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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the period ended April 10, 2005;

or

For the transition period from              to             .

Commission File Number: 0-19797

WHOLE FOODS MARKET, INC.

(Exact name of registrant as specified in its charter)

550 Bowie Street

Austin, Texas 78703

(Address of principal executive offices)

Registrant’s telephone number, including area code:

512-477-4455

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

The number of shares of the registrant’s common stock, no par value, outstanding as of April 10, 2005 was 65,332,610 shares.

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Whole Foods Market, Inc.

Form 10-Q/A

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Part I. Financial Information

Item 1. Financial Statements

Whole Foods Market, Inc.

Consolidated Balance Sheets

April 10, 2005 and September 26, 2004 (unaudited)

(In thousands)

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

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Whole Foods Market, Inc.

Consolidated Statements of Operations (unaudited)

(In thousands, except per share amounts)

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

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Whole Foods Market, Inc.

Consolidated Statements of Cash Flows (unaudited)

(In thousands)

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

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Whole Foods Market, Inc.

Notes to Consolidated Financial Statements (unaudited)

April 10, 2005

(1) Basis of Presentation

The accompanying unaudited consolidated financial statements of Whole Foods Market, Inc. (“Whole Foods Market,” “Company,” or “We”) have been prepared in accordance with generally accepted accounting principles for interim financial statements and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The information included in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis, the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K/A Amendment No. 2 for the fiscal year ended September 26, 2004. The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). In the opinion of management, the accompanying consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation. Interim results are not necessarily indicative of results for any other interim period or for a full fiscal year. Our fiscal year ends on the last Sunday in September. The first fiscal quarter is sixteen weeks, the second and third quarters each are twelve weeks and the fourth quarter is twelve or thirteen weeks. We operate in one reportable segment, natural and organic food supermarkets. Where appropriate, we have reclassified prior year financial statements to conform to current year presentation.

(2) Restatement of Financial Statements

In February 2005, the Company completed a review of its historical lease accounting methods to determine whether these methods were in accordance with the views expressed by the Office of the Chief Accountant of the Securities and Exchange Commission (“SEC”) on February 7, 2005 in a letter to the American Institute of Certified Public Accountants and other recent interpretations regarding certain operating lease accounting issues and their application under GAAP. As a result of its review, the Company determined that its historical methods of accounting for rent holidays and tenant improvement allowances, and of determining lives used in the calculation of depreciation of leasehold improvements and straight-line rent determination for certain leased properties, were not in accordance with GAAP.

The Company historically had recognized rent holiday periods and scheduled rent increases on a straight-line basis over the lease term beginning with the commencement date of the lease which is typically the store opening date. The Company has determined that the lease term should commence on the date the Company takes possession of the leased space, which is generally six months prior to a store’s opening date. Additionally, the Company has determined that rent expense should be recorded on a straight-line basis over lease periods that are consistent with or greater than the number of periods over which depreciation of leasehold improvements is recorded. Historically, the life used for rent expense purposes in some instances was shorter than the life used for depreciation purposes.

The Company historically accounted for tenant improvement allowances as reductions to the related leasehold improvement assets on the consolidated balance sheets and as capital expenditures in investing activities on the consolidated statements of cash flows. Management determined these allowances should be recorded as deferred rent liabilities on the consolidated balance sheets and as a component of operating activities on the consolidated statements of cash flows. Additionally, this change results in a reclassification of the deferred rent amortization from “Direct store expenses” to “Cost of goods sold and occupancy costs” on the consolidated statements of operations.

On March 2, 2005 we filed our Quarterly Report on Form 10-Q for the period ended January 16, 2005 with restated consolidated balance sheet as of September 26, 2004 and restated consolidated statement of operations for the sixteen weeks ended January 18, 2004 to correct for the misstatements discussed above. The Company filed Amendment No. 1 on Form 10-K/A with restated audited consolidated financial statements for fiscal years 2004, 2003 and 2002 and the unaudited comparative 2004 and 2003 quarterly information on March 7, 2005 to correct for the misstatements discussed above. These restatements were based on guidance and interpretations available at that time and reflected adjustments which, among other items, charged to expense rent incurred or allocated during the store construction period.

After the filing of our restated financial statements on March 7, 2005, the SEC determined that capitalization of land or building rent during the construction period into the historical cost of constructed assets is acceptable. Subsequent interpretations of this SEC guidance by the Company’s and other independent registered accounting firms indicate that a company’s previous practice of accounting for rent during the construction period should be followed in the restatement. This guidance was not available to the Company at the time of the first restatement. After consultation with management and our independent registered accounting firm, our Audit Committee, at a meeting on May 4, 2005, determined that it was therefore appropriate to restate the Company’s previously issued financial statements to return to and continue the Company’s previous

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practice of capitalizing rent during the construction period. On May 18, 2005 we filed Amendment No. 2 to the Annual Report on Form 10-K/A for Whole Foods Market, Inc. to restate previously issued consolidated financial statements for fiscal years 2004, 2003 and 2002 and the unaudited comparative 2004 and 2003 quarterly information to return to and continue the Company’s previous practice of capitalizing rent during the construction period. On May 18, 2005 we filed Amendment No. 1 to the Quarterly Report on Form 10-Q/A for Whole Foods Market, Inc. for the fiscal period ended January 16, 2005 to restate our consolidated balance sheet as of January 16, 2005 and consolidated statements of operations and cash flows for the sixteen weeks then ended. The cumulative effects of these restatement adjustments is an increase to retained earnings of approximately $20.7 million and $19.0 million for the periods ended January 16, 2005 and September 26, 2004, respectively.

