Sprouts Farmers Market 2015 Annual Report Download - page 76

Download and view the complete annual report

Please find page 76 of the 2015 Sprouts Farmers Market annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 114

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114

68
Debt”), deferred financing costs are amortized on a straight line basis over the term of the facility. Upon
prepayment, redemption or conversion of debt, the Company accelerates the recognition of an
appropriate amount of financing costs as loss on extinguishment of debt. The current and noncurrent
portions of deferred financing costs are included in Prepaid expenses and other current assets and Other
assets, respectively, in the accompanying consolidated balance sheets.
Operating Leases
The Company leases certain stores, warehouse facilities and administrative offices under operating
leases.
Incentives received from lessors are deferred and recorded as a reduction of rental expense over
the lease term using the straight-line method. The current portion of unamortized lease incentives is
included in Other accrued liabilities and the noncurrent portion is included in Other long-term liabilities in
the accompanying consolidated balance sheets.
Store lease agreements generally include rent abatements and rent escalation provisions and may
include contingent rent provisions based on a percentage of sales in excess of specified levels. The
Company recognizes escalations of minimum rents and/or abatements as deferred rent and amortizes
these balances on a straight-line basis over the term of the lease.
For lease agreements that require the payment of contingent rents based on a percentage of sales
above stipulated minimums, the Company begins accruing an estimate for contingent rent when it is
determined that it is probable the specified levels of sales in excess of the stipulated minimums will be
reached during the year. The Company expensed $1.8 million, $1.6 million and $1.4 million for the years
ended January 3, 2016, December 28, 2014 and December 29, 2013, respectively, for contingent rent.
Financing Lease Obligations
The Company has recorded financing lease obligations for 38 store building leases at both January
3, 2016 and December 28, 2014. In each case, the Company was deemed to be the owner during the
construction period under lease accounting guidance. Further, each lease contains provisions indicating
continuing involvement with the property at the end of the construction period, which include either an
affiliate guaranty or contingent collateral. As a result, in accordance with applicable accounting guidance,
buildings and related assets subject to the leases are reflected on the Company’s balance sheets and
depreciated over their remaining useful lives. The present value of the lease payments associated with
these buildings is recorded as financing lease obligations.
At January 3, 2016, the Company also recorded current financing lease obligations and related
construction in progress for two stores under the lease accounting guidance noted above. However, the
Company expects that there will be no continuing involvement provisions in effect at the end of the
construction period and therefore will be able to remove the asset and the corresponding financing lease
obligations at the end of the construction periods for the stores during 2016.
At December 28, 2014 the Company also recorded a current financing lease obligation and related
construction in progress totaling $25.0 million for one of its administrative facilities under the lease
accounting guidance noted above. However, the Company concluded there were no continuing
involvement provisions in effect at the end of the construction period and removed the asset and
corresponding financing lease obligation at the end of the construction period in the first quarter of fiscal
2015.
Monthly lease payments are allocated between the land element of the lease (which is accounted
for as an operating lease) and the financing obligation. The financing obligation is amortized using the
effective interest method and the interest rate is determined in accordance with the requirements of sale-
leaseback accounting. Lease payments less the portion allocated to the land element of the lease and