Sprouts Farmers Market 2013 Annual Report Download - page 85

Table of Contents
or projected future operating results or a significant negative industry or economic trend. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be
generated by the asset. If impairment is indicated, a loss is recognized for any excess of the carrying value over the estimated fair
value of the asset group. The fair value is estimated based on discounted future cash flows or comparable market values, if
available.
When assessing the recoverability of our long-lived assets, we make assumptions regarding estimated future cash flows from
the use and eventual disposition of the asset groups. We base our estimates on historical experience and projections, and consider
recent economic and competitive trends. In the event that our estimates or assumptions change in the future, we may be required
to record a long-lived asset impairment charge. We did not record any impairment loss during fiscal 2013, 2012 or, 2011.
Income Taxes
Until the closing date of the Henry’s Transaction, Henry’s was not a separate tax-paying entity. Henry’s was included in its
parent’s consolidated federal and certain state income tax groups for income tax reporting purposes. For the period through such
closing date, 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 Henry’s identifiable assets and liabilities with the
residual assigned to tax deductible goodwill. The resulting basis differences between the new tax values and historical book
amounts resulted in a deferred tax asset of $47.6 million being recorded through stockholders’ equity.
In May 2012, we 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 values resulted in
net deferred tax assets of $1.9 million being recorded through goodwill.
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. We recognize the effect of 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. We record interest and penalties related to unrecognized tax benefits as part of income tax expense.
During the ordinary course of business, there are many transactions and calculations for which the ultimate tax settlement is
uncertain. Under applicable accounting guidance, we are required to evaluate the realizability of our deferred tax assets. The
realization of our deferred tax assets is dependent on future earnings. Applicable accounting guidance requires that a valuation
allowance be recognized when, based on available evidence, it is more likely than not that all or a portion of deferred tax assets will
not be realized due to the inability to generate sufficient taxable income in future periods. In circumstances where there is
significant negative evidence, establishment of a valuation allowance
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