Sprouts Farmers Market 2013 Annual Report Download - page 100

Table of Contents
Goodwill and Intangible Assets
Goodwill represents the cost of acquired businesses in excess of the fair value of assets and liabilities acquired. The
Company’s indefinite-lived intangible assets consist of trade names related to “Sprouts Farmers Market” and liquor licenses. The
Company also holds intangible assets with finite useful lives, consisting of favorable and unfavorable leasehold interests and the
“Sunflower Farmers Market” trade name.
Goodwill is evaluated for impairment on an annual basis on the first day of the fourth fiscal quarter or more frequently if events
or changes in circumstances indicate that the asset might be impaired. The Company’s impairment evaluation of goodwill consists
of a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying
amount. If the Company’s qualitative assessment indicates it is more likely than not that the estimated fair value of a reporting unit
exceeds its carrying value, no further analysis is required and goodwill is not impaired. Otherwise, the Company follows a two-step
quantitative goodwill impairment test to determine if goodwill is impaired. The first step of the quantitative goodwill impairment test
compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of the Company’s reporting
unit exceeds its carrying value, no further analysis or impairment of goodwill is required. If the carrying value of the Company’s
reporting unit exceeds its fair value, the fair value of the reporting unit would be allocated to the reporting unit’
s assets and liabilities
based on the relative fair value, with goodwill written down to its implied fair value, if necessary.
Indefinite-lived assets are evaluated for impairment on an annual basis on the first day of the fourth fiscal quarter or more
frequently if events or changes in circumstances indicate that the asset might be impaired. The Company’s impairment evaluation
for its indefinite-lived intangible assets consists of a qualitative assessment similar to that for goodwill. If the Company’s qualitative
assessment indicates it is more likely than not that the estimated fair value of an indefinite-lived intangible asset exceeds its
carrying value, no further analysis is required and the asset is not impaired. Otherwise, the Company compares the estimated fair
value of the asset to its carrying amount with an impairment loss recognized for the amount, if any, by which carrying value exceeds
estimated fair value.
The Company can elect to bypass the qualitative assessments approach for goodwill and indefinite-
lived intangible assets and
proceed directly to the quantitative assessments for goodwill or any indefinite-lived intangible assets in any period. The Company
can resume the qualitative assessment approach in future periods.
The Company has determined its business consists of a single reporting unit. When applying the quantitative test, the
Company determines the fair value of its reporting unit using the income approach methodology of valuation that includes the
discounted cash flow method as well as other generally accepted valuation methodologies.
The Company completed its goodwill and indefinite-lived intangible asset impairment evaluations as of the first day of the
fourth quarter and concluded during 2013, 2012 and 2011 that there was no impairment. The Company also concluded that events
and circumstances continued to support classifying its indefinite-lived intangible assets as such. See Note 8, “Intangible Assets”
and Note 9, “Goodwill” for further discussion.
Prior to the Henry’s Transaction, the trade names related to “Henry’s Farmers Markets” were accounted for as finite-lived
intangible assets and amortized on a straight-
line basis over an estimated useful life of 20 years. As a result of the rebranding of the
“Henry’s Farmers Markets” locations as “Sprouts Farmers Market” locations following the Henry’s Transaction, the estimated
remaining useful lives of these trade names were re-evaluated and amortization was accelerated through the end of
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