Sprouts Farmers Market 2013 Annual Report Download - page 125

Table of Contents
Henry’s operated a 241,000 square-foot leased facility primarily dedicated to produce fulfillment which served both Henry’s
and S&F. The operations of the facility have been included in the accompanying consolidated financial statements of the Company
through April 17, 2011 and costs of the facility have been allocated to Smart & Final Stores based on case volume shipped. On
April 18, 2011, S&F kept the operations and assets and liabilities of the warehouse facility and the distribution of these assets and
liabilities to S&F is netted with other assets and liabilities contributed to Henry’s and reflected as a contribution by S&F in equity,
discussed in Note 2, “Basis of Presentation.”
S&F also operated under a Management Services Agreement with an Apollo affiliate, Apollo Management VI, L.P. whereby
the Apollo affiliate provided certain investment banking, management, consulting and financial planning services to S&F. The
Management Services Agreement was for a ten-year term starting in 2007 and S&F was obligated to pay the Apollo affiliate an
annual fee of $1.5 million, payable on a quarterly basis. The management fees allocated to Henry’s as part of the allocated
corporate expenses by S&F were $0.1 million during 2011.
S&F Centralized Cash Management
Henry’s participated in S&F’s centralized cash management system through April 17, 2011. The majority of cash received
from the Henry’s operations was transferred to S&F’s centralized cash accounts and cash disbursements of Henry’s were funded
from the centralized cash accounts on a daily basis as needed. The cash and cash equivalents held by S&F at the corporate level
were not allocated to Henry
’s for any of the periods presented. Transfers of cash to and from S&F’s cash management system
were reflected as S&F equity on the accompanying consolidated statements of stockholders
’ equity. No interest was charged or
earned on the cash management account. Under this system, Henry’s had no external sources of financing, such as available lines
of credit, as may be necessary to operate as a stand-alone entity.
Up to April 17, 2011, all significant intercompany transactions between Henry’s and S&F and its other subsidiaries have been
included in the accompanying consolidated financial statements and were considered to be effectively settled for cash at the time
the transaction was recorded. The total net effect of the settlement of these intercompany transactions is reflected in the
accompanying consolidated statements of cash flows as a financing activity and in the accompanying consolidated balance sheets
as stockholders’ equity. After April 17, 2011, all transactions between the Company and S&F were settled in cash.
S&F Share-Based Compensation
S&F granted stock options to employees under the S&F Stock Incentive Plan in which some of the Henry’s employees
participated. Accounting guidance requires all share-based payments to be recognized in the statement of operations as
compensation expense based on their fair values over the requisite service period of the award, taking into consideration estimated
forfeiture rates.
The fair value of the options was estimated on the date of the grant using the Black-Scholes-Merton option-
pricing model. S&F
recognized the related compensation expense (the estimated fair value of the stock options) over the vesting period using the
accelerated recognition method.
Compensation expense allocated to Henry’s for employees participating in the S&F Stock Incentive Plan amounted to $0.0
million for 2011.
S&F Equity
Prior to April 18, 2011, equity refers to the consolidated net assets of Henry’s which reflects S&F’s consolidated investment in
Henry’s. Equity was impacted by capital contributions, cumulative net
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