Whole Foods 2008 Annual Report Download - page 57

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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 and real estate assets under capital lease 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. The
Company recognizes a liability for the fair value of a conditional asset retirement obligation when the obligation is incurred.
Repair and maintenance costs are expensed as incurred. 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, non-retail facilities and administrative offices 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 for construction and other purposes. We record tenant improvement allowances and rent
holidays as deferred rent liabilities and amortize the deferred rent over the terms of the lease to rent. We record rent liabilities
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.
Goodwill
Goodwill consists of the excess of cost of acquired enterprises over the sum of the amounts assigned to identifiable assets
acquired less liabilities assumed. Goodwill is reviewed for impairment annually, or more frequently if impairment indicators
arise, on a reporting unit level. 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 annual impairment review 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.
Intangible Assets
Intangible assets include acquired leasehold rights, favorable lease assets, trade names, brand names, liquor licenses, license
agreements, non-competition agreements and debt issuance costs. Intangible assets are reviewed for impairment quarterly, or
whenever events or changes in circumstances indicate the carrying amount of an intangible asset may not be recoverable. We
amortize definite-lived intangible assets on a straight-line basis over the life of the related agreement, currently one to 46
years for contract-based intangible assets and one to five years for marketing-related and other identifiable intangible assets.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying
amount of an asset to future undiscounted cash flows expected to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds
the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to
sell. When the Company commits to relocate a location, a charge to write down the related assets to their estimated net
recoverable value is included in the “Relocation, store closure and lease termination costs” line item in the Consolidated
Statements of Operations.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, trade and other accounts receivable, trade accounts payable, accrued
payroll, bonuses and team member benefits, and other accrued expenses approximate fair value because of the short maturity
of those instruments. Store closure reserves and estimated worker’s compensation claims are recorded at net present value to
approximate fair value.
The carrying amounts of our five-year term loan and outstanding amounts on our revolving line of credit approximate fair
value because they have variable interest rates which reflect market changes to interest rates. The fair value of convertible