Whole Foods 2008 Annual Report Download - page 69

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A summary of applicable interest rates as of the end of fiscal years 2008 and 2007 follows:
2008 2007
Term loan agreement:
Variable interest rate, excluding applicable margin on non-swap portion of loan 2.469% 5.179%
Interest rate swap fixed interest rate, excluding applicable margin 4.718% n/a
Applicable margin – LIBOR, based on Moody’s and S&P ratings 1.375% 1.000%
Applicable margin – ABR, based on Moody’s and S&P ratings 0.375% n/a
Line of credit agreement:
Variable interest rate, excluding applicable margin 4.221% 6.750%
Applicable margin – LIBOR, based on Moody’s and S&P ratings 1.500% 1.000%
Applicable margin – ABR, based on Moody’s and S&P ratings 0.500% n/a
Commitment fee on undrawn amount 0.275% 0.200%
Subsequent to the end of fiscal year 2008 and due to a downgrade in our corporate credit rating by Moody’s and S&P, the
margin applicable to our term loan increased to 0.75% and 1.75% on ABR borrowings and LIBOR borrowings, respectively.
Additionally, the margin applicable to our revolving credit facility increased to 0.875% and 1.875% on ABR borrowings and
LIBOR borrowings, respectively. These applicable margins are currently the maximum allowed under these
agreements. These ratings changes also allow participating banks to obtain security interests in certain of the Company’s
equipment, inventories, accounts receivable, intellectual property and other personal property assets to collateralize amounts
outstanding under the term loan and revolving credit facility. Pursuant to this right, the participating banks have requested
that the Company execute related security agreements and the Company intends to comply timely with this request.
We have outstanding convertible subordinated debentures which had a carrying amount of approximately $2.7 million and
$24.5 million at September 28, 2008 and September 30, 2007, respectively. The Company assumed convertible debentures
totaling approximately $115.0 million in the Wild Oats acquisition, of which approximately $94.2 million was paid off
during fiscal year 2007 and approximately $21.8 million, which included a related conversion premium totaling
approximately $0.9 million, was paid off during fiscal year 2008. The remaining Whole Foods Market debentures have an
effective yield to maturity of 5% and a scheduled maturity date of March 2, 2018. The debentures are convertible at the
option of the holder, at any time on or prior to maturity, unless previously redeemed or otherwise purchased. The debentures
may be redeemed at the option of the holder on March 2, 2013 at the issue price plus accrued original discount to the date of
redemption. Subject to certain limitations, at our option, we may elect to pay this purchase price in cash, shares of common
stock or any combination thereof. The debentures may also be redeemed in cash at the option of the holder if there is a
change in control at the issue price plus accrued original discount to the date of redemption. The Company may redeem the
debentures for cash, in whole or in part, at redemption prices equal to the issue price plus accrued original discount to the
date of redemption. The debentures are subordinated in the right of payment to all existing and future senior indebtedness.
The debentures have a conversion rate of 21.280 shares of Company common stock per $1,000 principal amount at maturity,
or approximately 91,000 shares and 97,000 shares at September 28, 2008 and September 30, 2007, respectively.
Approximately $154,000 and $5.8 million of the carrying amount of the debentures were voluntarily converted by holders to
shares of Company common stock during fiscal years 2008 and 2007, respectively. The Company sent a notice to holders on
November 6, 2008 that the Company intends to redeem remaining debentures on December 8, 2008 at a redemption price
equal to the issue price plus accrued original issue discount totaling approximately $2.7 million.
The Company is committed under certain capital leases for rental of certain equipment, buildings and land. These leases
expire or become subject to renewal clauses at various dates through 2029. Capital leases totaling approximately $19.1
million were assumed with the acquisition of Wild Oats Markets. Lease agreements are discussed further in Note 9 to the
consolidated financial statements, “Leases.”
(9) Leases
The Company is committed under certain capital leases for rental of equipment, buildings, and land and certain operating
leases for rental of facilities and equipment. These leases expire or become subject to renewal clauses at various dates from
2009 to 2054. Amortization of equipment under capital lease is included with depreciation expense.
Rental expense charged to operations under operating leases for fiscal years 2008, 2007 and 2006 totaled approximately
$257.5 million, $201.0 million and $153.1 million, respectively.