Whole Foods 2010 Annual Report Download - page 26

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Direct Store Expenses
Direct store expenses totaled approximately $2.38 billion, $2.15 billion and $2.11 billion in fiscal years 2010, 2009 and
2008, respectively. Decreased direct store expenses as a percentage of sales in fiscal year 2010 reflect leverage in
depreciation, asset impairment charges, and health care costs, partially offset by an increase in workers’ compensation
expense, as a percentage of sales. Direct store expenses as a percentage of sales tends to be higher for new stores and
decrease as stores mature, reflecting increasing operational productivity of the store teams.
General and Administrative Expenses
General and administrative expenses totaled approximately $272.4 million, $243.7 million and $270.4 million in fiscal years
2010, 2009 and 2008, respectively. The decrease in general and administrative expenses as a percentage of sales starting in
fiscal year 2009 was primarily due to cost-containment measures implemented at the Company’s global and regional offices
beginning in the fourth quarter of fiscal year 2008. General and administrative expenses for fiscal year 2010 include share-
based payment costs related to restricted common stock grants of approximately $4.2 million. General and administrative
expenses for fiscal years 2010, 2009 and 2008 include FTC-related legal costs totaling approximately $2.5 million, $14.7
million and $2.5 million, respectively.
Pre-opening Expenses
Pre-opening expenses totaled approximately $38.0 million, $49.2 million and $55.6 million in fiscal years 2010, 2009 and
2008, respectively. The Company opened 16, 15 and 20 new store locations during fiscal years 2010, 2009 and 2008,
respectively. Average pre-opening expense per new store, including pre-opening rent, totaled approximately $2.6 million,
$3.0 million and $2.5 million in fiscal years 2010, 2009 and 2008, respectively.
Relocation, Store Closure and Lease Termination Costs
Relocation, store closure and lease termination costs totaled approximately $11.2 million, $31.2 million and $36.5 million in
fiscal years 2010, 2009 and 2008, respectively. The Company relocated or closed 1, 6 and 21 store locations during fiscal
years 2010, 2009 and 2008, respectively. Fiscal year 2008 store closures primarily relate to the acquisition of Wild Oats
Markets. Relocation, store closure and lease termination costs for fiscal years 2010, 2009 and 2008 include charges totaling
approximately $6.9 million, $9.5 million and $14.7 million, respectively, to increase store closure reserves for increased
estimated net lease obligations for closed stores and approximately $1.0 million, $4.4 million and $5.5 million, respectively,
in costs related to lease modifications or terminations for stores previously in development. During fiscal year 2010, the
Company recorded a gain totaling approximately $3.2 million related to the sale of a non-operating property. The Company
recorded a charge totaling approximately $4.8 million in fiscal year 2009 to adjust the carrying value of leases and fixed
assets to fair value relating to the potential sale of certain operating locations as part of the Federal Trade Commission
(“FTC”) settlement agreement.
Interest Expense
Interest expense, net of amounts capitalized, was approximately $33.0 million, $36.9 million and $36.4 million in fiscal years
2010, 2009 and 2008, respectively. Interest expense for fiscal years 2010, 2009 and 2008 consists principally of interest
expense on the term loan we entered into on August 28, 2007 to finance the acquisition of Wild Oats Markets. The reduction
in net interest expense in fiscal year 2010 is primarily due to the repayment during the third quarter of the $210 million
portion of the term loan that was not subject to an interest rate swap agreement. The Company had no amounts outstanding
on its revolving line of credit at September 26, 2010 or September 27, 2009.
Investment and Other Income
Investment and other income includes investment gains and losses, interest income, rental income and other income totaling
approximately $6.9 million, $3.4 million and $6.7 million in fiscal years 2010, 2009 and 2008, respectively. The Company
held higher average investment balances during fiscal year 2010.
Income Taxes
Income taxes resulted in an effective tax rate of approximately 40.3%, 41.5% and 44.5% in fiscal years 2010, 2009 and
2008, respectively. The higher effective tax rate for fiscal year 2008 resulted primarily from the repatriation of cash from the
Company’s Canadian subsidiary.