Financial Statements: Balance Sheet

Income Statement The basic difference between accounting value (or book value) and market value The difference between accounting income and cash flow How to determine a firms cash flow from its financial statements
Calculate cash flow The difference between average and marginal tax rates

Calculate taxes

Financial Statements: Balance Sheet

Income Statement The basic difference between accounting value (or book value) and market value The difference between accounting income and cash flow How to determine a firms cash flow from its financial statements
Calculate cash flow The difference between average and marginal tax rates

Calculate taxes

Assumptions Year 1 Year 2 Company Name Shares outstanding (in 000,000), Dec 31, 2007

12/31/2006 12/31/2007 RAD Corporation

210

Balance Sheet is a snapshot of the account balances on the last day of the period

Assets = Liabilities + Shareholders' Equity

Assets 2006 Current assets Cash Accounts Receivable Inventory Total Fixed Assets Net Fixed Assets $119 465 563 $1,147 1,654 RAD Corporation Balance Sheet ($ in Millions) Balance Sheet as of December 31, 2006 and 2007 Liabilities and Shareholders' Equity 2007 Current Liabilities $183 Accounts Payable 698 Notes Payable 565 Total $1,446 Long-term debt 1,719 Total Liabilities Shareholders' Equity Common Stock and paid-in surplus Retained Earnings Total Total Liabilities and Shareholders' Equity

Total Assets

$2,801

$3,165

Why is this called the balance sheet?

eholders' Equity 2006 $237 206 $443 418 $861

2007 $278 133 $411 464 $875

610 1,330 $1,940 $2,801

638 1,652 $2,290 $3,165

Balance Sheet is a snapshot of the account balances on the last day of the period

Assets = Liabilities + Shareholders' Equity

Assets 2006 Current assets Cash Accounts Receivable Inventory Total Fixed Assets Net Fixed Assets $119 465 563 $1,147 1,654 RAD Corporation Balance Sheet ($ in Millions) Balance Sheet as of December 31, 2006 and 2007 Liabilities and Shareholders' Equity 2007 Current Liabilities $183 Accounts Payable 698 Notes Payable 565 Total $1,446 Long-term debt 1,719 Total Liabilities Shareholders' Equity Common Stock and paid-in surplus Retained Earnings Total Total Liabilities and Shareholders' Equity

Total Assets

$2,801

$3,165

Why is this called the balance sheet?

eholders' Equity 2006 $237 206 $443 418 $861

2007 $278 133 $411 464 $875

610 1,330 $1,940 $2,801

638 1,652 $2,290 $3,165

$2,801

$2,801 TRUE

Assumptions Name CA NFA CL LTD Your Name 3,000.00 15,000.00 2,800.00 8,000.00 Solve for: Shareholders' Equity = NWC = Your Name Company Balance Sheet Assets CA NFA Total Assets $ 3,000.00 15,000.00 18,000.00 Liabilities + Owners' Equity CL LTD Owners Equity Total Liabilities + Owners' Equity 2,800.00 8,000.00 $ 7,200.00

Assumptions Name CA NFA CL LTD Your Name 3,000.00 15,000.00 2,800.00 8,000.00 Solve for: Shareholders' Equity = NWC = Your Name Company Balance Sheet Assets CA NFA Total Assets $ 3,000.00 15,000.00 18,000.00 CL LTD Owners Equity $ Total Liabilities + Owners' Equity Liabilities + Owners' Equity $ 2,800.00 $ 8,000.00 7,200.00 $ 18,000.00

Total Assets Net Working Capital Current assets

Total Liabilities and Shareholders' Equity

Current Liabilities

Long-term debt Fixed Assets Tangible Fixed Assets Intangible Fixed Assets

Shareholders' Equity

Net Working Capital is the short-term capital (Cash) that the firm has to work with * Capital is a term that means assets (this term is often used in economics and finance) * Firm means corporation in this example

What is the working Capital for the Rad Corp at the end of 2006?

704

Total Assets Net Working Capital Current assets

Total Liabilities and Shareholders' Equity

Current Liabilities

Long-term debt Fixed Assets Tangible Fixed Assets Intangible Fixed Assets

Shareholders' Equity

Net Working Capital is the short-term capital (Cash) that the firm has to work with * Capital is a term that means assets (this term is often used in economics and finance) * Firm means corporation in this example

What is the working Capital for the Rad Corp at the end of 2006?

704

Current Assets Fixed Assets Current Liabilities Long-term Debt

$250 $625 $130 $265 Assets Current Assets Fixed Assets

$250 $625

Total Assets Working Capital =

$875

Liabilities and Shareholders' Equity Current Liabilities Long-term Debt Total Liabilities Shareholders' Equity Total Liabilities and Shareholders' Equity $120

$130 $265 $395 $480 $875

Assumptions Current Assets Fixed Assets Current Liabilities Long-term Debt

$250 $625 $130 $265 Assets Current Assets Fixed Assets Liabilities and Shareholders' Equity Current Liabilities Long-term Debt Total Liabilities Shareholders' Equity Total Liabilities and Shareholders' Equity

$250 $625

Total Assets

$875

Working Capital = $250 - $130 = $120

holders' Equity $130 $265 $395 $480 $875

Assumptions Name Date 1 Date 2 Statement Accounts: Balance Sheet Net Fixed Assets, December 31, 2009 Balance Sheet Net Fixed Assets, December 31, 2010 2010 Income Statement Depreciation Expense Net Capital Spending for 2010 Assumptions Name Date 1 Date 2 Statement Accounts: Balance Sheet Net Fixed Assets, December 31, 2009 Balance Sheet Net Fixed Assets, December 31, 2010 2010 Income Statement Depreciation Expense Net Capital Spending for 2010 Your Company 12/31/2009 12/31/2010 Balance Sheet Income Statement Net Fixed Assets Depreciation Expense 500,000.00 350,000.00 25,000.00 (125,000.00) Your Company 12/31/2009 12/31/2010 Balance Sheet Income Statement Net Fixed Assets Depreciation Expense 500,000.00 650,000.00 115,000.00 265,000.00

Assumptions Name Date 1 Date 2 Statement Accounts: Balance Sheet Net Fixed Assets, December 31, 2009 Balance Sheet Net Fixed Assets, December 31, 2010 2010 Income Statement Depreciation Expense Net Capital Spending for 2010 Assumptions Name Date 1 Date 2 Statement Accounts: Balance Sheet Net Fixed Assets, December 31, 2009 Balance Sheet Net Fixed Assets, December 31, 2010 2010 Income Statement Depreciation Expense Net Capital Spending for 2010 Your Company 12/31/2009 12/31/2010 Balance Sheet Income Statement Net Fixed Assets Depreciation Expense 500,000.00 350,000.00 25,000.00 (125,000.00) Your Company 12/31/2009 12/31/2010 Balance Sheet Income Statement Net Fixed Assets Depreciation Expense 500,000.00 650,000.00 115,000.00 265,000.00

Liquidity: How Quickly An Asset Can Be Converted To

Liquidity has two dimensions: Ease of conversion to cash Loss of value because you have to sell it quickly Highly liquid asset: Quickly sold without significant loss of value (inventory, short-term investments) Illiquid asset: Cannot be sold quickly without significant price reduction (machinery, building) Items on balance sheet are listed in order of decreasing liquidity (most liquid are first) Liquidity is valuable: Firm can readily pay bills and buy assets quickly Liquid assets such as cash tend to be less profitable than illiquid assets such as buildings/trucks and subdivisions of business Too many liquid assets may mean the firm is not investing in profitable assets such as machinery to make products or purchases of other businesses

Assets Use of Funds

Shareholders' Equity + Source of Funds Fixed Claim (contractual claim) Residual Claim Interest expense (cash out) is a Dividend (Cash out) is not tax tax deductible item deductible Paid first during bankruptcy Get what's left over Debt

The topic of whether to use Debt or Equity to raise funds is called "Capital Structure" The term "Financial Leverage" is used when the firm has debt The more debt (as a % of assets), the more leverage Leverage can magnify: Gains Losses More later!

Assets Market or Book Value

Market value The amount of cash we would get if we sold it You never know for sure until you sell it Book value The historical cost that was recorded when the firm purchased the asset Required under GAAP (Generally Accepted Accounting Principals). Some Financial Assets are recorded at market value. Book value of assets often does not reflect the firms most valuable assets such as: Talented employees/ managers Customer list Reputation Shareholders Equity The market value for a share of stock is virtually always different that its book value The goal of the financial manager is to maximize the market value for the stock Thus, the financial manager is more interested in the MARKET VALUE than the book value

ded at market value.

Assumptions Name: Fixed Assets Book Value Fixed Assets Apprised Market Value Net Working Capital Book Value Net Working Capital Market Value (perhaps inventory value increased) Long-term Debt What is book value of equity? What is the market value of equity?

Queen's Corp $800.00 $1,200.00 $500.00 $800.00 $400.00 $300.00 $400.00

Queen's Corp Balance Sheets Market Value vs. Book Assets Book Market Net Working Capital $500.00 $800.00 Net Fixed Assets $800.00 $1,200.00 $1,300.00 $2,000.00

alue Liabilities and Shareholders' Equity Book Market Long-term Debt $400.00 $400.00 Shareholders' Equity 900.00 1,600.00 $1,300.00 $2,000.00

Assumptions Name: Fixed Assets Book Value Fixed Assets Apprised Market Value Net Working Capital Book Value Net Working Capital Market Value (perhaps inventory value increased) Long-term Debt What is book value of equity? What is the market value of equity?

Queen's Corp $800.00 $1,200.00 $500.00 $800.00 $400.00 300 400

Queen's Corp Balance Sheets Market Value vs. Book Assets Book Market Net Working Capital $500.00 $800.00 Net Fixed Assets 800.00 1,200.00 $1,300.00 $2,000.00

alue Liabilities and Shareholders' Equity Book Market Long-term Debt $400.00 $400.00 Shareholders' Equity 900.00 1,600.00 $1,300.00 $2,000.00

Revenues = Sales = Net Sales = Amounts earned by business from delivering products or services to customer. Ex shoes, business gets $100; the $100 is the Revenue. Revenues may take the form of cash, credit card receipts, or ac from customer later). Expenses = Costs associated with creating Revenues. Example01: The business paid $50 for the shoes and sold the the $50 is an expense called "Cost Of Goods Sold" or COGS. Example02: Employee's pay is an expense to the busi paid in cash, immediately or at a future time (accounts payable).

Income Statement = Profits = Earnings = Shows profit for period. Income Statement Formula is: Revenues - Exp Net Income does not necessarily mean Cash in.
RAD Corporation Income Statement ($ in Millions) For The Year Ended December 31, 2007 Rev Ex Ex Ex Ex Net Sales Cost of Goods Sold Depreciation Earnings before interest and tax Interest paid Taxable income Taxes Net Income Dividends = Addition to retained earnings = Shares outstanding (in 000,000), Dec 31, 2007 = Earnings per share (EPS) = $410/210 = $1.95 = Dividends per share = $88/210 = $0.42 = $1,600 841 71 $688 76 $612 202 $410 $88.00

210
$4.66 $0.42

RAD Corporation Income Statement ($ in Millions) For The Year Ended December 31, 2007 Net Sales Cost of Goods Sold Depreciation Earnings before interest and tax Interest paid Taxable income Taxes Net Income Dividends = Addition to retained earnings = Shares outstanding (in 000,000), Dec 31, 2007 = Earnings per share (EPS) = $410/210 = $1.95 = Dividends per share = $88/210 = $0.42 =

$1,600 841 71 $688 76 $612 202 $410 $88.00

210
$1.95 $0.42

UPS Trucks Cost Salvage Value Years in Use SL Depreciation Expense for one Year = (Cost-Salvage)/Years =

$ $ $

5,000,000.00 250,000.00 10 475,000.00

The Cash went out the first year, but the Depreciation Expense shows up each year even though the cash was paid out in year 1 Depreciation is a non-cash expense that shows up on the Income Statement

UPS Trucks Cost Salvage Value Years in Use SL Depreciation Expense for one Year = (Cost-Salvage)/Years =

$ $ $

5,000,000.00 250,000.00 10 475,000.00

The Cash went out the first year, but the Depreciation Expense shows up each year even though the cash was paid out in year 1 Depreciation is a non-cash expense that shows up on the Income Statement

UPS Trucks Cost $ 1,000,000.00 Salvage Value $ 100,000.00 Years in Use 5 SL Depreciation Expense for one Year = (Cost-Salvage)/Years = $ 180,000.00 Year 1 Year 2 Year 3 Year 4 Year 5 Revenue 2,000,000.00 2,000,000.00 2,000,000.00 2,000,000.00 2,000,000.00 Non-Cash Depr Expense $ 180,000.00 $ 180,000.00 $ 180,000.00 $ 180,000.00 $ 180,000.00 Other Expenses 1,200,000.00 1,200,000.00 1,200,000.00 1,200,000.00 1,200,000.00 Other Expenses $ 620,000.00 $ 620,000.00 $ 620,000.00 $ 620,000.00 $ 620,000.00

UPS Trucks Cost $ 1,000,000.00 Salvage Value $ 100,000.00 Years in Use 5 SL Depreciation Expense for one Year = (Cost-Salvage)/Years = $ 180,000.00 Year 1 Year 2 Year 3 Year 4 Year 5 Revenue 2,000,000.00 2,000,000.00 2,000,000.00 2,000,000.00 2,000,000.00 Non-Cash Depr Expense $ 180,000.00 $ 180,000.00 $ 180,000.00 $ 180,000.00 $ 180,000.00 Other Expenses 1,200,000.00 1,200,000.00 1,200,000.00 1,200,000.00 1,200,000.00 Other Expenses $ 620,000.00 $ 620,000.00 $ 620,000.00 $ 620,000.00 $ 620,000.00

RAD Corporation Income Statement ($ in Millions) For The Year Ended December 31, 2007 Net Sales Cost of Goods Sold Depreciation Earnings before interest and tax Interest paid Taxable income Taxes Net Income Dividends = Addition to retained earnings = $1,600 841 71 $688 76 $612 202 $410 $88.00 Assets

RAD Corporation Balance Sheet ($ in Mil Balance Sheet as of December 31 2006 Current assets Cash Accounts Receivable Inventory Total Fixed Assets Net Fixed Assets 2007

$119 $183 465 698 563 565 $1,147 $1,446 1,654 1,719

Total Assets

$2,801 $3,165

Accounting Information does not always give us good information about Cash Flows In Finance, usually Cash Flows are used for analysis. Because of this, we need to be able to take accounting information and c How do we calculate the change in anything? End - Beg

AD Corporation Sheet ($ in Millions) f December 31, 2006 and 2007 Liabilities and Shareholders' Equity 2006 Current Liabilities Accounts Payable Notes Payable Total Long-term debt Total Liabilities Shareholders' Equity Common Stock and paid-in surplus Retained Earnings Total Total Liabilities and Shareholders' Equity $237 206 $443 418 $861 2007 $278 133 $411 464 $875

610 638 1,330 1,652 $1,940 $2,290 $2,801 $3,165

e accounting information and convert it to Cash Flows ==>

Cash flow from assets

Cash flow to creditors (bondholders)

Cash flow to stockholders (owners)

Cash flow from assets

Operating cash flow

Net capital spending

Operating cash flow

Earnings before interest and taxes (EBIT)

Depreciation

Net capital spending

Ending net fixed assets

Beginning net fixed assets

Change in NWC

Ending NWC (End CA End CL)

Beginning NWC (Beg CA Beg CL)

Cash flow to creditors (bondholders)

Interest paid

Net new borrowing (end long-term debt - beg LTD)

Cash flow to stockholders = (owners)

Dividends paid

Net new equity raised (end Common stock & Paid-in surplus - beg CS & PIS)

Change in net working capital (NWC)

Taxes

Depreciation

126967018.xls.ms_office - In Class Example

Entrepren eur Income Statement For The Year

Assumptions Name: Year 1 Year 2 Tax Rate Statements Entrepreneur Corporation 12/31/2009 12/31/2010 34% Income Statement Balance Sheet Requirements: Prepare an Income Statement for 2010 Prepare an Balance Sheet for 2009 and 2010 Calculate cash flows from assets for 2010 Calculate cash flows to creditors 2010 Calculate cash flows to stockholders 2010 Account Name Sales Cost of goods sold Depreciation Interest Dividends Current assets Net fixed assets Current liabilities Long-term debt 2009 3,810.00 2,063.00 995.00 245.00 120.00 2,060.00 6,790.00 1,014.00 2,889.00 2010 4237 2,198.00 1,438.00 287.00 130.00 2,466.00 7,407.00 1,346.00 2,976.00

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126967018.xls.ms_office - In Class Example

Entreprene ur Balance Sheet December 31, 2009 Assets

Entrepreneur Corporation Income Statement For The Year Ended 2010 Sales Cost of goods sold Depreciation Earnings before interest and tax Interest Taxable income Taxes Net Income Dividends Addition to retained earnings

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126967018.xls.ms_office - In Class Example

Entrepreneur Corporation Balance Sheet December 31, 2009 and December 31, 2010 Assets 2009 Current assets Net fixed assets Liabilities and Owners' Equity 2010 Current liabilities Long-term debt Total Liabilities Change in Common Stock and Paid-in surplus Change in Retained earnings Total Owners' Equity Total Assets Total Liabilities and Owners' Equity 2009 2010

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Finance is Fun!

