law, rule or regulation (including the listing requirements of any securities exchange). The Board of Directors shall complete this process within 90 days after the certification of the shareholder vote and shall report its decision to the shareholders in the Corporation’s filing following such Board Decision.

At every meeting of the shareholders, each shareholder shall be entitled to such number of votes, in person or by proxy, for each share having voting power held by such shareholder, as is specified in the Articles of Incorporation (including the resolution of the Board of Directors (or a committee thereof) creating such shares), except to the extent that the voting rights of the shares of any class or series are limited or denied by the Articles of Incorporation. At each election of directors, every shareholder shall be entitled to cast, in person or by proxy, the number of votes to which the shares owned by him are entitled for as many persons as there are directors to be elected and for whose election he has a right to vote. Cumulative voting is prohibited by the Articles of Incorporation. Every proxy shall be in writing and be executed by

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the shareholder. A telegram, telex, cablegram or other form of electronic transmission including telephone transmission, by the shareholder, or a photographic, photostatic, facsimile, or similar reproduction of a writing executed by the shareholder, shall be treated as an execution in writing for the purposes of this Section. Any electronic transmission must contain or be accompanied by information from which it can be determined that the transmission was authorized by the shareholder. No proxy shall be valid after 11 months from the date of its execution unless otherwise provided therein. Each proxy shall be revocable unless (i) the proxy form conspicuously states that the proxy is irrevocable, and (ii) the proxy is coupled with an interest, as defined in the Act and other Texas law.

Shares standing in the name of another corporation may be voted by such officer, agent or proxy as the bylaws of such corporation may prescribe or, in the absence of such provision, as the Board of Directors of such corporation may determine.

Shares held by an administrator, executor, guardian or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name as trustee.

Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without being transferred into his name, if such authority is contained in an appropriate order of the court that appointed the receiver.

A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred.

Treasury shares, shares of the Corporation’s stock owned by another corporation the majority of the voting stock of which is owned or controlled by the Corporation, and shares of its own stock held by the Corporation in a fiduciary capacity shall not be voted, directly or indirectly, at any meeting, and shall not be counted in determining the total number of outstanding shares at any given time.

Votes submitted as abstentions on matters to be voted on at any meeting will be counted as votes against such matters. Broker non-votes will not count for or against the matters to be voted on at any meeting.

Section 10.        Action by Consent. Any action required or permitted to be taken at a meeting of the shareholders may be taken without a meeting, without prior notice, and without a vote if a consent in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the action that is the subject of the consent.

In addition, if the Articles of Incorporation so provide, any action required or permitted to be taken at a meeting of the shareholders may be taken without a meeting, without prior notice, and without a vote if a consent or consents in writing, setting forth the action so taken, shall be signed by the holder or holders of shares having not less than the minimum number of votes that would be necessary to take such action at a meeting at which the holders of all shares entitled to

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vote on the action were present and voted. Prompt notice of the taking of any action by shareholders without a meeting by less than unanimous written consent shall be given to those shareholders who did not consent in writing to the action.

(a)        Every written consent shall bear the date of signature of each shareholder who signs the consent. No written consent shall be effective to take the action that is the subject of the consent unless, within sixty (60) days after the date of the earliest dated consent delivered to the Corporation as set forth below in this Section 10, the consent or consents signed by the holder or holders of shares having not less than the minimum number of votes that would be necessary to take the action that is the subject of the consent are delivered to the Corporation by delivery to its registered office, its principal place of business, or an officer or agent of the Corporation having custody of the records in which proceedings of meetings of shareholders are recorded. Delivery shall be by hand or certified or registered mail, return receipt requested. Delivery to the Corporation’s principal place of business shall be addressed to the President or the Chief Executive Officer of the Corporation.

(b)        A telegram, telex, cablegram or other electronic transmission by a shareholder consenting to an action to be taken is considered to be written, signed, and dated for the purposes of this Section if the transmission sets forth or is delivered with information from which the Corporation can determine that the transmission was transmitted by the shareholder and the date on which the shareholder transmitted the transmission. The date of transmission is the date on which the consent was signed. Consent given by telegram, telex, cablegram, or other electronic transmission may not be considered delivered until the consent is reproduced in paper form and the paper form is delivered to the Corporation at its registered office in this state or its principal place of business, or to an officer or agent of the Corporation having custody of the book in which proceedings of shareholder meetings are recorded. Notwithstanding Subsection (b) of this Section, consent given by telegram, telex, cablegram, or other electronic transmission may be delivered to the principal place of business of the Corporation or to an officer or agent of the Corporation having custody of the book in which the proceedings of shareholder meetings are recorded to the extent and in the manner provided by resolution for the Board of Directors of the Corporation. Any photographic, photostatic, facsimile, or similarly reliable reproduction of a consent in writing signed by a shareholder may be substituted or used instead of the original writing for any purpose for which the original writing could be used, if the reproduction is a complete reproduction of the entire original writing.

(c)        In the event of the delivery, in the manner provided by this Section 10, to the Corporation of the requisite written consent or consents to take action and/or any related revocation or revocations, the Corporation shall engage nationally recognized independent inspectors of elections for the purpose of promptly performing a ministerial review of the validity of the consents and revocations. For the purpose of permitting the inspectors to perform such review, no action by written consent without a meeting shall be effective until such date as the independent inspectors certify to the Corporation that the consents delivered to the Corporation in accordance with this Section 10 and not revoked represent at least the minimum number of votes that would be necessary to take the corporate action. Nothing contained in this paragraph shall in any way be construed to suggest or imply that the Board of Directors or any shareholder shall not be entitled to contest the validity of any consent or revocation thereof, whether before or after such certification by the independent inspectors, or to take any other

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action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto, and the seeking of injunctive relief in any such litigation).

(d)        Prompt notice of the taking of any action by shareholders without a meeting by less than unanimous written consent shall be given to those shareholders who did not consent in writing to the action.

Section 11.        Presence at Meetings by Means of Communications Equipment. Shareholders may participate in and hold a meeting of the shareholders by means of conference telephone or other means of remote communication equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 11 shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened if (i) the Corporation implements reasonable measures to verify that each person considered present and permitted to vote at the meeting by means of remote communication is a shareholder; (ii) the Corporation implements reasonable measures to provide the shareholders at the meeting by means of remote communication a reasonable opportunity to participate in the meeting and to vote on matters submitted to the shareholders, including an opportunity to read or hear the proceedings of a meeting substantially concurrently with the proceedings; and (iii) the Corporation maintains a record of any shareholder vote or other action taken at the meeting by means of remote communication.

Section 12.        Order of Business. The Chairman of the Board, or such other officer of the Corporation designated by a majority of the Board of Directors, will call meetings of the shareholders to order and will act as presiding officer thereof. Unless otherwise determined by the Board of Directors prior to the meeting, the presiding officer of the meeting of the shareholders will also determine the order of business and have the authority in his or her sole discretion to regulate the conduct of any such meeting, including without limitation by (i) imposing restrictions on the persons (other than shareholders of the Corporation or their duly appointed proxies) who may attend any such shareholders’ meeting, (ii) ascertaining whether any shareholder or his proxy may be excluded from any meeting of the shareholders based upon any determination by the presiding officer, in his or her sole discretion, that any such person has unduly disrupted or is likely to disrupt the proceedings thereat, and (iii) determining the circumstances in which any person may make a statement or ask questions at any meeting of the shareholders.

(a)        At an annual meeting of the shareholders, only such business will be conducted or considered as is properly brought before the meeting. To be properly brought before an annual meeting, business must be (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) otherwise properly brought before the meeting by the presiding officer or by or at the direction of a majority of the Board of Directors, or (iii) otherwise properly requested to be brought before the meeting by a shareholder of the Corporation in accordance with the immediately succeeding sentence. For business to be properly requested by a shareholder to be brought before an annual meeting, the shareholder must (i) be a shareholder of record at the time of the giving of the notice of such annual meeting by or at the direction of the Board of Directors and at the time of the annual meeting, (ii) be

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entitled to vote with respect to such business at such meeting, and (iii) comply with the notice procedures set forth in Article II, Section 13 of these Bylaws as to such business.

Nominations of or recommendations for persons for election as Directors of the Corporation may be made at an annual meeting of shareholders only (i) by or at the direction of the Board of Directors or (ii) by a shareholder of the Corporation in accordance with the immediately succeeding sentence. Any shareholder, (A) who is a shareholder of record at the time of the giving of the notice of such annual meeting of the shareholders by or at the direction of the Board of Directors and at the time of the annual meeting, (B) who is entitled to vote for the election of directors at such meeting and (C) who complies with the notice procedures set forth in Article II, Section 13 of these Bylaws as to such nomination or recommendation, may nominate or recommend one or more persons for election or to be considered as a potential nominee or nominees for election, as applicable, as a Director or Directors of the Corporation at an annual meeting of the shareholders. Only persons who are nominated in accordance with this Article II, Section 12(a) will be eligible for election at an annual meeting of shareholders as Directors of the Corporation.

The immediately preceding two paragraphs shall be the exclusive means for a shareholder to make nominations or submit other business (other than matters properly brought under Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and included in the Corporation’s notice of meeting) before an annual meeting of shareholders.

(b)        At a special meeting of shareholders, only such business may be conducted or considered as is properly brought before the meeting. To be properly brought before a special meeting, business must be (i) specified in the notice of the meeting (or any supplement thereto) given by or at the direction of the Chairman of the Board, the President, a Vice President or the Secretary or (ii) otherwise properly brought before the meeting by the presiding officer or by or at the direction of a majority of the Board of Directors or pursuant to Article II, Section 3 of these Bylaws. In addition, for business requested by a shareholder in accordance with Article II, Section 3 of these Bylaws to be brought before a special meeting, the shareholder must (i) be a shareholder of record at the time of the giving of the notice of such special meeting and at the time of the special meeting, (ii) be entitled to vote with respect to such business at such meeting, and (iii) comply with the notice procedures set forth in Article II, Section 13 of these Bylaws as to such business.

Nominations of persons for election as Directors of the Corporation may be made at a special meeting of shareholders at which  the election of directors has been properly brought before the meeting in accordance with the foregoing paragraph only (i) by or at the direction of the Board of Directors or (ii) by any shareholder (A) who is a shareholder of record at the time of the giving of the notice of such special meeting and at the time of the special meeting, (B) who is entitled to vote for the election of directors at such meeting and (C) who complies with the notice procedures set forth in Article II, Section 13 of these Bylaws as to such nominations. Only persons who are nominated in accordance with this Article II, Section 12(b) will be eligible for election at a special meeting of shareholders as Directors of the Corporation.

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The immediately preceding two paragraphs and the provisions of Article II, Section 3 of these Bylaws shall be the exclusive means for a shareholder to make nominations or submit other business before a special meeting of shareholders.

