Sprouts Farmers Market 2014 Annual Report Download - page 83

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 2014, 2013 and 2012 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.
The trade name related to “Sunflower Farmers Market” meets the definition of a defensive intangible
asset and is amortized on a straight line basis over an estimated useful life of 10 years from the date of its
acquisition by the Company. Favorable and unfavorable leasehold interests are amortized on a straight-line
basis over the lease term.
Impairment of Long-Lived Assets
The Company assesses its long-lived assets, including property and equipment and finite-lived
intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset group may not be recoverable. The Company groups and evaluates long-lived assets
for impairment at the individual store level, which is the lowest level at which independent identifiable cash
flows are available. Factors which may indicate potential impairment include a significant
underperformance relative to the historical or projected future operating results of the store 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 that 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 the discounted
future cash flows or comparable market values, if available. The Company did not record any impairment
loss during 2014, 2013 and 2012.
Deferred Financing Costs
The Company capitalizes certain fees and costs incurred in connection with the issuance of debt.
Deferred financing costs are amortized to interest expense over the term of the debt using the effective
interest method. For the Revolving Credit Facility, deferred financing costs are amortized on a straight line
basis over the term of the facility. Upon prepayment, redemption or conversion of debt, the Company
accelerates the recognition of an appropriate amount of financing costs as loss on extinguishment of debt.
The current and noncurrent portions of deferred financing costs are included in Prepaid expenses and
other current assets and Other assets, respectively, in the consolidated balance sheets.
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