Whole Foods 2013 Annual Report Download - page 54

45
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-, four- or six-year 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 can 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 are calculated by dividing net income available to common shareholders by the weighted average
number of common shares outstanding during the fiscal period. Diluted earnings per share are based on the weighted average
number of common shares outstanding plus, where applicable, the additional common shares that would have been outstanding
related to dilutive options and unvested restricted stock.
Comprehensive Income
Comprehensive income consists of: net income; unrealized gains and losses on available-for-sale securities; and foreign currency
translation adjustments, net of income taxes. Effective October 1, 2012, the Company concurrently adopted ASU No. 2011-05,
“Presentation of Comprehensive Income,” and ASU No. 2013-02, “Reporting Amounts Reclassified Out of Accumulated Other
Comprehensive Income,” both of which amend ASC 220, “Comprehensive Income.” In adopting ASU No. 2011-05, which
requires that all nonowner changes in stockholders’ equity be presented in either a single statement of comprehensive income
or two separate but consecutive statements, the Company added Consolidated Statements of Comprehensive Income following
our Consolidated Statements of Operations. The amended guidance in ASU No. 2013-02 requires entities to provide information
about the amounts reclassified out of accumulated other comprehensive income by component and to present, either on the face
of the financial statements or in the notes, significant amounts reclassified out of accumulated other comprehensive income by
the respective line items of net income. The amended guidance does not change the current requirements for reporting net income