Whole Foods 2009 Annual Report Download - page 42

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36
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 investments and 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
investments and long-term debt.
The Company holds money market fund investments that are classified as cash equivalents and restricted cash. These
investments are short-term in nature, and therefore changes in interest rates would not have a material impact on the
valuation of these investments. Interest rate fluctuations would affect the amount of interest income earned on these
investments. We had cash equivalent investments and restricted cash investments totaling approximately $439.0 million and
$70.4 million at September 27, 2009, respectively.
We have outstanding a $700 million, five-year term loan agreement. 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 27, 2009 and September 28, 2008, the loan bore interest based on LIBOR. We believe 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 and contain variable risk premiums based on the Company’s corporate ratings.
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.
We also have outstanding 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 27, 2009, no amounts
were drawn. At September 28, 2008, $26 million was based on ABR and $169 million was based on LIBOR. We believe our
line of credit borrowings do not give rise to significant fair value risk because these borrowings have revolving maturities
and contain variable risk premiums based on the Company’s corporate credit ratings.
Additional term loan and line of credit information for September 27, 2009 and September 28, 2008 are as follows (in
thousands):
2009 2008
Term loan agreement:
Outstanding loan balance $ 700,000 $ 700,000
Fair value of swap agreement (asset) liability $ 20,588 $ 12,451
Variable interest rate, excluding applicable margin on non-swap portion of loan 0.253% 2.469%
Interest rate swap fixed interest rate, excluding applicable margin 4.718% 4.718%
Applicable margin – LIBOR, based on Moody’s and S&P ratings 1.750% 1.375%
Applicable margin – ABR, based on Moody’s and S&P ratings 0.750% 0.375%
Line of credit agreement:
Outstanding line of credit balance $ - $ 195,000
Variable interest rate, excluding applicable margin n/a 4.221%
Applicable margin – LIBOR, based on Moody’s and S&P ratings 1.875% 1.500%
Applicable margin – ABR, based on Moody’s and S&P ratings 0.875% 0.500%
During fiscal year 2009 and due to downgrades 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