126967018.xls.ms_office - In Class Example

Cash flow from assets Cash flow from assets Cash flow from operations Net capital spending Change in NWC Cash flow to creditors Cash flow to stockholders

= = = = = = =

Cash flow to creditors Cash flow from operations EBIT End net fixed assets End NWC Interest Dividends

+ + -

Cash flow to stockholders Net capital spending Depreciation Beg net fixed assets Beg NWC Net new borrowing Net new equity + Change in NWC Taxes Depreciation

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Finance is Fun!

126967018.xls.ms_office - In Class Example (an)

Entrepren eur Income Statement For The Year

Assumptions Name: Year 1 Year 2 Tax Rate Statements Entrepreneur Corporation 12/31/2009 12/31/2010 34% Income Statement Balance Sheet Requirements: Prepare an Income Statement for 2010 Prepare an Balance Sheet for 2009 and 2010 Calculate cash flows from assets for 2010 Calculate cash flows to creditors 2010 Calculate cash flows to stockholders 2010 Account Name Sales Cost of goods sold Depreciation Interest Dividends Current assets Net fixed assets Current liabilities Long-term debt Done Done (197.00) 200.00 (397.00) 2009 3,810.00 2,063.00 995.00 245.00 120.00 2,060.00 6,790.00 1,014.00 2,889.00 2010 4237 2,198.00 1,438.00 287.00 130.00 2,466.00 7,407.00 1,346.00 2,976.00 (197.00)

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126967018.xls.ms_office - In Class Example (an)

Entreprene ur Balance Sheet December 31, 2009 $4,237.00 2,198.00 1,438.00 601.00 287.00 314.00 107.00 $207.00 $130.00 $77.00

Entrepreneur Corporation Income Statement For The Year Ended 2010 Sales Cost of goods sold Depreciation Earnings before interest and tax Interest Taxable income Taxes Net Income Dividends Addition to retained earnings

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126967018.xls.ms_office - In Class Example (an)

Entrepreneur Corporation Balance Sheet December 31, 2009 and December 31, 2010 Assets 2009 $2,060.00 6,790.00 Liabilities and Owners' Equity 2010 $2,466.00 7,407.00 Current liabilities Long-term debt Total Liabilities Change in Common Stock and Paid-in surplus Change in Retained earnings Total Owners' Equity Total Assets $8,850.00 $9,873.00 Total Liabilities and Owners' Equity $8,850.00 2009 $1,014.00 2,889.00 3,903.00 2010 $1,346.00 2,976.00 4,322.00 527.00 77.00 4,947.00 $5,551.00 $9,873.00

Current assets Net fixed assets

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126967018.xls.ms_office - In Class Example (an)

Cash flow from assets (197.00) Cash flow from assets (197.00) Cash flow from operations 1,932.00 Net capital spending 2,055.00 Change in NWC 74.00 Cash flow to creditors 200.00 Cash flow to stockholders (397.00)

= = = = = = =

Cash flow to creditors + 200.00 Cash flow from operations 1,932.00 EBIT + 601 End net fixed assets 7,407.00 End NWC 1120 Interest 287.00 Dividends $130.00 -

Cash flow to stockholders True (397.00) Net capital spending Change in NWC 2,055.00 74.00 Depreciation Taxes 1,438.00 107.00 Beg net fixed assets 6,790.00 Beg NWC 1,046.00 Net new borrowing 87.00 Net new equity $527.00 + Depreciation 1,438.00

Page 47 of 265

Finance is Fun!

If you use Debt to buy a new asset worth = The annual interest rate, compunded annually = Tax Rate Interest on Debt the first year = $500.00*8.00% = $40.00

Interest on Debt is Rent on Money Interest on Debt is deductable on your tax bill $ 500.00 8.00% 30.00% $ 40.00

Because Interest on Debt is tax deductable, the $40.00 you paid is subtracted from earnings, you save $40.00*30.00% = $12.00. In essence, you avoid paying $12.00 which is a savings to you. If you had not used debt, but instead used equity, you would not have received the $12.00 savings. Total Cash going out is then = $40.00 - $12.00 = Income Statement without Debt Net Sales Expeneses Earnings Before Interest and tax Interest Taxable earnings Tax Net Income Difference between Debt and No Debt =

$ $

12.00 28.00 Income

$ 1,000.00 400.00 600.00 40.00 560.00

Why Debt Good = Saves cash Why Debt Bad = Too much and you may go bankrupt

Cash going out to the bank ==>

<== Cash coming in from the savings on your tax bill

Income Statement without Debt Net Sales Expenses Earnings Before Interest and tax Interest Taxable earnings Tax Net Income $ 1,000.00 400.00 600.00 600.00

If you use Debt to buy a new asset worth = The annual interest rate, compunded annually = Tax Rate Interest on Debt the first year = $500.00*8.00% = $40.00

Interest on Debt is Rent on Money Interest on Debt is deductable on your tax bill $ 500.00 8.00% 30.00% $ 40.00

Because Interest on Debt is tax deductable, the $40.00 you paid is subtracted from earnings, you save $40.00*30.00% = $12.00. In essence, you avoid paying $12.00 which is a savings to you. If you had not used debt, but instead used equity, you would not have received the $12.00 savings. Total Cash going out is then = $40.00 - $12.00 = Income Statement without Debt Net Sales Expeneses Earnings Before Interest and tax Interest Taxable earnings Tax Net Income Difference between Debt and No Debt =

$ $

12.00 28.00 Income

$ 1,000.00 400.00 600.00 40.00 560.00 168.00 $ 392.00

Why Debt Good = Saves cash Why Debt Bad = Too much and you may go bankrupt

Cash going out to the bank ==>

<== Cash coming in from the savings on your tax bill

Income Statement with Debt Net Sales Expenses Earnings Before Interest and tax Interest Taxable earnings Tax Net Income $ 1,000.00 400.00 600.00 600.00 180.00 $ 420.00

Assumptions

Taxable Income
Income From 50,001 75,001 100,001 335,001 10,000,001 15,000,001 18,333,334

300,000.00
Tax Rate Table Income To Tax Rate 50,000 75,000 100,000 335,000 10,000,000 15,000,000 18,333,333 +

15.00% 25.00% 34.00% 39.00% 34.00% 35.00% 38.00% 35.00%

C a

Taxable Income = $3

Average Tax Rates = total taxes/taxable income Marginal Tax Rates = rate used on the next taxable $
* In Finance it is the marginal tax rate that is used in cash flow analysis. This is because if you are considering a new project, any new cash flows will be taxed at the marginal rate

Taxable Income = $300,000.00 Calculate tax for entire year $50,000*15.00% ($75,000-$50,000)*25.00% ($100,000-$75,000)*34.00% ($300,000-$100,000)*39.00%

7,500.00 6,250.00 8,500.00 78,000.00

Average Tax Rate = Marginal Tax Rate for next dollar =

Assumptions

Taxable Income
Income From 50,001 75,001 100,001 335,001 10,000,001 15,000,001 18,333,334

300,000.00
Tax Rate Table Income To Tax Rate 50,000 75,000 100,000 335,000 10,000,000 15,000,000 18,333,333 +

15.00% 25.00% 34.00% 39.00% 34.00% 35.00% 38.00% 35.00%

C a

Taxable Income = $3

Average Tax Rates = total taxes/taxable income Marginal Tax Rates = rate used on the next taxable $
* In Finance it is the marginal tax rate that is used in cash flow analysis. This is because if you are considering a new project, any new cash flows will be taxed at the marginal rate

Taxable Income = $300,000.00 Calculate tax for entire year $50,000*15.00% ($75,000-$50,000)*25.00% ($100,000-$75,000)*34.00% ($300,000-$100,000)*39.00%

7,500.00 6,250.00 8,500.00 78,000.00 100,250.00 0.33417 0.39000

check: 100250

Average Tax Rate = Marginal Tax Rate for next dollar =

taxable earnings Rate 0 50,000 75,000 100,000 335,000 10,000,000 15,000,000 18,333,333 15.00% 25.00% 34.00% 39.00% 34.00% 35.00% 38.00% 35.00%

Cumulative Amount Tax From Previous br 0 7500 13,750.00 22,250.00 113,900.00 3,400,000.00 5,150,000.00 6,416,667.00

Amount Tax From Previous brackets

126967018.xls.ms_office

2005 C Corporation Tax Rates

Accounting Is Fun!

2004 Corporate Income Tax Rates (for C corporations)

http://www.givingto.msu.edu/pgaol/html/2004_federal_income_tax_rates.html
VLOOKUP Over But Not Over Tax from previous bracket Rate for this bracket The tax is Of excess over

$0 $50,001 $75,001 $100,001 $335,001 $10,000,001 $15,000,001 $18,333,334

$0 50,000 75,000 100,000 335,000 10,000,000 15,000,000 18,333,333

$50,000 75,000 100,000 335,000 10,000,000 15,000,000 18,333,333

$7,500 13,750 22,250 113,900 3,400,000 5,150,000

15.00% 25.00% 34.00% 39.00% 34.00% 35.00% 38.00% 35.00%

15% 7,500 + 25% 13,750 + 34% 22,250 + 39% 113,900 + 34% 3,400,000 + 35% 5,150,000 + 38% 35%

0 $50,000 75,000 100,000 335,000 10,000,000 15,000,000 0

The corporate rate schedule neutralizes the benefit of the two lowest brackets for higher-income corporations by levying a 5% surtax on corporate taxable income between $100,001 and $335,000. Corporations which pay tax at the corporate level (C corporations) with taxable incomes of at least $335,001 but not over $10 million essentially pay a flat 34% tax. Taxable income over $10 million is taxed at 35%, but with a surtax of the lesser of $100,000 or 3% of taxable income over $15 million. Above $18,333,333, the tax rate becomes a flat 35%. Corporations that have made an S election generally are not taxed as corporations. Instead, their net income passes through and is taxed directly to the shareholders on their personal income tax returns. Certain personal service corporations are taxed at a flat rate of 35% regardless of the amount of their taxable income.

Taxable Income = Total Tax =

300,000.00 100250

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http://finance.yahoo.com/q?s=wfmi
Whole Foods Market, Inc. Consolidated Balance Sheets (In thousands) September 24, 2006 and September 25, 2005

http://biz.yahoo.com/f/g/g.html

Assets Current assets: Cash and cash equivalents Short-term investments available-for-sale securities Restricted cash Trade accounts receivable Merchandise inventories Prepaid expenses and other current assets Deferred income taxes Total current assets Property and equipment, net of accumulated depreciation and amortization Goodwill Intangible assets, net of accumulated amortization Deferred income taxes Other assets Total assets

Liabilities and Shareholders Equity Current liabilities: Current installments of long-term debt and capital lease obligations Trade accounts payable Accrued payroll, bonus and other benefits due team members Dividends payable Other current liabilities Total current liabilities Long-term debt and capital lease obligations, less current installments Deferred rent liability Other long-term liabilities Total liabilities Shareholders equity:

Common stock, no par value, 300,000 shares authorized; 142,198 and 136,017 shares issued, 139,607 and 135,908 shares outstanding in 2006 and 2005, respectively Common stock in treasury, at cost Accumulated other comprehensive income Retained earnings Total shareholders equity Commitments and contingencies Total liabilities and shareholders equity The accompanying notes are an integral part of these consolidated financial statements. 37

Table of Contents
Whole Foods Market, Inc. Consolidated Statements of Operations (In thousands, except per share amounts) Fiscal years ended September 24, 2006, September 25, 2005 and September 26, 2004

Sales Cost of goods sold and occupancy costs Gross profit Direct store expenses General and administrative expenses Pre-opening and relocation costs Operating income Other income (expense): Interest expense Investment and other income Income before income taxes Provision for income taxes Net income

Basic earnings per share Weighted average shares outstanding Diluted earnings per share Weighted average shares outstanding, diluted basis Dividends declared per share The accompanying notes are an integral part of these consolidated financial statements. 38

Table of Contents
Whole Foods Market, Inc. Consolidated Statements of Shareholders Equity and Comprehensive Income (In thousands) Fiscal years ended September 24, 2006, September 25, 2005 and September 26, 2004

Balances at September 28, 2003 Net income Foreign currency translation adjustments Reclassification adjustments for losses included in net income Change in unrealized gain (loss) on investments, net of income taxes Comprehensive income Dividends ($0.30 per share) Issuance of common stock pursuant to team member stock plans Issuance of common stock in connection with acquisition Tax benefit related to exercise of team member stock options Other Balances at September 26, 2004

Net income Foreign currency translation adjustments Reclassification adjustments for losses included in net income Change in unrealized gain (loss) on investments, net of income taxes Comprehensive income Dividends ($0.47 per share) Issuance of common stock pursuant to team member stock plans Tax benefit related to exercise of team member stock options Share-based compensation Conversion of subordinated debentures Balances at September 25, 2005 Net income Foreign currency translation adjustments Change in unrealized gain (loss) on investments, net of income taxes Comprehensive income Dividends ($2.45 per share) Issuance of common stock pursuant to team member stock plans Purchase of treasury stock Excess tax benefit related to exercise of team member stock options Share-based compensation Conversion of subordinated debentures Balances at September 24, 2006 The accompanying notes are an integral part of these consolidated financial statements. 39