Following is a summary of the effects of these restatement adjustments on the consolidated statement of operations for the sixteen weeks ended January 16, 2005 (in thousands):

The Emerging Issues Task Force (“EITF”) has included the issue “Capitalization of Ground Lease and Building Lease Rental Costs Incurred during Construction” on its proposed agenda for its meeting scheduled for June 15-16, 2005. The results of this future discussion and any related future guidance by the EITF are not presently known.

(3) Summary of Significant Accounting Policies

Property and Equipment

Property and equipment is stated at cost, net of accumulated depreciation and amortization. We provide depreciation of equipment over the estimated useful lives (generally three to 15 years) using the straight-line method. We provide amortization of leasehold improvements on the straight-line method over the shorter of the estimated useful lives 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 at the Company’s option if exercise of the option is determined to be reasonably 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 method. Costs related to a projected site determined to be unsatisfactory and general site selection costs that cannot be identified with a specific store location are charged to operations currently. Repair and maintenance costs are expensed as incurred. We capitalize rent costs incurred during the construction period of leased stores. Interest costs on significant projects constructed or developed for the Company’s own use are capitalized as a separate component of the asset. Upon retirement or disposal of assets, the cost and related accumulated depreciation are removed from the balance sheet and any gain or loss is reflected in earnings.

Operating Leases

The Company leases stores, distribution centers, bakehouses and administrative facilities under operating leases. Store lease agreements generally include rent holidays, rent escalation clauses and contingent rent provisions for percentage of sales in excess of specified levels. Most of our lease agreements include renewal periods at the Company’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 takes possession of the leased space. We capitalize rent costs incurred during the construction period of leased stores. Rent costs are expensed as incurred subsequent to the construction period, including the pre-opening period prior to the store opening. We record tenant improvement allowances and rent holidays as deferred rent liabilities on the consolidated balance sheets and amortize the deferred rent over the terms of the lease to rent expense on the consolidated statements of operations. We record rent liabilities on the consolidated balance sheets for contingent percentage of sales lease provisions when we determine that it is probable that the specified levels will be reached during the fiscal year.

(4) Goodwill and Other Intangible Assets

Goodwill and indefinite-lived intangible assets are reviewed for impairment annually, or more frequently if impairment indicators arise. We allocate goodwill to one reporting unit for goodwill impairment testing. During the first quarter of fiscal year 2005, we acquired contract-based indefinite lived intangible assets totaling approximately $0.8 million in a non-cash

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transaction. During the first and second quarters of fiscal year 2004, we acquired goodwill totaling approximately $31.5 million in connection with the acquisition of Select Fish and Fresh and Wild. There were no impairments of goodwill or indefinite-lived intangible assets during the twenty-eight week period ended April 10, 2005.

We amortize our acquired identifiable intangible assets on a straight-line basis over the life of the related agreement, currently one to 26 years for contract-based intangible assets and one to five years for marketing-related and other identifiable intangible assets. During the first and second quarters of fiscal year 2005, we reclassified approximately $1.2 million of contract-based intangible assets to common stock as the result of bondholders voluntarily converting approximately 52% of our zero coupon convertible debentures. During the first and second quarters of fiscal year 2004, we acquired intangible assets totaling approximately $0.5 million in connection with the Select Fish and Fresh and Wild acquisitions. Amortization associated with intangible assets totaled approximately $0.7 and $1.6 million for the twelve and twenty-eight weeks ended April 10, 2005, respectively and approximately $0.7 million and $1.6 million, respectively, for the same periods of the prior fiscal year.

The components of intangible assets were as follows (in thousands):

Amortization associated with the net carrying amount of intangible assets at April 10, 2005 is estimated to be $1.2 million for the remainder of fiscal year 2005, $2.2 million in fiscal year 2006, $1.7 million in fiscal year 2007, $1.4 million in fiscal year 2008, $1.4 million in fiscal year 2009 and $1.3 million in fiscal year 2010.

(5) Long-Term Debt

During the first and second quarters of fiscal year 2005, approximately 159,000 debentures were converted at the option of the holders to approximately 1.7 million shares of Company common stock. The zero coupon convertible subordinated debentures had a carrying amount of approximately $78.7 million and $158.8 million at April 10, 2005 and September 26, 2004, respectively.