(c)        The determination of whether any business sought to be brought before any annual or special meeting of the shareholders is properly brought before such meeting in accordance with this Article II, Section 12, and whether any nomination of a person for election as a Director of the Corporation at any annual or special meeting of the shareholders was properly made in accordance with this Article II, Section 12, will be made by the presiding officer of such meeting. If the presiding officer determines that any business is not properly brought before such meeting, or any nomination was not properly made, he or she will so declare to the meeting and any such business will not be conducted or considered and any such nomination will be disregarded.

Section 13.        Advance Notice of Shareholder Proposals and Director Nominations.

(a)        To be timely for purposes of Article II, Section 12(a) of these Bylaws, a shareholder’s notice of nominations or other business to be properly brought before an annual meeting must be addressed to the Secretary and delivered or mailed to and received at the principal executive offices of the Corporation not less than one hundred twenty (120) calendar days prior to the anniversary date of the date (as specified in the Corporation’s proxy materials for its immediately preceding annual meeting of shareholders) on which the Corporation first mailed its proxy materials for its immediately preceding annual meeting of shareholders; provided, however, that in the event the annual meeting is called for a date that is not within thirty (30) calendar days of the anniversary date of the date on which the immediately preceding annual meeting of shareholders was called, to be timely, notice by the shareholder must be so received not later than the close of business on the tenth (10th) calendar day following the day on which public announcement of the date of the annual meeting is first made. In no event will an adjournment or postponement of an annual meeting of shareholders or the announcement thereof commence a new time period for the giving of a shareholder’s notice as provided above.

(b)        To be timely for purposes of Article II, Section 12(b) of these Bylaws, a shareholder’s notice of nominations to be properly brought before a special meeting must be addressed to the Secretary and delivered or mailed to and received at the principal executive offices of the Corporation not less than one hundred twenty (120) calendar days prior to the date of such special meeting; provided, however, that if the first public announcement of the date of such special meeting is less than one hundred thirty (130) days prior to the date of such special meeting, notice by the shareholder must be so received not later than the close of business on the tenth (10th) calendar day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event will an adjournment or postponement of a special meeting of shareholders or the public announcement thereof commence a new time period for the giving of a shareholder’s notice as provided above. Notice of other business proposed to be brought before a special meeting by a shareholder must be delivered in accordance with Article II, Section 3 of these Bylaws.

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(c)        To be in proper form, a shareholder’s notice (whether given pursuant to Section 3, Section 13(a) or Section 13(b) of this Article II) to the Secretary must:  (i) set forth, as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or recommendation for nomination or proposal is made or other business is to be proposed (A) the name and address of such shareholder, as they appear on the Corporation’s books, and of such beneficial owner, if any, (B) (I) the class or series and number of shares of the Corporation which are, directly or indirectly, owned beneficially and of record by such shareholder and such beneficial owner, (II) any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares of the Corporation or with a value derived in whole or in part from the value of any class or series of shares of the Corporation, whether or not such instrument or right shall be subject to settlement in the underlying class or series of capital stock of the Corporation or otherwise (a “Derivative Instrument”) directly or indirectly owned beneficially by such shareholder and any other direct or indirect opportunity to profit or share in any profit derived from any increase or decrease in the value of shares of the Corporation, (III) any proxy, contract, arrangement, understanding, or relationship pursuant to which such shareholder has a right to vote any shares of any security of the Corporation, (IV) any short interest in any security of the Corporation (for purposes of this Section 13(c) a person shall be deemed to have a short interest in a security if such person directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has the opportunity to profit or share in any profit derived from any decrease in the value of the subject security), (V) any rights to dividends on the shares of the Corporation owned beneficially by such shareholder that are separated or separable from the underlying shares of the Corporation, (VI) any proportionate interest in shares of the Corporation or Derivative Instruments held, directly or indirectly, by a general or limited partnership in which such shareholder is a general partner  or, directly or indirectly, beneficially owns an interest in a general partner and (VII) any performance-related fees (other than an asset-based fee) that such shareholder is entitled to based on any increase or decrease in the value of shares of the Corporation or Derivative Instruments, if any, as of the date of such notice, including without limitation any such interests held by members of such shareholder’s immediate family sharing the same household (which information shall be supplemented by such shareholder and beneficial owner, if any, not later than 10 days after the record date for the meeting to disclose such ownership as of the record date), and (C) any other information relating to such shareholder and beneficial owner, if any, that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors in a contested election pursuant to Section 14 of the Exchange Act, and the rules and regulations promulgated thereunder; (ii) if the notice relates to any business other than a nomination or recommendation for nomination of a director or directors that the shareholder proposes to bring before the meeting, set forth (A) a description in reasonable detail of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest of such shareholder and beneficial owner, if any, in such business and (B) a description of all agreements, arrangements and understandings between such shareholder and beneficial owner, if any, and any other person or persons (including their names) in connection with the proposal of such business by such shareholder; (iii) set forth, as to each person, if any, whom the shareholder proposes to nominate for election or reelection to the Board of Directors (A) all information relating to such person that would be required to be disclosed in a proxy

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statement or other filings required to be made in connection with solicitations of proxies for election of directors in a contested election pursuant to Section 14 of the Exchange Act, and the rules and regulations promulgated thereunder (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected) and (B) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among such shareholder and beneficial owner, if any, and their respective affiliates and associates, or others acting in concert therewith, on the one hand, and each proposed nominee, and his or her respective affiliates and associates, or others acting in concert therewith, on the other hand, including without limitation all information that would be required to be disclosed pursuant to Item 404 of Regulation S-K if the shareholder making the nomination and any beneficial owner on whose behalf the nomination is made, if any, or any affiliate or associate thereof or person acting in concert therewith, were the “registrant” for purposes of such item and the nominee were a director or executive officer of such registrant; and (iv) with respect to each nominee or recommended nominee for election or reelection to the Board of Directors, include a completed and signed questionnaire, representation and agreement required by Article II, Section 14 of these Bylaws. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as an independent director of the Corporation or that could be material to a reasonable shareholder’s understanding of the independence, or lack thereof, of such nominee. All recommendations by a shareholder of a person to be considered as a potential nominee for election as a director of the Corporation at any annual meeting of shareholders will be presented to the Board of Directors, or the appropriate committee of the Board of Directors, for consideration.

(d)        Notwithstanding the provisions of Sections 3, 12 and 13 of this Article II, a shareholder must also comply with all applicable requirements of the Exchange Act, and the rules and regulations thereunder with respect to the matters set forth in Sections 3, 12 and 13 of this Article II; provided, however, that any references in these Sections 3, 12 and 13 of this Article II to the Exchange Act, or the rules promulgated thereunder are not intended to and shall not limit the requirements applicable to nominations or proposals as to any other business to be considered pursuant to Section 13 of this Article II. Nothing in Sections 3, 12 and 13 of this Article II will be deemed to affect any rights of shareholders to request inclusion of proposals in the Corporation’s proxy statement in accordance with the provisions of Rule 14a-8 under the Exchange Act.

(e)        For purposes of this Article II, Section 13, “public announcement” means disclosure in a press release reported by the Dow Jones News Service, Associated Press, or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act, or furnished to shareholders.

Section 14.        Submission of Questionnaire, Representation and Agreement. To be eligible to be a nominee for election or reelection as a director of the Corporation, a person must deliver (in accordance with the time periods prescribed for delivery of notice under Article II, Section 13 of these Bylaws) to the Secretary at the principal executive offices of the Corporation a written questionnaire with respect to the background and qualification of such person and the

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background of any other person or entity on whose behalf the nomination or recommendation for nomination or nomination, as the case may be, is being made (which questionnaire shall be provided by the Secretary upon written request) and a written representation and agreement (in the form provided by the Secretary upon written request) that such person (a) is not and will not become a party to (i) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such person, if elected as a director of the Corporation, will act or vote on any issue or question (a “Voting Commitment”) that has not been disclosed to the Corporation or (ii) any Voting Commitment that could limit or interfere with such person’s ability to comply, if elected as a director of the Corporation, with such person’s fiduciary duties under applicable law, (b) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has not been disclosed therein, (c) in such person’s individual capacity and on behalf of any person or entity on whose behalf the nomination is being made, would be in compliance, if elected as a director of the Corporation, and will comply with all applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the Corporation and (d) will abide by the requirements of Article II, Section 9 of these Bylaws.

ARTICLE III

DIRECTORS

Section 1.        Number, Election and Terms of Directors. Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under circumstances specified in any Preferred Designation, the number of directors shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the Board of Directors then in office determined as if there were no vacancies. No decrease in the number of directors shall have the effect of reducing the term of any incumbent director. Directors shall be elected at each annual meeting of the shareholders by the holders of shares entitled to vote in the election of directors, except as provided in Section 2 of this Article III, and each director shall hold office until the annual meeting of shareholders following his election or until his successor is elected and qualified. Directors need not be residents of the State of Texas or shareholders of the Corporation.

Section 2.        Vacancies. Subject to other provisions of this Section 2, any vacancy occurring in the Board of Directors may be filled by election at an annual or special meeting of the shareholders called for that purpose or by the affirmative vote of a majority of the remaining directors, though the remaining directors may constitute less than a quorum of the Board of Directors as fixed by Section 8 of this Article III. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. Any directorship to be filled by reason of an increase in the number of directors shall be filled by election at an annual meeting or at a special meeting of shareholders called for that purpose or may be filled by the Board of Directors for a term of office continuing only until the next election of one or more directors by the shareholders; provided that the Board of Directors may not fill more than two such directorships during the period between any two successive annual meetings of shareholders. Shareholders holding a majority of shares then entitled to vote at an election of directors may, at

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any time, only with cause (as hereinafter defined), terminate the term of office of all or any of the directors by a vote at any annual or special meeting called for that purpose. Such removal shall be effective immediately upon such shareholder action even if successors are not elected simultaneously, and the vacancies on the Board of Directors caused by such action shall be filled only by election by the shareholders. For purposes of this Section 2 of Article III, “cause” means that (i) a court of competent jurisdiction has made a final non-appealable determination that the applicable director (a) has breached his or her fiduciary duties to the Corporation or (b) is incapacitated to the extent that such director is not capable of performing his or her directorial duties or (ii) the applicable director has been indicted by a governmental authority for a felony.

Notwithstanding the foregoing, whenever the holders of any class or series of shares are entitled to elect one or more directors by the provisions of the Articles of Incorporation, only the holders of shares of that class or series shall be entitled to vote for or against the removal of any director elected by the holders of shares of that class or series; and any vacancies in such directorships and any newly created directorships of such class or series to be filled by reason of an increase in the number of such directors may be filled by the affirmative vote of a majority of the directors elected by such class or series then in office or by a sole remaining director so elected, or by the vote of the holders of the outstanding shares of such class or series, and such directorships shall not in any case be filled by the vote of the remaining directors or the holders of the outstanding shares as a whole unless otherwise provided in the Articles of Incorporation.