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Whole Foods Market, Inc. Consolidated Statements of Cash Flows (In thousands) Fiscal years ended September 24, 2006, September 25, 2005 and September 26, 2004

Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization Loss on disposal of fixed assets Share-based compensation Deferred income tax expense (benefit) Tax benefit related to exercise of team member stock options Excess tax benefit related to exercise of team member stock options Interest accretion on long-term debt Deferred rent Other Net change in current assets and liabilities: Trade accounts receivable Merchandise inventories Prepaid expenses and other current assets Trade accounts payable Accrued payroll, bonus and other benefits due team member Other accrued expenses Net cash provided by operating activities Cash flows from investing activities Development costs of new store locations Other property, plant and equipment expenditures Proceeds from hurricane insurance Acquisition of intangible assets Change in notes receivable Purchase of available-for-sale securities Sale of available-for-sale securities Increase in restricted cash Payment for purchase of acquired entities, net of cash acquired Other investing activities Net cash used in investing activities Cash flows from financing activities Dividends paid Issuance of common stock Purchase of treasury stock Excess tax benefit related to exercise of team member stock options Payments on long-term debt and capital lease obligations Net cash provided by (used in) financing activities Net change in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year

Supplemental disclosures of cash flow information: Interest paid Federal and state income taxes paid Non-cash transactions: Common stock issued in connection with acquisition Conversion of convertible debentures into common stock, net of fees

Whole Foods Market, Inc. Notes to Consolidated Financial Statements Fiscal years ended September 24, 2006, September 25, 2005 and September 26, 2004 (1) Description of Business Whole Foods Market, Inc. and its consolidated subsidiaries (collectively Whole Foods Market, Company, or We) own and operate the (2) Summary of Significant Accounting Policies Definition of Fiscal Year We report our results of operations on a 52- or 53-week fiscal year ending on the last Sunday in September. Fiscal years 2006, 2005 and 200 Principles of Consolidation The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. A Cash and Cash Equivalents We consider all highly liquid investments with an original maturity of 90 days or less to be cash equivalents. Investments We classify as available-for-sale our cash equivalent investments and our short-term and long-term investments in debt and equity securities Restricted Cash Restricted cash primarily relates to cash held as collateral to support projected workers compensation obligations. Inventories We value our inventories at the lower of cost or market. Cost was determined using the last-in, first-out (LIFO) method for approximately Cost was determined using the retail method for approximately 54% of inventories in fiscal years 2006 and 2005. Under the retail method, th 41

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Our largest supplier, United Natural Foods, Inc., accounted for approximately 22%, 22% and 20% of our total purchases in fiscal years 2006 Property and Equipment Property and equipment is stated at cost, net of accumulated depreciation and amortization. We provide depreciation of equipment over the e Operating Leases The Company leases stores, distribution centers, bakehouses and administrative facilities under operating leases. Store lease agreements gene Goodwill Goodwill consists of the excess of cost of acquired enterprises over the sum of the amounts assigned to identifiable assets acquired less liabil Intangible Assets Intangible assets include acquired leasehold rights, liquor licenses, license agreements, non-competition agreements and debt issuance costs. Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of We evaluate long-lived assets and identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carry

Fair Value of Financial Instruments The carrying amounts of cash and cash equivalents, trade accounts receivable, trade accounts payable, accrued payroll, bonuses and team me 42

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The fair value of convertible subordinated debentures is estimated using quoted market prices. The fair value of senior unsecured notes is est

Convertible subordinated debentures Senior unsecured notes

Insurance and Self-Insurance Reserves The Company uses a combination of insurance and self-insurance plans to provide for the potential liabilities for workers compensation, gen Revenue Recognition We recognize revenue for sales of our products at the point of sale. Discounts provided to customers at the point of sale are recognized as a r Cost of Goods Sold and Occupancy Costs Cost of goods sold includes cost of inventory sold during the period, net of discounts and allowances, contribution from non-retail distributio Advertising Advertising and marketing expense for fiscal years 2006, 2005 and 2004 was approximately $24.0 million, $20.1 million and $17.4 million, Pre-opening and Relocation Costs Pre-opening costs include rent expense incurred during construction of new stores and costs related to new store openings including costs ass Share-Based Compensation Our Company maintains several share-based incentive plans. We grant options to purchase common stock under our 1992 Stock Option Plan 43

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service. Under this plan, participating team members may purchase our common stock each calendar quarter through payroll deductions. Par Prior to the effective date of revised Statement of Financial Accounting Standards (SFAS) No. 123R, Share-Based Payment, the Compan Effective the beginning of the first quarter of fiscal year 2006, the Company adopted the provisions of SFAS No. 123R using the modified pr SFAS No. 123R requires the Company to value unvested stock options granted prior to its adoption of SFAS No. 123 under the fair value me Prior to the adoption of SFAS No. 123R, the Company presented the tax savings resulting from tax deductions resulting from the exercise of In November 2005, the FASB issued Staff Position No. FAS 123R-3, Transition Election Related to Accounting for the Tax Effects of the S Income Taxes We recognize deferred income tax assets and liabilities by applying statutory tax rates in effect at the balance sheet date to differences betwe Earnings per Share Basic earnings per share is based on the weighted average number of common shares outstanding during the fiscal period. Diluted earnings p

44

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Comprehensive Income Comprehensive income consists of net income, foreign currency translation adjustments, and unrealized gains and losses on marketable secu Foreign Currency Translation The Companys Canadian and United Kingdom operations use their local currency as their functional currency. Assets and liabilities are tran Segment Information We operate in one reportable segment, natural foods supermarkets. We currently have three stores in Canada and six stores in the United Kin Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates Reclassifications Where appropriate, we have reclassified prior years financial statements to conform to current year presentation. Recent Accounting Pronouncements In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No.108 (SAB No. 108), Considering the E In September 2006, the FASB issued SFAS No. 157, Fair Value Measures. SFAS No. 157 defines fair value, establishes a framework for m In July 2006, the FASB issued Interpretation 48 (FIN 48), Accounting for Uncertainty in Income Taxes, an interpretation of SFAS No. 1 45

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In March 2006, the Emerging Issues Task Force (EITF) reached a consensus on EITF Issue No. 06-3, How Taxes Collected from Custom In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, a Replacement of Accounting Principles Board (3) Natural Disaster Costs The Company has two stores in the New Orleans area which were damaged by and closed due to Hurricane Katrina during the fourth quarter (4) Property and Equipment Balances of major classes of property and equipment are as follows (in thousands):

Land Buildings and leasehold improvements Fixtures and equipment Construction in progress and equipment not yet in service

Less accumulated depreciation and amortization

Depreciation and amortization expense related to property and equipment totaled approximately $152.4 million, $129.8 million and $111.2 m 46

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accelerated depreciation and other asset impairments totaling approximately $13.1 million and $5.9 million at September 24, 2006 and Septe (5) Business Combinations Fresh & Wild Holdings Limited On January 31, 2004, we acquired all of the outstanding stock of Fresh & Wild Holdings Limited (Fresh & Wild) for a total of approximat Select Fish LLC On October 27, 2003, we acquired certain assets of Select Fish LLC (Select Fish) in exchange for approximately $3 million in cash plus th -6

Goodwill and Other Intangible Assets Goodwill and indefinite-lived intangible assets are reviewed for impairment annually, or more frequently if impairment indicators arise. We a Definite-lived intangible assets are amortized over the useful life of the related agreement. We acquired definite-lived intangible assets totali

Indefinite-lived contract-based Definite-lived contract-based Definite-lived marketing-related and other

Amortization associated with the net carrying amount of intangible assets is estimated to be approximately $2.4 million in fiscal year 2007, $ 47

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(7) Long-Term Debt We have long-term debt and obligations under capital leases as follows (in thousands):

Obligations under capital lease agreements for equipment, due in monthly installments through 2012 Senior unsecured notes Convertible debentures, including accreted interest Total Long-term debt Less current installments Long-term debt, less current installments

On October 1, 2004, we amended our credit facility to extend the maturity of our $100 million revolving line of credit to October 1, 2009. Th We have outstanding zero coupon convertible subordinated debentures which had a carrying amount of approximately $8.3 million and $12. We also had outstanding senior unsecured notes that bear interest at 7.29% payable quarterly with a carrying amount of approximately $5.7 m (8) Leases The Company is committed under certain capital leases for rental of equipment and certain operating leases for rental of facilities and equipm 48

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Rental expense charged to operations under operating leases for fiscal years 2006, 2005 and 2004 totaled approximately $153.1 million, $12

2007 2008 2009 2010 2011 Future fiscal years

Less amounts representing interest Net present value of capital lease obligations Less current installments Long-term capital lease obligations, less current installments

During fiscal years 2006, 2005 and 2004, we paid contingent rentals totaling approximately $9.6 million, $7.6 million and $4.8 million, resp (9) Income Taxes Components of income tax expense are as follows (in thousands):

Current federal income tax Current state income tax Total current tax Deferred federal income tax Deferred state income tax Total deferred income tax Total income tax expense

Actual income tax expense differed from the amount computed by applying statutory corporate income tax rates to income before income tax

Federal income tax based on statutory rates Increase (reduction) in income taxes resulting from: Change in valuation allowance Tax exempt interest Share-based compensation Deductible state income taxes Other, net Total federal income taxes State income taxes Total income tax expense

49

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Current income taxes payable as of September 24, 2006 and September 25, 2005 totaled approximately $27.2 million and $5.2 million, respe

Deferred tax assets: Compensation-related costs Insurance-related costs Inventories

Lease and other termination accruals Rent differential Net domestic and international operating loss carryforwards Capital loss carryforwards Gross deferred tax assets Valuation allowance

Deferred tax liabilities: Financial basis of fixed assets in excess of tax basis Inventories Capitalized costs expensed for tax purposes Other

Net deferred tax asset

Deferred taxes have been classified on the consolidated balance sheets as follows:

Current assets Noncurrent assets Net deferred tax asset

As of September 24, 2006, we had international operating loss carryforwards totaling approximately $32.5 million, of which approximately $ (10) Investments We had short-term cash equivalent investments totaling approximately $10.1 million and $325.7 million at September 24, 2006 and Septemb As of September 24, 2006, we also had short-term available-for-sale securities, generally consisting of state and local government obligation 50

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(11) Shareholders Equity Dividends The Companys Board of Directors approved the following dividends during fiscal years 2006 and 2005 (in thousands, except per share amo

Date of Declaration

Date of Declaration

Fiscal year 2006: November 9, 2005 November 9, 2005 March 6, 2006 June 13, 2006 Fiscal year 2005: November 10, 2004 April 5, 2005 June 7, 2005 September 14, 2005

On September 27, 2006, the Companys Board of Directors approved a quarterly dividend of $0.15 per share that was paid on October 23, 2 On November 9, 2005, the Companys Board of Directors approved a two-for-one stock split to be distributed on December 27, 2005 to shar Treasury Stock On November 8, 2005, the Companys Board of Directors approved a stock repurchase program of up to $200 million over the next four yea On November 6, 2006, the Companys Board of Directors approved a $100 million increase in the Companys stock repurchase program, bri (12) 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 51

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

Net income (numerator for basic earnings per share) Interest on 5% zero coupon convertible subordinated debentures, net of income taxes Adjusted net income (numerator for diluted earnings per share) Weighted average common shares outstanding (denominator for basic earnings per share)

Potential common shares outstanding: Assumed conversion of 5% zero coupon convertible subordinated debentures Assumed exercise of stock options Weighted average common shares outstanding and potential additional common shares outstanding (denominator for diluted earnings per share)

Basic earnings per share Diluted earnings per share

The computation of diluted earnings per share does not include options to purchase approximately 4.3 million, 158,000 shares and 6,000 sha (13) Share-Based Compensation Total share-based compensation expense recognized during fiscal year 2006 and fiscal year 2005 was approximately $9.4 million and $19.9 Stock Option Plan We grant options to purchase common stock under our 1992 Stock Option Plans, as amended. Under these plans, options are granted at an op 52

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The following table summarizes option activity (in thousands, except per share amounts):

Outstanding options September 28, 2003 Options granted Options exercised Options expired Outstanding options at September 26, 2004 Options granted Options exercised Options expired Outstanding options at September 25, 2005 Options granted Options exercised Options expired Options forfeited Outstanding options at September 24, 2006 Vested/expected to vest at September 24, 2006 Exercisable options at September 24, 2006

The weighted average fair values of options granted during fiscal years 2006, 2005 and 2004 were $17.04, $15.19 and $14.69, respectively. A summary of options outstanding and exercisable at September 24, 2006 follows (share amounts in thousands):

Range of Exercise Prices From

$10.47 21.76 39.61 41.05 54.75 68.96 Total

Share-based compensation expense related to vesting stock options recognized during fiscal year 2006 totaled approximately $4.6 million. During fiscal year 2005, the Company accelerated the vesting of all outstanding stock options, except options held by the members of the exe 53

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The Company also recognized share-based compensation totaling approximately $1.2 million and $2.5 million for modifications of terms of 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

Expected dividend yield Risk-free interest rate Expected volatility Expected life, in years

Risk-free interest rate is based on the US treasury yield curve for a three and a half-year term and the seven-year zero coupon treasury bill rat Prior to the effective date of revised Statement of Financial Accounting Standards (SFAS) No. 123R, Share-Based Payment, the Compan In accordance with SFAS No. 123R, the Company adopted the provisions of SFAS No. 123R in the first quarter of fiscal year 2006 using the

Reported net income Share-based compensation expense, net of income taxes Pro forma expense, net of income taxes Pro forma net income (loss)

Basic earnings per share: Reported Share-based compensation expense Pro forma adjustment Pro forma basic earnings (loss) per share Diluted earnings per share: Reported Share-based compensation expense Pro forma adjustment Pro forma diluted earnings (loss) per share

Pro forma disclosures for fiscal year 2006 are not presented because the amounts are recognized in the Consolidated Statement of Operations 54

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Team Member Stock Purchase Plan Our Company also offers a team member stock purchase plan to all full-time team members with a minimum of 400 hours of service. Under (14) Team Member 401(k) Plan Our Company offers a team member 401(k) plan to all team members with a minimum of 1,000 services hours in one year. In fiscal years 20 (15) Quarterly Results (unaudited) The Companys first quarter consists of 16 weeks, and the second, third and fourth quarters consist of 12 weeks. Because the first quarter is l The Company accelerated the vesting of all outstanding stock options on September 22, 2005 in order to prevent past option grants from hav The Company has two stores in the New Orleans area which were damaged by and closed due to Hurricane Katrina during the fourth quarter 55

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The following tables set forth selected quarterly unaudited consolidated statements of operations information for the fiscal years ended Septe

Fiscal Year 2006 Sales Cost of goods sold and occupancy costs

Gross profit Direct store expenses General and administrative expenses Pre-opening and relocation costs Operating income Other income (expense) Interest expense Investment and other income Income before income taxes Provision for income taxes Net income Basic earnings per share Diluted earnings per share Dividends declared per share

