Sprouts Farmers Market 2013 Annual Report Download - page 63

Table of Contents
SPROUTS FARMERS MARKET, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
1. Basis of Presentation and Description of Transactions
Effective May 29, 2012, we acquired all of the outstanding common and preferred stock of Sunflower in the Sunflower
Transaction, a transaction accounted for as a business combination, which was financed through the issuance of debt and
14.9 million of our shares. For further information about the Sunflower Transaction, see Note 4 to our audited consolidated financial
statements included elsewhere in this Annual Report on Form 10-K.
The historical Sprouts Farmers Market, Inc. results of operations for fiscal 2012 are derived from our audited consolidated
financial statements included elsewhere in this Annual Report on Form 10-K. The historical Sunflower results of operations for the
period January 1, 2012 to May 28, 2012, were derived from the Sunflower pre-combination unaudited financial statements not
included in this Annual Report on Form 10-K. Certain amounts from the Sunflower pre-combination unaudited financial statements
have been reclassified to conform to our presentation.
2. Pro Forma for Sunflower Transaction
The historical results of operations have been adjusted to give pro forma effect to events that are (i) directly attributable to the
Sunflower Transaction, (ii) factually supportable and (iii) expected to have a continuing impact on the combined results, as if the
Sunflower Transaction occurred on the first day of fiscal 2012 (referred to as “Pro Forma Adjustments for Sunflower Transaction”).
Unaudited Pro Forma Condensed Consolidated Statement of Operations—Fiscal 2012
Sunflower’s fiscal 2012 commenced one day earlier than our fiscal 2012. Pro forma adjustments for Sunflower Fiscal Period
Alignment reflect the pro forma impact of deducting one day from the historical Sunflower results of operations. Additional pro forma
adjustments for the Sunflower Transaction consist of the following:
(a)
Reflects pro forma adjustments attributable to the application of acquisition accounting to the Sunflower Transaction
comprised of (i) a $0.7 million increase in rent expense, resulting principally from straight-line adjustments to rent expense as a
result of the new basis in the acquired Sunflower leases as of the acquisition date and (ii) a $0.1 million net increase in amortization
expense related to the fair value of favorable lease intangible assets and unfavorable lease liabilities recognized in the Sunflower
Transaction. Management has assumed a weighted average useful life of 11.6 years for amortization of favorable and unfavorable
leases in arriving at the pro forma amortization adjustment.
(b)
Reflects pro forma adjustments to historical Sunflower depreciation related to the fair values of acquired buildings,
leasehold improvements and furniture, fixtures and equipment, which are being amortized and depreciated over their estimated
useful lives on a straight-line basis. Measurement of these assets in acquisition accounting is based on acquisition date fair value
which was lower than Sunflower pre
-acquisition carrying value, primarily due to declines in real estate values and occupancy rates
as a result of the recession and deferred maintenance associated with acquired furniture, fixtures and equipment. We also reduced
remaining useful lives of certain acquired assets, which accelerated depreciation of those assets. The net effect of the reduction in
carrying values and remaining useful lives of the acquired assets resulted in a reduction to pro forma depreciation expense
compared to historical depreciation expense. Management has assumed weighted average useful lives of 38.4 years, 7.6 years
and 4.7 years for buildings, leasehold improvements and furniture, fixtures and equipment, respectively, in arriving at the pro forma
depreciation adjustments.
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