Section 3.        General Powers. The powers of the Corporation shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be managed under the direction of, its Board of Directors, which may do or cause to be done all such lawful acts and things, as are not by the Act, the Articles of Incorporation or these Bylaws directed or required to be exercised or done by the shareholders.

Section 4.        Place of Meetings. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Texas.

Section 5.        Annual Meetings. The first meeting of each newly elected Board of Directors shall be held, without further notice, immediately following the annual meeting of shareholders at the same place, unless by the majority vote or unanimous consent of the directors then elected and serving, such time or place shall be changed.

Section 6.        Regular Meetings. Regular meetings of the Board of Directors may be held with or without notice at such time and place as the Board of Directors may determine by resolution.

Section 7.        Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the Chief Executive Officer and shall be called by the Secretary on the written request of a majority of the incumbent directors. The person or persons authorized to call special meetings of the Board of Directors may fix the place for holding any special meeting of the Board of Directors called by such person or persons. Notice of any special meeting shall be given at least 24 hours previous thereto if given either personally (including written notice delivered personally or telephone notice) or by telex, telecopy, telegram or other electronic transmission, and at least 72 hours previous thereto if given by written notice mailed or

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otherwise transmitted to each director at the address of his business or residence. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. Any director may waive notice of any meeting, as provided in Section 2 of Article IV of these Bylaws. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.

Section 8.        Quorum and Voting. At all meetings of the Board of Directors, the presence of a majority of the number of directors fixed in the manner provided in Section 1 of this Article III shall constitute a quorum for the transaction of business. At all meetings of committees of the Board of Directors (if one or more be designated in the manner described in Section 9 of this Article III), the presence of a majority of the number of directors fixed from time to time by resolution of the Board of Directors to serve as members of such committees shall constitute a quorum for the transaction of business. The affirmative vote of at least a majority of the directors present and entitled to vote at any meeting of the Board of Directors or a committee of the Board of Directors at which there is a quorum shall be the act of the Board of Directors or the committee, except as may be otherwise specifically provided by the Act, the Articles of Incorporation or these Bylaws. Directors may not vote by proxy at any meeting of the Board of Directors. Directors with an interest in a business transaction of the Corporation and directors who are directors or officers or have a financial interest in any other corporation, partnership, association or other organization with which the Corporation is transacting business may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee of the Board of Directors to authorize such business transaction. If a quorum shall not be present at any meeting of the Board of Directors or a committee thereof, a majority of the directors present thereat may adjourn the meeting, without notice other than announcement at the meeting, until such time and to such place as may be determined by such majority of directors, until a quorum shall be present.

Section 9.        Committees of the Board of Directors. The Board of Directors may designate from among its members one or more committees, each of which shall be composed of one or more of its members, and may designate one or more of its members as alternate members of any committee, who may, subject to any limitations imposed by the Board of Directors, replace absent or disqualified members at any meeting of that committee. Any such committee, to the extent provided in the resolution of the Board of Directors designating the committee or in the Articles of Incorporation or these Bylaws, shall have and may exercise all of the authority of the Board of Directors of the Corporation, except where action of the Board of Directors is required by the Act or by the Articles of Incorporation. Any member of a committee of the Board of Directors may be removed, for or without cause, by the affirmative vote of a majority of the whole Board of Directors. If any vacancy or vacancies occur in a committee of the Board of Directors caused by death, resignation, retirement, disqualification, removal from office or otherwise, the vacancy or vacancies shall be filled by the affirmative vote of a majority of the whole Board of Directors. Such committee or committees shall have such name or names as may be designated by the Board of Directors and shall keep regular minutes of their proceedings and report the same to the Board of Directors when required.

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Section 10.        Compensation of Directors. Directors, as members of the Board of Directors or of any committee thereof, shall be entitled to receive compensation for their services on such terms and conditions as may be determined from time to time by the Board of Directors. Nothing herein contained, however, shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.

Section 11.        Action by Unanimous Consent. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if a written consent, setting forth the action so taken, is signed by all the members of the Board of Directors or the committee, as the case may be, and such written consent shall have the same force and effect as a unanimous vote at a meeting of the Board of Directors. A telegram, telex, cablegram, or other electronic transmission by a director consenting to an action to be taken and transmitted by a director is considered written, signed, and dated for the purposes of this article if the transmission sets forth or is delivered with information from which the Corporation can determine that the transmission was transmitted by the director and the date on which the director transmitted the transmission.

Section 12.        Presence at Meetings by Means of Communications Equipment. Members of the Board of Directors of the Corporation or any committee designated by the Board of Directors, may participate in and hold a meeting of such board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 12 shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.

ARTICLE IV

NOTICES

Section 1.        Form of Notice. Whenever under the provisions of the Act, the Articles of Incorporation or these Bylaws, notice is required to be given to any shareholder, director or committee member, and no provision is made as to how such notice shall be given, it shall not be construed to mean that any such notice may be given (a) in person, (b) in writing, by mail, postage prepaid, addressed to such shareholder, director, or committee member at his address as it appears on the books of the Corporation or, in the case of a shareholder, the stock transfer records of the Corporation, (c) on consent of a shareholder, director, or committee member, by electronic transmission, or (d) by any other method permitted by law. Any notice required or permitted to be given by mail shall be deemed to be given at the time when the same be thus deposited, postage prepaid, in the United States mail as aforesaid. On consent of a shareholder, director or committee member, notice from the Corporation may be given to the shareholder, director or committee member by electronic transmission. The shareholder, director or committee member may specify the form of electronic transmission to be used to communicate notice. The shareholder, director or committee member may revoke this consent by written notice to the Corporation. The consent is deemed to be revoked if the Corporation is unable to deliver by electronic transmission two consecutive notices, and the person responsible for delivering notice on behalf of the Corporation knows that delivery of these two electronic

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transmissions was unsuccessful. The inadvertent failure to treat the unsuccessful transmissions as a revocation of consent does not invalidate a meeting or other action. Notice by electronic transmission is deemed given when the notice is (i) transmitted to a facsimile number provided by the shareholder, director or committee member for the purpose of receiving notice; (ii) transmitted to an electronic mail address provided by the shareholder, director or committee member for the purpose of receiving notice; (iii) posted on an electronic network and a message is sent to the shareholder, director or committee member at the address provided by the shareholder, director or committee member for the purpose of alerting the shareholder, director or committee member by any other form of electronic transmission consented to by the shareholder, director or committee member.

Section 2.        Waiver. Whenever under the provisions of the Act, the Articles of Incorporation or these Bylaws, any notice is required to be given to any director or shareholder of the Corporation, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated in such notice, or a waiver by electronic transmission by the person entitled to notice, shall be deemed equivalent to the giving of such notice. The business to be transacted at a regular or special meeting of the shareholders, directors or members of a committee of directors or the purpose of a meeting is not required to be specified in a written waiver of notice or a waiver by electronic transmission unless required by the Articles of Incorporation.

Section 3.        When Notice Unnecessary. Whenever, under the provisions of the Act, the Articles of Incorporation or these Bylaws, any notice is required to be given to any shareholder, such notice need not be given to the shareholder if:

(a)        notice of two consecutive annual meetings and all notices of meetings held during the period between those annual meetings, if any, or

(b)        all (but in no event less than two) payments (if sent by first class mail) of distributions or interest on securities during a 12-month period,

have been mailed to that person, addressed at his address as shown on the records of the Corporation, and have been returned undeliverable. Any action or meeting taken or held without notice to such a person shall have the same force and effect as if the notice had been duly given. If such a person delivers to the Corporation a written notice setting forth his then current address, the requirement that notice be given to that person shall be reinstated.

ARTICLE V

OFFICERS

Section 1.        General. The elected officers of the Corporation shall be a Chief Executive Officer and/or a President and a Secretary. The Board of Directors may also elect or appoint such other officers, with or without such descriptive titles as the Board of Directors shall deem appropriate. Two or more offices may be held by the same person.

Section 2.        Election. The Board of Directors shall elect the officers of the Corporation who shall serve at the discretion of the Board of Directors until such time as their

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successors are chosen and qualified. The Board of Directors may appoint such other officers and agents as it shall deem necessary and shall determine the salaries of all officers and agents from time to time. No officer need be a member of the Board of Directors except the Chairman of the Board, if one be elected. Any officer elected or appointed by the Board of Directors may be removed, with or without cause, at any time by a majority vote of the whole Board. Election or appointment of an officer or agent shall not of itself create contract rights.

Section 3.        Chief Executive Officer. The Chief Executive Officer to the extent appointed by the Board of Directors shall be the Chief Executive Officer of the Corporation and, subject to the provisions of these Bylaws, shall have general supervision of the affairs of the Corporation and shall have general and active control of all its business. The Chief Executive Offer shall have general authority to execute bonds, deeds and contracts in the name of the Corporation and affix the corporate seal thereto; to sign stock certificates; to cause the employment or appointment of such employees and agents of the Corporation as the proper conduct of operations may require, and to fix their compensation, subject to the provisions of these Bylaws; to remove or suspend any employee or agent who shall have been employed or appointed under his authority or under authority of an officer subordinate to him; to suspend for cause, pending final action by the authority which shall have elected or appointed him, any officer subordinate to the Chief Executive Officer; and, in general, to exercise all the powers and authority usually appertaining to the chief executive officer of a corporation, except as otherwise provided in these Bylaws.

Section 4.        President. In the absence of a Chief Executive Officer, the President shall be the ranking and Chief Executive Officer of the Corporation, and shall have the duties and responsibilities, and the authority and power, of the Chief Executive Officer.

Section 5.        Vice Presidents. Vice President shall perform such duties and have such other powers as the Board of Directors or the Chief Executive Officer may from time to time prescribe.

Section 6.        Secretary. The Secretary shall attend and record minutes of the proceedings of all meetings of the Board of Directors and any committees thereof and all meetings of the shareholders. The Secretary shall file the records of such meetings in one or more books to be kept for that purpose. The Secretary shall generally perform all the duties usually appertaining to the office of the secretary of a corporation.

Section 7.        Assistant Secretaries. In the absence of the Secretary or in the event of the Secretary’s inability or refusal to act, the Assistant Secretary, if any (or, if there be more than one, the Assistant Secretaries in the order designated or, in the absence of any designation, then in the order of their election), shall perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors, the Chief Executive Officer or the Secretary may from time to time prescribe.