Fiscal Year 2005 Sales Cost of goods sold and occupancy costs Gross profit Direct store expenses General and administrative expenses Pre-opening and relocation costs Operating income Other income (expense) Interest expense Investment and other income Income before income taxes Provision for income taxes Net income Basic earnings per share

Diluted earnings per share Dividends declared per share

(15) Commitments and Contingencies The Company uses a combination of insurance and self-insurance plans to provide for the potential liabilities for workers compensation, gen From time to time we are a party to legal proceedings including matters involving personnel and employment issues, personal injury, intellec The Company has entered into Retention Agreements with certain executive officers of the Company or its subsidiaries which provide for ce 56

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures The Companys management, with the participation of the Companys Chief Executive Officer and Chief Financial Officer, has evaluated the Changes in Internal Control over Financial Reporting There have been no changes in the Companys internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under th Managements Report on Internal Control over Financial Reporting The Companys management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in R

The Companys independent registered public accounting firm, Ernst & Young LLP, audited managements assessment of internal control ov Item 9B. Other Information. Not applicable. 57

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PART III Item 10. Directors and Executive Officers of the Registrant. The information required by this item about our Companys Executive Officers is included in Part I, Item 1. Business of this Report on For The Company has adopted a Code of Conduct and Ethics for Team Members and Directors pursuant to section 406 of the Sarbanes-Oxley A Item 11. Executive Compensation. The information required by this item is incorporated herein by reference from the registrants definitive Proxy Statement for the Annual Me Item 12. Security Ownership of Certain Beneficial Owners and Management. The information required by this item about our Companys securities authorized for issuance under equity compensation plans as of Septem Item 13. Certain Relationships and Related Transactions. The information required by this item is incorporated herein by reference from the registrants definitive Proxy Statement for the Annual Me Item 14. Principal Accounting Fees and Services. The information required by this item is incorporated herein by reference from the registrants definitive Proxy Statement for the Annual Me

http://biz.yahoo.com/f/g/g.html

2006

2005

2,252 193,847 60,065 82,137 203,727 33,804 48,149 623,981 1,236,133 113,494 34,767 29,412 5,209

308,524 36,922 66,682 174,848 45,965 39,588 672,529 1,054,605 112,476 21,990 22,452 5,244

2,042,996

1,889,296

2006

2005

49 121,857 153,014 234,850 509,770 8,606 120,421 56 638,853

5,932 103,348 126,981 17,208 164,914 418,383 12,932 91,775 530 523,620

1,147,872 (99,964 ) 6,975 349,260 1,404,143

874,972 4,405 486,299 1,365,676

2,042,996

1,889,296

2006

2005

2004

5,607,376 3,647,734 1,959,642 1,421,968 181,244 37,421 319,009 (32 ) 20,736 339,713 135,885

4,701,289 3,052,184 1,649,105 1,223,473 158,864 37,035 229,733 (2,223 ) 9,623 237,133 100,782

203,828

136,351

1.46 139,328

1.05 130,090

1.41 145,082

0.99 139,950

2.45

0.47

Shares Outstanding

Common Stock

Common Stock in Treasury

120,140 4,184 478 12 124,814

423,297 59,518 16,375 35,583 334 535,107

 5,042 6,052 135,908 5,510 (2,005 ) 194 139,607 $

110,293 62,643 19,135 147,794 874,972 199,450 59,096 9,432 4,922 1,147,872 $

(99,964 ) (99,964 )

2006

2005

2004

203,828

136,351

156,223 6,291 9,432 (15,521 ) (52,008 ) 460 26,607 693 (17,720 ) (32,200 ) (7,849 ) 18,509 26,033 129,886 452,664

133,759 15,886 19,135 (27,873 ) 62,643 4,120 16,080 1,317 (2,027 ) (21,486 ) (4,151 ) 12,597 26,445 38,023 410,819

(208,588 (131,614 3,308 (16,332 (555,095 362,209 (23,143

) ) ) ) )

(207,792 (116,318 (1,500 13,500 (10,132

) ) )

(569,255 )

(322,242 )

(358,075 ) 222,030 (99,964 ) 52,008 (5,680 ) (189,681 ) (306,272 ) 308,524 $ 2,252 $

(54,683 ) 85,816 (5,933 ) 25,200 113,777 194,747 308,524 $

$ $ $ $

607 70,220 4,922

$ $ $ $

1,063 74,706 147,794

$ $ $ $

mpany, or We) own and operate the largest chain of natural and organic foods supermarkets. Our Company mission is to promote vitality and well-bein

mber. Fiscal years 2006, 2005 and 2004 were 52-week years.

erally accepted accounting principles. All significant majority-owned subsidiaries are consolidated on a line-by-line basis, and all significant intercompany

vestments in debt and equity securities that have readily determinable fair values. Available-for-sale investments are recorded at fair value. Unrealized hold obligations.

t (LIFO) method for approximately 94% of inventories in fiscal years 2006 and 2005. Under the LIFO method, the cost assigned to items sold is based o 6 and 2005. Under the retail method, the valuation of inventories at cost and the resulting gross margins are determined by applying a cost-to-retail ratio fo

our total purchases in fiscal years 2006, 2005 and 2004, respectively.

de depreciation of equipment over the estimated useful lives (generally three to 15 years) using the straight-line method. We provide amortization of leaseh

ing leases. Store lease agreements generally include rent holidays, rent escalation clauses and contingent rent provisions for percentage of sales in excess o

o identifiable assets acquired less liabilities assumed. Goodwill is reviewed for impairment annually, or more frequently if impairment indicators arise, on a

on agreements and debt issuance costs. Indefinite-lived intangible assets are reviewed for impairment annually, or more frequently if impairment indicators

in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comp

accrued payroll, bonuses and team member benefits, and other accrued expenses approximate fair value because of the short maturity of those instruments

r value of senior unsecured notes is estimated by discounting the future cash flows at the rates currently available to us for similar debt instruments of com

2006 Carrying Amount Estimated Fair Value Carrying Amount

2005

8,320

19,298

12,850 5,714

bilities for workers compensation, general liability, property insurance, director and officers liability insurance, vehicle liability and employee health care

t the point of sale are recognized as a reduction in sales as the products are sold.

contribution from non-retail distribution and food preparation operations, shipping and handling costs and occupancy costs. The Company receives variou

lion, $20.1 million and $17.4 million, respectively. These amounts are shown net of vendor allowances received for co-operative advertising of approxima

new store openings including costs associated with hiring and training personnel, smallwares, supplies and other miscellaneous costs. Rent expense is gen

ock under our 1992 Stock Option Plans, as amended. Under these plans, options are granted at an option price equal to the market value of the stock at the

quarter through payroll deductions. Participants in the stock purchase plan may elect to purchase unrestricted shares at 100 percent of market value or restr R, Share-Based Payment, the Company applied Accounting Principles Board Opinion No. 25 (APB No. 25), Accounting for Stock Issued to Employe SFAS No. 123R using the modified prospective transition method. Under this method, prior periods were not restated. The Companys methods used to d SFAS No. 123 under the fair value method and expense these amounts in the income statement over the stock options remaining vesting period. In the fo ductions resulting from the exercise of stock options as an operating cash flow, in accordance with Emerging Issues Task Force (EITF) Issue No. 00-15, Accounting for the Tax Effects of the Share-Based Payment Awards (FSP FAS 123R-3). The Company has elected to adopt the transition guidance for

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 ena

ng the fiscal period. Diluted earnings per share is based on the weighted average number of common shares outstanding plus, where applicable, the additio

ed gains and losses on marketable securities, net of income taxes. Comprehensive income is reflected in the Consolidated Statements of Shareholders Equ

currency. Assets and liabilities are translated at exchange rates in effect at the balance sheet date. Income and expense accounts are translated at the averag

Canada and six stores in the United Kingdom. All of our remaining operations are domestic.

quires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liab

8 (SAB No. 108), Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in the Current Year Financial Statements. SA air value, establishes a framework for measuring fair value, and requires additional disclosures about fair value measurements. SFAS No. 157 applies to fa axes, an interpretation of SFAS No. 109, Accounting for Income Taxes. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a

3, How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (that is, Gross versus N ement of Accounting Principles Board Opinion No. 20 and FASB Statement No. 3. SFAS No. 154 requires retrospective application to prior periods fina

icane Katrina during the fourth quarter of fiscal year 2005, and accordingly the Company recorded expenses totaling approximately $16.5 million for relat

2006

2005

39,993 955,130 779,050 168,105 1,942,278 706,145

34,396 784,000 692,403 133,061 1,643,860 589,255

1,236,133

1,054,605

4 million, $129.8 million and $111.2 million for fiscal years 2006, 2005 and 2004, respectively. Property and equipment included accumulated

illion at September 24, 2006 and September 25, 2005, respectively. Property and equipment includes approximately $0.9 million, $3.0 million and $2.1 m

esh & Wild) for a total of approximately $20 million in cash and approximately $16 million in Company common stock, totaling 477,470 shares. The acq

pproximately $3 million in cash plus the assumption of certain liabilities. All assets acquired relate to a seafood processing and distribution facility located

tly if impairment indicators arise. We allocate goodwill to one reporting unit for goodwill impairment testing. During fiscal year 2006, we acquired goodw d definite-lived intangible assets totaling approximately $15.7 million and $1.5 million during fiscal years 2006 and 2005, respectively, consisting primari

2006 Gross carrying amount Accumulated amortization Gross carrying amount

2005

774 45,579 2,242 48,595

(11,833 ) (1,995 ) (13,828 )

723 32,597 2,921 36,241

ately $2.4 million in fiscal year 2007, $2.3 million in fiscal year 2008, $2.3 million in fiscal year 2009, $2.2 million in fiscal year 2010 and $2.2 million in

2006

2005

335 8,320 8,655 49

300 5,714 12,850 18,864 5,932

8,606

12,932

ng line of credit to October 1, 2009. The credit agreement contains certain affirmative covenants including maintenance of certain financial ratios and cert f approximately $8.3 million and $12.9 million at September 24, 2006 and September 25, 2005, respectively. The debentures have an effective yield to ma arrying amount of approximately $5.7 million at September 25, 2005. The Company made the final principal payment totaling approximately $5.7 million

eases for rental of facilities and equipment. These leases expire or become subject to renewal clauses at various dates from 2006 to 2038. Amortization of

led approximately $153.1 million, $124.8 million and $99.9 million, respectively. Minimum rental commitments required by all non-cancelable leases are

Capital

Operating

58 93 89 74 39 25 378 43 335 49

162,827 227,490 247,284 246,028 243,331 3,636,926 4,763,886

286

on, $7.6 million and $4.8 million, respectively. No asset retirement obligations have been incurred associated with operating leases. Sublease rental incom

2006

2005

2004

120,774 30,632 151,406 (13,350 ) (2,171 ) (15,521 )

106,087 22,568 128,655 (22,462 ) (5,411 ) (27,873 )

135,885

100,782

e tax rates to income before income taxes as follows (in thousands):

2006

2005

2004

118,900 (31 (1,352 (462 (9,962 331 107,424 28,461 ) ) ) )

82,997 1,639 3,310 (6,005 ) 1,684 83,625 17,157

135,885

100,782

y $27.2 million and $5.2 million, respectively. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and d

2006

2005

43,303 16,889

34,009 14,380 2,879

18 41,717 10,461 2,810 115,198 (13,271 ) 101,927

359 31,434 16,606 7,231 106,898 (17,364 ) 89,534

(21,858 (313 (1,290 (905

) ) ) )

(24,673 ) (1,841 ) (980 ) (27,494 ) $ 62,040

(24,366 ) $ 77,561

2006

2005

48,149 29,412 77,561

39,588 22,452 62,040

32.5 million, of which approximately $11.8 million will begin to expire in fiscal year 2008 and approximately $20.7 million has an indefinite life. During

on at September 24, 2006 and September 25, 2005, respectively. state and local government obligations totaling approximately $193.8 million. Gross unrealized gains on the securities totals approximately $77,000 as of

05 (in thousands, except per share amounts):

Dividend Date of Record Date of Payment

Total

per Share

Date of Record

Date of Payment

Amount

0.15 2 0.15 0.15

January 13, 2006 13-Jan-06 14-Apr-06 14-Jul-06

January 23, 2006 23-Jan-06 24-Apr-06 24-Jul-06

20,918 277,904 21,004 21,186

0.1 0.13 0.13 0.13

7-Jan-05 15-Apr-05 15-Jul-05 October 14, 2005

17-Jan-05 25-Apr-05 25-Jul-05 October 24, 2005

12,088 16,345 16,834 17,063

r share that was paid on October 23, 2006 to shareholders of record on October 13, 2006. On November 2, 2006, the Companys Board of Directors appro tributed on December 27, 2005 to shareholders of record at the close of business on December 12, 2005. The stock split was effected in the form of a stoc

to $200 million over the next four years. During the fourth quarter of fiscal year 2006, the Company repurchased on the open market approximately 2.0 m mpanys stock repurchase program, bringing the total remaining authorization to $200 million over the next three years. The specific timing and repurchas

res outstanding during the period. The computation of diluted earnings per share includes the dilutive effect of common stock equivalents consisting of com

ations follows (in thousands, except per share amounts):

2006

2005

2004

203,828 283 204,111

136,351 2,539 138,890

129,512 4,697 134,209

139,328

130,090

122,648

363 5,391

3,414 6,446

6,562 6,244

145,082

139,950

135,454

$ $

1.46 1.41

$ $

1.05 0.99

$ $

1.06 0.99

million, 158,000 shares and 6,000 shares of common stock at the end of fiscal years 2006, 2005 and 2004, respectively, due to their antidilutive effect.

approximately $9.4 million and $19.9 million, respectively. Of these totals, approximately $3.6 million and $10.1 million was included in Direct store ex

hese plans, 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-y

Number of Options Outstanding

Weighted Average Exercise Price

Weighted Average Remaining Contractual Li fe

Aggregate Intrinsic Value

15,728 5,240 (4,154 ) (674 ) 16,140 12,112 (4,996 ) (711 ) 22,545 1,444 (5,466 ) (202 ) (46 ) 18,275 18,031 16,551

17.53 39.54 14.13 23.9 25.69 59.82 21.64 37.33 44.58 69 36 56.57 64.52 48.82 48.55 47.11 4.74 4.75 4.75 $ $ $

$ $ $

7.04, $15.19 and $14.69, respectively. The aggregate intrinsic value of stock options at exercise, represented in the table above, was approximately $180.0

Options Outstanding Weighted Average Number To Outstanding Remaining Life (in Years) Weighted Average Exercise Price

20.48 38.31 39.61 54.17 66.81 73.14

1,554 2,721 2,632 4,753 5,206 1,409 18,275

1.19 3.17 4.61 5.57 5.97 4.62 4.74

11.38 26.16 39.61 53.56 66.69 69 48.82

totaled approximately $4.6 million. 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 grant

5 million for modifications of terms of certain stock option grants and other compensation based on the intrinsic value of the Companys common stock du ption pricing model with the following weighted average assumptions:

