DUE DILIGENCE REPORT

WHOLE FOODS MARKET, INC.JUNE 2012

AC600 – Financial Management Capstone: The Role of the Chief Financial Officer

Vivienne Staple-SinclairInstructor: Julia Woodward

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TABLE OF CONTENTS

Terms of Engagement – cover letter ……………………..………….……………… ii

Executive Summary ……………………………………..………….……………… 1

Corporate Profile …………………………………..…………….……………… 3

Strategy …………………………………………..…………….……………... 3

Management and Culture ……………………………………….…..…………… 4

Industry Analysis ………………………………………………...……………… 4

Competitors ……………………………………………………...………………… 5

Risks ……………………………………………………………...………………… 5

Legal …………………………………………………………..….………………… 6

Financial

Capitalization …………………………………………..….………………… 6

Assets ………………………………………………………………………… 7

Liabilities ………………………………………………………………… 8

Profitability ………………………………………………………………… 9

Treasury ………………………………………………………………… 11

Conclusions ………………………………………………………………………… 12

References …………………………………………………………………………. i

Schedules

Schedule A – Organization Chart ………………………………………… iv

Schedule B – Executive Team ………………………………………… v

Schedule C – Directors’ Compensation Agreements ………………………… vii

Schedule D – List of states in which World Foods currently does business … viii

Schedule E – List of states in which World Foods currently does not do business ix

Schedule F – Key Financial Ratios ………………………………………… x

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Consulting ReportTo: Mark Spence

Argyle Capital

From: Vivienne Staple-Sinclair Good Student Consulting, Inc.

Date: June 21, 2012

Re: Due Diligence – Whole Foods Market, Inc.

Reason for Consult

Argyle Capital, a private equity firm, is considering a leveraged buyout of Whole Foods

Market, Inc.

Argyle Capital believes that they can streamline Whole Foods Market, Inc., make it more

efficient and expand its operations. As well, the intention is to reduce some of the stores in heavily

concentrated areas, expand operations in under-saturated markets in the United States and expand the

company’s operations internationally. The group plans on financing the transaction largely by debt

with the intent to service the loan with cash generated by Whole Foods’ operations. To this end, the

company has approached Good Student Consulting, Inc., to undertake a commercial due diligence

exercise on Whole Foods Market, Inc. and report its findings to the company.

We are happy to present our due diligence report on Whole Foods Market, Inc. We

appreciate the opportunity to provide this service to you. Please do not hesitate to call about the

information contained herein as our company will be happy to provide you any additional

information you require.

Best Regards

<<Electronically signed>>

Vivienne Staple-SinclairPresident

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Good Students Consulting, Inc.

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Executive Summary

Whole Foods Market, Inc. (Whole Foods), headquartered in Austin, Texas, is a medium- to

large-sized company operating within the grocery store industry in the service sector. The company

enjoys strong brand awareness as the world’s leading retailer of natural and organic foods and is

America’s first national Certified Organic grocer. The company specializes in the sale of natural

and certified organic foods, including produce, seafood, grocery, meat, poultry, bakery, prepared

foods, catering, beer, wine, cheese; in addition to whole body, floral, pet products and household

products. The company has one operating segment and a single reportable segment, natural and

organic foods supermarkets.

Whole Foods, which was quickly accepted by the community, has experienced rapid growth

since commencing operations in 1978 under the proprietorships of John Mackey and Rene Lawson.

At end of fiscal 2011 the company had 311 stores in operations - 299 stores in the United States and

the District of Columbia, 7 stores in Canada and 5 stores in the United Kingdom. Stores in the

United States are heavily concentrated in the State of California, which has 65 stores. As of May

12, 2012, stores in operations totaled 324. The company owns 12 stores, 2 distribution facilities and

land for a store in development, including the adjacent property. It also owns a building on leased

land, which is leased to third parties, and has one store in development on leased land.

Growth has primarily been through new store openings and acquisitions of other local

natural grocers such as Wild Oats and the Bread of Life. The large size of the company gives it the

ability to realize economies of scale in its supply chain, which in turn has enabled it to post strong

growth in revenues and profitability with sales increasing considerably over the years from

approximately $92.5 million in fiscal year 1991 to approximately $10.1 billion in fiscal year 2011.

