Sprouts Farmers Market 2014 Annual Report Download - page 58

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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.
(c) Reflects costs associated with the Sunflower Transaction, which have been excluded from pro
forma results due to the absence of a continuing effect on our business. The costs consist of (i) $3.2 million
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