7.Lease Accounting and Pro Forma Analysis. When answering the following questions regarding Whole Foods Market, Inc. (WFM), use WFM's definition of operating income and assume the following for the year-ended September 25, 2016:

1) WFM uses a discount rate of 5.2%,

2) the present value of future minimum lease payments for WFM's operating leases is $5,992M at both September 25, 2016 and September 27, 2015 (i.e., the present value of future minimum lease payments for WFM's operating leases is the same at the beginning and end of 2016) and

3) the average remaining life of a lease is 20 years as of both the beginning and end of 2016.

a)Compute WFM's operating income for fiscal year 2016 using estimates of how the 2016 operating income would have been reported if WFM had reported all operating leases as financing leases. [Please round your answer to the nearest $1M; e.g., $1.6M rounds to $2M].

Operating income if WFM had reported all operating leases as financing leases:

_______________

b)How much of the rental expense for fiscal year 2016 would have been classified as interest expense if WFM had reported all operating leases as financing leases? [Please round your answer to the nearest $1M; e.g., $1.576M rounds to $2M].

Rental expense classified as interest expense if WFM had reported all operating leases as financing leases:

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Whole Foods Market , Inc . Consolidated Balance Sheets ( In millions ) September 25 .` September 27 . Assets 2076 2075 Current assets :" Cash and cash equivalents* $ 357 237 Short -term investments - available - for-sale securities 379 155 Restricted cash* 122 127 Accounts receivable* 242 218 Merchandise inventories* 517 500 Prepaid expenses and other current assets 167 108 Deferred income taxes* 197 199 Total current assets* 1, 975 1. 544 Property and equipment , net of accumulated depreciation and amortization* 3, 442 3, 163 Long-term investments - available - for-sale securities 63 Goodwill* 710 710 Intangible assets , net of accumulated amortization 74 100 79 Deferred income taxes 144 Other assets 40 38 Total assets 5 . 347 $ 5 . 741 Liabilities and Shareholders" Equity Current liabilities ." Current installments of long-term debt and capital lease obligations $ 3 3 Accounts payable 307 295 Accrued payroll , bonus and other benefits due team members 407 436 Dividends payable* 43 45 Other current liabilities 5 81 473 Total current liabilities 1. 3:41 1. 252 Long-term capital lease obligations , less current installments 1. 048 62 Deferred lease liabilities* $40 587 Other long-term liabilities BB 71 Total liabilities 1. 972 Commitments and contingencies Shareholders' equity " Common stock , no par value . 1 , 200 shares authorized ;\\ 377. 0 and 377 . 7 shares issued ; 378. 3 and 348.9 shares outstanding at 2016 and 2075 . respectively 2.933 2. 904 Common stock in treasury , at cost . 58. 7 and 28. 2 shares at 2016 and 2075 , respectively* 12, 026) ( 1 , 124 ) Accumulated other comprehensive 1055 (32 ) ( 2 8 ) Retained earnings 2, 349 2,017 Total shareholders' equity 3 . 224 3 . 76.9 Total liabilities and shareholders equity 6. 3:41 $ 5 , 741 The accompanying notes are an integral part of these consolidated Financial statementsWhole Foods Market , Inc . Consolidated Statements of Operations Fiscal years ended September 25, 2016, September 27 , 2015 and September 28 , 2014 ( In millions , except per share amounts ! 2016 2075 2074 Sales 15, 724\\ 15, 389} 14, 194 Cost of goods sold and occupancy costs 10, 313 9. 973 9. 150 Gross profit 5, 471 5, 416 5, 0144 Selling , general and administrative expenses 4, 477 4, 472 4, 032 Pre- opening expenses 6:4 67 67 Relocation , store closure and lease termination costs 13 16 11 Operating income 8.61 934 Interest expense* ( 41 ) Investment and other income* 17 LL 12 Income before income taxes $78 945 Provision for income taxes 320 342 367 Net income* 5.07 535; $ 579 Basic earnings per share* 1.55 { 1. 