2006

2005

2004

1.26 % 5.04 % 29.4 % 3.22

0.84 % 4.14 % 48.3 % 2.1

0.76 % 4.72 % 49.48 % 3.3

even-year zero coupon treasury bill rate on the dates of the annual grant in fiscal year 2006 and fiscal year 2005, respectively. Expected volatility is calcul R, Share-Based Payment, the Company applied Accounting Principles Board Opinion No. 25 (APB No. 25), Accounting for Stock Issued to Employe rst quarter of fiscal year 2006 using the modified prospective approach. Under this method, prior periods are not restated. As a result of adoption, the Com

2005

2004

136,351 15,309 (179,616 ) (27,956 )

129,512 (23,888 ) 105,624

1.05 0.12 (1.38 ) (0.21 )

1.06 (0.20 ) 0.86

0.99 0.12 (1.31 ) (0.20 )

0.99 (0.17 ) 0.82

e Consolidated Statement of Operations.

nimum of 400 hours of service. Under this plan, participating team members may purchase our common stock each fiscal quarter through payroll deduction

es hours in one year. In fiscal years 2006 and 2005, the Company made a matching contribution to the plan of approximately $2.3 million in cash. The Co

12 weeks. Because the first quarter is longer than the remaining quarters, it typically represents a larger share of our annual sales from existing stores. Qua to prevent past option grants from having an impact on future results. The Company incurred a share-based compensation charge totaling approximately $ icane Katrina during the fourth quarter of fiscal year 2005, and accordingly the Company recorded expenses totaling approximately $16.5 million for relat

mation for the fiscal years ended September 24, 2006 and September 25, 2005 (in thousands except per share amounts):

First Quarter

Second Quarter

Third Quarter

1,666,953 1,092,018

1,311,520 848,020

574,935 424,438 50,889 8,491 91,117 (3 ) 6,082 97,196 38,878 $ $ $ $ 58,318 0.42 0.4 2.15 $ $ $ $

463,500 330,470 43,421 7,324 82,285 4,068 86,353 34,542 51,811 0.37 0.36 0.15 $ $ $ $

First Quarter

Second Quarter

Third Quarter

1,368,328 895,486 472,842 348,380 40,401 6,599 77,462 (1,708 ) 1,194 76,948 30,778

1,085,158 697,686 387,472 276,313 34,773 10,265 66,121 (342 ) 2,113 67,892 27,158

$ $

46,170 0.37

$ $

40,734 0.31

$ $

$ $

0.34 0.1

$ $

0.29 0.13

$ $

bilities for workers compensation, general liability, property insurance, director and officers liability insurance, vehicle liability and employee health care oyment issues, personal injury, intellectual property and other proceedings arising in the ordinary course of business which have not resulted in any materia or its subsidiaries which provide for certain benefits upon an involuntary termination of employment other than for cause after a Triggering Event. A Tri

hief Financial Officer, has evaluated the effectiveness of the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) u

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 mater

over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of the Com

ments assessment of internal control over financial reporting and also independently assessed the effectiveness of our internal control over financial report

Item 1. Business of this Report on Form 10-K under the caption Executive Officers of the Registrant. All other information required by this item is inco o section 406 of the Sarbanes-Oxley Act. A copy of our Code of Conduct and Ethics is publicly available on our Company website at http://www.wholefoo

ve Proxy Statement for the Annual Meeting of Shareholders.

quity compensation plans as of September 24, 2006 is included in Part I, Item 5. Market for Registrants Common Equity, Related Stockholder Matters an

ve Proxy Statement for the Annual Meeting of Shareholders.

ve Proxy Statement for the Annual Meeting of Shareholders.

2004

3,864,950 2,523,816 1,341,134 986,040 119,800 18,648 216,646 (7,249 ) 6,456 215,853 86,341 129,512

1.06 122,648 0.99 135,454 0.3

Accumulated Other Comprehensive Income (Loss)

Retained Earnings

1,624 856 88 (515 ) 429 2,053

320,055 129,512 129,512 (37,089 ) 412,478

 1,893 1,063 (604 ) 2,352 4,405 2,494 76 2,570 $ 6,975 $

136,351 136,351 (62,530 ) 486,299 203,828 203,828 (340,867 ) 349,260

2004

129,512

115,157 5,769 (682 ) 35,583 7,551 11,109 (1,133 ) (19,158 ) (27,868 ) (2,940 ) 12,515 29,646 35,279 330,340

(156,728 (109,739 (13,500 (26,790 (18,873 1,332

) )

) )

(324,298 )

(27,728 ) 59,518 (8,864 ) 22,926 28,968 165,779 194,747

2,127 60,372 16,375 293

omote vitality and well-being for all individuals by supplying the highest quality, most wholesome foods available. Through our growth, we have had a larg

all significant intercompany accounts and transactions are eliminated upon consolidation.

t fair value. Unrealized holding gains and losses, net of the related tax effect, on available-for-sale investments are excluded from earnings and are reported

gned 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 use ying 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 ce

ovide amortization of leasehold improvements on the straight-line method over the shorter of the estimated useful lives of the improvements or the terms of

rcentage of sales in excess of specified levels. Most of our lease agreements include renewal periods at the Companys option. We recognize rent holiday p

airment indicators arise, on a reporting unit level. We allocate goodwill to one reporting unit for goodwill impairment testing. We determine fair value utili

tly if impairment indicators arise. We amortize definite-lived intangible assets on a straight-line basis over the life of the related agreement, currently one t

used is measured by a comparison of the carrying amount of an asset to future undiscounted cash flows expected to be generated by the asset. If such assets

maturity of those instruments. Investments are stated at fair value with unrealized gains and losses included as a component of shareholders equity until rea

lar debt instruments of comparable maturities. Carrying amounts and estimated fair values of our financial instruments other than those for which carrying

2005 Estimated Fair Value

34,635 5,828

ity and employee health care benefits. Liabilities associated with the risks that are retained by the Company are estimated, in part, by considering historical

e Company receives various rebates from third party vendors in the form of quantity discounts and payments under cooperative advertising agreements. Q

ve advertising of approximately $1.2 million, $1.2 million and $1.0 million in fiscal years 2006, 2005 and 2004, respectively. Advertising costs are charge

s costs. Rent expense is generally incurred approximately nine months prior to a stores opening date. Other pre-opening costs are incurred primarily in the

rket 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-ye

ent of market value or restricted shares at 85 percent of market value on the purchase date. or Stock Issued to Employees and related interpretations for our stock option grants. APB No. 25 provides that the compensation expense relative to our mpanys methods used to determine share-based compensation, which includes the utilization of the Black-Scholes option pricing model, requires extensiv ing vesting period. In the fourth quarter of fiscal year 2005, the Company accelerated the vesting of all outstanding stock options, except options held by th e (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 Nonqua t the transition guidance for the additional paid-in-capital pool (APIC pool) pool in paragraph 81 of SFAS No. 123R. The prescribed transition method i

ities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. D

where applicable, the additional common shares that would have been outstanding as a result of the conversion of dilutive options and convertible debt.

ments of Shareholders Equity and Comprehensive Income. At September 24, 2006, accumulated other comprehensive income consisted of foreign currenc

s are translated at the average monthly exchange rates during the year. Resulting translation adjustments are recorded as a separate component of accumula

of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the period reported. Actual results could differ f

r Financial Statements. SAB No. 108 addresses how the effects of prior-year uncorrected misstatements should be considered when quantifying misstatem SFAS No. 157 applies to fair value measurements that are already required or permitted by other accounting standards, except for measurements of sharencome taxes recognized in an enterprises financial statements in accordance with SFAS No. 109. The interpretation applies to all tax positions accounted

ment (that is, Gross versus Net Presentation). Taxes within the scope of EITF Issue No. 06-3 include any taxes assessed by a governmental authority that a ication to prior periods financial statements for changes in accounting principles, unless it is impracticable to determine either the period-specific effects o

ately $16.5 million for related estimated net losses. The main components of the $16.5 million expense were estimated impaired assets totaling approximat

ded accumulated

on, $3.0 million and $2.1 million of interest capitalized during fiscal years 2006, 2005 and 2004, respectively. Development costs of new store locations to

ing 477,470 shares. The acquisition of Fresh & Wild, which owned and operated seven natural and organic food stores in London and Bristol, England, pr

distribution facility located in Seattle, Washington. This transaction was accounted for using the purchase method. Accordingly the purchase price was all

ar 2006, we acquired goodwill totaling approximately $1.1 million, primarily related to the acquisition of one small store in Portland, Maine. We acquired pectively, consisting primarily of acquired leasehold rights. Amortization associated with intangible assets totaled approximately $2.5 million, $2.8 million

2005 Accumulated amortization

(11,827 ) (2,425 ) (14,252 )

ar 2010 and $2.2 million in fiscal year 2011.

ain financial ratios and certain negative covenants including limitations on additional indebtedness as defined in the agreement. At September 24, 2006 an have an effective yield to maturity of 5 percent and a scheduled maturity date of March 2, 2018. The debentures are convertible at the option of the holder, approximately $5.7 million to retire its senior notes on May 16, 2006. 6 to 2038. Amortization of equipment under capital lease is included with depreciation expense.

ll non-cancelable leases are approximately as follows (in thousands):

ases. Sublease rental income totaled approximately $1.6 million, $1.3 million and $1.4 million during fiscal years 2006, 2005 and 2004, respectively. John

2004

70,750 16,272 87,022 284 (965 ) (681 ) 86,341

2004

75,548 2,310 (5,357 ) (1,467 ) 71,034 15,307 86,341

the deferred tax assets and deferred tax liabilities are as follows (in thousands):

s an indefinite life. During fiscal year 2006, approximately $31,000 of the valuation allowance related to the utilization of certain operating and capital los

pproximately $77,000 as of September 24, 2006.

ys Board of Directors approved a 20% increase in the Companys quarterly dividend to $0.18 per share payable on January 22, 2007 to shareholders of re ffected in the form of a stock dividend. Shareholders received one additional share of Whole Foods Market common stock for each share owned. All share

market approximately 2.0 million shares of Company common stock that were held in treasury at September 24, 2006. The average price per share paid wa ecific timing and repurchase amounts will vary based on market conditions, securities law limitations and other factors and will be made using the Compa

equivalents consisting of common shares deemed outstanding from the assumed exercise of stock options and the assumed conversion of zero coupon conv

their antidilutive effect.

included in Direct store expenses, $5.5 million and $8.6 million was included in General and administrative expenses, and $0.3 million and $1.2 millio

cisable ratably over a four-year period beginning one year from grant date. Options granted in fiscal year 2006 expire five years from the date of grant and

Aggregate Intrinsic Value

243,726 243,691 239,831

, was approximately $180.0 million during fiscal year 2006. Total gross unrecognized share-based compensation expense related to nonvested stock option

Options Exercisable Weighted Number Exercisable Average Exercise Price

1,554 2,683 2,596 4,588 5,130 16,551

11.38 26.13 39.61 53.77 66.74 n/a 47.11

to prevent past option grants from having an impact on future results. The Company recognized a share-based compensation charge totaling approximately

ompanys common stock during fiscal years 2006 and 2005, respectively.

Expected volatility is calculated using a ratio of implied volatility based on comparable Long-Term Equity Anticipation Securities (LEAPS) and four-ye or Stock Issued to Employees and related interpretations for our stock option grants. APB No. 25 provides that the compensation expense relative to our result of adoption, the Companys income before income taxes and net income for fiscal year 2006, are $6.4 million and $3.8 million lower, respectively,

er through payroll deductions. Participants in the stock purchase plan may elect to purchase unrestricted shares at 100 percent of market value or restricted

2.3 million in cash. The Company did not make a matching contribution to the plan in fiscal year 2004.

es from existing stores. Quarter to quarter comparisons of results of operations have been and may be materially impacted by the timing of new store openi ge totaling approximately $18.2 million in the fourth quarter of fiscal year 2005, primarily a non-cash charge related to this accelerated vesting of options. ately $16.5 million for related estimated net losses.

Third Quarter

Fourth Quarter

1,337,886 866,260

1,291,017 841,436

471,626 335,555 43,955 7,860 84,256 (8 ) 5,581 89,829 35,931 53,898 0.38 0.37 0.15 $ $ $ $

449,581 331,505 42,979 13,746 61,351 (21 ) 5,005 66,335 26,534 39,801 0.29 0.28

Third Quarter

Fourth Quarter

1,132,736 733,931 398,805 285,804 39,618 8,777 64,606 (163 ) 2,868 67,311 26,924 40,387 0.31

1,115,067 725,081 389,986 312,976 44,072 11,394 21,544 (10 ) 3,448 24,982 15,922

$ $

9,060 0.07

0.29 0.13

$ $

0.06 0.13

ity and employee health care benefits. Liabilities associated with the risks that are retained by the Company are estimated, in part, by considering historical e not resulted in any material losses to date. Although not currently anticipated by management, our results could be materially impacted by the decisions a a Triggering Event. A Triggering Event includes a merger of the Company with and into an unaffiliated corporation if the Company is not the surviving

s 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

e reasonably likely to materially affect, the Companys internal control over financial reporting.

he participation of the Companys management, including our principal executive officer and principal financial officer, the Company conducted an evalua

ontrol over financial reporting. Ernst & Young LLP has issued their attestation report which is included in Part II, Item 8 of this Report on Form 10-K.

required by this item is incorporated herein by reference from the registrants definitive Proxy Statement for the Annual Meeting of Shareholders to be hel bsite at http://www.wholefoodsmarket.com/investor/corporategovernance/codeofconduct.pdf. The information contained on our Web site is not incorporate

ated Stockholder Matters and Issuer Purchases of Equity Securities of this Report on Form 10-K. All other information required by this item is incorpora

Total Shareholders Equity

744,976 129,512 856 88 (515 ) 129,941 (37,089 ) 59,518 16,375 35,583 334 949,638

136,351 1,893 1,063 (604 ) 138,703 (62,530 ) 110,293 62,643 19,135 147,794 1,365,676 203,828 2,494 76 206,398 (340,867 ) 199,450 (99,964 ) 59,096 9,432 4,922 $ 1,404,143

hrough our growth, we have had a large and positive impact on the natural and organic foods movement throughout the United States, helping lead the ind

xcluded from earnings and are reported as a separate component of shareholders equity until realized. A decline in the fair value of any available-for-sale s

chased remain in inventory and are used to value ending inventory. The excess of estimated current costs over LIFO carrying value, or LIFO reserve, was a l inventory method calculations are certain management judgments and estimates, including shrinkage, which could impact the ending inventory valuation

es of the improvements or the terms of the related leases. Terms of leases used in the determination of estimated useful lives may include renewal periods a

s option. We recognize rent holiday periods and scheduled rent increases on a straight-line basis over the lease term beginning with the date the Company

t testing. We determine fair value utilizing both a market value method and discounted projected future cash flows compared to our carrying value for the p

the related agreement, currently one to 48 years for contract-based intangible assets and one to five years for marketing-related and other identifiable intan

e generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying am

onent of shareholders equity until realized.

