Sprouts Farmers Market 2013 Annual Report Download - page 84

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. Our
indefinite-lived intangible assets consist of trade names related to “Sprouts Farmers Market” and liquor licenses. We also hold
intangible assets with finite useful lives, consisting of favorable and unfavorable leasehold interests and the “Sunflower Farmers
Market” trade name.
Goodwill and indefinite-
lived intangible assets are evaluated for impairment on an annual basis during the fourth fiscal quarter,
or more frequently if events or changes in circumstances indicate that the asset might be impaired. Our 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 this qualitative assessment indicates it is more likely than not the estimated fair value of a reporting unit
exceeds its carrying value, no further analysis is required and goodwill is not impaired. Otherwise, we follow a two-step quantitative
goodwill impairment test to determine if goodwill is impaired. The first step of the goodwill impairment test compares the fair value
of a reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying value no
further analysis or impairment of goodwill is required. If the carrying value of a 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. Our qualitative assessment considered factors including changes in the competitive
market, budget-to-actual performance, trends in market capitalization for us and our peers, lack of turnover in key management
personnel and overall changes in macroeconomic environment.
Our impairment evaluation for our indefinite-lived intangible assets consists of a qualitative assessment similar to that for
goodwill. If our 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, we compare 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.
We can elect to bypass the qualitative assessments 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. We can resume the qualitative
assessment approach in future periods.
We have determined we consist of a single reporting unit. We determine the fair value of the reporting unit and indefinite-lived
intangible assets using the income approach methodology of valuation that includes the discounted cash flow method as well as
other generally accepted valuation methodologies. Significant estimates and assumptions are made in connection with the
estimated reporting unit fair value, including projected cash flows, the timing of projected cash flows and applicable discount rates.
These estimates and assumptions are generally Level 3 inputs because they are not observable. In the event actual results vary
from our estimates and assumptions, or if we change our estimates and assumptions, we may be required to record a goodwill
impairment charge.
No impairment of goodwill or indefinite-lived intangible assets was recorded during fiscal 2013, 2012, or 2011 because the fair
value of those assets was substantially above carrying value.
Impairment of Long-Lived Assets
We assess our long-lived assets, including property and finite-
lived equipment and intangible assets, for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. We group and
evaluate long-lived assets for impairment at the individual store level, which is the lowest level at which independent identifiable
cash flows are available. Factors for impairment include a significant underperformance relative to expected historical
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