Whole Foods 2007 Annual Report Download - page 53

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Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
We evaluate long-lived assets and identifiable intangibles for impairment whenever events or changes in circumstances
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 considered to be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell. When the Company commits to relocate a location, a charge to write down
the related assets to their estimated net recoverable value is included in the “Pre-opening and relocation costs” line item in
the Consolidated Statements of Operations.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, trade and other accounts receivable, trade accounts payable, accrued
payroll, bonuses and team member benefits, and other accrued expenses approximate fair value because of the short maturity
of those instruments. Store closure reserves and estimated worker’s compensation claims are recorded at net present value to
approximate fair value. Investments are stated at fair value with unrealized gains and losses included as a component of
shareholders’ equity until realized.
The carrying amounts of our five-year term loan and outstanding amounts on our revolving line of credit approximate fair
value because they have variable interest rates which reflect market changes to interest rates. The fair value of convertible
subordinated debentures is estimated using quoted market prices. At September 30, 2007, the difference between the carrying
value and the estimated fair value of our convertible debentures is not material. At September 24, 2006, the estimated fair
value of the convertible debentures exceeded the carrying amount by approximately $11.0 million.
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 historical claims experience, demographic factors, severity factors and other actuarial assumptions. While we
believe that our assumptions are appropriate, the estimated accruals for these liabilities could be significantly affected if
future occurrences and claims differ from these assumptions and historical trends.
Reserves for Closed Properties
The Company maintains reserves for estimated losses on retail stores and other properties that are no longer being utilized in
current operations. The Company provides for closed property operating lease liabilities using a discount rate to calculate the
present value of the remaining noncancelable lease payments after the closing date, net of estimated subtenant income. The
closed property lease liabilities usually are paid over the remaining lease terms, which generally range from one to 17 years.
The Company estimates subtenant income and future cash flows based on the Company’s experience and knowledge of the
market in which the closed property is located, the Company’s previous efforts to dispose of similar assets and existing
economic conditions.
The reserves for closed properties include management’s estimates for lease subsidies, lease terminations and future
payments on exited real estate. At September 30, 2007 and September 24, 2006 these reserves totaled approximately $97.0
million and $0.6 million, respectively. Additions during fiscal year 2007 include approximately $92.7 of closure reserves for
Wild Oats Markets locations which were recorded in connection with the acquisition.
Capital lease properties that are closed are reduced to their estimated fair value. Reduction in the carrying values of property,
equipment and leasehold improvements are recognized when expected net future cash flows are less than the assets’ carrying
value. The Company estimates net future cash flows based on its experience and knowledge of the market in which the
closed property is located and, when necessary, utilizes local real estate brokers.
Adjustments to closed property reserves primarily relate to changes in 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.