ts other than those for which carrying amounts approximate fair values as noted above are as follows (in thousands):

ated, in part, by considering historical claims experience, demographic factors, severity factors and other actuarial assumptions. While we believe that our

ooperative advertising agreements. Quantity discounts and co-operative advertising discounts in excess of identifiable advertising costs are recognized as

pectively. Advertising costs are charged to expense as incurred and are included in the Direct store expenses line item in the Consolidated Statements of

ning costs are incurred primarily in the 30 days prior to a new store opening. Pre-opening costs are expensed as incurred. Relocation costs, which consist of

ear from grant date and have a five-year term. The grant date is established once the Companys Board of Directors approves the grant and all key terms ha

compensation expense relative to our team member stock options is measured based on the intrinsic value of the stock option at date of grant. option pricing model, requires extensive use of accounting judgment and financial estimates, including estimates of the expected term team members will re tock 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 prev Company upon Exercise of a Nonqualified Employee Stock Option. SFAS No. 123R requires the Company to reflect gross tax savings resulting from tax R. 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 com

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 ena

utive options and convertible debt.

ve income consisted of foreign currency translation adjustment gains of approximately $6.9 million and unrealized gains on marketable securities of approx as a separate component of accumulated other comprehensive income.

reported. Actual results could differ from those estimates. We use estimates when accounting for depreciation and amortization, allowance for doubtful ac

onsidered when quantifying misstatements in current-year financial statements. SAB No. 108 requires an entity to quantify misstatements using a balance s ds, 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 applies to all tax positions accounted for in accordance with Statement 109 and requires a recognition threshold and measurement attribute for the financia

sed by a governmental authority that are directly imposed on a revenue-producing transaction between a seller and a customer and may include, but are no mine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 also requires that retrospective application of a change in accou

ed impaired assets totaling approximately $12.2 million, estimated inventory losses totaling approximately $2.5 million, salaries and relocation allowances

opment costs of new store locations totaled approximately $208.6 million, 207.8 million and $156.7 million in fiscal years 2006, 2005 and 2004, respectiv

es in London and Bristol, England, provided a platform for expansion of the Whole Foods Market brand in the United Kingdom. This transaction was acco

Accordingly the purchase price was allocated to tangible and identifiable intangible assets acquired based on their estimated fair values at the date of the ac

tore in Portland, Maine. We acquired indefinite-lived intangible assets totaling approximately $50,000 and $0.7 million during fiscal years 2006 and 2005 proximately $2.5 million, $2.8 million, and 3.0 million during fiscal years 2006, 2005 and 2004, respectively. The components of intangible assets were as

agreement. At September 24, 2006 and September 25, 2005, we were in compliance with the applicable debt covenants. All outstanding amounts borrowed onvertible at the option of the holder, at any time on or prior to maturity, unless previously redeemed or otherwise purchased. The debentures may be rede

06, 2005 and 2004, respectively. John Mackey and Glenda Chamberlain, executive officers of the Company, own approximately 51% and 2%, respectivel

on of certain operating and capital loss carryforwards was released. Additionally, the valuation allowance decreased by approximately $4.1 million due to

anuary 22, 2007 to shareholders of record on January 12, 2007. The Company will pay future dividends at the discretion of the Board of Directors. The co stock for each share owned. All share and per share amounts in these financial statements have been adjusted to reflect the effect of the stock split. All sha

6. The average price per share paid was $49.85, for a total of approximately $100 million. At September 25, 2005, we had no shares of Company common ors and will be made using the Companys available cash resources and line of credit availability. The repurchase program may be suspended or discontinu

umed conversion of zero coupon convertible subordinated debentures.

nses, and $0.3 million and $1.2 million was included in Cost of goods sold and occupancy costs in the Consolidated Statements of Operations in fiscal y

e five years from the date of grant and options granted in fiscal years 2005 and 2004 expire seven years from date of grant. Certain options granted during

ense related to nonvested stock options was approximately $25.2 million as of the end of fiscal year 2006, related to approximately 1.5 million shares. We

ensation charge totaling approximately $17.4 million related to this acceleration, which was determined by measuring the intrinsic value on the date of the

ion Securities (LEAPS) and four-year historical volatility for fiscal year 2006. The Company determined the use of implied volatility versus historical vo compensation expense relative to our team member stock options is measured based on the intrinsic value of the stock option at date of grant. and $3.8 million lower, respectively, than if we had continued to account for share-based compensation under APB No. 25. Basic and diluted earnings per

0 percent of market value or restricted shares at 85 percent of market value on the purchase date. Participants are required to hold restricted shares for two

acted by the timing of new store openings. The Company believes that the following information reflects all normal recurring adjustments necessary for a f to this accelerated vesting of options. The Companys effective tax rate for the fourth quarter and fiscal year 2005 was higher than its historical rate prima

ated, in part, by considering historical claims experience, demographic factors, severity factors and other actuarial assumptions. While we believe that our materially impacted by the decisions and expenses related to pending or future proceedings. n if the Company is not the surviving corporation or the sale of all or substantially all of the Companys assets. The benefits to be received by the executive

nd of the period covered by this report. Based on such evaluation, the Companys Chief Executive Officer and Chief Financial Officer have concluded that

cer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on criteria established in the framework

em 8 of this Report on Form 10-K.

ual Meeting of Shareholders to be held March 5, 2007 to be filed with the Commission pursuant to Regulation 14A. ned on our Web site is not incorporated by reference into this Report on Form 10-K.

tion required by this item is incorporated herein by reference from the registrants definitive Proxy Statement for the Annual Meeting of Shareholders.

he United States, helping lead the industry to nationwide acceptance over the last 25 years. We opened our first store in Texas in 1980 and, as of Septemb

he fair value of any available-for-sale security below cost that is deemed to be other-than-temporary or for a period greater than two fiscal quarters results i

carrying value, or LIFO reserve, was approximately $13.2 million and $10.7 million at September 24, 2006 and September 25, 2005, respectively. Costs fo mpact the ending inventory valuation at cost as well as the resulting gross margins. Cost was determined using the item cost method for approximately 46%

ul lives may include renewal periods at the Companys option if exercise of the option is determined to be reasonably assured at the inception of the lease.

beginning with the date the Company takes possession of the leased space for construction and other purposes. We record tenant improvement allowances

ompared to our carrying value for the purpose of identifying impairment. Our annual impairment review requires extensive use of accounting judgment and

ing-related and other identifiable intangible assets.

y the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carryi

sumptions. While we believe that our assumptions are appropriate, the estimated accruals for these liabilities could be significantly affected if future occur

le advertising costs are recognized as a reduction of cost of goods sold when the related merchandise is sold.

em in the Consolidated Statements of Operations.

red. Relocation costs, which consist of moving costs, remaining lease payments, accelerated depreciation costs, asset impairment costs, other costs associat

pproves 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 opti

k option at date of grant. he expected term team members will retain their vested stock options before exercising them, the estimated volatility of the Companys common stock pric 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 o ect gross tax savings resulting from tax deductions in excess of expense reflected in its financial statements, including pro forma amounts, as a financing ca to the tax effects of share-based compensation, and to determine the subsequent impact on the APIC pool and Consolidated Statement of Cash Flows of th

tes in the period that includes the enactment date. Significant accounting judgment is required in determining the provision for income taxes and related ac

ins on marketable securities of approximately $0.1 million. At September 25, 2005, accumulated other comprehensive income consisted of foreign currenc

mortization, allowance for doubtful accounts, inventory valuation, long-term investments, team member benefit plans, team member health insurance plan

antify misstatements using a balance sheet and income statement approach and to evaluate whether either approach results in quantifying an error that is m ir value and does not change existing guidance as to whether or not an instrument is carried at fair value. The provisions of SFAS No. 157 are effective for measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in an income tax return. Su

customer and may include, but are not limited to, sales taxes, use taxes, value-added taxes, and some excise taxes. The EITF concluded that the presentatio ective application of a change in accounting principle be limited to the direct effects of the change. Indirect effects of a change in accounting principle, suc

on, salaries and relocation allowances for displaced Team Members and other costs totaling approximately $3.4 million, and a $1.0 million special donatio

years 2006, 2005 and 2004, respectively. As of November 2, 2006, we had signed leases for 88 stores under development.

d Kingdom. This transaction was accounted for using the purchase method and, accordingly, the purchase price has been allocated to tangible and identifia

mated fair values at the date of the acquisition. Total costs in excess of tangible and intangible assets acquired of approximately $1.1 million have been rec

on during fiscal years 2006 and 2005, respectively, consisting primarily of liquor licenses. There was no impairment of goodwill or indefinite-lived intang mponents of intangible assets were as follows (in thousands):

nts. All outstanding amounts borrowed under this agreement bear interest at our option of either the defined base rate or the LIBOR rate plus a premium. C urchased. The debentures may be redeemed at the option of the holder on March 2, 2008 or March 2, 2013 at the issue price plus accrued original discount

proximately 51% and 2%, respectively, of BookPeople, Inc., a retailer of books and periodicals that is unaffiliated with the Company, which leases retail s

by approximately $4.1 million due to the expiration of capital loss carryforwards for which no benefit was realized. We have provided a valuation allowan

tion of the Board of Directors. The continuation of these payments, the amount of such dividends, and the form in which the dividends are paid (cash or st ect the effect of the stock split. All shares reserved for issuance pursuant to the Companys stock option and stock purchase plans were automatically increa

e had no shares of Company common stock in treasury. gram may be suspended or discontinued at any time without prior notice.

ed Statements of Operations in fiscal year 2006 and fiscal year 2005, respectively. The related total tax benefit was approximately $2.7 million and $4.5 m

grant. Certain options granted during fiscal year 2005 were granted fully vested. Our Company has, in connection with certain of our business combination

approximately 1.5 million shares. We anticipate this expense to be recognized over a weighted average period of approximately two years.

g the intrinsic value on the date of the acceleration for all options that would have expired in the future unexercisable had the acceleration not occurred. Th

f implied volatility versus historical volatility represents a more accurate calculation of option fair value. In fiscal year 2005, expected volatility was calcul k option at date of grant. No. 25. Basic and diluted earnings per share for fiscal year 2006 are $0.03 lower than if we had continued to account for share-based compensation under A

uired to hold restricted shares for two years before selling them. In fiscal year 2006, we recognized approximately $0.6 million of share-based compensatio

ecurring adjustments necessary for a fair presentation of the information for the periods presented. The operating results for any quarter are not necessarily as higher than its historical rate primarily due to the non-deductible portion of the expense recognized for the accelerated vesting of stock options. In the fo

sumptions. While we believe that our assumptions are appropriate, the estimated accruals for these liabilities could be significantly affected if future occur

enefits to be received by the executive officer whose employment is terminated after a Triggering Event occurs include receipt of his or her annual salary t

Financial Officer have concluded that, as of the end of such period, the Companys disclosure controls and procedures are effective in recording, processin

n criteria established in the framework in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadwa

Annual Meeting of Shareholders.

e in Texas in 1980 and, as of September 24, 2006, have expanded our operations both by opening new stores and acquiring existing stores from third partie

eater than two fiscal quarters results in a reduction in carrying amount to fair value. The impairment is charged to earnings and a new cost basis of the secu

ember 25, 2005, respectively. Costs for remaining inventories are determined by the first-in, first-out (FIFO) method. em cost method for approximately 46% of inventories in fiscal years 2006 and 2005. This method involves counting each item in inventory, assigning costs

y assured at the inception of the lease. We provide depreciation of buildings over the estimated useful lives (generally 20 to 30 years) using the straight-line

ecord tenant improvement allowances and rent holidays as deferred rent liabilities and amortize the deferred rent over the terms of the lease to rent. We rec

nsive use of accounting judgment and financial estimates. Application of alternative assumptions and definitions, such as reviewing goodwill for impairme

are reported at the lower of the carrying amount or fair value less costs to sell. When the Company commits to relocate a location, a charge to write down

e significantly affected if future occurrences and claims differ from these assumptions and historical trends.

impairment costs, other costs associated with replaced facilities and other related expenses, are expensed as incurred.

ing price on the grant date. Stock option grant terms and conditions are communicated to team members within a relatively short period of time. Our Boar

of the Companys common stock price over the expected term, and the number of options that will be forfeited prior to the completion of their vesting requ ntends 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 g pro forma amounts, as a financing cash flow. olidated Statement of Cash Flows of the tax effects of share-based compensation awards that are outstanding upon adoption of SFAS No. 123R.

vision for income taxes and related accruals, deferred tax assets and liabilities. In the ordinary course of business, there are transactions and calculations w

ve income consisted of foreign currency translation adjustment gains of approximately $4.4 million.

s, team member health insurance plans, workers compensation liabilities, share-based compensation, store closure reserves, income taxes and contingenci

esults in quantifying an error that is material in light of relevant quantitative and qualitative factors. The requirements of SAB No. 108 are effective for fisc ons of SFAS No. 157 are effective for the specified fair value measures for financial statements issued for fiscal years beginning after November 15, 2007 o be taken, in an income tax return. Subsequent recognition, derecognition, and measurement is based on managements best judgment given the facts, circ

he EITF concluded that the presentation of these taxes on either a gross (included in revenues and costs) or a net (excluded from revenues) basis is an acco a change in accounting principle, such as a change in non-discretionary profit-sharing payments resulting from an accounting change, should be recognize

on, and a $1.0 million special donation from the Company to the American Red Cross, net of accrued estimated insurance proceeds totaling approximately

been allocated to tangible and identifiable intangible assets acquired based on their estimated fair values at the date of acquisition. Total costs in excess of

proximately $1.1 million have been recorded as goodwill. Select Fish results of operations are included in our consolidated income statements beginning O

of goodwill or indefinite-lived intangible assets during fiscal years 2006, 2005 or 2004.

or the LIBOR rate plus a premium. Commitment fees of 0.15% of the undrawn amount are payable under this agreement. At September 24, 2006 and Sep ue price plus accrued original discount to the date of redemption. Subject to certain limitations, at our option, we may elect to pay this purchase price in cas

ith the Company, which leases retail space in Austin, Texas from the Company. The lease provides for an aggregate annual minimum rent of approximatel

We have provided a valuation allowance of approximately $13.3 million for deferred tax assets associated with international operating loss carryforwards a

hich the dividends are paid (cash or stock) depend on many factors, including the results of operations and the financial condition of the Company. Subject rchase plans were automatically increased by the same proportion. In addition, shares subject to outstanding options or other rights to acquire the Company

pproximately $2.7 million and $4.5 million in fiscal year 2006 and fiscal year 2005, respectively. Our Company maintains several share-based incentive pl

th certain of our business combinations, assumed the stock option plans of the acquired companies. All options outstanding under our Companys previous

proximately two years.

had the acceleration not occurred. The calculation of this charge required that management make estimates and assumptions concerning future team memb

ar 2005, expected volatility was calculated using the daily historical volatility over the last seven years. Expected life is calculated in two tranches based on

for share-based compensation under APB No. 25. Had we previously recognized compensation costs as prescribed by SFAS No. 123, previously reported

.6 million of share-based compensation expense related to team member stock purchase plan discounts. We issued approximately 51,000, 40,000 and 32,0

ults for any quarter are not necessarily indicative of results for any future period. ated vesting of stock options. In the fourth quarter of fiscal year 2006, the Company recorded additional $3.0 million non-cash share-based compensation

e significantly affected if future occurrences and claims differ from these assumptions and historical trends.

de receipt of his or her annual salary through the one-year period following the date of the termination of employment and the immediate vesting of any ou

es are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports

nsoring Organizations of the Treadway Commission. Based on this evaluation, the Companys management concluded that its internal control over financ

uiring existing stores from third parties to 186 stores: 177 stores in 31 U.S. states and the District of Columbia; three stores in Canada; and six stores in the

rnings and a new cost basis of the security is established. Cost basis is established and maintained utilizing the specific identification method.