(6) Comprehensive Income

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

During the second quarter of fiscal year 2005 we sold all of our investments in short-term corporate bond funds, for approximately $103.7 million, resulting in a loss of approximately $0.2 million. During the first quarter of fiscal year 2005, we recognized a loss totaling approximately $1.5 million for other-than-temporary impairment of our investments in short-term corporate bond funds due to a sustained decline in market value. During the first quarter of fiscal year 2004, we sold all of our investments in unrestricted and restricted common shares of Gaiam, Inc. for approximately $1.8 million, resulting in a loss of approximately $0.5 million. These losses have been included in “Investment and other income” in the consolidated statements of operations.

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(7) Earnings per Share

The computation of basic earnings per share is based on the number of weighted average common shares outstanding during the period. The computation of diluted earnings per share includes the dilutive effect of common stock equivalents consisting of common shares deemed outstanding from the assumed exercise of stock options and the assumed conversion of zero coupon convertible subordinated debentures. A reconciliation of the numerators and denominators of the basic and diluted earnings per share calculations follows (in thousands):

The computations of diluted earnings per share for the twelve and twenty-eight week periods ended April 10, 2005 and April 11, 2004 include all common stock equivalents.

(8) Stock-Based Compensation

The Company follows Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees” and related interpretations in accounting for stock option grants. APB No. 25 provides that the compensation expense relative to our team member stock options is measured based on the intrinsic value of the stock option at the date of the grant. As required by Statement of Financial Accounting Standards (“SFAS”) No. 123 and SFAS No. 148, we have determined pro forma net income and pro forma net income per common share as if compensation costs had been determined based on the fair value of the options granted to team members and then recognized ratably over the vesting period. The fair value of stock option grants has been estimated at the date of grant using the Black-Scholes multiple option pricing model. Had we recognized compensation costs as prescribed by SFAS No. 123, net income, basic earnings per share and diluted earnings per share would have changed to the pro forma amounts shown below (in thousands, except per share data):

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The assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and experience. The above pro forma results are not indicative of future results under the requirements of the newly issued share-based payment standard.

(9) Dividends

On April 5, 2005, the Company announced that its Board of Directors raised the Company’s quarterly dividend from $0.19 per share to $0.25 per share. During the second quarter of fiscal year 2005, the Company declared a cash dividend of $0.25 per share, for a total $16.4 million, to be paid April 25, 2005 to shareholders of record as April 15, 2005. On November 10, 2004, the Company announced that its Board of Directors raised the Company’s quarterly dividend from $0.15 per share to $0.19 per share. During the first quarter of fiscal year 2005, the Company declared a cash dividend of $0.19 per share, for a total of approximately $12.2 million, to be paid January 17, 2005 to shareholders of record as of January 7, 2005. During the first and second quarters of fiscal year 2004, the Company declared cash dividends of $0.15 per share. The Company paid dividends totaling approximately $21.5 million and $9.1 million through the second quarter of fiscal years 2005 and 2004, respectively. The Company will pay future dividends at the discretion of our Board of Directors. The continuation of these payments and the amount of such dividends depend on many factors, including the results of operations and the financial condition of the Company. Subject to such factors and a determination that cash dividends continue to be in the best interest of our shareholders, the current intention of our Board of Directors is to pay a quarterly dividend on an ongoing basis.

(10) Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 123(R), “Share-Based Payment”, which requires all companies to recognize an expense for share-based payments, including stock options, based on the fair value of the equity instrument. In April 2005, the Securities and Exchange Commission adopted a final rule amending Rule 4-01(a) of Regulation S-X amending the compliance date for FASB Statement No. 123(R) to be effective starting with the first interim or annual reporting period of the first fiscal year beginning on or after June 15, 2005. The provisions of FASB Statement No. 123(R) will be effective for the Company’s first quarter of fiscal year 2006 beginning September 26, 2005. The Company is evaluating the impact of adoption of the provisions of FASB Statement No. 123(R). The Company currently expects to apply the provisions of this statement utilizing the modified prospective method. The Company’s intention, absent certain modifications to FASB Statement No. 123(R) prior to its effective date, is to accelerate the vesting of all outstanding, unvested stock options, excluding options held by the Board of Directors and the members of the Executive Team, sometime prior to September 26, 2005. This accelerated vesting of certain options would create a one-time, mostly non-cash charge in the fourth quarter of this fiscal year totaling approximately $10 million, consisting of the estimated increase in value to the option holders caused by the acceleration plus accrual of certain payroll taxes that will be due upon exercise of the options. The actual amount of the expense would vary based on the closing stock price at the date of the acceleration.

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

General

Whole Foods Market, Inc. owns and operates the largest chain of natural and organic foods supermarkets. Our Company mission is to promote vitality and well-being for all individuals by supplying the highest quality, most wholesome foods available. Through our growth, we have had a large and positive impact on the natural and organic foods movement throughout the United States, helping lead the industry to nationwide acceptance. We opened our first store in Texas in 1980 and, as of April 10, 2005, have expanded our operations both by opening new stores and acquiring existing stores from third parties to 168 stores: 159 stores in 28 U.S. states and the District of Columbia; two stores in Canada; and seven stores in the United Kingdom. We operate in one reportable segment, natural and organic foods supermarkets.

