Sprouts Farmers Market 2014 Annual Report Download - page 87

Store Pre-Opening Costs
Store pre-opening costs include rent expense during construction of new stores and costs related to
new store openings, including costs associated with hiring and training personnel and other miscellaneous
costs. Store pre-opening costs are expensed as incurred.
Loss on Extinguishment of Debt
In 2014, the Company made a voluntary principal payment of $50.0 million and wrote-off $1.1 million
of deferred financing costs and original issue discount related to that portion of the Term Loan.
In 2013, the Company recorded a loss on extinguishment of debt totaling $18.2 million primarily
related to the write-off of deferred financing costs and issue discount. These write-offs included $1.0 million
related to a partial repayment of our Term Loan, $9.0 million related to the August 2013 pay down of debt
using proceeds from our IPO and $8.2 million related to the April 2013 Refinancing as defined in Note 13.
Additionally, loss on extinguishment of debt for 2013 includes $0.5 million related to the renewal of a
financing lease.
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 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.
In May 2012, the Company completed the acquisition of a 100% ownership interest in Sunflower. The
acquisition was structured as 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 per Share
Basic net income per share is calculated by dividing net income by the weighted average number of
shares outstanding during the fiscal period.
Diluted net income 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 and RSUs.
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