Whole Foods 2013 Annual Report Download - page 52

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the weighted average life is approximately 17 years for contract-based intangible assets, and approximately 2 years for marketing-
related and other identifiable intangible assets. Indefinite-lived intangible assets are reviewed for impairment quarterly, or
whenever events or changes in circumstances indicate the carrying amount of an intangible asset may not be recoverable. Effective
October 1, 2012, the Company adopted Accounting Standards Update (“ASU”) No. 2012-02, “Testing Indefinite-Lived
Intangible Assets for Impairment,” which amends Accounting Standards Codification (“ASC”) 350, “Intangibles – Goodwill
and Other.” The adoption of ASU No. 2012-02, which permits an entity to first assess qualitative factors to determine whether
it is more likely than not that the fair value of the asset is less than its carrying amount as a basis for determining if performing
a quantitative test is necessary, did not have a significant effect on our consolidated financial statements.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
The Company evaluates 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 value 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. When
the Company impairs assets related to an operating location, a charge to write down the related assets is included in the “Direct
store expenses” or “General and administrative 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 to their estimated
recoverable value is included in the “Relocation, store closure and lease termination costs” line item on the Consolidated
Statements of Operations.
Fair Value of Financial Instruments
The Company records its financial assets and liabilities at fair value in accordance with the framework for measuring fair value
in generally accepted accounting principles. This framework establishes a fair value hierarchy that prioritizes the inputs used to
measure fair value:
• Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.
• Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
or indirectly.
• Level 3: Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that
result in management’s best estimate of fair value.
The Company holds money market fund investments that are classified as cash equivalents that are measured at fair value on a
recurring basis based on quoted prices in active markets for identical assets. The Company also holds available-for-sale securities
generally consisting of state and local municipal obligations and variable rate demand notes which hold high credit ratings.
These instruments are valued using a series of multi-dimensional relational models and series of matrices with standard inputs
obtained from readily available pricing sources and other observable market data, such as benchmark yields and base spread.
Investments are stated at fair value with unrealized gains and losses, net of related tax effect, included as a component of
shareholders’ equity until realized. Declines in fair value below the Company’s carrying value deemed to be other than temporary
are charged against net earnings.
The carrying amounts of accrued payroll, bonuses and other benefits due team members, and other accrued expenses approximate
fair value because of their short maturities. Store closure reserves and estimated workers’ compensation claims are recorded at
net present value to approximate fair value.
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 $135 million and $115 million at September 29, 2013 and September 30, 2012, respectively,
included in the “Other current liabilities” line item on the Consolidated Balance Sheets.