Sprouts Farmers Market 2013 Annual Report Download - page 83

Table of Contents
option grants prior to our IPO, we estimated the business enterprise value (referred to as “BEV”) using the market approach, which
we believe is most reflective of our BEV after taking into account our successful integrations of Henry
’s, Sprouts Arizona and
Sunflower.
Under the market approach, we estimated our BEV by deriving multiples of equity or invested capital to EBITDA for selected
publicly traded comparable companies. We also estimated our BEV using the income approach as a benchmark to assess the BEV
derived under the market approach and determined the two methods yielded similar BEV conclusions.
When selecting comparable companies, consideration was given to industry similarities, product offerings and market
positioning, financial data availability and capital structure. In applying the market approach, we also estimated a discount for lack
of marketability, primarily by reference to the discounts applied to equity values in the Transactions.
January-March 2013 : We based the value of our equity underlying these awards using the same factors described above for
the December 21, 2012 grants.
April-June 2013: We based the value of our equity underlying these awards using the same factors described above for the
December 21, 2012 grants.
August 1, 2013:
We based the value of our equity underlying these awards on our IPO pricing of $18.00 as the awards issued
during this period were issued concurrent with the IPO.
There are significant estimates and judgments inherent in the determination of these valuations. These judgments and
estimates include assumptions about our future performance, including the growth in the number of our stores, as well as the
determination of the appropriate valuation methods at each valuation date. If we had made different assumptions, our equity-based
compensation expense could have been different. We have not used the foregoing valuation methods since our IPO. Following our
IPO, we base our equity valuations on the trading price of our common stock.
Inventories
Inventories consist of merchandise purchased for resale, which are stated at the lower of cost or market. The cost method is
used for warehouse perishable and store perishable department inventories by assigning costs to each of these items based on a
first-in, first-out (referred to as “FIFO”) basis (net of vendor discounts).
Effective January 3, 2011, we changed our accounting policy for non-perishable inventories from the lower of cost or market
using the retail inventory method (referred to as “RIM”) to the lower of cost or market using weighted average costs. Our valuation
of our non-perishable inventory using weighted average costs includes statistical and other estimation methods which we believe
provide a reasonable basis to estimate our inventory values at the end of the respective periods.
Physical inventory counts for non-perishable inventories are performed in our stores during each fiscal quarter end by a third-
party inventory counting service. As inventory is adjusted at each period end for the physical inventory results, we believe that all
inventories are saleable and no allowances or reserves for shrinkage or obsolescence were recorded as of December 29,
2013, December 30, 2012 and January 1, 2012.
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