Whole Foods 2011 Annual Report Download - page 46

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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 $109.4 million and $101.1 million at September 25, 2011 and
September 26, 2010, 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 the 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 6 months to 18 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.
Capital lease properties that are closed are reduced to their estimated fair value. Reduction in the carrying values of property,
equipment and leasehold improvements are recognized when expected net future cash flows are less than the assets’ carrying
value. The Company estimates net future cash flows based on its experience and knowledge of the area in which the closed
property is located and, when necessary, utilizes local real estate brokers.
Revenue Recognition
We recognize revenue for sales of our products at the point of sale. Discounts provided to customers at the point of sale are
recognized as a reduction in sales as the products are sold. Sales taxes are not included in revenue.
Cost of Goods Sold and Occupancy Costs
Cost of goods sold includes cost of inventory sold during the period (net of discounts and allowances), distribution and food
preparation costs, and shipping and handling costs. The Company receives various rebates from third party vendors in the
form of purchase or sales volume discounts and payments under cooperative advertising agreements. Purchase volume
discounts are calculated based on actual purchase volumes. Volume discounts and cooperative advertising discounts in
excess of identifiable advertising costs are recognized as a reduction of cost of goods sold when the related merchandise is
sold. Occupancy costs include store rental costs, property taxes, utility costs, repair and maintenance costs, and property
insurance. Our largest supplier, United Natural Foods, Inc., accounted for approximately 31%, 27% and 28% of our total
purchases in fiscal years 2011, 2010 and 2009, respectively.
Direct Store Expenses
Direct store expenses consist of store-level expenses such as salaries and benefits costs, supplies, depreciation, community
marketing and other store-specific costs. Advertising and marketing expense for fiscal years 2011, 2010 and 2009 was
approximately $43.2 million, $37.9 million and $32.9 million, respectively. Advertising costs are charged to expense as
incurred.
General and Administrative Expenses
General and administrative expenses consist of salaries and benefits costs, occupancy and other related costs associated with
corporate and regional administrative support services.
Pre-opening Expenses
Pre-opening expenses include rent expense incurred during construction of new facilities and costs related to new location
openings, including costs associated with hiring and training personnel, smallwares, supplies and other miscellaneous costs.
Rent expense is generally incurred approximately one year prior to a store’ s opening date. Other pre-opening expenses are
incurred primarily in the 60 days prior to a new store opening. Pre-opening costs are expensed as incurred.
Relocation, Store Closure and Lease Termination Costs
Relocation costs consist of moving costs, estimated remaining net lease payments, accelerated depreciation costs, related
asset impairment, and other costs associated with replaced facilities. Store closure costs consist of estimated remaining lease