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

The Company reports its results of operations on a fifty-two or fifty-three week fiscal year ending on the last Sunday in September. The first fiscal quarter is sixteen weeks, the second and third quarters each are twelve weeks and the fourth quarter is twelve or thirteen weeks.

Restatement of Financial Statements

In February 2005, the Company completed a review of its historical lease accounting methods to determine whether these methods were in accordance with the views expressed by the Office of the Chief Accountant of the Securities and Exchange Commission (“SEC”) on February 7, 2005 in a letter to the American Institute of Certified Public Accountants and other

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recent interpretations regarding certain operating lease accounting issues and their application under GAAP. As a result of its review, the Company determined that its historical methods of accounting for rent holidays and tenant improvement allowances, and of determining lives used in the calculation of depreciation of leasehold improvements and straight-line rent determination for certain leased properties, were not in accordance with GAAP. As a result, the Company restated its consolidated financial statements for fiscal years 2004, 2003 and 2002 and the comparative 2004 and 2003 quarterly information. For additional information, see Note 2 to these unaudited consolidated financial statements and Note 3 to the consolidated financial statements in the Company’s Amendment No. 2 to the Annual Report on Form 10-K/A for the fiscal year ended September 26, 2004.The accompanying Management’s Discussion and Analysis incorporates the effects of these restatement adjustments.

Executive Summary

Sales for the second quarter of fiscal year 2005 increased 20% to $1.1 billion over $902 million in the prior year, driven by 13% weighted average square footage growth and comparable store sales growth of 11.6%. Identical store sales, which exclude three relocated store and two major store expansions, increased 10.2% for the quarter.

Net income for the second quarter increased 22% to $42.0 million over $34.4 million in the prior year, and diluted earnings per share increased 17% to $0.61 over $0.53 in the prior year.

Cash flows from operating activities for the second quarter totaled $128.3 million compared to $114.8 million in the prior year.

Our capital expenditures for the quarter totaled $74.2 million, including $51.2 million for new stores. During the second quarter, we opened two new stores; in Swampscott, Massachusetts and New York City, New York and relocated two stores; in Austin, Texas and Thousand Oaks, California, ending the quarter with 168 stores totaling approximately 5.4 million square feet.

Cash and cash equivalents, including restricted cash, were approximately $331 million at the end of the second quarter of fiscal year 2005, and total long-term debt was approximately $91 million. During the first and second quarters, approximately 159,000 of the Company’s zero coupon convertible debentures were voluntarily converted by bondholders to approximately 1.7 million shares of common stock, resulting in a decrease in the balance of zero coupon convertible debentures from approximately $159 million at the end of fiscal year 2004 to approximately $79 million at the end of the second quarter of fiscal year 2005.

The Company paid dividends totaling approximately $12.1 million during the second quarter of fiscal year 2005. On April 5, 2005 the Company raised its quarterly dividend from $0.19 per share to $0.25 per share.

Results of Operations

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

Figures may not add due to rounding.

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Sales increased approximately 20% and 21% for the twelve and twenty-eight weeks ended April 10, 2005, respectively, over the same periods of the prior fiscal year. This increase was driven by comparable store sales growth of approximately 11.6% and 11.5%, respectively, and weighted average year-over-year square footage growth of approximately 13% and 14%, respectively. Sales of a store are deemed to be comparable commencing in the fifty-third full week after the store was opened or acquired. Sales in identical stores, which exclude relocated stores and major store expansions, increased approximately 10.2% and 10.5% for the twelve and twenty-eight weeks ended April 10, 2005, respectively. Our new stores continue to perform above our projections, with the new stores opened this fiscal year producing average weekly sales of approximately $598,000 year to date. The Company believes its comparable store sales growth and the ability to open successful stores in diverse markets are due to the broad appeal of our stores, natural and organic products entering the mainstream consciousness, improvements in overall store execution and the growing awareness of our brand.

Gross profit consists of sales less cost of goods sold and occupancy costs plus contribution from non-retail distribution and food preparation operations. The Company’s gross profit as a percentage of sales for the twelve and twenty-eight weeks ended April 10, 2005 was approximately 35.7% and 35.1%, respectively, compared to approximately 35.4% and 34.8%, respectively for the same periods of the prior fiscal year. Our gross profit may increase or decrease slightly depending on the mix of sales from new stores or the impact of weather or a host of other factors, including inflation. While we always have initiatives in place to drive better purchasing, we usually pass those savings on to our customers as lower prices. Gross profit margins tend to be lower for new stores and increase as stores mature, reflecting lower shrink as volumes increase, as well as increasing experience levels and operational efficiencies of the store teams.