Notably, online sales are not heavily promoted within the company. Internet sales are limited to

store location availability and primarily consist of online catering or holiday meal orders.

The company’s future sales strategy is to continue growth through the opening of new

stores. Sales by geographic areas indicate that there are potentials for new markets in Canada and

the United Kingdom. As well, there remain a number of untapped markets in the United States and

in the international market arena in which the company can commence and/or expand operations

that will enable it to increase its financial performance and competitiveness. Expanding operations

in Canada as well as entering other new markets such as Asia and Australia are attractive

investments, which will pitch the Whole Foods brand name globally, representing huge earning

potential in a diverse market especially given the increasing competition at the retail level in the

domestic United States.

The Industry is expected to do very well, with projected growth of over 16% over the next

five years with average price earnings ratio projected at 17.49. Major competitors are grocery store

retail chains, including Wal-Mart, who have launched their own brands of product to compete and

gain the health-conscious market segment. Additional threats to Whole Foods are customers

shifting their buying preferences to lower-priced super markets, increased inflationary pressure on

food items and uncertainty associated with availability of organic food items in the future.

Whole Foods is an attractive candidate for a leveraged buyout as the company has:

1. Strong liquidity evidenced by good current and quick ratios.

2. Low existing debt loads with high interest coverage.

3. A multi-year history of stable and recurring cash flows.

4. Hard assets that may be used as collateral for lower cost secured debt.

5. The potential for new management to make operational or other improvements to the

company to boost cash flows, such as workforce reductions or elimination.

6. Positive growth in stock price which continues to appreciate in value. Analysts’ outlook

rating is positive.

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Corporate Profile

Whole Food’s operation started in 1978 when John Mackey and Rene Lawson opened a

small store in Austin, Texas. By 1980, the founders partnered with other investors and opened the

original Whole Foods Market. The company began to expand away from Austin to different cities

and eventually different states in 1984. As at fiscal year 2011, the company operates a total of 311

stores (324 at May 2, 2012) spanning 38 different locations throughout the United States and the

District of Colombia, 7 stores in Canada and 5 stores in the United Kingdom.

The company’s mission is to bring health to the community by providing high quality

natural and organic products. They are focused on delivering excellent customer service and giving

back to the community, both locally and globally, specifically through providing ethically sourced

high quality products, providing information to their customers and actively participating in the

local communities where they serve. Whole Foods has been ranked among the most socially

responsible businesses and rates among the top on the U.S. Environmental Protection Agency’s list

of the Top 25 green power partners. As well, the company has consistently been recognized by

FORTUNE Magazine as one of the “100 Best Companies to Work For” in the United States since

the list began in 1998.

Whole Foods is publicly-traded on the NYSE under the WFM symbol and is subject to

extensive reporting requirements under the Securities Exchange Commission.

Strategy

Whole Foods’ growth strategy is focused primarily on new store openings. The company

was conservative in opening new stores during the economic downturn, focusing instead on

controlling capital expenditures. As the economy turns around, they plan to open 17 new stores and

are in the process of establishing business in the states of Idaho, Iowa, Mississippi and New

Hampshire. Schedule D lists the states in which the company currently has operations and Schedule 3 | P a g e

E lists the untapped markets. Currently operations are heavily concentrated in California with 65

stores in that State alone.

The company promotes its organic foods by building its customer base and raising

awareness for healthy eating and lifestyles. It has a unique marketing strategy - relying mostly on

word of mouth and social media which has been very successful in the past years with the growth of

Facebook and Twitter.

Management and Culture

Whole Foods has a team of five senior executives who, for the last 10 years, have functioned

as a CEO committee (refer Schedules A and B for organization chart and executive team profiles.

Schedule C lists their compensation). The team collectively makes decisions on strategy, finances

and company matters. The founder, John Mackey, is a strong believer in team work and the

management team’s style of leadership is a natural outgrowth of the company’s culture, which

encourages shared decision making and power of the group mind. This team approach to leadership

and decision making is applied at both the executive and store levels. The decentralized approach

to decision making has helped empowered the company’s team members with most of the decisions

being made at the individual store level.

Industry Overview

Whole Foods operates in the food retailing industry, specifically within the natural and

organic food segment, which is the fastest-growing of the industry according to Standard & Poor’s.

