Whole Foods 2007 Annual Report Download - page 41

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state and local taxing authorities. Although we believe that our estimates are reasonable, actual results could differ from these
estimates.
Share-Based Payments
The Company maintains several share-based incentive plans. We historically granted options to purchase common stock
under our 1992 Stock Option Plans, as amended. At our annual shareholder’s meeting, on March 5, 2007, our shareholders
approved a new plan, the Whole Foods Market 2007 Stock Incentive Plan. Options are granted pursuant to this new plan.
Under both plans, options are granted at an option price equal to the market value of the stock at the grant date and are
generally exercisable ratably over a four-year period beginning one year from grant date and have a five-year term. The grant
date is established once the Company’s Board of Directors approves the grant and all key terms have been determined. The
exercise prices of our stock option grants are the closing price on the grant date. Stock option grant terms and conditions are
communicated to team members within a relatively short period of time. Our Company generally approves one primary stock
option grant annually, occurring during a trading window.
Our Company offers a team member stock purchase plan to all full-time team members with a minimum of 400 hours of
service. Participating team members may purchase our common stock through payroll deductions. At our annual meeting,
shareholders approved a new Team Member Stock Purchase Plan (“TMSPP”) which became effective on April 1, 2007. The
TMSPP replaces all previous stock purchase plans and provides for a 5% discount on the shares purchase date market value
which meets the “Safe Harbor” provisions of SFAS No. 123R, “Share-Based Payment” and therefore is non-compensatory.
Under the previous plans, participating team members could elect to purchase unrestricted shares at 100% of market value or
restricted shares at 85% of market value on the purchase date.
Prior to the effective date of revised SFAS No. 123R, the Company applied Accounting Principles Board Opinion No. 25
(“APB No. 25”), “Accounting for Stock Issued to Employees” and related interpretations for our stock option grants. APB
No. 25 provides that the expense relative to our team member stock options is measured based on the intrinsic value of the
stock option at date of grant.
Effective the beginning of the first quarter of fiscal year 2006, the Company adopted the provisions of SFAS No. 123R using
the modified prospective transition method. Under this method, prior periods were not restated. The Company uses the
Black-Scholes multiple option pricing model which requires extensive use of accounting judgment and financial estimates,
including estimates of the expected term team members will retain their vested stock options before exercising them, the
estimated volatility of the Company’s common stock price over the expected term, and the number of options that will be
forfeited prior to the completion of their vesting requirements. The related share-based payments expense is recognized on a
straight-line basis over the vesting period. Application of alternative assumptions could produce significantly different
estimates of the fair value of share-based payments and consequently, the related amounts recognized in the Consolidated
Statements of Operations. The provisions of SFAS No. 123R apply to new stock options and stock options outstanding, but
not yet vested, on the effective date.
SFAS No. 123R requires the Company to value unvested stock options granted prior to its adoption of SFAS No. 123 under
the fair value method and expense these amounts in the income statement over the stock option’s remaining vesting period.
In the fourth quarter of fiscal year 2005, the Company accelerated the vesting of all outstanding stock options, except options
held by the members of the executive team and certain options held by team members in the United Kingdom, in order to
prevent past option grants from having an impact on future results. The Company intends to keep its broad-based stock
option program in place, but also intends to limit the number of shares granted in any one year so that annual earnings per
share dilution from share-based payments expense will not exceed 10%.
Prior to the adoption of SFAS No. 123R, the Company presented the tax savings resulting from tax deductions resulting from
the exercise of stock options as an operating cash flow, in accordance with Emerging Issues Task Force (“EITF”) Issue No.
00-15, “Classification in the Statement of Cash Flows of the Income Tax Benefit Received by a Company upon Exercise of a
Nonqualified Employee Stock Option.” SFAS No. 123R requires the Company to reflect the tax savings resulting from tax
deductions in excess of expense reflected in its financial statements as a financing cash flow.
In November 2005, the FASB issued Staff Position No. FAS 123R-3, “Transition Election Related to Accounting for the Tax
Effects of the Share-Based Payment Awards” (“FSP FAS 123R-3”). The Company has elected to adopt the transition
guidance for the additional paid-in-capital pool (“APIC pool”) in paragraph 81 of SFAS No. 123R. The prescribed transition
method is a detailed method to establish the beginning balance of the APIC pool related to the tax effects of share-based
compensation, and to determine the subsequent impact on the APIC pool and Consolidated Statement of Cash Flows of the
tax effects of share-based payment awards that are outstanding upon adoption of SFAS No. 123R.