Direct store expenses as a percentage of sales were approximately 25.5% for the twelve and twenty-eight weeks ended April 10, 2005 compared to approximately 25.5% and 25.4%, respectively, for the same periods of the prior fiscal year. Direct store expenses as a percentage of sales tend to be higher for new stores and decrease as stores mature, reflecting increasing operational productivity of the store teams.

General and administrative expenses as a percentage of sales were approximately 3.2% and 3.1% for the twelve and twenty-eight weeks ended April 10, 2005, respectively, compared to approximately 3.2% and 3.2%, respectively, for the same periods of the prior fiscal year.

Pre-opening costs include costs related to new store openings, including costs associated with hiring and training personnel, supplies and other miscellaneous costs. Pre-opening costs are incurred primarily in the 30 days prior to a new store opening. Relocation costs consist of moving costs, remaining lease payments, accelerated depreciation costs and other costs associated with replaced stores or facilities. Pre-opening and relocation costs were approximately $7.6 million and $10.7 million for the twelve and twenty-eight weeks ended April 10, 2005, respectively, compared to approximately $2.6 million and $4.5 million, respectively, for the same periods of the prior fiscal year. The Company opened three new stores in the first quarter and four new stores in the second quarter of fiscal year 2005. The Company opened one new store in the first quarter and three new stores in the second quarter of fiscal year 2004.

Net interest expense for the twelve and twenty-eight weeks ended April 10, 2005 totaled approximately $0.3 million and $2.1 million, respectively, compared to approximately $1.9 million and $4.3 million, respectively for the same periods of the prior fiscal year. These decreases were primarily due to the voluntarily conversion by bondholders of approximately 159,000 of the Company’s zero coupon convertible debentures to approximately 1.7 million shares of common stock, and an increase in capitalized interest associated with new store development. Capitalized interest for the twelve and twenty-eight weeks ended April 10, 2005 totaled approximately $0.8 million and $1.8 million, respectively, compared to approximately $0.4 million and $0.8 million, respectively, for the same periods of the prior fiscal year. Investment and other income for the twelve and twenty-eight weeks ended April 10, 2005 totaled approximately $2.1 million and $3.3 million, respectively, compared to approximately $1.5 million and $3.0 million, respectively, for the same periods of the prior fiscal year. During the second quarter of fiscal year 2005 we sold all of our investments in short-term corporate bond funds for approximately $103.7 million, resulting in a loss of approximately $0.2 million. During the first quarter of fiscal year 2005, we recognized a loss totaling approximately $1.5 million for other-than-temporary impairment of our investments in short-term corporate bond funds due to a sustained decline in market value. During the first quarter of fiscal year 2004, we sold all of our investments in unrestricted and restricted common shares of Gaiam, Inc. for approximately $1.8 million, resulting in a loss of approximately $0.5 million.

Liquidity and Capital Resources and Changes in Financial Condition

We generated cash flows from operating activities of approximately $128.3 million and $253.4 million for the twelve and twenty-eight weeks ended April 10, 2005, respectively, compared to approximately $114.8 million and $201.4 million, respectively, in the same periods of the prior fiscal year. Cash flows from operating activities resulted primarily from our net income plus non-cash expenses, income tax benefits resulting from the exercise of team member stock options and changes in operating working capital.

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We have a $100 million revolving line of credit available through October 1, 2009. At April 10, 2005, no amounts were drawn and the amount available was effectively reduced to approximately $93.9 million by approximately $6.1 million in outstanding letters of credit. At September 26, 2004, no amounts were drawn and the amount available was effectively reduced to approximately $96.5 million by approximately $3.5 million in outstanding letters of credit.

We have outstanding zero coupon convertible subordinated debentures which had a carrying amount of approximately $78.7 million and $158.8 million at April 10, 2005 and September 26, 2004, respectively. During the first and second quarters of fiscal year 2005, approximately 159,000 debentures were converted at the option of the holders to approximately 1.7 million shares of common stock.

We also had outstanding at April 10, 2005 and September 26, 2004 approximately $11.4 million of senior unsecured notes that bear interest at 7.29% payable quarterly. Principal on the senior notes is payable in annual installments of approximately $5.7 million through May 16, 2006.

Proceeds from the exercise of stock options for the twelve and twenty-eight week periods ended April 10, 2005 totaled approximately $27.5 million and $39.4 million, respectively, compared to approximately $19.3 million and $31.2 million, respectively, in the same periods of the prior fiscal year. The Company issued approximately 0.8 million and 1.2 million shares of Company common stock related to the exercise of Company stock options during the twelve and twenty-eight week periods ended April 10, 2005, respectively, compared to approximately 0.7 million and 1.2 million, respectively, for the same periods of the prior fiscal year.

