Whole Foods 2014 Annual Report Download - page 46

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Share-Based Payments
The Company maintains several share-based incentive plans. We grant both options to purchase common stock and restricted
common stock under our Whole Foods Market 2009 Stock Incentive Plan. Options outstanding are governed by the original
terms and conditions of the grants, unless modified by a subsequent agreement. 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. 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 requisite service 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 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. Shares held in treasury may be reissued to satisfy exercises of stock options and
issuances of restricted stock awards. The Company does not currently intend to retire its treasury shares. 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 share-based awards using the treasury stock method. Dilutive potential common shares include outstanding
stock options and unvested restricted stock awards.
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 tax, and is reflected in the Consolidated Statements of Comprehensive Income.
Foreign Currency Translation
The Company’s operations in Canada and the U.K. use their local currency as their functional currency. Foreign currency
transaction gains and losses related to Canadian intercompany operations are charged to net income in the period incurred.