Whole Foods 2008 Annual Report Download - page 47

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In April 2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets.” FSP No. FAS
142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets.” The intent of the
position is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the
period of expected cash flows used to measure the fair value of the asset under SFAS No. 141R, and other U.S. generally
accepted accounting principles. The provisions of FSP No. FAS 142-3 are effective for fiscal years beginning after
December 15, 2008. FSP No. FAS 142-3 is effective for the Company’s fiscal year ending September 26, 2010. We will
evaluate the impact, if any, that the adoption of FSP No. FAS 142-3 could have on our consolidated financial statements.
In May 2008, the FASB issued FSP No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in
Cash upon Conversion (Including Partial Cash Settlement).” FSP No. APB 14-1 clarifies that convertible debt instruments
that may be settled in cash upon conversion (including partial cash settlement) are not addressed by paragraph 12 of APB
Opinion No. 14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants” and specifies that such
users should separately account for the liability and equity components in a manner that will reflect the entity’s
nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. The provisions of FSP No. APB
14-1 are effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. FSP No.
APB 14-1 is effective for the Company’s first quarter of fiscal year ending September 26, 2010. We are currently evaluating
the impact, if any, that the adoption of FSP No. APB 14-1 will have on our consolidated financial statements.
Disclaimer on Forward-Looking Statements
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 integration of acquired stores, the impact of competition and changes in government regulation.
For a discussion of these and other risks and uncertainties that may affect our business, see "Item 1A. Risk Factors." The
Company does not undertake any obligation to update forward-looking statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to interest rate changes and changes in market values of our long-term debt. We do not use financial
instruments for trading or other speculative purposes. We are also exposed to foreign exchange fluctuations on our foreign
subsidiaries.
Interest Rate Risk
We seek to minimize the risks from interest rate fluctuations through ongoing evaluation of the composition of our long-term
debt.
During fiscal year 2007, the Company entered into a $700 million, five-year term loan agreement to finance the acquisition
of Wild Oats Markets. The loan bears interest at our option of the alternative base rate (“ABR”) plus an applicable margin or
LIBOR plus an applicable margin, based on the Company’s Moody’s and S&P ratings. At September 28, 2008, the loan bore
interest at LIBOR. Our term loans do not give rise to significant fair value risk because they are variable interest rate loans
with revolving maturities which reflect market changes to interest rates. During fiscal year 2008, the Company entered into a
three-year interest rate swap agreement with a notional amount of $490 million to fix the interest rate at 4.718%, excluding
applicable margin and associated fees, to help manage our exposure to interest rate fluctuations.
During fiscal year 2007, the Company also entered into a $250 million revolving line of credit that extends to 2012. The
credit agreement contained an accordion feature, which the company exercised during fiscal year 2008, to increase the
revolving credit facility to $350 million. All outstanding amounts under this agreement bear interest at our option of the ABR
plus an applicable margin or LIBOR plus an applicable margin, based on the Company’s Moody’s and S&P ratings. At
September 28, 2008, $26 million was at ABR and $169 million was at LIBOR. Our line of credit borrowings do not give rise
to significant fair value risk because these borrowings have revolving maturities.