Sprouts Farmers Market 2013 Annual Report Download - page 123

Table of Contents
A valuation allowance is established for deferred tax assets if it is more likely than not that these items will either expire before
the Company is able to realize their benefits, or that the realization of future deductions is uncertain.
If realized, $3.6 million of net operating loss carry forwards will be recognized as a benefit through additional paid-in capital.
Management performs an assessment over future taxable income to analyze whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences become deductible. The Company has evaluated all
available positive and negative evidence and believes it is probable that the deferred tax assets will be realized and has not
recorded a valuation allowance against the Company’s deferred tax assets as of December 29, 2013 and December 30, 2012.
At December 29, 2013 and December 30, 2012, the Company has approximately $36.6 million and $28.4 million of federal net
operating loss carryforwards, respectively, which are available to offset future federal taxable income from 2028 through 2033. The
Company has net operating loss carryforwards for state income tax purposes of $8.4 million and $7.8 million as of December 29,
2013 and December 30, 2012, respectively, which are available to offset future state taxable income from 2014 through 2033. The
utilization of certain of the Company’s net operating loss carryforwards may be limited in a given year. The Company has
alternative minimum tax credits of $0.4 million which are available to offset future income taxes. These credits have no expiration
date. The Company has general business credits of $1.0 million which are available to offset future income taxes until 2032 through
2033.
Federal tax laws impose restrictions on the utilization of net operating loss carryforwards and tax credit carryforwards in the
event of an “ownership change,” as defined by federal income tax code. Such an ownership change occurred on May 29, 2012,
concurrent with the acquisition of Sunflower. The Company’s ability to utilize net operating loss carryforwards and tax credit
carryforwards is subject to restrictions pursuant to these provisions. Utilization of the federal net operating loss and tax credits will
be limited annually and any unused limitation in a given year may be carried forward to the next year.
In September 2013 the Internal Revenue Service issued final regulations related to tangible property, which govern when a
taxpayer must capitalize or deduct expenses for acquiring, maintaining, repairing and replacing tangible property. The regulations
are effective for tax years beginning January 1, 2014, however early adoption is permitted. The Company has analyzed the impacts
of the tangible property regulations, and has determined we are in compliance with the regulations. The adoption of the regulations
will not have a significant effect on the Company
’s consolidated financial statements.
The Company applies the authoritative accounting guidance under ASC 740 for the recognition, measurement, classification
and disclosure of uncertain tax positions taken or expected to be taken in a tax return.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
118
As Of
December 29,
2013
December 30,
2012
January 1,
2012
Beginning balance $
150
$ — $
307
Additions based on tax positions related
to the current year
260
150
—
Reductions for tax positions of prior years
— — (
307
)
Net deferred tax asset (liability) $
410
$
150
$ —