The US retail grocery industry includes about 65,000 supermarkets and other grocery stores with

combined annual revenue of approximately $470 billion (market capitalization of 4.926.2 billion).

The industry is projected to grow by 12.7% by the end of this year (sector’s estimated growth is

25.2%), 11.8% for next year and 16.4% over the next five years (sector’s projected growth for the

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comparable period is 39.20% and 15.02%, respectively)1. Average price earnings ratio is projected

at 17.49 for the industry and 15.09 for the sector.2

Competitors

Major companies in the industry include Wal-Mart, Kroger, Safeway and SUPERVALU as

well as Ahold, the US division of Netherlands-based Royal Ahold. Wal-Mart is the dominant retail

grocer in the USA with grocery sales of approximately $85 billion out of a total sales volume of

$240 billion followed by Kroger (largest USA supermarket chain) with sales of approximately $55

billion. Most grocery stores are struggling to compete with prices offered by superstores such as

Wal-Mart and Costco. Additionally, other competition includes traditional supermarkets, big-box

department stores, specialty food stores, convenience stores, drugstores, dollar-discount stores, and,

to some degree, restaurants. Some of these grocery store retail chains (including Wal-Mart) have

launched product lines of their own brands to compete with Whole Foods and gain the health-

conscious market segment.

Rising food prices combined with the global recession led to price wars between food

retailers. However, Whole Foods outperformed its competitors by executing targeted pricing and

promotional strategies that increased real-time information to operators enabling continual pricing

adjustments.

Risks

Some of the risk factors that can adversely affect the company’s profitability are changes in

economic conditions, consumer spending, increased competition, governmental regulation, adverse

publicity, technological changes, changes in the availability of natural and organic products,

changes in accounting standards and moves to sustainability in terms of carbon management and

1 http://finance.yahoo.com/q/ae?s=WFM+Analyst+Estimates. Updated as of June 19, 20112 Ibid

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going green.

One of the company’s largest risk is the negative effect should there be any disruption of

significant supplier relationships. Whole Foods is dependent on one of its single largest supplier,

United Natural Foods, Inc., to provide approximately 31% of its non-perishables. Though the

company has extended the arrangement through 2020, the cancellation of this distribution channel

will materially and adversely affect operating results. Finding alternative distribution channels

could prove challenging3.

Legal

As a result of the merger between Whole Foods and Wild Oats Markets, the company has

been named in a class action suit filed in the United States District Court. The plaintiff claims that

the merger violated the Federal Antitrust Law, thus allowing Whole Foods to charge a premium for

their products since competition had been eliminated (Justia4). As of the 2011 Annual Report for

Whole Foods the case was still in the preliminary stages, having been filed on October 27, 2008.

No loss has been accrued related to the outcome of the case5. On January 30, 2012 the Judge denied

the motion for class certification.

Financials

Capitalization

Stockholders’ equity, which continued to increase, totaled $2.99 billion at fiscal 2011 ($2.37

billion in 2010) and was comprised of common stocks ($2.12 billion) and retained earnings ($870.5

million). The company had 425,000 outstanding shares of preferred stock series which it called and

converted into 29.7 million shares of common stock. The resulting liquidation cost to Whole Foods

3 World Foods Market, Inc. 2011 Annual Report. Page 134 http://dockets.justia.com/docket/district-of-columbia/dcdce/1:2008cv01832/133706/5 World Foods Market, Inc. 2011 Annual Report 2011. Page 16

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amounted to $425 million plus an additional $5.2 million paid in dividends. As well, outstanding

convertible subordinated debentures were redeemed at a cost of $2.7 million. Additionally, the

company’s stock repurchase program expired unrenewed during the first quarter of 2011. The

program had approximately $200 million in remaining authorization. A new $200 million stock

repurchase plan was authorized by the Board of Directors effective through November 1, 2013

during fiscal 2011. This stock repurchase program may be discontinued or suspended at any time

without prior notice. Common stock issued and outstanding at fiscal 2011 was 178.89 million. For

the interim quarter ended April 8, 2012, common stock issued and outstanding totaled 182.9 million

with a market capitalization of $16.23 billion. Shares of common stock that the company had

available for future stock incentive grants was 11.7 million, 12.7 million and 15.4 million at fiscals

2011, 2010 and 2009, respectively.

