Whole Foods 2014 Annual Report Download - page 45

42
historical claims experience, demographic factors, severity factors and other actuarial assumptions. The Company had insurance
liabilities totaling approximately $152 million and $135 million at September 28, 2014 and September 29, 2013, respectively,
included in the “Other current liabilities” line item on the Consolidated Balance Sheets.
Reserves for Closed Properties
The Company maintains reserves for retail stores and other properties that are no longer being utilized in current operations.
The Company provides for closed property operating lease liabilities using the present value of the remaining noncancelable
lease payments and lease termination fees after the closing date, net of estimated subtenant income. The closed property lease
liabilities are expected to be paid over the remaining lease terms, which generally range from nine months to 14 years. The
Company estimates subtenant income and future cash flows based on the Company’s experience and knowledge of the area in
which the closed property is located, the Company’s previous efforts to dispose of similar assets and existing economic conditions.
Reserves for closed properties are included in the “Other current liabilities” and “Other long-term liabilities” line items on the
Consolidated Balance Sheets.
The reserves for closed properties include management’s estimates for lease subsidies, lease terminations and future payments
on exited real estate. Adjustments to closed property reserves primarily relate to changes in existing economic conditions,
subtenant income or actual exit costs differing from original estimates. Adjustments are made for changes in estimates in the
period in which the changes become known.
Revenue Recognition
We recognize revenue for sales of our products at the point of sale. Discounts provided to customers at the point of sale are
recognized as a reduction in sales as the products are sold. Sales taxes are not included in revenue.
Cost of Goods Sold and Occupancy Costs
Cost of goods sold includes cost of inventory sold during the period (net of discounts and allowances), distribution and food
preparation costs, and shipping and handling costs. The Company receives various rebates from third-party vendors in the form
of purchase or sales volume discounts and payments under cooperative advertising agreements. Purchase volume discounts are
calculated based on actual purchase volumes. Volume discounts and cooperative advertising discounts in excess of identifiable
advertising costs are recognized as a reduction of cost of goods sold when the related merchandise is sold. The Company utilizes
forward purchases to limit its exposures to changes in commodity prices. All forward purchase commitments are established at
current prices and recorded through cost of goods sold at settlement. Occupancy costs include store rental costs, property taxes,
utility costs, repair and maintenance costs, and property insurance. Our largest supplier, United Natural Foods, Inc., accounted
for approximately 32%, 32% and 31% of our total purchases in fiscal years 2014, 2013 and 2012, respectively.
Direct Store Expenses
Direct store expenses consist of store-level expenses such as salaries and benefits costs, supplies, depreciation, marketing and
other store-specific costs. Advertising and marketing expense for fiscal years 2014, 2013 and 2012 was approximately $63
million, $56 million and $51 million, respectively. Advertising costs are charged to expense as incurred, except for certain
production costs that are charged to expense when the advertising first takes place.
General and Administrative Expenses
General and administrative expenses consist of salaries and benefits costs, occupancy and other related costs associated with
corporate and regional administrative support services.
Pre-opening Expenses
Pre-opening expenses include rent expense incurred during construction of new facilities and costs related to new location
openings, including costs associated with hiring and training personnel, smallwares, supplies and other miscellaneous costs.
Rent expense is generally incurred approximately nine months prior to a store’s opening date. Other pre-opening expenses are
incurred primarily in the 60 days prior to a new store opening. Pre-opening costs are expensed as incurred.
Relocation, Store Closure and Lease Termination Costs
Relocation costs consist of moving costs, estimated remaining net lease payments, accelerated depreciation costs, related asset
impairment, and other costs associated with replaced facilities. Store closure costs consist of estimated remaining lease payments,
accelerated depreciation costs, related asset impairment, and other costs associated with closed facilities. Lease termination costs
consist of estimated remaining net lease payments for terminated leases and idle properties, and associated asset impairments.