Sprouts Farmers Market 2013 Annual Report Download - page 105

Table of Contents
The Company recorded a $1.0 million loss on extinguishment of debt in 2012 as a result of the renegotiation of a store lease
that was classified as a financing lease obligation.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. The Company’s deferred tax assets are subject to periodic recoverability
assessments. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount that more likely
than not will be realized. Realization of the deferred tax assets is principally dependent upon achievement of projected future
taxable income offset by deferred tax liabilities. Changes in recognition or measurement are reflected in the period in which the
judgment occurs. Since becoming a taxable corporation in April 2011, the Company has not recorded any valuation allowances to
date on the Company’s deferred income tax assets.
The Company recognizes the effect of uncertain income tax positions only if those positions are more likely than not of being
sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized.
Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records
interest and penalties related to unrecognized tax benefits as part of income tax expense.
From a tax perspective, in April 2011, the Company acquired Henry’s. Until April 18, 2011, Henry’s was not a separate tax-
paying entity. Henry’s was included in the S&F consolidated federal and certain state income tax groups for income tax reporting
purposes. For the period through April 17, 2011, the consolidated financial statements have been prepared on the basis as if
Henry’s prepared its tax returns and accounted for income taxes on a separate-company basis. As a result of the Henry’s
Transaction, for tax purposes, Henry’s was acquired in a taxable asset acquisition. The purchase price was allocated to all
identifiable assets with the residual assigned to tax deductible goodwill. The resulting basis differences between the new tax values
and historical amounts resulted in a deferred tax asset of $47.6 million being recorded through membership equity. See Note 18,
“Income Taxes” for a discussion of the tax deductibility of goodwill.
In May 2012, the Company completed the acquisition of a 100% ownership interest in Sunflower. The acquisition was
structured to be a tax-free reorganization. The tax basis of the property acquired in reorganization is equal to the basis in the
property recorded by Sunflower just prior to the acquisition. The resulting basis difference between the historical tax amounts and
the fair values resulted in net deferred tax assets of $1.9 million being recorded through goodwill.
Net Income (Loss) per Share
Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares
outstanding during the fiscal period.
Diluted net income (loss) per share is based on the weighted average number of shares outstanding, plus, where applicable,
shares that would have been outstanding related to dilutive options.
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