Notes to Consolidated Financial Statements (unaudited)

January 17, 2016

(1) Basis of Presentation

The accompanying unaudited consolidated financial statements of Whole Foods Market, Inc. and its consolidated subsidiaries (collectively “Whole Foods Market,” “Company,” or “we”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The information included in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis and the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 27, 2015 . In the opinion of management, the accompanying consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation. Where appropriate, we have reclassified prior year financial statements to conform to current year presentation. Interim results are not necessarily indicative of results for any other interim period or for a full fiscal year. The Company reports its results of operations on a 52 - or 53 -week fiscal year ending on the last Sunday in September. The first fiscal quarter is 16 weeks, the second and third quarters each are 12 weeks, and the fourth quarter is 12 or 13 weeks. Fiscal years 2016 and 2015 are 52 -week years. The Company has one operating segment and a single reportable segment, natural and organic foods supermarkets.

The following is a summary of percentage sales by geographic area for the periods indicated:

The following is a summary of the percentage of net long-lived assets by geographic area as of the dates indicated:

(2) Summary of Significant Accounting Policies

Recent Accounting Pronouncements

Effective September 28, 2015, the Company early adopted the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update (“ASU”) No. 2015-03, “Interest – Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs,” which amends the Accounting Standards Codification Subtopic 835-30. The amendments, which require that debt issuance costs related to a recognized liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, were adopted on a retrospective basis. The adoption of these amendments did not have a significant effect on the Company’s financial statements.

The following table provides a brief description of recently issued accounting pronouncements that have not yet been adopted:

(3) Fair Value Measurements

The Company holds money market fund investments that are classified as cash equivalents that are measured at fair value on a recurring basis based on quoted prices in active markets for identical assets. The Company also holds available-for-sale securities that are valued using a series of multi-dimensional relational models and series of matrices with standard inputs obtained from readily available pricing sources and other observable market data, such as benchmark yields and base spread.

The carrying amounts of accrued payroll, bonuses and other benefits due team members, and other accrued expenses approximate fair value because of their short maturities. Store closure reserves and estimated workers’ compensation claims are recorded at net present value to approximate fair value.

The Company held the following financial assets measured at fair value on a recurring basis based on the hierarchy levels indicated (in millions):

The estimated fair value of the Company’s long-term debt is included in Note 8 “Long-Term Debt.”

(4) Investments

The Company holds investments primarily in marketable securities that are classified as either short- or long-term available-for-sale securities. The Company held the following investments at fair value as of the dates indicated (in millions):

Gross unrealized holding gains and losses were not material at January 17, 2016 or September 27, 2015 . Available-for-sale securities totaling approximately $30 million and $58 million were in unrealized loss positions at January 17, 2016 and September 27, 2015 , respectively. There were no available-for-sale securities in a continuous unrealized loss position for greater than 12 months at January 17, 2016 . The aggregate value of available-for-sale securities in a continuous unrealized loss position for greater than 12 months was not material at September 27, 2015 . The Company did not recognize any other-than-temporary impairments during the sixteen weeks ended January 17, 2016 or fiscal year ended September 27, 2015 . The average effective maturity of the Company’s short-term available-for-sale securities was approximately 2 months and 7 months at January 17, 2016 and September 27, 2015 , respectively. The average effective maturity of the Company’s long-term available-for-sale securities was approximately 16 months at September 27, 2015 .

At January 17, 2016 and September 27, 2015 , the Company held approximately $13 million and $14 million , respectively, in equity interests which were accounted for using the cost method of accounting. In addition, the Company held approximately $8 million in equity interests which are measured at fair value at January 17, 2016 . Equity interests accounted for using the equity method were not material at January 17, 2016 or September 27, 2015 .

(5) Goodwill and Other Intangible Assets

There were no additions or adjustments to goodwill during the sixteen weeks ended January 17, 2016 . Additions and adjustments to goodwill were not material during the sixteen weeks ended January 18, 2015 . Additions of other intangible assets were not material during the sixteen weeks ended January 17, 2016 or the same period of the prior fiscal year. The components of intangible assets as of the dates indicated were as follows (in millions):

Amortization expense associated with intangible assets was not material during the sixteen weeks ended January 17, 2016 or the same period of the prior fiscal year. Future amortization expense associated with the net carrying amount of definite-lived intangible assets is estimated to be as follows (in millions):

(6) One-Time Termination Benefits

During fiscal year 2015 , the Company communicated to certain team members its plan of termination to reduce a number of positions through the first quarter of fiscal year 2016 as part of its ongoing commitment to lower prices for its customers and invest in technology upgrades while improving its cost structure. The Company recorded one-time termination benefits in the fourth quarter of fiscal year 2015 totaling $34 million , included in the “Selling, general and administrative expenses” line item on the Consolidated Statements of Operations. The plan was substantially completed during the sixteen weeks ended January 17, 2016 , and adjustments to the related restructuring charges were not material.

