Whole Foods 2014 Annual Report Download - page 30

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The Company is committed under certain capital leases for rental of certain buildings, land and equipment, and certain operating
leases for rental of facilities and equipment. These leases expire or become subject to renewal clauses at various dates through
2054. The following table shows payments due by period on contractual obligations as of September 28, 2014 (in millions):
Total Less than 1
year 1-3 years 3-5 years More than 5 years
Capital lease obligations (including interest) $ 97 $ 5 $ 10 $ 10 $ 72
Operating lease obligations (1) 8,272 401 939 984 5,948
Total $ 8,369 $ 406 $ 949 $ 994 $ 6,020
(1) Amounts exclude taxes, insurance and other related expense
Gross unrecognized tax benefits and related interest and penalties at September 28, 2014 were not material. Although a reasonably
reliable estimate of the period of cash settlement with respective taxing authorities cannot be determined due to the high degree
of uncertainty regarding the timing of future cash outflows associated with the Company’s unrecognized tax benefits, as of
September 28, 2014, the Company does not expect tax audit resolution will reduce its unrecognized tax benefits in the next 12
months.
We periodically make other commitments and become subject to other contractual obligations that we believe to be routine in
nature and incidental to the operation of the business. Management believes that such routine commitments and contractual
obligations do not have a material impact on our business, financial condition or results of operations.
Our principal historical sources of liquidity have included cash generated by operations, available cash and cash equivalents,
and short-term investments. Absent any significant change in market conditions, we expect planned expansion and other
anticipated working capital and capital expenditure requirements for the next 12 months will be funded by these sources. There
can be no assurance, however, that the Company will continue to generate cash flows at or above current levels or that other
sources of capital will be available to us in the future.
Off-Balance Sheet Arrangements
Our off-balance sheet arrangements at September 28, 2014 consisted of operating leases disclosed in the above contractual
obligations table. Additionally, we enter into forward purchase agreements for certain products in the ordinary course of business.
Purchase commitments do not exceed anticipated use within an operating cycle. 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” of
this report. 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 93.5% and 92.8% of inventories in fiscal years 2014 and 2013, 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 $48 million and $32 million at September 28, 2014 and September 29,
2013, 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.