Sprouts Farmers Market 2013 Annual Report Download - page 103

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Table of Contents
because of the short maturity of those instruments. Based on comparable open market transactions of the Term Loan (as defined in
Note 13, “Long-Term Debt”), the fair value of the long-term debt, including current maturities, approximates carrying value as of
December 29, 2013 and December 30, 2012. The carrying amount of the Senior Subordinated Promissory Notes (as defined in
Note 13, “Long-Term Debt”) approximated fair value as their terms were consistent with current market rates as of December 30,
2012. The Company’s estimates of the fair value of long-term debt (including current maturities) and the Senior Subordinated
Promissory Notes were classified as Level 2 in the fair value hierarchy.
Business Combinations
Business combinations are accounted for using the acquisition method of accounting, which requires that the purchase price
paid for an acquisition be allocated to the assets and liabilities acquired based on their estimated fair values as of the effective date
of the acquisition, with the excess of the purchase price over the net assets being recorded as goodwill. Acquisition-related costs
are considered separate transactions and are expensed as incurred. Acquisition-related costs are classified as selling, general and
administrative expenses and consist of costs associated with the Henry’s Transaction in 2011 and costs associated with the
Sunflower Transaction in 2012, as follows:
See Note 4, “Business Combinations” for further discussion.
Equity-Based Compensation
The Company measures equity-based compensation cost at the grant date based on the fair value of the award and
recognizes equity-based compensation cost as expense over the vesting period. As equity-based compensation expense
recognized in the consolidated statements of operations is based on awards ultimately expected to vest, the amount of expense
has been reduced for estimated forfeitures and trued up for actual forfeitures. The Company’s forfeiture rate is estimated primarily
based on historical data. The actual forfeiture rate could differ from these estimates. The Company uses the Black-Scholes option-
pricing model to determine the grant date fair value for each option grant. The Black-Scholes option-pricing model requires
extensive use of subjective assumptions. See Note 24, “Equity-Based Compensation” for a discussion of assumptions used in the
calculation of fair values. Application of alternative assumptions could produce different estimates of the fair value of equity-based
compensation and, consequently, the related amounts recognized in the accompanying consolidated statements of operations. The
Company recognizes compensation cost for time-based awards on a straight-line basis and for performance-based awards on the
graded-vesting method over the vesting period of the awards.
Revenue Recognition
Revenue is recognized at the point of sale. Discounts provided to customers at the time of sale are recognized as a reduction
in sales as the discounted products are sold. Sales taxes are not included in revenue. Proceeds from the sale of gift cards are
recorded as a liability at the time of sale, and recognized as sales when they are redeemed by the customer. The Company has not
applied a gift card breakage rate.
Licensing fees are generated from license agreements related to two former Henry’s stores.
98
Year Ended
December 30,
2012
January 1,
2012
Acquisition-related costs $
3,229
$
5,900