49 $ 1.57 Weighted average Shares outstanding 326 .7 3.58.5 367 . 8 Diluted earnings per share* 1.55 1. 48 $ 1.56 Weighted average shares outstanding , diluted basis 326.9 360. 8 370.5 Dividends declared per common Share $ 0.54 $ 0.52 $ 0. 48 The accompanying notes are an integral part of these consolidated financial statements .Whole Foods Market , Inc . Consolidated Statements of Comprehensive Income* Fiscal years ended September 25, 2016, September 27 , 2015 and September 28, 2074 ( In millions ) 2016 207.5 2074 Net income* 507 536 579 Other comprehensive loss , net of tax " Foreign currency translation adjustments ( 4) ( 21 ) (B ) Other comprehensive loss , net of tax ( 4) ( 21 ) Comprehensive income 503 575\\ 571 The accompanying notes are an integral part of these consolidated financial statementsWhole Foods Market , Inc .\\ Consolidated Statements of Shareholders" Equity Fiscal years ended September 25, 2016, September 27 , 2075 and September 28 , 201 4 ( In millions ) Accumulated Common other Total Shares Common\\ stock in comprehensive\\ Retained \\shareholders." outstanding stock treasury income ( 1055 ) earnings EQUITY Balances at September 29, 2013 372.4 $ 2.765 $ ( 15.3 1 5 1 . 265 $ 3. 87B Net income* 579 579 Other comprehensive loss , net of tax ( B ) ( B ) Dividends ( $0. 48; per common share*) ( 176 ) ( 176 ) Issuance of common stock pursuant to team member stock plans 21 20 41 Purchase of treasury stock ( 13.9 ) ( 578 ) ( 57 B ) Tax benefit related to exercise of team member stock options Share - based payment Expense* GB GB Balances at September 28 , 2014 717 ) | | | E / I{ 360. 4 2 . 863 536 3 . 873 Net income* 536 Other comprehensive loss , net of tax |1 1 1 { ( 21 ) ( 21 ) Dividends ( $0. 52 per common share*) ( 7BG ) ( 185 ) Issuance of common stock pursuant to team member stock plans 2.3 134 ) 100 Purchase of treasury stock ( 13 . 8 ) ( 57.3 ) ( 513) Tax benefit related to exercise of team LL member stock options 71 Share - based payment expense GA 6:4 Other Balances at September 21 , 2075 3:48.9 2, 404\\ (1, 124 ) 2,017 3. 769 Net income* 507 507 Other comprehensive loss , net of tax | | | | Dividends ( $0. 54 per common share* ) ( 4 ) ( 174 ) ( 4 ) ( 17 4 ) Issuance of common stock pursuant to team member Stock plans 1 . 1 ( 23) 42 19 Purchase of treasury stock (31.7 ) ( 94 4 ) ( 94 4) Tax benefit related to exercise of team* member stock options 3 W Share - based payment expense 49 1 1 49 Other Balances at September 25 , 2016 378.3 $ 2.933 $ 12, 026 ) $| (32 ) $ 2.349 3 , 224 The accompanying notes are an integral part of these consolidated financial statements .Whole Foods Market Inc. Consolidated Statements at Cash Flows* FISCAL Years ENDED September 25. ZONE. SEPTEMber 21 . 2015 and September 24. 2714 ZOTE Cash flows from operating activities Net INCCITE $ 5i'd AUKLETTIENES to reconcile net Income to net cash provided by aoperating* LLE Depreciation and amortization \\Impairment of long - lived aSEEKS STATE- BASED PENITENT ERJETEE LIFE EYETEE ThenEm!! !* DETECTEd Income tax EXPENSE (benefit ] EXCESS tax benefit related to Exercise at team member stock options Accretion of prunjun`discount un marketable Securities* DETECTEd lease liabilities* LITTER\\ } } { - BEFAST FFERBE NEt change In current assets and liabilities ." " CECE- OF FEEMEN^ ^ Accounts receivable* Merchandise Inventories* PTEpaid Expenses and other curent assets ACCOUNTS Payable* ANDGIVEN PayTall , bonus and other Lanett QUE JEani minitErs DAher LunTent Ilabilities* Net change In other long- LETTI liabilities Nat cash provided by operating activities 1 . 