Sprouts Farmers Market 2013 Annual Report Download - page 81

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Table of Contents
At December 29, 2013, options to acquire 10,852,670 shares were outstanding, and a total of 10,754,773 options were vested
or expected to vest. Equity-
based compensation expense totaled $5.8 million, $4.7 million and $3.8 million in 2013, 2012 and 2011,
respectively. The weighted average fair value of options granted to purchase shares was $4.27, $1.99 and $1.12 in 2013, 2012 and
2011, respectively. Unrecognized compensation cost relating to outstanding awards was $4.3 million at December 29, 2013, with a
weighted average remaining recognition period of 1.1 years.
Valuation. We have used the Black-Scholes option pricing model to calculate the fair value of our equity-based compensation
awards at grant date. For accounting purposes, the fair value of each grant during 2013, 2012 and 2011 was estimated using the
following assumptions:
The Black-Scholes model requires the use of highly subjective and complex assumptions to determine the fair value of equity-
based compensation awards, including the option’s expected term and the price volatility of the underlying stock. Refer to Note 23
to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further discussion of these
inputs.
In addition to assumptions used in the Black-Scholes option pricing model, we must also estimate a forfeiture rate to calculate
the equity-based compensation cost for our awards. Our forfeiture rate is based on an analysis of our actual forfeitures of grants
made under the 2011 Option Plan. We routinely evaluate the appropriateness of the forfeiture rate based on actual forfeiture
experience, analysis of team member turnover and expectations of future option exercise behavior.
We will continue to use judgment in evaluating the assumptions related to our equity-based compensation on a prospective
basis. If any of the assumptions used in the Black-Scholes model change significantly or estimated forfeiture rates change, equity-
based compensation for future awards may differ materially compared with the awards granted previously.
We are also required to estimate the fair value of the common stock underlying our equity-based awards when performing the
fair value calculations with the Black-Scholes option-pricing model. Due to the prior absence of a market for our common stock, the
fair values were determined by our board of directors, with input from management. Additionally, a majority of awards granted were
issued in proximity to transactions with third parties in which we issued equity at arm’s-
length negotiated values. Grants subsequent
to our IPO will be based on the trading value of our common stock.
76
Fiscal 2013
Fiscal 2012
Fiscal 2011
Dividend yield 0.00% 0.00% 0.00%
Expected volatility 31.03% to 37.38% 32.36% to 38.59% 38.58% to 41.18%
Risk-free interest rate 0.56% to 1.36% 0.40% to 0.77% 0.57% to 1.88%
Expected life (in years) 4.00 to 5.00 3.75 to 5.00 3.63 to 4.83