7.(10 points) Prepare a horizontal analysis of the Income Statement for the most current year. (See page 18-11 for the proper format) Note you MUST USE EXCEL to create the horizontal analysis. An excel file MUST BE TURNED IN with the project to earn points for this question. 8. (2 points) What is the company's current, Basic EPS? Did EPS vary more than 10% from prior year? 9. (9 points) Calculate the following liquidity ratios for the current year and give a one sentence description of each result. (Assume that all sales are on credit.) For example: Current Ratio $1,020,000 current assets 344,500 current liabilities = 2.96 : 1 For every dollar in current liabilities, the company owns $2.96 in current assets to pay for them. a. Current Ratio b. Accounts Receivables Turnover Ratio C. Inventory Turnover 10. (9 points) Calculate the following profitability ratios for the current year and give a one sentence description of each result a. Profit Margin Ratio Page 1 b. Rate of return on Total Assets c. Return on Common Stockholders' Equity (ROE) 11. (6 points) Calculate the following solvency ratios for the current year and give a one sentence description of each result a. Debt to assets ratio b. Debt to Equity ratio - (total liabilities / total equity) c. Times Interest Earned Ratio 12. (2 points) Calculate the free cash flow of the company for the most current year (Hint: use the formula given in the book on page 17-17) FOR QUESTIONS 13 15: LOOK AT THE NOTES TO THE FINANCIAL STATEMENTS (beginning on page 6) 13. (1 Point) In what state did Sprouts Farmers Market, Inc. incorporate? 14. (1 Point) For 2018, what percentage of the company's sales were from "Perishables"? 15. (1 Point) What does the company estimate for the useful life of its buildings for depreciation purposes? SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) December 30, 2018 December 31, 2017 1,588 $ 19,479 40,564 25,893 264,366 229,542 27,323 24,593 333,841 299,507 766,429 713,031 194,803 196,205 368,078 368,078 12,463 4,782 $ 1,675,614 $ 1,581,603 $ ASSETS Current assets: Cash and cash equivalents Accounts receivable, net Inventories Prepaid expenses and other current assets Total current assets Property and equipment, net of accumulated depreciation Intangible assets, net of accumulated amortization Goodwill Other assets Total assets LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and other accrued liabilities Accrued salaries and benefits Current portion of capital and financing lease obligations Total current liabilities Long-term capital and financing lease obligations Long-term debt Other long-term liabilities Deferred income tax liability Total liabilities Commitments and contingencies (Note 19) Stockholders' equity: Undesignated preferred stock; $0.001 par value; 10,000,000 shares authorized, no shares issued and outstanding Common stock, $0.001 par value; 200,000,000 shares authorized, 124,975,691 shares issued and outstanding, December 30, 2018 132,823,981 shares issued and outstanding, December 31, 2017 Additional paid-in capital Accumulated other comprehensive income (loss) (Accumulated deficit) retained earnings Total stockholders' equity Total liabilities and stockholders' equity 253,969 $ 244,853 48,603 45.623 7,428 9,238 310,000 299,714 119,642 125.489 453,000 348,000 153,377 130,640 50.399 27.066 1,086,418 930.909 124 132 657,140 620,788 1,134 (784) (69,202) 30,558 589,196 650,694 $ 1,675,614 $ 1.581.603 SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Year Ended December 30, December 31, January 1, 2018 (0) 2017 (1) 2017 (1) Net sales $ 5,207,336 S 4,664,612 $4,046,385 Cost of sales 3,459 861 3,097,582 2,682,937 Gross profit 1,747,475 1,567,030 1,363,448 Selling, general and administrative expenses 1,404,443 1,245,640 1,071,995 Depreciation and amortization (exclusive of depreciation included in cost of sales) 108,045 94,194 78,293 Store closure and other costs 12,076 1, 126 228 Income from operations 222,911 226,070 212,932 Interest expense (27,435) (21,177) (14,794) Other income 320 625 454 Income before income taxes 195,796 205,518 198,592 Income tax provision (37,260) (47,078) (74,286) Net income $ 158,536 $ 158,440 $ 124 306 Net income per share: Basic $ 1.23 $ 1.17 $ 0.84 Diluted $ 1.22 $ 1.15 S 0.83 Weighted average shares outstanding: Basic 128,827 135,169 147,311 Diluted 129,776 137,884 149,653 (1) Effective in the fourth quarter of fiscal 2018, the Company made a change in accounting principle to change the classification of certain expenses on its consolidated statements of income. The change is applied retrospectively to all periods presented. See Note 3, "Significant Accounting Policies" for further information SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (IN THOUSANDS) December 30, 2018 158,536 Year Ended December 31, 2017 $ 158,440 January 1, 2017 $ 124.306 Net income Other comprehensive income (loss), net of tax Unrealized gain (losses) on cash flow hedging activities, net of income tax of $663, ($271), and $0 Total other comprehensive income (loss) Comprehensive income 1.918 1,918 (784) (784 S $ 160,454 $ 157,656 $ 124,306 140 SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AMOUNTS) Accumulated (Accumulated Other Additional Deficit) Comprehensive Total Common Paid in Retained Income Stockholders Shares Stock Capital Earnings (Los) Equity Balances at January 3, 2016 152,577,884 $ 153 $ 577,393 $ 245,446 $ $ 822,992 Net income 124,306 124 306 Issuance of shares under stock plans 666,841 2.740 2,740 Repurchase and retirement of common stock (13,242,483) (13) (294,252) (294,265) Excess tax benefit for exercise of options 3.737 3,737 Share-based compensation 13,399 13,399 Balances at January 1, 2017 140,002,242 5 597,269 $ 75,500 $ 672,909 