Whole Foods 2010 Annual Report Download - page 45

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intangible assets at fair value resulting from impairment as applicable. The fair value is determined using management’s best
estimate based on a discounted cash flow model based on future store operating results using internal projections. When the
Company determines assets related to an operating location are impaired, a charge to write down the related assets to fair
value is included in the “Direct store expenses” line item on the Consolidated Statements of Operations. When the Company
commits to relocate, close, or dispose of a location, a charge to write down the related assets is included in the “Relocation,
store closure and lease termination costs” line item on the Consolidated Statements of Operations.
Effective January 18, 2010, the Company adopted the provisions of Accounting Standards Update (“ASU”) No. 2010-06,
“Improving Disclosures about Fair Value Measurements.” Specifically, the Company updated the determination of a class of
assets or liabilities for which separate fair value measurement should be disclosed and the need to disclose valuation
techniques used to measure both recurring and nonrecurring Level 2 or Level 3 fair value measurements, based on clarified
guidance. Expanded disclosures related to significant transfers in and out of Level 1 and Level 2, and the requirement related
to the presentation of the Level 3 reconciliation, were not applicable to the Company during fiscal year 2010 as we had no
transfers in valuation levels or Level 3 financial assets and liabilities.
Derivative Instruments
The Company utilizes derivative financial instruments to hedge its exposure to changes in interest rates. All derivative
financial instruments are recorded on the balance sheet at their respective fair value. The Company does not use financial
instruments or derivatives for any trading or other speculative purposes. Hedge effectiveness is measured by comparing the
change in fair value of the hedged item with the change in fair value of the derivative instrument. The effective portion of the
gain or loss of the hedge is recorded on the Consolidated Balance Sheets under the caption “Accumulated other
comprehensive income (loss).” Any ineffective portion of the hedge, as well as amounts not included in the assessment of
effectiveness, is recorded on the Consolidated Statements of Operations under the caption “Interest expense.”
Effective January 19, 2009, the Company adopted amendments to ASC 815, “Derivatives and Hedging,” that establishes,
among other things, the disclosure requirements for derivative instruments and hedging activities. The guidance 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.
Effective July 5, 2010, the Company adopted the provisions of ASU No. 2010-11, “Scope Exceptions Related to Embedded
Credit Derivatives,” which amends ASC 815, “Derivatives and Hedging.” The amended guidance clarifies the scope
exception for embedded credit derivative features related to the transfer of credit risk in the form of subordination of one
financial instrument to another. The amendments address how to determine which embedded credit derivative features,
including those in collateralized debt obligations and synthetic collateralized debt obligations, are considered to be embedded
derivatives that should not be analyzed for potential bifurcation and separate accounting as well as under which
circumstances embedded credit derivative features would not qualify for the scope exception and would be subject to
potential bifurcation and separate accounting. The adoption of this provision did not affect our consolidated financial
statements.
Insurance and Self-Insurance Reserves
The Company uses a combination of insurance and self-insurance plans to provide for the potential liabilities for workers’
compensation, general liability, property insurance, director and officers’ liability insurance, vehicle liability, and employee
health care benefits. Liabilities associated with the risks that are retained by the Company are estimated, in part, by
considering historical claims experience, demographic factors, severity factors and other actuarial assumptions. The
Company had insurance liabilities totaling approximately $101.1 million and $86.9 million at September 26, 2010 and
September 27, 2009, respectively, included in the “Other current liabilities” line item on the Consolidated Balance Sheets.
Reserves for Closed Properties
The Company maintains reserves for retail stores and other properties that are no longer being utilized in current operations.
The Company provides for closed property operating lease liabilities using a present value of the remaining noncancelable
lease payments and lease termination fees after the closing date, net of estimated subtenant income. The closed property lease
liabilities are expected to be paid over the remaining lease terms, which generally range from 1 to 19 years. The Company
estimates subtenant income and future cash flows based on the Company’s experience and knowledge of the area in which
the closed property is located, the Company’s previous efforts to dispose of similar assets and existing economic conditions.
The reserves for closed properties include management’s estimates for lease subsidies, lease terminations and future
payments on exited real estate. Adjustments to closed property reserves primarily relate to changes in existing economic
conditions, subtenant income or actual exit costs differing from original estimates. Adjustments are made for changes in
estimates in the period in which the changes become known.