Sprouts Farmers Market 2014 Annual Report Download - page 34

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included elsewhere in this Annual Report on Form 10-K, but are not reflected as liabilities on our
consolidated balance sheets. During fiscal 2014, our rent expense charged under operating leases was
approximately $72.9 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. 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.
We incur substantial costs as a result of being a public company.
As a public company, we are subject to public company reporting obligations under the Exchange Act,
and the rules and regulations regarding corporate governance practices, including those under the
Sarbanes-Oxley Act of 2002 (referred to as the “Sarbanes-Oxley Act”), the Dodd-Frank Act of 2010, and
the listing requirements of NASDAQ Global Select Market. We incur significant legal, accounting, and other
expenses as a public company, including costs resulting from our public company reporting obligations and
maintenance of corporate governance practices. Our management and other personnel devote a
substantial amount of time to ensure that we comply with all of these requirements. The reporting
requirements, rules, and regulations require substantial legal and financial compliance costs and will make
some activities more time-consuming and costly than when we were a private company.
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