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ARTICLE VI

CERTIFICATES REPRESENTING SHARES

Section 1.        Form of Certificates. The Corporation shall deliver certificates representing all shares to which shareholders are entitled. Certificates representing shares of the Corporation shall be in such form as shall be approved and adopted by the Board of Directors and shall be numbered consecutively and entered in the share transfer records of the Corporation, or in the records of the Corporation’s designated transfer agent, if any, as they are issued. Each certificate shall state on the face thereof that the Corporation is organized under the laws of the State of Texas, the name of the registered holder, the number and class of shares, and the designation of the series, if any, which said certificate represents, and either the par value of the shares or a statement that the shares are without par value. Each certificate shall also set forth on the back thereof a full or summary statement of matters required by the Act or the Articles of Incorporation to be described on certificates representing shares, and shall contain a conspicuous statement on the face thereof referring to the matters set forth on the back thereof. Certificates shall be signed by the Chief Executive Officer, President or any Vice President and the Secretary or any Assistant Secretary, and may be sealed with the seal of the Corporation. Either the seal of the Corporation or the signatures of the Corporation’s officers or both may be facsimiles. In case any officer or officers who have signed, or whose facsimile signature or signatures have been used on such certificate or certificates, shall cease to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates have been delivered by the Corporation or its agents, such certificate or certificates may nevertheless be issued and delivered as though the person or persons who signed the certificate or certificates or whose facsimile signature or signatures have been used thereon had not ceased to be such officer or officers of the Corporation.

Section 2.        Lost Certificates. The Corporation may direct that a new certificate be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost or destroyed. When authorizing the issue of a new certificate, the Board of Directors, in its discretion and as a condition precedent to the issuance thereof, may require the owner of the lost or destroyed certificate, or his legal representative, to advertise the same in such manner as it shall require and/or give the Corporation a bond in such form, in such sum, and with such surety or sureties as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed.

Section 3.        Transfer of Shares. Shares of stock shall be transferable only on the share transfer records of the Corporation by the holder thereof in person or by his duly authorized attorney. Subject to any restrictions on transfer set forth in the Articles of Incorporation, these Bylaws or any agreement among shareholders to which this Corporation is a party or has notice, upon surrender to the Corporation or to the transfer agent of the Corporation of a certificate representing shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation or the transfer agent of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.

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Section 4.        Registered Shareholders. Except as otherwise provided in the Act or other applicable Texas law, the Corporation shall be entitled to regard the person in whose name any shares issued by the Corporation are registered in the share transfer records of the Corporation at any particular time (including, without limitation, as of the record date fixed pursuant to Section 5 or Section 6 of Article II hereof) as the owner of those shares and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof.

ARTICLE VII

INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS

Section 1.        General. (a)        The Corporation shall indemnify persons who are or were, at any time during which this Section 1 of Article VII is in effect (whether or not such person continued to serve in such capacity at the time the indemnification or payment of expenses pursuant hereto is sought or at the time any proceeding relating thereto exists or is brought), a director or officer of the Corporation both in their capacities as directors and officers of the Corporation and, if serving at the request of the Corporation as a director, officer, trustee, employee, agent or similar functionary of another foreign or domestic corporation, trust, partnership, joint venture, sole proprietorship, employee benefit plan or other enterprise, in each of those capacities, against any and all liability and judgments, penalties (including excise and similar taxes), fines, settlements and reasonable expenses that may be incurred by them in connection with or resulting from (a) any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative, (b) an appeal in such an action, suit or proceeding, or (c) any inquiry or investigation that could lead to such an action, suit or proceeding, all to the full extent permitted by Article 2.02-1 of the Act as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), and such indemnification shall continue as to a person who has ceased to be a director or officer or to serve in any of such other capacities and shall inure to the benefit of his or her heirs, executors and administrators.

(b)        The Corporation shall indemnify persons who are or were, at any time during which this Section 1 of Article VII is in effect (whether or not such person continued to serve in such capacity at the time the indemnification or payment of expenses pursuant hereto is sought or at the time any proceeding relating thereto exists or is brought), an employee or agent of the Corporation, or persons who are not or were not employees or agents of the Corporation but who are or were serving at the request of the Corporation as a director, officer, trustee, employee, agent or similar functionary of another foreign or domestic corporation, trust, partnership, joint venture, sole proprietorship, employee benefit plan or other enterprise (collectively, along with the directors and officers of the Corporation, such persons are referred to herein as “Corporate Functionaries”) against any and all liability and judgments, penalties (including excise and similar taxes), fines, settlements and reasonable expenses that may be incurred by them in connection with or resulting from (i) any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative, (ii) an appeal in such an action, suit or proceeding, or (iii) any inquiry or investigation that could lead to such an action, suit or proceeding, all to the full extent permitted by Article 2.02-1 of the Act, and the

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Corporation may indemnify such persons to the extent permitted by the Act as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), and such indemnification shall continue as to a person who has ceased to be a Corporate Functionary and shall inure to the benefit of his or her heirs, executors and administrators. Any director, officer, trustee, employees (but only those employees serving in an administrative capacity (A) as a fiduciary, (B) dealing with the Corporation’s international, national or regional financial matters, or (C) handling international, national or regional Team Member Services matters), agent, or similar functionary of any of the Corporation’s direct or indirect wholly-owned subsidiaries, shall be deemed to be serving in such capacity at the request of the Corporation.

(c)        The rights to indemnification conferred in this Article VII shall include the right to be paid by the Corporation the reasonable expenses incurred in defending any such action, suit or proceeding, in advance of its final disposition (such advances to be paid by the Corporation within thirty (30) days after the receipt by the Corporation of a statement or statements from the claimant requesting such advance or advances from time to time), to the maximum extent permitted by the Act as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader advancement rights than said law permitted the Corporation to provide prior to such amendment), subject only to such written affirmation or undertaking as may be required to be furnished by the claimant under the Act. The rights conferred upon Corporate Functionaries in this Article VII shall be contract rights that vest at the time of such person’s service to or at the request of the Corporation and such rights shall continue as to any such person who has ceased to so serve and shall inure to the benefit of such person’s heirs, executors and administrators. The rights conferred upon Corporate Functionaries in this Article VII shall be in addition to all rights to which any Corporate Functionary may be entitled under any agreement or vote of shareholders or as a matter of law or otherwise and cannot be terminated by the Corporation, the Board of Directors or the shareholders of the Corporation with respect to a person’s service prior to the date of such termination. Any amendment, modification, alteration or repeal of this Article VII that in any way diminishes, limits, restricts, adversely affects or eliminates any right of a Corporate Functionary or his or her successors to indemnification, advancement of expenses or otherwise shall be prospective only and shall not in any way diminish, limit, restrict, adversely affect or eliminate any such right with respect to any actual or alleged state of facts, occurrence, action or omission then or previously existing, or any action, suit or proceeding previously or thereafter brought or threatened based in whole or in part upon any such actual or alleged state of facts, occurrence, action or omission.

Section 2.        Insurance. The Corporation may purchase or maintain insurance on behalf of any Corporate Functionary against any liability asserted against him and incurred by him in such a capacity or arising out of his status as a Corporate Functionary, whether or not the Corporation would have the power to indemnify him or her against the liability under the Act or these Bylaws; provided, however, that if the insurance or other arrangement is with a person or entity that is not regularly engaged in the business of providing insurance coverage, the insurance or arrangement may provide for payment of a liability with respect to which the Corporation would not have the power to indemnify the person only if including coverage for the additional liability has been approved by the shareholders of the Corporation. Without limiting

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the power of the Corporation to procure or maintain any kind of insurance or arrangement, the Corporation may, for the benefit of persons indemnified by the Corporation, (i) create a trust fund, (ii) establish any form of self-insurance, (iii) secure its indemnification obligation by grant of any security interest or other lien on the assets of the Corporation, or (iv) establish a letter of credit, guaranty or surety arrangement. Any such insurance or other arrangement may be procured, maintained or established within the Corporation or its affiliates or with any insurer or other person deemed appropriate by the Board of Directors of the Corporation regardless of whether all or part of the stock or other securities thereof are owned in whole or in part by the Corporation. In the absence of fraud, the judgment of the Board of Directors of the Corporation as to the terms and conditions of such insurance or other arrangement and the identity of the insurer or other person participating in an arrangement shall be conclusive, and the insurance or arrangement shall not be voidable and shall not subject the directors approving the insurance or arrangement to liability, on any ground, regardless of whether directors participating in approving such insurance or other arrangement shall be beneficiaries thereof.

ARTICLE VIII

GENERAL PROVISIONS

Section 1.        Distributions and Share Dividends. Distributions or share dividends to the shareholders of the Corporation, subject to the provisions of the Act and the Articles of Incorporation and any agreements or obligations of the Corporation, if any, may be declared by the Board of Directors at any regular or special meeting. Distributions may be declared and paid in cash or in property, provided that all such declarations and payments of distributions, and all declarations and issuances of share dividends, shall be in strict compliance with all applicable laws and the Articles of Incorporation.

Section 2.        Reserves. There may be created by resolution of the Board of Directors out of the surplus of the Corporation such reserve or reserves as the Board of Directors from time to time, in its discretion, deems proper to provide for contingencies, or to equalize distributions or share dividends, or to repair or maintain any property of the Corporation, or for such other proper purpose as the Board shall deem beneficial to the Corporation, and the Board may increase, decrease or abolish any reserve in the same manner in which it was created.

Section 3.        Fiscal Year. The fiscal year of the Corporation shall be determined by the Board of Directors.

Section 4.        Seal. The Corporation shall have a seal which may be used by causing it or a facsimile thereof to be impressed or affixed or in any manner reproduced. Any officer of the Corporation shall have authority to affix the seal to any document requiring it.

Section 5.        Resignation. Any director, officer or agent of the Corporation may resign by giving written notice to the President or the Secretary. The resignation shall take effect at the time specified therein, or immediately if no time is specified therein. Unless specified in such notice, the acceptance of such resignation shall not be necessary to make it effective.

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Section 6.        Invalid Provisions. If any part of these bylaws is held invalid or inoperative for any reason, the remaining parts, so far as is possible and reasonable, shall remain valid and operative.

Section 7.        Headings. The headings used in these bylaws are for convenience only and do not constitute matter to be construed in the interpretation of these bylaws.

ARTICLE IX

AMENDMENTS TO BYLAWS

Unless otherwise provided by the Articles of Incorporation or (subject to the following proviso) a bylaw adopted by the shareholders of the Corporation, these Bylaws may be amended or repealed, or new Bylaws or Bylaw provisions may be adopted, at any meeting of the shareholders of the Corporation or of the Board of Directors at which a quorum is present, by the affirmative vote of the holders of a majority of the shares or the directors, as the case may be, present at such meeting; provided, however, that in the case of amendments by shareholders, notwithstanding any other provisions of these Bylaws or any provision of law which might otherwise permit a lesser vote, the affirmative vote of the holders of at least 75% of the voting power of the Corporation’s stock, voting together as a single class, shall be required to amend or repeal, or adopt a new Bylaw or Bylaw provision that is inconsistent with, Section 3, Section 6, Section 10, Section 12, Section 13 or Section 14 of Article II, Section 1 or Section 2 of Article III, Article VII or this Article IX of these Bylaws.

