Sprouts Farmers Market 2015 Annual Report Download - page 59

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51
we will receive $1.5 million for the period of less than one year, $2.3 million for years one to three,
$1.3 million for years four to five, and $1.3 million for the period beyond five years.
(4) Consists primarily of open purchase orders and commitments under noncancelable service and
supply contracts as of January 3, 2016.
(5) As of January 3, 2016, we had recorded $32.8 million of liabilities related to our self-insurance
program. Self-insurance liabilities are not included in the table above because the payments are not
contractual in nature and the timing of the payments is uncertain.
The contractual commitment amounts in the table above are associated with agreements that are
enforceable and legally binding. Obligations under contracts that we can cancel without a significant
penalty are not included in the table above.
We periodically make other commitments and become subject to other contractual obligations that
we believe to be routine in nature and incidental to the operation of the business. Management believes
that such routine commitments and contractual obligations do not have a material impact on our
business, financial condition or results of operations.
Off-Balance Sheet Arrangements
We do not engage in any off-balance sheet financing activities, nor do we have any interest in
entities referred to as variable interest entities.
Impact of Inflation
Inflation and deflation in the prices of food and other products we sell may periodically affect our
sales, gross profit and gross margin. The short-term impact of inflation and deflation is largely dependent
on whether or not the effects are passed through to our customers, which is subject to competitive market
conditions.
Food inflation and deflation is affected by a variety of factors and our determination of whether to
pass on the effects of inflation or deflation to our customers is made in conjunction with our overall pricing
and marketing strategies. Although we may experience periodic effects on sales, gross profit and gross
margins as a result of changing prices, we do not expect the effect of inflation or deflation to have a
material impact on our ability to execute our long-term business strategy.
Seasonality
Our business is subject to modest seasonality. Our average weekly sales per store fluctuate
throughout the year and are typically highest in the first half of the fiscal year. Produce, which contributed
approximately 25% of our net sales for 2015, is generally more available in the first six months of our
fiscal year due to the timing of peak growing seasons.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our
financial statements, which have been prepared in accordance with GAAP. These principles require us to
make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses,
cash flow and related disclosure of contingent assets and liabilities. Our estimates include, but are not
limited to, those related to inventory, lease assumptions, self-insurance reserves, sublease assumptions
for closed stores, goodwill and intangible assets, impairment of long-lived assets, fair values of equity-
based awards and income taxes. We base our estimates on historical experience and on various other