Sprouts Farmers Market 2013 Annual Report Download - page 68

Table of Contents
Store closure and exit costs
Store closure and exit costs decreased to $2.2 million during fiscal 2012 from $6.4 million during fiscal 2011, primarily as a
result of (i) a $2.0 million favorable adjustment to our store closure reserve resulting from sublease rents in excess of original
estimates, (ii) a $1.3 million favorable adjustment resulting from a lessor’s voluntary termination of a lease obligation previously
reserved and (iii) a reduction in closures. One store and Sunflower’s corporate office were closed following the Sunflower
Transaction in fiscal 2012 and three stores and the Henry’s corporate office were closed following the Henry’s Transaction in fiscal
2011.
On a pro forma basis, store closure and exit costs decreased to $2.2 million during fiscal 2012 from $7.0 million during fiscal
2011, primarily for the same factors noted above, as well as a decrease in Sunflower’s pre-
combination store closure and exit costs
from $627,000 in fiscal 2011 to $59,000 in fiscal 2012.
Interest expense
Interest expense increased to $35.5 million during fiscal 2012 from $19.8 million in fiscal 2011, primarily as a result of (i) $6.5
million of incremental interest expense resulting from the effect of a full year of borrowings associated with the Henry’s Transaction
in fiscal 2012, (ii) $6.1 million of interest on incremental borrowings associated with the Sunflower Transaction and (iii) interest on
financing leases associated with leases acquired in the Transactions and new store openings.
In April 2011, we borrowed $310.0 million, net of $2.7 million in financing fees and $14.0 million of issue discount under the
Former Term Loan to finance the Henry’
s Transaction. In May 2012, we borrowed an additional $100.0 million, net of $0.5 million in
financing fees and $2.7 million of issue discount under the Former Term Loan, and received proceeds of $35.0 million from the
issuance of 10% Senior Subordinated Promissory Notes due 2019 (referred to as the “Notes”) to finance the Sunflower
Transaction. We also borrowed and repaid $23.0 million and $3.0 million under our Former Revolving Credit Facility in fiscal 2011
and fiscal 2012, respectively. See “—Liquidity and Capital Resources.”
On a pro forma basis, interest expense decreased to $40.3 million during fiscal 2012 from $40.4 million during fiscal 2011.
Loss on extinguishment of debt
We recorded a $1.0 million loss on extinguishment of debt in fiscal 2012 as a result of the renegotiation of a store lease that
was classified as a financing lease obligation.
Income tax (provision) benefit
Income tax provision was $15.3 million during fiscal 2012 compared to an income tax benefit of $17.7 million during fiscal
2011, primarily as a result of income before tax during fiscal 2012 compared to a loss before tax during fiscal 2011. Our effective
income tax rate increased to 43.9% during fiscal 2012 from 39.2% during fiscal 2011, primarily as a result of non-deductible
transaction costs during fiscal 2012.
On a pro forma basis, income tax provision was $19.9 million during fiscal 2012 compared to a pro forma income tax benefit of
$8.2 million during fiscal 2011, primarily as a result of pro forma income before tax during fiscal 2012 compared to a pro forma loss
before tax during fiscal 2011. Our pro forma effective income tax rate increased to 44.8% during fiscal 2012 from 20.9% in fiscal
2011, reflecting non-deductible transaction costs incurred by us and Sunflower during fiscal 2012, and no tax benefit resulting from
pre-combination losses incurred by Sprouts Arizona during fiscal 2011 as a result of Sprouts Arizona pass-through status prior to
the Henry’s Transaction.
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