Whole Foods 2010 Annual Report Download - page 44

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In fiscal year 2010, the Company adopted amendments to the Financial Accounting Standards Board (“FASB”) guidance on
Accounting Standards Codification (“ASC”) 350, “Intangibles – Goodwill and Other.” These provisions amend the factors
that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized
intangible asset. The intent of the position is to improve the consistency between the determination of the useful life of a
recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset. The adoption of
these provisions had no impact on our consolidated financial statements.
Business Combinations
In fiscal year 2010, the Company adopted new guidance within ASC 805, “Business Combinations,” which replaced
previous guidance in that Topic and applies to all transactions or other events in which an entity obtains control of one or
more businesses, including those sometimes referred to as “true mergers” or “mergers of equals,” and combinations achieved
without the transfer of consideration. The new provisions establish principles and requirements for how the acquirer
recognizes and measures identifiable assets acquired, liabilities assumed, any noncontrolling interest and goodwill acquired,
and also provide for disclosures to enable users of the financial statements to evaluate the nature and financial effects of the
business combination. Additional amendments address the recognition and initial measurement, subsequent measurement,
and disclosure of assets and liabilities arising from contingencies acquired as part of a business combination. The guidance
was applied prospectively on business combinations during fiscal year 2010 and did not have an impact on our consolidated
financial statements.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
We evaluate long-lived assets for impairment whenever events or changes in circumstances, such as unplanned negative cash
flow or short lease life, 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 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 impairs assets related to an operating
location, a charge to write down the related assets is included in the “Direct store 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 or restricted cash and available-
for-sale securities generally consisting of state and local government obligations that are measured at fair value on a
recurring basis based on quoted prices in active markets for identical assets. Investments are stated at fair value, based on
quoted prices in active markets for identical assets, with unrealized gains and losses included as a component of
shareholders’ equity until realized. The carrying amount of the Company’s interest rate swap agreement is measured at fair
value on a recurring basis using a standard valuation model that incorporates inputs other than quoted prices that are
observable, including interest rate curves. 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 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 workers’ compensation claims are recorded at net present value to approximate fair
value. The carrying amount of our five-year term loan approximates fair value because it has a variable interest rate which
reflects market changes to interest rates and contains variable risk premiums based on the Company’s corporate ratings.
Effective September 28, 2009, the Company adopted the provisions of ASC 820, “Fair Value Measurements and
Disclosures,” for nonfinancial assets and liabilities. Specifically, the Company measures certain property and equipment and