Given the relatively low levels of debt, the company’s financial risk (debt to equity) is low

at 0.44 with good interest coverage of 34.58 (refer Schedule F) and a beta of 0.686. However, its

stockholders’ value is not being optimized as operations are being financed by higher-cost equity

rather than lower-cost debt through the potential tax deductible benefits. However, the lower levels

of debt gives the company financial flexibility to raise capital on reasonable terms under adverse

conditions.

Assets

At fiscal 2011, Whole Foods reported total assets of $4.29 billion up from $3.99 billion in

2010. The bulk of the company’s assets were classified as property plant and equipment 7, which

accounted for 46.5% ($1.99 billion) of total assets ($1.89 billion or 47.3% in 2010). Cash and

6 http://finance.yahoo.com/q/ks?s=WFM+Key+Statistics7 Property, plant and equipment represented both owned and leased properties, which are depreciated over their useful lives using the straight-line method of depreciation. Amortization of leasehold improvements and real estate assets under capital leases are depreciated over the shorter of the estimated useful lives of the improvement.

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short-term investments ($654.32 million) accounted for 45% of current assets ($1.45 billion) at

fiscal 2011 ($461.73 million or 39.7% in 2010). This amount included $91.9 million of restricted

cash held as collateral to support a portion of the company’s projected workers’ compensation

obligations. Off-balance sheet arrangements consisted primarily of operating leases, which were

fully deductible annually. Interim financial statements for the quarter ended April 8, 2012, reflected

total assets of $4.87 billion with cash and short-term investments and property, plant and equipment

of $1.06 billion and $2.05 billion, respectively.

Asset utilization and liquidity are generally good with most ratios evidencing improving

trends over the fiscal years. Interest coverage improved significantly from 6.5% to 21.7% as the

company reduced its debt obligations. Return on capital invested in the business (3.3%), reflected

little improvement in trend over the three year period and is generally behind those of its peers

implying weaker efficiency in turning over its investment. This weaker performance is attributable

to the company’s growth strategy and the impact of the timing and number of new store openings

before they become fully profitable. Sales to Equity ratio revealed that for each $1 in equity, the

company generated $3.38 in sales, a slight decrease from the $3.79 generated in fiscal 2010. Sales

to Fixed Assets ratio improved marginally by 0.37 from 3.19:1 in 2010 to 3.56:1 at fiscal 2011

while the current and quick ratios computed at 1.65 and 1.19, respectively. Refer Schedule F for

key financial ratios.

Liabilities

Long-term debt at fiscal 2011 totaled $17.44 million in comparison to $508.3 million in

2010. The reduction was largely due to the repayment of $490 million under its five-year term

agreement (refer treasury section). There were no preferred shares outstanding at fiscal 2011 as the

company called its outstanding preferred shares and converted them to shares of common stock

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(refer capitalization section). This contributed to the improvement in the debt to equity ratio (0.68

in 2010 to 0.44 in 2011). Debt to equity ratio for the most recent quarter (April 8, 2012) computed

at 0.56 indicating that the company does not rely heavily on outside financing. With interest

coverage ratio of 34.58 in 2011, World Foods have very strong cash flows with which they could

fulfill their interest liabilities with an abundance of cash remaining. Refer Schedule F for key

financial ratios.

Profitability

World Foods reported net income of $342.6 million for its fiscal year ended September 25,

2011 reflecting a 39.4% increase over net income of $245.8 million reported for the prior period

($146.8 million in 2009). Sales of natural products through retail channels were approximately $65

billion in 2011 representing a market share of 15.55%. Revenues, which are driven by the number

of stores in operations, historically have been largely generated from identical store sales. The sales

mix in fiscal 2011 was 94.6% for identical stores (2010: 93.2%; 2009: 91.4%) reflecting an 8.4%

increase over the prior period. Geographically, sales in the United States continued to drive

revenues, accounting for 96.9% in 2011 (97% in 2010). Under product category, other perishables

consistently generated the most sales at 48.0% in 2011 (47.7% in 2010), with non-perishables

following closely behind at 33.2% in 2011. These are summarized below:

Sales by geographical area 2011 2010United States 96.9% 97.0%Canada and United Kingdom

3.1 3.0

Total Sales 100.0% 100.0%

Sales by product 2011 2010Non-perishables 33.2% 33.5%Prepared foods and bakery

18.8 18.8

Other perishables 48.0 47.79 | P a g e

Total sales 100.0% 100.0%

Whole Foods’ average sales and gross profit are characteristically higher in the second and

third fiscal quarters each year with their lowest revenue grossing time period occurring in the fourth

quarter. Drop in sales during the fourth quarter is attributed to seasonally slower sales during the

summer months. As well, the first fiscal quarter also experiences lower average sales and gross

profit as a result of the holiday sales product mix.