(7) Reserves for Closed Properties

The following table provides a summary of activity in reserves for closed properties during the sixteen weeks ended January 17, 2016 and fiscal year ended September 27, 2015 (in millions):

(8) Long-Term Debt

Credit Agreement

On November 2, 2015 , the Company entered into a credit facility (the “Credit Agreement”) that provides for an unsecured revolving credit facility in the aggregate principal amount of $500 million , which may be increased from time to time by up to $250 million in the aggregate pursuant to an expansion feature set forth in the Credit Agreement. The Credit Agreement also provides for a letter of credit subfacility of up to $250 million and a swingline subfacility of up to $50 million . The Credit Agreement is scheduled to mature, and the commitments thereunder will terminate, on November 2, 2020 .

Under the Credit Agreement, Eurodollar borrowings bear interest at a variable rate equal to an adjusted London interbank offered rate (“Adjusted LIBO Rate”) for a one, two, three, or six month interest period , plus a margin between 1.125% to 1.750% . Other borrowings, including swingline loans, bear interest at a variable rate equal to the greatest of the Prime Rate , the Federal Funds Rate plus 0.5% , and the Adjusted LIBO Rate for a one-month interest period plus 1% , in each case plus a margin of 0.125% to 0.750% . For all borrowings, the applicable margin is based on the Company’s leverage ratio. Additionally, the Company will pay a commitment fee ranging from 0.125% to 0.300% , based on the Company’s leverage ratio, on the average daily amount of the undrawn commitments under the Credit Agreement payable quarterly .

The Credit Agreement includes customary representations and warranties, certain affirmative covenants including the maintenance of certain financial ratios, certain negative covenants including limitations on additional indebtedness and payments as defined in the agreement, and events of default. At January 17, 2016 , we were in compliance with all applicable debt covenants. Subject to certain exceptions, obligations under the Credit Agreement are guaranteed by certain of the Company’s material domestic subsidiaries.

During the sixteen weeks ended January 17, 2016 , the Company borrowed and repaid $300 million under the Credit Agreement. At January 17, 2016 , the Company had no amounts outstanding. Commitment fees paid on undrawn amounts were not material during the sixteen weeks ended January 17, 2016 .

Senior Notes

On December 3, 2015 , the Company completed the offering of $ 1.0 billion of 5.2% senior notes due 2025 (the “Notes”). The Notes were offered in the United States to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States pursuant to Regulation S under the Securities Act. The Notes have not been registered under the Securities Act or any state securities laws and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements or a transaction not subject to the registration requirements of the Securities Act or any state securities laws.

The Notes bear interest at a fixed rate equal to 5.2% per year, payable semiannually , and mature on December 3, 2025 . The interest rate payable on the Notes is subject to adjustment upon the occurrence of certain credit rating events described in the indenture. The Notes are guaranteed on an unsecured, unsubordinated basis by certain subsidiaries of the Company.

The Notes are subject to customary covenants restricting the Company’s and its subsidiaries’ ability, subject to certain exceptions, to incur debt secured by liens or to enter into sale and leaseback transactions and restricting the Company’s ability to merge or consolidate with another entity or sell substantially all of its assets to another person. Prior to September 3, 2025, the Company may redeem the Notes at the Company’s option at any time either in whole or in part for a redemption price equal to 100% of the aggregate principal amount of the Notes to be redeemed plus the applicable make-whole premium, plus accrued and unpaid interest thereon. On or after September 3, 2025, the Company may redeem the Notes at the Company’s option at any time either in whole or in part for a redemption price equal to 100% of the aggregate principal amount of the Notes to be redeemed, plus accrued and unpaid interest thereon.

The components of long-term debt as of the dates indicated were as follows (in millions):

The Notes are recorded at cost net of discount and issuance costs. The effective interest rate of the Notes, which includes interest on the Notes and amortization of discount and issuance costs, is approximately 5.28% . The estimated fair value of the Notes at January 17, 2016 , based on observable market prices (Level 2), exceeded the carrying value by approximately $23 million .

(9) Income Taxes

Income taxes resulted in an effective tax rate of approximately 37.0% for the sixteen weeks ended January 17, 2016 compared to approximately 39.0% for the same period of the prior fiscal year. The lower effective tax rate in the current year is due to the recognition of an environmental tax credit related to the development of a new store.

