Whole Foods 2010 Annual Report Download - page 55

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At September 26, 2010, the Company had unrecognized tax benefits totaling approximately $10.7 million (not including
accrued interest and penalties). The aggregate changes in the balance of gross unrecognized tax benefits, which exclude
interest and penalties, for the two years ended September 26, 2010, is as follows (in thousands):
Balance at September 29, 2008 $ 19,912
Additions based on tax positions related to the current year 150
Additions for tax positions of prior years 3,422
Reductions for tax positions of prior years (358)
Lapse of statute of limitations (255)
Settlements (9,673)
Balance at September 27, 2009 $ 13,198
Additions based on tax positions related to the current year 84
Additions for tax positions of prior years 1,059
Reductions for tax positions of prior years -
Lapse of statute of limitations (105)
Settlements (3,494)
Balance at September 26, 2010 $ 10,742
The Company’s total gross unrecognized tax benefits are classified in the “Other long-term liabilities” line item on the
Consolidated Balance Sheets. If the Company were to prevail on all unrecognized tax benefits recorded at September 26,
2010, the total gross unrecognized tax benefit totaling approximately $10.7 million would benefit the Company’s effective
tax rate if recognized. In addition, associated penalties and interest previously recognized would also benefit the effective tax
rate. The Company recognizes accrued interest and penalties related to unrecognized tax benefits within its global operations
as a component of income tax expense. During the fiscal year ended September 26, 2010, we recorded approximately $1.4
million in interest and penalties. The Company had accrued approximately $4.2 million and $4.9 million for the payment of
interest and penalties at September 26, 2010 and September 27, 2009, respectively.
The Company and its domestic subsidiaries file income tax returns with federal, state and local tax authorities within the
United States. The Company’s foreign affiliates file income tax returns in Canada and the United Kingdom. The Internal
Revenue Service (“IRS”) of the United States completed its examination of the Company’s federal tax returns for its fiscal
years 2005 and 2006 during the fourth quarter of fiscal year 2010. The Company has been notified that the IRS will open an
audit covering fiscal years 2007 and 2008. With limited exceptions, the Company is no longer subject to federal income tax
examinations for fiscal years before 2007 and is no longer subject to state and local income tax examinations for fiscal years
before 2001.
Although timing of the resolution and/or closure of income tax audits is highly uncertain, the Company believes it is
reasonably possible that tax audit resolutions could reduce its unrecognized tax benefits in the next 12 months. As of
September 26, 2010, the amount of unrecognized tax benefit which is reasonably possible to result in payment of cash within
12 months, including interest and penalties, is approximately $5.4 million.
(14) Redeemable Preferred Stock
During the first quarter of fiscal year 2009, the Company issued 425,000 shares of Series A 8% Redeemable, Convertible
Exchangeable Participating Preferred Stock, $0.01 par value per share (“Series A Preferred Stock”) to affiliates of Leonard
Green & Partners, L.P., for approximately $413.1 million, net of approximately $11.9 million in closing and issuance costs.
The Series A Preferred Stock was classified as temporary shareholders’ equity at September 27, 2009 since the shares were
(i) redeemable at the option of the holder and (ii) had conditions for redemption which are not solely within the control of the
Company. The holders of the Series A Preferred Stock were entitled to an 8% dividend, payable quarterly on the first day of
each calendar quarter in cash. The Company paid cash dividends on the Series A Preferred Stock totaling $8.5 million and
approximately $19.8 million during fiscal years 2010 and 2009, respectively.
On October 23, 2009, the Company announced its intention to call all 425,000 outstanding shares of the Series A Preferred
Stock for redemption on November 27, 2009 in accordance with the terms governing such Series A Preferred Stock. On
November 26, 2009, the holders converted all 425,000 outstanding shares of the Series A Preferred Stock to common stock.
The Series A Preferred Stock was converted to common stock based on the quotient of (i) the liquidation preference plus
accrued dividends and (ii) 1,000, multiplied by the conversion rate of 68.9655. At the conversion date, the liquidation
preference of the Series A Preferred Stock of $425 million and accrued dividends of approximately $5.2 million converted
into approximately 29.7 million shares of common stock of the Company.