The following table shows payments due by period on contractual obligations as of April 10, 2005 (in thousands):

Although the timing of any potential redemption is uncertain, the above table includes the assumption that our convertible debentures, shown at accreted value as of April 10, 2005, will be redeemed at the option of the holder on March 2, 2008. The following table shows expirations per period on commercial commitments as of April 10, 2005 (in thousands):

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

On April 5, 2005, the Company announced that its Board of Directors raised the Company’s quarterly dividend from $0.19 per share to $0.25 per share. During the second quarter of fiscal year 2005, the Company declared a cash dividend of $0.25 per share, for a total $16.4 million, to be paid April 25, 2005 to shareholders of record as April 15, 2005. On November 10, 2004, the Company announced that its Board of Directors raised the Company’s quarterly dividend from $0.15 per share to $0.19 per share. During the first quarter of fiscal year 2005, the Company declared a cash dividend of $0.19 per share, for a total of approximately $12.2 million, to be paid January 17, 2005 to shareholders of record as of January 7, 2005. During the first and second quarters of fiscal year 2004, the Company declared cash dividends of $0.15 per share. The Company paid dividends totaling approximately $21.5 million and $9.1 million through the second quarter of fiscal years 2005 and 2004, respectively. The Company will pay future dividends at the discretion of our Board of Directors. The continuation of these payments and the amount of such dividends depend on many factors, including the results of operations and the financial condition of the Company. Subject to such factors and a determination that cash dividends continue to be in the best interest of our shareholders, the current intention of our Board of Directors is to pay a quarterly dividend on an ongoing basis.

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Net cash provided by financing activities was approximately $15.8 million and $19.1 million for the twelve and twenty-eight weeks ended April 10, 2005, respectively, compared to approximately $19.8 million and $22.6 million, respectively, for the same periods of the prior fiscal year.

Our principal historical capital requirements have been the funding of the development or acquisition of new stores and acquisition of property and equipment for existing stores. The required cash investment for new stores varies depending on the size of the new store, geographic location, degree of work performed by the landlord and complexity of site development issues. During the second quarter of fiscal year 2004, we completed the acquisition of Fresh & Wild Holdings Limited, which operated seven natural and organic food stores in London and Bristol, England, for approximately $20 million in cash and approximately $16 million in Company common stock. During the second quarter of fiscal year 2004, the Company loaned $13.5 million to a third-party real estate developer in connection with the construction of a new Company store. During the first quarter of fiscal year 2004, we acquired certain assets of Select Fish LLC, which owned and operated a seafood processing and distribution facility located in Seattle, Washington, in exchange for approximately $3 million in cash plus the assumption of certain liabilities.

At April 10, 2005 and September 26, 2004 we had approximately $33.4 million and $23.2 million, respectively, in restricted cash. These amounts primarily relate to cash held as collateral by third parties to support projected workers’ compensation obligations.

Net cash used in investing activities was approximately $74.3 million and $172.9 million for the twelve and twenty-eight weeks ended April 10, 2005, respectively, compared to approximately $102.8 million and $193.4 million, respectively, for the same periods of the prior fiscal year. Absent any significant cash acquisition, we expect planned expansion and other anticipated working capital and capital expenditure requirements will be funded by cash generated from operations. We continually evaluate the need to establish other sources of working capital and will seek those considered appropriate based upon the Company’s needs and market conditions.

Critical Accounting Policies and Estimates

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

We have chosen accounting policies that we believe are appropriate to report accurately and fairly our operating results and financial position, and we apply those accounting policies in a consistent manner. Our significant accounting policies are summarized in Note 2 to the consolidated financial statements in the Company’s Annual Report on Form 10-K/A Amendment No. 2 for the year ended September 26, 2004. We believe that the following accounting policies are the most critical in the preparation of our financial statements because they involve the most difficult, subjective or complex judgments about the effect of matters that are inherently uncertain.

Insurance and Self-Insurance Reserves

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

Inventory Valuation

We value our inventories at the lower of cost or market. Cost was determined using the last-in, first-out (“LIFO”) method for approximately 95.1% and 94.2% of inventories at April 10, 2005 and September 26, 2004, respectively. Under the LIFO method, the cost assigned to items sold is based on the cost of the most recent items purchased. As a result, the costs of the first items purchased remain in inventory and are used to value ending inventory. The excess of estimated current costs over LIFO carrying value, or LIFO reserve, was approximately $12.9 million and $11.2 million at April 10, 2005 and September 26, 2004, respectively. Costs for the balance of inventories are determined by the first-in, first-out (“FIFO”) method.

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Cost was determined using the retail method for approximately 50% of inventories at April 10, 2005 and September 26, 2004. Under the retail method, the valuation of inventories at cost and the resulting gross margins are determined by applying a cost-to-retail ratio for various groupings of similar items to the retail value of inventories. Inherent in the retail inventory method calculations are certain management judgments and estimates, including shrinkage, which could impact the ending inventory valuation at cost as well as the resulting gross margins. Cost was determined using the item cost method for approximately 50% of inventories at April 10, 2005 and September 26, 2004. This method involves counting each item in inventory, assigning costs to each of these items based on the actual purchase costs (net of vendor allowances) of each item and recording the actual cost of items sold. The item-cost method of accounting allows for more accurate reporting of periodic inventory balances and enables management to more precisely manage inventory and purchasing levels when compared to the retail method of accounting. We believe we have the appropriate inventory valuation controls in place to minimize the risk that inventory values would be materially misstated.