(10) Shareholders’ Equity

Dividends per Common Share

The following table provides a summary of dividends declared per common share during fiscal year 2016 to date and fiscal year 2015 (in millions, except per share amounts):

⁽¹⁾  Dividend accrued at January 17, 2016

As of January 17, 2016 , one share repurchase program remains in effect, with the prior program having been fully utilized. Under the share repurchase program, purchases can be made from time to time using a variety of methods, which may include open market purchases. The current repurchase program does not have an expiration date and the specific timing, price and size of purchases will depend on prevailing stock prices, general economic and market conditions, and other considerations. Purchases may be made through a Rule 10b5-1 plan pursuant to pre-determined metrics set forth in such plan. The Board’s authorization of the share repurchase program does not obligate the Company to acquire any particular amount of common stock, and the program may be suspended or discontinued at any time at the Company’s discretion.

Share repurchase activity for the periods indicated was as follows (in millions, except per share amounts):

The Company reissued approximately 0.3 million treasury shares at cost of approximately $11 million and approximately 0.8 million treasury shares at cost of approximately $34 million to satisfy the issuance of common stock pursuant to team member stock plans during the sixteen weeks ended January 17, 2016 and January 18, 2015 , respectively. At January 17, 2016 and September 27, 2015 , the Company held in treasury approximately 49.1 million shares and 28.2 million shares, respectively, totaling approximately $1.7 billion and $1.1 billion , respectively.

Subsequent to the end of the first quarter of fiscal year 2016, the Company repurchased approximately 3.5 million shares of the Company’s common stock at an average price per share of $28.88 for a total of approximately $100 million bringing the total available authorization to approximately $653 million .

(11) Earnings per Share

The computation of basic earnings per share is based on the number of weighted average common shares outstanding during the period. The computation of diluted earnings per share includes the dilutive effect of common stock equivalents consisting of incremental common shares deemed outstanding from the assumed exercise of stock options and the dilutive effect of restricted stock awards. A reconciliation of the numerators and denominators of the basic and diluted earnings per share calculations follows (in millions, except per share amounts):

The computation of diluted earnings per share for the sixteen weeks ended January 17, 2016 and January 18, 2015 does not include share-based awards to purchase approximately 18.7 million shares and 10.5 million shares of common stock, respectively, due to their antidilutive effect.

(12) Share-Based Payments

Share-based payment expense, primarily included in the “Selling, general and administrative expenses” line item on the Consolidated Statements of Operations, totaled approximately $16 million and $19 million during the sixteen weeks ended January 17, 2016 and January 18, 2015 , respectively.

At January 17, 2016 and September 27, 2015 , approximately 33.8 million shares and 32.9 million shares of the Company’s common stock, respectively, were available for future stock incentive grants. At January 17, 2016 and September 27, 2015 , there was approximately $77 million and $95 million of unrecognized share-based payment expense, respectively, related to unvested stock options, net of estimated forfeitures, related to approximately 11.1 million shares and 11.5 million shares, respectively. The Company anticipates this expense to be recognized over a weighted average period of 2.8 years.

(13) Commitments and Contingencies

The Company is exposed to claims and litigation matters arising in the ordinary course of business and uses various methods to resolve these matters in a manner that we believe best serves the interests of our stakeholders. From time to time we are a party to legal proceedings including matters involving shareholder claims, personnel and employment issues, personal injury, product liability, protecting our intellectual property, regulatory practices, acquisitions and other proceedings arising in the ordinary course of business. These matters have not resulted in any material losses to date. Certain litigation cases have been certified as class or collective actions and may seek substantial damages.

Our primary contingencies are associated with insurance and self-insurance obligations and litigation matters. Additionally, the Company has retention agreements with certain members of Company management which provide for payments under certain circumstances including change of control. Estimation of our insurance and self-insurance liabilities requires significant judgments, and actual claim settlements and associated expenses may differ from our current provisions for loss. We have exposures to loss contingencies arising from pending or threatened litigation for which assessing and estimating the outcomes of these matters involve substantial uncertainties.

The Company evaluates contingencies on an ongoing basis and has established loss provisions for matters in which losses are probable and the amount of loss can be reasonably estimated, and is not currently a party to any legal proceeding that management believes could have a material adverse effect on our results of operations. Insurance and legal settlement liabilities are included in the “Other current liabilities” line item on the Consolidated Balance Sheets. We believe the recorded reserves in our consolidated financial statements are adequate in light of the probable and estimable liabilities.