Whole Foods 2008 Annual Report Download - page 62

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In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an
amendment of FASB Statement No. 133.” SFAS No. 161 amends and expands the disclosure requirements of SFAS No.
133 “Accounting for Derivative Instruments and Hedging Activities” by establishing, among other things, the disclosure
requirements for derivative instruments and hedging activities. This Statement requires qualitative disclosures about
objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on
derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. The provisions
of SFAS No. 161 are effective for fiscal years and interim periods beginning after November 15, 2008, with early application
encouraged. In September 2008, the FASB issued FSP No. FAS 133-1 and FIN 45-4, “Disclosures about Credit Derivatives
and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of
the Effective Date of FASB Statement No. 161,” which clarifies that the effective date applies to any reporting period
beginning after November 15, 2008. SFAS No. 161 is effective for the Company’s second quarter of fiscal year ending
September 27, 2009. We are currently evaluating the impact, if any, that the adoption of SFAS No. 161 will have on our
consolidated financial statements.
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.
(3) Business Combination
Effective August 28, 2007, the Company completed the acquisition of Wild Oats Markets, Inc. (“Wild Oats”) in a cash
tender offer of $18.50 per share, or approximately $565 million plus the assumption of approximately $148 million in
existing debt. 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 in British Columbia. To fund the transaction, we entered into a five-year $700
million senior term loan agreement. We also signed a new five-year $250 million revolving credit agreement that was
increased to $350 million during the third quarter of fiscal year 2008, which replaced our existing $200 million revolver.
Wild Oats results of operations are included in our consolidated financial statements for the period beginning August 28,
2007 through September 28, 2008. In connection with the acquisition of Wild Oats, the Company separately entered into an
agreement to sell certain assets and liabilities, consisting primarily of fixed assets, inventories and operating leases, 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 for approximately $165 million. This sale was completed effective
September 30, 2007. During fiscal year 2008, the Company finalized the sale price, which effectively reduced total proceeds
by approximately $1.1 million. Regarding the other 74 Wild Oats and Capers banner stores the Company acquired in the
Wild Oats Markets transaction, the Company has closed 19 stores, and currently intends to close one additional store and
relocate an additional three stores as existing Whole Foods Market sites in development open through fiscal year 2010.
The Company believes the synergies gained from this business combination will create long term value for our customers,
vendors and shareholders as well as exciting opportunities for our new and existing team members by making us better
positioned to compete in this rapidly changing food retailing environment. Each of our 11 regions gained stores in the
acquisition, with three of our smallest regions, the Florida, Rocky Mountain, and Pacific Northwest regions, gaining critical
mass. The acquisition provided us with immediate entry into five new states: Arkansas, Indiana, Oklahoma, Tennessee and
Utah, and 14 new areas: Bend, OR; Cincinnati, OH; Indianapolis, IN; Lexington, KY; Little Rock, AR; Memphis, TN;
Naples, FL; Nashville, TN; Reno, NV; Salt Lake City, UT; Tampa, FL; Tucson, AZ; Tulsa, OK; and Westport, CT.