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

y 20 to 30 years) using the straight-line method. Costs related to a projected site determined to be unsatisfactory and general site selection costs that cannot

r the terms of the lease to rent. We record rent liabilities for contingent percentage of sales lease provisions when we determine that it is probable that the

ch as reviewing goodwill for impairment at a different organizational level, could produce significantly different results.

ate a location, a charge to write down the related assets to their estimated net recoverable value is included in the Pre-opening and relocation costs line i

atively short period of time. Our Board of Directors generally approves one primary stock option grant annually with a grant date that occurs during a tradi

to the completion of their vesting requirements. The related share-based compensation expense is recognized on a straight-line basis over the vesting perio n any one year so that annual earnings per share dilution from equity-based compensation expense will not exceed 10%.

option of SFAS No. 123R.

ere are transactions and calculations where the ultimate tax outcome is uncertain. In addition, we are subject to periodic audits and examinations by the IRS

eserves, income taxes and contingencies.

s of SAB No. 108 are effective for fiscal years ending after November 15, 2006. We are currently evaluating the effect, if any, that the adoption of SAB No s beginning after November 15, 2007. We are currently evaluating the impact, if any, that the adoption of SFAS No. 157 will have on our consolidated fin ts best judgment given the facts, circumstances and information available at the reporting date. FIN 48 is effective for fiscal years beginning after Decemb

luded from revenues) basis is an accounting policy decision that should be disclosed. For any such taxes that are reported on a gross basis, a company shou counting change, should be recognized in the period of the accounting change. SFAS No. 154 also requires that a change in depreciation, amortization, or

rance proceeds totaling approximately $2.6 million. In fiscal year 2005, approximately $13.4 million of net natural disaster costs is included in Direct sto

f acquisition. Total costs in excess of tangible and intangible assets acquired of approximately $30.5 million have been recorded as goodwill. Fresh & Wil

dated income statements beginning October 27, 2003.

ment. At September 24, 2006 and September 25, 2005 no amounts were drawn under the agreement. The amount available to the Company under the agree elect to pay this purchase price in cash, shares of common stock or any combination thereof. The debentures may also be redeemed in cash at the option o

annual minimum rent of approximately $0.4 million which the Company received in rental income in fiscal years 2006, 2005 and 2004.

national operating loss carryforwards and domestic capital loss carryforwards for which management has determined it is more likely than not that the defe

ial condition of the Company. Subject to these qualifications, the Company currently expects to pay dividends on a quarterly basis. or other rights to acquire the Companys stock and the exercise price for such shares were adjusted proportionately.

ntains several share-based incentive plans.

anding under our Companys previous plans and plans assumed in business combinations continue to be governed by the terms and conditions of those gra

mptions concerning future team member turnover. In the fourth quarter of fiscal year 2006 the Company recognized an additional $3.0 million share-based

is calculated in two tranches based on weighted average percentage of unexpired options and exercise-after-vesting information over the last five years, in

by SFAS No. 123, previously reported net income, basic earnings per share and diluted earnings per share would have changed to the pro forma amounts sh

pproximately 51,000, 40,000 and 32,000 shares under this plan in fiscal years 2006, 2005 and 2004, respectively. At September 24, 2006, September 25, 2

n non-cash share-based compensation charge to adjust the estimate related to accelerated vesting for actual experience.

nt and the immediate vesting of any outstanding stock options granted to such executive officer.

closed by the Company in the reports that it files or submits under the Exchange Act.

ed that its internal control over financial reporting was effective as of September 24, 2006.

stores in Canada; and six stores in the United Kingdom.

ic identification method.

ances) of each item and recording the actual cost of items sold. The item-cost method of accounting allows for more accurate reporting of periodic invento

general site selection costs that cannot be identified with a specific store location are charged to operations currently. The Company recognizes a liability f determine that it is probable that the specified levels will be reached during the fiscal year.

e-opening and relocation costs line item in the Consolidated Statements of Operations.

a grant date that occurs during a trading window. Our Company offers a team member stock purchase plan to all full-time team members with a minimum

raight-line basis over the vesting period. Application of alternative assumptions could produce significantly different estimates of the fair value of share-ba

dic audits and examinations by the IRS and other state and local taxing authorities. Although we believe that our estimates are reasonable, actual results co

ct, if any, that the adoption of SAB No. 108 will have on our consolidated financial statements. 157 will have on our consolidated financial statements. or fiscal years beginning after December 15, 2006. Early adoption is permitted as of the beginning of an enterprises fiscal year, provided the enterprise ha

orted on a gross basis, a company should disclose the amounts of those taxes in interim and annual financial statements. The Companys policy is to exclud ange in depreciation, amortization, or depletion method for long-lived, non-financial assets be accounted for as a change in accounting estimate affected by

isaster costs is included in Direct store expenses in the Consolidated Statements of Operations, approximately $1.0 million is included in General and a

en recorded as goodwill. Fresh & Wild results of operations are included in our consolidated income statements for the period beginning February 1, 2004

ilable to the Company under the agreement was effectively reduced to $88.4 million by outstanding letters of credit totaling approximately $11.6 million a so be redeemed in cash at the option of the holder if there is a change in control at the issue price plus accrued original discount to the date of redemption.

06, 2005 and 2004.

it is more likely than not that the deferred tax asset will not be realized. Management believes that it is more likely than not that we will fully realize the re

uarterly basis.

the terms and conditions of those grants. The market value of the stock is determined as the closing stock price at the grant date. At September 24, 2006, S

an additional $3.0 million share-based compensation charge related to this acceleration to adjust for actual experience. Additional adjustments in future pe

nformation over the last five years, in fiscal year 2006. During fiscal year 2005, expected life was calculated in five salary tranches based on weighted ave

e changed to the pro forma amounts shown below (in thousands, except per share amounts):

September 24, 2006, September 25, 2005 and September 26, 2004 approximately 369,000, 420,000, and 460,000 shares of our common stock, respectivel

accurate reporting of periodic inventory balances and enables management to more precisely man

The Company recognizes a liability for the fair value of a conditional asset retire

-time team members with a minimum of 400 hours of

estimates of the fair value of share-based compensation and consequently, the related amounts recogni

mates are reasonable, actual results could differ from these estimates.

fiscal year, provided the enterprise has not yet issued financial statements, including financial stat

nts. The Companys policy is to exclude all such taxes from revenue. The provisions of EITF 06-3 are effecti nge in accounting estimate affected by a change in accounting principle. The provisions of SFAS No. 1

0 million is included in General and administrative expenses, and approximately $2.1 million is included in C

he period beginning February 1, 2004 through September 26, 2004 and all subsequent periods. John Mackey and W

otaling approximately $11.6 million at September 25, 2005. On November 7, 2005, we amended our credit facility to al discount to the date of redemption. The Company may redeem the debentures for cash, in whole or in

an not that we will fully realize the remaining domestic deferred tax assets in the form of f

e grant date. At September 24, 2006, September 25, 2005 and September 26, 2004 approximately 6.5 milli

e. Additional adjustments in future periods may be necessary as actual results could differ from these es

salary tranches based on weighted average exercise-after-vesting informatio

ares of our common stock, respectively, were available for future issuance.

PERIOD ENDING Net Sales COGS Selling General and Administrative Depreciation and Amortization Income from Continuing Operations Total Other Income/Expenses Net Earnings Before Interest And Taxes Interest Expense Income Before Tax Income Tax Expense Net Income Dividends Add To Retained Earnigs

Wholefoods Market Income Statement ($000) Sep 24, 2006 5,607,376.00 3,647,734.00 1,484,410.00 156,223.00 319,009.00 20,736.00 339,745.00 32.00 339,713.00 135,885.00 203,828.00 358,075 (154,247.00) Wholefoods Market Income Statement ($000) Sep 24, 2006

Sep 25, 2005 4,701,289.00 3,052,184.00 1,285,613.00 133,759.00 229,733.00 9,623.00 239,356.00 2,223.00 237,133.00 100,782.00 136,351.00

Sep 26, 2004 3,864,950.00 2,523,816.00 1,004,089.00 115,157.00 221,888.00 6,456.00 228,344.00 7,249.00 221,095.00 88,438.00 132,657.00

PERIOD ENDING Assets Current Assets Net Fixed Assets Total Assets Liabilities

Sep 25, 2005 672,529 1,216,767 1,889,296 418,383 105,237 523,620 879,377 486,299 1,365,676 1,889,296 TRUE

Sep 26, 2004 485,572 1,062,144 1,547,716 334,950 244,111 579,061 537,160 431,495 968,655 1,547,716 TRUE

623,981 1,419,015 2,042,996 509,770 129,083 638,853 1,054,883 349,260 1,404,143 2,042,996 TRUE

Current Liabilities Long Term Debt Total Liabilities Stockholders' Equity Common stock and paid-in surplus Retained Earnings Total Stockholder Equity Total Stockholder Equity and Total Liabilities

2006 analysis
Cash flow from assets Cash flow from assets Cash flow from operations Net capital spending Change in NWC Cash flow to creditors Cash flow to stockholders = = = = = = = Cash flow to creditors Cash flow from operations EBIT End net fixed assets End NWC Interest Dividends + + Cash flow to stockholders Net capital spending Depreciation Beg net fixed assets Beg NWC Net new borrowing Net new equity $192,714.00 True +

2006 Current Assets

2005 Current Assets

2004 Current Assets

Change in NWC Taxes Depreciation

Cash flow from assets 141,547.00 Cash flow from assets 141,547.00 Cash flow from operations 360,083.00 Net capital spending 358,471.00 Change in NWC (139,935.00) Cash flow to creditors (23,814.00) Cash flow to stockholders 165,361.00

= = = = = = =

Cash flow to creditors (23,814.00) Cash flow from operations 360,083.00 EBIT 339,745.00 End net fixed assets 1,419,015.00 End NWC 114,211.00 Interest 32.00 Dividends $358,075.00

+ + -

Cash flow to stockholders True 165,361.00 Net capital spending 358,471.00 Depreciation 156,223.00 Beg net fixed assets + 1,216,767.00 Beg NWC 254,146.00 Net new borrowing 23,846.00 Net new equity + $38,467.00

Change in NWC (139,935.00) Taxes 135,885.00 Depreciation 156,223.00

Reduction in Retained Earnings (154,247.00)

Assumptions (in millions): Name: Dole Cola Inc. Year 2006 Sales $600 COGS $300.00 Depreciation Expense $150.00 Interest Paid $30.00 Tax Rate 34% Dividends $30.00 End Fixed Assets $750.00 Beg Fixed Assets $500.00 Beg CA $2,130.00 Beg CL $1,620.00 End CA $2,260.00 End CL $1,710.00 Dole Cola Inc. Income Statement (in mils.) For the Year Ended 2006 Sales COGS Depreciation Expense Earnings Before Interest and Tax Interest Paid Taxable Income Taxes Net Income Dividends Addition to Retained Earnings Question 1 Question 2 Change in Fixed Assets = Cash flow from assets 6 Cash flow from assets 4 Operating cash flow 3 . 2 Change in NWC 1 Cash flow to creditors (bondholders) 7 Cash flow to stockholders (owners) 5 Net capital spending = = = = = = = = = = = = = =

Cash flow to creditors (bondholders) Operating cash flow

+ + -

Cash flow to stockholders (owners) Net capital spending Depreciation Beginning net fixed assets Beginning NWC Net new borrowing (end long-term debt - beg LTD) Net new equity raised (end Common stock & Paid-in surplus - beg CS & PIS) + +

Earnings before interest and taxes (EBIT) Ending net fixed assets Ending NWC Interest paid

+ + -

Dividends paid

Change in net working capital (NWC)

Taxes Depreciation

Name: Year Sales COGS Depreciation Expense Interest Paid Tax Rate Dividends End Fixed Assets Beg Fixed Assets Beg CA Beg CL End CA End CL

Assumptions (in millions): Dole Cola Inc. 2003 $600 $300.00 $150.00 $30.00 34% $30.00 $750.00 $500.00 $2,130.00 $1,620.00 $2,260.00 $1,710.00 Dole Cola Inc. Income Statement (in mils.) For the Year Ended 2003

Sales COGS Gross Profit Depreciation Expense Earnings Before Interest and Tax Interest Paid Taxable Income Taxes Net Income Dividends Addition to Retained Earnings Question 1

$600 $300.00 $300.00 $150.00 $150.00 $30.00 $120.00 $41.00 $79.00 $30.00 $49.00 Operating cash flow + $259 Because depreciation is a non cash expense and interest goes into a different calculation, it is cash to bondholders $250.00 Cash flow from assets 6 (181.00) Cash flow from assets 4 (181.00) Operating cash flow 3 = = = = = = = = = =

Question 2 Change in Fixed Assets =

. 2 1

259.00 Net capital spending 400.00 Change in NWC 40.00

Cash flow to creditors (bondholders) (211.00) Cash flow to stockholders (owners)

= = = =

30.00

Cash flow to creditors (bondholders) (211.00) Operating cash flow 259.00 Earnings before interest and taxes (EBIT) 150.00 Ending net fixed assets 750.00 Ending NWC 550.00

+ Cash flow to stockholders (owners) + + + 30.00 Net capital spending 400.00 Depreciation 150.00 Beginning net fixed assets 500.00 Beginning NWC 510.00 + + True

True! Change in net working capital (NWC) 40.00 Taxes 41.00 Depreciation 150.00

Interest paid 30.00 Dividends paid 30.00

Net new borrowing (end long-term Not True debt - beg LTD) (241.00) Net new equity raised (end - Common stock & Paid-in surplus - True beg CS & PIS) 0.00 -

True

True True

126967018.xls.ms_office - STP 2.1 (T)

Ra sp Ba lan De ce

Assumptions Name: Year 1 Year 2 Tax Rate Statements Requirements: Prepare an Income Statement for 2010 Prepare an Balance Sheet for 2009 and 2010 Calculate cash flows from assets for 2010 Calculate cash flows to creditors 2010 Calculate cash flows to stockholders 2010 Account Name Sales Cost of goods sold Depreciation Interest Dividends Current assets Net fixed assets Current liabilities Long-term debt Rasputin Corporation 12/31/2009 12/31/2010 34% Income Statement Balance Sheet Done Done 0.00 0.00 0.00 2009 2010 $3,790 $3,990 2,043 975 225 200 2,140 6,770 994 2,869 2,137 1,018 267 225 2,346 7,087 1,126 2,956 Dividends 0.00

Rasputin Corporation Income Statement For The Year Ended 2010 Sales Cost of goods sold Depreciation Earnings before interest and tax Interest Taxable income Taxes Net Income

As

Addition to retained earnings

Page 240 of 265

126967018.xls.ms_office - STP 2.1 (T)

