Sprouts Farmers Market 2013 Annual Report Download - page 36

Table of Contents
consolidated balance sheets. The proposed changes to ASC 840 would require that substantially all operating leases be
recognized as assets and liabilities on our balance sheet. The right to use the leased property would be capitalized as an asset and
the present value of future lease payments would be accounted for as a liability. However, as the standard-setting process is still
ongoing, we are unable to determine the impact this proposed change in accounting standards will have on our consolidated
financial statements.
Legal proceedings could materially impact our business, financial condition and results of operations.
Our operations, which are characterized by a high volume of customer traffic and by transactions involving a wide variety of
product selections, carry a higher exposure to consumer litigation risk when compared to the operations of companies operating in
some other industries. Consequently, we may be a party to individual personal injury, product liability, intellectual property,
employment-related and other legal actions in the ordinary course of our business, including litigation arising from food-related
illness. The outcome of litigation, particularly class action lawsuits, is difficult to assess or quantify. Plaintiffs in these types of
lawsuits may seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such
lawsuits may remain unknown for substantial periods of time. While we maintain insurance, insurance coverage may not be
adequate, and the cost to defend against future litigation may be significant. There may also be adverse publicity associated with
litigation that may decrease consumer confidence in our business, regardless of whether the allegations are valid or whether we are
ultimately found liable. As a result, litigation may materially adversely affect our business, financial condition, and results of
operations.
Claims under our insurance plans may differ from our estimates, which could materially impact our results of operations.
We use a combination of insurance and self-insurance plans to provide for the potential liabilities for workers’ compensation,
general liability (including, in connection with legal proceedings described under “—Legal proceedings could materially impact our
business, financial condition and results of operations” above), property insurance, director and officers’ liability insurance, vehicle
liability and team member health-care benefits. Liabilities associated with the risks that are retained by us are estimated, in part, by
considering historical claims experience, demographic factors, severity factors and other actuarial assumptions. Our results could
be materially impacted by claims and other expenses related to such plans if future occurrences and claims differ from these
assumptions and historical trends.
Our high level of fixed lease obligations could adversely affect our financial performance.
Our high level of fixed lease obligations will require us to use a portion of cash generated by our operations to satisfy these
obligations, and could adversely impact our ability to obtain future financing, if required, to support our growth or other operational
investments. We will require substantial cash flows from operations to make our payments under our operating leases, all of which
provide for periodic increases in rent. If we are not able to make the required payments under the leases, the lenders or owners of
the relevant stores, distribution centers or administrative offices may, among other things, repossess those assets, which could
adversely affect our ability to conduct our operations. In addition, our failure to make payments under our operating leases could
trigger defaults under other leases or under agreements governing our indebtedness, which could cause the counterparties under
those agreements to accelerate the obligations due thereunder.
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