Whole Foods 2008 Annual Report Download - page 65

Estimated fair values of intangible assets acquired are as follows (in thousands):
Weighted Average
Estimated Useful Lives
Fair Value (Years)
Non-amortizing:
Liquor licenses $ 1,165
Amortizing:
Trade and brand names 6,579 1
Favorable operating leases 25,609 18
Total amortizing 32,188 14
Total $ 33,353
Amortizing intangible assets are amortized on a straight-line basis over their remaining expected useful lives of
approximately one to 33 years.
In connection with the acquisition, the Company recognized liabilities totaling approximately $8.4 million for estimated costs
associated with plans to involuntarily terminate certain team members of Wild Oats, contract termination fees and other legal
reserves totaling approximately $11.4 million, and estimated costs to close certain store locations totaling approximately
$63.9 million. There have been no adjustments to date to the team member termination liabilities. Estimated contract
termination fees and other legal reserves increased approximately $2.1 million during fiscal year 2008. As of September 28,
2008, team member termination liabilities and contract termination fee and other legal reserves were approximately $0.1
million and $7.4 million, respectively, as a result of adjustments and payments made during the fiscal year. Evaluation of
involuntary team member terminations and contract termination activities are substantially complete. Store closure reserves
are discussed further in Note 6 to the consolidated financial statements, “Reserves for Closed Properties.”
The Company assumed debt totaling approximately $148 million in the acquisition consisting primarily of convertible
subordinated debentures and capital lease obligations. The estimated fair value of the debt assumed by the Company was
approximately $134 million. Excluding capital lease obligations, all debt assumed as part of the Wild Oats acquisition was
fully repaid by the end of the first quarter of fiscal year 2008. Debt is discussed further in Note 8 to the consolidated
financial statements, “Long-Term Debt.”
The estimated values of operating leases with unfavorable terms compared with current market conditions totaled
approximately $1.2 million. These leases have an estimated weighted average life of approximately 14 years and are
included in other liabilities.
Henry’s and Sun Harvest Divestiture
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 the first
quarter of fiscal year 2008, the Company received proceeds totaling approximately $165 million. As of September 30, 2007
the proceeds receivable are included on the accompanying Consolidated Balance Sheets under the caption “Proceeds
receivable for divestiture.” As part of purchase accounting for the Wild Oats acquisition, the Henry’s and Sun Harvest net
assets were adjusted to fair value and therefore no gain or loss was recognized related to this divestiture. During fiscal year
2008, the Company finalized the sale price, which effectively reduced total proceeds by approximately $1.1 million.
Transition Services Agreement
In connection with the sale of the Henry’s and Sun Harvest stores, Whole Foods Market entered into a transition services
agreement (“TSA”) with Smart & Final under which Whole Foods Market provided certain general and administrative
services for the 35 stores for up to two years. The TSA provided for payments to the Company calculated for each service
area as a certain percentage of total monthly sales of the Henry’s and Sun Harvest locations, initially totaling 1.75% of total
monthly sales for all services provided under the agreement. The revenue associated with the agreement was approximately
equal to the incremental cost of providing the support. During fiscal year 2008, the Company earned approximately $3.4
million in TSA fees which are included on the accompanying Consolidated Statements of Operations under the caption
“General and administrative expenses.” At the end of fiscal year 2008, services related to the support agreement were
substantially complete.
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