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EX-10.1

Exhibit 10.1

(Portions of this Agreement have been omitted pursuant to a request for Confidential Treatment filed with the Securities and Exchange Commission.)

FIRST AMENDMENT OF REVOLVING CREDIT AGREEMENT

THIS FIRST AMENDMENT OF REVOLVING CREDIT AGREEMENT (“Amendment”), dated effective as of June 2, 2008, is made and entered into by and among WHOLE FOODS MARKET, INC. (the “Company”), a Texas corporation, the lenders which are now or hereafter parties thereto (each, together with its successors and assigns, a “Lender” and collectively, the “Lenders”), and JPMORGAN CHASE BANK, N.A., a national banking association formerly known as JPMorgan Chase Bank, as administrative agent for the Lenders (in such capacity, together with its successors in such capacity, the “Agent”).

RECITALS:

WHEREAS, the Company, the Agent and the Lenders are parties to a Revolving Credit Agreement dated as of August 28, 2007 (hereinafter referred to as the “Credit Agreement”); and

WHEREAS, in connection with the Company’s request to increase the Aggregate Commitment and to amend the Credit Agreement to permit Investments by the Company and its Subsidiaries in Persons other than Subsidiaries of the Company, the Agent, the Lenders and the Company 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 Lenders do hereby agree as follows:

Section 1.    General Definitions.  Capitalized terms used herein which are defined in the Credit Agreement shall have the same meanings when used herein.

Section 2.     Amendment of Applicable Commitment Fee Percentage and Applicable Margin Definitions.  The definitions of in Section 1.1  of the Credit Agreement are hereby amended and restated in their entirety to hereafter be and read as follows:

“Applicable Commitment Fee Percentage” shall mean with respect to any Loan on any date of determination, the applicable rate per annum for the corresponding rating of the Company’s corporate family ratings, and determined in accordance with the following grid:

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Moody’s and S&P	Percentage  (Per Annum)
BBB+ or Baa1	0.115	%
BBB or Baa2	0.15	%
BBB- and Baa3	0.175	%
BBB- or Baa3	0.20	%
BB+ and Ba1	0.225	%
BB+ or Ba1	0.25	%
BB and Ba2	0.275	%
BB or Ba2	0.325	%
Otherwise	0.375	%

For purposes of determining the Applicable Commitment Fee Percentage in the case of split ratings, where applicable, (i) in the event of a single category split in ratings, the higher of the two ratings shall apply, (ii) in the event of a two-category split in ratings, the rating that is in the middle of the two ratings shall apply and (iii) in the event that there is more than a two-category split in ratings, the rating that is one category above the lower rating will apply.

“Applicable Margin” shall mean with respect to any Loan on any date of determination, the applicable rate per annum for the corresponding rating of the Company’s corporate family ratings, and determined in accordance with the following grid:

Moody’s and S&P	LIBOR Margin  (Per Annum)		ABR Margin  (Per Annum)
BBB+ or Baa1	0.50	%	0.00	%
BBB or Baa2	0.625	%	0.00	%
BBB- and Baa3	0.75	%	0.00	%
BBB- or Baa3	1.00	%	0.00	%
BB+ and Ba1	1.125	%	0.125	%

2

Moody’s and S&P	LIBOR Margin  (Per Annum)		ABR Margin  (Per Annum)
BB+ or Ba1	1.375	%	0.375	%
BB and Ba2	1.50	%	0.50	%
BB or Ba2	1.625	%	0.625	%
Otherwise	1.875	%	0.875	%

For purposes of determining the Applicable Margin in the case of split ratings, where applicable, (i) in the event of a single category split in ratings, the higher of the two ratings shall apply, (ii) in the event of a two-category split in ratings, the rating that is in the middle of the two ratings shall apply and (iii) in the event that there is more than a two-category split in ratings, the rating that is one category above the lower rating will apply.

Section 3.     Modification of Investment Limitation.   Section 6.7(g) of the Credit Agreement is hereby amended and restated in its entirety to hereafter be and read as follows:

(g)           so long as no Default has occurred and is then continuing or would result therefrom, Investments in (including, without limitation, loans to) any Person which is not a Subsidiary of the Company or of any of the Company’s Subsidiaries, provided, that the aggregate face amount of all of such Investments does not exceed at any time five percent (5%) of Consolidated Net Worth.

Section 4.     Representations and Warranties.  The Company represents and warrants to the Agent and the Lenders 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 Lenders that the resolutions or authorizations of the Board of Directors (or other governing parties) of the Company and its Subsidiaries which are set out in the following described Secretary’s Certificates or Authorizations remain in full force and effect as of the effective date hereof and have not been modified, amended, superseded or revoked:

(a)           That certain Secretary’s Certificate dated on or about August 28, 2007, executed and delivered to the Agent by the Secretary of Whole Foods Market, Inc.; and

(b)           Those certain Secretary’s Certificates dated on or after August 28, 2007, executed and delivered to the Agent by the Secretary or Assistant Secretary of each of the Subsidiaries of the Company executing the Joinder of Guarantor Subsidiaries which is set forth below in this Amendment.

3

Section 4.  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 Lenders 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 Amendment and any of the foregoing documents, the terms of this Amendment shall be controlling.

Section 5.  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 Lenders 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 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 6.  Descriptive Headings, etc.  The descriptive headings of the several Sections of this Amendment are inserted for convenience only and shall not be deemed to affect the meaning or construction of any of the provisions hereof.

Section 7.  Entire Agreement.  This 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 Amendment.

Section 8.  Counterparts.  This 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 9.    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 Amendment.

Section 10.    Jurisdiction; Governing Law; Etc.

(a)               Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Amendment or any

4

of the other Loan Documents to which it is a party, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the fullest extent permitted by law, in such Federal court.  Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.  Nothing in this Amendment shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Amendment or any of the other Loan Documents in the courts of any jurisdiction.

(b)           EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT OR ANY OF THE OTHER LOAN DOCUMENTS TO WHICH IT IS A PARTY IN ANY NEW YORK STATE OR FEDERAL COURT.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

(c)           THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

(d)           EACH OF THE COMPANY, THE AGENT AND THE LENDERS IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS, THE LOANS OR THE ACTIONS OF THE AGENT OR ANY LENDER IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.

[Remainder of page left intentionally blank]

5

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective duly authorized offices as of the date first above written.

WHOLE FOODS MARKET, INC.
a Texas corporation, as Borrower
By:
	Glenda Chamberlain
	Executive Vice President

JPMORGAN CHASE BANK, N.A.,

as Agent and as a Lender

By:

Name:

Title:

ROYAL BANK OF CANADA,

as a Lender

By:

Name:

Title:

WELLS FARGO BANK, N.A,

as a Lender

By:

Name:

Title:

LASALLE BANK MIDWEST NATIONAL

ASSOCIATION, as a Lender

By:

Name:

Title:

WACHOVIA BANK, NATIONAL ASSOCIATION,

as a Lender

By:

Name:

Title:

FORTIS CAPITAL,

as a Lender

By:

Name:

Title:

By:

Name:

Title:

US BANK, N.A.,

as a Lender

By:

Name:

Title:

BANK OF AMERICA, N.A.,

as a Lender

By:

Name:

Title:

JOINDER OF GUARANTOR SUBSIDIARIES

The undersigned Guarantors (a) acknowledge and consent to the execution of the foregoing Amendment, (b) confirm that the Guaranties and Security Agreements, if any, 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 Amendment by the Company, the Agent and each of the Lenders, 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 Amendment.

[*CONFIDENTIAL*]
WFM GIFT CARD, LLC,
a Virginia limited liability company
[*CONFIDENTIAL*]
WFM PROPERTIES SCOTTSDALE, LLC,
a Delaware limited liability company
WFM PURCHASING MANAGEMENT, INC.,
a Delaware corporation
WFM SELECT FISH, INC.,
a Delaware corporation
WHOLE FOODS MARKET BRAND 365, LLC,
a California limited liability company
WHOLE FOODS MARKET FINANCE, INC.,
a Delaware corporation
WHOLE FOODS MARKET PROCUREMENT, INC.,
a Delaware corporation
WHOLE FOODS MARKET SERVICES, INC.,
a Delaware corporation
By:
	Glenda Chamberlain, President

ALLEGRO COFFEE COMPANY,
a Colorado corporation
THE SOURDOUGH, A EUROPEAN BAKERY, INC.,
a Texas corporation
By:
	Glenda Chamberlain, Vice President

[*CONFIDENTIAL*]

By:
	Glenda Chamberlain, President

WFM PRIVATE LABEL, L.P.,
a Delaware limited partnership
By:	WFM Private Label Management, Inc., a Delaware
	corporation, General Partner
	By:
		Glenda Chamberlain, President

WFM PURCHASING, L.P.,
a Delaware limited partnership
By:	WFM Purchasing Management, Inc., a Delaware
	corporation, General Partner
	By:
		Glenda Chamberlain, President

NATURE’S HEARTLAND, INC.,

a Massachusetts corporation

WFM BEVERAGE CORP.,

a Texas corporation

WFM BEVERAGE HOLDING COMPANY,

a Texas corporation

WFM IP MANAGEMENT, INC.,

a Delaware corporation

WHOLE FOODS MARKET GROUP, INC.,

a Delaware corporation

WHOLE FOODS MARKET ROCKY MOUNTAIN/

SOUTHWEST I, INC., a Delaware corporation

By:
	Roberta Lang, President

MRS. GOOCH’S NATURAL FOOD MARKETS, INC.,

a California corporation

WFM HAWAII, INC.,

a Hawaii corporation

[*CONFIDENTIAL*]

WFM NORTHERN NEVADA, INC.,

a Delaware corporation

WHOLE FOOD COMPANY,

a Louisiana corporation

WHOLE FOODS MARKET CALIFORNIA, INC.,

a California corporation

WHOLE FOODS MARKET PACIFIC NORTHWEST, INC., a

Delaware corporation

By:
	Roberta Lang, Vice President

WHOLE FOODS MARKET IP, L.P.,
a Delaware limited partnership
By:	WFM IP Management, Inc., a Delaware corporation, General Partner
By:
	Roberta Lang, President

WFM COBB PROPERTY INVESTMENTS, LLC,
a Delaware limited liability company
By:	WHOLE FOODS MARKET GROUP, INC., a
	Delaware corporation, sole Member
	By:
		Roberta Lang, President

