Whole Foods 2011 Annual Report Download - page 47

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payments, accelerated depreciation costs, related asset impairment, and other costs associated with closed facilities. Lease
termination costs consist of estimated remaining net lease payments for terminated leases and idle properties, and associated
asset impairments.
Share-Based Payments
The Company maintains several share-based incentive plans. We grant both options to purchase common stock and restricted
common stock under our Whole Foods Market 2009 Stock Incentive Plan. All options outstanding are governed by the
original terms and conditions of the grants. Options are granted at an option price equal to the market value of the stock at
the grant date and generally vest ratably over a four- or nine-year period beginning one year from grant date and have a five,
seven, or ten year term. The grant date is established once the Company’ s Board of Directors approves the grant and all key
terms have been determined. The exercise prices of our stock option grants are the closing price on the grant date. Stock
option grant terms and conditions are communicated to team members within a relatively short period of time. The Company
generally approves one primary stock option grant annually, occurring during a trading window. Restricted common stock is
granted at the market price of the stock on the day of grant and generally vests over a three-month period.
The Company uses the Black-Scholes multiple option pricing model which requires extensive use of accounting judgment
and financial estimates, including estimates of the expected term team members will retain their vested stock options before
exercising them, the estimated volatility of the Company’ s common stock price over the expected term, and the number of
options that will be forfeited prior to the completion of their vesting requirements. The related share-based payment expense
is recognized on a straight-line basis over the vesting period. The tax savings resulting from tax deductions in excess of
expense reflected in the Company’ s financial statements are reflected as a financing cash flow.
All full-time team members with a minimum of 400 hours of service may purchase our common stock through payroll
deductions under the Company’ s Team Member Stock Purchase Plan (“TMSPP”). The TMSPP provides for a 5% discount
on the shares’ purchase date market value which meets the share-based payment, “Safe Harbor” provisions, and therefore is
non-compensatory. As a result, no compensation expense is recognized for our team member stock purchase plan.
Income Taxes
The Company recognizes deferred income tax assets and liabilities by applying statutory tax rates in effect at the balance
sheet date to differences between the book basis and the tax basis of assets and liabilities. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences
are expected to reverse. Deferred tax assets and liabilities are adjusted to reflect changes in tax laws or rates in the period that
includes the enactment date. The Company may recognize the tax benefit from an uncertain tax position if it is more likely
than not that the tax position will be sustained by the taxing authorities based on technical merits of the position. The tax
benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a
greater than 50% likelihood of being realized upon settlement. Significant accounting judgment is required in determining
the provision for income taxes and related accruals, deferred tax assets and liabilities. The Company believes that its tax
positions are consistent with applicable tax law, but certain positions may be challenged by taxing authorities. In the ordinary
course of business, there are transactions and calculations where the ultimate tax outcome is uncertain. In addition, we are
subject to periodic audits and examinations by the Internal Revenue Service (“IRS”) and other state and local taxing
authorities. Although we believe that our estimates are reasonable, actual results could differ from these estimates.
Treasury Stock
Under the Company’ s stock repurchase program, the Company could repurchase shares of the Company’ s common stock on
the open market that are held in treasury at cost. The subsequent retirement of treasury stock is recorded as a reduction in
retained earnings at cost. The Company’ s common stock has no par value.
Earnings per Share
Basic earnings per share is calculated by dividing net income available to common shareholders by the weighted average
number of common shares outstanding during the fiscal period. Net income available to common shareholders in fiscal years
2010 and 2009 is calculated using the two-class method, which is an earnings allocation method for computing earnings per
share when an entity’ s capital structure includes common stock and participating securities. The two-class method
determines earnings per share based on dividends declared on common stock and participating securities (i.e., distributed
earnings) and participation rights of participating securities in any undistributed earnings. The application of the two-class
method was required since the Company’ s redeemable preferred shares contained a participation feature.
Diluted earnings per share is based on the weighted average number of common shares outstanding plus, where applicable,
the additional common shares that would have been outstanding as a result of the conversion of convertible debt, dilutive
options, and redeemable preferred stock.