Whole Foods 2013 Annual Report Download - page 38

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Off-Balance Sheet Arrangements
Our off-balance sheet arrangements at September 29, 2013 consisted of operating leases disclosed in the above contractual
obligations table. We have no other off-balance sheet arrangements that have had, or are reasonably likely to have, a material
current or future effect on our consolidated financial statements or financial condition.
Critical Accounting Policies
The preparation of our financial statements in conformity with generally accepted accounting principles requires us to make
estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures of
contingent assets and liabilities. Actual amounts may differ from these estimates. We base our estimates on historical experience
and on various other assumptions and factors that we believe to be reasonable under the circumstances. On an ongoing basis,
we evaluate the continued appropriateness of our accounting policies and resulting estimates to make adjustments we consider
appropriate under the facts and circumstances.
We have chosen accounting policies that we believe are appropriate to report accurately and fairly our operating results and
financial position, and we apply those accounting policies in a consistent manner. Our significant accounting policies are
summarized in Note 2 to the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data.” We
believe that the following accounting policies are the most critical in the preparation of our financial statements because they
involve the most difficult, subjective or complex judgments about the effect of matters that are inherently uncertain.
Inventories
The Company values inventories at the lower of cost or market. Cost was determined using the dollar value retail last-in, first-
out (“LIFO”) method for approximately 92.8% and 92.1% of inventories in fiscal years 2013 and 2012, respectively. Under the
LIFO method, the cost assigned to items sold is based on the cost of the most recent items purchased. As a result, the costs of
the first items purchased remain in inventory and are used to value ending inventory. The excess of estimated current costs over
LIFO carrying value, or LIFO reserve, was approximately $32 million and $30 million at September 29, 2013 and September 30,
2012, respectively. Costs for remaining inventories are determined by the first-in, first-out method. Cost before the LIFO
adjustment is principally determined using the item cost method, which is calculated by counting each item in inventory, assigning
costs to each of these items based on the actual purchase cost (net of vendor allowances) and recording the actual cost of items
sold.
Goodwill and Intangible Assets
Goodwill consists of the excess of cost of acquired enterprises over the sum of the amounts assigned to identifiable assets
acquired less liabilities assumed. Goodwill is reviewed for impairment annually during the Company’s fourth fiscal quarter, or
more frequently if impairment indicators arise, on a reporting unit level. We allocate goodwill to one reporting unit for goodwill
impairment testing. A qualitative assessment is performed to determine whether it is more likely than not that the fair value of
the reporting unit is impaired. If it is more likely than not, we compare our fair value, which is determined utilizing both a market
value method and discounted projected future cash flows, to our carrying value for the purpose of identifying impairment. Our
annual impairment review requires extensive use of accounting judgment and financial estimates. Application of alternative
assumptions and definitions, such as reviewing goodwill for impairment at a different organizational level, could produce
significantly different results. Because of the significance of the judgments and estimation processes, it is possible that materially
different amounts could be recorded if we used different assumptions or if the underlying circumstances were to change.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
We evaluate long-lived assets for impairment whenever events or changes in circumstances, such as unplanned negative cash
flow or short lease life, indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an asset to future undiscounted cash flows expected to be
generated by the asset. If such assets are determined to be impaired, the impairment to be recognized is measured by the amount
by which the carrying amount of the assets exceeds the fair value of the assets. The fair value, based on hierarchy input Level
3, is determined using management’s best estimate based on a discounted cash flow model based on future store operating results
using internal projections or based on a review of the future benefit the Company anticipates receiving from the related assets.
Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Application of alternative
assumptions, such as changes in estimates of future cash flows, could produce significantly different results. Because of the
significance of the judgments and estimation processes, it is likely that materially different amounts could be recorded if we
used different assumptions or if the underlying circumstances were to change.
Insurance and Self-Insurance Liabilities
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