120 Cash flows from Investing activities Development costs at new locations 13:051 1321) |447) 191.51 Litter Property and Equ JIMTent Expenditures 13:35) Purchases at available - for -sale Securities* 1721) Sales and maturities of available - for- sale Scounties 131 1. [154 Purchases of Intangible 355ELS 12 DEcrease [increase ; In restricted cash Payment for purchase of acquired Entitles , net of cash acquired (171 (191 (121 1731 Dither Investing activities What cash LEEd In Investing activities 45.51 Cash flows from financing activities Purchases at treasury stock 12:441 151.31 HAITITOT Stack. dividends paid Issuance Of Common Stock` 19 Excess tax benefit related to EXERCISE Of team Inuniter stack catlane PROCEEDS from long-term Landings EEN ~ | | EI?` JU = IIEVERY PROCEEDS Tramirevolving line of credit 300 Paymen's on long-term debit and capital lease callqations 130 E] WithEr financing activities TELL Net cash used In financing activities Effect of exchange rate changes on cash and cash Equivalent's Wet change In cash and cash Equivalents\\ 714 Lash and cash Equivalents at beginning at parlay* 237 120 270 Lash and Cash EQUIVALENT at End Of NANCY 237 $ 15 E 120 Supplemental { {closure of cash flow Information - $ LLE Federal and state Income taxEs palo Interest paid $ $ 27|101 Leaves THE Company Is. canin thed under certain capital leases for menial at certain bullyings, land and equipment , and certain operating leases for rental of facilities and equipment . These leases expire or become subject to renewal clauses at varlaws dates tam MING to 254. The Company had capital lease callgations totaling approximately $50 million and It's million at September 25, 2:16 and September 27. ZITS, respectively. Rental expense changed to aFerallare under operating leases for fiscal years MITE, 275 and 27 4 totaled approximately $ 1 ]] million , $141 million and $407 million, respectively, which Included contingent rentals totaling approximately $ 1 2 million , $1.4 million and $1.3 million during those Same periods_ Sublease rental Income was not material during thecal year ZONE , 2015 or 2714. Prepaid rent Is Included In the* Either currentassets" I've Hannion the Longalldated Balance Sheets and icaled approximately* $ 4 million and $ } million at September 25. ``IG and September 21. A`s, respectively . MylinkInnum rendall Commitments and Sublease rental Income required by all mancancelable lezzes are approximately as follows |In ITIllaTE ! _` LEalfall Updating Fiscal year CUT ! Fiscal year ZOTE 572 Fiscal year ZOID 55] Fiscal year ZOZI ` LI # LA LA LA| SEE Fiscal year 2027 5ED Future fiscal YEARS 6. 48.5 9, 171 LESS BITjaunts representing Interest Net present Value of capital lease Obligations THE present values of future mini numin all getlongs for capitalleases shannahave are calculated based on interestrates datenniley at the Inception of the lease ar upan acquisition of the original lease . The Future minimum still gatlane for operating leases Stunn above Include locations In development It'll Income Taxes LOTTOTents at Income tax Expense for the fiscal Years Indicated were & fallon's 'n mulllars ! ` ZOTE 2015 2014 Current federal Income tax 2 27 359 QUITEn't state Income tax 5 2 $ 310 [1] $2 TIT Current fare In IncanIc tax Total Qument laz* 274 38.5 147 DEFEATEd Federal Income tax 41 |4:05 DEFEATEd State Income tax` 121 DEFEATEd Foreign Income tax [1] Total JETCITED LE` ITE ] THE INCUTIE LZ`` EXFATIGUE 3201{ 3/42 Actual Income tax Expense for the fiscal years Indicated differed from the amount confused by applying statutory corporate* INCOME tax rates to Income GETare Income taxes as fallons I'm millions ] .` ZOTE 2015 2014 Federal Income tax based on statutary rates 32.1 increase ( reductions In Income taxes resulting thank Tax - Exempt Interest EXCESS Charitable contributions* 191 Federal Income tax credits Later , net 10 2 Tmal TedETal InQUIT = LAKE's 205 BE 40 32 1 State Income taxes . net at federal Income tax benefit Tax Impact of foreign operations 3.20 12] Total Income tax ESDENISE