Sprouts Farmers Market 2013 Annual Report Download - page 35

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Table of Contents
time consuming and costly to defend and may distract management’s attention and resources, even if the claims are without merit.
Such claims may also require us to enter into costly settlement or license agreements (which could, for example, prevent us from
using our trademarks in certain geographies or in connection with certain products and services), pay costly damage awards, and
face a temporary or permanent injunction prohibiting us from marketing or providing the affected products and services, any of
which could have a material adverse effect on our business.
Changes in accounting standards may materially impact reporting of our financial condition and results of operations.
Accounting principles generally accepted in the United States and related accounting pronouncements, implementation
guidelines, and interpretations for many aspects of our business, such as accounting for inventories, goodwill and intangible assets,
store closures, leases, insurance, income taxes, stock-based compensation and accounting for mergers and acquisitions, are
complex and involve subjective judgments. Changes in these rules or their interpretation may significantly change or add significant
volatility to our reported earnings without a comparable underlying change in cash flow from operations. As a result, changes in
accounting standards may materially impact our reported financial condition and results of operations.
Specifically, proposed changes to financial accounting standards could require such leases to be recognized on our balance
sheet. In addition to our indebtedness, we have significant obligations relating to our current operating leases. All of our existing
stores are subject to leases, which have average remaining terms of nine years and, as of December 29, 2013, we had
undiscounted operating lease commitments of approximately $915 million, scheduled through 2032, related primarily to our stores,
including stores that are not yet open. These commitments represent the minimum lease payments due under our operating leases,
excluding common area maintenance, insurance and taxes related to our operating lease obligations, and do not reflect fair market
value rent reset provisions in the leases. These leases are classified as operating leases and disclosed in Note 20 to our
consolidated financial statements included elsewhere in this Annual Report on Form 10-K, but are not reflected as liabilities on our
consolidated balance sheets. During fiscal 2013, our rent expense charged under operating leases was approximately $64.7
million.
The Financial Accounting Standards Board (referred to as “FASB”)
is currently working on amendments to existing accounting
standards governing a number of areas including, but not limited to, accounting for leases. In May 2013, the FASB issued a new
exposure draft, Leases (referred to as the “Exposure Draft”), which would replace the existing guidance in Accounting Standards
Codification 840 (referred to as “ASC 840”), Leases (formerly Statement of Financial Accounting Standards 13, Accounting for
Leases). Under the Exposure Draft, among other changes in practice, a lessee’s rights and obligations under most leases,
including existing and new arrangements, would be recognized as assets and liabilities, respectively, on the balance sheet. Other
significant provisions of the Exposure Draft include (i) defining the “lease term” to include the noncancellable period together with
periods for which there is a significant economic incentive for the lessee to extend or not terminate the lease; (ii) defining the initial
lease liability to be recorded on the balance sheet to contemplate only those variable lease payments that depend on an index or
that are in substance “fixed;” and (iii) a dual approach for determining whether lease expense is recognized on a straight-line or
accelerated basis, depending on whether the lessee is expected to consume more than an insignificant portion of the leased
asset’s economic benefits. The comment period for the Exposure Draft ended on September 13, 2013. If and when effective, this
Exposure Draft will likely have a significant impact on our consolidated financial statements, as a majority of our store leases have
been classified as operating leases, which results in rental payments being charged to expense over the terms of the related
leases. Additionally, operating leases are not reflected in our consolidated balance sheets, which means that neither a leased asset
nor an obligation for future lease payments is reflected in our
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