WHOLE FOODS MARKET ROCKY MOUNTAIN/
SOUTHWEST, L.P., a Texas corporation
By:	WHOLE FOODS MARKET ROCKY
	MOUNTAIN/SOUTHWEST I, INC., a Delaware
	corporation, General Partner
	By:
		Roberta Lang, President

WHOLE FOODS MARKET DISTRIBUTION, INC., a Delaware corporation
By:
	Lee Valkenaar, President

WFM IP INVESTMENTS, INC.,

a Delaware corporation

WFM PROCUREMENT INVESTMENTS, INC.,

a Delaware corporation

[*CONFIDENTIAL*]

WHOLE FOODS MARKET SOUTHWEST INVESTMENTS,
INC.,

a Delaware corporation

By:
	Patrick Bradley, President
WFM SOUTHERN NEVADA, INC.,
a Delaware corporation
By:
	Patrick Bradley, Vice President
WILD OATS MARKETS, INC., a Delaware corporation
By:
	Roberta Lang,              President

WILD OATS MARKETS CANADA, INC., a British Columbia
corporation
By:
	Roberta Lang,              President

WILD OATS FINANCIAL, INC., a Nevada corporation
By:
	Roberta Lang,              President
WILD MARKS, INC., a Nevada corporation
By:
	Roberta Lang,              President
SPARKY, INC., a Nevada corporation
By:
	Roberta Lang,              President
WILD OATS OF MASSACHUSETTS, INC., a Massachusetts corporation
By:
	Roberta Lang,              President

EX-10.2

Exhibit 10.2

AMENDMENT NO. ONE TO THE
WHOLE FOODS MARKET
2007 STOCK INCENTIVE PLAN

Pursuant to the authority of the Board of Directors of Whole Foods Market, Inc., and the provisions of Section 13.1 thereof, the Whole Foods Market 2007 Stock Incentive Plan (the “Plan”) is hereby amended in the following respect only, effective as of the Effective Date set forth in the Plan:

Article VI, Subsection 6.5(f), is hereby amended in its entirety, to read as follows:

“(f)          Discretion of Plan Administrator.  The Plan Administrator shall have the sole discretion, exercisable at any time, to extend the time during which a Stock Option is to remain exercisable following Participant’s Termination Date from the period otherwise in effect for that Stock Option and set forth in the Award Agreement to such greater period of time as the Plan Administrator shall deem appropriate; provided, however, that the period in which the Stock Option is exercisable shall not be extended to a date beyond the later of: (i) the last day of the Award Term and (ii) thirty (30) days following the date on which the exercise of the Stock Option would no longer violate applicable securities laws.  If the Plan Administrator extends the time during which an Incentive Stock Option will remain exercisable, then such extension shall be treated as the grant of a new Option as of the date of the extension.”

IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the foregoing instrument comprising Amendment No. One to the Whole Foods Market 2007 Stock Incentive Plan, Whole Foods Market, Inc. has caused these presents to be duly executed in its name and on its behalf this              day of                                   , 2008.

WHOLE FOODS MARKET, INC.

By:

EX-14.1

Exhibit 14.1

Updated August 14, 2008

Code of Business Conduct August 14, 2008	This Code of Business Conduct (“the Code”) applies to all Whole Foods Market (“WFM” or the “Company”) Team Members, members of the WFM Board of Directors (each, a “Director”), and consultants and agents doing business for WFM. The Code does not cover all relevant laws or WFM policies.  Other Company policies and procedures, such as those found in the central or regional General Information Guides and the Company Insider Trading Policy, supplement the policies in this Code. The information contained in the Code is not a contract or an offer of a contract.  Violation of this Code may result in corrective action up to and including discharge.  The terms of the Code concerning the employment relationship are implemented at the sole discretion of WFM and may be withdrawn or changed at any time with or without notice. WFM expects all of its Team Members and Directors to act in accordance with the highest standards of personal and professional integrity at all times, and to comply with WFM’s policies and procedures and all laws, rules and regulations of any applicable international, federal, provincial, state or local government Team Members who have questions about the Code should contact their Team Leader or email the Ethics Committee at ethics@wholefoods.com unless a particular provision of the Code says otherwise.
	To report concerns about potential violations of the Code and any other ethics or integrity issues, including questions or concerns involving the Company’s accounting, auditing, financial reporting or internal controls, Team Members should contact their Team Leader, email the Ethics Committee at ethics@wholefoods.com, or call the Team Member Tipline.	Any WFM Team Member in the U.S. or Canada may confidentially and anonymously report ethics matters by calling the Team Member Tipline at 1-888-662-5025; U.K. Team Members can do the same by calling [To be determined.]

Calls to the Team Member Tipline may be made confidentially and anonymously.

Executive officers and Directors should contact the General Counsel to raise questions or report a potential Code violation or ethical issue.

Company policy prohibits retaliation against individuals who report violations of this Code.

ii

TABLE OF CONTENTS

Message from Whole Foods Market’s CEO and Chairman of the Board	1
ABOUT THE CODE OF BUSINESS CONDUCT	2
Purpose
Your Responsibilities
Obtaining Additional Information
Reporting Code Violations
No Retaliation
Waivers
Ethics Committee
CONFLICTS OF INTEREST	4
General
Gifts & Entertainment
Doing Business with Spouses, Relatives, Friends or Your Own Business
Outside Employment or Service as Director or Officer
Financial Interest in a Competitor
Donations and Other Payments
Opportunities Related to the Company’s Business
Extensions of Credit
Leasing Property and Equipment
Consulting and Other Professional Services
LEGAL COMPLIANCE	8
Bribes and Improper Payments
Antitrust Laws
Fair Dealing
Complaints to Government Agencies
Workplace-Related Laws and Policies
COMPANY INFORMATION AND ASSETS	9
Confidentiality
Insider Trading
Media Inquiries
Online Forums
Financial Integrity; Maintaining Books and Records
No Improper Influence on Audits
Company Property
WHOLE FOODS MARKET CONTACT INFORMATION	12
APPENDIX	13
Our Core Values
Our Quality Standards

iii

Message from Whole Foods Market’s CEO and Chairman of the Board

Whole Foods Market strives to maintain the highest standards in all of our interactions with Company customers, Team Members and vendors. Our statement of Core Values (see Appendix) also reflects our commitment to all our stakeholders: our customers, our Team Members, our stockholders, and our community and environment.

As Whole Foods Market continues to grow, each of us is personally responsible to support our mission and Core Values. We have issued this Code of Business Conduct to restate our longstanding commitment to follow the law and to act ethically in all situations. The Code is intended to provide guidance to all Whole Foods Market Team Members and members of the Board of Directors, as well as consultants and agents doing business for WFM. Please review this Code carefully and be sure that you understand it. If you have questions, please ask your Team Leader or contact the Ethics Committee directly by email at ethics@wholefoods.com.

Thank you in advance for your help in making sure that we continue to live up to our high ethical standards.

Best regards,

1

ABOUT THE
CODE OF
BUSINESS
CONDUCT

Purpose

The Code of Business Conduct (“the Code”) is designed to promote a responsible and ethical work environment for all Whole Foods Market (“WFM” or the “Company”) Team Members and Directors. The Code contains guidelines on proper behavior in the workplace and contact information to be used in the event you have questions or concerns (see “Whole Foods Market Contact Information” at the end of the Code). The Code applies to all WFM Team Members and members of the WFM Board of Directors, as well as consultants and agents doing business on behalf of WFM.

Your Responsibilities

In performing your duties for WFM, you are responsible for abiding by WFM policies and all local and national laws in all countries in which the Company does business. You are also obligated to comply with all other applicable laws, rules and regulations of any regulatory organization, licensing agency, or professional association governing your professional activities. You are responsible for knowing and following the laws and policies that relate to your duties, including the policies in the Code and all other Company policies, such as those found in the General Information Guide (“GIG”). If you have questions about specific laws that may apply to your activities or about whether particular circumstances may involve illegal conduct, contact the WFM General Counsel. You should also contact the General Counsel if you think a provision of this Code may conflict with an applicable legal requirement or a provision in the GIG or another Company policy.

Violating the Code or other Company policies may result in corrective action up to and including discharge, and WFM may seek to recover damages or file criminal charges. However, most problems can be easily avoided by simply using good judgment and seeking guidance when questions arise. It is your responsibility to raise questions, make appropriate disclosures and bring potential problems to the Company’s attention.

Obtaining Additional Information

If you have questions about the policies outlined in the Code or would like additional information, talk with your Team Leader, or contact the Ethics Committee directly by email at ethics@wholefoods com unless a particular provision of the Code says otherwise. Executive officers and Directors should contact the General Counsel.

Reporting Code Violations

As part of our shared fate philosophy, we believe that we all share responsibility for ensuring that WFM as a whole conducts itself according to the highest ethical standards and strives to avoid even the appearance of impropriety.  If you know of or suspect a violation of the Code, we urge you to report it through one of the means provided in this policy. You may report suspected violations of the Code, and any other ethics or integrity issues, to your Team Leader, by email to the Ethics Committee or by calling the Team Member Tipline. The Team Member Tipline can also be used to report questions or concerns involving the Company’s accounting, auditing, financial reporting or internal controls. Reports to the Tipline may be made confidentially and anonymously, although you are encouraged to provide your name to facilitate investigation and follow-up. Neither your Team Leader nor the Company will take any action against you for reporting suspected misconduct in good faith. Information about how to contact the Ethics Committee and the Team Member Tipline appears under “Whole Foods Market Contact Information” at the end of the Code along with other important contact information.

If you are an executive officer or Director, you should contact the General Counsel.

Reports of potential misconduct will be taken seriously and investigated promptly and thoroughly.  Except where disclosure is required to investigate a report or by applicable law or legal process, all reports will be kept confidential to the extent reasonably possible.,.

2

No Retaliation

It is against Company policy, and in some cases against the law, for, the Company to take any action against a Team Member or a Director, vendor or agent of the Company for reporting or threatening to report a violation of this Code or cooperating in investigations relating to Code violations, provided that the person has acted in good faith and with a reasonable belief that the information provided is true.

Waivers

Waivers of this Code will be granted only in exceptional circumstances. The provisions of this Code may only be waived by the Ethics Committee or, in the case of executive officers and Directors, by our Board of Directors or an appropriate Board committee. Any waiver of this Code for an executive officer or Director will be promptly disclosed in accordance with applicable legal requirements.

Ethics Committee

The Ethics Committee is appointed by the Nominating and Governance Committee and is responsible for setting policy, reviewing questions and issues submitted by Team Members or others, and reviewing the results of the annual conflicts of interest questionnaire completed by Store, Facility, Regional and Global Support leadership. Although membership may vary over time, the Committee is generally comprised of Global Support leaders in the areas of operations, finance, legal, real estate and internal audit. Team Members may contact the Ethics Committee directly by email.