Net income 158,440 158,440 Other comprehensive income (loss) (784) (784) Issuance of shares under stock plans 2,144,669 2 9,298 9,300 Repurchase and retirement of common stock (9,696,819) (10) (203,382) (203,392) Share-based compensation 14,221 14.221 Balances at December 31, 2017 132.450,092 $ 132 $ 620,788 $ 30,568 (784) $ 650,694 Net income 158,536 158,536 Other comprehensive income (loss) 1.918 1,918 Issuance of shares under stock plans 3,227,693 3 21,840 21,843 Repurchase and retirement of common stock (11,096,595) (11) (258,296) (258,307) Share-based compensation 14,512 14,512 Balances at December 30, 2018 124,581,190 $ 124 $ 657,140 $ (69,202) S 1,134 $ 589,196 SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) Year Ended December 30, December 31, January 1, 2018 2017 2017 $ 158,536 $ 158.440 $ 124,306 96,987 463 80,723 463 439 110.749 799 683 4.115 14,512 23,333 1,623 14,221 7,803 13,399 20,663 (7.666) (34,824) (2.908) (5.086) 4.366 3,039 24,731 294.379 (4.920) (25,079) (2.733) (114) 39,244 12,784 10.868 309,567 (4.803) (39,030) 1.419 13,018 22,118 2.142 19.494 254,351 Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expense Amortization of financing fees and debt issuance costs Loss on disposal of property and equipment Store closure and other costs Share-based compensation Deferred income taxes Changes in operating assets and liabilities: Accounts receivable Inventories Prepaid expenses and other current assets Other assets Accounts payable and other accrued liabilities Accrued salaries and benefits Other long-term liabilities Cash flows from operating activities Cash flows from investing activities Purchases of property and equipment Proceeds from sale of property and equipment Purchase of leasehold interests Cash flows used in investing activities Cash flows from financing activities Proceeds from revolving credit facilities Payments on revolving credit facilities Payments on capital and financing lease obligations Payments of deferred financing costs Cash from landlord related to capital and financing lease obligations Repurchase of common stock Proceeds from exercise of stock options Excess tax benefit for exercise of stock options Other Cash flows used in financing activities (Decrease) increase in cash, cash equivalents, and restricted cash Cash, cash equivalents, and restricted cash at beginning of the period Cash, cash equivalents, and restricted cash at the end of the period (177,083) (198,624) 30 (181.018) 706 1491 (180.803) (177.082) (198,594) 153,000 (60.000) (4.192) 105,000 (10,000) (4,364) 233,000 (128,000) (4.517) (2.131) 3.643 (258,307) 21,843 1,325 (203,392) 9,300 (294,265) 2740 3.737 (59) (134,528) (17.231) 19.479 2 248 $ (103,959) 7,014 12.466 19,479 $ (197,152) (123,604) 136,089 12,465 27.086 $ 15,527 20.759 $ 33.475 14.537 46,083 Supplemental disclosure of cash flow information Cash paid for interest Cash paid for income taxes Supplemental disclosure of non-cash investing and financing activities Property and equipment in accounts payable Property acquired through capital and financing lease obligations 12,001 $ 9,081 17,869 $ 23,882 23.228 4,332 SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Description of Business Sprouts Farmers Market, Inc., a Delaware corporation, through its subsidiaries, operates as a healthy grocery store that offers fresh, natural and organic food through a complete shopping experience that includes fresh produce, bulk foods, vitamins and supplements, packaged groceries, meat and seafood, baked goods, dairy products, frozen foods, beer and wine, natural body care and household items catering to consumers growing interest in health and wellness. As of December 30, 2018, the Company operated 313 stores in 19 states. For convenience, the "Company" is used to refer collectively to Sprouts Farmers Market, Inc. and, unless the context requires otherwise, its subsidiaries. The Company's store operations are conducted by its subsidiaries. 2. Basis of Presentation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries in accordance with accounting principles generally accepted in the United States of America ("GAAP"). All material intercompany accounts and transactions have been eliminated in consolidation. The Company has one reportable and one operating segment, healthy grocery stores. The Company categorizes the varieties of products it sells as perishable and non-perishable. Perishable product categories include produce, meat, seafood, deli, bakery, floral and dairy and dairy alternatives. Non-perishable product categories include grocery, vitamins and supplements, bulk items, frozen foods, beer and wine, and natural health and body care. The following is a breakdown of the Company's perishable and non-perishable sales mix: 2018 2011 2016 Perishables 57.5% 58.0% 58.1% Non-Perishables 42.5% 42.0% 41,9% All dollar amounts are in thousands, unless otherwise indicated. Certain prior period amounts have been reclassified, such as those relating to store occupancy, buying, direct store expenses, pre-opening expenses and depreciation and amortization (exclusive of depreciation included in cost of sales), due to the Company's change in accounting principle in fiscal 2018. See Note 3, "Significant Accounting Policies" for further information. 3. Significant Accounting Policies Fiscal Years The Company reports its results of operations on a 52- or 53-week fiscal calendar ending on the Sunday closest to December 31. Fiscal year 2018 ended on December 30, 2018 and included 52-weeks. Fiscal year 2017 ended on December 31, 2017 and included 52-weeks, fiscal year 2016 ended on January 1, 2017 and included 52-weeks. Fiscal years 2018, 2017, and 2016 are referred to as 2018, 2017, and 2016, respectively