Goodwill and Intangible Assets

We review goodwill for impairment on a reporting unit level annually, or more frequently if impairment indicators arise. We allocate goodwill to one reporting unit for goodwill impairment testing. We determine fair value utilizing both a market value method and discounted projected future cash flows compared to our carrying value for the purpose of identifying impairment. Our evaluation of goodwill and intangible assets with indefinite useful lives for impairment requires extensive use of accounting judgment and financial estimates. Application of alternative assumptions and definitions, such as reviewing goodwill for impairment at a different organizational level, could produce significantly different results.

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 123(R), “Share-Based Payment”, which requires all companies to recognize an expense for share-based payments, including stock options, based on the fair value of the equity instrument. In April 2005, the Securities and Exchange Commission adopted a final rule amending Rule 4-01(a) of Regulation S-X amending the compliance date for FASB Statement No. 123(R) to be effective starting with the first interim or annual reporting period of the first fiscal year beginning on or after June 15, 2005. The provisions of FASB Statement No. 123(R) will be effective for the Company’s first quarter of fiscal year 2006 beginning September 26, 2005. The Company is evaluating the impact of adoption of the provisions of FASB Statement No. 123(R). The Company currently expects to apply the provisions of this statement utilizing the modified prospective method. The Company’s intention, absent certain modifications to FASB Statement No. 123(R) prior to its effective date, is to accelerate the vesting of all outstanding, unvested stock options, excluding options held by the Board of Directors and the members of the Executive Team, sometime prior to September 26, 2005. This accelerated vesting of certain options would create a one-time, mostly non-cash charge in the fourth quarter of this fiscal year totaling approximately $10 million, consisting of the estimated increase in value to the option holders caused by the acceleration plus accrual of certain payroll taxes that will be due upon exercise of the options. The actual amount of the expense would vary based on the closing stock price at the date of the acceleration.

Absent certain modifications to FASB Statement No. 123(R) prior to its effective date, the Company’s also intends to keep its broad-based stock option program in place, but going forward the Company’s intention is to limit the number of shares granted in any one year so that net income dilution from equity-based compensation expense in future years would not exceed 10%. The Company believes this strategy is best aligned with its stakeholder philosophy because it is intented to limit future earnings dilution from options while at the same time retains the broad-based stock option plan, which it believes is important to Team Member morale and to its unique corporate culture and its success.

Risk Factors

We wish to caution you that there are risks and uncertainties that could cause our actual results to be materially different from those indicated by forward-looking statements that we make from time to time in filings with the Securities and Exchange Commission, news releases, reports, proxy statements, registration statements and other written communications, as well as oral forward-looking statements made from time to time by representatives of our Company. These risks and uncertainties include, but are not limited to, those listed in the Company’s Annual Report on Form 10-K/A for the year ended September 26, 2004. These risks and uncertainties and additional risks and uncertainties not presently known to us or that we currently deem immaterial may cause our business, financial condition, operating results and cash flows to be materially adversely affected. Except for the historical information contained herein, the matters discussed in this analysis are forward looking statements that involve risks and uncertainties, including but not limited to general business conditions, the timely development and opening of new stores, the impact of competition, and other factors which are often beyond the control of the Company. The Company does not undertake any obligation to update forward-looking statements except as required by law.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Except as discussed below, there have been no material changes in the Company’s market risk exposures from those reported in our Annual Report on Form 10-K/A for the year ended September 26, 2004.

Market Risk

During the second quarter of fiscal year 2005 we sold all of our investments in short-term corporate bond funds, for approximately $103.7 million, resulting in a loss of approximately $0.2 million. During the first quarter of fiscal year 2005, we recognized a loss totaling approximately $1.5 million for other-than-temporary impairment of our investments in short-term corporate bond funds due to a sustained decline in market value.

Item 4. Controls and Procedures

As discussed in Note 2 to the unaudited consolidated financial statements included in Item 1 of this Report, in February 2005 the Company completed a review of its historical lease accounting methods to determine whether these methods were in accordance with the views expressed by the Office of the Chief Accountant of the Securities and Exchange Commission (“SEC”) on February 7, 2005 in a letter to the American Institute of Certified Public Accountants and other recent interpretations regarding certain operating lease accounting issues and their application under GAAP. As a result of its review, the Company determined that its historical methods of accounting for rent holidays and tenant improvement allowances, and of determining lives used in the calculation of depreciation of leasehold improvements and straight-line rent determination for certain leased properties, were not in accordance with GAAP.

