Sprouts Farmers Market 2014 Annual Report Download - page 66

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 and 2013 Incentive
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 were based on the trading value of our common stock.
We granted options between May 2, 2011 and December 28, 2014, as follows:
Grant Date
Number of Options
Granted
Fair Value of
Equity Per
Share/Exercise
Price
Option
Fair Value
Aggregate
Fair Value
May 2, 2011 ........... 9,368,040 $ 3.33 $1.07 to $1.19 $10,557,850
September 25, 2011 ..... 772,200 $ 3.33 $1.03 to $1.15 $ 849,303
July-August 2012 ....... 2,141,700 $ 6.01 $1.68 to $2.00 $ 4,032,117
October 31, 2012 ....... 209,000 $ 6.01 $1.66 to $1.88 $ 391,243
December 21, 2012 ..... 258,500 $ 9.15 $2.40 to $3.09 $ 727,423
January-March 2013 .... 66,000 $ 9.15 $2.36 to $3.10 $ 180,812
April-June 2013 ........ 143,000 $ 9.15 $2.33 to $3.06 $ 381,547
August 1, 2013 ......... 407,112 $18.00 $4.65 to $5.92 $ 2,070,471
March 4, 2014 .......... 320,041 $39.01 $10.66 $ 3,411,637
May 19, 2014 .......... 37,047 $28.50 $8.07 $ 298,969
We granted RSUs between May 2, 2011 and December 28, 2014, as follows:
Grant Date
Number of RSUs
Granted
Fair Value of
Equity Per
Share
RSU
Fair Value
Aggregate
Fair Value
March 4, 2014 .................... 108,980 $39.01 $39.01 $4,251,310
May 19, 2014 ..................... 2,174 $28.50 $28.50 $ 61,959
The following factors were considered in our determination of the fair value of the common shares
underlying our equity awards at each grant date:
May 2, 2011: We issued options to team members on May 2, 2011 and based the equity value on the
equity value determined by an arm’s-length third-party negotiation in the Henry’s Transaction, which closed
April 18, 2011. This valuation reflects the proximity of the grant date to the Henry’s Transaction and lack of
synergies achieved to date resulting from the combination or other significant changes in our business that
would cause an increase in the fair value of our equity.
September 25, 2011: We determined there was no change in the fair value of our equity from April 17,
2011 using the same factors described above for the May 2, 2011 grant.
July-August 2012: This valuation of the equity underlying these awards reflects the synergies achieved
following the combination of Henry’s and Sprouts Arizona and our growth. Additionally, this valuation also
is consistent with the equity value reached in an arm’s length third-party negotiation in the Sunflower
Transaction, which closed May 29, 2012.
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