In 2011, the company marketed its products to well over 297 million customers at an

average of 8 items and $34 per basket. Purchase per customer, using coupons provided by The

Whole Deal program, doubles to 19 items and $68 per basket. At a minimum estimate of $34 per

basket per customer and at a growing rate of 28 to 32 new stores every year, the company has the

potential to market its products anywhere between 26 to 30 million additional customers in the

coming years (an average of 943,771 customers per store on an annual basis). Total annual

customers that the company could potentially service in the coming years are approximated at well

over 325 million8. Sales volumes for all stores for the past three fiscal years are:

Sales Volumes

2011 2010 2009Sales $10,107,787 $9,005,794 $8,031,620Number of stores 311 299 284Average weekly sales (per store)

$636,000 $588,000 $549,000

World Foods’ revenue per employee of $157,442 for its 2011 fiscal year evidenced

improved efficiency in utilizing its employees compared to $154, 473 and $152,983 for 2011 and

2010, respectively. While this 2011 result is ahead of the industry’s average of $2,237, it lags

behind the figures for two of its direct competitors – Kroger and Safeway who had sales per

8 World Foods Market, Inc. 2011 Annual Report, pg. 910 | P a g e

employee figures of $266,578 and $246,404, respectively, for their 2011 fiscal years. Net income

per employee for the company computed at $5,336 and $4,216 in 2011 and 2010, respectively.

Operating performance ratios are good (refer Schedule F). Interim net income reported at

April 7, 2012 amounted to $117.6 million. Other key profitability ratios for the trailing 12 months

as of April 8, 2012 are9:

Profit margin 3.7%Operating margin 5.99%Revenue per share 60.51Quarterly revenue growth 13.6%Gross profit $3.54 billionDiluted earnings per share 2.21Net income available to common 399.94 millionBook value per share (most recent quarter) 18.89

Treasury

During 2007, World Foods acquired Wild Oats Market by entering into a $700 million, five-

year term loan agreement. The outstanding amounts of this agreement were repaid, $490 million

and $210 million during 2011 and 2010, respectively. At fiscal 2011, the company had outstanding

a $350 million revolving line of credit (extends to August 2012), which is secured by a pledge of

substantially all of the stock in its subsidiaries. Amounts borrowed under this agreement bear

interest at the company’s option of the ABR plus an applicable margin or LIBOR plus an applicable

margin based on the company’s S&P rating. Commitment fees on the undrawn amount, reduced by

outstanding letters of credit, are payable under this agreement. No amounts were drawn under this

agreement at fiscal 2011. The credit agreement contains certain affirmative covenants including

maintenance of certain financial ratios and certain negative covenants including limitations on

additional indebtedness and payments as defined in the agreement. At its fiscal year ended

September 25, 2011, the company was in compliance with all applicable debt covenants.

9 http://finance.yahoo.com/q/ks?s=WFM+Key+Statistics11 | P a g e

Whole Foods utilizes derivative financial instruments to hedge its exposure to changes in

interest rates but does not use them for trading and or speculative purposes.

Conclusion

Whole Foods continues its growth based on the company’s slogan of “Whole Foods, Whole

People, Whole Planet.” The company reputedly offers the highest quality, least processed, naturally

preserved foods and most flavorful foods. The company seems committed to recruiting the best

personnel who are passionate about food and empower them to become well rounded individuals

being cited on the list of 100 best companies to work for. Employees play a critical role in helping

to build the company into a profitable and beneficial part of the communities in which the company

operates. Strong communities’ ties are established through the company’s ongoing support of

organic farming on a global basis, supporting food banks, neighborhood events and donations of

after-tax profits to not-for-profit organization.

