Whole Foods 2014 Annual Report Download - page 44

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frequently if impairment indicators arise, on a reporting unit level. We allocate goodwill to one reporting unit for goodwill
impairment testing. A qualitative assessment, based on macroeconomic factors, industry and market conditions and company-
specific performance, 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.
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,
the weighted average life is approximately 17 years for contract-based intangible assets, and approximately 3 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.
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, short lease life, or a plan to close is established, 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. Additionally for closing locations, the Company estimates net future cash flows
based on its experience and knowledge of the area in which the closed property is located and, when necessary, utilizes local
real estate brokers. 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 corporate bonds and commercial paper 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