Rasputin Corporation Balance Sheet December 31, 2009 and December 31, 2010 Assets 2009 Current assets Net fixed assets Liabilities and Owners' Equity 2010 Current liabilities Long-term debt Total Liabilities Change in Common Stock and Paid-in surplus Change in Retained Earnings Total Owners' Equity Total Liabilities and Owners' Equity Cash flow from assets Cash flow from assets Cash flow from operations Net capital spending Change in NWC Cash flow to creditors Cash flow to stockholders = = = = = = = 2009 2010

Total Assets

Page 241 of 265

126967018.xls.ms_office - STP 2.1 (T)

Cash flow to creditors Cash flow from operations EBIT End net fixed assets End NWC Interest Dividends

+ + -

Cash flow to stockholders True Net capital spending Depreciation Beg net fixed assets Beg NWC Net new borrowing Net new equity - Change in NWC + Taxes Depreciation

Page 242 of 265

126967018.xls.ms_office - STP 2.1 (an)

Ra sp Ba lan De ce $3,990.00 2,137.00 1,018.00 835.00 267.00 568.00 193.00 $375.00 $225.00 $150.00

Assumptions Name: Year 1 Year 2 Tax Rate Statements Requirements: Prepare an Income Statement for 2010 Prepare an Balance Sheet for 2009 and 2010 Calculate cash flows from assets for 2010 Calculate cash flows to creditors 2010 Calculate cash flows to stockholders 2010 Account Name Sales Cost of goods sold Depreciation Interest Dividends Current assets Net fixed assets Current liabilities Long-term debt Rasputin Corporation 12/31/2009 12/31/2010 34% Income Statement Balance Sheet Done Done 251.00 180.00 71.00 2009 2010 $3,790 $3,990 2,043 975 225 200 2,140 6,770 994 2,869 2,137 1,018 267 225 2,346 7,087 1,126 2,956 Dividends 251.00

Rasputin Corporation Income Statement For The Year Ended 2010 Sales Cost of goods sold Depreciation Earnings before interest and tax Interest Taxable income Taxes Net Income

Ass

Addition to retained earnings

Page 243 of 265

126967018.xls.ms_office - STP 2.1 (an)

Rasputin Corporation Balance Sheet December 31, 2009 and December 31, 2010 Assets 2009 Current assets $2,140.00 Net fixed assets 6,770.00 Liabilities and Owners' Equity 2010 $2,346.00 7,087.00 Current liabilities Long-term debt Total Liabilities Change in Common Stock and Paid-in surplus Change in Retained Earnings Total Owners' Equity Total Liabilities and Owners' Equity 2009 $994.00 2,869.00 3,863.00 2010 $1,126.00 2,956.00 4,082.00 154.00 150.00 5,047.00 $5,351.00 $8,910.00 $9,433.00 Cash flow from assets 251.00 Cash flow from assets 251.00 Cash flow from operations 1,660.00 Net capital spending 1,335.00 Change in NWC 74.00 Cash flow to creditors 180.00 Cash flow to stockholders 71.00 = = = = = = =

Total Assets

$8,910.00

$9,433.00

Page 244 of 265

126967018.xls.ms_office - STP 2.1 (an)

Cash flow to creditors 180.00 Cash flow from operations 1,660.00 EBIT 835.00 End net fixed assets 7,087.00 End NWC 1,220.00 Interest 267.00 Dividends $225.00

+ + -

Cash flow to stockholders True 71.00 Net capital spending 1,335.00 Depreciation 1,018.00 Beg net fixed assets 6,770.00 Beg NWC 1,146.00 Net new borrowing 87.00 Net new equity $154.00 - Change in NWC 74.00 Taxes 193.00 + Depreciation 1,018.00

Page 245 of 265

126967018.xls.ms_office - Critical Thinking (T)

2.1 2.2 2.6 2.8 2.9

Page 246 of 265

126967018.xls.ms_office - Critical Thinking (an)

Liquid assets can be converted to cash quickly so that bills can be paid or profitable assets can be purchased, however, cash earns a small return. On the other hand, illiquid assets such as buildings or business segments tend to earn a higher return, although they are harder to turn to cash and may loose some value if it is required that one sell quickly. In the 2007-2010 financial crisis, banks held many bad loans which stop providing cash flows and when the panic set in, banks could not sell assets to get cash or borrow money to get cash, 2.1 so they ran out of cash or "liquidity". Because accountants use accrual accounting. Revenues are recorded when earned and expenses are recorded when incurred or when the expense is matched to the revenue it helped to create. Although revenues and expenses are recorded, there may not be a contemporaneous cash flow associated with it. In particular, the depreciation expense is a large non-cash expense (caused by the matching principal) that, in finance, must be added 2.2 back into the accounting income in order to estimate cash flows. It depends. If a firm is growing quickly and buying many profitable assets, the cash flow from assets could be negative - in essence, the cash to creditors and stockholders would be negative (cash comes in from equity and debt so business can buy assets), which means that they are investing cash in the business because they think that the firm will be profitable in the future. On the other hand, if the firm continues to have earning losses, this may not be a 2.6 good sign. A negative NWC could mean that the firm is managing its inventory or receivables more efficiently - they sold old inventory or they collected more Accounts Receivables than they recorded new ones. A negative NCS could mean that the firm has sold more assets than it 2.8 has purchased.

Page 247 of 265

126967018.xls.ms_office - Critical Thinking (an)

Sure, if the new equity issued is greater than the dividends paid, or the new debt issued is 2.9 greater than the interest paid.

Page 248 of 265

126967018.xls.ms_office - Problem 1 (T) A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Name CA NFA CL LTD Assumptions A Inc.

Solve for: Shareholders' Equity = NWC = A Inc. Balance Sheet Assets CA NFA Total Assets Liabilities + Owners' Equity CL LTD Owners Equity Total Liabilities + Owners' Equity

Page 249 of 265

126967018.xls.ms_office - Problem 1 (an) A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Name CA NFA CL LTD Assumptions A Inc. 2,170.00 9,300.00 1,350.00 3,980.00

Solve for: Shareholders' Equity = NWC = A Inc. Balance Sheet CA NFA Total Assets Assets $ 2,170.00 9,300.00 11,470.00 Liabilities + Owners' Equity CL $ 1,350.00 LTD $ 3,980.00 Owners Equity 6,140.00 Total Liabilities + Owners' Equity $ 11,470.00

Page 250 of 265

126967018.xls.ms_office - Problem 2 & 3 & 4 (T)

Assumptions Name Lifeline Inc. Sales Costs Depreciation Expense Interest Expense Tax Rate Dividends Shares of common stock outstanding Lifeline Inc. Income Statement For The Year Ended 20xx Sales Costs Depreciation Expense EBIT Interest Expense Taxable Income Tax Net Income Dividends Addition to Retained Earnings EPS DPS

Page 251 of 265

126967018.xls.ms_office - Problem 2 & 3 & 4 (an)

Assumptions Name Lifeline Inc. Sales 585,000.00 Costs 273,000.00 Depreciation Expense 71,000.00 Interest Expense 38,000.00 Tax Rate 35% Dividends 36,000.00 Shares of common stock outstanding 40,000.00 Lifeline Inc. Income Statement For The Year Ended 20xx Sales Costs Depreciation Expense EBIT Interest Expense Taxable Income Tax Net Income Dividends Addition to Retained Earnings EPS DPS 585,000.00 273,000.00 71,000.00 241,000.00 38,000.00 203,000.00 71,050.00 131,950.00 36,000.00 95,950.00 3.29875 0.9

Page 252 of 265

Assumptions

Taxable Income
LOOKUP COLUMN 50,001 75,001 100,001 335,001 10,000,001 15,000,001 18,333,334

275,000.00
Tax Rate Table Income To Tax Rate 50,000 75,000 100,000 335,000 10,000,000 15,000,000 18,333,333 +

15.00% 25.00% 34.00% 39.00% 34.00% 35.00% 38.00% 35.00%

Taxable Income Calculate tax for entire year $50,000*15.00% ($75,000-$50,000)*25.00% ($100,000-$75,000)*34.00% ($275,000-$100,000)*39.00%

Average Tax Rate = Marginal Tax Rate for next doll

Cumulative Tax From Previous Bracket 7,500 13,750 22,250 113,900 3,400,000 5,150,000 6,416,667

Taxable Income = $275,000.00 Calculate tax for entire year $50,000*15.00% ($75,000-$50,000)*25.00% ($100,000-$75,000)*34.00% ($275,000-$100,000)*39.00%

Average Tax Rate = Marginal Tax Rate for next dollar =

0 50,000 75,000 100,000 335,000 10,000,000 15,000,000 18,333,333

15.00% 25.00% 34.00% 39.00% 34.00% 35.00% 38.00% 35.00% 7,500 13,750 22,250 113,900 3,400,000 5,150,000 6,416,667

Assumptions

Taxable Income
LOOKUP COLUMN 50,001 75,001 100,001 335,001 10,000,001 15,000,001 18,333,334

275,000.00
Tax Rate Table Income To Tax Rate 50,000 75,000 100,000 335,000 10,000,000 15,000,000 18,333,333 +

15.00% 25.00% 34.00% 39.00% 34.00% 35.00% 38.00% 35.00%

Taxable Income Calculate tax for entire year $50,000*15.00% ($75,000-$50,000)*25.00% ($100,000-$75,000)*34.00% ($275,000-$100,000)*39.00%

Average Tax Rate = Marginal Tax Rate for next doll

Cumulative Tax From Previous Bracket 7,500 13,750 22,250 113,900 3,400,000 5,150,000 6,416,667

Taxable Income = $275,000.00 Calculate tax for entire year $50,000*15.00% ($75,000-$50,000)*25.00% ($100,000-$75,000)*34.00% ($275,000-$100,000)*39.00%

7,500.00 6,250.00 8,500.00 68,250.00 90,500.00 0.32909 0.39000

90500

Average Tax Rate = Marginal Tax Rate for next dollar =

0 50,000 75,000 100,000 335,000 ####### 90,500.00 ####### #######

15.00% 25.00% 34.00% 39.00% 34.00% 35.00% 38.00% 35.00% 7,500 13,750 22,250 113,900 ####### ####### #######

126967018.xls.ms_office - Problem 9 (T)

Assumptions Name Date 1 Date 2 Statement Accounts: Balance Sheet Net Fixed Assets, December 31, 2009 Balance Sheet Net Fixed Assets, December 31, 2010 2010 Income Statement Depreciation Expense Rotweiler Obedience School 12/31/2009 12/31/2010 Balance Sheet Income Statement Net Fixed Assets Depreciation Expense

Net Capital Spending for 2010

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126967018.xls.ms_office - Problem 9 (an)

Assumptions Name Date 1 Date 2 Statement Accounts: Balance Sheet Net Fixed Assets, December 31, 2009 Balance Sheet Net Fixed Assets, December 31, 2010 2010 Income Statement Depreciation Expense Rotweiler Obedience School 12/31/2009 12/31/2010 Balance Sheet Income Statement Net Fixed Assets Depreciation Expense 1,725,000.00 2,040,000.00 321,000.00

Net Capital Spending for 2010

636,000.00

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126967018.xls.ms_office -Problem 21 (T)

A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27
Assumptions Name: Year 1 Year 2 Tax Rate Statements Account Name Sales Cost of goods sold Depreciation expense Interest expense Dividends paid Current assets Net fixed assets Current liabilities Long-term debt Requirements: Net Income for 2010 Operating Cash Flow for 2010 Calculate cash flows from assets for 2010 Why? If no new debt was issued during the year, what is the cash flow to creditors 2010? Calculate cash flows to stockholders 2010 New Equity Explain the negative and positive signs

B
Titan Football Manufacturing 12/31/2009 12/31/2010 35% Income Statement Balance Sheet 2009

Titan Football Manufacturing Income Statement For The Year Ended 2010 Sales Cost of goods sold Depreciation expense Earnings before interest and tax Interest expense Taxable income Taxes Net Income Dividends Addition to retained earnings

2010 $19,780 13,980 2,370 345 550 3,280 16,340 2,160

2,940 13,800 2,070

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126967018.xls.ms_office -Problem 21 (T)

H 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

I
Cash flow from assets Cash flow from assets Cash flow from operations Net capital spending Change in NWC Cash flow to creditors Cash flow to stockholders

J
= = = = = = =

K
Cash flow to creditors Cash flow from operations EBIT End net fixed assets End NWC Interest expense Dividends

L
+ + -

M
Cash flow to stockholders True Net capital spending Depreciation expense Beg net fixed assets Beg NWC Net new borrowing Net new equity

Change in NWC Taxes Depreciation expense

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126967018.xls.ms_office -Problem 21 (an)

A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Assumptions Name: Year 1 Year 2 Tax Rate Statements Account Name Sales Cost of goods sold Depreciation expense Interest expense Dividends paid Current assets Net fixed assets Current liabilities Long-term debt Requirements: Net Income for 2010 Operating Cash Flow for 2010 Calculate cash flows from assets for 2010

B
Titan Football Manufacturing 12/31/2009 12/31/2010 35% Income Statement Balance Sheet 2009

Titan Football Manufacturing Income Statement For The Year Ended 2010 Sales Cost of goods sold Depreciation expense Earnings before interest and tax Interest expense Taxable income Taxes Net Income Dividends Addition to retained earnings $19,780.00 13,980.00 2,370.00 3,430.00 345.00 3,085.00 1,080.00 $2,005.00 $550.00 $1,455.00

2010 $19,780 13,980 2,370 345 550 3,280 16,340 2,160

2,940 13,800 2,070

$2,005.00 4,720.00 (440.00) Because the firm thinks that it has found profitable assets to purchase and so it has purchased $4,910 worth. In addition, the NWC capital has gone up significantly. Both of these asset increases has used up and exceeded the operating cash flow. 345.00 (785.00) 1,335.00

22 Why?
If no new debt was issued during the year, what is the cash

23 flow to creditors 2010? 24 Calculate cash flows to stockholders 2010 25 New Equity

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126967018.xls.ms_office -Problem 21 (an)

26 Explain the negative and positive signs

The firm is still paying $345 to creditors for past debt, but has issued $1,335 of new equity to augment the Cash Flow From Operations of $4,720 -- all with the end result of purchasing new assets The firm had positive earnings in an accounting sense (NI > 0) and had positive cash flow from operations. The firm invested $250 in new net working capital and $4,910 in new fixed assets. The firm had to raise $440 from its stakeholders to support this new investment. It accomplished this by raising $1,335 in the form of new equity. After paying out $550 in the form of dividends to shareholders and $345 in the form of interest to creditors, $440 was left to just meet the firms cash flow needs for investment.

27

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126967018.xls.ms_office -Problem 21 (an)

H 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

I
Cash flow from assets Cash flow from assets (440.00) Cash flow from operations 4,720.00 Net capital spending 4,910.00 Change in NWC 250.00 Cash flow to creditors 345.00 Cash flow to stockholders (785.00)

J
= = = = = = =

K
Cash flow to creditors Cash flow from operations EBIT End net fixed assets End NWC Interest expense Dividends $550.00

L
+ + -

M
Cash flow to stockholders True Net capital spending Depreciation expense Beg net fixed assets Beg NWC Net new borrowing Net new equity

Change in NWC Taxes Depreciation expense

22 23 24 25

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