Earnings remained strong with its sales of natural products through retail channels

approximating $65 billion in 2011, translating into a market share of 15.55%. The major driving

factors contributing to the desire for natural and organic foods is a heightened awareness of the role

that healthy eating plays in long-term wellness; a better-educated and wealthier populace whose

median age is increasing each year; increasing consumer concern over the purity and safety of food;

and environmental concerns.

Whole Foods has strong stable and recurring cash flows with low debt exposure resulting in

low financial risk. However, currently the company’s capital structure is not maximized as its

operations are largely financed by higher-cost equity. Analysts’ rating on the company stock price

and growth outlook is positive with continued appreciation in value being predicted.

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Reference

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Bragg, Steven M., The New CFO Financial Leadership Manual, Hoboken, New Jersey, 2011.

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Form 10-K for the fiscal year ended September 27, 2009

FORM 10-K. (n.d.). Retrieved from Whole Food Market, Annual Report Pursuant to Section 13 or 15(D) of The Securities Exchange Act of 1934 For the Fiscal Year Ended September 25, 2011. http://www.wholefoodsmarket.com/company/pdfs/2011_10K.pdf

Form 10-K/. (2003, December 23). Retrieved: May 28, 2012 from http://www.wholefoodsmarket.com/company/pdfs/2003_10K.pdf

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Schedule A

Organization Chart

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Schedule B

Executive Team Summary

The Whole Foods Market senior management team consists of the following key people:

John Mackey, Co-CEO and Co-Founder

Age 58

In 1978 John co-founded Safer Way Natural Woods. Two years later he opened the

first Whole Foods Market on Lamar Boulevard in Austin. At that time it was one of

the very first supermarket-style natural foods stores. Mackey continues to play an

integral part in the operations of the company and is a huge proponent of the fight to

cure serious health conditions through healthy eating. John is also co-founder of

Conscious Capitalism, a non-profit organization with the mission of liberating the

entrepreneurial spirit for good.

Walter Robb, Co-CEO

Age 58

Robb joined the Whole Foods team in 1991 at which time he was operating the Mill

Valley, CA store until he was appointed President of the Northern Pacific Region in

1993. While in this role he expanded the region from two stores to seventeen. He

was appointed Executive Vice President of Operations in 2000, COO in 2001, Co-

President in 2004, and Co-CEO in 2010 alongside John Mackey. He serves as

Chairman of the Board for the foundation called Whole Kids.

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A.C. Gallo, President and Chief Operating Officer

Age 58

Gallo started his career originally with Bread & Circus, who was acquired by Whole

Foods Market. He swiftly became the Northeast Region’s Vice President and then

moved to President of the region in 1996. He remains President in addition to COO

and oversees six of the Whole Foods’ twelve regions.

Glenda Flanagan, Executive Vice President & Chief Financial Officer

Age 58

Prior to joining Whole Foods, Flanagan held positions at top public accounting firms

as well as having experience as a business consultant. She joined Whole Foods in

1988 as the Chief Financial Officer and has played an integral part in taking Whole

Foods from a company consisting of six stores upon her arrival to over three hundred

today. She serves as a member of the Board of Directors for the Whole Planet

Foundation as well as two public accounting firms.

Jim Sud, Executive Vice President of Growth and Business Development

Age 59

Jim was a founding shareholder of Whole Foods Market and served on the Board of

Directors from its inception until 1997 when he joined senior management as the

Executive Vice President. He oversees all areas related to growth including real

estate, mergers, and acquisitions. He earned his BBA from the University of Texas

in 1975 and currently resides in Austin, Texas.

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Schedule C

Director Compensation Agreements

The compensation for members of the Board of Directors call for the following to be paid to each

member:

Quarterly retainer; $8,415

Attendance to BOD meetings in person; $6,191

Attendance to Committee meetings in person, in conjunction to BOD meeting; $1,134

Attendance to Committee meetings in person, apart from BOD meeting; $4,536

Attendance, by phone, any meeting greater than two hours: $1,512

Attendance, by phone, any meeting between one and two hours; $1,134

Attendance, by phone, any meeting between 15 minutes and one hour; $568

BOD-Audit Committee Chair; quarterly retainer, $3,604

BOD-Compensation Committee Chair; quarterly retainer, $1,890

BOD-Nominating & Governance Committee Chair; quarterly retainer, $1,890

Except for John Mackey and Walter Robb, each member of the BOD also was awarded 35,600 options for FYE 9/26/2010.