3

CONFLICTS OF INTEREST

General

All business decisions should be made solely in the best interests of the Company, not for personal benefit. Therefore, you should avoid any actions that create, or appear to create, conflicts of interest with the Company. A “conflict of interest” may occur when an individual’s own interests (including the interests of a family member or an organization with which an individual has a significant relationship) interfere or appear to interfere with the interests of the Company.

Many conflicts of interest or potential conflicts of interest may be resolved or avoided if they are appropriately disclosed and approved. In some instances, disclosure may not be sufficient and the Company may require that the conduct in question be stopped or that actions taken be reversed where possible.

Questions about potential conflicts of interest and disclosure of these situations as they arise should be directed to the Ethics Committee or your Team Leader or Team Member Services representative. Executive officers and Directors should contact the Chairperson of the Nominating and Governance Committee.

While it is not possible to list all potential conflicts of interest, several examples of different situations are presented in the sections below. Regional policies may also apply to the situations described below, and Team Members should consult their GIG for information about any such policies.

Gifts & Entertainment

Team Members and Directors should not give anything of value to anyone, or accept anything of value from anyone, when doing so might compromise or appear to compromise the objectivity of business decisions. Except as specifically noted below, this includes giving to, or accepting from, a current or prospective supplier, vendor, vendor representative (including but not limited to organizations representing multiple producers, such as a regional food group), landlord or competitor of the Company any gifts, entertainment or any form of compensation. Team Members are prohibited from receiving any samples or gifts at home — all samples and gifts must be sent to their primary work location. Team Members and Directors are prohibited from accepting any loans or services from any WFM vendor who is not otherwise in the business of providing such loans or services, and any such loans or services provided must be provided on fair market value terms. Team Members and Directors are prohibited from buying products directly from any WFM vendor at a discounted rate not available to all Team Members.

Some gifts and entertainment are allowed as follows:

(1)Gifts with an established value of $25 or less are generally allowed.

(2)Business-related meals of nominal value are allowed, subject to specific requirements in the GIG.

(3)Gift baskets or flowers may be accepted within reason, but they must be made available for sharing with everyone at the Team Member’s store or location.

(4)Promotional items, such as those bearing a vendor’s logo may be accepted up to total estimated value of $25.

EXAMPLES

Question:  A Vendor offered me tickets to a sporting event that the vendor is also planning to attend.  Can I accept them?  They are part of a season ticket package that the vendor purchased for client entertainment.

Answer:  Accepting a gift valued at U.S. $25 or more from a vendor is a violation of Company policy.  You may not accept the tickets if the total face value of the tickets is $25 or more.  You should either decline the tickets or give the vendor a personal check for the full face value of the tickets.  In any event, you should advise the vendor about our policies regarding conflicts of interest.

Question:  A vendor typically sends me a holiday gift basket which, while not extravagant, likely costs more than $25.  What should I do with it?

Answer:  You may accept the gift basket as long as it would be considered of nominal value, but you should share the contents with everyone at your location.  A gift basket with extravagant items should be returned to the sender, with an explanation of our policies regarding conflicts of interest.

Question:  A vendor has offered to provide logo items (shirts, golf balls, etc.) to be given as prizes for our region’s annual golf outing.  Is this permissible?

Answer:  No.  The value of these items taken together will exceed $25 and therefore may not be accepted, even though they would be disbursed among many Team Members.  Furthermore, no vendor should ever be solicited to provide gifts of this type.

4

(5)Existing Team Members may accept samples of new or reformulated products, and new Team Members may accept samples of existing products (one time only). It is not acceptable for Team Members to receive for their personal use multiple samples of the same product from a vendor.

(6)Store-level Team Members may accept a vendor-paid trip made for the sole purpose of education and training. The vendor may pay for all expenses including airfare, accommodations and meals. There is a one-time limit on vendor-paid trips unless there is a significant change in products, programs or business practices. Global and regional Team Members may not have any expenses for a trip paid by the vendor.

If someone tries to give you a prohibited gift, you should also tell your Team Leader. Then, either return the gift or personally reimburse the giver of the gift for its full value.

5

Doing Business with Spouses, Relatives, Friends or Your Own Business

Team Members and Directors should not use their positions at WFM for personal gain. Generally, it is not permissible to conduct business with a Team Member or Team Member’s spouse, relatives or friends if the Team Member’s role allows him or her to influence purchasing decisions for the team, store, facility or region where he or she works. Other Team Member/vendor relationships should be evaluated as follows to determine whether they are permitted:

a)             Investment in a company that is a vendor – This is allowed, but the investment must be less than 5% of the Team Member’s total assets, and the products that the company sells cannot be part of a line for which the Team Member has purchasing responsibility.

b)            Team Member has a side business and sells products to WFM – This is allowed as long as the Team Member does not make or influence the purchasing decisions surrounding these products. For example, it would be allowed for a front end Team Member to sell products to the grocery team as long as the Team Member does not impact grocery purchases.

c)             Team Member has a full-time business and sells products to WFM – This is not allowed.

For permitted situations, it may be necessary to inform the Store or Facility Team Leader and appropriate regional coordinator so that they may monitor and evaluate any relevant changes in circumstances.

Additionally, it is considered a conflict of interest for any Director or Whole Foods Leadership Network (WFLN) member to hold a 5% or greater interest in a major customer, vendor or lender to WFM.

Team Members (other than executive officers) may apply to the Ethics Committee for approval of particular transactions or situations, and executive officers and Directors may apply to the Nominating and Governance Committee.

Outside Employment or Service as Director or Officer

The Ethics Committee must approve any circumstance in which a Team Member (other than an executive officer) serves as an employee, Director, officer, partner, agent or consultant to any WFM vendor, lender or competitor. The Nominating and Governance Committee must approve of any circumstance in which an executive officer serves as an employee, Director, officer, partner, agent or consultant to any WFM vendor, lender or competitor.

Team Members may serve on the board of a not-for-profit organization without prior approval, as long as the organization is not related to WFM. A Team Member serving on such a board should be aware of Company policies regarding donations and other payments, which are discussed below.

Any member of the Board of Directors wishing to serve as an employee, Director, officer, partner, agent or consultant to any WFM vendor, lender or competitor must obtain approval from the Nominating and Governance Committee.

Financial Interest in a Competitor

A conflict may exist if a Team Member or Director (or any of their immediate family) holds a financial interest in a competitor, other than a financial interest which constitutes not more than 5% of the outstanding voting securities of a competitor. Team Members should contact the Ethics Committee for guidance on whether a particular financial interest represents a conflict of interest. Executive officers and Directors should contact the Chairperson of the Nominating and Governance Committee.  For purposes of this Code, except for WFM itself, a business shall be a ‘competitor’ if it is engaged in the ownership or operation of any retail supermarket, retail food store, retail natural food enterprise, or other retail outlet associated with natural foods; it being understood that a business which is predominately manufacturing or wholesaling in foods with less than 10% of their revenue derived from retail sales, or which is a restaurant business, shall not be deemed

EXAMPLES

Question: A Team Member on the Front End team creates greeting cards which he sells to the Specialty team.  Is this permitted under the code?

Answer:  Yes.  Since the TM is on a different team than the one purchasing the products this is a permitted situation, and it should be monitored by the STL and regional Specialty Coordinator.

Question:  A STL has a side business and has created a line of gourmet mustards that several stores in his region are interested in carrying.  Is this permitted under the Code?

Answer:  Yes.  The STL’s scope of purchasing influence is assumed to extend only to his own store, so he may sell to stores other than his own without conflict.  To sell to his own store, he must first obtain the approval of the Ethics Committee.

Question:  The regional Construction Coordinator’s brother is a carpenter and has bid on some millwork being installed in several stores during their remodels.  If his is the winning bid, would he be permitted to do the work under the Code?

Answer:  No.  Assuming the Construction Coordinator has oversight of the remodels including making purchasing decisions, this would be considered a conflict that would not be permitted under the code.

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competitive.

Donations and Other Payments

Team Members and Directors are prohibited from authorizing donations or other payments from WFM to outside organizations such as not-for-profits with which they or a member of their immediate family serve as an, officer or employee.  Additionally, any donation in excess of $50,000 per year shall be approved by two or more of the Company’s executive officers.  No contributions, gifts or payment may be made from WFM to any political party, candidate, lobbying organization, etc. without the prior approval of the CEO.Opportunities Related to the Company’s Business

Team Members and Directors may not take for themselves opportunities related to the business of WFM or opportunities that they discover through their positions with WFM or through the use of WFM property or information.

Extensions of Credit

Team Members and Directors are prohibited from extending any form of credit from WFM to any organization with which they or a member of their immediate family have a personal affiliation. Further, no extension of credit from WFM may be made to any organization without the specific prior approval of the CEO. The only exceptions to this rule are accounts receivable from customers arising in the ordinary course of business and loan programs previously approved by the CEO.

LeasingProperty and Equipment

Any property or equipment lease between WFM and a Team Member (other than a member of the executive team, which is dealt with in the following paragraph) or the Team Member’s immediate family or any organization with which they are affiliated must be approved in advance by the Ethics Committee.

Any property or equipment lease between WFM and a Director, a member of the executive team, the executive’s or Director’s immediate family, or any organization with which they are affiliated must be approved in advance by the Nominating and Governance Committee.

Consultingand Other Professional Services

Team Members and Directors are prohibited from providing consulting or other professional services to WFM for payment outside of their normal compensation.

Any situation in which WFM would retain the services of a professional services firm with which a Team Member (other than a member of the executive team, which is dealt with in the following paragraph) or a Team Member’s immediate family is affiliated must be approved in advance by the Ethics Committee.

Any situation in which WFM would retain the services of a professional services firm with which a Director, a member of the executive team, or a Director’s or executive’s immediate family is affiliated must be approved in advance by the Nominating and Governance Committee.

Examples of professional services include (but are not limited to) accounting, auditing, architectural or design, engineering, investment or commercial banking, legal services, project management and computer programming.

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LEGAL COMPLIANCE

Bribes and Improper Payments

Team Members or agents of WFM should never promise to pay or authorize payment, directly or indirectly, of money, products, services or anything of value to any government official or agent (including employees of a state-owned or state-controlled business or other entity), or any other individual (including political figures or relatives of government officials) or entity in any country in order to influence acts or decisions of government officials, to receive special treatment for the Company, or for personal gain. While certain minor payments to certain non-U.S. government officials made to expedite or secure the performance of certain routine governmental actions may not violate the law, you must consult with the General Counsel prior to making or authorizing any payment of this type. All WFM Team Members worldwide must abide by the United States Foreign Corrupt Practices Act in addition to local laws. Team Members working with government officials should request further guidance from the General Counsel.

