Whole Foods 2007 Annual Report Download - page 51

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Whole Foods Market, Inc.
Notes to Consolidated Financial Statements
Fiscal years ended September 30, 2007, September 24, 2006 and September 25, 2005
(1) Description of Business
Whole Foods Market, Inc. and its consolidated subsidiaries (collectively “Whole Foods Market,” “Company,” or “We”) own
and operate 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 over the last 27 years. We opened our first store in Texas in 1980 and, as of September
30, 2007 we have expanded our operations both by opening new stores and acquiring existing stores from third parties to 276
stores: 263 stores in 37 U.S. states and the District of Columbia; seven stores in Canada; and six stores in the United
Kingdom.
Effective August 28, 2007, the Company completed the acquisition of Wild Oats Markets, Inc. (“Wild Oats”), a leading
natural and organic foods retailer in North America, in a cash tender offer of $18.50 per share, or approximately $565
million plus the assumption of approximately $148 million in existing debt. Wild Oats results of operations are included in
our Consolidated Statements of Operations for the period beginning August 28, 2007 through September 30, 2007. At the
date of acquisition, Wild Oats had 109 stores in 23 states and British Columbia, Canada operating under four banners: Wild
Oats Marketplace nationwide, Henry’s Farmers Market (“Henry’s”) in Southern California, Sun Harvest in Texas, and
Capers Community Market (“Capers”) in British Columbia. In connection with the acquisition of Wild Oats, the Company
separately entered into an agreement to sell certain assets and liabilities related to all 35 Henry’s and Sun Harvest stores and
a related distribution center in Riverside, CA to a wholly owned subsidiary of Smart & Final, Inc., a Los Angeles-based food
retailer. Subsequent to year-end, the Company received proceeds totaling approximately $165 million for the net assets of
those stores, consisting primarily of fixed assets, inventories and operating leases. This sale was completed effective
September 30, 2007. Of the remaining 74 Wild Oats and Capers banner stores the Company acquired in the Wild Oats
Markets transaction, the Company has closed nine stores, including one that will re-open after an extended renovation
period, and relocated two stores to date, and currently intends to close an additional store, re-open the renovated location,
and relocate an additional seven stores to existing Whole Foods Market sites in development.
(2) Summary of Significant Accounting Policies
Definition of Fiscal Year
We report our results of operations on a 52- or 53-week fiscal year ending on the last Sunday in September. Fiscal year 2007
was a 53-week year and fiscal years 2006 and 2005 were 52-week years.
Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted
accounting principles. All significant majority-owned subsidiaries are consolidated on a line-by-line basis, and all significant
intercompany accounts and transactions are eliminated upon consolidation.
Cash and Cash Equivalents
We consider all highly liquid investments with an original maturity of 90 days or less to be cash equivalents.
Investments
We classify as available-for-sale our cash equivalent investments and our short-term and long-term investments in debt and
equity securities that have readily determinable fair values. Available-for-sale investments are recorded at fair value.
Unrealized holding gains and losses, net of the related tax effect, on available-for-sale investments are excluded from
earnings and are reported as a separate component of shareholders’ equity until realized. A decline in the fair value of any
available-for-sale security below cost that is deemed to be other-than-temporary or for a period greater than two fiscal
quarters results in a reduction in carrying amount to fair value. The impairment is charged to earnings and a new cost basis of
the security is established. Cost basis is established and maintained utilizing the specific identification method.
Restricted Cash
Restricted cash primarily relates to cash held as collateral to support a portion of our projected workers’ compensation
obligations.
Inventories
We value our inventories at the lower of cost or market. Cost was determined using the last-in, first-out (“LIFO”) method for
approximately 81.7% and 93.9% of inventories in fiscal years 2007 and 2006, respectively. Under the LIFO method, the cost