Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. WHOLE FOODS MARKET INC (865436) 10-K published on Nov 17, 2017 at 1:16 pm
Reporting Period: Sep 23, 2017
With the consummation of the merger contemplated by the Agreement and Plan of Merger by and among the Company, Amazon.com, Inc., and Walnut Merger Sub, Inc., a wholly-owned subsidiary of Amazon.com, Inc. (the “Merger”) on August 28, 2017, the Company became an indirect wholly-owned subsidiary of Amazon.com, Inc. and the Company’s common stock was delisted from the Nasdaq Global Select Market. There is no established trading market for our equity securities as of the closing date of the Merger. An indirect wholly owned subsidiary of Amazon.com, Inc. is the sole holder of record of our equity. Prior to the closing of the Merger, the common stock of the Company was traded on Nasdaq under the symbol “WFM.”
On September 23, 2017, we discovered unauthorized access of payment card information used at certain venues such as tap rooms and full table-service restaurants located within some stores. These venues use a different point of sale system than our primary store checkout systems, and payment cards used at the primary store checkout systems were not affected. We conducted an investigation, obtained the help of a leading cyber security forensics firm, and contacted law enforcement. We are using a different system for payment card acceptance at these venues and stopped the unauthorized activity. We are still in the process of assessing the financial and other impacts of the unauthorized access, but we currently do not believe that it is material to our financial statements. Although no final determination has been made, we have cyber liability insurance coverage that we expect to cover the related liabilities, subject to a customary deductible.
In connection with the Company’s acquisition by Amazon.com, Inc. on August 28, 2017, all outstanding options were canceled and those for which the merger consideration per share exceeded the exercise price per share were converted into cash for the excess amount. Expense associated with the acceleration of the vesting period for stock options is included in “merger-related expenses” on the Statement of Operations. Stock options with an exercise price per share greater than or equal to the merger consideration per share were canceled for no consideration or payment. The Company maintained several share-based incentive plans. We granted both options to purchase common stock and restricted common stock under our Whole Foods Market 2009 Stock Incentive Plan. All options outstanding were governed by the original terms and conditions of the grants, unless modified by a subsequent agreement. Options were granted at an option price equal to the market value of the stock at the grant date and generally vested ratably over a four- or nine-year period beginning one year from grant date and had a five, seven, or ten year term. The grant date was established once the Company’s Board of Directors approved the grant and all key terms were determined. The exercise prices of our stock option grants were the closing price on the grant date. Stock option grant terms and conditions were communicated to team members within a relatively short period of time. The Company generally approved one primary stock option grant annually, occurring during a trading window. Restricted common stock was granted at the market price of the stock on the day of grant and generally vested over a four- or six-year period.
Share-based payment expense related to vesting stock options recognized during fiscal years 2017, 2016 and 2015 totaled approximately $114 million, $45 million and $60 million, respectively. Upon a change in control, the vesting is accelerated for any unvested options in accordance with the Company’s stock option plan. The total share-based payment expense related to acceleration due to the Amazon merger was approximately $78 million in fiscal year 2017. In connection with the Company’s acquisition by Amazon on August 28, 2017, all outstanding options were canceled and those in which the merger consideration exceeded the exercise price per share were converted into cash for the excess amount. The Company recorded an intercompany receivable from Amazon totaling approximately $124 million for the cash payout of all outstanding options, RSUs, and SARs. Stock options with an exercise price per share greater than or equal to the merger consideration per share were canceled for no consideration or payment.
Audit Committee Pre-Approval Policies and Procedures. Among its other duties, the Audit Committee was responsible for appointing, setting compensation for and overseeing the work of the independent auditor. The Audit Committee established a policy regarding pre-approval of all audit and non-audit services provided by the independent auditor. On an ongoing basis, management communicated specific projects and categories of service for which the advance approval of the Audit Committee was requested. The Audit Committee reviewed these requests and advised management if the committee approved the engagement of the independent auditor. On a periodic basis, management reported to the Audit Committee regarding the actual spending for such projects and services compared to the approved amounts. All services performed by Ernst & Young for fiscal years 2017 and 2016 were approved in accordance with the Audit Committee’s pre-approval guidelines.