Whole Foods 2013 Annual Report Download - page 51

42
Restricted Cash
Restricted cash primarily relates to cash held as collateral to support a portion of our projected workers’ compensation obligations.
Additionally, the Company holds restricted cash as a rent guarantee on certain operating leases through March 2014.
Accounts Receivable
Accounts receivable are shown net of related allowances and consist primarily of credit card receivables, occupancy-related
receivables, customer purchases and vendor receivables. Vendor receivable balances are generally presented on a gross basis
separate from any related payable due. Allowance for doubtful accounts is calculated based on historical experience, customer
credit risk and application of the specific identification method and totaled approximately $3 million and $4 million in fiscal
years 2013 and 2012, respectively.
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) of each item and recording the actual
cost of items sold.
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation and amortization. The Company provides depreciation
of equipment over the estimated useful lives (generally 3 to 15 years) using the straight-line method, and provides amortization
of leasehold improvements and real estate assets under capital leases on a straight-line basis over the shorter of the estimated
useful lives of the improvements or the expected terms of the related leases. The Company provides depreciation of buildings
over the estimated useful lives (generally 20 to 50 years) using the straight-line method. Costs related to a projected site determined
to be unsatisfactory and general site selection costs that cannot be identified with a specific store location are charged to operations
currently. The Company recognizes a liability for the fair value of a conditional asset retirement obligation when the obligation
is incurred. Repair and maintenance costs are expensed as incurred. Upon retirement or disposal of assets, the cost and related
accumulated depreciation are removed from the balance sheet and any gain or loss is reflected in earnings.
Leases
The Company leases stores, non-retail facilities and administrative offices under operating leases. Store lease agreements
generally include rent holidays, rent escalation clauses and contingent rent provisions for percentage of sales in excess of specified
levels. We recognize rent on a straight-line basis over the expected term of the lease, which includes rent holiday periods and
scheduled rent increases. The expected lease term begins with the date the Company takes possession of the leased space for
construction and other purposes. The expected lease term may also include the exercise of renewal options if the exercise of the
option is determined to be reasonably assured. The expected term is also used in the determination of whether a store is a capital
or operating lease. Amortization of land and building under capital lease is included with occupancy costs, while the amortization
of equipment under capital lease is included with depreciation expense. Additionally, we review leases for which we are involved
in construction to determine whether build-to-suit and sale-leaseback criteria are met. For those leases that trigger specific build-
to-suit accounting, developer assets are recorded during the construction period with an offsetting liability. Sale-leaseback
transactions are recorded as financing lease obligations. We record tenant improvement allowances and rent holidays as deferred
rent liabilities, and amortize the deferred rent over the expected lease term to rent. We record rent liabilities for contingent
percentage of sales lease provisions when we determine that it is probable that the specified levels as defined by the lease will
be reached.
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 at the Company’s fiscal year end, or more
frequently if impairment indicators arise, on a reporting unit level. We allocate goodwill to one reporting unit for goodwill
impairment testing.
Intangible assets include acquired leasehold rights, favorable lease assets, trade names, brand names, patents, liquor licenses,
license agreements, and non-competition agreements. The Company amortizes definite-lived intangible assets on a straight-line
basis over the period the intangible asset is expected to generate cash flows, generally the life of the related agreement. Currently,