Whole Foods 2010 Annual Report Download - page 46

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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 area in which the closed
property is located and, when necessary, utilizes local real estate brokers.
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. Occupancy costs include store rental costs, property taxes, utility costs, repair and maintenance costs, and property
insurance.
Direct Store Expenses
Direct store expenses consist of store-level expenses such as salaries and benefits costs, supplies, depreciation, community
marketing and other store-specific costs. Advertising and marketing expense for fiscal years 2010, 2009 and 2008 was
approximately $37.9 million, $32.9 million and $39.7 million, respectively. Advertising costs are charged to expense as
incurred.
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 stores and costs related to new store
openings, including costs associated with hiring and training personnel, smallwares, supplies and other miscellaneous costs.
Rent expense is generally incurred approximately 11 months prior to a store’s opening date. Other pre-opening expenses are
incurred primarily in the 30 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.
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. All options outstanding are governed by the
original terms and conditions of the grants. 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. The exercise prices of our stock option grants are the closing price on the grant date. Stock
option grant terms and conditions are communicated to team members within a relatively short period of time. Our 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-month 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 vesting 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.