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Schedule D

List of states in which World Foods currently does business

AlabamaArizonaArkansas

Northern CaliforniaSouthern California

ColoradoConnecticut

District of ColumbiaFloridaGeorgiaHawaiiIllinoisIndianaKansas

KentuckyLouisiana

MaineMaryland

MassachusettsMichiganMinnesotaNebraskaNevada

New JerseyNew MexicoNew York

North CarolinaOhio

OklahomaOregon

PennsylvaniaRhode Island

South CarolinaTennessee

TexasUtah

VirginiaWashingtonWisconsin

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Schedule E

List of states in which World Foods currently does not do business

AlaskaDelaware

IdahoIowa

MississippiMontana

New HampshireNorth DakotaSouth Dakota

VermontWest Virginia,

Wyoming

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Schedule F

Key Financial Ratios

Asset Utilization 2011 2010 2009 KR10 SWY11

Breakeven Point:(Total operating expenses/Average gross margin percentage) $8,535 $7,771 $7,119 N/A N/A

Goodwill to Asset Ratio:(Unamortized goodwill/Total assets) 15.45% 16.69% 17.40% 4.85% 3.12%

Interest Expense to Debt Ratio(Interest expense/Short-term debt + long-term debt) 21.68% 6.5% 4.99% 5.68% 5.03%

Investment TurnoverSales/Stockholders’ equity + long-term liabilities 3.36 3.13 3.39 6.51 5.29

Days of Working CapitalAccounts receivable + inventory – accounts payable/Net sales /365

9.94 9.87 10.26 2.12 -9.0

Sales Per PersonTotal sales/Total FTEFull-Time Equivalents = 48,200 full-time + (13,300/2) part-time + (2,700/3) seasonal (best estimate) = 55,570.

$181,306

Sales to Equity RatioSales/Total equity 3.38:1 3.79:1 4.93:1

Sales to Fixed Assets RatioSales/Fixed assets 3.56:1 3.19:1 4.23:1

Operating Performance Measurements2011 2010 2009

Gross Profit Percentage:(Gross Profit/Sales) 35% 35% 34%

Net Income Percentage:Net Income/Revenue 3.39% 2.73% 1.82%

Profit Per Person:(Net Profit/Total Full-Time Equivalents) $147.69 $139.24 $129.32

Cash Flow Return on Assets:(Net Income + Noncash Expenses – Noncash Expenses/Total Assets)

18% 15% 26%

Cash to Current Liabilities Ratio:(Cash + Short-Term Marketable Securities/Current Liabilities 35% 29% 23%

Expense Coverage Days:

10 Kroger, 10-K, January 29, 201111 Safeway Inc. 10-K, December 31, 2011

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(Cash + Short-Term Marketable Securities + Accounts Receivable/Annual Cash Expenditures 365 24.56 Days 20.27 Days 39.51 Days

Liquidity2011 2010 2009

Accounts Payable Turnover:(Total Purchases/Ending Accounts Payable Balance) in days 11.57 12.46 13.28

Current Liabilities Ratio(Current liabilities/Total liabilities) 0.68 0.46 0.39

Current Ratio(Current Assets/Current Liabilities) 1.65 1.55 1.54

Inventory To Sales Ratio(Sales/Inventory) 30.01 27.84 25.86

Quick Ratio(Cash + Marketable Securities + Accounts Receivables)/(Current Liabilities)

1.19 1.05 1.01

Inventory Turnover Ratio(Cost of goods sold/Inventory) 19.51 18.14 16.99

Capital Structure and Solvency 2011 2010 2009

Debt to Equity Ratio:(Debt/Equity) 0.435 0.680 1.070

Times Interest Earned Ratio:(Average Cash Flow/Average Interest Expense)

34.579 11.185 6.509

Return on Investment2011 2010 2009

Earnings Per Share:((Net Income-Dividends on Preferred Stock)/(Number of outstanding common shares + common stock equivalents))

$1.96 $1.45 $0.85

Price Earnings Ratio:(Average common stock price/Net income per share)

35.87 25.95 33.84

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