On March 1, 2005, management and the Audit Committee, in consultation with the Company’s independent registered public accounting firm, discussed the above-described operating lease accounting issues, and the Audit Committee concurred with management’s assessment that the Company’s accounting for these items was incorrect and that the Company’s previously issued audited consolidated financial statements for fiscal years 2004, 2003 and 2002 and the unaudited comparative 2004 and 2003 quarterly information should be restated. On March 2, 2005 we filed our Quarterly Report on Form 10-Q for the period ended January 16, 2005 with restated consolidated balance sheet as of September 26, 2004 and restated consolidated statement of operations for the sixteen weeks ended January 18, 2004 to correct for the misstatements discussed above. The Company filed Amendment No. 1 on Form 10-K/A with restated audited consolidated financial statements for fiscal years 2004, 2003 and 2002 and the unaudited comparative 2004 and 2003 quarterly information on March 7, 2005. These restatements were based on guidance and interpretations available at that time and reflected adjustments which, among other items, charged to expense rent incurred or allocated during the store construction period.

After the filing of our restated financial statements on March 7, 2005, the SEC determined that capitalization of land or building rent during the construction period into the historical cost of constructed assets is acceptable. Subsequent interpretations of this SEC guidance by the Company’s and other independent registered accounting firms indicate that a company’s previous practice of accounting for rent during the construction period should be followed in the restatement. This guidance was not available to the Company at the time of the first restatement. After consultation with management and our independent registered accounting firm, our Audit Committee, at a meeting on May 4, 2005, determined that it was therefore appropriate to restate the Company’s previously issued financial statements to return to and continue the Company’s previous practice of capitalizing rent during the construction period. On May 18, 2005 we filed Amendment No. 2 to the Annual Report on Form 10-K/A for Whole Foods Market, Inc. for the fiscal year ended September 26, 2004 as originally filed with the SEC on December 10, 2004 to restate previously issued consolidated financial statements for fiscal years 2004, 2003 and 2002 and the unaudited comparative 2004 and 2003 quarterly information to return to and continue the Company’s previous practice of capitalizing rent during the construction period. On May 18, 2005 we filed Amendment No. 1 to the Quarterly Report on Form 10-Q/A for Whole Foods Market, Inc. for the fiscal period ended January 16, 2005 to restate our consolidated balance sheet as of January 16, 2005 and consolidated statements of operations and cash flows for the sixteen weeks then ended.

Restatement of previously issued financial statements to reflect the correction of misstatement is a strong indicator of the existence of a material weakness in internal control over financial reporting as defined in the Public Company Accounting Oversight Board’s Auditing Standard No. 2, “An Audit of Internal Control Over Financial Reporting Performed in Conjunction With an Audit of Financial Statements.” In light of the determination on March 1, 2005 that previously issued financial statements should be restated, management concluded that a material weakness existed in the Company’s internal control over financial reporting existed as of January 16, 2005 and disclosed this matter to the Audit Committee and to the Company’s independent registered public accounting firm.

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In February 2005, the Company remediated the material weakness in internal control over financial reporting by evaluating its lease accounting methods, and correcting its methods of accounting for rent holidays and tenant improvement allowances, and of determining lives used in the calculation of depreciation of leasehold improvements and straight-line rent determination for certain leased properties.

Management concluded that the result of its subsequent determination on May 4, 2005 to restate previously issued financial statements was not to reflect the correction of a misstatement but rather to reflect adjustments to return to and continue the Company’s previous practice of capitalizing rent during the construction period based on guidance not available to the Company at the time of the first restatement, and therefore not indicative of a material weakness in the Company’s internal control over financial reporting.

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports filed pursuant to the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management, with the participation of the Chief Executive Officer and Chief Financial Officer of the Company, has performed an evaluation of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this Report. Based on that evaluation, which included the matters discussed above, the Chief Executive Officer and Chief Financial Officer of the Company concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Report.

Management, with the participation of the Chief Executive Officer and Chief Financial Officer of the Company, has evaluated any changes in the Company’s internal control over financial reporting that occurred during the most recent fiscal quarter. Based on that evaluation, management, the Chief Executive Officer and the Chief Financial Officer of the Company have concluded that, except for the remediation discussed above, there were no changes in the Company’s internal control over financial reporting during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Section 404 of the Sarbanes-Oxley Act requires the Company’s management to provide an assessment of the effectiveness of the Company’s internal control over financial reporting as of the end of fiscal year 2005. The Company is in the process of performing the system and process documentation, evaluation and testing necessary to make its assessment. The Company has not completed this process or its assessment. In the process of evaluation and testing, the Company may identify deficiencies that will require remediation.

Part II. Other Information

Item 1. Legal Proceedings

The Company is subject to various legal proceedings and claims arising in the ordinary course of business. The Company’s management does not expect that the outcome in the current proceedings, individually or collectively, will have a material adverse effect on the Company’s financial condition, operating results or cash flows.

Item 4. Submission of Matters to Vote of Security Holders

On April 4, 2005, the Company held its annual meeting of shareholders at which shareholders:

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Voting results were as follows:

Item 6. Exhibits

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SIGNATURE

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

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