Antitrust Laws

Team Members are required to comply with the antitrust and competition laws of the countries where we do business. In general, WFM Team Members must avoid agreements, understandings or plans with competitors that limit or restrict competition, including price fixing and allocation of markets.

Fair Dealing

Team Members and Directors should always deal fairly with WFM’s customers, suppliers, vendors, competitors and employees. They should not take unfair advantage of anyone through manipulation, concealment, abuse of confidential information, falsification, misrepresentation of material facts or any other practice involving intentional unfair dealing. This provision does not alter existing legal relationships between the Company and its Team Members, including any at-will employment arrangements.

Complaints to Government Agencies

Occasionally, a job applicant, customer, or current or former Team Member may file or threaten to file a complaint against WFM with the government. If a Team Member or Director is notified about such a complaint, they should immediately contact the General Counsel.

Workplace-Related Laws and Policies

Team Members should consult the GIG for information regarding the Company’s equal employment opportunity policy and compliance with other employment-related laws and policies such as the Immigration Reform and Control Act of 1986 and the Health Insurance Portability and Accountability Act (HIPAA), as well as Company policy on drugs and alcohol, workplace violence, weapons, harassment, open door communications, solicitation and distribution, and nepotism and favoritism.

EXAMPLE

Question:  Can I tip a local government office worker for agreeing to process our application for a permit needed to open a new store more quickly?

Answer:  No.  You may not tip any government worker in any country.  Any exceptions must be approved in advance by the General Counsel.

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COMPANY INFORMATION AND ASSETS

Confidentiality

Team Members and Directors are expected to protect confidential or proprietary information about WFM, to use this information only for business purposes, and to limit dissemination of the information (both inside and outside WFM) to those who have a need to know the information for business purposes.

Team Members and Directors are also expected to protect any confidential or proprietary information that comes to them, from whatever source, in the course of performing their responsibilities for WFM. This includes information received from or relating to third parties (such as vendors) with which WFM has or is contemplating a relationship.

Confidential or proprietary information includes all non-public information relating to WFM or a third party. Examples include material non-public information about store operating results, new store development plans, and most Team Member information. If you are unsure whether information is confidential contact your Team Member Services representative or email the Ethics Committee. mailto:Team Members should consult the GIG for information about additional policies on confidentiality.

EXAMPLES

Question:  I have heard that comparable store sales across the Company are doing very well this quarter, and I know that historically this has caused our stock price to go up.  Even though I am not classified as an “insider,” does my knowledge of this information prohibit me from being able to exercise options?

Answer:  No.  You could only exercise your options, but you could not sell the underlying shares.  The information involved is considered to be material non-public information, and trading WFM stock (including exercising options and selling any portion of them to cover the related expenses) or sharing that information before it is public would be a violation of Company policy and is also a violation of U.S. insider trading laws.

Question:  A friend told me that the Company is close to signing a major agreement with a particular vendor. I would like to invest in that vendor, which is a publicly-traded company.  May I do so?

Answer:  No.  This would be material non-public information about that vendor, and purchasing that vendor’s stock or sharing that information before it is public would be a violation of our policy and U.S. insider trading laws.

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Insider Trading

The U.S. federal securities laws prohibit insider trading – that is, buying or selling a company’s securities at a time when a person has material information about the company that has not become publicly available. Material information is any information that a reasonable investor would consider important in making an investment decision. Insider trading is a crime punishable by civil penalties of disgorgement (return of the profit gained or loss avoided on a transaction) and fines of up to three times the profit gained or loss avoided, criminal fines (no matter how small the profit on the transaction) of up to $5 million, and up to 20 years in prison. Companies also may face civil penalties for insider trading violations by their employees and other agents.

As a WFM Team Member or Director, you are not allowed to trade securities, or to tip others to trade securities, of WFM or other companies when you are aware of material information that has not been made available to the public. Anyone who shares material non-public information with others can be subject to the same insider trading penalties that apply if they had engaged in insider trading directly, even if they do not derive any benefit from the other person’s trades. The same restrictions that apply to Team Members and Directors also apply to their family members and others living in their households.

Media Inquiries

Team Members may not speak to reporters or members of the media on behalf of the Company without going through the proper channels, as doing so may risk providing incorrect information or revealing proprietary strategies. Except as provided below, inquiries made to Team Members from members of the media should be directed to your Regional Marketing Coordinator, Regional PR contact, or to the Global Communications Team. Inquiries made to Team Members from any third party about WFM’s financial condition, business or about current developments relating to WFM, should be directed to Investor Relations and Shareholder Services at the Global Support Office.

Directors should consult the [Director Media Policy] prior to speaking with any reporter or member of the media about the Company.

Online Forums

The Company realizes the importance of communicating proactively and responsively on the Internet and at the same time the importance of communicating responsibly- i.e. avoiding misrepresentations of facts as well as the intentional or inadvertent violation of laws, regulations or company policies.  Accordingly, we have a strict policy regarding postings by Company Leadership to non-Company-sponsored internet chat rooms, message boards, web logs (blogs), or similar forums, concerning any matter involving the Company, its competitors or vendors, as follows:

·Postings by a member of Company Leadership must be approved by CFO, GVP of IR or GC.  A posting by any of these three individuals must be approved by one of the other two.

·Any postings which refer to a governmental agency or any legal matter must be approved by the GC.

·Postings made anonymously, under a screen name or through another person are prohibited.

Violation of this policy will be grounds for dismissal.  For purposes of this policy, “Company Leadership” includes each Company Director, Executive Team Member, Global Vice President and Regional President.  For other Team Members, other policies may apply and they should consult their GIG.

Financial Integrity; Maintaining Books and Records

Accurate records are essential to the successful operation of WFM. Team Members are responsible for preparing accurate and complete Company records, information and accounts. For example, claims on an expense report or time record, payments and other transactions must be correctly recorded and accounted for, and properly authorized in accordance with Company policies.

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All business records should be clear, truthful and accurate. Keep in mind that business records and communications may become subject to public disclosure through government investigations, litigation or the media. Business records are Company assets and must be retained or destroyed in accordance with applicable policy.

As a public company, WFM is required to file periodic reports and make certain public communications. Team Members must act to promote full, fair, accurate, timely and understandable disclosure and reporting of Company information, including the Company’s financial results and financial condition, in reports and documents that the Company files with or submits to the Securities and Exchange Commission and other government agencies, and in the Company’s other public communications. All Team Members must comply with Company policies, procedures and controls designed to promote accurate and complete recordkeeping. Accounting for, and financial reporting of, actual transactions and forecasts must follow the Company’s accounting policies as well as all applicable generally accepted accounting principles and laws.

If you have questions or concerns about the Company’s accounting, auditing, financial reporting or internal controls, you may contact your Team Leader, email the Ethics Committee or call the Team Member Tipline.

No Improper Influence on Audits

All Team Members and Directors are expected to cooperate fully with WFM’s internal and external auditors. You must not directly or indirectly take any action to coerce, manipulate, mislead or fraudulently influence any public accountant engaged in the performance of an audit or review of WFM’s financial statements. Further, any Team Member involved in the preparation of financial statements or WFM’s independent audit should avoid a personal relationship with any member of the audit engagement team, other than a casual friendly relationship.

Company Property

WFM property (for example, inventory, supplies and equipment) should be used for business purposes. WFM property should be cared for and used responsibly, and it should be protected from misuse, improper disclosure, theft and destruction. Taking or using Company property of any value for personal purposes without appropriate permission from the Company is stealing.  However, using WFM property (such as telephones, computers and fax machines) for incidental personal activities is permitted. Regional policies also apply to the use of various kinds of Company property, and Team Members should consult the GIG for information about these policies.

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WHOLE FOODS MARKET CONTACT INFORMATION

Team Member Tipline	1-888-662-5025
WFM Ethics Committee	ethics@wholefoods.com
CEO John Mackey	1-512-542-0215 john.mackey@wholefoods.com
Nominating and Governance Committee, WFM Board of Directors	N&G@wholefoods.com
WFM General Counsel	1-512-542-0700 legal@wholefoods.com
WFM Investor Relations	1-512-542-0204 cindy.mccann@wholefoods.com
Global Communications Team	1-512-542-0390 kate.lowery@wholefoods.com

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APPENDIX

Our Core Values

Our core values reflect what is truly important to us as an organization. They are the underpinning of our corporate culture and the soul of our Company. They transcend our size and growth rate, so regardless of how large we become, by maintaining our core values we are able to preserve what has always been special about our Company. Our five stated Core Values are as follows:

·Selling the highest quality natural and organic products available

·Satisfying and delighting our customers

·Supporting team member happiness and excellence

·Creating wealth through profits and growth

·Caring about our communities and our environment

Our Quality Standards

A primary part of our Company mission is to promote the vitality and well-being of all individuals by supplying the highest quality, most wholesome foods available. We evaluate quality in terms of nutrition, freshness, appearance and taste. Our search for quality is a never-ending process involving the careful judgment of buyers throughout the Company.

·We carefully evaluate each and every product that we sell

·We feature foods that are free of artificial preservatives, colors, flavors, sweeteners and hydrogenated fats

·We are passionate about great tasting food and the pleasure of sharing it with others

·We are committed to foods that are fresh, wholesome and safe to eat

·We seek out and promote organically grown foods

·We provide food and nutritional products that support health and well-being

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EX-31.1

Exhibit 31.1

Certification by Chief Executive Officer required by Rule 13a-14(a)

I, John P. Mackey, certify that:

1.     I have reviewed this Quarterly Report on Form 10-Q of Whole Foods Market, Inc.

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    &# 160;          Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange A ct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosures controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosures controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors:

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	August 15, 2008	By:	/s/ John P. Mackey
			John P. Mackey
			Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification by Chief Financial Officer required by Rule 13a-14(a)

I, Glenda Chamberlain, certify that:

1.     I have reviewed this Quarterly Report on Form 10-Q of Whole Foods Market, Inc.

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    &# 160;          Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange A ct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosures controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosures controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors:

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	August 15, 2008	By:	/s/ Glenda Chamberlain
			Glenda Chamberlain
			Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002

In connection with the Quarterly Report of Whole Foods Market, Inc. (the “Company”) on Form 10-Q for the period ending July 6, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John P. Mackey, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of section 13(a) and 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

  /s/ John P. Mackey

John P. Mackey

Chief Executive Officer

August 15, 2008

EX-32.2

Exhibit 32.2

Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002

In connection with the Quarterly Report of Whole Foods Market, Inc. (the “Company”) on Form 10-Q for the period ending July 6, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Glenda Chamberlain, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of section 13(a) and 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

  /s/ Glenda Chamberlain

Glenda Chamberlain

Chief Financial Officer

August 15, 2008